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UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, DC 20549


Form 10-K


|   |  |                                                                                             
|-- |  | --------------------------------------------------------------------------------------------
|þ  |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|  
|   |  | For the Fiscal Year ended December 31,
    2003                                             
|or
|  
|o  |  | TRANSITION REPORT PURSUANT TO SECTION 13
    OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|  
|   |  | For the transition period
    from          to                                              

Commission File No. 1-14164

Hollinger International Inc.


(Exact name of registrant as specified in its
charter)


|                                                                                    |  |                                                       
|----------------------------------------------------------------------------------- |  | ------------------------------------------------------
|Delaware(State or other jurisdiction of
    incorporation or organization)          |  | 95-3518892(I.R.S. Employer
     Identification Number)
|712 Fifth Avenue,
    New York, New York(Address of Principal Executive
    Office) |  | 10019(Zip Code)                                       

Registrants telephone number, including
area code

(212) 586-5666


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
    8 5/8% Senior Notes due 2005
    9% Senior Notes due 2010 |  | New York Stock Exchange
    New York Stock Exchange
    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 o         No þ

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

Indicate by check mark whether the registrant is
an accelerated filer (as defined in the Securities Exchange Act
of 1934
Rule 12b-2)    Yes þ         No o

The aggregate market value of Class A Common
Stock held by non-affiliates as of June 30, 2003, was
approximately $644,988,310 determined using the closing price
per share on that date of $10.77, as reported on the New York
Stock Exchange. 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 December 31, 2004
was as follows: 75,687,055 shares of Class A Common
Stock and 14,990,000 shares of Class B Common Stock.



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##### Table of Contents



EXPLANATORY NOTE

The Company is filing this annual report on
Form 10-K for the fiscal year ended December 31, 2003
following its review of the report of the Special Committee of
Independent Directors (the Special Committee). The
Companys Board of Directors formed the Special Committee
on June 17, 2003 to investigate, among other things,
allegations described in a beneficial ownership report on
Schedule 13D filed with the SEC by Tweedy,
Browne & Company, LLC (Tweedy Browne), an
unaffiliated stockholder of the Company, on May 19, 2003,
as amended on June 11, 2003, and any other matters the
Special Committee determined should be investigated. The Special
Committee filed its report with the U.S. District Court for
the Northern District of Illinois on August 30, 2004. The
Company included the full text of the report as an exhibit to a
current report on Form 8-K filed with the Securities and
Exchange Commission (SEC) on August 31, 2004,
as amended by a current report on Form 8-K/A filed with the
SEC on December 15, 2004.

The Company previously made public its need to
review the Special Committees report before it could
complete its annual report on Form 10-K for the year ended
December 31, 2003. The Company expects to file, within a
reasonable time, quarterly reports on Form 10-Q for the
periods ended March 31, 2004, June 30, 2004 and
September 30, 2004 and the required pro forma financial
information reflecting the sale of Telegraph Group Limited on a
current report on Form 8-K.

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TABLE OF CONTENTS

HOLLINGER INTERNATIONAL INC.

2003 FORM 10-K

|                                              |          |  |                                                                                                                          |      |  |     | 
|--------------------------------------------- | -------- |  | ------------------------------------------------------------------------------------------------------------------------ | ---- |  | --- | 
|                                              |          |  |                                                                                                                          | Page
|                                              |          |  |                                                                                                                          |     
|PART I                                        |          |  |                                                                                                                          |      |  |    
|                                              | Item 1.  |  | Business                                                                                                                 |      |  | 4   | 
|                                              | Item 2.  |  | Properties                                                                                                               |      |  | 36  | 
|                                              | Item 3.  |  | Legal Proceedings                                                                                                        |      |  | 38  | 
|                                              | Item 4.  |  | Submission of Matters to a
    Vote of Security Holders                                                                  |      |  | 45  | 
|                                             
|PART II                                       |          |  |                                                                                                                          |      |  |    
|                                              | Item 5.  |  | Market for the
    Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities |      |  | 46  | 
|                                              | Item 6   |  | Selected Financial Data                                                                                                  |      |  | 48  | 
|                                              | Item 7.  |  | Managements Discussion
    and Analysis of Financial Condition and Results of Operations                                |      |  | 56  | 
|                                              | Item 7A. |  | Quantitative and Qualitative
    Disclosure about Market Risk                                                            |      |  | 84  | 
|                                              | Item 8.  |  | Financial Statements and
    Supplementary Data                                                                          |      |  | 85  | 
|                                              | Item 9.  |  | Changes in and Disagreements
    with Accountants on Accounting and Financial Disclosure                                 |      |  | 85  | 
|                                              | Item 9A. |  | Controls and Procedures                                                                                                  |      |  | 85  | 
|                                              | Item 9B. |  | Other Information                                                                                                        |      |  | 88  | 
|                                             
|PART III                                      |          |  |                                                                                                                          |      |  |    
|                                              | Item 10. |  | Directors and Executive
    Officers of the Registrant                                                                   |      |  | 89  | 
|                                              | Item 11. |  | Executive Compensation                                                                                                   |      |  | 92  | 
|                                              | Item 12. |  | Security Ownership of
    Certain Beneficial Owners and Management and Related Stockholder
    Matters                   |      |  | 103 | 
|                                              | Item 13. |  | Certain Relationships and
    Related Transactions                                                                       |      |  | 105 | 
|                                              | Item 14. |  | Principal Accountant Fees
    and Services                                                                               |      |  | 115 | 
|                                             
|PART IV                                       |          |  |                                                                                                                          |      |  |    
|                                              | Item 15. |  | Exhibits, Financial
    Statement Schedules, and Reports on Form 8-K                                                     |      |  | 116 | 
|EX-3.1: RESTATED CERTIFICATE OF INCORPORATION
|EX-3.2: BYLAWS                               
|EX-10.1: STOCK PURCHASE AGREEMENT            
|EX-10.2: FACILITATION AGREEMENT              
|EX-10.19: BUSINESS OPPORTUNITIES AGREEMENT   
|EX-10.20: RELEASE AND SETTLEMENT AGREEMENT   
|EX-10.21: OPTION EXERCISE AGREEMENT          
|EX-10.22: CONSULTING AGREEMENT               
|EX-10.23: COMPROMISE AGREEMENT               
|EX-10.24: DEFERRED STOCK UNIT AGREEMENT      
|EX-10.25: SUMMARY OF PRINCIPLE TERMS         
|EX-10.26: NOTICE TO OPTION PLAN PARTICIPANTS 
|EX-21.1: SIGNIFICANT SUBSIDIARIES            
|EX-23.1: CONSENT OF KPMG LLP                 
|EX-31.1: CERTIFICATION OF CEO                
|EX-31.2: CERTIFICATION OF CFO                
|EX-32.1: CERTIFICATION OF CEO                
|EX-32.2: CERTIFICATION OF CFO                



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##### Table of Contents



FORWARD-LOOKING STATEMENTS

This annual report on Form 10-K contains
forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, Section 21E
of the Securities Exchange Act of 1934 (the Exchange
Act) and the Private Securities Litigation Reform Act of
1995, that involve a number of risks and uncertainties. These
statements relate to future events or the Companys future
financial performance with respect to its financial condition,
results of operations, business plans and strategies, operating
efficiencies, competitive positions, growth opportunities, plans
and objectives of management, capital expenditures, growth and
other matters. These statements involve known and unknown risks,
uncertainties and other factors that may cause the actual
results, levels of activity, performance or achievements of the
Company or the newspaper industry to be materially different
from those expressed or implied by any forward-looking
statements. In some cases, you can identify forward-looking
statements by terminology such as may,
will, could, would,
should, expect, plan,
anticipate, intend, believe,
estimate, predict,
potential, pro forma, seek,
or continue or the negative of those terms or other
comparable terminology. These statements are only predictions
and such expectations may prove to be incorrect. Some of the
things that could cause the Companys actual results to
differ substantially from its current expectations are:



| |   |                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | changes in prevailing economic conditions,
    particularly in the target markets of the Companys
    newspapers;                                        
|
| |  | actions of the Companys controlling
    stockholder;                                                                                                     
|
| |  | continuing investigations by the SEC and other
    government agencies in the United States and Canada;                                                   
|
| |  | adverse developments in pending litigation
    involving the Company and its affiliates, directors and
    executive officers;                            
|
| |  | actions of competitors, including price changes
    and the introduction of competitive service offerings;                                                
|
| |  | changes in the preferences of readers and
    advertisers, particularly in response to the growth of
    Internet-based media;                            
|
| |  | the effects of changing cost or availability of
    raw materials, including changes in the cost or availability of
    newsprint and magazine body paper;
|
| |  | changes in laws or regulations, including changes
    that affect the way business entities are taxed;                                                    
|
| |  | changes in accounting principles or in the way
    such principles are applied; and                                                                       
|
| |  | other matters identified in Item
    1  Business  Risk Factors.                                                                                       

The Company does not undertake any obligation to
update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise, after the
date this Form 10-K is filed with the SEC. The Company does
not, nor does any other person, assume responsibility for the
accuracy and completeness of those statements. All of the
forward-looking statements are qualified in their entirety by
reference to the factors discussed under the caption Risk
Factors.

The Company cautions that the areas of risk
described above may not be exhaustive. The Company operates in a
continually changing business environment, and new risks emerge
from time to time. Management cannot predict such new risks, nor
can it assess either the impact, if any, of such risks on the
Companys businesses or the extent to which any risk or
combination of risks may cause actual results to differ
materially from those projected in any forward-looking
statements. In light of these risks, uncertainties and
assumptions, it should be kept in mind that events, trends or
financial performance described in any forward-looking statement
made in this annual report on Form 10-K might not occur.

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PART I






|        |         
|------- | --------
|Item 1. | Business

Overview

The Company is a leading publisher of
English-language newspapers in the United States and Canada. The
Company owns or has interests in over 200 publications,
including daily and non-daily newspapers, and magazines. The
Companys premier title is the Chicago Groups
Chicago Sun-Times, which has the second highest daily
readership and circulation of any newspaper in the Chicago
metropolitan area and had the eighth highest daily readership of
any metropolitan daily newspaper in the United States, as
reported in the 2003 Scarborough Report.

Unless the context requires otherwise, all
references herein to the Company are to Hollinger
International Inc., its predecessors and consolidated
subsidiaries, Publishing refers to Hollinger
International Publishing Inc., a wholly-owned subsidiary of the
Company, and Hollinger Inc. refers to the
Companys parent, Hollinger Inc. and its affiliates.



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

The Chicago Group consists of more than 100
newspapers in the greater Chicago metropolitan area. The Chicago
Groups primary newspaper is the Chicago Sun-Times,
which was founded in 1948 and is one of Chicagos most
widely read newspapers. The Chicago Sun-Timesis
published in a tabloid format and has the second highest daily
readership and circulation of any newspaper in the 16-county
Chicago metropolitan area, attracting approximately
1.6 million readers daily as reported in the 2003
Scarborough Report. The Chicago Group pursues a clustering
strategy in the greater Chicago metropolitan market, covering
all of Chicagos major suburbs as well as its surrounding
high growth counties. This strategy enables the Company to offer
joint selling programs to advertisers, thereby expanding
advertisers reach. For the year ended December 31,
2003, the Chicago Group had revenues of $450.8 million and
operating income of $24.5 million.



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

The Canadian Newspaper Group includes the
operations of Hollinger Canadian Publishing Holdings Co.
(HCPH Co.) that has an 87% interest in Hollinger
Canadian Newspapers, Limited Partnership (Hollinger
L.P.). HCPH Co. and Hollinger L.P. own numerous daily and
non-daily newspaper properties and Canadian trade magazines and
tabloids for the transportation, construction, natural resources
and manufacturing industries, among others. In addition, the
Canadian Newspaper Group administers the retirement plans, and
absorbs the costs related to post-retirement, post-employment
benefit and pension plans of certain retired employees of HCPH
Co. (successor of Southam Inc.). For the year ended
December 31, 2003, the Canadian Newspaper Group had
revenues of approximately $80.5 million and an operating
loss of approximately $5.0 million.

Recent Developments



| |                                                                                          
| | -----------------------------------------------------------------------------------------
| | Investigation of and Legal Proceedings
    Relating to Certain Related Party Transactions

Hollinger Inc., a Canadian publicly traded
company, directly or indirectly owns approximately 17.4% of the
equity and 66.8% of the voting interest in the Company. In
beneficial ownership reports filed with the SEC on
Schedule 13D, The Ravelston Corporation Limited
(Ravelston), a privately held Canadian company, and
Lord Conrad M. Black of Crossharbour (Black), a
Director and former Chairman and Chief Executive Officer of the
Company, claim beneficial ownership over Hollinger Inc.s
interests in the Company. Black also owns 600 shares of the
Companys Class A Common Stock directly. In addition,
Black claims beneficial ownership over 1,363,750 shares of
Class A Common Stock underlying stock options that Black
has alleged he exercised in February and April 2004. These
shares have not been issued by the Company, pending the outcome
of litigation involving the alleged option exercises. See
Item 3  Legal Proceedings 
Black v. Hollinger International Inc., filed on April 5,
2004.

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The above ownership figures are based on
75,687,055 shares of Class A Common Stock and
14,990,000 shares of Class B Common Stock outstanding
as of December 31, 2004 and beneficial ownership reports of
Hollinger Inc., Ravelston and Black filed with the SEC.
According to those reports, Hollinger Inc. owns directly or
indirectly, and Ravelston and Black claim beneficial ownership
over, all of the shares of Class B Common Stock
outstanding, each of which carries the right of 10 votes
per share.

On June 17, 2003, the Board of Directors
established a special committee of independent directors (the
Special Committee) to investigate, among other
things, certain allegations regarding various related party
transactions, including allegations described in a beneficial
ownership report on Schedule 13D filed with the SEC by
Tweedy Browne, an unaffiliated stockholder of the Company, on
May 19, 2003, as amended on June 11, 2003. In its
Schedule 13D report, Tweedy Browne made allegations with
respect to the terms of a series of transactions between the
Company and certain former executive officers and certain
current and former members of the Board of Directors, including
Black, F. David Radler (Radler), the
Companys former President and Chief Operating Officer,
J.A. Boultbee (Boultbee), a former Executive
Vice-President and a former member of the Board of Directors,
and Peter Y. Atkinson (Atkinson), a former Executive
Vice-President and a former member of the Board of Directors.
The allegations concern, among other things, payments received
directly or indirectly by such persons relating to
non-competition agreements arising from asset sales
by the Company, payments received by such persons under the
terms of management services agreements between the Company and
Ravelston, Ravelston Management Inc. (RMI), Moffat
Management Inc. (Moffat) and Black-Amiel Management
Inc. (Black-Amiel) and sales by the Company of
assets to entities with which such persons were affiliated. In
October 2003, the Special Committee found references to
previously undisclosed non-competition payments to
Hollinger Inc. while reviewing documents obtained from the
Company. The Special Committee also found information showing
that non-competition payments to Black, Radler,
Boultbee and Atkinson had been falsely described in, among other
filings, the Companys annual report on Form 10-K for
the fiscal year ended December 31, 2001 (the 2001
Form 10-K). The Special Committee and the Audit
Committee each conducted expedited investigations into these
matters.

On November 15, 2003, the Special Committee
and the Audit Committee disclosed to the Board of Directors the
preliminary results of their investigations. The committees
determined that a total of $32.2 million in payments
characterized as non-competition payments were made
by the Company without appropriate authorization by either the
Audit Committee or the full Board of Directors. Of the total
unauthorized payments, approximately $16.6 million was paid
to Hollinger Inc. in 1999 and 2000, approximately
$7.2 million was paid to each of Black and Radler in 2000
and 2001, and $602,500 was paid to each of Boultbee and Atkinson
in 2000 and 2001. As a consequence of these findings, the
Special Committee then entered into discussions with Black that
culminated in the Company and Black signing an agreement on
November 15, 2003 (the Restructuring
Agreement). The Restructuring Agreement provides for,
among other things, restitution by Hollinger Inc., Black,
Radler, Boultbee and Atkinson to the Company of the full amount
of the unauthorized payments, plus interest; the hiring by the
Board of Directors of Lazard Frères & Co. LLC and
Lazard & Co., Limited (collectively,
Lazard) as financial advisors to explore alternative
strategic transactions, including the sale of the Company as a
whole or the sale of its specific businesses (the
Strategic Process); and certain management changes,
including the retirement of Black as CEO and the resignations of
Radler, Boultbee and Atkinson. In addition, Black agreed, as the
majority stockholder of Hollinger Inc., that during the pendency
of the Strategic Process he would not support a transaction
involving ownership interests in Hollinger Inc. if such
transaction would negatively affect the Companys ability
to consummate a transaction resulting from the Strategic Process
unless the transaction were necessary to enable Hollinger Inc.
to avoid a material default or insolvency.

On November 19, 2003, Black retired as CEO
of the Company. Gordon Paris (Paris) became the
Companys Interim CEO upon Blacks retirement.
Effective November 16, 2003, Radler resigned as President
and Chief Operating Officer of the Company and as publisher of
theChicago Sun-Times, at which time Paris became Interim
President. On November 16, 2003, Radler and Atkinson also
resigned as members of the Board of Directors. The Company
terminated Boultbee as an officer on November 16, 2003. On
January 17, 2004, Black was removed as non-executive
Chairman of the Board of Directors and Paris was elected as
Interim Chairman on January 20, 2004. On March 5, 2004
Black was removed as Executive Chairman of the

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Telegraph Group Limited. On March 23, 2004,
Colson retired as Chief Operating Officer of the Company and
Chief Executive Officer of the Telegraph Group Limited in
accordance with the terms of his Compromise Agreement with the
Company. On April 27, 2004, Atkinson resigned as Executive
Vice President of the Company under the terms of his settlement
with the Company.


Although Radler was not a direct party to the
Restructuring Agreement, he has agreed to pay the amount
identified as attributable to him in the Restructuring
Agreement. Prior to the end of December 2003, Radler paid the
Company $850,000. During 2004, Radler paid an additional amount
of approximately $7.8 million, including interest of
$1.5 million.

Although Atkinson was not a direct party to the
Restructuring Agreement, he agreed to pay the amount identified
as attributable to him in the Restructuring Agreement. On
April 27, 2004, Atkinson and the Company entered into a
settlement agreement in which Atkinson has agreed to pay a total
amount of approximately $2.8 million, representing all
non-competition payments and payments under the
incentive compensation plan of Hollinger Digital LLC
(Hollinger Digital) that he received, plus interest.
The total amount of $2.8 million includes approximately
$603,000 identified as attributable to Atkinson in the
Restructuring Agreement. Prior to the end of December 2003,
Atkinson paid the Company $350,000. On April 27, 2004,
Atkinson exercised his vested options and the net proceeds of
$4.0 million from the sale of the underlying shares of
Class A Common Stock were deposited into an escrow account.
Upon the approval of the terms of the settlement agreement by
the Court of Chancery in the State of Delaware (the
Delaware Chancery Court), the Company will receive
$2.4 million. Included in the $2.4 million is
approximately $253,000 which represents the balance identified,
before interest, as attributable to Atkinson at
December 31, 2003 in the Restructuring Agreement. On
April 27, 2004, the Company entered into a consulting
agreement with Atkinson. See Item 13 
Certain Relationships and Related Transactions 
Release and Settlement Agreement with Atkinson
and Consulting Agreement with
Atkinson.

By Order and Judgment dated June 28, 2004,
the Delaware Chancery Court found, among other things, that
Black and Hollinger Inc. breached their respective obligations
to make restitution pursuant to the Restructuring Agreement and
ordered, among other things, that Black and Hollinger Inc. pay
the Company $29.8 million in aggregate. Hollinger Inc. and
Black paid the Company the amount ordered by the court on
July 16, 2004, but both have appealed the order to the
Delaware Supreme Court. See Item 3  Legal
Proceedings  Hollinger International Inc. v.
Conrad M. Black, Hollinger Inc., and 504468 N.B. Inc.

Boultbee has not paid to the Company any amounts
in restitution for the unauthorized non-competition
payments set forth in the Restructuring Agreement, and has filed
a suit in Canada against the Company and members of the Special
Committee seeking damages for an alleged wrongful dismissal. See
Item 3  Legal Proceedings 
Other Actions.

As more fully described under
Item 13  Certain Relationships and Related
Transactions  Services Agreements, the Company
was party to management services agreements with RMI, Moffat and
Black-Amiel. The Restructuring Agreement provides for the
termination of these agreements in accordance with their terms,
effective June 1, 2004, and the negotiation of the
management fee payable thereunder for the period from
January 1, 2004 until June 1, 2004. In November 2003,
in accordance with the terms of the Restructuring Agreement, the
Company notified RMI of the termination of the services
agreements effective June 1, 2004 and subsequently proposed
a reduced management fee of $100,000 per month for the period
from January 1, 2004 through June 1, 2004. RMI did not
accept the Companys offer and demanded a management fee of
$2.0 million per month, which the Company did not accept.
RMI seeks damages from the Company for alleged breaches of the
services agreements in legal actions pending before the courts.
See Item 3  Legal Proceedings 
Hollinger International Inc. v. Ravelston, RMI and Hollinger
Inc.

On January 16, 2004, the Company consented
to the entry of a partial final judgment and order of permanent
injunction (the Court Order) against the Company in
an action brought by the SEC in the U.S. District Court for
the Northern District of Illinois (the January 2004 SEC
Action). The Court Order enjoins the Company from
violating provisions of the Exchange Act, including the
requirements to file accurate annual reports on Form 10-K
and quarterly reports on Form 10-Q and keep accurate books
and records. The Court Order requires the Company to permit the
Special Committee to complete its

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investigation and to take whatever actions the
Special Committee, in its sole discretion, deems necessary to
fulfill its mandate, including to pursue litigation and collect
damages and recover assets for the Company. The Court Order also
provides for the automatic appointment of Richard C. Breeden
(Breeden), currently advisor and legal counsel to
the Special Committee, as Special Monitor of the Company, in
order to complete the ongoing Special Committee investigation,
pursue litigation and collect damages and assets for the Company
and protect the Companys assets, in the event that the
Board of Directors or the Companys stockholders take
actions in violation of the Court Order.


On January 28, 2004, the Company filed a
civil complaint in the United States District Court for the
Northern District of Illinois asserting breach of fiduciary duty
and other claims against Hollinger Inc., Ravelston, RMI, Black,
Radler and Boultbee, which complaint was first amended on
May 7, 2004. The amended complaint added certain other
defendants, including Barbara Amiel Black (Amiel
Black), a Director of the Company and wife of Black, and
Daniel W. Colson (Colson), former Chief Operating
Officer and Director of the Company, sought approximately
$484.5 million in damages, including approximately
$103.9 million in pre-judgment interest, and also included
claims under the Racketeer Influenced and Corrupt Organizations
Act (RICO), which provides for a trebling of damages
and attorneys fees. On October 8, 2004, the court
granted the defendants motion to dismiss the RICO claims
and also dismissed the remaining claims without prejudice on
jurisdictional grounds. On October 29, 2004, the Company
filed a second amended complaint seeking to recover
approximately $542.0 million in damages, including
prejudgment interest of approximately $117.0 million, and
punitive damages. The second amended complaint adds
Richard N. Perle (Perle), a Director of the
Company, as a defendant and withdrew as defendants certain
companies affiliated with Black and Radler. The Company is
seeking to appeal the dismissal of the RICO claims. On
December 13, 2004, defendants moved to dismiss the second
amended complaint. The motions are pending. See
Item 3  Legal Proceedings 
Litigation Involving Controlling Stockholder, Senior
Management and Directors.

On August 30, 2004, the Special Committee
published the results of its investigation. See
 Report of the Special Committee below.

On November 15, 2004, the SEC filed an
action in the United States District Court for the Northern
District of Illinois against Black, Radler and Hollinger Inc.
seeking injunctive, monetary and other equitable relief. In the
action, the SEC alleges that the three defendants violated
federal securities laws by engaging in a fraudulent and
deceptive scheme to divert cash and assets from the Company and
to conceal their self-dealing from the Companys public
stockholders from at least 1999 through at least 2003. The SEC
also alleges that Black, Radler and Hollinger Inc. were liable
for the Companys violations of certain federal securities
laws at least during this period. See Item 3 
Legal Proceedings  United States Securities and
Exchange Commission v. Conrad M. Black, et al.

The Company is party to several lawsuits either
as plaintiff or as a defendant, including several stockholder
class action lawsuits, in connection with the events described
above. See Item 3  Legal Proceedings.



| |                                                                                               
| | ----------------------------------------------------------------------------------------------
| | Corporate Review Committee; Adoption of
    Shareholder Rights Plan; Delaware Court Injunction

On January 18, 2004, Black and Ravelston
entered into a Tender and Stockholder Support and Acquisition
Agreement with Press Holdings International Limited
(PHIL) for the sale of the control of Hollinger
Inc., (the Hollinger Sale). The Company formed the
Corporate Review Committee of the Board of Directors, consisting
of all directors, other than Black, Amiel Black and Colson, all
of whom were directly or indirectly interested in the Hollinger
Sale, to review the terms of the Hollinger Sale and supervise
the Strategic Process. The Corporate Review Committee adopted a
shareholder rights plan (SRP), described further
below. On January 23, 2004, Hollinger Inc. adopted by
written stockholder consent amendments to the Companys
bylaws and attempted to dissolve all committees of the Board of
Directors, including the Corporate Review Committee, other than
the Special Committee and the Audit Committee. On
January 26, 2004, the Company commenced legal action in
Delaware seeking relief declaring that Hollinger Inc.s
actions were invalid; that the adoption of the SRP was valid;
and that Black and Hollinger Inc. breached their fiduciary
duties to the Company and the terms of the Restructuring
Agreement. On March 4, 2004, the Delaware Chancery Court
issued a decision in favor of the Company declaring the bylaw
amendments invalid;

7



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##### Table of Contents



upholding the validity of the SRP; and enjoining
Black and Hollinger Inc. from taking any action to consummate
any transaction in violation of the provisions of the
Restructuring Agreement, including the Hollinger Sale, or
committing any other breaches of the Restructuring Agreement. As
a result, PHIL withdrew its offer and the Hollinger Sale was
abandoned. On June 28, 2004, the Delaware Chancery Court
extended through October 31, 2004 its injunctive relief
that enjoined Black and Hollinger Inc. from taking any action to
consummate any transaction in violation of the provisions of the
Restructuring Agreement. On October 29, 2004, the Company,
Hollinger Inc. and Black reached an agreement (the
Extension Agreement) to voluntarily extend the
injunction until the earlier of January 31, 2005 or the
date of the completion of any distribution by the Company to its
stockholders of a portion of the proceeds of the Companys
sale of the Telegraph Group Limited (described below), net of
taxes to be paid on the sale of the Telegraph Group Limited and
less amounts used to pay down the Companys indebtedness,
through one or more of a dividend, a self-tender offer, or some
other mechanism. On October 30, 2004, the court issued an
order extending the injunction as provided in, and incorporating
the other terms of, the Extension Agreement.


On February 27, 2004, under the terms of the
SRP, the Company paid a dividend of one preferred share purchase
right (a Right) for each share of Class A
Common Stock and Class B Common Stock held of record at the
close of business on February 5, 2004. Each Right, if and
when exercisable, entitles its holder to purchase from the
Company one one-thousandth of a share of a new series of
preferred stock at an exercise price of $50.00.

The SRP provides that the Rights will separate
from the Class A Common Stock and Class B Common Stock
and become exercisable only if a person or group beneficially
acquires, directly or indirectly, 20% or more of the outstanding
stockholder voting power of the Company or if a person or group
announces a tender offer which, if consummated, would result in
such person or group beneficially owning 20% or more of such
voting power, in either case, without the approval of the
Companys directors, who may amend or redeem the SRP. The
directors of the Company may redeem the Rights at
$0.001 per Right or amend the terms of the SRP at any time
prior to the separation of the Rights from the Class A
Common Stock and Class B Common Stock.

If a person or group acquires 20% or more of the
stockholder voting power of the Company, each Right will entitle
its holder (other than such person or group), in lieu of
purchasing preferred stock, to purchase one share of
Class A Common Stock at a 50% discount to the then current
per share market price. In addition, in the event of certain
business combinations following such an acquisition, each Right
will entitle its holder to purchase the common stock of an
acquirer of the Company at a 50% discount from the market value
of the acquirers stock.

Black and each of his controlled affiliates,
including Hollinger Inc., are considered exempt
stockholders under the terms of the SRP. This means that
so long as Black and his controlled affiliates do not
collectively, directly or indirectly, increase the number of
shares of Class A and Class B Common Stock above the
level owned by them when the SRP was adopted, their ownership
will not cause the Rights to separate from the Common Stock.
This exclusion would not apply to any person or group to whom
Black or one of his affiliates transfers ownership, whether
directly or indirectly, of any of the Companys shares.
Consequently, the Rights may become exercisable if Black
transfers sufficient voting power to an unaffiliated third party
through a sale of interests in the Company, Hollinger Inc.,
Ravelston or another affiliate.

The SRP provides that on or before
January 25, 2005, the Special Committee (or any other
committee of independent directors of the Board of Directors who
were not the subject of the report delivered by the Special
Committee described below) will re-evaluate the SRP to determine
whether it remains in the best interests of the Companys
stockholders. If determined as necessary, such committee may
recommend amendments to the terms of the SRP, or redemption of
the Rights. Unless earlier redeemed, exercised or exchanged, the
Rights will expire on January 25, 2014.

The validity of the SRP is the subject of an
appeal to the Delaware Supreme Court. See
Item 3  Legal Proceedings 
Hollinger International Inc. v. Conrad M. Black,
Hollinger Inc., and 504468 N.B. Inc.

8



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##### Table of Contents





| |                            
| | ---------------------------
| | Sale of the Telegraph Group

As part of the Strategic Process, on
July 30, 2004, the Company completed the sale of Telegraph
Group Limited (Telegraph Group) to Press Holdings
Limited and Holyrood Holdings Limited, affiliates of PHIL.
Telegraph Group operated the Companys business in the
United Kingdom, including The Daily Telegraph, The Sunday
Telegraph, The Weekly Telegraph, telegraph.co.ukand The
Spectatorand Apollo magazines. Under the terms of
the agreement, Press Acquisitions Limited acquired all of the
outstanding shares of Telegraph Group for a purchase price of
£729.6 million in cash (or approximately
$1,323.9 million at an exchange rate of $1.8145 to £1
as of the date of sale). This purchase price is subject to
adjustment depending on certain working capital levels in the
Telegraph Group, but the Company does not expect any such
adjustment to be material.

The Company used approximately
$603.1 million of the proceeds of the sale of the Telegraph
Group to repay long-term indebtedness and related derivative
contracts. The Board of Directors also declared a special cash
dividend (the Special Dividend) payable on
January 18, 2005 in an aggregate amount of approximately
$227.0 million, this being the first tranche of a total
amount of $500.0 million which the Board of Directors
determined was in the best interest of the Company and its
stockholders to be distributed to stockholders. The Board of
Directors intends to distribute approximately
$273.0 million of the proceeds of the sale of the Telegraph
Group, this being the second tranche of the $500.0 million
cash distribution, either by way of a tender offer or a second
special dividend. See  Declaration of Special
and Regular Dividend.

For the year ended December 31, 2003, the
U.K. Newspaper Group had revenues of approximately
$519.5 million and operating income of approximately
$40.7 million. Results of the U.K. Newspaper Group for the
year ended December 31, 2003 are included in the
Consolidated Financial Statements of the Company for that period.



| |                
| | ---------------
| | 9% Senior Notes

In June 2004, the Company commenced a tender
offer and consent solicitation to purchase and retire
Publishings 9% Senior Notes due in 2010 (the 9%
Senior Notes) and eliminate the covenants in place with
respect to principal amounts not tendered. Approximately 97% of
the principal amount of the 9% Senior Notes were tendered,
and the covenants were removed from the 9% Senior Notes
that remained outstanding. The Company used approximately
$344.8 million of the proceeds from the sale of the
Telegraph Group to purchase the 9% Senior Notes tendered and for
related expenses. The Company also used $10.5 million to
cancel the interest rate swaps the Company had in place on the
9% Senior Notes. The tender closed on August 2, 2004. The
Company has since purchased and retired an additional
$3.4 million in principal amount of the 9% Senior
Notes. See Item 7  Managements Discussion
and Analysis of Financial Condition and Results of
Operations  Liquidity and Capital Resources.



| |                       
| | ----------------------
| | Senior Credit Facility

On July 30, 2004, the Company used
approximately $213.4 million of the proceeds from the sale
of the Telegraph Group to repay all amounts outstanding under
and cancel the Companys $310.0 million Senior Credit
Facility with Wachovia Bank, N.A. (the Senior Credit
Facility). In addition, the Company paid approximately
$2.1 million in fees related to this early repayment and
incurred costs of $32.3 million in fees to cancel the cross
currency interest rate swaps the Company had in place with
respect to amounts outstanding under the Senior Credit Facility.
See Managements Discussion and Analysis of Financial
Condition and Results of Operations  Liquidity and
Capital Resources.



| |                                                
| | -----------------------------------------------
| | Declaration of Special and Regular
    Dividend

On December 16, 2004, from the proceeds of
the sale of the Telegraph Group, the Board of Directors declared
a Special Dividend of $2.50 per share payable on the
Companys Class A and Class B Common Stock on
January 18, 2005 to holders of record of such shares on
January 3, 2005, in an aggregate amount of approximately
$227.0 million, this being the first tranche of a total
amount of $500.0 million which the Board of Directors
determined was in the best interest of the Company and its
stockholders to be distributed to

9



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##### Table of Contents



stockholders. The Board of Directors intends to
distribute approximately $273.0 million of the proceeds
from the sale of the Telegraph Group, this being the second
tranche of the $500.0 million cash distribution, in the
form of a tender offer for its shares of Class A and
Class B Common Stock. The Board of Directors expects to
make a final determination about whether to proceed with a
tender offer during the first quarter of 2005. Alternatively,
the Board may consider a second special cash dividend to
complete the distribution, instead of a tender offer. There can
be no assurance that the second distribution will be made or, if
made, whether it will be in the form of a tender offer or a
dividend, and if a tender offer, as to the price or form such
offer will take. The Board of Directors believes that following
the Special Dividend and the second distribution, the Company
will have sufficient liquidity to fund its operations and
obligations and to avail itself of strategic opportunities.
Following the Special Dividend, it is expected that the
outstanding grants under the Companys stock incentive
plans will be appropriately adjusted to take into account this
return of cash to existing stockholders.


On December 16, 2004, the Board of Directors
also declared a regular quarterly dividend in the amount of
$0.05 per share, payable on the Companys Class A
and Class B Common Stock on January 18, 2005 to
stockholders of record on January 3, 2005.



| |                                                    
| | ---------------------------------------------------
| | The Chicago Sun-Times Circulation
    Overstatement

On June 15, 2004, the Company announced that
the Audit Committee was conducting an internal review into
practices that resulted in the overstatement of circulation
figures for the Chicago Sun-Times. On October 5,
2004, the Company announced the results of this internal review.
The review by the Audit Committee determined that weekday and
Sunday average circulation of the Chicago Sun-Times, as
reported in the audit reports issued by the Audit Bureau of
Circulations (ABC) commencing in 1998, had been
overstated. The Audit Committee found no overstatement of
Saturday circulation data. The inflated circulation figures were
submitted by the Company to ABC, which then reported these
figures in its annual audit report issued with respect to the
Chicago Sun-Times.

Inflation of the Chicago Sun-Timessingle-copy circulation began modestly and increased over
time. In the most recent report of the Chicago Sun-Times
circulation published by ABC, which covered the period ended
March 2003, the average single-copy circulation was found by the
Audit Committee to have been overstated by approximately
50,000 weekday copies and 17,000 Sunday copies. The
inflation of circulation continued to grow during the
twelve-month period ended March 28, 2004, but these
circulation figures were not included in an ABC audit report.

The Chicago Sun-Timesannounced a plan
intended to make restitution to its advertisers for losses
associated with the overstatements in the ABC circulation
figures. To cover the estimated cost of restitution and
settlement of related lawsuits filed against the Company, the
Company recorded pre-tax charges of approximately
$24.1 million for 2003 and approximately $2.9 million
for the first quarter of 2004. The Company will evaluate the
adequacy of the accruals as negotiations with advertisers
proceed. See  Risk Factors below.

The Company has implemented procedures to help
ensure that similar circulation overstatements do not occur in
the future. See Item 9A  Controls and
Procedures.

The Audit Committee also conducted a Company-wide
review and found that certain circulation inflation practices
were employed at two other Chicago area newspapers, the Daily
Southtownand The Star, as well as at The
Jerusalem Post. Since the inflation practices at the
Daily Southtownand The Starbegan in mid-2003,
none of the inflated circulation figures have been reported
publicly in ABC circulation audit reports. There is no
independent third-party, such as the ABC, that audits or reports
circulation figures for Israeli newspapers. The overstatement
practices have been discontinued at these newspapers, and the
Company does not expect the practices at these three newspapers
will have a material impact on the Company.

10



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##### Table of Contents





| |                                            
| | -------------------------------------------
| | Sale of Interest in Trump Joint
    Venture

On June 21, 2004, the Company entered into
an agreement to sell its 50% interest in the real estate joint
venture that was established by the Company and an entity
affiliated with Mr. Donald Trump for the development of the
property on which a portion of the facilities of the Chicago
Sun-Timesoperations were situated. Immediately prior to the
sale of the interest in the joint venture, the Company
contributed to the joint venture, its property in downtown
Chicago where the Chicago Sun-Times had conducted its
editorial, pre-press, marketing, sales and administrative
activities. Under the terms of the agreement, the Company
received $4.0 million in cash upon the signing of the sales
agreement and the balance of approximately $66.7 million,
net of closing costs and adjustments, was received in cash on
closing. The Company completed this transaction on
October 15, 2004.

As a result of the decision to sell its interest
in the joint venture and the property to be developed, the
Chicago Sun-Timesentered into a 15-year operating lease
for new office space. The Chicago Sun-Timesrelocated to
the new office space in the fourth quarter of 2004.



| |                                    
| | -----------------------------------
| | Report of the Special
    Committee

On August 30, 2004, the Special Committee
released its report setting out the scope and results of its
investigation into certain related party transactions involving
certain former executive officers and certain current and former
directors of the Company and Hollinger Inc. and its affiliates.
The report was delivered to the SEC and filed with the
U.S. District Court for the Northern District of Illinois.
In addition, on August 31, 2004, the Company filed a copy
of the report with the SEC as an exhibit to a current report on
Form 8-K, as amended by a current report on Form 8-K/A
filed with the SEC on December 15, 2004. The report, as
filed with the SEC in an amended form on such date, is
hereinafter referred to as the Report.

Below is a summary of the results of the Special
Committees investigation contained in the Report. For a
complete discussion of the results of the investigation of the
Special Committee, see the Report, as amended, included as an
exhibit to the Companys Form 8-K/A filed with the SEC.

As noted under Item 3 
Legal Proceedings, most of the findings of the Special
Committee set forth in the Report are the subject of ongoing
litigation and are being disputed by the former executive
officers and certain of the current and former directors of the
Company who are the subject of the Report. The amount of damages
sought by the Company in these actions is set out in
Item 3  Legal Proceedings. It should
be noted that all of the directors do not necessarily agree with
all of the findings of the Report as to any one or more of the
directors who are the subject of the Report.

Where disclosure either as a related party
transaction or otherwise is required, such disclosure, including
corrections to previously disclosed information, has been made
in this annual report on Form 10-K, including the
Consolidated Financial Statements and related Notes, or in the
Report.



| |                                                                                                    
| | ---------------------------------------------------------------------------------------------------
| | (a) Reports Findings of Excessive
    Management Fees Paid by the Company to Ravelston and
    RMI

The Special Committee concluded that Hollinger
Inc., Ravelston and RMI collected excessive and unjustifiable
management fees from the Company for the benefit of Black,
Radler and certain other former executive officers of the
Company. From 1997 through 2003, the Company paid approximately
$218.4 million in management fees to Hollinger Inc.,
Ravelston, RMI and their affiliates (including Moffat and
Black-Amiel, as discussed below). As noted above, the
Restructuring Agreement provided for the termination of the
services agreements with RMI as of June 1, 2004.

The Company disclosed publicly the amounts
charged by and paid to Hollinger Inc., Ravelston and RMI as
related party transactions in previous years. In its 2002
Form 10-K (by way of incorporating portions of its proxy
statement), the Company attributed a portion of the management
fees to the compensation of Black, Radler, Colson, Atkinson and
Boultbee for 2001 and 2002. For years prior to 2001, the Company
did not attribute any portion of the management fees to
executive compensation. The Company has commenced legal actions
to recoup the excessive management fees that the Company paid to
Hollinger Inc., Ravelston and RMI. See
Item 3  Legal Proceedings 
Litigation Involving Controlling Stockholders, Senior Management
and Directors.

11



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##### Table of Contents



Moffat and Black-Amiel, offshore companies
directly or indirectly owned by Black and certain other former
executive officers of the Company, also entered into management
services agreements with the Company. The Special Committee
concluded that these services agreements did not have any
economic substance, nor did they provide any direct benefit to
the Company, and were in fact created as a means to allow those
former executive officers to divert monies from the Company to
offshore entities. The management fees paid to these companies
have been disclosed publicly as related party transactions in
previous years. The Company did not attribute any portion of
these management fees to executive compensation in previous
years. Additionally, in or about August 1999, former management
caused the Company to pay $900,000 to Moffat that was recorded
as a broker fee. The Special Committee determined
that this related party payment was never authorized by the
Companys independent directors, and moreover, that it was
a sham and unfair to the Companys public stockholders
because neither Moffat nor its principals ever performed
broker services for the Company. The Company has
commenced legal action, as noted above, to recoup this $900,000
payment.



| |                                                                                                             
| | ------------------------------------------------------------------------------------------------------------
| | (b) Report Stated that Unwarranted and
    Excessive Compensation Was Paid by the Company to Amiel
    Black

The Special Committee concluded that there was no
economic substance for compensation of $1.4 million paid to
Amiel Black since 1999, for serving as the Companys Vice
President, Editorial. These salary and bonus payments were in
addition to payments of director fees and for writing columns.
The Company is seeking to recover these payments through legal
action pending before the courts. See
Item 3  Legal Proceedings.



| |                                                                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (c) Reports Findings Relating to
    U.S. Community Newspaper Transactions and Related
    Non-Competition Styled Payments and Transfers of
    Company Cash to Hollinger Inc., Black, Radler, Boultbee and
    Atkinson

The Special Committee investigated several past
transactions relating to sales of U.S. community newspapers
formerly owned by the Company to both related and third parties.
The Special Committee concluded, among other things, that as
part of these transactions significant payments
($32.2 million) of purported non-competition
fees were made to Hollinger Inc., Black, Radler, Boultbee and
Atkinson without the approval of the Audit Committee or the
Board of Directors. The Special Committee also determined that
there was no economic rationale for the payments of the
purported non-competition fees made to Hollinger
Inc., Black, Radler, Boultbee and Atkinson, and that those
payments were unfair to the Company. The Special Committee also
determined that the Companys past public disclosures made
with respect to the following transactions were incomplete or
inaccurate.

(i) Intertec Publishing Co.

In its 1998 Form 10-K, the Company disclosed
that it had concluded a transaction to sell American
Trucker magazine. The purchase and sale agreement provided
for the payment by the purchaser of a $2.0 million
non-competition fee to the Company. The Company
failed to disclose that on February 1, 1999, approximately
eight months after the sale closed, the Company transferred
funds equivalent to the non-competition fee to
Hollinger Inc. According to the Report, no approval of the Audit
Committee or the full Board of Directors was sought or obtained
for this transfer of funds.

(ii) Community Newspaper Holdings Inc. I

In its 1998 Form 10-K, the Company disclosed
as a subsequent event that it had concluded a transaction to
sell certain U.S. community newspaper properties. The
underlying agreement for the purchase and sale allocated
$50.0 million of the proceeds to a
non-competition agreement and included Hollinger
Inc. as a non-competition covenantor along with the Company. The
Company failed to disclose that upon closing of the transaction
$12.0 million of the non-competition fee was
paid to Hollinger Inc. According to the Report, neither the
Audit Committee nor the Board of Directors was informed of or
approved this payment to Hollinger Inc.

The Special Committee determined that Hollinger
Inc. used the $14.0 million of unauthorized payments, which
Hollinger Inc. received from the Company on February 1,
1999 out of the Companys proceeds from the Intertec and
Community Newspaper Holdings Inc. (CNHI) I
transactions, to ostensibly repay a portion of a 1997
$42.5 million overdue loan from the Company.

12



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##### Table of Contents



(iii) Horizon Publications Inc.

In its 1999 Form 10-K, the Company disclosed
that it had concluded a transaction with Horizon Publications
Inc. (Horizon), a company controlled by Black and
Radler, to sell various community newspapers. The underlying
agreement for the purchase and sale provided for a
non-competition payment by Horizon of
$5.0 million. Of this amount $1.2 million was paid
directly to Hollinger Inc. The existence of this payment was not
disclosed in the 1999 Form 10-K. According to the Report,
neither the Audit Committee nor the Board of Directors was
informed of or approved this payment, nor were they informed of
the extent of ownership and participation of Black and Radler in
Horizon.

(iv) Forum Communications Inc., Paxton Media
Group and Community Newspaper Holdings Inc. II

In its 2000 Form 10-K, the Company disclosed
that it had concluded three separate transactions to sell
various publishing assets to Forum Communications Inc.
(Forum), Paxton Media Group (Paxton) and
CNHI. The underlying agreements for the purchase and sale
provided for the payment of non-competition fees to
Hollinger Inc. totaling $1.4 million in connection with
these transactions, which occurred in September and November of
2000. According to the Report, neither the Audit Committee nor
the Board of Directors was informed of or approved these
payments.

In addition to the above noted
non-competition payments, the Special Committee
determined that an additional $9.5 million of sale proceeds
from the CNHI II transaction was improperly paid to Black,
Radler, Boultbee and Atkinson in 2000 without the authorization
of either the Audit Committee or the full Board of Directors.
The Special Committee also concluded that further amounts
totaling $5.5 million were paid to the same executive
officers in February 2001, which payments were purportedly
supported by sham non-competition agreements
backdated to December 31, 2000. Lastly, according to the
Report, in April 2001, payments totaling $600,000 were made to
the same four executive officers without approval of either the
Audit Committee or the full Board of Directors and without any
underlying non-competition agreements. The Special
Committee determined that these latter payments were made out of
unutilized post-closing accruals relating to certain
U.S. community newspaper sale transactions.

The Company failed to disclose the above
discussed payments, totaling $15.6 million, in its 2000
Form 10-K. Although disclosure of those payments was made
in the 2001 Form 10-K, based on the Report, the disclosure
was incorrect and incomplete in several ways, including the
following:



| |   |                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the Company asserted falsely that its independent
    directors had approved the terms of the payments;                                                                     
|
| |  | no disclosure was made of the $1.4 million
    paid to Hollinger Inc. in connection with the Forum, Paxton and
    CNHI II transactions;                                    
|
| |  | the $600,000 in payments to Black, Radler,
    Boultbee and Atkinson were incorrectly stated to have been made
    in connection with the sale of U.S. newspaper properties;
|
| |  | the non-competition agreements and
    payments were falsely stated to have been made to satisfy a
    closing condition of the sale; and                                 
|
| |  | the payment of the $5.5 million was
    incorrectly characterized as having been made in 2000. The
    payment was actually made and documented in 2001.                    



| |                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------
| | (d) Reports Findings Relating to
    the CanWest Global Communications Transaction and Related Party
    Payments

On November 16, 2000, the Company completed
the sale of most of its Canadian newspapers and related assets
to CanWest Global Communications Corporation
(CanWest). In connection with that sale,
non-competition payments totaling
Cdn.$80.0 million ($51.8 million) and interest
payments totaling $1.1 million were made to Ravelston,
Black, Radler, Boultbee and Atkinson. According to the Report,
under the terms of a management services agreement between
CanWest and Ravelston, which was entered into in conjunction
with the CanWest transaction, Ravelston received, and continues
to receive, an annual management fee of Cdn.$6.0 million
until the fee arrangement is terminated. If the agreement is
terminated by CanWest,

13



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##### Table of Contents



Ravelston is to receive Cdn.$45.0 million
and if terminated by Ravelston, Ravelston is to receive
Cdn.$22.5 million.


In connection with these payments, the Special
Committee concluded that:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the structure of the management services and
    non-competition provisions of the CanWest
    transaction resulted in substantial and unjustifiable damage to
    the Companys public stockholders;                                                                                                                                                                                                                                       
|
| |  | the terms of the management services agreement
    between CanWest and Ravelston had the effect of reducing the
    purchase price otherwise payable to the Company by
    Cdn.$60.0 million ($39.0 million);                                                                                                                                                                                                                                 
|
| |  | although the non-competition
    agreements were approved by the Board of Directors and the Audit
    Committee prior to the sale, such approval and the ratification
    of such approval in May 2001, were based on false, misleading
    and incomplete information.                                                                                                                                                                     
|
| |  | the interest payments of $1.1 million were
    never disclosed to the Audit Committee nor was approval for
    those payments sought or obtained;                                                                                                                                                                                                                                                                                             
|
| |  | the non-competition fees and interest
    payments had the effect of reducing the transaction proceeds to
    the Company upon sale by $52.9 million;                                                                                                                                                                                                                                                                                       
|
| |  | no one was negotiating on behalf of the
    Companys public stockholders with respect to the above
    fees;                                                                                                                                                                                                                                                                                                                                 
|
| |  | none of the payment recipients was entitled to
    any consideration for signing the non-competition
    agreements because they remained Company officers and the
    Company was itself bound not to compete with CanWest;                                                                                                                                                                                                                
|
| |  | although the properties sold to CanWest included
    assets of both the Company and Hollinger L.P., prior
    management of the Company directed that the entire
    non-competition payment attributable to the assets
    sold to CanWest by Hollinger L.P. be made from the
    Companys share of the Hollinger L.P. distribution. In
    other words, the Company bore 100%, rather than its pro rata
    share of 87%, of this burden;
|
| |  | the entirety of the payments to Ravelston, Black,
    Radler, Boultbee and Atkinson represents proceeds from a direct
    violation of their fiduciary duties to the Company and its
    public stockholders.                                                                                                                                                                                                                                 

The Companys 2000 Form 10-K disclosed
the transactions with CanWest but failed to disclose the
existence of the above-mentioned non-competition and
interest payments and management fees.

The management fees and
non-competition payments to Ravelston and the four
former executive officers were disclosed in the Companys
2001 Form 10-K. However, the Special Committee concluded
that disclosure to be deficient in at least the following ways:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | payment of $1.1 million in interest in
    connection with the non-competition payments was not
    disclosed;                                                                                                                                                                                                                                                                                                                     
|
| |  | the disclosure incorrectly stated the allocation
    of amounts between Ravelston and the four former executive
    officers;                                                                                                                                                                                                                                                                                                        
|
| |  | the disclosure creates the false impression that
    the non-competition payments were paid in addition
    to the purchase price, when in fact they effectively reduced the
    purchase price, and that the negotiation with CanWest determined
    the amounts paid to the individuals and Ravelston when, in fact,
    the allocation of the payments was determined solely by the
    Companys former executive officers; and
|
| |  | contrary to the disclosure, CanWest did not
    require as a condition to the closing of the transaction the
    non-competition agreements from Boultbee and
    Atkinson.                                                                                                                                                                                                                                                        



| |                                                                                                           
| | ----------------------------------------------------------------------------------------------------------
| | (e) Reports Findings Relating to
    Osprey Media Holdings Inc. and Non-competition
    Styled Payments

In two separate transactions in July and November
2001, the Company completed the sale of most of its remaining
Canadian newspapers to Osprey Media Holdings Inc. (Osprey
Media). In connection with these

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transactions, the Company paid
non-competition fees totaling $5.2 million to
Black, Radler, Boultbee and Atkinson. According to the Report,
these fees were presented to the Audit Committee only after the
closing of each of the transactions and ratified by the Audit
Committee on the basis of misleading information. The Special
Committee determined these payments to be unfair, and that none
of the payment recipients was entitled to any consideration for
signing the non-competition agreements because they
remained Company officers and the Company was itself bound not
to compete with Osprey. The Special Committee also concluded, as
in the CanWest transaction, that Black and former management
avoided having to seek the Hollinger L.P. independent
directors approval of the non-competition
payments by directing that the entire
non-competition payment attributable to the
Hollinger L.P. assets sold to Osprey be made from the
Companys share of the Hollinger L.P. distribution,
thereby further unfairly reducing net proceeds to the Company
from the sale. Although the transactions and related
non-competition payments totaling $5.2 million
were disclosed in the Companys 2001 Form 10-K,
according to the Report, the 2001 Form 10-K did not
disclose, among other things, (i) that the allocation had
been decided by the former executive officers or (ii) that
no part of the non-competition fees was paid by
Hollinger L.P.




| |                                                                                    
| | -----------------------------------------------------------------------------------
| | (f) Report Concluded that Unauthorized
    and Excessive Payment Was Made to Colson

The Special Committee determined that there was
no economic substance to or valid business purpose for a
$1.1 million payment made to Colson on September 5,
2001, which payment was not approved by either the Audit
Committee or the Compensation Committee of the Board of
Directors.



| |                                                                                                           
| | ----------------------------------------------------------------------------------------------------------
| | (g) Reports Findings Relating to
    Related Party Asset Sales to Horizon and Bradford Publishing
    Co.

The Special Committee concluded that during the
period from early 1999 to January 2003, Black and Radler
diverted income, assets and opportunities from the Company to
Horizon and Bradford Publishing Co. (Bradford),
newspaper-publishing companies controlled by Black and Radler.
According to the Report, the diversion was effected by
repeatedly transferring some of the Companys publications
to Horizon and Bradford at less than fair market value and by
usurping corporate opportunities belonging to the Company. These
actions, the Special Committee concluded, constituted a
violation of Blacks and Radlers fiduciary duties as
controlling stockholders and as officers and directors of the
Company.

Although in a number of instances the Horizon and
Bradford transactions were approved by the Audit Committee, the
Special Committee determined that the approvals were based on
false, misleading or incomplete information. In only one
instance was a fairness opinion obtained and, in that case, the
Special Committee concluded that the opinion was based in large
part on false information and incorrect assumptions. The Special
Committee found no evidence that this opinion was ever submitted
to the Board of Directors.

The transactions between the Company and Horizon
and Bradford during the years 1999 to 2001 were not properly
disclosed in the Companys annual reports on
Form 10-K. Among other things, the Company aggregated the
asset transfers into one combined disclosure relating to the
Companys sales of U.S. community newspapers, and failed to
identify that some of these transactions were conducted with
related parties. In 2001, the Company amended the disclosures to
state the number of properties sold to Bradford and Horizon and
the total aggregate consideration for those properties, but did
not identify assets that were transferred to Horizon or Bradford.



| |                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------
| | (h) Reports Findings Relating to
    Hollinger Digital, Trireme, and the Franklin Delano Roosevelt
    Collection

The Special Committee reviewed certain aspects of
the Companys technology and other investments, in
particular, those made through its subsidiary Hollinger Digital
and its investment in Trireme Associates LLC
(Trireme). The Special Committee determined that the
incentive compensation plan of Hollinger Digital (Digital
Incentive Plan) was excessive and unfair to the
Companys public stockholders, in particular because
incentive compensation was based solely upon investment gains
with no offset for the effect of losses and because these
upside-only bonuses were awarded based on a
definition of realized gain on an investment that
was divorced from the amount the Company actually realized. The
Special Committee also

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concluded that Audit Committee approval, when
sought, was based on incomplete and misleading information;
conflicts of interest with respect to both compensation and
investments were not disclosed; and disclosure of compensation
under the Digital Incentive Plan in the Companys financial
statements was inaccurate.


The Company did not disclose in its 2000 or 2001
Form 10-Ks or proxy statements that Black, Radler, Colson,
Boultbee and Atkinson received payments under the Digital
Incentive Plan, totaling approximately $5.2 million,
although the Companys proxy statements for the same
periods contain some incomplete disclosures with respect to
these payments. In addition, the Company did not disclose in its
2000 or 2001 Form 10-Ks or proxy statements that one of its
directors, Perle, received $3.1 million in incentive
payments under the Digital Incentive Plan. Overall, the Special
Committee found that former management received over
$8.0 million in Digital Incentive Plan payments, while the
Company suffered an aggregate net loss of approximately
$68.0 million on its investments through Hollinger Digital
as of December 31, 2003. No payments were made under the
Digital Incentive Plan in either 2002 or 2003.

According to the Report, in late 2002, Perle
purported to commit the Company to invest $25.0 million in
Trireme, a venture capital fund in which Perle had a significant
financial interest. The Report also stated that, although this
commitment was not binding on the Company, the Company
subsequently invested $2.5 million in Trireme. At the time,
Perle was a director of the Company and a director and executive
officer of Hollinger Digital. The Special Committee concluded
that the Trireme investment was a related party transaction that
required the approval of the independent directors or the Audit
Committee and that no such approval was ever sought or obtained.

The Special Committee also reviewed the
Companys acquisitions of papers and other memorabilia of
President Franklin Delano Roosevelt (the FDR
Collection). The Special Committee found that the Company
paid at least $9.6 million for the FDR Collection.
According to the Report, no approval for the purchases was
obtained from the Board of Directors or the Audit Committee
prior to their consummation. The Special Committee determined
that: (i) Black arranged the Companys purchases of
the FDR Collection without obtaining independent appraisals;
(ii) the majority of the items comprising the FDR
Collection were displayed or stored in Blacks private
residences; (iii) during the period over which the Company
purchased the FDR Collection, Black was writing a biography of
President Roosevelt; and (iv) the Company significantly
overpaid for portions of the FDR Collection, at Blacks
direction. The U.S. National Archives has asserted an
ownership claim to a portion of the FDR Collection known as the
Grace Tully Collection.



| |                                                                                                    
| | ---------------------------------------------------------------------------------------------------
| | (i) Reports Findings Relating to
    Perquisites Paid to Black, Radler, Colson and Amiel
    Black

The Special Committee concluded that a number of
perquisites paid by the Company for the benefit of Black,
Radler, Colson and Amiel Black were contrary to the public
stockholders interests because the aggregate cost of the
perquisites was prohibitive; there was no legitimate business
purpose for most of the expenditures; and the perquisites were
not submitted for approval of either the Compensation Committee
or the Audit Committee. In addition, there was inadequate
disclosure of the perquisites in the Companys public
filings. According to the Report these perquisites included,
among other things: personal use of corporate aircraft; Company
provided cars and drivers; payment for personal staff; payment
for household staff costs; and car repairs.

The Special Committee also concluded that Black
violated his fiduciary duties to the Company by causing the
Company to sell to him an apartment it owned in Manhattan for a
fraction of its actual value in December 2000. According to the
Report, this related party transaction was not presented to the
Audit Committee or the full Board of Directors for approval. The
Report stated that the transaction was falsely characterized in
the Companys 2001 and 2002 proxy statements as having been
made for fair market value, when, in fact, Black
paid substantially less than fair market value.



| |                                                        
| | -------------------------------------------------------
| | (j) Reports Findings Relating to
    Charitable Giving

The Special Committee concluded, among other
things, that the Companys charitable giving was tainted by
Blacks and Radlers usurpation of public credit for
substantial cash donations made with Company funds. The Special
Committee also concluded that Black and Radler abused the
Companys charitable giving to

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serve their personal interests, and failed to
seek the Audit Committee or full Board of Directors approval for
these donations.




| |                                                                                                  
| | -------------------------------------------------------------------------------------------------
| | (k) Reports Findings Relating to
    the Sale of NP Holdings Company Tax Losses to
    Ravelston

In 2002, the Company sold its subsidiary, NP
Holdings Company (NP Holdings), to RMI allowing RMI
to use tax loss carryforwards which the Company was unable to
fully use. Although this sale was approved by the Audit
Committee, the Special Committee concluded that this approval
was based upon false and misleading information. The Special
Committee also concluded, among other things, that the
transaction was unfair to the Company and that no disclosure was
made to the Audit Committee of either a higher offer for NP
Holdings or of an underlying financing arrangement exposing the
Company to a contingent liability of $14.6 million arising
from the sale. According to the Report, prior disclosure of this
transaction in the Companys public filings was false and
misleading with respect to these issues.



| |                                                                          
| | -------------------------------------------------------------------------
| | (l) Reports Findings Relating to
    Loan Transactions to Hollinger Inc.

The Special Committee determined that during the
period from 1997 to 2002, former executive officers caused the
Company to enter into a number of unfair related party
transactions to the detriment of the Company, which allowed
Hollinger Inc. to, among other things, borrow money from the
Company at below market rates of interest, repay the
Company with the Companys own funds, use the
Companys limited liquidity to Hollinger Inc.s
advantage, and defer obligations to Hollinger Inc. creditors by
drawing on the Companys credit capacity without adequate
compensation to the Company. The Special Committee concluded
that the various manipulations of loan structures caused the
Company to suffer significant financial loss. The Report stated
that these transactions were undertaken, for the most part,
either without Audit Committee approval or with Audit Committee
approval predicated upon false, misleading and incomplete
information. The Special Committee concluded that Black, Radler
and Boultbee made material misrepresentations to the Audit
Committee and breached their fiduciary duties to the Company in
these transactions. The Special Committee found that the
Companys financial statement disclosure regarding a
reduction in the interest rate charged on one of the related
party loans was incorrect because it suggested that the
reduction had been properly approved.



| |                                                                                   
| | ----------------------------------------------------------------------------------
| | (m) Reports Findings Relating to
    the Conduct of the Companys Audit Committee

The Special Committee concluded that the Audit
Committee was deliberately misled repeatedly by prior
management. The Special Committee also determined that, although
the Audit Committee was generally entitled to reasonably rely on
representations and presentations by management, the Audit
Committee was not sufficiently deliberate in its evaluation of
certain related party transactions. The Special Committee Report
also notes that since June 2003, the Audit Committee has
performed ably and in the interests of the Companys public
stockholders.



| |                            
| | ---------------------------
| | Hollinger L.P. Tender Offer

On August 6, 2004, the Toronto Stock
Exchange (TSX) suspended the listing of the units of
Hollinger L.P. because the general partner of Hollinger L.P.
does not have at least two independent directors as required by
TSX listing requirements. On August 5, 2004, the Company
expressed an interest in pursuing a tender offer for the units
of Hollinger L.P. not held by affiliates of the Company. An
independent committee of the general partner of Hollinger L.P.,
consisting of the sole independent director of the general
partner, was formed and it retained independent legal counsel
and financial advisors. Continuing liquidity for minority unit
holders during the tender process has been provided through a
listing of the units on a junior board of the TSX Venture
Exchange. On December 10, 2004, it was announced that the
Company would not pursue the tender until such time as Hollinger
L.P. is current in its financial statement filings.



| |                   
| | ------------------
| | CanWest Debentures

In November 2000, the Company and Hollinger L.P.,
received approximately Cdn.$766.8 million aggregate
principal amount of 12 1/8% Fixed Rate Subordinated Debentures
due November 15, 2010 (the CanWest Debentures)
issued by a wholly-owned subsidiary of CanWest called 3815668
Canada Inc. (the

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Issuer). The CanWest Debentures were
guaranteed by CanWest and were issued to the Company and
Hollinger L.P. in partial payment for the sale of certain
Canadian newspaper and Internet assets to CanWest. In 2001, the
Company and Hollinger L.P. sold participations of approximately
Cdn.$756.8 million (US$490.5 million) principal amount
of the CanWest Debentures to a special purpose trust (the
Participation Trust). Notes of the Participation
Trust, denominated in U.S. dollars (the Trust
Notes), were in turn issued and sold by the Participation
Trust to third parties. As a result of the periodic interest
payments on the CanWest Debentures made in kind in 2002, 2003
and 2004 and a partial redemption by the Issuer of the CanWest
Debentures in 2003, as of September 30, 2004, there was
outstanding approximately Cdn.$889.5 million aggregate
principal amount of CanWest Debentures. The Company and
Hollinger L.P. were the record owners of all of these CanWest
Debentures, but as of September 30, 2004, beneficially
owned only approximately Cdn.$4.7 million and
Cdn.$83.8 million principal amount, respectively, of
CanWest Debentures, with the balance beneficially owned by the
Participation Trust.


On October 7, 2004, the Company and
Hollinger L.P. entered into a Facilitation Agreement (the
Facilitation Agreement) with CanWest pursuant to
which the parties agreed to redeem the CanWest Debentures and
dissolve the Trust. CanWest exchanged the Trust Notes for new
debentures issued by CanWest (the CanWest Exchange
Offer). The CanWest Exchange Offer closed on
November 18, 2004, and the amount received by the Company
and Hollinger L.P. was approximately $133.6 million in cash
in respect of CanWest Debentures beneficially owned and residual
interests in the Participation Trust attributable to foreign
currency exchange. As a result of the closing, the Participation
Trust has been unwound and neither the Company nor Hollinger
L.P. have retained any ownership in the CanWest Debentures.

Sale of The
Jerusalem Post

On December 15, 2004, the Company announced
that as part of the Strategic Process, it had completed the sale
of The Palestine Post Limited, the publisher of The Jerusalem
Post, The Jerusalem Report and related publications, to
Mirkaei Tikshoret Ltd. (MTL). The transaction
involved the sale by the Company of its debt and equity
interests in The Palestine Post Limited to MTL for
$13.2 million.

General

Hollinger International Inc. was incorporated in
the State of Delaware on December 28, 1990 and its wholly
owned subsidiary Publishing was incorporated in the State of
Delaware on December 12, 1995. The Companys principal
executive offices are at 712 Fifth Avenue, New York, New
York, 10019, telephone number (212) 586-5666.

Business Strategy

Pursue Revenue Growth by Leveraging the
Companys Leading Market
Position.The Company intends to
continue to leverage its leading position in daily readership in
the attractive Chicago market in order to drive revenue growth.
Following the successful sale of the Telegraph Group for
approximately $1.3 billion, the Companys primary
asset is the Chicago Group, including its flagship property, the
Chicago Sun-Times. The Company will seek to continue to
build revenues by taking advantage of the extensive cluster of
the combined Chicago Group publications which allows the Company
to offer local advertisers geographically and demographically
targeted advertising solutions and national advertisers an
efficient one-stop vehicle to reach the entire Chicago market.

Publish Relevant and Trusted High Quality
Newspapers.The Company is committed
to maintaining the high quality of the Companys newspaper
products and editorial integrity in order to ensure continued
reader loyalty. The Chicago Sun-Timeshas been recognized
for its editorial quality with several Pulitzer Prize-winning
writers and awards for excellence from Illinois major
press organizations. The Company will continue to explore ways
in which it can define and institute best practices for the
Companys publications.

Prudent Asset
Management.In addition to pursuing
revenue growth from existing publications, from time to time the
Company may pursue acquisitions to expand the Chicago Group and
selective newspaper acquisitions in the United States and
non-core divestitures. Many of the Companys Internet and
other non-

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core investments remain available for sale. The
Company successfully completed the sale of the Telegraph Group
and the sale of The Jerusalem Post and related
publications in 2004. Sufficient funds were realized from the
sale of the Telegraph Group to enable the Company to repay
substantially all of its outstanding long-term debt.


Institute Strong Corporate Governance
Practices.The Company is committed to
the implementation and maintenance of strong and effective
corporate governance policies and practices and to high ethical
business practices.

Risk Factors

Certain statements contained in this report under
various sections, including but not limited to Business
Strategy and Managements Discussion and
Analysis of Financial Condition and Results of Operations,
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 to differ materially from those expressed
in any forward-looking statements made by, or on behalf of, the
Company:

Risks Relating to Recent
Developments



| |                                                                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Companys controlling stockholder
    may cause actions to be taken that are not supported by the
    Companys Board of Directors or management, and which might
    not be in the best interests of the Companys public
    stockholders.

The Company is controlled by Hollinger Inc., and
is indirectly controlled by Black through his control of
Ravelston, which in turn controls Hollinger Inc. Through its
controlling interest, Hollinger Inc. is able to determine the
outcome of all matters that require stockholder approval,
including the election of directors, amendment of the
Companys charter, adoption or amendment of bylaws and
approval of significant corporate transactions such as a sale of
assets. Hollinger Inc. can also have a significant influence
over decisions affecting the Companys capital structure,
including the incurrence of additional indebtedness and the
declaration of dividends.

As more fully described in its Report, the
Special Committee concluded that during the period from at least
1997 to at least 2003, Black, in breach of his fiduciary duties
as a controlling stockholder and officer and director, used his
control over the affairs of the Company to divert cash and
assets from the Company and to conceal his actions from the
Companys public stockholders. The SEC, in its complaint
filed with the federal court in Illinois on November 15,
2004, alleges that certain of the acts and omissions of Black
violated federal securities laws in several respects in the
period from at least 1999 to at least 2003. In addition, the
Delaware Chancery Court found that during the period from
November 2003 to early 2004, Black breached his fiduciary and
contractual duties persistently and seriously in
connection with the Strategic Process and purported to adopt
bylaws disabling the Board of Directors from protecting
the Company from his wrongful acts.

The Companys current management, the
Special Committee and the Corporate Review Committee, as well as
the SEC, have undertaken several actions designed to prevent
Black from repeating his past practices. The Court Order in the
January 2004 SEC Action, among other things, requires the
Company to comply with its undertaking to allow the Special
Committee to complete its work and provides for the appointment
of Breeden as a Special Monitor of the Company under certain
circumstances. For example, Breeden would become Special Monitor
upon the adoption of any resolution that discharges the Special
Committee before it completes its work, diminishes or limits the
powers of the Special Committee or narrows the scope of its
investigations or review, or if any directors are removed prior
to the end of their terms, or there is a failure to nominate or
re-elect any incumbent director (unless such director
voluntarily decides not to seek nomination or re-election to the
Board of Directors), or there is an election of any new person
as a director unless such action is approved by 80% of the then
incumbent directors. In addition, the Delaware Chancery Court
has enjoined Hollinger Inc. and Black from taking any action in
violation of the Restructuring Agreement, including interference
with the Strategic Process, until the earlier of
January 31, 2005 or the date of the

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completion of any distribution by the Company to
its stockholders of a portion of the proceeds from the sale of
the Telegraph Group.


Although the various court remedies are designed
to prevent Hollinger Inc. and Black from engaging again in
similar practices, there can be no assurance that they will
remain in place or will not be modified or vacated in the future
or that Hollinger Inc. or Black will comply with those remedies.
If any of these events were to occur, there is a risk that
Black, Ravelston and Hollinger Inc. will again use their control
over the affairs of the Company to repeat past practices
identified in the Report or otherwise take actions detrimental
to the public stockholders of the Company.



| |                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------
| | The Company may face interference by its
    controlling stockholder that will prevent it from recovering on
    its claims.

The Company, through the Special Committee, has
commenced litigation against Hollinger Inc., Black, other former
officers and current and former directors of the Company and
certain entities affiliated with the Companys controlling
stockholder. There is a material risk that the controlling
stockholder may attempt to thwart or obstruct the efforts of the
Company and the Special Committee and that if any such efforts
succeed, the Company may not fully recover on its claims. Even
without such interference, there can be no assurance that the
Company will prevail on its claims and damages allegations, or
that it will be able to collect money from any judgment it may
obtain against Hollinger Inc., Black and their co-defendants.



| |                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Continued scrutiny resulting from ongoing
    SEC investigations may have a material adverse effect on the
    Companys business and results of operations.

The Company has received various subpoenas and
requests from the SEC and other government agencies in the
United States and Canada, seeking the production of
documentation in connection with various investigations into the
Companys governance, management and operations. The
Company is cooperating fully with these investigations and is
complying with these requests. See Item 3 
Legal Proceedings for a more detailed description of these
investigations. On January 16, 2004, the Company consented
to the entry of the Court Order against it in the January 2004
SEC Action. The Court Order, among other things, enjoins the
Company from violating certain provisions of the Exchange Act,
including the requirements to file accurate annual reports on
Form 10-K, quarterly reports on Form 10-Q and keep
accurate books and records. As part of the Court Order, the
Company agreed that the SEC has the right to amend its complaint
in the January 2004 SEC Action to assert that the conduct
alleged in such action also violated other federal securities
laws, including the anti-fraud provisions of the Exchange Act,
and to add allegations of other conduct the SEC believes to have
violated federal securities laws. The Company cannot predict
when these government investigations will be completed, nor can
the Company predict what the outcome of these investigations may
be. It is possible that the Company will be required to pay
material amounts in disgorgement, interest and/or fines, consent
to or be subject to additional court orders or injunctions, or
suffer other sanctions, each of which could have a material
adverse effect on the Companys business and results of
operations.



| |                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------
| | The Companys controlling stockholder
    may take actions that trigger the Special Monitor provisions of
    the Court Order.

The Court Order, to which the Company consented,
provides for a Special Monitor under certain circumstances,
including the adoption of any resolution that discharges the
Special Committee before it completes its work, diminishes or
limits the powers of the Special Committee or narrows the scope
of its investigations or review, or if any directors are removed
prior to the end of their term, or there is a failure to
nominate or re-elect any incumbent director (unless such
director voluntarily decides not to seek nomination or
re-election to the Board of Directors), or there is an election
of any new person as a director unless such action is approved
by 80% of the then incumbent directors. Although nothing in the
Court Order prevents the Companys controlling stockholder
from changing the composition of the Board of Directors, the
Court Order may make it less likely that there will be any
changes in the composition of the Board of Directors while the
Court Order remains in effect. There is a risk, however, that
the Companys controlling stockholder will, by written
stockholder consent, make such change even while the Court Order
remains in effect. Under the terms

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of the Court Order, if the controlling
stockholder takes such an action, the Special Monitor would be
appointed. There may be further litigation concerning the
Special Monitor. The Special Monitors mandate will be to
protect the interests of the public stockholders of the Company
to the extent permitted by law, to prevent the dissipation of
assets of the Company, to investigate possible illegal or
improper conduct by the Company or any of its current or former
officers, directors, employees and agents, to recover property
of the Company and to assert claims on behalf of the Company
based upon his investigation, and he will be authorized to take
any steps he deems necessary to fulfill his mandate. The Company
will be required to fully cooperate with the Special Monitor, to
provide access to corporate records and to pay reasonable
compensation to the Special Monitor and any experts the Special
Monitor retains to assist the Special Monitor in performing his
duties.




| |                                                                            
| | ---------------------------------------------------------------------------
| | Pending litigation could have a material
    adverse effect on the Company.

The Company is currently involved, either as
plaintiff or as defendant, in several lawsuits, including: a
derivative action brought by Cardinal Value Equity Partners,
L.P. against certain of the Companys former executive
officers and certain of its current and former directors,
entities affiliated with them and the Company as
nominal defendant; purported class actions brought
by stockholders against it, certain former executive officers
and certain of its current and former directors, Hollinger Inc.,
Ravelston, other affiliated entities, Torys LLP, the
Companys former legal counsel and the Companys
independent registered public accounting firm, KPMG LLP; and,
several suits and counterclaims brought by Black and/or
Hollinger Inc. Tweedy Browne has also initiated a suit against
the Company for attorneys fees. In addition, Black has
commenced libel actions against certain of the Companys
current directors, officers and advisors to whom the Company has
indemnification obligations. See Item 3 
Legal Proceedings for a more detailed description of these
proceedings. Several of these actions remain in preliminary
stages and it is not yet possible to determine their ultimate
outcome. The Company cannot provide assurance that the legal and
other costs associated with the defense of all of these actions,
the amount of time required to be spent by management and the
Board of Directors in these matters and the ultimate outcome of
these actions will not have a material adverse effect on the
Companys business, financial condition and results of
operations.



| |                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------
| | The Companys senior management team
    is required to devote significant attention to matters arising
    from actions of prior management.

The efforts of the current senior management team
and Board of Directors to manage the Companys business
have been hindered at times by their need to spend significant
time and effort to resolve issues inherited from and arising
from the conduct of the prior senior management team and the
direct and indirect controlling stockholders. To the extent the
senior management team and the Board of Directors will be
required to devote significant attention to these matters in the
future, this may have, at least in the near term, an adverse
effect on operations.



| |                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------
| | Weaknesses in the Companys internal
    controls and procedures could have a material effect on the
    Company.

Based in part on the results of the
investigations of the Special Committee set forth in its Report,
the Companys management concluded that both significant
deficiencies and material weaknesses existed in the
Companys systems of internal controls and procedures prior
to, during the year ended and as of December 31, 2003. The
SEC, in its complaint filed with the federal court in Illinois
on November 15, 2004 naming Black, Radler and Hollinger
Inc. as defendants, alleges that Black, Radler and Hollinger
Inc. were liable for the Companys failure to devise and
maintain a system of internal accounting controls sufficient to
provide reasonable assurance that transactions were recorded as
necessary to permit preparation of financial statements in
conformity with U.S. generally accepted accounting principles
(GAAP) from at least 1999 through at least 2003. The
SEC also alleges that Black, Radler and Hollinger Inc., directly
and indirectly, falsified or caused to be falsified books,
records, and accounts of the Company in order to conceal their
self-dealing from the Companys public stockholders. In
addition, subsequent to December 31, 2003, the Company
became aware that circulation figures for the Chicago
Sun-Timesand certain other publications had been

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overstated for a number of years starting in
1997, and went undetected, largely as a result of the same
significant deficiencies and material weaknesses in internal
controls noted above. Current management has taken steps to
correct these deficiencies and weaknesses during and subsequent
to 2003, and believes that the Companys internal controls
and procedures have strengthened. However, it is possible that
the Company has not yet discovered or addressed all deficiencies
or weaknesses that may be material to the Companys
business, results of operations or financial position. See
Item 9A  Controls and Procedures.




| |                                                                                   
| | ----------------------------------------------------------------------------------
| | The Companys internal controls over
    financial reporting may not be effective.

Section 404 of the Sarbanes-Oxley Act of
2002 and related rules require that management document and test
the Companys internal control over financial reporting and
assert in the annual report for the year ended December 31,
2004 whether the Companys internal control over financial
reporting at December 31, 2004 was effective. In addition,
the Companys independent registered public accounting firm
must report on managements assessment and the
effectiveness of the Companys internal controls. Any
material weakness in internal control over financial reporting
existing at that date will preclude either management or the
independent registered public accounting firm from making
positive assertions.

The Company is in the process of documenting and
testing its internal control over financial reporting to provide
the basis for managements report. However, at this time,
due to the recent instances of breakdowns in the Companys
internal controls and procedures and the ongoing evaluation and
testing, it is possible that the Company will identify continued
material weaknesses in internal control over financial reporting
that will be required to be reported as of December 31,
2004.

In addition, the Companys independent
registered public accounting firm only recently completed their
audit of the 2003 consolidated financial statements and have not
yet provided the Company with a management letter in
connection with such audit. It is possible that, in connection
with their 2003 audit, the independent registered public
accounting firm will identify certain matters involving internal
controls over financial reporting and their operation that the
independent registered public accounting firm considers to be
reportable conditions under standards established by the
American Institute of Certified Public Accountants as well as
material weaknesses in internal controls over financial
reporting, which the Company would not have addressed prior to
December 31, 2004.



| |                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company has postponed the filing of its
    most recent quarterly reports, and material information
    concerning its current operating results and financial condition
    is therefore unavailable.

The Company has postponed the filing of its
periodic reports for the quarters ended March 31, 2004,
June 30, 2004 and September 30, 2004 and the required
pro forma financial information reflecting the sale of the
Telegraph Group on a current report on Form 8-K. Although
the Company intends to make these filings within a reasonable
time, it cannot state with certainty when complete financial and
operational information relating to its first three quarters of
2004 will become available. When these reports are filed they
may reflect changes or trends that are material to the
Companys business.



| |                                                                                                          
| | ---------------------------------------------------------------------------------------------------------
| | Blacks renunciation of his Canadian
    citizenship could negatively affect the Canadian
    Operations.

Under the Canadian Income Tax Act (the
ITA), there are limits on the deductibility by
advertisers of the cost of advertising in newspapers that are
not considered Canadian-owned under the ITA. The Canada Revenue
Agency (CRA) may find that, as a consequence of
Blacks renunciation of his Canadian citizenship in June
2001, certain of the Companys Canadian newspapers are no
longer considered to be Canadian-owned for purposes of the ITA.
Although the Company believes that it has a structure in place
that meets the ITA Canadian ownership rules for at least a
portion of the period since June 2001, that structure may be
challenged by the CRA. Should any challenge be successful,
advertisers might seek compensation from the Company for any
advertising costs disallowed or otherwise seek a reduction of
advertising rates for certain Canadian newspaper publications.

Additionally, one or more of the Companys
Canadian subsidiaries has received funding under a Canadian
governmental program that is intended to benefit entities that
are Canadian owned or controlled.

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The Canadian government could seek the return of
these funds as a result of Blacks renunciation of his
Canadian citizenship.




| |                                                                                                                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Actual cost of restitution and settlement
    of lawsuits related to overstatement of circulation figures of
    the Chicago Sun-Times may exceed current estimates;
    overstatement of circulation figures in the past may result in
    the loss of advertisers in the future.

In June 2004, the Company announced that the
Audit Committee had initiated an internal review into practices
that resulted in the overstatement of circulation figures for
the Chicago Sun-Times. Following the announcement,
several lawsuits were filed against the Company, some of which
are purported class actions composed of all persons who
purchased advertising space in the Chicago Sun-Times
during the period in which circulation figures were overstated.

In October 2004, the Company announced the
results of the internal review of the Audit Committee. The Audit
Committee determined that weekday and Sunday average circulation
of the Chicago Sun-Times, as reported in the audit
reports published by ABC commencing in 1998, had been
overstated. The Audit Committee found no overstatement of
Saturday circulation data. The Chicago Sun-Times
announced a plan intended to make restitution to its advertisers
for losses associated with the overstatements in the ABC
circulation figures. To cover the estimated cost of the
restitution and settlement of related lawsuits filed against the
Company, the Company recorded pre-tax charges of approximately
$24.1 million for 2003 and approximately $2.9 million
for the first quarter of 2004. The Company will evaluate the
adequacy of the accruals as negotiations with advertisers
proceed. If the actual total cost of restitution and settlement
of related lawsuits significantly exceeds the Companys
current estimates this could have an adverse effect on the
Companys results of operations and liquidity.

In addition, a significant portion of the
Companys revenue is derived from the sale of advertising
space in the Chicago Sun-Times. Should certain
advertisers decide not to advertise with the Chicago
Sun-Times in the future, the Companys business,
results of operations and financial condition could be adversely
affected.

Risks Relating to the Companys Business
and the Industry



| |                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------
| | The Companys revenues are cyclical
    and dependent upon general economic conditions in the
    Companys newspapers target markets.

Advertising and circulation are the
Companys two primary sources of revenue. The
Companys advertising revenues and, to a lesser extent,
circulation revenues are cyclical and dependent upon general
economic conditions in the Companys newspapers
target markets. 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. Advertising revenue for the Chicago Group in 2003
was up by $10.8 million or 3.2% over the prior year.
However, the Companys dependency on advertising sales,
which generally have a short lead-time, means that the Company
has only a limited ability to accurately predict future results.



| |                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------
| | The Company is a holding company and relies
    on the Companys subsidiaries to meet its financial
    obligations.

The Company is a holding company and its assets
consist primarily of investments in subsidiaries and affiliated
companies. The Company relies on distributions from subsidiaries
to meet its financial obligations. The Companys ability to
meet its future financial obligations may be dependent upon the
availability of cash flows from its domestic and foreign
subsidiaries through dividends, intercompany advances,
management fees and other payments. Similarly, the
Companys ability to pay dividends on its common stock may
be limited as a result of being dependent upon the distribution
of earnings of the Companys 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 domestic and foreign
subsidiaries, are subject to statutory restrictions and may
become subject to restrictions in future debt agreements that
limit their ability to pay dividends.

23



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##### Table of Contents





| |                                                           
| | ----------------------------------------------------------
| | The Company has substantial potential tax
    liabilities.

The Companys Consolidated Balance Sheet as
of December 31, 2003 includes $748.8 million of
accruals intended to cover contingent liabilities related to
additional taxes and interest it may be required to pay in
various tax jurisdictions. A substantial portion of these
accruals relate to the tax treatment of gains on the sale of a
portion of the Companys non-U.S. operations. The
accruals to cover contingent tax liabilities also relate to
management fees, non-competition payments and other
items that have been deducted in arriving at taxable income,
which deductions may be disallowed by taxing authorities. If
those deductions were to be disallowed, the Company would be
required to pay additional taxes and interest since the dates
such taxes would have been paid had the deductions not been
taken, and it may be subject to penalties. The Company will
continue to record accruals for interest that it may be required
to pay with respect to its contingent tax liabilities.

Although the Company believes that it has
defensible positions with respect to significant portions of
these tax liabilities, there is a risk that the Company may be
required to make payment of the full amount of such tax
liabilities. Although these accruals for contingent tax
liabilities are reflected in the Companys Consolidated
Balance Sheet, if the Company were required to make payment of
the full amount, this could result in a significant cash payment
obligation. The actual payment of such cash amount could have a
material adverse effect on the Companys liquidity and on
the Companys ability to borrow funds.



| |                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company has substantial accruals for
    tax contingencies in a foreign jurisdiction; if payments are
    required, a portion may be paid with funds denominated in
    U.S. dollars.

The Companys Consolidated Balance Sheet at
December 31, 2003 includes $455.6 million of accruals
for tax contingencies in a foreign jurisdiction. The accruals
are denominated in foreign currency and translated into
U.S. dollars at the period-end currency exchange rate
effective as of each balance sheet date. If the Company were
required to make payments with respect to such tax
contingencies, it may be necessary for the Company to transfer
U.S. dollar-denominated funds to its foreign subsidiaries
to fund such payments. The amount of
U.S. dollar-denominated funds that may need to be
transferred will depend primarily on the resolution of the
matters described in the preceding paragraph. The amount of
U.S. dollar-denominated funds that may need to be
transferred also will depend upon the currency exchange rate
between the U.S. dollar and the foreign currency at the
time or times such funds might be transferred. The Company
cannot predict future currency exchange rates. Changes in the
exchange rate could have a material effect on the Companys
financial position, results of operations and cash flows,
depending on the extent and timing of transfers of funds, if any
are required.



| |                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------
| | Newsprint represents the Companys
    single largest raw material expense and increases in the price
    of newsprint could decrease net income.

Newsprint represents the Companys single
largest raw material expense and is the most significant
operating cost, other than employee costs. In 2003, newsprint
costs represented approximately 14.0% of revenues. Newsprint
costs vary widely from time to time and trends in pricing can
vary between geographic regions. If newsprint prices increase in
the future and the Company is unable to pass these costs on to
customers, such increases may have a material adverse effect on
the Companys results of operations. Although the Company
has, in the past, implemented measures in an attempt to offset a
rise in newsprint prices, such as reducing page width where
practical and managing waste through technology enhancements,
price increases have in the past had a material adverse effect
on the Company and may do so again in the future.



| |                                                                                                                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Competition in the newspaper industry
    originates from many sources. The advent of new technologies and
    industry practices, such as the provision of newspaper content
    on free Internet sites, may decrease sales or force the Company
    to make other changes that harm operating
    performance.

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,

24



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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
has. The Company may experience price competition from competing
newspapers and other media sources in the future. In addition,
competing newspapers in certain markets have added new, free
publications that target similar demographics to those that are
particularly strong for some of the Companys newspapers.
Lastly, the use of alternative means of delivery, such as free
Internet sites, for news and other content, has increased
significantly in the past few years. Should significant numbers
of customers choose to receive content using these alternative
delivery sources rather than the Companys newspapers, the
Company may be forced to decrease the prices charged for the
Companys newspapers or make other changes in the way the
Company operates, or the Company may face a long-term decline in
circulation, any or all of which may harm the Companys
results of operations and financial condition.




| |                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------
| | The Companys publications have
    experienced declines in circulation in the past and may do so in
    the future.

The Chicago Sun-Timeshas experienced
declines in circulation. Any declines in circulation the Company
may experience at its publications could have a material adverse
impact on the Companys business and results of operations,
particularly on advertising revenue. Any future significant
declines in circulation could lead to a material adverse effect
in addition to that occasioned by the previously described
overstatement of circulation. Significant declines in
circulation could result in an impairment of the value of the
Companys intangible assets, which could have a material
adverse effect on the Companys results of operations and
financial position.



| |                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company may experience labor disputes,
    which could slow down or halt production or distribution of the
    Companys newspapers or other publications.

Approximately 36% of the Chicago Group employees
are represented by labor unions and those employees are mostly
covered by collective bargaining or similar agreements which are
regularly renewable. A work stoppage or strike may occur prior
to the expiration of the current labor agreements or during
negotiations of new labor agreements or extensions of existing
labor agreements. Work stoppages or other labor-related
developments could slow down or halt production or distribution
of the newspapers, which would adversely affect results of
operations.



| |                                                                                                   
| | --------------------------------------------------------------------------------------------------
| | A substantial portion of the Companys
    operations are concentrated in one geographic
    area.

The geographic diversification the Company
previously experienced has been substantially curtailed. With
the sale of the Telegraph Group in July 2004, and The
Jerusalem Post in December 2004, approximately 85% of the
Companys revenue for the year ended December 31,
2003, excluding the U.K. Newspaper Group and The Jerusalem
Post and related publications, and a major portion of the
Companys business activities are concentrated in the
greater Chicago metropolitan area. As a result, the
Companys revenues are heavily dependent on economic and
competitive factors affecting the greater Chicago metropolitan
area.

Risks Related to Voting Control by a Single
Stockholder



| |                                                                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Companys controlling stockholder
    has used its control over the affairs of the Company to engage
    in activities that were not in the best interests of the
    Companys public stockholders; there is a risk that the
    controlling stockholder will use its control in a similar way in
    the future.

The Company is controlled by Hollinger Inc., and
is indirectly controlled by Black through his control of
Ravelston, which in turn controls Hollinger Inc. Through its
controlling interest, Hollinger Inc. is able to control the
affairs of the Company. As more fully described above under
Risks Relating to Recent Developments, and as
detailed in the Report, in the past, Hollinger Inc. and Black
have used their control over the Company to engage in practices
that conflicted with the interests of the Companys public

25



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stockholders. Although the Companys current
management, the Special Committee and the Corporate Review
Committee, as well as the SEC, have undertaken several actions
designed to prevent Hollinger Inc. and Black from engaging again
in similar practices, there can be no assurance that they will
remain in place or will not be modified or vacated in the near
future or that Hollinger Inc. and Black will comply with these
remedies. Thus, there is a risk that Hollinger Inc. and Black
will attempt to exercise their control in the future in a manner
contrary to the interests of public stockholders.




| |                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | There could be a change of control of the
    Company through a change in control of Hollinger Inc. under
    circumstances not approved by the independent directors of the
    Company.

Hollinger Inc., Ravelston and Black are currently
restricted in their ability to sell their beneficial interests
in the Company to third parties by the terms of an order of the
Delaware Chancery Court, the Restructuring Agreement and the
Companys SRP. The scope and time of these restrictions are
the subject of legal proceedings pending before the Delaware
Supreme Court and the final outcome is uncertain.

If Hollinger Inc., Ravelston and Black were not
restricted in their ability to sell their beneficial controlling
interest in the Company, and they chose to make such a sale,
such a sale could result in a change of control of the Company
under circumstances not approved by the independent directors of
the Company.

Under the terms of the Restructuring Agreement,
Black agreed, among other things, that the Company would hire
Lazard as financial advisor to pursue the Strategic Process.
Black agreed that during the pendency of the Strategic Process,
in his capacity as the majority stockholder of Hollinger Inc.,
he would not support a transaction involving ownership interests
in Hollinger Inc. if such transaction would negatively affect
the Companys ability to consummate a transaction resulting
from the Strategic Process, unless such a transaction involving
Hollinger Inc. was necessary to enable it to avoid a material
default or insolvency.

In January 2004, Black attempted to sell his
controlling interest in Hollinger Inc. as part of the Hollinger
Sale. The Company filed a suit in the Delaware Chancery Court
for judgment declaring that, among other things, the Hollinger
Sale violated the terms of the Restructuring Agreement. The
Delaware Chancery Court, among other things, has enjoined Black
and Hollinger Inc. from taking any action to consummate any
transaction in violation of the provisions of the Restructuring
Agreement, including the Hollinger Sale. On October 29,
2004, the Company, Hollinger Inc. and Black entered into the
Extension Agreement to voluntarily extend the injunction until
the earlier of January 31, 2005 or the date of the
completion of a distribution by the Company to its stockholders
of a portion of the proceeds of the Companys sale of the
Telegraph Group. On October 30, 2004, the court issued an
order extending the injunction as provided in, and incorporating
the other terms of, the Extension Agreement.

In February 2004, the Company adopted a
shareholder rights plan. This SRP is designed to prevent any
third person from acquiring, directly or indirectly, without the
approval of the Companys Board of Directors (or Corporate
Review Committee of the Board of Directors), a beneficial
interest in the Companys Class A Common Stock and
Class B Common Stock that represents over 20% of the
outstanding voting power of the Company. Through its ownership
of all outstanding Class B Common Stock, Hollinger Inc.
currently controls approximately 66.8% of the Companys
outstanding voting power, which ownership is excluded from
triggering the provisions of the SRP. However, a transaction
resulting in a change of control in Hollinger Inc., without the
approval of the Companys Board of Directors (or the
Corporate Review Committee), would have the effect of triggering
the SRP. As part of its June 2004 judgment, the Delaware
Chancery Court upheld the validity of the plan as to its effect
on Hollinger Inc. However, Black and Hollinger Inc. have
appealed the courts judgment. There can be no assurance
that the plan will be upheld on appeal.

The Company is unable to determine what impact,
if any, a change of control may have on the Companys
corporate governance or business initiatives.

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| |                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company is a party to a Business
    Opportunities Agreement with Hollinger Inc., the terms of which
    limit the Companys ability to pursue certain business
    opportunities in certain countries.

The Business Opportunities Agreement sets forth
the terms under which Hollinger Inc. and the Company will
resolve conflicts over business opportunities. The Company and
Hollinger Inc. agreed to allocate to the Company opportunities
relating to the start-up, acquisition, development and operation
of newspaper businesses and related media businesses in the
United States, Israel, the United Kingdom and other member
states of the European Union, Australia and New Zealand and to
Hollinger Inc. opportunities relating to the start-up,
acquisition, development and operation of media businesses,
other than related media businesses, globally and newspaper
businesses and related media businesses in Canada. For purposes
of the agreement, newspaper business means the
business of publishing and distributing newspapers, magazines
and other paid or free publications having national, local or
targeted markets, media business means the business
of broadcast of radio, television, cable and satellite programs,
and related media business means any media business
that is an affiliate of, or is owned or operated in conjunction
with, a newspaper business. The terms of the Business
Opportunities Agreement will be in effect for so long as
Hollinger Inc. holds at least 50% of the Companys voting
power. See Item 13  Certain Relationships
and Related Transactions  Business Opportunities
Agreement.

The Business Opportunities Agreement may have the
effect of preventing the Company from pursuing business
opportunities that the Companys management would have
otherwise pursued.



| |                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If Hollinger Inc., the Companys
    immediate parent company, sought protection from its creditors
    or became the subject of bankruptcy or insolvency proceedings
    there may be harm to and there may be a change of control of the
    Company.

Hollinger Inc. has publicly stated that as of
December 15, 2004, Hollinger Inc. owned, directly or
indirectly 782,923 shares of the Companys
Class A Common Stock and 14,990,000 shares of the
Companys Class B Common Stock (which represent all of
the issued and outstanding shares of Class B Common Stock).
All of the direct and indirect interest of Hollinger Inc. in the
shares of the Companys Class A Common Stock is being
held in escrow with a licensed trust company in support of
future retractions of Hollinger Inc.s Series II
Preference Shares and all of the direct and indirect interest of
Hollinger Inc. in the shares of the Companys Class B
Common Stock is pledged as security in connection with Hollinger
Inc.s outstanding 11 7/8% Senior Secured Notes due 2011
and 11 7/8% Second Priority Secured Notes due 2011. Hollinger
Inc. reported that, as of the close of business on
December 10, 2004, $78.0 million principal amount of
the Senior Secured Notes and $15.0 million principal amount
of the Second Priority Secured Notes were outstanding.

Under the terms of the Series II Preference
Shares of Hollinger Inc., each Preference Share may be retracted
by its holder for 0.46 of a share of the Companys
Class A Common Stock. Until the Series II Preference
Shares are retracted in accordance with their terms, Hollinger
Inc. may exercise the economic and voting rights attached to the
underlying shares of the Companys Class A Common
Stock.

Hollinger Inc. has relied on payments from
Ravelston to fund its operating losses and service its debt
obligations. Ravelston financed its support of Hollinger Inc.,
in part, from the management fees received from the Company
under the terms of the management services agreement with RMI.
The Company terminated this agreement effective June 1,
2004.

If Hollinger Inc. or any of its subsidiaries that
own shares of Class A or Class B Common Stock of the
Company were to commence proceedings to restructure its
indebtedness under the Companies Creditors Arrangement Act
(Canada), (the CCAA), or became the subject of an
insolvency or liquidation proceeding under the Bankruptcy and
Insolvency Act (Canada) (the BIA) or enforcement
proceedings by the pledgee, the collectibility of amounts owed
by Hollinger Inc. to the Company may be negatively impacted.

In any such proceedings, issues may arise in
connection with any transfer or attempted transfer of shares of
the Companys Class B Common Stock. Under the terms of
the Companys certificate of incorporation, such transfers
may constitute a non-permitted transfer. In the event of a
non-permitted transfer, the Class B Common Stock would
automatically convert into Class A Common Stock as a result
of which the controlling

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##### Table of Contents



voting rights currently assigned to the
Class B Common Stock would be eliminated. There is a risk
that this result would be challenged in court by Hollinger Inc.
or its insolvency representatives.


In an insolvency or secured creditor enforcement
proceeding, the ownership rights, including voting rights,
attached to the shares of the Companys Class A and
Class B Common Stock would be exercised with a view to
maximizing value for the secured creditors and other
stakeholders of Hollinger Inc. Since the interests of secured
creditors and other stakeholders of Hollinger Inc. may not be
aligned with the interests of the Companys public
stockholders, actions might be taken that are not in the best
interests of the Companys public stockholders.

Description of Historical Business

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. The Company divides its business
into four principal segments; the Chicago Group, the U.K.
Newspaper Group, the Community Group and the Canadian Newspaper
Group. In addition, the Companys operations include its
Investment and Corporate Group, which performs various
administrative and corporate functions. On July 30, 2004,
the Company sold the Telegraph Group which carried out the
operations of the U.K. Newspaper Group. See
Item 1  Recent Developments 
Sale of the Telegraph Group. On December 15, 2004,
the Company completed the sale of The Palestine Post, the
publisher of The Jerusalem Post and related publications,
which represented substantially all of the assets and operations
of the Community Group. See Item 1  Recent
Developments  Sale of The Jerusalem Post.



