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UNITED STATES SECURITIES AND
EXCHANGE COMMISSION

WASHINGTON, DC 20549


Form 10-K

|      |  |                                                                                                                                 
|----- |  | --------------------------------------------------------------------------------------------------------------------------------
|[X]   |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year ended December 31, 2002
|      |  | or                                                                                                                              
|[   ] |  | 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)
|                                                                                            
|401 North Wabash Avenue,
Suite 740, Chicago, Illinois(Address of Principal Executive Office) |  | 60611(Zip Code)                                  

Registrants telephone number, including area code
(312) 321-2299

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

|                                              |  |                                           
|--------------------------------------------- |  | ------------------------------------------
|Title of each class:                          |  | Name of each exchange on which registered:
|                                              |  |                                           
|Class A Common Stock par value $.01 per share |  | New York Stock Exchange                   
|8 5/8% Senior Notes due 2005                  |  | 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  [X] |  | No  [  ]

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.  [  ]

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

The aggregate market value of the voting stock held by non-affiliates of
the registrant on June 28, 2002, determined using the closing price per share
on that date of $12.00, as reported on the New York Stock Exchange was
$1,015,395,000.

The aggregate market value of Class A Common Stock held by non-affiliates
as of March 7, 2003, was approximately $519,828,000. As of such date,
non-affiliates held no shares of Class B Common Stock. There is no active
market for the Class B Common Stock.

The number of outstanding shares of each class of the registrants common
stock as of March 7, 2003 was as follows: 74,498,328 shares of Class A Common
Stock and 14,990,000 shares of Class B Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE

|                                                                                                                                   |  |         
|---------------------------------------------------------------------------------------------------------------------------------- |  | --------
|Document                                                                                                                           |  | Location
|                                                                                                                                   |  |         
|Proxy Statement for 2003 Annual Meeting of Stockholders filed
pursuant to Regulation 14A under the Securities Exchange Act of
1934 |  | Part III



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TABLE OF CONTENTS



|                                                   |                                                                                               |  |  |  |  |  |  | 
|-------------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                            
|                                                   | Item 1. Business                                                                             
|                                                   | Item 2. Properties                                                                           
|                                                   | Item 3. Legal Proceedings                                                                    
|                                                   | Item 4. Submission of Matters to a Vote of Security Holders                                  
|PART II                                           
|                                                   | Item 5. Market for the Registrants Common Equity and Related Stockholder Matters            
|                                                   | Item 6. Selected Financial Data                                                              
|                                                   | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                   | Item 7A. Quantitative and Qualitative Disclosure about Market Risk                           
|                                                   | Item 8. Financial Statements and Supplementary Data                                          
|                                                   | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
|PART III                                          
|                                                   | Item 10. Directors and Executive Officers of the Registrant                                  
|                                                   | Item 11. Executive Compensation                                                              
|                                                   | Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|                                                   | Item 13. Certain Relationships and Related Transactions                                      
|                                                   | Item 14. Controls and Procedures                                                             
|PART IV                                           
|                                                   | Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K                    
|SIGNATURES                                        
|Amended and Restated Trust Agreement              
|Supplemental Trust Agreement                      
|Amended and Restated Participation Agreement      
|Purchase Agreement dated December 16, 2002        
|Registration Rights Agreement                     
|The Indenture dated as of December 23, 2002       
|Fifth Amended and Restated Credit Agreement       
|Fourth Amended and Restated Company Pledge        
|Fourth Amended and Restated Guaranty              
|Amended and Restated Pledge Agreement             
|Intellectual Property Security Agreement          
|Third Amended and Restated Guaranty               
|Third Amended and Restated Security Agreement     
|U.K. Subsidiary Guarantee                         
|U.S. Pledge Agreement                             
|Significant Subsidiaries of Hollinger Internationa
|Consent of KPMG LLP                               
|Certification of Chief Executive Officer          
|Certification of Chief Financial Officer          



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HOLLINGER INTERNATIONAL INC.

2002 FORM 10-K

|         |          |  |                                                                                       |  |  |    |      |  | 
|-------- | -------- |  | ------------------------------------------------------------------------------------- |  |  | -- | ---- |  | 
|         |          |  |                                                                                       |  |  |    | Page
|         |          |  |                                                                                       |  |  |    |     
|PART I   |          |  |                                                                                       |  |  |    | 1    | 
|         | Item 1.  |  | Business                                                                              |  |  | 1  |     
|         | Item 2.  |  | Properties                                                                            |  |  | 15 |     
|         | Item 3.  |  | Legal Proceedings                                                                     |  |  | 16 |     
|         | Item 4.  |  | Submission of Matters to a Vote of Security Holders                                   |  |  | 16 |     
|PART II  |          |  |                                                                                       |  |  |    | 16   | 
|         | Item 5.  |  | Market for the
Registrants Common Equity and Related Stockholder Matters             |  |  | 16 |     
|         | Item 6.  |  | Selected Financial Data                                                               |  |  | 18 |     
|         | Item 7.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  |  | 20 |     
|         | Item 7A. |  | Quantitative and Qualitative Disclosure about Market Risk                             |  |  | 37 |     
|         | Item 8.  |  | Financial Statements and Supplementary Data                                           |  |  | 39 |     
|         | Item 9.  |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  |  |  | 39 |     
|PART III |          |  |                                                                                       |  |  |    | 40   | 
|         | Item 10. |  | Directors and Executive Officers of the Registrant                                    |  |  | 40 |     
|         | Item 11. |  | Executive Compensation                                                                |  |  | 42 |     
|         | Item 12. |  | Security Ownership of Certain Beneficial Owners and Management                        |  |  | 43 |     
|         | Item 13. |  | Certain Relationships and Related Transactions                                        |  |  | 43 |     
|         | Item 14. |  | Controls and Procedures                                                               |  |  | 43 |     
|PART IV  |          |  |                                                                                       |  |  |    | 43   | 
|         | Item 15. |  | Exhibits, Financial Statement Schedules, and Reports on Form 8-K                      |  |  | 43 |     





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PART I




Item 1.Business

Overview

We are a leading publisher of English-language newspapers in the United
States, the U.K. and Israel with a smaller presence in Canada. Our 23 paid
daily newspapers have a worldwide combined circulation of approximately two
million. In addition, we own or have interests in over 250 other publications,
including non-daily newspapers and magazines. Included among our 144 paid
newspapers are the following premier titles:



| |  |  | the Chicago Groups Chicago Sun-Times, which has the highest daily
readership and second highest circulation of any newspaper in the
Chicago metropolitan area and has the fifth highest daily readership of
any metropolitan daily newspaper in the United States;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the U.K. Newspaper Groups The Daily Telegraph, which is the leading
daily broadsheet newspaper in the U.K. with a 36% share of circulation
in its domestic market and approximately 300,000 greater circulation
than that of its nearest competitor; and          
|
| |  |  | the Community Groups Jerusalem Post, which is the most widely read
English-language daily newspaper published in the Middle East and is
highly regarded regionally and internationally.                                                                           

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

Chicago Group

The Chicago Group consists of more than 100 newspapers in the greater
Chicago metropolitan area. The groups primary newspaper is the Chicago
Sun-Times, which was founded in 1948 and is Chicagos most widely read
newspaper. The Chicago Sun-Timesis published in a tabloid format, has a daily
circulation of approximately 480,000 and continues to have the leading daily
readership in the 16 county Chicago metropolitan area, attracting 1.7 million
readers daily. We pursue 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 us to rationalize
duplicative back office functions and printing facilities as well as offer
joint selling programs to advertisers. For the year ended December 31, 2002,
the Chicago Group had revenues of approximately $441.8 million and operating
income of approximately $35.7 million.

U.K. Newspaper Group

The U.K. Newspaper Groups operations include The Daily Telegraph, The
Sunday Telegraph, The Weekly Telegraph, telegraph.co.uk, and The Spectatorand
Apollomagazines. The Daily Telegraphwas launched in 1855 and is based in
London, the dominant financial center in Europe. It is the largest circulation
broadsheet daily newspaper in the U.K. as well as in all of Europe with an
average daily circulation of approximately 980,000. The Daily Telegraphs
Saturday edition has the highest average daily circulation (approximately 1.2
million) among broadsheet daily newspapers in the U.K. The Sunday Telegraphis
the second highest circulation broadsheet Sunday newspaper in the U.K. with an
average circulation of approximately 778,000. The Daily Telegraphs market
leadership and national reach have allowed it to maintain the leading share of
advertising among broadsheet daily newspapers in the U.K. over the last decade.
In addition, we have leveraged The Daily Telegraphs strong reader loyalty,
trusted brand name and proprietary customer database to generate incremental
revenue from the sale of ancillary products and services to its readers. For
the year ended December 31, 2002, the U.K. Newspaper Group had revenues of
approximately $481.5 million and operating income of approximately $48.1
million.

Community Group

The Community Group consists of the Jerusalem Post, the most widely read
English-language daily newspaper published in the Middle East with a daily and
weekend readership of 223,000. The paid circulation of all the Jerusalem Post
products, including English and French-language international weekly editions,
is over 110,000. For the year ended December 31, 2002, the Community Group had
revenues of $13.2 million and an operating loss of approximately $5.2 million.

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Canadian Newspaper Group

The Canadian Newspaper Group currently consists of Hollinger Canadian
Publishing Holdings Co. (HCPH Co.) and an 87% interest in Hollinger Canadian
Newspapers, Limited Partnership (Hollinger L.P.). HCPH Co. and Hollinger L.P.
own ten daily and 23 non-daily newspaper properties and miscellaneous Canadian
business magazines and tabloids for various industries including:
transportation, construction, natural resources and manufacturing. We intend to
sell these newspaper and magazine assets should an attractive opportunity
arise. For the year ended December 31, 2002, the Canadian Newspaper Group had
revenues of approximately $69.6 million and an operating loss of $2.1 million.

General

The Company 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. Each of the Company and Publishing has its
executive offices at 401 North Wabash Avenue, Suite 740, Chicago, Illinois
60611, telephone number (312) 321-2299.

Bank Credit Facility

On December 23, 2002, certain of our subsidiaries entered into a senior
credit facility with an aggregate commitment of $310 million, arranged by
Wachovia Bank, N.A. (the Senior Credit Facility).

The Senior Credit Facility consists of (i) a $45 million revolving credit
facility which matures on September 30, 2008 (the Revolving Credit Facility),
(ii) a $45 million Term Loan A which matures on September 30, 2008 (Term Loan
A) and (iii) a $220 million Term Loan B which matures on September 30, 2009
(Term Loan B). Publishing (a wholly owned direct subsidiary) and Telegraph
Group Limited (Telegraph Group, a wholly owned indirect subsidiary) are the
borrowers under the Revolving Credit Facility and First DT Holdings Ltd.
(FDTH, a wholly owned indirect subsidiary) is the borrower under Term Loan A
and Term Loan B. The Revolving Credit Facility and Term Loans bear interest at
either the Base Rate (U.S.) or LIBOR, plus an applicable margin. Cross currency
floating to fixed rate swaps, from USD LIBOR to Sterling fixed rate have been purchased in respect of all amounts
advanced under the Senior Credit Facility.

Publishings borrowings under the Senior Credit Facility are guaranteed by
Publishings material U.S. subsidiaries, while FDTHs and Telegraph Groups
borrowings under the Senior Credit Facility are guaranteed by Publishing and
its material U.S. and U.K. subsidiaries. The Company is also a guarantor of
the Senior Credit Facility. Publishings borrowings under the Senior Credit
Facility are 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 are 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 have not been pledged as security under the
Senior Credit Facility.

The Senior Credit Facility loan documentation requires Publishing to
comply with certain covenants which include, without limitation and subject to
certain exceptions, restrictions on additional indebtedness; liens; certain
types of payments (including without limitation, capital stock dividends and
redemptions, payments on existing indebtedness and intercompany indebtedness),
and on 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 except as
permitted; 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, subject to certain baskets and exceptions. The Senior Credit
Facility loan documentation also contains customary events of default.

Senior Notes

On December 23, 2002, Publishing issued $300,000,000 of 9% Senior Notes
guaranteed by the Company due 2010 (the 9% Senior Notes). The indenture
relating to the 9% Senior Notes contains financial covenants and negative
covenants that limit Publishings ability to, among other things, incur
indebtedness, pay dividends or make other distributions on its capital stock,
enter into transactions with related companies, and sell assets including stock
of a restricted subsidiary. The indentures provide that upon a Change of
Control (as defined in the indenture), each noteholder has the right to require
Publishing to purchase all or any portion of such noteholders notes at a cash
purchase price equal to 101% of the principal amount of such notes, plus
accrued and unpaid interest. The Senior Credit Facility restricts Publishings
ability to repurchase these notes even when Publishing may be required to do so
under the terms of the indenture to the 9% Senior Notes in connection with a
Change of Control.

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Ownership by Hollinger Inc.

At December 31, 2002, Hollinger Inc. directly and indirectly owned 31.8%
of the combined equity interest and 72.8% of the combined voting power of the
outstanding common stock of the Company (without giving effect to conversion of
the Series E Preferred Stock of the Company held by Hollinger Inc.). As a
result, Hollinger Inc. will be able to control the outcome of any election of
directors and to direct management policy, strategic direction and financial
decisions of the Company and its subsidiaries. In March 2003, the Company
acquired for cancellation 2,000,000 shares of Class A Common Stock from a
subsidiary of Hollinger, Inc. and redeemed all of the Series E Preferred Stock
as more fully described in Part II Item 5. As a result, Hollinger Inc.s
equity and voting interests have been reduced to 30.3% and 72.6%, respectively.

Business Strategy

Pursue Revenue Growth by Leveraging our Leading Market Position. We will
continue to leverage our leading position in daily readership in the attractive
Chicago and U.K. markets in order to drive revenue growth. For the Chicago
Group, we will continue to build revenues by taking advantage of the extensive
cluster of our combined Chicago Group publications, which allows us to offer
local advertisers geographically and demographically targeted advertising
solutions and national advertisers an efficient one-stop vehicle to reach the
entire Chicago market. For the U.K. Newspaper Group, we will continue to focus
on retaining The Daily Telegraphs national circulation dominance and
increasing circulation of The Sunday Telegraph, introduce new sections to the
newspaper in order to help advertisers target specific reader demographics, and
periodically implement cover price increases. In addition, we believe that The
Daily Telegraphs successful prepaid subscription program will continue to
enhance revenue opportunities.

Continue to Maximize Operating Efficiency.We have extensive expertise in
introducing and maintaining operating efficiencies, producing superior
newspapers and increasing revenues. Historically, these efficiencies have
resulted from centralized newsprint purchasing, clustering and consolidating
duplicative functions and facilities at our acquired newspaper publications,
and investing in technology and production equipment. For example, in April
2001, we completed the installation of a $115 million, state-of-the-art
printing facility in Chicago which has lowered our production costs, enhanced
product quality, and increased the availability of color printing which
generates higher advertising yields. In response to the recent economic
downturn, we have reduced total compensation and other operating costs (other
than newsprint, depreciation and amortization) at our two largest operating
segments by approximately $36.3 million in 2002 (excluding the impact of
foreign exchange rate changes) as compared to the prior year, which has
positioned us to significantly benefit as the advertising market recovers. We
will continue to aggressively manage our cost structure in the future in order
to optimize cash flow.

Publish Relevant and Trusted High Quality Newspapers.We are committed to
maintaining the high quality of our newspaper product and editorial integrity
so as to ensure continued reader loyalty, which is the foundation of our
newspaper franchises. The Chicago Sun-Timeshas been recognized for its
editorial quality with several Pulitzer Prize-winning writers and awards for
excellence from Illinoiss major press organizations. The Daily Telegraphand
The Sunday Telegraphare known for their quality content and superior product
and have in recent times been voted National Newspaper of the Year, Britains
most coveted industry award. In addition, we are focused on maintaining our
relevance in the United States in our urban and suburban markets by continuing
to provide leading local news coverage, while providing in-depth national and
international news coverage in the U.K. market. We believe that this is a key
strategy in maintaining and building upon the entrenched readership base of our
leading newspaper properties.

Prudent Asset Management.In addition to pursuing revenue growth from our
existing publications and maximizing operating efficiencies, we may from time
to time pursue selective, complementary newspaper acquisitions and non-core
divestitures. Management has a successful track record of identifying
value-enhancing acquisitions and underperforming newspaper properties,
integrating and optimizing these acquisitions, and opportunistically divesting
assets for optimal value to achieve debt reduction. Since our formation in
1986, the existing senior management team has built, primarily through
acquisitions, and managed up to 400 newspapers and related publications. After
acquiring control of The Daily Telegraphin 1986, we significantly modernized
its printing plants, negotiated a two-thirds reduction in work force and
revitalized its titles. In 1994, we acquired the Chicago Sun-Timesand have
since doubled its operating profits. More recently, we sold our U.S. community
newspaper operations and the majority of our Canadian newspaper assets, which
were monetized at attractive cash flow multiples. This strategy has positioned
us to emerge from the current downturn with reduced leverage, efficient and
focused operations, and solid operating platforms for growth. Non-core assets,
such as the Canadian Newspaper Group and many of our investments remain
available for sale.

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Risks

Risks Related to Our Business and the Industry

Certain statements contained in this report under various sections,
including but not limited to Business Strategy and Managements Discussion
and Analysis, are forward-looking statements that involve risks and
uncertainties. Such statements are subject to the following important factors,
among others, which in some cases have affected, and in the future could
affect, the Companys actual results and could cause the Companys actual
consolidated results for the first quarter of 2003, and beyond, to differ
materially from those expressed in any forward-looking statements made by, or
on behalf of, the Company:

Our revenues are cyclical and dependent upon general economic conditions in our
newspapers target markets.

Advertising and circulation are our two primary sources of revenue. Our
advertising revenues and, to a lesser extent, circulation revenues, are
cyclical and dependent upon general economic conditions in our 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. In 2001, due to the general downturn in
the economy, advertising revenue for the Chicago Group on a same store 52-week
basis was lower by $20.0 million or 6.7% compared with 2000, and advertising
revenue for the U.K. Newspaper Group was lower by £27.2 million or 10.6% (in
local currency terms). Advertising revenue stabilized somewhat for the Chicago
Group in the year ended December 31, 2002, as it was up marginally by 0.8% over
the prior year. However, advertising revenue for the U.K. Newspaper Group
continued to reflect difficult economic conditions, as it was lower by £17.7
million or 7.7% compared to the prior year. In addition, our dependency on
advertising sales, which generally have a short lead-time, means that we have
only a limited ability to accurately predict future results.

We together with our subsidiaries have a significant degree of leverage and
substantial debt service obligations.

The instruments governing the terms of the principal indebtedness of the
Company, Publishing and its principal United States and foreign subsidiaries,
contain various covenants, events of default and other provisions that could
limit our financial flexibility, including the payment of dividends with
respect to outstanding common stock and the pursuit of a growth strategy.
Amongst the various covenants are several financial covenants requiring certain
of our subsidiaries to maintain stipulated leverage, fixed charge and interest
coverage ratios. Failure to maintain the stipulated ratios could lead to
increased interest costs, acceleration of certain time periods in the
underlying documents, a prohibition of certain activities and restriction on
the payment of dividends.

Our Senior Credit Facility is denominated in US dollars and bears interest
at floating rates referenced to several short term alternatives. In December
2002, we entered into cross currency (U.S. dollars to pounds sterling) floating
to fixed swaps in respect of all borrowings under the Senior Credit Facility.
The swap agreements, which mature December 2008 in respect of Term Loan A and
December 2009 in respect of Term Loan B, have been entered into for $265.0
million, being the full amount of borrowings under each of the term loans, at a
weighted average rate of 8.47%.

In 2003 Publishing entered into fixed to floating swap agreements to
reduce our effective rate of borrowing under $250.0 million of our 9% Senior
Notes maturing December 2010. A total of $300.0 million of 9% Senior Notes is
outstanding. The effective rate for the first six months is a blended rate of
5.98%. The swaps mature December 15, 2010, the same date on which the
underlying notes mature.

We rely on distributions from subsidiaries to meet our financial
obligations. We are an international holding company and our assets consist
solely of investments in our subsidiaries and affiliated companies. As a
result, our ability to meet our future financial obligations is dependent upon
the availability of cash flows from our domestic and foreign subsidiaries
through dividends, intercompany advances, management fees and other payments.
Similarly, our ability to pay dividends on our common stock may be limited as a
result of our dependence upon the distribution of earnings of our subsidiaries
and affiliated companies. Our 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
restrictions in debt agreements that limit their ability to pay dividends.
Substantially all of the shares of our non-Canadian subsidiaries have been
pledged to lenders of the Company. Our right to participate in the
distribution of assets of any subsidiary or affiliated company upon its
liquidation or reorganization will be subject to the prior claims of the
creditors of such subsidiary or affiliated company, including trade creditors,
except to the extent that we may be a creditor with recognized claims against
such subsidiary or affiliated company.

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Our foreign operations subject us to currency exchange rate fluctuations;
adverse movements in exchange rates may negatively impact our earnings.

Operations outside of the United States, principally the U.K. Newspaper
Group, accounted for approximately 56.1% of our operating revenues and
approximately 53.3% of our operating income (excluding expenses incurred by the
Investment and Corporate Group) for the year ended December 31, 2002.
Generally, we do not hedge against foreign currency exchange rate risks except
through borrowings and related swaps in those currencies. As a result, we may
experience economic loss and a negative impact on earnings with respect to our
investments and on earnings of our foreign subsidiaries, solely as a result of
currency exchange rate fluctuations (principally any weakening of the pound
sterling against the U.S. dollar).

In 2001, the Company sold participations in Cdn. $756.8 million principal
amount of its CanWest Global Communications Corp. (CanWest) debentures to a
special purpose trust (the Participation Trust). Units of the Participation
Trust, denominated in U.S. dollars, were in turn issued and sold by the
Participation Trust to third parties. In respect of the underlying CanWest
debentures, based on the original Canadian dollar principal amount, the Company
will eventually be required to deliver to the Participation Trust $490.5
million of the CanWest debentures plus accrued interest, at then current rates
of exchange. The original sale of participations to the Trust was made at a
fixed rate of exchange of $0.6482 U.S. dollars to each Canadian dollar. On
September 30, 2002, we unwound certain foreign currency contracts and as a
consequence our foreign exchange exposure on CanWest debentures is no longer
hedged. At December 31, 2002, the obligation to the Participation Trust was
$575.7 million and the corresponding CanWest debentures had a principal amount
receivable of Cdn. $888.2 million. A $0.05 change in the U.S. dollar to
Canadian dollar exchange rate applied to the Cdn. $888.2 million principal
amount of CanWest debentures at December 31, 2002 would result in a $44.4
million loss or gain to the Company. Our existing debt structure creates
impediments to the placement of foreign currency contracts that could otherwise
reduce that exposure.

Newsprint represents our single largest raw material expense and increases in
the price of newsprint could decrease our net income.

Newsprint represents our single largest raw material expense and is our
most significant operating cost, other than employee costs. In 2002, newsprint
costs represented approximately 15.0% of our revenues. Newsprint costs vary
widely from time to time and trends in pricing can vary between geographic
regions. During the first half of 2001, newsprint prices in North America were
at their highest price per ton since 1994 and 1995. However, the recessionary
climate in 2001 caused a significant decline in industry consumption and this,
coupled with an abundant supply of competitively priced newsprint, resulted in
a downward trend in prices during the second half of 2001. This downward trend
continued into 2002; however, there are indications that prices may moderately
increase in the near term from their current levels. In the United Kingdom, our
newsprint prices payable in 2002, which are subject to longer-term contracts,
were less than the average prices paid in 2001. If newsprint prices increase in
the future and we cannot pass these costs on to our customers, such increases
may have a material adverse effect on our results of operations. Although we
have implemented measures in an attempt to offset a rise in newsprint prices,
such as reducing page width where practical and managing our return policy,
price increases have in the past had a material adverse effect on us 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 our sales or force us to make
other changes that harm our 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, radio, broadcast
and cable television, direct mail and other communications and advertising
media that operate in our 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 our competitors
are larger and have greater financial resources than we do. In the past,
newspapers which compete in some of our markets have chosen to reduce their
cover prices and/or decrease the price of bulk sales in efforts to increase
their circulation at the expense of our newspapers. Price competition has been
particularly intense in the United Kingdom and Chicago, Illinois in recent
years. These actions have in the past forced us to similarly reduce our cover
prices and/or decrease the price of bulk sales, which has a negative effect on
our sales revenues and overall financial performance. We may experience price
competition from competing newspapers and other media sources in the future
that force us to make similar reductions, which would again decrease our
operating results and circulation revenues. In addition, 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. In the event that significant
numbers of our customers choose to receive content using these alternative
delivery sources rather than our newspapers, we may be forced to decrease the
prices we charge for our newspapers or make other changes in the way we
operate, or we may face a long-term decline in circulation, any or all of which
may harm our financial and operating performance.

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Our publications have experienced declines in circulation in the past and may
do so in the future.

The Chicago Sun-Timesand The Daily Telegraphhave experienced small
declines in circulation. According to figures published by the Audit Bureau of
Circulations, circulation of the Chicago Sun-Timesexperienced a compounded
annual growth rate (CAGR) of -1.0% since we acquired it in 1994 through 2002,
while circulation of The Daily Telegraphexperienced a CAGR of -1.3% from
September 1996 through 2002 before planned reductions of bulk sales. We believe
that the principal factors contributing to the declines in circulation include
the competitive factors described above and the use of alternative means of
information delivery such as the Internet. From 2000 through 2002, average
daily circulation (Monday to Friday) of the Chicago Sun-Timeshas stabilized
and shown a slight increase. However, we cannot assure you that circulation of
our newspapers will not decline in the future. A significant decline in
circulation could have a material adverse effect on our business and financial
performance.

If we fail to implement our business strategy, our business will be adversely
affected.

Our future financial performance and success are dependent in large part
upon our ability to successfully implement our business strategy. We cannot
assure you that we will be able to successfully implement our business strategy
or be able to improve our operating results. In particular, we cannot assure
you that we will be able to increase circulation of our publications, obtain
new sources of advertising revenues, generate additional revenues by building
on the brand names of our publications or raise the cover prices of our
publications without causing a decline in circulation. Furthermore, any growth
through acquisitions and investments will be dependent upon identifying
suitable acquisition or investment candidates and successfully consummating
such transactions and integrating the acquired operations at reasonable costs.
We may not successfully integrate any acquired businesses and may not achieve
anticipated revenue and cost benefits.

Such acquisitions and investments may require additional funding which may
be provided in the form of additional debt or equity financing or a combination
thereof. We cannot assure you that any such additional financing will be
available to us on acceptable terms or at all or that we will be permitted
under the terms of our existing loan documentation to obtain such financing for
such purpose.

Implementation of our business strategy could be affected by a number of
factors beyond our control, such as increased competition, general economic
conditions, legal developments or increased operating costs or expenses. In
particular, there has been a recent trend of increased consolidation among
major retailers, some as a result of bankruptcies of certain retailers. This
trend may adversely affect our results of operations by reducing the number of
advertisers using our products and increasing the purchasing power of the
consolidating retailers, thereby leading to increased margin pressure on our
advertising revenues.

Any failure to successfully implement our business strategy may adversely
affect our ability to service our indebtedness, including our ability to make
principal and interest payments on our 9% Senior Notes and our Senior Credit
Facility. We may, in addition, decide to alter or discontinue certain aspects
of our business strategy at any time.

Our performance could be adversely affected if we lose our key personnel.

We believe that our success is largely dependent on the abilities and
experience of Lord Black, our Chief Executive Officer, F. David Radler, our
Chief Operating Officer, and Daniel W. Colson, The Telegraphs Chief Executive
Officer, and our senior management team. The loss of the services of Lord
Black, F. David Radler and Daniel W. Colson or one or more of these senior
executives could adversely affect our ability to effectively manage our overall
operations or successfully execute current or future business strategies. In
addition, we believe that our success will depend upon our ongoing ability to
attract and retain qualified management and other employees.

We may experience labor disputes, which could slow down or halt production or
distribution of our newspapers or other publications.

Approximately 23% of our 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 our
results of operations.

We have a substantial potential tax liability as a result of gains on the sale
of certain of our non-U.S. operations.

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We have reflected in current liabilities on our consolidated balance
sheets certain income taxes payable, a substantial portion of which has been
provided on gains on the sale of a portion of our non-U.S. operations. While
we have implemented initiatives that we believe may defer and/or reduce these
taxes owed by subsidiaries in respect of these gains, the benefits of these
strategies have not
been reflected in our accounts. However, we cannot assure you that the
initiatives we have implemented will be successful in deferring and/or reducing
these taxes, nor can we assure you that a U.S. court would uphold the rule
against enforcement of foreign tax judgments if a proceeding is brought against
the Company or any of its U.S. subsidiaries.

Risks Related to Control by a Single Shareholder

Lord Black is our controlling shareholder and there may be a conflict between
his interests and your interests.

Lord Black currently controls a majority of the voting power of the
Company. Other shareholders will be unable to affect the outcome of
stockholder voting as long as Lord Black retains his controlling interest.

Hollinger Inc., our parent company, is controlled by Lord Black, Chairman
of the Board and Chief Executive Officer of the Company and Hollinger Inc.,
through his direct and indirect ownership of Hollinger Inc.s securities,
principally through The Ravelston Corporation Limited (Ravelston), a
corporation owned by Lord Black, Mr. F. David Radler, Mr. Daniel Colson, Mr.
J.A. Boultbee, Mr. Peter Atkinson, Mr. Peter White, the estate of Mr. Dixon
Chant and Mr. Charles Cowan (all of whom are current or former officers and/or
directors of Hollinger Inc. and the Company). At December 31, 2002, by virtue
of his control of Hollinger Inc. shares, Lord Black controlled a 72.8% voting
interest in the Company. As a result of this controlling interest, Lord Black
will be able to determine the outcome of all matters that require shareholder
approval, including the election of directors, amendment of the Companys
charter and approval of significant corporate transactions. Lord Black will
also have a significant influence over decisions affecting our capital
structure, including the incurrence of additional indebtedness and the
declaration of dividends.

On March 10, 2003, in conjunction with a refinancing by Hollinger Inc.,
the Company repurchased 2,000,000 shares of Class A Common Stock from a
subsidiary of Hollinger Inc. for cancellation. Further, 93,206 shares of
Series E Preferred Stock held by the same subsidiary of Hollinger Inc. were
redeemed for cancellation at the request of the holder. As a consequence, as of
March 10, 2003, Lord Black controls a 72.6% voting interest in the Company.
Additional information regarding these transactions is contained in the
Companys Proxy Statement for the 2003 Annual Meeting of Stockholders.

We have been advised that Hollinger Inc. does not presently intend to
reduce its voting power in our outstanding voting securities to less than 50%.
We understand that neither Ravelston nor Lord Black presently intends to reduce
its voting control over Hollinger Inc. such that a third party would be able to
exercise effective control over it.

Entities affiliated with Lord Black and other officers and directors of the
Company engage in significant transactions with the Company, which transactions
may not necessarily be consummated on an arms length basis.

Various entities which are affiliated with Lord Black and other officers
and directors of the Company engage in significant transactions with the
Company, which transactions may not necessarily be consummated on an arms
length basis and therefore may not be as favorable to the Company as those that
could be negotiated with non-affiliated third parties.

Ravelston controls the Company through its ownership interest in Hollinger
Inc. Pursuant to two agreements between Ravelston Management Inc. (RMI), a
wholly owned subsidiary of Ravelston, and each of the Company and Hollinger
Canadian Publishing Holdings Co. (the Service Agreements), RMI provides
advisory, consultative, procurement and administrative services to the Company
and its subsidiaries including strategic advice, planning, and financial
services (including advice and assistance with respect to acquisitions,
divestitures and joint ventures), other consulting services and assistance in
operational matters. Certain subsidiaries of the Company also have separate
service agreements directly with certain Ravelston executives, as well as
Black-Amiel Management Inc. and Moffat Management Inc., both affiliates of
Ravelston. All of the Service Agreements were negotiated in the context of a
parent-subsidiary relationship and, therefore, were not the result of arms
length negotiations between independent parties. The terms of the Service
Agreements may therefore not be as favorable to the Company and its
subsidiaries as the terms that might be reached through negotiations with
non-affiliated third parties.

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We are a party to a Business Opportunities Agreement and a Co-operation
Agreement with Hollinger Inc., which agreements reserve certain rights for
Hollinger Inc. with respect to making acquisitions.

The Business Opportunities Agreement and the Co-operation Agreement
provide that we will be Hollinger Inc.s principal vehicle for engaging in and
effecting acquisitions in newspaper businesses and related media businesses in
the United States and Israel and, through The Telegraph, in newspaper and all
media businesses in the European Community, Australia and New Zealand (the
Telegraph Territory). However, Hollinger Inc. has reserved to itself the
ability to pursue newspaper and all media acquisition opportunities outside the
United States, Israel and the Telegraph Territory, and media acquisition
opportunities unrelated to the newspaper business in the United States and
Israel. The restrictions in the Business Opportunities Agreement and the
Co-operation Agreement will be in effect for so long as Hollinger Inc. holds at
least 50% of our voting power.

The Business Opportunities Agreement and the Co-operation Agreement may
therefore have the effect of preventing us from pursuing or consummating an
acquisition transaction that our management would have otherwise pursued.

Certain of the Company officers are employed by Ravelston as well as the
Company, which could result in conflicts of interest or could limit the time
those officers devote to management of the Company.

Lord Black, the Companys Chairman and Chief Executive Officer, Mr.
Radler, the Companys Deputy Chairman and Chief Operating Officer, Mr. Colson,
Vice Chairman, Mr. Atkinson, Executive Vice President, and Mr. Boultbee,
Executive Vice President, each holds senior management positions with Ravelston
as well as the Company. These officers spend a portion of their professional
time and effort on behalf of Ravelston. In certain instances, their efforts for
Ravelston will relate to activities which are unrelated to the interests of the
Company. The Company has not established any minimum time requirements for
these officers.

Our parent, Hollinger Inc., and its controlling stockholder, have outstanding
secured indebtedness that, if foreclosed upon, could result in a change of
control.

Our parent, Hollinger Inc., has issued 11 7/8% senior secured notes due 2011
(11 7/8% Senior Secured Notes) in the principal amount of $120.0 million. These
notes are secured by a pledge of 10,108,302 shares of our Class A Common Stock
and all 14,990,000 shares of our Class B Common Stock held by Hollinger Inc.
(the Pledged Stock). The indenture for the 11 7/8% Senior Secured Notes
contains a number of provisions relating to events of default. Under certain
circumstances, a default under the indenture governing Hollinger Inc.s 11 7/8%
Senior Secured Notes and foreclosure upon the Pledged Stock as security could,
but would not necessarily, result in a change of control of the Company and
Publishing that requires Publishing to repurchase its 9% Senior Notes under the
change of control provisions of its indenture. If a foreclosure on the stock of
the Company does not result in a change of control of Publishing, holders of
Publishings 9% Senior Notes will not have any right to require Publishing to
repurchase the 9% Senior Notes they hold.

Our parent, Hollinger Inc., requires the continuing financial support of The
Ravelston Corporation Limited and Ravelston Management Inc.

In the past, Hollinger Inc., has borrowed funds from Ravelston, its
controlling stockholder, to partially fund its operating costs, including
interest and preference share dividend obligations. Subsequent to December 31,
2002 and in conjunction with its March 2003 offering of the 11 7/8% Senior Secured
Notes, Hollinger Inc. has entered into a support agreement with RMI requiring
minimum annual support payments from RMI. RMIs failure to meet its
obligations to Hollinger Inc. under the support agreement could have an adverse
impact on Hollinger Inc. and, consequently, on us in the event that Hollinger
Inc. sought protection from its creditors or a restructuring of its obligations
in a Canadian or other court proceeding. The consequences for us of such action
by Hollinger Inc. are difficult to predict but could include, among other
things: a disruption or change in the terms and conditions of the
administrative services provided to us and our
subsidiaries; impairment of any intercompany receivables owed to us or our
subsidiaries by Hollinger Inc.; repayment of any intercompany payables owed by
us or our subsidiaries to Hollinger Inc. earlier than we had anticipated; a
change of control of the Company with a consequential impact under the terms of
our 9% Senior Notes and a downgrade in the credit rating or negative change in
outlook assigned by the major credit rating agencies to the indebtedness of
Publishing.

Chicago Group

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

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|                       |  |                         |         |      |  |      |     |   |  |   |         |  |  |  |     |   |  |   |         |  |  |  |     |  
|---------------------- |  | ----------------------- | ------- | ---- |  | ---- | --- | - |  | - | ------- |  |  |  | --- | - |  | - | ------- |  |  |  | --- | -
|                       |  | Year Ended December 31,
|                       |  |                        
|                       |  | 2002                    |         | 2001 |  | 2000
|                       |  |                         |         |      |  |     
|                       |  | (dollars in thousands) 
|Advertising            |  | $                       | 341,261 |      |  |      | 77  | % |  | $ | 338,521 |  |  |  | 76  | % |  | $ | 305,027 |  |  |  | 76  | %
|Circulation            |  |                         | 89,427  |      |  |      | 20  |   |  |   | 92,716  |  |  |  | 21  |   |  |   | 80,261  |  |  |  | 20  |  
|Job printing and other |  |                         | 11,089  |      |  |      | 3   |   |  |   | 11,647  |  |  |  | 3   |   |  |   | 16,129  |  |  |  | 4   |  
|                       |  |                         |         |      |  |      |     |   |  |   |         |  |  |  |     |   |  |   |         |  |  |  |     |  
|Total                  |  | $                       | 441,777 |      |  |      | 100 | % |  | $ | 442,884 |  |  |  | 100 | % |  | $ | 401,417 |  |  |  | 100 | %
|                       |  |                         |         |      |  |      |     |   |  |   |         |  |  |  |     |   |  |   |         |  |  |  |     |  

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



| |  |  | Pioneer Newspapers Inc., which currently publishes 56 weekly
newspapers in Chicagos north and northwest 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 south and southwest
suburbs; and                                                                                                                    
|
| |  |  | Fox Valley Publications Inc., which does business as Chicago Suburban
Newspapers, publishes four daily newspapers, The Herald News, The Beacon
News, The Courier Newsand The News Sun, and 12 free distribution
newspapers and six free total market coverage products (TMC) in the
fast growing counties surrounding Chicago and Cook County.

Advertising.Substantially all advertising revenues are derived from
local and national retailers and classified advertisers. Advertising rates and
rate structures vary among the publications and are based, among other things,
on circulation, penetration and type of advertising (whether classified,
national or retail). In 2002, retail advertising accounted for the largest
share of advertising revenues (47%), followed by classified (39%) and national
(14%). The Chicago Sun-Timesoffers a variety of advertising alternatives,
including full-run advertisements, geographically zoned issues, special
interest pull-out sections and advertising supplements in addition to regular
sections of the newspaper targeted to different readers, such as arts, food,
real estate, TV listings, weekend, travel and special sections. The Chicago
area suburban newspapers also offer similar alternatives 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 us 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 from single copy newspaper
sales made through retailers and vending racks and home delivery newspaper
sales to subscribers. In 2002, approximately 69% of the copies of the Chicago
Sun-Timessold and 61% of the circulation revenues were single copy sales.
Approximately 80% of 2002 circulation revenues of the Chicago area suburban
newspapers were derived from subscription sales. The average paid daily and
Sunday circulation of the Chicago Sun-Timesis approximately 481,000 and
383,000, respectively. The Chicago Sun-Timeshas had consecutive increases over
the past two years in paid daily circulation. The daily and Sunday paid
circulation of the Daily Southtownis approximately 48,000 and 53,000,
respectively. The daily and Sunday paid circulation of the Post-Tribuneis
approximately 65,000 and 70,000, respectively. The aggregate daily and Sunday
paid circulation of the Chicago Suburban Newspapers is approximately 100,000
and 114,000, respectively. The aggregate circulation for the free TMC products
is approximately 296,000 and the circulation of the free distribution
newspapers and bi-weekly paid circulation of the Chicago Suburban Newspapers is
approximately 227,000 and 21,000, respectively.

Other Publications and Business Enterprises.The Chicago Group continues
to strengthen its online dominance. Suntimes.com and the related Group websites
have approximately 1.4 million unique users with some 25 million page
impressions per month. The www.classifiedschicago.com regional
classified-advertising website, which was created through a partnership with
Paddock Publications, pools classified advertisements from all Chicago Group
publications, as well as Paddock Publications metropolitan daily to create a
valuable new venue for advertisers, readers and on-line users. Additionally,
www.DriveChicago.com continues to be a leader in automotive websites. During
2000, the Chicago Group joined Paddock Publications and the Chicago Automobile
Trade Association to create this website that pools the automotive classified
advertising of three of the Chicago metropolitan areas biggest dailies with
the automotive inventories of many of Chicagos new metropolitan car
dealerships.

Sales and Marketing.Each newspaper or operating subsidiary in the
Chicago Group has had its own marketing department which works closely with
both advertising and circulation sales and marketing teams to introduce new
readers to our newspapers through various initiatives. The Chicago Sun-Times
marketing department uses strategic partnerships, such as major event
productions and sporting venues, for on-site promotion and to generate
subscription sales. The Chicago Sun-Timeshas also formed a marketing

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and media
partnership with local TV and radio outlets for targeted audience exposure.
Similarly at Fox Valley Publications 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 newspapers, generally
targets readers by zip code. Midwest Suburban Publishing owns its existing
customer list of 120,000 names along with the Penny Saveraddress list
containing 435,000 household names. The Post-Tribunemarketing department
focuses on attracting readers in the top 20 zip codes that major advertisers
have identified as being the most attractive.

Distribution.We have gained benefits from our clustering strategy. In
recent years, we have 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 publication, Fox Valley Publications, in which Fox
Valley Publications distributes the Chicago Sun-Timesin areas outside of Cook
County. The Chicago Sun-Timeshas approximately 8,000 street newspaper boxes
and more than 8,500 newsstands and over the counter outlets from which single
copy newspapers are sold, as well as approximately 250 street hawkers selling
the newspapers in high-traffic urban areas. Of the total circulation,
approximately 69% is sold through single copy outlets, and 31% through home
delivery subscriptions. Midwest Suburban Publishings Daily Southtownis
distributed primarily by Chicago Sun-Timesindependent contractors.
Additionally, in certain western suburbs, the Daily Southtownalso has a joint
distribution program with Fox Valley Publications. The Daily Southtownand its
sister publication, The Star, are also distributed in approximately 1,600
outlets and newspaper boxes in Chicagos southern suburbs and Chicagos south
side and downtown areas. Midwests Penny Saveris distributed through the post
office and through independent contractors. Approximately 83% of Fox Valley
Publications circulation is from home delivery subscriptions. While 85% of
the Post-Tribunescirculation is by home delivery, it also distributes
newspapers to 635 retail outlets and approximately 420 single copy newspaper
boxes. Pioneer has a solid home delivery base that represents 94% of its
circulation. Pioneer is also distributed to more than 350 newspaper boxes and
is in more than 1,200 newsstand locations.

Printing.The Chicago Sun-Times Ashland Avenue printing facility became
fully operational in April 2001 and gives the Chicago Group printing presses
that have the quality and speed necessary to effectively compete with the other
regional newspaper publishers. Fox Valley Publications 100,000 sq. ft. plant,
which was completed in 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 sections are printed at the Chicago Sun-Times
Ashland Avenue facility. The Post-Tribunehas one press facility in Gary,
Indiana.

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

Employees and Labor Relations.As of December 31, 2002, the Chicago Group
employed approximately 3,372 employees including approximately 639 part-time
employees. Of the 2,733 full-time employees, 702 are production staff, 659 are
sales and marketing personnel, 379 are circulation staff, 254 are general and
administrative staff and 739 are editorial staff. Approximately 920 employees
are represented by 23 collective bargaining units. Employee costs (including
salaries, wages, fringe benefits, employment-related taxes and other direct
employee costs) equaled approximately 38.7% of the Chicago Groups revenues in
the year ended December 31, 2002. There have been no strikes or general work
stoppages at any of the Chicago Groups newspapers in the past five years. The
Chicago Group believes that its relationships with its employees are generally
good.

Raw Materials.The basic raw material for newspapers is newsprint. In
2002 approximately 132,000 tons were consumed. Newsprint costs equaled
approximately 14.3% of the Chicago Groups revenues. Average newsprint prices
for the Chicago Group decreased about 21% in 2002 from 2001. 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.

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Community Group

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

|                       |  |                         |        |      |  |      |     |   |  |   |        |  |  |  |     |   |  |   |        |  |  |  |     |  
|---------------------- |  | ----------------------- | ------ | ---- |  | ---- | --- | - |  | - | ------ |  |  |  | --- | - |  | - | ------ |  |  |  | --- | -
|                       |  | Year Ended December 31,
|                       |  |                        
|                       |  | 2002                    |        | 2001 |  | 2000
|                       |  |                         |        |      |  |     
|                       |  | (dollars in thousands) 
|Advertising            |  | $                       | 3,937  |      |  |      | 30  | % |  | $ | 5,806  |  |  |  | 30  | % |  | $ | 38,294 |  |  |  | 57  | %
|Circulation            |  |                         | 6,082  |      |  |      | 46  |   |  |   | 7,751  |  |  |  | 41  |   |  |   | 19,168 |  |  |  | 28  |  
|Job printing and Other |  |                         | 3,212  |      |  |      | 24  |   |  |   | 5,558  |  |  |  | 29  |   |  |   | 9,874  |  |  |  | 15  |  
|                       |  |                         |        |      |  |      |     |   |  |   |        |  |  |  |     |   |  |   |        |  |  |  |     |  
|Total                  |  | $                       | 13,231 |      |  |      | 100 | % |  | $ | 19,115 |  |  |  | 100 | % |  | $ | 67,336 |  |  |  | 100 | %
|                       |  |                         |        |      |  |      |     |   |  |   |        |  |  |  |     |   |  |   |        |  |  |  |     |  

Approximately 46.0% of Jerusalem Posts revenues of $13.2 million in 2002
were derived from circulation, with 24.2% from job printing and other and 29.8%
from advertising. The Jerusalem Postin 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 effectively
abrogated this agreement and has ceased placing printing orders. An action was
commenced by the Jerusalem Postin 2003 seeking damages for the alleged breach.
Newsprint costs relating to publication of The Jerusalem Postequaled
approximately 11.3% of Jerusalem Posts revenues in 2002. Newsprint used in
producing the Golden Pages was 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, Jerusalem Posthas not experienced any difficulties in
maintaining its license to publish or been subject to any efforts to restrain
publication. In addition, all written media publications in Israel are reviewed
by Israels military censor prior to publication in order to prevent the
publication of information that could threaten national security. Such
censorship is considered part of the ordinary course of business in the Israeli
media and has not adversely affected Jerusalem Posts business in any
significant way.

U.K. Newspaper Group

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

|            |  |                                           |          |      |  |      |     |   |  |  |          |  |  |  |     |   |  |  |          |  |  |  |     |  
|----------- |  | ----------------------------------------- | -------- | ---- |  | ---- | --- | - |  |  | -------- |  |  |  | --- | - |  |  | -------- |  |  |  | --- | -
|            |  | Year Ended December 31,                  
|            |  |                                          
|            |  | 2002                                      |          | 2001 |  | 2000
|            |  |                                           |          |      |  |     
|            |  | (in thousands of British pounds sterling)
|Advertising |  |                                           | £211,045 |      |  |      | 66  | % |  |  | £228,715 |  |  |  | 68  | % |  |  | £255,945 |  |  |  | 69  | %
|Circulation |  |                                           | 93,640   |      |  |      | 29  |   |  |  | 94,502   |  |  |  | 28  |   |  |  | 95,690   |  |  |  | 26  |  
|Other       |  |                                           | 16,261   |      |  |      | 5   |   |  |  | 14,252   |  |  |  | 4   |   |  |  | 19,020   |  |  |  | 5   |  
|            |  |                                           |          |      |  |      |     |   |  |  |          |  |  |  |     |   |  |  |          |  |  |  |     |  
|Total       |  |                                           | £320,946 |      |  |      | 100 | % |  |  | £337,469 |  |  |  | 100 | % |  |  | £370,655 |  |  |  | 100 | %
|            |  |                                           |          |      |  |      |     |   |  |  |          |  |  |  |     |   |  |  |          |  |  |  |     |  

The U.K. Newspaper Groups operations include The Daily Telegraph, The
Sunday Telegraph, The Weekly Telegraph, telegraph.co.uk, and The Spectatorand
Apollomagazines.

Advertising.Advertising is the largest source of revenue at The
Telegraph. The Telegraphs display advertising strengths are in the financial,
automobile and travel sections. The level of classified advertisements,
especially recruitment advertisements, fluctuates with the economy. The
Telegraphs strategy with respect to classified advertising is to improve
volume and yield in four sectors: recruitment, property, travel and
automobiles. Classified advertising revenue represents 27% of total advertising
revenue. Recruitment advertising is the largest classified advertising
category, representing about 36% of all classified advertising in terms of
revenue in 2002.

Circulation.The target audience of The Telegraphs newspapers is
generally conservative, middle and upper income readers, with a continuing
emphasis on gaining new younger readers. The editorial strengths of The
Telegraphs newspapers are national, international, and financial news and
features and comprehensive sports coverage. In May 1996, The Telegraph
introduced the first national advance purchase subscription program in the
United Kingdom. The program has proven successful in driving circulation

11



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increases although there has been some inevitable cannibalization of single
copy sales. By the end of 1996, the plan had about 100,000 weekday and 200,000
Sunday average sales and the average prepaid subscription was for a period of
about 40 weeks. In order to gain broad acceptance of this revolutionary plan,
the subscriptions were offered at a significant discount. The amount of that
discount was reduced throughout 1997 and continued to be reduced thereafter.
The program currently has approximately 315,000 subscribers.

Other Publications and Business Enterprises.The Telegraph is involved in
several other publications and business enterprises, including The Spectator,
Apollo, The Weekly Telegraphand telegraph.co.uk(formerly Electronic
Telegraph). Telegraph.co.ukhas over 3.2 million unique users with some 30
million page impressions per month. The Telegraph uses its brand in developing
ancillary
revenue streams such as reader offers including travel promotions,
financial services, household products and books. During 1999, The Telegraph,
in conjunction with The Boots Company plc, the United Kingdoms leading beauty
and health retailer, launched a new web site focusing on the womens on-line

market, www.handbag.com. The site deals with, among other things, health,
beauty and the arts.

Sales and Marketing.The Telegraphs marketing department helps introduce
new readers to our newspapers through strategic marketing initiatives. We have
research groups that seek the views of readers and non-readers. This provides
useful information to better target editorial, promotional and commercial
activities. We also use The Telegraphs marketing and prospect database, which
contains information about the newspaper readership, purchasing, and lifestyles
of 8 million households, to selectively target customers. 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.Since 1988, The Telegraphs newspapers have been
distributed to wholesalers by truck under a contract with a subsidiary of TNT
Express (U.K.) Limited (TNT). The Telegraphs arrangements with wholesalers
contain performance provisions to ensure minimum standards of copy availability
while controlling the number of unsold copies. On May 25, 2001, a new contract
was entered into by each of the major publishers at West Ferry Printers, a
joint venture owned equally by the Telegraph and another British newspaper
publisher, with TNT. That contract is for a minimum term of five years and six
months and commenced on May 27, 2001.

Wholesalers distribute newspapers to retail news outlets. The number of
retail news outlets throughout the United Kingdom has increased as a result of
a 1994 ruling by the British Department of Trade and Industry that prohibits
wholesalers from limiting the number of outlets in a particular area. More
outlets do not necessarily mean more sales and The Telegraphs circulation
department has continued to develop its control of wastage while taking steps
to ensure that copies remain in those outlets with high single copy sales. In
addition to single copy sales, many retail news outlets offer home delivery
services. In 2002 home deliveries accounted for 40% of sales of both The Daily
Telegraphand The Sunday Telegraph.

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

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

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

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

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Competition.In common with other national newspapers in the United
Kingdom, The Telegraphs newspapers compete for advertising revenue with other
forms of media, particularly television, magazine, direct mail, posters and
radio. In addition, total gross advertising expenditures, including financial,
display and recruitment classified advertising, are affected by economic
conditions in the United Kingdom. Our primary competition in the United Kingdom
is The Times, however we have 42% greater circulation than The Times.

Employees and Labor Relations.At December 31, 2002, The Telegraph and
its subsidiaries employed approximately 1,238 persons and the joint venture
printing companies employed an additional 914 persons. Of The Telegraphs
approximately 1,238 employees, 52 are production staff, 414 are sales and
marketing personnel, 223 are general and administrative staff and 549 are
editorial staff. Collective agreements between The Telegraph and the trade
unions representing certain portions of The Telegraphs
workforce expired on June 30, 1990 and have not been renewed or replaced.
The absence of such collective agreements has had no adverse effect on The
Telegraphs operations and, in managements view, is unlikely to do so in the
foreseeable future.

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

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

Raw Materials.Newsprint represents the single largest raw material
expense of The Telegraphs newspapers and, next to employee costs, is the most
significant operating cost. Approximately 157,000 metric tons are consumed
annually. In 2002, the total cost was approximately 17% of the UK Newspaper
Groups revenues. Prices were fixed throughout 2002 at levels some 9.9% below
the average price paid during 2001. Inventory held at each printing location is
sufficient for three to four days production and in addition, suppliers stock
held in the United Kingdom normally represents a further four to five weeks
consumption. Recently negotiated contracts for 2003 are at prices 7.1% below
those for 2002.

On October 17, 2001, Paper Purchase and Management Limited was established
as a joint venture between The Telegraph 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 is able to negotiate better prices. The Telegraph
purchases newsprint from a number of different suppliers located primarily in
Canada, the United Kingdom, Scandinavia and continental Europe. With many
sources of newsprint accessible to it, The Telegraph is neither reliant on any
single supplier nor is availability of newsprint a concern.

Canadian Newspaper Group

Sources of Revenue.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 past three years. Operations sold in
the past three years include: the Canadian metropolitan newspapers and a large
number of community papers to CanWest in 2000; the sale of the French language
newspapers to Gesca in 2001; the sale of Ontario community newspapers to Osprey
Media in 2001; and the sale of our remaining 50% interest in the National Post
to CanWest in 2001. Refer to note 1 to the Consolidated Financial Statements.

|                        |                        |        |                                    |        |      |  |      |    |   |        |         |         |  |  |     |    |   |        |           |           |  |  |     |    |  
|----------------------- | ---------------------- | ------ | ---------------------------------- | ------ | ---- |  | ---- | -- | - | ------ | ------- | ------- |  |  | --- | -- | - | ------ | --------- | --------- |  |  | --- | -- | -
|                        |                        |        | Year Ended December 31,           
|                        |                        |        |                                   
|                        |                        |        | 2002                               |        | 2001 |  | 2000
|                        |                        |        |                                    |        |      |  |     
|                        |                        |        | (in thousands of Canadian Dollars)
|Newspapers:             |                        |        |                                    |        |      |  |      |    |   |        |         |         |  |  |     |    |   |        |           |           |  |  |     |   
|                        | Advertising            |        | Cdn. $                             | 47,215 |      |  |      | 43 | % |        | Cdn. $  | 171,032 |  |  |     | 56 | % |        | Cdn. $    | 1,158,678 |  |  |     | 73 | %
|                        | Circulation            |        |                                    | 6,611  |      |  |      | 6  |   |        |         | 53,030  |  |  |     | 17 |   |        |           | 287,513   |  |  |     | 18 |  
|                        | Job printing and other |        |                                    | 11,883 |      |  |      | 11 |   |        |         | 35,249  |  |  |     | 12 |   |        |           | 70,809    |  |  |     | 5  |  
|Business Communications |                        |        | 43,412                             |        |      |  | 40   |    |   |        | 45,763  |         |  |  | 15  |    |   |        | 62,193    |           |  |  | 4   |   
|                        |                        |        |                                    |        |      |  |      |    |   |        |         |         |  |  |     |    |   |        |           |           |  |  |     |   
|Total                   |                        | Cdn. $ | 109,121                            |        |      |  | 100  | %  |   | Cdn. $ | 305,074 |         |  |  | 100 | %  |   | Cdn. $ | 1,579,193 |           |  |  | 100 | % 
|                        |                        |        |                                    |        |      |  |      |    |   |        |         |         |  |  |     |    |   |        |           |           |  |  |     |   

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At December 31, 2002 our Canadian Newspaper Group primarily consisted of
HCPH Co. and an 87% interest in Hollinger L.P. During 2001, HCPH Co. (formerly
Hollinger Canadian Publishing Holdings Inc. (HCPH)) became the successor to
the operations of XSTM Holdings (2000) Inc. (formerly Southam Inc.
(Southam)).

At December 31, 2002 HCPH Co. and Hollinger L.P. owned ten daily and 23
non-daily newspaper properties and the Business Information Group (formerly
Southam Magazine and Information Group) which publishes Canadian business
magazines and tabloids for the transportation, construction, natural resources,
manufacturing and other industries.

Advertising.Newspaper advertising revenue in 2002 totaled Cdn. $47.2
million. Advertisements are carried either within the body of the newspapers,
and referred to as run-of-press (ROP) advertising, or as inserts. ROP, which
represented 91% of total
advertising revenue in 2002 is categorized as either retail, classified or
national. The three categories represented 72%, 12% and 16%, respectively, of
ROP advertising revenue in 2002.

Circulation.Virtually all newspaper circulation revenue in 2002 was from
subscription sales.

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

Employees and Labor Relations.As of December 31, 2002, the Canadian
Newspaper Group had approximately 725 full time equivalent employees of which
approximately 31% are unionized. The Canadian Newspaper Group has union
contracts in place at approximately 11 of the 19 newspaper operating locations.
The percentage of unionized employees varies widely from paper to paper. With
the large number of contracts being renegotiated every year, labor disruptions
are always possible, but no single disruption would have a material effect on
the Company.

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.

Raw Materials.The basic raw material for newspapers is newsprint.
Newsprint consumption in 2002 was approximately 10,900 tons. 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.

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

Ownership.During 2001, HCPH Co. became the successor to the operations
of XSTM Holdings (2000) Inc. (formerly Southam). We indirectly own a combined
100% interest in HCPH Co. We indirectly own an 87.0% interest in Hollinger
L.P. Under the Canadian Income Tax Act, there are limits on non-Canadian
ownership of Canadian newspapers. At present, we do not meet those limits and,
if this continues beyond a specified cure period, there could be adverse
effects on advertising revenue. We will take the necessary steps to ensure
that we are in compliance before the cure period expires.

Environmental

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

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Available Information

We file annual, quarterly and special reports, proxy statements and other
information with the SEC under the Securities Exchange Act of 1934, as amended.

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).

We also maintain a website on the World Wide Web at www.hollinger.com. We
make available, free of charge, on our website our 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
Securities Exchange Act of 1934, as amended (the 1934 Act), as soon as
reasonably practicable after such reports are electronically filed with,
or furnished to, the SEC. Our 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 Business Code of Conduct which applies to
all employees of the Company including each of its Chief Executive Officer,
Chief Financial Officer and principal accounting officer. The text of the
Business Code of Conduct can be accessed on our website at www.hollinger.com.
Any changes to the Business Code of Conduct will be posted on the website.




Item 2.Properties

We believe that our properties and equipment are in generally good
condition, well-maintained and adequate for current operations.

Chicago Group

The Chicago Sun-Timesconducts its editorial, pre-press, marketing, sales
and administrative activities in a 535,000 square foot, seven-story building in
downtown Chicago. The Company has completed the full conversion of its Chicago
Sun-Timesproduction operations to a new 320,000 square foot state of the art
printing facility at a total construction cost of approximately $115 million.
It is intended that new facilities will be designated to house the Chicago
Sun-Timesnon-production activities and the downtown Chicago building will be
redeveloped. Agreement has been reached for a joint development of the downtown
Chicago building under which, if it proceeds, the Chicago Group will receive
the first $75 million of consideration and will share in future profits. There
can be no assurance that this joint development will proceed.

Fox Valley Publications produces its newspapers at a 100,000 square foot
plant built in 1992. The facility, owned by the Company also houses Fox
Valleys editorial, pre-print, sales and administrative functions as well as
the accounting function for the Chicago Group. 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 uses one south suburban building for editorial, pre-press,
marketing, sales and administrative activities. Production activities occur at
a separate southwest Chicago facility. The Post-Tribuneeditorial, pre-press,
marketing, sales and administrative activities are housed in the newly
completed facility in Merrillville, Indiana while production activities
continue at its facility in Gary, Indiana. The headquarters for Chicago
Suburban Newspapers is Plainfield, Illinois. This 172,000 square foot owned
facility houses the press and administrative activities as well as certain
sales and marketing functions. The editorial and sales activities are housed at
five facilities located in surrounding suburbs.

Community Group

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

U.K. Newspaper Group

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

15



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##### Table of Contents



Canadian Newspaper Group

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




Item 3.Legal Proceedings

We become involved from time to time in various claims and lawsuits
incidental to the ordinary course of our business, including such matters as
libel, defamation and invasion of privacy actions. In addition, we are 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.

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

In April 2001, Express Newspapers commenced two actions against The
Telegraph, a Claim for Specific Performance, seeking an order that The
Telegraph buy out Express Newspapers interest in West Ferry, and a Petition
(the s459 Petition) under Section 459, Companies Act 1985, claiming unfair
prejudice. Express Newspapers lost the Specific Performance proceedings and the
s459 Petition was struck out. Express Newspapers appealed both decisions in
March 2002. Again, the Claim for Specific Performance was rejected by the
courts. However, the court determined that the option for The Telegraph to
purchase Express Newspapers interest had expired on January 3, 2001. Leave was
given for Express Newspapers to continue with the s459 Petition. Subsequent to
March 2002, Express Newspapers entered into a consent order with The Telegraph
withdrawing the s459 Petition and Express Newspapers directors have been
reappointed to the West Ferry Board. Management believes that the dispute has
been resolved.

There are a number of libel and legal actions outstanding against us,
however management believes there are valid defenses to these proceedings or
sufficient insurance to protect it from material loss. Management believes that
the outcome of any pending claims or proceedings will not have a material
adverse effect on us taken as a whole.

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 by the Jerusalem Post in early 2003 alleging breach of contract.
Although significant to the Jerusalem Post, the loss of revenue will not have a
material impact on the Companys business as a whole with any losses mitigated
by the outcome of the action.




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

None




PART II




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

The Class A Common Stock is listed on the New York Stock Exchange under
the trading symbol HLR. At March 7, 2003 there were 74,498,328 shares of
Class A Common Stock outstanding and held by approximately 200 holders of
record and approximately 5,000 beneficial owners. The Class B Common Stock of
the Company is not publicly traded. As of March 7, 2003, 14,990,000 shares of
Class B Common Stock were outstanding all of which were owned by Hollinger Inc.
The 93,206 shares of Series E Preferred Stock, held by a wholly owned
subsidiary of Hollinger Inc., and convertible into shares of Class A Common
Stock were also outstanding at March 7, 2003.

On March 10, 2003, the Company purchased 2,000,000 shares of its Class A
Common Stock for cancellation from a subsidiary of Hollinger Inc. The shares
were purchased at $8.25 per share for a total of $16.5 million. The Hollinger
Inc. subsidiary exercised its option for redemption of the 93,206 shares of
Series E Preferred Stock it held at a price of Cdn. $146.63 ($99.98) per share
for a total of Cdn. $13.7 million ($9.3 million). The proceeds were used by
Hollinger Inc. to partially repay indebtedness to the Company. Refer to Item 7
Managements Discussion and Analysis of Financial Condition and Results of
Operations  Related Party Transactions.

16



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##### Table of Contents



The following table sets forth for the periods indicated the high and low
sales prices for the Class A Common Stock, as reported by the New York Stock
Exchange Composite Transactions Tape for the period since January 1, 2001, and
the cash dividends paid per share on the Class A Common Stock.

|                                      |  |             |       |           |  |           |       |  |  |      |        | 
|------------------------------------- |  | ----------- | ----- | --------- |  | --------- | ----- |  |  | ---- | ------ | 
|                                      |  |             |       |           |  |           |       |  |  | Cash
|                                      |  | Price Range |       | Dividends
|                                      |  |             |       | Paid     
|Calendar Period                       |  | High        |       | Low       |  | Per Share
|                                      |  |             |       |           |  |          
|2001                                  |  |             |       |           |  |           |       |  |  |      |        | 
|First Quarter                         |  | $           | 16.49 |           |  | $         | 14.21 |  |  | $    | 0.1375 | 
|Second Quarter                        |  |             | 16.12 |           |  |           | 13.70 |  |  |      | 0.1375 | 
|Third Quarter                         |  |             | 14.80 |           |  |           | 10.25 |  |  |      | 0.1375 | 
|Fourth Quarter                        |  |             | 11.71 |           |  |           | 9.08  |  |  |      | 0.1375 | 
|                                      |  |             |       |           |  |           |       |  |  |      |        | 
|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 (through March 7, 2003) |  | $           | 10.73 |           |  | $         | 8.16  |  |  | $    | 0.05   | 

On March 7, 2003, the closing price of the Class A Common Stock was $8.25
per share.

Each share of Class A Common Stock and Class B Common Stock is entitled to
receive dividends if, as and when declared by the Board of Directors of the
Company. Dividends must be paid equally, share for share, on both the Class A
Common Stock and the Class B Common Stock at any time that dividends are paid.

As an international holding company, the Companys ability to declare and
pay dividends in the future with respect to its Common Stock will be dependent,
among other factors, upon its results of operations, financial condition and
cash requirements, the ability of its United States and foreign subsidiaries to
pay dividends and make payments to the Company under applicable law and subject
to restrictions contained in existing and future loan agreements 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.

Equity Compensation Plan Information

|                                                           |       |            |                   |            |                   |                    |                     |       |           |  |           |           | 
|---------------------------------------------------------- | ----- | ---------- | ----------------- | ---------- | ----------------- | ------------------ | ------------------- | ----- | --------- |  | --------- | --------- | 
|                                                           |       |            | Number of         |            |                   |                    |                     |       |           |  |          
|                                                           |       |            | securities to be  |            |                   |                    |                     |       | Number of
|                                                           |       |            | issued upon       |            | Weighted-average  |                    | securities         
|                                                           |       |            | exercise of       |            | exercise price of |                    | remaining available
|                                                           |       |            | outstanding       |            | outstanding       |                    | for future issuance
|                                                           |       |            | options, warrants |            | options, warrants |                    | under equity       
|Plan category                                              |       | and rights |                   | and rights |                   | compensation plans
|                                                           |       |            |                   |            |                   |                   
|Equity compensation plans
approved by security
holders     |       |            | 10,395,338        |            |                   | $                  | 12.03               |       |           |  | 1,730,687 |          
|Equity compensation plans
not approved by security
holders |       |            |                  |            |                   |                    |                    |       |           |  |          |          
|                                                           |       |            |                   |            |                   |                    |                     |       |           |  |           |          
|                                                           | Total |            |                   | 10,395,338 |                   |                    | $                   | 12.03 |           |  |           | 1,730,687 | 
|                                                           |       |            |                   |            |                   |                    |                     |       |           |  |           |          

Refer to note 11 to the Companys Consolidated Financial Statements for the
terms of the Companys equity compensation plan.

17



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##### Table of Contents



Recent Sales of Unregistered Securities

On December 23, 2002, Publishing issued $300,000,000 aggregate principal
amount of 9% senior unsecured notes due 2010 (the 9% Senior Notes) at par to
certain qualified institutional buyers (QIBs) pursuant to Rule 144A under the
Securities Act of 1933, as amended. The aggregate commissions were $8.3
million. The proceeds from the sale of the 9% Senior Notes, together with
drawdowns under the Senior Credit Facility and available cash balances, were
used to redeem approximately $239.9 million of Publishings Senior Subordinated
Notes due 2006 and approximately $265 million of Publishings Senior
Subordinated Notes due 2007, plus applicable premium and accrued interest to
the date of redemption, and to make a distribution of $100 million to the
Company. We used the distribution (1) to repay all amounts borrowed by the
Company on October 3, 2002 under its loan agreement with Trilon International
Inc., (2) to retire the equity forward purchase agreements between the Company
and certain Canadian chartered banks (the Total Return Equity Swap) made as
of October 1, 1998, as amended, and (3) for other general corporate purposes.




Item 6.Selected Financial Data

|                                                                                                                                        |              |   |                                          |         |      |   |                |         |                |   |           |           |  |   |           |           |  |   |           |           | 
|--------------------------------------------------------------------------------------------------------------------------------------- | ------------ | - | ---------------------------------------- | ------- | ---- | - | -------------- | ------- | -------------- | - | --------- | --------- |  | - | --------- | --------- |  | - | --------- | --------- | 
|                                                                                                                                        |              |   | Year Ended December 31,                 
|                                                                                                                                        |              |   |                                         
|                                                                                                                                        |              |   | 2002                                     |         | 2001 |   | 2000           |         | 1999           |   | 1998     
|                                                                                                                                        |              |   |                                          |         |      |   |                |         |                |   |          
|                                                                                                                                        |              |   | (In thousands, except per share amounts)
|                                                                                                                                        |              |   |                                          |         |      |   | (Restated (2)) |         | (Restated (2)) |   |           |           |  |   |           |           | 
|Statement of Operations Data (1):                                                                                                       |              |   |                                          |         |      |   |                |         |                |   |           |           |  |   |           |           |  |   |           |          
|Operating revenues:                                                                                                                     |              |   |                                          |         |      |   |                |         |                |   |           |           |  |   |           |           |  |   |           |          
|                                                                                                                                        | Advertising  |   | $                                        | 710,849 |      |   | $              | 804,462 |                |   | $         | 1,543,882 |  |   | $         | 1,557,033 |  |   | $         | 1,565,790 | 
|                                                                                                                                        | Circulation  |   |                                          | 247,175 |      |   |                | 278,321 |                |   |           | 447,050   |  |   |           | 487,002   |  |   |           | 517,629   | 
|                                                                                                                                        | Job printing |   |                                          | 16,669  |      |   |                | 25,092  |                |   |           | 59,089    |  |   |           | 48,207    |  |   |           | 70,461    | 
|                                                                                                                                        | Other        |   |                                          | 31,469  |      |   |                | 38,446  |                |   |           | 45,998    |  |   |           | 55,160    |  |   |           | 43,880    | 
|                                                                                                                                        |              |   |                                          |         |      |   |                |         |                |   |           |           |  |   |           |           |  |   |           |          
|Total operating revenues                                                                                                                |              |   | 1,006,162                                |         |      |   | 1,146,321      |         |                |   | 2,096,019 |           |  |   | 2,147,402 |           |  |   | 2,197,760 |          
|Operating costs and expenses (2)                                                                                                        |              |   | 893,776                                  |         |      |   | 1,088,211      |         |                |   | 1,742,169 |           |  |   | 1,787,146 |           |  |   | 1,774,661 |          
|Stock-based compensation                                                                                                                |              |   |                                         |         |      |   | (1,369         | )       |                |   | 1,518     |           |  |   |          |           |  |   |          |          
|Infrequent items                                                                                                                        |              |   | 1,032                                    |         |      |   | 21,734         |         |                |   | 7,950     |           |  |   | 22,046    |           |  |   | 26,172    |          
|Depreciation and amortization (3)                                                                                                       |              |   | 54,152                                   |         |      |   | 73,728         |         |                |   | 122,634   |           |  |   | 125,408   |           |  |   | 114,848   |          
|                                                                                                                                        |              |   |                                          |         |      |   |                |         |                |   |           |           |  |   |           |           |  |   |           |          
|Operating income (loss)                                                                                                                 |              |   | 57,202                                   |         |      |   | (35,983        | )       |                |   | 221,748   |           |  |   | 212,802   |           |  |   | 282,079   |          
|Interest expense                                                                                                                        |              |   | (58,772                                  | )       |      |   | (78,639        | )       |                |   | (142,713  | )         |  |   | (131,600  | )         |  |   | (105,841  | )        
|Amortization of deferred financing costs                                                                                                |              |   | (5,585                                   | )       |      |   | (10,367        | )       |                |   | (10,469   | )         |  |   | (16,209   | )         |  |   | (5,869    | )        
|Equity in loss of affiliates                                                                                                            |              |   | (3,718                                   | )       |      |   | (15,098        | )       |                |   | (20,340   | )         |  |   | (2,106    | )         |  |   | (1,199    | )        
|Other income (expense), net (2),(4)                                                                                                     |              |   | (117,478                                 | )       |      |   | (217,146       | )       |                |   | 564,705   |           |  |   | 349,939   |           |  |   | 337,470   |          
|                                                                                                                                        |              |   |                                          |         |      |   |                |         |                |   |           |           |  |   |           |           |  |   |           |          
|Earnings (loss) before income taxes, minority interest,
extraordinary items and cumulative effect of change in
accounting principle (2) |              |   | (128,351                                 | )       |      |   | (357,233       | )       |                |   | 612,931   |           |  |   | 412,826   |           |  |   | 506,640   |          
|Income taxes (recovery)                                                                                                                 |              |   | 66,950                                   |         |      |   | (8,319         | )       |                |   | 398,452   |           |  |   | 155,203   |           |  |   | 223,099   |          
|                                                                                                                                        |              |   |                                          |         |      |   |                |         |                |   |           |           |  |   |           |           |  |   |           |          
|Earnings (loss) before minority interest, extraordinary items
and cumulative effect of change in accounting principle                   |              |   | (195,301                                 | )       |      |   | (348,914       | )       |                |   | 214,479   |           |  |   | 257,623   |           |  |   | 283,541   |          
|Minority interest                                                                                                                       |              |   | 2,167                                    |         |      |   | (13,803        | )       |                |   | 50,760    |           |  |   | 7,088     |           |  |   | 81,562    |          
|                                                                                                                                        |              |   |                                          |         |      |   |                |         |                |   |           |           |  |   |           |           |  |   |           |          
|Earnings (loss) before extraordinary items and cumulative effect
of change in accounting principle                                      |              |   | (197,468                                 | )       |      |   | (335,111       | )       |                |   | 163,719   |           |  |   | 250,535   |           |  |   | 201,979   |          
|Extraordinary loss on debt extinguishments                                                                                              |              |   | (21,276                                  | )       |      |   |               |         |                |   | (6,332    | )         |  |   | (5,183    | )         |  |   | (5,067    | )        
|                                                                                                                                        |              |   |                                          |         |      |   |                |         |                |   |           |           |  |   |           |           |  |   |           |          
|Earnings (loss) before cumulative effect of change in accounting
principle                                                              |              |   | (218,744                                 | )       |      |   | (335,111       | )       |                |   | 157,387   |           |  |   | 245,352   |           |  |   | 196,912   |          
|Cumulative effect of change in accounting principle                                                                                     |              |   | (20,079                                  | )       |      |   |               |         |                |   |          |           |  |   |          |           |  |   |          |          
|                                                                                                                                        |              |   |                                          |         |      |   |                |         |                |   |           |           |  |   |           |           |  |   |           |          
|Net earnings (loss)                                                                                                                     |              | $ | (238,823                                 | )       |      | $ | (335,111       | )       |                | $ | 157,387   |           |  | $ | 245,352   |           |  | $ | 196,912   |          
|                                                                                                                                        |              |   |                                          |         |      |   |                |         |                |   |           |           |  |   |           |           |  |   |           |          
|Diluted earnings (loss) per share from continuing operations                                                                            |              | $ | (2.06                                    | )       |      | $ | (3.39          | )       |                | $ | 1.47      |           |  | $ | 2.13      |           |  | $ | 1.47      |          
|                                                                                                                                        |              |   |                                          |         |      |   |                |         |                |   |           |           |  |   |           |           |  |   |           |          
|Cash dividends declared per common share                                                                                                |              | $ | 0.32                                     |         |      | $ | 0.55           |         |                | $ | 0.55      |           |  | $ | 0.55      |           |  | $ | 0.475     |          
|                                                                                                                                        |              |   |                                          |         |      |   |                |         |                |   |           |           |  |   |           |           |  |   |           |          

18



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|                              |                                           |   |                                          |           |      |   |                |           |                |   |           |           |   |   |           |           |   |   |           |           |  
|----------------------------- | ----------------------------------------- | - | ---------------------------------------- | --------- | ---- | - | -------------- | --------- | -------------- | - | --------- | --------- | - | - | --------- | --------- | - | - | --------- | --------- | -
|                              |                                           |   | Year Ended December 31,                 
|                              |                                           |   |                                         
|                              |                                           |   | 2002                                     |           | 2001 |   | 2000           |           | 1999           |   | 1998     
|                              |                                           |   |                                          |           |      |   |                |           |                |   |          
|                              |                                           |   | (In thousands, except per share amounts)
|                              |                                           |   |                                          |           |      |   | (Restated (2)) |           | (Restated (2)) |   |           |           |   |   |           |           |  
|Balance Sheet Data (1):       |                                           |   |                                          |           |      |   |                |           |                |   |           |           |   |   |           |           |   |   |           |          
|                              | Working capital (deficiency)              |   | $                                        | (191,903  | )    |   | $              | 147,600   |                |   | $         | (257,506  | ) |   | $         | (113,115  | ) |   | $         | (141,688  | )
|                              | Total assets (5)                          |   |                                          | 2,188,132 |      |   |                | 2,057,976 |                |   |           | 2,802,030 |   |   |           | 3,503,024 |   |   |           | 3,251,724 |  
|                              | Minority interest                         |   |                                          | 17,097    |      |   |                | 16,084    |                |   |           | 89,228    |   |   |           | 155,901   |   |   |           | 107,002   |  
|                              | Long-term debt, less current installments |   |                                          | 574,658   |      |   |                | 809,652   |                |   |           | 807,495   |   |   |           | 1,653,936 |   |   |           | 1,499,518 |  
|                              | Redeemable preferred stock                |   |                                          | 8,650     |      |   |                | 8,582     |                |   |           | 13,088    |   |   |           | 13,591    |   |   |           | 31,562    |  
|                              | Total stockholders equity (6)            |   |                                          | 119,875   |      |   |                | 366,627   |                |   |           | 898,109   |   |   |           | 902,225   |   |   |           | 817,921   |  
|Segment Data (1):             |                                           |   |                                          |           |      |   |                |           |                |   |           |           |   |   |           |           |   |   |           |          
|Operating revenues:           |                                           |   |                                          |           |      |   |                |           |                |   |           |           |   |   |           |           |   |   |           |          
|                              | Chicago Group                             |   | $                                        | 441,777   |      |   | $              | 442,884   |                |   | $         | 401,417   |   |   | $         | 390,473   |   |   | $         | 379,109   |  
|                              | Community Group                           |   |                                          | 13,231    |      |   |                | 19,115    |                |   |           | 67,336    |   |   |           | 96,674    |   |   |           | 210,107   |  
|                              | U.K. Newspaper Group                      |   |                                          | 481,527   |      |   |                | 486,374   |                |   |           | 562,068   |   |   |           | 550,474   |   |   |           | 550,525   |  
|                              | Canadian Newspaper Group                  |   |                                          | 69,627    |      |   |                | 197,948   |                |   |           | 1,065,198 |   |   |           | 1,109,781 |   |   |           | 1,058,019 |  
|                              |                                           |   |                                          |           |      |   |                |           |                |   |           |           |   |   |           |           |   |   |           |          
|Total Operating Revenues      |                                           | $ | 1,006,162                                |           |      | $ | 1,146,321      |           |                | $ | 2,096,019 |           |   | $ | 2,147,402 |           |   | $ | 2,197,760 |          
|                              |                                           |   |                                          |           |      |   |                |           |                |   |           |           |   |   |           |           |   |   |           |          
|Operating Income (Loss):      |                                           |   |                                          |           |      |   |                |           |                |   |           |           |   |   |           |           |   |   |           |          
|                              | Chicago Group                             |   | $                                        | 35,692    |      |   | $              | 4,962     |                |   | $         | 29,215    |   |   | $         | 43,126    |   |   | $         | 35,141    |  
|                              | Community Group                           |   |                                          | (5,218    | )    |   |                | (4,487    | )              |   |           | 3,456     |   |   |           | 9,893     |   |   |           | 37,392    |  
|                              | U.K. Newspaper Group                      |   |                                          | 48,078    |      |   |                | 27,850    |                |   |           | 89,542    |   |   |           | 65,635    |   |   |           | 62,927    |  
|                              | Canadian Newspaper Group                  |   |                                          | (2,134    | )    |   |                | (45,954   | )              |   |           | 115,619   |   |   |           | 109,416   |   |   |           | 157,518   |  
|                              | Investment and
Corporate Group            |   |                                          | (19,216   | )    |   |                | (18,354   | )              |   |           | (16,084   | ) |   |           | (15,268   | ) |   |           | (10,899   | )
|                              |                                           |   |                                          |           |      |   |                |           |                |   |           |           |   |   |           |           |   |   |           |          
|Total Operating Income (Loss) |                                           | $ | 57,202                                   |           |      | $ | (35,983        | )         |                | $ | 221,748   |           |   | $ | 212,802   |           |   | $ | 282,079   |          
|                              |                                           |   |                                          |           |      |   |                |           |                |   |           |           |   |   |           |           |   |   |           |          



---

|(1) |  | The financial data presented is derived from the Consolidated Financial
Statements of the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | In connection with the sale of assets to CanWest in 2000, the Company
recorded a valuation allowance of $63.9 million against the remaining
pension plan asset in respect of the operations sold. Recent regulatory
guidance has precluded the use of a valuation allowance under U.S. GAAP.
Accordingly, the Company has reversed the valuation allowance established
in fiscal 2000, which has resulted in an increase in the reported gain on
sale of properties (included in other expense) in fiscal 2000 of $63.9
million and a decrease in the reported compensation costs and operating
loss for fiscal 2001 of $4.4 million. Overall, this retroactive
restatement had the impact of increasing the Companys net earnings for
fiscal 2000 by $40.3 million (net of additional income tax expense of
$23.6 million) and decreasing its reported net loss for fiscal 2001 by
$2.4 million (net of additional income tax expense of $1.9 million and
minority interest of $0.1 million). As a result of the restatement,
deferred income tax liabilities increased by $24.3 million and $23.9
million in 2001 and 2000 respectively, minority interest increased by $0.1
million in 2001, total assets have increased by $64.5 million and $64.8
million in 2001 and 2000 respectively, pension liabilities have decreased
by $0.8 million in 2001 and cumulative foreign currency translation
adjustment has decreased by $1.8 million in 2001 and increased by $0.6
million in 2000.
|   
|(3) |  | Effective January 1, 2002 the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible
Assets. As a consequence, the Company no longer amortizes goodwill and
intangible assets with an indefinite useful life. Refer to Note 10 of the
Significant Accounting Policies to the Companys Consolidated Financial
Statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|(4) |  | Other income (expense), net, primarily includes gains and losses on sales
of publishing interests and investments, gains and losses on sales of
property, plant and equipment, a gain related to the dilution of our
interest in Hollinger L.P., the write-down of investments, the effect of
the Total Return Equity Swaps, foreign currency losses and interest and
dividend income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

19



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##### Table of Contents



|(5) |  | Includes goodwill and intangible assets, net of accumulated amortization,
of $650.9 million at December 31, 2002 and $658.2 million at December 31,
2001.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(6) |  | See Consolidated Statements of Stockholders Equity in the Companys
Consolidated Financial Statements.                                                  
|   
|(7) |  | Presentation in the above table has been changed from that of the prior
year to include infrequent items and stock based compensation.                   




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

Overview

Our business is concentrated in the publication of newspapers in the
United States, the United Kingdom, Canada and Israel. Revenues are derived
principally from advertising, paid circulation and, to a lesser extent, job
printing. Of our total operating revenues in 2002, approximately 44% were
attributable to the Chicago Group, 48% to the U.K. Newspaper Group, 7% to the
Canadian Newspaper Group and 1% 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 (collectively,
The Telegraph), its subsidiaries and joint ventures. The Canadian
Newspaper Group consists of the operations of HCPH Co. and our 87% investment
in Hollinger L.P. The Community Group consists of the Jerusalem Post.

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

Our Consolidated Financial Statements include the accounts of the Company
and its majority-owned subsidiaries and other controlled entities. Our interest
in Hollinger L.P. was 87.0% at December 31 in each of the years 2002, 2001 and
2000. Our interest in National Post was 50.0% at December 31, 2000 and nil at
December 31, 2002 and 2001. All significant intercompany balances and
transactions have been eliminated on consolidation.

Over the past few years, we have developed a comprehensive Internet
strategy. Internet activities fall into three main areas: (1) websites related
to the various print publications, which are 100% owned and reported within the
traditional newspaper segments, (2) joint ventures between our print
publications and unrelated outsiders, where each adds value and over which we
have a certain amount of control, and (3) minority venture capital investments
in unrelated third parties. The print-related and joint venture strategies
represent an opportunity to fortify the newspapers in their local markets by
providing them with the necessary tools to offer a complete suite of online and
print options for their clients. We have remained competitive by building
significant websites at all of our major divisions. During 2001 and 2002, we
substantially reduced our activity in making new minority investments in
unrelated third party Internet and technology companies.

Significant Transactions

Significant Transactions in 2000

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

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

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

20



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##### Table of Contents





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

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

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

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

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

Significant Transactions in 2001

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, we and Hollinger
L.P. completed the sale of most of our remaining Canadian newspapers to Osprey
Media Group Inc. (Osprey) for total sale proceeds of approximately Cdn.
$255.0 million ($166.0 million) plus closing adjustments primarily for working
capital. Included in these sales were community newspapers in Ontario such as
The Kingston Whig-Standard, The Sault Star, the Peterborough Examiner, the
Chatham Daily Newsand The Observer(Sarnia). Pre-tax gains of approximately
$0.8 million were recognized on these sales. The former Chief Executive
Officer of Hollinger L.P. is a minority shareholder and Chief Executive Officer
of Osprey.

In August 2001, we entered into an agreement to sell to CanWest our 50%
interest in the National Post. In accordance with the agreement, our
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 results to August 31, 2001. A pre-tax loss of
approximately $78.2 million was recognized on the sale.

In August and December 2001, we sold participation interests
(Participations) 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. Units of the Participation Trust were sold by the
Participation Trust to arms length third parties. These transactions resulted
in net proceeds to us of $401.2 million and have been accounted for as sales in
accordance with SFAS No. 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities. The net loss on these
transactions, including realized holding losses on the underlying debentures,
amounted to $62.1 million and has been recognized in other income (expense),
net.

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The Company had arrangements with four banks pursuant to which the banks
had purchased shares of the Companys Class A Common Stock and the Company had
the option to buy the shares from the banks at the same cost or have the banks
resell those shares in the open market. In August 2001, the Company purchased
for cancellation from one of the banks 3,602,305 shares of Class A Common Stock
for $50.0 million or $13.88 per share. The market value of these shares on the
date of purchase was $47.0 million or $13.05 per share. In November 2001, one
of the banks sold in the open market 3,556,513 shares of Class A Common Stock
for $34.2 million or an average price of $9.62 per share. This resulted in a
loss by the bank of $15.8 million which, in accordance with the arrangement,
was paid in cash by the Company. The losses relating to these transactions
have been included in 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, we sold 2,700,000 multiple voting preferred shares
and 27,000,000 non-voting shares of CanWest, encompassing all our 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.

Significant Transactions in 2002

On December 23, 2002, certain of our subsidiaries entered into an amended
and restated $310 million Senior Credit Facility with a group of financial
institutions arranged by Wachovia Securities, Inc., as described above in Item
1 Business  Bank Credit Facility.

On December 23, 2002, Publishing issued $300 million aggregate principal
amount of unsecured 9% Senior Notes due 2010, as described above in Item 5
Market for the Registrants Common Equity and Related Stockholder Matters 
Recent Sales of Unregistered Securities.

Net proceeds from 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 to
retire the 9.25% senior subordinated notes due 2006 and 2007 (the 9.25% Senior
Subordinated Notes) aggregating $504.9 million in January 2003, 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
Swaps. Earlier in the year, the Company had retired $60.0 million of
obligations under the Total Return Equity Swaps from the proceeds of the Trilon
International loan and from cash on hand. The balance of funds are available
for general corporate purposes. Refer to note 6 to the Consolidated Financial
Statements. Funds required for the retirement of the 9.25% Senior Subordinated
Notes, including related premiums and accrued interest, were held in trust at
December 31, 2002.

Critical Accounting Policies and Estimates

The preparation of our Consolidated Financial Statements requires us 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, we evaluate our estimates, including
those related to bad debts, investments, goodwill, intangible assets, income
taxes, pensions and other post-retirement benefits, contingencies and
litigation. We base our 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.

We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our Consolidated
Financial Statements.

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

We hold minority interests in both publicly traded and privately held
companies. Some of the publicly traded companies have highly volatile share
prices. We record an investment impairment charge when we believe an investment
has experienced a decline in value that is other than temporary. Future adverse
changes in market conditions or poor operating results of underlying
investments may not be reflected in an investments current carrying value,
thereby possibly requiring an impairment charge in the future.

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We have significant goodwill recorded in our accounts. Certain of our
newspapers operate in highly competitive markets. We are required to determine
annually whether or not there has been any permanent impairment in the value of
these assets. Changes in long-term readership patterns and advertising
expenditures may affect the value and necessitate an impairment charge.
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.

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 evaluated,
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 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, assumption changes in
the obligations and from the difference between expected returns and actual
returns on assets. At the end of 2002, the Company had unrecognized net
actuarial losses of $106.2 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.

The estimated accumulated benefit obligations for the defined benefit
plans exceeded the fair value of the plan assets at December 31, 2002, 2001 and
2000 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 $43.6 million, $27.7 after tax and
minority interest, was recorded in other comprehensive loss for the minimum
pension liability. The charge was $22.4 million ($14.9 million after tax) in
2001 and $2.1 million with no tax impact in 2000. Similar charges may be
required in future years as the impact of changes in global capital markets and
interest rates on the value of our pension plan assets and obligations is
measured.

During 2002, the Company made contributions of $9.2 million to the 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 may be reduced.

Results of Operations for the Years ended December 31, 2000, 2001 and 2002

Restatement

In connection with the sale of assets to CanWest in 2000, the Company
recorded a valuation allowance of $63.9 million against the remaining pension
plan asset in respect of the operations sold. Recent regulatory guidance has
precluded the use of a valuation allowance under U.S. GAAP. Accordingly, the
Company has reversed the valuation allowance established in fiscal 2000, which
has resulted in an increase in the reported gain on sale of properties
(included in other expense) in fiscal 2000 of $63.9 million and a decrease in
the reported compensation costs and operating loss for fiscal 2001 of $4.4
million. Overall, this retroactive restatement had the impact of increasing
the Companys net earnings for fiscal 2000 by $40.3 million (net of additional
income tax expense of $23.6 million) and decreasing its reported net loss for
fiscal 2001 by $2.4 million (net of additional income tax expense of $1.9
million and minority interest of $0.1 million). As a result of the
restatement, deferred income tax liabilities increased by $24.3 million and
$23.9 million in 2001 and 2000 respectively, minority interest increased by
$0.1 million in 2001, total assets have increased by $64.5 million and $64.8
million in 2001 and 2000 respectively, pension liabilities have decreased by
$0.8 million in 2001 and cumulative foreign currency translation adjustment has
decreased by $1.8 million in 2001 and increased by $0.6 million in 2000.

The results of operations and net earnings (loss) for the Company and the
Canadian Newspaper Group for fiscal 2001 and 2000 have been adjusted from
amounts previously reported to give effect to the restatement noted above.