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

The Chicago Group consists of more than 100
newspapers in the greater Chicago metropolitan area including
the Chicago Sun-Times, the Post Tribunein
northwest Indiana and Chicagos Daily Southtown. The
Chicago Groups other newspaper properties in the greater
Chicago metropolitan area include:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Pioneer Newspapers Inc. (Pioneer),
    which currently publishes 57 weekly newspapers in
    Chicagos northern and northwestern suburbs;                                                                                                                                                                                                                                                         
|
| |  | Midwest Suburban Publishing Inc., which in
    addition to the Daily Southtown, publishes 23 biweekly
    newspapers, 13 weekly newspapers and four free distribution
    papers primarily in Chicagos southern and southwestern
    suburbs;                                                                                                                                                      
|
| |  | Fox Valley Publications Inc., which does business
    as Chicago Suburban Newspapers and publishes five daily
    newspapers (The Herald News, The Beacon News, The Courier
    News, The News Sunand The Naperville Sun), and 13
    free distribution newspapers and six free total market coverage
    (TMC) products in the fast growing counties
    surrounding Chicago and Cook County; and
|
| |  | Post Tribune, located in northwest Indiana,
    publishes a daily newspaper, a weekly newspaper and one TMC
    product.                                                                                                                                                                                                                                                                            

Sources of Revenue.The Chicago Groups revenues were 42.5%, 43.9% and 38.6% of
the Companys consolidated revenues in 2003, 2002 and 2001,
respectively. The following table sets forth the sources of
revenue and the percentage such sources represent of total
revenues for the Chicago Group during the three years ended
December 31, 2003.

|                       |  |                         |         |      |  |      |     |   |  |   |         |  |  |  |     |   |  |   |         |  |  |  |     |  
|---------------------- |  | ----------------------- | ------- | ---- |  | ---- | --- | - |  | - | ------- |  |  |  | --- | - |  | - | ------- |  |  |  | --- | -
|                       |  |                        
|                       |  | Year Ended December 31,
|                       |  |                        
|                       |  |                         |         |      |  |     
|                       |  | 2003                    |         | 2002 |  | 2001
|                       |  |                         |         |      |  |     
|                       |  |                         |         |      |  |      |     |   |  |  
|                       |  |                        
|                       |  | (Dollars in thousands) 
|Advertising            |  | $                       | 352,029 |      |  |      | 78  | % |  | $ | 341,262 |  |  |  | 77  | % |  | $ | 338,521 |  |  |  | 76  | %
|Circulation            |  |                         | 86,532  |      |  |      | 19  |   |  |   | 89,427  |  |  |  | 20  |   |  |   | 92,716  |  |  |  | 21  |  
|Job printing and Other |  |                         | 12,228  |      |  |      | 3   |   |  |   | 11,089  |  |  |  | 3   |   |  |   | 11,647  |  |  |  | 3   |  
|                       |  |                         |         |      |  |      |     |   |  |   |         |  |  |  |     |   |  |   |         |  |  |  |     |  
|Total                  |  | $                       | 450,789 |      |  |      | 100 | % |  | $ | 441,778 |  |  |  | 100 | % |  | $ | 442,884 |  |  |  | 100 | %
|                       |  |                         |         |      |  |      |     |   |  |   |         |  |  |  |     |   |  |   |         |  |  |  |     |  

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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 on, among other things, circulation, readership,
penetration and type of advertising (whether classified,
national or retail). In 2003, retail advertising accounted for
the largest share of advertising revenues (44%), followed by
classified (39%) and national (17%). The Chicago Sun-Timesoffers a variety of advertising alternatives, including
full-run advertisements, geographically zoned issues, special
interest pullout sections and advertising supplements in
addition to regular sections of the newspaper targeted to
different readers. The Chicago area suburban newspapers also
offer similar alternatives to the Chicago Sun-Timesplatform 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 and allows it to offer
local advertisers geographically and demographically targeted
advertising solutions and national advertisers an efficient
one-stop vehicle to reach the entire Chicago market.

Circulation.Circulation revenues are derived primarily from two sources. The
first is sales of single copies of the newspaper made through
retailers and vending racks, and the second is home delivery
newspaper sales to subscribers. In calendar year 2003,
approximately 60% of the copies of the Chicago Sun-Timesreported as sold and 60% of the circulation revenues
generated were attributable to single-copy sales. Approximately
79% of 2003 circulation revenues of the Companys suburban
newspapers were derived from home delivery subscription sales.
When the copies of the Chicago Sun-Times sold in calendar
year 2003 are adjusted to eliminate the inflation of single-copy
sales, discussed below, the percentage of copies sold
attributable to single-copy sales drops to approximately 56%;
the revenue percentage remains the same because the inflation
techniques did not inflate revenue.

U.S. newspaper circulation is reported annually
in an audit report published by the ABC. Circulation data for
the 52 week period ending on the last day of the first
quarter of each year is audited by ABC and published in an audit
report dated April 1 of the following year. Therefore, for
example, circulation occurring in the twelve months ended
March 31, 2002 was publicly reported in the audit report
dated April 1, 2003.

The average daily (i.e. Monday through Friday),
Saturday and Sunday circulation of the Chicago Sun-Times
reported in the ABC audit report dated April 1, 2004 was
482,421, 307,324, and 376,401 copies, respectively. As discussed
below, these daily and Sunday circulation figures were
overstated. As noted in Item 1 
Business  Recent Developments, the Audit
Committee initiated an internal review into practices that
resulted in the overstatement of Chicago Sun-Times daily
and Sunday circulation and determined that inflation of daily
and Sunday single-copy circulation of the Chicago
Sun-Times began modestly in the late 1990s and
increased over time. The Audit Committee concluded that the
report of the Chicago Sun-Times circulation published in
April 2004 by ABC, overstated single-copy circulation by
approximately 50,000 copies on weekdays and approximately
17,000 copies on Sundays. That published audit report
reflected inflated circulation during the 53 week period
ended March 30, 2003. The Audit Committee determined that
inflation of single-copy circulation continued until all
inflation was discontinued in early 2004. The inflation
occurring after March 30, 2003 did not affect public
disclosures of circulation. The Company has implemented
procedures to help ensure that circulation overstatements do not
occur in the future.

The most recent ABC audit reports for other
papers produced by the Chicago Group disclosed daily and Sunday
paid circulation of the Daily Southtown of approximately
48,000 and 53,000, respectively; daily and Sunday paid
circulation of the Post-Tribune of approximately 66,000
and 71,000 respectively; and aggregate daily and Sunday paid
circulation of the Chicago Suburban Newspapers of approximately
125,000 and 136,000, respectively. The reported aggregate
circulation for the free TMC products disclosed in the most
recent ABC audit report was approximately 211,000 copies.
Pioneer has reported weekly paid circulation of approximately
187,000 copies and Midwest Suburban Publishing Inc. has
23 bi-weekly newspapers with paid Thursday circulation of
approximately 49,000 copies and Sunday circulation of
approximately 47,000 copies.

Other Publications and Business
Enterprises.The Chicago Group
continues to strengthen its online presence. Suntimes.com
and the related Chicago Group websites have approximately
2.5 million unique users with some 35 million-page
impressions per month. The www.classifiedschicago.com
regional classified-advertising website, which is a partnership
with Paddock Publications, pools classified advertisements from
all

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Chicago Group publications, as well as Paddock
Publications metropolitan daily creating a valuable venue
for advertisers, readers and on-line users. Additionally,
www.DriveChicago.com continues to be a leader in
automotive websites. This website, which represents a
partnership with the Chicago Automobile Trade Association, pools
the automotive classified advertising of three of the
metropolitan Chicago areas biggest dailies with the
automotive inventories of many of Chicagos new car
dealerships. In 2004, the Chicago Group launched
www.chicagojobs.com, a partnership with Paddock
Publications and Shaker Advertising, one of the largest
recruitment agencies in the Chicago market. The website provides
online users and advertisers an extremely robust employment
website that is one of the best in the Chicago market.


Sales and Marketing.Each operating division in the Chicago Group has its own
marketing department that works closely with both advertising
and circulation sales and marketing teams to introduce new
readers to the Companys newspapers through various
initiatives. The Chicago Sun-Times marketing department
uses strategic alliances at major event productions and sporting
venues, for on-site promotion and to generate subscription
sales. The Chicago Sun-Timeshas media relationships with
local TV and radio outlets that has given it a presence in the
market and enabled targeted audience exposure. Similarly at Fox
Valley Publications, Pioneer and Midwest Suburban Publishing,
marketing professionals work closely with circulation sales
professionals to determine circulation promotional activities,
including special offers, sampling programs, in-store kiosks,
sporting event promotions, dealer promotions and community event
participation. In-house printing capabilities allow the Fox
Valley marketing department to offer direct mail as an
enhancement to customers run of press advertising
programs. Midwest Suburban Publishing, like the other operating
divisions, generally targets readers by zip code and has
designed a marketing package that combines the strengths of its
daily and bi-weekly publications. The Post-Tribunemarketing department focuses on attracting readers in areas
with zip codes that major advertisers have identified as being
the most attractive.

Distribution.The
Company has gained benefits from its clustering strategy. In
recent years, the Company has succeeded in combining
distribution networks within the Chicago Group where circulation
overlaps. The Chicago Sun-Timesis distributed through
both an employee and contractor network depending upon the
geographic location. The Chicago Sun-Timestakes
advantage of a joint distribution program with its sister
publications, Fox Valley Publications and Midwest Suburban
Publishing. The Chicago Sun-Timeshas approximately 6,000
street newspaper boxes and more than 8,400 newsstands and over
the counter outlets from which single copy newspapers are sold,
as well as approximately 270 street hawkers selling
the newspapers in high-traffic urban areas. Midwest Suburban
Publishings Daily Southtownis distributed
primarily by Chicago Sun-Timesindependent contractors.
Additionally, in certain western suburbs, the Daily Southtownhas a joint distribution program with Fox Valley
Publications. The Daily Southtownand its sister
publication, The Star, are also distributed in
approximately 2,100 outlets and newspaper boxes in
Chicagos southern suburbs and Chicagos south side
and downtown areas. Midwests Penny Saveris
distributed through the United States Postal Service and through
independent contractors. Approximately 82% of Fox Valley
Publicationss circulation is from home delivery
subscriptions. While 83% of the Post-Tribunes circulation
is by home delivery, it also distributes newspapers to
approximately 620 retail outlets and approximately 420 single
copy newspaper boxes. Pioneer has a solid home delivery base
that represents 96% of its circulation. Pioneer is also
distributed to approximately 80 newspaper boxes and is in more
than 800 newsstand locations.

Printing.The
Chicago Sun-Times Ashland Avenue printing facility
was completed in April 2001 and gave the Chicago Group printing
presses with the quality and speed necessary to effectively
compete with the other regional newspaper publishers. Fox Valley
Publications 100,000 sq. ft. plant, which has
been operating since 1992, houses a state-of-the-art printing
facility in Plainfield, Illinois, which prints all of its
products. Midwest Suburban Publishing prints all of its
publications at its South Harlem Avenue facility in Chicago.
Pioneer prints the main body of its weekly newspapers at its
Northfield production facility. In order to provide advertisers
with more color capacity, certain of Pioneers
newspapers sections are printed at the Chicago
Sun-Times Ashland Avenue facility. The Post-Tribune has one
press facility in Gary, Indiana. The Chicago Group has been
successful in implementing new production technology, sharing
resources and excess capacity available during certain print
windows to achieve cost savings and effectively
compete for commercial print jobs.

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Competition.Each of
the Companys Chicago area newspapers competes to varying
degrees with radio, broadcast and cable 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 comprises Cook
County and six surrounding counties and is served by eight local
daily newspapers of which the Company owns six. The Chicago
Sun-Timescompetes in the Chicago region with the Chicago
Tribune, a large established metropolitan daily and Sunday
newspaper. In addition, the Chicago Sun-Timesand other
Chicago Group newspapers face competition from other newspapers
published in adjacent or nearby locations and circulated in the
Chicago metropolitan area market. In 2002, the Chicago
Sun-Times launched Red Streak, a newspaper targeted
at younger readership in the region. The majority of the
editorial content is derived from the Chicago Sun-Times.
This paper is intended to serve as an effective vehicle to
compete with the Red Eye (a publication of the Tribune
Company).

Employees and Labor
Relations.As of December 31,
2003, the Chicago Group employed approximately 3,200 employees
including approximately 520 part-time employees. Of the
2,674 full-time employees, 678 were production staff, 653
were sales and marketing personnel, 360 were circulation staff,
220 were general and administrative staff, 741 were editorial
staff and 22 were facilities staff. Approximately
1,150 employees were represented by 23 collective
bargaining units. Employee costs (including salaries, wages,
fringe benefits, employment-related taxes and other direct
employee costs) equaled approximately 37.8% of the Chicago
Groups revenues in the year ended December 31, 2003.

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
primary raw material for newspapers is newsprint. In 2003,
approximately 138,000 tonnes were consumed. Newsprint costs
equaled approximately 14.4% of the Chicago Groups
revenues. Average newsprint prices for the Chicago Group
decreased approximately one percent in 2003 from 2002. 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. The Chicago Group
believes that its sources of supply for newsprint are adequate
for its anticipated needs.

U.K. Newspaper Group

On July 30, 2004, the Company completed the
sale of the Telegraph Group which carried out the operations of
the U.K. Newspaper Group. See Item 1 
Recent Developments  Sale of the Telegraph
Group. The following information reflects the
U.K. Newspaper Groups business while the Telegraph
Group was owned by the Company. The U.K. Newspaper Groups
operations included The Daily Telegraph, The Sunday
Telegraph, The Weekly Telegraph, telegraph.co.uk, and
The Spectatorand Apollomagazines.

Sources of Revenue.The U.K. Newspaper Groups revenues were 49.0%, 47.9% and
42.4% of the Companys consolidated revenues in 2003, 2002
and 2001, respectively. The following table sets forth the
sources of revenue and their percentage of total revenues for
the U.K. Newspaper Group during the three years ended
December 31, 2003.

|            |  |                                           |         |      |  |      |     |   |  |   |         |  |  |  |     |   |  |   |         |  |  |  |     |  
|----------- |  | ----------------------------------------- | ------- | ---- |  | ---- | --- | - |  | - | ------- |  |  |  | --- | - |  | - | ------- |  |  |  | --- | -
|            |  |                                          
|            |  | Year Ended December 31,                  
|            |  |                                          
|            |  |                                           |         |      |  |     
|            |  | 2003                                      |         | 2002 |  | 2001
|            |  |                                           |         |      |  |     
|            |  |                                           |         |      |  |      |     |   |  |   |         | 
|            |  |                                          
|            |  | (In thousands of British pounds sterling)
|Advertising |  | £                                         | 195,462 |      |  |      | 62  | % |  | £ | 211,045 |  |  |  | 66  | % |  | £ | 228,715 |  |  |  | 68  | %
|Circulation |  |                                           | 105,961 |      |  |      | 33  |   |  |   | 93,640  |  |  |  | 29  |   |  |   | 94,502  |  |  |  | 28  |  
|Other       |  |                                           | 16,377  |      |  |      | 5   |   |  |   | 16,261  |  |  |  | 5   |   |  |   | 14,252  |  |  |  | 4   |  
|            |  |                                           |         |      |  |      |     |   |  |   |         |  |  |  |     |   |  |   |         |  |  |  |     |  
|Total       |  | £                                         | 317,800 |      |  |      | 100 | % |  | £ | 320,946 |  |  |  | 100 | % |  | £ | 337,469 |  |  |  | 100 | %
|            |  |                                           |         |      |  |      |     |   |  |   |         |  |  |  |     |   |  |   |         |  |  |  |     |  

Advertising.Advertising is the largest source of revenue at the Telegraph
Group. The Daily Telegraph and The Sunday
Telegraph display advertising strengths in the financial,
automobile and travel sections. The

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level of classified advertisements, especially
recruitment advertisements, has historically fluctuated with the
economy. Classified advertising revenue represented 27% of total
advertising revenue in 2003. Recruitment advertising was the
largest classified advertising category, representing about 32%
of all classified advertising in terms of revenue in 2003.


Circulation.In
2003, The Daily Telegraph had an average net circulation
of approximately 925,000 and The Sunday Telegraph had an
average net circulation of approximately 717,000. The Daily
Telegraph had 311,000 pre-paid non-postal subscriptions.
The Sunday Telegraph was the second highest circulation
quality Sunday newspaper in the U.K.

Other Publications and Business
Enterprises.The Telegraph Group is
involved in several other publications and business enterprises,
including The SpectatorandApollo magazines,
The Weekly Telegraphnewspaper and telegraph.co.uk(formerly Electronic Telegraph). Telegraph.co.ukhad approximately 3.0 million unique users with some
30.0 million page impressions per month in 2003.

Sales and Marketing.The Telegraph Groups marketing department helps introduce
new readers to its newspapers through strategic marketing
initiatives. The Telegraph Group uses research groups that seek
the views of readers and non-readers providing useful
information to better target editorial, promotional and
commercial activities. In addition, the direct marketing
department is responsible for the development of a customer
contact strategy, circulation initiatives such as subscription
programs, discount vouchers supporting the launch of new
sections and supplements, and various support promotions.

Distribution.The
Telegraph Groups newspapers are distributed to wholesalers
by truck under a contract with a subsidiary of TNT Express
(U.K.) Limited (TNT). The 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 with TNT was
entered into by West Ferry Printers, a joint venture of the
Telegraph Group and another British newspaper publisher.

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 Group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 2003, home deliveries accounted for
approximately 45% of sales of both The Daily Telegraphand The Sunday Telegraph.

Printing.The
majority of copies of The Daily Telegraphand The
Sunday Telegraphare printed by West Ferry Printers and
another joint venture, Trafford Park Printers. The magazine
sections of the Saturday edition of The Daily Telegraphand of The Sunday Telegraphare printed under
contract by external magazine printers. The Telegraph Group also
prints the majority of its overseas copies under contracts with
external printers in Northern Ireland, Spain and Belgium.

Major capital expenditures at each joint venture
require the approval of the Boards of Directors of the joint
venture partners. There is high utilization of the plants at
West Ferry Printers and Trafford Park Printers, with little
spare capacity.

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

Competition.The
Telegraph Group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. The Daily
Telegraphs primary competition in the United Kingdom
is The Times.

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Employees and Labor
Relations.At December 31, 2003,
the Telegraph Group and its subsidiaries employed approximately
1,238 persons and the joint venture printing companies
employed an additional 917 persons. Of the Telegraph
Groups approximately 1,238 employees, 49 were
production staff, 397 were sales and marketing personnel, 204
were general and administrative staff and 588 were editorial
staff.

Raw Materials.Newsprint represents the single largest expense next to employee
costs. Approximately 146,000 tonnes of newsprint are consumed
annually. In 2003, the total cost was approximately 14.5% of the
U.K. Newspaper Groups revenues. Prices were fixed
throughout 2003 at levels some 7.6% below the average price paid
during 2002. Negotiated contracts for 2004 are consistent with
those in 2003.

On October 17, 2001, Paper Purchase and
Management Limited was established as a joint venture between
the Telegraph Group and Guardian Media Group plc. The main
purpose of the joint venture is to control the specifications
and sourcing, as well as monitoring the usage of newsprint
throughout the printing plants operated by one or both of the
joint venture partners and at other locations where the joint
venture partners publications are printed on a contract
basis. Further, by combining the purchasing power of the joint
venturers, the Telegraph Group is able to obtain better prices.
The joint venture purchases newsprint from a number of different
suppliers located primarily in Canada, the United Kingdom,
Scandinavia and continental Europe.

Community Group

On December 15, 2004, the Company announced
that it had completed the sale of The Palestine Post Limited,
the publisher of The Jerusalem Post and related
publications, which represented substantially all assets and
operations of the Community Group. See
Item 1  Recent Developments 
Sale of The Jerusalem Post. The following
information reflects the Community Groups business without
giving effect to the sale of The Jerusalem Post and
related publications.

Sources of Revenue.The Community Groups revenues were 1.0%, 1.3% and 1.7% of
the Companys consolidated revenues in 2003, 2002 and 2001,
respectively. The following table sets forth the sources of
revenue and the percentage that such sources represented of
total revenues for The Jerusalem Post during the three
years ended December 31, 2003.

|                       |  |                         |        |      |  |      |     |   |  |   |        |  |  |  |     |   |  |   |        |  |  |  |     |  
|---------------------- |  | ----------------------- | ------ | ---- |  | ---- | --- | - |  | - | ------ |  |  |  | --- | - |  | - | ------ |  |  |  | --- | -
|                       |  |                        
|                       |  | Year Ended December 31,
|                       |  |                        
|                       |  |                         |        |      |  |     
|                       |  | 2003                    |        | 2002 |  | 2001
|                       |  |                         |        |      |  |     
|                       |  |                         |        |      |  |      |     |   |  |   |        | 
|                       |  |                        
|                       |  | (Dollars in thousands) 
|Advertising            |  | $                       | 3,585  |      |  |      | 34  | % |  | $ | 3,937  |  |  |  | 30  | % |  | $ | 5,806  |  |  |  | 30  | %
|Circulation            |  |                         | 5,717  |      |  |      | 55  |   |  |   | 6,082  |  |  |  | 46  |   |  |   | 7,751  |  |  |  | 41  |  
|Job printing and other |  |                         | 1,095  |      |  |      | 11  |   |  |   | 3,212  |  |  |  | 24  |   |  |   | 5,558  |  |  |  | 29  |  
|                       |  |                         |        |      |  |      |     |   |  |   |        |  |  |  |     |   |  |   |        |  |  |  |     |  
|Total                  |  | $                       | 10,397 |      |  |      | 100 | % |  | $ | 13,231 |  |  |  | 100 | % |  | $ | 19,115 |  |  |  | 100 | %
|                       |  |                         |        |      |  |      |     |   |  |   |        |  |  |  |     |   |  |   |        |  |  |  |     |  

The Community Groups primary source of
revenue is from circulation of The Jerusalem Post and its
related publications, including The Jerusalem Report,
which is a bi-weekly magazine. It also derives revenue from
advertising and from specialty job printing. The Jerusalem
Post in the past derived 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.
During 2002, Golden Pages ceased placing printing orders.
An action was commenced by The Jerusalem Postin 2003
against the Golden Pages seeking damages for alleged
breach of contract.

Distribution. The Jerusalem
Postdaily and Friday editions are
available through either home delivery subscriptions or
single-copy kiosk sales. The daily products are sold at
approximately 2,000 retail outlets across Israel.

Printing. The Jerusalem
Postand its related publications use
two offset printing presses for printing various daily and
weekend editions of the newspaper and for commercial printing.
The Jerusalem Post commenced production, in August 2003,
on a state-of-the-art press that reduced the papers
operating costs and increased printing revenue through meeting
the growing demands of contract printing clients. Automation

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and quality improvements will significantly
reduce labor costs and will result in a meaningful reduction in
newsprint wastage.


Competition. The Jerusalem
Postis the leading English-language
daily newspaper in the Middle East. Its nearest competitor, the
English translation of Haaretz, Israels
oldest Hebrew daily newspaper, has a circulation level that is
approximately 14% of that of The Jerusalem Post.

Employees and Labor
Relations.As of December 31,
2003, The Jerusalem Post and its related publications
employed approximately 150 people, of which 17 were represented
by a union. Subsequent to December 31, 2003, the Company
replaced the publisher of The Jerusalem Post.

Raw Materials.Newsprint costs were approximately 9.1% of the Community
Groups revenue in 2003. Newsprint that had been used for
the production of the Golden Pages had been provided by
the owners of that publication.

Regulatory Matters.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, The Jerusalem
Posthas not experienced any difficulties in maintaining its
license to publish nor has it 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 The
Jerusalem Posts business in any significant way.

Canadian Newspaper Group

The Canadian Newspaper Group includes the
operations of HCPH Co. that has an 87% interest in Hollinger L.P.

At December 31, 2003, HCPH Co. and Hollinger
L.P. owned numerous daily and non-daily newspaper properties and
the Business Information Group (formerly Southam Magazine and
Information Group) which publishes Canadian trade magazines and
tabloids for the transportation, construction, natural resources
and manufacturing industries, among others.

Sources of Revenue.The Canadian Newspaper Groups revenues were 7.6%, 6.9% and
17.3% of the Companys consolidated revenues in 2003, 2002
and 2001, respectively. The following table sets forth the
sources of revenue and the revenue mix of the total Canadian
Newspaper Group, including operations sold up to the date of
sale, during the three years ended December 31, 2003.
Operations sold in the past three years include: the sale of
French language newspapers to Gesca in 2001; the sale of Ontario
community newspapers to Osprey Media in 2001; and the sale of
the remaining 50% interest in the National Post to
CanWest in 2001. See Note 3 to the Companys
consolidated financial statements.

|                        |                        |                                    |         |        |  |      |     |    |   |   |         |        |  |  |     |    |   |   |         |         |  |  |     |    |  
|----------------------- | ---------------------- | ---------------------------------- | ------- | ------ |  | ---- | --- | -- | - | - | ------- | ------ |  |  | --- | -- | - | - | ------- | ------- |  |  | --- | -- | -
|                        |                        |                                   
|                        |                        | Year Ended December 31,           
|                        |                        |                                   
|                        |                        |                                    |         |        |  |     
|                        |                        | 2003                               |         | 2002   |  | 2001
|                        |                        |                                    |         |        |  |     
|                        |                        |                                    |         |        |  |      |     |    |   |   |         |       
|                        |                        |                                   
|                        |                        | (In thousands of Canadian Dollars)
|Newspapers:             |                        |                                    |         |        |  |      |     |    |   |   |         |        |  |  |     |    |   |   |         |         |  |  |     |   
|                        | Advertising            |                                    | $       | 52,114 |  |      |     | 46 | % |   | $       | 47,215 |  |  |     | 43 | % |   | $       | 171,032 |  |  |     | 56 | %
|                        | Circulation            |                                    |         | 7,039  |  |      |     | 6  |   |   |         | 6,611  |  |  |     | 6  |   |   |         | 53,030  |  |  |     | 17 |  
|                        | Job printing and other |                                    |         | 11,439 |  |      |     | 10 |   |   |         | 11,883 |  |  |     | 11 |   |   |         | 35,249  |  |  |     | 12 |  
|Business Communications |                        |                                    | 41,633  |        |  |      | 38  |    |   |   | 43,412  |        |  |  | 40  |    |   |   | 45,763  |         |  |  | 15  |   
|                        |                        |                                    |         |        |  |      |     |    |   |   |         |        |  |  |     |    |   |   |         |         |  |  |     |   
|Total                   |                        | $                                  | 112,225 |        |  |      | 100 | %  |   | $ | 109,121 |        |  |  | 100 | %  |   | $ | 305,074 |         |  |  | 100 | % 
|                        |                        |                                    |         |        |  |      |     |    |   |   |         |        |  |  |     |    |   |   |         |         |  |  |     |   

Advertising.Newspaper advertising revenue in 2003 totaled
Cdn. $52.1 million. Advertisements are carried either
within the body of the newspapers, and referred to as
run-of-press (ROP) advertising, or as inserts. ROP advertising,
which represented 91.6% of total advertising revenue in 2003, is
categorized as either

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retail, classified or national. The three
categories represented 69%, 12% and 19%, respectively, of ROP
advertising revenue in 2003.


Circulation.Virtually all newspaper circulation revenue in 2003 was from
subscription sales.

Competition.The
majority of revenue is 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 are significantly affected by local
factors.

Employees and Labor
Relations.As of December 31,
2003, the Canadian Newspaper Group had approximately 1,223 full
time equivalent employees of which approximately 18% are
unionized. The percentage of unionized employees varies widely
from paper to paper. As a large number of the union contracts
are renegotiated every year, labor disruptions are always
possible, but no single disruption would have a material effect
on the Company.

The Company has a significant prepaid pension
benefit recorded in respect of certain Canadian defined benefit
plans. There are uncertainties regarding the Companys
legal right to access any plan surplus and due to the Company
having a limited number of active employees in Canada, there are
limitations on the ability to utilize the surplus through
contribution holidays or increased benefits. In addition, the
Canadian Newspaper Group administers and absorbs the costs of
the retirement plans for certain retired employees of Southam
Inc., predecessor to HCPH Co.

Raw Materials.Newsprint consumption in 2003 was approximately 11,534 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. The Business Information Group
contracts out the printing of its publications.

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.

Ownership.During
2001, HCPH Co. became the successor to the operations of XSTM
Holdings (2000) Inc. The Company indirectly owns a 100%
interest in HCPH Co. The Company indirectly owns an 87% interest
in Hollinger L.P. There are limits on the deductibility by
advertisers of the cost of advertising in newspapers that are
not considered Canadian-owned under the ITA. It is possible the
CRA may find that, as a consequence of Blacks renunciation
of his Canadian citizenship in June 2001, certain of the
Companys Canadian newspapers are no longer considered
Canadian-owned for purposes of the ITA. Although the Company
believes that it has a structure in place that meets the ITA
Canadian ownership rules for at least a portion of the period
since June 2001, that structure may be challenged by the CRA.

Investment and
Corporate Group

The Investment and Corporate Group performs
administrative and corporate finance functions for the Company
including treasury, accounting, tax planning and compliance and
the development and maintenance of the systems of internal
controls. At December 31, 2003, the Companys
Investment and Corporate Group operated out of offices in New
York, New York and Toronto, Ontario. The Company is in the
process of relocating functions performed in Toronto to Chicago,
Illinois. As of December 31, 2003, the Investment and
Corporate Group employed 10 people. Additional services
were provided by RMI pursuant to a management services agreement
which was terminated effective June 1, 2004.



| |              
| | -------------
| | Environmental

The Company, similar to 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

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tanks, and the management and disposal of wastes
at the Companys major printing facilities. These
requirements are becoming increasingly stringent. The Company
believes that the cost of compliance with these laws and
regulations will not have a material adverse effect on its
business or results of operations.


Seasonality

The Companys operations are subject to
seasonality. Typically, the Companys advertising revenue
is highest during the fourth quarter and lowest during the third
quarter.

Intellectual
Property

The Company seeks and maintains protection for
its intellectual property in all relevant jurisdictions, and has
current registrations, pending applications, renewals or
reinstatements for all of its material trademarks. No claim
adverse to the interests of the Company of a material trademark
is pending or, to the best of the Companys knowledge, has
been threatened. The Company has not received notice, or is
otherwise aware, of any infringement or other violation of any
of the Companys material trademarks. Internet domain names
also form an important part of the Companys intellectual
property portfolio. Currently, there are approximately 230
domain names registered in the name of the Company or its
subsidiaries, including numerous variations on each major name.
In the Chicago market, the Company participates in aggregation
of advertising information with other periodical companies
whereby the Companys advertisements are presented in an
on-line format along with advertisements of others newspapers.

Available Information

The Company files annual, quarterly and current
reports, proxy statements and other information with the SEC
under the Exchange Act.

You may read and copy this information at the
Public Reference Room of the SEC, Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549.
You may obtain information about the Public Reference Room by
calling the SEC at 1-800-SEC-0330. In addition, the SEC
maintains an Internet site that contains reports, proxy and
information statements, and other information regarding issuers
that file electronically through the EDGAR
(Electronic Data Gathering, Analysis and Retrieval) System,
available on the SECs website (http://www.sec.gov).

The Company also maintains a website on the World
Wide Web at www.hollingerinternational.com. The Company
makes available, free of charge, on its website the annual
report on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and amendments to those reports
filed or furnished pursuant to Section 13(a) or 15(d) of
the Exchange Act, as soon as reasonably practicable after such
reports are electronically filed with, or furnished to, the SEC.
The Companys reports filed with, or furnished to, the SEC
are also available at the SECs website at www.sec.gov.

The Company has implemented a Code of Business
Conduct and Ethics, which applies to all employees of the
Company including each of its CEO, CFO and principal accounting
officer or controller or persons performing similar functions.
The text of the Code of Business Conduct and Ethics can be
accessed on the Companys website at
www.hollingerinternational.com. Any changes to the Code
of Business Conduct and Ethics will be posted on the website.






|        |           
|------- | ----------
|Item 2. | Properties

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



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

The Chicago Sun-Times owns a 320,000
square foot, state of the art printing facility. This facility
handles all of the production for the Chicago Sun-Times.
Until October 2004, the Chicago Sun-Timesconducted its
editorial, pre-press, marketing, sales and administrative
activities in a 535,000 square foot, seven-story building

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in downtown Chicago. In October 2004, the
Chicago Sun-Times vacated this facility and relocated its
editorial, pre-press, marketing, sales and administrative
activities to a 127,000 square foot facility, which is also in
downtown Chicago. The Chicago Sun-Times has entered into
a 15-year operating lease for this new office space. In 2002,
the Company entered into a joint venture established to develop
a 90-story residential/commercial tower on property formerly
occupied by its seven-story building. In June 2004, the Company
agreed to sell its share of the joint venture and a related
property for net proceeds of $70.7 million. This
transaction closed on October 15, 2004. See
Note 28 (f) to the Companys Consolidated
Financial Statements herein and Item 1 
Business  Recent Developments.


Fox Valley Publications produces its newspapers
at a 100,000 square foot plant built in 1992 in Plainfield,
Illinois. The facility, owned by the Company, also houses Fox
Valley Publications editorial, pre-print, sales and
administrative functions. Fox Valley Publications also owns
facilities in the surrounding suburbs where editorial and sales
activities take place for each of its daily newspapers. Pioneer
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 owns one south
suburban building which it uses for editorial, pre-press,
marketing, sales and administrative activities. Production
activities occur at a separate 150,000 square foot owned
facility in southwest Chicago. The Post-Tribuneeditorial, pre-press, marketing, sales and administrative
activities are housed in a facility in Merrillville, Indiana,
while production activities take place at its facility in Gary,
Indiana.



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

The Telegraph Group was sold on July 30,
2004 and accordingly, the Company no longer holds any real
property in the U.K. See Item 1  Recent
Developments  Sale of the Telegraph Group.

At the time of the sale, the Telegraph Group
occupied five floors of a tower at Canary Wharf in Londons
Docklands under a 25-year operating lease expiring in 2017.
Printing of the Telegraph Groups newspapers titles was
done principally at 50% owned joint venture printing plants in
Londons Docklands and in Trafford Park, Manchester.



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

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

On December 15, 2004 the Company announced
that it had completed the sale of The Palestine Post Limited,
the publisher of The Jerusalem Post and related
publications. Accordingly, the Company no longer holds any real
property in Israel. See Item 1  Recent
Developments  Sale of The Jerusalem Post.



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

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

Investment and
Corporate Group

The Investment and Corporate Group has
3,803 square feet of office space leased at 712 Fifth
Avenue in New York, New York. This lease expires in May 2007.
The Investment and Corporate Group also leases 4,927 square
feet of office space in Toronto, Ontario. This lease expires in
April 2005. The Company is currently relocating the functions
performed in the Toronto office to Chicago, Illinois.

37



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|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings



| |                                  
| | ---------------------------------
| | Stockholder Derivative Litigation

On December 9, 2003, Cardinal Value Equity
Partners, L.P., a stockholder of the Company, initiated a
purported derivative action on behalf of the Company against
certain current and former executive officers and directors,
including Black and certain entities affiliated with them, and
against the Company as a nominal defendant.

This action, which was filed in the Court of
Chancery for the State of Delaware in and for New Castle County
and is entitled Cardinal Value Equity Partners, L.P. v.
Black, et al., asserts causes of action that
include breach of fiduciary duty, misappropriation of corporate
assets and self-dealing in connection with certain
non-competition payments, the payment of allegedly
excessive management and services fees, and other alleged
misconduct. The plaintiff is seeking unspecified money damages.
This action has been stayed since January 2004. It is not yet
possible to determine the ultimate outcome of this action.



| |                          
| | -------------------------
| | Stockholder Class Actions

In February and April 2004, three alleged
stockholders of the Company (Teachers Retirement System of
Louisiana, Kenneth Mozingo, and Washington Area Carpenters
Pension and Retirement Fund) initiated purported class actions
suits in the United States District Court for the Northern
District of Illinois against the Company, Black, certain former
executive officers and certain current and former directors of
the Company, Hollinger Inc., Ravelston and certain affiliated
entities and KPMG LLP, the Companys independent registered
public accounting firm. On July 9, 2004, the Court
consolidated the three actions for pretrial purposes. The
consolidated action is entitled In re Hollinger Inc.
Securities Litigation, No. 04C-0834. Plaintiffs filed
an amended consolidated class action complaint on August 2,
2004, and a second consolidated amended class action complaint
on November 19, 2004. The named plaintiffs in the second
consolidated amended class action complaint are Teachers
Retirement System of Louisiana, Washington Area Carpenters
Pension and Retirement Fund, and E. Dean Carlson. They are
purporting to sue on behalf of an alleged class consisting of
themselves and all other purchasers of securities of the Company
between and including August 13, 1999 and December 11,
2002. The second consolidated amended class action complaint
asserts claims under federal and Illinois securities laws and
claims of breach of fiduciary duty and aiding and abetting in
breaches of fiduciary duty in connection with misleading
disclosures and omissions regarding: certain
non-competition payments, the payment of allegedly
excessive management fees, allegedly inflated circulation
figures at the Chicago Sun-Times, and other alleged
misconduct. The complaint seeks unspecified money damages,
rescission, and an injunction against future violations. This
consolidated action is in a preliminary stage, and it is not yet
possible to determine its ultimate outcome.

On September 7, 2004, a group allegedly
comprised of those who purchased stock in one or more of the
defendant corporations, initiated purported class actions by
issuing Statements of Claim in Saskatchewan and Ontario, Canada.
The Saskatchewan claim, issued in that provinces Court of
Queens Bench, and the Ontario claim, issued in that
provinces Superior Court of Justice, are identical in all
material respects. The defendants include the Company, certain
current and former directors and officers of the Company,
Hollinger Inc., Ravelston and certain affiliated entities, Torys
LLP, the Companys former legal counsel, and KPMG LLP. The
plaintiffs allege, among other things, breach of fiduciary duty,
violation of the Ontario Securities Act, 1988, S-42.2, and
breaches of obligations under the Canadian Business Corporations
Act, R.S.O. 1985, c. C.-44 and seek unspecified money damages.
These actions are in preliminary stages and it is not yet
possible to determine their ultimate outcome.



| |                         
| | ------------------------
| | Tweedy Browne Litigation

On December 2, 2003, Tweedy, Browne Global
Value Fund and Tweedy Browne (together, the Tweedy Browne
Plaintiffs), stockholders of the Company, initiated an
action against the Company in the Court of Chancery for the
State of Delaware in and for Castle County to recover
attorneys fees and costs in connection with informal
inquiries and other investigations performed by and on behalf of
the Tweedy Browne Plaintiffs concerning conduct that
subsequently has been and continues to be investigated by the
Special Committee.

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The Tweedy Browne Plaintiffs are seeking an award
of attorneys fees commensurate with the corporate
benefits that have been or will be conferred on the Company as a
result of the efforts undertaken by plaintiffs and their
counsel. This action has been stayed since January 2004.
This action is in a preliminary stage, and it is not yet
possible to determine its ultimate outcome.




| |                                                                                  
| | ---------------------------------------------------------------------------------
| | Litigation Involving Controlling Stockholder,
    Senior Management and Directors

On January 28, 2004, the Company, through
the Special Committee, filed a civil complaint in the United
States District Court for the Northern District of Illinois
asserting breach of fiduciary duty and other claims against
Hollinger Inc., Ravelston, RMI, Black, Radler and Boultbee,
which complaint was amended on May 7, 2004. The action is
entitled Hollinger International Inc.v.Hollinger
Inc., et al., Case No. 04C-0698. The amended
complaint added certain other defendants, including Amiel Black
and Colson, sought approximately $484.5 million in damages,
including approximately $103.9 million in pre-judgment
interest, and also included claims under RICO, which provides
for a trebling of damages and attorneys fees. On
October 8, 2004, the court granted the defendants
motion to dismiss the RICO claims and also dismissed the
remaining claims without prejudice on jurisdictional grounds. On
October 29, 2004, the Company filed a second amended
complaint seeking to recover approximately $542.0 million
in damages, including prejudgment interest of approximately
$117.0 million, and also punitive damages, on breach of
fiduciary duty, unjust enrichment, conversion, fraud, and civil
conspiracy claims asserted in connection with transactions
described in the Report of the Special Committee, including
unauthorized non-competition payments, excessive
management fees, sham broker fees and investments and
divestitures of Company assets. The second amended complaint
also adds Perle, a Director of the Company, as a defendant and
eliminated as defendants certain companies affiliated with Black
and Radler. The second amended complaint alleges that Perle
breached his fiduciary duties while serving as a member of the
executive committee of the Companys Board of Directors by,
among other things, signing written consents purporting to
authorize various related party transactions, without reading,
evaluating or discussing those consents; without negotiating or
evaluating the related party transactions he was approving; and
without taking steps to ensure that those transactions were
presented to and reviewed by the Companys audit committee.
The Company is seeking to appeal the dismissal of the RICO
claims. On December 13, 2004, defendants Hollinger Inc.,
Ravelston, RMI, Black, Radler, Boultbee, and Amiel Black moved
to dismiss the second amended complaint for failure to join as
parties the other companies affiliated with Black and Radler
that had previously been named as defendants. Defendants assert
that these companies are indispensable to the litigation but
that their presence would deprive the court of jurisdiction.
Black, Hollinger Inc., Colson and Perle also moved individually
to dismiss the complaint on various grounds, including failure
to state a claim for relief, lack of personal jurisdiction and
res judicata. The motions are pending. This action is in
a preliminary stage and it is not yet possible to determine its
ultimate outcome.



| |                                                                                          
| | -----------------------------------------------------------------------------------------
| | Hollinger International Inc. v. Conrad M.
    Black, Hollinger Inc., and 504468 N.B. Inc.

On January 26, 2004, the Company filed a
complaint against Black, Hollinger Inc. and an affiliated entity
in the Court of Chancery of the State of Delaware in and for New
Castle County. In this action, the Company sought relief
declaring: (i) that a written consent by defendants
purporting to abolish the Corporate Review Committee and to
amend the Companys bylaws was invalid; (ii) that the
SRP adopted by the Corporate Review Committee on
January 25, 2004 was valid; and (iii) that, under the
Hollinger Sale, the shares of Class B Common Stock held by
Hollinger Inc. would convert to shares of Class A Common
Stock. The Companys complaint also asserted claims that
defendants breached their fiduciary duties to the Company and
breached the terms of the Restructuring Agreement through their
activities in connection with the Hollinger Sale and the
purported bylaw amendments.

On February 3, 2004, defendants filed a
counterclaim against the Company, members of the Companys
Corporate Review Committee, and Breeden, advisor and counsel to
the Special Committee. In their counterclaim, defendants sought
declaratory relief declaring that their bylaw amendments were
valid and that the SRP and other actions by the Corporate Review
Committee were invalid. Defendants also asserted claims of
breach of fiduciary duty, misrepresentation, tortious
interference with the Hollinger Sale, breach of the

39



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Restructuring Agreement, and violation of the
just compensation and due process provisions of the Fourteenth
Amendment to the U.S. Constitution. In addition to declaratory
and injunctive relief, defendants sought unspecified damages.


On March 4, 2004, the Court of Chancery
entered an order and judgment declaring that Hollinger
Inc.s purported amendments to the Companys bylaws
were invalid, that the Corporate Review Committee was and
remained duly constituted, and that the SRP was valid. The Court
of Chancerys order also dismissed defendants breach
of fiduciary duty, tortious interference, and Fourteenth
Amendment counterclaims and preliminarily enjoined the
defendants from taking any action to consummate any transaction
in violation of the provisions of the Restructuring Agreement,
including the Hollinger Sale and any other breaches of the
Restructuring Agreement by defendants.

The Company subsequently moved for summary
judgment on the remaining claims and to make the injunctive
relief permanent. On June 28, 2004, the Court of Chancery
entered an order and final judgment, granting summary judgment
to the Company on its breach of fiduciary duty and breach of
contract claims and dismissing defendants remaining
counterclaims. The order and final judgment required payments by
defendants to the Company totaling $29.8 million in respect
of amounts to be reimbursed to the Company pursuant to the
Restructuring Agreement, and extended the previously entered
injunctive relief through October 31, 2004. On July 16,
2004, defendants made the payments required under the order and
final judgment, but have filed notices of appeal of the
Courts rulings to the Delaware Supreme Court. The appeals
are pending. It is not yet possible to determine the ultimate
outcome of the appeals.

On October 29, 2004, the Company, Hollinger
Inc. and Black entered into the Extension Agreement to
voluntarily extend the injunction until the earlier of
January 31, 2005 or the date of the completion of a
distribution by the Company to its stockholders of a portion of
the proceeds of the Companys sale of the Telegraph Group
remaining as of October 26, 2004, net of taxes to be paid
on the sale of the Telegraph Group and less amounts used to pay
down the Companys indebtedness, through one or more of a
dividend, a self-tender offer, or some other mechanism. On
October 30, 2004, the court issued an order extending the
injunction as provided in, and incorporating the other terms of,
the Extension Agreement.



| |                                                   
| | --------------------------------------------------
| | Hollinger Inc. v. Hollinger International
    Inc.

On July 1, 2004, Hollinger Inc. and 504468
N.B. Inc. filed an action in the Court of Chancery for the State
of Delaware alleging that the Company violated 8 Del. Code
§ 271 and engaged in inequitable conduct by not
seeking stockholder approval of the proposed sale of the
Telegraph Group. Plaintiffs sought preliminary injunctive relief
to block the sale unless it was approved by the holders of a
majority of the voting power of the Companys common stock,
and an award of costs and attorneys fees. The Court of
Chancery denied Hollinger Inc.s motion in an opinion
issued on July 29, 2004. That same day, plaintiffs moved
before the Chancery Court and Delaware Supreme Court for leave
to file an interlocutory appeal and an injunction pending
appeal. Both courts denied the motions and the matter is
completed.



| |                                                                   
| | ------------------------------------------------------------------
| | Black v. Hollinger International Inc.,
    filed on March 18, 2004

On March 18, 2004, Black filed an action
against the Company in the Court of Chancery of the State of
Delaware seeking advancement of legal fees and expenses he
purportedly incurred and continues to incur in connection with
the SEC and Special Committee investigations and various
litigations that he is involved in. In May 2004, the parties
entered a stipulation resolving the matter. The Company agreed
to pay half of Blacks legal fees in certain actions in
which he is a defendant, pursuant to itemized invoices submitted
with sworn affidavits and subject to his undertaking that he
will repay the amounts advanced to him if and to the extent it
is ultimately determined that he is not entitled to
indemnification under the terms of the Companys bylaws.



| |                                                                  
| | -----------------------------------------------------------------
| | Black v. Hollinger International Inc.,
    filed on April 5, 2004

On April 5, 2004, Black filed an action
against the Company in the U.S. District Court for the
Northern District of Illinois alleging that the Company breached
its obligations to Black under three stock option plans.

40



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The complaint seeks (i) specific performance
or damages for the alleged breaches, (ii) damages for the
Companys alleged failure to issue to Black 145,000 and
1,218,750 shares of Class A Common Stock upon alleged
exercises by Black of options on February 13, 2004 and
April 2, 2004, respectively, and (iii) declaratory
judgment that Blacks removal as Chairman of the Company
and from the Telegraph Group Limited did not constitute
termination of employment under the 1997 Stock Option Plan and
that his options must be treated equally with those of other
executive officers and directors of the Company. The total
damages sought are (i) the highest value of
145,000 shares of Class A Common Stock after
February 13, 2004, plus prejudgment interest, and
(2) the highest value of 1,218,750 shares of
Class A Common Stock after April 2, 2004, less the
option exercise price, plus prejudgment interest. On
November 11, 2004, the Court dismissed the action without
prejudice, granting Black leave to refile his claims as
counterclaims in Hollinger International Inc. v. Hollinger
Inc., et al., Case No. 04C-0698, which is described
above under  Litigation Involving
Controlling Stockholder, Senior Management and
Directors.




| |                                                                      
| | ---------------------------------------------------------------------
| | Hollinger International Inc. v.
    Ravelston, RMI and Hollinger Inc.

On February 10, 2004, the Company commenced
an action in the Ontario Superior Court of Justice (Commercial
List) against Ravelston, RMI and Hollinger Inc. This action
claimed access to and possession of the Companys books and
records maintained at 10 Toronto Street, Toronto, Ontario,
Canada. The parties negotiated and executed a Protocol dated
March 25, 2004, providing for access and possession by the
Company to the claimed records.

On March 5, 2004, a statement of defense and
counterclaim was issued by Ravelston and RMI against the Company
and two of its subsidiaries, Publishing and HCPH Co. The
counterclaim seeks damages in the amount of approximately
$174.3 million for alleged breaches of the services
agreements between the parties and for alleged unjust enrichment
and tortious interference with economic relations by reason of
those breaches. On March 10, 2004, Hollinger Inc. filed a
statement of defense and counterclaim against the Company
seeking Cdn.$300.0 million, claiming that by the
Companys refusal to pay its obligations under its services
agreement with Ravelston, the Company intended to cause
Ravelston to default in its obligations to Hollinger Inc. under
a support agreement between Ravelston and Hollinger Inc., and
intended to cause Hollinger Inc. to default on its obligations
under its outstanding notes, with the resulting loss of its
majority control of the Company.

On May 6, 2004, Ravelston served a motion
for an anti-suit injunction, seeking to restrain the Company
from continuing the Illinois litigation against it and from
bringing any claims against Ravelston arising out of the
management of the Company other than in Ontario. On May 28,
2004, the Company served a notice of cross-motion seeking a
temporary stay of the Ravelston and Hollinger Inc. counterclaims
pending final resolution of the proceedings in Illinois and
Delaware. Ravelstons motion and the Companys
cross-motion were heard on June 29-30, 2004 at the Ontario
Superior Court of Justice, Commercial List. On August 11,
2004, the court denied Ravelstons motion and granted the
Companys cross-motion. On August 18, 2004, Ravelston
and Hollinger Inc. appealed to the Ontario Court of Appeal. The
appeals are scheduled to be heard on February 22, 2005. On
September 21, 2004, the Company served a motion on
Hollinger Inc. and Ravelston, seeking to quash their appeals to
the Ontario Court of Appeal for want of jurisdiction. On
November 30, 2004, the appeals to the Ontario Court of
Appeal were quashed. Ravelston and Hollinger Inc. were required
to deliver notices of motion in support of a motion for leave to
appeal to the Divisional Court by December 30, 2004.
Ravelston delivered such a notice of motion on December 20,
2004, but Hollinger Inc. has not delivered such a notice and is
therefore not proceeding with an appeal of the stay of its
counterclaim. Ravelstons motion for leave has not yet been
scheduled but will likely be heard some time in February of 2005.



| |                         
| | ------------------------
| | Black v. Breeden, et al.

Five defamation actions have been brought by
Black in the Ontario Superior Court of Justice against Breeden,
Richard C. Breeden & Co., Paris, James Thompson,
Richard Burt, Graham Savage and Raymond Seitz. The first case
was filed on February 13, 2004; the second and third cases
were filed on March 11, 2004; the fourth case was filed on
June 15, 2004; and the fifth case was filed on
October 6, 2004. The fifth case does

41



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not name James Thompson and Richard Burt as
defendants but adds Paul B. Healy as a defendant. Damages in the
amount of Cdn.$850.0 million are sought in the first and
second case; damages in the amount of Cdn.$110.0 million
are sought in the third and fourth case; and
Cdn$1.0 billion in general damages and
Cdn$100.0 million in punitive damages are sought in the
fifth case. Black has agreed to a stay of these actions pending
the determination of the proceedings and appeals of the cases
pending before the Delaware Court of Chancery described above.


The defendants named in the five defamation
actions have indemnity claims against the Company for all
reasonable costs and expenses they incur in connection with
these actions, including judgments, fines and settlement
amounts. In addition, the Company is required to advance legal
and other fees that the defendants may incur in relation to the
defense of those actions.

The Company agreed to indemnify Breeden and
Richard C. Breeden & Co. against all losses, damages,
claims and liabilities they may become subject to, and reimburse
reasonable costs and expenses as they are incurred, in
connection with the services Breeden and Richard C.
Breeden & Co. are providing in relation to the Special
Committees ongoing investigation.



| |                                                                                     
| | ------------------------------------------------------------------------------------
| | United States Securities and Exchange
    Commission v. Hollinger International Inc.

On January 16, 2004, the Company consented
to the entry of a partial final judgment and order of permanent
injunction against the Company in an action brought by the SEC
in the U.S. District Court for the Northern District of
Illinois. The Court Order enjoins the Company from violating
provisions of the Exchange Act, including the requirements to
file accurate annual reports on Form 10-K and quarterly
reports on Form 10-Q and keep accurate books and records. The
Court Order requires the Company to have the previously
appointed Special Committee complete its investigation and to
permit the Special Committee to take whatever actions it, in its
sole discretion, thinks necessary to fulfill its mandate. The
Court Order also provides for the automatic appointment of
Breeden as Special Monitor of the Company under certain
circumstances, including the adoption of any resolution that
discharges the Special Committee before it completes its work,
diminishes or limits the powers of the Special Committee or
narrows the scope of its investigations or review, or if any
directors are removed prior to the end of their term, or there
is a failure to nominate or re-elect any incumbent director
(unless such director voluntarily decides not to seek nomination
or re-election to the Board of Directors), or there is an
election of any new person as a director unless such action is
approved by 80% of the then incumbent directors. On
January 26, 2004, Hollinger Inc. filed a motion to vacate
certain parts of the Court Order that limit its rights as
stockholder. The Court denied Hollinger Inc.s motion on
May 17, 2004.

The Company has received various subpoenas and
requests from the SEC and other agencies seeking the production
of documentation in connection with various investigations into
the Companys governance, management and operations. The
Company is cooperating fully with these investigations and is
complying with these requests.



| |                                                                                
| | -------------------------------------------------------------------------------
| | United States Securities and Exchange
    Commission v. Conrad M. Black, et al.

On November 15, 2004, the SEC filed an
action in the United States District Court for the Northern
District of Illinois against Black, Radler and Hollinger Inc.
seeking injunctive, monetary and other equitable relief. In the
action, the SEC alleges that the three defendants violated
federal securities laws by engaging in a fraudulent and
deceptive scheme to divert cash and assets from the Company and
to conceal their self-dealing from the Companys public
stockholders from at least 1999 through at least 2003. The SEC
also alleges that Black, Radler and Hollinger Inc. were liable
for the Companys violations of certain federal securities
laws at least during this period.

The SEC alleges that the scheme used by Black,
Radler and Hollinger Inc. included the misuse of so-called
non-competition payments to divert
$85.0 million from the Company to defendants and others;
the sale of certain publications owned by the Company at
below-market prices to a privately-held company controlled by
Black and Radler; the investment of $2.5 million of the
Companys funds in a venture capital fund with which Black
and two other directors of the Company were affiliated; and
Blacks approval of a press release by the Company in
November 2003 in which Black allegedly misled the investing
public about his

42



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##### Table of Contents



intention to devote his time to an effort to sell
the Company assets for the benefit of all of the Companys
stockholders and not to undermine that process by engaging in
transactions for the benefit of himself and Hollinger Inc. The
SEC further alleges that Black and Radler misrepresented and
omitted to state material facts regarding related party
transactions to the Companys Audit Committee and Board of
Directors and in the Companys SEC filings and at the
Companys stockholder meetings.


The SECs complaint seeks:
(i) disgorgement of ill-gotten gains by Black, Radler and
Hollinger Inc. and unspecified civil penalties against each of
them; (ii) an order enjoining Black and Radler from serving
as an officer or director of any issuer required to file reports
with the SEC; (iii) a voting trust upon the shares of the
Company held directly or indirectly by Black and Hollinger Inc.;
and (iv) an order enjoining Black, Radler and Hollinger
Inc. from further violations of the federal securities laws.



| |                                            
| | -------------------------------------------
| | The Chicago Sun-Times Circulation
    Cases

On June 15, 2004, the Company announced that
the Audit Committee had initiated an internal review into
practices that resulted in the overstatement of circulation
figures for the Chicago Sun-Times. Following that
announcement, a number of lawsuits were filed against the
Company, among others defendants. Several of the suits are
brought on behalf of a purported class comprised of all persons
who purchased advertising space in the Chicago Sun-Timesduring the period in which circulation figures were
overstated. The complaints allege that the Chicago
Sun-Times improperly overstated its circulation and that
advertisers overpaid for advertising in the newspaper as a
result. The complaints variously allege theories of recovery
based on breach of contract, unjust enrichment, civil
conspiracy, conversion, negligence, breach of fiduciary duty,
common law and statutory fraud, and violations of the federal
RICO statute. The complaints seek injunctive and declaratory
relief, unspecified actual, treble, and punitive damages,
interest, attorneys fees and costs, and other relief.

A number of the actions were filed in the Circuit
Court of Cook County, Illinois, including the following
purported class action cases filed in the County Department,
Chancery Division: Central Furniture, Inc. v. Hollinger
International, Inc. and Chicago Sun-Times, Inc.,
No. 04 CH 9757; Ronald Freeman
d/b/a Professional Weight Clinic Inc. v. Hollinger
International, Inc. and Chicago Sun-Times, Inc.,
No. 04 CH 9763; Card & Party
Mart II Ltd. v. Hollinger International Inc. and
Chicago Sun-Times, Inc., No. 04 CH 9824;
Geier Enterprises, Inc. v. Chicago Sun-Times, Inc.
and Hollinger International, Inc. No. 04 CH 10032;
California Floor Coverings d/b/a Olympic Carpet v.
Chicago Sun-Times, Inc., No. 04 CH 10048; BNB
Land Venture, Inc. v. Chicago Sun-Times, Inc., Hollinger
International Publishing Inc. and Docs 1-5, No. 04
CH 10284; Gleason & McMaster LLC v.
Chicago Sun-Times, Inc. and Hollinger International Inc.,
No. 04 CH 10581; James Rolshouse & Assoc.
PLLC v. Hollinger International Inc., Chicago Sun-Times,
Inc. and The Sun-Times Co., No. 04 CH 11019; and
Mark Triffler Oldsmobile, Inc. et al. v. Hollinger
International Inc. and Chicago Sun-Times, Inc., 04
CH 12714. The above-stated cases were filed between
June 15, 2004 and August 31, 2004, and an Amended
Consolidated Complaint under the heading In re: Chicago
Sun-Times Circulation Litigation was filed on
October 12, 2004. The Amended Consolidated Complaint lists
defendants Chicago Sun-Times, Inc. and Hollinger International
Inc., and adds Midwest Suburban Publishing, Inc. Two additional
purported class action cases are pending in the County
Department, Chancery Division: International Profit Assocs.,
Inc., v. Chicago Sun-Times, Inc. and Hollinger
International Inc., 04 CH 17964, filed October 29,
2004; and Business Pro Communications, Inc. v. Hollinger
Inc., Hollinger International Inc. and The Sun-Times Co.,
04 CH 19930, filed December 1, 2004.
Additionally, the following individual actions were brought in
the Circuit Court of Cook County: First Federal Auto Auction,
Inc. v. Chicago Sun-Times, Inc., Hollinger International
Inc. and F. David Radler, No. 04 L 7501,
filed July 2, 2004; American Mattress, Inc. v.
Hollinger International Inc. and Chicago Sun-Times, Inc.,
No. 04 L 7790, filed July 12, 2004;
National Foundation for Abused and Neglected Children,
Inc. v. Chicago Sun-Times, Inc., Hollinger International
Inc. and F. David Radler, No. 04 L 7948,
filed July 15, 2004; Joe Rizza Lincoln Mercury, Inc.
et al. v. Chicago Sun-Times, Inc.,
04 L 11657, filed October 14, 2004; Chicago
Sun-Times, Inc. v. Oral Sekendur,
03 M1 170004, circulation-related claims filed
October 12, 2004. One case was filed in the United States
District Court for the Northern District of Illinois:
AJEs the Salon, Inc. v. The Sun-Times, Co.,
Hollinger International Inc. and F. David Radler,
04 C 4317, filed June 28, 2004. The AJEs
the Salon,

43



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##### Table of Contents



Inc. case was
voluntarily dismissed. The parties in the consolidated class
action case have agreed to mediate in an attempt to settle the
case and are conducting discovery. Motions to dismiss have been
filed with respect to some of the cases and it is anticipated
that similar motions will be filed in the balance of the pending
cases. Overall, the cases are in preliminary stages and it is
not yet possible to determine their ultimate outcome.


On October 5, 2004, the Company announced
the results of the Audit Committees internal review. The
review of the Audit Committee determined that weekday and Sunday
average circulation of the Chicago Sun-Times, as reported
in the audit reports issued by ABC commencing in 1998, had been
overstated. The Audit Committee found no overstatement of
Saturday circulation data. The inflated circulation figures were
submitted to ABC, which then reported these figures in its
annual audit reports issued with respect to the Chicago
Sun-Times.

The Chicago Sun-Timesannounced a plan
intended to make restitution to its advertisers for losses
associated with the overstatements in the ABC circulation
figures. To cover the estimated cost of restitution and
settlement of the related lawsuits, the Company recorded a
pre-tax charge of approximately $24.1 million for 2003 and
approximately $2.9 million for the first quarter of 2004.
The Company will evaluate the adequacy of the accruals as
negotiations with advertisers proceed. The impact of restitution
on the ultimate outcome of the pending litigation is not
possible to determine at this time.



| |                    
| | -------------------
| | CanWest Arbitration

On December 19, 2003, CanWest commenced
notices of arbitration against the Company and others with
respect to disputes arising from CanWests purchase of
certain newspaper assets from the Company. CanWest claims the
Company and certain of its direct subsidiaries owe CanWest
approximately Cdn.$83.2 million. The Company believes that
it has valid defenses to this claim, as well as significant
counterclaims against CanWest. The arbitration is in preliminary
stages, and it is not yet possible to determine its ultimate
outcome.



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

On December 17, 2003, CanWest and The
National Post Company brought an action in the Ontario Superior
Court of Justice against the Company and others for
approximately Cdn.$25.7 million plus interest in respect of
issues arising from a letter agreement dated August 23,
2001 to transfer the Companys remaining 50% interest in
the National Postto CanWest. In August 2004, The
National Post Company obtained an order for partial summary
judgment ordering the Company to pay The National Post Company
Cdn.$22.5 million plus costs and interest. On
November 30, 2004 the Company settled the appeal of the
partial summary judgment by paying The National Post Company the
amount of Cdn.$26.5 million. This amount includes payment
of the Cdn.$22.5 million in principal plus interest and
related costs. The two remaining matters in this action consist
of a claim for Cdn.$2.5 million for capital and operating
requirements of The National Post Company and a claim for
Cdn.$752,000 for newsprint rebates. Exchange of documents and
examinations for discovery in respect of these remaining matters
is expected to proceed in early 2005.



| |              
| | -------------
| | Other Actions

The Company and members of the Special Committee
have had a suit filed against them before the Ontario Superior
Court of Justice by Boultbee, former Executive Vice-President
with the Company whose position as an officer was terminated in
November of 2003. In November 2003, the Special Committee found
that Boultbee received approximately $600,000 of
non-competition payments that had not been
appropriately authorized by the Company. The Company was unable
to reach a satisfactory agreement with Boultbee for, among other
things, repayment of these amounts and as a result, terminated
his position as an officer of the Company. Boultbee is asserting
claims for wrongful termination, indemnification for legal fees,
breach of contract relating to stock options and loss of
reputation, and is seeking approximately Cdn.$16.1 million
from the defendants. The action is in its preliminary stages,
and it is not yet possible to determine its ultimate outcome. On
November 18, 2004, the Company and Boultbee resolved
Boultbees claim for advancement and

44



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##### Table of Contents



indemnification of legal fees, as part of which
Boultbee agreed to discontinue this portion of his claim. The
Company is bringing a motion to stay this action until the
litigation in Illinois involving the Company, Boultbee and
others has been concluded. See  Litigation
Involving Controlling Stockholder, Senior Management and
Directors. Although the Companys motion
documents have not yet been served, time has been reserved with
the court for the hearing of this motion on April 25, 2005.


On November 3, 2004, Wells Fargo Bank
Northwest, N.A. and Key Corporate Capital Inc. filed an action
in the Supreme Court of the State of New York, in Albany County,
against Sugra (Bermuda) Limited (Sugra Bermuda),
which is a subsidiary of Publishing, and against Hollinger Inc.
The action, alleges that Sugra Bermuda defaulted under the terms
of a 1995 aircraft lease agreement, and that Hollinger Inc. is a
guarantor of Sugra Bermudas obligations under the lease.
Plaintiffs are seeking $5.1 million in damages, plus
interest at the rate of 18 percent per annum and
attorneys fees. On December 20, 2004, Hollinger Inc.
removed the action from state court to the United States
District Court for the Northern District of New York. This
action, which is entitled Wells Fargo Bank Northwest,
N.A. v. Sugra (Bermuda) Limited and Hollinger Inc.,
No. 1:04-cv-01436-GLD-DRH (N.D.N.Y.), is in a preliminary stage,
and it is not yet possible to determine its ultimate outcome.

During 2002, the largest customer of The
Jerusalem Post, the Golden Pages, effectively
terminated its agreement with The Jerusalem Post for
publication of the Golden Pages by failing to submit
orders as required. An action was commenced in the District
Court of Tel Aviv by The Jerusalem Post in early 2003
alleging breach of contract. Although significant to The
Jerusalem Post, the loss of revenue has not had a material
impact on the Companys business, as a whole. With the
completion of the sale of The Palestine Post Limited on
December 15, 2004, the Company no longer has pending claims
or liabilities relating to this action.

The Company becomes involved from time to time in
various claims and lawsuits incidental to the ordinary course of
business, including such matters as libel, defamation and
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 described under Other
Actions will not have a material adverse effect on the
Company taken as a whole.






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

None.

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##### Table of Contents






PART II






|        |                                                                                                                         
|------- | ------------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for the Registrants Common
    Equity, Related Stockholder Matters and Issuer Purchases of
    Equity Securities

The Companys Class A Common Stock is
listed on the New York Stock Exchange under the trading symbol
HLR. At December 31, 2004 there were
75,687,055 shares of Class A Common Stock outstanding,
excluding 12,320,967 shares held by the Company, and these
shares were held by approximately 190 holders of record and
approximately 4,500 beneficial owners. As of
December 31, 2004, 14,990,000 shares of Class B
Common Stock were outstanding, all of which were owned by
Hollinger Inc.

The following table sets forth for the periods
indicated the high and low sales prices for shares of the
Class A Common Stock as reported by the New York Stock
Exchange Composite Transactions Tape for the period since
January 1, 2002, and the cash dividends paid per share on
the Class A Common Stock.

|                |  |             |       |           |  |       |       |  |  |   |        | 
|--------------- |  | ----------- | ----- | --------- |  | ----- | ----- |  |  | - | ------ | 
|                |  |             |       | Cash     
|                |  | Price Range |       | Dividends
|                |  |             |       | Paid Per 
|Calendar Period |  | High        |       | Low       |  | Share
|                |  |             |       |           |  |      
|2002            |  |             |       |           |  |       |       |  |  |   |        | 
|First Quarter   |  | $           | 13.54 |           |  | $     | 11.00 |  |  | $ | 0.1375 | 
|Second Quarter  |  |             | 13.75 |           |  |       | 11.15 |  |  |   | 0.11   | 
|Third Quarter   |  |             | 12.10 |           |  |       | 9.04  |  |  |   | 0.11   | 
|Fourth Quarter  |  |             | 10.81 |           |  |       | 8.65  |  |  |   | 0.05   | 
|2003            |  |             |       |           |  |       |       |  |  |   |        | 
|First Quarter   |  | $           | 10.73 |           |  | $     | 7.54  |  |  | $ | 0.05   | 
|Second Quarter  |  |             | 11.70 |           |  |       | 7.89  |  |  |   | 0.05   | 
|Third Quarter   |  |             | 13.65 |           |  |       | 10.45 |  |  |   | 0.05   | 
|Fourth Quarter  |  |             | 16.12 |           |  |       | 11.90 |  |  |   | 0.05   | 
|2004            |  |             |       |           |  |       |       |  |  |   |        | 
|First Quarter   |  | $           | 19.81 |           |  | $     | 14.25 |  |  | $ | 0.05   | 
|Second Quarter  |  |             | 20.50 |           |  |       | 15.81 |  |  |   | 0.05   | 
|Third Quarter   |  |             | 17.75 |           |  |       | 15.60 |  |  |   | 0.05   | 
|Fourth Quarter  |  |             | 18.95 |           |  |       | 15.38 |  |  |   | 0.05   | 

On December 31, 2004, the closing price of
the Companys Class A Common Stock was $15.68 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 a 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
future loan agreements 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. The Company has paid all dividends that have been
declared during 2003 and to date in 2004, except for the special
and regular dividends declared on December 16, 2004 which
are payable on January 18, 2005.

46



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##### Table of Contents



Equity Compensation Plan Information

|                                                               |       |                   |           |                   |  |                      |       |       |  |  |         |         | 
|-------------------------------------------------------------- | ----- | ----------------- | --------- | ----------------- |  | -------------------- | ----- | ----- |  |  | ------- | ------- | 
|                                                               |       |                   |           |                   |  | Number of           
|                                                               |       |                   |           |                   |  | Securities          
|                                                               |       | Number of         |           |                   |  | Remaining Available 
|                                                               |       | Securities to Be  |           |                   |  | for Future Issuance 
|                                                               |       | Issued upon       |           | Weighted-Average  |  | Under Equity        
|                                                               |       | Exercise of       |           | Exercise Price of |  | Compensation Plans  
|                                                               |       | Outstanding       |           | Outstanding       |  | (excluding          
|                                                               |       | Options, Warrants |           | Options, Warrants |  | securities reflected
|Plan Category                                                  |       | and Rights        |           | and Rights        |  | in column (a))      
|                                                               |       |                   |           |                   |  |                     
|                                                               |       | (a)               |           |                   |  |                     
|Equity compensation plans approved by security
    holders     |       |                   | 9,674,113 |                   |  | $                    | 11.62 |       |  |  | 987,967 |        
|Equity compensation plans not approved by
    security holders |       |                   |          |                   |  |                      |      |       |  |  |        |        
|                                                               |       |                   |           |                   |  |                      |       |       |  |  |         |        
|                                                               | Total |                   |           | 9,674,113         |  |                      | $     | 11.62 |  |  |         | 987,967 | 
|                                                               |       |                   |           |                   |  |                      |       |       |  |  |         |        

See Note 15 to the Companys
Consolidated Financial Statements herein for the summarized
information about the Companys equity compensation plans.

Recent Sales of Unregistered
Securities

None.

47



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##### Table of Contents








|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

|                                                                                                                    |              |                         |           |                                          |  |              |           |              |  |              |           |         |  |   |           |           |  |   |           |           | 
|------------------------------------------------------------------------------------------------------------------- | ------------ | ----------------------- | --------- | ---------------------------------------- |  | ------------ | --------- | ------------ |  | ------------ | --------- | ------- |  | - | --------- | --------- |  | - | --------- | --------- | 
|                                                                                                                    |              |                        
|                                                                                                                    |              | Year Ended December 31,
|                                                                                                                    |              |                        
|                                                                                                                    |              | 2003                    |           | 2002                                     |  | 2001         |           | 2000         |  | 1999        
|                                                                                                                    |              |                         |           |                                          |  |              |           |              |  |             
|                                                                                                                    |              |                         |           |                                          |  |             
|                                                                                                                    |              |                         |           | (In thousands, except per share amounts) |  |             
|                                                                                                                    |              |                         |           | Restated (6)                             |  | Restated (6) |           | Restated (6) |  | Restated (6)
|Statement of Operations Data(1):                                                                                    |              |                         |           |                                          |  |              |           |              |  |              |           |         |  |   |           |           |  |   |           |          
|Operating revenues:                                                                                                 |              |                         |           |                                          |  |              |           |              |  |              |           |         |  |   |           |           |  |   |           |          
|                                                                                                                    | Advertising  |                         | $         | 733,826                                  |  |              | $         | 710,849      |  |              | $         | 804,462 |  |   | $         | 1,543,882 |  |   | $         | 1,557,033 | 
|                                                                                                                    | Circulation  |                         |           | 277,264                                  |  |              |           | 247,175      |  |              |           | 278,321 |  |   |           | 447,050   |  |   |           | 487,002   | 
|                                                                                                                    | Job printing |                         |           | 16,427                                   |  |              |           | 16,669       |  |              |           | 25,092  |  |   |           | 59,089    |  |   |           | 48,207    | 
|                                                                                                                    | Other        |                         |           | 33,686                                   |  |              |           | 31,469       |  |              |           | 38,446  |  |   |           | 45,998    |  |   |           | 55,160    | 
|                                                                                                                    |              |                         |           |                                          |  |              |           |              |  |              |           |         |  |   |           |           |  |   |           |          
|Total operating revenues                                                                                            |              |                         | 1,061,203 |                                          |  |              | 1,006,162 |              |  |              | 1,146,321 |         |  |   | 2,096,019 |           |  |   | 2,147,402 |          
|Operating costs and expenses                                                                                        |              |                         | 996,333   |                                          |  |              | 891,903   |              |  |              | 1,108,576 |         |  |   | 1,751,637 |           |  |   | 1,809,192 |          
|Depreciation and amortization(2)                                                                                    |              |                         | 54,853    |                                          |  |              | 54,152    |              |  |              | 73,728    |         |  |   | 122,634   |           |  |   | 125,408   |          
|                                                                                                                    |              |                         |           |                                          |  |              |           |              |  |              |           |         |  |   |           |           |  |   |           |          
|Operating income (loss)                                                                                             |              |                         | 10,017    |                                          |  |              | 60,107    |              |  |              | (35,983   | )       |  |   | 221,748   |           |  |   | 212,802   |          
|Interest expense                                                                                                    |              |                         | (55,559   | )                                        |  |              | (58,772   | )            |  |              | (78,639   | )       |  |   | (142,713  | )         |  |   | (131,600  | )        
|Amortization of deferred financing costs                                                                            |              |                         | (2,855    | )                                        |  |              | (5,585    | )            |  |              | (10,367   | )       |  |   | (10,469   | )         |  |   | (16,209   | )        
|Interest and dividend income                                                                                        |              |                         | 25,411    |                                          |  |              | 18,782    |              |  |              | 64,893    |         |  |   | 18,536    |           |  |   | 7,716     |          
|Other income (expense), net(3)                                                                                      |              |                         | 75,641    |                                          |  |              | (172,783  | )            |  |              | (303,318  | )       |  |   | 522,955   |           |  |   | 331,581   |          
|                                                                                                                    |              |                         |           |                                          |  |              |           |              |  |              |           |         |  |   |           |           |  |   |           |          
|Earnings (loss) before income taxes, minority
    interest, and cumulative effect of change in accounting principle |              |                         | 52,655    |                                          |  |              | (158,251  | )            |  |              | (363,414  | )       |  |   | 610,057   |           |  |   | 404,290   |          
|Income taxes (benefit)                                                                                              |              |                         | 121,638   |                                          |  |              | 50,132    |              |  |              | (23,038   | )       |  |   | 408,423   |           |  |   | 151,850   |          
|                                                                                                                    |              |                         |           |                                          |  |              |           |              |  |              |           |         |  |   |           |           |  |   |           |          
|Earnings (loss) before minority interest and
    cumulative effect of change in accounting principle                |              |                         | (68,983   | )                                        |  |              | (208,383  | )            |  |              | (340,376  | )       |  |   | 201,634   |           |  |   | 252,440   |          
|Minority interest                                                                                                   |              |                         | 5,325     |                                          |  |              | 2,167     |              |  |              | (13,803   | )       |  |   | 50,760    |           |  |   | 7,088     |          
|                                                                                                                    |              |                         |           |                                          |  |              |           |              |  |              |           |         |  |   |           |           |  |   |           |          
|Earnings (loss) before cumulative effect of
    change in accounting principle                                      |              |                         | (74,308   | )                                        |  |              | (210,550  | )            |  |              | (326,573  | )       |  |   | 150,874   |           |  |   | 245,352   |          
|Cumulative effect of change in accounting
    principle                                                             |              |                         |          |                                          |  |              | (20,079   | )            |  |              |          |         |  |   |          |           |  |   |          |          
|                                                                                                                    |              |                         |           |                                          |  |              |           |              |  |              |           |         |  |   |           |           |  |   |           |          
|Net earnings (loss)                                                                                                 |              | $                       | (74,308   | )                                        |  | $            | (230,629  | )            |  | $            | (326,573  | )       |  | $ | 150,874   |           |  | $ | 245,352   |          
|                                                                                                                    |              |                         |           |                                          |  |              |           |              |  |              |           |         |  |   |           |           |  |   |           |          
|Diluted earnings (loss) per share from
    operations(4)                                                            |              | $                       | (0.85     | )                                        |  | $            | (2.40     | )            |  | $            | (3.31     | )       |  | $ | 1.35      |           |  | $ | 2.09      |          
|                                                                                                                    |              |                         |           |                                          |  |              |           |              |  |              |           |         |  |   |           |           |  |   |           |          
|Cash dividends per share paid on Class A and
    Class B Common Stock                                               |              | $                       | 0.20      |                                          |  | $            | 0.41      |              |  | $            | 0.55      |         |  | $ | 0.55      |           |  | $ | 0.55      |          
|                                                                                                                    |              |                         |           |                                          |  |              |           |              |  |              |           |         |  |   |           |           |  |   |           |          

48



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|                       |                                           |                    |   |                |   |              |   |              |   |              |   |           |  |  |   |           |   |  |   |           |  
|---------------------- | ----------------------------------------- | ------------------ | - | -------------- | - | ------------ | - | ------------ | - | ------------ | - | --------- |  |  | - | --------- | - |  | - | --------- | -
|                       |                                           |                   
|                       |                                           | As of December 31,
|                       |                                           |                   
|                       |                                           | 2003               |   | 2002           |   | 2001         |   | 2000         |   | 1999        
|                       |                                           |                    |   |                |   |              |   |              |   |             
|                       |                                           |                    |   |                |   |             
|                       |                                           |                    |   | (In thousands) |   |             
|                       |                                           |                    |   | Restated (6)   |   | Restated (6) |   | Restated (6) |   | Restated (6)
|Balance Sheet Data(1): |                                           |                    |   |                |   |              |   |              |   |              |   |           |  |  |   |           |   |  |   |          
|                       | Working capital (deficiency)              |                    | $ | (354,314       | ) |              | $ | (197,450     | ) |              | $ | 144,950   |  |  | $ | (259,493  | ) |  | $ | (107,433  | )
|                       | Total assets(5)                           |                    |   | 1,800,179      |   |              |   | 2,185,772    |   |              |   | 2,083,741 |  |  |   | 2,831,889 |   |  |   | 3,503,024 |  
|                       | Minority interest                         |                    |   | 28,255         |   |              |   | 17,097       |   |              |   | 16,084    |  |  |   | 89,228    |   |  |   | 155,901   |  
|                       | Long-term debt, less current installments |                    |   | 522,547        |   |              |   | 574,658      |   |              |   | 809,652   |  |  |   | 807,495   |   |  |   | 1,613,241 |  
|                       | Redeemable preferred stock                |                    |   |               |   |              |   | 8,650        |   |              |   | 8,582     |  |  |   | 13,088    |   |  |   | 13,591    |  
|                       | Total stockholders equity                |                    |   | 36,776         |   |              |   | 149,783      |   |              |   | 377,506   |  |  |   | 901,145   |   |  |   | 911,869   |  

|                              |                                |                         |           |                |   |      |           |         |   |      |           |         |   |   |           |           |   |   |           |           |  
|----------------------------- | ------------------------------ | ----------------------- | --------- | -------------- | - | ---- | --------- | ------- | - | ---- | --------- | ------- | - | - | --------- | --------- | - | - | --------- | --------- | -
|                              |                                |                        
|                              |                                | Year ended December 31,
|                              |                                |                        
|                              |                                | 2003                    |           | 2002           |   | 2001 |           | 2000    |   | 1999
|                              |                                |                         |           |                |   |      |           |         |   |     
|                              |                                |                         |           |                |   |     
|                              |                                |                         |           | (In thousands) |   |     
|                              |                                |                         |           | Restated       |   |      |           |        
|                              |                                |                         |           | (6)            |   |      |           |        
|Segment Data(1):              |                                |                         |           |                |   |      |           |         |   |      |           |         |   |   |           |           |   |   |           |          
|Operating revenues:           |                                |                         |           |                |   |      |           |         |   |      |           |         |   |   |           |           |   |   |           |          
|                              | Chicago Group                  |                         | $         | 450,789        |   |      | $         | 441,778 |   |      | $         | 442,884 |   |   | $         | 401,417   |   |   | $         | 390,473   |  
|                              | Community Group                |                         |           | 10,397         |   |      |           | 13,231  |   |      |           | 19,115  |   |   |           | 67,336    |   |   |           | 96,674    |  
|                              | U.K. Newspaper Group           |                         |           | 519,475        |   |      |           | 481,527 |   |      |           | 486,374 |   |   |           | 562,068   |   |   |           | 550,474   |  
|                              | Canadian Newspaper Group       |                         |           | 80,542         |   |      |           | 69,626  |   |      |           | 197,948 |   |   |           | 1,065,198 |   |   |           | 1,109,781 |  
|                              |                                |                         |           |                |   |      |           |         |   |      |           |         |   |   |           |           |   |   |           |          
|Total operating revenues      |                                | $                       | 1,061,203 |                |   | $    | 1,006,162 |         |   | $    | 1,146,321 |         |   | $ | 2,096,019 |           |   | $ | 2,147,402 |          
|                              |                                |                         |           |                |   |      |           |         |   |      |           |         |   |   |           |           |   |   |           |          
|Operating income (loss):      |                                |                         |           |                |   |      |           |         |   |      |           |         |   |   |           |           |   |   |           |          
|                              | Chicago Group                  |                         | $         | 24,514         |   |      | $         | 38,598  |   |      | $         | 4,962   |   |   | $         | 29,215    |   |   | $         | 43,126    |  
|                              | Community Group                |                         |           | (6,601         | ) |      |           | (5,218  | ) |      |           | (4,487  | ) |   |           | 3,456     |   |   |           | 9,893     |  
|                              | U.K. Newspaper Group           |                         |           | 40,683         |   |      |           | 48,079  |   |      |           | 27,850  |   |   |           | 89,542    |   |   |           | 65,635    |  
|                              | Canadian Newspaper Group       |                         |           | (4,983         | ) |      |           | (2,137  | ) |      |           | (45,954 | ) |   |           | 115,619   |   |   |           | 109,416   |  
|                              | Investment and Corporate Group |                         |           | (43,596        | ) |      |           | (19,215 | ) |      |           | (18,354 | ) |   |           | (16,084   | ) |   |           | (15,268   | )
|                              |                                |                         |           |                |   |      |           |         |   |      |           |         |   |   |           |           |   |   |           |          
|Total operating income (loss) |                                | $                       | 10,017    |                |   | $    | 60,107    |         |   | $    | (35,983   | )       |   | $ | 221,748   |           |   | $ | 212,802   |          
|                              |                                |                         |           |                |   |      |           |         |   |      |           |         |   |   |           |           |   |   |           |          



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The financial data as of December 31, 2003
    and 2002 and for each of the years in the three-year period
    ended December 31, 2003 are derived from, and should be
    read in conjunction with, the audited consolidated financial
    statements of the Company and the notes thereto appearing
    elsewhere herein. The financial data as of December 31,
    2001, 2000 and 1999 and for the years ended December 31,
    2000 and 1999 are derived from audited financial statements not
    presented separately herein, which financial data have been
    adjusted as necessary for the effects of the restatements
    described in (6) below. The Company made several
    significant dispositions during the years 1999 to 2001. In 2001,
    the Company sold its remaining interest in the National Postto CanWest and several Canadian newspapers to Osprey Media.
    These dispositions account for the significant decrease in
    Total operating revenues, Operating costs and
    expenses and Depreciation and amortization.
|   
|(2) | Effective January 1, 2002, the Company
    adopted SFAS No. 142, Goodwill and Other
    Intangible Assets (SFAS No. 142) As
    a consequence, the Company no longer amortizes goodwill and
    intangible assets with indefinite useful lives. See
    Note 1(i) of Notes to Consolidated Financial Statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

49



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##### Table of Contents





|    |                                                                                   
|--- | ----------------------------------------------------------------------------------
|(3) | The principal components of Other income
    (expense), net are presented below:

|                                                                       |  |                |         |      |  |      |          |      |  |      |          |   |  |   |         |   |  |   |         |  
|---------------------------------------------------------------------- |  | -------------- | ------- | ---- |  | ---- | -------- | ---- |  | ---- | -------- | - |  | - | ------- | - |  | - | ------- | -
|                                                                       |  | 2003           |         | 2002 |  | 2001 |          | 2000 |  | 1999
|                                                                       |  |                |         |      |  |      |          |      |  |     
|                                                                       |  |               
|                                                                       |  | (in thousands)
|Foreign currency gains (losses), net                                   |  | $              | 114,103 |      |  | $    | (86,858  | )    |  | $    | (1,259   | ) |  | $ | (16,048 | ) |  | $ | 13,774  |  
|Equity in losses of affiliates                                         |  |                | (6,247  | )    |  |      | (1,005   | )    |  |      | (15,098  | ) |  |   | (20,340 | ) |  |   | (2,106  | )
|Net gains (losses) on sales of publishing
    interests                |  |                | (6,251  | )    |  |      |         |      |  |      | (1,236   | ) |  |   | 564,702 |   |  |   | 270,017 |  
|Net gains (losses) on sale of investments                              |  |                | 3,578   |      |  |      |         |      |  |      | (147,213 | ) |  |   | 32,569  |   |  |   |        |  
|Net gains (losses) on sale of property, plant and
    equipment        |  |                | (204    | )    |  |      | 5,334    |      |  |      | 1,307    |   |  |   | (697    | ) |  |   | 3,561   |  
|Write-down of investments                                              |  |                | (7,700  | )    |  |      | (40,536  | )    |  |      | (48,037  | ) |  |   | (20,621 | ) |  |   |        |  
|Write-down of property, plant and equipment                            |  |                | (6,779  | )    |  |      |         |      |  |      | (1,343   | ) |  |   |        |   |  |   |        |  
|Gain related to dilution of investment in equity
    accounted company |  |                |        |      |  |      |         |      |  |      |         |   |  |   | 17,008  |   |  |   |        |  
|Gain related to dilution of Hollinger L.P.
    interest                |  |                |        |      |  |      |         |      |  |      |         |   |  |   |        |   |  |   | 77,297  |  
|Losses on Total Return Equity Swap                                     |  |                |        |      |  |      | (15,237  | )    |  |      | (73,863  | ) |  |   | (16,334 | ) |  |   |        |  
|Non-competition payments                                             |  |                |        |      |  |      |         |      |  |      | (6,100   | ) |  |   |        |   |  |   |        |  
|Restitution under Restructuring Agreement                              |  |                | 31,547  |      |  |      |         |      |  |      |         |   |  |   |        |   |  |   |        |  
|Loss on extinguishment of debt                                         |  |                | (38,421 | )    |  |      | (35,460  | )    |  |      |         |   |  |   | (10,554 | ) |  |   | (8,536  | )
|Write-down of FDR Collection                                           |  |                | (6,796  | )    |  |      |         |      |  |      |         |   |  |   |        |   |  |   |        |  
|Other                                                                  |  |                | (1,189  | )    |  |      | 979      |      |  |      | (10,476  | ) |  |   | (6,730  | ) |  |   | (22,426 | )
|                                                                       |  |                |         |      |  |      |          |      |  |      |          |   |  |   |         |   |  |   |         |  
|                                                                       |  | $              | 75,641  |      |  | $    | (172,783 | )    |  | $    | (303,318 | ) |  | $ | 522,955 |   |  | $ | 331,581 |  
|                                                                       |  |                |         |      |  |      |          |      |  |      |          |   |  |   |         |   |  |   |         |  



|    |                                                                                                                                                                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(4) | The Companys diluted earnings per share is
    calculated on the following diluted number of shares outstanding
    (in thousands): 2003 - 87,311, 2002 - 96,066,
    2001 - 100,128, 2000 - 111,510 and 1999 - 117,610.                                                                                  
|   
|(5) | Includes goodwill and intangible assets, net of
    accumulated amortization, of $684.8 million at
    December 31, 2003, of $650.9 million at
    December 31, 2002, of $658.2 million at
    December 31, 2001, of $938.3 million at
    December 31, 2000 and $2,031.6 million at
    December 31, 1999.
|   
|(6) | The Company has restated its consolidated
    financial statements as of and for the years ended
    December 31, 2002, 2001, 2000 and 1999. These restatements
    have been grouped into the following categories:                                                                                       



| |                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) Restatements arising from the findings
    of the Special Committee. See Item 1 
    Business  Recent Developments  Report of
    the Special Committee and Note 2 of Notes to
    Consolidated Financial Statements;
|
| | (b) Correction of accounting errors in prior
    periods;                                                                                                                                                                     
|
| | (c) Reclassifications arising from the
    required adoption of a new FASB standard; and                                                                                                                                      
|
| | (d) Other, principally the effects of
    foreign currency translation adjustments.                                                                                                                                           

50



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##### Table of Contents



The following table sets forth the net effect of
the restatements and reclassifications on specific amounts
presented in the Companys Consolidated Statements of
Operations:

|                                                                                                                                                                    |                                                                                                  |                         |          |         |   |      |          |         |   |   |         |         |   |   |         |        |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------ | ----------------------- | -------- | ------- | - | ---- | -------- | ------- | - | - | ------- | ------- | - | - | ------- | ------ | -
|                                                                                                                                                                    |                                                                                                  |                        
|                                                                                                                                                                    |                                                                                                  | Year Ended December 31,
|                                                                                                                                                                    |                                                                                                  |                        
|                                                                                                                                                                    |                                                                                                  | 2002                    |          | 2001    |   | 2000 |          | 1999   
|                                                                                                                                                                    |                                                                                                  |                         |          |         |   |      |          |        
|                                                                                                                                                                    |                                                                                                  |                        
|                                                                                                                                                                    |                                                                                                  | (In thousands)         
|Operating income (loss), as previously reported                                                                                                                     |                                                                                                  | $                       | 57,202   |         |   | $    | (35,983  | )       |   | $ | 221,748 |         |   | $ | 212,802 |       
|                                                                                                                                                                    | Correction of newsprint overaccrual (b(iii))                                                     |                         |          | 2,905   |   |      |          |        |   |   |         |        |   |   |         |       |  
|                                                                                                                                                                    |                                                                                                  |                         |          |         |   |      |          |         |   |   |         |         |   |   |         |       
|Restated operating income (loss)                                                                                                                                    |                                                                                                  | $                       | 60,107   |         |   | $    | (35,983  | )       |   | $ | 221,748 |         |   | $ | 212,802 |       
|                                                                                                                                                                    |                                                                                                  |                         |          |         |   |      |          |         |   |   |         |         |   |   |         |       
|Earnings (loss) before income taxes, minority
    interest, extraordinary items and cumulative effect of change in
    accounting principle, as previously reported |                                                                                                  | $                       | (128,351 | )       |   | $    | (357,233 | )       |   | $ | 612,931 |         |   | $ | 412,826 |       
|                                                                                                                                                                    | Correction of non-competition
    payments recorded in incorrect year (a(i))                   |                         |          |        |   |      |          | (6,100  | ) |   |         | 6,100   |   |   |         |       |  
|                                                                                                                                                                    | Correction of overaccruals recorded in 2000
    (b(ii))                                          |                         |          |        |   |      |          |        |   |   |         | 1,580   |   |   |         |       |  
|                                                                                                                                                                    | Correction of newsprint overaccrual (b(iii))                                                     |                         |          | 2,905   |   |      |          |        |   |   |         |        |   |   |         |       |  
|                                                                                                                                                                    | Correction of equity accounting of affiliate
    (b(iv))                                         |                         |          | 2,714   |   |      |          |        |   |   |         |        |   |   |         |       |  
|                                                                                                                                                                    | Reclassification of extraordinary loss (c)                                                       |                         |          | (35,460 | ) |      |          |        |   |   |         | (10,554 | ) |   |         | (8,536 | )
|                                                                                                                                                                    | Other (d)                                                                                        |                         |          | (59     | ) |      |          | (81     | ) |   |         |        |   |   |         |       |  
|                                                                                                                                                                    |                                                                                                  |                         |          |         |   |      |          |         |   |   |         |         |   |   |         |       
|Restated earnings (loss) before income taxes,
    minority interest, extraordinary items and cumulative effect of
    change in accounting principle                |                                                                                                  | $                       | (158,251 | )       |   | $    | (363,414 | )       |   | $ | 610,057 |         |   | $ | 404,290 |       
|                                                                                                                                                                    |                                                                                                  |                         |          |         |   |      |          |         |   |   |         |         |   |   |         |       
|Income taxes (benefit), as previously
    reported                                                                                                                  |                                                                                                  | $                       | 66,950   |         |   | $    | (8,319   | )       |   | $ | 398,452 |         |   | $ | 155,203 |       
|                                                                                                                                                                    | Tax effect of correction of
    non-competition payments recorded in incorrect year
    (a(i)) |                         |          |        |   |      |          | (2,440  | ) |   |         | 2,440   |   |   |         |       |  
|                                                                                                                                                                    | Tax on assumed additional proceeds from sale of
    newspaper properties (a(ii))                 |                         |          |        |   |      |          |        |   |   |         | 20,239  |   |   |         |       |  
|                                                                                                                                                                    | Other tax adjustments (a(iii))                                                                   |                         |          | 4,415   |   |      |          | 3,086   |   |   |         | 764     |   |   |         |       |  
|                                                                                                                                                                    | Tax effect of correction of overaccruals recorded
    in 2000 (b(ii))                            |                         |          |        |   |      |          |        |   |   |         | 632     |   |   |         |       |  
|                                                                                                                                                                    | Tax effect of correction of newsprint overaccrual
    (b(iii))                                   |                         |          | 1,139   |   |      |          |        |   |   |         |        |   |   |         |       |  
|                                                                                                                                                                    | Correction of U.S. tax benefit on liquidation of
    Canadian operations (b(v))                  |                         |          | (20,116 | ) |      |          |        |   |   |         |        |   |   |         |       |  
|                                                                                                                                                                    | Other corrections of tax accounts (b(vi))                                                        |                         |          | 11,928  |   |      |          | (15,330 | ) |   |         | (9,881  | ) |   |         |       |  
|                                                                                                                                                                    | Reclassification of tax benefit on extraordinary
    loss (c)                                    |                         |          | (14,184 | ) |      |          |        |   |   |         | (4,222  | ) |   |         | (3,353 | )
|                                                                                                                                                                    | Other (d)                                                                                        |                         |          |        |   |      |          | (35     | ) |   |         | (1      | ) |   |         |       |  
|                                                                                                                                                                    |                                                                                                  |                         |          |         |   |      |          |         |   |   |         |         |   |   |         |       
|Restated income taxes (benefit)                                                                                                                                     |                                                                                                  | $                       | 50,132   |         |   | $    | (23,038  | )       |   | $ | 408,423 |         |   | $ | 151,850 |       
|                                                                                                                                                                    |                                                                                                  |                         |          |         |   |      |          |         |   |   |         |         |   |   |         |       

51



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##### Table of Contents



The table below sets forth the effect of the
restatements and reclassifications on the Consolidated Balance
Sheet Data presented above.

|                                                         |                                                                                                    |                    |           |         |   |      |           |         |   |   |           |         |   |   |           |       | 
|-------------------------------------------------------- | -------------------------------------------------------------------------------------------------- | ------------------ | --------- | ------- | - | ---- | --------- | ------- | - | - | --------- | ------- | - | - | --------- | ----- | 
|                                                         |                                                                                                    |                   
|                                                         |                                                                                                    | As of December 31,
|                                                         |                                                                                                    |                   
|                                                         |                                                                                                    | 2002               |           | 2001    |   | 2000 |           | 1999   
|                                                         |                                                                                                    |                    |           |         |   |      |           |        
|                                                         |                                                                                                    |                   
|                                                         |                                                                                                    | (in thousands)    
|Working capital (deficiency), as previously
    reported |                                                                                                    | $                  | (191,903  | )       |   | $    | 147,600   |         |   | $ | (257,506  | )       |   | $ | (113,115  | )    
|                                                         | Correction of non-competition
    payments recorded in incorrect year (a(i))                     |                    |           |        |   |      |           |        |   |   |           | 6,100   |   |   |           |      | 
|                                                         | Tax on assumed additional proceeds from sale of
    newspaper properties (a(ii))                   |                    |           | (19,494 | ) |      |           | (19,341 | ) |   |           | (20,541 | ) |   |           |      | 
|                                                         | Other tax adjustments (a(iii))                                                                     |                    |           | (1,599  | ) |      |           | (221    | ) |   |           |        |   |   |           |      | 
|                                                         | Correction of overaccruals recorded prior to 1999
    (b(i))                                       |                    |           | 5,193   |   |      |           | 5,153   |   |   |           | 5,472   |   |   |           | 5,682 | 
|                                                         | Correction of overaccruals recorded in 2000
    (b(ii))                                            |                    |           | 1,580   |   |      |           | 1,580   |   |   |           | 1,580   |   |   |           |      | 
|                                                         | Correction of newsprint overaccrual (b(iii))                                                       |                    |           | 2,848   |   |      |           |        |   |   |           |        |   |   |           |      | 
|                                                         | Tax effect of correction of equity accounting of
    affiliate (b(iv))                             |                    |           | 1,362   |   |      |           |        |   |   |           |        |   |   |           |      | 
|                                                         | Correction of U.S. tax benefit on liquidation of
    Canadian operations (b(v))                    |                    |           | 20,116  |   |      |           |        |   |   |           |        |   |   |           |      | 
|                                                         | Other corrections of tax accounts (b(vi))                                                          |                    |           | (7,080  | ) |      |           | 26,709  |   |   |           | 5,402   |   |   |           |      | 
|                                                         | Reclassifications affecting tax
    accounts (b(vii))                                              |                    |           | (8,473  | ) |      |           | (16,530 | ) |   |           |        |   |   |           |      | 
|                                                         |                                                                                                    |                    |           |         |   |      |           |         |   |   |           |         |   |   |           |      
|Restated working capital (deficiency)                    |                                                                                                    | $                  | (197,450  | )       |   | $    | 144,950   |         |   | $ | (259,493  | )       |   | $ | (107,433  | )    
|                                                         |                                                                                                    |                    |           |         |   |      |           |         |   |   |           |         |   |   |           |      
|Total assets, as previously reported                     |                                                                                                    | $                  | 2,188,132 |         |   | $    | 2,057,976 |         |   | $ | 2,802,030 |         |   | $ | 3,503,024 |      
|                                                         | Correction of non-competition
    payments recorded in incorrect year (a(i))                     |                    |           |        |   |      |           |        |   |   |           | 5,500   |   |   |           |      | 
|                                                         | Correction of equity accounting of affiliate
    (b(iv))                                           |                    |           | 1,391   |   |      |           |        |   |   |           |        |   |   |           |      | 
|                                                         | Reclassification to conform with current
    presentation                                          |                    |           | (3,751  | ) |      |           | 25,765  |   |   |           | 24,359  |   |   |           |      | 
|                                                         |                                                                                                    |                    |           |         |   |      |           |         |   |   |           |         |   |   |           |      
|Restated total assets                                    |                                                                                                    | $                  | 2,185,772 |         |   | $    | 2,083,741 |         |   | $ | 2,831,889 |         |   | $ | 3,503,024 |      
|                                                         |                                                                                                    |                    |           |         |   |      |           |         |   |   |           |         |   |   |           |      
|Total stockholders equity, as previously
    reported   |                                                                                                    | $                  | 119,875   |         |   | $    | 366,627   |         |   | $ | 898,109   |         |   | $ | 902,225   |      
|                                                         | Correction of non-competition
    payments recorded in incorrect year, net of tax benefit (a(i)) |                    |           |        |   |      |           |        |   |   |           | 3,660   |   |   |           |      | 
|                                                         | Tax on assumed additional proceeds from sale of
    newspaper properties (a(ii))                   |                    |           | (19,494 | ) |      |           | (19,341 | ) |   |           | (20,541 | ) |   |           |      | 
|                                                         | Other tax adjustments (a(iii))                                                                     |                    |           | (8,247  | ) |      |           | (3,849  | ) |   |           | (764    | ) |   |           |      | 
|                                                         | Correction of overaccruals recorded prior to
    1999, net of tax benefit (b(i))                   |                    |           | 9,155   |   |      |           | 9,115   |   |   |           | 9,434   |   |   |           | 9,644 | 
|                                                         | Correction of overaccruals recorded in 2000, net
    of tax benefit (b(ii))                        |                    |           | 948     |   |      |           | 948     |   |   |           | 948     |   |   |           |      | 
|                                                         | Correction of newsprint overaccrual, net of tax
    benefit (b(iii))                               |                    |           | 1,709   |   |      |           |        |   |   |           |        |   |   |           |      | 
|                                                         | Correction of equity accounting of affiliate, net
    of tax benefit (b(iv))                       |                    |           | 2,753   |   |      |           |        |   |   |           |        |   |   |           |      | 
|                                                         | Correction of U.S. tax benefit on liquidation of
    Canadian operations (b(v))                    |                    |           | 20,116  |   |      |           |        |   |   |           |        |   |   |           |      | 
|                                                         | Other corrections of tax accounts (b(vi))                                                          |                    |           | 22,971  |   |      |           | 23,993  |   |   |           | 10,297  |   |   |           |      | 
|                                                         | Other (d)                                                                                          |                    |           | (3      | ) |      |           | 13      |   |   |           | 2       |   |   |           |      | 
|                                                         |                                                                                                    |                    |           |         |   |      |           |         |   |   |           |         |   |   |           |      
|Restated total stockholders equity                      |                                                                                                    | $                  | 149,783   |         |   | $    | 377,506   |         |   | $ | 901,145   |         |   | $ | 911,869   |      
|                                                         |                                                                                                    |                    |           |         |   |      |           |         |   |   |           |         |   |   |           |      

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Each category of the restatements and
reclassifications and their effect on the consolidated financial
statements is discussed below:



|    |                                                                    
|--- | -------------------------------------------------------------------
|(a) | Restatements Arising from the Findings of
    the Special Committee

Among other things, the Special Committee
identified the following transactions that were, based on its
findings, improperly reflected in the Companys
consolidated financial statements in prior periods.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i) The recording of
    non-competition payments in the incorrect
    year  The Special Committee identified
    $6.1 million of non-competition payments that
    the Company made in 2001 that were reflected in the consolidated
    financial statements as having been made or were otherwise
    accrued in 2000. Of the $6.1 million, $5.5 million
    related to non-competition payments paid by the
    Company in 2001 to Black, Atkinson, Radler and Boultbee pursuant
    to non-competition agreements with American
    Publishing Company (which owned virtually no newspaper assets as
    of February 2001). The payments were issued in 2001 and
    backdated to 2000. The remaining $600,000 relates to payments
    that were made in 2001 and recorded as reductions of excessive
    accruals that were previously established in 2000. According to
    the Report, the Audit Committee did not approve any of these
    payments. Accordingly, with respect to the 2000 Consolidated
    Statement of Operations, the Company has increased Other
    income (expense), net by $6.1 million and increased
    Income taxes (benefit) by $2.4 million, which
    resulted in an increase in net earnings of $3.7 million and a
    corresponding increase in stockholders equity. With
    respect to the 2001 Consolidated Statement of Operations, the
    Company has decreased Other income (expense), net, by
    $6.1 million and decreased Income taxes
    (benefit) by $2.4 million, which resulted in an
    increase in net loss of $3.7 million and a corresponding
    decrease in total stockholders equity.
|
| | (ii) Tax on assumed additional proceeds
    from sale of Canadian newspaper properties to
    CanWest  The Special Committee determined that
    non-competition payments that were made in
    connection with the sale of Canadian newspaper properties to
    CanWest in 2000 were not properly approved by the Company.
    According to the findings of the Special Committee, these
    non-competition payments, aggregating Cdn.$80.0
    million, made to certain former directors and officers of the
    Company, effectively reduced the proceeds the Company received
    from the sale of the newspaper properties.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| | The Special Committee also determined that the
    proceeds the Company received from the sale of Canadian
    properties to CanWest in 2000 were further reduced by
    Cdn.$60.0 million, as a consequence of an agreement between
    CanWest and Ravelston for the payment of an annual management
    fee of Cdn.$6.0 million in consideration for management
    services. The Special Committee determined that these proceeds
    should have been received by the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| | Had the Company received the assumed additional
    proceeds of Cdn.$140.0 million, the gain on the sale would
    have been greater by that amount with a consequent increase in
    income taxes that would have been provided for in 2000. The
    Company has recorded an additional $20.2 million of income
    taxes in 2000 to account for these unrecognized purchase
    proceeds.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| | (iii) Other tax
    adjustments  The Company has recorded additional
    accruals for tax contingencies to cover interest that the
    Company may be required to pay, net of federal tax benefits of a
    portion thereof.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         



|    |                                    
|--- | -----------------------------------
|(b) | Correction of Accounting
    Errors

During the course of the preparation of its
financial statements for the year ended December 31, 2003,
the Company determined that previously reported financial
information required restatement for certain accounting errors
identified. Below is a description of the adjustments made to
correct these accounting errors.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i) Correction of overaccruals recorded
    prior to 1999  In the review of its accounts, the
    Company identified that certain amounts had been overaccrued for
    in periods prior to 1999. Specifically, in 1997, when the
    Companys parent, Hollinger Inc., transferred certain
    Canadian properties to the Company, accruals due to related
    parties were established to provide for expected costs of this
    transaction. The Company has reversed approximately
    $5.7 million of these accruals due to related parties that
    were considered to be excessive. There was no tax effect on the
    reversal of these accruals. In 1998, the Chicago

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Sun-Timesrecorded
    approximately $6.6 million of pension costs in excess of
    amounts determined appropriate by the Companys actuaries.
    This excess accrual has also been reversed, net of a tax benefit
    of $2.6 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| | (ii) Correction of overaccruals recorded
    in 2000  The Company also identified accruals
    that were established with respect to the disposition of
    Community Group properties in 2000 which were considered to be
    excessive by approximately $1.6 million. These excessive
    accruals have also been reversed and have been tax effected at
    an effective rate of 40% in the Consolidated Statement of
    Operations.                                                                                                                                                                                                                                                                                                                                                      
|
| | (iii) Correction of overaccrual of
    newsprint costs at the Chicago Sun-Times in 2002 
    In its review of past transactions, the Company identified an
    overaccrual relating to the Chicago Newspaper Groups
    newsprint costs of approximately $2.9 million in 2002. This
    overaccrual has been reversed and is reflected as an adjustment
    to Newsprint and has been tax effected at an
    effective rate of 40% in the Consolidated Statement of
    Operations.                                                                                                                                                                                                                                                                                                        
|
| | (iv) Correction of equity accounting of
    affiliate in 2002  The Company has identified
    errors with respect to its equity earnings from a joint venture
    affiliate in 2002. The Company previously had not recorded
    interest income from the joint venture on amounts that the
    Company had funded to the joint venture. The Company also did
    not record its 50% share of the joint venture affiliates
    income tax benefit. The effect of these adjustments is to
    decrease the Companys equity losses in affiliates by
    approximately $2.7 million, which has been reflected
    through Other income (expense), net in the
    Consolidated Statement of Operations.                                                                                       
|
| | The Company failed to record the effects of a tax
    sharing arrangement between the joint venture and the
    U.K. Newspaper Group. The effect of this arrangement has
    been reflected as a decrease of $1.4 million of
    Income taxes payable and other tax liabilities. in
    the Consolidated Balance Sheet.                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| | The net effect of the three foregoing adjustments
    has been reflected as a $1.4 million increase to
    Investments in the Consolidated Balance Sheet.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| | (v) Correction of U.S. tax benefit
    on liquidation of Canadian operations  The
    Company identified an error with respect to the amount of taxes
    provided upon the substantial liquidation of Canadian
    operations. The Company had not recognized a tax benefit in the
    2002 U.S. tax provision on the foreign exchange impact of
    this liquidation. Accordingly, the Company has recorded a tax
    benefit in Income taxes (benefit) on the
    Consolidated Statement of Operations and a decrease in
    Income taxes payable and other tax liabilities on
    the Consolidated Balance Sheet of $20.1 million.                                                                                                                                                    
|
| | (vi) Other corrections of tax
    accounts  The Company has identified certain
    errors with respect to the amounts of income taxes (benefit)
    recorded in prior years. The Companys Consolidated
    Financial Statements have been restated to give effect to
    corrections regarding: (a) the periods in which certain
    amounts should have been recognized in income taxes (benefit);
    (b) the appropriate level of the valuation allowance
    related to certain deferred tax assets; and (c) other
    factors that impacted the provision for income taxes (benefit).
    The Company has also corrected the manner in which it had
    maintained its accrual for income tax contingencies, which had
    affected the cumulative foreign currency translation account.
|
| | The Consolidated Statements of Operations have
    been restated to increase the provision for income taxes by
    $11.9 million in 2002, and to increase the income tax
    benefit in each of 2001 and 2000 by $15.3 million and
    $9.9 million, respectively. With respect to the
    Consolidated Balance Sheets as of December 31, 2002, 2001
    and 2000, the restatements resulted in a decrease of
    $7.1 million and increases of $26.7 million and
    $5.4 million, respectively, in working capital
    (deficiency). The effects of the restatements are also reflected
    in the tables and elsewhere in the note, Income
    Taxes. (Note 24 of Notes to Consolidated Financial
    Statements.)                                                                        

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (vii) Reclassifications affecting tax
    accounts  The Company has identified certain
    errors with respect to the classification of transactions
    between current and deferred income taxes (benefit) in prior
    years. These errors did not affect total income taxes (benefit)
    or net earnings (loss) in any year. The Company has reclassified
    certain amounts that are reflected in the tables presented in
    the note, Income Taxes. (Note 24 of Notes to
    Consolidated Financial Statements.) With respect to the
    Companys Consolidated Balance Sheets, the
    reclassifications resulted in an increase of $8.5 million
    and $16.5 million to Income taxes payable and other
    tax liabilities and a corresponding decrease to
    Deferred income taxes and other tax liabilities as
    of December 31, 2002 and 2001, respectively.
|
| | (viii) Correction of in-kind
    dividends  The Company has corrected certain
    assumptions used in error in the calculation of the fair value
    of stock options issued to employees of Ravelston. Stock options
    granted to employees of Ravelston are reflected in the
    Consolidated Statements of Stockholders Equity as in-kind
    dividends.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| | The Company has corrected its calculation of the
    compensatory cost of stock options granted to the employees of
    Ravelston. Specifically, the Company has estimated that the life
    of options issued to Ravelston employees is expected to be nine
    years. In addition, the Company is now using volatility based on
    the average option life instead of using 12 months as was
    used in prior periods. The Company has restated prior periods to
    correct the assumptions used in the calculation.                                                                                                                                                                                                                                                                                                                                                            
|
| | The table below outlines the effects of these
    corrections on the in-kind dividend:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               



| |                 
| | ----------------
| | In-Kind Dividend

|                        |  |                |       |            |  |   |       | 
|----------------------- |  | -------------- | ----- | ---------- |  | - | ----- | 
|                        |  |                |       | As        
|                        |  |                |       | Previously
|                        |  | Restated       |       | Reported  
|                        |  |                |       |           
|                        |  |               
|                        |  | (In thousands)
|Year Ended December 31, |  |                |       |            |  |   |       | 
|2003                    |  | $              | 3,906 |            |  | $ | 8,513 | 
|2002                    |  |                | 4,376 |            |  |   | 6,111 | 
|2001                    |  |                | 7,301 |            |  |   | 7,800 | 

In 2003, the in-kind dividend was previously
reported in the Companys quarterly report on
Form 10-Q for the three-months ended March 31, 2003.



| |                                                                                                         
| | --------------------------------------------------------------------------------------------------------
| | (c)                     Reclassifications
    Arising from the Adoption of New Accounting
    Principles

In April 2002, the FASB issued SFAS No. 145,
Rescission of FASB Statements No. 4, 44 and 64,
Amendment of FASB Statement No. 13, and Technical
Corrections (SFAS No. 145). SFAS
No. 145 addresses, among other things, the income statement
treatment of gains and losses related to debt extinguishments
requiring that such expenses no longer be treated as
extraordinary items unless the items meet the definition of
extraordinary under Accounting Principles Board 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.
SFAS 145 became effective for fiscal years beginning after
May 15, 2002. As a result of the Companys adoption of
SFAS No. 145, it was required to reclassify the
Companys loss on early extinguishment of debt of
$21.3 million (approximately $35.5 million, pretax) in
2002, $6.3 million (approximately $10.6 million,
pretax) in 2000 and $5.2 million (approximately
$8.5 million, pretax) in 1999. Corresponding
reclassification adjustments were made to Other income
(expense), net and Income taxes (benefit) in
the Companys Consolidated Statements of Operations.



| |                              
| | -----------------------------
| | (d)                     Other

Amounts described as Other reflect
the effects of foreign currency translation and related items.