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The following tables set forth, for the periods indicated, certain items
and related percentage relationships included in our consolidated statements of
operations.

|                               |                          |                          |                        |         |                          |         |              |         |            |         |            |           |         |         |       |      |            |      |            |       |       |      |       |      |       |      |  
|------------------------------ | ------------------------ | ------------------------ | ---------------------- | ------- | ------------------------ | ------- | ------------ | ------- | ---------- | ------- | ---------- | --------- | ------- | ------- | ----- | ---- | ---------- | ---- | ---------- | ----- | ----- | ---- | ----- | ---- | ----- | ---- | -
|                               |                          |                          |                        |         | Years Ended December 31,
|                               |                          |                          |                        |         |                         
|                               |                          |                          |                        |         | 2002                     |         | 2001         |         | 2000       |         | 2002       |           | 2001    |         | 2000 
|                               |                          |                          |                        |         |                          |         |              |         |            |         |            |           |         |         |      
|                               |                          |                          |                        |         | (Dollars in thousands)   |         | (Percentage)
|                               |                          |                          |                        |         |                          |         |             
|                               |                          |                          |                        |         |                          |         |              |         | (Restated) |         | (Restated) |           |         |         |       |      | (Restated) |      | (Restated)
|Operating revenues:            |                          |                          |                        |         |                          |         |              |         |            |         |            |           |         |         |       |      |            |      |            |       |       |      |       |     
|                               | Chicago Group            |                          | $                      | 441,777 |                          |         | $            | 442,884 |            |         | $          | 401,417   |         |         |       | 43.9 | %          |      |            | 38.6  | %     |      |       | 19.2 | %    
|                               | Community Group          |                          |                        | 13,231  |                          |         |              | 19,115  |            |         |            | 67,336    |         |         |       | 1.3  |            |      |            | 1.7   |       |      |       | 3.2  |      
|                               | U.K. Newspaper Group     |                          |                        | 481,527 |                          |         |              | 486,374 |            |         |            | 562,068   |         |         |       | 47.9 |            |      |            | 42.4  |       |      |       | 26.8 |      
|                               | Canadian Newspaper Group |                          |                        | 69,627  |                          |         |              | 197,948 |            |         |            | 1,065,198 |         |         |       | 6.9  |            |      |            | 17.3  |       |      |       | 50.8 |      
|                               |                          |                          |                        |         |                          |         |              |         |            |         |            |           |         |         |       |      |            |      |            |       |       |      |       |     
|Total operating revenues       |                          | $                        | 1,006,162              |         |                          | $       | 1,146,321    |         |            | $       | 2,096,019  |           |         |         | 100.0 | %    |            |      | 100.0      | %     |       |      | 100.0 | %   
|                               |                          |                          |                        |         |                          |         |              |         |            |         |            |           |         |         |       |      |            |      |            |       |       |      |       |     
|Operating income (loss):       |                          |                          |                        |         |                          |         |              |         |            |         |            |           |         |         |       |      |            |      |            |       |       |      |       |     
|                               | Chicago Group            |                          | $                      | 35,692  |                          |         | $            | 4,962   |            |         | $          | 29,215    |         |         |       | 62.4 | %          |      |            | (13.8 | )%    |      |       | 13.2 | %    
|                               | Community Group          |                          |                        | (5,218  | )                        |         |              | (4,487  | )          |         |            | 3,456     |         |         |       | (9.1 | )          |      |            | 12.5  |       |      |       | 1.6  |      
|                               | U.K. Newspaper Group     |                          |                        | 48,078  |                          |         |              | 27,850  |            |         |            | 89,542    |         |         |       | 84.0 |            |      |            | (77.4 | )     |      |       | 40.4 |      
|                               | Canadian Newspaper Group |                          |                        | (2,134  | )                        |         |              | (45,954 | )          |         |            | 115,619   |         |         |       | (3.7 | )          |      |            | 127.7 |       |      |       | 52.1 |      
|Investment and Corporate Group |                          |                          | (19,216                | )       |                          |         | (18,354      | )       |            |         | (16,084    | )         |         |         | (33.6 | )    |            |      | 51.0       |       |       |      | (7.3  | )   
|                               |                          |                          |                        |         |                          |         |              |         |            |         |            |           |         |         |       |      |            |      |            |       |       |      |       |     
|Total operating income (loss)  |                          | $                        | 57,202                 |         |                          | $       | (35,983      | )       |            | $       | 221,748    |           |         |         | 100.0 | %    |            |      | 100.0      | %     |       |      | 100.0 | %   
|                               |                          |                          |                        |         |                          |         |              |         |            |         |            |           |         |         |       |      |            |      |            |       |       |      |       |     
|                               | Chicago Group            |                          |                        |         |                          |         |              |         |            |         |            |           |         |         |       |      |            |      |            |       |       |      |       |      |      
|                               |                          | Operating revenues:      |                        |         |                          |         |              |         |            |         |            |           |         |         |       |      |            |      |            |       |       |      |       |      |       |     
|                               |                          |                          | Advertising            |         | $                        | 341,261 |              |         | $          | 338,521 |            |           | $       | 305,027 |       |      |            | 77.2 | %          |       |       | 76.4 | %     |      |       | 76.0 | %
|                               |                          |                          | Circulation            |         |                          | 89,427  |              |         |            | 92,716  |            |           |         | 80,261  |       |      |            | 20.2 |            |       |       | 20.9 |       |      |       | 20.0 |  
|                               |                          |                          | Job printing and other |         |                          | 11,089  |              |         |            | 11,647  |            |           |         | 16,129  |       |      |            | 2.6  |            |       |       | 2.7  |       |      |       | 4.0  |  
|                               |                          |                          |                        |         |                          |         |              |         |            |         |            |           |         |         |       |      |            |      |            |       |       |      |       |     
|                               |                          | Total operating revenues |                        |         | 441,777                  |         |              |         | 442,884    |         |            |           | 401,417 |         |       |      | 100.0      |      |            |       | 100.0 |      |       |      | 100.0 |     
|                               |                          |                          |                        |         |                          |         |              |         |            |         |            |           |         |         |       |      |            |      |            |       |       |      |       |     
|                               |                          | Operating costs          |                        |         |                          |         |              |         |            |         |            |           |         |         |       |      |            |      |            |       |       |      |       |      |       |     
|                               |                          |                          | Newsprint              |         |                          | 63,050  |              |         |            | 76,399  |            |           |         | 69,238  |       |      |            | 14.3 |            |       |       | 17.3 |       |      |       | 17.2 |  
|                               |                          |                          | Compensation costs     |         |                          | 170,895 |              |         |            | 178,672 |            |           |         | 150,874 |       |      |            | 38.7 |            |       |       | 40.3 |       |      |       | 37.6 |  
|                               |                          |                          | Other operating costs  |         |                          | 135,691 |              |         |            | 140,166 |            |           |         | 121,548 |       |      |            | 30.7 |            |       |       | 31.6 |       |      |       | 30.3 |  
|                               |                          |                          | Infrequent items       |         |                          | 450     |              |         |            | 4,797   |            |           |         | 6,803   |       |      |            | 0.1  |            |       |       | 1.1  |       |      |       | 1.7  |  
|                               |                          |                          | Depreciation           |         |                          | 18,848  |              |         |            | 17,955  |            |           |         | 10,907  |       |      |            | 4.2  |            |       |       | 4.1  |       |      |       | 2.7  |  
|                               |                          |                          | Amortization           |         |                          | 17,151  |              |         |            | 19,933  |            |           |         | 12,832  |       |      |            | 3.9  |            |       |       | 4.5  |       |      |       | 3.2  |  
|                               |                          |                          |                        |         |                          |         |              |         |            |         |            |           |         |         |       |      |            |      |            |       |       |      |       |     
|                               |                          | Total operating costs    |                        |         | 406,085                  |         |              |         | 437,922    |         |            |           | 372,202 |         |       |      | 91.9       |      |            |       | 98.9  |      |       |      | 92.7  |     
|                               |                          |                          |                        |         |                          |         |              |         |            |         |            |           |         |         |       |      |            |      |            |       |       |      |       |     
|                               |                          | Operating income         |                        | $       | 35,692                   |         |              | $       | 4,962      |         |            | $         | 29,215  |         |       |      | 8.1        | %    |            |       | 1.1   | %    |       |      | 7.3   | %   
|                               |                          |                          |                        |         |                          |         |              |         |            |         |            |           |         |         |       |      |            |      |            |       |       |      |       |     
|                               | Community Group          |                          |                        |         |                          |         |              |         |            |         |            |           |         |         |       |      |            |      |            |       |       |      |       |      |      
|                               |                          | Operating revenues:      |                        |         |                          |         |              |         |            |         |            |           |         |         |       |      |            |      |            |       |       |      |       |      |       |     
|                               |                          |                          | Advertising            |         | $                        | 3,937   |              |         | $          | 5,806   |            |           | $       | 38,294  |       |      |            | 29.8 | %          |       |       | 30.4 | %     |      |       | 56.9 | %
|                               |                          |                          | Circulation            |         |                          | 6,082   |              |         |            | 7,751   |            |           |         | 19,168  |       |      |            | 46.0 |            |       |       | 40.5 |       |      |       | 28.4 |  
|                               |                          |                          | Job printing and other |         |                          | 3,212   |              |         |            | 5,558   |            |           |         | 9,874   |       |      |            | 24.2 |            |       |       | 29.1 |       |      |       | 14.7 |  
|                               |                          |                          |                        |         |                          |         |              |         |            |         |            |           |         |         |       |      |            |      |            |       |       |      |       |     
|                               |                          | Total operating revenues |                        |         | 13,231                   |         |              |         | 19,115     |         |            |           | 67,336  |         |       |      | 100.0      |      |            |       | 100.0 |      |       |      | 100.0 |     
|                               |                          |                          |                        |         |                          |         |              |         |            |         |            |           |         |         |       |      |            |      |            |       |       |      |       |     
|                               |                          | Operating costs          |                        |         |                          |         |              |         |            |         |            |           |         |         |       |      |            |      |            |       |       |      |       |      |       |     
|                               |                          |                          | Newsprint              |         |                          | 1,501   |              |         |            | 2,031   |            |           |         | 6,027   |       |      |            | 11.3 |            |       |       | 10.6 |       |      |       | 9.0  |  
|                               |                          |                          | Compensation costs     |         |                          | 7,161   |              |         |            | 9,817   |            |           |         | 24,934  |       |      |            | 54.1 |            |       |       | 51.4 |       |      |       | 37.0 |  
|                               |                          |                          | Other operating costs  |         |                          | 7,417   |              |         |            | 8,743   |            |           |         | 26,728  |       |      |            | 56.1 |            |       |       | 45.7 |       |      |       | 39.7 |  
|                               |                          |                          | Infrequent items       |         |                          |        |              |         |            | 870     |            |           |         |        |       |      |            |     |            |       |       | 4.6  |       |      |       |     |  
|                               |                          |                          | Depreciation           |         |                          | 2,370   |              |         |            | 1,268   |            |           |         | 2,836   |       |      |            | 17.9 |            |       |       | 6.6  |       |      |       | 4.2  |  
|                               |                          |                          | Amortization           |         |                          |        |              |         |            | 873     |            |           |         | 3,355   |       |      |            |     |            |       |       | 4.6  |       |      |       | 5.0  |  
|                               |                          |                          |                        |         |                          |         |              |         |            |         |            |           |         |         |       |      |            |      |            |       |       |      |       |     
|                               |                          | Total operating costs    |                        |         | 18,449                   |         |              |         | 23,602     |         |            |           | 63,880  |         |       |      | 139.4      |      |            |       | 123.5 |      |       |      | 94.9  |     
|                               |                          |                          |                        |         |                          |         |              |         |            |         |            |           |         |         |       |      |            |      |            |       |       |      |       |     
|                               |                          | Operating income (loss)  |                        | $       | (5,218                   | )       |              | $       | (4,487     | )       |            | $         | 3,456   |         |       |      | (39.4      | )%   |            |       | (23.5 | )%   |       |      | 5.1   | %   
|                               |                          |                          |                        |         |                          |         |              |         |            |         |            |           |         |         |       |      |            |      |            |       |       |      |       |     
|                               | U.K. Newspaper Group     |                          |                        |         |                          |         |              |         |            |         |            |           |         |         |       |      |            |      |            |       |       |      |       |      |      
|                               |                          | Operating revenues:      |                        |         |                          |         |              |         |            |         |            |           |         |         |       |      |            |      |            |       |       |      |       |      |       |     
|                               |                          |                          | Advertising            |         | $                        | 316,295 |              |         | $          | 329,758 |            |           | $       | 388,283 |       |      |            | 65.7 | %          |       |       | 67.8 | %     |      |       | 69.1 | %
|                               |                          |                          | Circulation            |         |                          | 140,802 |              |         |            | 136,093 |            |           |         | 145,099 |       |      |            | 29.2 |            |       |       | 28.0 |       |      |       | 25.8 |  
|                               |                          |                          | Job printing and other |         |                          | 24,430  |              |         |            | 20,523  |            |           |         | 28,686  |       |      |            | 5.1  |            |       |       | 4.2  |       |      |       | 5.1  |  
|                               |                          |                          |                        |         |                          |         |              |         |            |         |            |           |         |         |       |      |            |      |            |       |       |      |       |     
|                               |                          | Total operating revenues |                        |         | 481,527                  |         |              |         | 486,374    |         |            |           | 562,068 |         |       |      | 100.0      |      |            |       | 100.0 |      |       |      | 100.0 |     
|                               |                          |                          |                        |         |                          |         |              |         |            |         |            |           |         |         |       |      |            |      |            |       |       |      |       |     
|                               |                          | Operating costs          |                        |         |                          |         |              |         |            |         |            |           |         |         |       |      |            |      |            |       |       |      |       |      |       |     
|                               |                          |                          | Newsprint              |         |                          | 80,668  |              |         |            | 93,225  |            |           |         | 91,836  |       |      |            | 16.8 |            |       |       | 19.2 |       |      |       | 16.3 |  
|                               |                          |                          | Compensation costs     |         |                          | 94,092  |              |         |            | 93,409  |            |           |         | 96,492  |       |      |            | 19.5 |            |       |       | 19.2 |       |      |       | 17.2 |  
|                               |                          |                          | Other operating costs  |         |                          | 245,344 |              |         |            | 248,993 |            |           |         | 267,081 |       |      |            | 51.0 |            |       |       | 51.2 |       |      |       | 47.5 |  
|                               |                          |                          | Infrequent items       |         |                          | 582     |              |         |            | 3,063   |            |           |         |        |       |      |            | 0.1  |            |       |       | 0.6  |       |      |       |     |  
|                               |                          |                          | Depreciation           |         |                          | 12,763  |              |         |            | 10,728  |            |           |         | 7,532   |       |      |            | 2.6  |            |       |       | 2.2  |       |      |       | 1.3  |  
|                               |                          |                          | Amortization           |         |                          |        |              |         |            | 9,106   |            |           |         | 9,585   |       |      |            |     |            |       |       | 1.9  |       |      |       | 1.8  |  
|                               |                          |                          |                        |         |                          |         |              |         |            |         |            |           |         |         |       |      |            |      |            |       |       |      |       |     
|                               |                          | Total operating costs    |                        |         | 433,449                  |         |              |         | 458,524    |         |            |           | 472,526 |         |       |      | 90.0       |      |            |       | 94.3  |      |       |      | 84.1  |     
|                               |                          |                          |                        |         |                          |         |              |         |            |         |            |           |         |         |       |      |            |      |            |       |       |      |       |     
|                               |                          | Operating income         |                        | $       | 48,078                   |         |              | $       | 27,850     |         |            | $         | 89,542  |         |       |      | 10.0       | %    |            |       | 5.7   | %    |       |      | 15.9  | %   
|                               |                          |                          |                        |         |                          |         |              |         |            |         |            |           |         |         |       |      |            |      |            |       |       |      |       |     

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| |                                |                          |                          |   |                          |        |              |   |            |         |            |   |           |         |      |  |            |      |            |  |       |      |   |  |       |      |  
| | ------------------------------ | ------------------------ | ------------------------ | - | ------------------------ | ------ | ------------ | - | ---------- | ------- | ---------- | - | --------- | ------- | ---- |  | ---------- | ---- | ---------- |  | ----- | ---- | - |  | ----- | ---- | -
| |                                |                          |                          |   | Years Ended December 31,
| |                                |                          |                          |   |                         
| |                                |                          |                          |   | 2002                     |        | 2001         |   | 2000       |         | 2002       |   | 2001      |         | 2000
| |                                |                          |                          |   |                          |        |              |   |            |         |            |   |           |         |     
| |                                |                          |                          |   | (Dollars in thousands)   |        | (Percentage)
| |                                |                          |                          |   |                          |        |             
| |                                |                          |                          |   |                          |        |              |   | (Restated) |         | (Restated) |   |           |         |      |  | (Restated) |      | (Restated)
| | Canadian Newspaper Group       |                          |                          |   |                          |        |              |   |            |         |            |   |           |         |      |  |            |      |            |  |       |      |   |  |      
| |                                | Operating revenues:      |                          |   |                          |        |              |   |            |         |            |   |           |         |      |  |            |      |            |  |       |      |   |  |       |     
| |                                |                          | Advertising              |   | $                        | 49,356 |              |   | $          | 130,377 |            |   | $         | 812,278 |      |  |            | 70.9 | %          |  |       | 65.9 | % |  |       | 76.3 | %
| |                                |                          | Circulation              |   |                          | 10,864 |              |   |            | 41,761  |            |   |           | 202,522 |      |  |            | 15.6 |            |  |       | 21.1 |   |  |       | 19.0 |  
| |                                |                          | Job printing and other   |   |                          | 9,407  |              |   |            | 25,810  |            |   |           | 50,398  |      |  |            | 13.5 |            |  |       | 13.0 |   |  |       | 4.7  |  
| |                                |                          |                          |   |                          |        |              |   |            |         |            |   |           |         |      |  |            |      |            |  |       |      |   | 
| |                                | Total operating revenues |                          |   | 69,627                   |        |              |   | 197,948    |         |            |   | 1,065,198 |         |      |  | 100.0      |      |            |  | 100.0 |      |   |  | 100.0 |     
| |                                |                          |                          |   |                          |        |              |   |            |         |            |   |           |         |      |  |            |      |            |  |       |      |   | 
| |                                | Operating costs          |                          |   |                          |        |              |   |            |         |            |   |           |         |      |  |            |      |            |  |       |      |   |  |       |     
| |                                |                          | Newsprint                |   |                          | 5,210  |              |   |            | 32,769  |            |   |           | 137,076 |      |  |            | 7.5  |            |  |       | 16.6 |   |  |       | 12.9 |  
| |                                |                          | Compensation costs       |   |                          | 33,712 |              |   |            | 77,005  |            |   |           | 385,977 |      |  |            | 48.4 |            |  |       | 38.9 |   |  |       | 36.2 |  
| |                                |                          | Other operating costs    |   |                          | 31,539 |              |   |            | 109,296 |            |   |           | 351,603 |      |  |            | 45.3 |            |  |       | 55.2 |   |  |       | 33.0 |  
| |                                |                          | Infrequent items         |   |                          |       |              |   |            | 13,004  |            |   |           | 1,147   |      |  |            |     |            |  |       | 6.5  |   |  |       | 0.1  |  
| |                                |                          | Depreciation             |   |                          | 1,300  |              |   |            | 6,661   |            |   |           | 42,038  |      |  |            | 1.9  |            |  |       | 3.4  |   |  |       | 3.9  |  
| |                                |                          | Amortization             |   |                          |       |              |   |            | 5,167   |            |   |           | 31,738  |      |  |            |     |            |  |       | 2.6  |   |  |       | 3.0  |  
| |                                |                          |                          |   |                          |        |              |   |            |         |            |   |           |         |      |  |            |      |            |  |       |      |   | 
| |                                | Total operating costs    |                          |   | 71,761                   |        |              |   | 243,902    |         |            |   | 949,579   |         |      |  | 103.1      |      |            |  | 123.2 |      |   |  | 89.1  |     
| |                                |                          |                          |   |                          |        |              |   |            |         |            |   |           |         |      |  |            |      |            |  |       |      |   | 
| |                                | Operating income (loss)  |                          | $ | (2,134                   | )      |              | $ | (45,954    | )       |            | $ | 115,619   |         |      |  | (3.1       | )%   |            |  | (23.2 | )%   |   |  | 10.9  | %   
| |                                |                          |                          |   |                          |        |              |   |            |         |            |   |           |         |      |  |            |      |            |  |       |      |   | 
| | Investment and Corporate Group |                          |                          |   |                          |        |              |   |            |         |            |   |           |         |      |  |            |      |            |  |       |      |   |  |      
| |                                | Operating costs          |                          |   |                          |        |              |   |            |         |            |   |           |         |      |  |            |      |            |  |       |      |   |  |       |     
| |                                |                          | Newsprint                |   |                          |       |              |   |            |        |            |   |           |        |      |  |            |      |            |  |       |      |   |  |       |      |  
| |                                |                          | Compensation costs       |   |                          | 3,172  |              |   |            | 4,142   |            |   |           | 4,074   |      |  |            |      |            |  |       |      |   |  |       |      |  
| |                                |                          | Stock-based compensation |   |                          |       |              |   |            | (1,369  | )          |   |           | 1,518   |      |  |            |      |            |  |       |      |   |  |       |      |  
| |                                |                          | Other operating costs    |   |                          | 14,324 |              |   |            | 13,544  |            |   |           | 8,681   |      |  |            |      |            |  |       |      |   |  |       |      |  
| |                                |                          | Depreciation             |   |                          | 1,720  |              |   |            | 1,356   |            |   |           | 1,233   |      |  |            |      |            |  |       |      |   |  |       |      |  
| |                                |                          | Amortization             |   |                          |       |              |   |            | 681     |            |   |           | 578     |      |  |            |      |            |  |       |      |   |  |       |      |  
| |                                |                          |                          |   |                          |        |              |   |            |         |            |   |           |         |      |  |            |      |            |  |       |      |   | 
| |                                | Total operating costs    |                          |   | 19,216                   |        |              |   | 18,354     |         |            |   | (16,084   | )       |      |  |            |      |            |  |       |      |   |  |       |     
| |                                |                          |                          |   |                          |        |              |   |            |         |            |   |           |         |      |  |            |      |            |  |       |      |   | 
| |                                | Operating loss           |                          | $ | (19,216                  | )      |              | $ | (18,354    | )       |            | $ | (16,084   | )       |      |  |            |      |            |  |       |      |   |  |       |     
| |                                |                          |                          |   |                          |        |              |   |            |         |            |   |           |         |      |  |            |      |            |  |       |      |   | 

2002 Compared with 2001

As described above and in note 21 to the Consolidated Financial
Statements, the results for 2001 have been restated. The following discussion
has been revised to reflect the restatement.

Net Loss.We had a net loss of $238.8 million in 2002 compared with a net
loss of $335.1 million in 2001. The net losses in 2002 and 2001 included a
large number of infrequent and unusual items as well as an extraordinary item
and an adjustment to reflect the cumulative effect of a change in accounting
principle. Infrequent items are disclosed separately in our consolidated
statements of operations and unusual items are primarily included in other
income (expense).

Operating Income (Loss).Operating income in 2002 was $57.2 million
compared with an operating loss of $36.0 million in 2001, an increase of $93.2
million. 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 Revenues.Operating revenues were $1,006.2 million in 2002
compared with $1,146.3 million in 2001, a decrease of $140.1 million. The
overall decrease in revenue is primarily due to the sale of most of our
remaining Canadian newspapers in July and November 2001 to Osprey Media, the
sale of our remaining 50% interest in the National Post in August 2001 and a
soft advertising environment, particularly in the United Kingdom. Favorable
changes in the exchange rate with the British pound helped mitigate revenue
declines at the Telegraph.

Operating Expenses.Total operating costs and expenses were $949.0
million in 2002 compared with $1,182.3 million in 2001, a decrease of $233.3
million. Newsprint expense was $150.4 million in 2002 compared with $204.4
million in 2001, a decrease of $54.0 million or 26.4%. 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, a year over
year decrease of $54.0

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million or 14.9%. Other operating costs of $434.3
million in 2002 decreased year over year by $86.4 million or 16.6%. These
reductions are mainly due to both the sales of publishing properties and
concerted efforts to reduce costs in the face of a difficult
advertising market. Depreciation in 2002 was $37.0 million compared with
$38.0 million in 2001. Amortization in 2002 was $17.2 million compared with
$35.8 million in 2001. The decrease results from the sales of properties during
2001 as well as a change in accounting rules relating to the amortization of
goodwill. 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 duplicated costs resulting from operating two printing
plants during start-up of the new plant in Chicago.

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 is 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.

Foreign Currency Losses, Net.Foreign currency losses in 2002 were $86.8
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
our investment in the Canadian Newspaper Group and the related repatriation of
funds to the United States. Prior to this year, the cumulative foreign
exchange losses associated with our Canadian investment were included in the
accumulated other comprehensive loss component of stockholders equity.

Other Income (Expense), Net.Other expense in 2002 of $53.2 million
included charges in respect of writedowns of investments of $40.5 million and a
loss of $15.2 million relating to the Total Return Equity Swaps. The Total
Return Equity Swaps were retired in their entirety in December 2002. Other
expense in 2001 amounted to $295.9 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 sale of the National Post offset primarily by gains on sales of
Canadian properties, a $48.0 million write-down of investments, a $73.9 million
loss in respect of the Total Return Equity Swap and $15.1 million in losses
from equity accounted companies.

Income Taxes.Income tax expense in 2002 was $67.0 million compared with
a recovery of $8.3 million in 2001. Effective tax rates for 2002 and 2001 were
(52.2)% and 2.3%, respectively. The 2002 effective tax rate differed from the
U.S. federal income tax rate primarily because of non-deductible foreign
exchange losses with an impact of $31.3 million on taxes and the recording of a
valuation allowance in respect of Canadian deferred tax assets of $38.8
million. For 2001, differences from the U.S. federal income tax rate were
attributable to non-deductible expenses of $31.1 million, differences between
tax gains and losses and book gains and losses of $15.7 million and individual
company losses not tax effected of $27.2 million.

Minority Interest.Minority interest in 2002 was $2.2 million. Minority
interest in 2001 was a recovery of $13.8 million. The recovery in 2001 results
primarily from the minoritys share of National Post losses to August 31, 2001
offset by the minoritys share of earnings of Hollinger L.P.

Extraordinary Item.The extraordinary item of $21.3 million represents
the after tax cost of retiring a portion of the Companys long term debt in
March 2002 including premiums payable on early redemption and the write-off of
deferred financing charges.

Change in Accounting Principle.The transitional provision of SFAS No.
142 required the Company to assess whether goodwill is 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 has determined that the carrying amount of the Jerusalem
Postproperties is in excess of its estimated fair value. Accordingly, the
value of goodwill attributable to the Jerusalem Posthas been 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. The Company has
determined that the fair value of all other reporting units is in excess of the

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respective carrying amount, both on adoption and at year end for purposes of
the annual impairment test. Refer to note 10 of the Statement of Significant
Accounting Policies to our Consolidated Financial Statements.

Chicago Group

Operating revenues for the year ended December 31, 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 $92.7 million in 2001 to $89.4
million in 2002 reflect both price discounting and a decline in circulation
copies.

Total operating costs and expenses were $406.1 million, a decrease of
$31.8 million or 7.3% 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 $13.3 million to $63.1 million and in
other operating costs of $4.5 million to $135.7 million. Reductions in
compensation and other costs are the consequence of cost management initiatives
undertaken during the course of 2002 and 2001. Newsprint cost reductions are
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 at $0.5 million
in 2002 were substantially below infrequent items of $4.8 million in 2001,
which costs were largely startup costs of our new Chicago production facility.

At $18.8 million, depreciation was up marginally by $0.9 million 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. SFAS No. 142 requires that goodwill and other intangible assets with
indefinite lives no longer be amortized.

Operating income for the Chicago Group was $35.7 million in 2002, an
increase of $30.7 million over 2001. The improvement reflects the above cost
savings which were partially offset by revenue declines as well as a $4.3
million reduction in infrequent items in the year. Prior year infrequent items
consisted primarily of start up costs for the new Ashland production facility.

Community Group

Operating revenues and operating expenses were $13.2 million and $18.4
million in 2002 compared to $19.1 million and $23.6 million in 2001. During
the third quarter of 2001, the sole remaining U.S. Community Group newspaper
was sold affecting comparative revenue by $0.8 million 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

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. That decrease was largely mitigated upon translation into U.S. dollars
by favorable changes in foreign exchange rates during the year. In pounds
sterling, there was a £16.6 million decrease in 2002 to £320.9 million from
£337.5 million in 2001. The decrease largely relates 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 lineage 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 has 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

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 is the sale of
our remaining 50% in the National Post to CanWest at the end of August 2001 and
the sale of a large number of our 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 Cdn. $108.8 million in 2002
compared with Cdn. $114.1 million in 2001. Exchange rates had a small adverse
impact on revenue.

Operating loss in 2002 was $2.1 million as opposed to $46.0 million in
2001. The reduction in net loss is largely due to the sale of our 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 us. The comparable expense in 2002 is Cdn. $4.4
million.

Investment and Corporate Group

Operating costs of the Investment and Corporate Group were $19.2 million,
compared with $18.4 million in 2001, an increase of $0.8 million.

2001 Compared with 2000

As described above and in note 21 to the Consolidated Financial
Statements, the results for 2001 and 2000 have been restated. The following
discussion has been revised to reflect the restatement.

Net Earnings (Loss).We had a net loss of $335.1 million in 2001 compared
with net earnings of $157.4 million in 2000. The net loss in 2001 and the net
earnings in 2000 included a large number of infrequent and unusual items.
Infrequent items are disclosed separately in our consolidated statements of
operations, and unusual and non-recurring items are primarily included in other
income (expense), net.

Operating Income (Loss).Operating loss in 2001 was $36.0 million compared
with income of $221.7 million in 2000, a decrease of $257.7 million. The
decrease in operating income was primarily due to the sales of newspaper
properties in the Canadian Newspaper Group in both 2000 and 2001 and in the
Community Group in 2000. In addition, lower operating results across all our
remaining operations contributed to the decrease in operating income. In 2001,
infrequent items included a one-time expense related to a pension and
post-retirement plan liability adjustment of $12.4 million.

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

Operating Expenses.Total operating costs and expenses were $1,182.3
million in 2001 compared with $1,874.3 million in 2000, a decrease of $692.0
million. Newsprint expense was $204.4 million in 2001 compared with $304.2
million in 2000, a decrease of $99.8 million or 32.8%. The decrease was
primarily due to lower consumption at the U.K. Newspaper Group and due to the
sales of Canadian newspaper properties in both 2000 and 2001 and the sale of
Community newspaper properties in 2000. Average newsprint prices at both the
U.K. Newspaper Group and Chicago Group year over year were higher. Compensation
costs decreased year over year by $299.3 million or 45.2%, and other operating
costs decreased year over year by $254.9 million or 32.9%. These reductions are
mainly due to the sales of properties. Depreciation in 2001 was $38.0 million
compared with $64.5 million in 2000. Lower depreciation resulting from the
sales of properties in both the Community Group and Canadian Newspaper Group
was in part offset by increased depreciation at the Chicago Group related to
the new printing facility and the Fox Valley Publications Inc. acquisition in
December 2000. Amortization in 2001 was $35.8 million compared with $58.1
million in 2000. The decrease results from the sales of properties offset in
part by amortization related to the December 2000 acquisition of Fox Valley
Publications Inc. Infrequent items in 2001 amounted to $21.7 million compared
with $8.0 million in 2000. Infrequent items in both years included duplicated
costs resulting from operating two plants during start-up of the new plant in
Chicago. In addition, infrequent items in 2001 included a one-time expense
related to a pension and post-retirement plan liability adjustment of $12.4
million in respect of retired former Southam employees.

Interest Expense.Interest expense was $78.6 million in 2001 compared with
$142.7 million in 2000, a decrease of $64.1 million. This decrease results from
the significantly lower debt levels during 2001 compared with 2000. In November
2000, we repaid $972.0 million of our bank credit facility with the proceeds
from the sale of properties to CanWest.

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

Foreign Currency Losses, Net.Foreign currency losses in 2001 were $1.3
million compared with $16.0 million in 2000. The 2000 loss resulted entirely
from the translation of amounts borrowed under our bank credit facility in U.S.
dollars by a Canadian subsidiary and which were repaid in November 2000.

Other Income (Expense), Net.Other expense in 2001 amounted to $295.9
million and included a net loss on the sale of 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 the $78.2 million loss on sale of the National
Post offset primarily by gains on sales of Canadian properties, a $48.0 million
write-down of investments, a $73.9 million loss in respect of the Total Return
Equity Swap and $15.1 million in equity losses from affiliates. Net other
income in 2000 totaled $524.9 million and included $557.0 million in gains on
sales of publishing interests, $32.6 million in gains on sales of investments,
a $16.3 million loss in respect of the Total Return Equity Swap, a $20.6
million write-down of investments and $20.3 million in equity losses from
affiliates.

Dilution Gain.On February 17, 2000, Interactive Investor International,
in which the Company owned 51.7 million shares or a 47% interest, had its
initial public offering (IPO) issuing 52 million shares and raising £78.0
million ($125.8 million). The IPO reduced the Companys equity ownership to
33% and resulted in a dilution gain of $17.1 million for accounting purposes.
There was no dilution gain in 2001.

Minority Interest.Minority interest in 2001 was a recovery of $13.8
million compared with an expense in 2000 of $50.8 million. The recovery in 2001
results primarily from the minoritys share of National Post losses to August
31, 2001 offset by the minoritys share of earnings of Hollinger L.P. Minority
interest in 2000 included the minoritys share of Hollinger L.P., including the
gain on sale of newspaper properties to CanWest, $10.9 million related to the
amount paid on mandatory retirement of HCPH Special shares in excess of the
recorded book amounts and the minoritys share of the National Post loss
subsequent to November 16, 2000.

Chicago Group

Operating revenues for the year ended December 31, 2001, were $442.9
million compared with $401.4 million in 2000, an increase of $41.5 million.
Advertising revenue was $338.5 million in 2001 compared with $305.0 million in
2000, an increase of $33.5 million. Circulation revenue was $92.7 million in
2001 compared with $80.3 million in 2000, an increase of $12.4 million.
Printing and other revenue was $11.6 million in 2001 compared with $16.1
million in 2000, a decrease of $4.5 million. Chicago Group results are based
on standard accounting periods, which for 2000 resulted in a 53-week year for
the reported results of the Chicago Group only. The effect of the 53rd week in
2000 was to add $6.0 million to operating revenue and $6.2 million to operating
costs and expenses. On December 15, 2000, the acquisition of Chicago Suburban
Newspapers from Copley Group was completed and operating results of this group
have been included since that time. Revenues for operations owned in both
years, excluding Chicago Suburban Newspapers (same store) and based on a
52-week year in 2000, were $363.6 million for 2001, compared with $392.0
million in 2000. Advertising revenue for the year ended December 31, 2001, on a
same store 52-week basis, was $20.0 million or 6.7% lower than in 2000.
Circulation revenue on a same store 52-week basis, for the year ended December
31, 2001, was $2.7 million or 3.5% lower than in 2000. Chicago Sun-Times
average daily circulation in 2001 was higher than in 2000; however, circulation
revenue for 2001 was lower than in 2000 as a result of price discounting to
build and maintain market share in response to competitive activity. Printing
and other revenue, on a same store 52-week basis was $10.1 million in 2001
compared with $15.8 million in 2000, a decrease of $5.7 million.

Total operating costs and expenses were $437.9 million in 2001 compared
with $372.2 million in 2000. Newsprint expense in 2001 was $76.4 million
compared with $69.2 million in 2000, an increase of $7.2 million. Compensation
costs were $178.7 million in 2001 compared with $150.9 million in 2000, an
increase of $27.8 million. Other operating costs were $140.2 million in 2001
compared with $121.5 million in 2000, an increase of $18.7 million. On a same
store 52-week basis, operating costs and expenses were $354.8 million compared
with $363.1 million in 2000, a decrease of $8.3 million or 2.3%. Same store
newsprint expense in 2001 was $67.5 million, compared to $67.6 million in 2000.
Average newsprint prices in 2001 were approximately 11% higher than in 2000. In
2001, newsprint consumption was significantly less than in 2000 as a result of
lower page counts due to reduced advertising revenue, a reduction in commercial
printing, and general cost controls. On a same store 52-week basis,
compensation and other costs decreased $10.9 million or 4.1% year over year.
The lower compensation costs result from staff reductions across the Chicago
Group offset in part by increased medical costs and workers compensation costs.
Other operating costs are lower as a result of reduced

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commercial printing
production costs, and general cost reductions across all areas. On a same store
basis depreciation and amortization increased $4.7 million mainly as a result
of higher depreciation charges related to the new Chicago printing facility.

Operating income was $5.0 million in 2001 compared with $29.2 million in
2000, a decrease of $24.2 million. On a same store 52-week basis, operating
income was $8.8 million in 2001 compared with $28.9 million in 2000, a decrease
of $20.1 million. The decrease results primarily from lower operating revenues,
increased depreciation and amortization offset in part by lower compensation
and other operating costs. The acquisition of Chicago Suburban Newspapers added
$79.3 million to operating revenues and an operating loss of $3.8 million in
2001.

Community Group

Operating revenues and operating income were $19.1 million and a loss of
$4.5 million in 2001, compared to $67.3 million and operating income of $3.5
million in 2000. The significant decrease in both operating revenue and
operating income results almost entirely from the sales of Community Group
properties that occurred primarily during 2000. During the third quarter of
2001, the last remaining U.S. Community Group property was sold. At December
31, 2001, the Jerusalem Postwas the only Community Group property still owned
by the Company.

U.K. Newspaper Group

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

Total operating costs and expenses were $458.5 million in 2001 compared
with $472.5 million in 2000, a decrease of $14.0 million or 3.0%. Newsprint
expense in local currency was £64.7 million in 2001 compared with £60.6 million
in 2000, an increase of £4.1 million or 6.8%. This increase results from the
significant increase in newsprint prices in 2001 compared to 2000, offset in
part by 4% lower consumption in 2001 compared to 2000. In pounds sterling,
compensation and other costs were 1% lower in 2001 than in 2000.

Operating income was $27.9 million in 2001 compared with $89.5 million in
2000, a decrease of $61.6 million. The decrease results from lower operating
revenue, primarily advertising revenue and increased newsprint costs offset in
part by lower compensation costs and other operating costs. In addition, the
decrease in operating income was made greater by the change in exchange rates.
In 2001 the average exchange rate for the pound sterling into U.S. dollars was
1.45 compared with 1.52 in 2000.

Canadian Newspaper Group

Operating revenues in the Canadian Newspaper Group were $197.9 million in
2001 compared with $1,065.2 million in 2000 and in 2001 there was an operating
loss of $46.0 million compared with operating income of $115.6 million in 2000.
The significant decrease in both operating revenues and operating income is
largely a result of the sale of newspaper assets in 2000 to CanWest, the sale
of UniMédia Company completed in January 2001, the July and November 2001 sales
of operations to Osprey, and the August 31, 2001 sale of the National Post.

Included in the $46.0 million operating loss for the year ended December
31, 2001, are overhead costs of approximately Cdn. $3.8 million that are not
expected to be incurred in 2002. Also included is a Cdn. $2.8 million expense
in respect of employee benefit costs of retired former Southam employees.

Investment and Corporate Group

Operating costs of the Investment and Corporate Group were $18.4 million,
compared with $16.1 million in 2000, an increase of $2.3 million. The increase
is due mainly to management fees charged to this division in 2001 that were
charged to other operating divisions in 2000.

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Liquidity and Capital Resources

Working Capital.Working capital consists of current assets less current
liabilities. At December 31, 2002, working capital, excluding debt obligations
and related funds held in escrow, was a deficiency of $228.1 million compared
to working capital of $138.1 million at December 31, 2001. The reduction in
working capital is primarily the result of the application of cash and cash
equivalents to repay or retire indebtedness outstanding at December 31, 2001.

During the year ended December 31, 2002, approximately $370.8 million of
cash and cash equivalents were used to retire some of the Companys long-term
debt which included both principal repayment and related early retirement
premiums. An additional $100.0 million was paid to redeem the balance of the
Total Return Equity Swaps outstanding.

Included in income taxes payable are income taxes of approximately $276.4
million that have been provided on gains on sales of assets computed on tax
bases that result in higher gains for tax purposes than for accounting
purposes. Strategies have been and may be implemented that may also defer
and/or reduce these taxes but the effects of these strategies have not been
reflected in the accounts. While the timing of the payment of such income
taxes, if any, is uncertain, the Company does not expect any significant amount
to be paid in fiscal 2003.

In December 2002, the Company sold 9% Senior Notes for net proceeds of
$291.7 million and drew down $262.1 million net of fees pursuant to the Senior
Credit Facility. Of those proceeds, $543.8 million was held in escrow in short
term investments at December 31, 2002 for the purpose of redeeming the
Companys 9.25% Senior Subordinated Notes due in 2006 and 2007, including the
payment of the related redemption premiums and accrued interest. The related
debt of $504.9 million is reflected as a current liability at December 31,
2002. The 9.25% Senior Subordinated Notes were redeemed in January 2003. At
December 31, 2001, the Company held $12.5 million in escrow, $7.5 million of
which related to the Total Return Equity Swaps and was held as further
collateral for the Companys obligations.

We are an international holding company and our assets consist solely of
investments in our subsidiaries and affiliated companies. As a result, our
ability to meet our future financial obligations is dependent upon the
availability of cash flows from our United States and foreign subsidiaries
through dividends, intercompany advances, management fees and other payments.
Similarly, our ability to pay dividends on our common stock may be limited as a
result of our dependence upon the distribution of earnings of our subsidiaries
and affiliated companies. Our subsidiaries and affiliated companies are under
no obligation to pay dividends and, in the case of Publishing and its principal
United States and foreign subsidiaries, are subject to statutory restrictions
and restrictions in debt agreements that limit their ability to pay dividends.
Substantially all of the shares of our subsidiaries have been pledged to our
lenders. Our right to participate in the distribution of assets of any
subsidiary or affiliated company upon its liquidation or reorganization will be
subject to the prior claims of the creditors of such subsidiary or affiliated
company, including trade creditors, except to the extent that we may ourselves
be a creditor with recognized claims against such subsidiary or affiliated
company.

Cash Flows.Cash flows provided by operating activities were $58.4 million
for the year ended December 31, 2002 compared with cash flows used in 2001 of
$134.2 million and provided in 2000 of $59.8 million. Improvements in
operating income accounted for the largest portion of the increase in operating
cash flows in 2002. The cash flows used in operating activities in 2001 were
adversely affected in relation to 2000 by decreased operating income (in turn
largely as a consequence of asset dispositions) and the receipt of interest
income in 2001 from the CanWest debentures as payments in kind rather than
cash.

Cash flows used in investing activities in 2002 were $27.4 million, a
decrease of $784.1 million from $756.7 million provided by investing activities
in 2001. Asset sales excluding plant and equipment in 2002 were negligible
whereas in 2001, we realized proceeds on the sale of participations in the
CanWest debentures and from the disposition of various community and French
language newspapers, chiefly in Canada. Cash flows from investing activities
in 2000 of $1,080.8 million reflect principally the sale of Canadian newspaper
properties to CanWest and sales of a number of community papers in the U.S.
These inflows were partially offset by expenditures for the acquisition of
newspapers in the Chicago area, capital expenditures and additions to
investments.

Cash flows used in financing activities were $404.9 million in 2002 as
opposed to $271.3 million in 2001. Use of cash in 2002 was directed towards
the retirement of our senior notes early in the year and the retirement of
Total Return Equity Swap obligations later in the year. Borrowings of $265.0
million under our Senior Credit Facility and the placement of the 9% Senior
Notes of $300.0 million before costs of $11.2 million were used to retire the
Total Return Equity Swap obligations and our 10.5% facility from Trilon in
December 2002 and our senior subordinated notes in their entirety in January
2003. The remaining proceeds are available for general corporate purposes. At
December 31, 2002, $543.8 million held in trust to retire our senior
subordinated notes including related redemption premiums and accrued interest
has not been included in cash. Cash flows used in operating activities in 2001
have been reduced by $12.6 million from that previously reported to reflect a
similar classification of escrow funds held at December 31,

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2001. Those funds
were transferred to various banks as further collateral in support of our Total
Return Equity Swap obligations and in support of a bank credit facility.

Cash of $271.3 million used in 2001 for financing activities was applied
to the payment of dividends and the purchase for cancellation of Class A Common
Stock from a bank in connection with Total Return Equity Swap obligations and
from Hollinger Inc.. Cash used for financing activities of $1,040.2 million in
2000 primarily reflects the repayment of debt, the redemption of HCPH special
shares and dividend payments.

We anticipate no major dispositions in 2003 although we continue to
encourage reasonable offers for the balance of our Canadian operations. With
the completion of long-term financing arrangements and anticipated improvements
in operating income as a consequence of efforts to manage costs, we expect to
see cash flow from operations improve. Any significant upward movement in
newsprint prices would adversely affect that outlook.

As long as the advertising market remains in a downturn, cash flows from
operations will not recover to satisfactory levels. We believe, however, that
at current levels of economic activity and with our current cost structure,
cash flow provided by operations of our subsidiaries will be sufficient to meet
future cash requirements including capital expenditures. There is no assurance
that any excess cash flow generated by our subsidiaries could be distributed to
the Company. As of March 7, 2003, the Company believes it has sufficient cash
on hand to meet its anticipated cash obligations for the balance of 2003.

Capital Expenditures and Acquisition Financing. In the past three years
the Chicago Group, the Community Group, the U.K. Newspaper Group and the
Canadian Newspaper Group have funded their capital expenditures and acquisition
and investment activities out of cash provided by their respective operating
activities and, in 2000, through borrowings under their bank credit facilities.
In 2003, the Company may invest up to $20 million in capital expenditures
primarily through available cash flow.