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

Overview

During the three years ended December 31,
2003, the Companys business was concentrated in the
publication of newspapers in the United States, the United
Kingdom, Canada and Israel. Operating revenues were derived
principally from advertising, paid circulation and, to a lesser
extent, job printing. Of the total operating revenues in 2003,
approximately 42.5% were attributable to the Chicago Group,
49.0% to the U.K. Newspaper Group, 7.5% to the Canadian
Newspaper Group and 1.0% to the Community Group. The Chicago
Group consists of the Chicago Sun-Timesand other daily
and weekly newspapers in the greater Chicago metropolitan area.
The U.K. Newspaper Group consists of the operations of The
Daily Telegraph, The Sunday Telegraph, The Weekly Telegraph,
telegraph.co.uk, and The Spectatorand Apollomagazines, and related subsidiaries and joint ventures. The
Canadian Newspaper Group consists of several community
newspapers, principally in Western Canada, and a trade magazine
and business information group located in Toronto. The major
portion of the Canadian operations are held by Hollinger L.P.
The Community Group consists of The Jerusalem Postand
related publications. In July 2004, the Company sold the
Telegraph Group. See Item 1 
Business  Recent Development  Sale of the
Telegraph Group. In December 2004, the Company sold The
Jerusalem Postand its related publications. See
Item 1  Recent Developments 
Sale of The Jerusalem Post. The results of
operations and financial condition of the Company reflected
herein include the Telegraph Group and The Jerusalem Post
and its related publications for all periods presented. The
Telegraph Group and The Jerusalem Post and its related
publications will be presented as discontinued operations in the
Companys 2004 consolidated financial statements.

The Companys operating revenues are
primarily derived from the sale of advertising space within the
Companys publications. Advertising revenues accounted for
approximately 69.2% of the Companys consolidated revenues
for the year ended December 31, 2003. Advertising revenue
is comprised of three primary sub-groups: retail, national and
classified. Changes in advertising revenue are heavily
correlated to the changes in the levels of economic activity.
Advertising revenue is subject to changes in the economy on both
a national and local level. The Companys advertising
revenue experiences seasonality with the third quarter revenues
typically being the lowest and the fourth quarter revenue being
the highest. Advertising revenue is recognized upon publication
of the advertisement.

In 2003, approximately 26.1% of the
Companys operating revenues were generated by sales of the
Companys publications. Circulation revenue includes sales
of publications to individual subscribers or to sales outlets,
which then re-sell the publications. The Company recognizes
circulation revenue from subscriptions on a straight-line basis
over the subscription term and on single-copy sales at the time
of distribution.

The Company also generates revenues through job
printing and other activities. Job printing and other revenues
are recognized upon delivery.

Significant expenses for the Company are
compensation and newsprint. Compensation expense, which includes
benefits, was approximately 32.2% of the Companys total
operating costs in 2003. Newsprint costs represented
approximately 14.1% of the Companys total operating costs
in 2003. Newsprint prices are subject to fluctuation as
newsprint is a commodity. The cost of newsprint can vary
significantly from year to year. These expenses are recognized
as incurred. The Company capitalizes and amortizes costs
associated with direct response advertising activities in
accordance with Statement of Position 93-7. These costs are
amortized over an 11-year period, with approximately 61%
amortized in the first year, 17% in the second year and the
remaining 22% on a declining basis over the following nine years.

Management fees paid to Ravelston, RMI and other
affiliated entities and costs related to corporate aircraft were
incurred at the corporate level and allocated to the operating
segments in 2003, 2002 and 2001. With the termination of the
management services agreements effective June 1, 2004 and
the sale of one aircraft and lease cancellation of the other,
similar charges will not be incurred in future periods.

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% at December 31

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in each of the years 2003, 2002 and 2001. All
significant intercompany balances and transactions have been
eliminated on consolidation.




| |                                         
| | ----------------------------------------
| | Developments Since December 31,
    2003

The following events will impact the
Companys consolidated financial statements for periods
subsequent to those covered by this report.

Disputes, Investigations and Legal Proceedings
with Former Executive Officers and Certain Current and Former
Directors The Company is
involved in a series of disputes, investigations and legal
proceedings relating to transactions between the Company and
certain former executive officers and certain current and former
directors of the Company. See Item 1 
Business  Recent Developments. The potential
impact of these disputes, investigations and legal proceedings
on the Companys financial condition and results of
operations cannot currently be estimated. Costs of
$10.1 million incurred as a result of the investigation of
the Special Committee and related litigation involving Black,
Radler and others were recorded as expenses through
December 31, 2003. These costs are included in Other
operating costs in the Consolidated Statement of
Operations. These costs primarily consist of legal and other
professional fees. The legal fees include those incurred
directly by the Special Committee in its investigation, the
costs of litigation initiated by the Special Committee on behalf
of the Company, costs to defend the Company from litigation that
has arisen as a result of the issues that the Special Committee
was asked to investigate and fees advanced by the Company as a
result of indemnification of current and former officers and
directors paid pursuant to this undertaking.

The Company has incurred substantial legal costs
arising out of the actions of its controlling stockholder
Hollinger Inc. and Black, the indirect controlling stockholder
of the Company, in causing the Company to engage in a series of
related party transactions that are the subject of litigation on
behalf of the Company brought by the Special Committee to
redress what the Special Committee has concluded to be repeated
violations of the fiduciary duties of Hollinger Inc., Black and
certain of their affiliates or associates. The costs from
January 1, 2004 through September 30, 2004, have been
approximately $46.3 million, discussed below, in addition
to the $10.1 million of costs incurred for the year ended
December 31, 2003.

The total costs of $46.3 million have
included approximately $17.3 million in costs and expenses
arising from the Special Committees work. This amount
includes the fees and costs of the Special Committees
members, counsel, advisors and experts, including but not
limited to fees and expenses of (i) conducting the
investigation, (ii) preparing the Report,
(iii) preparing, filing and pursuing litigation on behalf
of the Company seeking more than $500 million in damages
arising out of the actions of the Companys controlling
stockholders and other current and former officers and directors
of the Company; (iv) defending the Court Order in the
January 2004 SEC Action against challenges by
Hollinger Inc.; (v) defending and defeating the
counterclaims of Hollinger Inc. and Black in the Delaware
litigation; and (vi) defending and defeating the anti-suit
injunction motion brought by Ravelston and its affiliates in
Canada to prevent prosecution in the United States of the
Companys claims.

In addition to the $17.3 million in costs
for the Special Committees work, the Company has incurred
legal costs and other professional fees of $20.3 million.
The legal and other professional costs are primarily comprised
of costs to defend the Company in litigation that has arisen as
a result of the issues the Special Committee has investigated,
including costs to defend and defeat the counterclaims of
Hollinger Inc. and Black in the Delaware litigation.

The Company has also incurred legal costs of
approximately $8.7 million that the Company has been
required to advance in fees and costs to indemnified parties,
including the indirect controlling stockholders and their
affiliates and associates who are defendants in the litigation
brought by the Company. The Company would be entitled to
repayment of certain funds advanced to Black in the event the
Delaware Supreme Court affirms the Chancery Courts finding
that he repeatedly breached his fiduciary duties, and from Black
and other defendants in the Illinois litigation if a final,
nonappealable judgment is obtained in the Companys favor
in that action.

During 2003, the Company received from its former
executive officers, a total of $1.2 million in restitution
in accordance with the terms of the Restructuring Agreement.
Through September 30, 2004, the

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Company was paid additional amounts totaling
$30.3 million, excluding interest, in restitution in
accordance with the terms of the Restructuring Agreement. These
amounts were reflected in the Companys Consolidated
Statement of Operations for the year ended December 31,
2003 as Other income (expense), net. Of these
additional amounts, $23.7 million, excluding interest, paid
by Hollinger Inc. and Black is the subject of an appeal by
Hollinger Inc. and Black to the Delaware Supreme Court. See
Item 3  Legal Proceedings 
Hollinger International Inc. v. Conrad M.
Black, Hollinger Inc., and
504468 N.B. Inc. In addition, the Company
will receive $2.4 million from Atkinson for
non-competition payments and payments made under the
Digital Incentive Plan Atkinson received plus interest, under
the terms of a settlement with Atkinson upon court approval of
the settlement with Atkinson. Included in the $2.4 million
is approximately $253,000, which represents the balance, before
interest, identified as attributable to Atkinson at
December 31, 2003 in the Restructuring Agreement.


Sale of the Telegraph Group In November 2003, the Company retained
Lazard as financial advisor to explore alternative strategic
transactions, including the sale of the Company or of its
specific businesses. As part of the Strategic Process, on
July 30, 2004, the Company completed the sale of the
Telegraph Group for a price of £729.6 million in cash
(or approximately $1,323.9 million at an exchange rate of
$1.8145 to £1 as of the date of sale). This price is
subject to adjustment depending on actual working capital of the
businesses sold. The Company does not expect any such
adjustment, currently being calculated, to be material.

Repayment of Senior Credit
Facility On July 30,
2004, the Company used approximately $213.4 million of the
proceeds from the sale of the Telegraph Group to repay in full
all amounts outstanding under its Senior Credit Facility and
terminated all derivatives related to that facility. In
addition, the Company paid approximately $2.1 million for
premiums and fees related to the early repayment of the facility
and $32.3 million in fees to cancel the cross-currency
interest rate swaps the Company had in place with respect to
amounts outstanding under the Senior Credit Facility. See
 Liquidity and Capital Resources.

Retirement of 9% Senior
Notes In June 2004, the
Company commenced a tender offer and consent solicitation to
retire all 9% Senior Notes. Approximately 97% of the
principal amount of the 9% Senior Notes were tendered. The
Company used approximately $344.8 million of the proceeds
from the sale of the Telegraph Group to purchase and retire the
9% Senior Notes tendered and for related expenses. The cost
to cancel the interest rate swaps the Company had in place on
the 9% Senior Notes was approximately $10.5 million. See
 Liquidity and Capital Resources. The tender
closed on August 2, 2004. The Company has since purchased
and retired an additional $3.4 million in principal amount
of the 9% Senior Notes.

Declaration of Special and Regular
Dividend On
December 16, 2004, from the proceeds of the sale of the
Telegraph Group, the Board of Directors declared a Special
Dividend on the Companys Class A and Class B
Common Stock in an aggregate amount of approximately
$227.0 million payable on January 18, 2005, this being
the first tranche of a total amount of $500.0 million which
the Board of Directors determined was in the best interest of
the Company and its stockholders to be distributed to
stockholders. The Board of Directors intends to distribute an
additional amount of approximately $273.0 million of the
proceeds from the sale of the Telegraph Group, this being the
second tranche of the $500.0 million cash distribution,
either by way of a tender offer or a second special dividend.
There can be no assurance that the second distribution will be
made or, if made, whether it will be in the form of a tender
offer or a dividend, and if a tender offer, as to the price or
form such offer will take. The Board of Directors believes that
following the Special Dividend and the second distribution, the
Company will have sufficient liquidity to fund its operations
and obligations and to avail itself of strategic opportunities.
Following the Special Dividend, it is expected that the
outstanding grants under the Companys stock incentive
plans will be appropriately adjusted to take into account this
return of cash to existing stockholders. On December 16,
2004, the Board of Directors also declared a regular quarterly
dividend in the amount of $0.05 per share payable on the
Companys Class A and Class B Common Stock on
January 18, 2005.

The Chicago Sun-Times Circulation
Overstatement On
October 5, 2004, the Company announced that its Audit
Committee, after conducting an internal review, determined that
weekday and Sunday average circulation of the Chicago
Sun-Times, as reported in the audit reports issued by the
ABC commencing in 1998, had been overstated. The Chicago
Sun-Times announced a plan intended to make restitution to
its

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advertisers. To cover the estimated cost of
restitution and settlement of related lawsuits filed against the
Company, the Company recorded a pre-tax charge of approximately
$24.1 million for 2003 and approximately $2.9 million
for the first quarter of 2004. The Company will evaluate the
adequacy of the accruals as negotiations with advertisers
proceed. See Item 1  Business 
Recent Developments and  Risk
Factors.


The Audit Committee also conducted a Company-wide
review and found that circulation inflation practices were also
employed at two other Chicago area newspapers, the Daily
Southtownand The Star, as well as The Jerusalem
Post. The overstatement practices have been discontinued at
these papers, and the Company does not expect the impact of the
practices at these three newspapers will have a material impact
on the Company.

Disposition of Interest in Trump Joint
Venture On June 21,
2004, the Company entered into an agreement to sell its 50%
interest in the real estate joint venture for the development of
the property on which a portion of the Chicago Sun-Times
operations was then situated. Immediately prior to the sale of
the interest in the joint venture, the Company contributed to
the joint venture, its property in downtown Chicago where the
Chicago Sun-Times had conducted its editorial, pre-press,
marketing, sales and administrative activities. Under the terms
of the agreement the Company received $4.0 million in cash
upon signing of the sales agreement and the balance of
approximately $66.7 million cash, net of closing costs and
adjustments.

As a result of the decision to sell its interest
in the joint venture and related buildings, the Chicago
Sun-Timesentered into an operating lease for new office
space. The new lease is for 15 years and will have an
average annual expense of approximately $3.4 million. The
Chicago Sun-Timesrelocated to the new office space in
the fourth quarter of 2004 resulting in a significant amount of
capital expenditure. See  Liquidity and Capital
Resources.

Hollinger L.P. Tender
Offer On August 6,
2004, the TSX suspended the listing of the units of Hollinger
L.P. since the general partner of Hollinger L.P. does not have
at least two independent directors as required by TSX listing
requirements. On August 5, 2004, the Company expressed an
interest in pursuing a tender for the units of Hollinger L.P.
not held by affiliates of the Company. An independent committee
of the general partner of Hollinger L.P., consisting of the sole
independent director of the general partner, was formed and it
retained independent legal counsel and financial advisors.
Continuing liquidity for minority unit holders during the tender
process has been provided through a listing of the units on a
junior board of the TSX Venture Exchange. On December 10,
2004, it was announced that the Company would not pursue the
tender until such time as Hollinger L.P. is current in its
financial statement filings.

CanWest
Debentures On
October 7, 2004, the Company entered into an agreement with
CanWest, pursuant to which the parties agreed to redeem the
CanWest Debentures and dissolve the Trust. CanWest exchanged the
Trust Notes for new debentures issued by CanWest. See
Item 1 Business  Recent
Developments. The CanWest Exchange Offer was completed on
November 18, 2004. The Company received approximately
$133.6 million in respect of CanWest Debentures
beneficially owned and residual interests in the Participation
Trust that was attributable to foreign currency exchange. As a
consequence, all exposure the Company previously had to foreign
exchange fluctuations under the Participation Trust was
eliminated at that date. The Company was also relieved of the
requirement to maintain cash on hand to satisfy needs of the
Participation Trust, which removed the restrictions on the
$16.7 million reflected as Escrow deposits and
restricted cash on the Companys Consolidated Balance
Sheet at December 31, 2003. See  Liquidity
and Capital Resources  Off-Balance Sheet
Arrangements.

Sale of The Jerusalem Post On December 15, 2004, the Company
announced that as part of the Strategic Process, it had
completed the sale of The Palestine Post Limited. That company
is the publisher of The Jerusalem Post, The Jerusalem
Reportand related publications. The transaction involved
the sale by the Company of its debt and equity interests in The
Palestine Post Limited for $13.2 million.

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| |                                     
| | ------------------------------------
| | Significant Transactions in
    2003

On March 10, 2003, the Company purchased
2,000,000 shares of its Class A Common Stock from
Hollinger Inc. at $8.25 per share for $16.5 million. The
Company also redeemed the remaining 93,206 shares of its
Series E Redeemable Convertible Preferred Stock pursuant to
a redemption request by Hollinger Inc. at the fixed price of
Cdn. $146.63 per share for a total of $9.3 million.
See Note 23(c) to the Companys Consolidated Financial
Statements.

On April 10, 2003, CanWest notified the Company
of its intention to redeem Cdn. $265.0 million of
principal amount of the CanWest Debentures on May 11, 2003.
Of the total proceeds received by the Company,
$159.8 million related to CanWest Debentures for which
participations were sold to the Participation Trust and has been
paid to the Participation Trust. The balance of
$27.6 million was retained by the Company in respect of its
interest in the CanWest Debentures. See
 Liquidity and Capital Resources 
Off-Balance Sheet Arrangements.



| |                                     
| | ------------------------------------
| | Significant Transactions in
    2002

On December 23, 2002, the Company entered
into a $310.0 million Senior Credit Facility with a group
of financial institutions arranged by Wachovia Securities, Inc.
On December 23, 2002, Publishing issued 9% Senior Notes in
the aggregate principal amount of $300.0 million.

Net proceeds from the placement of the
9% Senior Notes before expenses associated with the
offering and borrowings under the Senior Credit Facility totaled
$553.8 million. The proceeds along with available cash were
used in January 2003 to retire the 9.25% Senior
Subordinated Notes due 2006 and 2007 (the
9.25% Senior Subordinated Notes) aggregating
$504.9 million plus applicable premium and accrued
interest, and to repay in December 2002 the $50.0 million
of 10.5% financing from Trilon International placed in October
2002 and remaining obligations of $40.0 million under the
Total Return Equity Swap (TRES) entered into with
various banks pursuant to which Company shares acquired by those
banks could be repurchased by the Company or sold in the open
market. Earlier in 2002, the Company had retired
$60.0 million of obligations under the TRES from the
proceeds of the Trilon International loan and from cash on hand.
The balance of proceeds was used for general corporate purposes.
The Company recognized losses of $15.2 million and
$73.9 million related to the TRES in 2002 and 2001,
respectively. See Note 17 of Notes to Consolidated
Financial Statements. Funds required for the retirement of the
9.25% Senior Subordinated Notes, including related premiums
and accrued interest, were held in escrow at December 31,
2002.



| |                                     
| | ------------------------------------
| | Significant Transactions in
    2001

Some of the transactions discussed below have
been investigated by the Special Committee and are subject to
lawsuits related to the Special Committees investigations.
See Item 1  Business  Recent
Developments  Report of the Special Committee,
Item 3  Legal Proceedings and
Item 13  Certain Relationships and Related
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 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.

In two separate transactions in July and November
2001, the Company and Hollinger L.P. completed the sale of most
of the remaining Canadian newspapers to Osprey Media 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

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Peterborough
Examiner , the Chatham Daily Newsand The Observer(Sarnia). Pre-tax gains of
approximately $800,000 were recognized on these sales. The
former CEO of Hollinger L.P. is a minority stockholder and CEO
of Osprey.


In August 2001, the Company sold to CanWest its
50% interest in the National Post. In accordance with the
sale agreement, the Companys representatives resigned from
their executive positions at the National Posteffective
September 1, 2001. The results of operations of the
National Postare 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 in Cdn. $540.0 million
($350.0 million) and Cdn. $216.8 million
($140.5 million), respectively, principal amounts of
CanWest Debentures to the Participation Trust. Trust Notes were
issued and sold by the Participation Trust to 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 (SFAS No. 140). 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 (expense), net.

The Company had entered into the TRES with four
banks whereby 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 Other income (expense),
net during the 2001 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 Preferred Stock
shares were held by a subsidiary of Hollinger Inc.

On November 28, 2001, the Company sold
2,700,000 multiple voting preferred shares and 27,000,000
non-voting shares of CanWest, encompassing all the
Companys shareholdings 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 Other
income (expense), net.

Critical Accounting Policies and
Estimates

The preparation of the Companys
consolidated financial statements requires it to make estimates
and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. On an on-going basis, the
Company evaluates its estimates, including those related to
areas that require a significant level of judgment or are
otherwise subject to an inherent degree of uncertainty. These
areas include bad debts, goodwill, intangible assets, income
taxes, pensions and other post-retirement benefits,
contingencies and litigation. The Company bases its estimates on
historical experience, observance of trends in particular areas,
information available from outside sources and various other
assumptions that are believed to be reasonable under the
circumstances. Information from these sources form the basis for
making judgments about the carrying values of assets and
liabilities that may not be readily apparent from other sources.
Actual amounts may differ from these estimates under different
assumptions or conditions.

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

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Accruals for
Contingent Tax Liabilities

At December 31, 2003, the Companys
Consolidated Balance Sheet includes $748.8 million of
accruals intended to cover contingent liabilities related to
additional taxes and interest it may be required to pay in
various tax jurisdictions. A substantial portion of the accruals
relates to the tax treatment of gains on the sale of a portion
of the Companys non-U.S. operations. The accruals to cover
contingent tax liabilities also relate to management fees,
non-competition payments and other items that have
been deducted in arriving at taxable income, which deductions
may be disallowed by taxing authorities. If those deductions
were to be disallowed, the Company would be required to pay
additional taxes and interest since the dates such taxes would
have been paid had the deductions not been taken, and it may be
subject to penalties. The ultimate resolution of these tax
contingencies will be dependent upon a number of factors,
including discussions with taxing authorities and the nature,
extent and timing of any restitution or reimbursement received
by the Company.

The Company believes that the accruals that have
been recorded are adequate to cover the tax contingencies. If
the ultimate resolution of the tax contingencies is more or less
favorable than what has been assumed by management in
determining the accruals, the accruals may ultimately be
excessive or inadequate in amounts that are not presently
determinable, but such amounts may be material to the
Companys consolidated financial position, results of
operations, and cash flows.

Allowance for
Doubtful Accounts

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

Potential
Impairment of Goodwill

The Company has significant goodwill recorded in
its accounts. The Company is required to determine at least
annually, whether or not there has been any permanent impairment
in the value of these assets. Certain indicators of potential
impairment that could impact the Companys reporting units
include, but are not limited to, the following: (i) a
significant long-term adverse change in the business climate
that is expected to cause a substantial decline in advertising
spending, (ii) a permanent significant decline in a
reporting units newspaper readership, (iii) a
significant adverse long-term negative change in the
demographics of a reporting units newspaper readership and
(iv) a significant technological change that results in a
substantially more cost effective method of advertising than
newspapers.

Valuation
Allowance  Deferred Tax Assets

The Company records a valuation allowance to
reduce the deferred tax assets to the amount which, the Company
estimates, is more likely than not to be realized. While the
Company has considered future taxable income and ongoing tax
planning strategies in assessing the need for the valuation
allowance, if the Company were to determine that it would be
able to realize deferred tax assets in the future in excess of
the net recorded amount, the resulting adjustment to deferred
tax assets would increase net earnings in the period such a
determination was made. Similarly, should the Company determine
that it would not be able to realize all or part of the deferred
tax assets in the future, an adjustment to deferred tax assets
would decrease net earnings in the period that such a
determination was made.

Defined Benefit
Pension Plans

The Company sponsors several defined benefit
pension and post-retirement benefit plans for domestic and
foreign employees. These defined benefit plans include pension
and post-retirement benefit obligations, which are calculated
based on actuarial valuations. In determining these obligations
and related expenses, key assumptions are made concerning
expected rates of return on plan assets and discount rates. In
making these assumptions, the Company evaluates, among other
things, input from actuaries, expected long-term market returns
and current high-quality bond rates. The Company will continue
to evaluate the expected long-term

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rates of return on plan assets and discount rates
at least annually and make adjustments as necessary, which could
change the pension and post-retirement obligations and expenses
in the future.


Unrecognized actuarial gains and losses are
recognized by the Company over a period of approximately
12 years, which represents the weighted-average remaining
service life of the employee group. Unrecognized actuarial gains
and losses arise from several factors including experience,
changes in assumptions and from differences between expected
returns and actual returns on assets. At the end of 2003, the
Company had unrecognized net actuarial losses of
$101.2 million. These unrecognized amounts could result in
an increase to pension expenses in future years depending on
several factors, including whether such losses exceed the
corridor in accordance with SFAS No. 87,
Employers Accounting for Pensions
(SFAS No. 87).

The estimated accumulated benefit obligations for
the defined benefit plans exceeded the fair value of the plan
assets at December 31, 2003, 2002, and 2001 as a result of
the negative impact that declines in global capital markets and
interest rates had on the assets and obligations of the
Companys pension plans. Accordingly, a non-cash charge of
$1.6 million ($1.7 million, net of tax and minority
interest) was recorded in other comprehensive loss for the
increase in minimum pension liability in 2003,
$43.6 million ($27.7 million net of tax) in 2002 and
$22.5 million ($14.9 million, net of tax) in 2001.
Similar charges may be required in future years as the impact of
changes in global capital markets and interest rates on the
value of the Companys pension plan assets and obligations
is measured.

During 2003, the Company made contributions of
$10.2 million ($9.2 million in 2002) to defined
benefit plans. Global capital market and interest rate
fluctuations could impact future funding requirements for such
plans. If the actual operation of the plans differs from the
assumptions, additional Company contributions may be required.
If the Company is required to make significant contributions to
fund the defined benefit plans, reported results could be
adversely affected, and the Companys cash flow available
for other uses would be reduced.

Restatements and Reclassifications

As described in footnote 6 to
Item 6  Selected Financial Data and
in Note 2 of Notes to Consolidated Financial Statements,
the Company has restated certain of the financial data for prior
periods and has reclassified certain prior period amounts due to
the required adoption of a new FASB standard. The following
discussion and analysis of results of operations and financial
condition are based upon such restated and reclassified
financial data.

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Results of Operations for the Years ended
December 31, 2003, 2002 and 2001

The following table sets forth, for the
Companys operating segments, for the periods indicated,
certain items and related percentage relationships derived from
the Consolidated Statements of Operations.

|                              |                                |                         |           |              |   |      |           |         |   |      |           |         |   |  |       |        |   |  |       |       |   |  |       |       |   
|----------------------------- | ------------------------------ | ----------------------- | --------- | ------------ | - | ---- | --------- | ------- | - | ---- | --------- | ------- | - |  | ----- | ------ | - |  | ----- | ----- | - |  | ----- | ----- | --
|                              |                                |                        
|                              |                                | Year Ended December 31,
|                              |                                |                        
|                              |                                | 2003                    |           | 2002         |   | 2001 |           | 2003    |   | 2002 |           | 2001   
|                              |                                |                         |           |              |   |      |           |         |   |      |           |        
|                              |                                |                         |           |             
|                              |                                | (Dollars in thousands)  |           | (Percentage)
|Operating revenues:           |                                |                         |           |              |   |      |           |         |   |      |           |         |   |  |       |        |   |  |       |       |   |  |       |      
|                              | Chicago Group                  |                         | $         | 450,789      |   |      | $         | 441,778 |   |      | $         | 442,884 |   |  |       | 42.5   | % |  |       | 43.9  | % |  |       | 38.6  | % 
|                              | Community Group                |                         |           | 10,397       |   |      |           | 13,231  |   |      |           | 19,115  |   |  |       | 1.0    |   |  |       | 1.3   |   |  |       | 1.7   |   
|                              | U.K. Newspaper Group           |                         |           | 519,475      |   |      |           | 481,527 |   |      |           | 486,374 |   |  |       | 49.0   |   |  |       | 47.9  |   |  |       | 42.4  |   
|                              | Canadian Newspaper Group       |                         |           | 80,542       |   |      |           | 69,626  |   |      |           | 197,948 |   |  |       | 7.5    |   |  |       | 6.9   |   |  |       | 17.3  |   
|                              |                                |                         |           |              |   |      |           |         |   |      |           |         |   |  |       |        |   |  |       |       |   |  |       |      
|Total operating revenues      |                                | $                       | 1,061,203 |              |   | $    | 1,006,162 |         |   | $    | 1,146,321 |         |   |  | 100.0 | %      |   |  | 100.0 | %     |   |  | 100.0 | %    
|                              |                                |                         |           |              |   |      |           |         |   |      |           |         |   |  |       |        |   |  |       |       |   |  |       |      
|Operating income (loss):      |                                |                         |           |              |   |      |           |         |   |      |           |         |   |  |       |        |   |  |       |       |   |  |       |      
|                              | Chicago Group                  |                         | $         | 24,514       |   |      | $         | 38,598  |   |      | $         | 4,962   |   |  |       | 244.7  | % |  |       | 64.2  | % |  |       | (13.8 | )%
|                              | Community Group                |                         |           | (6,601       | ) |      |           | (5,218  | ) |      |           | (4,487  | ) |  |       | (65.9  | ) |  |       | (8.7  | ) |  |       | 12.5  |   
|                              | U.K. Newspaper Group           |                         |           | 40,683       |   |      |           | 48,079  |   |      |           | 27,850  |   |  |       | 406.1  |   |  |       | 80.0  |   |  |       | (77.4 | ) 
|                              | Canadian Newspaper Group       |                         |           | (4,983       | ) |      |           | (2,137  | ) |      |           | (45,954 | ) |  |       | (49.7  | ) |  |       | (3.6  | ) |  |       | 127.7 |   
|                              | Investment and Corporate Group |                         |           | (43,596      | ) |      |           | (19,215 | ) |      |           | (18,354 | ) |  |       | (435.2 | ) |  |       | (31.9 | ) |  |       | 51.0  |   
|                              |                                |                         |           |              |   |      |           |         |   |      |           |         |   |  |       |        |   |  |       |       |   |  |       |      
|Total operating income (loss) |                                | $                       | 10,017    |              |   | $    | 60,107    |         |   | $    | (35,983   | )       |   |  | 100.0 | %      |   |  | 100.0 | %     |   |  | 100.0 | %    
|                              |                                |                         |           |              |   |      |           |         |   |      |           |         |   |  |       |        |   |  |       |       |   |  |       |      

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|                                                                                                                    |              |                                          |           |         |  |      |           |         |  |   |           |         | 
|------------------------------------------------------------------------------------------------------------------- | ------------ | ---------------------------------------- | --------- | ------- |  | ---- | --------- | ------- |  | - | --------- | ------- | 
|                                                                                                                    |              |                                         
|                                                                                                                    |              | Year Ended December 31,                 
|                                                                                                                    |              |                                         
|                                                                                                                    |              | 2003                                     |           | 2002    |  | 2001
|                                                                                                                    |              |                                          |           |         |  |     
|                                                                                                                    |              |                                         
|                                                                                                                    |              | (In thousands, except per share amounts)
|Statement of Operations Data:                                                                                       |              |                                          |           |         |  |      |           |         |  |   |           |        
|Operating revenues:                                                                                                 |              |                                          |           |         |  |      |           |         |  |   |           |        
|                                                                                                                    | Advertising  |                                          | $         | 733,826 |  |      | $         | 710,849 |  |   | $         | 804,462 | 
|                                                                                                                    | Circulation  |                                          |           | 277,264 |  |      |           | 247,175 |  |   |           | 278,321 | 
|                                                                                                                    | Job printing |                                          |           | 16,427  |  |      |           | 16,669  |  |   |           | 25,092  | 
|                                                                                                                    | Other        |                                          |           | 33,686  |  |      |           | 31,469  |  |   |           | 38,446  | 
|                                                                                                                    |              |                                          |           |         |  |      |           |         |  |   |           |        
|Total operating revenues                                                                                            |              |                                          | 1,061,203 |         |  |      | 1,006,162 |         |  |   | 1,146,321 |        
|Operating costs and expenses                                                                                        |              |                                          | 996,333   |         |  |      | 891,903   |         |  |   | 1,108,576 |        
|Depreciation and amortization                                                                                       |              |                                          | 54,853    |         |  |      | 54,152    |         |  |   | 73,728    |        
|                                                                                                                    |              |                                          |           |         |  |      |           |         |  |   |           |        
|Operating income (loss)                                                                                             |              |                                          | 10,017    |         |  |      | 60,107    |         |  |   | (35,983   | )      
|Interest expense                                                                                                    |              |                                          | (55,559   | )       |  |      | (58,772   | )       |  |   | (78,639   | )      
|Amortization of deferred financing costs                                                                            |              |                                          | (2,855    | )       |  |      | (5,585    | )       |  |   | (10,367   | )      
|Interest and dividend income                                                                                        |              |                                          | 25,411    |         |  |      | 18,782    |         |  |   | 64,893    |        
|Other income (expense), net                                                                                         |              |                                          | 75,641    |         |  |      | (172,783  | )       |  |   | (303,318  | )      
|                                                                                                                    |              |                                          |           |         |  |      |           |         |  |   |           |        
|Earnings (loss) before income taxes, minority
    interest, and cumulative effect of change in accounting principle |              |                                          | 52,655    |         |  |      | (158,251  | )       |  |   | (363,414  | )      
|Income taxes (benefit)                                                                                              |              |                                          | 121,638   |         |  |      | 50,132    |         |  |   | (23,038   | )      
|                                                                                                                    |              |                                          |           |         |  |      |           |         |  |   |           |        
|Loss before minority interest, and cumulative
    effect of change in accounting principle                          |              |                                          | (68,983   | )       |  |      | (208,383  | )       |  |   | (340,376  | )      
|Minority interest                                                                                                   |              |                                          | 5,325     |         |  |      | 2,167     |         |  |   | (13,803   | )      
|                                                                                                                    |              |                                          |           |         |  |      |           |         |  |   |           |        
|Loss before cumulative effect of change in
    accounting principle                                                 |              |                                          | (74,308   | )       |  |      | (210,550  | )       |  |   | (326,573  | )      
|Cumulative effect of change in accounting
    principle                                                             |              |                                          |          |         |  |      | (20,079   | )       |  |   |          |        
|                                                                                                                    |              |                                          |           |         |  |      |           |         |  |   |           |        
|Net loss                                                                                                            |              | $                                        | (74,308   | )       |  | $    | (230,629  | )       |  | $ | (326,573  | )      
|                                                                                                                    |              |                                          |           |         |  |      |           |         |  |   |           |        
|Diluted loss per share                                                                                              |              | $                                        | (0.85     | )       |  | $    | (2.40     | )       |  | $ | (3.31     | )      
|                                                                                                                    |              |                                          |           |         |  |      |           |         |  |   |           |        



| |                        
| | -----------------------
| | 2003 Compared with 2002



| |         
| | --------
| | Net Loss

The net loss for the year ended December 31,
2003 amounted to $74.3 million or $0.85 per diluted
share compared to a net loss of $230.6 million for the year
ended December 31, 2002 or a net loss of $2.40 per
share. The net losses in 2003 and 2002 included a large number
of infrequent and unusual items. Infrequent items are included
in Operating costs and expenses and unusual items
are included in Other income (expense), net.



| |                                            
| | -------------------------------------------
| | Operating Revenues and Operating
    Income

Operating revenues and operating income in 2003
were $1,061.2 million and $10.0 million, respectively,
compared with $1,006.2 million and $60.1 million,
respectively, in 2002. The increase in operating revenues of
$55.0 million was principally due to an increase in revenue
at the U.K. Newspaper Group in U.S. dollar terms, as a
consequence of the strengthening of the British pound against
the U.S. dollar, and smaller revenue gains at both the
Chicago and Canadian Newspaper Groups. The decrease in operating
income of $50.1 million was largely due to increased
operating costs in the U.K., costs of $24.1 million related
to restitution to and settlement of litigation with advertisers
at the Chicago Sun-Times for previous overstatements of
circulation levels, an increase in expenses related to
stock-based compensation of $6.7 million and the costs
related to the Special Committee investigation and related
litigation involving Black, Radler and others of
$10.1 million.

65



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| |                             
| | ----------------------------
| | Operating Costs and Expenses

Operating costs and expenses increased by
$104.4 million to $996.3 million in 2003 from
$891.9 million in 2002. The increase in total operating
cost was principally due to an increase in costs at the U.K.
Newspaper Group in U.S. dollar terms, as a consequence of
the strengthening of the British pound against the
U.S. dollar. In addition to the effects of foreign currency
fluctuations, costs increased due to stock-based compensation
and several other items that are infrequent in nature. Included
as infrequent items are the previously described costs of
approximately $10.1 million related to the Special
Committee investigation and related litigation involving Black,
Radler and others and approximately $24.1 million of costs
related to restitution to and settlement of litigation with
advertisers in the Chicago Sun-Timesfor previous
overstatements of circulation levels. These costs were partially
offset by the reversal of excess accruals for provisions for
doubtful accounts at the Chicago Group.



| |                                                                              
| | -----------------------------------------------------------------------------
| | Earnings Before Interest, Taxes, Depreciation
    and Amortization (EBITDA)

EBITDA is a financial measure of operational
profitability and is presented to assist in understanding the
Companys operating results. However, it is not intended to
represent cash flow or results of operations in accordance with
U.S. GAAP. The Company monitors EBITDA to isolate the
impact of financial structure and major capital expenditures at
the business unit level as the impact of those matters is
largely a consequence of decisions made by the corporate office.
Further, valuation of the Companys separate business units
on asset sales has historically been predicated on multiples of
EBITDA. The table below presents a reconciliation of EBITDA to
operating income (loss) and net loss on a consolidated basis.
The Companys definition and calculation of EBITDA may be
different from the definitions and calculations presented by
other companies, including competitors, and therefore EBITDA
results may not be comparable among companies.

|                                                                                                                   |                                          |                                                     |         |         |       |      |          |          |       |   |          |          |        | 
|------------------------------------------------------------------------------------------------------------------ | ---------------------------------------- | --------------------------------------------------- | ------- | ------- | ----- | ---- | -------- | -------- | ----- | - | -------- | -------- | ------ | 
|                                                                                                                   |                                          |                                                    
|                                                                                                                   |                                          | Year Ended December 31,                            
|                                                                                                                   |                                          |                                                    
|                                                                                                                   |                                          | 2003                                                |         | 2002    |       | 2001
|                                                                                                                   |                                          |                                                     |         |         |       |     
|                                                                                                                   |                                          |                                                    
|                                                                                                                   |                                          | (Amounts in thousands)                             
|EBITDA                                                                                                             |                                          | $                                                   | 64,870  |         |       | $    | 114,259  |          |       | $ | 37,745   |         
|Less: Depreciation                                                                                                 |                                          |                                                     | 38,499  |         |       |      | 37,001   |          |       |   | 37,968   |         
|                                                                                                                   |                                          | Amortization of intangible assets                   |         |         | 9,738 |      |          |          | 9,797 |   |          |          | 28,630 | 
|                                                                                                                   |                                          | Amortization of capitalized
    telemarketing costs |         |         | 6,616 |      |          |          | 7,354 |   |          |          | 7,130  | 
|                                                                                                                   |                                          |                                                     |         |         |       |      |          |          |       |   |          |         
|Operating income (loss)                                                                                            |                                          |                                                     | 10,017  |         |       |      | 60,107   |          |       |   | (35,983  | )       
|Other income (expense):                                                                                            |                                          |                                                     |         |         |       |      |          |          |       |   |          |         
|                                                                                                                   | Interest expense                         |                                                     |         | (55,559 | )     |      |          | (58,772  | )     |   |          | (78,639  | )     
|                                                                                                                   | Amortization of deferred financing costs |                                                     |         | (2,855  | )     |      |          | (5,585   | )     |   |          | (10,367  | )     
|                                                                                                                   | Interest and dividend income             |                                                     |         | 25,411  |       |      |          | 18,782   |       |   |          | 64,893   |       
|                                                                                                                   | Other income (expense), net              |                                                     |         | 75,641  |       |      |          | (172,783 | )     |   |          | (303,318 | )     
|                                                                                                                   |                                          |                                                     |         |         |       |      |          |          |       |   |          |         
|                                                                                                                   | Total other income (expense)             |                                                     |         | 42,638  |       |      |          | (218,358 | )     |   |          | (327,431 | )     
|                                                                                                                   |                                          |                                                     |         |         |       |      |          |          |       |   |          |         
|Earnings (loss) before income taxes, minority
    interest and cumulative effect of change in accounting principle |                                          |                                                     | 52,655  |         |       |      | (158,251 | )        |       |   | (363,414 | )       
|Income taxes (benefit)                                                                                             |                                          |                                                     | 121,638 |         |       |      | 50,132   |          |       |   | (23,038  | )       
|                                                                                                                   |                                          |                                                     |         |         |       |      |          |          |       |   |          |         
|Loss before minority interest and cumulative
    effect of change in accounting principle                          |                                          |                                                     | (68,983 | )       |       |      | (208,383 | )        |       |   | (340,376 | )       
|Minority interest                                                                                                  |                                          |                                                     | 5,325   |         |       |      | 2,167    |          |       |   | (13,803  | )       
|                                                                                                                   |                                          |                                                     |         |         |       |      |          |          |       |   |          |         
|Loss before cumulative effect of change in
    accounting principle                                                |                                          |                                                     | (74,308 | )       |       |      | (210,550 | )        |       |   | (326,573 | )       
|Cumulative effect of change in accounting
    principle                                                            |                                          |                                                     |        |         |       |      | (20,079  | )        |       |   |         |         
|                                                                                                                   |                                          |                                                     |         |         |       |      |          |          |       |   |          |         
|Net loss                                                                                                           |                                          | $                                                   | (74,308 | )       |       | $    | (230,629 | )        |       | $ | (326,573 | )       
|                                                                                                                   |                                          |                                                     |         |         |       |      |          |          |       |   |          |         

EBITDA for the year ended December 31, 2003
was $64.9 million compared to $114.3 million for the
year ended December 31, 2002. The decrease in EBITDA for
2003 compared to 2002 is due primarily to the

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overall increase in revenue, offset by increases
in stock-based compensation, costs incurred with respect to the
Special Committee investigation, costs related to restitution to
and settlement of litigation with advertisers at The Chicago
Sun-Times and by increases in operating costs.




| |                 
| | ----------------
| | Interest Expense

Interest expense totaled $55.6 million and
$58.8 million for the years ended December 31, 2003
and 2002, respectively. Interest expense in 2003 included the
mark-to-market losses on the value of the $250.0 million
interest rate swaps on the 9% Senior Notes. In 2003, the
mark-to-market valuation of these swaps resulted in a net loss
of $5.6 million. Excluding the impact of the mark-to-market
valuation of these swaps, interest expense reflected lower
average interest rates on long-term debt for 2003. The effective
rates of interest on long-term debt were reduced through the use
of a fixed to floating interest rate swap on $250.0 million
of the 9% Senior Notes, partially offset by a
cross-currency floating to fixed interest rate swap on the
Senior Credit Facility. The mark-to-market effect of the
cross-currency floating to fixed interest rate swap is reflected
in  Other Income (Expense), Net, below.
See   Liquidity and Capital
Resources.



| |                             
| | ----------------------------
| | Interest and Dividend Income

Interest and dividend income was
$25.4 million in 2003 compared with $18.8 million in
2002. The increase of $6.6 million arose primarily from
interest that accrued on amounts receivable identified in the
Restructuring Agreement. This increase was partially offset as
the Company ceased recognizing interest on amounts due from
CanWest, pending resolution of the arbitration (See Note 22
of Notes to Consolidated Financial Statements herein), and
reflected lower average cash deposits throughout 2003.



| |                            
| | ---------------------------
| | Other Income (Expense), Net

Other income (expense), net in 2003 was income of
$75.6 million compared to a net expense of
$172.8 million in 2002. Included in the income in 2003 was
the write-off of deferred financing costs and premiums paid of
$37.3 million on the redemption of the Companys
9.25% Senior Subordinated Notes in January 2003 and the
$1.1 million write-off of deferred financing costs
recognized on the $45.0 million partial repayment of term
loans advanced under the Senior Credit Facility. The Company
also recognized a write-down of approximately $6.8 million
relating to the FDR Collection. See
Item 1  Business  Recent
Developments  Report of the Special Committee.
These costs were partially offset by $31.5 million of
restitution received or receivable from certain officers and
directors of the Company under the terms of the Restructuring
Agreement. Of these amounts, $1.2 million was received in
2003 and the remaining $30.3 million has been collected in
2004. The recovery of $602,500 from Boultbee has not been
recognized in the Companys consolidated financial
statements and is a component of a lawsuit pending before the
courts. For 2002, the other expense, net of $172.8 million
primarily consisted of the write down of investments of
$40.5 million, the loss of $15.2 million related to
the TRES and losses incurred on the early extinguishment of debt
of approximately $35.5 million.

Also included in Other income (expense), net is
the net effect of foreign currency gains and losses, which, in
2003, amounted to net foreign currency gains of
$114.1 million compared with net foreign currency losses of
$86.9 million in 2002. Foreign exchange gains on the
Participation Trust obligations were $122.3 million and
were primarily responsible for the net gain in 2003, while
losses of $78.2 million on the substantial liquidation of
the Companys investment in the Canadian Newspaper Group
accounted for the major portion of the loss in 2002. Gains on
the Participation Trust obligation were partially offset by
mark-to-market losses of $21.7 million on the
cross-currency interest rate swap on the Senior Credit Facility
during 2003.



| |             
| | ------------
| | Income Taxes

Income tax expense in 2003 was
$121.6 million compared to an expense of $50.1 million
in 2002. In each year, income tax expense varies substantially
from the amount of income tax expense (benefit) that would be
expected by applying the U.S. Federal income
tax rate to earnings (loss) before income taxes, minority

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interest, and cumulative effect of change in
accounting principle; a reconciliation of these amounts is
presented in Note 24 of Notes to Consolidated Financial
Statements. In both 2003 and 2002, the principal variances from
expected tax expense (benefit) result from
provisions for contingent liabilities to cover additional taxes
and interest that the Company may be required to pay in various
tax jurisdictions; such provisions aggregated
$108.2 million in 2003 and $45.3 million in 2002. Also
in 2002, the Company recorded a provision of $38.9 million
for the tax impacts of the disposition and liquidation of its
Canadian operations. In both years, the Company recorded changes
in the valuation allowance related to its deferred tax assets to
give effect to its assessment of the prospective realization of
certain future tax benefits; the allowance was increased by
$17.4 million in 2002 and decreased by $12.3 million
in 2003.




| |                  
| | -----------------
| | Minority Interest

Minority interest in 2003 was $5.3 million
compared to $2.2 million in 2002. Minority interest
represents the minority share of net earnings of Hollinger L.P.
The increase primarily reflected the minority interests
share of foreign exchange gains in Hollinger L.P. relating to
the exchange exposure to the Participation Trust, as a result of
the strengthening of the Canadian dollar.



| |                        
| | -----------------------
| | 2002 Compared with 2001



| |         
| | --------
| | Net Loss

The Company had a net loss of $230.6 million
in 2002 compared with a net loss of $326.6 million in 2001.
The net losses in 2002 and 2001 included a large number of
infrequent and unusual items as well as an adjustment to reflect
the cumulative effect of a change in accounting principle.
Infrequent items are included in Other operating costs and
expenses and unusual items are included in Other
income (expense), net.



| |                                                   
| | --------------------------------------------------
| | Operating Revenues and Operating Income
    (Loss)

Operating revenues and operating income in 2002
were $1,006.2 million and $60.1 million, respectively,
compared with operating revenues of $1,146.3 million and an
operating loss of $36.0 million in 2001. The decrease in
operating revenues was primarily due to the sale of most of the
remaining Canadian newspapers to Osprey Media and the sale of
the Companys remaining 50% interest in the National
Post. These declines were partially offset by increases in
revenue in the U.K. Newspaper Group, in U.S. dollar terms, as a
consequence of the strengthening of the British pound against
the U.S. dollar. The increase in operating income was
primarily due to the disposition of the Companys remaining
50% interest in the National Post in August 2001, lower
consumption of and prices for newsprint throughout the year,
reduced compensation costs, lower operating costs in general,
reduced amortization charges largely as a consequence of the
adoption of SFAS No. 142 and fewer infrequent items.



| |                   
| | ------------------
| | Operating Expenses

Operating costs and expenses were
$891.9 million in 2002 compared with $1,108.6 million
in 2001, a decrease of $216.7 million. Newsprint expense
was $147.5 million in 2002 compared with
$204.4 million in 2001, a decrease of $56.9 million or
27.8%. The decrease was primarily due to lower consumption at
the U.K. Newspaper Group, the sales of Canadian newspaper
properties in 2001 and declining newsprint prices. Average
newsprint prices at both the U.K. Newspaper Group and Chicago
Group year over year were lower. Compensation costs were
$309.0 million in 2002 compared to $361.7 million in
2001, representing a year-over-year decrease of
$52.7 million or 14.6%. Other operating costs of
$435.3 million in 2002 decreased year-over-year by
$107.2 million or 19.8% from $542.5 million in 2001.
These reductions were mainly due to both the sales of publishing
properties and concerted efforts to reduce costs in the face of
a difficult advertising market. Infrequent items in 2002
amounted to $1.0 million compared with $21.7 million
in 2001. Infrequent items in 2001 included a one-time expense
related to a pension and post-retirement plan liability
adjustment of $12.4 million as well as $4.7 million of
duplicated costs resulting from operating two printing plants
during start-up of the new plant in Chicago.

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| |                 
| | ----------------
| | Interest Expense

Interest expense was $58.8 million in 2002
compared to $78.6 million in 2001, a decrease of
$19.8 million. The decrease was largely a consequence of
the retirement of a portion of long-term debt in 2001 and a
partial repayment of the Companys 8.625% senior notes
in March 2002. The source of the cash for repayment was the sale
of the participation interests in the CanWest Debentures in 2001.



| |                             
| | ----------------------------
| | Interest and Dividend Income

Interest and dividend income in 2002 was
$18.8 million compared with $64.9 million in 2001, a
decrease of $46.1 million. Interest and dividend income in
2001 included interest on the CanWest Debentures until the sale
of participation interests 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
participations in CanWest Debentures. Most of the proceeds from
the disposal of the CanWest investments were retained as
short-term investments at low rates of interest until March 2002
when a portion of the Companys long-term debt was retired.



| |                            
| | ---------------------------
| | Other Income (Expense), Net

Other expense of $172.8 million in 2002
included charges in respect of writedowns of investments of
$40.5 million and a loss of $15.2 million relating to
the TRES. The TRES arrangements were retired in their entirety
in December 2002. In addition, the Company incurred a cost of
$35.5 million in relation to the early termination of
outstanding debt. Other expense in 2001 amounted to
$303.3 million and included a net loss on the sale of
investments of $147.2 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 a $78.2 million loss on the
sale of the National Postoffset 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 TRES
and $15.1 million in losses from equity accounted companies.

Included in other income (expense), net were
foreign currency losses in 2002 of $86.9 million compared
with $1.3 million in 2001. The 2002 loss principally
consisted of a $78.2 million loss incurred as a result of
the substantial liquidation of the Companys investment in
the Canadian Newspaper Group and the related repatriation of
funds to the United States. Prior to 2002, the cumulative
foreign exchange losses associated with the Canadian investment
were included in the accumulated other comprehensive loss
component of stockholders equity.



| |             
| | ------------
| | Income Taxes

Income tax expense in 2002 was $50.1 million
compared to a tax benefit of $23.0 million in 2001. In each
year, income tax expense (benefit) varies substantially from the
amount of income tax benefit that would be expected
by applying the U.S. Federal income tax rate to the loss
before income taxes, minority interest, and cumulative effect of
change in accounting principle; a reconciliation of these
amounts is presented in Note 24 of Notes to Consolidated
Financial Statements. In both 2002 and 2001, the principal
variances from the expected tax benefit result from
provisions for contingent liabilities to cover additional taxes
and interest that the Company may be required to pay in various
tax jurisdictions; such provisions aggregated $45.3 million
in 2002 and $31.2 million in 2001. The Company increased
the valuation allowance with respect to its net deferred tax
assets by $17.4 million in 2002 and $27.2 million in
2001. The Company also recorded provisions of $38.9 million
in 2002 and $5.1 million in 2001 for the tax impacts of the
disposition and liquidation of its Canadian operations. The
losses related to the TRES are not deductible for tax purposes;
variances attributable to the TRES losses were $5.3 million
in 2002 and $28.1 million in 2001.

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| |                  
| | -----------------
| | Minority Interest

Minority interest in 2002 was $2.2 million,
compared to a credit of $13.8 million in 2001. The credit
in 2001 resulted primarily from the minority stockholders
share of National Postlosses to August 31, 2001,
offset by the minority interests share of earnings of
Hollinger L.P.



| |                               
| | ------------------------------
| | Change in Accounting Principle

The transitional provisions of
SFAS No. 142 required the Company to assess whether
goodwill was impaired as of January 1, 2002. The fair
values of the Companys reporting units are determined
primarily using a multiple of maintainable normalized cash
earnings. As a result of this transitional impairment test, and
based on the methodology adopted, the Company determined that
the carrying amount of The Jerusalem Postproperties was
in excess of its estimated fair value. Accordingly, the value of
goodwill attributable to The Jerusalem Postwas written
down in its entirety. The write-down of $20.1 million (net
of tax of nil) was reflected in the Consolidated Statement of
Operations as of January 1, 2002 as a cumulative effect of
a change in accounting principle. The Company determined that
the fair value of each of the other reporting units was in
excess of its respective carrying amount, both on adoption and
at year end for purposes of the annual impairment test. See
Note 1(i) of Notes to Consolidated Financial Statements
herein.



| |                
| | ---------------
| | Segment Results

The Company divides its business into five
principal segments; the Chicago Group, the Community Group, the
U.K. Newspaper Group, the Canadian Newspaper Group, and the
Investment and Corporate Group.

Below is a discussion of the results of
operations of the Company by operating segment.



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

The following table sets forth, for the Chicago
Group, for the periods indicated, certain results of operations
items and related percentage relationships.

|                         |                        |                         |         |              |  |      |         |         |  |      |         |         |  |  |       |      |   |  |       |      |   |  |       |      |  
|------------------------ | ---------------------- | ----------------------- | ------- | ------------ |  | ---- | ------- | ------- |  | ---- | ------- | ------- |  |  | ----- | ---- | - |  | ----- | ---- | - |  | ----- | ---- | -
|                         |                        |                        
|                         |                        | Year Ended December 31,
|                         |                        |                        
|                         |                        | 2003                    |         | 2002         |  | 2001 |         | 2003    |  | 2002 |         | 2001   
|                         |                        |                         |         |              |  |      |         |         |  |      |         |        
|                         |                        |                         |         |             
|                         |                        | (Dollars in thousands)  |         | (Percentage)
|Operating revenues:      |                        |                         |         |              |  |      |         |         |  |      |         |         |  |  |       |      |   |  |       |      |   |  |       |     
|                         | Advertising            |                         | $       | 352,029      |  |      | $       | 341,262 |  |      | $       | 338,521 |  |  |       | 78.1 | % |  |       | 77.2 | % |  |       | 76.4 | %
|                         | Circulation            |                         |         | 86,532       |  |      |         | 89,427  |  |      |         | 92,716  |  |  |       | 19.2 |   |  |       | 20.2 |   |  |       | 20.9 |  
|                         | Job printing and other |                         |         | 12,228       |  |      |         | 11,089  |  |      |         | 11,647  |  |  |       | 2.7  |   |  |       | 2.6  |   |  |       | 2.7  |  
|                         |                        |                         |         |              |  |      |         |         |  |      |         |         |  |  |       |      |   |  |       |      |   |  |       |     
|Total operating revenues |                        |                         | 450,789 |              |  |      | 441,778 |         |  |      | 442,884 |         |  |  | 100.0 |      |   |  | 100.0 |      |   |  | 100.0 |     
|                         |                        |                         |         |              |  |      |         |         |  |      |         |         |  |  |       |      |   |  |       |      |   |  |       |     
|Operating costs:         |                        |                         |         |              |  |      |         |         |  |      |         |         |  |  |       |      |   |  |       |      |   |  |       |     
|                         | Newsprint              |                         |         | 65,109       |  |      |         | 60,146  |  |      |         | 76,399  |  |  |       | 14.4 |   |  |       | 13.6 |   |  |       | 17.3 |  
|                         | Compensation costs     |                         |         | 170,483      |  |      |         | 170,895 |  |      |         | 178,672 |  |  |       | 37.8 |   |  |       | 38.7 |   |  |       | 40.3 |  
|                         | Other operating costs  |                         |         | 154,985      |  |      |         | 136,141 |  |      |         | 144,963 |  |  |       | 34.5 |   |  |       | 30.8 |   |  |       | 32.7 |  
|                         | Depreciation           |                         |         | 19,344       |  |      |         | 18,847  |  |      |         | 17,955  |  |  |       | 4.3  |   |  |       | 4.3  |   |  |       | 4.1  |  
|                         | Amortization           |                         |         | 16,354       |  |      |         | 17,151  |  |      |         | 19,933  |  |  |       | 3.6  |   |  |       | 3.9  |   |  |       | 4.5  |  
|                         |                        |                         |         |              |  |      |         |         |  |      |         |         |  |  |       |      |   |  |       |      |   |  |       |     
|Total operating costs    |                        |                         | 426,275 |              |  |      | 403,180 |         |  |      | 437,922 |         |  |  | 94.6  |      |   |  | 91.3  |      |   |  | 98.9  |     
|                         |                        |                         |         |              |  |      |         |         |  |      |         |         |  |  |       |      |   |  |       |      |   |  |       |     
|Operating income         |                        | $                       | 24,514  |              |  | $    | 38,598  |         |  | $    | 4,962   |         |  |  | 5.4   | %    |   |  | 8.7   | %    |   |  | 1.1   | %   
|                         |                        |                         |         |              |  |      |         |         |  |      |         |         |  |  |       |      |   |  |       |      |   |  |       |     



| |                        
| | -----------------------
| | 2003 Compared with 2002

Operating revenues for the Chicago Group were
$450.8 million in 2003 compared to $441.8 million in
2002, which is an increase of $9.0 million or 2.0%.

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Advertising revenue was $352.0 million in
2003 compared with $341.3 million in 2002, an increase of
$10.7 million or 3.1%. The overall increase was a result of
higher advertising revenue in each of retail (3.8%) and national
advertising (6.3%).

Circulation revenue was $86.5 million in
2003 compared with $89.4 million in 2002, a decrease of
$2.9 million or 3.2%. The decline in circulation revenue
was attributable primarily to volume declines in the single copy
market. Sunday single copy sales declined, and although the
volume of Sunday home delivery increased, the increased volume
was achieved at discounted price levels.

Although the Companys investigation of the
inflation of circulation figures revealed the source of the
declines in circulation revenues, the inflation of circulation
figures itself did not result in the misstatement of circulation
revenues recognized by the Chicago Group. See discussion of
Other operating costs, below and
Item 1  Business  Recent
Developments  The Chicago Sun-Times
Circulation Overstatement.

Printing and other revenue was $12.2 million
in 2003 compared with $11.1 million in 2002, an increase of
$1.1 million or 9.9%.

Total operating costs in 2003 were
$426.3 million compared with $403.2 million in 2002,
an increase of $23.1 million or 5.7%.

Newsprint expense was $65.1 million for
2003, compared with $60.1 million in 2002, an increase of
$5.0 million or 8.3%. Total newsprint consumption in 2003
increased approximately 4% compared with 2002, and the average
cost per tonne of newsprint in 2003 was approximately 7% higher
than in 2002. Reflected in newsprint costs for 2003 was a
favorable recovery against a previously recorded allowance for
unusable newsprint, which reduced newsprint expense by
$2.2 million.

Compensation costs in 2003 were
$170.5 million compared with $170.9 million in 2002, a
decrease of $400,000 or 0.2%. In 2003, labor cost savings were
achieved in production and circulation with the implementation
of new technology and further consolidation of the distribution
network. These declines were partially offset by a 3% increase
in employee benefit costs.

Other operating costs in 2003 were
$155.0 million compared with $136.1 million in 2002,
an increase of $18.9 million or 13.9%. Other operating
costs, excluding infrequent items discussed below, decreased in
2003 primarily as a result of a decrease in the provisions for
doubtful accounts. During 2003, the Chicago Group updated
underlying assumptions used for estimating its allowance for
doubtful accounts and determined it could reduce the allowance
by approximately $5.0 million. This reduction was partially
offset by cost increases due to the launch of a free
distribution newspaper during the fourth quarter of 2002 and
increases in insurance costs. These increases were partially
offset by savings achieved in facilities rental and a reduction
in distribution costs.

Also included in other operating costs in 2003
were infrequent items of $24.1 million compared to
$0.5 million in 2002. In 2003, the Chicago Group recorded
costs of $24.1 million for restitution to and settlement of
litigation with advertisers as a result of the overstatement of
circulation levels in the current and prior years. Infrequent
items in 2002 were remaining pre-operating costs from the
start-up of the new printing facility.

Depreciation and amortization in 2003 was
$35.7 million compared with $36.0 million in 2002, a
reduction of $300,000. The Chicago Sun-Timesmoved its
headquarters in 2004. This resulted in significant capital
expenditures in 2004. See  Liquidity and
Capital Resources.

Operating income in 2003 was $24.5 million
compared with $38.6 million in 2002, a decrease of
$14.1 million or 36.5%. The change reflected the combined
impact of the items noted above.

2002 Compared
with 2001

Operating revenues for 2002 were
$441.8 million compared with $442.9 million in 2001, a
negligible change from the prior year. Advertising revenue of
$341.3 million in 2002 increased marginally by
$2.8 million over 2001 advertising revenue of
$338.5 million. Declines in circulation revenue of
$3.3 million or, 3.6% from

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$92.7 million in 2001 to $89.4 million
in 2002 reflected both price discounting and a decline in
circulation copies.


Total operating costs and expenses were
$403.2 million in 2002, a decrease of $34.7 million or
7.9% from $437.9 million in 2001. Cost savings were
achieved across the board with reductions in compensation costs
of $7.8 million to $170.9 million, in newsprint costs
of $16.3 million to $60.1 million and in other
operating costs of $8.8 million to $136.1 million.
Reductions in compensation and other operating costs were the
consequence of cost management initiatives undertaken during the
course of 2002 and 2001. Newsprint cost reductions were the
consequence of commodity price decreases as well as reductions
in per copy consumption. Consumption savings were partially
offset by increased requirements for bulk sale programs. Average
newsprint unit price was approximately 21% lower in 2002 than in
2001. Infrequent items in 2002 were $0.5 million compared
to $4.8 million in 2001. These costs, in both years,
related primarily to pre-operating costs associated with the new
printing facility which became fully operational in 2002.

At $18.8 million in 2002, depreciation was
up by $800,000 over 2001. Amortization, largely as a consequence
of the implementation of SFAS No. 142, was down by
$2.7 million from $19.9 million in 2001 to
$17.2 million in 2002.

Operating income for the Chicago Group was
$38.6 million in 2002, an increase of $33.6 million
over 2001. The improvement reflected the above cost savings, as
well as a $4.3 million reduction in infrequent items in
2002, which were partially offset by small revenue declines.



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

The following table sets forth, for the Community
Group, for the periods indicated, certain results of operations
items and related percentage relationships.

|                         |                        |                         |        |              |  |      |        |       |  |      |        |       |  |  |       |      |   |  |       |      |   |  |       |      |  
|------------------------ | ---------------------- | ----------------------- | ------ | ------------ |  | ---- | ------ | ----- |  | ---- | ------ | ----- |  |  | ----- | ---- | - |  | ----- | ---- | - |  | ----- | ---- | -
|                         |                        |                        
|                         |                        | Year Ended December 31,
|                         |                        |                        
|                         |                        | 2003                    |        | 2002         |  | 2001 |        | 2003  |  | 2002 |        | 2001 
|                         |                        |                         |        |              |  |      |        |       |  |      |        |      
|                         |                        |                         |        |             
|                         |                        | (Dollars in thousands)  |        | (Percentage)
|Operating revenues:      |                        |                         |        |              |  |      |        |       |  |      |        |       |  |  |       |      |   |  |       |      |   |  |       |     
|                         | Advertising            |                         | $      | 3,585        |  |      | $      | 3,937 |  |      | $      | 5,806 |  |  |       | 34.5 | % |  |       | 29.8 | % |  |       | 30.4 | %
|                         | Circulation            |                         |        | 5,717        |  |      |        | 6,082 |  |      |        | 7,751 |  |  |       | 55.0 |   |  |       | 46.0 |   |  |       | 40.5 |  
|                         | Job printing and other |                         |        | 1,095        |  |      |        | 3,212 |  |      |        | 5,558 |  |  |       | 10.5 |   |  |       | 24.2 |   |  |       | 29.1 |  
|                         |                        |                         |        |              |  |      |        |       |  |      |        |       |  |  |       |      |   |  |       |      |   |  |       |     
|Total operating revenues |                        |                         | 10,397 |              |  |      | 13,231 |       |  |      | 19,115 |       |  |  | 100.0 |      |   |  | 100.0 |      |   |  | 100.0 |     
|                         |                        |                         |        |              |  |      |        |       |  |      |        |       |  |  |       |      |   |  |       |      |   |  |       |     
|Operating costs:         |                        |                         |        |              |  |      |        |       |  |      |        |       |  |  |       |      |   |  |       |      |   |  |       |     
|                         | Newsprint              |                         |        | 949          |  |      |        | 1,501 |  |      |        | 2,031 |  |  |       | 9.1  |   |  |       | 11.3 |   |  |       | 10.6 |  
|                         | Compensation costs     |                         |        | 6,735        |  |      |        | 7,161 |  |      |        | 9,817 |  |  |       | 64.8 |   |  |       | 54.1 |   |  |       | 51.4 |  
|                         | Other operating costs  |                         |        | 7,969        |  |      |        | 7,417 |  |      |        | 9,613 |  |  |       | 76.7 |   |  |       | 56.1 |   |  |       | 50.3 |  
|                         | Depreciation           |                         |        | 1,345        |  |      |        | 2,370 |  |      |        | 1,268 |  |  |       | 12.9 |   |  |       | 17.9 |   |  |       | 6.6  |  
|                         | Amortization           |                         |        |             |  |      |        |      |  |      |        | 873   |  |  |       |     |   |  |       |     |   |  |       | 4.6  |  
|                         |                        |                         |        |              |  |      |        |       |  |      |        |       |  |  |       |      |   |  |       |      |   |  |       |     
|Total operating costs    |                        |                         | 16,998 |              |  |      | 18,449 |       |  |      | 23,602 |       |  |  | 163.5 |      |   |  | 139.4 |      |   |  | 123.5 |     
|                         |                        |                         |        |              |  |      |        |       |  |      |        |       |  |  |       |      |   |  |       |      |   |  |       |     
|Operating loss           |                        | $                       | (6,601 | )            |  | $    | (5,218 | )     |  | $    | (4,487 | )     |  |  | (63.5 | )%   |   |  | (39.4 | )%   |   |  | (23.5 | )%  
|                         |                        |                         |        |              |  |      |        |       |  |      |        |       |  |  |       |      |   |  |       |      |   |  |       |     

2003 Compared to
2002

Operating revenue and operating costs for the
Community Group were $10.4 million and $17.0 million,
respectively, in 2003 compared with $13.2 million and
$18.4 million, respectively, in 2002. The decline in
revenue and increase in operating loss was primarily
attributable to the loss of business under a contract for the
printing of the Golden Pages, a commercial telephone
directory. Subsequent to 2003, the publisher at The Jerusalem
Postwas replaced.

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2002 Compared
with 2001

Operating revenues and operating costs were
$13.2 million and $18.4 million in 2002, respectively,
compared to $19.1 million and $23.6 million in 2001,
respectively. During the third quarter of 2001, the sole
remaining U.S. Community Group newspaper was sold,
affecting comparative revenue by $800,000 with a minimal impact
on operating loss. Operating losses in 2002 and 2001 amounted to
$5.2 million and $4.5 million, respectively.



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

The following table sets forth, for the U.K.
Newspaper Group, for the periods indicated, certain results of
operations items and related percentage relationships.

|                         |                        |                         |         |              |  |      |         |         |  |      |         |         |  |  |       |      |   |  |       |      |   |  |       |      |  
|------------------------ | ---------------------- | ----------------------- | ------- | ------------ |  | ---- | ------- | ------- |  | ---- | ------- | ------- |  |  | ----- | ---- | - |  | ----- | ---- | - |  | ----- | ---- | -
|                         |                        |                        
|                         |                        | Year Ended December 31,
|                         |                        |                        
|                         |                        | 2003                    |         | 2002         |  | 2001 |         | 2003    |  | 2002 |         | 2001   
|                         |                        |                         |         |              |  |      |         |         |  |      |         |        
|                         |                        |                         |         |             
|                         |                        | (Dollars in thousands)  |         | (Percentage)
|Operating revenues:      |                        |                         |         |              |  |      |         |         |  |      |         |         |  |  |       |      |   |  |       |      |   |  |       |     
|                         | Advertising            |                         | $       | 319,358      |  |      | $       | 316,295 |  |      | $       | 329,758 |  |  |       | 61.5 | % |  |       | 65.7 | % |  |       | 67.8 | %
|                         | Circulation            |                         |         | 173,327      |  |      |         | 140,802 |  |      |         | 136,093 |  |  |       | 33.4 |   |  |       | 29.2 |   |  |       | 28.0 |  
|                         | Job printing and other |                         |         | 26,790       |  |      |         | 24,430  |  |      |         | 20,523  |  |  |       | 5.1  |   |  |       | 5.1  |   |  |       | 4.2  |  
|                         |                        |                         |         |              |  |      |         |         |  |      |         |         |  |  |       |      |   |  |       |      |   |  |       |     
|Total operating revenues |                        |                         | 519,475 |              |  |      | 481,527 |         |  |      | 486,374 |         |  |  | 100.0 |      |   |  | 100.0 |      |   |  | 100.0 |     
|                         |                        |                         |         |              |  |      |         |         |  |      |         |         |  |  |       |      |   |  |       |      |   |  |       |     
|Operating costs:         |                        |                         |         |              |  |      |         |         |  |      |         |         |  |  |       |      |   |  |       |      |   |  |       |     
|                         | Newsprint              |                         |         | 75,402       |  |      |         | 80,667  |  |      |         | 93,225  |  |  |       | 14.5 | % |  |       | 16.8 |   |  |       | 19.2 |  
|                         | Compensation costs     |                         |         | 107,488      |  |      |         | 94,092  |  |      |         | 93,409  |  |  |       | 20.7 |   |  |       | 19.5 |   |  |       | 19.2 |  
|                         | Other operating costs  |                         |         | 281,469      |  |      |         | 245,926 |  |      |         | 252,056 |  |  |       | 54.2 |   |  |       | 51.1 |   |  |       | 51.8 |  
|                         | Depreciation           |                         |         | 14,433       |  |      |         | 12,763  |  |      |         | 10,728  |  |  |       | 2.8  |   |  |       | 2.6  |   |  |       | 2.2  |  
|                         | Amortization           |                         |         |             |  |      |         |        |  |      |         | 9,106   |  |  |       |     |   |  |       |     |   |  |       | 1.9  |  
|                         |                        |                         |         |              |  |      |         |         |  |      |         |         |  |  |       |      |   |  |       |      |   |  |       |     
|Total operating costs    |                        |                         | 478,792 |              |  |      | 433,448 |         |  |      | 458,524 |         |  |  | 92.2  |      |   |  | 90.0  |      |   |  | 94.3  |     
|                         |                        |                         |         |              |  |      |         |         |  |      |         |         |  |  |       |      |   |  |       |      |   |  |       |     
|Operating income         |                        | $                       | 40,683  |              |  | $    | 48,079  |         |  | $    | 27,850  |         |  |  | 7.8   | %    |   |  | 10.0  | %    |   |  | 5.7   | %   
|                         |                        |                         |         |              |  |      |         |         |  |      |         |         |  |  |       |      |   |  |       |      |   |  |       |     

2003 Compared to
2002

Operating revenues for the U.K. Newspaper Group
were $519.5 million in 2003 compared with
$481.5 million in 2002, an increase of $38.0 million
or 7.9%. In pounds sterling, operating revenues in 2003 were
£317.8 million compared with £320.9 million
in 2002, a decrease of £3.1 million or 1.0%.

Advertising revenue, in local currency, was
£195.5 million in 2003 compared with
£211.0 million in 2002, a decrease of
£15.5 million or 7.4%. Recruitment advertising revenue
decreased by 18.3% and display-advertising revenue decreased
6.7%. Financial advertising was also particularly affected in
2003, decreasing approximately £3.5 million or 13.8%
from 2002, due to the continuing advertising recession in the
U.K., a reflection of the effect of the weak economy on
employment, corporate financings and mergers and acquisitions.

Circulation revenue, in local currency, was
£106.0 million in 2003 compared with
£93.6 million in 2002, an increase of
£12.4 million or 13.2%. Circulation revenues increased
as a consequence of increases in the price of daily and Sunday
newspapers. The increases were in September 2003 for the daily
paper (£0.05 on Monday to Friday) and May 2003 for the
Sunday paper (£0.20). In October 2003, there was a price
increase for the Saturday paper (£0.10). Circulation volume
declined during 2003 from that in the prior year period
primarily as a result of managements decision to reduce
both bulk and foreign print sales and to reinvest the
significant associated cost savings in developing the newspapers.

Total operating costs in 2003 were
$478.8 million compared with $433.4 million in 2002,
an increase of $45.4 million or 10.5%. In local currency,
total operating costs in 2003 were £292.5 million
compared to

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£288.3 million in 2002, an increase of
£4.2 million or 1.5%. Total operating costs in dollar
terms in 2003 increased over 2002 largely due to a strengthening
of the British pound.


Newsprint costs for 2003, in local currency, were
£46.2 million compared with £53.8 million in
2002, a decrease of £7.6 million or 14.1%. The
decrease resulted from a 7.1% reduction in consumption due to
lower pagination as a result of lower advertising revenue and
the reduction of bulk and foreign production, and a 7.5%
reduction in the average price per tonne of newsprint. Newsprint
prices negotiated for 2004 are consistent with prices in 2003.

Compensation costs for 2003, in local currency,
were £65.7 million compared with
£62.6 million in 2002, an increase of
£3.1 million or 4.9%. Compensation costs increased due
to a combination of salary increases and higher employment
related expenses.

Other operating costs, in local currency, were
£171.9 million in 2003 compared with
£163.5 million in 2002, an increase of
£8.4 million or 5.1%. The year-over-year increase in
costs related primarily to the cost of commissioning new
printing presses at Trafford Park, pension fund adjustments and
the impact of the strategy to develop and market newspapers,
partly offset by reductions to bulk and foreign supplies.

Also included in other operating costs in 2003
were infrequent items, in local currency, of
£2.5 million and £0.4 million in 2002. In
both 2003 and 2002, these costs were comprised primarily of
severance for positions that were permanently eliminated.

Depreciation and amortization for 2003 was
£8.8 million compared with £8.5 million in
2002. Depreciation and amortization levels are expected to
decrease in 2004 due to a significant number of assets becoming
fully depreciated during the year.

Operating income was $40.7 million for the
year ended December 31, 2003, down $7.4 million from
$48.1 million in 2002. This decrease reflected the changes
discussed.



| |                        
| | -----------------------
| | 2002 Compared with 2001

Operating revenues for the U.K. Newspaper Group
in 2002 were $481.5 million, a $4.9 million or 1.0%
decrease from the $486.4 million generated in 2001. In
pounds sterling, there was a £16.6 million decrease in
2002 to £320.9 million from £337.5 million
in 2001. That decrease was largely mitigated upon translation
into U.S. dollars by favorable changes in foreign exchange
rates during the year. The decrease largely related to declining
advertising revenues, down by £17.7 million to
£211.0 million in 2002 from £228.7 million
in 2001, a 7.7% decline. Advertising revenues were particularly
hard hit by declining linage in the high rate areas of
recruitment and financial. With single copy rate increases of 5p
in each of September of 2002 and 2001, circulation revenue was
relatively stable at £93.6 million compared to
£94.5 million in 2001. Other operating revenues,
largely contract printing, increased by 14% or £2.0 to
£16.3 million from £14.3 million in 2001.

Total operating costs and expenses in 2002 were
$433.4 million, a reduction of $25.1 million or 5.5%
from $458.5 million. In local currency, total operating
costs were £288.4, a decrease of £29.9 million or
9.4% from £318.3 in 2001. Newsprint costs accounted for the
largest portion of the decrease, with costs down by
£11.0 million to £53.8 million in 2002, a
decrease of 16.9%. Average newsprint unit costs declined by 9.9%
with the balance of savings generated by reduced consumption, in
part as a consequence of reduced advertising revenues.
Compensation costs were down by £2.3 million to
£62.6 million, a 3.5% reduction.

Operating income showed a substantial improvement
of $20.2 million to $48.1 million in 2002 from
$27.9 million in 2001 with operating profit margin
increasing to 10.0% from 5.7%. Operating income continued to be
affected by the decline in advertising revenue, which started in
2001 and continued through 2002. Exchange rates had a favorable
impact in 2002, however, with the average exchange rate of
pounds sterling into U.S. dollars improving from 1.44 in
2001 to 1.50 in 2002.

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

The following table sets forth, for the Canadian
Newspaper Group, for the periods indicated, certain results of
operations items and related percentage relationships.

|                         |                        |                         |        |              |  |      |        |        |  |      |         |         |  |  |       |      |   |  |       |      |   |  |       |      |  
|------------------------ | ---------------------- | ----------------------- | ------ | ------------ |  | ---- | ------ | ------ |  | ---- | ------- | ------- |  |  | ----- | ---- | - |  | ----- | ---- | - |  | ----- | ---- | -
|                         |                        |                        
|                         |                        | Year Ended December 31,
|                         |                        |                        
|                         |                        | 2003                    |        | 2002         |  | 2001 |        | 2003   |  | 2002 |         | 2001   
|                         |                        |                         |        |              |  |      |        |        |  |      |         |        
|                         |                        |                         |        |             
|                         |                        | (Dollars in thousands)  |        | (Percentage)
|Operating revenues:      |                        |                         |        |              |  |      |        |        |  |      |         |         |  |  |       |      |   |  |       |      |   |  |       |     
|                         | Advertising            |                         | $      | 58,854       |  |      | $      | 49,355 |  |      | $       | 130,377 |  |  |       | 73.1 | % |  |       | 70.9 | % |  |       | 65.9 | %
|                         | Circulation            |                         |        | 11,688       |  |      |        | 10,864 |  |      |         | 41,761  |  |  |       | 14.5 |   |  |       | 15.6 |   |  |       | 21.1 |  
|                         | Job printing and other |                         |        | 10,000       |  |      |        | 9,407  |  |      |         | 25,810  |  |  |       | 12.4 |   |  |       | 13.5 |   |  |       | 13.0 |  
|                         |                        |                         |        |              |  |      |        |        |  |      |         |         |  |  |       |      |   |  |       |      |   |  |       |     
|Total operating revenues |                        |                         | 80,542 |              |  |      | 69,626 |        |  |      | 197,948 |         |  |  | 100.0 |      |   |  | 100.0 |      |   |  | 100.0 |     
|                         |                        |                         |        |              |  |      |        |        |  |      |         |         |  |  |       |      |   |  |       |      |   |  |       |     
|Operating costs:         |                        |                         |        |              |  |      |        |        |  |      |         |         |  |  |       |      |   |  |       |      |   |  |       |     
|                         | Newsprint              |                         |        | 6,810        |  |      |        | 5,210  |  |      |         | 32,769  |  |  |       | 8.5  |   |  |       | 7.5  |   |  |       | 16.6 |  
|                         | Compensation costs     |                         |        | 43,511       |  |      |        | 33,713 |  |      |         | 77,005  |  |  |       | 54.0 |   |  |       | 48.4 |   |  |       | 38.9 |  
|                         | Other operating costs  |                         |        | 33,648       |  |      |        | 31,539 |  |      |         | 122,300 |  |  |       | 41.8 |   |  |       | 45.3 |   |  |       | 61.7 |  
|                         | Depreciation           |                         |        | 1,556        |  |      |        | 1,301  |  |      |         | 6,661   |  |  |       | 1.9  |   |  |       | 1.9  |   |  |       | 3.4  |  
|                         | Amortization           |                         |        |             |  |      |        |       |  |      |         | 5,167   |  |  |       |     |   |  |       |     |   |  |       | 2.6  |  
|                         |                        |                         |        |              |  |      |        |        |  |      |         |         |  |  |       |      |   |  |       |      |   |  |       |     
|Total operating costs    |                        |                         | 85,525 |              |  |      | 71,763 |        |  |      | 243,902 |         |  |  | 106.2 |      |   |  | 103.1 |      |   |  | 123.2 |     
|                         |                        |                         |        |              |  |      |        |        |  |      |         |         |  |  |       |      |   |  |       |      |   |  |       |     
|Operating loss           |                        | $                       | (4,983 | )            |  | $    | (2,137 | )      |  | $    | (45,954 | )       |  |  | (6.2  | )%   |   |  | (3.1  | )%   |   |  | (23.2 | )%  
|                         |                        |                         |        |              |  |      |        |        |  |      |         |         |  |  |       |      |   |  |       |      |   |  |       |     

2003 Compared
with 2002

Operating revenues in the Canadian Newspaper
Group in 2003 were $80.5 million compared with
$69.6 million in 2002. The increase in revenue was
primarily a reflection of the strengthening Canadian dollar
against the U.S. dollar, although there were increases in
revenue in local currency. During 2003, advertising revenue was
higher primarily due to growth of the economy in general. This
growth was partly offset by a reduction of advertising during
the fourth quarter in the automobile sector. Circulation levels
remained relatively constant in 2003 compared to 2002.

The operating loss of the Canadian Newspaper
Group was $5.0 million in 2003 compared to
$2.1 million in 2002. The 2003 results for the Canadian
Newspaper Group included an increase in pension and
post-retirement obligation expense of
Cdn. $5.8 million primarily relating to employees
formerly employed by Southam Inc. and in respect of whom the
obligations were not assumed by CanWest, purchaser of the
related newspapers. In addition, the cost of newsprint increased
slightly, but this was partially offset by management of the
amount of newsprint used. The effect of the increase in foreign
exchange rates on operating costs was approximately offset by
the increase in revenue.

The Canadian Newspaper Group experienced an
increase in competition in certain markets where the Company has
publications. This did not have a significant effect on results
in 2003, but may become a factor in 2004 as competing newspaper
groups are aggressively entering markets, both where the Company
publishes and where it does not currently publish.



| |                        
| | -----------------------
| | 2002 Compared with 2001

Operating revenues were $69.6 million in
2002 and $197.9 million in 2001, a decline of
$128.3 million. The primary reason for the decline was the
sale of the Companys remaining 50% interest in the
National Postto CanWest at the end of August 2001 and
the sale of a large number of the Canadian community newspaper
properties to Osprey Media in July and November of 2001. Beyond
that, advertising revenues at operations owned in both years
declined during the year, particularly for the magazine group.
Same store revenues were

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Cdn.$108.8 million in 2002 compared with
Cdn. $114.1 million in 2001. Exchange rates had a
small adverse impact on revenues.


Operating loss in 2002 was $2.1 million
compared to $46.0 million in 2001. The reduction in
operating loss was largely due to the sale of the remaining 50%
interest in the National Post. Operating income in 2001
was also adversely affected by overhead costs of
Cdn.$3.8 million that were not incurred in 2002 as well as
a charge of Cdn.$2.6 million relating to retired employee
obligations of the newspaper properties sold to CanWest in 2000,
which obligations were retained by the Company. The comparable
expense in 2002 was Cdn.$4.4 million.



| |                                   
| | ----------------------------------
| | Investment and Corporate
    Group

The following table sets forth, for the
Investment and Corporate Group, for the periods indicated,
certain results of operations items.

|                      |                       |                         |         |        |  |      |         |        |  |   |         |        | 
|--------------------- | --------------------- | ----------------------- | ------- | ------ |  | ---- | ------- | ------ |  | - | ------- | ------ | 
|                      |                       |                        
|                      |                       | Year Ended December 31,
|                      |                       |                        
|                      |                       | 2003                    |         | 2002   |  | 2001
|                      |                       |                         |         |        |  |     
|                      |                       |                        
|                      |                       | (Dollars in thousands) 
|Operating costs:      |                       |                         |         |        |  |      |         |        |  |   |         |       
|                      | Compensation costs    |                         | $       | 10,686 |  |      | $       | 3,171  |  |   | $       | 2,773  | 
|                      | Other operating costs |                         |         | 31,089 |  |      |         | 14,324 |  |   |         | 13,544 | 
|                      | Depreciation          |                         |         | 1,821  |  |      |         | 1,720  |  |   |         | 1,356  | 
|                      | Amortization          |                         |         |       |  |      |         |       |  |   |         | 681    | 
|                      |                       |                         |         |        |  |      |         |        |  |   |         |       
|Total operating costs |                       |                         | 43,596  |        |  |      | 19,215  |        |  |   | 18,354  |       
|                      |                       |                         |         |        |  |      |         |        |  |   |         |       
|Operating loss        |                       | $                       | (43,596 | )      |  | $    | (19,215 | )      |  | $ | (18,354 | )     
|                      |                       |                         |         |        |  |      |         |        |  |   |         |       



| |                        
| | -----------------------
| | 2003 Compared with 2002

Operating costs of the Investment and Corporate
Group were $43.6 million in 2003 compared with
$19.2 million in 2002. Included in the costs for the
Investment and Corporate Group in 2003 was $10.1 million
relating to the investigation and review being conducted by the
Special Committee and related litigation. These costs were
reflected as other operating costs in the Companys
Consolidated Statement of Operations. Included in the
$10.1 million are legal fees and other professional fees
related to the Special Committee investigation and related
litigation and legal fees of approximately $1.6 million
advanced by the Company on behalf of current and former
directors and officers. The Company also incurred stock-based
compensation charges of approximately $6.7 million in 2003.
These costs were incurred as a result of modifications made to
options granted to individuals that lengthened the period of
time that their options would be exercisable after their
employment with the Company was terminated and the impact of
repriced options. Included in the $6.7 million is a charge
of approximately $800,000 related to the extension of the option
exercise period granted to Radler as part of the Restructuring
Agreement.

As noted in the description of the Special
Committee Report (Item 1 
Business  Recent Developments  Report of
the Special Committee), the Company terminated the
management services agreements with RMI, Moffat and Black-Amiel
effective June 1, 2004. Under the Restructuring Agreement,
the Company proposed to pay fees totalling approximately
$500,000 for the five-month period ended June 1, 2004. RMI
did not respond to the proposal except to assert that the
previously existing level of fees should be maintained. During
2003, the Company incurred costs of approximately
$7.5 million related to the maintenance and use of the
corporate aircraft. Of this amount, approximately
$1.2 million was charged to Hollinger Inc. Both the
management fees and aircraft costs were incurred at the
corporate group level and allocated, in part, to the operating
segments in 2003, 2002 and 2001. With the termination of the
management services agreement and the sale of one aircraft and
lease cancellation of the other, similar charges will not be
incurred in future periods. While the Company is expecting to
see savings as a result of the above changes, it has also
incurred new costs in relation to relocating part of its
corporate office function from Toronto, Ontario

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to Chicago, Illinois, as well as costs in
relation to developing and strengthening the Companys
systems of internal controls.




| |                        
| | -----------------------
| | 2002 Compared with 2001

Operating costs of the Investment and Corporate
Group were $19.2 million, compared with $18.4 million
in 2001, an increase of $800,000.

Liquidity and Capital Resources

The Company believes it has sufficient liquidity
to meet its financial obligations for the foreseeable future
with liquidity available from cash on hand, the sale of assets,
operating cash flows and debt financing.

Using proceeds from the sale of the Telegraph
Group on July 30, 2004, the Company fully repaid and
cancelled its Senior Credit Facility and purchased and retired
substantially all of its 9% Senior Notes through a tender
offer and consent solicitation. All but $9.4 million of the
$300.0 million in principal amount of the 9% Senior Notes
were purchased through the tender and all covenants were removed
on the untendered 9% Senior Notes. The Company has since
purchased in the open market and retired an additional
$3.4 million in principal amount of the 9% Senior Notes.
After the sale of the Telegraph Group and debt reduction, as of
September 30, 2004, the Company had $747.6 million in
cash and $14.4 million in long-term debt.

With the sale of the Telegraph Group, the Company
is heavily dependent upon the Chicago Group for cash flow. That
cash flow in turn is dependent on the Chicago Groups
ability to sell advertising in its market. The Companys
cash flow is expected to continue to be cyclical, reflecting
changes in economic conditions.