Capital expenditures at the Chicago Group amounted to $15.5 million, $12.1
million and $25.7 million in 2002, 2001 and 2000, respectively. The Company
began construction of a new printing facility in Chicago during 1998 which
became partially operational in 2000 and fully operational in 2001. The capital
expenditures in 2001 and 2000 are primarily related to the construction of this
production facility.

Capital expenditures at the Telegraph were $6.1 million, $17.1 million and
$14.5 million in 2002, 2001 and 2000, respectively.

Capital expenditures at the Canadian Newspaper Group were $2.3 million,
$2.8 million and $28.8 million in 2002, 2001 and 2000, respectively.

Capital expenditures at the Community Group amounted to $5.0 million, $0.3
million and $3.3 million in 2002, 2001 and 2000, respectively. The capital
expenditures in 2002 were primarily for the acquisition of a new press by the
Jerusalem Post.

Capital expenditures at the Investment and Corporate Group were $0.1
million, $12.2 million and $1.6 million in 2002, 2001 and 2000, respectively.
Expenditures in 2001 were primarily in respect of a new airplane to replace an
older airplane that was sold in 2002.

Debt Obligations.We, together with Publishing and its principal
subsidiaries, are parties to various debt agreements that have been entered
into to replace past financing, address working capital requirements and for
other corporate purposes. At December 31, 2002, our indebtedness was $1,084.4
million. Of that amount, $504.9 million was repaid in January 2003 from funds
held in escrow at December 31, 2002.

On December 23, 2002, certain of our subsidiaries entered into a new $310
million Senior Credit Facility with a group of financial institutions arranged
by Wachovia Securities, Inc., as described in Item 1 Business  Bank Credit
Facility.

On December 23, 2002, Publishing issued $300 million aggregate principal
amount of 9% Senior Notes due 2010, as described in Item 5 Market for the
Registrants Common Equity and Related Stockholder Matters  Recent Sales of
Unregistered Securities.

Off Balance Sheet Arrangements

Hollinger Participation Trust.As part of our November 16, 2000 purchase
and sale agreement with CanWest, we were prohibited from selling the CanWest
debentures received in partial consideration prior to May 15, 2003. In order
to monetize this investment, we entered into a participation agreement in
August 2001 pursuant to which we sold participation interests in CDN $540.0
million (US $350.0 million) principal amount of CanWest debentures to a special
purpose trust (the Participation Trust)

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administered by an arms length
trustee. That sale of participation interests was supplemented by a further
sale of CDN $216.8 million (US $140.5 million) in December 2001. We remain the
record owner of the participated CanWest debentures and are required to make
payments to the Participation Trust with respect to those debentures if and to
the extent we receive payment in cash or kind on the debentures from CanWest.
Coincident with the Participation Trusts purchase of the participation
interests, the Participation Trust sold senior notes to arms length third
parties to finance the purchase of the participation interest. 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
Extinguishment of Liabilities. The net loss on the transactions, including
realized holding losses on the debentures, amounted to $62.1 million and has
been included in Other income (expense), net for the year ended December 31,
2001. We believe that the participation arrangement does not constitute a
prohibited sale of debentures as legal title was not transferred. CanWest has
advised us that it accepts that position.

At any time up to November 5, 2005, CanWest may elect to pay interest on
the debentures by way of additional CanWest debentures or through the issuance
of non-voting common shares of CanWest. Further, at any time after May 15,
2003, the holders of the Participation Trust senior notes may, under the terms
of the Participation Trust, elect to convert their notes into the CanWest
debentures. Should the noteholders so elect, we would be required to transfer
to the Participation Trust sufficient CanWest debentures
at exchange rates then in effect to allow full conversion of the senior
notes. The unrealized foreign exchange losses recognized at December 31, 2002
and 2001 are classified as other liabilities in the consolidated balance sheet.

Total Return Equity Swaps.During 1998 and 1999, the Company had
arrangements with four banks pursuant to which the banks purchased a total of
14,109,905 shares of the Companys Class A Common Stock at an average price of
$14.17. These arrangements, referred to as Total Return Equity Swaps, were
entered into as a structure for the repurchase of our shares over an extended
time frame based on a price fixed at the outset of the arrangement. The Total
Return Equity Swaps were terminated in their entirety on December 23, 2002.
The Company does not presently intend to enter into similar arrangements.

At December 31, 2001, we had two Total Return Equity Swap arrangements
remaining with banks each of which had been extended from July 1, 2001. One
arrangement in respect of 3,348,782 shares at an average price of $14.93 was
extended until June 30, 2003 on the same terms and conditions that applied
previously. The other arrangement in respect of 3,602,305 shares at an average
price of $13.88, was extended until December 31, 2002. We retained the option
to buy the shares from the bank at the original cost or have the bank resell
the shares in the open market, for which we could settle the net amount due
with either cash or by issuing additional shares. In addition, the bank had
the option if the market price of the shares dropped by 20% or more, to sell
the shares on the open market and reduce the notional amount of the swap.

On October 3, 2002, we borrowed $50.0 million at 10.5% under a term
facility with Trilon International Inc. expiring December 31, 2003. The
proceeds of that financing and cash balances were used to prepay $60.0 million
outstanding under the Total Return Equity Swaps leaving an outstanding balance
of $40.0 million. Both the Trilon loan and the balance of the Total Return
Equity Swaps were prepaid from the proceeds of our December 23, 2002 financing.

Derivatives.On December 23, 2002, we entered into the Senior Credit
Facility with Wachovia Bank, N.A. The facility consists of a $45.0 million
Revolving Credit Facility, a $45.0 million Term Loan A maturing September 30,
2008 and a $220.0 million Term Loan B maturing September 30, 2009. The borrower under each of the term loans is a wholly owned U.K. subsidiary of the Company.
No amounts
have been drawn under the Revolving Credit Facility. Prior to year end, we
purchased two swaps, one in respect of each of the term loans and each maturing
in December following the respective maturity dates. The swaps are
cross-currency floating to fixed rate swaps from USD LIBOR to Sterling fixed
rate at a blended rate of 8.47%. The swaps were purchased to take advantage of
low rates on this type of instrument and to provide certainty on interest
charges to the operations of the UK Newspaper Group in a time of soft
advertising sales.

At the same time as the Senior Credit Facility was committed, we sold $300
million of 9% Senior Notes maturing December 15, 2010. In January 2003, we
purchased two fixed to floating interest rate swaps for a total notional
principal amount of $250.0 million each maturing on the maturity date of the
Notes with the objective of reducing our costs of borrowing. Interest for the
first six months has been set at 5.98% and floats for subsequent periods at
LIBOR plus a blended spread of 4.61%.

Commercial Commitments and Contractual Obligations. The Telegraph Group
has guaranteed the printing joint venture partners share of leasing
obligations to third parties, which amounted to $0.6 million (£0.4 million) at
December 31, 2002. These obligations are also guaranteed jointly and severally
by each joint venture partner.

In connection with our insurance program, letters of credits are required
to support certain projected workers compensation obligations. At December 31,
2002, letters of credit in the amount of $2.8 million were outstanding.

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Set out below is a summary of the amounts due and committed under
contractual cash obligations at December 31, 2002:

|                                                 |  |                        |           |      |  |           |         |                     |  |                     |        |  |  |   |        |  |  |   |         | 
|------------------------------------------------ |  | ---------------------- | --------- | ---- |  | --------- | ------- | ------------------- |  | ------------------- | ------ |  |  | - | ------ |  |  | - | ------- | 
|                                                 |  |                        |           |      |  | Due in    |         |                     |  |                     |        |  |  |   |        |  |  |  
|                                                 |  |                        |           |      |  | 1 year or |         | Due between 1 and 3 |  | Due between 4 and 5 |        |  |  |  
|                                                 |  | Total                  |           | less |  | years     |         | years               |  | Due over 5 years   
|                                                 |  |                        |           |      |  |           |         |                     |  |                    
|                                                 |  | (Dollars in thousands)
|Existing Senior and Senior
Subordinated Notes(1) |  | $                      | 509,988   |      |  | $         | 504,906 |                     |  | $                   | 5,082  |  |  | $ |       |  |  | $ |        | 
|Other long-term debt                             |  |                        | 570,915   |      |  |           | 3,093   |                     |  |                     | 18,363 |  |  |   | 26,086 |  |  |   | 523,373 | 
|Capital lease obligations                        |  |                        | 3,475     |      |  |           | 1,721   |                     |  |                     | 1,754  |  |  |   |       |  |  |   |        | 
|Operating leases                                 |  |                        | 162,256   |      |  |           | 16,982  |                     |  |                     | 28,632 |  |  |   | 22,120 |  |  |   | 94,522  | 
|                                                 |  |                        |           |      |  |           |         |                     |  |                     |        |  |  |   |        |  |  |   |         | 
|Total contractual cash
obligations               |  | $                      | 1,246,634 |      |  | $         | 526,702 |                     |  | $                   | 53,831 |  |  | $ | 48,206 |  |  | $ | 617,895 | 
|                                                 |  |                        |           |      |  |           |         |                     |  |                     |        |  |  |   |        |  |  |   |         | 



---

|(1) |  | During 2002, Publishing purchased for retirement approximately $254.9
million of the existing senior notes due 2005. The balance of those notes
outstanding, approximately $5.1 million, will mature in 2005. Included in
the total of notes outstanding is $504.9 million of senior subordinated
notes with maturities in 2006 and 2007. At December 31, 2002, the
borrowings under the Senior Credit Facility and the 9% Senior Notes due 2010 were held in escrow
pending and for the purpose of redemption of the senior subordinated notes.
Consequently, outstanding balances for the senior subordinated notes,
irrespective of their maturity date, have been reflected as due in one year
or less. Refer to Item 1 Business  Bank Credit Facility for a discussion
of the new Senior Credit Facility of $310 million maturing in 2008 and 2009.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In addition to amounts committed under contractual cash obligations, the
Company has also assumed a number of contingent obligations by way of
guarantees and indemnities in relation to the conduct of its business. The
more significant guarantees and indemnities include those for lease obligations
of a 50% owned joint venture producing many of our U.K. publications; in
support of representations and warranties on the disposition of operations;
against changes in laws affecting returns to certain lenders; and, against
fluctuations in foreign currency exchange rates in respect of the Participation
Trust. For more information on our contingent obligations, refer to note 18 
Commitments and Contingencies of our Consolidated Financial Statements.

Related Party Transactions

Net amounts due to related parties at December 31, 2002 totaled $30.4
million. Included in amounts owed to Hollinger Inc. and its affiliates are
billings in respect of management and administrative expenses. As noted below, Hollinger Inc.
and its affiliates billed us for fees and allocable expenses amounting to $27.9
million, $35.1 million and $41.7 million in 2002, 2001 and 2000, respectively.
The major component of the billings is management fees. Amounts due from
related parties total $45.8 million at December 31, 2002 ($44.0 million at
December 31, 2001). The receivable represents principal of $36.8 million plus
accrued interest of $9.0 million at December 31, 2002 relating to a loan made
by the Company to a subsidiary of Hollinger Inc. on July 11, 2000. The loan,
payable on demand was made in connection with the cash purchase by Hollinger
Inc. of Special shares of Hollinger Canadian Publishing Holdings Co., a
subsidiary of the Company. Interest was payable at a rate of 13% per annum
until December 31, 2001 at which time, with the approval of the independent
directors, it was changed to 90 day LIBOR plus 3% per annum.

On March 10, 2003, the amount owed to the Company by the subsidiary of
Hollinger Inc., including accrued interest, was $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 these debt arrangements as
follows:



| |  |  | $25.8 million of the debt was offset against amounts due to the
Hollinger Inc. subsidiary with respect to a repurchase of Class A Common
Stock and redemption of Series E Preferred Stock discussed below; and                                                                                                                                                                                                                                
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The remaining debt of $20.4 million has been 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 debenture governing the 11 7/8% Senior
Secured Notes.

As part of these arrangements, 2,000,000 shares of Class A Common Stock
were repurchased from one of Hollinger Inc.s wholly-owned subsidiaries. The
purchase price per share was $8.25 per share, for a total 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. The redemption price per share was Cdn. $146.63,
for a total cash payment of $9.3 million. The revisions to these debt
arrangements received an independent fairness

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opinion and were unanimously
approved by the Audit Committee and the independent directors of the Company as
a market value transaction.

The Company and its subsidiaries entered into services agreements with
Ravelston, whereby Ravelston acts as manager of the Company and its
subsidiaries and carries out head office and executive responsibilities. These
services agreements were assigned on July 5, 2002 to RMI, a wholly-owned
subsidiary of Ravelston. Ravelston and RMI billed the Company and that
subsidiary $23.7 million in 2002 pursuant to these agreements ($29.0 million in
2001 and $33.6 million in 2000). In addition, certain executives of Ravelston
and of Moffat Management and Black-Amiel Management, affiliates of Ravelston
and RMI, have separate services agreements with certain subsidiaries of the
Company. During 2002, amounts paid directly by subsidiaries of the Company
pursuant to such agreements and as directed remuneration to certain Ravelston
executives were $1.9 million ($1.7 million in 2001 and $3.7 million in 2000).
These fees in aggregate have been approved by the aforementioned committees for
each of the years presented.

Hollinger Inc. and its affiliates billed the Company for allocable expenses amounting to $2.3 million, $4.4 million,
and $4.4 million for 2002, 2001 and 2000, respectively.

In addition to the amounts referred to in the preceding paragraph, during
2001 and 2000 there was further remuneration paid directly by subsidiaries of
the Company to certain Ravelston executives of $1.4 million and $3.7 million
respectively (2002  nil).

All of the services agreements were negotiated in the context of a
parent-subsidiary relationship and, therefore, were not the result of arms
length negotiations between independent parties. The terms of the Service
Agreements may therefore not be as favorable to the Company and its
subsidiaries as the terms that might be reached through negotiations with
non-affiliated third parties.

On July 3, 2002, NP Holdings Company (NP Holdings), a subsidiary of the
Company, was sold to Ravelston Management Inc., a wholly owned subsidiary of
Ravelston, a holding company controlled by Lord Black through which most of his
interest in the Company is ultimately controlled, for $3,760,000 (Cdn.
$5,750,000). The only asset of NP Holdings was Canadian tax losses. The tax
losses, only a portion of which were previously recognized for accounting
purposes, were effectively sold at their carrying value. Due to the inability
of NP Holdings to utilize its own tax losses prior to their expiry, as a result
of its disposing of its interest in the National Post, it sold these losses to
a company which would be able to utilize the losses. The only other potential
purchaser for these losses, CanWest, declined the opportunity to acquire the
losses. The terms of the sale of the tax losses to Ravelston Management Inc.
were negotiated with and approved by the independent directors of the Company.

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

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

During 2001, we transferred two publications to Horizon Publications Inc.
in exchange for net working capital. Horizon Publications Inc. is managed by
former Community Group executives and controlled by certain officers of the
Company. The terms of this transaction were approved by our independent
directors.

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

In connection with the sale to CanWest, Ravelston entered into a
management services agreement with CanWest and National Post pursuant to which
it agreed to continue to provide management services to the Canadian businesses
sold to CanWest in consideration for an annual fee of Cdn. $6 million ($4
million) payable by CanWest. CanWest will be obligated to pay Ravelston a
termination fee of Cdn. $45 million in the event that CanWest chooses to
terminate the management services agreement or Cdn. $22.5 million in the event
that Ravelston chooses to terminate the agreement. Further, CanWest required as
a condition to the transaction that the Company, Ravelston, Hollinger Inc.,
Lord Black and three senior executives entered into non-competition agreements
with CanWest pursuant to which each agreed not to compete directly or
indirectly in Canada with the Canadian business sold to CanWest for a five-year
period, subject to certain limited exceptions, for aggregate consideration of
Cdn. $80 million ($53 million) paid by CanWest in addition to the purchase
price referred to above of which Cdn. $38 million ($25.2 million) was paid to
Ravelston and

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Cdn. $42 million ($27.8 million) was paid to Lord Black and the
three senior executives. The Companys independent directors approved the terms
of these payments.

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

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

Bradford Publishing Company, a company in which certain of the Companys
officers are significant shareholders, owes the Company $4.1 million at
December 31, 2002. Such amount represents the present value of the remaining
amounts owing under a non-interest bearing note receivable granted to the
Company in connection with a non-compete agreement entered into on the sale of
certain operations to Bradford Publishing Company during 2000. The note
receivable is unsecured and due over the period to 2010, and subordinated to
Bradfords lenders.

Horizon Publications Inc., a company controlled by certain officers and
members of the Board of Directors of the Company, acquired some operations from
the Company in 1999. The Company loaned money to Horizon in connection with
that purchase. At December 31, 2002, there was a balance owed on that loan of
$4.9 million. The loan, due in 2007, is unsecured and bears interest at the
lower of 8% per annum and LIBOR plus 2%.

We issued to a subsidiary of Hollinger Inc. in connection with the 1995
Reorganization in which we acquired Hollinger Inc.s interest in The Telegraph
and Southam, 739,500 shares of Series A Preferred Stock. The Series A Preferred
Stock was subsequently exchanged for Series D Preferred Stock. During 1998,
408,551 shares of Series D Preferred Stock were converted into 2,795,165 shares
of Class A Common Stock. In February 1999, 196,823 shares of Series D
Preferred Stock were redeemed for cash of $19.4 million. In May 1999, the
remaining 134,126 shares of Series D Preferred Stock were converted into
134,126 shares of Series E Preferred Stock. In September 2001, 40,920 shares of
Series E Preferred Stock were redeemed for cash of $3.8 million. The shares of
Series E Preferred Stock are redeemable in whole or in part, at any time and
from time to time, subject to restrictions in the Companys credit facilities,
by the Company or by a holder of such shares. As described above, the
remaining Series E Preferred Stock was redeemed on March 10, 2003.

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

Management has reviewed our procedures for ensuring that transactions with
affiliates of Publishing (other than its subsidiaries) comply with the
covenants under its debt instruments existing prior to our December 2002
refinancing, including the indentures governing its outstanding debt
securities. Based on this review, management has determined that in one
related-party transaction, although we satisfied the requirement to obtain the
approval of the independent directors of our Board of Directors that the
transaction was being undertaken on an arms length basis, we did not obtain a
fairness opinion although the transaction exceeded the relevant threshold for
delivering such an opinion by $23 million. In light of the various intercompany
transactions and arrangements within the Hollinger group and the related party
transactions that have occurred from time to time in the past and may occur in
the future, management intends to strengthen its controls for monitoring
compliance with those covenants under the 9% Senior Notes and other debt
instruments by which we, Publishing and our other subsidiaries are bound that
are applicable to such transactions and arrangements.

Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (FASB) issued
SFAS No. 143 Accounting for Asset Retirement Obligations (SFAS No. 143),
which is effective for financial statements issued for fiscal years beginning
after June 15, 2002. SFAS No. 143 addresses the recognition and measurement of
obligations associated with the retirement of tangible long-lived assets.

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We
have not yet determined the effect, if any, that the adoption of SFAS No. 143
will have on our business, results of operations and financial condition.

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 145). The Statement 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 per 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.Upon adoption, any gain or loss on extinguishment of
debt that was classified as an extraordinary item in prior periods presented,
that does not meet the criteria in APB Opinion 30 for classification as an
extraordinary item, is required to be reclassified. The Company is required to
adopt this Statement no later than its fiscal year beginning January 1, 2003.
Upon adoption of SFAS No. 145, the Companys net loss on the extinguishment of
debt of $21.3 million for the year ended December 31, 2002 will no longer
qualify as an extraordinary item, nor will net losses incurred of approximately
$22.0 million on the January 2003 extinguishment of its senior subordinated
notes. Such losses will be included in other income (expense).

In July 2002, the FASB issued Statement of Financial Accounting Standards
No. 146, Accounting for Costs Associated with Exit or Disposal Activities.
SFAS No. 146 addresses financial accounting and reporting for costs associated
with exit or disposal activities, and is effective for exit or disposal
activities initiated after December 31, 2002. SFAS No. 146 nullifies Emerging
Issues Task Force Issue No. 94-3 (EITF 94-3) Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in Restructuring). The principal difference
between SFAS No. 146 and EITF 94-3 relates to the recognition of a liability
for a cost associated with an exit or disposal activity. SFAS No.146 requires
that the cost associated with an exit or disposal activity be recognized when
the liability is incurred, whereas under EITF 94-3 the liability was recognized
at the date
of an entitys commitment to an exit plan. The Company is currently
assessing the impact of SFAS No. 146 on its financial position and results of
operations.

In November 2002, the FASB issued Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others(FIN 45), which addresses the disclosure
to be made by a guarantor in its interim and annual financial statements about
its obligations under guarantees. These disclosure requirements are included
in note 18 to the Consolidated Financial Statements. For guarantees entered
into or modified after December 31, 2002, the FIN 45 requires the guarantor to
recognize a liability for the non-contingent component of guarantees, being the
obligation to stand ready to perform in the event that specified triggering
events or conditions occur. The initial measurement of this liability is the
fair value of the guarantee at inception. The recognition of the liability is
required even if it is not probable that payments will be required under the
guarantee or if the guarantee was issued without a premium payment or as part
of a transaction with multiple elements. As noted above the Company has
adopted the disclosure requirements of the FIN 45 and will apply the
recognition and measurement provisions for all guarantees entered into or
modified after December 31, 2002. Since December 31, 2002, the Company has not
entered into any new or modified any pre-existing guarantees requiring the
recognition of a liability.

In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities(VIEs) (FIN 46) which requires that companies
that control another entity through interests other than voting interest should
consolidate the controlled entity. In the absence of clear control through a
voting equity interest, a companys exposure (variable interest) to the
economic risk and the potential rewards from a VIEs assets and activities are
the best evidence of a controlling financial interest. VIEs created after
January 31, 2003 must be consolidated immediately. VIEs existing prior to
February 1, 2003 must be consolidated by the Company commencing with its third
quarter 2003 interim financial statements. The Company has not yet determined
whether it has any VIEs which will require consolidation.

In December 2002, FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure, an amendment of FASB SFAS No. 123.
This Statement amends SFAS No. 123, Accounting for Stock-Based Compensation, to
provide alternative methods of transition for a voluntary change to the fair
value method of accounting for stock-based employee compensation. The Company
plans to continue to use the intrinsic value method. In addition, this
Statement amends the disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim financial statements. Certain
of the disclosure modifications are required for fiscal years ending after
December 15, 2002 and are included in note 17 to the Companys Consolidated
Financial Statements  Statement of Significant Accounting Policies.




Item 7A. Quantitative and Qualitative Disclosure about Market Risk

Newsprint.On a consolidated basis, newsprint expense for the years ended
December 31, 2002 and 2001 amounted to $150.4 million and $204.4 million
respectively. Management believes that newsprint prices may vary widely from
time to time and could continue to show significant price variations in the
future. During the first half of 2001, newsprint prices in North America were
at

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their highest price per ton since 1994 and 1995. However, the recessional
climate in 2001 caused a significant decline in industry consumption and this,
coupled with an abundant supply of competitively priced newsprint, resulted in
a downward trend in prices during the second half of 2001. This downward trend
continued into 2002, however there are indications that prices on the spot
market where the Chicago Group purchases its newsprint may moderately increase
from their current levels. In the United Kingdom, average newsprint prices were
less than the average prices paid in 2001. In the United Kingdom, the Company
negotiates prices for one year periods. Rates negotiated for 2003 are about
7.1% lower than those for 2002. 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 the year ended December 31, 2002, a change in
the price of newsprint of $50 per ton would increase or decrease year-to-date
net income by approximately $9.1 million.

Interest Rates.The Company has borrowed $265.0 million under its Senior
Credit Facility which borrowings bear interest at floating rates. In December
2002, the Company purchased floating to fixed cross currency swaps in the full
amount of the borrowings for the term of the facility. Consequently, the
Senior Credit Facility is not exposed to fluctuations in interest rates.

In January 2003, the Company also purchased fixed to floating swaps after
year-end in the amount of $250.0 million against its 9% Senior Notes. The
total amount of 9% Senior Notes outstanding is $300.0 million. Each 1% change
in interest rates will result in an additional $2.5 million in interest
expense.

Foreign Exchange Rates.A substantial portion of the Companys income is
earned outside of the United States in currencies other than the United States
dollar. 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 has retained certain foreign exchange exposure in
respect of this transaction. As a result, the Companys income is vulnerable to
changes in the value of the United States dollar. Increases in the value of the
United States dollar can reduce net earnings and declines can result in
increased earnings. Based on
earnings and ownership levels for the year ended December 31, 2002, a
$0.05 change in the important foreign currencies would have had the following
effect on the Companys reported net loss for the year ended December 31, 2002:

|               |  |                |        |                   |            |   |         | 
|-------------- |  | -------------- | ------ | ----------------- | ---------- | - | ------- | 
|               |  | Actual Average |        |                   |            |  
|               |  | 2002 Rate      |        | Increase/Decrease
|               |  |                |        |                  
|United Kingdom |  | $              | 1.50/£ |                   |            | $ | 561,000 | 
|Canada (1)     |  | $0.64/Cdn$     |        | $                 | 53,640,000 |  



---

|(1) |  | Included in the exposure noted above is $44.4 million in respect of the
Companys sale of Participations.
|--- |  | ---------------------------------------------------------------------------------------------------------

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 translates into $490.5
million. At some time between May 15, 2003 and the maturity date of the
CanWest debentures, being November 15, 2010, we will be required to deliver to
the Participation Trust $490.5 million of the CanWest debentures at then
current exchange rates plus interest received. The actual date of delivery
will be established by noteholders of the Participation Trust. As noted below,
up until November 5, 2005, CanWest may elect to pay interest on the debentures
in kind or by the issuance of shares. At December 31, 2002, the liability to
the Participation Trust is $575.7 million and the corresponding CanWest
debentures had a principal amount receivable of Cdn. $888.2 million. Given that
the CanWest debentures are 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 cash receipt of
$6.3 million by the Company after discounting for early settlement. This amount
has been included in other income (expense), net, for the year ended December
31, 2002. The foreign exchange exposure is no longer hedged, due to constraints
under our current debt facilities. A $0.05 change in the U.S. dollar to
Canadian dollar exchange rate applied to the Cdn. $888.2 million principal
amount of the CanWest debentures at December 31, 2002 would result in a $44.4
million loss or gain to the Company.

At any time up to November 5, 2005, CanWest may elect to pay interest on
the debentures by way of additional CanWest debentures or in non-voting CanWest
common shares. The Company anticipates that additional debentures will be
received in the future as payment in kind for the interest on the debentures.

The balance of the foreign exchange exposure of $9.2 million is
principally as a result of the substantial reduction in the Companys net
investment in the Canadian operations during the first quarter of 2002. As a
result of this reduction, foreign exchange losses in the amount of $78.2
million were included in net earnings for the three months ended March 31, 2002
and year ended

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December 31, 2002, substantially all of which was not deductible
for income tax purposes. Had there been a $0.05 change in the U.S. dollar to
Canadian dollar in the three months ended March 31, 2002, net earnings would
have increased or decreased by $5.5 million.

Given the sale of Canadian operations in 2000 and 2001, the only
significant ongoing exposure to changes in the value of the Canadian dollar is
in respect of the Participations noted above.




Item 8.Financial Statements and Supplementary Data

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




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

Not applicable.

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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, 2002 are set forth below.

|                                                 |  |                                                                                                   
|------------------------------------------------ |  | --------------------------------------------------------------------------------------------------
|Name and Age                                     |  | Position(s) with the Company                                                                      
|                                                 |  |                                                                                                   
|Peter Y. Atkinson, 55.                           |  | Executive Vice President and Director                                                             
|Barbara Amiel Black, 62.                         |  | Vice President, Editorial and Director                                                            
|Lord Black of Crossharbour,
PC(C), OC,
KCSG, 58. |  | Chairman of the Board, Chief Executive Officer
and Director                                       
|The Hon. Richard R. Burt, 55.                    |  | Director                                                                                          
|J. A. Boultbee, 59.                              |  | Executive Vice President                                                                          
|Daniel W. Colson, 55.                            |  | Vice Chairman and Director, Deputy Chairman,
Chief Executive Officer and Director of The
Telegraph
|Frederick A. Creasey, 52.                        |  | Vice President, Group Corporate Controller                                                        
|David Dodd, 59.                                  |  | Executive Vice President                                                                          
|Paul B. Healy, 39.                               |  | Vice President, Corporate Development and
Investor Relations                                      
|Mark S. Kipnis, 55.                              |  | Vice President, Corporate Counsel and Secretary                                                   
|Dr. Henry A. Kissinger, 79.                      |  | Director                                                                                          
|Marie-Josee Kravis, O.C., 53.                    |  | Director                                                                                          
|Peter K. Lane, 49.                               |  | Vice President and Chief Financial Officer                                                        
|Shmuel Meitar, 59.                               |  | Director                                                                                          
|The Hon. Richard N. Perle, 61.                   |  | Co-Chairman of Hollinger Digital Inc. and
Director                                                
|F. David Radler, 60.                             |  | Deputy Chairman, President, Chief Operating
Officer and Director                                  
|Robert T. Smith, 59.                             |  | Treasurer                                                                                         
|Jerry J. Strader, 66.                            |  | President, Suburban Chicago Newspaper Division                                                    
|A. Alfred Taubman, 79.                           |  | Director                                                                                          
|The Hon. James R. Thompson, 66.                  |  | Director                                                                                          

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

Peter Y. Atkinson,Executive Vice President and Director. Mr. Atkinson
has served as a director and an Executive Vice President since 2002 and as a
Vice President of the Company since 1997. He has served as a director and as
Vice President and General Counsel of Hollinger Inc. since February 1996 and
was appointed Executive Vice President on May 2000. He also serves as an
officer and director of Argus Corporation Ltd. and Hollinger Canadian
Newspapers G.P. Inc. He is a director of Toronto Hydro and Canadian Tire
Corporation, Limited, a Canadian public reporting company.

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

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

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The Hon. Richard R. Burt, Director. Mr. Burt has served as a director
since September 1994. Mr. Burt has served as Chairman of IEP Advisors L.L.P.,
an emerging markets investment banking and advisory services firm, since 1994.
He was a partner with McKinsey & Company, Inc. from 1991 to 1994. Mr. Burt has
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. He served as a director of Powerhouse Technologies Inc. from 1994
until 1999, when it was acquired by Anchor Gaming Corp. and as a director of
Homestake Mining Inc. from 1998 until February 2001. Mr. Burt currently serves
as a director of Anchor Gaming, Weirton Steel Corp., Archer-Daniels-Midland Co.
and HCL Technologies, Ltd., all of which are United States public reporting
companies.

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

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

Frederick A. Creasey,Vice President, Group Corporate Controller. Mr.
Creasey has served as Vice President since September 2002 and Group Corporate
Controller since June 1996. Mr. Creasey also serves as Chief Financial Officer
since September 2002 and for the past five years as the Controller of Hollinger
Inc.

David Dodd,Executive Vice President. Mr. Dodd has served as Vice
President of Hollinger International Publishing Inc. since October 1995, and is
presently principally employed as an Executive Vice President specifically,
Chief Financial Officer for the Chicago Group. He previously served as
Executive Vice President and a director of American Publishing Company. The
Hollinger group has employed Mr. Dodd since 1978.

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

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

Dr. Henry A. Kissinger, Director. Dr. Kissinger has served as a director
since February 1996. Dr. Kissinger has served as Chairman of Kissinger
Associates Inc., an international consulting firm, since 1982. Dr. 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. Dr. Kissinger served as a director of American Express Company from 1984
to 1996, of Revlon Inc. from 1996 to 1999, of the TWC Group from 1981 to 2002,
of Gulfstream Aerospace Corporation from 1997 to 1999 and as a director of
Freeport-McMoran Copper and Gold Inc. from 1995 to 2001. Dr. Kissinger
currently serves on the Advisory Board of American Express Company and the JP
Morgan International Advisory Council. He also served as Counselor to J.P.
Morgan Chase & Co. from 1981 to 2000 and as a member of its International
Advisory Council from 1997 to 2000. 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.

Marie-Josee Kravis, O.C.,Director. Mrs. Kravis has served as a director
since February 1996. She has served as a Senior Fellow of the Hudson Institute
Inc. since 1994. She served as a director of The Seagram Company Ltd., a
Canadian public reporting company, from 1985 to 2000 and as a director of
Compaigne UniMedia from 1988 to 2000. She served as a director of Hasbro Inc.
from 1995 to 2001 and of Star Media Network, Inc. during 2001 and as a director
of Canadian Imperial Bank of Commerce, a Canadian public reporting company,
from 1997 to 2002. Mrs. Kravis currently serves as a director of Vivendi
Universal and Ford Motor Company, both United States reporting companies.

41



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##### Table of Contents



Peter K. Lane,Vice President, Chief Financial Officer. Mr. Lane has
served as Vice President and Chief Financial Officer since October 2002. Mr.
Lane acted as Chief Financial Officer of Southam Publications from 2000 to 2002
and prior to that as Chief Financial Officer of Philip Utilities Management
Corporation commencing in 1994. Mr. Lane was a partner with Coopers & Lybrand
from 1990 to 1994. Before then he was a partner with Ernst & Young, having
joined that firm in 1976.

Shmuel Meitar,Director. Mr. Meitar has served as a director since
February 1996. Mr. Meitar also serves as Vice Chairman of Aurec Ltd., a leading
provider of communications, media and information services, since 1991. Prior
to 1991, Mr. Meitar served as President of the Aurec Group, which includes
Golden Channels, the largest cable television franchise in Israel, and Golden
Pages, the Israeli Yellow Pages. Mr. Meitar was a director of the Jerusalem
Postfrom 1992 to 2002 and also serves as a director of Golden Pages
Publications Ltd.

The Hon. Richard N. Perle,Director. Mr. Perle has served as a director
since June 1994. Mr. Perle has served as 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 1988. Mr. Perle is Co-Chairman of Hollinger
Digital Inc. and a director of the Jerusalem Post, both of which are
subsidiaries of the Company. Mr. Perle served as a director of GeoBiotics, Inc.
from 1996 to 2000. Mr. Perle currently serves as a director of E. Certify,
NAPRO Biotherapeutics, Inc., a United States public reporting company, and
Autonomy, Inc., a United States public reporting company.

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

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

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

A. Alfred Taubman,Director. Mr. Taubman has served as a director since
February 1996. Since 1983, Mr. Taubman is the controlling shareholder, and from
1983 to 2001, served as a director, of Sothebys Holdings Inc., the
international art auction house. Mr. Taubman also served from 1951 to 2001 as
Chairman of The Taubman Company and Taubman Centers, Inc., companies engaged in
the regional retail shopping center business. Mr. Taubman, as Chairman of
Sothebys, was convicted on December 5, 2001 of violating the United States
antitrust laws.

The Hon. James R. Thompson, Director. Mr. Thompson has served as a
director since June 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. He served as a director of The
Wackenhut Corporation from 1996 to 2000, of Metal Management Inc. from 1999 to
2000, of Jefferson Smurfit Group Plc from 1997 to 2002, and of American
National Can Corp. from 1996 to 2000. Mr. Thompson currently serves as a
director of FMC Corporation, Prime Retail, Inc., Prime Group Realty Trust,
Navigant Consulting Inc., Maximus, Inc., and Union Pacific Resources, Inc., all
of which are United States public reporting companies.




Item 11.Executive Compensation

The information required by this item is incorporated by reference to the
Companys Proxy Statement for the 2003 Annual Meeting of Stockholders.

42



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##### Table of Contents






Item 12.Security Ownership of Certain Beneficial Owners and Management

The information required by this item is incorporated by reference to the
Companys Proxy Statement for the 2003 Annual Meeting of Stockholders.




Item 13.Certain Relationships and Related Transactions

The information required by this item is incorporated by reference to the
Companys Proxy Statement for the 2003 Annual Meeting of Stockholders.




Item 14.Controls and Procedures



| | (a) |  | Evaluation of Disclosure Controls and Procedures.                                                                                                                                                                                                                                                                                                                                        
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | Our Chief Executive Officer and Chief Financial Officer have reviewed our
disclosure controls and procedures within 90 days prior to the filing of
this report. Based upon this review, these officers believe that our
disclosure controls and procedures are effective in ensuring that material
information related to the Company is made known to them by others within
the Company.
|
| | (b) |  | Changes in Internal Controls.                                                                                                                                                                                                                                                                                                                                                            
|
| |     |  | There were no significant changes in our internal controls or in other
factors that could significantly affect these controls since the date of
our most recent evaluation.                                                                                                                                                                                                              




PART IV




Item 15.Exhibits, Financial Statement Schedules, and Reports on Form 8-K



| | (a) |  | Documents filed as part of this report.         
| | --- |  | ------------------------------------------------
|
| | (1) |  | Financial Statements and Supplemental Schedules.

The Consolidated Financial Statements filed as part of this report appear
beginning at page F-1.



| | (2) |  | Exhibits.
| | --- |  | ---------

|            |  |                                                                                                                                                                |  |                                                                                                 
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------
|            |  |                                                                                                                                                                |  | Prior Filing or                                                                                 
|Exhibit No. |  | Description of Exhibit                                                                                                                                         |  | Sequential Page Number                                                                          
|            |  |                                                                                                                                                                |  |                                                                                                 
|3.1         |  | Restated Certificate of Incorporation                                                                                                                          |  | Incorporated by
reference to Exhibit
3.1 to Current Report
on Form 8-K dated
October 13, 1995.  
|            |  |                                                                                                                                                                |  |                                                                                                 
|3.2         |  | Bylaws, as amended and restated.                                                                                                                               |  | Incorporated by
reference to Exhibit
3.2 to Registration
Statement on Form S-1
(No. 33-74980).  
|            |  |                                                                                                                                                                |  |                                                                                                 
|4.4         |  | Exchange Indenture, dated July 17,
1997, among Hollinger Canadian
Publishing Holdings Inc., Hollinger
International Inc. and Montreal Trust
Company of Canada. |  | Incorporated by
reference to Exhibit
4.01 to Registration
Statement on Form S-3
(No. 333-35619).
|            |  |                                                                                                                                                                |  |                                                                                                 
|10.4        |  | American Publishing Company 1994 Stock
Option Plan.                                                                                                            |  | Incorporated by
reference to Exhibit
10.10 to Registration
Statement on Form S-1
(No. 33-74980).
|            |  |                                                                                                                                                                |  |                                                                                                 
|10.5        |  | Hollinger International Inc. 1997 Stock
Incentive Plan.                                                                                                        |  | Incorporated by
reference to Annex A
to Report on Form DEF
14A dated March 28,
1997.            

43



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##### Table of Contents



|            |  |                                                                                                                                                                                                                                                                                                                                                                                 |  |                                                                                                       
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------
|            |  |                                                                                                                                                                                                                                                                                                                                                                                 |  | Prior Filing or                                                                                       
|Exhibit No. |  | Description of Exhibit                                                                                                                                                                                                                                                                                                                                                          |  | Sequential Page Number                                                                                
|            |  |                                                                                                                                                                                                                                                                                                                                                                                 |  |                                                                                                       
|10.12       |  | Hollinger International Inc. 1999 Stock
Incentive Plan.                                                                                                                                                                                                                                                                                                                         |  | Incorporated by
reference to Annex A
to Report on Form DEF
14A dated March 24,
1999.                  
|            |  |                                                                                                                                                                                                                                                                                                                                                                                 |  |                                                                                                       
|10.15       |  | CanWest Transaction Agreement dated
July 30, 2000 and Amending Agreement
thereto dated November 15, 2000.                                                                                                                                                                                                                                                                       |  | Incorporated by
reference to Exhibit
2.1 and 2.2 to
Current Report on
Form 8-K dated
December 1, 2000.
|            |  |                                                                                                                                                                                                                                                                                                                                                                                 |  |                                                                                                       
|10.16       |  | The Amended and Restated Trust
Agreement dated as of August 24, 2001
between First Union Trust Company,
National Association and the Company.                                                                                                                                                                                                                                   |  |                                                                                                       
|            |  |                                                                                                                                                                                                                                                                                                                                                                                 |  |                                                                                                       
|10.17       |  | The Supplemental Trust Agreement dated
as of December 7, 2001 among First
Union Trust Company, National
Association, the Company and Hollinger
Canadian Newspapers, Limited
Partnership.                                                                                                                                                                                        |  |                                                                                                       
|            |  |                                                                                                                                                                                                                                                                                                                                                                                 |  |                                                                                                       
|10.18       |  | The Amended and Restated Participation
Agreement dated as of November 30, 2001
among the Company, Hollinger Canadian
Newspapers, Limited Partnership and the
Hollinger Participation Trust.                                                                                                                                                                                     |  |                                                                                                       
|            |  |                                                                                                                                                                                                                                                                                                                                                                                 |  |                                                                                                       
|10.19       |  | The Purchase Agreement dated December
16, 2002 among Hollinger International
Publishing Inc., the Company and
Wachovia Securities, Inc.                                                                                                                                                                                                                                         |  |                                                                                                       
|            |  |                                                                                                                                                                                                                                                                                                                                                                                 |  |                                                                                                       
|10.20       |  | The Registration Rights Agreement dated
as of December 16, 2002 among Hollinger
International Publishing Inc., the
Company, and Wachovia Securities, Inc.                                                                                                                                                                                                                       |  |                                                                                                       
|            |  |                                                                                                                                                                                                                                                                                                                                                                                 |  |                                                                                                       
|10.21       |  | The Indenture dated as of December 23,
2002 among Hollinger International
Publishing Inc., the Company and
Wachovia Trust Company, National
Association.                                                                                                                                                                                                                        |  |                                                                                                       
|            |  |                                                                                                                                                                                                                                                                                                                                                                                 |  |                                                                                                       
|10.22       |  | The 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). |  |                                                                                                       
|            |  |                                                                                                                                                                                                                                                                                                                                                                                 |  |                                                                                                       
|10.23       |  | The 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.                                                                                                                                                                          |  |                                                                                                       
|            |  |                                                                                                                                                                                                                                                                                                                                                                                 |  |                                                                                                       
|10.24       |  | The 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).                                                                                                                                                                     |  |                                                                                                       

44



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##### Table of Contents



|            |  |                                                                                                                                                                                                                                                                               |  |                       
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------
|            |  |                                                                                                                                                                                                                                                                               |  | Prior Filing or       
|Exhibit No. |  | Description of Exhibit                                                                                                                                                                                                                                                        |  | Sequential Page Number
|            |  |                                                                                                                                                                                                                                                                               |  |                       
|10.25       |  | The Hollinger International Amended and
Restated Pledge Agreement dated as of
December 23, 2002 among the Company and
Wachovia Bank, N.A.                                                                                                                                     |  |                       
|            |  |                                                                                                                                                                                                                                                                               |  |                       
|10.26       |  | The 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.   |  |                       
|            |  |                                                                                                                                                                                                                                                                               |  |                       
|10.27       |  | The 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).                                                                                                    |  |                       
|            |  |                                                                                                                                                                                                                                                                               |  |                       
|10.28       |  | The 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.                                                                               |  |                       
|            |  |                                                                                                                                                                                                                                                                               |  |                       
|10.29       |  | The 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). |  |                       
|            |  |                                                                                                                                                                                                                                                                               |  |                       
|10.30       |  | The U.S. Pledge Agreement dated as of
December 23, 2002 among Deedtask
Limited, Creditscheme Limited and
Wachovia Bank, N.A.                                                                                                                                                  |  |                       
|            |  |                                                                                                                                                                                                                                                                               |  |                       
|21.1        |  | Significant Subsidiaries of Hollinger
International Inc.                                                                                                                                                                                                                      |  |                       
|            |  |                                                                                                                                                                                                                                                                               |  |                       
|23.1        |  | Consent of KPMG LLP.                                                                                                                                                                                                                                                          |  |                       
|            |  |                                                                                                                                                                                                                                                                               |  |                       
|99.1        |  | Certification of Chief Executive Officer                                                                                                                                                                                                                                      |  |                       
|            |  |                                                                                                                                                                                                                                                                               |  |                       
|99.2        |  | Certification of Chief Financial Officer                                                                                                                                                                                                                                      |  |                       



| | (b) |  | Reports on Form 8-K.
| | --- |  | --------------------

The Company did not file
any report on Form 8-K in 2002.

45



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##### Table of Contents






SIGNATURES

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

HOLLINGER INTERNATIONAL INC. (Registrant)

|    |  |                                                                                                     
|--- |  | ----------------------------------------------------------------------------------------------------
|By: |  | /s/  Conrad M. BlackLord Black of Crossharbour, PC(C), OC, KCSG
Chairman and Chief Executive Officer

Date: March 31, 2003

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

|                                             |  |                                                                                                    |  |               
|-------------------------------------------- |  | -------------------------------------------------------------------------------------------------- |  | --------------
|Signature                                    |  | Title                                                                                              |  | Date          
|                                             |  |                                                                                                    |  |               
|                                            
|/s/ Conrad M. BlackConrad M. Black           |  | Chairman, Chief Executive Officer and Director
(Principal Executive Officer)                       |  | March 31, 2003
|                                            
|/s/ F. David RadlerF. David Radler           |  | Deputy Chairman, President,
Chief Operating Officer and Director                                   |  | March 31, 2003
|                                            
|/s/ Daniel W. ColsonDaniel W. Colson         |  | Vice Chairman and Director, Deputy Chairman, Chief Executive Officer and Director of the Telegraph |  | March 31, 2003
|                                            
|/s/ John A BoultbeeJohn A Boultbee           |  | Executive Vice President                                                                           |  | March 31, 2003
|                                            
|/s/ Peter Y. AtkinsonPeter Y. Atkinson       |  | Executive Vice President
and Director                                                              |  | March 31, 2003
|                                            
|/s/ Peter K. LanePeter K. Lane               |  | Vice President
Chief Financial Officer
(Principal Financial Officer)                               |  | March 31, 2003
|                                            
|/s/ Frederick A. CreaseyFrederick A. Creasey |  | Vice President
Group Corporate Controller
(Principal Accounting
Officer)                           |  | March 31, 2003
|                                            
|Barbara Amiel Black                          |  | Vice President  Editorial
and Director                                                            |  | March 31, 2003
|                                            
|/s/ Richard R. BurtRichard R. Burt           |  | Director                                                                                           |  | March 31, 2003
|                                            
|/s/ Henry A. KissingerHenry A. Kissinger     |  | Director                                                                                           |  | March 31, 2003
|                                            
|/s/ Marie Josee-KravisMarie Josee-Kravis     |  | Director                                                                                           |  | March 31, 2003

46



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##### Table of Contents



|                                       |  |                                                 |  |               
|-------------------------------------- |  | ----------------------------------------------- |  | --------------
|Signature                              |  | Title                                           |  | Date          
|                                       |  |                                                 |  |               
|                                      
|Shmuel Meitar                          |  | Director                                        |  | March 31, 2003
|                                      
|Richard N. Perle                       |  | Director, Co-Chairman of Hollinger Digital Inc. |  | March 31, 2003
|                                      
|A. Alfred Taubman                      |  | Director                                        |  | March 31, 2003
|                                      
|/s/ James R. ThompsonJames R. Thompson |  | Director                                        |  | March 31, 2003

47



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##### Table of Contents



CERTIFICATIONS

I, Conrad M. Black, Chairman of the Board and Chief Executive Officer of
Hollinger International Inc., certify that:



|1. |  | I have reviewed this annual report on Form 10-K of Hollinger International
Inc.                                                                                                                                                                                                                                         
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:                                                                                                  



| | a) |  | designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (and persons performing the
equivalent function):
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants
auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: March 31, 2003

| |  |                                                                                                                              
| |  | -----------------------------------------------------------------------------------------------------------------------------
| |  | /s/ Conrad M. BlackLord Black of Crossharbour, PC(C), OC, KCSG
Chairman of the Board of Directors and
Chief Executive Officer

48



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##### Table of Contents



CERTIFICATIONS

I, Peter K. Lane, Vice President and Chief Financial Officer of Hollinger International Inc., certify that:



|1. |  | I have reviewed this annual report on Form 10-K of Hollinger International Inc.                                                                                                                                                                                                                                         
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:                                                                                                  



| | a) |  | designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (and persons performing the
equivalent function):
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants
auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: March 31, 2003

| |  |                                                                          
| |  | -------------------------------------------------------------------------
| |  | /s/ Peter K. LanePeter K. Lane
Vice President and
Chief Financial Officer

49



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##### Table of Contents



INDEPENDENT AUDITORS REPORT

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, 2002 and
2001, and the
related consolidated statements of operations, comprehensive income (loss),
stockholders equity and cash flows for each of the years in the three-year
period ended December 31, 2002. These consolidated financial statements are the
responsibility of the Companys management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Hollinger
International Inc. and subsidiaries as of December 31, 2002 and 2001, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2002, in conformity with accounting
principles generally accepted in the Unites States of America.

As discussed in note 10 to the statement of significant accounting policies,
the Company adopted the provisions of Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets, as of January 1, 2002.

As discussed in note 21 to the consolidated financial statements, the
accompanying consolidated balance sheet as of December 31, 2001, and the
related consolidated statements of operations, comprehensive income (loss),
stockholders equity and cash flows for the years ended December 31, 2001 and
2000 have been restated.

/s/ KPMG LLP

March 17, 2003

Chicago, Illinois

F-1



---



##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Statement of Significant Accounting Policies

For the Years Ended December 31, 2002, 2001 and 2000

---



|1. |  | Principles of Presentation and Consolidation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Hollinger International Inc. (the Company) is a subsidiary of Hollinger
Inc., a Canadian corporation. At December 31, 2002, Hollinger Inc. owned
31.8% of the combined equity and 72.8% of the combined voting power of
the outstanding Common Stock of the Company, without giving effect to
conversion of the Series E Redeemable Convertible Preferred Stock
(Series E Preferred Stock).                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  
|   |  | The consolidated financial statements include the accounts of the Company
and its majority-owned subsidiaries and other controlled entities. The
Companys interest in Hollinger Canadian Newspapers, Limited Partnership
(Hollinger L.P.) was 87.0% at December 31, 2002, 2001 and 2000. The
Company had no economic interest in The National Post Company (National
Post) at or after December 31, 2001 and a 50% interest at December 31,
2000 (see notes 1(c) and (d) of Notes to Consolidated Financial
Statements for discussion of the sale of National Post). All significant
intercompany balances and transactions have been eliminated on
consolidation.                                                                                                                                                                               
|  
|2. |  | Description of Business                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|   |  | The Company is engaged principally in the publishing, printing and
distribution of newspapers and magazines through subsidiaries and
affiliates in the United States, the United Kingdom, Canada and Israel.
In addition, the Company has developed related websites on the Internet.
The Companys raw materials, mainly newsprint and ink, are not dependent
on a single or limited number of suppliers. Customers range from
individual subscribers to local and national advertisers.                                                                                                                                                                                                                                                                                                                                                             
|  
|3. |  | Critical Accounting Policies and Estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   |  | The preparation of consolidated financial statements requires the Company
to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenue and expenses, and related disclosure of
contingent assets and liabilities. On an on-going basis, the Company
evaluates its estimates, including those related to bad debts,
investments, goodwill, intangible assets, income taxes, pensions and
other post-retirement benefits, contingencies and litigation. The
Company relies 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.

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HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Statement of Significant Accounting Policies, Continued

For the Years Ended December 31, 2002, 2001 and 2000

---



|   |  | The Company believes the following critical accounting policies affect
the more significant judgments and estimates used in the preparation of
its consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                       
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The Company maintains allowances for doubtful accounts for estimated
losses resulting from the inability of its customers to make required
payments. If the financial condition of one or more of the Companys
customers were to deteriorate, resulting in an impairment of their
ability to make payments, additional allowances could be required.                                                                                                                                                                                                                       
|  
|   |  | The Company holds minority interests in both publicly traded and
privately held companies. Some of the publicly traded companies have
highly volatile share prices. The Company records an impairment charge
when it believes an investment, whether or not publicly traded, has
experienced a decline in value that is other than temporary. Future
adverse changes in market conditions or poor operating results of
underlying investments may not be reflected in an investments current
carrying value, thereby possibly requiring an impairment charge in the
future.
|  
|   |  | The Company has significant goodwill and intangible assets with
indefinite useful lives recorded in its accounts. Future adverse changes
in long-term readership patterns in its newspapers and other factors
could result in a material impairment of its intangible assets in the
future, as described in note 10 to the statement of significant
accounting policies.                                                                                                                                                                                                    
|  
|4. |  | Cash Equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   |  | Cash equivalents consist of certain highly liquid investments with
original maturities of three months or less.                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|5. |  | Inventories                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   |  | Inventories consist principally of newsprint that is valued at the lower
of cost or market. Cost is determined using the first-in, first-out
(FIFO) method.                                                                                                                                                                                                                                                                                                                                                                                                                 

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HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Statement of Significant Accounting Policies, Continued

For the Years Ended December 31, 2002, 2001 and 2000

---



|6. |  | 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 improvements and 3 to 10
years for machinery and equipment. Leasehold improvements are amortized
using the straight-line method over the shorter of the estimated useful
life of the asset and the lease term. Property, plant and equipment
disclosed as construction in progress is not depreciated until the items
are in use.                                                                                                                                                              
|  
|   |  | The Company assesses the recoverability of the recorded value of all
long-lived assets including property, plant and equipment whenever events
or changes in business circumstances indicate the carrying amount of the
assets, or related group of assets, may not be fully recoverable. The
assessment of recoverability is based on managements estimate of
undiscounted future operating cash flows of its long-lived assets. If
the assessment indicates that the undiscounted operating cash flows do
not exceed the 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.                                                                                                                                                                                  

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HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Statement of Significant Accounting Policies, Continued

For the Years Ended December 31, 2002, 2001 and 2000

---



|7. |  | Derivatives                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The Company is a limited user of derivative financial instruments to
manage risks generally associated with interest rate and foreign currency
exchange rate market volatility. The Company does not hold or issue
derivative financial instruments for trading purposes. Effective January
1, 2001, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 133, Accounting for Derivative Instruments and Hedging
Activities and SFAS No. 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities, an amendment of SFAS No.
133. There was no effect on consolidated results of operations,
financial position or cash flows on adoption of these standards. These
statements were not required to be retroactively applied to prior
periods. 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 fair
value of derivatives that are designated and qualify as effective hedges
are recorded either in other comprehensive income (loss) or earnings, as
appropriate. The ineffective portion of derivatives that are classified
as hedges is immediately recognized in earnings.
|  
|   |  | In 2000 and prior to the adoption of SFAS No. 133 and SFAS No. 138,
amounts receivable under interest rate cap agreements were accrued as a
reduction of interest expense and amounts payable were accrued as
interest expense. Interest rate differentials on all other swap
arrangements were accrued as interest rates changed over the contract
periods. Amounts receivable under foreign currency forward purchase or
sale agreements were accrued as foreign exchange gains and amounts
payable were accrued as foreign exchange losses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

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HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Statement of Significant Accounting Policies, Continued

For the Years Ended December 31, 2002, 2001 and 2000

---



|8. |  | 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 other comprehensive income (loss) until realized. Realized
gains and losses from the sale of available-for-sale securities are
determined on a specific identification basis and recognized as other
income (expense), net. All other 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 are recognized when earned.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  
|9. |  | Investments in Affiliated Companies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  
|   |  | 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. This is generally presumed to exist when the
Company owns between 20% and 50% of the investees voting stock except in
the following circumstance.                                                                                                                                                                                                                                                                                                                                            
|  
|   |  | As described in notes 1(c) and 1(d) to the consolidated financial
statements, 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.                                                                                                                                                                                                                

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HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Statement of Significant Accounting Policies, Continued

For the Years Ended December 31, 2002, 2001 and 2000

---



|    |  | 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 whom
certain of the Companys U.K. Newspaper Group subsidiaries have
agreements for the printing of predominantly all of the UK 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 19(d) to the consolidated financial statements).
The Companys joint venture partners are also engaged in the business of
newspaper publication.                                                                                                                                                                                         
|   
|    |  | Prior to the adoption of SFAS No. 142 (see note 10 to the statement of
significant accounting policies) the excess of acquisition costs over the
Companys share of the fair value of net assets at the acquisition date
of an equity method investment was amortized on a straight-line basis
over five years. Effective January 1, 2002, such equity method goodwill
is no longer amortized. The Company recognizes a loss when there is an
other than temporary decline in the fair value of the investment below
its carrying value.                                                                                                                                                                                  
|   
|10. |  | 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.                                                                                                                                                                                                                                          
|   
|    |  | Effective January 1, 2002, the Company adopted SFAS No. 142, Goodwill
and Other Intangible Assets. 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 estimable 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.

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HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Statement of Significant Accounting Policies, Continued

For the Years Ended December 31, 2002, 2001 and 2000

---



| |  | 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 reclassifications 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 require the Company to assess
whether goodwill is 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 has determined that the carrying amount of the Jerusalem Post
properties is in excess of its estimated fair value. Accordingly, the
value of goodwill attributable to the Jerusalem Post has been written
down in its entirety. The write-down of $20,079,000 (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. The Company has determined that the fair value of all other
reporting units is in excess of the respective carrying amounts, both on
adoption and at year end for purposes of the annual impairment test.                                                  
|
| |  | 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 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.

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HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Statement of Significant Accounting Policies, Continued

For the Years Ended December 31, 2002, 2001 and 2000

---



| |  | 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 $20,079,000 relating to
the Jerusalem Post.                                                                                                                                                                                                                    
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The change in accounting policy 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 statements of operations for the years ended December 31,
2001 and 2000, the impact of the change, in respect of goodwill and
intangible assets with indefinite useful lives not being amortized, would
be as follows:

|                                                                   |  |                |          |      |  |   |         | 
|------------------------------------------------------------------ |  | -------------- | -------- | ---- |  | - | ------- | 
|                                                                   |  | 2001           |          | 2000
|                                                                   |  |                |          |     
|                                                                   |  | (in thousands)
|Net earnings (loss)  as reported                                  |  | $              | (335,111 | )    |  | $ | 157,387 | 
|Add goodwill amortization, net of
income tax and minority interest |  |                | 16,604   |      |  |   | 40,192  | 
|                                                                   |  |                |          |      |  |   |         | 
|Adjusted net earnings (loss)                                       |  | $              | (318,507 | )    |  | $ | 197,579 | 
|                                                                   |  |                |          |      |  |   |         | 
|Basic net earnings (loss) per share  as reported                  |  | $              | (3.39    | )    |  | $ | 1.50    | 
|                                                                   |  |                |          |      |  |   |         | 
|Basic adjusted net earnings (loss) per share                       |  | $              | (3.23    | )    |  | $ | 1.91    | 
|                                                                   |  |                |          |      |  |   |         | 
|Diluted net earnings (loss) loss per share  as reported           |  | $              | (3.39    | )    |  | $ | 1.41    | 
|                                                                   |  |                |          |      |  |   |         | 
|Diluted adjusted net earnings (loss) loss per share                |  | $              | (3.23    | )    |  | $ | 1.77    | 
|                                                                   |  |                |          |      |  |   |         | 



| |  | Adjusted net earnings (loss), noted above, reflects only the reduction in
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 and 2000.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Statement of Significant Accounting Policies, Continued

For the Years Ended December 31, 2002, 2001 and 2000

---



|11. |  | 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, being up to eight years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|12. |  | Pension Plans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|    |  | Pension costs for defined contribution plans are recognized as the
obligation for contribution arises.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|13. |  | Income Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|    |  | Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to the difference between financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|14. |  | 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 less an allowance for
returned copies. Job printing revenue, being charges for printing
services provided to third parties, is recognized upon delivery.

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HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Statement of Significant Accounting Policies, Continued

For the Years Ended December 31, 2002, 2001 and 2000

---



|15. |  | 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. All assets, liabilities and minority interests
are translated at year-end exchange rates, stockholders equity is
translated at historical rates, and revenues and expenses are translated
at the average rates of exchange prevailing throughout the year.
Translation adjustments are included in the accumulated other
comprehensive income component of stockholders equity. Translation
adjustments are not included in earnings unless they are actually
realized through a sale or upon complete or substantially complete
liquidation of the Companys net investment in the foreign operation.
Gains and losses arising from the Companys foreign currency transactions
are reflected in net earnings.
|   
|16. |  | Earnings (Loss) Per Share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|    |  | Earnings (loss) per share is computed in accordance with SFAS No. 128
Earnings per Share. See note 12 to the consolidated financial
statements for a reconciliation of the numerator and denominator for the
calculation of basic and diluted earnings (loss) per share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|17. |  | Stock-Based Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|    |  | The Company uses the intrinsic value based method of accounting for its
stock-based compensation arrangements. Stock options granted to
employees of The Ravelston Corporation Limited (Ravelston), the parent
company of Hollinger Inc., are recorded using the fair value based method
and are reflected in the consolidated statements of stockholders equity
as a dividend in kind.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

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HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Statement of Significant Accounting Policies, Continued

For the Years Ended December 31, 2002, 2001 and 2000

---



| |  | Had the Company determined compensation costs based on the fair value at
the grant date of its stock options under SFAS No. 123, Accounting for
Stock-Based Compensation, the Companys net earnings (loss) and net
earnings (loss) per share would have been reduced to the pro forma
amounts indicated in the following table:
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                  |  |                                         |          |      |  |      |          |   |  |   |         |  
|------------------------------------------------- |  | --------------------------------------- | -------- | ---- |  | ---- | -------- | - |  | - | ------- | -
|                                                  |  | 2002                                    |          | 2001 |  | 2000
|                                                  |  |                                         |          |      |  |     
|                                                  |  | (in thousands except per share amounts)
|Net earnings (loss) as reported                   |  | $                                       | (238,823 | )    |  | $    | (335,111 | ) |  | $ | 157,387 |  
|Add: compensation expense, as reported            |  |                                         |         |      |  |      | (1,369   | ) |  |   | 1,518   |  
|Deduct: pro forma compensation expense            |  |                                         | (7,861   | )    |  |      | (6,989   | ) |  |   | (6,343  | )
|                                                  |  |                                         |          |      |  |      |          |   |  |   |         |  
|Pro forma net earnings (loss)                     |  |                                         | (246,684 | )    |  |      | (343,469 | ) |  |   | 152,562 |  
|Basic net earnings (loss) per share as reported   |  |                                         | (2.49    | )    |  |      | (3.39    | ) |  |   | 1.50    |  
|Diluted net earnings (loss) per share as
reported |  |                                         | (2.49    | )    |  |      | (3.39    | ) |  |   | 1.41    |  
|Pro forma basic net earnings (loss) per share     |  |                                         | (2.57    | )    |  |      | (3.48    | ) |  |   | 1.46    |  
|Pro forma diluted net earnings (loss)per share    |  |                                         | (2.57    | )    |  |      | (3.48    | ) |  |   | 1.37    |  



|    |  | Pro forma net earnings reflect only options granted in 1998 through 2002.
Therefore, the full impact of calculating compensation cost for stock
options under SFAS No. 123 is not reflected in the pro forma net earnings
(loss) amounts presented above because compensation cost is reflected
over the options vesting period of four years and the compensation cost
for options granted prior to January 1, 1998 is not considered.                                                                                                                                                                   
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The fair value of each stock option granted during 2002, 2001 and 2000
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 2002, 2001 and
2000, respectively: dividend yield of 3.6%, 4.6% and 3.4%; expected
volatility of 68.3%, 55.2% and 43.3%; risk-free interest rates of 4.5%,
5.0% and 5.1%; expected lives of 10 years. Weighted average fair value
of options granted by the Company during 2002, 2001 and 2000 was $5.65,
$5.67 and $4.12, respectively.
|   
|18. |  | Dilution gains and losses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|    |  | The issuance of stock by one of the Companys equity accounted investees
or subsidiaries in the absence of any purchase of stock issued in
proportion to the Companys interests results in a dilution of the
Companys proportionate interest in the investee or subsidiary. Any gain
or loss arising upon dilution is reflected separately in the consolidated
statement of operations.                                                                                                                                                                                                                  

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HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Statement of Significant Accounting Policies, Continued

For the Years Ended December 31, 2002, 2001 and 2000

---



|19. |  | Reclassifications                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Certain 2001 and 2000 amounts in the consolidated financial statements
have been reclassified to conform with the 2002 presentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|20. |  | New accounting pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|    |  | In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations (SFAS 143), which is effective for financial
statements issued for fiscal years beginning after June 15, 2002. SFAS
143 addresses the recognition and measurement of obligations associated
with the retirement of tangible long-lived assets. The Company has not yet
determined the effect, if any, that the adoption of SFAS 143 will have on
our business, results of operations and financial condition.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|    |  | In April 2002, the Financial Accounting Standards Board (FASB) issued
SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment
of FASB Statement No. 13, and Technical Corrections (SFAS 145). The
Statement 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 per 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. Upon adoption, any gain or loss on
extinguishment of debt that was classified as an extraordinary item in
prior periods presented, that does not meet the criteria in APB Opinion
30 for classification as an extraordinary item, is required to be
reclassified. The Company is required to adopt this Statement no later
than its fiscal year beginning January 1, 2003. Upon adoption of SFAS
145, the Companys net loss on the extinguishment of debt of $21.3
million for the year ended December 31, 2002 will no longer qualify as an
extraordinary item, nor will estimated net losses of approximately $22
million incurred on the January 2003 extinguishment of its senior
subordinated notes.

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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Statement of Significant Accounting Policies, Continued

For the Years Ended December 31, 2002, 2001 and 2000

---



| |  | In July 2002, the FASB issued Statement of Financial Accounting Standards
No. 146, Accounting for Costs Associated with Exit or Disposal
Activities (SFAS 146). SFAS 146 addresses financial accounting and
reporting for costs associated with exit or disposal activities, and is
effective for exit or disposal activities initiated after December 31,
2002. SFAS 146 nullifies Emerging Issues Task Force Issue No. 94-3 (EITF
94-3), Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in
Restructuring). The principal difference between SFAS 146 and EITF 94-3
relates to the recognition of a liability for a cost associated with an
exit or disposal activity. SFAS 146 requires that the cost associated
with an exit or disposal activity be recognized when the liability is
incurred, whereas under EITF 94-3, the liability was recognized at the
date of an entitys commitment to an exit plan. The Company is currently
assessing the impact of SFAS 146 on its financial position and results of
operations.                                                                                                                                                                                                
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In November 2002, the FASB issued Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others (the Interpretation), which
address the disclosure to be made by a guarantor in its interim and
annual financial statements about its obligations under guarantees.
These disclosure requirements are included in note 18 to the consolidated
financial statements. For guarantees entered into or modified after
December 31, 2002, the Interpretation requires the guarantor to recognize
a liability for the non-contingent component of guarantees, being the
obligation to stand ready to perform in the event that specified
triggering events or conditions occur. The initial measurement of this
liability is the fair value of the guarantee at inception. The
recognition of the liability is required even if it is not probable that
payments will be required under the guarantee or if the guarantee was
issued without a premium payment or as part of a transaction with
multiple elements. As noted above, the Company has adopted the
disclosure requirements of the Interpretation and will apply the
recognition and measurement provisions for all guarantees entered into or
modified after December 31, 2002.
|
| |  | In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation  Transition and Disclosure, an amendment of
FASB Statement No. 123. This Statement amends SFAS No. 123, Accounting
for Stock-Based Compensation, to provide alternative methods of
transition for a voluntary change to the fair value method of accounting
for stock-based employee compensation. The Company plans to continue to
use the intrinsic value method. In addition, this Statement amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures
in both annual and interim financial statements. Certain of the
disclosure modifications are required for fiscal years ending after
December 15, 2002 and are included in note 17 to the Companys Consolidated
Financial Statements  Statement of Significant Accounting Policies.                                                                                                                                                                                                                                                                                                                                                                                                                                                        

F-14



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Statement of Significant Accounting Policies, Continued

For the Years Ended December 31, 2002, 2001 and 2000

---



| |  | In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities (VIEs) (FIN 46) which requires that
companies that control another entity through interests other than voting
interest should consolidate the controlled entity. In the absence of
clear control through a voting equity interest, a companys exposure
(variable interest) to the economic risk and the potential rewards from a
VIEs assets and activities are the best evidence of a controlling
financial interest. VIEs created after January 31, 2003 must be
consolidated immediately. VIEs existing prior to February 1, 2003 must
be consolidated by the Company commencing with its third quarter 2003
interim financial statements. The Company has not yet determined
whether it has any VIEs which will require consolidation.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-15



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Consolidated Balance Sheets

December 31, 2002 and 2001

---

|                                                                                                   |  |                                                                                                    |           |                |         |   |           |             |         | 
|-------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------- | --------- | -------------- | ------- | - | --------- | ----------- | ------- | 
|Assets                                                                                             |  | 2002                                                                                               |           | 2001          
|                                                                                                   |  |                                                                                                    |          
|                                                                                                   |  |                                                                                                    |           | (in thousands)
|                                                                                                   |  |                                                                                                    |           |                |         |   |           | (Restated

|                                                                                                   |  |                                                                                                    |           |                |         |   |           | note 21)   
|Current assets:                                                                                    |  |                                                                                                    |           |                |         |   |           |            
|                                                                                                   |  | Cash and cash equivalents                                                                          |           | $              | 113,368 |   |           | $           | 479,514 | 
|                                                                                                   |  | Accounts receivable, net of allowance for doubtful accounts
of $20,676 in 2002 and $16,366 in 2001 |           |                | 205,843 |   |           |             | 199,238 | 
|                                                                                                   |  | Accounts receivable  joint ventures (note 19(d))                                                  |           |                |        |   |           |             | 803     | 
|                                                                                                   |  | Inventories                                                                                        |           |                | 10,194  |   |           |             | 21,209  | 
|                                                                                                   |  | Prepaid expenses and other current assets                                                          |           |                | 18,358  |   |           |             | 12,633  | 
|                                                                                                   |  | Escrow deposits and restricted cash (notes 6(a) and 13)                                            |           |                | 545,952 |   |           |             | 12,548  | 
|                                                                                                   |  |                                                                                                    |           |                |         |   |           |            
|Total current assets                                                                               |  |                                                                                                    | 893,715   |                |         |   | 725,945   |            
|Loan to affiliate (note 19(b))                                                                     |  |                                                                                                    | 45,848    |                |         |   | 43,982    |            
|Investments (note 2)                                                                               |  |                                                                                                    | 124,076   |                |         |   | 144,011   |            
|                                                                                                   |  |                                                                                                    |           |                |         |   |          
|Advances under printing contracts and notes receivable  joint ventures (note 19(d))               |  |                                                                                                    | 50,591    |                |         |   | 52,036    |            
|Property, plant and equipment, net of accumulated depreciation (note 3)                            |  |                                                                                                    | 299,686   |                |         |   | 309,272   |            
|Intangible assets, net of accumulated amortization
of $36,368 in 2002 and $94,201 in 2001 (note 4) |  |                                                                                                    | 117,179   |                |         |   | 477,231   |            
|Goodwill (note 4)                                                                                  |  |                                                                                                    | 533,677   |                |         |   | 180,958   |            
|Prepaid pension benefit (note 22)                                                                  |  |                                                                                                    | 63,146    |                |         |   | 62,825    |            
|Deferred financing costs and other assets                                                          |  |                                                                                                    | 60,214    |                |         |   | 61,716    |            
|                                                                                                   |  |                                                                                                    |           |                |         |   |           |            
|                                                                                                   |  | $                                                                                                  | 2,188,132 |                |         | $ | 2,057,976 |            
|                                                                                                   |  |                                                                                                    |           |                |         |   |           |            

(Continued)

F-16



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Consolidated Balance Sheets

December 31, 2002 and 2001

---

|                                                   |                                                                                                                                                              |                                                    |           |                |         |   |           |             |          |  
|-------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------ | -------------------------------------------------- | --------- | -------------- | ------- | - | --------- | ----------- | -------- | -
|Liabilities and Stockholders' Equity               |                                                                                                                                                              | 2002                                               |           | 2001          
|                                                   |                                                                                                                                                              |                                                    |          
|                                                   |                                                                                                                                                              |                                                    |           | (in thousands)
|                                                   |                                                                                                                                                              |                                                    |           |                |         |   |           | (Restated 
|                                                   |                                                                                                                                                              |                                                    |           |                |         |   |           | note 21)   
|Current liabilities:                               |                                                                                                                                                              |                                                    |           |                |         |   |           |            
|                                                   | Current installments of long-term debt (note 6)                                                                                                              |                                                    | $         | 4,814          |         |   | $         | 3,008       |         
|                                                   | Senior Subordinated Notes (note 6)                                                                                                                           |                                                    |           | 504,906        |         |   |           |            |         
|                                                   | Accounts payable                                                                                                                                             |                                                    |           | 87,445         |         |   |           | 90,105      |         
|                                                   | Accounts payable  joint ventures (note 19(d))                                                                                                               |                                                    |           | 12,454         |         |   |           | 6,992       |         
|                                                   | Accrued expenses (note 5)                                                                                                                                    |                                                    |           | 106,878        |         |   |           | 134,691     |         
|                                                   | Amounts due to related parties, net                                                                                                                          |                                                    |           | 30,358         |         |   |           | 11,754      |         
|                                                   | Income taxes payable                                                                                                                                         |                                                    |           | 295,971        |         |   |           | 290,587     |         
|                                                   | Deferred revenue                                                                                                                                             |                                                    |           | 42,792         |         |   |           | 41,208      |         
|                                                   |                                                                                                                                                              |                                                    |           |                |         |   |           |            
|Total current liabilities                          |                                                                                                                                                              |                                                    | 1,085,618 |                |         |   | 578,345   |            
|Long-term debt, less current installments (note 6) |                                                                                                                                                              |                                                    | 574,658   |                |         |   | 809,652   |            
|Deferred income taxes (note 20)                    |                                                                                                                                                              |                                                    | 249,731   |                |         |   | 187,388   |            
|Other liabilities                                  |                                                                                                                                                              |                                                    | 132,503   |                |         |   | 91,298    |            
|                                                   |                                                                                                                                                              |                                                    |           |                |         |   |           |            
|Total liabilities                                  |                                                                                                                                                              |                                                    | 2,042,510 |                |         |   | 1,666,683 |            
|                                                   |                                                                                                                                                              |                                                    |           |                |         |   |           |            
|Minority interest (note 8)                         |                                                                                                                                                              |                                                    | 17,097    |                |         |   | 16,084    |            
|                                                   |                                                                                                                                                              |                                                    |           |                |         |   |           |            
|Redeemable preferred stock (note 9)                |                                                                                                                                                              |                                                    | 8,650     |                |         |   | 8,582     |            
|                                                   |                                                                                                                                                              |                                                    |           |                |         |   |           |            
|Stockholders equity (note 10):                    |                                                                                                                                                              |                                                    |           |                |         |   |           |            
|                                                   | Convertible preferred stock                                                                                                                                  |                                                    |           |               |         |   |           |            |         
|                                                   | Class A common stock, $0.01 par value. Authorized 250,000,000
shares; issued and outstanding 85,819,295 and 96,837,179 shares
in 2002 and 2001, respectively |                                                    |           | 858            |         |   |           | 968         |         
|                                                   | Class B common stock, $0.01 par value. Authorized 50,000,000
shares; issued and outstanding 14,990,000 shares
in 2002 and 2001                               |                                                    |           | 150            |         |   |           | 150         |         
|                                                   | Additional paid-in capital                                                                                                                                   |                                                    |           | 441,476        |         |   |           | 554,891     |         
|                                                   | Accumulated other comprehensive loss:                                                                                                                        |                                                    |           |                |         |   |           |             |         
|                                                   |                                                                                                                                                              | Cumulative foreign currency translation adjustment |           |                | (38,950 | ) |           |             | (149,813 | )
|                                                   |                                                                                                                                                              | Unrealized loss on marketable securities           |           |                | (694    | ) |           |             | (6,446   | )
|                                                   |                                                                                                                                                              | Minimum pension liability adjustment               |           |                | (44,709 | ) |           |             | (16,972  | )
|                                                   | Retained earnings (deficit)                                                                                                                                  |                                                    |           | (98,296        | )       |   |           | 175,400     |         
|                                                   |                                                                                                                                                              |                                                    |           |                |         |   |           |            
|                                                   |                                                                                                                                                              |                                                    | 259,835   |                |         |   | 558,178   |            
|                                                   | Class A common stock in treasury, at cost  11,151,951 shares in 2002
and 10,785,811 shares in 2001                                                          |                                                    |           | (139,960       | )       |   |           | (132,896    | )       
|                                                   | Class A common stock in escrow  nil shares in 2002
and 5,011,628 shares in 2001 (note 13)                                                                   |                                                    |           |               |         |   |           | (58,655     | )       
|                                                   |                                                                                                                                                              |                                                    |           |                |         |   |           |            
|Total stockholders equity                         |                                                                                                                                                              |                                                    | 119,875   |                |         |   | 366,627   |            
|                                                   |                                                                                                                                                              |                                                    |           |                |         |   |           |            
|Commitments and contingencies (notes 7 and 18)     |                                                                                                                                                              | $                                                  | 2,188,132 |                |         | $ | 2,057,976 |            
|                                                   |                                                                                                                                                              |                                                    |           |                |         |   |           |            

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

F-17



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Consolidated Statements of Operations

For the Years Ended December 31, 2002, 2001 and 2000

---

|                                                                                                                                    |                                                                 |         |           |                                       |       |      |           |             |       |             |           |           |      | 
|----------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------- | ------- | --------- | ------------------------------------- | ----- | ---- | --------- | ----------- | ----- | ----------- | --------- | --------- | ---- | 
|                                                                                                                                    |                                                                 |         |           | 2002                                  |       | 2001 |           | 2000       
|                                                                                                                                    |                                                                 |         |           |                                       |       |      |           |            
|                                                                                                                                    |                                                                 |         |           | (in thousands, except per share data)
|                                                                                                                                    |                                                                 |         |           |                                       |       |      |           | (Restated  |       | (Restated 
|                                                                                                                                    |                                                                 |         |           |                                       |       |      |           | note 21)    |       | note 21)   
|Operating revenues:                                                                                                                 |                                                                 |         |           |                                       |       |      |           |             |       |             |           |          
|                                                                                                                                    | Advertising                                                     |         | $         | 710,849                               |       |      | $         | 804,462     |       |             | $         | 1,543,882 |     
|                                                                                                                                    | Circulation                                                     |         |           | 247,175                               |       |      |           | 278,321     |       |             |           | 447,050   |     
|                                                                                                                                    | Job printing                                                    |         |           | 16,669                                |       |      |           | 25,092      |       |             |           | 59,089    |     
|                                                                                                                                    | Other                                                           |         |           | 31,469                                |       |      |           | 38,446      |       |             |           | 45,998    |     
|                                                                                                                                    |                                                                 |         |           |                                       |       |      |           |             |       |             |           |          
|Total operating revenues                                                                                                            |                                                                 |         | 1,006,162 |                                       |       |      | 1,146,321 |             |       |             | 2,096,019 |          
|                                                                                                                                    |                                                                 |         |           |                                       |       |      |           |             |       |             |           |          
|Operating costs and expenses:                                                                                                       |                                                                 |         |           |                                       |       |      |           |             |       |             |           |          
|                                                                                                                                    | Newsprint                                                       |         |           | 89,840                                |       |      |           | 127,025     |       |             |           | 212,341   |     
|                                                                                                                                    | Newsprint incurred through joint ventures (note 19)             |         |           | 60,589                                |       |      |           | 77,399      |       |             |           | 91,836    |     
|                                                                                                                                    | Compensation costs (note 21)                                    |         |           | 309,032                               |       |      |           | 363,045     |       |             |           | 662,351   |     
|                                                                                                                                    | Stock-based compensation                                        |         |           |                                      |       |      |           | (1,369      | )     |             |           | 1,518     |     
|                                                                                                                                    | Other operating costs (note 19)                                 |         |           | 387,638                               |       |      |           | 472,269     |       |             |           | 726,107   |     
|                                                                                                                                    | Other operating costs incurred through joint ventures (note 19) |         |           | 46,677                                |       |      |           | 48,473      |       |             |           | 49,534    |     
|                                                                                                                                    | Infrequent items (note 14)                                      |         |           | 1,032                                 |       |      |           | 21,734      |       |             |           | 7,950     |     
|                                                                                                                                    | Depreciation                                                    |         |           | 37,001                                |       |      |           | 37,968      |       |             |           | 64,546    |     
|                                                                                                                                    | Amortization                                                    |         |           | 17,151                                |       |      |           | 35,760      |       |             |           | 58,088    |     
|                                                                                                                                    |                                                                 |         |           |                                       |       |      |           |             |       |             |           |          
|Total operating costs and expenses                                                                                                  |                                                                 |         | 948,960   |                                       |       |      | 1,182,304 |             |       |             | 1,874,271 |          
|                                                                                                                                    |                                                                 |         |           |                                       |       |      |           |             |       |             |           |          
|Operating income (loss)                                                                                                             |                                                                 |         | 57,202    |                                       |       |      | (35,983   | )           |       |             | 221,748   |          
|                                                                                                                                    |                                                                 |         |           |                                       |       |      |           |             |       |             |           |          
|Other income (expense):                                                                                                             |                                                                 |         |           |                                       |       |      |           |             |       |             |           |          
|                                                                                                                                    | Interest expense                                                |         |           | (58,772                               | )     |      |           | (78,639     | )     |             |           | (142,713  | )   
|                                                                                                                                    | Amortization of deferred financing costs                        |         |           | (5,585                                | )     |      |           | (10,367     | )     |             |           | (10,469   | )   
|                                                                                                                                    | Interest and dividend income                                    |         |           | 18,782                                |       |      |           | 64,893      |       |             |           | 18,536    |     
|                                                                                                                                    | Foreign currency losses, net (notes 15(b) and 17)               |         |           | (86,800                               | )     |      |           | (1,259      | )     |             |           | (16,048   | )   
|                                                                                                                                    | Other income (expense), net (notes 15 and 21)                   |         |           | (53,178                               | )     |      |           | (295,878    | )     |             |           | 524,869   |     
|                                                                                                                                    | Dilution gain (note 1(i))                                       |         |           |                                      |       |      |           |            |       |             |           | 17,008    |     
|                                                                                                                                    |                                                                 |         |           |                                       |       |      |           |             |       |             |           |          
|Total other income (expense)                                                                                                        |                                                                 |         | (185,553  | )                                     |       |      | (321,250  | )           |       |             | 391,183   |          
|                                                                                                                                    |                                                                 |         |           |                                       |       |      |           |             |       |             |           |          
|Earnings (loss) before income taxes, minority interest, extraordinary
items and cumulative effect of change in accounting principle |                                                                 |         | (128,351  | )                                     |       |      | (357,233  | )           |       |             | 612,931   |          
|Income taxes (recovery) (note 20)                                                                                                   |                                                                 |         | 66,950    |                                       |       |      | (8,319    | )           |       |             | 398,452   |          
|                                                                                                                                    |                                                                 |         |           |                                       |       |      |           |             |       |             |           |          
|Earnings (loss) before minority interest, extraordinary
items and cumulative effect of change in accounting principle               |                                                                 |         | (195,301  | )                                     |       |      | (348,914  | )           |       |             | 214,479   |          
|Minority interest                                                                                                                   |                                                                 |         | 2,167     |                                       |       |      | (13,803   | )           |       |             | 50,760    |          
|                                                                                                                                    |                                                                 |         |           |                                       |       |      |           |             |       |             |           |          
|Earnings (loss) before extraordinary items and cumulative
effect of change in accounting principle                                  |                                                                 |         | (197,468  | )                                     |       |      | (335,111  | )           |       |             | 163,719   |          
|Extraordinary loss on debt extinguishments (note 6(b))                                                                              |                                                                 |         | (21,276   | )                                     |       |      |          |             |       |             | (6,332    | )        
|                                                                                                                                    |                                                                 |         |           |                                       |       |      |           |             |       |             |           |          
|Earnings (loss) before cumulative effect of change in accounting principle                                                          |                                                                 |         | (218,744  | )                                     |       |      | (335,111  | )           |       |             | 157,387   |          
|Cumulative effect of change in accounting principle (note 4)                                                                        |                                                                 |         | (20,079   | )                                     |       |      |          |             |       |             |          |          
|                                                                                                                                    |                                                                 |         |           |                                       |       |      |           |             |       |             |           |          
|Net earnings (loss)                                                                                                                 |                                                                 | $       | (238,823  | )                                     |       | $    | (335,111  | )           |       | $           | 157,387   |          
|                                                                                                                                    |                                                                 |         |           |                                       |       |      |           |             |       |             |           |          
|Earnings (loss) per share before extraordinary items and
cumulative effect of change in accounting principle:                       |                                                                 |         |           |                                       |       |      |           |             |       |             |           |          
|                                                                                                                                    |                                                                 | Basic   |           | $                                     | (2.06 | )    |           | $           | (3.39 | )           |           | $         | 1.57 | 
|                                                                                                                                    |                                                                 | Diluted |           | $                                     | (2.06 | )    |           | $           | (3.39 | )           |           | $         | 1.47 | 
|                                                                                                                                    |                                                                 |         |           |                                       |       |      |           |             |       |             |           |          
|Earnings (loss) per share before cumulative effect of change
in accounting principle:                                               |                                                                 |         |           |                                       |       |      |           |             |       |             |           |          
|                                                                                                                                    |                                                                 | Basic   |           | $                                     | (2.28 | )    |           | $           | (3.39 | )           |           | $         | 1.50 | 
|                                                                                                                                    |                                                                 | Diluted |           | $                                     | (2.28 | )    |           | $           | (3.39 | )           |           | $         | 1.41 | 
|                                                                                                                                    |                                                                 |         |           |                                       |       |      |           |             |       |             |           |          
|Net earnings (loss) per share:                                                                                                      |                                                                 |         |           |                                       |       |      |           |             |       |             |           |          
|                                                                                                                                    |                                                                 | Basic   |           | $                                     | (2.49 | )    |           | $           | (3.39 | )           |           | $         | 1.50 | 
|                                                                                                                                    |                                                                 | Diluted |           | $                                     | (2.49 | )    |           | $           | (3.39 | )           |           | $         | 1.41 | 
|                                                                                                                                    |                                                                 |         |           |                                       |       |      |           |             |       |             |           |          

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

F-18



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Loss)

For the Years Ended December 31, 2002, 2001 and 2000

---

|                                   |                                                                                                                                                                                                                                                                                                                                                     |   |                |         |      |   |             |         |             |   |          |         |  
|---------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | -------------- | ------- | ---- | - | ----------- | ------- | ----------- | - | -------- | ------- | -
|                                   |                                                                                                                                                                                                                                                                                                                                                     |   | 2002           |         | 2001 |   | 2000       
|                                   |                                                                                                                                                                                                                                                                                                                                                     |   |                |         |      |   |            
|                                   |                                                                                                                                                                                                                                                                                                                                                     |   | (in thousands)
|                                   |                                                                                                                                                                                                                                                                                                                                                     |   |                |         |      |   | (Restated  |         | (Restated 
|                                   |                                                                                                                                                                                                                                                                                                                                                     |   |                |         |      |   | note 21)    |         | note 21)   
|Net earnings (loss)                |                                                                                                                                                                                                                                                                                                                                                     | $ | (238,823       | )       |      | $ | (335,111    | )       |             | $ | 157,387  |        
|                                   |                                                                                                                                                                                                                                                                                                                                                     |   |                |         |      |   |             |         |             |   |          |        
|Other comprehensive income (loss): |                                                                                                                                                                                                                                                                                                                                                     |   |                |         |      |   |             |         |             |   |          |        
|                                   | Unrealized gain (loss) on marketable securities
arising during the year, net of a related tax
provision of $1,510 and recovery of minority interest
expense of $615 (2001  net of a related tax recovery
of $18,730 and recovery of minority interest of
$4,411; 2000  net of a related tax provision of
$13,729 and minority interest of $2,522) |   |                | 4,451   |      |   |             | (80,586 | )           |   |          | (47,008 | )
|                                   | Reclassification adjustment for realized losses
reclassified out of accumulated other comprehensive
income, net of a related tax provision of $530
(2001  net of a related tax provision of $30,420 and
minority interest of $6,122)                                                                                                               |   |                | 1,301   |      |   |             | 123,720 |             |   |          |        |  
|                                   |                                                                                                                                                                                                                                                                                                                                                     |   |                |         |      |   |             |         |             |   |          |        
|                                   |                                                                                                                                                                                                                                                                                                                                                     |   | 5,752          |         |      |   | 43,134      |         |             |   | (47,008  | )      
|                                   | Foreign currency translation adjustments,
net of a related tax provision of $2,374
(2001 and 2000  nil)                                                                                                                                                                                                                                            |   |                | 32,646  |      |   |             | (38,443 | )           |   |          | (89,450 | )
|                                   | Reclassification adjustment for realized foreign
exchange losses upon the substantial
reduction of net investment in Canadian
operations                                                                                                                                                                                                            |   |                | 78,217  |      |   |             |        |             |   |          |        |  
|                                   |                                                                                                                                                                                                                                                                                                                                                     |   |                |         |      |   |             |         |             |   |          |        
|                                   |                                                                                                                                                                                                                                                                                                                                                     |   | 110,863        |         |      |   | (38,443     | )       |             |   | (89,450  | )      
|                                   | Minimum pension liability adjustment, net of a
related tax recovery of $15,852 (2001  7,573;
2000  nil)                                                                                                                                                                                                                                           |   |                | (27,737 | )    |   |             | (14,878 | )           |   |          | (2,094  | )
|                                   |                                                                                                                                                                                                                                                                                                                                                     |   |                |         |      |   |             |         |             |   |          |        
|                                   |                                                                                                                                                                                                                                                                                                                                                     |   | 88,878         |         |      |   | (10,187     | )       |             |   | (138,552 | )      
|                                   |                                                                                                                                                                                                                                                                                                                                                     |   |                |         |      |   |             |         |             |   |          |        
|Comprehensive income (loss)        |                                                                                                                                                                                                                                                                                                                                                     | $ | (149,945       | )       |      | $ | (345,298    | )       |             | $ | 18,835   |        
|                                   |                                                                                                                                                                                                                                                                                                                                                     |   |                |         |      |   |             |         |             |   |          |        