The following table summarizes the Companys
cash and debt positions as of the dates indicated:

|                                                   |  |                    |         |                   |  |   |         | 
|-------------------------------------------------- |  | ------------------ | ------- | ----------------- |  | - | ------- | 
|                                                   |  | September 30, 2004 |         | December 31, 2003
|                                                   |  |                    |         |                  
|                                                   |  |                   
|                                                   |  | (In thousands)    
|Cash and cash equivalents                          |  | $                  | 747,611 |                   |  | $ | 134,494 | 
|                                                   |  |                    |         |                   |  |   |         | 
|8.625% Senior Notes, due 2005                      |  |                    | 5,082   |                   |  |   | 5,082   | 
|9% Senior Notes due 2010                           |  |                    | 6,000   |                   |  |   | 300,000 | 
|Senior Credit Facility (including current portion) |  |                    |        |                   |  |   | 217,129 | 
|Obligations under capital lease                    |  |                    |        |                   |  |   | 1,944   | 
|Other                                              |  |                    | 3,314   |                   |  |   | 5,117   | 
|                                                   |  |                    |         |                   |  |   |         | 
|Total long-term debt                               |  | $                  | 14,396  |                   |  | $ | 529,272 | 
|                                                   |  |                    |         |                   |  |   |         | 

Currently, there are activities underway or under
consideration that will reduce the Companys cash position
as compared to the cash position as of September 30, 2004.
The Company is attempting to purchase the remaining
$6.0 million in principal amount of the 9% Senior Notes. On
December 16, 2004, the Board of Directors declared a
Special Dividend on the Companys Class A and
Class B Common Stock in an aggregate amount of
approximately $227.0 million payable on January 18,
2005. The Board of Directors intends to distribute an additional
amount of approximately $273.0 million either by way of a
tender offer or a second special dividend. There can be no
assurance that the second distribution will be made or, if made,
whether it will be in the form of a tender offer or a dividend,
and if a tender offer, as to the price or form such offer will
take. On December 16, 2004, the Board of Directors also
declared a regular quarterly dividend in the amount of $0.05 per
share payable on the Companys Class A and
Class B Common Stock on January 18, 2005.

On November 30, 2004, the Company paid the
National Post Company Cdn.$26.5 million (including interest
and costs) in full satisfaction of a judgment obtained against
the Company. The judgment was in relation to a dispute arising
from CanWests purchase of the Companys remaining 50%
interest in the National Post.On December 15, 2004,
the Company completed the sale of The Palestine Post Limited,
the publisher of The Jerusalem Post and related
publications for $13.2 million. On November 19, 2004,
the Company received approximately $133.6 million from the
sale to CanWest of its beneficial interest in the CanWest
Debentures held by the Company and residual interests in the
Participation Trust that was

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attributable to foreign currency exchange. The
Company also recently completed the sale of its 50% real estate
joint venture interest in Chicago and related real estate for
net proceeds of $70.7 million.


The Company also recognizes that there may be
significant cash requirements in the future regarding certain
currently unresolved tax issues (both U.S. and foreign). As of
December 31, 2003, the Company has recorded accruals to
cover contingent liabilities for income taxes, which are
presented as other tax liabilities classified as follows in the
Companys Consolidated Balance Sheet:

|                                      |  |                   |         | 
|------------------------------------- |  | ----------------- | ------- | 
|                                      |  | December 31, 2003
|                                      |  |                  
|                                      |  | (In thousands)   
|Classified as current liabilities     |  | $                 | 455,599 | 
|Classified as non-current liabilities |  |                   | 293,211 | 
|                                      |  |                   |         | 
|                                      |  | $                 | 748,810 | 
|                                      |  |                   |         | 

The accruals are intended to cover contingent
liabilities related to additional taxes and interest the Company
may be required to pay. See Note 24 of Notes to
Consolidated Financial Statements. In periods subsequent to
December 31, 2003, the Company will continue to record
provisions to cover contingent liabilities for additional
interest it may be required to pay in various tax jurisdictions.

A substantial portion of the accruals to cover
contingent liabilities for income taxes relate to the tax
treatment of gains on the sale of a portion of the
Companys non-U.S. operations. 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 accruals to cover contingent tax liabilities
also relate to management fees, non-competition
payments and other items that have been deducted in arriving at
taxable income, which deductions may be disallowed by taxing
authorities. If those deductions were to be disallowed, the
Company would be required to pay additional taxes and interest
since the dates such taxes would have been paid had the
deductions not been taken, and it may be subject to penalties.
The timing and amounts of any payments the Company may be
required to make is uncertain.

As discussed under Item 3 
Legal Proceedings, the Company is currently involved in
several legal actions as both plaintiff and defendant. These
actions are in preliminary stages and it is not yet possible to
determine their ultimate outcome. At this time the Company
cannot estimate the impact these actions may have on its future
cash requirements.



| |           
| | ----------
| | Cash Flows

Cash flows provided by operating activities were
$100.9 million for 2003, compared with $56.4 million
in 2002, an increase of $44.5 million or 78.9%. The
comparison of operating cash flows between years is affected by
several key factors. First, the net loss before the cumulative
effect of the change in accounting principle of
$20.1 million (a non-cash item) has decreased by
$136.3 million from $210.6 million in 2002 to
$74.3 million in 2003. The single most important reason for
the reduced loss was that the Company had a foreign exchange
gain of $114.1 million in 2003 as compared to a foreign
exchange loss of $86.9 million in 2002, resulting in a
variance of $201.0 million between years; the non-cash
portion of the variance in foreign currency exchange items was
$189.2 million. Second, the Company increased its accounts
payable and accrued expenses in 2003 by $33.3 million
($24.1 million of which was due to the accrual of
restitution and settlement costs associated with the circulation
matters at the Chicago Sun-Times) as compared to a
decrease of $27.0 million in 2002, resulting in a variance
of $60.3 million. Other than the restitution and settlement
cost accrual, the variance was largely attributable to changes
in the timing of cash payments of payables and accruals. Other
significant variances in cash flow items between years were
related to reduced levels of non-cash write-downs of investments
and property, plant and equipment, and to increased levels of
non-cash provisions for deferred income taxes and other tax
liabilities.

Working capital consists of current assets less
current liabilities. At December 31, 2003, working capital,
excluding debt obligations and escrow funds and restricted cash
was a deficiency of $364.3 million compared to a deficiency
of $233.7 million at December 31, 2002, excluding debt
obligations, restricted cash and funds

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held in escrow to repay debt. Current assets,
excluding escrow funds and restricted cash, were
$427.2 million at December 31, 2003 and
$371.5 million at December 31, 2002. Current
liabilities, excluding debt obligations, were
$791.5 million at December 31, 2003, compared with
$605.2 million at December 31, 2002.


Cash flows used in investing activities in 2003
were $0.6 million compared with cash flows used in
investing activities of $27.4 million in 2002. The decrease
in cash used in investing activities is primarily the result of
proceeds the Company received as a result of the early
redemption of CanWest Debentures that occurred during 2003. This
cash inflow was partially offset by purchases of property, plant
and equipment of approximately $14.7 million. The Company
has incurred capital expenditures of approximately
$10.3 million through September 30, 2004 in relation
to the relocation of the offices of the Chicago
Sun-Times. See  Capital Expenditures.

Cash flows used in financing activities were
$113.9 million in 2003 and $404.9 million in 2002. The
cash used in financing activities decreased primarily due to the
timing of borrowings in late 2002 used for the repayment of debt
in early 2003. At year-end 2002, the Company had a significant
amount of cash on hand that was restricted to be used for the
repayment of debt. This repayment happened during the first
quarter of 2003. The other significant cash outflow from
financing activities was the payment of the quarterly dividends.
The Companys regular dividend payments in 2004 remained at
a level similar to 2003.

During 2003, the Company repaid
$543.8 million of its 9.25% Senior Subordinated Notes
due in 2006 and 2007, including early redemption premiums and
accrued interest. These notes were classified as current at
December 31, 2002 and repaid with some of the proceeds
which were held in escrow at December 31, 2002, from the
issuance of 9% Senior Notes and the Senior Credit Facility.
Most proceeds from the issuance of the 9% Senior Notes and
drawings under the Senior Credit Facility were held in escrow at
December 31, 2002 and used in 2003 for the repayments.



| |     
| | ----
| | Debt

Long-term debt, including the current portion,
was $529.3 million at December 31, 2003 compared with
$1,084.4 million at December 31, 2002. During 2003,
the Company retired $504.9 million principal amount of the
9.25% Senior Subordinated Notes due in 2006 and 2007. The
Company also repaid $2.9 million of debt due under its
Senior Credit Facility as scheduled, and reduced other debt by
$3.1 million. In addition, the Company made an unscheduled
repayment of approximately $45.0 million under its Senior
Credit Facility on September 30, 2003. Interest rate and
foreign currency swaps entered into to manage interest rate and
currency risk associated with the borrowings under the Senior
Credit Facility and the 9% Senior Notes were adjusted to reflect
the unscheduled $45.0 million repayment at a cost of
approximately $700,000. This amount was not paid in cash but was
factored into the revised swap rates.

As discussed earlier, the Company completed its
sale of the Telegraph Group on July 30, 2004 and received
proceeds of approximately $1,323.9 million
(£729.6 million at US $1.8145 to £1 as of
the date of sale). The Company used approximately
$213.4 million of these proceeds to fully repay and cancel
the Companys Senior Credit Facility. In addition, the
Company paid approximately $2.1 million in fees related to
this early repayment and $32.3 million in fees to terminate
the cross-currency interest rate swaps the Company had in place
with respect to the Senior Credit Facility.

In June 2004, the Company commenced a tender
offer and consent solicitation to purchase and retire, and
eliminate the covenants with respect to, the 9% Senior
Notes. Upon the tender offer closing on July 30, 2004,
approximately 97% of the 9% Senior Notes were tendered and
the covenants were removed from the 9% Senior Notes that
remained outstanding. The Company used proceeds from the sale of
the Telegraph Group to purchase and retire approximately
$294.0 million in principal and interest of the
9% Senior Notes. The Company incurred costs of
approximately $61.2 million related to premiums to retire
the debt, interest rate swap cancellation costs and other fees.
During September 2004, the Company purchased another
$3.4 million in principal amount of the 9% Senior
Notes on the open market and retired them for a total cost
(principal, accrued interest, premium and fees) of approximately
$3.9 million.

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| |       
| | ------
| | Leases

The Company is party to several leases for
facilities and equipment. These leases are primarily operating
leases in nature. In 2004, the Company entered into a new
15-year operating lease related to the relocation of the offices
of the Chicago Sun-Times. See  Capital
Expenditures.



| |                     
| | --------------------
| | Capital Expenditures

The Chicago Group and the Canadian Newspaper
Group have funded their capital expenditures out of cash
provided by their respective operating activities and anticipate
that they will have sufficient cash flow to continue to do so
for the foreseeable future. In 2004, the Chicago Sun-Timesentered into a 15-year operating lease for new office space
and incurred costs of approximately $10.3 million related
to leasehold improvements and other capital expenditures through
September 30, 2004. During 2003, the Chicago Group spent
approximately $7.9 million on telemarketing costs and
expects to spend approximately $7.6 million in 2004 on
these costs.



| |                                    
| | -----------------------------------
| | Dividends and Other
    Commitments

On December 16, 2004, from the proceeds of
the sale of the Telegraph Group, the Board of Directors declared
a Special Dividend on the Companys Class A and
Class B Common Stock in an aggregate amount of
approximately $227.0 million payable on January 18,
2005, this being the first tranche of a total amount of
$500.0 million which the Board of Directors determined was
in the best interest of the Company and its stockholders to be
distributed to its stockholders. The Board of Directors intends
to distribute approximately $273.0 million of the proceeds
from the sale of the Telegraph Group, this being the second
tranche of the $500.0 million cash distribution, either by
way of a tender offer or a second special dividend. There can be
no assurance that the second distribution will be made or, if
made, whether it will be in the form of a tender offer or a
dividend, and if a tender offer, as to the price or form such
offer will take. The Board of Directors believes that following
the Special Dividend and the second distribution, the Company
will have sufficient liquidity to fund its operations and
obligations and to avail itself of strategic opportunities.

On December 16, 2004, the Board of Directors
also declared a regular quarterly dividend in the amount of
$0.05 per share payable on the Companys Class A
and Class B Common Stock on January 18, 2005.

The Company expects its internal cash flow and
cash on hand to be adequate to meet its foreseeable dividend
requirements.



| |                                   
| | ----------------------------------
| | Off-Balance Sheet
    Arrangements

Hollinger Participation Trust As part of the November 16, 2000
purchase and sale agreement with CanWest, the Company was
prohibited from selling the CanWest Debentures received in
partial consideration prior to March 15, 2003. In order to
monetize this investment, the Company entered into a
participation agreement in August 2001 pursuant to which the
Company sold participation interests in Cdn.$540.0 million
(US $350.0 million) principal amount of CanWest
Debentures to the Participation Trust, administered by an
independent trustee. The sale of participation interests was
supplemented by an additional sale of
Cdn. $216.8 million (US $140.5 million) in
December 2001. The Company remained the record owner of the
participated CanWest Debentures and was required to make
payments to the Participation Trust with respect to those
debentures if and to the extent the Company received payments in
cash or in kind on the debentures from CanWest. Coincident with
the Participation Trusts purchase of the participation
interests, the Participation Trust issued and sold Trust Notes
to third parties in an arms length transaction to finance
the purchase of the participation interests. These transactions
resulted in net proceeds to the Company of $401.2 million
and for accounting purposes were accounted for as sales in
accordance with SFAS No. 140. The net loss on the
transactions, including realized holding losses on the
debentures, amounted to $62.1 million and were included in
Other income (expense), net for the year ended
December 31, 2001.

On April 10, 2003, CanWest notified the
Company of its intention to redeem Cdn.$265.0 million of
the CanWest Debentures on May 11, 2003. On May 11,
2003, CanWest redeemed Cdn.$265.0 million principal

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amount of the CanWest Debentures plus interest
accrued to the redemption date of Cdn.$8.8 million for a
total of Cdn.$273.8 million ($197.2 million), of which
Cdn.$246.6 million was payable to the Participation Trust.
This amount, converted at the contractual fixed rate of $0.6482
for each Canadian dollar, totaled $159.8 million and was
delivered to the Participation Trust on May 11, 2003. The
balance of the proceeds of $37.4 million, less the amounts
paid under a cross currency swap of $9.8 million, or
$27.6 million, was retained by the Company in respect of
its interest in the CanWest Debentures. Of the proceeds retained
by the Company, an estimated $16.7 million was restricted
cash under the terms of the Participation Trust and unavailable
for general corporate purposes as of December 31, 2003.


On October 7, 2004, the Company entered into
an agreement with CanWest, pursuant to which the parties agreed
to redeem the CanWest Debentures and dissolve the Trust. CanWest
exchanged the Trust Notes for new debentures issued by CanWest.
The CanWest Exchange Offer was completed on November 18,
2004. The Company received approximately $133.6 million in
respect of the CanWest Debentures beneficially owned and the
residual interests in the Participation Trust, attributable to
foreign currency exchange. The CanWest Exchange Offer resulted
in the exchange of all outstanding Trust Notes issued by the
Participation Trust with debentures issued by a wholly-owned
subsidiary of CanWest and the unwinding of the Participation
Trust. As a consequence, all exposure the Company previously had
to foreign exchange fluctuations under the Participation Trust
was fixed at that date. The Company was also relieved of all its
obligations under the Participation Trust Agreement including
the requirement to maintain cash on hand to satisfy needs of the
Participation Trust, which removed the restrictions on the
$16.7 million reflected as Escrow deposits and
restricted cash on the Companys Consolidated Balance
Sheet at December 31, 2003.

Joint Venture Arrangements The Company was a venture partner in
two joint ventures in the U.K. These ventures were created for
the purpose of realizing synergies and cost reductions by
combining the production process of the U.K. Newspaper Group and
the joint venture partners. The joint ventures were operated to
break-even over the long term and provided printing services to
the Company and its venture partner, and charged the Company
based on the amount of printing done. As reported in
Newsprint incurred through joint ventures, the
Companys newsprint costs in relation to publications
produced at the joint ventures were $75.4 million in 2003
($60.6 million in 2002). During 2003, the Company incurred
charges of $49.7 million ($46.7 million in 2002).
These charges are included in Other operating costs
incurred through joint ventures in the Consolidated
Statements of Operations. The Companys interest in these
joint ventures was sold in connection with the sale of the
Telegraph Group on July 30, 2004.

At December 31, 2003, pursuant to a joint
venture agreement in the U.K., the Company has agreed to
guarantee up to £500,000, if required, in connection with
borrowing by the joint venture. The Company was released from
this guarantee upon completion of the sale of the Telegraph
Group in 2004.

Derivatives The Company used swap agreements to
address currency and interest rate risks associated with the 9%
Senior Notes and the Senior Credit Facility.

The Company entered into two cross-currency
interest rate swap transactions to hedge principal and interest
payments on U.S. dollar borrowings under the Senior Credit
Facility. The Company marked-to-market the value of the swaps on
a quarterly basis, with the gains or losses recorded as a
component of Other income (expense), net in the
Consolidated Statements of Operations.

Publishing entered into interest rate swaps to
convert $150.0 million and $100.0 million principal
amount of its 9% Senior Notes issued in December 2002 to
floating rates. The Company marked-to-market the value of the
swaps on a quarterly basis, with the gains or losses recorded as
a component of Interest expense in the Consolidated
Statements of Operations. The fair value of these contracts and
swaps as of December 31, 2003 and December 31, 2002 is
included in the Consolidated Balance Sheets in Other
liabilities.

As discussed under  Liquidity
and Capital Resources  Debt above, in 2004 the
Company terminated the swap agreements related to the Senior
Credit Facility and the 9% Senior Notes when these debts
were repaid, or substantially retired, using the proceeds from
the sale of the Telegraph Group. The Company incurred
$32.3 million of fees to cancel the cross-currency interest
rate swaps on the Senior Credit Facility, and $10.5 million
related to the interest rate swaps on the 9% Senior Notes.

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| |                                                       
| | ------------------------------------------------------
| | Commercial Commitments and Contractual
    Obligations

In connection with the Companys insurance
program, letters of credits are required to support certain
projected workers compensation obligations. At
December 31, 2003, letters of credit in the amount of
$4.2 million were outstanding.

Set out below is a summary of the amounts due and
committed under the Companys contractual cash obligations
at December 31, 2003:

|                                                 |  |                        |         |           |  |               |        |               |  |          |        |  |  |   |        |  |  |   |         | 
|------------------------------------------------ |  | ---------------------- | ------- | --------- |  | ------------- | ------ | ------------- |  | -------- | ------ |  |  | - | ------ |  |  | - | ------- | 
|                                                 |  |                        |         | Due in    |  |               |        |               |  |         
|                                                 |  |                        |         | 1 Year or |  | Due Between 1 |        | Due Between 3 |  | Due Over
|                                                 |  | Total                  |         | Less      |  | and 3 Years   |        | and 5 Years   |  | 5 Years 
|                                                 |  |                        |         |           |  |               |        |               |  |         
|                                                 |  |                       
|                                                 |  | (Dollars in thousands)
|Existing Senior and Senior Subordinated Notes(1) |  | $                      | 5,082   |           |  | $             |       |               |  | $        | 5,082  |  |  | $ |       |  |  | $ |        | 
|9% Senior Notes(2)                               |  |                        | 300,000 |           |  |               |       |               |  |          |       |  |  |   |       |  |  |   | 300,000 | 
|Senior Credit Facility(3)                        |  |                        | 217,129 |           |  |               | 2,748  |               |  |          | 6,298  |  |  |   | 6,899  |  |  |   | 201,184 | 
|Other long-term debt                             |  |                        | 5,117   |           |  |               | 2,033  |               |  |          | 2,558  |  |  |   | 524    |  |  |   | 2       | 
|Capital lease obligations(4)                     |  |                        | 1,944   |           |  |               | 1,944  |               |  |          |       |  |  |   |       |  |  |   |        | 
|Operating leases(5)                              |  |                        | 13,253  |           |  |               | 4,250  |               |  |          | 4,825  |  |  |   | 2,786  |  |  |   | 1,392   | 
|Operating leases(6)                              |  |                        | 131,379 |           |  |               | 9,907  |               |  |          | 19,599 |  |  |   | 19,416 |  |  |   | 82,457  | 
|                                                 |  |                        |         |           |  |               |        |               |  |          |        |  |  |   |        |  |  |   |         | 
|Total contractual cash obligations               |  | $                      | 673,904 |           |  | $             | 20,882 |               |  | $        | 38,362 |  |  | $ | 29,625 |  |  | $ | 585,035 | 
|                                                 |  |                        |         |           |  |               |        |               |  |          |        |  |  |   |        |  |  |   |         | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The notes that remain outstanding will mature in
    2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|(2) | In August 2004, using proceeds from the sale of
    the Telegraph Group, the Company retired approximately
    $294.0 million of principal and interest of the
    9% Senior Notes by way of a tender offer. The Company
    incurred costs of approximately $61.2 million related to
    premiums to retire the debt, interest rate swap cancellation
    costs and other fees. During September 2004, the Company
    purchased another $3.4 million in principal amount of the
    9% Senior Notes on the open market and retired such notes
    for a total cost (principal, accrued interest, premium and fees)
    of approximately $3.9 million. See
     Liquidity and Capital Resources.
|   
|(3) | The Company used approximately $213.4 million of
    the proceeds from the sale of the Telegraph Group to repay all
    amounts outstanding under the Senior Credit Facility. In
    addition, the Company paid approximately $2.1 million in
    fees related to this early repayment and $32.3 million in
    fees to cancel cross-currency interest rate swaps the Company
    had in place with respect to amounts outstanding under the
    Senior Credit Facility.                                                                                                                                                                                                                            
|   
|(4) | The capital lease obligation was held at the
    Telegraph Group. This obligation remained with the Telegraph
    Group upon its sale.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|(5) | In 2004, the Chicago Sun-Times sold its
    interest in the property on which a portion of its operations
    were situated and moved those operations to new premises. In
    connection with this move, the Chicago Sun-Times entered
    into a 15-year operating lease for new office space. The new
    lease payments, which average amount approximates
    $3.4 million per year, are not reflected in the above table.                                                                                                                                                                                                                                                                     
|   
|(6) | Amounts represent operating leases at the
    Telegraph Group and The Jerusalem Post, both of which
    were sold in 2004. See Note 28(c) of Notes to Consolidated
    Financial Statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

In addition to amounts committed under its
contractual cash obligations, the Company also assumed a number
of contingent obligations by way of guarantees and indemnities
in relation to the conduct of its business and disposition of
its assets. In addition, the Company is involved in various
matters in litigation. For more information on the
Companys contingent obligations, see
Item 3  Legal Proceedings and
Note 22 of Notes to Consolidated Financial Statements.

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Recent Accounting Pronouncements

In April 2003, the FASB issued
SFAS No. 149, Amendment of
SFAS No. 133 on Derivative Instruments and Hedging
Activities (SFAS No. 149).
SFAS No. 149 amends and clarifies accounting for
derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities under
SFAS No. 133 Accounting for Derivative
Instruments and Hedging Activities
(SFAS No. 133). In particular, it
clarifies under what circumstances a contract with an initial
net investment meets the characteristics of a derivative as
discussed in SFAS No. 133; clarifies when a derivative
contains a financing component; amends the meaning of
underlying to conform it to the language used in the
FASB Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, including
Indirect Guarantees of Indebtedness of Others  an
interpretation of FASB Statements No. 5, 57 and 107 and
rescission of FASB Interpretation No. 34
(FIN 45); and amends certain other existing
pronouncements. SFAS No. 149 is effective for
contracts entered into or modified after June 30, 2003 and
for hedging relationships designated after June 30, 2003.
The adoption of this pronouncement did not have a material
effect on the Companys consolidated financial statements.

In May 2003, the FASB issued
SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity (SFAS No. 150).
SFAS No. 150 establishes standards for how an issuer
classifies and measures certain financial instruments with
characteristics of both liabilities and equity. Some provisions
of this Statement are consistent with the FASBs proposal
to revise the definition of liabilities in FASB Concepts
Statement No. 6, Elements of Financial
Statements, to encompass certain obligations that a
reporting entity can or must settle by issuing its own equity
shares, depending on the nature of the relationship established
between the holder and the issuer. SFAS No. 150 is
effective for financial instruments entered into or modified
after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after
June 15, 2003. The Company adopted the provisions of
SFAS No. 150 as of July 1, 2003. The adoption of
this pronouncement did not have a material effect on the
Companys consolidated financial statements.

In December 2003, the FASB issued
SFAS No. 132, (revised), Employers
Disclosures about Pensions and Other Postretirement
Benefits  an amendment of FASB Statements
No. 87, 88, and 106
(SFAS No. 132R). This Statement retains
the disclosures required by Statement 132, which
standardized the disclosure requirements for pensions and other
postretirement benefits to the extent practicable, and required
additional information on changes in the benefit obligations and
fair values of plan assets. Additional disclosures have been
added in response to concerns expressed by users of financial
statements; those disclosures include information describing the
types of plan assets, investment strategy, measurement date(s),
plan obligations, cash flows, and components of net periodic
benefit cost recognized during interim periods.

In December 2003, the FASB issued a revised
version of Financial Interpretation No. 46, Variable
Interest Entities (FIN 46R). FIN 46R
requires an entity to evaluate investments that are held to
determine firstly, whether or not the entity invested in is a
variable interest entity, as defined, and secondly, if the
investing entity is the primary beneficiary of the variable
interest entity. The results of this analysis will determine if
an entity will be required to consolidate the results of the
investee, regardless of the actual ownership percentage. The
Company does not expect that the adoption of FIN 46R will
have a material effect on the Companys consolidated
financial statements.

In December 2004, the FASB issued SFAS
No. 123 (revised 2004) Share-Based Payment
(SFAS 123R). SFAS 123R addresses the
accounting for transactions in which an enterprise exchanges its
equity instruments for employee services. It also addresses
transactions in which an enterprise incurs liabilities that are
based on the fair value of the enterprises equity
instruments or that may be settled by the issuance of those
equity instruments in exchange for employee services. For public
entities, the cost of employee services received in exchange for
equity instruments, including employee stock options, is to be
measured on the grant-date fair value of those instruments. That
cost is to be recognized as compensation expense over the
service period, which would normally be the vesting period.
SFAS 123R is effective as of the first interim or annual
reporting period that begins after June 15, 2005; the
Company will adopt SFAS 123R in the third quarter of fiscal
2005. The Company has not yet determined the impact
SFAS 123R will have on its results of operations.

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|         |                                                              
|-------- | -------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosure
    About Market Risk

Newsprint.On a
consolidated basis, newsprint expense for the years ended
December 31, 2003, 2002 and 2001 amounted to
$148.3 million, $147.5 million and
$204.4 million, respectively. Newsprint prices have varied
widely from time to time and management believes they 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 economic environment 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 continued into 2002. Newsprint prices fluctuated
during 2003. Management believes that newsprint prices will
continue to show significant price variation in the future.
Suppliers implemented a newsprint increase of $35.00 per
tonne during the second quarter and another $25.00 per
tonne in the fourth quarter of 2003, the effects of which were
limited to the Chicago Group and Canadian Group operations. In
the United Kingdom, the Company negotiated prices for one-year
periods. 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. Based on levels of usage, during 2003, a
change in the price of newsprint of $50.00 per tonne would
have increased or decreased 2003 net loss by approximately
$8.9 million.

Interest Rates.At
December 31, 2003, the Company had debt totaling
$250.0 million which is subject to interest calculated at
floating rates as a consequence of fixed to floating swaps
arranged by the Company. The current rates of interest are reset
every six months in arrears on June 15 and December 15. A
1% change in interest rate would have resulted in a change in
interest costs in respect of such debt of approximately
$2.5 million.

Foreign Exchange
Rates.During 2003, a substantial
portion of the Companys income was earned outside of the
United States in currencies other than the United States dollar.
In addition, in 2001, the Company sold participations in
Canadian dollar-denominated CanWest Debentures to the
Participation Trust in exchange for U.S. dollars. The
Company retained certain foreign exchange exposure in respect of
this transaction. As a result, the Companys earnings have
been vulnerable to changes in the value of the United States
dollar relative to the U.K. pound and the Canadian dollar.
Increases in the value of the United States dollar can reduce
net earnings and declines can result in increased earnings.
Based on earnings and ownership levels for 2003, a 5 percent
change in the key foreign currencies would have had the
following effect on the Companys reported net loss for
2003:

|               |  |              |             |                   |  |   |        | 
|-------------- |  | ------------ | ----------- | ----------------- |  | - | ------ | 
|               |  | Actual       |             |                  
|               |  | Average 2003 |             |                  
|               |  | Rate         |             | Increase/Decrease
|               |  |              |             |                  
|               |  |              |             | (In thousands)   
|United Kingdom |  | $            | 1.6348/£    |                   |  | $ | 281    | 
|Canada(1)      |  | $            | 0.7157/Cdn$ |                   |  | $ | 26,195 | 



---



|    |                                                                                                                                                                                          
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Included in the exposure relating to the Canadian
    dollar noted above is $28.4 million attributable to the
    CanWest Debentures held by the Participation Trust described
    below.

In 2001, the Company sold participation interests
in Cdn.$756.8 million principal amount of CanWest
Debentures to the Participation Trust at an exchange rate of
$0.6482 to each Canadian dollar, which translated into
$490.5 million. Prior to the unwinding of the Participation
Trust in November 2004, under the terms of the Participation
Trust documents, the Company was required to deliver to the
Participation Trust $490.5 million of the CanWest
Debentures at then current exchange rates plus interest
received. In addition, until November 5, 2005, CanWest was
entitled to elect to pay interest on the debentures in kind or
by the issuance of shares.

As the CanWest Debentures were denominated in
Canadian dollars, the Company entered into forward foreign
exchange contracts in 2001 to mitigate the currency exposure.
The foreign currency contracts required the Company to sell
Cdn.$666.6 million on May 15, 2003 at a forward rate
of $0.6423. In 2002, the Company sold certain of its foreign
currency contracts and subsequently entered into additional
foreign currency contracts. However, on September 30, 2002,
all of the outstanding contracts were unwound resulting in the
net

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cash receipt of $6.3 million by the Company
after discounting for early settlement. This amount was included
in Other income (expense), net for 2002. The Company
discontinued the hedging of this foreign exchange exposure, due
to constraints under the Companys then outstanding debt
facilities.


On April 10, 2003, CanWest notified the
Company of its intention to redeem Cdn.$265.0 million of
the CanWest Debentures on May 11, 2003. On May 11,
2003, CanWest redeemed Cdn.$265.0 million principal amount
of the CanWest Debentures plus interest accrued to the
redemption date of Cdn.$8.8 million for a total of
Cdn.$273.8 million ($197.2 million), of which
Cdn.$246.6 million was payable to the Participation Trust.
This amount, converted at the fixed rate of $0.6482 for each
Canadian dollar, totaled $159.8 million and was delivered
to the Participation Trust on May 11, 2003. The balance of
the proceeds of $37.4 million, less the amounts paid under
a cross currency swap of $9.8 million, or
$27.6 million, was retained by the Company in respect of
its interest in Debentures, in which participations were not
sold to the Participation Trust. Of the proceeds retained by the
Company, an estimated $16.7 million was restricted cash
under the terms of the Participation Trust and unavailable for
general corporate purposes as of December 31, 2003.

A $0.05 change in the U.S. dollar to
Canadian dollar exchange rate applied to the
Cdn.$733.3 million principal amount of the CanWest
Debentures at December 31, 2003 would result in a
$36.7 million loss or gain to the Company.

On October 7, 2004, the Company entered into
an agreement with CanWest, pursuant to which the parties agreed
to redeem the CanWest Debentures and dissolve the Trust. CanWest
exchanged the Trust Notes for new debentures issued by CanWest.
The CanWest Exchange Offer was completed on November 18,
2004. The Company received approximately $133.6 million in
respect of CanWest Debentures beneficially owned and residual
interests in the Participation Trust attributable to foreign
currency exchange. As a consequence, all exposure the Company
previously had to foreign exchange fluctuations under the
Participation Trust was eliminated at that date. The Company was
also relieved of all of its obligations under the Participation
Trust Agreement including the requirement to maintain cash on
hand to satisfy needs of the Participation Trust, which removed
the restrictions on the $16.7 million reflected as
Escrow deposits and restricted cash on the
Companys Consolidated Balance Sheet at December 31,
2003. See  Liquidity and Capital
Resources  Off-Balance Sheet Arrangements.

Given the sale of the Telegraph Group in July
2004, the Companys exposure to changes in the value of the
British pound has been significantly reduced, effective as of
the sale date.






|        |                                                
|------- | -----------------------------------------------
|Item 8. | Financial Statements and Supplementary
    Data

The information required by this item appears
beginning at page 123 of this Form 10-K.






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

Not applicable.






|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

Pursuant to Rule 13a-15 under the Exchange
Act, the Companys management evaluated the effectiveness
of the design and operation of the Companys disclosure
controls and procedures with the participation of its Chief
Executive Officer (CEO) and its Chief Financial
Officer (CFO). Based on that evaluation, for the
reasons and in respect of the matters noted below, management
concluded that the disclosure controls and procedures were
ineffective as of December 31, 2003 in providing reasonable
assurance that material information requiring disclosure was
brought to managements attention on a timely basis and
that the Companys financial reporting was reliable.
Consequently, substantial additional procedures were undertaken
and changes in disclosure controls and procedures effected in
order that management could conclude that reasonable assurance
exists regarding the reliability of financial reporting and the
preparation of financial statements contained in this filing.

On June 17, 2003, the Board of Directors
established a Special Committee ultimately comprising three new
independent directors to investigate, among other things,
certain allegations regarding various related

85



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party transactions, all as more fully disclosed
under Item 1  Business  Recent
Developments. The Special Committee was further empowered
to take any action, including the initiation of litigation, that
the Special Committee deemed appropriate in its sole discretion
including litigation against any director, officer or employee
of the Company. One of the independent director members of the
Special Committee, Paris, was subsequently appointed Interim
Chairman and Interim CEO and President of the Company. Although
he is an executive officer of the Company, his continued
participation as a member of the Special Committee is not
regarded by the Company as an impediment to the discharge of the
Special Committees responsibilities or a matter that would
otherwise affect the design and operation of the Companys
disclosure controls and procedures or a material weakness in
internal controls.


After the preliminary conclusions of the Special
Committee were presented to the Board of Directors in November
2003, three steps in particular were undertaken that partially
mitigated the effects of noted weaknesses in controls and
procedures:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The preliminary findings led to an agreement on
    November 15, 2003 which provided for, among other things:
    the retirement of Black as CEO of the Company; the resignations
    of Radler as an officer and director of the Company and Atkinson
    as a director of the Company; and the termination of
    Boultbees position as an officer of the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | A payment approval process was established, under
    which all payments by the Company to related parties and third
    party payments in excess of specified dollar amounts were
    reviewed by an independent third party, Richard C.
    Breeden & Co., that serves as an advisor to counsel to
    the Special Committee.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | The Company consented to the entry of a partial
    final judgment and order of permanent injunction in an action
    brought by the SEC in the U.S. District Court for the
    Northern District of Illinois. The Court Order enjoins the
    Company from violating provisions of the Exchange Act, including
    the requirements to file accurate annual reports on
    Form 10-K and quarterly reports on Form 10-Q and to
    keep accurate books and records. The Court Order requires the
    Company to have the Special Committee complete its investigation
    and to permit the Special Committee to take whatever actions it,
    in its sole discretion, thinks necessary to fulfill its mandate.
    The Court Order also provides for the automatic appointment of
    Breeden as Special Monitor of the Company in order to complete
    the ongoing Special Committee investigation and protect the
    Companys assets if certain actions are taken by the Board
    of Directors or stockholders of the Company that would interfere
    with the Special Committees investigation.

In early 2004, the Company, through the Special
Committee, commenced legal actions based upon the findings of
further investigations by the Special Committee. See
Item 3  Legal Proceedings and
Note 22 of Notes to Consolidated Financial Statements.

On August 30, 2004, the Special Committee
released its Report setting out the scope and results of its
investigations . The Report was delivered to the SEC and the
U.S. District Court for the Northern District of Illinois.
In addition, on August 31, 2004, the Company filed a copy
of the full Report with the SEC as an exhibit to a current
report on Form 8-K, as amended by a current report on
Form 8-K/ A filed with the SEC on December 15, 2004.
See Item 1  Business  Recent
Developments.

On November 15, 2004, the SEC filed a
complaint with the federal courts in Illinois naming Black,
Radler and Hollinger Inc. as defendants alleging that from at
least 1999 through at least 2003 Black, Radler and Hollinger
Inc. were liable for the Companys failure to devise and
maintain a system of internal accounting controls sufficient to
provide reasonable assurance that transactions were recorded as
necessary to permit preparation of financial statements in
conformity with GAAP. The SEC also alleges that Black, Radler
and Hollinger Inc., directly and indirectly, falsified or caused
to be falsified books, records, and accounts of the Company in
order to conceal their self-dealing from the Companys
public stockholders.

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The Companys management concluded that the
following material weaknesses in the Companys internal
controls and ineffectiveness in the design and operation of the
Companys disclosure controls and procedures, among others,
existed during the year ended or as of December 31, 2003:



| |   |                                                                                                                                                                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The tone from the top established by
    the former executive officers was inappropriate to the
    establishment of an environment in which strong systems of
    internal controls and disclosure controls and procedures are
    encouraged.                                                                                                    
|
| |  | Certain former executive officers of the Company,
    who were also executive officers at the Companys various
    controlling stockholders, did not participate in open and timely
    communication with those responsible for the preparation of
    corporate reports or with the Board of Directors, in particular
    its independent members.
|
| |  | The management and corporate organizational
    structures facilitated extraction of assets from the Company by
    way of related party transactions to benefit direct and indirect
    controlling stockholders.                                                                                                                                   
|
| |  | Common directorships, among certain former
    executive officers, at the Company and its direct and indirect
    parent companies and their affiliates, facilitated inappropriate
    related party transactions between the Company and those
    entities.                                                                                        
|
| |  | The management and reporting structures fostered
    and maintained the perception of Ravelston and its direct and
    indirect subsidiaries being one consolidated corporate group,
    thus blurring the distinction between the interests of
    individual entities and their respective unaffiliated
    stockholders.                          
|
| |  | The procedures for providing information to the
    Audit and Compensation Committees were inadequate.                                                                                                                                                                                                                                               
|
| |  | The Company and its direct and indirect parent
    companies and controlling stockholders did not retain separate
    legal counsel when appropriate.                                                                                                                                                                                                
|
| |  | Clear and appropriate policies for the
    identification, reporting, approval and disclosure of related
    party and other significant transactions did not exist.                                                                                                                                                                                 
|
| |  | Inadequate communication to employees of recourse
    they might have to report illegal or unethical activity without
    fear of retribution inhibited the identification and mitigation
    of inappropriate conduct.                                                                                                                              

The above pervasive weaknesses directly or
indirectly led to other material weaknesses or significant
deficiencies in internal controls, such as inadequate
documentation of business processes and internal controls.

There have been a number of responses by the
Company subsequent to December 31, 2003 to the material
weaknesses in internal controls and ineffectiveness in the
design and operation of disclosure controls and procedures
identified above. Steps taken by the Company to strengthen the
design and operation of its disclosure controls and procedures
and systems of internal controls include:



| |   |                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the segregation of the Companys accounting
    function from that of its controlling stockholders;                                                               
|
| |  | the Companys retention of outside legal
    counsel independent of that of its controlling stockholders and
    hiring of a new in-house General Counsel;        
|
| |  | the termination of Blacks role as Chairman
    of the Board of Directors and all other executive roles;                                                          
|
| |  | expansion of the internal audit group and
    clarification of its role;                                                                                          
|
| |  | ongoing documentation of internal controls;                                                                                                                       
|
| |  | communication to employees of the importance of
    the control environment, the Companys code of ethics and
    the existence of whistleblower procedures; and
|
| |  | the addition of an experienced, independent
    member of the Board of Directors to the Audit Committee.                                                          

87



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In addition to the above, subsequent to
December 31, 2003, the Company became aware that
circulation figures for the Chicago Sun-Times and certain
other publications had been overstated for a number of years
starting in 1997. The failures to detect the practices that led
to the overstatements can largely be attributed to the material
weaknesses noted above insofar as the Companys environment
inhibited the establishment and functioning of proper systems of
internal control. The Audit Committee completed its review of
this matter and presented its findings to the Board of Directors
on October 5, 2004. The Audit Committee made several
recommendations to strengthen controls over the reporting of
circulation, all of which will be implemented by the Company.
See Item 1  Business  Recent
Developments  The Chicago Sun-Times
Circulation and  Description of
Historical Business  Chicago Group 
Circulation.

As noted in Item 6  Selected
Financial Data and Note 2 of Notes to Consolidated
Financial Statements herein, the Company has restated its
Consolidated Financial Statements with respect to income tax
related assets, accruals, expenses and benefits. The
Companys management believes that such restatements
indicate a material weakness in the procedures followed to
calculate the Companys current and deferred income tax
provisions. The Company considers historical staffing levels
inadequate to address the complexity of the Companys
corporate structure and related income tax calculations to be
the primary underlying circumstance giving rise to the need for
the income tax restatements. Subsequent to the years to which
the restatements pertain and prior to the identification of the
need for restatements, the Company had taken steps to bolster
the size and capabilities of its tax department. The sale of the
Telegraph Group and The Palestine Post Limited in 2004 have also
served to reduce the complexity referred to. The Company will be
undertaking a review of its corporate structure to identify
further opportunities to reduce the complexity that exists.

The combined impact of the events since June
2003, including the investigation by the Special Committee, the
Strategic Process culminating in the sale of the Telegraph Group
and The Palestine Post Limited, the move of the Chicago
Sun-Times to new offices, the separation of the
Companys accounting function from that of its controlling
stockholder, the retention of the Companys books and
records by its controlling stockholder, the investigation of
circulation overstatements at the Chicago Group and preparation
for the implementation of Section 404 of the Sarbanes-Oxley
Act regarding internal controls, have strained the resources of
the Companys corporate and divisional finance and
accounting groups and will continue to do so for a period of
time. The Company has hired and continues to hire qualified
individuals, either on a permanent or contract basis, to address
the various demands on the accounting and finance staff;
however, there is no assurance that the Company will not
continue to experience disruption in the normal functioning of
accounting and finance functions for a further period of time.
The Companys disclosure and internal controls are
improving. However, the effectiveness of any system of controls
and procedures, including the Companys own, is subject to
certain limitations, including the exercise of judgment in
designing, implementing and evaluating the controls and
procedures and the inability to eliminate misconduct completely.






|         |                  
|-------- | -----------------
|Item 9B. | Other Information

Not applicable.

88



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PART III






|         |                                                       
|-------- | ------------------------------------------------------
|Item 10. | Directors and Executive Officers of the
    Registrant

The name, age and position held of each of the
directors and executive officers of the Company as of
December 31, 2004 are set forth below. All directors are
elected on an annual basis.

|                        |  |                                                                                              
|----------------------- |  | ---------------------------------------------------------------------------------------------
|Name and Age            |  | Position(s) with the Company                                                                 
|                        |  |                                                                                              
|Barbara Amiel Black, 64 |  | Director                                                                                     
|Conrad M. Black, 60     |  | Director                                                                                     
|Richard R. Burt, 57     |  | Director                                                                                     
|Daniel W. Colson, 57    |  | Director                                                                                     
|John D. Cruickshank, 51 |  | Chief Operating Officer  Chicago Group                                                      
|Paul B. Healy, 41       |  | Vice President, Corporate Development and
    Investor Relations                             
|Henry A. Kissinger, 81  |  | Director                                                                                     
|Peter K. Lane, 51       |  | Vice President and Chief Financial Officer                                                   
|Shmuel Meitar, 61       |  | Director                                                                                     
|Gordon A. Paris, 51     |  | Interim Chairman of the Board of Directors,
    Interim President and Chief Executive Officer
|Richard N. Perle, 63    |  | Director                                                                                     
|Graham W. Savage, 55    |  | Director                                                                                     
|Raymond G.H. Seitz, 64  |  | Director                                                                                     
|Robert T. Smith, 61     |  | Treasurer                                                                                    
|James R. Thompson, 68   |  | Director                                                                                     
|James R. Van Horn, 48   |  | Vice President, General Counsel and Secretary                                                

The name, principal occupation, business
experience and tenure as a director of the Company and current
directorships is set forth below. Unless otherwise indicated,
all principal occupations have been held for more than five
years.

Barbara Amiel Black,
Director. Barbara Amiel Black has served as a director of the
Company since 1996. She served as Vice President, Editorial from
September 1995 until March 18, 2004. Amiel Black is the
wife of Black. After an extensive career in both on and
off-camera television production, she was 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; a columnist of The Telegraph from 1994 to 2004; and a
columnist of Macleans magazine from 1977 to 2004. Amiel
Black also served as a director of Hollinger Inc. until November
2004.

Conrad M. Black,
Director. Black has served as a director of the Company since
1990. He is Chief Executive Officer and Director of Argus
Corporation Ltd., Toronto. Black has held these or similar
positions since 1978. Black served as Chairman of the Board of
Directors of the Company from 1978 until January 20, 2004
and as Chief Executive Officer of the Company from 1978 until
November 2003. Black is the husband of Amiel Black. He served as
a Director of Telegraph Group Limited, London, U.K., where he
was Chairman, until March 2004. 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). He sits in the British House of
Lords as Lord Black of Crossharbour.

Richard R. Burt,
Director. Mr. Burt has served as a director since 1994.
Mr. Burt has served as Chairman of Diligence, LLC, an
information and security firm since 2001. He was a partner with
McKinsey & Company, Inc. from 1991 to 1994.
Mr. Burt served as Chief Negotiator in Strategic Arms
Reduction Talks from 1989 to 1991 and as the United States
Ambassador to the Federal Republic of Germany from 1985 to 1989.
Mr. Burt currently serves as a director of IGT, Inc., EADS
North America, Inc., and is a trustee of the Deutsche Scudder
(New York) and the UBS Brinson mutual fund complexes.

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Daniel W. Colson,Director. Colson has served as a director of the Company since
1995 and served as Chief Operating Officer from November 2003 to
March 2004. He served as Vice Chairman from May 1998 to March
2004. He served as Deputy Chairman of The Telegraph from 1995
and as Chief Executive Officer of The Telegraph from 1994 to
March 2004, and was Vice Chairman of The Telegraph from 1992 to
1995. Colson also served as Vice Chairman and as a director of
the Companys parent, Hollinger Inc., until
December 2003 and serves as a director of Molson Inc. and
Macyro Group (Canada) Inc., all of which are Canadian public
reporting companies.

John D. Cruickshank,
Chief Operating Officer  Chicago Group.
Mr. Cruickshank has served as the Chief Operating
Officer  Chicago Group and Publisher of the
Chicago Sun-Times since November 2003.
Mr. Cruickshank served as Vice President Editorial and
co-editor of the Chicago Sun-Times from 2000 to November
2003. Prior to joining the Chicago Sun-Times,
Mr. Cruickshank served as Editor-in-Chief of The
Vancouver Sun from 1995 to 2000. He had previously been
Managing Editor of The Globe and Mail in Canada.

Paul B. Healy,Vice
President, Corporate Development and Investor
Relations. Mr. Healy has served as Vice President,
Corporate Development and Investor Relations since 1995. Prior
thereto, 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.

Henry A. Kissinger,Director. Mr. Kissinger has served as a director since
1996. Mr. Kissinger has served as Chairman of Kissinger
Associates Inc., an international consulting firm, since 1982.
Mr. Kissinger served as the 56th Secretary of State from
1973 to 1977. He also served as Assistant to the President for
National Security Affairs from 1969 to 1975 and as a member of
the Presidents Foreign Intelligence Advisory Board from
1984 to 1990. Mr. Kissinger currently serves on the
Advisory Board of American Express Company and the
JP Morgan International Advisory Council. He currently
serves as Chairman of the International Advisory Board of
American International Group, Inc., and Director Emeritus of
Freeport-McMoran Copper and Gold Inc., all of which are United
States public reporting companies, and as a director of
ContiGroup Companies, Inc.

Peter K. Lane,Vice
President and Chief Financial Officer. Mr. Lane has
served as Vice President and Chief Financial Officer since
October 2002. Mr. Lane was Chief Financial Officer of
Southam Publications from 2000 to 2002, and prior to that as
Chief Financial Officer of Philip Utilities Management
Corporation.

Shmuel Meitar,Director. Mr. Meitar has served as a director since 1996.
Mr. Meitar also serves as Vice Chairman of Aurec Ltd., a
leading provider of communications, media and information
services. Mr. Meitar was a director of The Jerusalem
Post from 1992 to 2002 and also serves as a director of
Golden Pages Publications Ltd., an Israeli company.

Gordon A. Paris,Interim Chairman of the Board of Directors, Interim President
and Chief Executive Officer. Paris has served as a director
since May 2003. He was appointed Interim Chairman in January
2004 and as Interim President and Chief Executive Officer in
November 2003. Paris is also a Managing Director and Head of the
Media and Telecommunications and Restructuring Groups at
Berenson & Company, a private investment bank. Prior to
joining Berenson & Company in February 2002, Paris was
Head of Investment Banking at TD Securities (USA) Inc., a
subsidiary of The Toronto-Dominion Bank. Paris joined TD
Securities (USA) Inc. as Managing Director and Group Head of
High Yield Origination and Capital Markets in March 1996 and
became a Senior Vice President of The Toronto-Dominion Bank in
2000.

Richard N. Perle,Director. Perle has served as a director since 1994. Perle has
been a resident fellow of the American Enterprise Institute for
Public Policy Research, since 1987. He was the Assistant
Secretary for the United States Department of Defense,
International Security Policy from 1981 to 1987. He was
co-chairman of Hollinger Digital and a director of The
Jerusalem Post, both of which are subsidiaries of the
Company. Perle serves as a director of Tapestry Pharmaceuticals
and Autonomy Inc., both of which are United States public
reporting companies.

Graham W. Savage,Director. Mr. Savage has served as a director since July
2003. Mr. Savage served for 21 years, seven years as
the Chief Financial Officer, at Rogers Communications Inc., a
major Toronto-based

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media and communications company. Mr. Savage
currently serves as Executive Chairman of Callisto Capital LP, a
merchant banking firm based in Toronto, as a director and a
member of the audit committee of Canadian Tire Corp., as a
director and member of the audit committee of Canadian Tire Bank
(a subsidiary of Canadian Tire Corp.), as a director of Vitran
Corp., where he serves as Chairman of the audit committee and as
a director of Leitch Technology Corp. where he also chairs the
audit committee. All of the above companies, except Canadian
Tire Bank, are Canadian public reporting companies.


Raymond G.H. Seitz,Director. Mr. Seitz has served as a director since July
2003. Mr. Seitz served as Vice Chairman of Lehman Brothers
(Europe) until April 2003. He was the American Ambassador to the
Court of St. Jamess from 1991 to 1995, and from 1989 to
1991 Assistant Secretary of State for Europe and Canada.
Mr. Seitz currently serves as a director of the Chubb
Corporation and PCCW.

Robert T. Smith,Treasurer. Mr. Smith has served
as Treasurer since May 1998. Prior thereto, he was Vice
President of Chase Securities, Inc. and The Chase Manhattan Bank
in the Media and Telecommunications Group.

James R. Thompson,Director. Mr. Thompson has served as a director since 1994.
Mr. Thompson has served as the Chairman of
Winston & Strawn, attorneys at law, since 1991.
Mr. Thompson served as the Governor of the State of
Illinois from 1977 to 1991. Mr. Thompson currently serves
as a director of FMC Corporation, FMC Technologies, Navigant
Consulting Inc. and Maximus, Inc., all of which are United
States public reporting companies.

James R. Van Horn,Vice President, General Counsel and
Secretary. Mr. Van Horn has served as Vice President,
General Counsel and Secretary since June 2004. From March 2004
until June 2004 he served as Corporate Counsel to the Company.
Prior thereto, he served as Chief Administrative Officer,
General Counsel and Secretary of NUI Corporation.

See Item 3  Legal
Proceedings for a description of certain legal proceedings
involving the Company and certain of its officers and directors.

Audit Committee

The Companys audit committee currently
consists of Mr. Thompson, Chairman, Mr. Burt and
Mr. Savage. The Board of Directors has determined that
Mr. Savage, who became a member of the Audit Committee in
November 2003, is an audit committee financial expert with the
relevant accounting or related financial management expertise as
described in Mr. Savages biography above and all
members meet the independence requirements of the listing
standards of the New York Stock Exchange.

Code of Ethics

The Company has adopted a code of ethics
applicable to its principal executive officer, principal
financial officer, principal accounting officer or controller,
or persons performing similar functions. A copy of the
Companys code of ethics is posted on the Companys
website. The Company intends to satisfy the disclosure
requirements under Item 5.05 of Form 8-K regarding an
amendment to, or a waiver from, a provision of its code of
ethics by posting such information on its website at
www.hollingerinternational.com. The Companys code of
ethics was amended by the Board of Directors on
November 29, 2004. The amendments were disclosed in, and
the revised code of ethics was furnished as an exhibit to, the
current report on Form 8-K filed with the SEC on
December 3, 2004.

Section 16(a) Beneficial Ownership
Reporting Compliance

Under the federal securities laws, the directors
and executive officers and any persons holding more than 10% of
any equity security of the Company are required to report their
initial ownership of any equity security and any subsequent
changes in that ownership to the Commission. Specific due dates
for these reports have been established by the SEC and the
Company is required to disclose in this report any failure to
file such reports by those dates during 2003. To the
Companys knowledge, based upon a review of the copies of
the reports furnished to the Company and written representations
that no other reports were required, these filing requirements
were satisfied during the 2003 fiscal year.

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|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

Summary Compensation Table

The following table sets forth compensation
information for the three fiscal years ended December 31,
2003 for certain named executive officers of the Company.

|                            |                           |      |      |                        |  |              |         |              |  |              |         |                 |  |   |   |   |  |  |         |         |  |   |         |           | 
|--------------------------- | ------------------------- | ---- | ---- | ---------------------- |  | ------------ | ------- | ------------ |  | ------------ | ------- | --------------- |  | - | - | - |  |  | ------- | ------- |  | - | ------- | --------- | 
|                            |                           |      |      |                        |  |              |         |              |  | Long Term    |         |                
|                            |                           |      |      |                        |  |              |         |              |  | Compensation |         |                
|                            |                           |      |      |                        |  |              |         |              |  |             
|                            |                           |      |      | Annual Compensation(4) |  |              |         | Securities   |  |             
|                            |                           |      |      |                        |  | Other Annual |         | Underlying   |  | All Other   
|Name and Principal Position |                           | Year |      | Salary                 |  | Bonus        |         | Compensation |  | Options(2)   |         | Compensation(1)
|                            |                           |      |      |                        |  |              |         |              |  |              |         |                
|GORDON A. PARIS             |                           |      | 2003 |                        |  | $            | 220,625 |              |  | $            |        |                 |  | $ |  |   |  |  |        |         |  | $ | 290,750 |          
|                            | Interim Chairman, Interim |      |      | 2002                   |  |              |         |             |  |              |         |                |  |   |   |  |  |  |         |        |  |   |         |          | 
|                            | President and Chief       |      |      | 2001                   |  |              |         |             |  |              |         |                |  |   |   |  |  |  |         |        |  |   |         |          | 
|                            | Executive Officer(3)      |      |      |                        |  |              |         |              |  |              |         |                 |  |   |   |   |  |  |         |         |  |   |         |           | 
|DANIEL W. COLSON(5)         |                           |      | 2003 |                        |  | $            | 301,261 |              |  | $            |        |                 |  |   |  |   |  |  | 268,500 |         |  | $ | 179,183 |          
|                            | Chief Operating Officer   |      |      | 2002                   |  |              |         | 256,514      |  |              |         |                |  |   |   |  |  |  |         | 280,000 |  |   |         | 184,209   | 
|                            | and Chief Executive       |      |      | 2001                   |  |              |         | 260,851      |  |              |         | 1,123,719       |  |   |   |  |  |  |         | 300,000 |  |   |         | 116,125   | 
|                            | Officer of The Telegraph  |      |      |                        |  |              |         |              |  |              |         |                 |  |   |   |   |  |  |         |         |  |   |         |           | 
|PETER Y. ATKINSON(6)        |                           |      | 2003 |                        |  | $            |        |              |  | $            |        |                 |  |   |  |   |  |  | 110,000 |         |  | $ | 9,483   |          
|                            | Executive Vice President  |      |      | 2002                   |  |              |         |             |  |              |         |                |  |   |   |  |  |  |         | 117,000 |  |   |         | 22,574    | 
|                            |                           |      |      | 2001                   |  |              |         |             |  |              |         | 100,000         |  |   |   |  |  |  |         | 125,000 |  |   |         | 414,553   | 
|PAUL B. HEALY               |                           |      | 2003 |                        |  | $            | 345,000 |              |  | $            | 235,000 |                 |  |   |  |   |  |  | 43,500  |         |  | $ | 7,175   |          
|                            | Vice President,           |      |      | 2002                   |  |              |         | 316,000      |  |              |         | 175,000         |  |   |   |  |  |  |         | 45,000  |  |   |         | 7,000     | 
|                            | Investor Relations        |      |      | 2001                   |  |              |         | 301,000      |  |              |         | 230,000         |  |   |   |  |  |  |         | 50,000  |  |   |         | 5,100     | 
|PETER K. LANE               |                           |      | 2003 |                        |  | $            | 339,956 |              |  | $            |        |                 |  |   |  |   |  |  |        |         |  | $ |        |          
|                            | Vice President            |      |      | 2002                   |  |              |         | 74,812       |  |              |         |                |  |   |   |  |  |  |         |        |  |   |         |          | 
|                            | Chief Financial Officer   |      |      | 2001                   |  |              |         |             |  |              |         |                |  |   |   |  |  |  |         |        |  |   |         |          | 
|CONRAD M. BLACK(7)          |                           |      | 2003 |                        |  | $            | 523,345 |              |  | $            |        |                 |  |   |  |   |  |  | 360,000 |         |  | $ | 640,949 |          
|                            |                           |      |      | 2002                   |  |              |         | 462,460      |  |              |         |                |  |   |   |  |  |  |         | 375,000 |  |   |         | 635,023   | 
|                            |                           |      |      | 2001                   |  |              |         | 443,283      |  |              |         | 250,000         |  |   |   |  |  |  |         | 400,000 |  |   |         | 5,748,867 | 
|F. DAVID RADLER(8)          |                           |      | 2003 |                        |  | $            |        |              |  | $            |        |                 |  |   |  |   |  |  | 360,000 |         |  | $ | 120,590 |          
|                            |                           |      |      | 2002                   |  |              |         |             |  |              |         |                |  |   |   |  |  |  |         | 375,000 |  |   |         | 147,372   | 
|                            |                           |      |      | 2001                   |  |              |         |             |  |              |         | 150,000         |  |   |   |  |  |  |         | 400,000 |  |   |         | 5,382,912 | 
|J. A. BOULTBEE(9)           |                           |      | 2003 |                        |  | $            |        |              |  | $            |        |                 |  |   |  |   |  |  | 60,000  |         |  | $ | 9,483   |          
|                            |                           |      |      | 2002                   |  |              |         |             |  |              |         |                |  |   |   |  |  |  |         | 117,000 |  |   |         | 9,551     | 
|                            |                           |      |      | 2001                   |  |              |         |             |  |              |         | 50,000          |  |   |   |  |  |  |         | 125,000 |  |   |         | 414,553   | 



---



| |     |                                                                                                                                                                                                                   
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | With respect to Paris, includes director fees
    paid to him for service on the Board of Directors from May 2003
    until his appointment as Interim President and Chief Executive
    Officer in November 2003.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | With respect to Mr. Healy, includes Company
    contributions under the Companys 401(k) plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| | With respect to Black, includes director fees
    paid for service on the Boards of Directors of the Company, HCPH
    Co., The Jerusalem Post, Sun-Times Company, The
    Telegraph, Hollinger L.P., and American Publishing Company (2001
    only); also includes a portion of the cost of maintaining his
    New York condominium, an allocation of the cost of automobiles
    and a driver, a portion of the cost of his personal staff in
    homes where he maintains an office, and the cost of certain
    medical coverage. Also, for 2001 includes
    (i) non-competition payments from the Osprey
    Media transaction; (ii) payments pursuant to a
    non-competition agreement with American Publishing
    Company; and (iii) payments that were made in 2001 and
    recorded as a reduction of excessive accruals that were recorded
    in 2000. Does not include any allocation of costs associated
    with his private use of Company aircraft.
|
| | With respect to Radler, includes director fees
    paid for service on the Boards of Directors of the Company, HCPH
    Co., The Jerusalem Post, Sun-Times Company, The
    Telegraph, Hollinger L.P., American Publishing Company (2001
    only) and APAC-95 (2001 only); also includes a portion of the
    cost of maintaining his Chicago condominium and property taxes
    on the condominium; also includes certain automobile costs and
    club dues. Also, for 2001 includes
    (i) non-competition payments from the Osprey
    Media transaction; (ii) payments pursuant to a
    non-competition agreement with                                                                                                                                                                                                                                                                                                                                           

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | American Publishing Company; and
    (iii) payments that were made in 2001 and recorded as a
    reduction of excessive accruals that were recorded in 2000. Does
    not include any allocation of costs associated with his private
    use of Company aircraft.                                                                                                                                                                                           
|
| | With respect to Colson, includes director fees
    paid for service on the Boards of Directors of the Company, HCPH
    Co., The Telegraph, and Hollinger L.P. (2002 and 2003 only).                                                                                                                                                                                                                                                                         
|
| | With respect to Atkinson, includes director fees
    paid for service on the Boards of Directors of the Company, HCPH
    Co. and Hollinger L.P. Also for 2001, includes
    (i) non-competition payments from the Osprey
    Media transaction; (ii) payments pursuant to a
    non-competition agreement with American Publishing
    Company; and (iii) payments that were made in 2001 and
    recorded as a reduction of excessive accruals in 2000.
|
| | With respect to Boultbee, includes director fees
    paid for service on the Boards of Directors of HCPH Co. and
    Hollinger L.P. Also for 2001, includes
    (i) non-competition payments from the Osprey
    Media transaction; (ii) payments pursuant to a
    non-competition agreement with American Publishing
    Company; and (iii) payments that were made in 2001 and
    recorded as a reduction of excessive accruals in 2000.             
|
| | Director fees paid by HCPH Co. and Hollinger L.P.
    were in Canadian Dollars and have been converted to
    U.S. Dollars at the following average rates:
    2003  0.7157; 2002  0.6367; and
    2001  0.6456. Director fees paid by The Telegraph
    were in pounds sterling and have been converted to
    U.S. Dollars at the following average rates:
    2003  1.6348; 2002  1.5024; and
    2001  1.4401.                                     



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (2) | Represents number of shares of Class A
    Common Stock with respect to which options were awarded pursuant
    to the Companys 1999 Stock Incentive Plan. Option grants
    vest in twenty-five percent increments over a four-year period
    from the date of grant. The initial dates of grant and exercise
    prices for these option grants are as follows: 2003 
    $9.45 per share with an initial grant date of February 6,
    2003; 2002  $11.13 per share with an initial grant
    date of February 5, 2002; 2001  $14.37 per share
    with an initial grant date of April 2, 2001. See 1999
    Incentive Stock Plan below.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | (3) | Paris became a director of the Company in May
    2003, became the Interim President and Chief Executive Officer
    in November 2003 and became the Interim Chairman in January 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| | (4) | With the exception of salaries paid to Black and
    Colson by the Telegraph Group (which salaries were paid in
    pounds sterling and Canadian Dollars, respectively, and have
    been converted into U.S. Dollars at the 2003 average rates
    of 1.6348 and 0.7157, the 2002 average rates of 1.5024 and
    0.6367 and the 2001 average rates of 1.4401 and 0.6456,
    respectively, for purposes of this disclosure) and except for
    those findings described by the Special Committee, Black,
    Radler, Boultbee, Colson and Atkinson did not receive salaries
    or bonuses directly from the Company. Under the management
    services agreements with Ravelston, the Company paid management
    fees relating to, among other matters, management and
    administrative services provided to the Company by such
    executives. See Item 13  Certain
    Relationships and Related Transactions. The Company did
    not determine the allocation of the management fee paid to
    Ravelston among its ultimate recipients. That allocation was
    determined by Ravelston. The Company has requested, and
    Ravelston provided, the following allocation of the economic
    interest, directly or indirectly through compensation
    arrangements, stockholdings or otherwise, in the management fee
    paid during the years ended December 31, 2002 and 2001,
    which Ravelston maintains, can reasonably be attributed to
    Black, Radler, Boultbee, Colson and Atkinson. Although
    requested, no such information has been provided by Ravelston
    with respect to 2003. The allocation provided by Ravelston has
    not been independently verified by the Company.

|                  |  |                         |           |      |  |   |           | 
|----------------- |  | ----------------------- | --------- | ---- |  | - | --------- | 
|                  |  |                        
|                  |  | Year Ended December 31,
|                  |  |                        
|Name              |  | 2002                    |           | 2001
|                  |  |                         |           |     
|Conrad M. Black   |  | $                       | 6,485,439 |      |  | $ | 6,619,256 | 
|F. David Radler   |  |                         | 3,147,922 |      |  |   | 3,102,221 | 
|Daniel W. Colson  |  |                         | 1,770,770 |      |  |   | 1,714,308 | 
|J. A. Boultbee    |  |                         | 929,395   |      |  |   | 897,250   | 
|Peter Y. Atkinson |  |                         | 876,009   |      |  |   | 846,063   | 

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Special Committees compensation expert,
    F.W. Cook, determined that the net fee paid from
    Ravelstons management fees (excluding Hollinger Inc. proxy
    reported compensation, non-competition payments and
    other benefits) to all of the above individuals was $22,838,000,
    $21,968,000 and $27,629,000 in 2003, 2002, and 2001,
    respectively. Without the cooperation of Ravelston, however,
    none of these amounts can be confirmed or reconciled with the
    above amounts provided by Ravelston with respect to 2002 and
    2001. The Special Committee concluded that Black, Radler,
    Colson, Boultbee, Atkinson and their affiliated companies
    transferred to themselves more than $400.0 million from at least
    1997 to at least 2003.
|
| | During the fourth quarter of 2003, the Company
    notified RMI that the management services agreement would be
    terminated in accordance with its terms, effective June 1,
    2004, and that the management fee payable under this agreement
    for the period from January 1, 2004 until June 1, 2004
    would be reduced to reflect certain management and personnel
    changes.                                                                                                                                                                                                                                                                                                                                                                                               
|
| | In its second amended complaint filed by the
    Special Committee on behalf of the Company in federal court in
    Illinois, the Company seeks, among other things, to recover
    compensation from Black, Radler, Colson and Boultbee for any
    period that they are found to have breached their fiduciary
    duties to the Company. See Item 3  Legal
    Proceeding  Litigation Involving Controlling
    Stockholder, Senior Management and Directors.                                                                                                                                                                                                                                                                                                                     



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (5) | Colson retired from his position as Chief
    Operating Officer of the Company and Chief Executive Officer of
    the Telegraph Group Limited on March 23, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| | (6) | Atkinson resigned from his position as a member
    of the Board of Directors effective November 17, 2003 and
    as Executive Vice President on April 27, 2004. On
    April 27, 2004, the Company entered into a consulting
    agreement with Atkinson. See Item 13 
    Certain Relationships and Related Transactions 
    Consulting Agreement with Atkinson.                                                                                                                                                                                                                                                                                                                      
|
| | (7) | Black retired as Chief Executive Officer of the
    Company on November 19, 2003 and was removed as
    non-executive Chairman of the Board of Directors on
    January 17, 2004 and as Executive Chairman of the Telegraph
    Group Limited on March 5, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| | (8) | Radler resigned from his position as President
    and Chief Operating Officer effective November 16, 2003. As
    a result, the options granted during 2003, together with all
    unvested options, were cancelled. The period in which Radler
    could exercise vested options was extended from 30 days to
    June 1, 2004, which is approximately 6 months from the
    date of his resignation. The Company recorded a compensation
    charge of $776,748 in 2003 related to the extension of the
    exercise period of Radlers options. Radler exercised
    vested options to acquire 995,000 shares of Class A
    Common Stock between January 2, 2004 and April 26,
    2004.
|
| | (9) | Boultbees position was terminated on
    November 16, 2003. As a result, all options granted during
    2003, together with all unvested options, were cancelled. The
    exercise period on all options that had vested as of the date of
    Boultbees termination remains unresolved pending the
    result of litigation. See Item 3  Legal
    Proceedings  Other Actions. The Company
    has not recorded any compensation charge in 2003 related to the
    open exercise period.                                                                                                                                                                                              

Stock Option Plans



| |                       
| | ----------------------
| | 1994 Stock Option Plan

Prior to the Companys initial public
offering in May 1994, Hollinger Inc., the parent company of the
Company, adopted and approved a stock option plan for the
Company which was subsequently amended on September 9, 1996
(as amended, the 1994 Stock Option Plan), under
which stock option awards have been made to eligible employees
and officers. The purpose of the 1994 Stock Option Plan was to
promote the interests of the Company and its stockholders by
establishing a direct link between the financial interests of
eligible employees and officers and the performance of the
Company and by enabling the Company to attract and retain highly
competent employees and officers. On May 1, 1997, the
stockholders adopted a new stock option plan (see
 1997 Stock Incentive Plan, described
below) which replaced the 1994 Stock Option

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Plan. No new grants have or will be made under
the 1994 Stock Option Plan. Awards under the 1994 Stock Option
Plan made prior to May 1, 1997 are not affected by the
adoption of the 1997 Stock Incentive Plan.




| |                          
| | -------------------------
| | 1997 Stock Incentive Plan

On May 1, 1997, the Company adopted, and the
Companys stockholders approved, a new compensation plan
known as the Hollinger International Inc. 1997 Stock Incentive
Plan (the 1997 Stock Incentive Plan). The 1997 Stock
Incentive Plan replaced the Companys 1994 Stock Option
Plan. Awards previously made under the 1994 Stock Option Plan
are not affected. The purpose of the 1997 Stock Incentive Plan
was to assist in attracting and retaining highly competent
employees and directors and to act as an incentive in motivating
selected officers and other key employees and directors to
achieve long-term corporate objectives. The 1997 Stock Incentive
Plan provided for awards of up to 5,156,915 shares of
Class A Common Stock. This total included
189,640 shares that remained available under the 1994 Stock
Option Plan, which shares were rolled into the 1997 Stock
Incentive Plan, and 4,967,275 additional shares. The number of
shares available for issuance under the 1997 Stock Incentive
Plan was subject to anti-dilution adjustments upon the
occurrence of significant corporate events. The shares offered
under the 1997 Stock Incentive Plan were either authorized and
unissued shares or issued shares which had been reacquired by
the Company. On May 5, 1999, the stockholders adopted a new
stock option plan (see  1999 Stock Incentive
Plan, described below) which replaced the 1997 Stock
Incentive Plan. No new grants have been or will be made under
the 1997 Stock Incentive Plan. Awards under the 1997 Stock
Incentive Plan made prior to May 5, 1999 are not affected
by the adoption of the 1999 Stock Incentive Plan.



| |                          
| | -------------------------
| | 1999 Stock Incentive Plan

On May 5, 1999, the Company adopted, and the
Companys stockholders approved, a new compensation plan
known as the Hollinger International Inc. 1999 Stock Incentive
Plan (the 1999 Stock Incentive Plan). The 1999 Stock
Incentive Plan replaces the Companys 1997 Stock Incentive
Plan. Awards previously made under the 1997 Stock Incentive Plan
are not affected. The purpose of the 1999 Stock Incentive Plan
is to assist in attracting and retaining highly competent
employees and directors and to act as an incentive in motivating
selected officers and other key employees and directors to
achieve long-term corporate objectives. The 1999 Stock Incentive
Plan provides for awards of up to 8,500,000 shares of
Class A Common Stock. The number of shares available for
issuance under the 1999 Stock Incentive Plan are subject to
anti-dilution adjustments upon the occurrence of significant
corporate events. The shares offered under the 1999 Stock
Incentive Plan are either authorized and unissued shares or
issued shares which have been reacquired by the Company.



| |                                   
| | ----------------------------------
| | Suspension of Option
    Exercises

Effective May 1, 2004, the Company suspended
option exercises under the 1994 Stock Option Plan, the 1997
Stock Incentive Plan and the 1999 Stock Incentive Plan until
such time that the Company again becomes current with its
reporting obligations under the Exchange Act. The suspension
does not affect the vesting schedule with respect to previously
granted options. In addition, the terms of the option plans
generally provide that participants have 30 days following
the date of termination of employment with the Company to
exercise options that were exercisable on the date of
termination. If the employment of a participant is terminated
during the suspension period, the Company will extend the 30-day
exercise period to provide participants with 30 days after
the conclusion of the suspension period to exercise vested
options.



| |                                    
| | -----------------------------------
| | Hollinger L.P. Unit Option
    Plan

Simultaneously with Hollinger L.P.s initial
public offering in April 1999, Hollinger Canadian Newspapers
G.P. Inc., the general partner of Hollinger L.P., adopted and
approved a unit option plan for Hollinger L.P. dated
April 27, 1999 (the Unit Option Plan), under
which unit option awards have been made to eligible employees
and officers. The purpose of the Unit Option Plan was to promote
the interest of Hollinger L.P. and its unit holders by
establishing a direct link between the financial interest of
eligible employees and officers and the performance of Hollinger
L.P. and by enabling Hollinger L.P. to attract and retain highly
competent employees and officers. The Unit Option Plan provides
for awards of up to 5,000,000 units. The

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number of units available for issuance under the
Unit Option Plan is subject to anti-dilution adjustments upon
the occurrence of significant partnership events.




| |                                      
| | -------------------------------------
| | Option Grants in Last Fiscal
    Year

The following table sets forth information
concerning the issuance of options to purchase Class A
Common Stock in 2003 to the named executive officers pursuant to
the 1999 Stock Incentive Plan.

2003 Individual Grants

|                   |  |               |         |              |  |              |      |            |  |            |      |  |  |  |          |  |  |   |           | 
|------------------ |  | ------------- | ------- | ------------ |  | ------------ | ---- | ---------- |  | ---------- | ---- |  |  |  | -------- |  |  | - | --------- | 
|                   |  | Number of     |         | % of Total   |  |              |      |            |  |           
|                   |  | Securities    |         | Options      |  |              |      |            |  |           
|                   |  | Underlying    |         | Granted to   |  |              |      |            |  | Grant Date
|                   |  | Options       |         | Employees in |  | Exercise     |      | Expiration |  | Present   
|Name               |  | Granted(1)(2) |         | Fiscal Year  |  | Price ($/Sh) |      | Date       |  | Value(3)  
|                   |  |               |         |              |  |              |      |            |  |           
|Gordon A. Paris    |  |               |        |              |  |              |     |            |  |            |     |  |  |  | N/A      |  |  |   | N/A       | 
|Daniel W. Colson   |  |               | 268,500 |              |  |              | 13.1 | %          |  | $          | 9.45 |  |  |  | 2/5/2013 |  |  | $ | 819,462   | 
|Peter Y. Atkinson  |  |               | 110,000 |              |  |              | 5.4  | %          |  | $          | 9.45 |  |  |  | 2/5/2013 |  |  | $ | 335,720   | 
|Paul B. Healy      |  |               | 43,500  |              |  |              | 2.1  | %          |  | $          | 9.45 |  |  |  | 2/5/2013 |  |  | $ | 104,661   | 
|Peter K. Lane      |  |               |        |              |  |              |     |            |  |            |     |  |  |  | N/A      |  |  |   | N/A       | 
|Conrad M. Black    |  |               | 360,000 |              |  |              | 17.5 | %          |  | $          | 9.45 |  |  |  | 2/5/2013 |  |  | $ | 1,098,720 | 
|F. David Radler(4) |  |               | 360,000 |              |  |              | 17.5 | %          |  | $          | 9.45 |  |  |  | 2/5/2013 |  |  | $ | 1,098,720 | 
|J.A. Boultbee(4)   |  |               | 60,000  |              |  |              | 2.9  | %          |  | $          | 9.45 |  |  |  | 2/5/2013 |  |  | $ | 183,120   | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The options vest in 25% annual increments on each
    of the first, second, third and fourth anniversaries of their
    respective grant dates, beginning February 6, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|(2) | There were no options granted under the Hollinger
    L.P. Unit Option Plan in 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|(3) | These values are determined using the
    Black-Scholes Option Pricing Model. The Black-Scholes Option
    Pricing Model is one of the methods permitted by the SEC for
    estimating the present value of options. The actual value of the
    stock options that an executive officer may realize, if any,
    will depend on the excess of the market price on the date of
    exercise over the exercise price. The Black-Scholes Option
    Pricing Model is based on assumptions as to certain variables
    described in the following sentence, so there is no assurance
    that an individual will actually realize the option values
    presented in this table. In valuing the options, different
    assumptions as to variables are used depending on whether the
    optionee is an employee of the Company or of Ravelston. For
    employees of the Company (Paris, Healy and Lane), the values
    listed above were based on the following assumptions: volatility
    (estimated) -36.18%; risk-free rate of return  2.69%;
    dividend yield  3.39%; and estimated life of
    options  5 years. For employees of Ravelston
    (Colson, Atkinson, Black, Radler and Boultbee), the values
    listed above were based on the following assumptions: volatility
    (estimated) -38.04%; risk-free rate of return  3.71%;
    dividend yield  3.39%; and estimated life of
    options  9 years.
|   
|(4) | Options granted to Radler and Boultbee during
    2003 were subsequently cancelled as a result of Radlers
    resignation and termination of Boultbees position with the
    Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

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| |                                                                                     
| | ------------------------------------------------------------------------------------
| | Aggregated Option Exercises During Fiscal
    2003 and Fiscal Year-End Option Values

The following table sets forth information
concerning aggregate option exercises and year-end option values
of the named executive officers.

Aggregated Option Exercises During Fiscal
2003

and


Option Values at December 31,
2003


for the Company and Hollinger L.P.


|                               |                |           |         |          |  |                            |         |                      |  |             |           |               |  |  |         |        |  |  |           |        |  |  |           |       | 
|------------------------------ | -------------- | --------- | ------- | -------- |  | -------------------------- | ------- | -------------------- |  | ----------- | --------- | ------------- |  |  | ------- | ------ |  |  | --------- | ------ |  |  | --------- | ----- | 
|                               |                |           |         |          |  |                            |         |                      |  |            
|                               |                |           |         |          |  |                            |         | Value of Unexercised
|                               |                | Number of |         |          |  | Number of Securities       |         | in-the-Money Options
|                               |                | Shares    |         |          |  | Underlying Unexercised     |         | at Fiscal Year-End  
|                               |                | Acquired  |         | Value    |  | Options At Fiscal Year-End |         | ($)(1)(2)           
|                               |                | on        |         | Realized |  |                            |         |                     
|Name                           |                | Exercise  |         | ($)      |  | Exercisable                |         | Unexercisable        |  | Exercisable |           | Unexercisable
|                               |                |           |         |          |  |                            |         |                      |  |             |           |              
|Gordon A. Paris
    Company    |                |           |        |          |  |                            |        |                      |  |             |          |               |  |  |        |        |  |  |          |        |  |  |          |      
|                               | Hollinger L.P. |           |         |         |  |                            |         |                     |  |             |           |              |  |  |         |       |  |  |           |       |  |  |           |      | 
|Daniel W. Colson
    Company   |                |           |        |          |  |                            |        |                      |  |             | 742,500   |               |  |  | 691,000 |        |  |  | 2,714,825 |        |  |  | 3,036,070 |      
|                               | Hollinger L.P. |           |         |         |  |                            |         |                     |  |             |           | 112,500       |  |  |         | 17,500 |  |  |           | 10,156 |  |  |           | 3,385 | 
|Peter Y. Atkinson
    Company  |                |           |        |          |  |                            |        |                      |  |             | 374,250   |               |  |  | 287,750 |        |  |  | 1,446,108 |        |  |  | 1,262,023 |      
|                               | Hollinger L.P. |           |         |         |  |                            |         |                     |  |             |           | 68,750        |  |  |         | 11,250 |  |  |           | 6,529  |  |  |           | 2,176 | 
|Paul B. Healy
    Company      |                |           |        |          |  |                            |        |                      |  |             | 207,650   |               |  |  | 114,750 |        |  |  | 740,577   |        |  |  | 503,333   |      
|                               | Hollinger L.P. |           |         |         |  |                            |         |                     |  |             |           |              |  |  |         |       |  |  |           |       |  |  |           |      | 
|Peter K. Lane
    Company      |                |           |        |          |  |                            |        |                      |  |             |          |               |  |  |        |        |  |  |          |        |  |  |          |      
|                               | Hollinger L.P. |           |         |         |  |                            |         |                     |  |             |           |              |  |  |         |       |  |  |           |       |  |  |           |      | 
|Conrad M. Black
    Company    |                |           |        |          |  |                            |        |                      |  |             | 1,180,000 |               |  |  | 925,000 |        |  |  | 4,460,800 |        |  |  | 4,067,800 |      
|                               | Hollinger L.P. |           |         |         |  |                            |         |                     |  |             |           | 177,500       |  |  |         | 27,500 |  |  |           | 15,960 |  |  |           | 5,320 | 
|F. David Radler(3)
    Company |                |           | 185,000 |          |  |                            | 849,825 |                      |  |             | 995,000   |               |  |  |        |        |  |  | 3,439,700 |        |  |  |          |      
|                               | Hollinger L.P. |           |         |         |  |                            |         |                     |  |             |           | 177,500       |  |  |         |       |  |  |           | 15,960 |  |  |           |      | 
|J. A. Boultbee(4)
    Company  |                |           |        |          |  |                            |        |                      |  |             |          |               |  |  |        |        |  |  |          |        |  |  |          |      
|                               | Hollinger L.P. |           |         |         |  |                            |         |                     |  |             |           |              |  |  |         |       |  |  |           |       |  |  |           |      | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In accordance with the rules of the SEC, Company
    option values are calculated by subtracting the exercise price
    from the fair market value of the underlying common stock. For
    purposes of this table, fair market value is deemed to be
    $15.52, the average of the high and low common stock price
    reported for New York Stock Exchange transactions on
    December 31, 2003, the last business day of the
    Companys fiscal year.                                                                                                                                                                      
|   
|(2) | In accordance with the rules of the SEC,
    Hollinger L.P. option values are calculated by subtracting the
    exercise price from the fair market value of the underlying
    partnership unit. For purposes of this table, fair market value
    is deemed to be $0.46, which is the U.S. dollar equivalent
    based on a daily noon U.S. conversion rate of 0.7738 on
    December 31, 2003 of the average of the high and low
    Hollinger L.P. unit price reported for Toronto Stock Exchange
    transactions on December 30, 2003, the last business day of
    Hollinger L.P.s fiscal year on which the units traded.
|   
|(3) | The period in which Radler could exercise his
    vested options was extended from 30 days from
    November 16, 2003, the date of his resignation, to
    June 1, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                         

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|    |                                                                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(4) | Excludes 365,250 shares of Class A Common
    Stock that Boultbee alleges he owns in connection with stock
    options that he attempted to exercise in 2003, which are the
    subject of pending litigation between Boultbee and the Company.



| |                        
| | -----------------------
| | Directors Compensation

On October 5, 2004, the Board of Directors
approved changes to the Companys Board of Directors
Compensation Program, effective from July 1, 2004, in
accordance with the recommendations of the Board of
Directors Compensation Committee. The Board of Directors
Compensation Program applies only to non-management directors in
their capacities as members of the Board of Directors and
various committees of the Board of Directors. As reflected in
the Summary Compensation Table, the Company had maintained a
practice of compensating both executive and non-management
directors for service on the Board of Directors. The practice of
compensating executive directors was terminated in November
2003. Accordingly, in November 2003, Paris ceased receiving all
Board and Committee fees and retainers following his appointment
as Interim President and Chief Executive Officer.

Under the terms of the new program, effective
July 1, 2004, each non-management director is entitled to
receive an annual directors fee of $50,000 per annum
and a fee of $3,000 for each board meeting attended. Committee
chairs and committee members are entitled to receive retainers
and meeting attendance fees which vary among committees. The
chair of the Audit Committee is entitled to receive a $20,000
annual retainer, while Audit Committee members are entitled to
receive a $10,000 annual retainer and all Audit Committee
members are entitled to receive a fee of $3,000 per meeting
attended. With respect to the Executive Committee, the chair is
entitled to receive a $10,000 annual retainer, while Executive
Committee members are entitled to receive a $5,000 annual
retainer, and all Executive Committee members are entitled to
receive a fee of $3,000 per meeting attended. The Chair of the
Compensation Committee is entitled to receive an annual retainer
of $5,000, and all Compensation Committee members are entitled
to receive a fee of $3,000 per meeting attended. The chair of
the Nominating and Governance Committee is entitled to receive
an annual retainer of $5,000, and all Nominating and Governance
Committee members are entitled to receive a fee of $3,000 per
meeting attended. The chair of the Stock Option Committee is
entitled to receive an annual retainer of $5,000, and all Stock
Option Committee members are entitled to receive a fee of $3,000
per meeting attended. The chair of the Special Committee was
entitled to receive a meeting attendance fee of $7,500, and all
Special Committee members are entitled to receive a fee of
$5,000 per meeting attended. The chair of the Corporate Review
Committee is entitled to receive a meeting attendance fee of
$5,000, and all Corporate Review Committee members are entitled
to receive a fee of $3,000 per meeting attended.

Prior to July 1, 2004, each non-management
director was entitled to receive an annual directors fee
of $50,000 per annum and a fee of $3,000 for each board meeting
attended. Committee chairs and committee members were entitled
to receive retainers and meeting attendance fees which varied
among committees. The chair of the Audit Committee was entitled
to receive a fee of $10,000 per meeting attended, while all
other Audit Committee members were entitled to receive a fee of
$7,500 per meeting attended. With respect to the Executive
Committee, the chair was entitled to receive a fee of $7,500 per
meeting attended, while all other Executive Committee members
were entitled to receive a fee of $5,000 per meeting attended.
The Chair of the Compensation Committee was entitled to receive
a fee of $5,000 per meeting attended, and all other Compensation
Committee members were entitled to receive a fee of $3,000 per
meeting attended. The chair of the Nominating and Governance
Committee was entitled to receive a fee of $5,000 per meeting
attended, and all other Nominating and Governance Committee
members were entitled to receive a fee of $3,000 per meeting
attended. The chair of the Stock Option Committee was entitled
to receive a fee of $5,000 per meeting attended, and all other
Stock Option Committee members were entitled to receive a fee of
$3,000 per meeting attended. All Special Committee members were
entitled to receive a fee of $5,000 per meeting attended. All
other Corporate Review Committee members were entitled to
receive a fee of $3,000 per meeting attended. All members of the
Telegraph Group Board of Directors were entitled to receive a
fee of $3,000 per meeting attended during 2003.

Directors are reimbursed for expenses incurred in
attending the meetings.

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During 2003, Amiel Black received gross
compensation of $157,500 for her role as Vice President,
Editorial and approximately $43,000 for articles contributed to
The Daily Telegraphand The Sunday Telegraph.
During 2003, Perle received a salary of approximately $119,000
from Hollinger Digital.

Employment And Change Of Control
Agreements

On November 15, 2003, the Board of Directors
of the Company elected Paris as the Interim President and Chief
Executive Officer of the Company. Subsequently, Paris was also
elected as Interim Chairman of the Board of the Company. Paris
is paid a base salary of $2.0 million and is provided with
an annual grant of restricted stock units for 68,494 shares
of Class A Common Stock. On December 22, 2003, (the
date on which Pariss compensation package was approved by
the Compensation Committee) the Deferred Stock Units had a value
of $1.0 million. The Deferred Stock Units are earned on the
first day of each anniversary of Pariss employment. The
Units convert into Company shares upon the termination of
Paris employment with the Company by either Paris or the
Company for any reason or upon a change of control event. The
cash compensation payable to Paris by the Company is subject to
offset in the amount of any cash salary received by Paris from
Berenson & Co. during the term of his employment by the
Company. Paris is also eligible for participation in the
Companys other incentive programs. The Company has not
entered into any employment, retention or severance agreement
with Paris.

The Company does not have employment contracts
with any named executive officers currently employed by the
Company but has entered into retention and severance
arrangements with them, as well as with certain of its senior
executives and senior executives of its affiliates. These
arrangements provide for payment of an incentive to the
executives equal to 25% of the executives annual base
salary in effect on April 1, 2004. These payments were or
will be made on June 30, 2004 (25% of the incentive),
December 31, 2004 (25% of the incentive), and
March 31, 2005 (the remaining 50% of the incentive). To be
eligible to receive these payments, the executive must be
employed by the Company or its affiliate on the payment dates.
Payment of the total incentive is also accelerated in the event
of the executives termination following a change of
control. A change of control is deemed to occur if
(i) the independent directors constituting a majority of
the Board of Directors of the Company on April 1, 2004 at
any time do not continue to constitute the majority of the Board
of Directors; (ii) a change in control of the Company that
constitutes a change in control for purposes of U.S.
securities laws occurs; (iii) there is a change in the
ownership control of the primary Company affiliate or operating
division by which the executive is employed (e.g. the Chicago
Group); or (iv) a definitive agreement is entered into
which, when consummated, would result in a change in control as
defined above. In addition, the arrangements with certain senior
executives include a severance program. Under the severance
program, if the executive is terminated for a reason other than
cause following a sale of the Company or its affiliate (i.e. the
executives employer), then the executive will receive a
continuation of his or her salary and benefits for one
(1) year following such termination, and a lump sum payment
based upon the executives most recent annual bonus, but in
no event less than one-eighth ( 1/8th) of his or her
then-current annual salary.



| |                                                            
| | -----------------------------------------------------------
| | Compensation Committee Report on Executive
    Compensation

The Compensation Committee of the Board of
Directors of the Company is comprised of two independent,
non-employee directors. The Compensation Committee has the
responsibility of making recommendations to the Board concerning
the Companys executive compensation policies, practices
and objectives. The authority, responsibility and duties of the
Compensation Committee are described in a Compensation Committee
Charter, which has been approved by the Board of Directors. The
responsibilities and duties of the Committee include, among
other things:

 reviewing from time to time and
approving the overall compensation policies of the Company
applicable to the Companys executive officers.

 reviewing and approving corporate
goals and objectives relevant to the compensation of the Chief
Executive Officer of the Company; evaluating the performance of
the Chief Executive Officer in light of these

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goals and objectives; and setting the
compensation of the Chief Executive Officer based on the
Committees evaluation and competitive compensation market
data.


 reviewing and approving the
compensation levels for the executive officers of the Company
other than the Chief Executive Officer.

 reviewing, approving, administering
and annually evaluating the Companys compensation plans,
equity-based plans and benefit plans or programs for executive
officers and such other officers as the Compensation Committee
deems appropriate, as well as establishing individual targets
and ranges under such plans or programs.

 reviewing and approving equity-based
grants to the Companys executive officers and others.

 reviewing, approving and at least
annually evaluating the compensation and benefits for the
Companys non-employee directors.

The Compensation Committee recognizes the
importance of a strong executive compensation program in
attracting and retaining qualified executives. The Committee
believes that the executive compensation program should be
designed to align the interests of management closely with the
interests of stockholders and to tie compensation levels to the
performance of the Company and the achievement of long-term and
short-term goals and objectives.

As detailed in the Report, the Special Committee
concluded that for a period of at least seven years, ending in
2003, certain former senior executives of the Company obtained
excessive and inappropriate levels of compensation at the
expense of the Company. These former executives include Black,
Radler, Boultbee, Colson and Atkinson. Certain elements of the
compensation paid to some of these former executives (including
Black) such as a certain level of base salary and Company stock
options, were paid directly by the Company and were reviewed and
approved by the Compensation Committee. The Special Committee
concluded, however, a primary source of the excessive levels of
compensation was the management fees paid by the Company to
Ravelston and RMI pursuant to the management services agreement.
Ravelston separately determined the specific levels of cash
compensation to be paid to these former executives from the
management fee payments received from the Company, and the
Compensation Committee did not participate in any compensation
decisions made by Ravelston with respect to these executive
officers, including compensation decisions with respect to
Black. See Item 13  Certain Relationships
and Related Transactions  Management Services
Agreement, as well as the Summary Compensation Table
located earlier in this Section. The Management Services
Agreement with Ravelston terminated on June 1, 2004.
Moreover, the Compensation Committee did not participate in any
decisions regarding significant other compensation paid to the
former executives, as described in the Special Committees
Report.

The Compensation Committee intends for the
Companys compensation program to provide executives with
competitive base salaries and benefits and a significant
incentive to achieve specific short- and long-term business
performance objectives. The components of the executive
compensation program are:



| |   |                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------
| |  | competitive base salaries that reflect the
    competitive marketplace for the talents that the Committee
    desires to attract and retain;   
|
| |  | retention and long-term incentives through the
    provision of stock options or other equity-based awards that
    vest over a period of time;
|
| |  | short-term incentives through the payment of
    annual cash bonuses;                                                                          
|
| |  | competitive executive benefits and perquisites.                                                                                                

In making determinations for base salaries, award
opportunities to be provided to officers under the compensation
program and in establishing short-and long-term performance
targets, the Compensation Committee will consider data provided
by independent compensation experts for the purpose of
determining competitive levels of total compensation for each
executive. The Compensation Committees objective is to
develop a total compensation program that is competitive in the
marketplace and provides significant incentive to increase
stockholder value. While the Compensation Committee believes it
is important to ensure that total

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compensation levels for each executive are
competitive, it also believes that the mix of compensation
should be weighted toward variable components that provide a
significant incentive for the achievement of the financial
performance objectives.


In establishing the compensation level for Gordon
A. Paris, who became the Companys Interim President and
Chief Executive Officer in November 2003 and its Interim
Chairman in January 2004, the Committee considered several
factors, including the unusual circumstances under which Paris
was asked to assume these roles at the request of the Board of
Directors, the level of compensation which Paris had experienced
in his current and most recent professional positions, and
competitive compensation data provided by an independent
compensation expert. Paris compensation consists of a base
salary of $2.0 million, reduced by base compensation earned
from his other employer, Berenson & Company. In
addition, Paris is awarded an annual grant of restricted stock
units representing 68,494 shares of Class A Common Stock,
and is eligible to be considered for other short- and long-term
compensation programs.



| |                       
| | ----------------------
| | Compensation Committee
|
| | /s/ JAMES R. THOMPSON 
| |                       
| | James R. Thompson     
|
| | /s/ RICHARD R. BURT   
| |                       
| | Richard R. Burt       

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| |                                         
| | ----------------------------------------
| | Stockholder Return Performance
    Graph

The following graph compares the percentage
change in the Companys cumulative total stockholder return
on its Class A Common Stock (assuming all dividends were
reinvested at the market price on the date of payment) against
the cumulative total stockholder return of the NYSE Market Index
and the Media General Industry Group Index 
Newspapers for the period commencing with December 31, 1998
through December 31, 2003. The Class A Common Stock is
listed on the NYSE under the symbol HLR.

Comparison of Cumulative Total Return of
the

Company, Peer Groups, Industry Indexes and/or
Broad Markets


(PERFORMANCE GRAPH)

|                             |  |      |        |      |  |      |        |      |  |      |        |  |  |  |        |  |  |  |        | 
|---------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ |  |  |  | ------ |  |  |  | ------ | 
|                            
|                            
|                             |  | 1999 |        | 2000 |  | 2001 |        | 2002 |  | 2003
|                            
|                            
|Hollinger International Inc. |  |      | 97.05  |      |  |      | 123.79 |      |  |      | 95.37  |  |  |  | 85.11  |  |  |  | 133.22 | 
|Media General Group Index    |  |      | 128.24 |      |  |      | 113.50 |      |  |      | 98.49  |  |  |  | 103.14 |  |  |  | 124.77 | 
|NYSE Market Index            |  |      | 109.50 |      |  |      | 112.11 |      |  |      | 102.12 |  |  |  | 83.42  |  |  |  | 108.07 | 

Source: Media General Financial
Services

P.O. Box 85333


Richmond, VA 23293


Phone: 1-(800) 446-7922


Fax: 1-(804) 649-6826


The information in the graph was prepared by
Media General Financial Services. The graph assumes an initial
investment of $100.00 and reinvestment of dividends during the
period presented.

102



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|         |                                                                                                       
|-------- | ------------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder
    Matters

The following table sets forth, as of
December 31, 2004, unless otherwise indicated, certain
information regarding those persons or entities known to hold
more than 5% of the outstanding shares of Class A Common
Stock and Class B Common Stock and ownership of
Class A Common Stock and Class B Common Stock by the
named executive officers, the incumbent directors and all
directors and executive officers as a group.

|                                                                                                    |  |                            |            |                     |  |                |  |  |       |  
|--------------------------------------------------------------------------------------------------- |  | -------------------------- | ---------- | ------------------- |  | -------------- |  |  | ----- | -
|                                                                                                    |  |                            |            |                    
|                                                                                                    |  | Class and Number of Shares |            |                    
|Name and Address                                                                                    |  | Beneficially Owned(1)      |            | Percent of Class(3)
|                                                                                                    |  |                            |            |                    
|                                                                                                    |  |                            |            |                     |  |               
|Tweedy, Browne Company LLC
    350 Park Avenue
    New York, New York 10022                         |  |                            | 12,893,450 |                     |  | Class A Common |  |  | 17.0  | %
|Hollinger Inc. and affiliates
    10 Toronto Street
    Toronto, Ontario(4)                         |  |                            | 15,772,923 |                     |  | Class A Common |  |  | 17.4  | %
|M5C 2B7 Canada                                                                                      |  |                            | 14,990,000 |                     |  | Class B Common |  |  | 100.0 | %
|Barbara Amiel Black(4),(5)                                                                          |  |                            | 16,052,673 |                     |  | Class A Common |  |  | 17.7  | %
|Conrad M. Black(4),(5)                                                                              |  |                            | 16,052,673 |                     |  | Class A Common |  |  | 17.7  | %
|Paulson & Co, Inc.
    590 Madison Ave
    New York, NY 10022                                       |  |                            | 6,586,555  |                     |  | Class A Common |  |  | 8.7   | %
|Sterling Capital Management LLC
    4064 Colony Road, Suite 300
    Charlotte, North Carolina 28211 |  |                            | 4,364,135  |                     |  | Class A Common |  |  | 5.8   | %
|Peter Y. Atkinson                                                                                   |  |                            | 56,750     |                     |  | Class A Common |  |  | *     |  
|J.A. Boultbee(6)                                                                                    |  |                            |           |                     |  | Class A Common |  |  | *     |  
|Richard R. Burt                                                                                     |  |                            | 22,500     |                     |  | Class A Common |  |  | *     |  
|Daniel W. Colson                                                                                    |  |                            | 1,017,125  |                     |  | Class A Common |  |  | 1.3   | %
|Paul B. Healy                                                                                       |  |                            | 276,900    |                     |  | Class A Common |  |  | *     |  
|Henry A. Kissinger                                                                                  |  |                            | 22,500     |                     |  | Class A Common |  |  | *     |  
|Peter K. Lane                                                                                       |  |                            |           |                     |  | Class A Common |  |  | *     |  
|Shmuel Meitar                                                                                       |  |                            | 22,500     |                     |  | Class A Common |  |  | *     |  
|Gordon A. Paris                                                                                     |  |                            | 136,988    |                     |  | Class A Common |  |  | *     |  
|Richard N. Perle(7)                                                                                 |  |                            | 14,145     |                     |  | Class A Common |  |  | *     |  
|F. David Radler(8)                                                                                  |  |                            |           |                     |  | Class A Common |  |  | *     |  
|Graham W. Savage                                                                                    |  |                            |           |                     |  | Class A Common |  |  | *     |  
|Raymond G.H. Seitz                                                                                  |  |                            |           |                     |  | Class A Common |  |  | *     |  
|James R. Thompson                                                                                   |  |                            | 23,000     |                     |  | Class A Common |  |  | *     |  
|All Directors and Executive Officers as a group
    (16 persons)(2)                                 |  |                            | 17,712,706 |                     |  | Class A Common |  |  | 18.4  | %



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes shares subject to presently exercisable
    options or options exercisable within 60 days of
    December 31, 2004, held by executive officers and directors
    under the Companys 1994 Stock Option Plan, 1997 Stock
    Incentive Plan and 1999 Stock Incentive Plan as follows:
    Atkinson 56,750 shares; Burt 22,000 shares; Colson
    1,017,125 shares; Healy 276,900 shares; Kissinger
    22,000 shares; Meitar 22,000 shares; Perle
    7,625 shares; and Thompson 22,000 shares. With respect
    to Paris, includes 136,988 shares issuable pursuant to
    Restricted Stock Units.
|   
|(2) | The directors and executive officers as a group
    (16 persons) were the beneficial owners of
    17,712,706 shares of Class A Common Stock (which
    includes: presently exercisable options to purchase
    1,514,025 shares of Class A Common Stock,
    14,990,000 shares of Class B Common Stock which are                                                                                                                                                                                                                                                                                          

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | convertible into an equal number of shares of
    Class A Common Stock and 136,988 shares issuable
    pursuant to Restricted Stock Units). The directors and executive
    officers as a group were also the beneficial owners of
    14,990,000 shares of Class B Common Stock or 100% of
    the outstanding Class B Common Stock, as of
    December 31, 2004. Certain current and former directors and
    officers may still hold Hollinger Inc. Retractable Shares
    (Retractable Shares) which are exchangeable at the
    option of Hollinger Inc. for shares of the Companys
    Class A Common Stock. The Company is currently unable to
    determine how many Retractable Shares are currently held by
    current and former directors and officers.