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

F-19



---



##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders Equity

For the Years Ended December 31, 2002, 2001 and 2000

---

|                                                      |  |             |        |             |  |            |       |               |  |           |          |          |  |                |          |             |  |   |          |   |  |   |          |   |  |   |         |   |  |   |          |  
|----------------------------------------------------- |  | ----------- | ------ | ----------- |  | ---------- | ----- | ------------- |  | --------- | -------- | -------- |  | -------------- | -------- | ----------- |  | - | -------- | - |  | - | -------- | - |  | - | ------- | - |  | - | -------- | -
|                                                      |  |             |        |             |  |            |       |               |  |           |          |          |  | Accumulated    |          |             |  |   |          |   |  |   |          |   |  |   |         |   |  |  
|                                                      |  | Convertible |        | Common      |  | Additional |       | other         |  | Retained  |          |          |  |                |          | Issued      |  |   |          |  
|                                                      |  | preferred   |        | stock       |  | paid-in    |       | comprehensive |  | earnings  |          | Treasury |  | shares         |          |             |  |  
|                                                      |  | stock       |        | Class A & B |  | capital    |       | loss          |  | (deficit) |          | stock    |  | in escrow      |          | Total      
|                                                      |  |             |        |             |  |            |       |               |  |           |          |          |  |                |          |            
|                                                      |  |             |        |             |  |            |       |               |  |           |          |          |  | (in thousands) |          | (Restated  |  |   |          |   |  |   |          |   |  |   |         |  
|                                                      |  |             |        |             |  |            |       |               |  |           |          |          |  |                |          | note 21)    |  |   |          |   |  |   |          |   |  |   |         |  
|Balance at December 31, 1999                          |  | $           | 6,377  |             |  | $          | 1,148 |               |  | $         | 652,705  |          |  | $              | (24,492  | )           |  | $ | 475,315  |   |  | $ | (147,955 | ) |  | $ | (60,873 | ) |  | $ | 902,225  |  
|                                                      |  |             |        |             |  |            |       |               |  |           |          |          |  |                |          |             |  |   |          |   |  |   |          |   |  |   |         |   |  |   |          |  
|Stock option exercise                                 |  |             |       |             |  |            | 5     |               |  |           | 5,492    |          |  |                |         |             |  |   |         |   |  |   |         |   |  |   |        |   |  |   | 5,497    |  
|Preferred stock conversion to Class A
common stock    |  |             | (6,377 | )           |  |            | 6     |               |  |           | 6,346    |          |  |                |         |             |  |   |         |   |  |   |         |   |  |   |        |   |  |   | (25      | )
|Stock-based compensation (note 11)                    |  |             |       |             |  |            |      |               |  |           | 1,518    |          |  |                |         |             |  |   |         |   |  |   |         |   |  |   |        |   |  |   | 1,518    |  
|Cash dividends  Class A and Class B,
$0.55 per share |  |             |       |             |  |            |      |               |  |           |         |          |  |                |         |             |  |   | (52,284  | ) |  |   |         |   |  |   |        |   |  |   | (52,284  | )
|Dividends on redeemable preferred stock               |  |             |       |             |  |            |      |               |  |           |         |          |  |                |         |             |  |   | (519     | ) |  |   |         |   |  |   |        |   |  |   | (519     | )
|Dividends on convertible preferred stock              |  |             |       |             |  |            |      |               |  |           |         |          |  |                |         |             |  |   | (8,431   | ) |  |   |         |   |  |   |        |   |  |   | (8,431   | )
|Minimum pension liability adjustment                  |  |             |       |             |  |            |      |               |  |           |         |          |  |                | (2,094   | )           |  |   |         |   |  |   |         |   |  |   |        |   |  |   | (2,094   | )
|Translation adjustments                               |  |             |       |             |  |            |      |               |  |           | 503      |          |  |                | (89,450  | )           |  |   |         |   |  |   |         |   |  |   |        |   |  |   | (88,947  | )
|Change in unrealized loss on securities, net          |  |             |       |             |  |            |      |               |  |           |         |          |  |                | (47,008  | )           |  |   |         |   |  |   |         |   |  |   |        |   |  |   | (47,008  | )
|Net earnings                                          |  |             |       |             |  |            |      |               |  |           |         |          |  |                |         |             |  |   | 157,387  |   |  |   |         |   |  |   |        |   |  |   | 157,387  |  
|Interest on forward share purchase                    |  |             |       |             |  |            |      |               |  |           | (6,323   | )        |  |                |         |             |  |   |         |   |  |   |         |   |  |   |        |   |  |   | (6,323   | )
|Gain on total return equity swap (note 13)            |  |             |       |             |  |            |      |               |  |           | 35,314   |          |  |                |         |             |  |   |         |   |  |   |         |   |  |   |        |   |  |   | 35,314   |  
|Escrow shares on total return equity swap             |  |             |       |             |  |            | 51    |               |  |           | 52,948   |          |  |                |         |             |  |   |         |   |  |   |         |   |  |   | (51,200 | ) |  |   | 1,799    |  
|Escrow shares returned                                |  |             |       |             |  |            |      |               |  |           |         |          |  |                |         |             |  |   |         |   |  |   | (110,649 | ) |  |   | 110,649 |   |  |   |         |  
|                                                      |  |             |        |             |  |            |       |               |  |           |          |          |  |                |          |             |  |   |          |   |  |   |          |   |  |   |         |   |  |   |          |  
|Balance at December 31, 2000 (restated 
note 21)     |  |             |       |             |  |            | 1,210 |               |  |           | 748,503  |          |  |                | (163,044 | )           |  |   | 571,468  |   |  |   | (258,604 | ) |  |   | (1,424  | ) |  |   | 898,109  |  
|                                                      |  |             |        |             |  |            |       |               |  |           |          |          |  |                |          |             |  |   |          |   |  |   |          |   |  |   |         |   |  |   |          |  
|Stock option exercise                                 |  |             |       |             |  |            | 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 11)                    |  |             |       |             |  |            |      |               |  |           | (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 11)                           |  |             |       |             |  |            |      |               |  |           | 7,800    |          |  |                |         |             |  |   | (7,800   | ) |  |   |         |   |  |   |        |   |  |   |         |  
|Translation adjustments                               |  |             |       |             |  |            |      |               |  |           | 713      |          |  |                | (38,443  | )           |  |   |         |   |  |   |         |   |  |   |        |   |  |   | (37,730  | )
|Change in unrealized gain (loss) on
securities, net   |  |             |       |             |  |            |      |               |  |           |         |          |  |                | 43,134   |             |  |   |         |   |  |   |         |   |  |   |        |   |  |   | 43,134   |  
|Net loss                                              |  |             |       |             |  |            |      |               |  |           |         |          |  |                |         |             |  |   | (335,111 | ) |  |   |         |   |  |   |        |   |  |   | (335,111 | )
|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 (restated 
note 21)     |  |             |       |             |  |            | 1,118 |               |  |           | 554,891  |          |  |                | (173,231 | )           |  |   | 175,400  |   |  |   | (132,896 | ) |  |   | (58,655 | ) |  |   | 366,627  |  
|                                                      |  |             |        |             |  |            |       |               |  |           |          |          |  |                |          |             |  |   |          |   |  |   |          |   |  |   |         |   |  |   |          |  
|Stock option exercise                                 |  |             |       |             |  |            | 1     |               |  |           | 814      |          |  |                |         |             |  |   |         |   |  |   |         |   |  |   |        |   |  |   | 815      |  
|Class A common stock issued                           |  |             |       |             |  |            | 3     |               |  |           | 3,429    |          |  |                |         |             |  |   |         |   |  |   |         |   |  |   |        |   |  |   | 3,432    |  
|Cash dividends  Class A and Class B,
$0.32 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 11)                           |  |             |       |             |  |            |      |               |  |           | 6,111    |          |  |                |         |             |  |   | (6,111   | ) |  |   |         |   |  |   |        |   |  |   |         |  
|Translation adjustments                               |  |             |       |             |  |            |      |               |  |           | (71      | )        |  |                | 110,863  |             |  |   |         |   |  |   |         |   |  |   |        |   |  |   | 110,792  |  
|Change in unrealized gain (loss) on
securities, net   |  |             |       |             |  |            |      |               |  |           |         |          |  |                | 5,752    |             |  |   |         |   |  |   |          |   |  |   |        |   |  |   | 5,752    |  
|Net loss                                              |  |             |       |             |  |            |      |               |  |           |         |          |  |                |         |             |  |   | (238,823 | ) |  |   |         |   |  |   |        |   |  |   | (238,823 | )
|Escrow shares on total return equity swap             |  |             |       |             |  |            | 31    |               |  |           | 30,032   |          |  |                |         |             |  |   |         |   |  |   |         |   |  |   | (26,050 | ) |  |   | 4,013    |  
|Payout of total return equity swap (note 13)          |  |             |       |             |  |            | (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 |               |  | $         | 441,476  |          |  | $              | (84,353  | )           |  | $ | (98,296  | ) |  | $ | (139,960 | ) |  | $ |        |   |  | $ | 119,875  |  
|                                                      |  |             |        |             |  |            |       |               |  |           |          |          |  |                |          |             |  |   |          |   |  |   |          |   |  |   |         |   |  |   |          |  

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

F-20



---



##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

For the Years Ended December 31, 2002, 2001 and 2000

---

|                                                |                                                                                                      |                                                                         |         |                |         |      |          |             |         |             |           |           |          |  
|----------------------------------------------- | ---------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------- | ------- | -------------- | ------- | ---- | -------- | ----------- | ------- | ----------- | --------- | --------- | -------- | -
|                                                |                                                                                                      |                                                                         |         | 2002           |         | 2001 |          | 2000       
|                                                |                                                                                                      |                                                                         |         |                |         |      |          |            
|                                                |                                                                                                      |                                                                         |         | (in thousands)
|                                                |                                                                                                      |                                                                         |         |                |         |      |          | (Restated  |         | (Restated 
|                                                |                                                                                                      |                                                                         |         |                |         |      |          | note 21)    |         | note 21)   
|Cash flows from operating activities:           |                                                                                                      |                                                                         |         |                |         |      |          |             |         |             |           |          
|                                                | Net earnings (loss)                                                                                  |                                                                         | $       | (238,823       | )       |      | $        | (335,111    | )       |             | $         | 157,387   |         
|                                                | Adjustments to reconcile net earnings (loss) to net cash provided
by (used in) operating activities: |                                                                         |         |                |         |      |          |             |         |             |           |           |         
|                                                |                                                                                                      | Depreciation and amortization                                           |         |                | 54,152  |      |          |             | 73,728  |             |           |           | 122,634  |  
|                                                |                                                                                                      | Deferred income taxes                                                   |         |                | 64,995  |      |          |             | (46,940 | )           |           |           | (4,353   | )
|                                                |                                                                                                      | Amortization of deferred financing costs                                |         |                | 5,585   |      |          |             | 10,367  |             |           |           | 10,469   |  
|                                                |                                                                                                      | Minority interest                                                       |         |                | 2,167   |      |          |             | (13,803 | )           |           |           | 50,760   |  
|                                                |                                                                                                      | Premium on debt extinguishments                                         |         |                | 27,126  |      |          |             |        |             |           |           |         |  
|                                                |                                                                                                      | Equity in loss of affiliates, net of dividends received                 |         |                | 3,718   |      |          |             | 15,098  |             |           |           | 20,340   |  
|                                                |                                                                                                      | Loss (gain) on sales of investments                                     |         |                |        |      |          |             | 147,213 |             |           |           | (49,577  | )
|                                                |                                                                                                      | Gain on sales of property, plant and equipment
and publishing interests |         |                | (5,334  | )    |          |             | (71     | )           |           |           | (556,325 | )
|                                                |                                                                                                      | Amortization of deferred gain                                           |         |                | (366    | )    |          |             | (1,348  | )           |           |           | (1,417   | )
|                                                |                                                                                                      | Write-down of investments                                               |         |                | 40,536  |      |          |             | 48,037  |             |           |           | 20,621   |  
|                                                |                                                                                                      | Total return equity swap                                                |         |                | 9,106   |      |          |             | 42,845  |             |           |           | 12,276   |  
|                                                |                                                                                                      | Foreign currency translation loss                                       |         |                | 78,217  |      |          |             |        |             |           |           |         |  
|                                                |                                                                                                      | Cumulative effect of change in accounting principle                     |         |                | 20,079  |      |          |             |        |             |           |           |         |  
|                                                |                                                                                                      | Non-cash interest income                                                |         |                | (5,888  | )    |          |             | (43,821 | )           |           |           |         |  
|                                                |                                                                                                      | Other                                                                   |         |                | (8,815  | )    |          |             | 13,196  |             |           |           | 7,153    |  
|                                                | Changes in assets and liabilities, net of acquisitions
and dispositions:                             |                                                                         |         |                |         |      |          |             |         |             |           |           |         
|                                                |                                                                                                      | Accounts receivable                                                     |         |                | 2,402   |      |          |             | 7,755   |             |           |           | (51,383  | )
|                                                |                                                                                                      | Inventories                                                             |         |                | 11,107  |      |          |             | (4,516  | )           |           |           | (9,679   | )
|                                                |                                                                                                      | Prepaid expenses and other current assets                               |         |                | (2,602  | )    |          |             | (3,876  | )           |           |           | 892      |  
|                                                |                                                                                                      | Accounts payable                                                        |         |                | (703    | )    |          |             | 11,081  |             |           |           | 10,279   |  
|                                                |                                                                                                      | Accrued expenses                                                        |         |                | (21,498 | )    |          |             | 8,234   |             |           |           | (53,370  | )
|                                                |                                                                                                      | Income taxes payable                                                    |         |                | 16,611  |      |          |             | (49,299 | )           |           |           | 368,328  |  
|                                                |                                                                                                      | Deferred revenue and other                                              |         |                | 6,663   |      |          |             | (12,960 | )           |           |           | 4,737    |  
|                                                |                                                                                                      |                                                                         |         |                |         |      |          |             |         |             |           |          
|Cash provided by (used in) operating activities |                                                                                                      |                                                                         | 58,435  |                |         |      | (134,191 | )           |         |             | 59,772    |          
|                                                |                                                                                                      |                                                                         |         |                |         |      |          |             |         |             |           |          
|Cash flows from investing activities:           |                                                                                                      |                                                                         |         |                |         |      |          |             |         |             |           |          
|                                                | Purchase of property, plant and equipment                                                            |                                                                         |         | (28,902        | )       |      |          | (44,451     | )       |             |           | (74,024   | )       
|                                                | Proceeds from sale of property, plant and equipment                                                  |                                                                         |         | 10,092         |         |      |          | 84          |         |             |           | 8,514     |         
|                                                | Purchase of subsidiaries stock and other investments                                                |                                                                         |         | (11,401        | )       |      |          | (45,194     | )       |             |           | (79,600   | )       
|                                                | Acquisitions, net of cash acquired                                                                   |                                                                         |         |               |         |      |          |            |         |             |           | (117,134  | )       
|                                                | Proceeds on disposal of investments and other assets                                                 |                                                                         |         | 915            |         |      |          | 840,315     |         |             |           | 1,341,773 |         
|                                                | Other                                                                                                |                                                                         |         | 1,869          |         |      |          | 5,982       |         |             |           | 1,293     |         
|                                                |                                                                                                      |                                                                         |         |                |         |      |          |             |         |             |           |          
|Cash provided by (used in) investing activities |                                                                                                      |                                                                         | (27,427 | )              |         |      | 756,736  |             |         |             | 1,080,822 |          
|                                                |                                                                                                      |                                                                         |         |                |         |      |          |             |         |             |           |          

(Continued)

F-21



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

For the Years Ended December 31, 2002, 2001 and 2000

---

|                                                             |                                                                           |   |          |          |      |   |                |          |             |   |            |            |  
|------------------------------------------------------------ | ------------------------------------------------------------------------- | - | -------- | -------- | ---- | - | -------------- | -------- | ----------- | - | ---------- | ---------- | -
|                                                             |                                                                           |   | 2002     |          | 2001 |   | 2000          
|                                                             |                                                                           |   |          |          |      |   |               
|                                                             |                                                                           |   |          |          |      |   | (in thousands) |          |             |   |           
|                                                             |                                                                           |   |          |          |      |   | (Restated     |          | (Restated 
|                                                             |                                                                           |   |          |          |      |   | note 21)       |          | note 21)   
|Cash flows from financing activities:                        |                                                                           |   |          |          |      |   |                |          |             |   |            |           
|                                                             | Repayment of debt                                                         |   |          | (370,781 | )    |   |                | (93,469  | )           |   |            | (1,266,189 | )
|                                                             | Proceeds from bank and other debt                                         |   |          | 315,000  |      |   |                | 91,574   |             |   |            | 450,539    |  
|                                                             | Proceeds from issuance of notes                                           |   |          | 300,000  |      |   |                |         |             |   |            |           |  
|                                                             | Payment of debt issue costs                                               |   |          | (15,704  | )    |   |                | (3,013   | )           |   |            | (2,474     | )
|                                                             | Payment of total return equity swap                                       |   |          | (100,000 | )    |   |                |         |             |   |            |           |  
|                                                             | Change in borrowings with affiliates                                      |   |          | 26,298   |      |   |                | (9,489   | )           |   |            | (41,146    | )
|                                                             | Escrow deposits and restricted cash                                       |   |          | (533,404 | )    |   |                | (12,548  | )           |   |            |           |  
|                                                             | Net proceeds from issuance of equity                                      |   |          | 4,247    |      |   |                | 6,863    |             |   |            | 5,497      |  
|                                                             | Repurchase of common shares                                               |   |          |         |      |   |                | (139,255 | )           |   |            |           |  
|                                                             | Redemption of preference shares                                           |   |          |         |      |   |                | (3,800   | )           |   |            |           |  
|                                                             | Redemption of Special shares                                              |   |          |         |      |   |                |         |             |   |            | (58,164    | )
|                                                             | Dividends paid                                                            |   |          | (28,762  | )    |   |                | (53,157  | )           |   |            | (61,234    | )
|                                                             | Dividends and distributions paid by subsidiaries to
minority stockholders |   |          | (917     | )    |   |                | (53,673  | )           |   |            | (63,083    | )
|                                                             | Other                                                                     |   |          | (850     | )    |   |                | (1,297   | )           |   |            | (3,977     | )
|                                                             |                                                                           |   |          |          |      |   |                |          |             |   |            |           
|Cash used in financing activities                            |                                                                           |   | (404,873 | )        |      |   | (271,264       | )        |             |   | (1,040,231 | )         
|                                                             |                                                                           |   |          |          |      |   |                |          |             |   |            |           
|Effect of exchange rate changes on cash and cash equivalents |                                                                           |   | 7,719    |          |      |   | (9,438         | )        |             |   | (2,595     | )         
|                                                             |                                                                           |   |          |          |      |   |                |          |             |   |            |           
|Net increase (decrease) in cash and cash equivalents         |                                                                           |   | (366,146 | )        |      |   | 341,843        |          |             |   | 97,768     |           
|Cash and cash equivalents at beginning of year               |                                                                           |   | 479,514  |          |      |   | 137,671        |          |             |   | 39,903     |           
|                                                             |                                                                           |   |          |          |      |   |                |          |             |   |            |           
|Cash and cash equivalents at end of year                     |                                                                           | $ | 113,368  |          |      | $ | 479,514        |          |             | $ | 137,671    |           
|                                                             |                                                                           |   |          |          |      |   |                |          |             |   |            |           

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

F-22



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2002, 2001 and 2000

---



|(1) |  | Acquisitions and Dispositions
|--- |  | -----------------------------



| | (a) |  | In January 2001, Hollinger L.P. completed the sale of
UniMédia Company to Gesca Limited, a subsidiary of Power Corporation
of Canada. The publications sold represented the French language
newspapers of Hollinger L.P. including three paid circulation
dailies and 15 weeklies published in Quebec and Ontario. A pre-tax
gain of approximately $47,500,000 was recognized on this sale 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)
for total sale proceeds of approximately Cdn. $255,000,000
($166,000,000) plus closing adjustments primarily for working
capital. Included in these sales were community newspapers in
Ontario such as The Kingston Whig-Standard, The Sault Star, the
Peterborough Examiner, the Chatham Daily Newsand The Observer
(Sarnia). Pre-tax gains of approximately $800,000 were recognized
on these sales. The former Chief Executive Officer of Hollinger
L.P. is a minority shareholder and Chief Executive Officer of
Osprey. The Companys independent directors have approved the terms
of these transactions.
|
| |     |  | In connection with the two sales of Canadian newspaper properties to
Osprey in 2001, to satisfy a closing condition, the Company, Hollinger
Inc., Lord Black of Crossharbour PC(C), OC, KCSG and three senior
executives entered into non-competition agreements with Osprey
pursuant to which each agreed not to compete directly or indirectly in
Canada with the Canadian businesses sold to Osprey for a five-year
period, subject to certain limited exceptions, for aggregate
consideration of Cdn. $7,900,000 ($5,100,000). Such consideration was
paid to Lord Black and the three senior executives and has been
approved by the Companys independent directors.                                                                                                                                  
|
| | (c) |  | In August 2001, the Company entered into an agreement to sell
to CanWest Global Communications Corp. (CanWest) its 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 results to August 31, 2001. A pre-tax loss of
approximately $78,200,000 was recognized on the sale and was
recorded in other income (expense), net.                                                                                                                                                                                                                                             

F-23



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000

---



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



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



| |  |  | The sale resulted in the Hollinger Group receiving approximately Cdn.
$1.7 billion ($1.1 billion) cash, approximately Cdn. $425,000,000
($277,000,000) in voting and non-voting shares of CanWest at fair
value (representing an approximate 15.6% equity interest and 5.7%
voting interest) and subordinated non-convertible debentures of a
holding company in the CanWest group at fair value of approximately
Cdn. $697,000,000 ($456,000,000). The aggregate sale price of these
properties at fair value was approximately Cdn. $2.8 billion ($1.8
billion), plus closing adjustments for working capital at August 31,
2000 and cash flow and interest for the period September 1 to November
16, 2000 which in total was estimated as an additional $40,700,000 at
December 31, 2000. The sale resulted in a pre-tax gain of
approximately $378,500,000 in 2000, and was recorded in other income
(expense), net.
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | In 2001, certain of the closing adjustments were finalized, resulting
in an additional pre-tax gain in 2001 of approximately $18,300,000.
At December 31, 2002, approximately $38,400,000 in respect of closing
adjustments remained due to the Company and is included in accounts
receivable in the consolidated balance sheets. Amounts due bear
interest at a rate of approximately 9%. The amount outstanding is
subject to negotiation 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.                                                                                                                                                                                                                                

F-24



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000

---



| |     |  | In connection with the sale to CanWest, Ravelston, a holding company
controlled by Lord Black through which most of his interest in the
Company is ultimately controlled, entered into a management services
agreement with CanWest and National Post pursuant to which it agreed
to continue to provide management services to the Canadian businesses
sold to CanWest in consideration for an annual fee of Cdn. $6,000,000
($4,000,000) payable by CanWest. CanWest will be obligated to pay
Ravelston a termination fee of Cdn. $45,000,000, in the event that
CanWest chooses to terminate the management services agreement or Cdn.
$22,500,000, in the event that Ravelston chooses to terminate the
agreement. Further, CanWest required as a condition to the
transaction, that the Company, Ravelston, Hollinger Inc., Lord Black
and three senior executives enter into non-competition agreements with
CanWest pursuant to which each agreed not to compete directly or
indirectly in Canada with the Canadian businesses sold to CanWest for
a five-year period, subject to certain limited exceptions, for
aggregate consideration of Cdn. $80,000,000 ($53,000,000) paid by
CanWest in addition to the purchase price referred to above. Of that
consideration, Cdn. $38,000,000 ($25,200,000) was paid to Ravelston
and Cdn. $42,000,000 ($27,800,000) was paid to Lord Black and the
three senior executives. The Companys independent directors approved
the terms of these payments.
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (e) |  | On November 1, 2000, Southam converted its convertible
promissory note in Hollinger L.P. in the principal amount of Cdn.
$225,800,000 ($147,900,000) into 22,575,324 limited partnership
units of Hollinger L.P., thereby increasing its interest in
Hollinger L.P. to 87.0%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| | (f) |  | During 2000, the Company sold most of its remaining U.S.
community newspaper properties, including eleven paid dailies, three
paid non-dailies and thirty-one free distribution publications for
total proceeds of approximately $215,000,000. Pre-tax gains
totaling $91,200,000 were recognized on these sales in 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |     |  | In connection with the sales of United States newspaper properties in
2000, to satisfy a closing condition, the Company, Lord Black and
three senior executives entered into non-competition agreements with
the purchasers pursuant to which each agreed not to compete directly
or indirectly in the United States with the United States businesses
sold to the purchasers for a fixed period, subject to certain limited
exceptions, for aggregate consideration paid in 2001 of $600,000.
These amounts were in addition to the aggregate consideration paid in
respect of these non-competition agreements in 2000 of $15,000,000.
Such amounts were paid to Lord Black and the three senior executives.
The Companys independent directors have approved the terms of these
payments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

F-25



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000

---



| | (g) |  | Included in the disposition described in note 1(f), during
2000 the Company sold four U.S. community newspapers for an
aggregate consideration of $38,000,000 to Bradford Publishing
Company, a company formed by a former U.S. Community Group executive
and in which some of the Companys officers are significant
shareholders. The terms of this transaction were approved by the
independent directors of the Company.                                                                                                                                                                                                                             
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (h) |  | In December 2000, the Company acquired four paid daily
newspapers, one paid non-daily and twelve free distribution
publications in the Chicago suburbs for total purchase consideration
of $111,000,000. The excess purchase price of $84,700,000 over the
estimated fair value of tangible assets acquired was ascribed to
intangible assets.                                                                                                                                                                                                                                                                                                           
|
| | (i) |  | On February 17, 2000, Interactive Investor International, in
which the Company owned 51.7 million shares or a 47% equity
interest, had its initial public offering (IPO) issuing 52 million
shares and raising £78,000,000 ($125,800,000). The IPO reduced the
Companys equity ownership to 33% and resulted in a dilution gain of
$17,008,000 for accounting purposes. Subsequently, the Company sold
five million shares of its holding, reducing its equity interest to
28.5% and resulting in a pre-tax gain in 2000 of $1,600,000. The
balance of the investment was sold in 2001 resulting in an
additional pre-tax gain in 2001 of $14,200,000.
|
| | (j) |  | During 2001, the Company transferred two publications to
Horizon Publications Inc. in exchange for net working capital.
Horizon Publications Inc. is managed by former Community Group
executives and controlled by certain officers of the Company. The
terms of these transactions were approved by the independent
directors of the Company.                                                                                                                                                                                                                                                                                                          

F-26



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000



---



|(2) |  | Investments
|--- |  | -----------

|                                              |                                           |   |                |        |      |   |         |        | 
|--------------------------------------------- | ----------------------------------------- | - | -------------- | ------ | ---- | - | ------- | ------ | 
|                                              |                                           |   | 2002           |        | 2001
|                                              |                                           |   |                |        |     
|                                              |                                           |   | (in thousands)
|Available-for-sale securities, at fair value: |                                           |   |                |        |      |   |         |       
|                                              | Equity securities                         |   | $              | 4,270  |      |   | $       | 2,217  | 
|                                              | CanWest debentures                        |   |                | 52,712 |      |   |         | 39,139 | 
|                                              |                                           |   |                |        |      |   |         |       
|                                              |                                           |   | 56,982         |        |      |   | 41,356  |       
|                                              |                                           |   |                |        |      |   |         |       
|Other non-marketable investments, at cost:    |                                           |   |                |        |      |   |         |       
|                                              | Internet and technology related companies |   |                | 22,439 |      |   |         | 49,055 | 
|                                              | Other                                     |   |                | 14,341 |      |   |         | 23,673 | 
|                                              |                                           |   |                |        |      |   |         |       
|                                              |                                           |   | 36,780         |        |      |   | 72,728  |       
|                                              |                                           |   |                |        |      |   |         |       
|Equity accounted companies, at equity:        |                                           |   |                |        |      |   |         |       
|                                              | Printing joint ventures                   |   |                | 22,187 |      |   |         | 21,001 | 
|                                              | Internet related companies                |   |                | 4,941  |      |   |         | 5,406  | 
|                                              | Other                                     |   |                | 3,186  |      |   |         | 3,520  | 
|                                              |                                           |   |                |        |      |   |         |       
|                                              |                                           |   | 30,314         |        |      |   | 29,927  |       
|                                              |                                           |   |                |        |      |   |         |       
|                                              |                                           | $ | 124,076        |        |      | $ | 144,011 |       
|                                              |                                           |   |                |        |      |   |         |       

|                                                                          |                    |   |                |        |      |   |        |        |  
|------------------------------------------------------------------------- | ------------------ | - | -------------- | ------ | ---- | - | ------ | ------ | -
|                                                                          |                    |   | 2002           |        | 2001
|                                                                          |                    |   |                |        |     
|                                                                          |                    |   | (in thousands)
|Gross unrealized holding gains (losses) on available-for-sale securities: |                    |   |                |        |      |   |        |       
|                                                                          | CanWest debentures |   | $              | (1,484 | )    |   | $      | (6,236 | )
|                                                                          | Equity securities  |   |                | 595    |      |   |        | (3,060 | )
|                                                                          |                    |   |                |        |      |   |        |       
|                                                                          |                    | $ | (889           | )      |      | $ | (9,296 | )     
|                                                                          |                    |   |                |        |      |   |        |       

F-27



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000



---



| |  | The CanWest debentures were issued by a wholly-owned subsidiary of
CanWest and are guaranteed by CanWest. Interest on the CanWest
debentures is calculated, compounded and payable semi-annually in arrears
at a rate of 12.125% per annum. At any time prior to November 5, 2005,
CanWest may elect to pay interest on the debentures by way of non-voting
shares of CanWest, debentures in substantially the same form as CanWest
debentures, or cash. Subsequent to November 5, 2005, interest is to be
paid in cash. The debentures are due November 15, 2010, but are
redeemable at any time prior to May 15, 2003 for cash at CanWests option
at 100% of the principal amount.                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | As part of its November 16, 2000 purchase and sale agreement with
CanWest, the Company was prohibited from selling the CanWest debentures
received in partial consideration 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 fixed 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 purchase of the participation
interests, the Participation Trust sold senior notes to arms length
third parties 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. 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.                                                                                                                                                                                                                                                   

F-28



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000



---



| |  | 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 will be paid to the Participation Trust. However, after May
15, 2003, the Company may be required to deliver to the Participation
Trust CanWest debentures with a face value equivalent to $490,500,000
based on then current rates 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 senior notes
and amendment of the senior secured bank facilities (see note 6). 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, and based on the
fixed exchange rate of $0.6482 referred to above, the Company retained an
interest in CanWest debentures that was not subject to the interests of
the Participation Trust. Based on exchange rates at December 31, 2002
and 2001, the Company held debentures with a face value of $58.9 million
and $48.5 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 is
unable to transfer to an unaffiliated third party, until at least
November 4, 2005, the equivalent of $50 million at December 31, 2002
(Cdn. $79.0 million at December 31, 2002) principal amount of CanWest
debentures.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | During 2002, the Company received additional CanWest debentures in the
amount of Cdn $15,800,000 ($10,000,000) (2001  Cdn $67,100,000
($43,800,000)) in payment of the interest due on existing debentures held
by the Company, a portion of which related to 2001. These debentures
have been recorded at their fair value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

F-29



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000



---



|(3) |  | Property, Plant and Equipment
|--- |  | -----------------------------

|                                               |  |                |         |      |  |   |         | 
|---------------------------------------------- |  | -------------- | ------- | ---- |  | - | ------- | 
|                                               |  | 2002           |         | 2001
|                                               |  |                |         |     
|                                               |  | (in thousands)
|Land                                           |  | $              | 27,574  |      |  | $ | 29,165  | 
|Building and leasehold interests               |  |                | 148,151 |      |  |   | 143,076 | 
|Machinery and equipment                        |  |                | 324,401 |      |  |   | 319,676 | 
|Construction in progress                       |  |                | 8,401   |      |  |   | 8,204   | 
|                                               |  |                |         |      |  |   |         | 
|                                               |  |                | 508,527 |      |  |   | 500,121 | 
|Less accumulated depreciation and amortization |  |                | 208,841 |      |  |   | 190,849 | 
|                                               |  |                |         |      |  |   |         | 
|                                               |  | $              | 299,686 |      |  | $ | 309,272 | 
|                                               |  |                |         |      |  |   |         | 



| |  | Depreciation and amortization of property, plant and equipment totalled
$37,001,000, $37,968,000 and $64,546,000 in 2002, 2001 and 2000,
respectively. The Company capitalized interest in 2001 and 2000
amounting to $81,000 and $3,103,000, respectively, related to the
construction and equipping of production facilities for its newspapers in
Chicago.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000



---



|(4) |  | Goodwill and Intangible Assets                                                                                                                                                 
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | As described in note 10 to the statement of significant accounting
policies, the Company adopted SFAS No. 142 Goodwill and Other Intangible
Assets effective January 1, 2002.
|   
|    |  | The changes in the carrying amount of goodwill by reportable segment for
the year ended December 31, 2002 are as follows:                                                      

|                                          |  |         |         |           |  |           |         |           |  |              |         |          |  |   |        |  |  |   |         |  
|----------------------------------------- |  | ------- | ------- | --------- |  | --------- | ------- | --------- |  | ------------ | ------- | -------- |  | - | ------ |  |  | - | ------- | -
|                                          |  |         |         |           |  |           |         |           |  | U.K.         |         | Canadian |  |   |        | 
|                                          |  | Chicago |         | Community |  | Newspaper |         | Newspaper |  | Consolidated
|(in thousands)                            |  | Group   |         | Group     |  | Group     |         | Group     |  | total       
|                                          |  |         |         |           |  |           |         |           |  |             
|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 exchange                          |  |         |        |           |  |           |        |           |  |              | 32,444  |          |  |   | 529    |  |  |   | 32,973  |  
|                                          |  |         |         |           |  |           |         |           |  |              |         |          |  |   |        |  |  |   |         |  
|Balance as of
December 31,
2002           |  | $       | 128,054 |           |  | $         |        |           |  | $            | 360,394 |          |  | $ | 45,229 |  |  | $ | 533,677 |  
|                                          |  |         |         |           |  |           |         |           |  |              |         |          |  |   |        |  |  |   |         |  



| |  | Upon adoption of SFAS No. 142, intangible assets totalling $351,202,000,
primarily amounts previously ascribed to circulation and mastheads, were
reclassified to goodwill. Intangible assets totalling $126,029,000
(comprising non-compete agreements of $8,742,000 and subscriber and
advertiser relationships of $117,287,000) were recognized as identifiable
intangible assets apart from goodwill.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-31



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HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000



---



| |  | The Companys amortizable intangible assets consist of: (i)
non-competition agreements with former owners of acquired newspapers
which 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 advertiser relationships, which are
amortized using the straight-line method over 30 years. The components
of amortizable intangible assets at December 31, 2002 are as follows:
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                               |                                         |        |          |              |             |       |          |        |  |   |         |         | 
|------------------------------ | --------------------------------------- | ------ | -------- | ------------ | ----------- | ----- | -------- | ------ |  | - | ------- | ------- | 
|                               |                                         |        | Gross    |              |             |       |          |        |  |   |        
|                               |                                         |        | carrying |              | Accumulated |       | Net book
|(in thousands)                 |                                         | amount |          | amortization |             | value
|                               |                                         |        |          |              |             |      
|Amortizable intangible assets: |                                         |        |          |              |             |       |          |        |  |   |         |        
|                               | 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, 2002, 2001 and 2000 was $8,850,000, $8,861,000 and
$3,677,000, respectively. Future amortization of amortizable intangible
assets is as follows: 2003  $8,850,000, 2004  $4,767,000,
2005  $4,608,000, 2006  $4,583,000 and 2007  $4,583,000.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(5) |  | Accrued Expenses                                                                                                                                                                                                                                                                                                                 
|   
|    |  | Accrued expenses consist of the following:                                                                                                                                                                                                                                                                                       

|                   |  |                |         |      |  |   |         | 
|------------------ |  | -------------- | ------- | ---- |  | - | ------- | 
|                   |  | 2002           |         | 2001
|                   |  |                |         |     
|                   |  | (in thousands)
|Labor and benefits |  | $              | 25,843  |      |  | $ | 21,987  | 
|Accrued interest   |  |                | 17,786  |      |  |   | 24,739  | 
|Dividends          |  |                | 4,514   |      |  |   | 13,978  | 
|Other              |  |                | 58,735  |      |  |   | 73,987  | 
|                   |  |                |         |      |  |   |         | 
|                   |  | $              | 106,878 |      |  | $ | 134,691 | 
|                   |  |                |         |      |  |   |         | 

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HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000



---



|(6) |  | Long-Term Debt
|--- |  | --------------

|                                                        |                                                                                 |   |                |         |      |   |         |         | 
|------------------------------------------------------- | ------------------------------------------------------------------------------- | - | -------------- | ------- | ---- | - | ------- | ------- | 
|                                                        |                                                                                 |   | 2002           |         | 2001
|                                                        |                                                                                 |   |                |         |     
|                                                        |                                                                                 |   | (in thousands)
|Hollinger International Publishing Inc. (Publishing): |                                                                                 |   |                |         |      |   |         |        
|                                                        | 8.625% Senior Notes due 2005                                                    |   | $              | 5,082   |      |   | $       | 260,000 | 
|                                                        | 9% Senior Notes due 2010                                                        |   |                | 300,000 |      |   |         |        | 
|                                                        | Senior Subordinated Notes due 2006                                              |   |                | 239,906 |      |   |         | 250,000 | 
|                                                        | Senior Subordinated Notes due 2007                                              |   |                | 265,000 |      |   |         | 290,000 | 
|United States Newspaper Group:                          |                                                                                 |   |                |         |      |   |         |        
|                                                        | Amounts due under non-interest bearing non-competition
agreements due 2003-2007 |   |                | 1,796   |      |   |         | 3,124   | 
|                                                        | Other due 2003-2009 (at varying interest rates up to 9%)                        |   |                | 1,434   |      |   |         | 2,024   | 
|U.K. Newspaper Group                                    |                                                                                 |   |                |         |      |   |         |        
|                                                        | Obligations under capital leases (note 7)                                       |   |                | 3,475   |      |   |         | 4,667   | 
|                                                        | Senior Credit Facility                                                          |   |                | 265,000 |      |   |         |        | 
|Other debt                                              |                                                                                 |   | 2,685          |         |      |   | 2,845   |        
|                                                        |                                                                                 |   |                |         |      |   |         |        
|                                                        |                                                                                 |   | 1,084,378      |         |      |   | 812,660 |        
|Less:                                                   |                                                                                 |   |                |         |      |   |         |        
|                                                        | Current portion included in current liabilities                                 |   |                | 4,814   |      |   |         | 3,008   | 
|                                                        | Senior Subordinated Notes (note 6(a))                                           |   |                | 504,906 |      |   |         |        | 
|                                                        |                                                                                 |   |                |         |      |   |         |        
|                                                        |                                                                                 | $ | 574,658        |         |      | $ | 809,652 |        
|                                                        |                                                                                 |   |                |         |      |   |         |        

F-33



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000



---



| |  | The following table summarizes the terms of the Publishing notes and bank
indebtedness:
| |  | ---------------------------------------------------------------------------------------

|             |  |          |       |            |  |                   |  |                     |  |                    |  |                              |  |                                                                  
|------------ |  | -------- | ----- | ---------- |  | ----------------- |  | ------------------- |  | ------------------ |  | ---------------------------- |  | -----------------------------------------------------------------
|             |  |          |       |            |  |                   |  |                     |  |                    |  | Early                        |  | Early                                                            
|             |  | Interest |       |            |  |                   |  |                     |  | Redemption         |  | Redemption                  
|Principal    |  | Rate     |       | Issue Date |  | Status            |  | Maturity            |  | Date               |  | Price                       
|             |  |          |       |            |  |                   |  |                     |  |                    |  |                             
|$5,082,000   |  |          | 8.625 | %          |  | March 18, 1997    |  | Senior              |  | March 15, 2005     |  | None                         |  |                                                                 
|$239,900,000 |  |          | 9.25  | %          |  | February 1, 1996  |  | Senior Subordinated |  | February 1, 2006   |  | On or after
February 1, 2001 |  | 2002  103.085%
2003  101.545%
Thereafter  100%                
|$265,000,000 |  |          | 9.25  | %          |  | March 18, 1997    |  | Senior Subordinated |  | March 15, 2007     |  | On or after
March 15, 2002   |  | 2002  104.625%
2003  103.083%
2004  101.541%
Thereafter  100%
|$300,000,000 |  |          | 9     | %          |  | December 23, 2002 |  | Senior              |  | December 15, 2010  |  | December 15, 2006
or after   |  | 2006  104.500%
2007  102.250%
2008  100.000%                  
|$45,000,000  |  |          | (c)   |            |  | December 23, 2002 |  | Senior Secured      |  | September 30, 2008 |  |                             |  |                                                                 
|$220,000,000 |  |          | (c)   |            |  | December 23, 2002 |  | Senior Secured      |  | September 30, 2009 |  |                             |  |                                                                 



| | (a) |  | On December 23, 2002, Publishing issued $300,000,000 of 9%
Senior Notes guaranteed by the Company. Net proceeds of
$291,700,000 plus cash on hand and borrowings under the senior
credit facility 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) in December 2002 and to repay
amounts borrowed under the term facility maturing December 31, 2003
(note 6(e)) with the balance available for general corporate
purposes. Interest on the 9% Senior Notes is payable semi-annually.
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | 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 remain outstanding as a
current liability at December 31, 2002. The related financing
proceeds are held in escrow in short term investments at that date.
Including early redemption premiums and accrued interest, $543,750,000
was paid upon retirement of the notes.                                                                                                                                                                                                         

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HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000



---



| |     |  | The Indentures relating to the 9% Senior Notes contain financial
covenants and negative covenants that limit Publishings ability to,
among other things, incur indebtedness, pay dividends or make other
distributions on its capital stock, enter into transactions with
related companies, and sell assets including stock of a restricted
subsidiary. The Indentures provide that upon a Change of Control (as
defined in the Indentures), each noteholder has the right to require
Publishing to purchase all or any portion of such noteholders notes
at a cash purchase price equal to 101% of the principal amount of such
notes, plus accrued and unpaid interest. The senior secured credit
facility (note 6(c)) restricts Publishings ability to repurchase
these notes even when Publishing may be required to do so under the
terms of the indenture relating to the 9% Senior Notes in connection
with a change of control.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | On February 14, 2002, Publishing commenced a cash tender
offer for any and all of its outstanding 8.625% Senior Notes due
2005. The tender offer was made upon the terms and conditions set
forth in the Offer to Purchase and Consent Solicitation Statement
dated February 14, 2002. Under the terms of the offer, the Company
offered to purchase the outstanding notes at a price to be
determined three business days prior to the expiration date of the
tender offer by reference to a fixed spread of 87.5 basis points
over the yield to maturity of the 7.50% U.S. Treasury Notes due
February 15, 2005, plus accrued and unpaid interest up to but not
including the day of payment for the notes. The purchase price
totalled $1,101.34 for each $1,000 principal amount of notes.
Included in the purchase price was a consent payment equal to $40
per $1,000 principal amount of the notes, payable to those holders
who validly consented to the proposed amendments to the indenture
governing the notes. In connection with the tender offer, the
Company solicited consents from the holders of the notes to amend
the indenture governing the notes by eliminating most of the
restrictive provisions. On March 15, 2002, $248.9 million in the
aggregate principal amount had been validly tendered pursuant to the
offer and on March 18, 2002, these noteholders were paid out in
full. In addition, during the year, Publishing purchased for
retirement an additional $6.0 million in aggregate principal amount
of the 8.625% Senior Notes due 2005, $10.1 million in aggregate
principal amount of the 9.25% Senior Subordinated Notes due 2006 and
$25.0 million in aggregate principal amount of the 9.25% Senior
Subordinated Notes due 2007.
|
| |     |  | The total principal amount of the above Publishing Senior and Senior
Subordinated Notes retired during the year was $290.0 million. The
premiums paid to retire the debt totalled $27.1 million which, together with a write-off of $8.3
million of related deferred financing costs, have been presented as an
extraordinary item, net of income tax in the consolidated statements
of operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

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HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000



---



| | (c) |  | On December 23, 2002, certain of the Companys subsidiaries
entered into a senior credit facility with an aggregate commitment
of $310,000,000, arranged by Wachovia Bank, N.A. (the Senior Credit
Facility).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | The Senior Credit Facility consists of (i) a $45,000,000 revolving
credit facility which matures on September 30, 2008 (the Revolving
Credit Facility), (ii) a $45,000,000 Term Loan A which matures on
September 30, 2008 (Term Loan A) and (iii) a $220,000,000 Term Loan
B which matures on September 30, 2009 (Term Loan B). Publishing (a
wholly-owned subsidiary) and Telegraph Group Limited (Telegraph

Group, a wholly-owned indirect subsidiary) are the borrowers under
the Revolving Credit Facility and First DT Holdings Ltd. (FDTH, a
wholly-owned indirect subsidiary) is the borrower under Term Loan A
and Term Loan B. The Revolving Credit Facility and Term Loans bear
interest at either the Base Rate (U.S.) or LIBOR, plus an applicable
margin. Cross currency floating to fixed rates swaps have been
purchased in respect of all amounts advanced under the Senior Credit
Facility.                                                                                                                                      
|
| |     |  | Publishings borrowings under the Senior Credit Facility are
guaranteed by Publishings material U.S. subsidiaries, while FDTHs
and Telegraph Groups borrowings under the Senior Credit Facility are
guaranteed by Publishing and its material U.S. and U.K. subsidiaries.
The Company is also a guarantor of the Senior Credit Facility.
Publishings borrowings under the Senior Credit Facility are 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 are 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 have not been pledged as security under the Senior
Credit Facility.

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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000



---



| |     |  | The Senior Credit Facility agreement requires Publishing to comply
with certain covenants which include, without limitation and subject
to certain exceptions, restrictions on additional indebtedness; liens,
certain types of payments (including without limitation, capital stock
dividends and redemptions, payments on existing indebtedness and
intercompany indebtedness), and on 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 except as permitted; 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, subject to certain basket calculations and
exceptions. The Senior Credit Facility loan documentation also
contains customary events of default.
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | 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 has been advised by the Administrative Agent of the Senior Credit Facility that the lenders have agreed to
amend the Senior Credit Facility effective March 28, 2003, to increase the amount permitted under the operating
lease covenant and have agreed to a waiver of any default or event of
default in connection therewith. Based on the amended covenant, the Company would have been in compliance as of December 31, 2002.                                                                                                                                                                                                                                                                                                                                                                              
|
| | (d) |  | Amounts borrowed under a former short-term credit facility of
$120,000,000 entered into by the Company in 2001 were repaid during
that year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | (e) |  | In October 2002, the Company borrowed on an unsecured basis
$50,000,000 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| | (f) |  | Principal amounts payable on long-term debt, excluding
obligations under capital leases, are: 2003  $507,999,000
(including extinguishment of senior subordinated notes), 2004  $8,397,000, 2005  $15,048,000, 2006  $12,097,000 and 2007  $13,989,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | (g) |  | Interest paid for 2002, 2001 and 2000 was $65,346,000,
$84,223,000, and $145,902,000, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| | (h) |  | Extraordinary losses arising on debt extinguishments are net
of a related tax recovery of $14,184,000 in 2002 and $4,222,000 in
2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

F-37



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000



---



|(7) |  | Leases                                                                                                                                                                                                                                            
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The Company leases various facilities and equipment under non-cancellable
operating lease arrangements. Rental expense under all operating leases
was approximately $15,775,000, $12,067,000 and $16,465,000 in 2002, 2001
and 2000, respectively.
|   
|    |  | Minimum lease commitments together with the present value of capital
lease obligations at December 31, 2002 are as follows:                                                                                                                       

|                                                     |  |                |       |           |  |   |         | 
|---------------------------------------------------- |  | -------------- | ----- | --------- |  | - | ------- | 
|                                                     |  | Capital        |       | Operating
|                                                     |  | leases         |       | leases   
|                                                     |  |                |       |          
|                                                     |  | (in thousands)
|2003                                                 |  | $              | 1,766 |           |  | $ | 16,982  | 
|2004                                                 |  |                | 1,765 |           |  |   | 15,048  | 
|2005                                                 |  |                |      |           |  |   | 13,584  | 
|2006                                                 |  |                |      |           |  |   | 11,456  | 
|2007                                                 |  |                |      |           |  |   | 10,664  | 
|Later years                                          |  |                |      |           |  |   | 94,522  | 
|                                                     |  |                |       |           |  |   |         | 
|                                                     |  |                | 3,531 |           |  | $ | 162,256 | 
|                                                     |  |                |       |           |  |   |         | 
|Less imputed interest and executory costs            |  |                | 56    |           |  |   |         | 
|                                                     |  |                |       |           |  |   |         | 
|Present value of net minimum payments                |  |                | 3,475 |           |  |   |         | 
|Less current portion included in current liabilities |  |                | 1,721 |           |  |   |         | 
|                                                     |  |                |       |           |  |   |         | 
|Long-term obligations                                |  | $              | 1,754 |           |  |   |         | 
|                                                     |  |                |       |           |  |   |         | 

F-38



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000



---



|(8) |  | Minority Interest
|--- |  | -----------------

|                            |  |                |        |      |  |   |        | 
|--------------------------- |  | -------------- | ------ | ---- |  | - | ------ | 
|                            |  | 2002           |        | 2001
|                            |  |                |        |     
|                            |  | (in thousands)
|Common shares of subsidiary |  | $              | 1,961  |      |  | $ | 1,866  | 
|Partnership units           |  |                | 14,826 |      |  |   | 13,218 | 
|Other                       |  |                | 310    |      |  |   | 1,000  | 
|                            |  |                |        |      |  |   |        | 
|                            |  | $              | 17,097 |      |  | $ | 16,084 | 
|                            |  |                |        |      |  |   |        | 



| |  | In July 1997, Hollinger Canadian Publishing Holdings Co. (HCPH), a
wholly-owned subsidiary, issued 6,552,425 Cdn. $10 Non-Voting Special
shares for a total issue price of Cdn. $65,524,000 ($47,564,000). These
shares were exchangeable, at the option of the holder, at any time before
June 26, 2000 into newly issued Class A Common Stock of the Company and
were previously disclosed as minority interest. On June 12, 2000, the
Company exercised its option to pay cash on the mandatory exchange of
HCPH Special shares. Pursuant to the terms of the indenture governing
the Special shares, each Special share was exchanged for $8.88 cash
resulting in a payment to Special shareholders of $58,200,000. This
payment was $10,920,000 in excess of the recorded book amount and this
excess amount is presented as minority interest in the consolidated
statement of operations in 2000.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In September 1997, an additional 4,146,107 Special shares of HCPH were
issued for a total issue price of Cdn. $41,500,000 ($29,000,000) in
exchange for 4,146,107 Special shares in a subsidiary of Hollinger Inc.
These shares have the same terms and conditions as the Special shares
described in the previous paragraph. The Companys obligation to issue
Class A Common Stock was, however, offset by an obligation of Hollinger
Inc., through a subsidiary, to deliver those shares of the Companys
Class A Common Stock from its holdings. These Special shares were
exchanged for cash by Hollinger Inc. in 2000.                                                                                                                                                                                                                                                                              

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HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000



---



|(9)  |  | Redeemable Preferred Stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|     |  | Shares of Series E Preferred Stock, all of which are owned by a
wholly-owned subsidiary of Hollinger Inc., are 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 may, at any time, convert such shares into shares of Class A
Common Stock of the Company at a conversion price of $14.00 per share of
Class A Common Stock. The Series E Preferred Stock is non-voting and is
entitled to receive cumulative cash dividends, payable quarterly. The
amount of each quarterly dividend per share is equal to the product of
(a) the redemption price of Cdn. $146.63 divided by the Canadian dollar
equivalent of the conversion price and (b) the per share amount of the
regularly scheduled dividend on Class A Common Stock. On September 27,
2001, the Company redeemed 40,920 shares of Series E Preferred Stock at
the redemption price of Cdn. $146.63 per share for a total cash payment
of $3,800,000. At December 31, 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. At December 31, 2001, 93,206 shares of Series E
Preferred Stock were outstanding and based on exchange rates in effect on
that day were exchangeable into 612,977 shares of Class A Common Stock of
the Company (see note 25).
|    
|(10) |  | Stockholders Equity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    
|     |  | The Company is authorized to issue 20,000,000 shares of preferred stock
in one or more series and to designate the rights, preferences,
limitations and restrictions of and upon shares of each series, including
voting, redemption and conversion rights. In addition to the Series E
Preferred Stock referred to in note 9 above, the Company had issued
Series B and Series C Preferred Stock. The terms and conditions of these
shares are described below:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    
|     |  | Series B                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    
|     |  | These shares underlie an issue of Preferred Redeemable Increased Dividend
Equity Securities (PRIDES). The PRIDES were depository shares and each
one, in effect, represented one-half of a share of Series B Preferred
Stock. Each of the PRIDES had a
stated value of $9.75 and was entitled to cumulative dividends at a rate

of 9.75% per annum payable quarterly. In January 2000, 706,469 PRIDES
were converted to 596,189 shares of Class A Common Stock. At December
31, 2000, all issued Series B Preferred Stock had been converted to Class
A Common Stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

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HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000



---



| |  | Series C                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Pursuant to a January 1997 transaction wherein the Company acquired
Canadian publishing assets from Hollinger Inc., the Company issued
829,409 shares of Series C Preferred Stock. These shares were similar to
the PRIDES described above. 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 $92,200,000.                                                                                                                                                                                                                                                                                                                          
|
| |  | Class A and Class B Common Stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | Class A Common Stock and Class B Common Stock have identical rights with
respect to cash dividends and in any sale or liquidation, but different
voting rights. Each share of Class A Common Stock is entitled to one vote
per share and each share of Class B Common Stock is entitled to ten votes
per share on all matters, including the election of directors, where the
two classes vote together as a single class. Class B Common Stock is
convertible at any time at the option of Hollinger Inc. into Class A
Common Stock on a share-for-share basis and is transferable by Hollinger
Inc. under certain conditions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | 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
6, 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, 2002.

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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000



---



|(11) |  | Stock Option Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|     |  | During May 1994, the Company adopted the Hollinger International Inc.
1994 Stock Option Plan (the 1994 Plan). The 1994 Plan was amended in
September 1996 to increase the number of shares authorized for issuance
up to 1,471,140 shares. In 1997, the Company adopted the 1997 Stock
Incentive Plan (the Incentive Plan). The Incentive Plan provided for
awards of up to 5,156,915 shares of Class A Common Stock. The Incentive
Plan is administered by an independent committee (Committee) of the
Board of Directors. The Committee has the authority to determine the
employees to whom awards will be made, the amount and type of awards, and
the other terms and conditions of the awards. In 1999, the Company
adopted the 1999 Stock Incentive Plan (1999 Stock Plan) which
superseded the previous two plans.
|    
|     |  | The 1999 Stock Plan provides for awards of up to 8,500,000 shares of
Class A Common Stock. The 1999 Stock Plan authorizes the grant of
incentive stock options and nonqualified stock options. The exercise
price for stock options must be at least equal to 100% of the fair market
value of the Class A Common Stock on the date of grant of such option.                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    
|     |  | The Company applies Accounting Principles Board (APB) Opinion No. 25
and related interpretations in accounting for its plans. On March 31,
2000, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 44, Accounting for Certain Transactions involving
Stock Compensation (FIN 44), which provided guidance on several
implementation issues related to APB Opinion No. 25. The most relevant
to the Company was the clarification of the accounting for stock options

that have been repriced and the measurement of options granted to
employees of Ravelston, the parent company of Hollinger Inc. The Company
adopted FIN 44 effective July 1, 2000.                                                                                                                                           
|    
|     |  | In 1999, the Company repriced a series of stock options which had
originally been issued in 1998. Under FIN 44 these repriced options
effectively change to a variable stock option award and are subject to
compensation expense. Accordingly, the stock based compensation
determined for this repriced series for 2002 amounted to income of nil,
for 2001, income of $1,369,000, and for 2000, expense of $1,518,000.                                                                                                                                                                                                                                                                                                                                                                                                         

F-42



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##### Table of Contents



HOLLINGER INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000



---



| |  | 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 5, 2002, the Company granted 1,309,000 stock options to
employees of Ravelston with an exercise price of $11.13 per share. The
aggregate fair value of these options was $6,111,000 and this has been
recorded as an in-kind dividend during the year. On April 2, 2001, the
Company granted 1,402,500 stock options to employees of Ravelston with an
exercise price of $14.37 per share. The aggregate fair value of these
options was $7,800,000 and was recorded as an in-kind dividend in 2001.
There were no such options granted in 2000 subsequent to July 1, being
the effective date of FIN 44.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | For all other series of stock options, no compensation cost has been
recognized.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | Stock option activity with respect to the Companys stock options was as
follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

|                                         |  |           |            |                  |  |   |       | 
|---------------------------------------- |  | --------- | ---------- | ---------------- |  | - | ----- | 
|                                         |  | Number    |            | Weighted Average
|                                         |  | of Shares |            | Exercise Price  
|                                         |  |           |            |                 
|Options outstanding at December 31, 1999 |  |           | 5,149,500  |                  |  | $ | 11.88 | 
|Options granted                          |  |           | 2,559,250  |                  |  |   | 10.57 | 
|Options exercised                        |  |           | (471,063   | )                |  |   | 11.67 | 
|Options cancelled                        |  |           | (536,374   | )                |  |   | 12.11 | 
|                                         |  |           |            |                  |  |   |       | 
|Options outstanding at December 31, 2000 |  |           | 6,701,313  |                  |  |   | 11.38 | 
|Options granted                          |  |           | 2,418,000  |                  |  |   | 14.40 | 
|Options exercised                        |  |           | (624,162   | )                |  |   | 11.01 | 
|Options cancelled                        |  |           | (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 cancelled                        |  |           | (168,688   | )                |  |   | 12.64 | 
|                                         |  |           |            |                  |  |   |       | 
|Options outstanding at December 31, 2002 |  |           | 10,395,338 |                  |  | $ | 12.03 | 
|                                         |  |           |            |                  |  |   |       | 
|Options exercisable at December 31, 2000 |  |           | 1,989,548  |                  |  | $ | 11.51 | 
|Options exercisable at December 31, 2001 |  |           | 3,032,682  |                  |  | $ | 11.48 | 
|Options exercisable at December 31, 2002 |  |           | 4,739,994  |                  |  | $ | 11.85 | 
|                                         |  |           |            |                  |  |   |       | 

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##### Table of Contents



HOLLINGER INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000



---



|(12) |  | Earnings (Loss) per Share                                                                                                                                                                
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|     |  | The following tables reconcile the numerator and denominator for the
calculation of basic and diluted net earnings (loss) per share for the
years ended December 31, 2002, 2001 and 2000:

|                                          |                             |   |                                         |      |               |  |           |   |  |   |       |   | 
|----------------------------------------- | --------------------------- | - | --------------------------------------- | ---- | ------------- |  | --------- | - |  | - | ----- | - | 
|                                          |                             |   | Year Ended December 31, 2002           
|                                          |                             |   |                                        
|                                          |                             |   | Loss                                    |      | Shares        |  | Per-Share
|                                          |                             |   | (Numerator)                             |      | (Denominator) |  | Amount   
|                                          |                             |   |                                         |      |               |  |          
|                                          |                             |   | (in thousands except per share amounts)
|Net loss                                  |                             | $ | (238,823                                | )    |               |  |           |   |  |   |       |  
|Deduct dividends:                         |                             |   |                                         |      |               |  |           |   |  |   |       |  
|                                          | Convertible preferred stock |   |                                         |     |               |  |           |   |  |   |       |   | 
|                                          | Series E Preferred Stock    |   |                                         | (196 | )             |  |           |   |  |   |       |   | 
|                                          |                             |   |                                         |      |               |  |           |   |  |   |       |  
|Basic EPS                                 |                             |   |                                         |      |               |  |           |   |  |   |       |  
|Net loss available to common stockholders |                             |   | (239,019                                | )    |               |  | 96,066    |   |  | $ | (2.49 | )
|Effect of dilutive securities:            |                             |   |                                         |      |               |  |           |   |  |   |       |  
|                                          | None                        |   |                                         |     |               |  |           |  |  |   |       |  | 
|                                          |                             |   |                                         |      |               |  |           |   |  |   |       |  
|Diluted EPS                               |                             |   |                                         |      |               |  |           |   |  |   |       |  
|Net loss available to common stockholders |                             | $ | (239,019                                | )    |               |  | 96,066    |   |  | $ | (2.49 | )
|                                          |                             |   |                                         |      |               |  |           |   |  |   |       |  



| |  | The effect of options and Series E Preferred Stock are excluded as they
are anti-dilutive because of the net loss. Potentially dilutive
securities comprise shares issuable at December 31, 2002 in respect of
options and Series E preferred stock of 10,395,338 and 617,827,
respectively.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Subsequent to year end, the Company repurchased for cancellation
2,000,000 shares of Class A Common Stock and redeemed all of the 93,206
outstanding shares of Series E Preferred Stock (note 25).                                                                                          

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##### Table of Contents



HOLLINGER INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000



---

|                                          |                             |   |                                         |        |               |  |           |   |  |   |       |   | 
|----------------------------------------- | --------------------------- | - | --------------------------------------- | ------ | ------------- |  | --------- | - |  | - | ----- | - | 
|                                          |                             |   | Year Ended December 31, 2001           
|                                          |                             |   |                                        
|                                          |                             |   | Loss                                    |        | Shares        |  | Per-Share
|                                          |                             |   | (Numerator)                             |        | (Denominator) |  | Amount   
|                                          |                             |   |                                         |        |               |  |          
|                                          |                             |   | (in thousands except per share amounts)
|Net loss                                  |                             | $ | (335,111                                | )      |               |  |           |   |  |   |       |  
|Deduct dividends:                         |                             |   |                                         |        |               |  |           |   |  |   |       |  
|                                          | Convertible preferred stock |   |                                         | (4,275 | )             |  |           |   |  |   |       |   | 
|                                          | Series E Preferred Stock    |   |                                         | (442   | )             |  |           |   |  |   |       |   | 
|                                          |                             |   |                                         |        |               |  |           |   |  |   |       |  
|Basic EPS                                 |                             |   |                                         |        |               |  |           |   |  |   |       |  
|Net loss available to common stockholders |                             |   | (339,828                                | )      |               |  | 100,128   |   |  | $ | (3.39 | )
|Effect of dilutive securities:            |                             |   |                                         |        |               |  |           |   |  |   |       |  
|                                          | None                        |   |                                         |       |               |  |           |  |  |   |       |   | 
|Diluted EPS                               |                             |   |                                         |        |               |  |           |   |  |   |       |  
|Net loss available to common stockholders |                             | $ | (339,828                                | )      |               |  | 100,128   |   |  | $ | (3.39 | )
|                                          |                             |   |                                         |        |               |  |           |   |  |   |       |  



| |  | The effect of options, convertible preferred stock and Series E Preferred
Stock are excluded as they are anti-dilutive as a result of the net loss.
Potentially dilutive securities comprise shares issuable at December 31,
2001 in respect of options and Series E Preferred Stock of 8,412,401 and
612,977, respectively.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-45



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##### Table of Contents



HOLLINGER INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000



---

|                                                                      |                             |   |                                         |        |               |  |           |       |  |   |      |  | 
|--------------------------------------------------------------------- | --------------------------- | - | --------------------------------------- | ------ | ------------- |  | --------- | ----- |  | - | ---- |  | 
|                                                                      |                             |   | Year Ended December 31, 2000           
|                                                                      |                             |   |                                        
|                                                                      |                             |   | Income                                  |        | Shares        |  | Per-Share
|                                                                      |                             |   | (Numerator)                             |        | (Denominator) |  | Amount   
|                                                                      |                             |   |                                         |        |               |  |          
|                                                                      |                             |   | (in thousands except per share amounts)
|Net earnings                                                          |                             | $ | 157,387                                 |        |               |  |           |       |  |   |      | 
|Deduct dividends:                                                     |                             |   |                                         |        |               |  |           |       |  |   |      | 
|                                                                      | Convertible preferred stock |   |                                         | (8,431 | )             |  |           |       |  |   |      |  | 
|                                                                      | Series E Preferred Stock    |   |                                         | (519   | )             |  |           |       |  |   |      |  | 
|                                                                      |                             |   |                                         |        |               |  |           |       |  |   |      | 
|Basic EPS                                                             |                             |   |                                         |        |               |  |           |       |  |   |      | 
|Net earnings available to common stockholders                         |                             |   | 148,437                                 |        |               |  | 98,672    |       |  | $ | 1.50 | 
|Effect of dilutive securities:                                        |                             |   |                                         |        |               |  |           |       |  |   |      | 
|                                                                      | Convertible preferred stock |   |                                         | 8,431  |               |  |           | 8,182 |  |   |      |  | 
|                                                                      | Series E preferred stock    |   |                                         | 519    |               |  |           | 936   |  |   |      |  | 
|                                                                      | HCPH Special shares         |   |                                         |       |               |  |           | 2,469 |  |   |      |  | 
|                                                                      | Stock options               |   |                                         |       |               |  |           | 1,251 |  |   |      |  | 
|                                                                      |                             |   |                                         |        |               |  |           |       |  |   |      | 
|Diluted EPS                                                           |                             |   |                                         |        |               |  |           |       |  |   |      | 
|Net earnings available to common stockholders
and assumed conversions |                             | $ | 157,387                                 |        |               |  | 111,510   |       |  | $ | 1.41 | 
|                                                                      |                             |   |                                         |        |               |  |           |       |  |   |      | 



| |  | The loss per share relating to extraordinary items and the cumulative
effect of change in accounting principle was as follows:
| |  | ------------------------------------------------------------------------------------------------------------------------------

|                                                     |         |  |      |       |      |  |      |   |  |  |   |       |  
|---------------------------------------------------- | ------- |  | ---- | ----- | ---- |  | ---- | - |  |  | - | ----- | -
|                                                     |         |  | 2002 |       | 2001 |  | 2000
|                                                     |         |  |      |       |      |  |     
|Extraordinary items:                                 |         |  |      |       |      |  |      |   |  |  |   |      
|                                                     | Basic   |  | $    | (0.22 | )    |  | $    |  |  |  | $ | (0.07 | )
|                                                     | Diluted |  | $    | (0.22 | )    |  | $    |  |  |  | $ | (0.06 | )
|Cumulative effect of change in
accounting principle: |         |  |      |       |      |  |      |   |  |  |   |      
|                                                     | Basic   |  | $    | (0.21 | )    |  | $    |  |  |  | $ |      |  
|                                                     | Diluted |  | $    | (0.21 | )    |  | $    |  |  |  | $ |      |  
|                                                     |         |  |      |       |      |  |      |   |  |  |   |      

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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000



---



|(13) |  | 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 Emerging Issues Task Force (EITF) issued EITF
Issue No. 00-19 which clarified the accounting for derivative financial
instruments indexed to, and potentially settled in a companys own stock,
that require a cash payment by the issuer upon the occurrence of future
events outside the control of the issuer. The EITF applies to new
contracts entered into after September 30, 2000. Consequently the
extension of the contracts on October 1, 2000 was accounted for under
EITF Issue No. 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.
The $35,314,000 gain inherent in the old contracts at October 1, 2000,
based on the September 30, 2000 market value of Class A Common Stock of
$16.75, net of previously deferred costs associated with the old
contracts, was recorded as an adjustment to additional paid in capital.
The loss resulting from marking the contracts to market during the period
October 1 to December 31, 2000, together with the interest paid to the
banks, totaled $16,334,000, and was reported in earnings as other income
(expense), net.
|    
|     |  | In August 2001, the Company purchased for cancellation from one of the
banks 3,602,305 shares of Class A Common Stock for $50,000,000 or $13.88
per share. The market value of these shares on the date of purchase was
$47,000,000 or $13.05 per share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    
|     |  | In November 2001, one of the banks sold in the open market 3,556,513
shares of Class A Common Stock for $34,200,000 or an average price of
$9.62 per share. This resulted in a loss to the bank of $15,800,000
which, in accordance with the arrangement, was paid in cash by the
Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

F-47



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000



---



| |  | At December 31, 2001, the Company had two forward equity swap
arrangements remaining with banks for a total of $100,000,000. Of that
total, $10,000,000 was prepaid during the course of 2002 from available
cash on hand. In October 2002, a further $50,000,000 was prepaid using
the proceeds from borrowings in that month referred to in note 6(e). In
December 2002, the TRES were terminated and the balance owing by the
Company was paid from a portion of the Senior Credit Facility and
9% Senior Note proceeds received in December 2002 (note 6).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | 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 $58,655,000
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 stockholders equity. In
addition to these escrow shares, the Company also held restricted cash
balances of $7,500,000 as further collateral for the Total Return Equity
Swaps. In addition, at December 31, 2001, the Company had a further
$5,000,000 of restricted cash which was required to be held as security
against an unutilized line of credit.
|
| |  | In 2002, upon termination of the TRES, all escrow shares were returned
and cancelled.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | The excess of the $100,000,000 cash paid on settlement over the
approximately $27,800,000 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 during the
years ended December 31, 2002 and 2001 together with the interest and
fees paid to the banks, totalled $15,237,000 and $73,863,000
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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

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HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000



---



| |  | The liability recorded in respect of mark to market adjustments on the
TRES as of December 31 was classified in the balance sheet as follows:
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------

|                   |                   |   |                |   |      |   |        |        | 
|------------------ | ----------------- | - | -------------- | - | ---- | - | ------ | ------ | 
|                   |                   |   | 2002           |   | 2001
|                   |                   |   |                |   |     
|                   |                   |   | (in thousands)
|Current portion:   |                   |   |                |   |      |   |        |       
|                   | Accrued expenses  |   | $              |  |      |   | $      | 7,853  | 
|Long-term portion: |                   |   |                |   |      |   |        |       
|                   | Other liabilities |   |                |  |      |   |        | 10,819 | 
|                   |                   |   |                |   |      |   |        |       
|                   |                   | $ |               |   |      | $ | 18,672 |       
|                   |                   |   |                |   |      |   |        |       



|     |  | The Total Return Equity Swaps 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.
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(14) |  | Infrequent Items                                                                                                                                                                                                                                                                           

|                                                      |  |                |       |      |  |      |        |  |  |   |       | 
|----------------------------------------------------- |  | -------------- | ----- | ---- |  | ---- | ------ |  |  | - | ----- | 
|                                                      |  | 2002           |       | 2001 |  | 2000
|                                                      |  |                |       |      |  |     
|                                                      |  | (in thousands)
|Pension and post-retirement plan
liability adjustment |  | $              |      |      |  | $    | 12,429 |  |  | $ |      | 
|New Chicago plant pre-operating costs                 |  |                | 450   |      |  |      | 4,679  |  |  |   | 6,774 | 
|Other                                                 |  |                | 582   |      |  |      | 4,626  |  |  |   | 1,176 | 
|                                                      |  |                |       |      |  |      |        |  |  |   |       | 
|                                                      |  | $              | 1,032 |      |  | $    | 21,734 |  |  | $ | 7,950 | 
|                                                      |  |                |       |      |  |      |        |  |  |   |       | 

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HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000



---



|(15) |  | Other Income (Expense)
|---- |  | ----------------------



| | (a) |  | Other income (expense), net
| | --- |  | ---------------------------

|                                                             |  |      |         |      |  |                |          |   |  |   |         |  
|------------------------------------------------------------ |  | ---- | ------- | ---- |  | -------------- | -------- | - |  | - | ------- | -
|                                                             |  | 2002 |         | 2001 |  | 2000          
|                                                             |  |      |         |      |  |               
|                                                             |  |      |         |      |  | (in thousands) |          |   |  |  
|Net gains (losses) on sales of publishing
interests (note 1) |  | $    |        |      |  | $              | (1,236   | ) |  | $ | 557,022 |  
|Net gains (losses) on sales of investments                   |  |      |        |      |  |                | (147,213 | ) |  |   | 32,569  |  
|Net gains (losses) on sale of property, plant
and equipment  |  |      | 5,334   |      |  |                | 1,307    |   |  |   | (697    | )
|Write-down of investments                                    |  |      | (40,536 | )    |  |                | (48,037  | ) |  |   | (20,621 | )
|Equity in loss of affiliates                                 |  |      | (3,718  | )    |  |                | (15,098  | ) |  |   | (20,340 | )
|Total Return Equity Swap (note 13)                           |  |      | (15,237 | )    |  |                | (73,863  | ) |  |   | (16,334 | )
|Other                                                        |  |      | 979     |      |  |                | (11,738  | ) |  |   | (6,730  | )
|                                                             |  |      |         |      |  |                |          |   |  |   |         |  
|                                                             |  | $    | (53,178 | )    |  | $              | (295,878 | ) |  | $ | 524,869 |  
|                                                             |  |      |         |      |  |                |          |   |  |   |         |  



| | (b) |  | Foreign currency losses, net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | 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 States
dollars and used to reduce long-term debt (note 6). 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
$78,217,000 have been included in net loss for the year. These
foreign exchange losses have 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.

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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000



---



|(16) |  | 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 the last
remaining United States community newspaper property until August 2001
when it was sold. 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. During 2001, HCPH
Co. (formerly HCPH) became the successor to the operations of XSTM
Holdings (2000) Inc. (formerly Southam Inc. (Southam)).
|    
|     |  | 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, 2002
|                                        |  |                             
|                                        |  |                              |         |           |  |           |        |           |  |                |         |          |  |     |         |   |  | Investment |         |   |  |  
|                                        |  |                              |         |           |  |           |        |           |  | U.K.           |         | Canadian |  | and |         |   |  |           
|                                        |  | Chicago                      |         | Community |  | Newspaper |        | Newspaper |  | Corporate      |         |          |  |    
|                                        |  | Group                        |         | Group     |  | Group     |        | Group     |  | Group          |         | Total   
|                                        |  |                              |         |           |  |           |        |           |  |                |         |         
|                                        |  |                              |         |           |  |           |        |           |  | (in thousands) |         |          |  |     |         |   |  |           
|Revenues                                |  | $                            | 441,777 |           |  |           | 13,231 |           |  |                | 481,527 |          |  |     | 69,627  |   |  |            |        |   |  | $ | 1,006,162 |  
|                                        |  |                              |         |           |  |           |        |           |  |                |         |          |  |     |         |   |  |            |         |   |  |   |           |  
|Depreciation and
amortization           |  | $                            | 35,999  |           |  |           | 2,370  |           |  |                | 12,763  |          |  |     | 1,300   |   |  |            | 1,720   |   |  | $ | 54,152    |  
|                                        |  |                              |         |           |  |           |        |           |  |                |         |          |  |     |         |   |  |            |         |   |  |   |           |  
|Infrequent items                        |  | $                            | 450     |           |  |           |       |           |  |                | 582     |          |  |     |        |   |  |            |        |   |  | $ | 1,032     |  
|                                        |  |                              |         |           |  |           |        |           |  |                |         |          |  |     |         |   |  |            |         |   |  |   |           |  
|Operating income (loss)                 |  | $                            | 35,692  |           |  |           | (5,218 | )         |  |                | 48,078  |          |  |     | (2,134  | ) |  |            | (19,216 | ) |  | $ | 57,202    |  
|                                        |  |                              |         |           |  |           |        |           |  |                |         |          |  |     |         |   |  |            |         |   |  |   |           |  
|Equity in earnings
(loss) of affiliates |  | $                            | (1,266  | )         |  |           |       |           |  |                | (2,811  | )        |  |     | 359     |   |  |            |        |   |  | $ | (3,718    | )
|                                        |  |                              |         |           |  |           |        |           |  |                |         |          |  |     |         |   |  |            |         |   |  |   |           |  
|Total assets                            |  | $                            | 557,924 |           |  |           | 28,898 |           |  |                | 568,255 |          |  |     | 213,992 |   |  |            | 819,063 |   |  | $ | 2,188,132 |  
|                                        |  |                              |         |           |  |           |        |           |  |                |         |          |  |     |         |   |  |            |         |   |  |   |           |  
|Capital expenditures                    |  | $                            | 15,500  |           |  |           | 5,022  |           |  |                | 6,051   |          |  |     | 2,275   |   |  |            | 54      |   |  | $ | 28,902    |  
|                                        |  |                              |         |           |  |           |        |           |  |                |         |          |  |     |         |   |  |            |         |   |  |   |           |  

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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000



---

|                                        |  |                              |         |           |  |           |        |           |  |                |         |          |  |     |         |   |  |            |         |   |  |   |           |  
|--------------------------------------- |  | ---------------------------- | ------- | --------- |  | --------- | ------ | --------- |  | -------------- | ------- | -------- |  | --- | ------- | - |  | ---------- | ------- | - |  | - | --------- | -
|                                        |  | Year Ended December 31, 2001
|                                        |  |                             
|                                        |  |                              |         |           |  |           |        |           |  |                |         |          |  |     |         |   |  | Investment |         |   |  |  
|                                        |  |                              |         |           |  |           |        |           |  | U.K.           |         | Canadian |  | and |         |   |  |           
|                                        |  | Chicago                      |         | Community |  | Newspaper |        | Newspaper |  | Corporate      |         |          |  |    
|                                        |  | Group                        |         | Group     |  | Group     |        | Group     |  | Group          |         | Total   
|                                        |  |                              |         |           |  |           |        |           |  |                |         |         
|                                        |  |                              |         |           |  |           |        |           |  | (in thousands) |         |          |  |     |         |   |  |           
|Revenues                                |  | $                            | 442,884 |           |  |           | 19,115 |           |  |                | 486,374 |          |  |     | 197,948 |   |  |            |        |   |  | $ | 1,146,321 |  
|                                        |  |                              |         |           |  |           |        |           |  |                |         |          |  |     |         |   |  |            |         |   |  |   |           |  
|Depreciation and
amortization           |  | $                            | 37,888  |           |  |           | 2,141  |           |  |                | 19,834  |          |  |     | 11,828  |   |  |            | 2,037   |   |  | $ | 73,728    |  
|                                        |  |                              |         |           |  |           |        |           |  |                |         |          |  |     |         |   |  |            |         |   |  |   |           |  
|Infrequent items                        |  | $                            | 4,797   |           |  |           | 870    |           |  |                | 3,063   |          |  |     | 13,004  |   |  |            |        |   |  | $ | 21,734    |  
|                                        |  |                              |         |           |  |           |        |           |  |                |         |          |  |     |         |   |  |            |         |   |  |   |           |  
|Operating income (loss)                 |  | $                            | 4,962   |           |  |           | (4,487 | )         |  |                | 27,850  |          |  |     | (45,954 | ) |  |            | (18,354 | ) |  | $ | (35,983   | )
|                                        |  |                              |         |           |  |           |        |           |  |                |         |          |  |     |         |   |  |            |         |   |  |   |           |  
|Equity in earnings
(loss) of affiliates |  | $                            | (3,381  | )         |  |           |       |           |  |                | (11,415 | )        |  |     | (302    | ) |  |            |        |   |  | $ | (15,098   | )
|                                        |  |                              |         |           |  |           |        |           |  |                |         |          |  |     |         |   |  |            |         |   |  |   |           |  
|Total assets                            |  | $                            | 595,937 |           |  |           | 69,635 |           |  |                | 533,210 |          |  |     | 448,696 |   |  |            | 410,498 |   |  | $ | 2,057,976 |  
|                                        |  |                              |         |           |  |           |        |           |  |                |         |          |  |     |         |   |  |            |         |   |  |   |           |  
|Capital expenditures                    |  | $                            | 12,080  |           |  |           | 299    |           |  |                | 17,065  |          |  |     | 2,844   |   |  |            | 12,163  |   |  | $ | 44,451    |  
|                                        |  |                              |         |           |  |           |        |           |  |                |         |          |  |     |         |   |  |            |         |   |  |   |           |  

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

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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000



---



|(17) |  | Financial Instruments
|---- |  | ---------------------



| | (a) |  | Fair Values                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | The Company has entered into various types of financial instruments in
the normal course of business. In addition, on September 30, 1998, the
Company entered into forward purchase contracts to purchase shares of its
Class A Common Stock (note 13).                                                                                                                                                                                                                                                       
|
| |     |  | For certain of these instruments, fair value estimates are made at a
specific point in time, based on assumptions concerning the amount and
timing of estimated future cash flows and assumed discount rates
reflecting varying degrees of perceived risk and the country of origin.
These estimates are subjective in nature and involve uncertainties and
matters of significant judgment and, therefore, may not represent actual
values of the financial instruments that could be realized in the future.
|
| |     |  | At December 31, 2002 and 2001, the comparison of the carrying value and
the estimated fair value of the Companys financial instruments was as
follows:                                                                                                                                                                                                                                                                                                                                                       

|                                                       |  |          |           |       |  |                |           |       |  |   |         |   |  |   |         |  
|------------------------------------------------------ |  | -------- | --------- | ----- |  | -------------- | --------- | ----- |  | - | ------- | - |  | - | ------- | -
|                                                       |  | 2002     |           | 2001 
|                                                       |  |          |           |      
|                                                       |  | Carrying |           | Fair  |  | Carrying       |           | Fair 
|                                                       |  | value    |           | value |  | value          |           | value
|                                                       |  |          |           |       |  |                |           |      
|                                                       |  |          |           |       |  | (in thousands) |           |       |  |  
|Long-term debt                                         |  | $        | 1,080,903 |       |  | $              | 1,034,963 |       |  | $ | 807,993 |   |  | $ | 796,639 |  
|Interest rate swaps  liability                        |  |          |          |       |  |                |          |       |  |   | (984    | ) |  |   | (984    | )
|Forward share purchase
contracts  liability (note 13) |  |          |          |       |  |                |          |       |  |   | (18,672 | ) |  |   | (18,672 | )
|Foreign currency obligation 
liability (note 2)       |  |          | (13,572   | )     |  |                | (13,572   | )     |  |   | (15,976 | ) |  |   | (15,976 | )
|Forward foreign exchange
contract  asset (note 2)     |  |          |          |       |  |                |          |       |  |   | 15,542  |   |  |   | 15,542  |  
|Cross currency swaps 
liability (note 6)              |  |          | (9,161    | )     |  |                | (9,161    | )     |  |   |        |   |  |   |        |  
|                                                       |  |          |           |       |  |                |           |       |  |   |         |   |  |   |        

F-53



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000



---



| |     |  | The fair value of the cross-currency swaps, interest rate swaps, forward
share purchase contracts and forward foreign exchange contracts is the
estimated amount that the Company would pay or receive to terminate the
agreements. Interest rate swaps were considered a hedge until the hedged
debt was repaid in 2000. Subsequent to the debt repayment the estimated
cost to terminate the swap has been included in income. Such swaps were
terminated in 2002. Effective October 1, 2000, the forward share
purchase contracts were recorded at their fair values as described in
note 13. The foreign currency obligation and forward foreign exchange
contract are in connection with the sale of participations in the CanWest
debentures which is described in note 2. The cross currency swap is in
connection with the U.S. dollar debt as described in note 6 and below.
The fair value of redeemable preferred stock held by related parties is
as disclosed in note 9. The carrying values of all other financial
instruments at December 31, 2002 and 2001 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. At the end of
2001, there were no material contracts or arrangements of these types
other than the forward exchange contract related to the Participation
Trust as described in note 2. Such contracts were terminated as at
September 30, 2002. This contract was marked to market and the related
gains and losses included in foreign exchange losses, net in other income
(expense), net during the year.                                                                                                                                                                                                                                                                                  
|
| |     |  | On December 27, 2002, a United Kingdom subsidiary of the Company entered
into two cross-currency rate swap transactions to hedge principal and
interest payments on U.S. dollar borrowings under the December 23, 2002
Senior Credit Facility. The contracts have a total foreign currency
obligation notional value of U.S. $265 million, fixed at a rate of U.S.
$1.5922 to £1, convert the interest rate on such borrowing from floating
to fixed, and expire as to $45 million on December 29, 2008 and as to
$220 million on December 29, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |     |  | On January 22, 2003 and February 6, 2003, Publishing entered into
interest rate swaps to convert U.S. $150 million and U.S. $100 million,
respectively, of the Publishing Notes issued in December 2002 to floating
rates for the period to December 15, 2010, subject to early termination
notice.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

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HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000



---



| |  |  | Changes in the value of derivatives comprising the forward exchange
contract and cross-currency swaps described above amounted to a loss of
$18.4 million and a gain of $15.5 million in 2002 and 2001, respectively.
These changes are reported in foreign currency gains (losses), net on
the consolidated statements of operations. The fair value of these
contracts as of December 31, 2002 and 2001 is included in the balance
sheets in other liabilities.
| |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(18) |  | Commitments and Contingencies
|---- |  | -----------------------------



| | (a) |  | In November 2002, the FASB issued FASB Interpretation No. 45
(FIN 45), Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of
Others, 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.            
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | Joint Ventures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |     |  | The Telegraph has guaranteed the printing joint venture partners
share of equipment leasing obligations to third parties, which
amounted to approximately $600,000 (£372,000) at December 31, 2002.
These obligations are 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 Telegraph from its
obligation under the lease and accordingly, Telegraph is contingently
liable for performance by West Ferry Printers. Annual rents under the
lease are based on a percentage of immoveable assets, currently
£600,000 per year.
|
| |     |  | Pursuant to a joint venture agreement in the United Kingdom, the
Company has agreed to guarantee up to £0.5 million, if required, in
connection with borrowing by the joint venture. To date, the joint
venture has made no request for the supporting guarantee.                                                                                                                                                                                                                                                                                                          
|
| |     |  | As described in note 22, pursuant to the West Ferry joint venture
agreement, the Telegraph has a commitment to fund 50% of the
obligation under West Ferrys defined benefit plan.                                                                                                                                                                                                                                                                                                                                                                                         

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HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000



---



| |  |  | Dispositions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | In connection with certain dispositions of assets and/or businesses
(note 1), the Company has provided customary representations and
warranties whose terms range in duration and may not be explicitly
defined. 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 relate 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 contingent 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 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
when those losses are probable and estimable.                                                                                                                                                                                              
|
| |  |  | Credit Facilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  |  | Under its Senior Credit Facility, the Company has 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 has 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.

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HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000



---



| |  |  | The Company is unable to estimate the maximum potential liability for
these types of indemnifications as the credit agreements do not
specify a maximum amount and the amounts are dependent upon future
contingent events, the nature and likelihood of which cannot be
determined at this time.                                                                                                                                                                                                                                                                                               
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | No amount has been accrued in the accompanying consolidated financial
statements with respect to these indemnifications. The Company is
unable to estimate amounts due for withholding taxes at this time.
Any such amounts will increase the future effective cost of borrowing.                                                                                                                                                                                                                                                                                                               
|
| |  |  | As described in note 6, the Company has 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 6, the Company has
guaranteed Publishings 9% Senior Notes.                                                                                                                                                                                                                                                                                  
|
| |  |  | Participation Trust                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  |  | In connection with the participation agreement described in note 2,
the Company has agreed to indemnify the Participation Trust and its
trustee, in the event the participation agreement entitles the issuer
to fail to make 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, totalling
$490.5 million, plus accrued interest and any further debentures
received as paid-in-kind interest.                                                                  
|
| |  |  | 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.                                                                                                                                                                                                                             
|
| |  |  | In special circumstances, the Companys newspaper operations may
engage freelance reporters to cover stories in locales that carry a
high risk of personal injury or death. Subsequent to December 31,
2002, Telegraph has engaged a number of journalists and photographers
to report from the Middle East. As a term of their engagement,
Telegraph has agreed to provide a death benefit which, in the
aggregate for all freelancers engaged, amounts to £5,153,000. This
exposure is uninsured. Precautions have been taken to avoid a
concentration of the freelancers in any one location.

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HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000



---



| | (b) |  | In connection with the Companys insurance program, letters
of credit are required to support certain projected workers
compensation obligations. At December 31, 2002, letters of credit
in the amount of $2.8 million were outstanding.
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (c) |  | A number of libel and legal actions against the Company are
outstanding. The Company believes there are valid defences to these
proceedings or sufficient insurance to protect it from material
loss.                                     
|
| | (d) |  | In connection with certain of its cost and equity method
investments (note 2), the Company is committed to fund approximately
$1.2 million to those investees in 2003.                                                                    



|(19) |  | Related-party Transactions
|---- |  | --------------------------



| | (a) |  | The Company and its subsidiaries have entered into a services
agreement with The Ravelston Corporation Limited (Ravelston),
whereby Ravelston acts as manager of the Company and carries out
head office and executive responsibilities. This services agreement
was assigned on July 5, 2002 to Ravelston Management Inc. (RMI), a
wholly-owned subsidiary of Ravelston. Ravelston and RMI billed to
the Company and its subsidiaries fees totalling $23,731,000,
$28,956,000 and $33,618,000 for 2002, 2001 and 2000, respectively,
pursuant to this agreement.                 
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | Certain executives of Ravelston and Moffat Management and Black-Amiel
Management, affiliates of Ravelston and RMI, have separate services
agreements with certain subsidiaries of the Company. Amounts paid
directly by subsidiaries of the Company pursuant to such agreements
were $1,895,000, $1,697,000 and $3,659,000 for 2002, 2001 and 2000,
respectively. The fees under Ravelstons and RMIs services agreement
and the fees paid directly to executives and affiliates of Ravelston,
in aggregate, are negotiated with and approved by the Companys
independent directors.
|
| |     |  | In addition to all of the amounts referred to above, during 2001 and
2000 there was further remuneration paid directly by subsidiaries of
the Company to certain Ravelston executives of $1,374,000 and
$3,655,000, respectively (2002  nil).                                                                                                                                                                                                                                                                                                                                        
|
| |     |  | Hollinger Inc. and its affiliates billed the Company for allocable
expenses amounting to $2,263,000, $4,380,000 and $4,414,000 for 2002,
2001 and 2000, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                 

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HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000



---



| |     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                            
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |  | Net amounts due to related parties at December 31, 2002 totalling
$30,358,000 include $7,650,000 of amounts payable in respect of
management fees and allocable expenses billed by Hollinger Inc.,
Ravelston and RMI and other affiliates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| | (b) |  | On July 11, 2000, the Company loaned $36,817,000 to a
subsidiary of Hollinger Inc. in connection with the cash purchase by
Hollinger Inc. of HCPH Special shares (note 8). The loan is payable
on demand and to December 31, 2001 interest was payable at the rate
of 13% per annum. Effective January 1, 2002, the interest rate was
adjusted to LIBOR plus 3% per annum. This loan with accrued
interest totalling $45,848,000 at December 31, 2002 has been
classified as a long-term asset and was partially repaid subsequent
to year end (note 25).                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| | (c) |  | On July 3, 2002, N.P. Holdings Company (NP Holdings), a
subsidiary of the Company, was sold to RMI, a wholly-owned
subsidiary of Ravelston, a holding company controlled by Lord Black
through which most of his interest in the Company is ultimately
controlled, for $3,760,000 (Cdn. $5,750,000). The only asset of NP
Holdings was Canadian tax losses. The tax losses, only a portion of
which were previously recognized for accounting purposes, were
effectively sold at their carrying value. Due to the inability of
NP Holdings to utilize its own tax losses prior to their expiry, as
a result of its disposing of its interest in the National Post, it
sold these losses to a company which would be able to utilize the
losses. The only other potential purchaser for these losses,
CanWest, declined the opportunity to acquire the losses. The terms
of the sale of the tax losses to Ravelston were approved by the
independent directors of the Company.
|
| | (d) |  | (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 2). 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.                                                                                             

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HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000



---



| |  |     | Purchases from the joint ventures for printing services and newsprint
purchases are disclosed separately in the consolidated statements of
operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | (e) | On September 27, 2001, the Company redeemed Series E
Preferred Stock held by Hollinger Inc. for cash consideration of
$3,800,000 (note 9).                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | (f) | 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
$92,200,000 (note 10).                                                                                                                                                                                         
|
| |  | (g) | During 2000 and 2001, in connection with the sales of
properties described in note 1(b), (d) and (f), the Company,
Ravelston, Hollinger Inc., Lord Black and three senior executives
entered into non-competition agreements with the purchasers in
return for cash consideration paid.                                                                                                                                                                                                                                                                                                                               
|
| |  | (h) | As described in note 1(b), (g) and (j), during 2001 and 2000,
the Company sold newspaper properties to certain related parties.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | (i) | Included in deferred financing costs and other assets is
$4,130,000, owing to the Company from Bradford Publishing Company, a
company in which certain of the Companys officers are significant
shareholders. Such amount represents the present value of the
remaining amounts owing under a non-interest bearing note receivable
granted to the Company in connection with a non-compete agreement
entered into on the sale of certain operations to Bradford
Publishing Company during 2000 (note 1(g)). The note receivable is
unsecured and due over the period to 2010, and subordinated to
Bradfords lenders.