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (3) | An asterisk (*) indicates less than one percent
    of a class of stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| | (4) | As of December 15, 2004, includes:
    (i) 2,000,000 shares of Class A Common Stock
    issuable upon conversion of 2,000,000 shares of
    Class B Common Stock held by Hollinger Inc.;
    (ii) 12,990,000 shares of Class A Common Stock
    issuable upon conversion of 12,990,000 shares of
    Class B Common Stock held by 504468 N.B. Inc.
    (NBCo), an indirect wholly owned subsidiary of
    Hollinger Inc.; and (iii) 782,923 shares of
    Class A Common Stock held by NBCo.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | (5) | As of December 15, 2004, includes:
    (i) 15,772,923 shares of Class A Common Stock
    beneficially owned by Hollinger Inc. (See Note 4 above)
    (Black controls The Ravelston Corporation Limited, which
    controls Hollinger Inc.); (ii) 600 shares of
    Class A Common Stock held by Black;
    (iii) 9,600 shares of Class A Common Stock held
    by Conrad Black Capital Corporation, which Black controls;
    (iv) 50 shares of Class A Common Stock held by
    Blacks son; and (v) 269,500 shares of
    Class A Common Stock held by Amiel Black, Blacks
    spouse. Black disclaims beneficial ownership of his sons
    and spouses securities. Amiel Black disclaims beneficial
    ownership of all securities held directly or indirectly by her
    spouse and spouses son. This excludes the
    1,363,750 shares of Class A Common Stock that Black
    alleges he owns in connection with stock options that he
    attempted to exercise in February and April 2004, which are the
    subject of pending litigation between Black and the Company.
|
| | (6) | Excludes 365,250 shares of Class A
    Common Stock that Boultbee alleges he owns in connection with
    stock options that he attempted to exercise in 2003, which are
    the subject of pending litigation between Boultbee and the
    Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | (7) | Includes 2,120 shares of Class A Common
    Stock held by Perles wife, 800 shares of Class A
    Common Stock held by the Perle Defined Pension Plan as to which
    Perle may be deemed to have indirect beneficial ownership and
    3,600 shares owned by Perle.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| | (8) | The Company has been unable to determine
    Radlers holdings.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

Changes in
Control; Pledges of Securities

Hollinger Inc. has publicly stated that as of
December 15, 2004, Hollinger Inc. owned, directly or
indirectly, 782,923 shares of the Companys
Class A Common Stock and 14,990,000 shares of the
Companys Class B Common Stock (which represent all of
the issued and outstanding shares of Class B Common Stock).
All of the direct and indirect interest of Hollinger Inc. in the
shares of the Companys Class A Common Stock is being
held in escrow with a licensed trust company in support of
future retractions of Hollinger Inc.s Series II
Preference Shares and all of the direct and indirect interest of
Hollinger Inc. in the shares of the Companys Class B
Common Stock is pledged as security in connection with Hollinger
Inc.s outstanding 11 7/8% Senior Secured Notes due 2011
and 11 7/8% Second Priority Secured Notes due 2011. Hollinger
Inc. reported that, as of the close of business on
December 10, 2004, $78 million principal amount of the
Senior Secured Notes and $15 million principal amount of
the Second Priority Secured Notes were outstanding.

Under the terms of the Series II Preference
Shares of Hollinger Inc., each Preference Share may be retracted
by its holder for 0.46 of a share of the Companys
Class A Common Stock. Until the Series II Preference
Shares are retracted in accordance with their terms, Hollinger
Inc. may exercise the economic and voting rights attached to the
underlying shares of the Companys Class A Common
Stock.

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Equity Compensation Plan Information

See Item 5  Market for
the Registrants Common Equity, Related Stockholder Matter
and Issuer Purchases of Equity Securities for information
about the Companys stock option plan as of
December 31, 2003.






|         |                                                   
|-------- | --------------------------------------------------
|Item 13. | Certain Relationships and Related
    Transactions

The following is a description of certain
relationships and related party transactions since
January 1, 2001. In August 2004, the Special Committee
filed in court its Report that sets out the scope and results of
its investigation into certain relationships and related party
transactions involving certain former executive officers and
certain current and former directors of the Company. The
following discussion does not purport to cover all relationships
and related party transactions that the Special Committee
investigated and reported upon. In addition, the following does
not purport to include all findings of the Special Committee
with respect to the relationships and related party transactions
reported under this item. Certain amounts may differ from
amounts used in the Report due to differences in exchange rates.
See Item 1  Business  Recent
Developments  Report of the Special Committee.

As noted under Item 3  Legal
Proceedings, most of the findings of the Special Committee
set forth in the Report are the subject of ongoing litigation
and are being disputed by the former executive officers and
certain of the current and former directors of the Company who
are the subject of the Report.



| |                        
| | -----------------------
| | Restructuring Agreement

On November 15, 2003, the Special Committee
and Audit Committee disclosed to the Board of Directors the
preliminary results of their investigations into a total of
$32.2 million in payments characterized as
non-competition payments made by the Company to
Black, Hollinger Inc., Radler, Boultbee and Atkinson. The two
committees determined that these payments were made without
appropriate authorization by either the Audit Committee or the
full Board of Directors and had no economic basis. According to
the Report, of the total unauthorized payments, approximately
$16.6 million was paid to Hollinger Inc. in 1999 and 2000,
approximately $7.2 million was paid to each of Black and
Radler in 2000 and 2001, and $602,500 was paid to each of
Boultbee and Atkinson in 2000 and 2001.

As a consequence of the findings of the Special
Committee and the Audit Committee, the Company and Black signed
the Restructuring Agreement on November 15, 2003. The
Restructuring Agreement provides for, among other things,
restitution by Hollinger Inc., Black, Radler, Boultbee and
Atkinson to the Company of the full amount of the unauthorized
payments, plus interest; the hiring by the Board of Directors of
Lazard to advise on the Strategic Process; and certain
management changes, including the retirement of Black as CEO,
the resignations of Radler and Atkinson and Boultbee. The
Company terminated Boultbee as an officer after failing to reach
an agreement with him. In addition, Black agreed, as the
majority stockholder of Hollinger Inc., that during the pendency
of the Strategic Process he would not support a transaction
involving ownership interests in Hollinger Inc. if such
transaction would negatively affect the Companys ability
to consummate a transaction resulting from the Strategic Process
unless the transaction were necessary to enable Hollinger Inc.
to avoid a material default or insolvency.



| |                                   
| | ----------------------------------
| | Management Services
    Agreements

Prior to their termination effective June 1,
2004, the Company had management services agreements with RMI
pursuant to which RMI provided advisory, consultative,
procurement and administrative services to the Company. These
services agreements were assigned to RMI by Ravelston on
July 5, 2002. Ravelston is an affiliate of the Company
controlled by Black and co-owned by other former executive
officers of the Company, including Radler, Atkinson, Boultbee
and Colson. RMI is a wholly-owned subsidiary of Ravelston.
Ravelston and RMI billed the Company $23.9 million in 2003,
$23.7 million in 2002 and $29.0 million in 2001 for
fees and allocated expenses pursuant to these agreements.

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In addition, the Company had separate management
services agreements with Moffat, a Barbados corporation owned by
Black, Radler, Atkinson and Boultbee, and Black-Amiel, a
Barbados corporation owned by Black, Boultbee and Amiel Black.
The Company paid $2.1 million in 2003, $1.9 million in
2002 and $1.7 million in 2001 in fees under these
agreements. These payments were made pursuant to separate
management services agreements between the Company and each of
Moffat and Black-Amiel, and the Special Committee does not
believe that these agreements had any economic substance.
Neither Moffat nor Black-Amiel has any employees of which the
Special Committee is aware, or provided any services to the
Company.

The Restructuring Agreement provides for the
termination of these agreements in accordance with their terms,
effective June 1, 2004, and the negotiation of the
management fee payable thereunder for the period from
January 1, 2004 until June 1, 2004. In November 2003,
in accordance with the terms of the Restructuring Agreement, the
Company notified RMI of the termination of the services
agreements effective June 1, 2004 and subsequently proposed
a reduced management fee of $100,000 per month for the
period from January 1, 2004 through June 1, 2004,
which RMI did not accept. RMI demanded a management fee of
$2.0 million per month, which the Company did not accept.
The Company has not paid any management fees during the notice
period and has hired personnel to provide accounting and other
services previously provided by Ravelston personnel. RMI seeks
damages from the Company for alleged breaches of the services
agreements in legal actions pending before the courts. See
Item 3  Legal Proceedings 
Hollinger International Inc. v. Ravelston, RMI and
Hollinger Inc.

In the Report, the Special Committee determined
that through the services agreements, Ravelston and RMI
collected excessive and unjustifiable management fees from the
Company for the benefit of Black, Radler and other former
executive officers of the Company. The Company, through the
Special Committee, is seeking to recover the excessive
management fees in legal actions pending before the courts. See
Item 1  Business  Recent
Developments  Report of the Special Committee
and Item 3  Legal Proceedings 
Litigation Involving Controlling Stockholder, Senior
Management and Directors.



| |                                         
| | ----------------------------------------
| | Loan to Subsidiary of Hollinger
    Inc.

The Company extended a loan to a subsidiary of
Hollinger Inc. on July 11, 2000 in the amount of
$36.8 million. The loan was originally payable on demand
but on March 10, 2003, the due date for repayment was
extended to no earlier than March 1, 2011. The loan was
made to fund Hollinger Inc.s purchase of special shares of
HCPH Co., with interest payable at a rate of 13% per annum.
Effective January 1, 2002, the Executive Committee caused
the Company to reduce the interest rate to 90-day LIBOR plus 3%
per annum, without the knowledge or approval of the
Companys independent directors, as determined by the
Special Committee.

On March 10, 2003, the Company calculated
the principal amount and interest outstanding under this loan as
$46.2 million. In conjunction with the closing of the
offering of 11 7/8% Senior Secured Notes by Hollinger Inc.,
Hollinger Inc. and the Company agreed to amend this loan as
follows:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | $25.8 million of the loan was repaid by the
    Hollinger Inc. subsidiary by application of amounts due to it
    with respect to the repurchase of shares of Class A Common
    Stock and redemption of shares of Series E Preferred Stock
    by the Company as discussed below; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | The remaining indebtedness of $20.4 million
    under this loan, according to the Companys incorrect
    calculation, was subordinated in right of payment to the
    Hollinger Inc. 11 7/8% Senior Secured Notes due 2011 and
    now bears interest at a rate of 14.25% if paid in cash and 16.5%
    if paid in kind. The subordination agreement permits the
    subsidiary of Hollinger Inc. to pay amounts due on this
    subordinated loan to the extent not prohibited under the
    indenture governing the 11 7/8% Senior Secured Notes. The
    reimbursement obligations of the Hollinger Inc. subsidiary under
    this loan are secured by a cash collateral account that
    Ravelston was required to fund. Ravelston has funded
    approximately $147,000 to this account. The loan is guaranteed
    by Ravelston and secured by its receivables under
    Ravelstons management services agreement with CanWest.

106



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In connection with these amendments,
2,000,000 shares of Class A Common Stock were
repurchased from one of Hollinger Inc.s wholly-owned
subsidiaries at a purchase price of $8.25 per share, for
total proceeds of $16.5 million. In addition, the Company
redeemed for cancellation 93,206 shares of Series E
Preferred Stock held by the same subsidiary of Hollinger Inc. at
the subsidiarys request pursuant to the Companys
Certificate of Designation for the Series E Preferred Stock
at a redemption price of Cdn.$146.63 per share, for a total
cash payment of $9.3 million.

This loan is payable in full on demand any time
after March 1, 2011, and bears interest at a rate of 14.25%
if paid in cash and 16.5% if paid in kind, which the Hollinger
Inc. subsidiary is permitted to do under the terms of the
promissory note if interest payments to the Company are
prohibited under the indenture governing the 11 7/8% Senior
Secured Notes. The Hollinger Inc. subsidiary made only partial
interest payments on the note until August 2003, when it
discontinued payments altogether. At this time, the Company
cannot ascertain which interest rate is the appropriate one to
apply to the debt. Although, as set forth in the Report, the
Special Committee believes interest should be accrued at the
higher rate, to be conservative, the Company has accrued
interest at the lower rate. Based on the principal amount of the
promissory note signed by the Hollinger Inc. subsidiary on
March 10, 2003 and using the lower interest rate,
approximately $22.1 million was outstanding under that loan
as of December 31, 2003. This amount includes both
principal and $1.8 million in accrued but unpaid interest.

In the Report, the Special Committee concluded
that through Black, Radler, and Boultbee, Hollinger Inc. and its
subsidiary made material misrepresentations to the Audit
Committee in order to obtain its approval for the loan in July
2000. The Special Committee also determined that the January
2002 interest rate reduction was unauthorized because it was
undertaken without review or approval by the Companys
independent directors. The Company, through the Special
Committee, seeks to rescind the loan in pending legal actions
or, in the alternative, to obtain damages for the January 2002
unauthorized interest rate reduction. See
Item 1  Business  Recent
Developments  Report of the Special Committee
and Item 3  Legal Proceedings 
Litigation Involving Controlling Stockholder, Senior
Management and Directors.



| |                 
| | ----------------
| | NP Holdings Sale

On July 3, 2002, N.P. Holdings, a subsidiary
of the Company, was sold to RMI for $3.8 million
(Cdn.$5.8 million). The Company, through the Special
Committee, has commenced legal action against RMI and others for
breach of fiduciary duty and fraud in connection with the
transaction. See Item 1 
Business  Recent Developments  Report of
the Special Committee and Item 3  Legal
Proceedings  Litigation Involving Controlling
Stockholder, Senior Management and Directors. Before
the sale, NP Holdings had no significant assets or
liabilities other than accrued tax losses. Prior management
asserted that NP Holdings potentially had an obligation
from a letter agreement executed by Hollinger Inc. purporting to
obligate the Company to pay The National Post Company
Cdn.$22.5 million in connection with the sale to CanWest of
The National Post Company, which owned the Companys
remaining 50% interest in the National Post newspaper.
Immediately prior to the sale, prior management caused the
Company to contribute Cdn.$22.5 million as equity to
NP Holdings and then borrow that amount from
NP Holdings by way of a demand promissory note bearing
interest at the three month bankers acceptance rate plus 4%. The
note is payable by the Companys subsidiary, HCPH Co., and
was originally in favor of NP Holdings but was later
assigned to RMI. Notwithstanding these transactions and absent
consent from CanWest or The National Post Company to the
assumption of the obligation by any party other than the
Company, the Company was required to pay Cdn.$22.5 million
plus interest on November 30, 2004 to satisfy a judgment
obtained against the Company by The National Post Company for
that amount. The Company has refused to honor the promissory
note to RMI and will be seeking a declaration from RMI that it
is not liable on the note. In addition, since the sale, the
Company has learned that NP Holdings had greater loss
carryforwards than the parties believed at the time of the sale.
Therefore, the Company has requested that RMI pay a higher price
in recognition of the greater value of NP Holdings, but the
Company does not have a contractual right to receive any such
additional amount. Although the sale was approved by the Audit
Committee, the Special Committee concluded that the approval was
based on false and misleading information provided to the Audit
Committee

107



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##### Table of Contents



by prior management. Moreover, according to the
Report, neither the equity infusion nor the demand promissory
note was ever disclosed to or approved by the Audit Committee.




| |                   
| | ------------------
| | Berenson & Company

The Companys current Interim Chairman of
the Board of Directors, Interim President and CEO, Gordon Paris,
is a managing director of Berenson & Company.
Berenson & Company acted as financial advisor to the
Company in December 2002 and received a fee of approximately
$1.0 million in connection with the placement of the
Companys 9% Senior Notes.



| |                                                       
| | ------------------------------------------------------
| | Special Committee Costs; Advancement of
    Legal Fees

During 2003, the Company incurred expenses of
$10.1 million in connection with the Companys Special
Committee investigation and related litigation. The Special
Committee costs are included in Other operating
costs in the Consolidated Statement of Operations for the
year ended December 31, 2003. Included in the
$10.1 million are legal fees and other professional fees
related to the Special Committee investigation and related
litigation and legal fees of approximately $1.6 million
advanced by the Company on behalf of current and former
directors and officers. The majority of the $1.6 million
relates to payments of fees for legal counsel representing
current and former executive officers and directors of the
Company in their dealings with the Special Committee, while
conducting its investigations. In addition, from January 1
through September 30, 2004, the Company advanced an
additional $8.7 million of legal fees on behalf of current
and former directors and officers.

The following legal fees have been advanced on
behalf of current and former directors and officers in 2003 and
from January 1, 2004 through September 30, 2004.

|               |  |                    |       |      |  |   |       | 
|-------------- |  | ------------------ | ----- | ---- |  | - | ----- | 
|               |  | 2003               |       | 2004
|               |  |                    |       |     
|               |  |                   
|               |  | ($s in thousands)
|P. Atkinson    |  | $                  | 368   |      |  | $ | 255   | 
|C. Black       |  |                    | 388   |      |  |   | 3,715 | 
|B. Amiel Black |  |                    |      |      |  |   | 310   | 
|J. Boultbee    |  |                    |      |      |  |   | 51    | 
|R. Burt        |  |                    |      |      |  |   | 469   | 
|D. Colson      |  |                    | 23    |      |  |   | 33    | 
|P. Healy       |  |                    | 139   |      |  |   | 8     | 
|M. Kipnis      |  |                    | 163   |      |  |   | 1,022 | 
|H. Kissinger   |  |                    |      |      |  |   | 206   | 
|R. Perle       |  |                    |      |      |  |   | 52    | 
|F.D. Radler    |  |                    | 316   |      |  |   | 1,904 | 
|T. Vogt        |  |                    | 8     |      |  |   | 228   | 
|Others(1)      |  |                    | 224   |      |  |   | 485   | 
|               |  |                    |       |      |  |   |       | 
|               |  | $                  | 1,629 |      |  | $ | 8,738 | 
|               |  |                    |       |      |  |   |       | 






|    |                                                                                                                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes amounts advanced or reimbursed by the
    Company to current or former directors or officers, not
    otherwise noted, if the total amount was $60,000 or less
    individually during periods presented.



| |                   
| | ------------------
| | Corporate Aircraft

Hollinger Inc. and its affiliates billed the
Company for allocable airplane expenses amounting to nil,
$2.3 million and $4.4 million in 2003, 2002, and 2001,
respectively.

During the year ended December 31, 2003, the
Company billed Hollinger Inc. $1.2 million
(2002  $800,000, 2001  nil) for use of its
aircraft and applied the income against operating expenses. The
Company grounded the corporate aircraft in November 2003. One
aircraft was leased. That lease has been terminated

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and the plane was returned to the lessor. The
other plane was owned and has been classified as held for sale
in the Consolidated Balance Sheet at December 31, 2003. The
Company sold the aircraft in April 2004.




| |                       
| | ----------------------
| | Joint Venture Printing

The majority of printing of The Daily
Telegraph and The Sunday Telegraph is contracted to
two 50% owned joint ventures. The joint ventures are accounted
for as equity investments. (See Note 5 of Notes to
Consolidated Financial Statements.) Expenses for printing
conducted by these joint ventures are included in operating
costs and expenses in the Consolidated Statements of Operations.

The Telegraph Group owns a 50% interest in a
joint venture established to undertake the sourcing of newsprint
for the joint venturers. This joint venture arrangement replaces
a similar arrangement terminated in 2001.

Purchases from the joint ventures for printing
services and newsprint purchases are disclosed separately in the
Consolidated Statements of Operations.



| |                   
| | ------------------
| | Osprey Media Sales

In two separate transactions in July and
November, 2001, the Company and Hollinger L.P. completed
the sale of most of the Companys remaining Canadian
newspapers to Osprey Media for aggregate consideration of
approximately $166.0 million
(Cdn. $255.0 million) plus closing adjustments
primarily for working capital. The former CEO of
Hollinger L.P. is a minority stockholder and CEO of Osprey
Media.

In connection with the above two sales, the
Company, Hollinger Inc., and Black, Radler, Atkinson and
Boultbee, each a former executive officer of the Company,
entered into non-competition agreements with Osprey
Media pursuant to which each agreed not to compete directly or
indirectly in Canada with the Canadian businesses sold to Osprey
Media for a five-year period, subject to certain limited
exceptions, for aggregate consideration of
Cdn.$7.9 million. All of such consideration was paid to
Black and the three other executive officers. The Special
Committee concluded that the allocation of the payment was
determined by Black and the other three executive officers and
the non-competition allocation of the purchase price
was funded entirely by the Company with none of the allocation
borne by Hollinger L.P. The Company, through the Special
Committee, is seeking recovery of these payments, plus interest.
See Item 1  Business  Recent
Developments  Report of the Special Committee
and Item 3  Legal Proceedings 
Litigation Involving Controlling Stockholder, Senior
Management and Directors.



| |                     
| | --------------------
| | CanWest Transactions

In November 2000, the Company completed the sale
of most of its Canadian newspapers and related assets to
CanWest. The Company received, net of the
non-competition payments which it paid to Black,
Radler, Atkinson, Boultbee and Ravelston, approximately
$1.8 billion (Cdn.$2.8 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.

In connection with the sale to CanWest, Ravelston
entered into a management services agreement with CanWest and
the 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.$6.0 million payable by CanWest. CanWest is obligated
to pay Ravelston a termination fee of Cdn.$45.0 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. Further, the
Company, Ravelston, Hollinger Inc., Black, Radler, Atkinson and
Boultbee entered into non-competition agreements
with CanWest. The Company, through the Special Committee, is
seeking recovery of $52.9 million in
non-competition and interest payments in connection
with this transaction and $39.0 million in management fees
Ravelston receives from CanWest, plus interest. See
Item 1  Business  Recent
Developments  Report of the Special Committee
and Item 3  Legal Proceedings 
Litigation Involving Controlling Stockholder, Senior
Management and Directors.

109



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| |                          
| | -------------------------
| | Community Newspaper Sales

In the December 31, 2000 consolidated
financial statements, the Company disclosed that it had
concluded three separate transactions to sell certain publishing
assets. The underlying purchase and sale agreements for the
Paxton, Forum and the second CNHI transactions provided for the
payment of non-competition fees to Hollinger Inc.
totaling $1.4 million, which occurred in September and
November of 2000. According to the Report, the Audit Committee
was not informed of these payments nor was its approval sought
for them. The Company, through the Special Committee, is seeking
recovery of these payments plus interest. See
Item 1  Business  Recent
Developments  Report of the Special Committee
and Item 3  Legal Proceedings 
Litigation Involving Controlling Stockholder, Senior
Management and Directors.

In addition to the above noted
non-competition payments provided for in the sale
documents, the Special Committee determined that an additional
$9.5 million of sale proceeds from one of these three
transactions was improperly paid to four former executive
officers with the intent to defraud the Company of these funds
and without the authorization of the Audit Committee. The
Special Committee also determined that further amounts totaling
$5.5 million were paid to these same former executives in
February 2001, which payments were purportedly supported by sham
non-competition agreements backdated to
December 31, 2000. The Report also stated that, in April
2001, payments totaling $600,000 were made to the four former
executive officers without approval of the Audit Committee and
without any underlying non-competition agreements.
The Company, through the Special Committee, is seeking recovery
of these payments plus interest. See
Item 1  Business  Recent
Developments  Report of the Special Committee
and Item 3  Legal Proceedings 
Litigation Involving Controlling Stockholder, Senior
Management and Directors.

Included in the U.S. Community newspaper
transactions was the sale of four U.S. community newspapers
for an aggregate consideration of $38.0 million to
Bradford, a company formed by a former U.S. Community Group
executive officer and in which Black and Radler, each a former
executive officer of the Company, are each 25% stockholders. In
connection with the sale, the Company entered into
non-competition agreements with Bradford for an
aggregate consideration of $6.0 million, payable in the
form of a non-interest bearing 10-year note. The note is
unsecured, due over the period to 2010 and subordinated to the
rights of Bradfords lenders. This note is non-interest
bearing, and accordingly, the Company established the amount
receivable at the net present value at the time of the
agreement. The December 31, 2003 balance of
$3.4 million represents the net present value less any
payments received. The Company, through the Special Committee,
has brought suit to recover damages arising from the Bradford
transaction. See Item 1 
Business  Recent Developments  Report of
the Special Committee and Item 3 
Legal Proceedings  Litigation Involving
Controlling Stockholder, Senior Management and
Directors.



| |                                                                         
| | ------------------------------------------------------------------------
| | Horizon Operations (Canada) Ltd. and
    Horizon Publications Inc. Sales

On January 1, 2003, Canadian Classified
Network (CCN) was disposed of to Horizon Operations
(Canada) Ltd. (HOCL), for cash consideration of
approximately Cdn.$198,000. HOCL is controlled by Black and
Radler. CCN places classified advertising in newspapers
participating in a joint advertising group managed by CCN. Until
disposed of, CCN was a division of HCPH Co. During the year
ended December 31, 2003, the Company earned management fees
of approximately Cdn.$117,000 from CCN under a profit sharing
arrangement whereby Hollinger L.P. is entitled to 50% of
the profits of CCN. In addition, the Company received
approximately Cdn.$117,000 with respect to advertising related
activities with CCN. This transaction was not approved by the
Companys independent directors.

In August 2001, the Company transferred certain
publications, including the Mammoth Times Publication, to
Horizon in exchange for $1.00. Horizon is managed by former
Community Group executive officers and is controlled by Black
and Radler. The Company, through the Special Committee, has
brought suit to recover damages arising from these transactions.
See Item 1  Business  Recent
Developments  Report of the Special Committee
and Item 3  Legal Proceedings 
Litigation Involving Controlling Stockholder, Senior
Management and Directors.

110



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In April 2001, the Company sold the Kelowna
Capital and the Vernon Sun-Review to West Partners, a
partnership of which the stepfather of Horizons
then-president Todd Vogt was a one-third owner. The transaction
was structured such that a subsidiary of the Company sold the
Kelowna Capital for $7.3 million. The Special
Committee discovered that the Company capitalized the Vernon
Sun-Review with $2.3 million that was then transferred
to West Partners. The Special Committee concluded that, in
essence, the Company paid West Partners $2.3 million to buy
the Vernon Sun-Review, thereby reducing the actual
purchase price of these properties to approximately
$5.0 million. According to the Report, the Special
Committee has been unable to find any evidence that this
transaction was disclosed to the Board of Directors or the
public. The Company, through the Special Committee, has brought
suit to recover damages arising from these transactions. See
Item 1  Business  Recent
Developments  Report of the Special Committee
and Item 3  Legal Proceedings 
Litigation Involving Controlling Stockholder, Senior
Management and Directors.

The Company sold certain community newspaper
properties to Horizon in 1999 for approximately
$43.7 million of which $1.2 million was paid to
Hollinger Inc. as purported consideration for a
non-competition agreement. In connection with the
sale, the Company loaned approximately $8.0 million to
Horizon to finance the purchase of those assets.
$4.9 million (excluding interest) was outstanding under
that loan as of December 31, 2003. The loan, which matures
in 2007, is unsecured and bears interest at the lower of
8% per annum and LIBOR plus 2%. According to the Report,
neither the payment to Hollinger Inc. nor the Companys
loan to Horizon were disclosed to or approved by the
Companys independent directors. The Company, through the
Special Committee, has brought suit to recover damages arising
from these transactions. See Item 1 
Business  Recent Developments  Report of
the Special Committee and Item 3 
Legal Proceedings  Litigation Involving
Controlling Stockholder, Senior Management and
Directors.



| |                  
| | -----------------
| | Hollinger Digital

Perle, a member of the Companys Board of
Directors, received a salary of approximately $119,000 in 2003,
approximately $300,000 in 2002 and approximately $294,000 in
2001 from Hollinger Digital, a subsidiary of the Company, in his
capacity as co-Chairman of Hollinger Digital Inc. In 2001, Perle
also received a bonus of approximately $225,000 under the
Digital Incentive Plan.

During 2001, the Company made payments under the
Digital Incentive Plan of approximately $250,000 to Black,
$150,000 to Radler, $100,000 to Atkinson and $50,000 to each of
Colson and Boultbee. No further payments were made in either
2002 or 2003. The Special Committee determined that these
payments were unfair to the Company and the Company, through the
Special Committee, is seeking recovery of the payments to Black,
Radler, Colson and Boultbee, plus interest. See
Item 1  Business  Recent
Developments  Report of the Special Committee
and Item 3  Legal Proceedings 
Litigation Involving Controlling Stockholder, Senior
Management and Directors. Atkinsons settlement
agreement with the Company includes repayment of all amounts
that Atkinson received under the Digital Incentive Plan. See
 Release and Settlement Agreement with
Atkinson, below.



| |                  
| | -----------------
| | Payment to Colson

The Company made a payment of approximately
$1.1 million to Colson in 2001. The Special Committee
determined that there was no economic substance to or valid
business purpose for this payment and the Company, through the
Special Committee, is seeking recovery of the payment plus
interest. See Item 1  Business 
Recent Developments  Report of the Special
Committee and Item 3  Legal
Proceedings  Litigation Involving Controlling
Stockholder, Senior Management and Directors.



| |                        
| | -----------------------
| | Payments to Amiel Black

As disclosed under Item 11 
Directors Compensation, Amiel Black received a salary of
$157,500 for her role as Vice-President-Editorial in 2003 and
approximately $43,000 for articles contributed to The Daily
Telegraphand The Sunday Telegraph in 2003. Amiel
Black received a salary of $156,000 and $150,000 in

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2002 and 2001, respectively, and bonuses of
$120,000 in each of 2002 and 2001 for her role as
Vice-President-Editorial-Times and approximately $28,000 and
approximately $16,000 in 2002 and 2001, respectively, for
articles contributed to The Daily Telegraphand The
Sunday Telegraph.


The Special Committee determined that there was
no economic substance for the salary and bonus payments made to
Amiel Black for serving as the Companys Vice President,
Editorial and the Company, through the Special Committee, is
seeking recovery of the payments plus interest. See
Item 1  Business  Recent
Developments  Report of the Special Committee
and Item 3  Legal Proceedings 
Litigation Involving Controlling Stockholder, Senior
Management and Directors.



| |                                                   
| | --------------------------------------------------
| | Amounts Paid to Rona Radler and Melissa
    Radler

From January 1, 2001, to August 27,
2003, the Company employed Melissa Radler, a daughter of Radler,
as a reporter. Melissa Radler was paid $62,000, $56,000 and
$54,000 in 2003, 2002 and 2001, respectively, as salary and
bonus.

During the years 2001 to 2003, Rona Radler,
Radlers spouse, served as Chairman of the Chicago
Sun-Times Charitable Trust, a charitable trust under the
auspices of the Chicago Sun-Times. As Chairman, she
received directors fees of $18,000, $24,000 and $24,000 in
2003, 2002 and 2001, respectively, which amounts were paid by
the Company.



| |                                    
| | -----------------------------------
| | Management Fees Paid to
    Horizon

The Company recorded management fees payable to
Horizon of approximately $100,000 and $200,000 in 2003 and 2002,
respectively, in connection with administrative services
provided by Horizon.



| |                       
| | ----------------------
| | Trireme Associates LLC

In 2003, the Company made an investment of
$2.5 million in Trireme Associates LLC (Trireme
LLC) which is the general partner of Trireme Partners LP
(Trireme LP), a venture capital fund. Trireme LLC,
as general partner of Trireme LP, receives 20% of the profits of
Trireme LP (the Distribution) after repayment of
invested capital. The remaining 80% of the profits of Trireme LP
will be distributed to Trireme LLC and the limited partners of
Trireme LP based upon their invested capital. Perle, a director
of the Company, has an equity interest in Trireme LLC. In
addition, Trireme Management LLC is the designated manager of
Trireme LP. As Manager, Trireme Management LLC receives a
management fee from Trireme LP. Perle is a member of management
of Trireme Management LLC. Black and Dr. Henry A.
Kissinger, directors of the Company, are former members of the
Strategic Advisory Board of Trireme LP.



| |                         
| | ------------------------
| | Charitable Contributions

In June 2001, the Company, through a non-profit
organization of which it was a member, purchased the publication
The National Interest, for $75,000. Black and members of
the Companys Board of Directors, Henry A. Kissinger and
Perle, are advisors to the publication. In each of 2003 and
2002, the Company contributed $100,000 to the non-profit
organization which owned The National Interest. The
Company also contributed $300,000 in 2001 to the non-profit
organization which owned The National Interest. In 2003,
the Company entered into discussions to withdraw as a member of
this non-profit organization. In October 2004, the Company, with
a final contribution of $75,000, withdrew as a member of the
non-profit organization which owns The National Interest.
See Item 1  Business  Recent
Developments  Report of the Special Committee.



| |                                                    
| | ---------------------------------------------------
| | Hollinger Inc. Information Technology
    Equipment

The Company had an informal agreement with
Hollinger Inc. whereby Hollinger Inc. would pay the costs of
computer equipment and related products and services at
Hollinger Inc.s and Ravelstons corporate offices in
Toronto in 2002 and the Company would pay the costs in 2003. The
Company and Hollinger Inc. were to reconcile the spending and
share the combined costs equally. Based upon the evaluation of
the combined costs

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under this arrangement, the Company is owed
approximately Cdn. $173,000 by Hollinger Inc. Hollinger Inc. has
not yet paid its share of the costs incurred and continues to
retain possession of the computer and related equipment acquired
by the Company.




| |                                                   
| | --------------------------------------------------
| | Release and Settlement Agreement with
    Atkinson

On April 27, 2004, the Company and Atkinson
entered into a Release and Settlement Agreement. The terms of
the agreement are subject to approval by the Delaware Chancery
Court in the stockholder derivative litigation brought by
Cardinal Value Equity Partners, L.P. because Atkinson is a
defendant in that action. As a result of the agreement, Atkinson
is not named as a defendant in the civil complaint brought by
the Special Committee on behalf of the Company in federal court
in Illinois. See Item 3  Legal
Proceedings  Stockholder Derivative
Litigation and  Litigation
Involving Controlling Stockholder, Senior Management and
Directors.

Under the terms of the Release and Settlement
Agreement, as amended, in order to finally resolve all actual
and potential claims against him by the Company and its
subsidiaries in connection with transactions being investigated
by the Special Committee and related legal actions, Atkinson has
agreed to pay the Company a total of approximately
$2.8 million. Prior to December 31, 2003, Atkinson
paid the Company $350,000.

Under the terms of the agreement, Atkinson has
resigned as an officer of the Company as of April 27, 2004.
The Company has agreed to allow Atkinson to exercise his vested
options immediately upon such resignation, all proceeds from any
sale of shares of Class A Common Stock underlying such
options to be deposited into an escrow account, with a portion
of such amount to be transferred to the Company in satisfaction
of the settlement upon court approval. Accordingly, on
April 27, 2004, Atkinson exercised his vested options and
the proceeds from the sale of shares of Class A Common
Stock underlying such options of approximately $4.0 million
were deposited into an escrow account, of which approximately
$2.4 million is to be paid to the Company upon court
approval of the settlement. The Company and Atkinson have
entered into an Option Exercise and Escrow Agreement to set
forth the detailed terms of the option exercise and escrow
arrangements.

As part of the settlement, Atkinson has agreed to
fully and actively cooperate with the Company and in particular
with the investigation of the Special Committee. The parties
have also agreed that Atkinson will continue as a consultant to
the Company under the terms of a separate consulting agreement.
See  Consulting Agreement with
Atkinson below.

The Company has also agreed to advance monies in
accordance with the Companys bylaws for reasonable legal
costs and expenses incurred by Atkinson in connection with the
investigation of the Special Committee and related legal
actions. See  Special Committee Costs;
Advancement of Legal Fees above.

Each of the Company and Atkinson has the right to
withdraw from and terminate the settlement agreement if
(1) the court orders approving the terms of the settlement
are not entered substantially in the customary form for
derivative settlements in Delaware, (2) the settlement is
not approved or is materially modified by the court or upon
appeal, (3) any of the conditions of the agreement are not
fulfilled, or (4) application to the court for approval of
the settlement shall not have been made on or before
March 31, 2005. Each party must provide the other with
twelve day prior written notice of withdrawal and termination
and the grounds therefor. Upon withdrawal and termination, each
party is restored to his or its respective position as it
existed prior to entering into the settlement agreement, except
that Atkinson will not become an employee or officer of the
Company and the amounts due to the Company (approximately
$2.4 million) will remain in escrow.



| |                                       
| | --------------------------------------
| | Consulting Agreement with
    Atkinson

On April 27, 2004, the Company entered into
a consulting agreement with Atkinson under the terms of which
Atkinson was engaged to assist the Chief Executive Officer of
the Company with respect to the Companys ongoing
relationship with CanWest and to perform such other functions
and tasks as assigned by

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the Chief Executive Officer of the Company from
time to time. The consulting agreement expires on
February 28, 2005 unless earlier terminated by either
party. During the term of the agreement, the Company has agreed
to pay Atkinson $30,000 per month for services rendered and
permit continued vesting during the term of the agreement of any
unvested stock options previously granted to Atkinson by the
Company that would have vested during such term but for
Atkinsons resignation from the Company on April 27,
2004. The Company also agreed to provide Atkinson with suitable
office space and appropriate secretarial and administrative
assistance at the Companys expense and to reimburse him
for reasonable travel and other expenses approved in advance by
the Company during the term of the agreement. The agreement may
be terminated by either party without cause upon
10 days prior written notice or immediately by the
Company for cause. If the agreement is terminated for any
reason, Atkinson is entitled to any earned but unpaid
compensation up to the date of termination but is not entitled
to any further compensation after such date. If the Company
terminates the agreement without cause or upon a change of
control event, all of Atkinsons options will vest. If the
agreement is terminated by the Company for cause or by Atkinson
for any reason, Atkinson will lose his options that vested
during the term of the agreement and any unvested options.




| |                                     
| | ------------------------------------
| | Compromise Agreement with
    Colson

On March 23, 2004, the Company, Telegraph
Group Limited and Colson entered into a Compromise Agreement
under the terms of which Colson has retired from his positions
with the Company with immediate effect, except that he remained
a member of the Board of Directors. Under the terms of the
agreement, the Company has agreed to make a severance payment to
Colson in the amount of approximately £120,000
(approximately $221,000 at an exchange rate of US$1.8400
to £1), less deductions for income tax and social
security, and permit Colson to continue to participate in the
Telegraphs private health insurance, permanent health
insurance and life assurance arrangement on the then current
basis until the relevant renewal date.

The agreement provides that Colson may exercise
his vested options within 30 days of April 3, 2004,
the effective date of termination of his employment with
Telegraph Group Limited, excluding any period during which
Colson is prohibited from exercising such options. Colsons
unvested options were forfeited on April 3, 2004.

The Company has agreed to pay Colson
£100,000 (approximately $184,000) in consideration for
Colsons agreement not to engage in any business anywhere
which is in competition with the Company and in which Black has
a material business interest for a period of six months after
April 3, 2004. The terms of the Compromise Agreement do not
prevent Colson from keeping his interest in Ravelston and
Hollinger Inc. or from holding less than 5 percent of any
class of publicly traded stock.

Telegraph has agreed to pay Colsons
reasonable legal fees in connection with entering into the
Compromise Agreement up to a maximum of £10,000 plus value
added tax. In addition, Colson remains eligible for advancement
of legal fees pursuant to the terms of the Companys
bylaws. See  Special Committee Costs;
Advancement of Legal Fees above. The Company and
Telegraph have also agreed to maintain Colsons coverage
under their respective directors and officers
liability insurance policies for six years.



| |                                     
| | ------------------------------------
| | Business Opportunities
    Agreement

In February 1996, the Company entered into an
amended and restated business opportunities agreement (the
Business Opportunities Agreement) with Hollinger
Inc. The Business Opportunities Agreement sets forth the terms
which the Company and Hollinger Inc. will resolve conflicts over
business opportunities. The Company and Hollinger Inc. agreed to
allocate to the Company opportunities relating to the start-up,
acquisition, development and operations of newspaper businesses
and related media businesses in the United States, Israel, and
the Telegraph Territory (collectively, the Hollinger
International Territory) subject to the limitations in the
Co-Operation Agreement (as defined below), and to Hollinger Inc.
opportunities relating to the start-up, acquisition, development
and operation of newspaper businesses and related media
businesses in Canada. In addition, subject to the terms of the
Co-Operation Agreement, Hollinger Inc. reserved opportunities in
the media business other than in a related media business to
itself or such of its

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subsidiaries or affiliates or the Companys
subsidiaries or affiliates as Hollinger Inc. in its reasonable
and good faith judgment believed would be best able to develop
such opportunity. The Telegraph Territory is defined in a
co-operation agreement between Hollinger Inc. and the Telegraph
PLC dated June 23, 1992 (the Co-Operation
Agreement) as the United Kingdom and other member states,
from time to time, of the European Union, Australia and New
Zealand.


For purposes of the Business Combination
Agreement, newspaper business means the business of
publishing and distributing newspapers, magazines and other paid
or free publications having national, local or targeted markets,
media business means the business of broadcast of
radio, television, cable and satellite programs, and
related media business means any media business that
is an affiliate of, or is owned or operated in conjunction with,
a newspaper business.

The terms of the Business Opportunities Agreement
will be in effect for so long as Hollinger Inc. holds at least
50% of the Companys voting power. The terms of the
Co-Operation Agreement expired upon the completion of the sale
of the Telegraph Group on July 30, 2004.






|         |                                           
|-------- | ------------------------------------------
|Item 14. | Principal Accountant Fees and
    Services

The Audit Committee has responsibility for
appointing, setting fees, and overseeing the work of the
registered public accounting firm. In recognition of this
responsibility, the Audit Committee has established a policy to
pre-approve all audit and permissible non-audit services
provided by the registered public accounting firm, subject to de
minimis exceptions for non-audit services that are approved by
the Audit Committee prior to the completion of the audit.

On an ongoing basis, management defines and
communicates specific projects for which the advance approval of
the Audit Committee is requested. The Audit Committee reviews
these requests and advises management if it approves the
engagement of KPMG LLP. The categories of service that the Audit
Committee pre-approves are as follows:

Audit Services.Audit services include work performed in connection with the
audit of the consolidated financial statements, as well as work
that is normally provided by the registered public accounting
firm in connection with statutory and regulatory filings or
engagements.

Audit Related
Services.These services are for
assurance and related services that are traditionally performed
by the registered public accounting firm and that are reasonably
related to the work performed in connection with the audit
including due diligence related to mergers and acquisitions,
employee benefit plan audits and audits of subsidiaries and
affiliates.

Tax Services.These
services are related to tax compliance, tax advice and tax
planning. These services may be provided in relation to Company
strategies as a whole or be transaction specific.

Other Services.These services include all other permissible non-audit services
provided by the registered public accounting firm and are
pre-approved on an engagement-by-engagement basis.

The Audit Committee has delegated pre-approval
authority to the chairman of the committee. The chairman must
report any pre-approval decisions to the Audit Committee at its
next scheduled meeting for approval by the Audit Committee as a
whole. The following table presents fees for professional audit
services

115



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##### Table of Contents



rendered by KPMG LLP for the audit of the
Companys annual financial statements for 2003 and 2002 and
fees billed for other services rendered by KPMG LLP.


|                                   |  |      |           |      |  |   |           | 
|---------------------------------- |  | ---- | --------- | ---- |  | - | --------- | 
|                                   |  | 2003 |           | 2002
|                                   |  |      |           |     
|Audit fees(1)                      |  | $    | 6,730,047 |      |  | $ | 2,251,373 | 
|Audit related fees(2)              |  |      | 161,000   |      |  |   | 133,004   | 
|                                   |  |      |           |      |  |   |           | 
|Total audit and audit related fees |  |      | 6,891,047 |      |  |   | 2,384,377 | 
|Tax fees(3)                        |  |      | 2,696,905 |      |  |   | 3,832,018 | 
|All other fees(4)                  |  |      | 56,737    |      |  |   | 463,282   | 
|                                   |  |      |           |      |  |   |           | 
|Total fees                         |  | $    | 9,644,689 |      |  | $ | 6,679,677 | 
|                                   |  |      |           |      |  |   |           | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Audit fees for 2003 and 2002 include fees for the
    annual audit, quarterly reviews, statutory audits, consents and
    comfort letters (including those related to the 2002 Publishing
    debt offering). Audit fees for 2002 differ from amounts reported
    in the Companys 2003 proxy statement; the increase of
    $723,337 relates to amounts billed after March 2003 that relate
    to audit services performed relating to the year ended
    December 31, 2002. The amount for 2003 represents a current
    estimate of overall fees, which have not yet been fully billed.
|   
|(2) | Audit related fees consist of fees for employee
    benefit plan audits, assistance with the CanWest arbitration and
    due diligence procedures performed.                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|(3) | Tax fees consist of fees for tax compliance,
    federal, state and international tax planning and transaction
    assistance.                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|(4) | All other fees consist principally of assistance
    with arbitration with joint venture parties and circulation
    audits in 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                        

No portion of the services described above were
approved by the Audit Committee pursuant to the
de minimis exception to the pre-approval requirement
provided by paragraph (c)(7)(ii)(C) of Rule 2-01 of
Regulation S-X.




PART IV






|         |                                                                     
|-------- | --------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules,
    and Reports on Form 8-K

(a) Documents filed as part of this report.



| |                                                                      
| | ---------------------------------------------------------------------
| | (1) Consolidated Financial Statements and
    Supplemental Schedules.

The Consolidated Financial Statements filed as
part of this report appear beginning at page 123.

|            |     |                        |  |                                                                                                                                                             |  |                                                                                                                       
|----------- | --- | ---------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------
|Exhibit No. |     | Description of Exhibit |  | Prior Filing or Sequential Page Number                                                                                                                     
|            |     |                        |  |                                                                                                                                                            
|            | 3.1 |                        |  | Restated Certificate of Incorporation                                                                                                                       |  |                                                                                                                       
|            | 3.2 |                        |  | Bylaws of Hollinger International Inc., as amended                                                                                                          |  |                                                                                                                       
|            | 4.1 |                        |  | Rights Agreement between the Company and Mellon
    Investor Services LLC as Rights Agent, dated as of January 25,
    2004                                 |  | Incorporated by reference to Exhibit 4.1 to Item
    5 of the Current Report on Form 8-K dated January 26, 2004.      
|            | 4.2 |                        |  | First Supplemental Indenture among Hollinger
    International Publishing Inc., the Company and Wachovia Trust
    Company, dated as of July 13, 2004       |  | Incorporated by reference to Exhibit 99.1 to Item
    5 of the Current Report on Form 8-K dated August 2, 2004.       
|            | 4.3 |                        |  | Indenture dated as of December 23, 2002 among
    Hollinger International Publishing Inc., the Company and
    Wachovia Trust Company, National Association |  | Incorporated by reference to Exhibit 10.21 to
    Annual Report on Form 10-K for the year ended December 31,
    2002.

116



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##### Table of Contents



|            |      |                        |  |                                                                                                                                                                                                                                                                                                                                                                                                |  |                                                                                                                       
|----------- | ---- | ---------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------
|Exhibit No. |      | Description of Exhibit |  | Prior Filing or Sequential Page Number                                                                                                                                                                                                                                                                                                                                                        
|            |      |                        |  |                                                                                                                                                                                                                                                                                                                                                                                               
|            | 4.4  |                        |  | Registration Rights Agreement dated as of
    December 16, 2002 among Hollinger International Publishing Inc.,
    the Company, and Wachovia Securities, Inc.                                                                                                                                                                                                                                  |  | Incorporated by reference to Exhibit 10.21 to
    Annual Report on Form 10-K for the year ended December 31, 2002.    
|            | 4.5  |                        |  | 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).                  
|            | 10.1 |                        |  | Stock Purchase Agreement by and among Mirkaei
    Tikshoret Ltd., American Publishing Holdings, Inc. and Hollinger
    International Inc. dated as of November 16, 2004                                                                                                                                                                                                                        |  |                                                                                                                       
|            | 10.2 |                        |  | Facilitation Agreement by and between Hollinger
    International Inc., Hollinger Canadian Newspapers, Limited
    Partnership, 3815668 Canada Inc., Hollinger Canadian Publishing
    Holdings Co., HCN Publications Company and Canwest Global
    Communications Corp. dated as of October 7, 2004                                                                                          |  |                                                                                                                       
|            | 10.3 |                        |  | Agreement for Sale and Purchase of Shares in the
    Telegraph Group Limited, by and between DT Holdings Limited,
    First DT Holdings Limited, Second DT Holdings Limited, the
    Company, Press Acquisitions Limited dated June 22, 2004                                                                                                                                                   |  | Incorporated by reference to Exhibit 2.1 to Item
    2 of the Current Report on Form 8-K dated June 23, 2004.         
|            | 10.4 |                        |  | Agreed Form of Tax Deed relating to Sale and
    Purchase of Shares in Telegraph Group Limited, by and between DT
    Holdings Limited, First DT Holdings Limited, Second DT
    Acquisitions Limited                                                                                                                                                                                          |  | Incorporated by reference to Exhibit 2.2 to Item
    2 of the Current Report on Form 8-K dated June 23, 2004.         
|            | 10.5 |                        |  | Agreement dated November 15, 2003 between Conrad
    M. Black and Hollinger International Inc.                                                                                                                                                                                                                                                                                                 |  | Incorporated by reference to Exhibit 99.1 to Item
    5 of the Current Report on Form 8-K dated January 6, 2004.      
|            | 10.6 |                        |  | Purchase Agreement dated December 16, 2002 among
    Hollinger International Publishing Inc., the Company and
    Wachovia Securities, Inc.                                                                                                                                                                                                                                                    |  | Incorporated by reference to Exhibit 10.19
    to Annual Report on Form 10-K for the year ended
    December 31, 2002.
|            | 10.7 |                        |  | Fifth Amended and Restated Credit Agreement dated
    as of December 23, 2002 among Hollinger International Publishing
    Inc., Telegraph Group Limited, First DT Holdings Limited,
    Wachovia Bank, N.A., Toronto Dominion (Texas) Inc., General
    Electric Capital Corporation, and Various Financial Institutions
    and Other Persons Party Thereto, as Lenders (as defined therein) |  | Incorporated by reference to Exhibit 10.22 to
    Annual Report on Form 10-K for the year ended December 31, 2002.    
|            | 10.8 |                        |  | Fourth Amended and Restated Company Pledge
    Agreement dated as of December 23, 2002 among Hollinger
    International Publishing Inc. and its Subsidiaries (as defined
    therein) and Wachovia Bank, N.A.                                                                                                                                                                                 |  | Incorporated by reference to Exhibit 10.23 to
    Annual Report on Form 10-K for the year ended December 31, 2002.    

117



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##### Table of Contents



|            |       |                        |  |                                                                                                                                                                                                                                                                                          |  |                                                                                                                       
|----------- | ----- | ---------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------
|Exhibit No. |       | Description of Exhibit |  | Prior Filing or Sequential Page Number                                                                                                                                                                                                                                                  
|            |       |                        |  |                                                                                                                                                                                                                                                                                         
|            | 10.9  |                        |  | Fourth Amended and Restated Hollinger
    International Guaranty dated as of December 23, 2002 by the
    Company in favor of Wachovia Bank, N.A., Toronto-Dominion Bank,
    and the Lenders (as defined therein)                                                                       |  | Incorporated by reference to Exhibit 10.24 to
    Annual Report on Form 10-K for the year ended December 31, 2002.    
|            | 10.10 |                        |  | Hollinger International Amended and Restated
    Pledge Agreement dated as of December 23, 2002 among the Company
    and Wachovia Bank, N.A.                                                                                                                                            |  | Incorporated by reference to Exhibit 10.25 to
    Annual Report on Form 10-K for the year ended December 31, 2002.    
|            | 10.11 |                        |  | Intellectual Property Security Agreement dated as
    of December 23, 2002 among the Company, Digital Chicago Inc.,
    Chicago Sun-Times, Inc., Midwest Suburban Publishing, Inc.,
    Pioneer Newspapers Inc., Chicago Sun-Times Features, Inc. and
    Toronto Dominion (Texas) Inc.  |  | Incorporated by reference to Exhibit 10.26 to
    Annual Report on Form 10-K for the year ended December 31, 2002     
|            | 10.12 |                        |  | Third Amended and Restated Guaranty dated as of
    December 23, 2002 by Guarantors, as listed in the Guaranty,
    Wachovia Bank, N.A., and the Lenders (as defined therein)                                                                                                            |  | Incorporated by reference to Exhibit 10.27 to
    Annual Report on Form 10-K for the year ended December 31, 2002.    
|            | 10.13 |                        |  | Third Amended and Restated Security Agreement
    dated as of December 23, 2002 among Hollinger International
    Publishing Inc. and its Subsidiaries (as defined therein) and
    Wachovia Bank, N.A.                                                                                  |  | Incorporated by reference to Exhibit 10.28
    to Annual Report on Form 10-K for the year ended
    December 31, 2002.
|            | 10.14 |                        |  | U.K. Subsidiary Guarantee dated as of
    December 23, 2002 by Creditscheme Limited, Deedtask
    Limited, DT Holdings Limited, Second DT Holdings Limited,
    Hollinger UK Holdings Limited in favor of Wachovia Bank, N.A.,
    the Lenders and the Issuing Bank (as defined therein) |  | Incorporated by reference to Exhibit 10.29
    to Annual Report on Form 10-K for the year ended
    December 31, 2002.
|            | 10.15 |                        |  | U.S. Pledge Agreement dated as of
    December 23, 2002 among Deedtask Limited, Creditscheme
    Limited and Wachovia Bank, N.A.                                                                                                                                                         |  | Incorporated by reference to Exhibit 10.30
    to Annual Report on Form 10-K for the year ended
    December 31, 2002.
|            | 10.16 |                        |  | Supplemental Trust Agreement dated as of
    December 7, 2001 among First Union Trust Company, National
    Association, the Company and Hollinger Canadian Newspapers,
    Limited Partnership                                                                                          |  | Incorporated by reference to Exhibit 10.17
    to Annual Report on Form 10-K for the year ended
    December 31, 2002.
|            | 10.17 |                        |  | Amended and Restated Trust Agreement dated as of
    August 24, 2001 between First Union Trust Company, National
    Association and the Company                                                                                                                                         |  | Incorporated by reference to Exhibit 10.16
    to Annual Report on Form 10-K for the year ended
    December 31, 2002.
|            | 10.18 |                        |  | Amended and Restated Participation Agreement
    dated as of November 30, 2001 among the Company, Hollinger
    Canadian Newspapers, Limited Partnership and the Hollinger
    Participation Trust                                                                                       |  | Incorporated by reference to Exhibit 10.18
    to Annual Report on Form 10-K for the year ended
    December 31, 2002.
|            | 10.19 |                        |  | Business Opportunities Agreement between
    Hollinger Inc. and Hollinger International Inc., as amended and
    restated as of February 7, 1996                                                                                                                                         |  |                                                                                                                       

118



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##### Table of Contents



|            |       |                        |  |                                                                                                                                                                                         |  |                                                                                                                        
|----------- | ----- | ---------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------
|Exhibit No. |       | Description of Exhibit |  | Prior Filing or Sequential Page Number                                                                                                                                                 
|            |       |                        |  |                                                                                                                                                                                        
|            | 10.20 |                        |  | Release and Settlement Agreement between
    Peter Y. Atkinson and Hollinger International Inc. dated
    April 27, 2004*                                                               |  |                                                                                                                        
|            | 10.21 |                        |  | Option Exercise and Escrow Agreement between
    Peter Y. Atkinson and Hollinger International Inc. dated as of
    April 27, 2004                                                      |  |                                                                                                                        
|            | 10.22 |                        |  | Consulting Agreement between Peter Y. Atkinson
    and Hollinger International Inc. dated as of April 27, 2004                                                                          |  |                                                                                                                        
|            | 10.23 |                        |  | Compromise Agreement among Hollinger
    International Inc., Telegraph Group Limited and Daniel William
    Colson dated March 23, 2004                                                 |  |                                                                                                                        
|            | 10.24 |                        |  | Deferred Stock Unit Agreement between Gordon A.
    Paris and Hollinger International Inc. dated as of November 16,
    2003                                                            |  |                                                                                                                        
|            | 10.25 |                        |  | Summaries of Principal Terms of 2004 Key Employee
    Retention Plan and Key Employee Severance Program                                                                                 |  |                                                                                                                        
|            | 10.26 |                        |  | Notice dated April 13, 2004 to Option Plan
    Participants under Hollinger International Inc. 1994 Stock
    Option Plan, 1997 Stock Incentive Plan, and 1999 Stock Incentive
    Plan |  |                                                                                                                        
|            | 10.27 |                        |  | Hollinger International Inc. 1999 Stock Incentive
    Plan                                                                                                                              |  | Incorporated by reference to Annex A to Report on
    Form DEF 14A dated March 24, 1999.                               
|            | 10.28 |                        |  | Hollinger International Inc. 1997 Stock Incentive
    Plan                                                                                                                              |  | Incorporated by reference to Annex A to
    Report on Form DEF 14A dated March 28, 1997.                               
|            | 10.29 |                        |  | American Publishing Company 1994 Stock Option Plan                                                                                                                                      |  | Incorporated by reference to Exhibit 10.10
    to Registration Statement on Form S-1 (No. 33-74980).                   
|            | 14.1  |                        |  | Code of Business Conduct and Ethics                                                                                                                                                     |  | Incorporated by reference to Exhibit 99.1 to
    Item 5.5 of the Current Report on Form 8-K dated
    December 3, 2004.
|            | 21.1  |                        |  | Significant Subsidiaries of Hollinger
    International Inc.                                                                                                                            |  |                                                                                                                        
|            | 23.1  |                        |  | Consent of KPMG LLP                                                                                                                                                                     |  |                                                                                                                        
|            | 31.1  |                        |  | Certification of Chief Executive Officer pursuant
    to Rule 13a-14                                                                                                                    |  |                                                                                                                        
|            | 31.2  |                        |  | Certification of Chief Financial Officer pursuant
    to Rule 13a-14                                                                                                                    |  |                                                                                                                        
|            | 32.1  |                        |  | Certificate of Chief Executive Officer pursuant
    to Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of
    the United States Code                                          |  |                                                                                                                        
|            | 32.2  |                        |  | Certificate of Chief Financial Officer pursuant
    to Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of
    the United States Code                                          |  |                                                                                                                        



|  |                                                                                                                                                                                                       
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Portions of this exhibit have been filed
    separately with the Securities and Exchange Commission pursuant
    to a request for confidential treatment. Such portions are
    designated [REDACTED].

119



---



##### Table of Contents



(b) Reports on Form 8-K.



| |                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------
| | (i) During the fiscal quarter ended
    December 31, 2003, the Company filed the following
    information under Current Report on Form 8-K:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On November 17, 2003, the Company filed
    information under Item 5 Other Events of
    Form 8-K regarding the Companys announcement of its
    retention of Lazard to review and evaluate the Companys
    strategic alternatives, certain changes in senior management and
    the composition of the Board of Directors and certain
    preliminary findings of the Special Committee of the Board of
    Directors concerning related party transactions in the years
    1999, 2000 and 2001.

120



---



##### 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/ GORDON A. PARIS

| |                                                                       
| | ----------------------------------------------------------------------
| |                                                                       
| | Gordon A. Paris                                                       
| | Interim Chairman and Interim President and
    Chief Executive Officer

Date: January 18, 2005

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/ GORDON A. PARISGordon A. Paris       |  | Interim Chairman and Interim President and Chief
    Executive Officer Director (Principal Executive Officer) |  | January 18, 2005
|                                        
|/s/ PETER K. LANEPeter K. Lane           |  | Vice President Chief Financial Officer (Principal
    Financial Officer)                                      |  | January 18, 2005
|                                        
|Barbara Amiel Black                      |  | Director                                                                                                      |  | January 18, 2005
|                                        
|Conrad M. Black                          |  | Director                                                                                                      |  | January 18, 2005
|                                        
|/s/ RICHARD R. BURTRichard R. Burt       |  | Director                                                                                                      |  | January 18, 2005
|                                        
|Daniel W. Colson                         |  | Director                                                                                                      |  | January 18, 2005
|                                        
|/s/ HENRY A. KISSINGERHenry A. Kissinger |  | Director                                                                                                      |  | January 18, 2005
|                                        
|/s/ SHMUEL MEITARShmuel Meitar           |  | Director                                                                                                      |  | January 18, 2005
|                                        
|Richard N. Perle                         |  | Director                                                                                                      |  | January 18, 2005
|                                        
|/s/ GRAHAM W. SAVAGEGraham W. Savage     |  | Director                                                                                                      |  | January 18, 2005

121



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##### Table of Contents



|                                         |  |          |  |                  |  | 
|---------------------------------------- |  | -------- |  | ---------------- |  | 
|                                         |  |          |  |                 
|Signature                                |  | Title    |  | Date            
|                                         |  |          |  |                 
|                                        
|/s/ RAYMOND G.H. SEITZRaymond G.H. Seitz |  | Director |  | January 18, 2005
|                                        
|/s/ JAMES R. THOMPSONJames R. Thompson   |  | Director |  | January 18, 2005

122



---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

The Board of Directors

Hollinger International Inc.:


We have audited the accompanying consolidated
balance sheets of Hollinger International Inc. and subsidiaries
as of December 31, 2003 and 2002, and the related
consolidated statements of operations, comprehensive loss,
stockholders equity and cash flows for each of the years
in the three-year period ended December 31, 2003. 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 the
standards of the Public Company Accounting Oversight Board
(United States). 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, 2003 and 2002, and the
results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 2003, in
conformity with U.S. generally accepted accounting
principles.

As disclosed in Note 1 to the consolidated
financial statements, the Company, as of January 1, 2002,
changed its method of accounting for goodwill and other
intangible assets. As disclosed in Note 2 to the
consolidated financial statements, the Company has, for years
prior to 2003, reclassified losses and related income tax
benefits that resulted from the early extinguishment of debt.

As disclosed in Note 2 to the consolidated
financial statements, the Companys consolidated balance
sheet as of December 31, 2002 and the related consolidated
statements of operations, comprehensive loss, stockholders
equity, and cash flows for the years ended December 31,
2002 and 2001 have been restated.



| |             
| | ------------
| | /s/ KPMG LLP

January 13, 2005

Chicago, Illinois


123



---



##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 31, 2003 and 2002


(In thousands, except share data)


|                                                                                                                                                                                                                       |                                                                                                        |      |           |          |   |   |           |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------ | ---- | --------- | -------- | - | - | --------- | ------- | -
|                                                                                                                                                                                                                       |                                                                                                        | 2003 |           | 2002    
|                                                                                                                                                                                                                       |                                                                                                        |      |           |         
|                                                                                                                                                                                                                       |                                                                                                        |      |           | Restated
|                                                                                                                                                                                                                       |                                                                                                        |      |           | Note 2  
|ASSETS                                                                                                                                                                                                                
|Current assets:                                                                                                                                                                                                        |                                                                                                        |      |           |          |   |   |           |        
|                                                                                                                                                                                                                       | Cash and cash equivalents                                                                              |      | $         | 134,494  |   |   | $         | 137,141 |  
|                                                                                                                                                                                                                       | Accounts receivable, net of allowance for
    doubtful accounts of $20,454 in 2003 and $20,676 in 2002 |      |           | 238,734  |   |   |           | 205,843 |  
|                                                                                                                                                                                                                       | Inventories                                                                                            |      |           | 10,821   |   |   |           | 10,194  |  
|                                                                                                                                                                                                                       | Amounts due from related parties, net
    (Note 23)                                                    |      |           | 11,888   |   |   |           |        |  
|                                                                                                                                                                                                                       | Escrow deposits and restricted cash (Notes 5
    and 10)                                               |      |           | 16,718   |   |   |           | 545,952 |  
|                                                                                                                                                                                                                       | Other current assets (Note 4)                                                                          |      |           | 31,278   |   |   |           | 18,358  |  
|                                                                                                                                                                                                                       |                                                                                                        |      |           |          |   |   |           |        
|Total current assets                                                                                                                                                                                                   |                                                                                                        |      | 443,933   |          |   |   | 917,488   |        
|Loan to affiliate (Note 23(e))                                                                                                                                                                                         |                                                                                                        |      | 22,131    |          |   |   | 45,848    |        
|Investments (Note 5)                                                                                                                                                                                                   |                                                                                                        |      | 111,972   |          |   |   | 97,943    |        
|Advances under printing contracts and notes
    receivable  joint ventures (Note 23(k))                                                                                                                               |                                                                                                        |      | 47,393    |          |   |   | 50,591    |        
|Property, plant and equipment, net of accumulated
    depreciation (Note 6)                                                                                                                                            |                                                                                                        |      | 265,359   |          |   |   | 299,686   |        
|Intangible assets, net of accumulated
    amortization of $44,664 in 2003 and $36,368 in 2002 (Note 7)                                                                                                                 |                                                                                                        |      | 107,490   |          |   |   | 117,179   |        
|Goodwill (Note 7)                                                                                                                                                                                                      |                                                                                                        |      | 577,300   |          |   |   | 533,677   |        
|Prepaid pension benefit (Note 25)                                                                                                                                                                                      |                                                                                                        |      | 88,705    |          |   |   | 63,146    |        
|Deferred financing costs and other assets
    (Note 8)                                                                                                                                                                 |                                                                                                        |      | 135,896   |          |   |   | 60,214    |        
|                                                                                                                                                                                                                       |                                                                                                        |      |           |          |   |   |           |        
|                                                                                                                                                                                                                       |                                                                                                        | $    | 1,800,179 |          |   | $ | 2,185,772 |        
|                                                                                                                                                                                                                       |                                                                                                        |      |           |          |   |   |           |        
|                                                                                                                                                                                                                      
|LIABILITIES AND STOCKHOLDERS
    EQUITY                                                                                                                                                                              
|Current liabilities:                                                                                                                                                                                                   |                                                                                                        |      |           |          |   |   |           |        
|                                                                                                                                                                                                                       | Current installments of long-term debt
    (Note 10)                                                   |      | $         | 6,725    |   |   | $         | 4,814   |  
|                                                                                                                                                                                                                       | Senior subordinated notes (Note 10)                                                                    |      |           |         |   |   |           | 504,906 |  
|                                                                                                                                                                                                                       | Accounts payable and accrued expenses (Note 9)                                                         |      |           | 257,812  |   |   |           | 213,668 |  
|                                                                                                                                                                                                                       | Accounts payable  joint ventures
    (Note 23(k))                                                     |      |           | 16,375   |   |   |           | 12,454  |  
|                                                                                                                                                                                                                       | Amounts due to related parties, net (Note 23)                                                          |      |           |         |   |   |           | 25,165  |  
|                                                                                                                                                                                                                       | Income taxes payable and other tax liabilities
    (Note 24)                                           |      |           | 466,484  |   |   |           | 311,139 |  
|                                                                                                                                                                                                                       | Deferred revenue                                                                                       |      |           | 50,851   |   |   |           | 42,792  |  
|                                                                                                                                                                                                                       |                                                                                                        |      |           |          |   |   |           |        
|Total current liabilities                                                                                                                                                                                              |                                                                                                        |      | 798,247   |          |   |   | 1,114,938 |        
|Long-term debt, less current installments
    (Note 10)                                                                                                                                                                |                                                                                                        |      | 522,547   |          |   |   | 574,658   |        
|Deferred income taxes and other tax liabilities
    (Note 24)                                                                                                                                                          |                                                                                                        |      | 274,992   |          |   |   | 222,269   |        
|Other liabilities                                                                                                                                                                                                      |                                                                                                        |      | 139,362   |          |   |   | 98,377    |        
|                                                                                                                                                                                                                       |                                                                                                        |      |           |          |   |   |           |        
|Total liabilities                                                                                                                                                                                                      |                                                                                                        |      | 1,735,148 |          |   |   | 2,010,242 |        
|                                                                                                                                                                                                                       |                                                                                                        |      |           |          |   |   |           |        
|Minority interest (Note 12)                                                                                                                                                                                            |                                                                                                        |      | 28,255    |          |   |   | 17,097    |        
|                                                                                                                                                                                                                       |                                                                                                        |      |           |          |   |   |           |        
|Redeemable preferred stock (Note 13)                                                                                                                                                                                   |                                                                                                        |      |          |          |   |   | 8,650     |        
|                                                                                                                                                                                                                       |                                                                                                        |      |           |          |   |   |           |        
|Stockholders equity (Note 14):                                                                                                                                                                                        |                                                                                                        |      |           |          |   |   |           |        
|Class A common stock, $0.01 par value.
    Authorized 250,000,000 shares; 84,899,751 and 72,578,784
    shares issued and outstanding in 2003; and 85,819,295 and
    74,667,344 shares issued and outstanding in 2002 |                                                                                                        |      | 849       |          |   |   | 858       |        
|Class B common stock, $0.01 par value.
    Authorized 50,000,000 shares; issued and outstanding
    14,990,000 shares in 2003 and 2002                                                                                 |                                                                                                        |      | 150       |          |   |   | 150       |        
|Additional paid-in capital                                                                                                                                                                                             |                                                                                                        |      | 444,826   |          |   |   | 439,242   |        
|Accumulated other comprehensive loss:                                                                                                                                                                                  |                                                                                                        |      |           |          |   |   |           |        
|                                                                                                                                                                                                                       | Cumulative foreign currency translation adjustment                                                     |      |           | (53,246  | ) |   |           | (28,971 | )
|                                                                                                                                                                                                                       | Unrealized gain (loss) on marketable securities
    (Note 5)                                           |      |           | 11,175   |   |   |           | (694    | )
|                                                                                                                                                                                                                       | Minimum pension liability adjustment
    (Note 25)                                                     |      |           | (46,419  | ) |   |           | (44,709 | )
|Accumulated deficit                                                                                                                                                                                                    |                                                                                                        |      | (171,750  | )        |   |   | (76,133   | )      
|                                                                                                                                                                                                                       |                                                                                                        |      |           |          |   |   |           |        
|                                                                                                                                                                                                                       |                                                                                                        |      | 185,585   |          |   |   | 289,743   |        
|Class A common stock in treasury, at
    cost  12,320,967 shares in 2003 and
    11,151,951 shares in 2002                                                                                                            |                                                                                                        |      | (148,809  | )        |   |   | (139,960  | )      
|                                                                                                                                                                                                                       |                                                                                                        |      |           |          |   |   |           |        
|Total stockholders equity                                                                                                                                                                                             |                                                                                                        |      | 36,776    |          |   |   | 149,783   |        
|                                                                                                                                                                                                                       |                                                                                                        |      |           |          |   |   |           |        
|Total liabilities and stockholders equity                                                                                                                                                                             |                                                                                                        | $    | 1,800,179 |          |   | $ | 2,185,772 |        
|                                                                                                                                                                                                                       |                                                                                                        |      |           |          |   |   |           |        
|Commitments and contingencies (Notes 11 and
    22)                                                                                                                                                                    |                                                                                                        |      |           |          |   |   |           |        

See accompanying notes to these consolidated
financial statements.

124



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF
OPERATIONS

For the Years Ended December 31, 2003,
2002 and 2001


|                                                                                                                   |                                                                        |                                       |           |          |   |          |           |          |   |   |           |          |  
|------------------------------------------------------------------------------------------------------------------ | ---------------------------------------------------------------------- | ------------------------------------- | --------- | -------- | - | -------- | --------- | -------- | - | - | --------- | -------- | -
|                                                                                                                   |                                                                        | 2003                                  |           | 2002     |   | 2001    
|                                                                                                                   |                                                                        |                                       |           |          |   |         
|                                                                                                                   |                                                                        |                                      
|                                                                                                                   |                                                                        | (In thousands, except per share data)
|                                                                                                                   |                                                                        |                                       |           | Restated |   | Restated
|                                                                                                                   |                                                                        |                                       |           | Note 2   |   | Note 2  
|Operating revenues:                                                                                                |                                                                        |                                       |           |          |   |          |           |          |   |   |           |         
|                                                                                                                   | Advertising                                                            |                                       | $         | 733,826  |   |          | $         | 710,849  |   |   | $         | 804,462  |  
|                                                                                                                   | Circulation                                                            |                                       |           | 277,264  |   |          |           | 247,175  |   |   |           | 278,321  |  
|                                                                                                                   | Job printing                                                           |                                       |           | 16,427   |   |          |           | 16,669   |   |   |           | 25,092   |  
|                                                                                                                   | Other                                                                  |                                       |           | 33,686   |   |          |           | 31,469   |   |   |           | 38,446   |  
|                                                                                                                   |                                                                        |                                       |           |          |   |          |           |          |   |   |           |         
|Total operating revenues                                                                                           |                                                                        |                                       | 1,061,203 |          |   |          | 1,006,162 |          |   |   | 1,146,321 |         
|                                                                                                                   |                                                                        |                                       |           |          |   |          |           |          |   |   |           |         
|Operating costs and expenses:                                                                                      |                                                                        |                                       |           |          |   |          |           |          |   |   |           |         
|                                                                                                                   | Newsprint                                                              |                                       |           | 72,868   |   |          |           | 86,935   |   |   |           | 127,025  |  
|                                                                                                                   | Newsprint incurred through joint ventures
    (Note 23(k))             |                                       |           | 75,402   |   |          |           | 60,589   |   |   |           | 77,399   |  
|                                                                                                                   | Compensation (Notes 1(p), 15 and 25)                                   |                                       |           | 338,903  |   |          |           | 309,032  |   |   |           | 361,676  |  
|                                                                                                                   | Other operating costs (Notes 18 and 23)                                |                                       |           | 459,493  |   |          |           | 388,670  |   |   |           | 494,003  |  
|                                                                                                                   | Other operating costs incurred through joint
    ventures (Note 23(k)) |                                       |           | 49,667   |   |          |           | 46,677   |   |   |           | 48,473   |  
|                                                                                                                   | Depreciation                                                           |                                       |           | 38,499   |   |          |           | 37,001   |   |   |           | 37,968   |  
|                                                                                                                   | Amortization                                                           |                                       |           | 16,354   |   |          |           | 17,151   |   |   |           | 35,760   |  
|                                                                                                                   |                                                                        |                                       |           |          |   |          |           |          |   |   |           |         
|Total operating costs and expenses                                                                                 |                                                                        |                                       | 1,051,186 |          |   |          | 946,055   |          |   |   | 1,182,304 |         
|                                                                                                                   |                                                                        |                                       |           |          |   |          |           |          |   |   |           |         
|Operating income (loss)                                                                                            |                                                                        |                                       | 10,017    |          |   |          | 60,107    |          |   |   | (35,983   | )       
|                                                                                                                   |                                                                        |                                       |           |          |   |          |           |          |   |   |           |         
|Other income (expense):                                                                                            |                                                                        |                                       |           |          |   |          |           |          |   |   |           |         
|                                                                                                                   | Interest expense                                                       |                                       |           | (55,559  | ) |          |           | (58,772  | ) |   |           | (78,639  | )
|                                                                                                                   | Amortization of deferred financing costs                               |                                       |           | (2,855   | ) |          |           | (5,585   | ) |   |           | (10,367  | )
|                                                                                                                   | Interest and dividend income                                           |                                       |           | 25,411   |   |          |           | 18,782   |   |   |           | 64,893   |  
|                                                                                                                   | Other income (expense), net (Note 19)                                  |                                       |           | 75,641   |   |          |           | (172,783 | ) |   |           | (303,318 | )
|                                                                                                                   |                                                                        |                                       |           |          |   |          |           |          |   |   |           |         
|Total other income (expense)                                                                                       |                                                                        |                                       | 42,638    |          |   |          | (218,358  | )        |   |   | (327,431  | )       
|                                                                                                                   |                                                                        |                                       |           |          |   |          |           |          |   |   |           |         
|Earnings (loss) before income taxes, minority
    interest and cumulative effect of change in accounting principle |                                                                        |                                       | 52,655    |          |   |          | (158,251  | )        |   |   | (363,414  | )       
|Income taxes (benefit) (Note 24)                                                                                   |                                                                        |                                       | 121,638   |          |   |          | 50,132    |          |   |   | (23,038   | )       
|                                                                                                                   |                                                                        |                                       |           |          |   |          |           |          |   |   |           |         
|Loss before minority interest and cumulative
    effect of change in accounting principle                          |                                                                        |                                       | (68,983   | )        |   |          | (208,383  | )        |   |   | (340,376  | )       
|Minority interest                                                                                                  |                                                                        |                                       | 5,325     |          |   |          | 2,167     |          |   |   | (13,803   | )       
|                                                                                                                   |                                                                        |                                       |           |          |   |          |           |          |   |   |           |         
|Loss before cumulative effect of change in
    accounting principle                                                |                                                                        |                                       | (74,308   | )        |   |          | (210,550  | )        |   |   | (326,573  | )       
|Cumulative effect of change in accounting
    principle (Note 1(i))                                                |                                                                        |                                       |          |          |   |          | (20,079   | )        |   |   |          |         
|                                                                                                                   |                                                                        |                                       |           |          |   |          |           |          |   |   |           |         
|Net loss                                                                                                           |                                                                        | $                                     | (74,308   | )        |   | $        | (230,629  | )        |   | $ | (326,573  | )       
|                                                                                                                   |                                                                        |                                       |           |          |   |          |           |          |   |   |           |         
|Loss per share before cumulative effect of change
    in accounting principle (Note 16):                           |                                                                        |                                       |           |          |   |          |           |          |   |   |           |         
|                                                                                                                   | Basic                                                                  |                                       | $         | (0.85    | ) |          | $         | (2.19    | ) |   | $         | (3.31    | )
|                                                                                                                   |                                                                        |                                       |           |          |   |          |           |          |   |   |           |         
|                                                                                                                   | Diluted                                                                |                                       | $         | (0.85    | ) |          | $         | (2.19    | ) |   | $         | (3.31    | )
|                                                                                                                   |                                                                        |                                       |           |          |   |          |           |          |   |   |           |         
|Loss per share (Note 16):                                                                                          |                                                                        |                                       |           |          |   |          |           |          |   |   |           |         
|                                                                                                                   | Basic                                                                  |                                       | $         | (0.85    | ) |          | $         | (2.40    | ) |   | $         | (3.31    | )
|                                                                                                                   |                                                                        |                                       |           |          |   |          |           |          |   |   |           |         
|                                                                                                                   | Diluted                                                                |                                       | $         | (0.85    | ) |          | $         | (2.40    | ) |   | $         | (3.31    | )
|                                                                                                                   |                                                                        |                                       |           |          |   |          |           |          |   |   |           |         

See accompanying notes to these consolidated
financial statements.

125



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE
LOSS

For the Years Ended December 31, 2003,
2002 and 2001


(In thousands)


|                                                                                                                                                                                                                                                                                                                                                       |  |      |         |          |  |          |          |   |  |   |          |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | ------- | -------- |  | -------- | -------- | - |  | - | -------- | -
|                                                                                                                                                                                                                                                                                                                                                       |  | 2003 |         | 2002     |  | 2001    
|                                                                                                                                                                                                                                                                                                                                                       |  |      |         |          |  |         
|                                                                                                                                                                                                                                                                                                                                                       |  |      |         | Restated |  | Restated
|                                                                                                                                                                                                                                                                                                                                                       |  |      |         | Note 2   |  | Note 2  
|Net loss                                                                                                                                                                                                                                                                                                                                               |  | $    | (74,308 | )        |  | $        | (230,629 | ) |  | $ | (326,573 | )
|Other comprehensive income (loss):                                                                                                                                                                                                                                                                                                                     |  |      |         |          |  |          |          |   |  |   |          |  
|Unrealized gain (loss) on marketable securities
    arising during the year, net of a related tax provision of
    $3,952 and minority interest of $2,053 (2002  net of
    a related tax provision of $1,510 and minority interest of $615;
    2001  net of a related tax benefit of $18,730 and a
    recovery of minority interest of $4,411)    |  |      | 13,872  |          |  |          | 4,451    |   |  |   | (80,586  | )
|Reclassification adjustment for realized (gains)
    losses reclassified out of accumulated other comprehensive loss,
    net of a related tax benefit of $842 and recovery of minority
    interest of $193 (2002  net of a related tax
    provision of $530; 2001  net of a related tax
    provision of $30,420 and minority interest of $6,122) |  |      | (2,003  | )        |  |          | 1,301    |   |  |   | 123,720  |  
|                                                                                                                                                                                                                                                                                                                                                       |  |      |         |          |  |          |          |   |  |   |          |  
|                                                                                                                                                                                                                                                                                                                                                       |  |      | 11,869  |          |  |          | 5,752    |   |  |   | 43,134   |  
|                                                                                                                                                                                                                                                                                                                                                       |  |      |         |          |  |          |          |   |  |   |          |  
|Foreign currency translation adjustments, net of
    a related tax provision of $1,526 (2002 -$2,374; 2001- nil)                                                                                                                                                                                                                                       |  |      | (24,275 | )        |  |          | 43,481   |   |  |   | (39,138  | )
|Reclassification adjustment for realized foreign
    exchange losses upon the substantial reduction of net investment
    in Canadian operations                                                                                                                                                                                                       |  |      |        |          |  |          | 78,217   |   |  |   |         |  
|                                                                                                                                                                                                                                                                                                                                                       |  |      |         |          |  |          |          |   |  |   |          |  
|                                                                                                                                                                                                                                                                                                                                                       |  |      | (24,275 | )        |  |          | 121,698  |   |  |   | (39,138  | )
|                                                                                                                                                                                                                                                                                                                                                       |  |      |         |          |  |          |          |   |  |   |          |  
|Minimum pension liability adjustment, net of a
    related tax provision of $101 and minority interest of $11
    (2002  net of a related tax benefit of $15,852;
    2001  net of a related tax benefit of $7,573)                                                                                                                                  |  |      | (1,710  | )        |  |          | (27,737  | ) |  |   | (14,878  | )
|                                                                                                                                                                                                                                                                                                                                                       |  |      |         |          |  |          |          |   |  |   |          |  
|                                                                                                                                                                                                                                                                                                                                                       |  |      | (14,116 | )        |  |          | 99,713   |   |  |   | (10,882  | )
|                                                                                                                                                                                                                                                                                                                                                       |  |      |         |          |  |          |          |   |  |   |          |  
|Comprehensive loss                                                                                                                                                                                                                                                                                                                                     |  | $    | (88,424 | )        |  | $        | (130,916 | ) |  | $ | (337,455 | )
|                                                                                                                                                                                                                                                                                                                                                       |  |      |         |          |  |          |          |   |  |   |          |  

See accompanying notes to these consolidated
financial statements.

126



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY

For the Years Ended December 31, 2003,
2002, and 2001


|                                                          |  |                |       |            |  |               |          |              |  |          |          |           |  |       |          |   |  |   |          |   |  |   |         |   |  |   |          |  
|--------------------------------------------------------- |  | -------------- | ----- | ---------- |  | ------------- | -------- | ------------ |  | -------- | -------- | --------- |  | ----- | -------- | - |  | - | -------- | - |  | - | ------- | - |  | - | -------- | -
|                                                          |  |                |       |            |  | Accumulated   |          | Retained     |  |          |          |           |  |      
|                                                          |  | Common         |       | Additional |  | Other         |          | Earnings     |  |          |          | Issued    |  |      
|                                                          |  | Stock          |       | Paid-In    |  | Comprehensive |          | (Accumulated |  | Treasury |          | Shares in |  |      
|                                                          |  | Class A & B    |       | Capital    |  | Loss          |          | Deficit)     |  | Stock    |          | Escrow    |  | Total
|                                                          |  |                |       |            |  |               |          |              |  |          |          |           |  |      
|                                                          |  |               
|                                                          |  | (In thousands)
|                                                          |  |                |       | Restated   |  | Restated      |          | Restated     |  |          |          | Restated 
|                                                          |  |                |       | Note 2     |  | Note 2        |          | Note 2       |  |          |          | Note 2   
|Balance at January 1, 2001                                |  | $              | 1,210 |            |  | $             | 748,503  |              |  | $        | (163,205 | )         |  | $     | 574,665  |   |  | $ | (258,604 | ) |  | $ | (1,424  | ) |  | $ | 901,145  |  
|Stock options exercised                                   |  |                | 6     |            |  |               | 6,857    |              |  |          |         |           |  |       |         |   |  |   |         |   |  |   |        |   |  |   | 6,863    |  
|Preferred stock conversion to Class A Common
    Stock    |  |                | 65    |            |  |               | (7,410   | )            |  |          |         |           |  |       |         |   |  |   | 7,345    |   |  |   |        |   |  |   |         |  
|Class A Common Stock purchased for
    cancellation       |  |                | (107  | )          |  |               | (139,148 | )            |  |          |         |           |  |       |         |   |  |   |         |   |  |   |        |   |  |   | (139,255 | )
|Stock-based compensation (Note 15)                        |  |                |      |            |  |               | (1,369   | )            |  |          |         |           |  |       |         |   |  |   |         |   |  |   |        |   |  |   | (1,369   | )
|Cash dividends  Class A and
    Class 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 15)                               |  |                |      |            |  |               | 7,301    |              |  |          |         |           |  |       | (7,301   | ) |  |   |         |   |  |   |        |   |  |   |         |  
|Translation adjustments                                   |  |                |      |            |  |               | 713      |              |  |          | (39,138  | )         |  |       |         |   |  |   |         |   |  |   |        |   |  |   | (38,425  | )
|Change in unrealized gain on securities, net              |  |                |      |            |  |               |         |              |  |          | 43,134   |           |  |       |         |   |  |   |         |   |  |   |        |   |  |   | 43,134   |  
|Net loss                                                  |  |                |      |            |  |               |         |              |  |          |         |           |  |       | (326,573 | ) |  |   |         |   |  |   |        |   |  |   | (326,573 | )
|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 |            |  |               | 554,392  |              |  |          | (174,087 | )         |  |       | 187,634  |   |  |   | (132,896 | ) |  |   | (58,655 | ) |  |   | 377,506  |  
|Stock options exercised                                   |  |                | 1     |            |  |               | 814      |              |  |          |         |           |  |       |         |   |  |   |         |   |  |   |        |   |  |   | 815      |  
|Class A Common Stock issued                               |  |                | 3     |            |  |               | 3,429    |              |  |          |         |           |  |       |         |   |  |   |         |   |  |   |        |   |  |   | 3,432    |  
|Cash dividends  Class A and
    Class B, $0.41 per share |  |                |      |            |  |               |         |              |  |          |         |           |  |       | (28,566  | ) |  |   |         |   |  |   |        |   |  |   | (28,566  | )
|Dividends on redeemable preferred stock                   |  |                |      |            |  |               |         |              |  |          |         |           |  |       | (196     | ) |  |   |         |   |  |   |        |   |  |   | (196     | )
|Minimum pension liability adjustment                      |  |                |      |            |  |               |         |              |  |          | (27,737  | )         |  |       |         |   |  |   |         |   |  |   |        |   |  |   | (27,737  | )
|In-kind dividends (Note 15)                               |  |                |      |            |  |               | 4,376    |              |  |          |         |           |  |       | (4,376   | ) |  |   |         |   |  |   |        |   |  |   |         |  
|Translation adjustments                                   |  |                |      |            |  |               | (71      | )            |  |          | 121,698  |           |  |       |         |   |  |   |         |   |  |   |        |   |  |   | 121,627  |  
|Change in unrealized gain on securities, net              |  |                |      |            |  |               |         |              |  |          | 5,752    |           |  |       |         |   |  |   |          |   |  |   |        |   |  |   | 5,752    |  
|Net loss                                                  |  |                |      |            |  |               |         |              |  |          |         |           |  |       | (230,629 | ) |  |   |         |   |  |   |        |   |  |   | (230,629 | )
|Escrow shares on Total Return Equity Swap                 |  |                | 31    |            |  |               | 30,032   |              |  |          |         |           |  |       |         |   |  |   |         |   |  |   | (26,050 | ) |  |   | 4,013    |  
|Payout of total return equity swap (Note 17)              |  |                | (69   | )          |  |               | (72,152  | )            |  |          |         |           |  |       |         |   |  |   |         |   |  |   | 78,079  |   |  |   | 5,858    |  
|Escrow shares cancelled                                   |  |                | (76   | )          |  |               | (82,016  | )            |  |          |         |           |  |       |         |   |  |   | (6,626   | ) |  |   | 6,626   |   |  |   | (82,092  | )
|Transfer to treasury                                      |  |                |      |            |  |               | 438      |              |  |          |         |           |  |       |         |   |  |   | (438     | ) |  |   |        |   |  |   |         |  
|                                                          |  |                |       |            |  |               |          |              |  |          |          |           |  |       |          |   |  |   |          |   |  |   |         |   |  |   |          |  
|Balance at December 31, 2002                              |  |                | 1,008 |            |  |               | 439,242  |              |  |          | (74,374  | )         |  |       | (76,133  | ) |  |   | (139,960 | ) |  |   |        |   |  |   | 149,783  |  
|Stock options exercised                                   |  |                | 11    |            |  |               | 12,104   |              |  |          |         |           |  |       |         |   |  |   |         |   |  |   |        |   |  |   | 12,115   |  
|Purchase of Class A Common Stock                          |  |                |      |            |  |               |         |              |  |          |         |           |  |       |         |   |  |   | (8,849   | ) |  |   |        |   |  |   | (8,849   | )
|Stock-based compensation (Note 15)                        |  |                |      |            |  |               | 6,722    |              |  |          |         |           |  |       |         |   |  |   |         |   |  |   |        |   |  |   | 6,722    |  
|Cash dividends  Class A and
    Class B, $0.20 per share |  |                |      |            |  |               |         |              |  |          |         |           |  |       | (17,403  | ) |  |   |         |   |  |   |        |   |  |   | (17,403  | )
|Minimum pension liability adjustment                      |  |                |      |            |  |               |         |              |  |          | (1,710   | )         |  |       |         |   |  |   |         |   |  |   |        |   |  |   | (1,710   | )
|Translation adjustments                                   |  |                |      |            |  |               | (668     | )            |  |          | (24,275  | )         |  |       |         |   |  |   |         |   |  |   |        |   |  |   | (24,943  | )
|Change in unrealized gain on securities, net              |  |                |      |            |  |               |         |              |  |          | 11,869   |           |  |       |         |   |  |   |         |   |  |   |        |   |  |   | 11,869   |  
|Net loss                                                  |  |                |      |            |  |               |         |              |  |          |         |           |  |       | (74,308  | ) |  |   |         |   |  |   |        |   |  |   | (74,308  | )
|In-kind dividends (Note 15)                               |  |                |      |            |  |               | 3,906    |              |  |          |         |           |  |       | (3,906   | ) |  |   |         |   |  |   |        |   |  |   |         |  
|Redemption of Class A Common Stock
    (Note 23(c))       |  |                | (20   | )          |  |               | (16,480  | )            |  |          |         |           |  |       |         |   |  |   |         |   |  |   |        |   |  |   | (16,500  | )
|                                                          |  |                |       |            |  |               |          |              |  |          |          |           |  |       |          |   |  |   |          |   |  |   |         |   |  |   |          |  
|Balance at December 31, 2003                              |  | $              | 999   |            |  | $             | 444,826  |              |  | $        | (88,490  | )         |  | $     | (171,750 | ) |  | $ | (148,809 | ) |  | $ |        |   |  | $ | 36,776   |  
|                                                          |  |                |       |            |  |               |          |              |  |          |          |           |  |       |          |   |  |   |          |   |  |   |         |   |  |   |          |  

See accompanying notes to these consolidated
financial statements.

127



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

For the Years Ended December 31, 2003,
2002 and 2001


|                                                                                              |                                                                                    |                                                |          |          |        |          |          |          |         |   |          |          |         |  
|--------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------- | ---------------------------------------------- | -------- | -------- | ------ | -------- | -------- | -------- | ------- | - | -------- | -------- | ------- | -
|                                                                                              |                                                                                    | 2003                                           |          | 2002     |        | 2001    
|                                                                                              |                                                                                    |                                                |          |          |        |         
|                                                                                              |                                                                                    |                                               
|                                                                                              |                                                                                    | (In thousands)                                
|                                                                                              |                                                                                    |                                                |          | Restated |        | Restated
|                                                                                              |                                                                                    |                                                |          | Note 2   |        | Note 2  
|Cash flows from operating activities:                                                         |                                                                                    |                                                |          |          |        |          |          |          |         |   |          |         
|Net loss                                                                                      |                                                                                    | $                                              | (74,308  | )        |        | $        | (230,629 | )        |         | $ | (326,573 | )       
|Adjustments to reconcile net loss to net cash
    provided by (used in) operating activities: |                                                                                    |                                                |          |          |        |          |          |          |         |   |          |         
|                                                                                              | Depreciation and amortization                                                      |                                                |          | 54,853   |        |          |          | 54,152   |         |   |          | 73,728   |        
|                                                                                              | Deferred income taxes                                                              |                                                |          | 41,964   |        |          |          | 54,983   |         |   |          | (55,836  | )      
|                                                                                              | Amortization of deferred financing costs                                           |                                                |          | 2,855    |        |          |          | 5,585    |         |   |          | 10,367   |        
|                                                                                              | Minority interest                                                                  |                                                |          | 5,325    |        |          |          | 2,167    |         |   |          | (13,803  | )      
|                                                                                              | Premium on debt extinguishments                                                    |                                                |          | 19,657   |        |          |          | 27,126   |         |   |          |         |        
|                                                                                              | Equity in losses of affiliates, net of dividends
    received                      |                                                |          | 6,247    |        |          |          | 1,005    |         |   |          | 15,098   |        
|                                                                                              | Loss (gain) on sales of investments                                                |                                                |          | (3,578   | )      |          |          |         |         |   |          | 147,213  |        
|                                                                                              | Loss (gain) on sales of property, plant and
    equipment and publishing interests |                                                |          | 6,455    |        |          |          | (5,334   | )       |   |          | (71      | )      
|                                                                                              | Amortization of deferred gain                                                      |                                                |          | (294     | )      |          |          | (366     | )       |   |          | (1,348   | )      
|                                                                                              | Write-down of investments                                                          |                                                |          | 14,496   |        |          |          | 40,536   |         |   |          | 48,037   |        
|                                                                                              | Write-down of property, plant and equipment                                        |                                                |          | 6,779    |        |          |          |         |         |   |          | 1,343    |        
|                                                                                              | Non-cash portion of losses on Total Return Equity
    Swap                         |                                                |          |         |        |          |          | 9,106    |         |   |          | 42,845   |        
|                                                                                              | Non-cash portion of foreign currency (gain) loss,
    net                          |                                                |          | (107,460 | )      |          |          | 81,729   |         |   |          | (27,171  | )      
|                                                                                              | Cumulative effect of change in accounting
    principle                            |                                                |          |         |        |          |          | 20,079   |         |   |          |         |        
|                                                                                              | Non-cash interest income                                                           |                                                |          | (8,110   | )      |          |          | (5,888   | )       |   |          | (43,821  | )      
|                                                                                              | Other                                                                              |                                                |          | 29,359   |        |          |          | (12,327  | )       |   |          | 39,024   |        
|                                                                                              | Changes in assets and liabilities, net of
    dispositions:                        |                                                |          |          |        |          |          |          |         |   |          |          |        
|                                                                                              |                                                                                    | Accounts receivable                            |          |          | (3,863 | )        |          |          | 2,402   |   |          |          | 7,755   |  
|                                                                                              |                                                                                    | Inventories                                    |          |          | (423   | )        |          |          | 11,107  |   |          |          | (4,516  | )
|                                                                                              |                                                                                    | Prepaid expenses and other current assets      |          |          | (2,785 | )        |          |          | (2,602  | ) |          |          | (3,876  | )
|                                                                                              |                                                                                    | Accounts payable and accrued expenses          |          |          | 33,275 |          |          |          | (27,040 | ) |          |          | 21,321  |  
|                                                                                              |                                                                                    | Income taxes payable and other tax liabilities |          |          | 81,307 |          |          |          | 23,989  |   |          |          | (55,041 | )
|                                                                                              |                                                                                    | Deferred revenue and other                     |          |          | (898   | )        |          |          | 6,663   |   |          |          | (12,960 | )
|                                                                                              |                                                                                    |                                                |          |          |        |          |          |          |         |   |          |         
|Cash provided by (used in) operating activities                                               |                                                                                    |                                                | 100,853  |          |        |          | 56,443   |          |         |   | (138,285 | )       
|                                                                                              |                                                                                    |                                                |          |          |        |          |          |          |         |   |          |         
|Cash flows from investing activities:                                                         |                                                                                    |                                                |          |          |        |          |          |          |         |   |          |         
|                                                                                              | Purchase of property, plant and equipment                                          |                                                |          | (14,700  | )      |          |          | (28,902  | )       |   |          | (44,451  | )      
|                                                                                              | Proceeds from sale of property, plant and
    equipment                            |                                                |          | 338      |        |          |          | 10,092   |         |   |          | 84       |        
|                                                                                              | Purchase of investments and other non-current
    assets                           |                                                |          | (26,197  | )      |          |          | (11,401  | )       |   |          | (45,194  | )      
|                                                                                              | Proceeds on disposal of investments and other
    assets                           |                                                |          | 32,023   |        |          |          | 915      |         |   |          | 840,315  |        
|                                                                                              | Other                                                                              |                                                |          | 7,954    |        |          |          | 1,869    |         |   |          | 5,982    |        
|                                                                                              |                                                                                    |                                                |          |          |        |          |          |          |         |   |          |         
|Cash provided by (used in) investing activities                                               |                                                                                    |                                                | (582     | )        |        |          | (27,427  | )        |         |   | 756,736  |         
|                                                                                              |                                                                                    |                                                |          |          |        |          |          |          |         |   |          |         
|Cash flows from financing activities:                                                         |                                                                                    |                                                |          |          |        |          |          |          |         |   |          |         
|                                                                                              | Repayment of debt and premium on debt
    extinguishment                           |                                                |          | (575,574 | )      |          |          | (370,781 | )       |   |          | (93,469  | )      
|                                                                                              | Proceeds from bank and other debt                                                  |                                                |          |         |        |          |          | 315,000  |         |   |          | 91,574   |        
|                                                                                              | Proceeds from issuance of notes                                                    |                                                |          |         |        |          |          | 300,000  |         |   |          |         |        
|                                                                                              | Payment of debt issue costs                                                        |                                                |          |         |        |          |          | (15,704  | )       |   |          | (3,013   | )      
|                                                                                              | Cash settlement of Total Return Equity Swap                                        |                                                |          |         |        |          |          | (100,000 | )       |   |          |         |        
|                                                                                              | Change in borrowings with related parties                                          |                                                |          | (49,053  | )      |          |          | 26,298   |         |   |          | (9,489   | )      
|                                                                                              | Escrow deposits and restricted cash                                                |                                                |          | 529,234  |        |          |          | (533,404 | )       |   |          | (12,548  | )      
|                                                                                              | Net proceeds from issuance of equity                                               |                                                |          | 12,115   |        |          |          | 4,247    |         |   |          | 6,863    |        
|                                                                                              | Repurchase of common shares                                                        |                                                |          | (8,849   | )      |          |          |         |         |   |          | (139,255 | )      
|                                                                                              | Redemption of preference shares                                                    |                                                |          |         |        |          |          |         |         |   |          | (3,800   | )      
|                                                                                              | Dividends paid                                                                     |                                                |          | (17,403  | )      |          |          | (28,762  | )       |   |          | (53,157  | )      
|                                                                                              | Dividends and distributions paid by subsidiaries
    to minority stockholders      |                                                |          |         |        |          |          | (917     | )       |   |          | (53,673  | )      
|                                                                                              | Other                                                                              |                                                |          | (4,328   | )      |          |          | (850     | )       |   |          | (1,297   | )      
|                                                                                              |                                                                                    |                                                |          |          |        |          |          |          |         |   |          |         
|Cash used in financing activities                                                             |                                                                                    |                                                | (113,858 | )        |        |          | (404,873 | )        |         |   | (271,264 | )       
|                                                                                              |                                                                                    |                                                |          |          |        |          |          |          |         |   |          |         
|Effect of exchange rate changes on cash and cash
    equivalents                              |                                                                                    |                                                | 10,940   |          |        |          | 7,719    |          |         |   | (9,438   | )       
|                                                                                              |                                                                                    |                                                |          |          |        |          |          |          |         |   |          |         
|Net increase (decrease) in cash and cash
    equivalents                                      |                                                                                    |                                                | (2,647   | )        |        |          | (368,138 | )        |         |   | 337,749  |         
|Cash and cash equivalents at beginning of year                                                |                                                                                    |                                                | 137,141  |          |        |          | 505,279  |          |         |   | 167,530  |         
|                                                                                              |                                                                                    |                                                |          |          |        |          |          |          |         |   |          |         
|Cash and cash equivalents at end of year                                                      |                                                                                    | $                                              | 134,494  |          |        | $        | 137,141  |          |         | $ | 505,279  |         
|                                                                                              |                                                                                    |                                                |          |          |        |          |          |          |         |   |          |         

See accompanying notes to these consolidated
financial statements.

128



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

For the Years Ended December 31, 2003,
2002 and 2001




|    |                                
|--- | -------------------------------
|(1) | Significant Accounting Policies



|    |                        
|--- | -----------------------
|(a) | Description of Business

Hollinger International Inc. (the
Company) operates principally as a publisher, printer and
distributor of newspapers and magazines through subsidiaries and
affiliates in the United States, the United Kingdom, Canada and
Israel. The Companys operating subsidiaries and affiliates
in the United Kingdom and Israel were sold during 2004. (See
Note 28(c)). In addition, the Company has developed
websites related to its publications on the Internet. The
Companys raw materials, principally newsprint and ink, are
not dependant on a single or limited number of suppliers.
Customers primarily consist of purchasers of the Companys
publications and advertisers in those publications.



|    |                                                 
|--- | ------------------------------------------------
|(b) | Principles of Presentation and
    Consolidation

The Company is a subsidiary of Hollinger Inc., a
Canadian corporation. At December 31, 2003, Hollinger Inc.
owned 30.0% of the combined equity and 72.4% of the combined
voting power of the outstanding Common Stock of the Company.

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% at December 31, 2003,
and during all periods presented. The Company had no economic
interest in The National Post Company at or after
August 31, 2001. (See Note 3(c)). All significant
intercompany balances and transactions have been eliminated on
consolidation.

The Company has prepared the consolidated
financial statements on the basis that the Company will continue
as a going concern. As discussed in Note 28(c), the Company
retained Lazard Frères & Co. LLC and
Lazard & Co., Limited (collectively Lazard)
to explore strategic alternatives including the sale of all of
the Company or the sale of specific properties the Company owns.



|    |                 
|--- | ----------------
|(c) | Use of Estimates

The preparation of consolidated financial
statements in accordance with U.S. generally accepted accounting
principles (GAAP) 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, goodwill, intangible assets,
income taxes, pensions and other post-retirement benefits,
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 in 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.



|    |                 
|--- | ----------------
|(d) | Cash Equivalents

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



|    |            
|--- | -----------
|(e) | 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.

129



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                  
|--- | -----------------
|(f) | Long-Lived Assets

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 improvement, 3 to 10 years
for machinery and equipment and 20 years for printing press
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. Property, plant and
equipment categorized as construction in progress is not
depreciated until the items are in use.

The Chicago Group publications capitalize the
direct response advertising costs associated with their efforts
to obtain new subscribers, which efforts enhance their
subscriber lists. These costs are capitalized in accordance with
Statement of Position 93-7(SOP 93-7). The
capitalized amounts are amortized over an 11-year period based
on each publications subscriber retention experience.
Based on historical retention data, an accelerated amortization
period has been adopted whereby approximately 61% of the amount
capitalized by the Chicago Group in a year is amortized in the
first year and an additional 17% is amortized in year two. The
remaining 22% is amortized over the subsequent nine years
on a declining basis.

The Company assesses the recoverability of the
carrying value of all long-lived assets including property,
plant and equipment whenever events or changes in business
circumstances indicate the carrying value 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 carrying
value of the long-lived assets, then the difference between the
carrying value of the long-lived assets and the fair value of
such assets is recorded as a charge against income in the
Consolidated Statements of Operations.

Primary indicators of impairment include
significant permanent declines in circulation and readership;
the loss of specific sources of advertising revenue, whether or
not to other forms of media; and, an expectation that a
long-lived asset may be disposed of before the end of its useful
life. Impairment is assessed at a level based on the printing
facility or facilities associated with a specific newspaper
publication or group of publications being the lowest level at
which identifiable cash flows are largely independent of the
cash flows of other assets.



|    |            
|--- | -----------
|(g) | 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. All derivative
instruments are recorded on the Consolidated Balance Sheets at
fair value. Derivatives that are not classified as hedges are
adjusted to fair value through earnings. Changes in the fair
value of derivatives that are designated and qualify as
effective hedges are recorded either in Accumulated Other
Comprehensive Loss or through earnings, as appropriate.
The ineffective portion of derivatives that are classified as
hedges is immediately recognized in earnings.

In April 2003, the Financial Accounting Standards
Board (FASB) issued SFAS No. 149,
Amendment of SFAS No. 133 on Derivative
Instruments and Hedging Activities
(SFAS No. 149). SFAS No. 149
amends and clarifies accounting for derivative instruments,
including certain derivative instruments embedded in other
contracts, and for hedging activities under
SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities (SFAS
No. 133). In particular, it clarifies under what
circumstances a contract with an initial net investment meets
the characteristics of a derivative as discussed in SFAS
No. 133; clarifies when a derivative contains a financing
component; amends the meaning of underlying to
conform it to the language used in the FASB Interpretation
No. 45 Guarantors Accounting and Disclosure
Requirements for Guarantees, including Indirect Guarantees of
Indebtedness of Others  an

130



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

interpretation of FASB Statements No. 5, 57
and 107 and rescission of FASB No. 34
(FIN 45); and amends certain other existing
pronouncements.

SFAS No. 149 is effective for contracts
entered into or modified after June 30, 2003 and for
hedging relationships designated after June 30, 2003. See
Note 21 for a discussion of the Companys use of
derivative instruments. The adoption of SFAS No. 149
did not have a material effect on the Companys
Consolidated Financial Statements.



|    |            
|--- | -----------
|(h) | Investments

Investments consist of corporate debt and equity
securities. Marketable debt and 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 Accumulated Other Comprehensive Loss until
realized. Realized gains and losses from the sale of
available-for-sale securities are determined on specific
investments and recognized in the Consolidated Statements of
Operations under the caption of Other income (expense),
net. Other than investments accounted for using the equity
method (see below), corporate debt and equity securities are
recorded at cost less declines in market value that are other
than temporary.

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. Any impairment
is charged to earnings and a new cost basis for the security is
established.

Dividend and interest income is recognized when
earned.

Investments in the common stock of entities for
which the Company has significant influence over the
investees operating and financial policies, but less than
a controlling voting interest, are accounted for using the
equity method. Significant influence is generally presumed to
exist when the Company owns between 20% and 50% of the
investees voting stock.

Under the equity method, the Companys
investment in an investee is included in the Consolidated
Balance Sheets (under the caption Investments) and
the Companys share of the investees earnings or loss
is included in the Consolidated Statements of Operations under
the caption Other income (expense), net.

Included as equity investees are 50% owned joint
ventures with which certain of the Companys U.K. Newspaper
Group subsidiaries have agreements for the printing of
predominantly all of the U.K. newspapers and for the purchase of
newsprint. Costs of the related services and purchases are
reflected as operating costs in the Consolidated Statements of
Operations (see Note 23(k)). The Companys joint
venture partners are also engaged in the business of newspaper
publication.

The Company previously owned the National
Post. The Company sold a 50% interest in the National
Post on November 16, 2000 and sold its remaining 50%
interest on September 1, 2001. The Company continued to
control the operations of the National Post as its
managing partner through August 31, 2001. Accordingly, the
financial position, results of operations, and cash flows of the
National Post were consolidated in the Companys
financial statements through August 31, 2001.



|    |                                         
|--- | ----------------------------------------
|(i) | Goodwill and Other Intangible
    Assets

Goodwill represents the excess of acquisition
costs over the estimated fair value of net assets acquired in
business combinations and circulation related assets. Until
December 31, 2001, amortization was calculated using the
straight-line method over the respective estimated useful lives
to a maximum of 40 years.

Definite lived intangibles include
non-competition agreements with former owners of acquired
newspapers and subscriber and advertiser relationships.

131



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Effective January 1, 2002, the Company
adopted SFAS No. 142, Goodwill and Other
Intangible Assets (SFAS No. 142).
The new standard requires that goodwill and intangible assets
with indefinite useful lives no longer be amortized, but instead
be tested for impairment at least annually. The standard also
specifies criteria that intangible assets must meet to be
recognized and reported apart from goodwill. In addition,
SFAS No. 142 requires that intangible assets with
finite useful lives be amortized over their respective estimated
useful lives to their estimated residual values and reviewed for
impairment in accordance with SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets (SFAS No. 144).

As of the date of adoption of
SFAS No. 142, the Company has discontinued
amortization of all existing goodwill, evaluated existing
intangible assets and has made the necessary reclassification in
order to conform with the new criteria for recognition of
intangible assets apart from goodwill. Some amounts previously
ascribed to circulation, mastheads and certain other intangible
assets have been reclassified to goodwill effective
January 1, 2002.

The transitional provisions of
SFAS No. 142 required the Company to assess whether
goodwill was impaired as of January 1, 2002. The fair
values of the Companys reporting units are determined
primarily using a multiple of maintainable normalized cash
earnings. As a result of this transitional impairment test, and
based on the methodology adopted, the Company determined that
the carrying amount of The Jerusalem Post properties was
in excess of its estimated fair value. Accordingly, the goodwill
attributable to The Jerusalem Postwas written down in
its entirety. The write-down of $20.1 million (net of tax
of nil) has been reflected in the Consolidated Statement of
Operations as of January 1, 2002 as a cumulative effect of
a change in accounting principle.

This change in accounting principle cannot be
applied retroactively and the amounts presented for prior
periods have not been restated for this change. If this change
in accounting policy were applied to the reported Consolidated
Statement of Operations for the year ended December 31,
2001, the impact of the change, in respect of goodwill and
intangible assets with indefinite useful lives not being
amortized, would be as follows:

|                                                                             |  |                |          |  
|---------------------------------------------------------------------------- |  | -------------- | -------- | -
|                                                                             |  | 2001          
|                                                                             |  |               
|                                                                             |  | (In thousands)
|                                                                             |  | Restated      
|                                                                             |  | Note 2        
|Net loss  as reported                                                       |  | $              | (326,573 | )
|Eliminate goodwill amortization, net of income
    tax and minority interest |  |                | 16,604   |  
|                                                                             |  |                |          |  
|Adjusted net loss                                                            |  | $              | (309,969 | )
|                                                                             |  |                |          |  
|Basic loss per share  as reported                                           |  | $              | (3.31    | )
|                                                                             |  |                |          |  
|Basic adjusted loss per share                                                |  | $              | (3.14    | )
|                                                                             |  |                |          |  
|Diluted loss per share  as reported                                         |  | $              | (3.31    | )
|                                                                             |  |                |          |  
|Diluted adjusted loss per share                                              |  | $              | (3.14    | )
|                                                                             |  |                |          |  

Adjusted net loss, noted above, reflects only the
reduction of goodwill amortization expense and does not give
effect to the impact that this change in accounting policy would
have had on the gains and losses resulting from the disposal of
operations during 2001.

In addition to the transitional goodwill
impairment test as of January 1, 2002, the Company is
required to test goodwill for impairment on an annual basis for
each of its reporting units. The Company is also required to
evaluate goodwill for impairment between annual tests if an
event occurs or circumstances change that would more likely than
not reduce the fair value of a reporting unit below its carrying
amount. Certain indicators of potential impairment that could
impact the Companys reporting units include, but are not
limited to, the following: (i) a significant long-term
adverse change in the business climate that is expected to cause
a

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HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

substantial decline in advertising spending,
(ii) a permanent significant decline in a reporting
units newspaper readership, (iii) a significant
adverse long-term negative change in the demographics of a
reporting units newspaper readership and (iv) a
significant technological change that results in a substantially
more cost effective method of advertising than newspapers. The
Company has determined that the fair value of all reporting
units is in excess of the respective carrying amounts at
December 31, 2003 and 2002 for purposes of the annual
impairment test.

Effective January 1, 2002, the Company had
unamortized goodwill in the amount of $512.1 million, which
is no longer being amortized. This amount reflects the
transitional impairment of $20.1 million relating to The
Jerusalem Post.



|    |                         
|--- | ------------------------
|(j) | 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 terms of
the related debt.



|    |                                                     
|--- | ----------------------------------------------------
|(k) | Pension Plans and Other Post-retirement
    Benefits

The Company provides defined benefit pension,
defined contribution pension, post-retirement and
post-employment health care and life insurance benefits to
eligible employees under a variety of plans (Note 25).

Pension costs for defined contribution plans are
recognized as the obligation for contribution arises.

In general, benefits under the defined benefit
plans are based on years of service and the employees
compensation during the last few years of employment.

Health care benefits are available to eligible
employees meeting certain age and service requirements upon
termination of employment. Post-retirement and post-employment
benefits are accrued in accordance with SFAS No. 106,
Employers Accounting for Post-retirement Benefits
Other than Pensions (SFAS No. 106), and
SFAS No. 112, Employers Accounting for
Post-employment Benefits (SFAS No. 112).

The annual pension expense is based on a number
of actuarial assumptions, including expected long-term return on
assets and discount rate. The Companys methodology in
selecting these actuarial assumptions is discussed below.



| |                                   
| | ----------------------------------
| | Long-Term Rate of Return on Assets

In determining the expected long-term rate of
return on assets, the Company evaluated input from its
investment consultants, actuaries and investment management
firms including their review of asset class return expectations,
as well as long-term historical asset class returns. Projected
returns by such consultants are based on broad equity and bond
indices.

The Company regularly reviews its actual asset
allocation and periodically rebalances its investments to its
targeted allocation when considered appropriate.

The Companys determination of net pension
expense was based on market-related valuation of assets, which
reduces year-to-year volatility. This market-related valuation
of assets recognizes investment gains or losses over a
three-year period from when they occur. Investment gains or
losses for this purpose reflect the difference between the
expected return calculated using the market-related value of
assets and recognized gains or losses over a three-year period.
The future value of assets will be affected as previously
deferred gains or losses are recorded.

133



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HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |              
| | -------------
| | Discount Rate

The discount rate that the Company uses for
determining future pension obligations is based on indices of
AA-rated corporate bonds. These indices reflect the weighted
average period of benefit payments.

The Company will continue to evaluate all of its
actuarial assumptions, generally on an annual basis, including
the expected long-term rate of return on assets and discount
rate, and will adjust them as appropriate. Actual pension
expense will depend on future investment performance, changes in
future discount rates, the level of contributions by the Company
and various other factors related to the populations
participating in the pension plans.



|    |             
|--- | ------------
|(l) | 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 are also recognized for the tax effects
attributable to the carryforward of net operating losses.
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. The Company considers future
taxable income and ongoing tax strategies in assessing the need
for a valuation allowance in relation to deferred tax assets.
The Company records a valuation allowance to reduce deferred tax
assets to a level where they are more likely than not to be
realized based upon the above mentioned considerations.



|    |                    
|--- | -------------------
|(m) | Revenue Recognition

The Companys principal sources of revenue
comprise advertising, circulation and job printing. As a general
principle, revenue is recognized when the following criteria are
met: (i) persuasive evidence of an arrangement exists,
(ii) delivery has occurred and services have been rendered,
(iii) the price to the buyer is fixed or determinable and,
(iv) collectibility is reasonably assured or is probable.
Advertising revenue, being amounts charged for space purchased
in the Companys newspapers, is recognized upon publication
of the advertisements. Circulation revenue from subscribers,
billed to customers at the beginning of a subscription period,
is recognized on a straight-line basis over the term of the
related subscription. Deferred revenue represents subscription
receipts that have not been earned. Circulation revenue from
single copy sales is recognized at the time of distribution. In
both cases, circulation revenues are recorded net of fees or
commissions paid to distributors and retailers and net of an
allowance for returned copies. Job printing revenue, being
charges for printing services provided to third parties, is
recognized upon delivery.



|    |                             
|--- | ----------------------------
|(n) | Foreign Currency Translation

Foreign operations of the Company have been
translated into U.S. dollars in accordance with the
principles prescribed in SFAS No. 52, Foreign
Currency Translation (SFAS No. 52).
All assets, liabilities and minority interests are translated at
period 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 period. Translation adjustments are included in
the Accumulated Other Comprehensive Loss 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 operation.
Gains and losses arising from the Companys foreign
currency transactions are reflected in net earnings.

134



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HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |               
|--- | --------------
|(o) | Loss Per Share

Loss per share is computed in accordance with
SFAS No. 128, Earnings per Share
(SFAS No. 128). See Note 16 for a
reconciliation of the numerator and denominator for the
calculation of basic and diluted loss per share.



|    |                         
|--- | ------------------------
|(p) | Stock-based Compensation

In December 2002, the FASB issued
SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure, an Amendment
of FASB Statement No. 123
(SFAS No. 148) to provide alternative
methods of transition for a voluntary change to the fair value
based method of accounting for stock-based employee
compensation. In addition, SFAS No. 148 amends the
disclosure requirements of SFAS No. 123,
Accounting for Stock-Based Compensation
(SFAS No. 123) to require prominent
disclosure in both annual and interim financial statements about
the method of accounting for stock-based employee compensation
and the effect of the method used on reported results. The
Company adopted the disclosure requirements of
SFAS No. 148 as of December 31, 2002.

The Company accounts for stock-based employee
compensation arrangements in accordance with provisions of
Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB
No. 25) and complies with the disclosure provisions
of SFAS No. 123, as amended. Under APB No. 25,
compensation expense is based on the difference, if any, on the
date of grant between the quoted market price of the
Companys stock and the exercise price.

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

The Company uses the intrinsic value based method
of accounting for its stock-based compensation arrangements.
Stock options granted to employees of Ravelston are recorded
using the fair value based method and are reflected in the
Consolidated Statements of Stockholders Equity as in-kind
dividends.

The Company uses the Black-Scholes option-pricing
model, which was developed for use in estimating the fair value
of traded options that have no vesting restrictions and are
freely transferable. All available option-pricing models require
the input of highly subjective assumptions including the
expected stock price volatility.

135



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HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Had the Company determined compensation costs
based on the fair value at the grant date of its stock options
under SFAS No. 123, the Companys net loss and
loss per share would have been increased to the pro forma
amounts indicated in the following table:

|                                                                    |  |                                          |         |          |  |          |          |   |  |   |          |  
|------------------------------------------------------------------- |  | ---------------------------------------- | ------- | -------- |  | -------- | -------- | - |  | - | -------- | -
|                                                                    |  | 2003                                     |         | 2002     |  | 2001    
|                                                                    |  |                                          |         |          |  |         
|                                                                    |  |                                         
|                                                                    |  | (In thousands, except per share amounts)
|                                                                    |  |                                          |         | Restated |  | Restated
|                                                                    |  |                                          |         | Note 2   |  | Note 2  
|Net loss, as reported                                               |  | $                                        | (74,308 | )        |  | $        | (230,629 | ) |  | $ | (326,573 | )
|Exclude: stock-based compensation expense
    (credit), as reported |  |                                          | 6,722   |          |  |          |         |   |  |   | (1,369   | )
|Include: pro forma stock-based compensation
    expense             |  |                                          | (9,336  | )        |  |          | (3,551   | ) |  |   | (1,766   | )
|                                                                    |  |                                          |         |          |  |          |          |   |  |   |          |  
|Pro forma net loss                                                  |  | $                                        | (76,922 | )        |  | $        | (234,180 | ) |  | $ | (329,708 | )
|                                                                    |  |                                          |         |          |  |          |          |   |  |   |          |  
|Basic loss per share, as reported                                   |  | $                                        | (0.85   | )        |  | $        | (2.40    | ) |  | $ | (3.31    | )
|Diluted loss per share, as reported                                 |  | $                                        | (0.85   | )        |  | $        | (2.40    | ) |  | $ | (3.31    | )
|Pro forma basic loss per share                                      |  | $                                        | (0.88   | )        |  | $        | (2.44    | ) |  | $ | (3.34    | )
|Pro forma diluted loss per share                                    |  | $                                        | (0.88   | )        |  | $        | (2.44    | ) |  | $ | (3.34    | )

The fair value of each stock option granted
during 2003, 2002, and 2001 was estimated on the date of grant
for pro forma disclosure purposes using the Black-Scholes
option-pricing model with the following weighted-average
assumptions used for grants in fiscal 2003, 2002 and 2001,
respectively: dividend yield of 3.39%, 4.80% and 3.63%; expected
volatility of 36.18%, 35.79% and 37.25% and risk-free interest
rates of 2.69%, 4.27% and 4.7%; expected lives of five years.
Weighted average fair value of options granted by the Company
during 2003, 2002 and 2001 was $2.41, $2.64 and $4.09,
respectively, on a per share basis.



|    |                  
|--- | -----------------
|(q) | Reclassifications

Certain 2002 and 2001 amounts in the consolidated
financial statements have been reclassified to conform with the
2003 presentation and to reflect the required adoption of a new
FASB Standard. (See Note 2.)



|    |                              
|--- | -----------------------------
|(r) | New Accounting Pronouncements

In May 2003, the FASB issued
SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity (SFAS No. 150).
SFAS No. 150 establishes standards for classification
and measurement of certain financial instruments with
characteristics of both liabilities and equity. Some provisions
of SFAS No. 150 are consistent with the FASBs
proposal to revise the definition of liabilities in FASB
Concepts Statement No. 6, Elements of Financial
Statements, to encompass certain obligations that a
reporting entity can or must settle by issuing its own equity
shares, depending on the nature of the relationship established
between the holder and the issuer. SFAS No. 150 is
effective for financial instruments entered into or modified
after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after
June 15, 2003. The Company adopted the provisions of
SFAS No. 150 as of July 1, 2003. The adoption of
this pronouncement did not have a material effect on the
Companys consolidated financial statements.

In December 2003, the FASB issued
SFAS No. 132, (revised), Employers
Disclosures about Pensions and Other Post-retirement
Benefits  an amendment of FASB Statements
No. 87, 88, and 106 (SFAS No. 132R).
SFAS No. 132R retains the disclosures required by
SFAS No. 132, which standardized the disclosure
requirements for pensions and other post-retirement benefits to
the extent practicable, and requires additional information on
changes in the benefit obligations and fair values of plan
assets. Additional disclosures have been added in response to
concerns expressed by users of financial statements; those

136



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

disclosures include information describing the
types of plan assets, investment strategy, measurement date(s),
plan obligations, cash flows, and components of net periodic
benefit cost recognized during interim periods. (See
Note 1(k), Significant Accounting
Policies  Pension Plans and Other Post-retirement
Benefits; and Note 25, Employee Benefit Plans.)
The Company has included the disclosures required by SFAS
No. 132R in these consolidated financial statements.

In December 2003, the FASB issued a revised
version of Financial Interpretation No. 46, Variable
Interest Entities (FIN 46R). FIN 46R
requires an entity to evaluate investments that are held to
determine, firstly, whether or not the entity invested in is a
variable interest entity, as defined, and secondly, if the
investing entity is the primary beneficiary of the variable
interest entity. The results of this analysis will determine if
an entity will be required to consolidate the results of the
investee, regardless of the actual ownership percentage. The
Company has evaluated its investments in relation to
FIN 46R, and does not expect the adoption of FIN 46R
will have a material impact on the Companys results of
operations or financial position.

In December 2004, the FASB issued
SFAS No. 123 (revised 2004) Share-Based
Payment (SFAS 123R). SFAS 123R
addresses the accounting for transactions in which an enterprise
exchanges its equity instruments for employee services. It also
addresses transactions in which an enterprise incurs liabilities
that are based on the fair value of the enterprises equity
instruments or that may be settled by the issuance of those
equity instruments in exchange for employee services. For public
entities, the cost of employee services received in exchange for
equity instruments, including employee stock options, is to be
measured on the grant-date fair value of those instruments. That
cost will be recognized as compensation expense over the service
period, which would normally be the vesting period.
SFAS 123R is effective as of the first interim or annual
reporting period that begins after June 15, 2005; the
Company will adopt SFAS 123R in the third quarter of fiscal
2005. The Company has not yet determined the impact
SFAS 123R will have on its results of operations.



|    |                                   
|--- | ----------------------------------
|(2) | Restatements and Reclassifications

The Company has restated its consolidated
financial statements as of December 31, 2002 and for the
years ended December 31, 2002 and 2001. These restatements
have been grouped into the following categories:



| |                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------
| | (a) Restatements arising from the findings
    of the special committee of independent directors (the
    Special Committee) (Note 18(a));
|
| | (b) Corrections of accounting errors in
    prior periods;                                                                                  
|
| | (c) Reclassifications arising from the
    required adoption of a new FASB standard; and                                                    
|
| | (d) Other, principally the effects of
    foreign currency translation adjustments.                                                         

137



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following tables set forth the net effect of
the restatements and reclassifications on specific amounts
presented in the Companys Consolidated Statements of
Operations and Consolidated Balance Sheet:

|                                                                                                                                 |  |                                          |          |                   |  |          |          |            |  |   |          |   |  |   |          |  
|-------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------- | -------- | ----------------- |  | -------- | -------- | ---------- |  | - | -------- | - |  | - | -------- | -
|                                                                                                                                 |  |                                          |          |                  
|                                                                                                                                 |  | December 31, 2002                        |          | December 31, 2001
|                                                                                                                                 |  |                                          |          |                  
|                                                                                                                                 |  |                                          |          | Previously        |  |          |          | Previously
|                                                                                                                                 |  | Restated                                 |          | Reported          |  | Restated |          | Reported  
|                                                                                                                                 |  |                                          |          |                   |  |          |          |           
|                                                                                                                                 |  |                                         
|                                                                                                                                 |  | (In thousands, except per share amounts)
|Net effect on specific amounts presented in the
    Consolidated Statements of Operations:                                       |  |                                          |          |                   |  |          |          |            |  |   |          |   |  |   |          |  
|Newsprint                                                                                                                        |  | $                                        | 86,935   |                   |  | $        | 89,840   |            |  | $ | 127,025  |   |  | $ | 127,025  |  
|Operating income (loss)                                                                                                          |  |                                          | 60,107   |                   |  |          | 57,202   |            |  |   | (35,983  | ) |  |   | (35,983  | )
|Other income (expense), net                                                                                                      |  |                                          | (172,783 | )                 |  |          | (139,978 | )          |  |   | (303,318 | ) |  |   | (297,137 | )
|Total other expense                                                                                                              |  |                                          | (218,358 | )                 |  |          | (185,553 | )          |  |   | (327,431 | ) |  |   | (321,250 | )
|Loss before income taxes, minority interest,
    extraordinary items and cumulative effect of change in
    accounting principle |  |                                          | (158,251 | )                 |  |          | (128,351 | )          |  |   | (363,414 | ) |  |   | (357,233 | )
|Income taxes (benefit)                                                                                                           |  |                                          | 50,132   |                   |  |          | 66,950   |            |  |   | (23,038  | ) |  |   | (8,319   | )
|Loss before minority interest, extraordinary
    items and cumulative effect of change in accounting principle                   |  |                                          | (208,383 | )                 |  |          | (195,301 | )          |  |   | (340,376 | ) |  |   | (348,914 | )
|Extraordinary loss on debt extinguishment                                                                                        |  |                                          |         |                   |  |          | (21,276  | )          |  |   |         |   |  |   |         |  
|Loss before cumulative effect of change in
    accounting principle                                                              |  |                                          | (210,550 | )                 |  |          | (218,744 | )          |  |   | (326,573 | ) |  |   | (335,111 | )
|Net loss                                                                                                                         |  |                                          | (230,629 | )                 |  |          | (238,823 | )          |  |   | (326,573 | ) |  |   | (335,111 | )
|Basic loss per share                                                                                                             |  | $                                        | (2.40    | )                 |  | $        | (2.49    | )          |  | $ | (3.31    | ) |  | $ | (3.39    | )
|Diluted loss per share                                                                                                           |  | $                                        | (2.40    | )                 |  | $        | (2.49    | )          |  | $ | (3.31    | ) |  | $ | (3.39    | )

|                                                                                |  |                   |           |            |  |   |           |  
|------------------------------------------------------------------------------- |  | ----------------- | --------- | ---------- |  | - | --------- | -
|                                                                                |  |                  
|                                                                                |  | December 31, 2002
|                                                                                |  |                  
|                                                                                |  |                   |           | Previously
|                                                                                |  | Restated          |           | Reported  
|                                                                                |  |                   |           |           
|                                                                                |  |                  
|                                                                                |  | (In thousands)   
|Net effect on specific amounts presented in the
    Consolidated Balance Sheet: |  |                   |           |            |  |   |           |  
|Cash and cash equivalents                                                       |  | $                 | 137,141   |            |  | $ | 113,368   |  
|Total current assets                                                            |  |                   | 917,488   |            |  |   | 893,715   |  
|Investments                                                                     |  |                   | 97,943    |            |  |   | 124,076   |  
|Total assets                                                                    |  |                   | 2,185,772 |            |  |   | 2,188,132 |  
|Accounts payable and accrued expenses                                           |  |                   | 213,668   |            |  |   | 194,323   |  
|Amounts due to related parties, net                                             |  |                   | 25,165    |            |  |   | 30,358    |  
|Income taxes payable and other tax liabilities                                  |  |                   | 311,139   |            |  |   | 295,971   |  
|Total current liabilities                                                       |  |                   | 1,114,938 |            |  |   | 1,085,618 |  
|Deferred income taxes and other tax liabilities                                 |  |                   | 222,269   |            |  |   | 249,731   |  
|Other liabilities                                                               |  |                   | 98,377    |            |  |   | 132,503   |  
|Total liabilities                                                               |  |                   | 2,010,242 |            |  |   | 2,042,510 |  
|Cumulative foreign currency translation adjustment                              |  |                   | (28,971   | )          |  |   | (38,950   | )
|Accumulated deficit                                                             |  |                   | (76,133   | )          |  |   | (98,296   | )
|Total stockholders equity                                                      |  |                   | 149,783   |            |  |   | 119,875   |  
|Total liabilities and stockholders equity                                      |  |                   | 2,185,772 |            |  |   | 2,188,132 |  

138



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table summarizes the effect of the
restatements and reclassifications on specific accounts included
in the Consolidated Statements of Operations for the periods
presented:

|                                                                                                                                                         |                                                                                                  |                         |          |         |   |   |          |         |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------ | ----------------------- | -------- | ------- | - | - | -------- | ------- | -
|                                                                                                                                                         |                                                                                                  |                        
|                                                                                                                                                         |                                                                                                  | Year Ended December 31,
|                                                                                                                                                         |                                                                                                  |                        
|                                                                                                                                                         |                                                                                                  | 2002                    |          | 2001   
|                                                                                                                                                         |                                                                                                  |                         |          |        
|                                                                                                                                                         |                                                                                                  |                        
|                                                                                                                                                         |                                                                                                  | (In thousands)         
|Operating income (loss), as previously reported                                                                                                          |                                                                                                  | $                       | 57,202   |         |   | $ | (35,983  | )      
|                                                                                                                                                         | Correction of newsprint overaccrual (b(iii))                                                     |                         |          | 2,905   |   |   |          |        |  
|                                                                                                                                                         |                                                                                                  |                         |          |         |   |   |          |        
|Restated operating income (loss)                                                                                                                         |                                                                                                  | $                       | 60,107   |         |   | $ | (35,983  | )      
|                                                                                                                                                         |                                                                                                  |                         |          |         |   |   |          |        
|Loss before income taxes, minority interest,
    extraordinary items and cumulative effect of change in
    accounting principle, as previously reported |                                                                                                  | $                       | (128,351 | )       |   | $ | (357,233 | )      
|                                                                                                                                                         | Correction of non-competition
    payments recorded in incorrect year (a(i))                   |                         |          |        |   |   |          | (6,100  | )
|                                                                                                                                                         | Correction of newsprint overaccrual (b(iii))                                                     |                         |          | 2,905   |   |   |          |        |  
|                                                                                                                                                         | Correction of equity accounting of affiliate
    (b(iv))                                         |                         |          | 2,714   |   |   |          |        |  
|                                                                                                                                                         | Reclassification of extraordinary loss (c)                                                       |                         |          | (35,460 | ) |   |          |        |  
|                                                                                                                                                         | Other (d)                                                                                        |                         |          | (59     | ) |   |          | (81     | )
|                                                                                                                                                         |                                                                                                  |                         |          |         |   |   |          |        
|Restated loss before income taxes, minority
    interest, and cumulative effect of change in accounting principle                                        |                                                                                                  | $                       | (158,251 | )       |   | $ | (363,414 | )      
|                                                                                                                                                         |                                                                                                  |                         |          |         |   |   |          |        
|Income taxes (benefit), as previously reported                                                                                                           |                                                                                                  | $                       | 66,950   |         |   | $ | (8,319   | )      
|                                                                                                                                                         | Tax effect of correction of
    non-competition payments recorded in incorrect year
    (a(i)) |                         |          |        |   |   |          | (2,440  | )
|                                                                                                                                                         | Other tax adjustments (a(iii))                                                                   |                         |          | 4,415   |   |   |          | 3,086   |  
|                                                                                                                                                         | Tax effect of correction of newsprint overaccrual
    (b(iii))                                   |                         |          | 1,139   |   |   |          |        |  
|                                                                                                                                                         | Correction of U.S. tax benefit on liquidation of
    Canadian operations (b(v))                  |                         |          | (20,116 | ) |   |          |        |  
|                                                                                                                                                         | Other corrections of tax accounts (b(vi))                                                        |                         |          | 11,928  |   |   |          | (15,330 | )
|                                                                                                                                                         | Reclassification of tax benefit on extraordinary
    loss (c)                                    |                         |          | (14,184 | ) |   |          |        |  
|                                                                                                                                                         | Other (d)                                                                                        |                         |          |        |   |   |          | (35     | )
|                                                                                                                                                         |                                                                                                  |                         |          |         |   |   |          |        
|Restated income taxes (benefit)                                                                                                                          |                                                                                                  | $                       | 50,132   |         |   | $ | (23,038  | )      
|                                                                                                                                                         |                                                                                                  |                         |          |         |   |   |          |        

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HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table summarizes the effect of the
restatements and reclassifications on the Consolidated Balance
Sheet as of December 31, 2002:

|                                                                            |                                                                                  |                |         |         |  
|--------------------------------------------------------------------------- | -------------------------------------------------------------------------------- | -------------- | ------- | ------- | -
|                                                                            |                                                                                  | As of         
|                                                                            |                                                                                  | December 31,  
|                                                                            |                                                                                  | 2002          
|                                                                            |                                                                                  |               
|                                                                            |                                                                                  | (In thousands)
|Cash and cash equivalents, as previously reported                           |                                                                                  | $              | 113,368 |        
|                                                                            | Reclassification to conform with current year
    presentation (Note 9(a))       |                |         | 23,773  |  
|                                                                            |                                                                                  |                |         |        
|Restated cash and cash equivalents                                          |                                                                                  | $              | 137,141 |        
|                                                                            |                                                                                  |                |         |        
|Investments, as previously reported                                         |                                                                                  | $              | 124,076 |        
|                                                                            | Correction of equity accounting of affiliate
    (b(iv))                         |                |         | 1,391   |  
|                                                                            | Reclassification to conform with current year
    presentation (Note 5(b))       |                |         | (27,524 | )
|                                                                            |                                                                                  |                |         |        
|Restated investments                                                        |                                                                                  | $              | 97,943  |        
|                                                                            |                                                                                  |                |         |        
|Accounts payable and accrued expenses, as
    previously reported           |                                                                                  | $              | 194,323 |        
|                                                                            | Correction of overaccruals recorded in 2000
    (b(ii))                          |                |         | (1,580  | )
|                                                                            | Correction of newsprint overaccrual (b(iii))                                     |                |         | (2,848  | )
|                                                                            | Reclassification to conform with current year
    presentation (Note 9(a))       |                |         | 23,773  |  
|                                                                            |                                                                                  |                |         |        
|Restated accounts payable and accrued expenses                              |                                                                                  | $              | 213,668 |        
|                                                                            |                                                                                  |                |         |        
|Amounts due to related parties, net, as
    previously reported             |                                                                                  | $              | 30,358  |        
|                                                                            | Correction of overaccruals recorded prior to 1999
    (b(i))                     |                |         | (5,193  | )
|                                                                            |                                                                                  |                |         |        
|Restated amounts due to related parties, net                                |                                                                                  | $              | 25,165  |        
|                                                                            |                                                                                  |                |         |        
|Income taxes payable and other tax liabilities,
    as previously reported  |                                                                                  | $              | 295,971 |        
|                                                                            | Tax on assumed additional proceeds from sale of
    newspaper properties (a(ii)) |                |         | 19,494  |  
|                                                                            | Other tax adjustments (a(iii))                                                   |                |         | 1,599   |  
|                                                                            | Tax effect of correction of equity accounting of
    affiliate (b(iv))           |                |         | (1,362  | )
|                                                                            | Correction of U.S. tax benefit on
    liquidation of Canadian operations (b(v))  |                |         | (20,116 | )
|                                                                            | Other corrections of tax accounts (b(vi))                                        |                |         | 7,080   |  
|                                                                            | Reclassifications affecting tax accounts (b(vii))                                |                |         | 8,473   |  
|                                                                            |                                                                                  |                |         |        
|Restated income taxes payable and other tax
    liabilities                 |                                                                                  | $              | 311,139 |        
|                                                                            |                                                                                  |                |         |        
|Deferred income taxes and other tax liabilities,
    as previously reported |                                                                                  | $              | 249,731 |        
|                                                                            | Other tax adjustments (a(iii))                                                   |                |         | 6,648   |  
|                                                                            | Tax effect of overaccruals (b(i) and b(ii))                                      |                |         | 3,273   |  
|                                                                            | Tax effect of correction of newsprint overaccrual
    (b(iii))                   |                |         | 1,139   |  
|                                                                            | Other corrections of tax accounts (b(vi))                                        |                |         | (30,049 | )
|                                                                            | Reclassifications affecting tax accounts (b(vii))                                |                |         | (8,473  | )
|                                                                            |                                                                                  |                |         |        
|Restated deferred income taxes and other tax
    liabilities                |                                                                                  | $              | 222,269 |        
|                                                                            |                                                                                  |                |         |        
|Other liabilities, as previously reported                                   |                                                                                  | $              | 132,503 |        
|                                                                            | Correction of overaccruals recorded prior to 1999
    (b(i))                     |                |         | (6,602  | )
|                                                                            | Reclassification to conform with current year
    presentation (Note 5(b))       |                |         | (27,524 | )
|                                                                            |                                                                                  |                |         |        
|Restated other liabilities                                                  |                                                                                  | $              | 98,377  |        
|                                                                            |                                                                                  |                |         |        

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HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                                                               |                                                                                                        |                |         |         |  
|------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------ | -------------- | ------- | ------- | -
|                                                                               |                                                                                                        | As of         
|                                                                               |                                                                                                        | December 31,  
|                                                                               |                                                                                                        | 2002          
|                                                                               |                                                                                                        |               
|                                                                               |                                                                                                        | (In thousands)
|Cumulative foreign currency translation
    adjustment, as previously reported |                                                                                                        | $              | (38,950 | )      
|                                                                               | Other corrections of tax accounts (b(vi))                                                              |                |         | 9,686   |  
|                                                                               | Currency translation effects attributable to
    restatements of accounts stated in foreign currencies |                |         | 293     |  
|                                                                               |                                                                                                        |                |         |        
|Restated cumulative foreign currency translation
    adjustment                |                                                                                                        | $              | (28,971 | )      
|                                                                               |                                                                                                        |                |         |        
|Accumulated deficit, as previously reported                                    |                                                                                                        | $              | (98,296 | )      
|                                                                               | Tax on assumed additional proceeds from sale of
    newspaper properties (a(ii))                       |                |         | (20,239 | )
|                                                                               | Other tax adjustments (a(iii))                                                                         |                |         | (8,266  | )
|                                                                               | Correction of overaccruals, net of tax (b(i) to
    b(iii))                                            |                |         | 12,369  |  
|                                                                               | Correction of equity accounting of affiliate, net
    of tax (b(iv))                                   |                |         | 2,714   |  
|                                                                               | Correction of U.S. tax benefit on
    liquidation of Canadian operations (b(v))                        |                |         | 20,116  |  
|                                                                               | Other corrections of tax accounts (b(vi))                                                              |                |         | 13,283  |  
|                                                                               | Correction of in-kind dividends (b(viii))                                                              |                |         | 2,234   |  
|                                                                               | Other (d)                                                                                              |                |         | (48     | )
|                                                                               |                                                                                                        |                |         |        
|Restated accumulated deficit                                                   |                                                                                                        | $              | (76,133 | )      
|                                                                               |                                                                                                        |                |         |        

The following table summarizes the cumulative
effect of the restatements and reclassifications on the
Companys Stockholders Equity at
December 31, 2001 and January 1, 2001.

|                                                       |                                                                                                        |                |         |            |   |   |         |         |  
|------------------------------------------------------ | ------------------------------------------------------------------------------------------------------ | -------------- | ------- | ---------- | - | - | ------- | ------- | -
|                                                       |                                                                                                        | As of          |         | As of     
|                                                       |                                                                                                        | December 31,   |         | January 1,
|                                                       |                                                                                                        | 2001           |         | 2001      
|                                                       |                                                                                                        |                |         |           
|                                                       |                                                                                                        |               
|                                                       |                                                                                                        | (In thousands)
|Total stockholders equity, as previously
    reported |                                                                                                        | $              | 366,627 |            |   | $ | 898,109 |        
|                                                       | Correction of non-competition
    payments recorded in incorrect year, net of tax
    benefit (a(i)) |                |         |           |   |   |         | 3,660   |  
|                                                       | Tax on assumed additional proceeds from sale of
    newspaper properties (a(ii))                       |                |         | (19,341    | ) |   |         | (20,541 | )
|                                                       | Other tax adjustments (a(iii))                                                                         |                |         | (3,849     | ) |   |         | (764    | )
|                                                       | Correction of overaccruals recorded prior to
    1999, net of tax benefit (b(i))                       |                |         | 9,115      |   |   |         | 9,434   |  
|                                                       | Correction of overaccruals recorded in 2000, net
    of tax benefit (b(ii))                            |                |         | 948        |   |   |         | 948     |  
|                                                       | Other corrections of tax accounts (b(vi))                                                              |                |         | 23,993     |   |   |         | 10,297  |  
|                                                       | Other (d)                                                                                              |                |         | 13         |   |   |         | 2       |  
|                                                       |                                                                                                        |                |         |            |   |   |         |        
|Restated total stockholders equity                    |                                                                                                        | $              | 377,506 |            |   | $ | 901,145 |        
|                                                       |                                                                                                        |                |         |            |   |   |         |        

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HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Each category of the restatements and
reclassifications and their effect on the consolidated financial
statements is discussed below:



|    |                                                                    
|--- | -------------------------------------------------------------------
|(a) | Restatements Arising from the Findings of
    the Special Committee

The Special Committee identified, among other
things, the following transactions that were improperly
reflected in the Companys consolidated financial
statements in prior periods.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i) The recording of
    non-competition payments in the incorrect
    year  The Special Committee identified
    $6.1 million of non-competition payments that
    the Company made in 2001 that were reflected in the consolidated
    financial statements as having been made or were otherwise
    accrued in 2000. Of the $6.1 million, $5.5 million
    related to non-competition payments paid by the
    Company in 2001 to Lord Conrad M. Black of Crossharbour
    (Black), Peter Y. Atkinson
    (Atkinson), F. David Radler
    (Radler) and J. A. Boultbee
    (Boultbee) pursuant to non-competition
    agreements with American Publishing Company (which owned
    virtually no newspaper assets as of February 2001). The payments
    were issued in 2001 and backdated to 2000. The remaining
    $0.6 million relates to payments that were made in 2001 and
    recorded as reductions of excessive accruals that were
    previously established in 2000. According to the report of the
    Special Committee (the Report), the Audit Committee
    did not approve any of these payments. Accordingly, the Company
    has increased Retained earnings by
    $3.7 million, net of tax as of January 1, 2001. With
    respect to the 2001 Consolidated Statement of Operations, the
    Company has decreased Other income (expense), net,
    by $6.1 million and decreased Income taxes
    (benefit) by $2.4 million, which resulted in an
    increase in net loss of $3.7 million and a corresponding
    decrease in total stockholders equity.
|
| | (ii) Tax on assumed additional proceeds
    from sale of Canadian newspaper properties to CanWest Global
    Communications Corporation  The Special Committee
    determined that non-competition payments that were
    made in connection with the sale of Canadian newspaper
    properties to CanWest Global Communications Corporation
    (CanWest) in 2000 were not properly approved by the
    Company. According to the findings of the Special Committee,
    these non-competition payments, aggregating
    Cdn.$80.0 million, made to certain former directors and officers
    of the Company, effectively reduced the proceeds the Company
    received from the sale of the newspaper properties.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| | The Special Committee also determined that the
    proceeds the Company received from the sale of Canadian
    properties to CanWest in 2000 were further reduced by
    Cdn.$60.0 million, as a consequence of an agreement between
    CanWest and Ravelston for the payment of an annual management
    fee of Cdn.$6.0 million in consideration for management
    services. The Special Committee determined that these proceeds
    should have been received by the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| | Had the Company received the assumed additional
    proceeds of Cdn.$140.0 million, the gain on the sale would
    have been greater by that amount with a consequent increase in
    income taxes that would have been provided for in 2000. The
    Company has recorded a decrease in Retained earnings
    of $20.2 million as of January 1, 2001 to account for
    income taxes on these unrecognized purchase proceeds.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| | (iii) Other tax
    adjustments  The Company has recorded additional
    accruals for tax contingencies to cover interest that the
    Company may be required to pay, net of federal tax benefits on a
    portion thereof.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              



|    |                                     
|--- | ------------------------------------
|(b) | Corrections of Accounting
    Errors

During the course of the preparation of its
consolidated financial statements for the year ended
December 31, 2003, the Company determined that previously
reported financial information required restatement for certain
accounting errors identified. Several transactions relate to
periods prior to 2001 and have been reflected as adjustments to
Retained earnings in the Consolidated Statement of
Stockholders Equity as of January 1, 2001. Below is a
description of the adjustments made to correct these accounting
errors.

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HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i) Correction of overaccruals recorded
    prior to 1999  In the review of its accounts, the
    Company identified that certain amounts had been overaccrued in
    periods prior to 1999. Specifically, in 1997, when the
    Companys parent, Hollinger Inc., transferred certain
    Canadian properties to the Company, accruals due to related
    parties were established to provide for expected costs of this
    transaction. The Company has increased Retained
    earnings as of January 1, 2001 by approximately
    $5.5 million in respect of these accruals due to related
    parties that were considered to be excessive. There was no tax
    effect on the reversal of these accruals. In 1998, the
    Chicago Sun-Times recorded approximately
    $6.6 million of pension costs in excess of amounts
    determined appropriate by the Companys actuaries.
    Retained earnings as of January 1, 2001 has
    been increased by $4.0 million, which is net of tax benefit
    of $2.6 million, in respect of these excess accruals.
|
| | (ii) Correction of overaccruals recorded
    in 2000  The Company also identified accruals
    that were established with respect to the disposition of
    Community Group properties in 2000 which were considered to be
    excessive by approximately $1.6 million. Retained
    earnings as of January 1, 2001 has been increased by
    $1.0 million, which is net of tax benefit of
    $0.6 million, in respect of these excessive accruals.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| | (iii) Correction of overaccrual of
    newsprint costs at the Chicago Sun-Times in 2002 
    In its review of past transactions, the Company identified an
    overaccrual relating to the Chicago Newspaper Groups
    newsprint costs of approximately $2.9 million in 2002. This
    overaccrual has been reversed and is reflected as an adjustment
    to Newsprint and has been tax effected at an
    effective rate of 40% in the Consolidated Statement of
    Operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| | (iv) Correction of equity accounting of
    affiliate in 2002  The Company has identified
    errors with respect to its equity earnings from a joint venture
    affiliate in 2002. The Company previously had not recorded
    interest income from the joint venture on amounts that the
    Company had funded to the joint venture. The Company also did
    not record its 50% share of the joint venture affiliates
    income tax benefit. The effect of these adjustments is to
    decrease the Companys equity losses in affiliates by
    approximately $2.7 million, which has been reflected
    through Other income (expense), net in the
    Consolidated Statement of Operations.                                                                                                                                                                                                                                                                                                                                                              
|
| | The Company failed to record the effects of a tax
    sharing arrangement between the joint venture and the
    U.K. Newspaper Group. The effect of this arrangement has
    been reflected as a decrease of $1.4 million of
    Income taxes payable and other tax liabilities in
    the Consolidated Balance Sheet.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| | The net effect of the three foregoing adjustments
    has been reflected as a $1.4 million increase to
    Investments in the Consolidated Balance Sheet.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| | (v) Correction of U.S. tax benefit on
    liquidation of Canadian operations  The Company
    identified an error with respect to the amount of taxes provided
    upon the substantial liquidation of Canadian operations. The
    Company had not recognized a tax benefit in the 2002
    U.S. tax provision on the foreign exchange impact of this
    liquidation. Accordingly, the Company has recorded a tax benefit
    in Income taxes (benefit) on the Consolidated
    Statement of Operations and a decrease in Income taxes
    payable and other tax liabilities on the Consolidated
    Balance Sheet of $20.1 million.                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| | (vi) Other corrections of tax
    accounts  The Company has identified certain
    errors with respect to the amounts of income taxes (benefit)
    recorded in prior years. The Companys Consolidated
    Financial Statements have been restated to give effect to
    corrections regarding: (a) the periods in which certain
    amounts should have been recognized in income taxes (benefit);
    (b) the appropriate level of the valuation allowance
    related to certain deferred tax assets; and (c) other
    factors that impacted the provision for income taxes (benefit).
    The Company has also corrected the manner in which it had
    maintained its accrual for income tax contingencies, which had
    affected the cumulative foreign currency translation account.                                                                                                                                                                                                                                                                       

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HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Consolidated Statements of Operations have
    been restated to increase the provision for income taxes by
    $11.9 million in 2002 and to increase the income tax
    benefit in 2001 by $15.3 million. With respect to the
    Consolidated Balance Sheet as of December 31, 2002, the
    restatements resulted in an increase of $7.1 million in
    Income taxes payable and other tax liabilities, a
    decrease of $30.1 million in Deferred income taxes
    and other tax liabilities and an increase in
    stockholders equity of $23.0 million. The effects of
    the restatements are also reflected in the tables and elsewhere
    in the note, Income Taxes. (See Note 24.)                                                                             
|
| | (vii) Reclassifications affecting tax
    accounts  The Company has identified certain
    errors with respect to the classification of transactions
    between current and deferred income taxes (benefit) in prior
    years. These errors did not affect total income taxes (benefit)
    or net earnings (loss) in any year. The Company has reclassified
    certain amounts that are reflected in the tables presented in
    the note, Income Taxes. (See Note 24.) With
    respect to the Companys Consolidated Balance Sheet, the
    reclassifications resulted in an increase to Income taxes
    payable and other tax liabilities of $8.5 million and a
    corresponding decrease to Deferred income taxes and other
    tax liabilities at December 31, 2002.
|
| | (viii) Correction of stock-based
    compensation disclosures and in-kind dividends 
    The Company has corrected certain assumptions used in error in
    the calculation of the fair value of stock options issued to
    employees of the Company and to employees of Ravelston. Stock
    options granted to employees of Ravelston are reflected in the
    Consolidated Statements of Stockholders Equity as in-kind
    dividends.                                                                                                                                                                                                                                                                                                                                          
|
| | The Company has corrected its calculation of the
    compensatory cost of stock options granted for its disclosures
    in accordance with SFAS No. 123. Specifically, the
    Company has estimated that the life of options issued to
    employees is expected to be five years. In addition, the Company
    is now using volatility based on the average option life instead
    of using 12 months as was used in prior periods. The
    Company has restated prior periods to correct the assumptions
    used in the calculation.                                                                                                                                                                                                                                             
|
| | The tables below outline the effects of these
    corrections on the in-kind dividends and the pro forma
    stock based compensation:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                



| |                  
| | -----------------
| | In-kind Dividends

|                        |  |                |       |            |  |   |       | 
|----------------------- |  | -------------- | ----- | ---------- |  | - | ----- | 
|                        |  |                |       | As        
|                        |  |                |       | Previously
|                        |  | Restated       |       | Reported  
|                        |  |                |       |           
|                        |  |               
|                        |  | (In thousands)
|Year Ended December 31, |  |                |       |            |  |   |       | 
|2003                    |  | $              | 3,906 |            |  | $ | 8,513 | 
|2002                    |  |                | 4,376 |            |  |   | 6,111 | 
|2001                    |  |                | 7,301 |            |  |   | 7,800 | 



| |                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| | In 2003, the in-kind dividends were previously
    reported in the Companys quarterly report on
    Form 10-Q for the three-months ended March 31, 2003.



| |                                       
| | --------------------------------------
| | Pro forma Stock-based
    Compensation

|                        |  |                |       |            |  |   |       | 
|----------------------- |  | -------------- | ----- | ---------- |  | - | ----- | 
|                        |  |                |       | As        
|                        |  |                |       | Previously
|                        |  | Restated       |       | Reported  
|                        |  |                |       |           
|                        |  |               
|                        |  | (In thousands)
|Year Ended December 31, |  |                |       |            |  |   |       | 
|2002                    |  | $              | 3,551 |            |  | $ | 7,861 | 
|2001                    |  |                | 3,135 |            |  |   | 6,989 | 

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HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                                                                                                            
| | -----------------------------------------------------------------------------------------------------------
| | (c)                     Reclassifications
    Arising from the Required Adoption of a New FASB
    Standard

In April 2002, the FASB issued SFAS No. 145,
Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical
Corrections (SFAS No. 145).
SFAS No. 145 addresses, among other things, the income
statement treatment of gains and losses related to debt
extinguishments requiring that such expenses no longer be
treated as extraordinary items unless the items meet the
definition of extraordinary under 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. SFAS 145 became effective for fiscal
years beginning after May 15, 2002. As a result of the
Companys adoption of SFAS No. 145, it was
required to reclassify the loss on early extinguishment of debt
of $21.3 million (approximately $35.5 million, pretax)
in 2002. Corresponding reclassification adjustments were made to
Other income (expense), net and Income taxes
(benefit) in the Companys Consolidated Statement of
Operations.



| |                              
| | -----------------------------
| | (d)                     Other

Amounts described as Other reflect
the effects of foreign currency translation and related items.



|    |                           
|--- | --------------------------
|(3) | Dispositions of Businesses



|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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
    $47.5 million was recognized on this sale and was recorded
    in Other income (expense), net.                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|   
|(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 Media) 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 Newsand The Observer(Sarnia). Pre-tax gains
    of approximately $0.8 million were recognized on these
    sales. The former CEO of Hollinger L.P. is a minority
    stockholder and CEO of Osprey Media.                                                                                                                                                                                         
|   
|    |  | In connection with the two sales of Canadian
    newspaper properties to Osprey Media in 2001, the Company,
    Hollinger Inc., Black and three executive officers entered into
    non-competition agreements with Osprey Media
    pursuant to which each agreed not to compete directly or
    indirectly in Canada with the Canadian businesses sold to Osprey
    Media 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 Black and
    the three executive officers, who determined that allocation.
    The Special Committee has concluded that the
    non-competition payments had been ratified by the
    Audit Committee on the basis of false and misleading
    information. The Company, through the Special Committee, has
    brought suit to recover these and other payments. See
    Note 22(a).
|   
|(c) |  | In August 2001, the Company entered into an
    agreement to sell to CanWest its remaining 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. The results of operations of the
    National Post are included in the Consolidated Statement
    of Operations to August 31, 2001. A pre-tax loss of
    approximately $78.2 million was recognized on the sale and
    was recorded in Other income (expense), net.                                                                                                                                                                                                                                                                                                                                                              
|   
|(d) |  | In August 2001, the Company sold certain
    other publications, including the Mammoth Times, to
    Horizon Publications Inc. (Horizon) in exchange for
    $1.00. Horizon is managed by former Community Group                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

145



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HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

executive officers and controlled by Black and
the Companys former Deputy Chairman, President and COO,
Radler. The Company recognized a net loss on this transaction of
approximately $1.5 million.



|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(e) |  | In 2001, certain of the closing adjustments were
    finalized relating to the November 16, 2000 sale of most of
    the Canadian newspapers and related assets to CanWest. The
    closing adjustments resulted in an additional pre-tax gain in
    2001 of approximately $18.3 million. At December 31,
    2003, approximately $49.1 million in respect of closing
    adjustments remained due to the Company and is included in
    accounts receivable in the Consolidated Balance Sheet. Amounts
    due bear interest at a rate of approximately 9%. The amount
    outstanding is subject to arbitration between CanWest and the
    Company. Adjustments in the balance due, if any, resulting from
    further negotiations will be recorded as a component of net
    gains (losses) on sales of publishing interests included in
    Other income (expense), net (See Note 22(a)).
|   
|(f) |  | The Company concluded several other transactions
    in 2001 which resulted in an overall net gain of approximately
    $11.9 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

(4)     Other Current
Assets

At December 31, 2003, included in
Other current assets on the Consolidated Balance
Sheet, the Company identified the following assets as held
for sale as the decision to dispose of these assets was
made prior to year end.

|                      |  |                |        |              |  |                |       |  |  |   |       | 
|--------------------- |  | -------------- | ------ | ------------ |  | -------------- | ----- |  |  | - | ----- | 
|                      |  |                |        | Accumulated  |  |               
|                      |  | Cost           |        | Depreciation |  | Net Book Value
|                      |  |                |        |              |  |               
|                      |  |               
|                      |  | (In thousands)
|Apartments(a)         |  | $              | 4,047  |              |  | $              | 1,564 |  |  | $ | 2,483 | 
|Corporate aircraft(b) |  |                | 8,960  |              |  |                | 1,960 |  |  |   | 7,000 | 
|                      |  |                |        |              |  |                |       |  |  |   |       | 
|                      |  | $              | 13,007 |              |  | $              | 3,524 |  |  | $ | 9,483 | 
|                      |  |                |        |              |  |                |       |  |  |   |       | 



|    |  |                                                                                                                                                                                                                                                                                                                                                                                                 
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | At December 31, 2003, the Company owned
    corporate apartments in both Chicago and New York, which are
    considered non-core assets. Subsequent to the year-end, the
    apartments were sold for net proceeds of $1.4 million and
    $1.8 million, respectively, resulting in a gain on sale of
    $0.8 million.                                                                         
|   
|(b) |  | As a result of the wind-down of aviation
    operations prior to year-end, the corporate aircraft has been
    classified as an asset held for sale. A write-down of
    $5.2 million was made in 2003 and included in Other
    income (expense), net (See Note 19). The corporate
    jet was sold for $7.1 million subsequent to year end,
    resulting in a gain on sale of $0.1 million.

146



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HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |            
|--- | -----------
|(5) | Investments

|                                              |                                           |                |         |        |   |   |        |        |  
|--------------------------------------------- | ----------------------------------------- | -------------- | ------- | ------ | - | - | ------ | ------ | -
|                                              |                                           | 2003           |         | 2002  
|                                              |                                           |                |         |       
|                                              |                                           |               
|                                              |                                           | (In thousands)
|                                              |                                           |               
|                                              |                                           | Restated      
|                                              |                                           | Note 2        
|Available-for-sale securities, at fair value: |                                           |                |         |        |   |   |        |       
|                                              | Equity securities                         |                | $       | 4,404  |   |   | $      | 4,270  |  
|                                              | CanWest debentures(a)                     |                |         | 69,484 |   |   |        | 52,712 |  
|                                              |                                           |                |         |        |   |   |        |       
|                                              |                                           |                | 73,888  |        |   |   | 56,982 |       
|                                              |                                           |                |         |        |   |   |        |       
|Other non-marketable investments, at cost:    |                                           |                |         |        |   |   |        |       
|                                              | Internet and technology related companies |                |         | 13,923 |   |   |        | 22,439 |  
|                                              | Other                                     |                |         | 10,719 |   |   |        | 14,341 |  
|                                              |                                           |                |         |        |   |   |        |       
|                                              |                                           |                | 24,642  |        |   |   | 36,780 |       
|                                              |                                           |                |         |        |   |   |        |       
|Equity accounted companies, at equity:        |                                           |                |         |        |   |   |        |       
|                                              | Printing joint ventures(b)                |                |         | (2,662 | ) |   |        | (5,335 | )
|                                              | Internet related companies                |                |         | 9,366  |   |   |        | 6,330  |  
|                                              | Other                                     |                |         | 6,738  |   |   |        | 3,186  |  
|                                              |                                           |                |         |        |   |   |        |       
|                                              |                                           |                | 13,442  |        |   |   | 4,181  |       
|                                              |                                           |                |         |        |   |   |        |       
|                                              |                                           | $              | 111,972 |        |   | $ | 97,943 |       
|                                              |                                           |                |         |        |   |   |        |       

|                                                                                     |                             |                |        |        |   |   |      |        |  
|------------------------------------------------------------------------------------ | --------------------------- | -------------- | ------ | ------ | - | - | ---- | ------ | -
|                                                                                     |                             | 2003           |        | 2002  
|                                                                                     |                             |                |        |       
|                                                                                     |                             |               
|                                                                                     |                             | (In thousands)
|Gross unrealized holding gains (losses) on
    available-for-sale securities:        |                             |                |        |        |   |   |      |       
|                                                                                     | CanWest debentures          |                | $      | 14,588 |   |   | $    | (1,484 | )
|                                                                                     | Equity securities           |                |        | 1,363  |   |   |      | 595    |  
|                                                                                     |                             |                |        |        |   |   |      |       
|                                                                                     |                             |                | 15,951 |        |   |   | (889 | )     
|                                                                                     | Less  deferred tax benefit |                |        | (3,111 | ) |   |      | (1     | )
|                                                                                     | Less  minority interest    |                |        | (1,665 | ) |   |      | 196    |  
|                                                                                     |                             |                |        |        |   |   |      |       
|Unrealized gain (loss) on marketable securities
    included in stockholders equity |                             | $              | 11,175 |        |   | $ | (694 | )     
|                                                                                     |                             |                |        |        |   |   |      |       



|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | On November 16, 2000, the Company sold a
    substantial portion of its Canadian assets to CanWest and
    received in return, in addition to cash and shares in CanWest,
    12 1/8% debentures issued by CanWest (CanWest
    Debentures). The Company was able to monetize its interest
    in the CanWest Debentures in spite of restrictions limiting
    transfer of ownership but not without retaining some risk,
    particularly in relation to foreign exchange rate fluctuations
    between the Canadian and United States dollars. The monetization
    was effected by way of a participation agreement pursuant to
    which the Company sold its interests in a substantial portion of
    the CanWest Debentures to a trust. The Company was ultimately
    able to relieve itself of any obligations relating to the
    CanWest Debentures under the participation agreement on
    November 18, 2004. See Note 28(i). The underlying
    transactions to these events are described in more detail in the
    balance of this note.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The CanWest Debentures were issued by a
    wholly-owned subsidiary of CanWest and are guaranteed by
    CanWest. These debentures are denominated in Canadian dollars.
    Interest on the CanWest Debentures is calculated, compounded and
    payable semi-annually in arrears at a rate of 12 1/8% 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
    the CanWest Debentures, or

147



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HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | cash. Subsequent to November 5, 2005,
    interest is to be paid in cash. The debentures are due
    November 15, 2010, but were redeemable at any time prior to
    May 15, 2003 for cash at CanWests option at 100% of
    the principal amount.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| | The Company was prohibited from selling the
    CanWest Debentures received prior to May 15, 2003. In order
    to monetize this investment, the Company entered into a
    participation agreement in August 2001 pursuant to which it sold
    participation interests in Cdn.$540.0 million
    ($350.0 million) principal amount of CanWest Debentures to
    a special purpose trust (Participation Trust)
    administered by an arms length trustee. That sale of
    participation interests was supplemented by a further sale of
    Cdn.$216.8 million ($140.5 million) in December 2001
    for a total of Cdn.$756.8 million ($490.5 million).
    Both sales were conducted at a contracted rate of exchange of
    $0.6482 for each Cdn.$1. The Company remains the record owner of
    the participated CanWest Debentures and is required to make
    payments to the Participation Trust with respect to those
    debentures if and to the extent it receives payment in cash or
    kind on the debentures from CanWest. These payments are not
    reflected in the Companys accounts.                                                                                                                                                                                                                                                                                                                                        
|
| | Coincident with the Participation Trusts
    purchases of the participation interests, the Participation
    Trust sold senior notes to arms length third parties
    (Trust Notes) to finance the purchase of the
    participation interests. These transactions resulted in net
    proceeds to the Company of $401.2 million and for
    accounting purposes have been accounted for as sales in
    accordance with SFAS No. 140, Accounting for
    Transfers and Servicing of Financial Assets and Extinguishments
    of Liabilities (SFAS No. 140). The
    net loss on the transactions, including realized holding losses
    on the debentures, amounted to $62.1 million. That loss has
    been included in Other income (expense), net. The
    Company believes that the participation arrangement does not
    constitute a prohibited sale of debentures as legal title was
    not transferred. CanWest has advised the Company that it accepts
    that position.                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| | The Company has not retained an interest in the
    Participation Trust nor does it have any beneficial interest in
    the assets of 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 are immediately paid to the Participation
    Trust. However, after May 15, 2003, the Company may have
    been required to deliver to the Participation Trust CanWest
    Debentures with a value equivalent to $475.3 million based
    on the contracted rate of exchange. The CanWest Debentures are
    denominated in Canadian dollars and consequently, there is a
    currency exposure on the debentures subject to the delivery
    provision. A substantial portion of that exposure was previously
    hedged, however, the hedge instrument (a forward foreign
    exchange contract) was terminated in contemplation of and in
    conjunction with the placement of 9% Senior Notes due 2010 (the
    9% Senior Notes) and amendment of the Senior Credit
    Facility in 2002 (See Note 10). In 2002, a net cash receipt
    of $6.3 million was realized on the termination of the
    hedge and has been included in Other income (expense),
    net.
|
| | At the time the Participation Trust was
    established, the Company retained a beneficial interest in
    CanWest Debentures that was not subject to the interests of the
    Participation Trust. Based on exchange rates at
    December 31, 2003 and 2002, the Company held debentures
    with a face value of $59.4 million and $58.9 million,
    respectively, in excess of those required to satisfy its
    obligations to the Participation Trust.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | Pursuant to the terms of the participation
    agreement, the Company was unable to transfer to an unaffiliated
    third party, until at least November 4, 2005, the
    equivalent of $50.0 million principal amount of CanWest
    Debentures at December 31, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| | On May 11, 2003, CanWest redeemed
    Cdn.$265.0 million principal amount of the CanWest
    Debentures plus interest accrued to the redemption date of
    Cdn.$8.8 million for a total of Cdn.$273.8 million                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

148



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HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ($197.2 million), of which
    Cdn.$246.6 million was payable to the Participation Trust.
    This amount, converted at the fixed rate of $0.6482 for each
    Canadian dollar, totaled $159.8 million and was delivered
    to the Participation Trust on May 11, 2003. The balance of
    the proceeds of $37.4 million, less the amounts paid under
    the cross currency swap discussed below of $9.8 million, or
    $27.6 million, was retained by the Company in respect of
    its interest in debentures, in which Participations were not
    sold, a portion of which it is unable to transfer to an
    unaffiliated third party before November 4, 2005 and
    thereafter, only at the election of the Participation Trust. Of
    the proceeds retained by the Company, approximately
    $16.7 million is restricted cash under the terms of the
    Participation Trust and unavailable for general corporate
    purposes as of December 31, 2003.
|
| | On April 11, 2003, the Company entered into
    a cross-currency rate swap transaction to hedge the Canadian
    denominated proceeds expected to be received on the redemption
    of the CanWest Debentures. The contract had a total foreign
    currency obligation notional value of $187.4 million, fixed
    at a rate of US$0.6845 for each Cdn.$1.00 and expired as to
    Cdn.$273.8 million on May 13, 2003. Changes in the
    value of derivatives comprising the cross-currency swap amounted
    to a loss of $9.8 million, which is included in Other
    income (expense), net.                                                                                                                                                                                                                                                                                                                                                                   
|
| | Pursuant to the indenture for the CanWest
    Debentures, the redemption terms were to be renegotiated after
    May 15, 2003. Any agreement as to revised redemption terms
    requires the approval of all the Participation Trust unit
    holders under the terms of the Participation Trust. Such
    approval was sought but the approval level received was short of
    the unanimous consensus required and accordingly, there were no
    terms of redemption for the CanWest Debentures as of
    December 31, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| | During 2003, the Company received additional
    CanWest Debentures in the amount of Cdn.$10.0 million
    ($7.2 million) (2002  Cdn.$15.8 million
    ($10.0 million)) in payment of the interest due on existing
    debentures held by the Company, a portion of which related to
    interest accrued during 2002. These debentures have been
    recorded at their fair value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| | The Company, subsequent to year-end, entered into
    an agreement with CanWest that resulted in the redemption of the
    Participation Trust. As a consequence of that agreement, the
    Company was relieved of all obligations under the Participation
    Trust agreement on November 18, 2004. See Note 28(i).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                



|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) |  | The Companys share of the printing joint
    ventures pension liabilities (Note 25) was previously
    included in Other liabilities as of
    December 31, 2002. As of the end of the current year, the
    Company accounted for its share of the printing joint
    ventures pension liability as part of its investment in
    the printing joint ventures. Therefore, to conform with the
    current years presentation, the investment in printing
    joint ventures was reduced by $27.5 million as of
    December 31, 2002.



|    |                              
|--- | -----------------------------
|(6) | Property, Plant and Equipment

|                                 |  |                |         |      |  |   |         | 
|-------------------------------- |  | -------------- | ------- | ---- |  | - | ------- | 
|                                 |  |               
|                                 |  | December 31,  
|                                 |  |               
|                                 |  | 2003           |         | 2002
|                                 |  |                |         |     
|                                 |  |               
|                                 |  | (In thousands)
|Land                             |  | $              | 27,823  |      |  | $ | 27,574  | 
|Building and leasehold interests |  |                | 147,798 |      |  |   | 148,151 | 
|Machinery and equipment          |  |                | 341,188 |      |  |   | 324,401 | 
|Construction in progress         |  |                | 3,488   |      |  |   | 8,401   | 
|                                 |  |                |         |      |  |   |         | 
|                                 |  |                | 520,297 |      |  |   | 508,527 | 
|Less accumulated depreciation    |  |                | 254,938 |      |  |   | 208,841 | 
|                                 |  |                |         |      |  |   |         | 
|                                 |  | $              | 265,359 |      |  | $ | 299,686 | 
|                                 |  |                |         |      |  |   |         | 

149



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Depreciation of property, plant and equipment
totaled $38.5 million, $37.0 million and
$38.0 million in 2003, 2002 and 2001, respectively. The
Company capitalized interest in 2001 of approximately
$0.1 million, related to the construction and equipping of
production facilities for its newspapers in the Chicago area.



|    |                               
|--- | ------------------------------
|(7) | Goodwill and Intangible Assets

As disclosed in Note 1(i), the Company
adopted SFAS No. 142 effective January 1, 2002.

The changes in the carrying amount of goodwill by
reportable segment for the years ended December 31, 2003
and 2002 are as follows:

|                                           |  |                |         |           |  |           |         |           |  |              |         |  |  |   |        |  |  |   |         |  
|------------------------------------------ |  | -------------- | ------- | --------- |  | --------- | ------- | --------- |  | ------------ | ------- |  |  | - | ------ |  |  | - | ------- | -
|                                           |  |                |         |           |  | U.K.      |         | Canadian  |  |             
|                                           |  | Chicago        |         | Community |  | Newspaper |         | Newspaper |  | Consolidated
|                                           |  | Group          |         | Group     |  | Group     |         | Group     |  | Total       
|                                           |  |                |         |           |  |           |         |           |  |             
|                                           |  |               
|                                           |  | (In thousands)
|Balance as of January 1, 2002              |  | $              | 139,431 |           |  | $         | 20,079  |           |  | $            | 327,950 |  |  | $ | 44,700 |  |  | $ | 532,160 |  
|Transitional impairment loss               |  |                |        |           |  |           | (20,079 | )         |  |              |        |  |  |   |       |  |  |   | (20,079 | )
|                                           |  |                |         |           |  |           |         |           |  |              |         |  |  |   |        |  |  |   |         |  
|Revised balance as of January 1, 2002      |  |                | 139,431 |           |  |           |        |           |  |              | 327,950 |  |  |   | 44,700 |  |  |   | 512,081 |  
|Adjustment of excess acquisition reserves  |  |                | (11,377 | )         |  |           |        |           |  |              |        |  |  |   |       |  |  |   | (11,377 | )
|Foreign currency translation               |  |                |        |           |  |           |        |           |  |              | 32,444  |  |  |   | 529    |  |  |   | 32,973  |  
|                                           |  |                |         |           |  |           |         |           |  |              |         |  |  |   |        |  |  |   |         |  
|Balance as of December 31, 2003            |  | $              | 128,054 |           |  | $         |        |           |  | $            | 360,394 |  |  | $ | 45,229 |  |  | $ | 533,677 |  
|Adjustments of excess acquisition reserves |  |                | (3,657  | )         |  |           |        |           |  |              |        |  |  |   |       |  |  |   | (3,657  | )
|Acquisition                                |  |                |        |           |  |           |        |           |  |              |        |  |  |   | 709    |  |  |   | 709     |  
|Foreign currency translation               |  |                |        |           |  |           |        |           |  |              | 36,470  |  |  |   | 10,101 |  |  |   | 46,571  |  
|                                           |  |                |         |           |  |           |         |           |  |              |         |  |  |   |        |  |  |   |         |  
|Balance as of December 31, 2003            |  | $              | 124,397 |           |  | $         |        |           |  | $            | 396,864 |  |  | $ | 56,039 |  |  | $ | 577,300 |  
|                                           |  |                |         |           |  |           |         |           |  |              |         |  |  |   |        |  |  |   |         |  

Upon adoption of SFAS No. 142 effective
January 1, 2002, intangible assets totaling
$351.2 million, primarily amounts previously ascribed to
circulation and mastheads, were reclassified to goodwill.
Intangible assets totaling $126.0 million (comprising
non-competition agreements of $8.7 million and subscriber
and advertiser relationships of $117.3 million) were
recognized as identifiable intangible assets apart from goodwill.

During 2003, the Company purchased the remaining
25% interest of one of its subsidiaries included in the Canadian
Newspaper Group for $0.7 million.

The Companys amortizable intangible assets
consist of: (i) non-competition agreements with former
owners of acquired newspapers that are amortized using the
straight-line method over the term of the respective
non-competition agreements, which range from three to five
years; and (ii) subscriber and

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HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

advertiser relationships, which are amortized
using the straight-line method over 30 years. The
components of amortizable intangible assets at December 31,
2003 and 2002 are as follows:

|                                        |  |                   |         |              |  |          |        |  |  |   |         | 
|--------------------------------------- |  | ----------------- | ------- | ------------ |  | -------- | ------ |  |  | - | ------- | 
|                                        |  |                  
|                                        |  | December 31, 2003
|                                        |  |                  
|                                        |  | Gross             |         |             
|                                        |  | Carrying          |         | Accumulated  |  | Net Book
|                                        |  | Amount            |         | Amortization |  | Value   
|                                        |  |                   |         |              |  |         
|                                        |  |                  
|                                        |  | (In thousands)   
|Amortizable intangible assets:          |  |                   |         |              |  |          |        |  |  |   |         | 
|Non-competition agreements              |  | $                 | 14,000  |              |  | $        | 13,792 |  |  | $ | 208     | 
|Subscriber and advertiser relationships |  |                   | 138,154 |              |  |          | 30,872 |  |  |   | 107,282 | 
|                                        |  |                   |         |              |  |          |        |  |  |   |         | 
|                                        |  | $                 | 152,154 |              |  | $        | 44,664 |  |  | $ | 107,490 | 
|                                        |  |                   |         |              |  |          |        |  |  |   |         | 

|                                        |  |                   |         |              |  |          |        |  |  |   |         | 
|--------------------------------------- |  | ----------------- | ------- | ------------ |  | -------- | ------ |  |  | - | ------- | 
|                                        |  |                  
|                                        |  | December 31, 2002
|                                        |  |                  
|                                        |  | Gross             |         |             
|                                        |  | Carrying          |         | Accumulated  |  | Net Book
|                                        |  | Amount            |         | Amortization |  | Value   
|                                        |  |                   |         |              |  |         
|                                        |  |                  
|                                        |  | (In thousands)   
|Non-competition agreements              |  | $                 | 14,000  |              |  | $        | 9,525  |  |  | $ | 4,475   | 
|Subscriber and advertiser relationships |  |                   | 139,547 |              |  |          | 26,843 |  |  |   | 112,704 | 
|                                        |  |                   |         |              |  |          |        |  |  |   |         | 
|                                        |  | $                 | 153,547 |              |  | $        | 36,368 |  |  | $ | 117,179 | 
|                                        |  |                   |         |              |  |          |        |  |  |   |         | 

Amortization of amortizable intangible assets for
the years ended December 31, 2003, 2002 and 2001 was
$9.7 million, $8.9 million and $8.9 million,
respectively. Future amortization of amortizable intangible
assets is as follows: $4.6 million in 2004 and
$4.4 million per year from 2005 through 2008.



|    |                                              
|--- | ---------------------------------------------
|(8) | Deferred Financing Costs and Other
    Assets

|                                                                                 |  |                |         |      |  |   |        | 
|-------------------------------------------------------------------------------- |  | -------------- | ------- | ---- |  | - | ------ | 
|                                                                                 |  |               
|                                                                                 |  | December 31,  
|                                                                                 |  |               
|                                                                                 |  | 2003           |         | 2002
|                                                                                 |  |                |         |     
|                                                                                 |  |               
|                                                                                 |  | (In thousands)
|Unrealized foreign exchange gain on Participation
    Trust (Notes 21 and 28(i)) |  | $              | 92,106  |      |  | $ |       | 
|Deferred financing costs                                                         |  |                | 16,093  |      |  |   | 33,392 | 
|Capitalized telemarketing costs                                                  |  |                | 14,411  |      |  |   | 13,675 | 
|Receivable from Bradford Publishing Co.
    (Note 23(p))                         |  |                | 3,430   |      |  |   | 4,130  | 
|Receivable from Horizon (Note 23(q))                                             |  |                | 4,859   |      |  |   | 4,859  | 
|Intangible asset  pension
    (Note 25)                                         |  |                | 2,414   |      |  |   | 1,528  | 
|Other                                                                            |  |                | 2,583   |      |  |   | 2,630  | 
|                                                                                 |  |                |         |      |  |   |        | 
|                                                                                 |  | $              | 135,896 |      |  | $ | 60,214 | 
|                                                                                 |  |                |         |      |  |   |        | 

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HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                          
|--- | -----------------------------------------
|(9) | Accounts Payable and Accrued
    Expenses

|                    |                                                                       |                |         |          |  |   |         |        | 
|------------------- | --------------------------------------------------------------------- | -------------- | ------- | -------- |  | - | ------- | ------ | 
|                    |                                                                       |               
|                    |                                                                       | December 31,  
|                    |                                                                       |               
|                    |                                                                       | 2003           |         | 2002    
|                    |                                                                       |                |         |         
|                    |                                                                       |               
|                    |                                                                       | (In thousands)
|                    |                                                                       |                |         | Restated
|                    |                                                                       |                |         | Note 2  
|Accounts payable(a) |                                                                       | $              | 133,942 |          |  | $ | 111,218 |       
|Accrued expenses:   |                                                                       |                |         |          |  |   |         |       
|                    | Labor and benefits                                                    |                |         | 24,256   |  |   |         | 25,843 | 
|                    | Accrued interest                                                      |                |         | 3,751    |  |   |         | 17,786 | 
|                    | Dividends                                                             |                |         | 4,535    |  |   |         | 4,514  | 
|                    | Accrued restitution and settlement
    costs  circulation matters(b) |                |         | 24,120   |  |   |         |       | 
|                    | Other                                                                 |                |         | 67,208   |  |   |         | 54,307 | 
|                    |                                                                       |                |         |          |  |   |         |       
|                    |                                                                       | $              | 257,812 |          |  | $ | 213,668 |       
|                    |                                                                       |                |         |          |  |   |         |       



| |     |                                                                                                                                                                                                                                                                                                           
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | The Company has reclassified overdraft amounts
    which were reflected as a reduction of Cash and cash
    equivalents in prior periods, to accounts payable in 2003.
    Prior period amounts have been restated to reflect this change
    in classification.                                        
|
| | (b) | As disclosed in Notes 18 and 22, the
    Companys Audit Committee recently completed its
    investigation of circulation matters at the Chicago
    Sun-Times. The Company is negotiating restitution with its
    advertisers and has recorded an accrual of $24.1 million as
    of December 31, 2003.

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HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|     |               
|---- | --------------
|(10) | Long-Term Debt

|                                         |                                                                                     |                |         |         |  |   |           |         | 
|---------------------------------------- | ----------------------------------------------------------------------------------- | -------------- | ------- | ------- |  | - | --------- | ------- | 
|                                         |                                                                                     |               
|                                         |                                                                                     | December 31,  
|                                         |                                                                                     |               
|                                         |                                                                                     | 2003           |         | 2002   
|                                         |                                                                                     |                |         |        
|                                         |                                                                                     |               
|                                         |                                                                                     | (In thousands)
|Hollinger International Publishing Inc.: |                                                                                     |                |         |         |  |   |           |        
|                                         | 8.625% Senior Notes due 2005
    (Note 10(a))                                       |                | $       | 5,082   |  |   | $         | 5,082   | 
|                                         | 9% Senior Notes due 2010 (Note 10(b))                                               |                |         | 300,000 |  |   |           | 300,000 | 
|                                         | Senior Subordinated Notes due 2006
    (Note 10(c))                                 |                |         |        |  |   |           | 239,906 | 
|                                         | Senior Subordinated Notes due 2007
    (Note 10(c))                                 |                |         |        |  |   |           | 265,000 | 
|Community Group:                         |                                                                                     |                |         |         |  |   |           |        
|                                         | Amounts due under non-interest bearing
    non-competition agreements due 2004-2007 |                |         | 750     |  |   |           | 1,796   | 
|                                         | Other due 2004-2009 (at varying interest rates up
    to 9%)                        |                |         | 1,088   |  |   |           | 1,434   | 
|U.K. Newspaper Group                     |                                                                                     |                |         |         |  |   |           |        
|                                         | Obligations under capital leases (Note 11)                                          |                |         | 1,944   |  |   |           | 3,475   | 
|                                         | Senior Credit Facility (Note 10(d))                                                 |                |         | 217,129 |  |   |           | 265,000 | 
|Other debt                               |                                                                                     |                | 3,279   |         |  |   | 2,685     |        
|                                         |                                                                                     |                |         |         |  |   |           |        
|                                         |                                                                                     |                | 529,272 |         |  |   | 1,084,378 |        
|Less:                                    |                                                                                     |                |         |         |  |   |           |        
|                                         | Current portion included in current liabilities                                     |                |         | 6,725   |  |   |           | 4,814   | 
|                                         | Senior Subordinated Notes due 2006 and 2007
    (Note 10(c))                        |                |         |        |  |   |           | 504,906 | 
|                                         |                                                                                     |                |         |         |  |   |           |        
|                                         |                                                                                     | $              | 522,547 |         |  | $ | 574,658   |        
|                                         |                                                                                     |                |         |         |  |   |           |        

The following table summarizes the terms of the
Hollinger International Publishing Inc. (Publishing)
notes and the Senior Credit Facility:

|               |         |          |  |            |       |        |  |                    |                |                    |  |                     |  |                             |                |                                      |  |  |      |  |  |  |   | 
|-------------- | ------- | -------- |  | ---------- | ----- | ------ |  | ------------------ | -------------- | ------------------ |  | ------------------- |  | --------------------------- | -------------- | ------------------------------------ |  |  | ---- |  |  |  | - | 
|               |         |          |  |            |       |        |  |                    |                | Early              |  | Early              
|               |         | Interest |  |            |       |        |  |                    |                | Redemption         |  | Redemption         
|Principal      |         | Rate     |  | Issue Date |       | Status |  | Maturity           |                | Date               |  | Price              
|               |         |          |  |            |       |        |  |                    |                |                    |  |                    
|               |         |          |  |            |       |        |  |                    |                |                   
|(In thousands) |         |          |  |            |       |        |  |                    |                |                   
|$              | 5,082   |          |  |            | 8.625 | %(a)   |  |                    | March 18, 1997 |                    |  | Senior              |  |                             | March 15, 2005 |                                      |  |  | None |  |  |  |  | 
|$              | 300,000 |          |  |            | 9     | %(b)   |  | December  23, 2002 |                | Senior             |  | December 15, 2010   |  | December  15, 2006 or after |                | 2006-104.50%2007-102.25%2008-100.00%
|$              | 5,207   |          |  |            |       | (d)    |  | December  23, 2002 |                | Senior
    Secured |  | September  30, 2008 |  |                             | None           |                                      |  |  |     | 
|$              | 211,922 |          |  |            |       | (d)    |  | December  23, 2002 |                | Senior
    Secured |  | September  30, 2009 |  |                             | None           |                                      |  |  |     | 



|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | 8.625% Senior Notes due 2005
    (8.625% Senior Notes)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|    |  | On February 14, 2002, Publishing, a
    wholly-owned subsidiary of the Company, 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 8.625% Senior 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

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HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

day of payment for the 8.625% Senior Notes.
The purchase price totaled $1,101.34 for each $1,000 principal
amount of 8.625% Senior Notes. Included in the purchase
price was a consent payment equal to $40 per $1,000
principal amount of the 8.625% Senior Notes, payable to
those holders who validly consented to the proposed amendments
to the indenture governing the 8.625% Senior Notes. In
connection with the tender offer, the Company solicited consents
from the holders of the 8.625% Senior Notes to amend the
indenture governing the 8.625% Senior 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 in full. In addition, during
2002, Publishing purchased for retirement an additional
$6.0 million in aggregate principal amount of the
8.625% Senior Notes.



|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) |  | 9% Senior Notes due 2010                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|    |  | On December 23, 2002, Publishing issued
    $300.0 million of 9% Senior Notes guaranteed by the
    Company. Net proceeds of $291.7 million plus cash on hand
    and borrowings under the Senior Credit Facility
    (Note 10(d)) were used in January 2003 to retire, in their
    entirety, Publishings outstanding Senior Subordinated
    Notes due 2006 and 2007, to retire the Companys equity
    forward purchase agreements (Total Return Equity Swaps
    (Note 17)) in December 2002 and to repay amounts borrowed
    under the term facility maturing December 31, 2003
    (Note 10(e)) with the balance available for general
    corporate purposes.                                                                                                                                                                                                                                                                                                                         
|   
|    |  | On December 23, 2002, Publishing gave notice
    of redemption to the holders of existing Senior Subordinated
    Notes. Such notes were retired in January 2003 and accordingly
    were reflected as a current liability at December 31, 2002.
    The related financing proceeds were held in escrow in short term
    investments at December 31, 2002. Including early
    redemption premiums and accrued interest, $543.8 million
    was paid upon retirement of the Senior Subordinated Notes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|    |  | The Indentures relating to the 9% Senior
    Notes contained financial covenants and negative covenants that
    limited 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 provided that upon a change of control (as defined in
    the Indentures), each noteholder had 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. The Senior Credit Facility restricted
    Publishings ability to repurchase these notes even when
    Publishing may have been required to do so under the terms of
    the indenture relating to the 9% Senior Notes in connection
    with a change of control.
|   
|    |  | On January 22, 2003 and February 6,
    2003, Publishing entered into interest rate swap agreements to
    convert $150.0 million and $100.0 million,
    respectively, of the 9% Senior Notes to floating rates
    through December 15, 2010, subject to early termination
    notice (Note 21).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|    |  | Subsequent to December 31, 2003, the Company
    tendered an offer for the early retirement of the 9% Senior
    Notes and terminated the related interest rate swap agreements
    (Note 28(e)). In conjunction with the tender, the above
    noted financial and negative covenants were stripped from the
    9% Senior Notes not tendered and are no longer in force.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|(c) |  | Senior Subordinated Notes due 2006 and
    2007                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|    |  | In 2002, Publishing purchased for retirement
    $10.1 million in aggregate principal amount of the Senior
    Subordinated Notes due 2006 (Notes due 2006) and
    $25.0 million in aggregate principal amount of the Senior
    Subordinated Notes due 2007 (Notes due 2007 and
    collectively, Senior Subordinated Notes).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

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HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  | The remaining Senior Subordinated Notes were
    retired in January of 2003 with proceeds from the 9% Senior
    Notes issued in December 2002 (Note 10(b)) and with
    borrowings under the Senior Credit Facility. Publishing gave
    notice of redemption of the Senior Subordinated Notes on
    December 23, 2002 and therefore, these Senior Subordinated
    Notes were classified as a current liability at
    December 31, 2002. Publishing paid premiums of
    approximately $19.7 million on the early redemption of the
    Notes due 2006 and the Notes due 2007 and wrote-off related
    deferred financing costs of approximately $17.6 million,
    which amounts were recorded as Other income (expense),
    net in the 2003 Consolidated Statement of Operations.                                                                                                                                                                                                                                                                                                                                       
|   
|    |  | The total principal amount of the above
    8.625% Senior Notes, Notes due 2006 and Notes due 2007
    repaid during 2002 was $290.0 million. The premiums paid to
    retire that debt totaled approximately $27.1 million, which
    together with a write-off of approximately $8.3 million of
    related deferred financing costs, have been reflected as an
    Other income (expense), net item in the 2002
    Consolidated Statement of Operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|(d) |  | Senior Credit Facility                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|    |  | On December 23, 2002, certain of the
    Companys subsidiaries entered into a senior credit
    facility with an aggregate commitment of $310.0 million,
    arranged by Wachovia Bank, N.A. (the Senior Credit
    Facility).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|    |  | The Senior Credit Facility consisted of
    (i) a $45.0 million revolving credit facility, which
    was to mature on September 30, 2008 (the Revolving
    Credit Facility), (ii) a $45.0 million Term
    Loan A which was to mature on September 30, 2008
    (Term Loan A) and (iii) a
    $220.0 million Term Loan B, which was to mature on
    September 30, 2009 (Term Loan B).
    Publishing and Telegraph Group Limited (a wholly-owned indirect
    subsidiary) were the borrowers under the Revolving Credit
    Facility and First DT Holdings (FDTH), a
    wholly-owned indirect subsidiary, was the borrower under Term
    Loan A and Term Loan B. The Revolving Credit Facility
    and Term Loans bore interest at either the Base Rate (U.S.) or
    LIBOR, plus an applicable margin.                                                                                                                                                                                                                                                                                                               
|   
|    |  | Publishings borrowings under the Senior
    Credit Facility were guaranteed by Publishings material
    U.S. subsidiaries, while FDTHs and Telegraph
    Groups borrowings under the Senior Credit Facility were
    guaranteed by Publishing and its material U.S. and U.K.
    subsidiaries. The Company was also a guarantor of the Senior
    Credit Facility. Publishings borrowings under the Senior
    Credit Facility were secured by substantially all of the assets
    of Publishing and its material U.S. subsidiaries, a pledge
    of all of the capital stock of Publishing and its material
    U.S. subsidiaries and a pledge of 65% of the capital stock
    of certain foreign subsidiaries. FDTHs and Telegraph
    Groups borrowings under the Senior Credit Facility were
    secured by substantially all of the assets of Publishing and its
    material U.S. and U.K. subsidiaries and a pledge of all of the
    capital stock of Publishing and its material U.S. and U.K.
    subsidiaries. The Companys assets in Canada were not
    pledged as security under the Senior Credit Facility.
|   
|    |  | On December 27, 2002, FDTH entered into two
    cross-currency rate swap transactions to hedge principal and
    interest payments on U.S. dollar borrowings under the
    Senior Credit Facility. The contracts set a foreign currency
    obligation notional value of $265.0 million, fixed at a
    rate of US $1.5922 to £1, converted the interest rate
    on such borrowing from floating to fixed, and were to expire as
    to $45.0 million on December 29, 2008 and as to
    $220.0 million on December 29, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|    |  | During the third quarter of 2003, the Company
    repaid $45.0 million of term loans under its Senior Credit
    Facility in addition to the regularly scheduled repayment of
    $0.6 million. Related deferred financing costs of
    $1.1 million were written off during the year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|    |  | The terms of the cross-currency rate swaps were
    revised to reflect the $45.0 million principal repayment.
    The swaps were revised so that interest was paid at 8.14% on a
    notional obligation of $5.3 million and at                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

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HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

8.64% on a notional obligation of
$214.7 million. The Company marks-to-market the
value of the swaps on a quarterly basis (Note 21).



|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  | On July 30, 2004, upon completion of the
    sale of the Telegraph Group (Note 28(c)), the Company
    repaid the full amount of the Senior Credit Facility and
    terminated the related swap agreements. (Note 28(d).)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|    |  | The Senior Credit Facility agreement, as amended,
    required Publishing to comply with certain covenants which
    included certain leverage ratios and restrictions on: use of
    funds; additional indebtedness; incurring liens; certain types
    of payments (including without limitation, capital stock
    dividends and redemptions, payments on existing indebtedness and
    intercompany indebtedness); incurring or guaranteeing debt of an
    affiliate; making certain investments and paying management
    fees; mergers, consolidations, sales and acquisitions;
    transactions with affiliates; conduct of business; sale and
    leaseback transactions; changing fiscal year; changes to holding
    company status; creating or allowing restrictions on taking
    action under the Senior Credit Facility loan documentation; and
    entering into operating leases, all subject to certain basket
    calculations and exceptions. The Senior Credit Facility loan
    documentation also contained customary events of default. If the
    Company were to be in violation of these covenants, the debts
    could become due and payable on demand. At December 31,
    2003, the Company was in compliance with the covenants with the
    exception of filing the year end Consolidated Financial
    Statements on a timely basis. The Company obtained a waiver of
    default from its lenders for this breach of the covenants. 
     As of December 31, 2002, the Companys aggregate
    annual rental payments under operating leases exceeded the
    amounts permitted under the covenants to the Senior Credit
    Facility. The Company was advised by the Administrative Agent of
    the Senior Credit Facility that the lenders had agreed to amend
    the Senior Credit Facility effective March 28, 2003, to
    increase the amount permitted under the operating lease covenant
    and agreed to a waiver of any default or event of default in
    connection therewith. Based on the amended covenant, the Company
    was in compliance as of December 31, 2002.
|   
|(e) |  | Other                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|    |  | Amounts borrowed under a short-term credit
    facility of $120.0 million entered into by the Company in
    2001 were repaid during that year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|    |  | In October 2002, the Company borrowed, on an
    unsecured basis, $50.0 million at 10.5% under a term
    facility maturing December 31, 2003. Proceeds from the
    Senior Credit Facility and the 9% Senior Notes were used,
    in part, to repay these borrowings in December 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|    |  | The following table presents the contractual
    principal repayments to be made the next five years and
    thereafter, including obligations under capital leases pursuant
    to the terms of the relevant underlying documents. The table
    does not reflect the repayment of the Senior Credit Facility and
    the retirement of $290.6 million of principal of the
    9% Senior Notes which occurred in the third quarter of 2004
    (Note 28(d) and (e)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

|                        |  |                |         | 
|----------------------- |  | -------------- | ------- | 
|Year Ended December 31, |  | (In thousands)
|                        |  |               
|2004                    |  | $              | 6,725   | 
|2005                    |  |                | 9,448   | 
|2006                    |  |                | 4,490   | 
|2007                    |  |                | 4,037   | 
|2008                    |  |                | 3,386   | 
|Thereafter              |  |                | 501,186 | 
|                        |  |                |         | 
|                        |  | $              | 529,272 | 
|                        |  |                |         | 



| |  |                                                                                                               
| |  | --------------------------------------------------------------------------------------------------------------
| |  | Interest paid for 2003, 2002 and 2001 was
    $89.2 million, $65.3 million and $84.2 million
    respectively.

156



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|     |       
|---- | ------
|(11) | Leases

The Company leases various facilities and
equipment under non-cancelable operating lease arrangements.
Rental expense under all operating leases was approximately
$16.6 million, $15.8 million and $12.1 million in
2003, 2002 and 2001, respectively.

Minimum lease commitments together with the
present value of capital lease obligations at December 31,
2003 are as follows:

|                                                         |                       |                |       |           |  |   |         |  | 
|-------------------------------------------------------- | --------------------- | -------------- | ----- | --------- |  | - | ------- |  | 
|                                                         |                       | Capital        |       | Operating
|                                                         |                       | Leases         |       | Leases   
|                                                         |                       |                |       |          
|                                                         |                       |               
|                                                         |                       | (In thousands)
|2004                                                     |                       | $              | 1,957 |           |  | $ | 14,157  | 
|2005                                                     |                       |                |      |           |  |   | 12,476  | 
|2006                                                     |                       |                |      |           |  |   | 11,948  | 
|2007                                                     |                       |                |      |           |  |   | 11,196  | 
|2008                                                     |                       |                |      |           |  |   | 11,007  | 
|Thereafter                                               |                       |                |      |           |  |   | 83,848  | 
|                                                         |                       |                |       |           |  |   |         | 
|                                                         |                       |                | 1,957 |           |  | $ | 144,632 | 
|                                                         |                       |                |       |           |  |   |         | 
|Less imputed interest and executory costs                |                       |                | 13    |           |  |   |         | 
|                                                         |                       |                |       |           |  |   |         | 
|Present value of net minimum payments                    |                       |                | 1,944 |           |  |   |         | 
|Less current portion included in current
    liabilities |                       |                | 1,944 |           |  |   |         | 
|                                                         |                       |                |       |           |  |   |         | 
|                                                         | Long-term obligations |                | $     |          |  |   |         |  | 
|                                                         |                       |                |       |           |  |   |         | 

Subsequent to December 31, 2003, the Company
entered into a lease for office space in Chicago.
(Note 28(f).)



|     |                  
|---- | -----------------
|(12) | Minority Interest

|                            |  |                |        |      |  |   |        | 
|--------------------------- |  | -------------- | ------ | ---- |  | - | ------ | 
|                            |  |               
|                            |  | December 31,  
|                            |  |               
|                            |  | 2003           |        | 2002
|                            |  |                |        |     
|                            |  |               
|                            |  | (In thousands)
|Common shares of subsidiary |  | $              | 2,839  |      |  | $ | 1,961  | 
|Partnership units           |  |                | 25,416 |      |  |   | 14,826 | 
|Other                       |  |                |       |      |  |   | 310    | 
|                            |  |                |        |      |  |   |        | 
|                            |  | $              | 28,255 |      |  | $ | 17,097 | 
|                            |  |                |        |      |  |   |        | 

The Partnership units are comprised of limited
partnership units not held by the Company in Hollinger L.P., a
company listed on the Toronto Stock Exchange (Note 28(h)).
The Company holds an 87% interest in Hollinger L.P. The common
shares of subsidiary are comprised of shares not held by the
Company in Great West Newspaper Ltd. (Great West).
The Company holds a 70% interest in Great West.



|     |                           
|---- | --------------------------
|(13) | Redeemable Preferred Stock

Shares of Series E Preferred Stock, all of
which were owned by a wholly-owned subsidiary of Hollinger Inc.,
were redeemable at the option of the holder or the Company at a
price of Cdn.$146.63 ($92.80 based on December 31, 2002
exchange rates) plus accrued dividends. The holder of these
shares could, 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 was non-voting and was entitled to
receive

157



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

cumulative cash dividends, payable quarterly. The
amount of each quarterly dividend per share was 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 $3.8 million
(Note 23 (l)).

At December 31, 2002, 93,206 shares of
Series E Preferred Stock were outstanding and based on
exchange rates in effect on that day were exchangeable into
617,827 shares of Class A Common Stock of the Company.
In 2002, the dividend on the Series E Preferred Stock
amounted to $2.10 per share.

During the first quarter of 2003, all of the
93,206 outstanding shares of the Series E Preferred Stock
were redeemed at the fixed redemption price of
Cdn.$146.63 per share for a total of $9.3 million
(Note 23(c)).



|     |                     
|---- | --------------------
|(14) | Stockholders Equity



| |                
| | ---------------
| | Preferred Stock

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 13 above,
the Company had issued Series C Preferred Stock. 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 and cumulative dividends
were 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 $92.2 million.



| |                                     
| | ------------------------------------
| | 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
ten votes per share on all matters, where the two classes vote
together as a single class, including the election of directors.
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. Where Hollinger Inc. does not meet
these conditions, and there is a change of control of the
Company, the Class B shares are automatically converted on
a share-for-share basis into Class A shares.



| |                           
| | --------------------------
| | Restrictions on Net Assets

The Company is a holding company and its assets
consist primarily of investments in its wholly-owned direct and
indirect subsidiaries. As a result, the Companys ability
to meet its future financial obligations and its ability to pay
dividends is dependent on the availability of cash flows from
its United States and foreign subsidiaries through dividends,
intercompany advances and other payments. As further described
in Note 10, the Companys direct and indirect
subsidiaries are subject to statutory and contractual
restrictions that limit their ability to, among other things,
incur additional indebtedness, make advances, pay dividends or
make other distributions on or redeem or repurchase their
capital stock, make investments, enter into transactions with
affiliates, issue stock of certain subsidiaries, engage in
unrelated lines of business, create liens to secure debt and
transfer or sell assets or merge with other companies. As a
result, substantially all of the net assets of the
Companys subsidiaries were restricted at December 31,
2003.

158



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|     |                  
|---- | -----------------
|(15) | 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 the Compensation Committee.
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.

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 accounting as a
compensation expense. Accordingly, the stock based compensation
determined for this repriced series of options for 2003 amounted
to an expense of $3.2 million, for 2002 an expense of nil
and for 2001, a credit of $1.4 million.

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
February 6, 2003, the Company granted 1,279,850 stock
options to employees of Ravelston with an exercise price of
$9.45 per share. The aggregate fair value of these options
was $3.9 million and this has been recorded as an in-kind
dividend during the year. On February 5, 2002, the Company
granted 1,386,500 stock options to employees of Ravelston with
an exercise price of $11.13 per share. The aggregate fair
value of these options was $4.4 million and this has been
recorded as an in-kind dividend in 2002. On April 2, 2001,
the Company granted 1,470,000 stock options to employees of
Ravelston with an exercise price of $14.37 per share. The
aggregate fair value of these options was approximately
$7.3 million and was recorded as an in-kind dividend in
2001.

During 2003, several employees had the lives of
their options extended upon termination. FIN 44 requires
that the option values be remeasured at the date of the
modification and that compensation expense be recognized for the
difference between the original intrinsic value of the stock
options awarded and the intrinsic value on the modification
date. The Company has recognized compensation expense of
$2.7 million in relation to these modifications in 2003.

On November 16, 2003, Radler resigned his
position as Chief Operating Officer. As a non-employee holder of
the Companys options, Radlers option awards had
previously been accounted for as in-kind dividends as discussed
above. Upon termination, the life of Radlers options was
extended from 30 days from his date of resignation to
June 1, 2004. The Company has recognized a compensation
charge of $0.8 million related to the modification of these
options. This charge was calculated in accordance with Emerging
Issues Task Force (EITF) Issue 96-18,
Accounting for Equity Instruments That Are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services.

For all other series of stock options, no
compensation cost has been recognized.

159



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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 option plans was as follows:

|                                         |  |           |            |                  |  |   |       | 
|---------------------------------------- |  | --------- | ---------- | ---------------- |  | - | ----- | 
|                                         |  | Number of |            | Weighted-Average
|                                         |  | Options   |            | Exercise Price  
|                                         |  |           |            |                 
|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 forfeited                        |  |           | (82,750    | )                |  |   | 12.33 | 
|                                         |  |           |            |                  |  |   |       | 
|Options outstanding at December 31, 2001 |  |           | 8,412,401  |                  |  |   | 12.26 | 
|Options granted                          |  |           | 2,227,000  |                  |  |   | 11.14 | 
|Options exercised                        |  |           | (75,375    | )                |  |   | 10.81 | 
|Options forfeited                        |  |           | (168,688   | )                |  |   | 12.64 | 
|                                         |  |           |            |                  |  |   |       | 
|Options outstanding at December 31, 2002 |  |           | 10,395,338 |                  |  |   | 12.03 | 
|Options granted                          |  |           | 2,055,100  |                  |  |   | 9.45  | 
|Options exercised                        |  |           | (1,085,450 | )                |  |   | 11.22 | 
|Options forfeited                        |  |           | (1,690,875 | )                |  |   | 11.73 | 
|                                         |  |           |            |                  |  |   |       | 
|Options outstanding at December 31, 2003 |  |           | 9,674,113  |                  |  | $ | 11.62 | 
|                                         |  |           |            |                  |  |   |       | 
|Options exercisable at December 31, 2001 |  |           | 3,032,682  |                  |  | $ | 11.48 | 
|                                         |  |           |            |                  |  |   |       | 
|Options exercisable at December 31, 2002 |  |           | 4,739,994  |                  |  | $ | 11.85 | 
|                                         |  |           |            |                  |  |   |       | 
|Options exercisable at December 31, 2003 |  |           | 5,684,513  |                  |  | $ | 12.01 | 
|                                         |  |           |            |                  |  |   |       | 

The following table summarizes information about
the stock options outstanding as of December 31, 2003:

|                         |  |                |           |                     |  |                  |            |                     |  |                  |       |  |  |  |           |  |  |   |       | 
|------------------------ |  | -------------- | --------- | ------------------- |  | ---------------- | ---------- | ------------------- |  | ---------------- | ----- |  |  |  | --------- |  |  | - | ----- | 
|                         |  |                |           |                     |  |                  |            |                    
|                         |  |                |           |                     |  |                  |            | Options Exercisable
|                         |  |                |           |                     |  |                  |            |                    
|                         |  | Number         |           | Options Outstanding |  |                  |            | Number              |  |                 
|                         |  | Outstanding at |           | Weighted-Average    |  |                  |            | Exercisable at      |  |                 
|                         |  | December 31,   |           | Remaining           |  | Weighted Average |            | December 31,        |  | Weighted-Average
|Range of Exercise Prices |  | 2003           |           | Contractual Life    |  | Exercise Price   |            | 2003                |  | Exercise Price  
|                         |  |                |           |                     |  |                  |            |                     |  |                 
|$9.45 - $13.00           |  |                | 7,640,738 |                     |  |                  | 6.75 years |                     |  | $                | 10.87 |  |  |  | 4,462,638 |  |  | $ | 11.33 | 
|$14.37 - $16.31          |  |                | 2,033,375 |                     |  |                  | 7.07 years |                     |  | $                | 14.44 |  |  |  | 1,221,875 |  |  | $ | 14.49 | 
|                         |  |                |           |                     |  |                  |            |                     |  |                  |       |  |  |  |           |  |  |   |       | 
|$9.45 - $16.31           |  |                | 9,674,113 |                     |  |                  | 6.82 years |                     |  | $                | 11.62 |  |  |  | 5,684,513 |  |  | $ | 12.01 | 
|                         |  |                |           |                     |  |                  |            |                     |  |                  |       |  |  |  |           |  |  |   |       | 

160



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|     |               
|---- | --------------
|(16) | Loss per Share

The following tables reconcile the numerator and
denominator for the calculation of basic and diluted loss per
share for the years ended December 31, 2003, 2002 and 2001:

|                                          |                          |                                          |         |               |  |           |        |   |  |   |       |   | 
|----------------------------------------- | ------------------------ | ---------------------------------------- | ------- | ------------- |  | --------- | ------ | - |  | - | ----- | - | 
|                                          |                          |                                         
|                                          |                          | Year Ended December 31, 2003            
|                                          |                          |                                         
|                                          |                          | Net Loss                                 |         | Shares        |  | Per-Share
|                                          |                          | (Numerator)                              |         | (Denominator) |  | Amount   
|                                          |                          |                                          |         |               |  |          
|                                          |                          |                                         
|                                          |                          | (In thousands, except per share amounts)
|Net loss                                  |                          | $                                        | (74,308 | )             |  |           |        |   |  |   |       |  
|Deduct dividends:                         |                          |                                          |         |               |  |           |        |   |  |   |       |  
|                                          | Series E Preferred Stock |                                          |         |              |  |           |        |   |  |   |       |   | 
|                                          |                          |                                          |         |               |  |           |        |   |  |   |       |  
|Basic EPS                                 |                          |                                          |         |               |  |           |        |   |  |   |       |  
|Net loss available to common stockholders |                          |                                          | (74,308 | )             |  |           | 87,311 |   |  | $ | (0.85 | )
|Effect of dilutive securities:            |                          |                                          |         |               |  |           |        |   |  |   |       |  
|                                          | None                     |                                          |         |              |  |           |        |  |  |   |       |  | 
|                                          |                          |                                          |         |               |  |           |        |   |  |   |       |  
|Diluted EPS                               |                          |                                          |         |               |  |           |        |   |  |   |       |  
|Net loss available to common stockholders |                          | $                                        | (74,308 | )             |  |           | 87,311 |   |  | $ | (0.85 | )
|                                          |                          |                                          |         |               |  |           |        |   |  |   |       |  

The effect of stock options has been excluded
from the calculations for 2003 because they are anti-dilutive as
a result of the net loss. The number of potentially dilutive
securities, comprised of shares issuable in respect of stock
options, at December 31, 2003, is 9,674,113.

|                                          |                          |                                          |          |               |   |           |        |   |  |   |       |   | 
|----------------------------------------- | ------------------------ | ---------------------------------------- | -------- | ------------- | - | --------- | ------ | - |  | - | ----- | - | 
|                                          |                          |                                         
|                                          |                          | Year Ended December 31, 2002            
|                                          |                          |                                         
|                                          |                          | Net Loss                                 |          | Shares        |   | Per-Share
|                                          |                          | (Numerator)                              |          | (Denominator) |   | Amount   
|                                          |                          |                                          |          |               |   |          
|                                          |                          |                                         
|                                          |                          | (In thousands, except per share amounts)
|                                          |                          |                                         
|                                          |                          | Restated Note 2                         
|Net loss                                  |                          | $                                        | (230,629 | )             |   |           |        |   |  |   |       |  
|Deduct dividends:                         |                          |                                          |          |               |   |           |        |   |  |   |       |  
|                                          | Series E Preferred Stock |                                          |          | (196          | ) |           |        |   |  |   |       |   | 
|                                          |                          |                                          |          |               |   |           |        |   |  |   |       |  
|Basic EPS                                 |                          |                                          |          |               |   |           |        |   |  |   |       |  
|Net loss available to common stockholders |                          |                                          | (230,825 | )             |   |           | 96,066 |   |  | $ | (2.40 | )
|Effect of dilutive securities:            |                          |                                          |          |               |   |           |        |   |  |   |       |  
|                                          | None                     |                                          |          |              |   |           |        |  |  |   |       |  | 
|                                          |                          |                                          |          |               |   |           |        |   |  |   |       |  
|Diluted EPS                               |                          |                                          |          |               |   |           |        |   |  |   |       |  
|Net loss available to common stockholders |                          | $                                        | (230,825 | )             |   |           | 96,066 |   |  | $ | (2.40 | )
|                                          |                          |                                          |          |               |   |           |        |   |  |   |       |  

The effect of stock options and Series E
Preferred Stock are excluded from the calculations for 2002
because they are anti-dilutive as a result of the net loss.
Potentially dilutive securities comprise shares issuable

161



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

at December 31, 2002 in respect of stock
options and Series E preferred stock of 10,395,338 and
617,827, respectively.

|                                          |                             |                                          |          |               |   |           |         |   |  |   |       |   | 
|----------------------------------------- | --------------------------- | ---------------------------------------- | -------- | ------------- | - | --------- | ------- | - |  | - | ----- | - | 
|                                          |                             |                                         
|                                          |                             | Year Ended December 31, 2001            
|                                          |                             |                                         
|                                          |                             | Net Loss                                 |          | Shares        |   | Per-Share
|                                          |                             | (Numerator)                              |          | (Denominator) |   | Amount   
|                                          |                             |                                          |          |               |   |          
|                                          |                             |                                         
|                                          |                             | (In thousands, except per share amounts)
|                                          |                             |                                         
|                                          |                             | Restated Note 2                         
|Net loss                                  |                             | $                                        | (326,573 | )             |   |           |         |   |  |   |       |  
|Deduct dividends:                         |                             |                                          |          |               |   |           |         |   |  |   |       |  
|                                          | Convertible preferred stock |                                          |          | (4,275        | ) |           |         |   |  |   |       |   | 
|                                          | Series E Preferred Stock    |                                          |          | (442          | ) |           |         |   |  |   |       |   | 
|                                          |                             |                                          |          |               |   |           |         |   |  |   |       |  
|Basic EPS                                 |                             |                                          |          |               |   |           |         |   |  |   |       |  
|Net loss available to common stockholders |                             |                                          | (331,290 | )             |   |           | 100,128 |   |  | $ | (3.31 | )
|Effect of dilutive securities:            |                             |                                          |          |               |   |           |         |   |  |   |       |  
|                                          | None                        |                                          |          |              |   |           |         |  |  |   |       |  | 
|                                          |                             |                                          |          |               |   |           |         |   |  |   |       |  
|Diluted EPS                               |                             |                                          |          |               |   |           |         |   |  |   |       |  
|Net loss available to common stockholders |                             | $                                        | (331,290 | )             |   |           | 100,128 |   |  | $ | (3.31 | )
|                                          |                             |                                          |          |               |   |           |         |   |  |   |       |  

The effect of stock options, convertible
preferred stock and Series E Preferred Stock are excluded
from the calculations for 2001 because they are anti-dilutive as
a result of the net loss. Potentially dilutive securities
comprise shares issuable at December 31, 2001 in respect of
stock options and Series E Preferred Stock of 8,412,401 and
612,977, respectively.



|     |                                      
|---- | -------------------------------------
|(17) | Total Return Equity Swap
    (TRES)

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 from time to time for
periods ultimately ending between February 28, 2003 and
June 30, 2003. In the event the banks resold the shares,
any gain or loss realized by the banks would be for the
Companys account. Under the arrangements, until the
Company purchased the shares or the banks resold the shares,
dividends paid on shares belonged to the Company and the Company
paid interest to the banks, based on their purchase price at the
rate of LIBOR plus a spread.

On November 16, 2000, the EITF issued EITF
Issue No. 00-19, Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a
Companys Own Stock (EITF 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 was accounted for under
EITF 00-19 and effective October 1, 2000, the contracts
were accounted for using the asset and liability method. As a
result, the derivative forward contracts were marked to market
after October 1, 2000.

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.

162



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HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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.

At December 31, 2001, the Company had two
forward equity swap arrangements remaining with banks for a
total of $100.0 million. Of that total, $10.0 million
was prepaid during the course of 2002 from available cash on
hand. In October 2002, a further $50.0 million was prepaid
using the proceeds from borrowings in that month (Note 10).
In December 2002, the TRES arrangements were terminated and the
balance of $40.0 million then owing by the Company was paid
from borrowings under the Senior Credit Facility and 9% Senior
Notes proceeds received in December 2002 (Note 10).

Under the TRES arrangements at December 31,
2001, if the Companys stock price were to fall below the
average purchase price of the acquired shares, the Company was
required to deposit cash or shares into an escrow account as
additional security. During 2001 and 2000, the Company issued
4,882,590 and 5,160,577 shares of Class A Common Stock
as additional security, of which 5,011,628 shares with a
carrying value of $58.7 million were required to remain
deposited in the escrow account at December 31, 2001. The
balance of shares issued as additional security were returned to
the Company and included in treasury until cancelled. The shares
held in escrow are shown as a deduction from Stockholders
Equity. In addition to these escrow shares, the Company also
held restricted cash balances of $7.5 million as further
collateral for the TRES arrangements.

In 2002, upon termination of the TRES
arrangements, all escrow shares were returned and cancelled.

The excess of the $100.0 million cash paid
on settlement over the approximately $27.8 million accrued
losses on such contracts at the termination date, has been
recorded as a reduction of additional paid-in capital.

The losses resulting from marking these
arrangements to market together with the interest and fees paid
to the banks during the years ended December 31, 2002 and
2001, totaled $15.2 million and $73.9 million
respectively, 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.

The TRES arrangements were originally entered
into as a structure for the repurchase of the Companys
shares over an extended time frame based on a price fixed at the
outset of the arrangement. The Company does not presently intend
to enter into further similar arrangements.

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HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|     |                      
|---- | ---------------------
|(18) | Other Operating Costs

Included in Other Operating Costs are
the following amounts that the Company considers to be
infrequent in nature.

|                                                              |  |                         |        |      |  |      |       |  |  |   |        | 
|------------------------------------------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ----- |  |  | - | ------ | 
|                                                              |  |                        
|                                                              |  | Year Ended December 31,
|                                                              |  |                        
|                                                              |  | 2003                    |        | 2002 |  | 2001
|                                                              |  |                         |        |      |  |     
|                                                              |  |                        
|                                                              |  | (In thousands)         
|Special Committee and related costs(a)                        |  | $                       | 10,147 |      |  | $    |      |  |  | $ |       | 
|Restitution and settlement costs 
    circulation matters(b) |  |                         | 24,120 |      |  |      |      |  |  |   |       | 
|Pension and post-retirement plan liability
    adjustment     |  |                         |       |      |  |      |      |  |  |   | 12,429 | 
|New Chicago plant pre-operating costs                         |  |                         |       |      |  |      | 450   |  |  |   | 4,679  | 
|Wind-down of aircraft operations (Note 4)                     |  |                         | 1,445  |      |  |      |      |  |  |   |       | 
|Other                                                         |  |                         | 3,416  |      |  |      | 582   |  |  |   | 4,626  | 
|                                                              |  |                         |        |      |  |      |       |  |  |   |        | 
|                                                              |  | $                       | 39,128 |      |  | $    | 1,032 |  |  | $ | 21,734 | 
|                                                              |  |                         |        |      |  |      |       |  |  |   |        | 



|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | Special Committee and related
    costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|    |  | On June 17, 2003, the Company established
    the Special Committee to investigate, among other things,
    certain allegations regarding various related party
    transactions, including allegations described in a beneficial
    ownership report on Schedule 13D filed with the Securities
    Exchange Commission (SEC) by Tweedy,
    Browne & Company LLC (Tweedy Browne), an
    unaffiliated stockholder of the Company, on May 19, 2003,
    as amended on June 11, 2003. The Special Committee
    delivered its report to the U.S. District Court for the Northern
    District of Illinois. The Company filed a copy of the Special
    Committees report with the SEC as an exhibit to a Current
    Report on Form 8-K, as amended by a Current Report on
    Form 8-K/ A filed with the SEC on December 15, 2004.
    Through December 31, 2003, the Company had incurred costs
    of $10.1 million as a result of the investigation conducted
    by the Special Committee and related litigation involving
    current and former directors and former officers of the Company.
    See Note 22(a). These costs consist primarily of legal and
    other professional costs. The legal fees include those incurred
    directly by the Special Committee in its investigation, the
    costs of litigation initiated by the Special Committee on behalf
    of the Company, costs to defend the Company from litigation that
    has arisen as a result of the issues the Special Committee was
    asked to investigate and fees advanced by the Company as a
    result of the indemnification of current and former officers and
    directors pursuant to this undertaking.
|   
|(b) |  | Restitution and settlement
    costs  circulation matters                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|    |  | On October 5, 2004, the Companys Audit
    Committee announced the results of an internal review into
    practices that resulted in the overstatement of circulation
    figures for the Chicago Sun-Times. The Chicago
    Sun-Times announced a plan to make restitution to its
    advertisers. To cover the estimated cost of restitution and
    settlement of related lawsuits, the Company recorded a pre-tax
    charge of $24.1 million during the year ended
    December 31, 2003. See Note 22(a).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

164



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HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|     |                       
|---- | ----------------------
|(19) | Other Income (Expense)



| |                                        
| | ---------------------------------------
| | (a)     Other
    Income (Expense), Net

|                                                                      |  |                |         |          |  |          |          |   |  |   |          |  
|--------------------------------------------------------------------- |  | -------------- | ------- | -------- |  | -------- | -------- | - |  | - | -------- | -
|                                                                      |  | 2003           |         | 2002     |  | 2001    
|                                                                      |  |                |         |          |  |         
|                                                                      |  |               
|                                                                      |  | (In thousands)
|                                                                      |  |                |         | Restated |  | Restated
|                                                                      |  |                |         | Note 2   |  | Note 2  
|Net losses on sales of publishing interests                           |  | $              | (6,251  | )        |  | $        |         |   |  | $ | (1,236   | )
|Net gains (losses) on sale of investments(a)                          |  |                | 3,578   |          |  |          |         |   |  |   | (147,213 | )
|Net gains (losses) on sale of property, plant and
    equipment       |  |                | (204    | )        |  |          | 5,334    |   |  |   | 1,307    |  
|Write-down of investments(b)                                          |  |                | (7,700  | )        |  |          | (40,536  | ) |  |   | (48,037  | )
|Write-down of property, plant and equipment
    (Note 4)              |  |                | (6,779  | )        |  |          |         |   |  |   | (1,343   | )
|Equity in losses of affiliates                                        |  |                | (6,247  | )        |  |          | (1,005   | ) |  |   | (15,098  | )
|Losses on Total Return Equity Swap (Note 17)                          |  |                |        |          |  |          | (15,237  | ) |  |   | (73,863  | )
|Non-competition payments
    (Note 2(a(i)))                         |  |                |        |          |  |          |         |   |  |   | (6,100   | )
|Restitution under Restructuring Agreement
    (Notes 23(a) and 28(a)) |  |                | 31,547  |          |  |          |         |   |  |   |         |  
|Loss on extinguishment of debt (Notes 2(c)
    and 10)                |  |                | (38,421 | )        |  |          | (35,460  | ) |  |   |         |  
|Write-down of FDR Collection(c)                                       |  |                | (6,796  | )        |  |          |         |   |  |   |         |  
|Foreign currency gains (losses), net(d)                               |  |                | 114,103 |          |  |          | (86,858  | ) |  |   | (1,259   | )
|Other                                                                 |  |                | (1,189  | )        |  |          | 979      |   |  |   | (10,476  | )
|                                                                      |  |                |         |          |  |          |          |   |  |   |          |  
|                                                                      |  | $              | 75,641  |          |  | $        | (172,783 | ) |  | $ | (303,318 | )
|                                                                      |  |                |         |          |  |          |          |   |  |   |          |  



|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | During 2001, the Company sold 2,700,000 multiple
    voting preferred shares and 27,000,000 non-voting shares in
    CanWest resulting in a realized pre-tax loss of
    $99.2 million.                                                                                                                                                                                                                                               
|   
|    |  | In addition, during August and December of 2001,
    the Company sold participation interests in
    Cdn.$540.0 million ($350.0 million) and
    Cdn.$216.8 million ($140.5 million) principal amounts
    of CanWest debentures to the Participation Trust. See
    Note 5(a). The net loss on these transactions, including
    realized holding losses on the underlying debentures, amounted
    to $62.1 million.                
|   
|    |  | These losses were partially offset by gains on
    sales of internet investments of $14.1 million, primarily
    related to the disposal of the Companys investment in
    Interactive Investor International.                                                                                                                                                                                                                       
|   
|(b) |  | During 2001 and 2002, a number of valuation
    provisions were made to the investment portfolio, primarily
    related to internet and technology interests, resulting in a net
    write-down of investments in each of those years of
    $48.0 million and $40.5 million, respectively. No
    investment valuation provision with respect to an individual
    investment in any year exceeded $10.0 million.                    
|   
|(c) |  | The Company has, over the past several years,
    made several acquisitions of papers and other memorabilia of
    President Franklin Delano Roosevelt (the
    FDR Collection). The Company has recorded an
    impairment in the value of the FDR Collection of
    $6.8 million. The U.S. National Archives has asserted
    an ownership claim to a portion of the collection known as the
    Grace Tully Collection.          
|   
|(d) |  | During 2003, the Company recorded mark-to-market
    losses on the cross-currency interest rate swaps of
    $21.7 million. See Note 10. The Company recorded
    mark-to-market gains on the Participation Trust of
    $122.3 million and of $21.6 million on the
    Companys Senior Credit Facility. The Company had a
    realized loss of $9.8 million related to the redemption of
    CanWest Debentures. See Notes 5 and 21.

During March 2002, the Company significantly
reduced its investment in the Canadian Newspaper Group.
Substantial Canadian dollar cash balances were distributed to
the Company, converted to United

165



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HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

States dollars and used to reduce long-term debt
(Note 10). As a result of the substantial reduction of the
Companys net investment in the Canadian Newspaper Group,
foreign exchange losses in the amount of $78.2 million have
been included in net loss in 2002. These foreign exchange losses
had accumulated since the Companys original investment in
the Canadian Newspaper Group and, until realized through the
substantial reduction of the Companys net investment, had
been included in the Accumulated Other Comprehensive
Loss component of Stockholders Equity.



|     |                    
|---- | -------------------
|(20) | 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
is located in the United States. The Community Group includes
the results of The Jerusalem Post and, until August 2001,
the last remaining United States community newspaper property,
when it was sold. The U.K. Newspaper Groups
operations include The Daily Telegraph, The Sunday
Telegraph, The Weekly Telegraph, telegraph.co.uk, and The
Spectatorand Apollomagazines (collectively known as
the Telegraph Group). Subsequent to
December 31, 2003, the Company sold the Telegraph Group and
The Jerusalem Post (Note 28(c)). The Canadian
Newspaper Group includes the operations of Hollinger Canadian
Publishing Holdings Co. (HCPH Co.), Hollinger L.P.
and, until August 31, 2001, National Post. On
September 1, 2001, the Company sold its 50% interest in
National Post.

Substantially all of the assets of the Investment
and Corporate Group are held within the United States. Corporate
overhead costs are included in the Investment and Corporate
Group.

Segmented results and other financial data are as
follows:

|                                          |  |                              |         |            |  |           |        |           |  |           |         |       |  |  |         |   |  |  |         |   |  |   |           |  
|----------------------------------------- |  | ---------------------------- | ------- | ---------- |  | --------- | ------ | --------- |  | --------- | ------- | ----- |  |  | ------- | - |  |  | ------- | - |  | - | --------- | -
|                                          |  |                             
|                                          |  | Year Ended December 31, 2003
|                                          |  |                             
|                                          |  |                              |         | Investment |  |          
|                                          |  |                              |         | U.K.       |  | Canadian  |        | and       |  |          
|                                          |  | Chicago                      |         | Community  |  | Newspaper |        | Newspaper |  | Corporate |         |      
|                                          |  | Group                        |         | Group      |  | Group     |        | Group     |  | Group     |         | Total
|                                          |  |                              |         |            |  |           |        |           |  |           |         |      
|                                          |  |                             
|                                          |  | (In thousands)              
|Total operating revenues                  |  | $                            | 450,789 |            |  |           | 10,397 |           |  |           | 519,475 |       |  |  | 80,542  |   |  |  |        |   |  | $ | 1,061,203 |  
|                                          |  |                              |         |            |  |           |        |           |  |           |         |       |  |  |         |   |  |  |         |   |  |   |           |  
|Depreciation and amortization             |  | $                            | 35,698  |            |  |           | 1,345  |           |  |           | 14,433  |       |  |  | 1,556   |   |  |  | 1,821   |   |  | $ | 54,853    |  
|                                          |  |                              |         |            |  |           |        |           |  |           |         |       |  |  |         |   |  |  |         |   |  |   |           |  
|Operating income (loss)                   |  | $                            | 24,514  |            |  |           | (6,601 | )         |  |           | 40,683  |       |  |  | (4,983  | ) |  |  | (43,596 | ) |  | $ | 10,017    |  
|                                          |  |                              |         |            |  |           |        |           |  |           |         |       |  |  |         |   |  |  |         |   |  |   |           |  
|Equity in earnings (losses) of affiliates |  | $                            | (1,854  | )          |  |           |       |           |  |           | (3,874  | )     |  |  | 790     |   |  |  | (1,309  | ) |  | $ | (6,247    | )
|                                          |  |                              |         |            |  |           |        |           |  |           |         |       |  |  |         |   |  |  |         |   |  |   |           |  
|Total assets                              |  | $                            | 541,765 |            |  |           | 25,712 |           |  |           | 597,963 |       |  |  | 275,889 |   |  |  | 358,850 |   |  | $ | 1,800,179 |  
|                                          |  |                              |         |            |  |           |        |           |  |           |         |       |  |  |         |   |  |  |         |   |  |   |           |  
|Capital expenditures                      |  | $                            | 7,289   |            |  |           | 658    |           |  |           | 4,728   |       |  |  | 1,731   |   |  |  | 294     |   |  | $ | 14,700    |  
|                                          |  |                              |         |            |  |           |        |           |  |           |         |       |  |  |         |   |  |  |         |   |  |   |           |  

166



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HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                          |  |                              |         |            |  |           |        |           |  |           |         |       |  |  |         |   |  |  |         |   |  |   |           |  
|----------------------------------------- |  | ---------------------------- | ------- | ---------- |  | --------- | ------ | --------- |  | --------- | ------- | ----- |  |  | ------- | - |  |  | ------- | - |  | - | --------- | -
|                                          |  |                             
|                                          |  | Year Ended December 31, 2002
|                                          |  |                             
|                                          |  |                              |         | Investment |  |          
|                                          |  |                              |         | U.K.       |  | Canadian  |        | and       |  |          
|                                          |  | Chicago                      |         | Community  |  | Newspaper |        | Newspaper |  | Corporate |         |      
|                                          |  | Group                        |         | Group      |  | Group     |        | Group     |  | Group     |         | Total
|                                          |  |                              |         |            |  |           |        |           |  |           |         |      
|                                          |  |                             
|                                          |  | (In thousands)              
|                                          |  |                             
|                                          |  | Restated                    
|                                          |  | Note 2                      
|Total operating revenues                  |  | $                            | 441,778 |            |  |           | 13,231 |           |  |           | 481,527 |       |  |  | 69,626  |   |  |  |        |   |  | $ | 1,006,162 |  
|                                          |  |                              |         |            |  |           |        |           |  |           |         |       |  |  |         |   |  |  |         |   |  |   |           |  
|Depreciation and amortization             |  | $                            | 35,998  |            |  |           | 2,370  |           |  |           | 12,763  |       |  |  | 1,301   |   |  |  | 1,720   |   |  | $ | 54,152    |  
|                                          |  |                              |         |            |  |           |        |           |  |           |         |       |  |  |         |   |  |  |         |   |  |   |           |  
|Operating income (loss)                   |  | $                            | 38,598  |            |  |           | (5,218 | )         |  |           | 48,079  |       |  |  | (2,137  | ) |  |  | (19,215 | ) |  | $ | 60,107    |  
|                                          |  |                              |         |            |  |           |        |           |  |           |         |       |  |  |         |   |  |  |         |   |  |   |           |  
|Equity in earnings (losses) of affiliates |  | $                            | (1,266  | )          |  |           |       |           |  |           | (98     | )     |  |  | 359     |   |  |  |        |   |  | $ | (1,005    | )
|                                          |  |                              |         |            |  |           |        |           |  |           |         |       |  |  |         |   |  |  |         |   |  |   |           |  
|Total assets                              |  | $                            | 557,924 |            |  |           | 28,898 |           |  |           | 569,645 |       |  |  | 237,764 |   |  |  | 791,541 |   |  | $ | 2,185,772 |  
|                                          |  |                              |         |            |  |           |        |           |  |           |         |       |  |  |         |   |  |  |         |   |  |   |           |  
|Capital expenditures                      |  | $                            | 15,500  |            |  |           | 5,022  |           |  |           | 6,051   |       |  |  | 2,275   |   |  |  | 54      |   |  | $ | 28,902    |  
|                                          |  |                              |         |            |  |           |        |           |  |           |         |       |  |  |         |   |  |  |         |   |  |   |           |  

|                               |  |                              |         |            |  |           |        |           |  |           |         |       |  |  |         |   |  |  |         |   |  |   |           |  
|------------------------------ |  | ---------------------------- | ------- | ---------- |  | --------- | ------ | --------- |  | --------- | ------- | ----- |  |  | ------- | - |  |  | ------- | - |  | - | --------- | -
|                               |  |                             
|                               |  | Year Ended December 31, 2001
|                               |  |                             
|                               |  |                              |         | Investment |  |          
|                               |  |                              |         | U.K.       |  | Canadian  |        | and       |  |          
|                               |  | Chicago                      |         | Community  |  | Newspaper |        | Newspaper |  | Corporate |         |      
|                               |  | Group                        |         | Group      |  | Group     |        | Group     |  | Group     |         | Total
|                               |  |                              |         |            |  |           |        |           |  |           |         |      
|                               |  |                             
|                               |  | (In thousands)              
|Total operating 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    |  
|                               |  |                              |         |            |  |           |        |           |  |           |         |       |  |  |         |   |  |  |         |   |  |   |           |  
|Operating income (losses)      |  | $                            | 4,962   |            |  |           | (4,487 | )         |  |           | 27,850  |       |  |  | (45,954 | ) |  |  | (18,354 | ) |  | $ | (35,983   | )
|                               |  |                              |         |            |  |           |        |           |  |           |         |       |  |  |         |   |  |  |         |   |  |   |           |  
|Equity in losses of affiliates |  | $                            | (3,381  | )          |  |           |       |           |  |           | (11,415 | )     |  |  | (302    | ) |  |  |        |   |  | $ | (15,098   | )
|                               |  |                              |         |            |  |           |        |           |  |           |         |       |  |  |         |   |  |  |         |   |  |   |           |  
|Capital expenditures           |  | $                            | 12,080  |            |  |           | 299    |           |  |           | 17,065  |       |  |  | 2,844   |   |  |  | 12,163  |   |  | $ | 44,451    |  
|                               |  |                              |         |            |  |           |        |           |  |           |         |       |  |  |         |   |  |  |         |   |  |   |           |  



|     |                      
|---- | ---------------------
|(21) | Financial Instruments



| |                        
| | -----------------------
| | (a)     Fair
    Values

The Company has entered into various types of
financial instruments in the normal course of business.

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.

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HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

At December 31, 2003 and 2002, the
comparison of the carrying value and the estimated fair value of
the Companys financial instruments was as follows:

|                                                                   |  |                |         |            |  |          |         |            |  |   |           |   |  |   |           |   |  |  |  | 
|------------------------------------------------------------------ |  | -------------- | ------- | ---------- |  | -------- | ------- | ---------- |  | - | --------- | - |  | - | --------- | - |  |  |  | 
|                                                                   |  |                |         |            |  |         
|                                                                   |  | 2003           |         | 2002       |  |         
|                                                                   |  |                |         |            |  |         
|                                                                   |  | Carrying       |         |            |  | Carrying |         |            |  |  
|                                                                   |  | Value          |         | Fair Value |  | Value    |         | Fair Value |  |  
|                                                                   |  |                |         |            |  |          |         |            |  |  
|                                                                   |  |                |         |           
|                                                                   |  | (In thousands) |         |           
|Long-term debt (Note 10)                                           |  | $              | 527,328 |            |  | $        | 496,689 |            |  | $ | 1,080,903 |   |  | $ | 1,034,963 |   |  |  |  | 
|Interest rate swaps  liability
    (Note 10)                      |  |                | (5,631  | )          |  |          | (5,631  | )          |  |   |          |   |  |   |          |   |  |  |  | 
|Cross currency interest rate swaps 
    liability (Note 10)       |  |                | (32,453 | )          |  |          | (32,453 | )          |  |   | (9,161    | ) |  |   | (9,161    | ) |  |  |  | 
|Foreign currency obligation  asset
    (liability)(Notes 5 and 8) |  |                | 92,106  |            |  |          | 92,106  |            |  |   | (13,572   | ) |  |   | (13,572   | ) |  |  |  | 

The fair value of the interest rate swaps and the
cross-currency interest rate swaps is the estimated amount that
the Company would pay or receive to terminate the agreements.
The foreign currency obligation is in connection with the sale
of participations in the CanWest Debentures (Note 5). The
cross currency interest rate swaps are in connection with the
Senior Credit Facility as described in Note 10 and below.
The interest rate swaps are in connection with the
9% Senior Notes (Note 10). The carrying values of all
other financial instruments at December 31, 2003 and 2002
approximate their estimated fair values.



| |                               
| | ------------------------------
| | (b) Derivative
    instruments

The Company may enter into various swap, option
and forward contracts from time to time when management believes
conditions warrant. Such contracts are limited to those that
relate to the Companys actual exposure to commodity
prices, interest rates and foreign currency risks. If, in
managements view, the conditions that made such
arrangements worthwhile no longer exist, the contracts may be
closed. The forward exchange contract related to the
Participation Trust as described in Note 5 was terminated
on September 30, 2002. This contract was marked to market
and the related gains and losses included in Other income
(expense), net.

On December 27, 2002, a United Kingdom
subsidiary of the Company entered into two cross-currency
interest rate swap transactions to hedge principal and interest
payments on U.S. dollar borrowings under the Senior Credit
Facility. The contracts had a total foreign currency notional
value of $265.0 million, fixed at a rate of
U.S. $1.5922 to £1, converted the interest rate on
such borrowing from floating to fixed, and expired as to
$45.0 million on December 29, 2008 and as to
$220.0 million on December 29, 2009.

During the third quarter of 2003, the terms of
the cross-currency interest rate swaps were revised to reflect
the $45.0 million principal repayment discussed in
Note 10. The swaps have been revised so that interest was
paid at 8.14% on a notional obligation of $5.3 million and
8.64% on a notional obligation of $214.7 million. The
Company marks-to-market the value of the swaps on a
quarterly basis.

On January 22, 2003 and February 6,
2003, Publishing entered into interest rate swap agreements to
convert $150.0 million and $100.0 million,
respectively, of the 9% Senior Notes issued in December
2002 to floating rates through December 15, 2010, subject
to early termination notice.

On April 11, 2003 the Company entered into a
cross-currency swap transaction to hedge the Canadian
denominated proceeds expected to be received on the redemption
of the CanWest Debentures (See Note 5). The contract had a
total foreign currency obligation notional value of
$187.4 million, fixed at a rate of US$0.6845 for each
Cdn.$1.00 and expired as to Cdn.$273.8 million on
May 13, 2003. Changes in the value of

168



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HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

derivatives comprising the cross-currency swap
amounted to a loss of $9.8 million, which is included in
Other income (expense), net.

Changes in the value of derivatives comprising
the forward exchange contract and cross-currency interest rate
swaps described above amounted to a loss in 2003 of
$31.5 million, a loss in 2002 of $18.4 million and a
gain in 2001 of $15.5 million. These changes are reported
in Other income (expense), net on the Consolidated
Statements of Operations. The change in the value of derivatives
comprising the interest rate swap agreements amounted to a loss
in 2003 of $5.6 million. This change is reported in
Interest expense in the Consolidated Statement of
Operations. The fair value of these contracts as of
December 31, 2003 and 2002 is included in the Consolidated
Balance Sheets in Other liabilities.



|     |                              
|---- | -----------------------------
|(22) | Commitments and Contingencies



|    |           
|--- | ----------
|(a) | Litigation



| |                                  
| | ---------------------------------
| | Stockholder Derivative Litigation

On December 9, 2003, Cardinal Value Equity
Partners, L.P., a stockholder of the Company, initiated a
purported derivative action on behalf of the Company against
certain current and former executive officers and directors,
including Black and certain entities affiliated with them, and
against the Company as a nominal defendant.

This action, which was filed in the Court of
Chancery for the State of Delaware in and for New Castle County
and is entitled Cardinal Value Equity Partners, L.P. v.
Black, et al., asserts causes of action that
include breach of fiduciary duty, misappropriation of corporate
assets and self-dealing in connection with certain
non-competition payments, the payment of allegedly
excessive management and services fees, and other alleged
misconduct. The plaintiff is seeking unspecified money damages.
This action has been stayed since January 2004. It is not yet
possible to determine the ultimate outcome of this action.



| |                          
| | -------------------------
| | Stockholder Class Actions

In February and April 2004, three alleged
stockholders of the Company (Teachers Retirement System of
Louisiana, Kenneth Mozingo, and Washington Area Carpenters
Pension and Retirement Fund) initiated purported class actions
suits in the United States District Court for the Northern
District of Illinois against the Company, Black, certain former
executive officers and certain current and former directors of
the Company, Hollinger Inc., Ravelston and certain affiliated
entities and KPMG LLP, the Companys independent registered
public accounting firm. On July 9, 2004, the Court
consolidated the three actions for pretrial purposes. The
consolidated action is entitled In re Hollinger Inc.
Securities Litigation, No. 04C-0834. Plaintiffs filed
an amended consolidated class action complaint on August 2,
2004, and a second consolidated amended class action complaint
on November 19, 2004. The named plaintiffs in the second
consolidated amended class action complaint are Teachers
Retirement System of Louisiana, Washington Area Carpenters
Pension and Retirement Fund, and E. Dean Carlson. They are
purporting to sue on behalf of an alleged class consisting of
themselves and all other purchasers of securities of the Company
between and including August 13, 1999 and December 11,
2002. The second consolidated amended class action complaint
asserts claims under federal and Illinois securities laws and
claims of breach of fiduciary duty and aiding and abetting in
breaches of fiduciary duty in connection with misleading
disclosures and omissions regarding: certain
non-competition payments, the payment of allegedly
excessive management fees, allegedly inflated circulation
figures at the Chicago Sun-Times, and other alleged
misconduct. The complaint seeks unspecified money damages,
rescission, and an injunction against future violations. This
consolidated action is in a preliminary stage, and it is not yet
possible to determine its ultimate outcome.

On September 7, 2004, a group allegedly
composed of those who purchased stock in one or more of the
defendant corporations, initiated purported class actions by
issuing Statements of Claim in Saskatchewan and

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HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Ontario, Canada. The Saskatchewan claim, issued
in that provinces Court of Queens Bench, and the
Ontario claim, issued in that provinces Superior Court of
Justice, are identical in all material respects. The defendants
include the Company, certain current and former directors and
officers of the Company, Hollinger Inc., Ravelston and certain
affiliated entities, Torys LLP, the Companys former legal
counsel, and KPMG LLP. The plaintiffs allege, among other
things, breach of fiduciary duty, violation of the Ontario
Securities Act, 1988, S-42.2, and breaches of obligations under
the Canadian Business Corporations Act, R.S.O. 1985, c. C.-44
and seek unspecified money damages. These actions are in
preliminary stages and it is not yet possible to determine their
ultimate outcome.



| |                         
| | ------------------------
| | Tweedy Browne Litigation

On December 2, 2003, Tweedy, Browne Global
Value Fund and Tweedy Browne (together, the Tweedy Browne
Plaintiffs), stockholders of the Company, initiated an
action against the Company in the Court of Chancery for the
State of Delaware in and for Castle County to recover
attorneys fees and costs in connection with informal
inquiries and other investigations performed by and on behalf of
the Tweedy Browne Plaintiffs concerning conduct that
subsequently has been and continues to be investigated by the
Special Committee. The Tweedy Browne Plaintiffs are seeking an
award of attorneys fees commensurate with the
corporate benefits that have been or will be conferred on the
Company as a result of the efforts undertaken by plaintiffs and
their counsel. This action has been stayed since January
2004. This action is in a preliminary stage, and it is not yet
possible to determine its ultimate outcome or a range of fees
that may be awarded pursuant to this suit.



| |                                                                                  
| | ---------------------------------------------------------------------------------
| | Litigation Involving Controlling Stockholder,
    Senior Management and Directors

On January 28, 2004, the Company, through
the Special Committee, filed a civil complaint in the United
States District Court for the Northern District of Illinois
asserting breach of fiduciary duty and other claims against
Hollinger Inc., Ravelston, Ravelston Management Inc.
(RMI), Black, Radler and Boultbee, which complaint
was first amended on May 7, 2004. The action is entitled
Hollinger International Inc.v.Hollinger Inc.,
et al., Case No. 04C-0698. The amended complaint
added certain other defendants, including Barbara Amiel Black
(Amiel Black) and Daniel Colson
(Colson), sought approximately $484.5 million
in damages, including approximately $103.9 million in
pre-judgment interest, and also included claims under the
Racketeer Influenced and Corrupt Organizations Act
(RICO), which provides for a trebling of damages and
attorneys fees. On October 8, 2004, the court granted
the defendants motion to dismiss the RICO claims and also
dismissed the remaining claims without prejudice on
jurisdictional grounds. On October 29, 2004, the Company
filed a second amended complaint seeking to recover
approximately $542.0 million in damages, including
prejudgment interest of approximately $117.0 million, and
also punitive damages, on breach of fiduciary duty, unjust
enrichment, conversion, fraud, and civil conspiracy claims
asserted in connection with transactions described in the Report
of the Special Committee, including unauthorized
non-competition payments, excessive management fees,
sham broker fees and investments and divestitures of Company
assets. The second amended complaint also adds Richard N. Perle
(Perle), a Director of the Company, as a defendant
and eliminated as defendants certain companies affiliated with
Black and Radler. The second amended complaint alleges that
Perle breached his fiduciary duties while serving as a member of
the executive committee of the Companys Board of Directors
by, among other things, signing written consents purporting to
authorize various related party transactions, without reading,
evaluating or discussing those consents; without negotiating or
evaluating the related party transactions he was approving; and
without taking steps to ensure that those transactions were
presented to and reviewed by the Companys audit committee.
The Company is seeking to appeal the dismissal of the RICO
claims. On December 13, 2004, defendants Hollinger Inc.,
Ravelston, RMI, Black, Radler, Boultbee, and Amiel Black moved
to dismiss the second amended complaint for failure to join as
parties the other companies affiliated with Black and Radler
that had previously been named as defendants. Defendants assert
that these companies are indispensable to the litigation but
that their presence would deprive the court of jurisdiction.
Black, Hollinger Inc., Colson and Perle also moved individually
to dismiss the complaint on various grounds, including failure
to state a claim for relief, lack of

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HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

personal jurisdiction and res judicata.
The motions are pending. This action is in a preliminary stage
and it is not yet possible to determine its ultimate outcome.



| |                                                                                          
| | -----------------------------------------------------------------------------------------
| | Hollinger International Inc. v. Conrad M.
    Black, Hollinger Inc., and 504468 N.B. Inc.

On January 26, 2004, the Company filed a
complaint against Black, Hollinger Inc. and an affiliated entity
in the Court of Chancery of the State of Delaware in and for New
Castle County. In this action, the Company sought relief
declaring: (i) that a written consent by defendants
purporting to abolish the Corporate Review Committee and to
amend the Companys bylaws was invalid; (ii) that the
Shareholders Rights Plan (SRP) adopted by the
Corporate Review Committee on January 25, 2004 was valid;
and (iii) that, under the proposed sale by Black of control
of Hollinger Inc. to Press Holdings International Limited (the
Hollinger Sale), the shares of Class B Common
Stock held by Hollinger Inc. would convert to shares of
Class A Common Stock. The Companys complaint also
asserted claims that defendants breached their fiduciary duties
to the Company and breached the terms of the agreement reached
on November 15, 2003 (the Restructuring
Agreement) through their activities in connection with the
Hollinger Sale and the purported bylaw amendments.

On February 3, 2004, defendants filed a
counterclaim against the Company, members of the Companys
Corporate Review Committee, and Richard C. Breeden
(Breeden), advisor and counsel to the Special
Committee. In their counterclaim, defendants sought declaratory
relief declaring that their bylaw amendments were valid and that
the SRP and other actions by the Corporate Review Committee were
invalid. Defendants also asserted claims of breach of fiduciary
duty, misrepresentation, tortious interference with the
Hollinger Sale, breach of the Restructuring Agreement, and
violation of the just compensation and due process provisions of
the Fourteenth Amendment to the U.S. Constitution. In addition
to declaratory and injunctive relief, defendants sought
unspecified damages.

On March 4, 2004, the Court of Chancery
entered an order and judgment declaring that Hollinger
Inc.s purported amendments to the Companys bylaws
were invalid, that the Corporate Review Committee was and
remained duly constituted, and that the SRP was valid. The Court
of Chancerys order also dismissed defendants breach
of fiduciary duty, tortious interference, and Fourteenth
Amendment counterclaims and preliminarily enjoined the
defendants from taking any action to consummate any transaction
in violation of the provisions of the Restructuring Agreement,
including the Hollinger Sale and any other breaches of the
Restructuring Agreement by defendants.

The Company subsequently moved for summary
judgment on the remaining claims and to make the injunctive
relief permanent. On June 28, 2004, the Court of Chancery
entered an order and final judgment, granting summary judgment
to the Company on its breach of fiduciary duty and breach of
contract claims and dismissing defendants remaining
counterclaims. The order and final judgment required payments by
defendants to the Company totaling $29.8 million in respect
of amounts to be reimbursed to the Company pursuant to the
Restructuring Agreement, and extended the previously entered
injunctive relief through October 31, 2004. On July 16,
2004, defendants made the payments required under the order and
final judgment, but have filed notices of appeal of the
Courts rulings to the Delaware Supreme Court. The appeals
are pending. It is not yet possible to determine the ultimate
outcome of the appeals.

On October 29, 2004, the Company, Hollinger
Inc. and Black entered into the Extension Agreement to
voluntarily extend the injunction until the earlier of
January 31, 2005 or the date of the completion of any
distribution by the Company to its stockholders of a portion of
the proceeds of the Companys sale of the Telegraph Group
remaining as of October 26, 2004, net of taxes to be paid
on the sale of the Telegraph Group and less amounts used to pay
down the Companys indebtedness, through one or more of a
dividend, a self-tender offer, or some other mechanism. On
October 30, 2004, the court issued an order extending the
injunction as provided in, and incorporating the other terms of,
the Extension Agreement.

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HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                                                   
| | --------------------------------------------------
| | Hollinger Inc. v. Hollinger International
    Inc.

On July 1, 2004, Hollinger Inc. and 504468
N.B. Inc. filed an action in the Court of Chancery for the State
of Delaware alleging that the Company violated 8 Del. Code
§ 271 and engaged in inequitable conduct by not
seeking stockholder approval of the proposed sale of the
Telegraph Group. Plaintiffs sought preliminary injunctive relief
to block the sale unless it was approved by the holders of a
majority of the voting power of the Companys common stock,
and an award of costs and attorneys fees. The Court of
Chancery denied Hollinger Inc.s motion in an opinion
issued on July 29, 2004. That same day, plaintiffs moved
before the Chancery Court and Delaware Supreme Court for leave
to file an interlocutory appeal and an injunction pending
appeal. Both courts denied the motions and the matter is
completed.



| |                                                                   
| | ------------------------------------------------------------------
| | Black v. Hollinger International Inc.,
    filed on March 18, 2004

On March 18, 2004, Black filed an action
against the Company in the Court of Chancery of the State of
Delaware seeking advancement of legal fees and expenses he
purportedly incurred and continues to incur in connection with
the SEC and Special Committee investigations and various
litigations that he is involved in. In May 2004, the parties
entered a stipulation resolving the matter. The Company agreed
to pay half of Blacks legal fees in certain actions in
which he is a defendant, pursuant to itemized invoices submitted
with sworn affidavits and subject to his undertaking that he
will repay the amounts advanced to him if and to the extent it
is ultimately determined that he is not entitled to
indemnification under the terms of the Companys bylaws.



| |                                                                  
| | -----------------------------------------------------------------
| | Black v. Hollinger International Inc.,
    filed on April 5, 2004

On April 5, 2004, Black filed an action
against the Company in the U.S. District Court for the
Northern District of Illinois alleging that the Company breached
its obligations to Black under three stock option plans. The
complaint seeks (i) specific performance or damages for the
alleged breaches, (ii) damages for the Companys
alleged failure to issue to Black 145,000 and
1,218,750 shares of Class A Common Stock upon alleged
exercises by Black of options on February 13, 2004 and
April 2, 2004, respectively, and (iii) declaratory
judgment that Blacks removal as Chairman of the Company
and from the Telegraph Group Limited did not constitute
termination of employment under the 1997 Stock Option Plan and
that his options must be treated equally with those of other
executive officers and directors of the Company. The total
damages sought are (i) the highest value of
145,000 shares of Class A Common Stock after
February 13, 2004, plus prejudgment interest, and
(2) the highest value of 1,218,750 shares of
Class A Common Stock after April 2, 2004, less the
option exercise price, plus prejudgment interest. On
November 11, 2004, the Court dismissed the action without
prejudice, granting Black leave to refile his claims as
counterclaims in Hollinger International Inc. v. Hollinger
Inc., et al., Case No. 04C-0698, which is described
above under  Litigation Involving
Controlling Stockholder, Senior Management and
Directors.



| |                                                                      
| | ---------------------------------------------------------------------
| | Hollinger International Inc. v.
    Ravelston, RMI and Hollinger Inc.

On February 10, 2004, the Company commenced
an action in the Ontario Superior Court of Justice (Commercial
List) against Ravelston, RMI and Hollinger Inc. This action
claimed access to and possession of the Companys books and
records maintained at 10 Toronto Street, Toronto, Ontario,
Canada. The parties negotiated and executed a Protocol dated
March 25, 2004, providing for access and possession by the
Company to the claimed records.

On March 5, 2004, a statement of defense and
counterclaim was issued by Ravelston and RMI against the Company
and two of its subsidiaries, Publishing and HCPH Co. The
counterclaim seeks damages in the amount of approximately
$174.3 million for alleged breaches of the services
agreements between the parties and for alleged unjust enrichment
and tortious interference with economic relations by reason of
those breaches. On March 10, 2004, Hollinger Inc. filed a
statement of defense and counterclaim against the

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HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Company seeking Cdn.$300.0 million, claiming
that by the Companys refusal to pay its obligations under
its services agreement with Ravelston, the Company intended to
cause Ravelston to default in its obligations to Hollinger Inc.
under a support agreement between Ravelston and Hollinger Inc.,
and intended to cause Hollinger Inc. to default on its
obligations under its outstanding notes, with the resulting loss
of its majority control of the Company.

On May 6, 2004, Ravelston served a motion
for an anti-suit injunction, seeking to restrain the Company
from continuing the Illinois litigation against it and from
bringing any claims against Ravelston arising out of the
management of the Company other than in Ontario. On May 28,
2004, the Company served a notice of cross-motion seeking a
temporary stay of the Ravelston and Hollinger Inc. counterclaims
pending final resolution of the proceedings in Illinois and
Delaware. Ravelstons motion and the Companys
cross-motion were heard on June 29-30, 2004 at the Ontario
Superior Court of Justice, Commercial List. On August 11,
2004, the court denied Ravelstons motion and granted the
Companys cross-motion. On August 18, 2004, Ravelston
and Hollinger Inc. appealed to the Ontario Court of Appeal. The
appeals are scheduled to be heard on February 22, 2005. On
September 21, 2004, the Company served a motion on
Hollinger Inc. and Ravelston, seeking to quash their appeals to
the Ontario Court of Appeal for want of jurisdiction. On
November 30, 2004, the appeals to the Ontario Court of
Appeal were quashed. Ravelston and Hollinger Inc. were required
to deliver notices of motion in support of a motion for leave to
appeal to the Divisional Court by December 30, 2004.
Ravelston delivered such a notice of motion on December 20,
2004, but Hollinger Inc. has not delivered such a notice and is
therefore not proceeding with an appeal of the stay of its
counterclaim. Ravelstons motion for leave has not yet been
scheduled but will likely be heard some time in February of 2005.



| |                         
| | ------------------------
| | Black v. Breeden, et al.

Five defamation actions have been brought by
Black in the Ontario Superior Court of Justice against Breeden,
Richard C. Breeden & Co., Gordon Paris, James Thompson,
Richard Burt, Graham Savage and Raymond Seitz. The first case
was filed on February 13, 2004; the second and third cases
were filed on March 11, 2004; the fourth case was filed on
June 15, 2004; and the fifth case was filed on
October 6, 2004. The fifth case does not name James
Thompson and Richard Burt as defendants but adds Paul B. Healy
as a defendant. Damages in the amount of Cdn.$850.0 million
are sought in the first and second case; damages in the amount
of Cdn.$110.0 million are sought in the third and fourth
case; and Cdn$1.0 billion in general damages and
Cdn$100.0 million in punitive damages are sought in the
fifth case. Black has agreed to a stay of these actions pending
the determination of the proceedings and appeals of the cases
pending before the Delaware Court of Chancery described above.

The defendants named in the five defamation
actions have indemnity claims against the Company for all
reasonable costs and expenses they incur in connection with
these actions, including judgments, fines and settlement
amounts. In addition, the Company is required to advance legal
and other fees that the defendants may incur in relation to the
defense of those actions.

The Company agreed to indemnify Breeden and
Richard C. Breeden & Co. against all losses, damages,
claims and liabilities they may become subject to, and reimburse
reasonable costs and expenses as they are incurred, in
connection with the services Breeden and Richard C.
Breeden & Co. are providing in relation to the Special
Committees ongoing investigation.



| |                                                                                     
| | ------------------------------------------------------------------------------------
| | United States Securities and Exchange
    Commission v. Hollinger International Inc.

On January 16, 2004, the Company consented
to the entry of a partial final judgment and order of permanent
injunction (the Court Order) against the Company in
an action brought by the SEC in the U.S. District Court for
the Northern District of Illinois. The Court Order enjoins the
Company from violating provisions of the Exchange Act, including
the requirements to file accurate annual reports on
Form 10-K and

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HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

quarterly reports on Form 10-Q and keep accurate
books and records. The Court Order requires the Company to have
the previously appointed Special Committee complete its
investigation and to permit the Special Committee to take
whatever actions it, in its sole discretion, thinks necessary to
fulfill its mandate. The Court Order also provides for the
automatic appointment of Breeden as Special Monitor of the
Company under certain circumstances, including the adoption of
any resolution that discharges the Special Committee before it
completes its work, diminishes or limits the powers of the
Special Committee or narrows the scope of its investigations or
review, or if any directors are removed prior to the end of
their term, or there is a failure to nominate or re-elect any
incumbent director (unless such director voluntarily decides not
to seek nomination or re-election to the Board of Directors), or
there is an election of any new person as a director unless such
action is approved by 80% of the then incumbent directors. On
January 26, 2004, Hollinger Inc. filed a motion to vacate
certain parts of the Court Order that limit its rights as
stockholder. The Court denied Hollinger Inc.s motion on
May 17, 2004.

The Company has received various subpoenas and
requests from the SEC and other agencies seeking the production
of documentation in connection with various investigations into
the Companys governance, management and operations. The
Company is cooperating fully with these investigations and is
complying with these requests.



| |                                                                                
| | -------------------------------------------------------------------------------
| | United States Securities and Exchange
    Commission v. Conrad M. Black, et al.

On November 15, 2004, the SEC filed an
action in the United States District Court for the Northern
District of Illinois against Black, Radler and Hollinger Inc.
seeking injunctive, monetary and other equitable relief. In the
action, the SEC alleges that the three defendants violated
federal securities laws by engaging in a fraudulent and
deceptive scheme to divert cash and assets from the Company and
to conceal their self-dealing from the Companys public
stockholders from at least 1999 through at least 2003. The SEC
also alleges that Black, Radler and Hollinger Inc. were liable
for the Companys violations of certain federal securities
laws at least during this period.

The SEC alleges that the scheme used by Black,
Radler and Hollinger Inc. included the misuse of so-called
non-competition payments to divert
$85.0 million from the Company to defendants and others;
the sale of certain publications owned by the Company at
below-market prices to a privately-held company controlled by
Black and Radler; the investment of $2.5 million of the
Companys funds in a venture capital fund with which Black
and two other directors of the Company were affiliated; and
Blacks approval of a press release by the Company in
November 2003 in which Black allegedly misled the investing
public about his intention to devote his time to an effort to
sell the Company assets for the benefit of all of the
Companys shareholders and not to undermine that process by
engaging in transactions for the benefit of himself and
Hollinger Inc. The SEC further alleges that Black and Radler
misrepresented and omitted to state material facts regarding
related party transactions to the Companys Audit Committee
and Board of Directors and in the Companys SEC filings and
at the Companys stockholder meetings.

The SECs complaint seeks:
(i) disgorgement of ill-gotten gains by Black, Radler and
Hollinger Inc. and unspecified civil penalties against each of
them; (ii) an order enjoining Black and Radler from serving
as an officer or director of any issuer required to file reports
with the SEC; (iii) a voting trust upon the shares of the
Company held directly or indirectly by Black and Hollinger Inc.;
and (iv) an order enjoining Black, Radler and Hollinger
Inc. from further violations of the federal securities laws.



| |                                            
| | -------------------------------------------
| | The Chicago Sun-Times Circulation
    Cases

On June 15, 2004, the Company announced that
the Audit Committee had initiated an internal review into
practices that resulted in the overstatement of circulation
figures for the Chicago Sun-Times. Following that
announcement, a number of lawsuits were filed against the
Company, among others defendants. Several of the suits are
brought on behalf of a purported class composed of all persons
who purchased advertising

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SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

space in the Chicago Sun-Timesduring the
period in which circulation figures were overstated. The
complaints allege that the Chicago Sun-Times improperly
overstated its circulation and that advertisers overpaid for
advertising in the newspaper as a result. The complaints
variously allege theories of recovery based on breach of
contract, unjust enrichment, civil conspiracy, conversion,
negligence, breach of fiduciary duty, common law and statutory
fraud, and violations of the federal RICO statute. The
complaints seek injunctive and declaratory relief, unspecified
actual, treble, and punitive damages, interest, attorneys
fees and costs, and other relief.

A number of the actions were filed in the Circuit
Court of Cook County, Illinois, including the following
purported class action cases filed in the County Department,
Chancery Division: Central Furniture, Inc. v. Hollinger
International, Inc. and Chicago Sun-Times, Inc.,
No. 04 CH 9757; Ronald Freeman
d/b/a Professional Weight Clinic Inc. v. Hollinger
International, Inc. and Chicago Sun-Times, Inc.,
No. 04 CH 9763; Card & Party
Mart II Ltd. v. Hollinger International Inc. and
Chicago Sun-Times, Inc., No. 04 CH 9824;
Geier Enterprises, Inc. v. Chicago Sun-Times, Inc.
and Hollinger International Inc. No. 04
CH 10032; California Floor Coverings d/b/a Olympic
Carpet v. Chicago Sun-Times, Inc., No. 04
CH 10048; BNB Land Venture, Inc. v. Chicago
Sun-Times, Inc., Hollinger International Publishing Inc. and
Docs 1-5, No. 04 CH 10284;
Gleason & McMaster LLC v. Chicago Sun-Times,
Inc. and Hollinger International Inc., No. 04
CH 10581; James Rolshouse & Assoc. PLLC v.
Hollinger International Inc., Chicago Sun-Times, Inc. and The
Sun-Times Co., No. 04 CH 11019; and Mark
Triffler Oldsmobile, Inc. et al. v. Hollinger
International Inc. and Chicago Sun-Times, Inc., 04
CH 12714. The above-stated cases were filed between
June 15, 2004 and August 31, 2004, and an Amended
Consolidated Complaint under the heading In re: Chicago
Sun-Times Circulation Litigation was filed on
October 12, 2004. The Amended Consolidated Complaint lists
defendants Chicago Sun-Times, Inc. and Hollinger International
Inc., and adds Midwest Suburban Publishing, Inc. Two additional
purported class action cases are pending in the County
Department, Chancery Division: International Profit Assocs.,
Inc., v. Chicago Sun-Times, Inc. and Hollinger
International Inc., 04 CH 17964, filed October 29,
2004; and Business Pro Communications, Inc. v. Hollinger
Inc., Hollinger International Inc. and The Sun-Times Co.,
04 CH 19930, filed December 1, 2004.
Additionally, the following individual actions were brought in
the Circuit Court of Cook County: First Federal Auto Auction,
Inc. v. Chicago Sun-Times, Inc., Hollinger International
Inc. and F. David Radler, No. 04 L 7501,
filed July 2, 2004; American Mattress, Inc. v.
Hollinger International Inc. and Chicago Sun-Times, Inc.,
No. 04 L 7790, filed July 12, 2004;
National Foundation for Abused and Neglected Children,
Inc. v. Chicago Sun-Times, Inc., Hollinger International
Inc. and F. David Radler, No. 04 L 7948,
filed July 15, 2004; Joe Rizza Lincoln Mercury, Inc.
et al. v. Chicago Sun-Times, Inc.,
04 L 11657, filed October 14, 2004; Chicago
Sun-Times, Inc. v. Oral Sekendur,
03 M1 170004, circulation-related claims filed
October 12, 2004. One case was filed in the United States
District Court for the Northern District of Illinois:
AJEs the Salon, Inc. v. The Sun-Times, Co.,
Hollinger International Inc. and F. David Radler,
04 C 4317, filed June 28, 2004. The AJEs
the Salon, Inc. case was voluntarily dismissed. The parties
in the consolidated class action case have agreed to mediate in
an attempt to settle the case and are conducting discovery.
Motions to dismiss have been filed with respect to some of the
cases and it is anticipated that similar motions will be filed
in the balance of the pending cases. Overall, the cases are in
preliminary stages and it is not yet possible to determine their
ultimate outcome.

On October 5, 2004, the Company announced
the results of the Audit Committees internal review. The
review of the Audit Committee determined that weekday and Sunday
average circulation of the Chicago Sun-Times, as reported
in the audit reports issued by the Audit Bureau of Circulations
(ABC) commencing in 1998, had been overstated. The
Audit Committee found no overstatement of Saturday circulation
data. The inflated circulation figures were submitted to ABC,
which then reported these figures in its annual audit reports
issued with respect to the Chicago Sun-Times.

The Chicago Sun-Timesannounced a plan
intended to make restitution to its advertisers for losses
associated with the overstatements in the ABC circulation
figures. To cover the estimated cost of restitution and
settlement of the related lawsuits, the Company recorded a
pre-tax charge of approximately $24.1 million

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HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

for 2003 and approximately $2.9 million for
the first quarter of 2004. The Company will evaluate the
adequacy of the accrual as negotiations with advertisers
proceed. The impact of restitution on the ultimate outcome of
the pending litigation is not possible to be determined at this
time.



| |                    
| | -------------------
| | CanWest Arbitration

On December 19, 2003, CanWest commenced
notices of arbitration against the Company and others with
respect to disputes arising from CanWests purchase of
certain newspaper assets from the Company. CanWest claims the
Company and certain of its direct subsidiaries owe CanWest
approximately Cdn.$83.2 million. The Company believes that
it has valid defenses to this claim, as well as significant
counterclaims against CanWest. The arbitration is in preliminary
stages, and it is not yet possible to determine its ultimate
outcome.



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

On December 17, 2003, CanWest and The
National Post Company brought an action in the Ontario Superior
Court of Justice against the Company and others for
approximately Cdn.$25.7 million plus interest in respect of
issues arising from a letter agreement dated August 23,
2001 to transfer the Companys remaining 50% interest in
the National Postto CanWest. In August 2004, The
National Post Company obtained an order for partial summary
judgment ordering the Company to pay The National Post Company
Cdn.$22.5 million plus costs and interest. On
November 30, 2004, the Company settled the appeal of the
partial summary judgment by paying The National Post Company the
amount of Cdn.$26.5 million. This amount includes payment
of the Cdn.$22.5 million in principal plus interest and
related costs. The Company had accrued the Cdn.$22.5 million
plus interest to December 31, 2003 in these consolidated
financial statements. The two remaining matters in this action
consist of a claim for Cdn.$2.5 million for capital and
operating requirements of The National Post Company and a claim
for Cdn.$0.8 million for newsprint rebates. Exchange of
documents and examinations for discovery in respect of these
remaining matters is expected to proceed in early 2005.



| |              
| | -------------
| | Other Actions

The Company and members of the Special Committee
have had a suit filed against them before the Ontario Superior
Court of Justice by Boultbee, former Executive Vice-President
with the Company whose position as an officer was terminated in
November of 2003. In November 2003, the Special Committee found
that Boultbee received approximately $0.6 million of
non-competition payments that had not been
appropriately authorized by the Company. The Company was unable
to reach a satisfactory agreement with Boultbee for, among other
things, repayment of these amounts and as a result, terminated
his position as an officer of the Company. Boultbee is asserting
claims for wrongful termination, indemnification for legal fees,
breach of contract relating to stock options and loss of
reputation, and is seeking approximately Cdn.$16.1 million
from the defendants. The action is in its preliminary stages,
and it is not yet possible to determine its ultimate outcome. On
November 18, 2004, the Company and Boultbee resolved
Boultbees claim for advancement and indemnification of
legal fees, as part of which Boultbee agreed to discontinue this
portion of his claim. The Company is bringing a motion to stay
this action until the litigation in Illinois involving the
Company, Boultbee and others has been concluded. See
 Litigation Involving Controlling
Stockholder, Senior Management and Directors. Although
the Companys motion documents have not yet been served,
time has been reserved with the court for the hearing of this
motion on April 25, 2005.

On November 3, 2004, Wells Fargo Bank
Northwest, N.A. and Key Corporate Capital Inc. filed an action
in the Supreme Court of the State of New York, in Albany County,
against Sugra (Bermuda) Limited (Sugra Bermuda),
which is a subsidiary of Publishing, and against Hollinger Inc.
The action alleges that

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SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Sugra Bermuda defaulted under the terms of a 1995
aircraft lease agreement, and that Hollinger Inc. is a guarantor
of Sugra Bermudas obligations under the lease. Plaintiffs
are seeking $5.1 million in damages, plus interest at the
rate of 18 percent per annum and attorneys fees. On
December 20, 2004, Hollinger Inc. removed the action from
state court to the United States District Court for the Northern
District of New York. This action, which is entitled Wells
Fargo Bank Northwest, N.A. v. Sugra (Bermuda) Limited and
Hollinger Inc., No. 1:04-cv-01436-GLD-DRH (N.D.N.Y.), is in
a preliminary stage, and it is not yet possible to determine its
ultimate outcome.

During 2002, the largest customer of The
Jerusalem Post, the Golden Pages, effectively
terminated its agreement with The Jerusalem Post for
publication of the Golden Pages by failing to submit
orders as required. An action was commenced in the District
Court of Tel Aviv by The Jerusalem Post in early 2003
alleging breach of contract. Although significant to The
Jerusalem Post, the loss of revenue has not had a material
impact on the Companys business, as a whole. With the
completion of the sale of The Palestine Post Limited on
December 15, 2004, the Company no longer has a claim or
liability related to this action.

The Company becomes involved from time to time in
various claims and lawsuits incidental to the ordinary course of
business, including such matters as libel, defamation and
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 described under Other
Actions will not have a material adverse effect on the
Company taken as a whole.



|    |           
|--- | ----------
|(b) | Guarantees

In November 2002, the FASB issued FIN 45,
which establishes and clarifies requirements for disclosure of
most guarantees and the recognition of an initial liability for
the fair value of obligations a guarantor assumes under
guarantees. The initial liability recognition and measurement
provisions are effective in respect of guarantees entered into
or modified after December 31, 2002.



| |                   
| | ------------------
| | (i) Joint Ventures

The Telegraph had guaranteed the printing joint
venture partners share of equipment leasing obligations to
third parties, which expired as of December 31, 2003
($0.6 million at December 31, 2002). These obligations
were guaranteed jointly and severally by each joint venture
partner.

Land leased by the Telegraph under a head lease
under which the property is held until July 2183 has been sublet
to West Ferry Printers, one of the Companys printing joint
ventures. The sublease is for a term of 34 years from 1987.
Although the sublease has been consented to by the landlord, it
has not released the Telegraph from its obligation under the
lease and accordingly, the Telegraph is contingently liable for
performance by West Ferry Printers. Annual rents under the lease
are based on a percentage of the value of immoveable assets,
currently £0.6 million per year. The Company no longer
has any obligation under this lease following the disposition of
the Telegraph Group (Note 28(c)).

At December 31, 2003, pursuant to a joint
venture agreement in the U.K., the Company has agreed to
guarantee up to £500,000, if required, in connection with
borrowing by the joint venture. The Company was released from
this guarantee upon completion of the sale of the Telegraph
Group in 2004.



| |                  
| | -----------------
| | (ii) Dispositions

In connection with certain dispositions of assets
and/or businesses (Note 3), the Company has provided
customary representations and warranties whose terms range in
duration and may not be explicitly defined.

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SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The Company has also retained certain liabilities
for events occurring prior to sale, relating to tax,
environmental, litigation and other matters. Generally, the
Company has indemnified the purchasers in the event that a third
party asserts a claim against the purchaser that relates to a
liability retained by the Company. These types of
indemnification guarantees typically extend for a number of
years.

The Company is unable to estimate the maximum
potential liability for these indemnifications as the underlying
agreements do not always specify a maximum amount and the
amounts are dependent upon the outcome of future events, the
nature and likelihood of which cannot be determined at this time.

Historically, the Company has not made any
significant indemnification payments under such agreements and
does not expect to in the future; accordingly no amount has been
accrued in the accompanying consolidated financial statements
with respect to these indemnification guarantees. The Company
continues to monitor the conditions that are subject to
guarantees and indemnifications to identify whether it is
probable that a loss has occurred, and would recognize any such
losses under any guarantees or indemnifications if and when
those losses become probable and estimable.



| |                        
| | -----------------------
| | (iii) Credit Facilities

Under its Senior Credit Facility, the Company
agreed to indemnify its lenders under that facility against
certain costs or losses resulting from changes in laws and
regulations which would increase the lenders costs or
reduce the rate of return otherwise available to them in respect
of the loans to the Company. The Company further agreed to
indemnify certain lenders against existing loans to the extent
that such loans impose an obligation for withholding tax or
similar charge on interest, should such tax or charge not be
recoverable by the lenders. These indemnifications generally
extend for the term of the credit facilities and do not provide
for any limit on the maximum potential liability.

As described in Note 10, the Company
indemnified the lenders and their affiliates from and against
all losses as a result of any obligations of any of the
borrowers and guarantors under its Senior Credit Facility. Also
as described in Note 10, the Company has guaranteed
Publishings 9% Senior Notes.

Subsequent to December 31, 2003, all amounts
borrowed under the Senior Credit Facility were repaid upon the
closing of the sale of the Telegraph Group. (See
Note 28(d).) The Company also made a tender offer for
retirement of the 9% Senior Notes. (See Note 28(e)).



| |                         
| | ------------------------
| | (iv) Participation Trust

In connection with the participation agreement
described in Note 5, the Company agreed to indemnify the
Participation Trust and its trustee in the event the
participation agreement enabled the issuer of the CanWest
Debentures to stop payments with respect to the debentures.
Although the indemnity has not been capped, the Company
estimates the liability is limited to the amount of
participation interests sold, totaling $475.3 million,
which includes accrued interest and debentures received as
paid-in-kind interest, reduced by debentures redeemed in May
2003. As disclosed in Note 28(i), the Company concluded a
transaction with CanWest on November 18, 2004 under which
the Company received approximately $133.6 million. The
Participation Trust has now been unwound and the Company no
longer has any exposure under this guarantee.



| |          
| | ---------
| | (v) Other

The Company licenses some of the content it
publishes for use by third parties. In doing so, the Company
warrants that it is entitled to license that content and
indemnifies the licensee against claims against improper use.
The number or quantum of such claims cannot be reasonably
estimated. Historically, claims of this nature have not been
significant.

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HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                       
| | ----------------------
| | (vi) Letters of Credit

In connection with the Companys insurance
program, letters of credit are required to support certain
projected workers compensation obligations. At
December 31, 2003, letters of credit in the amount of
$4.2 million ($2.8 million in 2002) were outstanding.



| |                                               
| | ----------------------------------------------
| | (c)             Canadian
    Ownership Matters

Under the Canadian Income Tax Act
(ITA), there are limits on the deductibility by
advertisers of the cost of advertising in newspapers that are
not considered Canadian-owned under the ITA. The status of
certain of the Companys newspapers as Canadian-owned was
affected by Blacks renunciation of his Canadian
citizenship in June 2001. Although the Company believes that it
has a structure in place that meets the ITA Canadian ownership
rules for at least a portion of the period since June 2001, that
structure may be challenged by the Canadian income tax
authorities. Should any challenge be successful, advertisers in
Canada might seek compensation from the Company for any
advertising costs disallowed as a deduction or otherwise look to
a reduction of advertising rates for certain Canadian newspaper
publications. The amount of exposure, if any, cannot presently
be determined.

Additionally, one or more of the Companys
Canadian subsidiaries has received funding under a Canadian
governmental program that is intended to benefit entities that
are Canadian owned or controlled. The Canadian government could
seek the return of these funds as a result of Blacks
renunciation of his Canadian citizenship.



|     |                           
|---- | --------------------------
|(23) | Related-party Transactions

The following is a description of certain
relationships and related party transactions for the three years
ended December 31, 2003. Most of the findings of the
Special Committee set forth in the Special Committee Report (the
Report) are the subject of ongoing litigation and
are being disputed by the former executive officers and certain
of the current and former directors of the Company who are the
subject of the Report.

(a)On
November 15, 2003, the Special Committee and the Audit
Committee disclosed to the Board of Directors the preliminary
results of their investigations. The Committees determined that
a total of $32.2 million in payments characterized as
non-competition payments were made by the Company
without appropriate authorization by either the Audit Committee
or the full Board of Directors. According to the Report, of the
total unauthorized payments, approximately $16.6 million
was paid to Hollinger Inc. in 1999 and 2000, approximately
$7.2 million was paid to each of Black and Radler in 2000
and 2001, and $0.6 million was paid to each of Boultbee and
Atkinson in 2000 and 2001. As a consequence of these findings,
the Special Committee then entered into discussions with Black
that culminated in the Company and Black signing the
Restructuring Agreement. The Restructuring Agreement provides
for, among other things, restitution by Hollinger Inc., Black,
Radler, Boultbee and Atkinson to the Company of the full amount
of the unauthorized payments, plus interest.

As of December 31, 2003, the Company had
received $0.8 million from Radler and $0.4 million
from Atkinson in accordance with the Restructuring Agreement.
Subsequent to December 31, 2003, the Company has received
$30.3 million, excluding interest, from Hollinger Inc.,
Black, Radler and Atkinson. These amounts received after
December 31, 2003, including interest to December 31,
2003, have been included in Amounts due from related
parties, net and Other income (expense), net
and Interest and dividend income. These repayments
are described further in Note 28(a).

(b)The Company
had a services agreement with Ravelston, pursuant to which
Ravelston provided advisory, consultative, procurement and
administrative services to the Company. This services agreement
was assigned on July 5, 2002 to RMI. The Company and its
subsidiaries expensed fees from Ravelston and RMI,

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SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

totaling $23.9 million, $23.7 million
and $29.0 million for 2003, 2002, and 2001, respectively,
pursuant to these agreements.

Moffat Management Inc. and Black-Amiel Management
Inc. had separate services agreements with the Company. The
Company expensed $2.1 million, $1.9 million and
$1.7 million in 2003, 2002, and 2001, respectively, in fees
under these agreements.

The Restructuring Agreement provides for the
termination of these agreements in accordance with their terms,
effective June 1, 2004, and for the negotiation of the
management fee payable thereunder for the period from
January 1, 2004 until June 1, 2004. In November 2003,
in accordance with the terms of the Restructuring Agreement, the
Company notified each of the parties to the Services agreements
of the termination of the services agreements effective
June 1, 2004. See Note 22(a).

Hollinger Inc. and its affiliates billed the
Company for allocated airplane expenses amounting to nil,
$2.3 million and $4.4 million in 2003, 2002, and 2001,
respectively.

Net amounts due from related parties at
December 31, 2003 totaling $11.9 million (2002 due to
related parties  $25.2 million) include
$4.5 million (2002  $7.7 million) of
amounts payable in respect of management fees.

During 2001, the Company made a bonus payment to
Colson of approximately $1.1 million.

(c)On
March 10, 2003, the Company repurchased for cancellation,
from a wholly owned subsidiary of Hollinger Inc.,
2,000,000 shares of the Companys Class A Common
Stock at $8.25 per share for a total of $16.5 million.
The Company also redeemed, from the same subsidiary of Hollinger
Inc., pursuant to a redemption request, all of the 93,206
outstanding shares of Series E Redeemable Convertible
Preferred Stock of the Company at the fixed redemption price of
Cdn.$146.63 per share being a total of $9.3 million.

(d)On
January 1, 2003, Canadian Classified Network
(CCN) was disposed of to Horizon Operations (Canada)
Ltd. (HOCL), for cash consideration of approximately
Cdn.$0.2 million. HOCL is controlled by Black and Radler.
CCN places classified advertising in newspapers participating in
a joint advertising group managed by CCN. Until disposed of, CCN
was a division of HCPH Co. During the year ended
December 31, 2003, the Company earned management fees of
approximately Cdn.$0.1 million from CCN under a profit
sharing arrangement whereby Hollinger L.P. is entitled to 50% of
the profits of CCN. In addition, the Company received
approximately Cdn.$0.1 million with respect to advertising
related activities with CCN. This transaction was not approved
by the Companys independent directors.

(e)On
July 11, 2000, the Company loaned $36.8 million to a
subsidiary of Hollinger Inc. to fund the cash purchase by
Hollinger Inc. of HCPH Special Shares. The loan was originally
payable on demand but on March 10, 2003, the due date for
repayment was extended to no earlier than March 1, 2011. It
has been classified as Loan to affiliate (a
long-term asset) on the Consolidated Balance Sheet. Effective
January 1, 2002, the interest rate was changed from 13.0%
per annum to LIBOR plus 3.0% per annum, without review by or
approval of the Companys independent directors. As of
December 31, 2002, the balance, including accrued interest
at the new unapproved rate, was $45.8 million. Payments for
the above mentioned repurchase and redemption (Note 23(c))
were applied against this debt due from the Hollinger Inc.
subsidiary resulting in a calculation of net outstanding debt
due to the Company of approximately $20.4 million as of
March 10, 2003, the date of the repayment. At
December 31, 2003, $22.1 million of debt (including
interest) remains outstanding, based on the promissory note the
Hollinger Inc. subsidiary was required to sign on March 10,
2003, for the outstanding balance as then calculated, and based
on the lower of two potentially applicable interest rates, as
described below. The debt, since the date of the partial
repayment, bears interest at 14.25% or, if paid in additional
notes, 16.5% and is subordinated to the Hollinger Inc. Senior
Secured Notes (so long as the Senior Secured Notes are
outstanding), guaranteed by Ravelston, the controlling
stockholder of Hollinger Inc., and secured by certain assets of
Ravelston. Following the receipt of an independent fairness

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HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

opinion and a review of all aspects of the
transaction relating to the changes in the debt arrangements
with Hollinger Inc., including the subordination of this
remaining debt, by a committee of the Board of Directors of the
Company, composed entirely of independent directors, the
committee approved the new debt arrangements.

The Company previously reported that the
committee of independent directors referred to above had agreed
to a partial offset to the $20.4 million debt against
amounts owed by the Company to RMI, a subsidiary of Ravelston,
and further stated that the offset was effected April 30,
2003. The amounts contemplated in the partial offset are further
described in Note 23(f). Although the former management of
the Company maintained that it believed final approval had been
given to the offset by the committee of independent directors,
according to the Report, the committee had not given such
approval. The committee of independent directors later agreed to
approve the requested partial offset on certain terms and
conditions, but these terms and conditions were not acceptable
to Hollinger Inc. and Ravelston, and the offset was not
completed.

Neither the Hollinger Inc. subsidiary nor
Ravelston has complied with the terms of the new debt
arrangements. Under the terms of the promissory note, the
Hollinger Inc. subsidiary is permitted to make interest payments
with additional notes if interest payments to the Company are
prohibited under the indenture governing Hollinger Inc.s
11 7/8% Senior Secured Notes. The Hollinger Inc. subsidiary made
only partial cash interest payments on the note until August
2003, when it discontinued payments altogether. At this time,
the Company cannot ascertain which interest rate is the
appropriate one to apply to the debt. Although as set forth in
the Report, the Special Committee believes interest should be
accrued at the higher rate, to be conservative, the Company has
accrued interest at the lower rate. At December 31, 2003,
the Company calculates that based on the amount in the
promissory note Hollinger Inc.s subsidiary was required to
sign and using the lower interest rate, unpaid interest amounts
to $1.8 million. Ravelston was required to fund a cash
collateral account to secure the Hollinger Inc.
subsidiarys repayment obligation. Ravelston has funded
approximately $0.1 million to this cash collateral account
as of December 31, 2003. The Hollinger Inc.
subsidiarys debt is guaranteed by Ravelston, secured by
its receivables under Ravelstons management services
agreement with CanWest.

The Company has not yet sought to collect on the
Ravelston guarantee or attach the receivables. Instead, the
Company has sued Hollinger Inc. and Ravelston seeking to rescind
the loan entirely and have it repaid in full. The Company claims
that Black, Radler, Boultbee and Hollinger Inc. and its
subsidiary made material misrepresentations to the Audit
Committee in order to obtain its approval for the loan in July
2000 and, therefore, the Company is entitled to rescind the
loan. The Company seeks repayment of the entire loan balance,
properly calculated without regard to the unauthorized interest
rate reduction. (See Note 22(a).)

(f)On
July 3, 2002, N.P. Holdings Company (NP
Holdings), a subsidiary of the Company, was sold to RMI
for $3.8 million (Cdn.$5.8 million). The Company,
through the Special Committee, has sued RMI and others for
breach of fiduciary duty and fraud in connection with the
transaction (See Note 22(a)). Before the sale, NP Holdings
had no significant assets or liabilities other than unutilized
tax loss carryforwards. Prior management asserted that NP
Holdings potentially had an obligation from a letter agreement
executed by Hollinger Inc. purporting to obligate the Company to
pay The National Post Company Cdn.$22.5 million in
connection with the sale to CanWest of The National Post
Company, which owned the Companys remaining 50% interest
in the National Postnewspaper. Immediately prior to the
sale, prior management caused the Company to contribute
Cdn.$22.5 million as equity to NP Holdings and then borrow
that amount from NP Holdings by way of a demand promissory note
bearing interest at the three month bankers acceptance rate
plus 4%. The note is payable by the Companys subsidiary,
HCPH Co., and was originally in favor of NP Holdings but was
later assigned to RMI. Notwithstanding these transactions and
absent consent from CanWest or the National Post Company to the
assumption of the obligation by any party other than the
Company, the Company was required to pay Cdn.$22.5 million
plus interest on November 30, 2004 to satisfy a judgment
obtained against the Company by the National Post Company for
that amount. (See Note 22(a).)

181



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HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The Company has refused to honor the promissory
note to RMI and will be seeking a declaration from RMI that it
is not liable on the note. In addition, since the sale, the
Company has learned that NP Holdings had greater loss
carryforwards than the parties believed at the time of the sale.
Therefore, the Company has requested that RMI pay a higher price
in recognition of the greater value of NP Holdings, but the
Company does not have a contractual right to receive any such
additional amount.

(g)The
Companys current Interim Chairman of the Board of
Directors, President and Interim Chief Executive Officer, Gordon
Paris, is a managing director of Berenson & Company.
Berenson & Company acted as financial advisor to the Company
in December 2002 and received a fee of approximately
$1.0 million in connection with the placement of the
Companys 9% Senior Notes.

(h)The Company
has recorded $1.6 million of expenses on behalf of current
and former executive officers and directors of the Company
during the year ended December 31, 2003. The majority of
these expenses relate to payments of fees for legal counsel
representing current and former executive officers and directors
of the Company in their dealings with the Special Committee,
while conducting its investigations. Payments of such fees were
made pursuant to indemnification provisions of the
Companys Certificate of Incorporation and the
Companys by-laws.

(i)During
2003, the Company billed Hollinger Inc. $1.2 million
(2002  $0.8 million, 2001  nil) for
use of its aircraft and applied the income against operating
expenses.

(j)The Company
owns an investment company, Hollinger Digital LLC
(Hollinger Digital). Directors and officers of the
Company are former directors and officers of Hollinger Digital,
including Perle. Perle, who is a member of the Board of
Directors, initiated the formation of Hollinger Digital with
Black. Hollinger Digital was ostensibly created to make
investments in new media companies on the Companys behalf.
Perle received a salary of approximately $0.1 million in
2003, approximately $0.3 million in 2002 and approximately
$0.3 million in 2001. In addition, during 2001, the Company
made payments under the Digital Incentive Plan of approximately
$0.3 million to Black, approximately $0.2 million to
Radler and Perle, and approximately $0.1 million to each of
Atkinson, Colson and Boultbee. No further payments under the
Digital Incentive Plan were made in either 2003 or 2002.



| |        |                                                                                                                                                                                                                                                                                                                                
| | ------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (k)(i) | The majority of Telegraphs printing is
    contracted to two 50% owned joint ventures. The joint ventures
    are accounted for as equity investments (Note 5). Expenses
    for printing conducted by these joint ventures are included in
    operating costs and expenses in the Consolidated Statements of
    Operations.



| |      |                                                                                                                                                                                                                           
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (ii) | Telegraph owns a 50% interest in a joint venture
    established to undertake the sourcing of newsprint for the joint
    venturers. This joint venture arrangement replaces a similar
    arrangement terminated in 2001.

Purchases from the joint ventures for printing
services and newsprint purchases are disclosed separately in the
Consolidated Statements of Operations.

(l)On
September 27, 2001, the Company redeemed Series E
Preferred Stock held by Hollinger Inc. for cash consideration of
$3.8 million (Note 13).

(m)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 5, 2001, the
Company purchased from Hollinger Inc., for cancellation the
7,052,464 shares of Class A Common Stock for a total
cost of $92.2 million (Note 14).

182



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HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(n)During
2001, in connection with the sales of properties described in
Note 3, the Company paid Ravelston, Hollinger Inc., Black
and three senior executives non-competition
payments, purportedly in consideration for their execution of
non-competition agreements.

(o)As
described in Note 3, during the year ended
December 31, 2001, the Company sold newspaper properties to
certain related parties.

(p)Included in
Deferred financing costs and other assets at
December 31, 2003, is $3.4 million, owing to the
Company from Bradford Publishing Co. (Bradford).
Bradford is controlled by Black and Radler. Bradford granted a
non-interest bearing note receivable to the Company in
connection with a non-competition agreement entered
into on the sale of certain operations to Bradford during 2000.
This note is non-interest bearing, and accordingly, the Company
established the amount receivable at the net present value at
the time of the agreement. The remaining balance represents that
net present value less any payments received through
December 31, 2003. The note receivable is unsecured and due
over the period to 2010, and subordinated to Bradfords
lenders although, under an acceleration clause, it may be due
immediately due to default.

(q)Included in
Deferred financing costs and other assets at
December 31, 2003, is $4.9 million owed by Horizon.
The Company also has a receivable of approximately
$0.5 million for interest on this note. Such amount
represents the balance outstanding on a loan receivable granted
by the Company in connection with the sale of certain operations
to Horizon during 1999. The loan receivable is unsecured, bears
interest at the lower of LIBOR plus 2% and 8% per annum and
matures in 2007.

(r)The Company
recorded management fees payable to Horizon of approximately
$0.1 million and $0.2 million in 2003 and 2002,
respectively, in connection with certain administrative services
provided by Horizon.

(s)In 2003,
the Company made an investment of $2.5 million in Trireme
Associates LLC (Trireme LLC) which is the general
partner of Trireme Partners LP (Trireme LP), a
venture capital fund. Trireme LLC, as general partner of Trireme
LP, receives 20% of the profits of Trireme LP (the
Distribution) after repayment of invested capital. The
remaining 80% of the profits of Trireme LP will be distributed
to Trireme LLC and the limited partners of Trireme LP based upon
their invested capital. Perle, a director of the Company, has an
equity interest in Trireme LLC. In addition, Trireme Management
LLC is the designated manager of Trireme LP. As Manager, Trireme
Management LLC receives a management fee from Trireme LP. Perle
is a member of management of Trireme Management LLC. Black and
Dr. Henry A. Kissinger, directors of the Company, are
former members of the Strategic Advisory Board of Trireme LP.

(t)In June
2001, the Company, through a non-profit organization of which it
was a member, purchased the publication The National
Interest, for approximately $0.1 million. The
publication includes Black, and members of the Companys
Board of Directors, Henry A. Kissinger and Perle, as its
advisors. In each of 2003 and 2002, the Company contributed
$0.1 million and in 2001 contributed $0.3 million to
the non-profit organization which owned The National
Interest. In 2003, the Company entered into discussions to
withdraw as a member of this non-profit organization. In October
2004, the Company, with a final contribution of approximately
$0.1 million, withdrew as a member of the non-profit
organization which owned The National Interest.

(u)The Company
had an informal agreement with Hollinger Inc. whereby Hollinger
Inc. would pay the costs of computer equipment and related
products and services at Hollinger Inc.s corporate offices
in Toronto, Canada in 2002 and the Company would pay the costs
in 2003. The Company and Hollinger Inc. were to reconcile the
spending and share the combined costs equally. Based upon the
evaluation of the combined costs under this arrangement, the
Company is owed approximately Cdn.$0.2 million by Hollinger
Inc. Hollinger Inc. has not yet paid its share of the costs
incurred and continues to retain possession of the computer and
related equipment acquired by the Company.

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HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|     |             
|---- | ------------
|(24) | Income Taxes

Total income taxes for the years ended
December 31, 2003, 2002 and 2001 were allocated as follows:

|                                     |                                                                                                                    |                |         |          |  |          |        |         |   |   |         |         |  
|------------------------------------ | ------------------------------------------------------------------------------------------------------------------ | -------------- | ------- | -------- |  | -------- | ------ | ------- | - | - | ------- | ------- | -
|                                     |                                                                                                                    | 2003           |         | 2002     |  | 2001    
|                                     |                                                                                                                    |                |         |          |  |         
|                                     |                                                                                                                    |               
|                                     |                                                                                                                    | (In thousands)
|                                     |                                                                                                                    |                |         | Restated |  | Restated
|                                     |                                                                                                                    |                |         | Note 2   |  | Note 2  
|Income taxes (benefit) allocated to: |                                                                                                                    |                |         |          |  |          |        |         |   |   |         |        
|                                     | Earnings (loss) before income taxes, minority
    interest and cumulative effect of change in accounting principle |                | $       | 121,638  |  |          | $      | 50,132  |   |   | $       | (23,038 | )
|                                     | Other comprehensive loss  foreign
    currency translation adjustments                                            |                |         | 1,526    |  |          |        | 2,374   |   |   |         |        |  
|                                     | Other comprehensive loss  minimum
    pension liability adjustment                                                |                |         | 101      |  |          |        | (15,852 | ) |   |         | (7,573  | )
|                                     | Other comprehensive income  unrealized
    holding gains on marketable securities                                 |                |         | 3,110    |  |          |        | 2,040   |   |   |         | 11,690  |  
|                                     |                                                                                                                    |                |         |          |  |          |        |         |   |   |         |        
|                                     |                                                                                                                    | $              | 126,375 |          |  | $        | 38,694 |         |   | $ | (18,921 | )      
|                                     |                                                                                                                    |                |         |          |  |          |        |         |   |   |         |        

Income taxes (benefit) for the years shown below
consists of:

|                              |                 |                |        |          |   |          |         |         |   |   |         |         |  
|----------------------------- | --------------- | -------------- | ------ | -------- | - | -------- | ------- | ------- | - | - | ------- | ------- | -
|                              |                 | Current        |        | Deferred |   | Total   
|                              |                 |                |        |          |   |         
|                              |                 |               
|                              |                 | (In thousands)
|                              |                 |                |        | Restated |   | Restated
|                              |                 |                |        | Note 2   |   | Note 2  
|Year ended December 31, 2003: |                 |                |        |          |   |          |         |         |   |   |         |        
|                              | U.S. federal    |                | $      | (8,966   | ) |          | $       | 56,125  |   |   | $       | 47,159  |  
|                              | Foreign         |                |        | 83,887   |   |          |         | (17,691 | ) |   |         | 66,196  |  
|                              | State and local |                |        | 4,753    |   |          |         | 3,530   |   |   |         | 8,283   |  
|                              |                 |                |        |          |   |          |         |         |   |   |         |        
|                              |                 | $              | 79,674 |          |   | $        | 41,964  |         |   | $ | 121,638 |        
|                              |                 |                |        |          |   |          |         |         |   |   |         |        
|Year ended December 31, 2002: |                 |                |        |          |   |          |         |         |   |   |         |        
|                              | U.S. federal    |                | $      | (32,808  | ) |          | $       | 11,357  |   |   | $       | (21,451 | )
|                              | Foreign         |                |        | 38,262   |   |          |         | 40,065  |   |   |         | 78,327  |  
|                              | State and local |                |        | (10,305  | ) |          |         | 3,561   |   |   |         | (6,744  | )
|                              |                 |                |        |          |   |          |         |         |   |   |         |        
|                              |                 | $              | (4,851 | )        |   | $        | 54,983  |         |   | $ | 50,132  |        
|                              |                 |                |        |          |   |          |         |         |   |   |         |        
|Year ended December 31, 2001: |                 |                |        |          |   |          |         |         |   |   |         |        
|                              | U.S. federal    |                | $      | 10,941   |   |          | $       | (345    | ) |   | $       | 10,596  |  
|                              | Foreign         |                |        | 20,859   |   |          |         | (48,425 | ) |   |         | (27,566 | )
|                              | State and local |                |        | 998      |   |          |         | (7,066  | ) |   |         | (6,068  | )
|                              |                 |                |        |          |   |          |         |         |   |   |         |        
|                              |                 | $              | 32,798 |          |   | $        | (55,836 | )       |   | $ | (23,038 | )      
|                              |                 |                |        |          |   |          |         |         |   |   |         |        

184



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HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

U.S. and foreign components of earnings (loss)
before income taxes, minority interest and cumulative effect of
change in accounting principle are presented below:

|        |  |                |        |          |  |          |          |   |  |   |          |  
|------- |  | -------------- | ------ | -------- |  | -------- | -------- | - |  | - | -------- | -
|        |  | 2003           |        | 2002     |  | 2001    
|        |  |                |        |          |  |         
|        |  |               
|        |  | (In thousands)
|        |  |                |        | Restated |  | Restated
|        |  |                |        | Note 2   |  | Note 2  
|U.S.    |  | $              | 17,484 |          |  | $        | (139,693 | ) |  | $ | (191,042 | )
|Foreign |  |                | 35,171 |          |  |          | (18,558  | ) |  |   | (172,372 | )
|        |  |                |        |          |  |          |          |   |  |   |          |  
|        |  | $              | 52,655 |          |  | $        | (158,251 | ) |  | $ | (363,414 | )
|        |  |                |        |          |  |          |          |   |  |   |          |  

Income tax expense (benefit) differed from
the amounts computed by applying the U.S. federal income
tax rate of 35% for 2003, 2002 and 2001 as a result of the
following:

|                                                                                                                                                                        |  |                |         |          |  |          |         |   |  |   |          |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ------- | -------- |  | -------- | ------- | - |  | - | -------- | -
|                                                                                                                                                                        |  | 2003           |         | 2002     |  | 2001    
|                                                                                                                                                                        |  |                |         |          |  |         
|                                                                                                                                                                        |  |               
|                                                                                                                                                                        |  | (In thousands)
|                                                                                                                                                                        |  |                |         | Restated |  | Restated
|                                                                                                                                                                        |  |                |         | Note 2   |  | Note 2  
|Computed expected tax expense
    (benefit)                                                                                                                           |  | $              | 18,429  |          |  | $        | (55,388 | ) |  | $ | (127,195 | )
|Impact of taxation at different foreign rates                                                                                                                           |  |                | 677     |          |  |          | (2,043  | ) |  |   | (3,103   | )
|U.S. state and local income tax expense
    (benefit), net of federal tax impact                                                                                        |  |                | 1,302   |          |  |          | (1,828  | ) |  |   | (4,261   | )
|Settlement of state tax matters, net of federal
    tax benefit                                                                                                         |  |                | 4,082   |          |  |          |        |   |  |   |         |  
|Tax impacts of the disposition and liquidation of
    Canadian operations, including book and tax basis differences,
    foreign exchange differences and related items |  |                | 1,545   |          |  |          | 38,880  |   |  |   | 5,081    |  
|Provision for tax contingencies, principally
    related to potential non-deductibility of management fees                                                              |  |                | 61,442  |          |  |          | 5,176   |   |  |   | 22,235   |  
|Interest on tax contingency accruals, net of
    federal tax benefit on a portion thereof                                                                               |  |                | 46,738  |          |  |          | 40,157  |   |  |   | 8,960    |  
|Items non-deductible or non-includible for income
    tax purposes                                                                                                      |  |                | 2,962   |          |  |          | 2,415   |   |  |   | 2,351    |  
|Exclusion from taxable income of net losses and
    interest related to Total Return Equity Swap                                                                        |  |                |        |          |  |          | 5,302   |   |  |   | 28,068   |  
|U.S. income tax expense (benefit) on intercompany
    transactions involving foreign operations                                                                         |  |                | (1,210  | )        |  |          | (452    | ) |  |   | 17,613   |  
|Increase (decrease) in valuation allowance                                                                                                                              |  |                | (12,269 | )        |  |          | 17,374  |   |  |   | 27,181   |  
|Other                                                                                                                                                                   |  |                | (2,060  | )        |  |          | 539     |   |  |   | 32       |  
|                                                                                                                                                                        |  |                |         |          |  |          |         |   |  |   |          |  
|Total                                                                                                                                                                   |  | $              | 121,638 |          |  | $        | 50,132  |   |  | $ | (23,038  | )
|                                                                                                                                                                        |  |                |         |          |  |          |         |   |  |   |          |  

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HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Income taxes payable and other tax
liabilities presented as current liabilities in the
Consolidated Balance Sheets are summarized as follows:

|                                   |  |                |         |          |  |   |         |  
|---------------------------------- |  | -------------- | ------- | -------- |  | - | ------- | -
|                                   |  |               
|                                   |  | December 31,  
|                                   |  |               
|                                   |  | 2003           |         | 2002    
|                                   |  |                |         |         
|                                   |  |               
|                                   |  | (In thousands)
|                                   |  |                |         | Restated
|                                   |  |                |         | Note 2  
|Income taxes payable (recoverable) |  | $              | 10,885  |          |  | $ | (13,059 | )
|Other tax liabilities              |  |                | 455,599 |          |  |   | 324,198 |  
|                                   |  |                |         |          |  |   |         |  
|                                   |  | $              | 466,484 |          |  | $ | 311,139 |  
|                                   |  |                |         |          |  |   |         |  

Deferred income taxes and other tax
liabilities presented as non-current liabilities in the
Consolidated Balance Sheets are summarized as follows:

|                                                |  |                |          |          |  |   |          |  
|----------------------------------------------- |  | -------------- | -------- | -------- |  | - | -------- | -
|                                                |  |               
|                                                |  | December 31,  
|                                                |  |               
|                                                |  | 2003           |          | 2002    
|                                                |  |                |          |         
|                                                |  |               
|                                                |  | (In thousands)
|                                                |  |                |          | Restated
|                                                |  |                |          | Note 2  
|Deferred tax liabilities                        |  | $              | 142,922  |          |  | $ | 106,611  |  
|Other tax liabilities                           |  |                | 293,211  |          |  |   | 269,107  |  
|Deferred tax assets, net of valuation allowance |  |                | (161,141 | )        |  |   | (153,449 | )
|                                                |  |                |          |          |  |   |          |  
|                                                |  | $              | 274,992  |          |  | $ | 222,269  |  
|                                                |  |                |          |          |  |   |          |  

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

|                                     |                                                                                    |                |         |          |   |   |         |          |  
|------------------------------------ | ---------------------------------------------------------------------------------- | -------------- | ------- | -------- | - | - | ------- | -------- | -
|                                     |                                                                                    |               
|                                     |                                                                                    | December 31,  
|                                     |                                                                                    |               
|                                     |                                                                                    | 2003           |         | 2002    
|                                     |                                                                                    |                |         |         
|                                     |                                                                                    |               
|                                     |                                                                                    | (In thousands)
|                                     |                                                                                    |                |         | Restated
|                                     |                                                                                    |                |         | Note 2  
|Deferred tax assets attributable to: |                                                                                    |                |         |          |   |   |         |         
|                                     | Accounts receivable, principally due to allowance
    for doubtful accounts        |                | $       | 2,766    |   |   | $       | 2,500    |  
|                                     | Accrued expenses                                                                   |                |         | 25,178   |   |   |         | 10,683   |  
|                                     | Post-retirement obligation                                                         |                |         | 20,931   |   |   |         | 15,613   |  
|                                     | Investments                                                                        |                |         | 26,697   |   |   |         | 24,086   |  
|                                     | Net operating loss carryforwards                                                   |                |         | 9,955    |   |   |         | 14,143   |  
|                                     | Claims for restitution                                                             |                |         | 58,127   |   |   |         | 70,701   |  
|                                     | U.S. tax benefit related to disposition and
    liquidation of Canadian operations |                |         | 132,851  |   |   |         | 114,829  |  
|                                     | Foreign exchange basis differences                                                 |                |         |         |   |   |         | 16,819   |  
|                                     | Other                                                                              |                |         | 26,224   |   |   |         | 16,278   |  
|                                     |                                                                                    |                |         |          |   |   |         |         
|Deferred tax assets                  |                                                                                    |                | 302,729 |          |   |   | 285,652 |         
|                                     | Less valuation allowance                                                           |                |         | (141,588 | ) |   |         | (132,203 | )
|                                     |                                                                                    |                |         |          |   |   |         |         
|Net deferred tax assets              |                                                                                    | $              | 161,141 |          |   | $ | 153,449 |         
|                                     |                                                                                    |                |         |          |   |   |         |         

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HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                          |                                                                                   |                |         |          |  |   |         |        | 
|----------------------------------------- | --------------------------------------------------------------------------------- | -------------- | ------- | -------- |  | - | ------- | ------ | 
|                                          |                                                                                   |               
|                                          |                                                                                   | December 31,  
|                                          |                                                                                   |               
|                                          |                                                                                   | 2003           |         | 2002    
|                                          |                                                                                   |                |         |         
|                                          |                                                                                   |               
|                                          |                                                                                   | (In thousands)
|                                          |                                                                                   |                |         | Restated
|                                          |                                                                                   |                |         | Note 2  
|Deferred tax liabilities attributable to: |                                                                                   |                |         |          |  |   |         |       
|                                          | Property, plant and equipment, principally due to
    differences in depreciation |                | $       | 36,287   |  |   | $       | 36,121 | 
|                                          | Pension asset                                                                     |                |         | 16,547   |  |   |         | 8,914  | 
|                                          | Foreign exchange basis differences                                                |                |         | 18,461   |  |   |         |       | 
|                                          | Long-term advances under printing contract                                        |                |         | 12,031   |  |   |         | 12,842 | 
|                                          | Deferred gain on exchange of assets                                               |                |         | 41,829   |  |   |         | 36,096 | 
|                                          | Other                                                                             |                |         | 17,767   |  |   |         | 12,638 | 
|                                          |                                                                                   |                |         |          |  |   |         |       
|Deferred tax liabilities                  |                                                                                   | $              | 142,922 |          |  | $ | 106,611 |       
|                                          |                                                                                   |                |         |          |  |   |         |       

The valuation allowance relates principally to
the U.S. tax benefits relating to the disposition and
liquidation of the Canadian operations. Management believes that
it is more likely than not that such benefits will not be
realized, due to the application of capital loss limitation
rules and uncertainties as to the timing of future deductions.
The valuation allowance also relates to the tax benefits of net
operating loss carryforwards, which management does not expect
will be utilized.

The Other tax liabilities presented
in the tables above, aggregating $748.8 million at
December 31, 2003 and $593.3 million at
December 31, 2002, are comprised of accruals to cover
contingent tax liabilities. A substantial portion of the
accruals to cover contingent tax liabilities relate to the tax
treatment of gains on the sale of a portion of the
Companys non-U.S. operations. 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 accruals to cover contingent tax
liabilities also relate to management fees,
non-competition payments and other items that have
been deducted in arriving at taxable income, which deductions
may be disallowed by taxing authorities. If those deductions
were to be disallowed, the Company would be required to pay
additional taxes and interest since the dates such taxes would
have been paid had the deductions not been taken, and it may be
subject to penalties.

At December 31, 2003, the Company had
approximately $27.6 million of Canadian net operating loss
carryforwards, which will expire in varying amounts through
December 31, 2009.

Total income taxes paid during the years ended
December 31, 2003, 2002 and 2001 amounted to
$32.4 million, $8.7 million and $84.0 million,
respectively.



|     |                       
|---- | ----------------------
|(25) | 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, 2003, 2002
and 2001, the Company contributed $2.3 million,
$2.1 million and $1.6 million, respectively. The
Company sponsors five multi-employer and defined contribution
plans in Canada and contributed $0.2 million in each of
2003, 2002 and 2001.

The Telegraph sponsors a defined contribution
plan, The Telegraph Staff Pension Plan (TSPP), for
the majority of its employees, as well as a defined contribution
plan to provide pension benefits for senior executives, The
Telegraph Executive Pension Scheme (TEPS). For 2003,
2002 and 2001, contributions to the defined contribution plan
are included as part of the service cost of the defined benefit
plan. Contributions to TSPP were $7.0 million,
$6.7 million and $6.5 million for 2003, 2002 and 2001,
respectively. Contributions

187



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HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

to TEPS were $0.6 million in 2003 and
$0.5 million for each of 2002 and 2001. The Telegraph
plans assets consist principally of U.K. and non-U.K.
equities, unit trusts and bonds.



| |                      
| | ---------------------
| | Defined Benefit Plans

The Company and subsidiaries have seven domestic
and seven foreign single-employer defined benefit pension plans
and previously contributed to various union-sponsored,
collectively bargained domestic multi-employer pension plans.
The Companys contributions to these plans for the years
ended December 31, 2003, 2002 and 2001 were:

|                              |  |                |        |      |  |      |       |  |  |   |       | 
|----------------------------- |  | -------------- | ------ | ---- |  | ---- | ----- |  |  | - | ----- | 
|                              |  | 2003           |        | 2002 |  | 2001
|                              |  |                |        |      |  |     
|                              |  |               
|                              |  | (In thousands)
|Single-employer pension plans |  | $              | 10,210 |      |  | $    | 9,156 |  |  | $ | 8,753 | 
|Multi-employer pension plans  |  | $              |       |      |  | $    |      |  |  | $ | 1,251 | 

The Telegraph has a defined benefit plan that was
closed on July 1, 1991 and provides only benefits accrued
up to that date. The plan was wound up on June 26, 1998.
Increases to pension payments are discretionary and are awarded
by the trustees, with the Telegraphs consent. Pension
increases are funded by the Telegraph as and when awarded.



| |                              
| | -----------------------------
| | Single-Employer Pension Plans

The benefits under 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, 2003, 2002 and 2001 are as
follows:

|                                        |  |      |         |                |  |      |         |   |  |   |         |  
|--------------------------------------- |  | ---- | ------- | -------------- |  | ---- | ------- | - |  | - | ------- | -
|                                        |  | 2003 |         | 2002           |  | 2001
|                                        |  |      |         |                |  |     
|                                        |  |      |         | (In thousands) |  |     
|Service cost                            |  | $    | 9,330   |                |  | $    | 8,247   |   |  | $ | 8,192   |  
|Interest cost                           |  |      | 25,825  |                |  |      | 25,772  |   |  |   | 26,816  |  
|Expected return on plan assets          |  |      | (24,781 | )              |  |      | (27,534 | ) |  |   | (18,078 | )
|Amortization of losses                  |  |      | 6,250   |                |  |      | 2,445   |   |  |   | 862     |  
|Settlement loss                         |  |      |        |                |  |      |        |   |  |   | 1,832   |  
|Amortization of transitional obligation |  |      | 111     |                |  |      |        |   |  |   |        |  
|Amortization of prior service costs     |  |      | 173     |                |  |      | 423     |   |  |   | 305     |  
|                                        |  |      |         |                |  |      |         |   |  |   |         |  
|Net periodic benefit cost               |  | $    | 16,908  |                |  | $    | 9,353   |   |  | $ | 19,929  |  
|                                        |  |      |         |                |  |      |         |   |  |   |         |  

188



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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, 2003 and 2002:

|                                                           |  |                |         |      |  |   |         |  
|---------------------------------------------------------- |  | -------------- | ------- | ---- |  | - | ------- | -
|                                                           |  |               
|                                                           |  | December 31,  
|                                                           |  |               
|                                                           |  | 2003           |         | 2002
|                                                           |  |                |         |     
|                                                           |  |               
|                                                           |  | (In thousands)
|Benefit obligation at the beginning of the year            |  | $              | 403,337 |      |  | $ | 406,356 |  
|Service cost                                               |  |                | 9,330   |      |  |   | 8,247   |  
|Interest cost                                              |  |                | 25,825  |      |  |   | 25,772  |  
|Participant contributions                                  |  |                | 3,714   |      |  |   | 3,374   |  
|Curtailment loss                                           |  |                | 1,531   |      |  |   |        |  
|Net transfer in                                            |  |                | 4,483   |      |  |   |        |  
|Currency translation differences                           |  |                | 59,359  |      |  |   | 11,445  |  
|Actuarial loss (gain)                                      |  |                | 22,356  |      |  |   | (14,441 | )
|Benefits paid                                              |  |                | (35,900 | )    |  |   | (37,416 | )
|                                                           |  |                |         |      |  |   |         |  
|Benefit obligation at the end of the year                  |  |                | 494,035 |      |  |   | 403,337 |  
|                                                           |  |                |         |      |  |   |         |  
|Fair value of plan assets at the beginning of the
    year |  |                | 357,243 |      |  |   | 407,806 |  
|Actual return on plan assets                               |  |                | 60,260  |      |  |   | (32,595 | )
|Other, including currency translation differences          |  |                | 55,635  |      |  |   | 6,918   |  
|Employer contributions                                     |  |                | 10,210  |      |  |   | 9,156   |  
|Participant contributions                                  |  |                | 3,714   |      |  |   | 3,374   |  
|Net transfer in                                            |  |                | 1,248   |      |  |   |        |  
|Benefits paid                                              |  |                | (35,900 | )    |  |   | (37,416 | )
|                                                           |  |                |         |      |  |   |         |  
|Fair value of plan assets at the end of the year           |  |                | 452,410 |      |  |   | 357,243 |  
|                                                           |  |                |         |      |  |   |         |  
|Funded status                                              |  |                | (41,625 | )    |  |   | (46,094 | )
|Unrecognized net actuarial loss                            |  |                | 101,168 |      |  |   | 106,164 |  
|Unrecognized prior service cost                            |  |                | 2,414   |      |  |   | 1,528   |  
|Currency translation differences                           |  |                | (17     | )    |  |   | 74      |  
|Unrecognized net transition obligation                     |  |                | 1,371   |      |  |   | 1,483   |  
|                                                           |  |                |         |      |  |   |         |  
|Prepaid benefit cost                                       |  | $              | 63,311  |      |  | $ | 63,155  |  
|                                                           |  |                |         |      |  |   |         |  

The above prepaid benefit costs are classified on
the Consolidated Balance Sheets as follows:

|                                                                                           |  |                |         |      |  |   |         |  
|------------------------------------------------------------------------------------------ |  | -------------- | ------- | ---- |  | - | ------- | -
|                                                                                           |  |               
|                                                                                           |  | December 31,  
|                                                                                           |  |               
|                                                                                           |  | 2003           |         | 2002
|                                                                                           |  |                |         |     
|                                                                                           |  |               
|                                                                                           |  | (In thousands)
|Prepaid pension benefit                                                                    |  | $              | 88,705  |      |  | $ | 63,146  |  
|Accrued benefit liability, included in other
    liabilities                               |  |                | (58,457 | )    |  |   | (30,945 | )
|Intangible asset, included in deferred financing
    costs and other assets                |  |                | 2,414   |      |  |   | 1,528   |  
|Minimum pension liability adjustment, included in
    accumulated other comprehensive loss |  |                | 30,649  |      |  |   | 29,426  |  
|                                                                                           |  |                |         |      |  |   |         |  
|                                                                                           |  | $              | 63,311  |      |  | $ | 63,155  |  
|                                                                                           |  |                |         |      |  |   |         |  

At December 31, 2003, the Company has also
included $39.2 million (2002 
$38.8 million) in the minimum pension liability adjustment
that is included in Accumulated comprehensive loss,
representing the Companys 50% share of West Ferrys
minimum pension liability adjustment.

189



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HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The minimum pension liability adjustment included
in Accumulated other comprehensive loss is
summarized as follows at December 31:

|                             |  |                |        |      |  |   |        | 
|---------------------------- |  | -------------- | ------ | ---- |  | - | ------ | 
|                             |  |               
|                             |  | December 31,  
|                             |  |               
|                             |  | 2003           |        | 2002
|                             |  |                |        |     
|                             |  |               
|                             |  | (In thousands)
|Company pension plans        |  | $              | 30,649 |      |  | $ | 29,426 | 
|Joint venture pension plans  |  |                | 39,163 |      |  |   | 38,789 | 
|                             |  |                |        |      |  |   |        | 
|                             |  |                | 69,812 |      |  |   | 68,215 | 
|Less  Deferred tax benefits |  |                | 23,324 |      |  |   | 23,425 | 
|Less  Minority interest     |  |                | 69     |      |  |   | 81     | 
|                             |  |                |        |      |  |   |        | 
|                             |  | $              | 46,419 |      |  | $ | 44,709 | 
|                             |  |                |        |      |  |   |        | 

Information for domestic pension plans with an
accumulated benefit obligation in excess of plan assets as of
December 31:

|                               |  |                |        |      |  |   |        | 
|------------------------------ |  | -------------- | ------ | ---- |  | - | ------ | 
|                               |  |               
|                               |  | December 31,  
|                               |  |               
|                               |  | 2003           |        | 2002
|                               |  |                |        |     
|                               |  |               
|                               |  | (In thousands)
|Projected benefit obligation   |  | $              | 86,971 |      |  | $ | 80,197 | 
|Accumulated benefit obligation |  | $              | 75,256 |      |  | $ | 71,072 | 
|Fair value of plan assets      |  | $              | 64,096 |      |  | $ | 58,747 | 

The increase in the minimum pension liability
adjustment included in other comprehensive loss was
$1.7 million, $27.7 million and $14.9 million for
the years ended December 31, 2003, 2002 and 2001
respectively.



| |            
| | -----------
| | Assumptions

The ranges of assumptions were as follows:

|                               |  |      |              |      |  |      |              |  |  |  |             | 
|------------------------------ |  | ---- | ------------ | ---- |  | ---- | ------------ |  |  |  | ----------- | 
|                               |  | 2003 |              | 2002 |  | 2001
|                               |  |      |              |      |  |     
|Discount rate                  |  |      | 5.4% - 7.0%  |      |  |      | 5.6% - 7.0%  |  |  |  | 6.0% - 8.0% | 
|Expected return on plan assets |  |      | 5.2% - 8.25% |      |  |      | 5.6% - 8.25% |  |  |  | 6.0% - 9.0% | 
|Compensation increase          |  |      | 3.7% - 4.0%  |      |  |      | 2.5% - 4.5%  |  |  |  | 2.5% - 4.5% | 

Weighted-average assumptions used to determine
domestic plan benefit obligations at December 31:

|                              |  |          |      |      |  |  |      |  
|----------------------------- |  | -------- | ---- | ---- |  |  | ---- | -
|                              |  |         
|                              |  | Pension 
|                              |  | Benefits
|                              |  |         
|                              |  | 2003     |      | 2002
|                              |  |          |      |     
|Discount rate                 |  |          | 6.25 | %    |  |  | 6.75 | %
|Rate of compensation increase |  |          | 1.41 | %    |  |  | 1.38 | %

Weighted-average assumptions used to determine
domestic plan net periodic benefit cost for the years ended
December 31:

|                                         |  |                  |      |      |  |      |      |   |  |  |      |  
|---------------------------------------- |  | ---------------- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                                         |  |                 
|                                         |  | Pension Benefits
|                                         |  |                 
|                                         |  | 2003             |      | 2002 |  | 2001
|                                         |  |                  |      |      |  |     
|Discount rate                            |  |                  | 6.25 | %    |  |      | 6.75 | % |  |  | 7.50 | %
|Expected long-term return on plan assets |  |                  | 8.25 | %    |  |      | 8.25 | % |  |  | 9.00 | %
|Rate of compensation increase            |  |                  | 1.41 | %    |  |      | 1.38 | % |  |  | 3.87 | %

190



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The Company used a building block approach to
determine its current 5.25% assumption of the long-term expected
rate of return on pension plan assets. Based on historical
market studies, the Companys long-term expected returns
for equity and fixed income securities approximate 6% and 5.75%,
respectively. The Companys current target asset allocation
for pension plan assets is 50% in equity securities and 50% in
fixed income securities and other.



| |                    
| | -------------------
| | Pension Plan Assets

The Companys domestic pension plan
weighted-average asset allocations at December 31, 2003 and
2002, by asset category are as follows:

|                  |       |                |      |       |   |  |      |       |  
|----------------- | ----- | -------------- | ---- | ----- | - |  | ---- | ----- | -
|                  |       |               
|                  |       | Plan Assets at
|                  |       | December 31,  
|                  |       |               
|Asset Category    |       | 2003           |      | 2002 
|                  |       |                |      |      
|Equity securities |       |                | 55.8 | %     |   |  | 43.8 | %    
|Debt securities   |       |                | 27.9 | %     |   |  | 31.9 | %    
|Other             |       |                | 16.3 | %     |   |  | 24.3 | %    
|                  |       |                |      |       |   |  |      |      
|                  | Total |                |      | 100.0 | % |  |      | 100.0 | %
|                  |       |                |      |       |   |  |      |      

The domestic defined benefit plans (the
Plans) pension investment objectives have been
designed to provide a long-term investment return greater than
the actuarial assumption and maximize investment return
commensurate with appropriate levels of risk.

The Plans strategies are predicated on the
Plans investment objectives noted above. Risk is intended
to be minimized through the use of diverse asset classes, which
will stabilize the portfolio and thereby reduce the level of
volatility for each level of expected return.

Investments funds are selected on the basis of:



| |   |                                                                   
| | - | ------------------------------------------------------------------
| |  | Historically competitive investment return and
    risks;         
|
| |  | Stability and financial soundness of companies
    offering funds;
|
| |  | Desirability of offering funds run by different
    managers; and 
|
| |  | Managers investment philosophy and style.                        

The Plans fund manager reviews the
investment funds quarterly for consistency of style and
competitive investment performance.

The Companys other pension plans are for
its foreign subsidiaries. Under SFAS No. 132, the
requirement to disclose weighted-average asset allocations by
asset category is not applicable until the year ending
December 31, 2004.



| |                               
| | ------------------------------
| | Contributions to Pension Plans

The Company expects to contribute
$0.2 million to its domestic plans in 2004 and has no
domestic post retirement benefit plan. Under SFAS 132, the
Company is not required to disclose the expected contributions
to its foreign pension plans or other post retirement benefit
plans in 2003.



| |                                                 
| | ------------------------------------------------
| | Post-retirement and Post-employment
    Benefits

The Company sponsors three foreign
post-retirement plans that provide post-retirement benefits to
certain employees. These and other benefits are accrued in
accordance with SFAS No. 106, Employers

191



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Accounting for Post-retirement Benefits Other
than Pensions (SFAS No. 106), and
SFAS No. 112, Employers Accounting for
Post-employment Benefits
(SFAS No. 112).

The components of net periodic post-retirement
benefit cost for the years ended December 31, 2003, 2002
and 2001 are as follows:

|                                          |  |                |       |      |  |      |       |   |  |   |        |  
|----------------------------------------- |  | -------------- | ----- | ---- |  | ---- | ----- | - |  | - | ------ | -
|                                          |  | 2003           |       | 2002 |  | 2001
|                                          |  |                |       |      |  |     
|                                          |  |               
|                                          |  | (In thousands)
|Service cost                              |  | $              | 77    |      |  | $    | 85    |   |  | $ | 120    |  
|Interest cost                             |  |                | 1,354 |      |  |      | 1,783 |   |  |   | 1,916  |  
|Amortization of losses (gains)            |  |                | 160   |      |  |      | (318  | ) |  |   | 15     |  
|Settlement/ curtailment                   |  |                |      |      |  |      |      |   |  |   | (1,725 | )
|                                          |  |                |       |      |  |      |       |   |  |   |        |  
|Net periodic post-retirement benefit cost |  | $              | 1,591 |      |  | $    | 1,550 |   |  | $ | 326    |  
|                                          |  |                |       |      |  |      |       |   |  |   |        |  

The table below sets forth the reconciliation of
the accumulated post-retirement benefit obligation as of
December 31, 2003 and 2002:

|                                                                                |  |                |        |      |  |   |        |  
|------------------------------------------------------------------------------- |  | -------------- | ------ | ---- |  | - | ------ | -
|                                                                                |  |               
|                                                                                |  | December 31,  
|                                                                                |  |               
|                                                                                |  | 2003           |        | 2002
|                                                                                |  |                |        |     
|                                                                                |  |               
|                                                                                |  | (In thousands)
|Accumulated post-retirement benefit obligation at
    the beginning of the year |  | $              | 36,799 |      |  | $ | 27,943 |  
|Service cost                                                                    |  |                | 77     |      |  |   | 85     |  
|Interest cost                                                                   |  |                | 1,354  |      |  |   | 1,783  |  
|Actuarial losses                                                                |  |                | (8,498 | )    |  |   | (150   | )
|Benefits paid                                                                   |  |                | (1,931 | )    |  |   | (1,976 | )
|Other, including currency translation differences                               |  |                | 7,435  |      |  |   | 9,114  |  
|                                                                                |  |                |        |      |  |   |        |  
|Accumulated post-retirement benefit obligation at
    the end of the year       |  | $              | 35,236 |      |  | $ | 36,799 |  
|                                                                                |  |                |        |      |  |   |        |  

The fair value of the plan assets was
$2.7 million at December 31, 2003 and
$2.7 million at December 31, 2002.

The table below sets forth the plans funded
status reconciled to the amounts recognized in the Consolidated
Balance Sheets:

|                                                                        |  |                |        |      |  |   |        |  
|----------------------------------------------------------------------- |  | -------------- | ------ | ---- |  | - | ------ | -
|                                                                        |  |               
|                                                                        |  | December 31,  
|                                                                        |  |               
|                                                                        |  | 2003           |        | 2002
|                                                                        |  |                |        |     
|                                                                        |  |               
|                                                                        |  | (In thousands)
|Unfunded status                                                         |  | $              | 32,492 |      |  | $ | 34,131 |  
|Unrecognized net loss                                                   |  |                | 7,029  |      |  |   | (1,484 | )
|                                                                        |  |                |        |      |  |   |        |  
|Accrued post-retirement benefit cost, included in
    other liabilities |  | $              | 39,521 |      |  | $ | 32,647 |  
|                                                                        |  |                |        |      |  |   |        |  

The weighted average discount rate used in
determining the accumulated post-retirement benefit obligation
was 5.75% and 6.25% for 2003 and 2002, respectively. The
weighted average discount rate used in determining the net
periodic benefit cost was 6.25% and 6.5% for 2003 and 2002,
respectively. All benefits under the plan are paid for by the
Companys contributions to the Plan.

|                                                                                 |  |      |      |      |  |  |      |  
|-------------------------------------------------------------------------------- |  | ---- | ---- | ---- |  |  | ---- | -
|                                                                                 |  | 2003 |      | 2002
|                                                                                 |  |      |      |     
|Healthcare cost trend assumed next year                                          |  |      | 10   | %    |  |  | 10   | %
|Rate to which the cost trend is assumed to
    decline (the ultimate trend rate) |  |      | 5    | %    |  |  | 5    | %
|Year that rate reaches ultimate trend rate                                       |  |      | 2010 |      |  |  | 2005 |  

192



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 of
December 31, 2003 would have increased $1.6 million
(2002  $1.8 million) and the effect of this
change on the aggregate of service and interest cost for 2003
would have been an increase of $0.1 million
(2002  $0.1 million). If the health care cost
trend rate was decreased 1%, the accumulated post-retirement
benefit obligation as of December 31, 2003 would have
decreased by $1.4 million (2002 
$1.6 million) and the effect of this change on the
aggregate of service and interest cost for 2003 would have been
a decrease of $0.1 million (2002 
$0.1 million).



|     |                                                               
|---- | --------------------------------------------------------------
|(26) | Supplemental Condensed Consolidating Financial
    Information

The 9% Senior Notes due 2010 and the 8.625%
Senior Notes due 2005 are obligations of Publishing, a
wholly-owned subsidiary of the Company. These obligations are
guaranteed fully and unconditionally by the Company. No other
subsidiary of the Company or of Publishing has guaranteed the
securities.

Supplemental condensed consolidating financial
information of the Company and Publishing is presented below.
The Companys other directly owned subsidiary, Hollinger
Telegraph New Media LLC, is minor and therefore has not been
disclosed separately. The Companys and Publishings
investments in subsidiaries are presented using the equity
method, and the Eliminations column reflects the elimination of
investments in subsidiaries and intercompany balances and
transactions, and the inclusion of assets and liabilities,
revenue, expenses and cash flows of Publishings
subsidiaries.

193



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                                              |                                                           |                              |         |            |   |              |          |              |   |   |           |         |   |   |           |         |  
|------------------------------------------------------------- | --------------------------------------------------------- | ---------------------------- | ------- | ---------- | - | ------------ | -------- | ------------ | - | - | --------- | ------- | - | - | --------- | ------- | -
|                                                              |                                                           |                             
|                                                              |                                                           | Year Ended December 31, 2003
|                                                              |                                                           |                             
|                                                              |                                                           | Hollinger                    |         |           
|                                                              |                                                           | International                |         |           
|                                                              |                                                           | Inc.                         |         | Publishing |   | Eliminations |          | Consolidated
|                                                              |                                                           |                              |         |            |   |              |          |             
|                                                              |                                                           |                             
|                                                              |                                                           | (In thousands)              
|Operating revenues:                                           |                                                           |                              |         |            |   |              |          |              |   |   |           |         |   |   |           |        
|                                                              | Advertising                                               |                              | $       |           |   |              | $        |             |   |   | $         | 733,826 |   |   | $         | 733,826 |  
|                                                              | Circulation                                               |                              |         |           |   |              |          |             |   |   |           | 277,264 |   |   |           | 277,264 |  
|                                                              | Job printing                                              |                              |         |           |   |              |          |             |   |   |           | 16,427  |   |   |           | 16,427  |  
|                                                              | Other                                                     |                              |         |           |   |              |          |             |   |   |           | 33,686  |   |   |           | 33,686  |  
|                                                              |                                                           |                              |         |            |   |              |          |              |   |   |           |         |   |   |           |        
|Total operating revenues                                      |                                                           |                              |        |            |   |              |         |              |   |   | 1,061,203 |         |   |   | 1,061,203 |        
|                                                              |                                                           |                              |         |            |   |              |          |              |   |   |           |         |   |   |           |        
|Operating costs and expenses:                                 |                                                           |                              |         |            |   |              |          |              |   |   |           |         |   |   |           |        
|                                                              | Newsprint                                                 |                              |         |           |   |              |          |             |   |   |           | 72,868  |   |   |           | 72,868  |  
|                                                              | Newsprint incurred through joint ventures                 |                              |         |           |   |              |          |             |   |   |           | 75,402  |   |   |           | 75,402  |  
|                                                              | Compensation                                              |                              |         | 6,722      |   |              |          | 3,954        |   |   |           | 328,227 |   |   |           | 338,903 |  
|                                                              | Other operating costs                                     |                              |         | 10,703     |   |              |          | 36,338       |   |   |           | 412,452 |   |   |           | 459,493 |  
|                                                              | Other operating costs incurred through joint
    ventures |                              |         |           |   |              |          |             |   |   |           | 49,667  |   |   |           | 49,667  |  
|                                                              | Depreciation                                              |                              |         |           |   |              |          | 1,312        |   |   |           | 37,187  |   |   |           | 38,499  |  
|                                                              | Amortization                                              |                              |         |           |   |              |          |             |   |   |           | 16,354  |   |   |           | 16,354  |  
|                                                              |                                                           |                              |         |            |   |              |          |              |   |   |           |         |   |   |           |        
|Total operating costs and expenses                            |                                                           |                              | 17,425  |            |   |              | 41,604   |              |   |   | 992,157   |         |   |   | 1,051,186 |        
|                                                              |                                                           |                              |         |            |   |              |          |              |   |   |           |         |   |   |           |        
|Operating income (loss)                                       |                                                           |                              | (17,425 | )          |   |              | (41,604  | )            |   |   | 69,046    |         |   |   | 10,017    |        
|                                                              |                                                           |                              |         |            |   |              |          |              |   |   |           |         |   |   |           |        
|Other income (expense):                                       |                                                           |                              |         |            |   |              |          |              |   |   |           |         |   |   |           |        
|                                                              | Interest expense                                          |                              |         |           |   |              |          | (29,163      | ) |   |           | (26,396 | ) |   |           | (55,559 | )
|                                                              | Amortization of deferred financing costs                  |                              |         |           |   |              |          | (1,503       | ) |   |           | (1,352  | ) |   |           | (2,855  | )
|                                                              | Interest and dividend income                              |                              |         | 10,334     |   |              |          | 25,796       |   |   |           | (10,719 | ) |   |           | 25,411  |  
|                                                              | Other income (expense), net                               |                              |         | (35,090    | ) |              |          | (68,924      | ) |   |           | 179,655 |   |   |           | 75,641  |  
|                                                              |                                                           |                              |         |            |   |              |          |              |   |   |           |         |   |   |           |        
|Total other income (expense)                                  |                                                           |                              | (24,756 | )          |   |              | (73,794  | )            |   |   | 141,188   |         |   |   | 42,638    |        
|                                                              |                                                           |                              |         |            |   |              |          |              |   |   |           |         |   |   |           |        
|Earnings (loss) before income taxes and minority
    interest |                                                           |                              | (42,181 | )          |   |              | (115,398 | )            |   |   | 210,234   |         |   |   | 52,655    |        
|Income taxes                                                  |                                                           |                              | 32,127  |            |   |              | 8,025    |              |   |   | 81,486    |         |   |   | 121,638   |        
|                                                              |                                                           |                              |         |            |   |              |          |              |   |   |           |         |   |   |           |        
|Earnings (loss) before minority interest                      |                                                           |                              | (74,308 | )          |   |              | (123,423 | )            |   |   | 128,748   |         |   |   | (68,983   | )      
|Minority interest                                             |                                                           |                              |        |            |   |              |         |              |   |   | 5,325     |         |   |   | 5,325     |        
|                                                              |                                                           |                              |         |            |   |              |          |              |   |   |           |         |   |   |           |        
|Net earnings (loss)                                           |                                                           | $                            | (74,308 | )          |   | $            | (123,423 | )            |   | $ | 123,423   |         |   | $ | (74,308   | )      
|                                                              |                                                           |                              |         |            |   |              |          |              |   |   |           |         |   |   |           |        

194



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                                                                                                    |                                                           |                              |          |            |   |              |          |              |   |   |           |         |   |   |           |          |  
|------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------- | ---------------------------- | -------- | ---------- | - | ------------ | -------- | ------------ | - | - | --------- | ------- | - | - | --------- | -------- | -
|                                                                                                                    |                                                           |                             
|                                                                                                                    |                                                           | Year Ended December 31, 2002
|                                                                                                                    |                                                           |                             
|                                                                                                                    |                                                           | Hollinger                    |          |           
|                                                                                                                    |                                                           | International                |          |           
|                                                                                                                    |                                                           | Inc.                         |          | Publishing |   | Eliminations |          | Consolidated
|                                                                                                                    |                                                           |                              |          |            |   |              |          |             
|                                                                                                                    |                                                           |                             
|                                                                                                                    |                                                           | (In thousands)              
|                                                                                                                    |                                                           |                             
|                                                                                                                    |                                                           | Restated  Note 2           
|Operating revenues:                                                                                                 |                                                           |                              |          |            |   |              |          |              |   |   |           |         |   |   |           |         
|                                                                                                                    | Advertising                                               |                              | $        |           |   |              | $        |             |   |   | $         | 710,849 |   |   | $         | 710,849  |  
|                                                                                                                    | Circulation                                               |                              |          |           |   |              |          |             |   |   |           | 247,175 |   |   |           | 247,175  |  
|                                                                                                                    | Job printing                                              |                              |          |           |   |              |          |             |   |   |           | 16,669  |   |   |           | 16,669   |  
|                                                                                                                    | Other                                                     |                              |          |           |   |              |          |             |   |   |           | 31,469  |   |   |           | 31,469   |  
|                                                                                                                    |                                                           |                              |          |            |   |              |          |              |   |   |           |         |   |   |           |         
|Total operating revenues                                                                                            |                                                           |                              |         |            |   |              |         |              |   |   | 1,006,162 |         |   |   | 1,006,162 |         
|                                                                                                                    |                                                           |                              |          |            |   |              |          |              |   |   |           |         |   |   |           |         
|Operating costs and expenses:                                                                                       |                                                           |                              |          |            |   |              |          |              |   |   |           |         |   |   |           |         
|                                                                                                                    | Newsprint                                                 |                              |          |           |   |              |          |             |   |   |           | 86,935  |   |   |           | 86,935   |  
|                                                                                                                    | Newsprint incurred through joint ventures                 |                              |          |           |   |              |          |             |   |   |           | 60,589  |   |   |           | 60,589   |  
|                                                                                                                    | Compensation                                              |                              |          |           |   |              |          | 3,162        |   |   |           | 305,870 |   |   |           | 309,032  |  
|                                                                                                                    | Other operating costs                                     |                              |          | 420        |   |              |          | 22,881       |   |   |           | 365,369 |   |   |           | 388,670  |  
|                                                                                                                    | Other operating costs incurred through joint
    ventures |                              |          |           |   |              |          |             |   |   |           | 46,677  |   |   |           | 46,677   |  
|                                                                                                                    | Depreciation                                              |                              |          |           |   |              |          | 1,297        |   |   |           | 35,704  |   |   |           | 37,001   |  
|                                                                                                                    | Amortization                                              |                              |          |           |   |              |          |             |   |   |           | 17,151  |   |   |           | 17,151   |  
|                                                                                                                    |                                                           |                              |          |            |   |              |          |              |   |   |           |         |   |   |           |         
|Total operating costs and expenses                                                                                  |                                                           |                              | 420      |            |   |              | 27,340   |              |   |   | 918,295   |         |   |   | 946,055   |         
|                                                                                                                    |                                                           |                              |          |            |   |              |          |              |   |   |           |         |   |   |           |         
|Operating income (loss)                                                                                             |                                                           |                              | (420     | )          |   |              | (27,340  | )            |   |   | 87,867    |         |   |   | 60,107    |         
|                                                                                                                    |                                                           |                              |          |            |   |              |          |              |   |   |           |         |   |   |           |         
|Other income (expense):                                                                                             |                                                           |                              |          |            |   |              |          |              |   |   |           |         |   |   |           |         
|                                                                                                                    | Interest expense                                          |                              |          | (1,209     | ) |              |          | (53,121      | ) |   |           | (4,442  | ) |   |           | (58,772  | )
|                                                                                                                    | Amortization of deferred financing costs                  |                              |          |           |   |              |          | (5,585       | ) |   |           |        |   |   |           | (5,585   | )
|                                                                                                                    | Interest and dividend income                              |                              |          | 1,375      |   |              |          | 1,918        |   |   |           | 15,489  |   |   |           | 18,782   |  
|                                                                                                                    | Other income (expense), net                               |                              |          | (250,885   | ) |              |          | (136,660     | ) |   |           | 214,762 |   |   |           | (172,783 | )
|                                                                                                                    |                                                           |                              |          |            |   |              |          |              |   |   |           |         |   |   |           |         
|Total other income (expense)                                                                                        |                                                           |                              | (250,719 | )          |   |              | (193,448 | )            |   |   | 225,809   |         |   |   | (218,358  | )       
|                                                                                                                    |                                                           |                              |          |            |   |              |          |              |   |   |           |         |   |   |           |         
|Earnings (loss) before income taxes, minority
    interest, and cumulative effect of change in accounting principle |                                                           |                              | (251,139 | )          |   |              | (220,788 | )            |   |   | 313,676   |         |   |   | (158,251  | )       
|Income taxes (benefit)                                                                                              |                                                           |                              | (20,510  | )          |   |              | (30,545  | )            |   |   | 101,187   |         |   |   | 50,132    |         
|                                                                                                                    |                                                           |                              |          |            |   |              |          |              |   |   |           |         |   |   |           |         
|Earnings (loss) before minority interest and
    cumulative effect of change in accounting principle                |                                                           |                              | (230,629 | )          |   |              | (190,243 | )            |   |   | 212,489   |         |   |   | (208,383  | )       
|Minority interest                                                                                                   |                                                           |                              |         |            |   |              |         |              |   |   | 2,167     |         |   |   | 2,167     |         
|                                                                                                                    |                                                           |                              |          |            |   |              |          |              |   |   |           |         |   |   |           |         
|Earnings (loss) before cumulative effect of
    change in accounting principle                                      |                                                           |                              | (230,629 | )          |   |              | (190,243 | )            |   |   | 210,322   |         |   |   | (210,550  | )       
|Cumulative effect of change in accounting
    principle                                                             |                                                           |                              |         |            |   |              |         |              |   |   | (20,079   | )       |   |   | (20,079   | )       
|                                                                                                                    |                                                           |                              |          |            |   |              |          |              |   |   |           |         |   |   |           |         
|Net earnings (loss)                                                                                                 |                                                           | $                            | (230,629 | )          |   | $            | (190,243 | )            |   | $ | 190,243   |         |   | $ | (230,629  | )       
|                                                                                                                    |                                                           |                              |          |            |   |              |          |              |   |   |           |         |   |   |           |         

195



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                                              |                                                           |                              |          |            |   |              |          |              |   |   |           |         |   |   |           |          |  
|------------------------------------------------------------- | --------------------------------------------------------- | ---------------------------- | -------- | ---------- | - | ------------ | -------- | ------------ | - | - | --------- | ------- | - | - | --------- | -------- | -
|                                                              |                                                           |                             
|                                                              |                                                           | Year Ended December 31, 2001
|                                                              |                                                           |                             
|                                                              |                                                           | Hollinger                    |          |           
|                                                              |                                                           | International                |          |           
|                                                              |                                                           | Inc.                         |          | Publishing |   | Eliminations |          | Consolidated
|                                                              |                                                           |                              |          |            |   |              |          |             
|                                                              |                                                           |                             
|                                                              |                                                           | (In thousands)              
|                                                              |                                                           | Restated  Note 2           
|Operating revenues:                                           |                                                           |                              |          |            |   |              |          |              |   |   |           |         |   |   |           |         
|                                                              | Advertising                                               |                              | $        |           |   |              | $        |             |   |   | $         | 804,462 |   |   | $         | 804,462  |  
|                                                              | Circulation                                               |                              |          |           |   |              |          |             |   |   |           | 278,321 |   |   |           | 278,321  |  
|                                                              | Job printing                                              |                              |          |           |   |              |          |             |   |   |           | 25,092  |   |   |           | 25,092   |  
|                                                              | Other                                                     |                              |          |           |   |              |          |             |   |   |           | 38,446  |   |   |           | 38,446   |  
|                                                              |                                                           |                              |          |            |   |              |          |              |   |   |           |         |   |   |           |         
|Total operating revenues                                      |                                                           |                              |         |            |   |              |         |              |   |   | 1,146,321 |         |   |   | 1,146,321 |         
|                                                              |                                                           |                              |          |            |   |              |          |              |   |   |           |         |   |   |           |         
|Operating costs and expenses:                                 |                                                           |                              |          |            |   |              |          |              |   |   |           |         |   |   |           |         
|                                                              | Newsprint                                                 |                              |          |           |   |              |          |             |   |   |           | 127,025 |   |   |           | 127,025  |  
|                                                              | Newsprint incurred through joint ventures                 |                              |          |           |   |              |          |             |   |   |           | 77,399  |   |   |           | 77,399   |  
|                                                              | Compensation                                              |                              |          | (1,369     | ) |              |          | 4,133        |   |   |           | 358,912 |   |   |           | 361,676  |  
|                                                              | Other operating costs                                     |                              |          | 400        |   |              |          | 20,465       |   |   |           | 473,138 |   |   |           | 494,003  |  
|                                                              | Other operating costs incurred through joint
    ventures |                              |          |           |   |              |          |             |   |   |           | 48,473  |   |   |           | 48,473   |  
|                                                              | Depreciation                                              |                              |          |           |   |              |          | 1,269        |   |   |           | 36,699  |   |   |           | 37,968   |  
|                                                              | Amortization                                              |                              |          |           |   |              |          |             |   |   |           | 35,760  |   |   |           | 35,760   |  
|                                                              |                                                           |                              |          |            |   |              |          |              |   |   |           |         |   |   |           |         
|Total operating costs and expenses                            |                                                           |                              | (969     | )          |   |              | 25,867   |              |   |   | 1,157,406 |         |   |   | 1,182,304 |         
|                                                              |                                                           |                              |          |            |   |              |          |              |   |   |           |         |   |   |           |         
|Operating income (loss)                                       |                                                           |                              | 969      |            |   |              | (25,867  | )            |   |   | (11,085   | )       |   |   | (35,983   | )       
|                                                              |                                                           |                              |          |            |   |              |          |              |   |   |           |         |   |   |           |         
|Other income (expense):                                       |                                                           |                              |          |            |   |              |          |              |   |   |           |         |   |   |           |         
|                                                              | Interest expense                                          |                              |          | (3,401     | ) |              |          | (72,312      | ) |   |           | (2,926  | ) |   |           | (78,639  | )
|                                                              | Amortization of deferred financing costs                  |                              |          | (2,835     | ) |              |          | (7,532       | ) |   |           |        |   |   |           | (10,367  | )
|                                                              | Interest and dividend income                              |                              |          | 22,024     |   |              |          | 418          |   |   |           | 42,451  |   |   |           | 64,893   |  
|                                                              | Other income (expense), net                               |                              |          | (346,785   | ) |              |          | (171,972     | ) |   |           | 215,439 |   |   |           | (303,318 | )
|                                                              |                                                           |                              |          |            |   |              |          |              |   |   |           |         |   |   |           |         
|Total other income (expense)                                  |                                                           |                              | (330,997 | )          |   |              | (251,398 | )            |   |   | 254,964   |         |   |   | (327,431  | )       
|                                                              |                                                           |                              |          |            |   |              |          |              |   |   |           |         |   |   |           |         
|Earnings (loss) before income taxes and minority
    interest |                                                           |                              | (330,028 | )          |   |              | (277,265 | )            |   |   | 243,879   |         |   |   | (363,414  | )       
|Income taxes (benefit)                                        |                                                           |                              | (3,455   | )          |   |              | (28,180  | )            |   |   | 8,597     |         |   |   | (23,038   | )       
|                                                              |                                                           |                              |          |            |   |              |          |              |   |   |           |         |   |   |           |         
|Earnings (loss) before minority interest                      |                                                           |                              | (326,573 | )          |   |              | (249,085 | )            |   |   | 235,282   |         |   |   | (340,376  | )       
|Recovery of minority interest                                 |                                                           |                              |         |            |   |              |         |              |   |   | (13,803   | )       |   |   | (13,803   | )       
|                                                              |                                                           |                              |          |            |   |              |          |              |   |   |           |         |   |   |           |         
|Net earnings (loss)                                           |                                                           | $                            | (326,573 | )          |   | $            | (249,085 | )            |   | $ | 249,085   |         |   | $ | (326,573  | )       
|                                                              |                                                           |                              |          |            |   |              |          |              |   |   |           |         |   |   |           |         

196



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                                                            |                                                                  |                         |         |            |  |              |           |              |   |   |            |            |   |   |           |         | 
|--------------------------------------------------------------------------- | ---------------------------------------------------------------- | ----------------------- | ------- | ---------- |  | ------------ | --------- | ------------ | - | - | ---------- | ---------- | - | - | --------- | ------- | 
|                                                                            |                                                                  |                        
|                                                                            |                                                                  | As of December 31, 2003
|                                                                            |                                                                  |                        
|                                                                            |                                                                  | Hollinger               |         |           
|                                                                            |                                                                  | International           |         |           
|                                                                            |                                                                  | Inc.                    |         | Publishing |  | Eliminations |           | Consolidated
|                                                                            |                                                                  |                         |         |            |  |              |           |             
|                                                                            |                                                                  |                        
|                                                                            |                                                                  | (In thousands)         
|Assets                                                                     
|Current assets:                                                             |                                                                  |                         |         |            |  |              |           |              |   |   |            |            |   |   |           |        
|                                                                            | Cash and cash equivalents                                        |                         | $       | 33,928     |  |              | $         | 26,727       |   |   | $          | 73,839     |   |   | $         | 134,494 | 
|                                                                            | Accounts receivable, net                                         |                         |         | 267        |  |              |           | 86           |   |   |            | 238,381    |   |   |           | 238,734 | 
|                                                                            | Amounts due from related parties, net                            |                         |         | 37,424     |  |              |           | 257,989      |   |   |            | (283,525   | ) |   |           | 11,888  | 
|                                                                            | Intercompany accounts receivable                                 |                         |         | 16,365     |  |              |           | 180,137      |   |   |            | (196,502   | ) |   |           |        | 
|                                                                            | Inventories                                                      |                         |         |           |  |              |           |             |   |   |            | 10,821     |   |   |           | 10,821  | 
|                                                                            | Escrow deposits and restricted cash                              |                         |         |           |  |              |           |             |   |   |            | 16,718     |   |   |           | 16,718  | 
|                                                                            | Other current assets                                             |                         |         | 15         |  |              |           | 2,543        |   |   |            | 28,720     |   |   |           | 31,278  | 
|                                                                            |                                                                  |                         |         |            |  |              |           |              |   |   |            |            |   |   |           |        
|Total current assets                                                        |                                                                  |                         | 87,999  |            |  |              | 467,482   |              |   |   | (111,548   | )          |   |   | 443,933   |        
|Loan to affiliate                                                           |                                                                  |                         | 22,131  |            |  |              |          |              |   |   |           |            |   |   | 22,131    |        
|Investments                                                                 |                                                                  |                         | 220,947 |            |  |              | 1,280,811 |              |   |   | (1,389,786 | )          |   |   | 111,972   |        
|Advances under printing contracts and notes
    receivable  joint ventures |                                                                  |                         |        |            |  |              |          |              |   |   | 47,393     |            |   |   | 47,393    |        
|Property, plant and equipment, net of accumulated
    depreciation          |                                                                  |                         |        |            |  |              | 907       |              |   |   | 264,452    |            |   |   | 265,359   |        
|Intangible assets, net of accumulated amortization                          |                                                                  |                         |        |            |  |              |          |              |   |   | 107,490    |            |   |   | 107,490   |        
|Goodwill                                                                    |                                                                  |                         |        |            |  |              |          |              |   |   | 577,300    |            |   |   | 577,300   |        
|Prepaid pension benefit                                                     |                                                                  |                         |        |            |  |              |          |              |   |   | 88,705     |            |   |   | 88,705    |        
|Deferred financing costs and other assets                                   |                                                                  |                         | 69,746  |            |  |              | 13,547    |              |   |   | 52,603     |            |   |   | 135,896   |        
|                                                                            |                                                                  |                         |         |            |  |              |           |              |   |   |            |            |   |   |           |        
|                                                                            |                                                                  | $                       | 400,823 |            |  | $            | 1,762,747 |              |   | $ | (363,391   | )          |   | $ | 1,800,179 |        
|                                                                            |                                                                  |                         |         |            |  |              |           |              |   |   |            |            |   |   |           |        
|                                                                           
|Liabilities and Stockholders
    Equity                                   
|Current liabilities:                                                        |                                                                  |                         |         |            |  |              |           |              |   |   |            |            |   |   |           |        
|                                                                            | Current installments of long-term debt                           |                         | $       |           |  |              | $         |             |   |   | $          | 6,725      |   |   | $         | 6,725   | 
|                                                                            | Senior subordinated notes                                        |                         |         |           |  |              |           |             |   |   |            |           |   |   |           |        | 
|                                                                            | Accounts payable and accrued expenses                            |                         |         | 8,398      |  |              |           | 7,311        |   |   |            | 242,103    |   |   |           | 257,812 | 
|                                                                            | Accounts payable  joint ventures                                |                         |         |           |  |              |           |             |   |   |            | 16,375     |   |   |           | 16,375  | 
|                                                                            | Amounts due to related parties, net                              |                         |         | 293,516    |  |              |           | 1,052,561    |   |   |            | (1,346,077 | ) |   |           |        | 
|                                                                            | Income taxes payable (recoverable) and other tax
    liabilities |                         |         | 57,448     |  |              |           | (53,121      | ) |   |            | 462,157    |   |   |           | 466,484 | 
|                                                                            | Deferred revenue                                                 |                         |         |           |  |              |           |             |   |   |            | 50,851     |   |   |           | 50,851  | 
|                                                                            |                                                                  |                         |         |            |  |              |           |              |   |   |            |            |   |   |           |        
|Total current liabilities                                                   |                                                                  |                         | 359,362 |            |  |              | 1,006,751 |              |   |   | (567,866   | )          |   |   | 798,247   |        
|                                                                            |                                                                  |                         |         |            |  |              |           |              |   |   |            |            |   |   |           |        
|Long-term debt, less current installments                                   |                                                                  |                         |        |            |  |              | 310,713   |              |   |   | 211,834    |            |   |   | 522,547   |        
|Deferred income taxes and other tax liabilities                             |                                                                  |                         | 4,685   |            |  |              | 108,283   |              |   |   | 162,024    |            |   |   | 274,992   |        
|Other liabilities                                                           |                                                                  |                         |        |            |  |              |          |              |   |   | 139,362    |            |   |   | 139,362   |        
|                                                                            |                                                                  |                         |         |            |  |              |           |              |   |   |            |            |   |   |           |        
|Total liabilities                                                           |                                                                  |                         | 364,047 |            |  |              | 1,425,747 |              |   |   | (54,646    | )          |   |   | 1,735,148 |        
|                                                                            |                                                                  |                         |         |            |  |              |           |              |   |   |            |            |   |   |           |        
|Minority interest                                                           |                                                                  |                         |        |            |  |              |          |              |   |   | 28,255     |            |   |   | 28,255    |        
|                                                                            |                                                                  |                         |         |            |  |              |           |              |   |   |            |            |   |   |           |        
|Redeemable preferred stock                                                  |                                                                  |                         |        |            |  |              | 138,309   |              |   |   | (138,309   | )          |   |   |          |        
|                                                                            |                                                                  |                         |         |            |  |              |           |              |   |   |            |            |   |   |           |        
|Total stockholders equity                                                  |                                                                  |                         | 36,776  |            |  |              | 198,691   |              |   |   | (198,691   | )          |   |   | 36,776    |        
|                                                                            |                                                                  |                         |         |            |  |              |           |              |   |   |            |            |   |   |           |        
|                                                                            |                                                                  | $                       | 400,823 |            |  | $            | 1,762,747 |              |   | $ | (363,391   | )          |   | $ | 1,800,179 |        
|                                                                            |                                                                  |                         |         |            |  |              |           |              |   |   |            |            |   |   |           |        

197



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                                                            |                                                                  |                         |         |            |  |              |           |              |   |   |            |            |   |   |           |         | 
|--------------------------------------------------------------------------- | ---------------------------------------------------------------- | ----------------------- | ------- | ---------- |  | ------------ | --------- | ------------ | - | - | ---------- | ---------- | - | - | --------- | ------- | 
|                                                                            |                                                                  |                        
|                                                                            |                                                                  | As of December 31, 2002
|                                                                            |                                                                  |                        
|                                                                            |                                                                  | Hollinger               |         |           
|                                                                            |                                                                  | International           |         |           
|                                                                            |                                                                  | Inc.                    |         | Publishing |  | Eliminations |           | Consolidated
|                                                                            |                                                                  |                         |         |            |  |              |           |             
|                                                                            |                                                                  |                        
|                                                                            |                                                                  | (In thousands)         
|                                                                            |                                                                  |                        
|                                                                            |                                                                  | Restated - Note 2      
|Assets                                                                     
|Current assets:                                                             |                                                                  |                         |         |            |  |              |           |              |   |   |            |            |   |   |           |        
|                                                                            | Cash and cash equivalents                                        |                         | $       | 39,750     |  |              | $         | 11,394       |   |   | $          | 85,997     |   |   | $         | 137,141 | 
|                                                                            | Accounts receivable, net                                         |                         |         | 407        |  |              |           | 282          |   |   |            | 205,154    |   |   |           | 205,843 | 
|                                                                            | Amounts due from related parties, net                            |                         |         | 191        |  |              |           | 15,968       |   |   |            | (16,159    | ) |   |           |        | 
|                                                                            | Intercompany accounts receivable                                 |                         |         | 8,921      |  |              |           | 358,950      |   |   |            | (367,871   | ) |   |           |        | 
|                                                                            | Inventories                                                      |                         |         |           |  |              |           |             |   |   |            | 10,194     |   |   |           | 10,194  | 
|                                                                            | Escrow deposits and restricted cash                              |                         |         |           |  |              |           | 545,952      |   |   |            |           |   |   |           | 545,952 | 
|                                                                            | Other current assets                                             |                         |         | 7          |  |              |           | 56           |   |   |            | 18,295     |   |   |           | 18,358  | 
|                                                                            |                                                                  |                         |         |            |  |              |           |              |   |   |            |            |   |   |           |        
|Total current assets                                                        |                                                                  |                         | 49,276  |            |  |              | 932,602   |              |   |   | (64,390    | )          |   |   | 917,488   |        
|Loan to affiliate                                                           |                                                                  |                         | 45,848  |            |  |              |          |              |   |   |           |            |   |   | 45,848    |        
|Investments                                                                 |                                                                  |                         | 303,059 |            |  |              | 1,370,765 |              |   |   | (1,575,881 | )          |   |   | 97,943    |        
|Advances under printing contracts and notes
    receivable  joint ventures |                                                                  |                         |        |            |  |              |          |              |   |   | 50,591     |            |   |   | 50,591    |        
|Property, plant and equipment, net of accumulated
    depreciation          |                                                                  |                         |        |            |  |              | 4,891     |              |   |   | 294,795    |            |   |   | 299,686   |        
|Intangible assets, net of accumulated amortization                          |                                                                  |                         |        |            |  |              |          |              |   |   | 117,179    |            |   |   | 117,179   |        
|Goodwill                                                                    |                                                                  |                         |        |            |  |              |          |              |   |   | 533,677    |            |   |   | 533,677   |        
|Prepaid pension benefit                                                     |                                                                  |                         |        |            |  |              |          |              |   |   | 63,146     |            |   |   | 63,146    |        
|Deferred financing costs and other assets                                   |                                                                  |                         | 66      |            |  |              | 37,456    |              |   |   | 22,692     |            |   |   | 60,214    |        
|                                                                            |                                                                  |                         |         |            |  |              |           |              |   |   |            |            |   |   |           |        
|                                                                            |                                                                  | $                       | 398,249 |            |  | $            | 2,345,714 |              |   | $ | (558,191   | )          |   | $ | 2,185,772 |        
|                                                                            |                                                                  |                         |         |            |  |              |           |              |   |   |            |            |   |   |           |        
|                                                                           
|Liabilities and Stockholders
    Equity                                   
|Current liabilities:                                                        |                                                                  |                         |         |            |  |              |           |              |   |   |            |            |   |   |           |        
|                                                                            | Current installments of long-term debt                           |                         | $       |           |  |              | $         |             |   |   | $          | 4,814      |   |   | $         | 4,814   | 
|                                                                            | Senior subordinated notes                                        |                         |         |           |  |              |           | 504,906      |   |   |            |           |   |   |           | 504,906 | 
|                                                                            | Accounts payable and accrued expenses                            |                         |         | 5,348      |  |              |           | 18,955       |   |   |            | 189,365    |   |   |           | 213,668 | 
|                                                                            | Accounts payable  joint ventures                                |                         |         |           |  |              |           |             |   |   |            | 12,454     |   |   |           | 12,454  | 
|                                                                            | Amounts due to related parties, net                              |                         |         | 194,182    |  |              |           | 1,034,417    |   |   |            | (1,203,434 | ) |   |           | 25,165  | 
|                                                                            | Income taxes payable (recoverable) and other tax
    liabilities |                         |         | 53,310     |  |              |           | (22,226      | ) |   |            | 280,055    |   |   |           | 311,139 | 
|                                                                            | Deferred revenue                                                 |                         |         |           |  |              |           |             |   |   |            | 42,792     |   |   |           | 42,792  | 
|                                                                            |                                                                  |                         |         |            |  |              |           |              |   |   |            |            |   |   |           |        
|Total current liabilities                                                   |                                                                  |                         | 252,840 |            |  |              | 1,536,052 |              |   |   | (673,954   | )          |   |   | 1,114,938 |        
|                                                                            |                                                                  |                         |         |            |  |              |           |              |   |   |            |            |   |   |           |        
|Long-term debt, less current installments                                   |                                                                  |                         |        |            |  |              | 305,082   |              |   |   | 269,576    |            |   |   | 574,658   |        
|Deferred income taxes and other tax liabilities                             |                                                                  |                         | (23,300 | )          |  |              | 69,362    |              |   |   | 176,207    |            |   |   | 222,269   |        
|Other liabilities                                                           |                                                                  |                         | 10,276  |            |  |              |          |              |   |   | 88,101     |            |   |   | 98,377    |        
|                                                                            |                                                                  |                         |         |            |  |              |           |              |   |   |            |            |   |   |           |        
|Total liabilities                                                           |                                                                  |                         | 239,816 |            |  |              | 1,910,496 |              |   |   | (140,070   | )          |   |   | 2,010,242 |        
|                                                                            |                                                                  |                         |         |            |  |              |           |              |   |   |            |            |   |   |           |        
|Minority interest                                                           |                                                                  |                         |        |            |  |              |          |              |   |   | 17,097     |            |   |   | 17,097    |        
|                                                                            |                                                                  |                         |         |            |  |              |           |              |   |   |            |            |   |   |           |        
|Redeemable preferred stock                                                  |                                                                  |                         | 8,650   |            |  |              | 138,309   |              |   |   | (138,309   | )          |   |   | 8,650     |        
|                                                                            |                                                                  |                         |         |            |  |              |           |              |   |   |            |            |   |   |           |        
|Total stockholders equity                                                  |                                                                  |                         | 149,783 |            |  |              | 296,909   |              |   |   | (296,909   | )          |   |   | 149,783   |        
|                                                                            |                                                                  |                         |         |            |  |              |           |              |   |   |            |            |   |   |           |        
|                                                                            |                                                                  | $                       | 398,249 |            |  | $            | 2,345,714 |              |   | $ | (558,191   | )          |   | $ | 2,185,772 |        
|                                                                            |                                                                  |                         |         |            |  |              |           |              |   |   |            |            |   |   |           |        

198



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                                                 |                                                                            |                              |         |            |   |              |          |              |   |   |          |          |   |   |          |          |  
|---------------------------------------------------------------- | -------------------------------------------------------------------------- | ---------------------------- | ------- | ---------- | - | ------------ | -------- | ------------ | - | - | -------- | -------- | - | - | -------- | -------- | -
|                                                                 |                                                                            |                             
|                                                                 |                                                                            | Year Ended December 31, 2003
|                                                                 |                                                                            |                             
|                                                                 |                                                                            | Hollinger                    |         |           
|                                                                 |                                                                            | International                |         |           
|                                                                 |                                                                            | Inc.                         |         | Publishing |   | Eliminations |          | Consolidated
|                                                                 |                                                                            |                              |         |            |   |              |          |             
|                                                                 |                                                                            |                             
|                                                                 |                                                                            | (In thousands)              
|Cash flows from operating activities                             |                                                                            |                              |         |            |   |              |          |              |   |   |          |          |   |   |          |         
|Net earnings (loss)                                              |                                                                            | $                            | (74,308 | )          |   | $            | (123,423 | )            |   | $ | 123,423  |          |   | $ | (74,308  | )       
|Items not involving cash:                                        |                                                                            |                              |         |            |   |              |          |              |   |   |          |          |   |   |          |         
|                                                                 | Depreciation and amortization                                              |                              |         |           |   |              |          | 1,312        |   |   |          | 53,541   |   |   |          | 54,853   |  
|                                                                 | Gain on sale of investments                                                |                              |         | (613       | ) |              |          |             |   |   |          | (2,965   | ) |   |          | (3,578   | )
|                                                                 | Amortization of deferred financing costs                                   |                              |         |           |   |              |          | 1,503        |   |   |          | 1,352    |   |   |          | 2,855    |  
|                                                                 | Minority interest                                                          |                              |         |           |   |              |          |             |   |   |          | 5,325    |   |   |          | 5,325    |  
|                                                                 | Premium on debt extinguishments                                            |                              |         |           |   |              |          | 19,657       |   |   |          |         |   |   |          | 19,657   |  
|                                                                 | Loss on sale of property, plant and equipment and
    publishing interests |                              |         |           |   |              |          |             |   |   |          | 6,455    |   |   |          | 6,455    |  
|                                                                 | Non-cash interest income                                                   |                              |         |           |   |              |          |             |   |   |          | (8,110   | ) |   |          | (8,110   | )
|                                                                 | Other non-cash items                                                       |                              |         | (15,602    | ) |              |          | 96,327       |   |   |          | (89,634  | ) |   |          | (8,909   | )
|                                                                 | Changes in working capital, net                                            |                              |         | 7,319      |   |              |          | (42,347      | ) |   |          | 141,641  |   |   |          | 106,613  |  
|                                                                 |                                                                            |                              |         |            |   |              |          |              |   |   |          |          |   |   |          |         
|Cash provided by (used in) operating activities                  |                                                                            |                              | (83,204 | )          |   |              | (46,971  | )            |   |   | 231,028  |          |   |   | 100,853  |         
|                                                                 |                                                                            |                              |         |            |   |              |          |              |   |   |          |          |   |   |          |         
|Cash flows from investing activities:                            |                                                                            |                              |         |            |   |              |          |              |   |   |          |          |   |   |          |         
|                                                                 | Purchase of property, plant and equipment                                  |                              |         |           |   |              |          | (106         | ) |   |          | (14,594  | ) |   |          | (14,700  | )
|                                                                 | Additions to investments and other assets                                  |                              |         | (3,966     | ) |              |          | (1,620       | ) |   |          | (20,611  | ) |   |          | (26,197  | )
|                                                                 | Proceeds from disposal of investments and other
    assets                 |                              |         | 1,612      |   |              |          |             |   |   |          | 30,749   |   |   |          | 32,361   |  
|                                                                 | Other                                                                      |                              |         |           |   |              |          |             |   |   |          | 7,954    |   |   |          | 7,954    |  
|                                                                 |                                                                            |                              |         |            |   |              |          |              |   |   |          |          |   |   |          |         
|Cash provided by (used in) investing activities                  |                                                                            |                              | (2,354  | )          |   |              | (1,726   | )            |   |   | 3,498    |          |   |   | (582     | )       
|                                                                 |                                                                            |                              |         |            |   |              |          |              |   |   |          |          |   |   |          |         
|Cash flows from financing activities:                            |                                                                            |                              |         |            |   |              |          |              |   |   |          |          |   |   |          |         
|                                                                 | Repayments of debt                                                         |                              |         |           |   |              |          | (524,563     | ) |   |          | (51,011  | ) |   |          | (575,574 | )
|                                                                 | Escrow deposits and restricted cash                                        |                              |         |           |   |              |          | 545,952      |   |   |          | (16,718  | ) |   |          | 529,234  |  
|                                                                 | Net proceeds from issuance of equity                                       |                              |         | 12,115     |   |              |          |             |   |   |          |         |   |   |          | 12,115   |  
|                                                                 | Repurchase of common shares                                                |                              |         | (8,849     | ) |              |          |             |   |   |          |         |   |   |          | (8,849   | )
|                                                                 | Changes in borrowings with related parties                                 |                              |         | 93,873     |   |              |          | 39,471       |   |   |          | (182,397 | ) |   |          | (49,053  | )
|                                                                 | Dividends paid                                                             |                              |         | (17,403    | ) |              |          |             |   |   |          |         |   |   |          | (17,403  | )
|                                                                 | Other                                                                      |                              |         |           |   |              |          | 3,170        |   |   |          | (7,498   | ) |   |          | (4,328   | )
|                                                                 |                                                                            |                              |         |            |   |              |          |              |   |   |          |          |   |   |          |         
|Cash provided by (used in) financing activities                  |                                                                            |                              | 79,736  |            |   |              | 64,030   |              |   |   | (257,624 | )        |   |   | (113,858 | )       
|                                                                 |                                                                            |                              |         |            |   |              |          |              |   |   |          |          |   |   |          |         
|Effect of exchange rate changes on cash and cash
    equivalents |                                                                            |                              |        |            |   |              |         |              |   |   | 10,940   |          |   |   | 10,940   |         
|                                                                 |                                                                            |                              |         |            |   |              |          |              |   |   |          |          |   |   |          |         
|Net increase (decrease) in cash and cash
    equivalents         |                                                                            |                              | (5,822  | )          |   |              | 15,333   |              |   |   | (12,158  | )        |   |   | (2,647   | )       
|Cash and cash equivalents at beginning of year                   |                                                                            |                              | 39,750  |            |   |              | 11,394   |              |   |   | 85,997   |          |   |   | 137,141  |         
|                                                                 |                                                                            |                              |         |            |   |              |          |              |   |   |          |          |   |   |          |         
|Cash and cash equivalents at end of year                         |                                                                            | $                            | 33,928  |            |   | $            | 26,727   |              |   | $ | 73,839   |          |   | $ | 134,494  |         
|                                                                 |                                                                            |                              |         |            |   |              |          |              |   |   |          |          |   |   |          |         

199



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                                                 |                                                                               |                              |          |            |   |              |          |              |   |   |          |          |   |   |          |          |  
|---------------------------------------------------------------- | ----------------------------------------------------------------------------- | ---------------------------- | -------- | ---------- | - | ------------ | -------- | ------------ | - | - | -------- | -------- | - | - | -------- | -------- | -
|                                                                 |                                                                               |                             
|                                                                 |                                                                               | Year Ended December 31, 2002
|                                                                 |                                                                               |                             
|                                                                 |                                                                               | Hollinger                    |          |           
|                                                                 |                                                                               | International                |          |           
|                                                                 |                                                                               | Inc.                         |          | Publishing |   | Eliminations |          | Consolidated
|                                                                 |                                                                               |                              |          |            |   |              |          |             
|                                                                 |                                                                               |                             
|                                                                 |                                                                               | (In thousands)              
|                                                                 |                                                                               | Restated  Note 2           
|Cash flows from operating activities                             |                                                                               |                              |          |            |   |              |          |              |   |   |          |          |   |   |          |         
|Net earnings (loss)                                              |                                                                               | $                            | (230,629 | )          |   | $            | (190,243 | )            |   | $ | 190,243  |          |   | $ | (230,629 | )       
|Items not involving cash:                                        |                                                                               |                              |          |            |   |              |          |              |   |   |          |          |   |   |          |         
|                                                                 | Depreciation and amortization                                                 |                              |          |           |   |              |          | 1,297        |   |   |          | 52,855   |   |   |          | 54,152   |  
|                                                                 | Amortization of deferred financing costs                                      |                              |          |           |   |              |          | 5,585        |   |   |          |         |   |   |          | 5,585    |  
|                                                                 | Minority interest                                                             |                              |          |           |   |              |          |             |   |   |          | 2,167    |   |   |          | 2,167    |  
|                                                                 | Premium on debt extinguishments                                               |                              |          |           |   |              |          | 27,126       |   |   |          |         |   |   |          | 27,126   |  
|                                                                 | Gain on sale of property, plant and equipment and
    publishing interests    |                              |          |           |   |              |          |             |   |   |          | (5,334   | ) |   |          | (5,334   | )
|                                                                 | Write-down of investments                                                     |                              |          | 13,225     |   |              |          | 10,000       |   |   |          | 17,311   |   |   |          | 40,536   |  
|                                                                 | Non-cash interest income                                                      |                              |          |           |   |              |          |             |   |   |          | (5,888   | ) |   |          | (5,888   | )
|                                                                 | Loss on Total Return Equity Swap                                              |                              |          | 9,106      |   |              |          |             |   |   |          |         |   |   |          | 9,106    |  
|                                                                 | Cumulative effect of change in accounting
    principle                       |                              |          |           |   |              |          |             |   |   |          | 20,079   |   |   |          | 20,079   |  
|                                                                 | Other non-cash items                                                          |                              |          | 288,638    |   |              |          | 140,890      |   |   |          | (304,504 | ) |   |          | 125,024  |  
|                                                                 | Changes in working capital, net                                               |                              |          | (79,684    | ) |              |          | (29,022      | ) |   |          | 123,225  |   |   |          | 14,519   |  
|                                                                 |                                                                               |                              |          |            |   |              |          |              |   |   |          |          |   |   |          |         
|Cash provided by (used in) operating activities                  |                                                                               |                              | 656      |            |   |              | (34,367  | )            |   |   | 90,154   |          |   |   | 56,443   |         
|                                                                 |                                                                               |                              |          |            |   |              |          |              |   |   |          |          |   |   |          |         
|Cash flows from investing activities:                            |                                                                               |                              |          |            |   |              |          |              |   |   |          |          |   |   |          |         
|                                                                 | Purchases of property, plant and equipment                                    |                              |          |           |   |              |          | (1,542       | ) |   |          | (27,360  | ) |   |          | (28,902  | )
|                                                                 | Additions to investments and other assets                                     |                              |          | (1,145     | ) |              |          |             |   |   |          | (10,256  | ) |   |          | (11,401  | )
|                                                                 | Proceeds from disposal of investments and other
    assets                    |                              |          |           |   |              |          | 602,200      |   |   |          | (591,193 | ) |   |          | 11,007   |  
|                                                                 | Other                                                                         |                              |          |           |   |              |          |             |   |   |          | 1,869    |   |   |          | 1,869    |  
|                                                                 |                                                                               |                              |          |            |   |              |          |              |   |   |          |          |   |   |          |         
|Cash provided by (used in) investing activities                  |                                                                               |                              | (1,145   | )          |   |              | 600,658  |              |   |   | (626,940 | )        |   |   | (27,427  | )       
|                                                                 |                                                                               |                              |          |            |   |              |          |              |   |   |          |          |   |   |          |         
|Cash flows from financing activities:                            |                                                                               |                              |          |            |   |              |          |              |   |   |          |          |   |   |          |         
|                                                                 | Proceeds from issuance of notes                                               |                              |          |           |   |              |          | 300,000      |   |   |          |         |   |   |          | 300,000  |  
|                                                                 | Repayments of debt                                                            |                              |          | (50,000    | ) |              |          | (317,138     | ) |   |          | (3,643   | ) |   |          | (370,781 | )
|                                                                 | Proceeds from bank and other debt                                             |                              |          | 50,000     |   |              |          |             |   |   |          | 265,000  |   |   |          | 315,000  |  
|                                                                 | Escrow deposits and restricted cash                                           |                              |          | 7,548      |   |              |          | (540,952     | ) |   |          |         |   |   |          | (533,404 | )
|                                                                 | Proceeds on issuance of common shares                                         |                              |          | 4,247      |   |              |          |             |   |   |          |         |   |   |          | 4,247    |  
|                                                                 | Proceeds on issuance of preferred shares                                      |                              |          |           |   |              |          | 138,309      |   |   |          | (138,309 | ) |   |          |         |  
|                                                                 | Cash settlement of Total Return Equity Swap                                   |                              |          | (100,000   | ) |              |          |             |   |   |          |         |   |   |          | (100,000 | )
|                                                                 | Changes in borrowings with related parties                                    |                              |          | 91,568     |   |              |          | (124,134     | ) |   |          | 58,864   |   |   |          | 26,298   |  
|                                                                 | Dividends and distributions paid by subsidiaries
    to minority stockholders |                              |          |           |   |              |          |             |   |   |          | (917     | ) |   |          | (917     | )
|                                                                 | Dividends paid                                                                |                              |          | (28,762    | ) |              |          | (100,000     | ) |   |          | 100,000  |   |   |          | (28,762  | )
|                                                                 | Other                                                                         |                              |          | 1,391      |   |              |          | (12,315      | ) |   |          | (5,630   | ) |   |          | (16,554  | )
|                                                                 |                                                                               |                              |          |            |   |              |          |              |   |   |          |          |   |   |          |         
|Cash provided by (used in) financing activities                  |                                                                               |                              | (24,008  | )          |   |              | (656,230 | )            |   |   | 275,365  |          |   |   | (404,873 | )       
|                                                                 |                                                                               |                              |          |            |   |              |          |              |   |   |          |          |   |   |          |         
|Effect of exchange rate changes on cash and cash
    equivalents |                                                                               |                              |         |            |   |              |         |              |   |   | 7,719    |          |   |   | 7,719    |         
|                                                                 |                                                                               |                              |          |            |   |              |          |              |   |   |          |          |   |   |          |         
|Net decrease in cash and cash equivalents                        |                                                                               |                              | (24,497  | )          |   |              | (89,939  | )            |   |   | (253,702 | )        |   |   | (368,138 | )       
|Cash and cash equivalents at beginning of year                   |                                                                               |                              | 64,247   |            |   |              | 101,333  |              |   |   | 339,699  |          |   |   | 505,279  |         
|                                                                 |                                                                               |                              |          |            |   |              |          |              |   |   |          |          |   |   |          |         
|Cash and cash equivalents at end of year                         |                                                                               | $                            | 39,750   |            |   | $            | 11,394   |              |   | $ | 85,997   |          |   | $ | 137,141  |         
|                                                                 |                                                                               |                              |          |            |   |              |          |              |   |   |          |          |   |   |          |         

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HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                                                 |                                                                               |                              |          |            |   |              |          |              |   |   |          |          |   |   |          |          |  
|---------------------------------------------------------------- | ----------------------------------------------------------------------------- | ---------------------------- | -------- | ---------- | - | ------------ | -------- | ------------ | - | - | -------- | -------- | - | - | -------- | -------- | -
|                                                                 |                                                                               |                             
|                                                                 |                                                                               | Year Ended December 31, 2001
|                                                                 |                                                                               |                             
|                                                                 |                                                                               | Hollinger                    |          |           
|                                                                 |                                                                               | International                |          |           
|                                                                 |                                                                               | Inc.                         |          | Publishing |   | Eliminations |          | Consolidated
|                                                                 |                                                                               |                              |          |            |   |              |          |             
|                                                                 |                                                                               |                             
|                                                                 |                                                                               | (In thousands)              
|                                                                 |                                                                               | Restated  Note 2           
|Cash flows from operating activities                             |                                                                               |                              |          |            |   |              |          |              |   |   |          |          |   |   |          |         
|Net earnings (loss)                                              |                                                                               | $                            | (326,573 | )          |   | $            | (249,085 | )            |   | $ | 249,085  |          |   | $ | (326,573 | )       
|Items not involving cash:                                        |                                                                               |                              |          |            |   |              |          |              |   |   |          |          |   |   |          |         
|                                                                 | Depreciation and amortization                                                 |                              |          |           |   |              |          | 1,269        |   |   |          | 72,459   |   |   |          | 73,728   |  
|                                                                 | Amortization of deferred financing costs                                      |                              |          | 2,835      |   |              |          | 7,532        |   |   |          |         |   |   |          | 10,367   |  
|                                                                 | Minority interest                                                             |                              |          |           |   |              |          |             |   |   |          | (13,803  | ) |   |          | (13,803  | )
|                                                                 | Loss (gain) on sale of investments                                            |                              |          | (7,125     | ) |              |          | (56          | ) |   |          | 154,394  |   |   |          | 147,213  |  
|                                                                 | Gain on sale of property, plant and
    equipment and publishing interests    |                              |          |           |   |              |          |             |   |   |          | (71      | ) |   |          | (71      | )
|                                                                 | Write-down of investments                                                     |                              |          | 22,045     |   |              |          |             |   |   |          | 25,992   |   |   |          | 48,037   |  
|                                                                 | Non-cash interest income                                                      |                              |          |           |   |              |          |             |   |   |          | (43,821  | ) |   |          | (43,821  | )
|                                                                 | Loss on Total Return Equity Swap                                              |                              |          | 42,845     |   |              |          |             |   |   |          |         |   |   |          | 42,845   |  
|                                                                 | Other non-cash items                                                          |                              |          | 267,143    |   |              |          | 232,246      |   |   |          | (527,891 | ) |   |          | (28,502  | )
|                                                                 | Changes in working capital, net                                               |                              |          | 756        |   |              |          | (7,830       | ) |   |          | (40,631  | ) |   |          | (47,705  | )
|                                                                 |                                                                               |                              |          |            |   |              |          |              |   |   |          |          |   |   |          |         
|Cash provided by (used in) operating activities                  |                                                                               |                              | 1,926    |            |   |              | (15,924  | )            |   |   | (124,287 | )        |   |   | (138,285 | )       
|                                                                 |                                                                               |                              |          |            |   |              |          |              |   |   |          |          |   |   |          |         
|Cash flows from investing activities:                            |                                                                               |                              |          |            |   |              |          |              |   |   |          |          |   |   |          |         
|                                                                 | Purchase of property, plant and equipment                                     |                              |          |           |   |              |          | (237         | ) |   |          | (44,214  | ) |   |          | (44,451  | )
|                                                                 | Additions to investments and other assets                                     |                              |          | (334,042   | ) |              |          | (56,478      | ) |   |          | 345,326  |   |   |          | (45,194  | )
|                                                                 | Proceeds from disposal of investments
    and other assets                    |                              |          | 318,935    |   |              |          | 527          |   |   |          | 520,937  |   |   |          | 840,399  |  
|                                                                 | Other                                                                         |                              |          |           |   |              |          |             |   |   |          | 5,982    |   |   |          | 5,982    |  
|                                                                 |                                                                               |                              |          |            |   |              |          |              |   |   |          |          |   |   |          |         
|Cash provided by (used in) investing activities                  |                                                                               |                              | (15,107  | )          |   |              | (56,188  | )            |   |   | 828,031  |          |   |   | 756,736  |         
|                                                                 |                                                                               |                              |          |            |   |              |          |              |   |   |          |          |   |   |          |         
|Cash flows from financing activities:                            |                                                                               |                              |          |            |   |              |          |              |   |   |          |          |   |   |          |         
|                                                                 | Repayments of debt                                                            |                              |          | (88,000    | ) |              |          |             |   |   |          | (5,469   | ) |   |          | (93,469  | )
|                                                                 | Proceeds from bank and other debt                                             |                              |          | 88,000     |   |              |          |             |   |   |          | 3,574    |   |   |          | 91,574   |  
|                                                                 | Net proceeds on issuance of common equity                                     |                              |          | 6,863      |   |              |          |             |   |   |          |         |   |   |          | 6,863    |  
|                                                                 | Repurchase of common shares, redemption of
    preferred                      |                              |          | (143,055   | ) |              |          |             |   |   |          |         |   |   |          | (143,055 | )
|                                                                 | Changes in borrowings with related parties                                    |                              |          | 281,082    |   |              |          | 169,795      |   |   |          | (460,366 | ) |   |          | (9,489   | )
|                                                                 | Escrow deposits and restricted cash                                           |                              |          | (7,548     | ) |              |          | (5,000       | ) |   |          |         |   |   |          | (12,548  | )
|                                                                 | Dividends and distributions paid by subsidiaries
    to minority stockholders |                              |          |           |   |              |          |             |   |   |          | (53,673  | ) |   |          | (53,673  | )
|                                                                 | Dividends paid                                                                |                              |          | (53,157    | ) |              |          | (14,400      | ) |   |          | 14,400   |   |   |          | (53,157  | )
|                                                                 | Other                                                                         |                              |          | (8,866     | ) |              |          | 724          |   |   |          | 3,832    |   |   |          | (4,310   | )
|                                                                 |                                                                               |                              |          |            |   |              |          |              |   |   |          |          |   |   |          |         
|Cash provided by (used in) financing activities                  |                                                                               |                              | 75,319   |            |   |              | 151,119  |              |   |   | (497,702 | )        |   |   | (271,264 | )       
|                                                                 |                                                                               |                              |          |            |   |              |          |              |   |   |          |          |   |   |          |         
|Effect of exchange rate changes on cash and cash
    equivalents |                                                                               |                              |         |            |   |              |         |              |   |   | (9,438   | )        |   |   | (9,438   | )       
|                                                                 |                                                                               |                              |          |            |   |              |          |              |   |   |          |          |   |   |          |         
|Net increase in cash and cash equivalents                        |                                                                               |                              | 62,138   |            |   |              | 79,007   |              |   |   | 196,604  |          |   |   | 337,749  |         
|Cash and cash equivalents at beginning of year                   |                                                                               |                              | 2,109    |            |   |              | 22,326   |              |   |   | 143,095  |          |   |   | 167,530  |         
|                                                                 |                                                                               |                              |          |            |   |              |          |              |   |   |          |          |   |   |          |         
|Cash and cash equivalents at end of year                         |                                                                               | $                            | 64,247   |            |   | $            | 101,333  |              |   | $ | 339,699  |          |   | $ | 505,279  |         
|                                                                 |                                                                               |                              |          |            |   |              |          |              |   |   |          |          |   |   |          |         

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HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|     |                                     
|---- | ------------------------------------
|(27) | Quarterly Financial Data (Unaudited)

Quarterly financial data for the years ended
December 31, 2003 and 2002 is as follows:

|                                      |  |                                       |         |         |  |         |         |         |  |   |         |   |  |   |         |  
|------------------------------------- |  | ------------------------------------- | ------- | ------- |  | ------- | ------- | ------- |  | - | ------- | - |  | - | ------- | -
|                                      |  |                                      
|                                      |  | 2003(1)                              
|                                      |  |                                      
|                                      |  | First                                 |         | Second  |  | Third   |         | Fourth 
|                                      |  | Quarter                               |         | Quarter |  | Quarter |         | Quarter
|                                      |  |                                       |         |         |  |         |         |        
|                                      |  |                                      
|                                      |  | Restated Note 2                      
|                                      |  |                                      
|                                      |  | (In thousands, except per share data)
|Total operating revenues              |  | $                                     | 260,347 |         |  | $       | 264,384 |         |  | $ | 253,127 |   |  | $ | 283,345 |  
|Total operating income (loss)         |  |                                       | 13,483  |         |  |         | 18,503  |         |  |   | 4,491   |   |  |   | (26,460 | )
|Net income (loss)                     |  |                                       | 1,214   |         |  |         | 22,362  |         |  |   | (8,134  | ) |  |   | (89,750 | )
|Basic net earnings (loss) per share   |  |                                       | 0.01    |         |  |         | 0.26    |         |  |   | (0.09   | ) |  |   | (1.03   | )
|Diluted net earnings (loss) per share |  |                                       | 0.01    |         |  |         | 0.26    |         |  |   | (0.09   | ) |  |   | (1.03   | )

|                                                                    |  |                                       |         |         |  |         |         |         |  |   |         |   |  |   |          |  
|------------------------------------------------------------------- |  | ------------------------------------- | ------- | ------- |  | ------- | ------- | ------- |  | - | ------- | - |  | - | -------- | -
|                                                                    |  |                                      
|                                                                    |  | 2002(1)                              
|                                                                    |  |                                      
|                                                                    |  | First                                 |         | Second  |  | Third   |         | Fourth 
|                                                                    |  | Quarter                               |         | Quarter |  | Quarter |         | Quarter
|                                                                    |  |                                       |         |         |  |         |         |        
|                                                                    |  |                                      
|                                                                    |  | Restated Note 2                      
|                                                                    |  |                                      
|                                                                    |  | (In thousands, except per share data)
|Total operating revenues                                            |  | $                                     | 246,963 |         |  | $       | 250,777 |         |  | $ | 244,419 |   |  | $ | 264,003  |  
|Total operating income                                              |  |                                       | 17,699  |         |  |         | 17,236  |         |  |   | 7,868   |   |  |   | 17,304   |  
|Loss before cumulative effect of change in
    accounting principle |  |                                       | (64,937 | )       |  |         | (4,098  | )       |  |   | (33,274 | ) |  |   | (108,241 | )
|Cumulative effect of change in accounting
    principle             |  |                                       | (20,079 | )       |  |         |        |         |  |   |        |   |  |   |         |  
|Net loss                                                            |  |                                       | (85,016 | )       |  |         | (4,098  | )       |  |   | (33,274 | ) |  |   | (108,241 | )
|Basic loss per share                                                |  |                                       | (0.89   | )       |  |         | (0.04   | )       |  |   | (0.35   | ) |  |   | (1.13    | )
|Diluted loss per share                                              |  |                                       | (0.89   | )       |  |         | (0.04   | )       |  |   | (0.35   | ) |  |   | (1.13    | )



---

(1) The Company has restated the results of
all quarters of 2002 and the first three quarters of 2003 to
reflect the restatements disclosed in Note 2.



|     |                  
|---- | -----------------
|(28) | Subsequent Events

(a) Repayment of Unauthorized
Non-competition Payments  The Company
has received the following amounts, excluding interest, from
Hollinger Inc., Black, Radler and Atkinson subsequent to
December 31, 2003 in accordance with the Restructuring
Agreement.

|               |  |                |        | 
|-------------- |  | -------------- | ------ | 
|               |  | (In thousands)
|Hollinger Inc. |  | $              | 16,550 | 
|Conrad Black   |  |                | 7,197  | 
|David Radler   |  |                | 6,348  | 
|Peter Atkinson |  |                | 252    | 
|               |  |                |        | 
|               |  | $              | 30,347 | 
|               |  |                |        | 

Of these amounts, $23.7 million paid by
Hollinger Inc. and Black is the subject of an appeal by
Hollinger Inc. and Black to the Delaware Supreme Court and
$0.3 million paid by Atkinson is in escrow pending the
approval of the terms of his settlement by the Delaware Chancery
Court. (See 28(g) below.)

(b) Shareholder Rights
Plan  On February 27, 2004, the Company paid
a dividend of one preferred share purchase right (a
Right) for each share of Class A Common Stock
and Class B Common Stock held

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HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

of record at the close of business on
February 5, 2004. Each Right, if and when exercisable,
entitles its holder to purchase from the Company one
one-thousandth of a share of a new series of preferred stock at
an exercise price of $50.00.

The shareholder rights plan provides that the
Rights will separate from the Class A Common Stock and
Class B Common Stock and become exercisable only if a
person or group beneficially acquires, directly or indirectly,
20% or more of the outstanding stockholder voting power of the
Company without the approval of the Companys directors, or
if a person or group announces a tender offer which if
consummated would result in such person or group beneficially
owning 20% or more of such voting power. The directors of the
Company may redeem the Rights at $0.001 per Right at any
time prior to the separation of the Rights from the Class A
Common Stock and Class B Common Stock.

Under most circumstances involving an acquisition
by a person or group of 20% or more of the stockholder voting
power of the Company, each Right will entitle its holder (other
than such person or group), in lieu of purchasing preferred
stock, the right to purchase 10 shares of Class A
Common Stock of the Company at a 50% discount. In addition, in
the event of certain business combinations following such an
acquisition, each Right will entitle its holder to purchase the
common stock of an acquirer of the Company at a 50% discount.

(c) Strategic Process  As
announced in November of 2003, the Company engaged Lazard to
manage a process to evaluate various strategic alternatives for
the Company (the Strategic Process). These
alternatives included selling the Company as a whole or selling
off individual assets such as the Chicago Newspaper Group, the
U.K. Newspaper Group, the Canadian Newspaper Group or The
Jerusalem Post.

Lazard organized and managed the process during
which time the Company collected several offers for the various
properties. Based upon the offers received by June 2004, the
Company narrowed the scope of the strategic review and decided
that the Company, at that time, would only pursue the sale of
the Telegraph Group.

The Company closed the sale of the Telegraph
Group on July 30, 2004 for approximately $1.3 billion
(based on US$1.8145 = £1) of cash proceeds.

As part of the Strategic Process, on
December 15, 2004, the Company announced it had completed
the sale of The Palestine Post Limited, the publisher of The
Jerusalem Post, The Jerusalem Reportand related
publications. The transaction involved the sale by the Company
of its debt and equity interests in The Palestine Post Limited
for $13.2 million.

(d) Repayment of Senior Credit
Facility  During the Companys third fiscal
quarter in 2004, and concurrent with the closing of the sale of
the Telegraph Group, the Company repaid, in full, all amounts
outstanding under its Senior Credit Facility and terminated all
derivatives related to that facility. The Company incurred
charges of approximately $2.1 million for premiums and fees
related to the early repayment of the facility and
$32.3 million related to the early termination of the
derivative contracts.

(e) Retirement of 9% Senior
Notes  In June of 2004, the Company commenced a
tender offer and consent solicitation to retire all of the
9% Senior Notes. The Company amended this offer in July of
2004. The offer closed on July 30, 2004. As of
August 2, 2004, 97% of the outstanding 9% Senior Notes
were tendered for retirement. The cost of the early retirement
of the 9% Senior Notes was approximately
$50.7 million, consisting of a premium for early retirement
and related fees, and was incurred during the third quarter of
2004. The Company cancelled the interest rate swaps on the 9%
Senior Notes on July 30, 2004 and recorded a cost of
$10.5 million for the early termination of these swaps
during the third quarter of 2004. The Company has since
purchased and retired an additional $3.4 million in
principal amount of the 9% Senior Notes. The 9% Senior
Notes outstanding at September 30, 2004 total approximately
$6.0 million.

203



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HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(f) Disposition of Interest in Trump
Joint Venture  On June 21, 2004, the Company
entered into an agreement to sell its 50% interest in the real
estate joint venture that was established by the Company and an
entity affiliated with Mr. Donald Trump for the development
of the property on which a portion of the Chicago Sun-Timesoperations was then situated. Immediately prior to the sale
of the interest in the joint venture, the Company contributed to
the joint venture, its property in downtown Chicago where the
Chicago Sun-Times had conducted its editorial, pre-press,
marketing, sales and administrative activities. Under the terms
of the agreement the Company received $4.0 million in cash
upon signing of the sales agreement, and the balance of
approximately $66.7 million, net of closing costs and
adjustments, was received in cash on closing. This transaction
closed on October 15, 2004.

The Chicago Sun-Timeshas entered into an
operating lease for new office space. The new lease is for
15 years with an average annual expense of approximately
$3.4 million. The Chicago Sun-Timesrelocated to its
new offices early in the fourth quarter of 2004.

(g) Settlement with
Atkinson  Although Atkinson was not a party to
the Restructuring Agreement, he agreed to pay the amount
identified as attributable to him in the Restructuring
Agreement. On April 27, 2004, the Company reached a
settlement with a former director and officer of the Company,
Atkinson. The terms of the settlement are subject to approval by
the Delaware Chancery Court in the December 2003 derivative
action. Under the settlement with the Company, Atkinson agreed
to pay the Company all the proceeds of the
non-competition and Hollinger Digital payments he
received plus interest, which totals approximately
$2.8 million. The total amount of $2.8 million
includes the amounts identified as attributable to Atkinson in
the Restructuring Agreement. Prior to the end of December 2003,
Atkinson paid the Company $0.4 million. Atkinson exercised
his vested options and the option proceeds of $4.0 million
were deposited into an escrow account. Upon the Delaware
Chancery Courts approval of the settlement agreement, the
Company will receive $2.4 million. Included in the
$2.4 million in escrow is approximately $0.3 million,
which has been included as received (See Note 28(a) above).
This amount represents the balance, before interest, identified
as attributable to Atkinson at December 31, 2003 in the
Restructuring Agreement.

(h) Hollinger L.P. Tender
Offer  On August 6, 2004, the Toronto Stock
Exchange (TSX) suspended the listing of the units of
Hollinger L.P. because the general partner of Hollinger L.P.
does not have at least two independent directors, as required by
TSX listing requirements. On August 5, 2004, the Company
expressed an interest in pursuing a tender offer for the units
of Hollinger L.P. not held by affiliates of the Company. An
independent committee of the general partner of Hollinger L.P.,
consisting of the sole independent director of the general
partner, was formed and it retained independent legal counsel
and financial advisors. Continuing liquidity for minority unit
holders during the tender offer process has been provided
through a listing of the units on a junior board of the TSX
Venture Exchange. On December 10, 2004, it was announced
that the Company would not pursue the tender offer until such
time as Hollinger L.P. is current in its financial statement
filings.

(i) Participation Trust 
On October 7, 2004, the Company and Hollinger L.P. entered
into a Facilitation Agreement (the Facilitation
Agreement) with CanWest, pursuant to which the parties
agreed to redeem the CanWest Debentures and dissolve the Trust.
CanWest exchanged the Trust Notes for new debentures issued by
CanWest (the CanWest Exchange Offer). In the
Facilitation Agreement, the Company agreed, among other things,
to sell to CanWest for cash all of the CanWest Debentures
beneficially owned by the Company. The Companys obligation
to sell the CanWest Debentures to the Issuer, and CanWests
obligation to purchase the CanWest Debentures from the Company,
was conditioned upon the closing of the CanWest Exchange Offer.
The CanWest Exchange Offer was subject to a number of
conditions, including that at least two-thirds of the
outstanding principal amount of Trust Notes be tendered in the
CanWest Exchange Offer. On October 28, 2004, CanWest
announced that holders of substantially more than 66 2/3% in
aggregate principal amount of the Trust Notes had agreed in
writing to tender their Trust Notes in the CanWest Exchange
Offer. The CanWest Exchange Offer closed on November 18,
2004. The Company

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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

and Hollinger L.P. received approximately
$133.6 million in respect of CanWest Debentures
beneficially owned and residual interests in the Participation
Trust attributable to foreign currency exchange. The
Participation Trust has now been unwound, and the Companys
requirement to maintain cash to satisfy the needs of the
Participation Trust has been satisfied. Accordingly, the
restrictions on the $16.7 million of cash identified as
Escrow deposits and restricted cash on the
Consolidated Balance Sheet as of December 31, 2003, have
been removed.

(j) Declaration of Special and Regular
Dividend  On December 16, 2004, from the
proceeds of the sale of the Telegraph Group, the Board of
Directors declared a Special Dividend (the Special
Dividend) of $2.50 per share payable on the Companys
Class A and Class B Common Stock on January 18,
2005 to holders of record of such shares on January 3,
2005, in an aggregate amount of approximately
$227.0 million, this being the first tranche of a total
amount of $500.0 million which the Board of Directors
determined was in the best interest of the Company and its
stockholders to be distributed to stockholders. The Board of
Directors intends to distribute approximately
$273.0 million of the proceeds from the sale of the
Telegraph Group, this being the second tranche of the
$500.0 million distribution, in the form of a tender offer
for its shares of Class A and Class B Common Stock.
The Board of Directors expects to make a final determination
about whether to proceed with a tender offer during the first
quarter of 2005. Alternatively, the Board may consider a second
special cash dividend to complete the distribution, instead of a
tender offer. There can be no assurance that the second
distribution will be made or, if made, whether it will be in the
form of a tender offer or a dividend, and if a tender offer, as
to the price or form such offer will take. The Board of
Directors believes that following the Special Dividend and the
second distribution, the Company will have sufficient cash to
fund its operations and obligations and to avail itself of
strategic opportunities. Following the Special Dividend, it is
expected that the outstanding grants under the Companys
stock incentive plans will be appropriately adjusted to take
into account this return of cash to existing stockholders.

On December 16, 2004, the Board of Directors
also declared a regular quarterly dividend in the amount of
$0.05 per share, payable on the Companys Class A and
Class B Common Stock on January 18, 2005 to
shareholders of record on January 3, 2005.

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