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HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000

---



| | (j) |  | Included in deferred financing costs and other assets is
$4,859,000 owed by Horizon Publications Inc. (Horizon), a company
controlled by certain directors and officers of the Company. 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 is due in 2007.
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (k) |  | During 2002, the Company paid to Horizon a management fee in
the amount of $163,000 in connection with certain administrative
services provided by Horizon. Such fee was approved by the
Companys independent directors.                                                                                                                                                                                                                                                         



|(20) |  | Income Taxes                                                                                      
|---- |  | --------------------------------------------------------------------------------------------------
|    
|     |  | Total income taxes for the years ended December 31, 2002, 2001 and 2000
were allocated as follows:

|                                                                                                                              |  |      |         |      |  |      |        |   |  |   |         |  
|----------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------ | - |  | - | ------- | -
|                                                                                                                              |  | 2002 |         | 2001 |  | 2000
|                                                                                                                              |  |      |         |      |  |     
|Earnings (loss) before minority interest,
extraordinary items and cumulative
effect of change in accounting
principle         |  | $    | 66,950  |      |  | $    | (8,319 | ) |  | $ | 398,452 |  
|Extraordinary item                                                                                                            |  |      | (14,184 | )    |  |      |       |   |  |   | (4,222  | )
|Other comprehensive income, for foreign
currency translation adjustments
recognized for financial reporting
purposes          |  |      | 2,374   |      |  |      |       |   |  |   |        |  
|Other comprehensive income, for minimum
pension liabilities recognized for
financial reporting purposes                       |  |      | (15,852 | )    |  |      | (7,573 | ) |  |   |        |  
|Other comprehensive income, for
unrealized holding gains on marketable
securities recognized for financial
reporting purposes |  |      | 2,040   |      |  |      | 11,690 |   |  |   | (13,729 | )
|                                                                                                                              |  |      |         |      |  |      |        |   |  |   |         |  
|                                                                                                                              |  | $    | 41,328  |      |  | $    | (4,202 | ) |  | $ | 380,501 |  
|                                                                                                                              |  |      |         |      |  |      |        |   |  |   |         |  

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HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000

---



| |  | U.S. and foreign components of earnings (loss) before income taxes,
minority interest, extraordinary items and cumulative effect of change in
accounting principle are presented below:
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|        |  |      |          |      |  |                |          |   |  |   |         | 
|------- |  | ---- | -------- | ---- |  | -------------- | -------- | - |  | - | ------- | 
|        |  | 2002 |          | 2001 |  | 2000          
|        |  |      |          |      |  |               
|        |  |      |          |      |  | (in thousands) |          |   |  |  
|U.S.    |  | $    | (88,690  | )    |  | $              | (182,456 | ) |  | $ | 27,394  | 
|Foreign |  |      | (39,661  | )    |  |                | (174,777 | ) |  |   | 585,537 | 
|        |  |      |          |      |  |                |          |   |  |   |         | 
|        |  | $    | (128,351 | )    |  | $              | (357,233 | ) |  | $ | 612,931 | 
|        |  |      |          |      |  |                |          |   |  |   |         | 



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

|                              |                 |   |         |         |          |   |                |          |   |   |         |         |  
|----------------------------- | --------------- | - | ------- | ------- | -------- | - | -------------- | -------- | - | - | ------- | ------- | -
|                              |                 |   | Current |         | Deferred |   | Total         
|                              |                 |   |         |         |          |   |               
|                              |                 |   |         |         |          |   | (in thousands) |          |   |   |        
|Year ended December 31, 2002: |                 |   |         |         |          |   |                |          |   |   |         |        
|                              | U.S. federal    |   | $       | (11,878 | )        |   | $              | 7,410    |   |   | $       | (4,468  | )
|                              | Foreign         |   |         | 17,749  |          |   |                | 54,236   |   |   |         | 71,985  |  
|                              | State and local |   |         | (3,916  | )        |   |                | 3,349    |   |   |         | (567    | )
|                              |                 |   |         |         |          |   |                |          |   |   |         |        
|                              |                 | $ | 1,955   |         |          | $ | 64,995         |          |   | $ | 66,950  |        
|                              |                 |   |         |         |          |   |                |          |   |   |         |        
|Year ended December 31, 2001: |                 |   |         |         |          |   |                |          |   |   |         |        
|                              | U.S. federal    |   | $       | 15,021  |          |   | $              | 11,290   |   |   | $       | 26,311  |  
|                              | Foreign         |   |         | 20,636  |          |   |                | (51,164  | ) |   |         | (30,528 | )
|                              | State and local |   |         | 2,964   |          |   |                | (7,066   | ) |   |         | (4,102  | )
|                              |                 |   |         |         |          |   |                |          |   |   |         |        
|                              |                 | $ | 38,621  |         |          | $ | (46,940        | )        |   | $ | (8,319  | )      
|                              |                 |   |         |         |          |   |                |          |   |   |         |        
|Year ended December 31, 2000: |                 |   |         |         |          |   |                |          |   |   |         |        
|                              | U.S. federal    |   | $       | (43,366 | )        |   | $              | 91,479   |   |   | $       | 48,113  |  
|                              | Foreign         |   |         | 456,635 |          |   |                | (108,901 | ) |   |         | 347,734 |  
|                              | State and local |   |         | (10,464 | )        |   |                | 13,069   |   |   |         | 2,605   |  
|                              |                 |   |         |         |          |   |                |          |   |   |         |        
|                              |                 | $ | 402,805 |         |          | $ | (4,353         | )        |   | $ | 398,452 |        
|                              |                 |   |         |         |          |   |                |          |   |   |         |        

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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000

---



| |  | Income tax expense (recovery) differed from the amounts computed by
applying the U.S. Federal income tax rate of 35% for 2002, 2001 and 2000
as a result of the following:
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                     |                                                                                                                 |   |         |        |      |   |                |        |   |   |         |         |  
|---------------------------------------------------- | --------------------------------------------------------------------------------------------------------------- | - | ------- | ------ | ---- | - | -------------- | ------ | - | - | ------- | ------- | -
|                                                     |                                                                                                                 |   | 2002    |        | 2001 |   | 2000          
|                                                     |                                                                                                                 |   |         |        |      |   |               
|                                                     |                                                                                                                 |   |         |        |      |   | (in thousands) |        |   |   |        
|Computed expected tax expense (recovery)           |                                                                                                                 | $ | (44,923 | )      |      | $ | (125,032       | )      |   | $ | 214,526 |        
|Increase (reduction) in income taxes resulting from: |                                                                                                                 |   |         |        |      |   |                |        |   |   |         |        
|                                                     | Non-deductible expenses for income tax
purposes                                                                 |   |         | 11,110 |      |   |                | 31,123 |   |   |         | 9,232   |  
|                                                     | Non-deductible foreign exchange loss
realized on substantial reduction of net
investment in Canadian operations |   |         | 31,290 |      |   |                |       |   |   |         |        |  
|                                                     | Tax gain in excess of book gain or book loss
in excess of tax loss                                              |   |         | 604    |      |   |                | 15,689 |   |   |         | 129,488 |  
|                                                     | U.S. state and local income taxes, net of
federal benefit                                                       |   |         | (369   | )    |   |                | (2,815 | ) |   |         | 1,693   |  
|                                                     | Impact of taxation at different foreign rates                                                                   |   |         | 3,993  |      |   |                | (9,276 | ) |   |         | 32,596  |  
|                                                     | Minority interest earnings in Hollinger L.P.                                                                    |   |         | (773   | )    |   |                | (1,330 | ) |   |         | (17,359 | )
|                                                     | Change in valuation allowance                                                                                   |   |         | 38,798 |      |   |                | 27,181 |   |   |         |        |  
|                                                     | Other                                                                                                           |   |         | 27,220 |      |   |                | 56,141 |   |   |         | 28,276  |  
|                                                     |                                                                                                                 |   |         |        |      |   |                |        |   |   |         |        
|                                                     |                                                                                                                 | $ | 66,950  |        |      | $ | (8,319         | )      |   | $ | 398,452 |        
|                                                     |                                                                                                                 |   |         |        |      |   |                |        |   |   |         |        

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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000

---



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

|                          |                                                                               |   |                |         |      |   |         |         |  
|------------------------- | ----------------------------------------------------------------------------- | - | -------------- | ------- | ---- | - | ------- | ------- | -
|                          |                                                                               |   | 2002           |         | 2001
|                          |                                                                               |   |                |         |     
|                          |                                                                               |   | (in thousands)
|Deferred tax assets:      |                                                                               |   |                |         |      |   |         |        
|                          | Accounts receivable, principally due to allowance for
doubtful accounts       |   | $              | 2,500   |      |   | $       | 1,755   |  
|                          | Accrued expenses                                                              |   |                | 11,532  |      |   |         | 10,813  |  
|                          | Post-retirement obligation                                                    |   |                | 17,753  |      |   |         | 17,609  |  
|                          | Investments                                                                   |   |                | 32,580  |      |   |         | 23,884  |  
|                          | Net operating loss carryforwards                                              |   |                | 15,956  |      |   |         | 62,700  |  
|                          | Other                                                                         |   |                | 9,921   |      |   |         | 24,645  |  
|                          |                                                                               |   |                |         |      |   |         |        
|                          | Gross deferred tax assets                                                     |   |                | 90,242  |      |   |         | 141,406 |  
|                          | Less valuation allowance                                                      |   |                | (38,798 | )    |   |         | (17,152 | )
|                          |                                                                               |   |                |         |      |   |         |        
|                          | Net deferred tax assets                                                       |   |                | 51,444  |      |   |         | 124,254 |  
|                          |                                                                               |   |                |         |      |   |         |        
|Deferred tax liabilities: |                                                                               |   |                |         |      |   |         |        
|                          | Property, plant and equipment, principally due to
differences in depreciation |   |                | 60,874  |      |   |         | 46,534  |  
|                          | Intangible assets, principally due to differences in basis
and amortization   |   |                | 93,902  |      |   |         | 93,106  |  
|                          | Pension asset                                                                 |   |                | 7,068   |      |   |         | 21,608  |  
|                          | Foreign exchange basis differences                                            |   |                | 4,528   |      |   |         | 7,607   |  
|                          | Long-term advances under printing contract                                    |   |                | 12,842  |      |   |         | 13,057  |  
|                          | Deferred gain on exchange of assets                                           |   |                | 36,049  |      |   |         | 35,170  |  
|                          | Unremitted earnings of a foreign equity investment                            |   |                | 47,705  |      |   |         | 43,104  |  
|                          | Other                                                                         |   |                | 38,207  |      |   |         | 51,456  |  
|                          |                                                                               |   |                |         |      |   |         |        
|                          | Gross deferred tax liabilities                                                |   |                | 301,175 |      |   |         | 311,642 |  
|                          |                                                                               |   |                |         |      |   |         |        
|Net deferred income taxes |                                                                               | $ | 249,731        |         |      | $ | 187,388 |        
|                          |                                                                               |   |                |         |      |   |         |        



| |  | At December 31, 2002, the Company had approximately $36,900,000 of
Canadian net operating loss carryforwards which will expire in varying
amounts through December 31, 2007.                                                                                                                                                                                                                                                                                
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Company has recorded a valuation allowance of $38,798,000 in the
current year related to net operating loss carryforwards and other
deferred tax assets in the Canadian group. The valuation allowance in
the prior year related entirely to net operating losses of N.P. Holdings,
a subsidiary of the Company. As described in note 19(c), this subsidiary
was sold to an affiliate during the year. The tax losses were sold at
their carrying value.

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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000

---



|     |  | Total income taxes paid in 2002, 2001 and 2000 amounted to $8,702,000,
$83,967,000 and $46,584,000, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(21) |  | Restatement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    
|     |  | The Company has restated its consolidated financial statements for the
years ended December 31, 2001 and 2000 to reflect adjustments to reverse
pension valuation allowances that were recorded in 2001 and 2000, in
respect of its Canadian pension plans.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    
|     |  | In connection with the sale of assets to CanWest in 2000, the Company
recorded a valuation allowance of approximately $63.9 million against the
remaining pension plan asset in respect of the operations sold. This
allowance reduced the gain on sale of the CanWest operations, included in
other income (expense). In 2001, a further valuation allowance of
approximately $4.4 million was recorded on other Canadian pension plans.
Recent regulatory guidance has precluded the use of valuation allowances
under U.S. GAAP. Accordingly, the Company has reversed valuation
allowances established in 2001 and 2000 and restated related balances as
of December 31, 2001 and for the years ended December 31, 2001 and 2000.
The effect of this change has been to reduce the net loss for the year
ended December 31, 2001 by $2,395,000 and increase net earnings for the
year ended December 31, 2000 by $40,312,000, each net of related income
taxes and minority interest.
|    
|     |  | Compensation costs for 2001 have been decreased by $4,387,000 and other
income (expense) for 2000 has been increased by $63,866,000. Deferred
income tax expense in 2001 and 2000 was increased by $1,882,000 and
$23,554,000, respectively. Minority interest was unaffected in 2000 but
was increased by $110,000 in 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    
|     |  | Prepaid pension benefit as of December 31, 2001 has been increased by
$64,471,000, accrued benefit liability (included in other liabilities)
has decreased by $826,000 and deferred tax liabilities have increased by
$24,338,000. Minority interest has increased by $107,000 and cumulative
foreign currency translation adjustment has increased by $1,855,000 as of
December 31, 2001 as a result of this change.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

F-65



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000

---



| |  | The consolidated financial statements for the years ended December 31,
2001 and 2000 have been restated to include the effects of these
adjustments, as follows:
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                       |                                                                                 |  |                |          |          |  |               |          |          |  |   |           |               |  |   |           | 
|-------------------------------------- | ------------------------------------------------------------------------------- |  | -------------- | -------- | -------- |  | ------------- | -------- | -------- |  | - | --------- | ------------- |  | - | --------- | 
|                                       |                                                                                 |  | 2001           |          | 2000    
|                                       |                                                                                 |  |                |          |         
|                                       |                                                                                 |  |                |          |          |  | As previously |          |          |  |   |           | As previously
|                                       |                                                                                 |  | Restated       |          | reported |  | Restated      |          | reported
|                                       |                                                                                 |  |                |          |          |  |               |          |         
|                                       |                                                                                 |  | (in thousands)
|Consolidated Statements of Operations: |                                                                                 |  |                |          |          |  |               |          |          |  |   |           |               |  |   |          
|                                       | Compensation costs                                                              |  | $              | 363,045  |          |  | $             | 367,432  |          |  | $ | 662,351   |               |  | $ | 662,351   | 
|                                       | Operating income (loss)                                                         |  |                | (35,983  | )        |  |               | (40,370  | )        |  |   | 1,874,271 |               |  |   | 1,874,271 | 
|                                       | Other income (expense), net
Net gains (losses) on
sales of publishing
interests |  |                | (1,236   | )        |  |               | (1,236   | )        |  |   | 557,022   |               |  |   | 493,156   | 
|                                       | Income taxes (recovery)                                                         |  |                | (8,319   | )        |  |               | (10,201  | )        |  |   | 398,452   |               |  |   | 374,898   | 
|                                       | Minority interest                                                               |  |                | (13,803  | )        |  |               | (13,913  | )        |  |   | 50,760    |               |  |   | 50,760    | 
|                                       | Net earnings (loss)                                                             |  |                | (335,111 | )        |  |               | (337,506 | )        |  |   | 157,387   |               |  |   | 117,075   | 
|                                       |                                                                                 |  |                |          |          |  |               |          |          |  |   |           |               |  |   |          

|                            |                             |                                                    |  |                         |          |          |  |               |          |  
|--------------------------- | --------------------------- | -------------------------------------------------- |  | ----------------------- | -------- | -------- |  | ------------- | -------- | -
|                            |                             |                                                    |  | As of December 31, 2001
|                            |                             |                                                    |  |                        
|                            |                             |                                                    |  |                         |          |          |  | As previously
|                            |                             |                                                    |  | Restated                |          | reported
|                            |                             |                                                    |  |                         |          |         
|                            |                             |                                                    |  | (in thousands)         
|Consolidated Balance Sheet: |                             |                                                    |  |                         |          |          |  |              
|                            |                             | Prepaid pension benefit                            |  | $                       | 62,825   |          |  | $             | (1,646   | )
|                            |                             | Other liabilities                                  |  |                         | 91,298   |          |  |               | 92,124   |  
|                            |                             | Deferred income taxes                              |  |                         | 187,388  |          |  |               | 163,050  |  
|                            |                             | Minority interest                                  |  |                         | 16,084   |          |  |               | 15,977   |  
|                            |                             | Accumulated other comprehensive income:            |  |                         |          |          |  |               |          |  
|                            |                             | Cumulative foreign currency translation adjustment |  |                         | (149,813 | )        |  |               | (147,958 | )
|                            | Retained earnings (deficit) |                                                    |  | 175,400                 |          |          |  | 132,693       |         
|                            | Total stockholders equity  |                                                    |  | 366,627                 |          |          |  | 325,775       |         
|                            |                             |                                                    |  |                         |          |          |  |              



|(22) |  | 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, 2002, 2001 and 2000, the Company contributed $2,120,000,
$1,551,000 and $1,558,000, respectively. The Company sponsors 11 defined
contribution plans in Canada and contributed $153,000, $169,000 and
$2,016,000 to the plans in 2002, 2001, and 2000, respectively.

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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000

---



| |  | The Telegraph sponsors a defined contribution plan, The Telegraph Staff
Pension Plan, for the majority of its employees, as well as a defined
contribution plan to provide pension benefits for senior executives. For
2002, 2001 and 2000, contributions to the defined contribution plan are
included as part of the service cost of the defined benefit plan.
Contributions to The Telegraph Executive Pension Scheme were $532,000,
$519,000 and $585,000 in 2002, 2001 and 2000, respectively.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Telegraph plans assets consist principally of U.K. and overseas
equities, unit trusts and bonds.                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | Defined Benefit Plans                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | The Company and subsidiaries have seven domestic and seven foreign
single-employer defined benefit plans and contribute to various
union-sponsored, collectively bargained domestic multi-employer pension
plans. The Companys contributions to these plans for the years ended
December 31, 2002, 2001 and 2000 were:                                                                                                                                                                            

|                      |  |      |       |      |  |                |       |  |  |   |        | 
|--------------------- |  | ---- | ----- | ---- |  | -------------- | ----- |  |  | - | ------ | 
|                      |  | 2002 |       | 2001 |  | 2000          
|                      |  |      |       |      |  |               
|                      |  |      |       |      |  | (in thousands) |       |  |  |  
|Single-employer plans |  | $    | 9,156 |      |  | $              | 8,753 |  |  | $ | 11,540 | 
|Multi-employer plans  |  | $    |      |      |  | $              | 1,251 |  |  | $ | 6,127  | 
|                      |  |      |       |      |  |                |       |  |  |   |        | 



| |  | The Telegraph has a defined benefit plan that was closed on July 1, 1991
and provides only benefits accrued up to that date. The liabilities of
the plan have been actuarially valued as of December 31, 2002. At that
date, the market value of the plan assets was $121,356,000, representing
91% of the estimated cost of purchasing the plans benefits from an
insurance company. The actuary assumed a discount rate of 5.6%.
Increases to pension payments are discretionary and are awarded by the
trustees, with the Telegraphs consent, from surpluses arising in the
fund from time to time. Contributions to the trust were $6,721,000,
$6,480,000 and $6,670,000 for 2002, 2001 and 2000, respectively.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Pursuant to the West Ferry joint venture agreement, the Telegraph has a
commitment to fund 50% of the obligation under West Ferrys defined
benefit plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

F-67



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000

---



| |  | Single-Employer Pension Plans                                                                                                                                                                                                                                                                                                             
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The benefits under the subsidiary companies single-employer pension
plans are based primarily on years of service and compensation levels.
The Company funds the annual provision deductible for income tax
purposes. The plans assets consist principally of marketable equity
securities and corporate and government debt securities.
|
| |  | The components of net period benefit costs for the years ended December
31, 2002, 2001 and 2000 are as follows:                                                                                                                                                                                                                           

|                                    |  |                |         |      |  |             |         |             |  |   |         |  
|----------------------------------- |  | -------------- | ------- | ---- |  | ----------- | ------- | ----------- |  | - | ------- | -
|                                    |  | 2002           |         | 2001 |  | 2000       
|                                    |  |                |         |      |  |            
|                                    |  | (in thousands)
|                                    |  |                |         |      |  | (Restated  |         | (Restated  | 
|                                    |  |                |         |      |  | note 21)    |         | note 21)   
|Service cost                        |  | $              | 8,247   |      |  | $           | 8,192   |             |  | $ | 12,376  |  
|Interest cost                       |  |                | 25,772  |      |  |             | 26,816  |             |  |   | 37,774  |  
|Expected return on plan assets      |  |                | (27,534 | )    |  |             | (18,078 | )           |  |   | (52,771 | )
|Amortization of losses (gains)      |  |                | 2,445   |      |  |             | 862     |             |  |   | (200    | )
|Settlement loss                     |  |                |        |      |  |             | 1,832   |             |  |   | 4,262   |  
|Amortization of prior service costs |  |                | 423     |      |  |             | 305     |             |  |   | 521     |  
|                                    |  |                |         |      |  |             |         |             |  |   |         |  
|Net periodic benefit cost           |  | $              | 9,353   |      |  | $           | 19,929  |             |  | $ | 1,962   |  
|                                    |  |                |         |      |  |             |         |             |  |   |         |  



| |  | Net periodic benefit cost in 2001 and 2000 has been restated as described
in note 21.
| |  | -------------------------------------------------------------------------------------

F-68



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000

---



| |  | The table below sets forth the reconciliation of the benefit obligation
as of December 31, 2002 and 2001:
| |  | ---------------------------------------------------------------------------------------------------------

|                                                |  |                |         |      |  |   |         |  
|----------------------------------------------- |  | -------------- | ------- | ---- |  | - | ------- | -
|                                                |  | 2002           |         | 2001
|                                                |  |                |         |     
|                                                |  | (in thousands)
|Benefit obligation at the beginning of the year |  | $              | 406,356 |      |  | $ | 487,716 |  
|Adjustment to opening balance                   |  |                |        |      |  |   | 9,210   |  
|Service cost                                    |  |                | 8,247   |      |  |   | 8,192   |  
|Interest cost                                   |  |                | 25,772  |      |  |   | 26,816  |  
|Participant contributions                       |  |                | 3,374   |      |  |   | 4,029   |  
|Divestitures                                    |  |                |        |      |  |   | (83,796 | )
|Plan amendments                                 |  |                |        |      |  |   | 18      |  
|Settlement gain                                 |  |                |        |      |  |   | (8,378  | )
|Exchange rate differences                       |  |                | 11,445  |      |  |   | (19,442 | )
|Actuarial loss (gain)                           |  |                | (14,441 | )    |  |   | 7,239   |  
|Benefits paid                                   |  |                | (37,416 | )    |  |   | (25,248 | )
|                                                |  |                |         |      |  |   |         |  
|Benefit obligation at the end of the year       |  | $              | 403,337 |      |  | $ | 406,356 |  
|                                                |  |                |         |      |  |   |         |  



| |  | The 2001 settlement gain was related to the sale of Canadian newspapers
(note 1(a), (b) and (c)).   
| |  | ----------------------------------------------------------------------------------------------------
|
| |  | The table below sets forth the change in plan assets for the years ended
December 31, 2002 and 2001:

|                                                       |  |                |         |      |  |   |         |  
|------------------------------------------------------ |  | -------------- | ------- | ---- |  | - | ------- | -
|                                                       |  | 2002           |         | 2001
|                                                       |  |                |         |     
|                                                       |  | (in thousands)
|Fair value of plan assets at the beginning of the year |  | $              | 407,806 |      |  | $ | 554,595 |  
|Actual return on plan assets                           |  |                | (32,595 | )    |  |   | (16,224 | )
|Other, including exchange rate differences             |  |                | 6,918   |      |  |   | (20,353 | )
|Employer contributions                                 |  |                | 9,156   |      |  |   | 8,753   |  
|Participant contributions                              |  |                | 3,374   |      |  |   | 4,029   |  
|Settlement gain                                        |  |                |        |      |  |   | (9,846  | )
|Divestitures                                           |  |                |        |      |  |   | (87,900 | )
|Benefits paid                                          |  |                | (37,416 | )    |  |   | (25,248 | )
|                                                       |  |                |         |      |  |   |         |  
|Fair value of plan assets at the end of the year       |  | $              | 357,243 |      |  | $ | 407,806 |  
|                                                       |  |                |         |      |  |   |         |  

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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000

---



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

|                                       |  |                |         |      |  |             |        | 
|-------------------------------------- |  | -------------- | ------- | ---- |  | ----------- | ------ | 
|                                       |  | 2002           |         | 2001
|                                       |  |                |         |     
|                                       |  | (in thousands)
|                                       |  |                |         |      |  | (Restated

|                                       |  |                |         |      |  | note 21)   
|Funded status                          |  | $              | (46,094 | )    |  | $           | 1,450  | 
|Unrecognized net actuarial loss        |  |                | 106,164 |      |  |             | 61,863 | 
|Unrecognized prior service cost        |  |                | 1,602   |      |  |             | 1,024  | 
|Unrecognized net transition obligation |  |                | 1,483   |      |  |             |       | 
|                                       |  |                |         |      |  |             |        | 
|Prepaid benefit cost                   |  | $              | 63,155  |      |  | $           | 64,337 | 
|                                       |  |                |         |      |  |             |        | 



| |  | The above prepaid benefit costs are classified on the consolidated
balance sheets as follows:
| |  | ---------------------------------------------------------------------------------------------

|                                                         |  |                |         |      |  |   |        |  
|-------------------------------------------------------- |  | -------------- | ------- | ---- |  | - | ------ | -
|                                                         |  | 2002           |         | 2001
|                                                         |  |                |         |     
|                                                         |  | (in thousands)
|Prepaid pension benefit                                  |  | $              | 63,146  |      |  | $ | 62,825 |  
|Accrued benefit liability, included in other liabilities |  |                | (30,945 | )    |  |   | (3,213 | )
|Intangible asset, included in other assets               |  |                | 1,602   |      |  |   | 1,488  |  
|Accumulated other comprehensive loss                     |  |                | 29,352  |      |  |   | 3,237  |  
|                                                         |  |                |         |      |  |   |        |  
|                                                         |  | $              | 63,155  |      |  | $ | 64,337 |  
|                                                         |  |                |         |      |  |   |        |  



| |  | At December 31, 2002, the
Company has also included $38,724,000 (2001  $21,250,000) in other comprehensive income, representing the Companys
50% share of West Ferrys minimum pension liability adjustment.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000

---



| |  | The ranges of assumptions were as follows:
| |  | ------------------------------------------

|                               |  |      |             |      |  |      |            |   |  |  |            |  
|------------------------------ |  | ---- | ----------- | ---- |  | ---- | ---------- | - |  |  | ---------- | -
|                               |  | 2002 |             | 2001 |  | 2000
|                               |  |      |             |      |  |     
|Discount rate                  |  |      | 5.6% - 7.0  | %    |  |      | 6.0% - 8.0 | % |  |  | 6.0% - 8.0 | %
|Expected return on plan assets |  |      | 5.6% - 8.25 | %    |  |      | 6.0% - 9.0 | % |  |  | 6.0% - 9.0 | %
|Compensation increase          |  |      | 2.5% - 4.5  | %    |  |      | 2.5% - 4.5 | % |  |  | 3.5% - 4.0 | %
|                               |  |      |             |      |  |      |            |   |  |  |            |  



| |  | Multi-employer Pension Plans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Certain former U.S. employees were covered by union-sponsored
multi-employer pension plans, all of which are defined benefit plans.
Contributions were determined in accordance with the provisions of
negotiated labor contracts and were generally based on the number of man
hours worked. There was no pension expense in 2002 and 2001. Pension
expense was $1,201,000 for the year ended December 31, 2000. The
newspaper properties participating in these multi-employer plans were
sold during 2000.
|
| |  | Post-retirement and Post-employment Benefits                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | The Company sponsors two 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 Accounting for
Post-retirement Benefits Other than Pensions, and No.112, Employers
Accounting for Post-employment Benefits.                                                                                                                                                                         
|
| |  | The components of net periodic post-retirement benefit cost for the years
ended December 31, 2002, 2001 and 2000 are as follows:                                                                                                                                                                                                                                                                                                                                                                             

|                                          |  |      |       |      |  |                |        |   |  |   |         |  
|----------------------------------------- |  | ---- | ----- | ---- |  | -------------- | ------ | - |  | - | ------- | -
|                                          |  | 2002 |       | 2001 |  | 2000          
|                                          |  |      |       |      |  |               
|                                          |  |      |       |      |  | (in thousands) |        |   |  |  
|Service cost                              |  | $    | 85    |      |  | $              | 120    |   |  | $ | 671     |  
|Interest cost                             |  |      | 1,783 |      |  |                | 1,916  |   |  |   | 2,657   |  
|Amortization of losses (gains)            |  |      | (318  | )    |  |                | 15     |   |  |   | (131    | )
|Settlement/curtailment                    |  |      |      |      |  |                | (1,725 | ) |  |   | (11,992 | )
|                                          |  |      |       |      |  |                |        |   |  |   |         |  
|Net periodic post-retirement benefit cost |  | $    | 1,550 |      |  | $              | 326    |   |  | $ | (8,795  | )
|                                          |  |      |       |      |  |                |        |   |  |   |         |  

F-71



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000

---



| |  | The table below sets forth the reconciliation of the accumulated
post-retirement benefit obligation as of December 31, 2002 and 2001:
| |  | -------------------------------------------------------------------------------------------------------------------------------------

|                                                                            |  |                |        |      |  |   |        |  
|--------------------------------------------------------------------------- |  | -------------- | ------ | ---- |  | - | ------ | -
|                                                                            |  | 2002           |        | 2001
|                                                                            |  |                |        |     
|                                                                            |  | (in thousands)
|Accumulated post-retirement benefit obligation
at the beginning of the year |  | $              | 27,943 |      |  | $ | 34,594 |  
|Service cost                                                                |  |                | 85     |      |  |   | 120    |  
|Interest cost                                                               |  |                | 1,783  |      |  |   | 1,916  |  
|Actuarial gains (losses)                                                    |  |                | (150   | )    |  |   | 406    |  
|Divestitures                                                                |  |                |       |      |  |   | (3,626 | )
|Benefits paid                                                               |  |                | (1,976 | )    |  |   | (1,847 | )
|Other, including exchange rate differences                                  |  |                | 9,114  |      |  |   | (3,620 | )
|                                                                            |  |                |        |      |  |   |        |  
|Accumulated post-retirement benefit obligation
at the end of the year       |  | $              | 36,799 |      |  | $ | 27,943 |  
|                                                                            |  |                |        |      |  |   |        |  



| |  | The fair value of the plan assets was $2,668,000 at December 31, 2002 and
nil at December 31, 2001.                         
| |  | ----------------------------------------------------------------------------------------------------------------------------
|
| |  | The table below sets forth the plans funded status reconciled to the
amounts recognized in the consolidated balance sheets:

|                                                                    |  |                |         |      |  |   |         |  
|------------------------------------------------------------------- |  | -------------- | ------- | ---- |  | - | ------- | -
|                                                                    |  | 2002           |         | 2001
|                                                                    |  |                |         |     
|                                                                    |  | (in thousands)
|Unfunded status                                                     |  | $              | (34,131 | )    |  | $ | (27,943 | )
|Unrecognized net loss                                               |  |                | 1,484   |      |  |   | 1,173   |  
|                                                                    |  |                |         |      |  |   |         |  
|Accrued post-retirement benefit cost,
included in other liabilities |  | $              | (32,647 | )    |  | $ | (26,770 | )
|                                                                    |  |                |         |      |  |   |         |  

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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000

---



|     |  | The weighted average discount rate used in determining the accumulated
post-retirement benefit obligation was 6.25% and 6.5% for 2002 and 2001,
respectively. All benefits under the plan are paid for by the Companys
contributions to the Plan. For measuring the expected post-retirement
benefit obligation, an 8% annual rate of increase in the per capita
claims was assumed for 2002.                                                                                                                                                                                                                                                                                                                                                                                        
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|     |  | 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, 2002 would have increased $1,801,000 (2001 -
$2,189,000) and the effect of this change on the aggregate of service and
interest cost for 2002 would have been an increase of $165,000 (2001 -
$142,000). If the health care cost trend rate was decreased 1%, the
accumulated post-retirement benefit obligation as of December 31, 2002
would have decreased by $1,618,000 (2001  $1,354,000) and the effect of
this change on the aggregate of service and interest cost for 2002 would
have been a decrease of $147,000 (2001  $103,000).
|    
|(23) |  | Supplemental Condensed Consolidating Financial Information                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    
|     |  | The Senior Notes due 2005 and 2010 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 on 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.                                                                                                                                                                                    

F-73



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000

---



| |  | Hollinger International Inc.                   
| |  | -----------------------------------------------
| |  | Condensed Consolidating Statement of Operations

|                                                                                                                                   |                                                       |   |                              |          |            |   |                |          |              |   |           |         |   |   |           |         |  
|---------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------- | - | ---------------------------- | -------- | ---------- | - | -------------- | -------- | ------------ | - | --------- | ------- | - | - | --------- | ------- | -
|                                                                                                                                   |                                                       |   | Year ended December 31, 2002
|                                                                                                                                   |                                                       |   |                             
|                                                                                                                                   |                                                       |   | Hollinger                    |          |            |   |                |          |              |   |           |         |   |   |          
|                                                                                                                                   |                                                       |   | International                |          |            |   |                |          |              |   |           |         |   |   |          
|                                                                                                                                   |                                                       |   | Inc.                         |          | Publishing |   | Eliminations   |          | Consolidated
|                                                                                                                                   |                                                       |   |                              |          |            |   |                |          |             
|                                                                                                                                   |                                                       |   |                              |          |            |   | (in thousands) |          |              |   |          
|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                                             |   |                              |         |            |   |                |         |              |   |           | 89,840  |   |   |           | 89,840  |  
|                                                                                                                                   | Newsprint incurred through joint ventures             |   |                              |         |            |   |                |         |              |   |           | 60,589  |   |   |           | 60,589  |  
|                                                                                                                                   | Compensation costs                                    |   |                              |         |            |   |                | 3,162    |              |   |           | 305,870 |   |   |           | 309,032 |  
|                                                                                                                                   | Stock-based compensation                              |   |                              |         |            |   |                |         |              |   |           |        |   |   |           |        |  
|                                                                                                                                   | Other operating costs                                 |   |                              | 420      |            |   |                | 22,881   |              |   |           | 364,337 |   |   |           | 387,638 |  
|                                                                                                                                   | Other operating costs incurred
through joint ventures |   |                              |         |            |   |                |         |              |   |           | 46,677  |   |   |           | 46,677  |  
|                                                                                                                                   | Infrequent items                                      |   |                              |         |            |   |                |         |              |   |           | 1,032   |   |   |           | 1,032   |  
|                                                                                                                                   | Depreciation                                          |   |                              |         |            |   |                | 1,297    |              |   |           | 35,704  |   |   |           | 37,001  |  
|                                                                                                                                   | Amortization                                          |   |                              |         |            |   |                |         |              |   |           | 17,151  |   |   |           | 17,151  |  
|                                                                                                                                   |                                                       |   |                              |          |            |   |                |          |              |   |           |         |   |   |           |        
|Total operating costs and expenses                                                                                                 |                                                       |   | 420                          |          |            |   | 27,340         |          |              |   | 921,200   |         |   |   | 948,960   |        
|                                                                                                                                   |                                                       |   |                              |          |            |   |                |          |              |   |           |         |   |   |           |        
|Operating income (loss)                                                                                                            |                                                       |   | (420                         | )        |            |   | (27,340        | )        |              |   | 84,962    |         |   |   | 57,202    |        
|                                                                                                                                   |                                                       |   |                              |          |            |   |                |          |              |   |           |         |   |   |           |        
|Other income (expense):                                                                                                            |                                                       |   |                              |          |            |   |                |          |              |   |           |         |   |   |           |        
|                                                                                                                                   | Interest expense                                      |   |                              | (1,209   | )          |   |                | (53,121  | )            |   |           | (4,442  | ) |   |           | (58,772 | )
|                                                                                                                                   | Amortization of debt issue costs                      |   |                              |         |            |   |                | (5,585   | )            |   |           |        |   |   |           | (5,585  | )
|                                                                                                                                   | Interest and dividend income                          |   |                              | 1,375    |            |   |                | 1,918    |              |   |           | 15,489  |   |   |           | 18,782  |  
|                                                                                                                                   | Other income (expense), net                           |   |                              | (262,094 | )          |   |                | (108,418 | )            |   |           | 317,334 |   |   |           | (53,178 | )
|                                                                                                                                   | Foreign currency gains (losses), net                  |   |                              | 3,015    |            |   |                | (976     | )            |   |           | (88,839 | ) |   |           | (86,800 | )
|                                                                                                                                   |                                                       |   |                              |          |            |   |                |          |              |   |           |         |   |   |           |        
|Total other income (expense)                                                                                                       |                                                       |   | (258,913                     | )        |            |   | (166,182       | )        |              |   | 239,542   |         |   |   | (185,553  | )      
|                                                                                                                                   |                                                       |   |                              |          |            |   |                |          |              |   |           |         |   |   |           |        
|Earnings (loss) before income taxes, minority
interest, extraordinary item and cumulative
effect of change in accounting principle |                                                       |   | (259,333                     | )        |            |   | (193,522       | )        |              |   | 324,504   |         |   |   | (128,351  | )      
|Income taxes (recovery)                                                                                                            |                                                       |   | (20,510                      | )        |            |   | (16,361        | )        |              |   | 103,821   |         |   |   | 66,950    |        
|                                                                                                                                   |                                                       |   |                              |          |            |   |                |          |              |   |           |         |   |   |           |        
|Loss before minority interest, extraordinary
item and cumulative effect of change in
accounting principle                          |                                                       |   | (238,823                     | )        |            |   | (177,161       | )        |              |   | 220,683   |         |   |   | (195,301  | )      
|Minority interest                                                                                                                  |                                                       |   |                             |          |            |   |               |          |              |   | 2,167     |         |   |   | 2,167     |        
|                                                                                                                                   |                                                       |   |                              |          |            |   |                |          |              |   |           |         |   |   |           |        
|Earnings (loss) before extraordinary item and
cumulative effect of change in accounting
principle                                  |                                                       |   | (238,823                     | )        |            |   | (177,161       | )        |              |   | 218,516   |         |   |   | (197,468  | )      
|Extraordinary loss on debt extinguishments,
net of tax                                                                             |                                                       |   |                             |          |            |   | (21,276        | )        |              |   |          |         |   |   | (21,276   | )      
|                                                                                                                                   |                                                       |   |                              |          |            |   |                |          |              |   |           |         |   |   |           |        
|Earnings (loss) before cumulative effect
of change in accounting principle                                                         |                                                       |   | (238,823                     | )        |            |   | (198,437       | )        |              |   | 218,516   |         |   |   | (218,744  | )      
|Cumulative effect of change in accounting
principle                                                                                |                                                       |   |                             |          |            |   |               |          |              |   | (20,079   | )       |   |   | (20,079   | )      
|                                                                                                                                   |                                                       |   |                              |          |            |   |                |          |              |   |           |         |   |   |           |        
|Net earnings (loss)                                                                                                                |                                                       | $ | (238,823                     | )        |            | $ | (198,437       | )        |              | $ | 198,437   |         |   | $ | (238,823  | )      
|                                                                                                                                   |                                                       |   |                              |          |            |   |                |          |              |   |           |         |   |   |           |        

F-74



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000

---



| |  | Hollinger International Inc.                   
| |  | -----------------------------------------------
| |  | Condensed Consolidating Statement of Operations

|                                                       |                                                       |   |               |          |            |   |                              |          |              |   |           |         |   |   |           |          |  
|------------------------------------------------------ | ----------------------------------------------------- | - | ------------- | -------- | ---------- | - | ---------------------------- | -------- | ------------ | - | --------- | ------- | - | - | --------- | -------- | -
|                                                       |                                                       |   |               |          |            |   | Year ended December 31, 2001 |          |              |   |          
|                                                       |                                                       |   |              
|                                                       |                                                       |   | Hollinger     |          |            |   |                              |          |              |   |           |         |   |   |          
|                                                       |                                                       |   | International |          |            |   |                              |          |              |   |           |         |   |   |          
|                                                       |                                                       |   | Inc.          |          | Publishing |   | Eliminations                 |          | Consolidated
|                                                       |                                                       |   |               |          |            |   |                              |          |             
|                                                       |                                                       |   |               |          |            |   | (in thousands)               |          |              |   |          
|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 costs                                    |   |               |         |            |   |                              | 4,133    |              |   |           | 358,912 |   |   |           | 363,045  |  
|                                                       | Stock-based compensation                              |   |               | (1,369   | )          |   |                              |         |              |   |           |        |   |   |           | (1,369   | )
|                                                       | Other operating costs                                 |   |               | 400      |            |   |                              | 20,465   |              |   |           | 451,404 |   |   |           | 472,269  |  
|                                                       | Other operating costs incurred
through joint ventures |   |               |         |            |   |                              |         |              |   |           | 48,473  |   |   |           | 48,473   |  
|                                                       | Infrequent items                                      |   |               |         |            |   |                              |         |              |   |           | 21,734  |   |   |           | 21,734   |  
|                                                       | 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 debt issue costs                      |   |               | (2,835   | )          |   |                              | (7,532   | )            |   |           |        |   |   |           | (10,367  | )
|                                                       | Interest and dividend income                          |   |               | 22,024   |            |   |                              | 418      |              |   |           | 42,451  |   |   |           | 64,893   |  
|                                                       | Foreign currency gains (losses), net                  |   |               | 3,383    |            |   |                              | 2,322    |              |   |           | (6,964  | ) |   |           | (1,259   | )
|                                                       | Other income (expense), net                           |   |               | (358,706 | )          |   |                              | (182,832 | )            |   |           | 245,660 |   |   |           | (295,878 | )
|                                                       |                                                       |   |               |          |            |   |                              |          |              |   |           |         |   |   |           |         
|Total other income (expense)                           |                                                       |   | (339,535      | )        |            |   | (259,936                     | )        |              |   | 278,221   |         |   |   | (321,250  | )       
|                                                       |                                                       |   |               |          |            |   |                              |          |              |   |           |         |   |   |           |         
|Earnings (loss) before income taxes,
minority interest |                                                       |   | (338,566      | )        |            |   | (285,803                     | )        |              |   | 267,136   |         |   |   | (357,233  | )       
|Income taxes (recovery)                                |                                                       |   | (3,455        | )        |            |   | (28,180                      | )        |              |   | 23,316    |         |   |   | (8,319    | )       
|                                                       |                                                       |   |               |          |            |   |                              |          |              |   |           |         |   |   |           |         
|Earnings (loss) before minority interest               |                                                       |   | (335,111      | )        |            |   | (257,623                     | )        |              |   | 243,820   |         |   |   | (348,914  | )       
|Recovery of minority interest                          |                                                       |   |              |          |            |   |                             |          |              |   | (13,803   | )       |   |   | (13,803   | )       
|                                                       |                                                       |   |               |          |            |   |                              |          |              |   |           |         |   |   |           |         
|Net earnings (loss)                                    |                                                       | $ | (335,111      | )        |            | $ | (257,623                     | )        |              | $ | 257,623   |         |   | $ | (335,111  | )       
|                                                       |                                                       |   |               |          |            |   |                              |          |              |   |           |         |   |   |           |         

F-75



---



##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000

---



| |  | Hollinger International Inc.                   
| |  | -----------------------------------------------
| |  | Condensed Consolidating Statement of Operations

|                                                                       |                                                       |   |               |         |            |   |                              |         |              |   |           |           |   |   |           |           |  
|---------------------------------------------------------------------- | ----------------------------------------------------- | - | ------------- | ------- | ---------- | - | ---------------------------- | ------- | ------------ | - | --------- | --------- | - | - | --------- | --------- | -
|                                                                       |                                                       |   |               |         |            |   | Year ended December 31, 2000 |         |              |   |          
|                                                                       |                                                       |   |              
|                                                                       |                                                       |   | Hollinger     |         |            |   |                              |         |              |   |           |           |   |   |          
|                                                                       |                                                       |   | International |         |            |   |                              |         |              |   |           |           |   |   |          
|                                                                       |                                                       |   | Inc.          |         | Publishing |   | Eliminations                 |         | Consolidated
|                                                                       |                                                       |   |               |         |            |   |                              |         |             
|                                                                       |                                                       |   |               |         |            |   | (in thousands)               |         |              |   |          
|Operating revenues:                                                    |                                                       |   |               |         |            |   |                              |         |              |   |           |           |   |   |           |          
|                                                                       | Advertising                                           |   | $             |        |            |   | $                            |        |              |   | $         | 1,543,882 |   |   | $         | 1,543,882 |  
|                                                                       | Circulation                                           |   |               |        |            |   |                              |        |              |   |           | 447,050   |   |   |           | 447,050   |  
|                                                                       | Job printing                                          |   |               |        |            |   |                              |        |              |   |           | 59,089    |   |   |           | 59,089    |  
|                                                                       | Other                                                 |   |               |        |            |   |                              |        |              |   |           | 45,998    |   |   |           | 45,998    |  
|                                                                       |                                                       |   |               |         |            |   |                              |         |              |   |           |           |   |   |           |          
|Total operating revenues                                               |                                                       |   |              |         |            |   |                             |         |              |   | 2,096,019 |           |   |   | 2,096,019 |          
|                                                                       |                                                       |   |               |         |            |   |                              |         |              |   |           |           |   |   |           |          
|Operating costs and expenses:                                          |                                                       |   |               |         |            |   |                              |         |              |   |           |           |   |   |           |          
|                                                                       | Newsprint                                             |   |               |        |            |   |                              |        |              |   |           | 212,341   |   |   |           | 212,341   |  
|                                                                       | Newsprint incurred through joint ventures             |   |               |        |            |   |                              |        |              |   |           | 91,836    |   |   |           | 91,836    |  
|                                                                       | Compensation costs                                    |   |               |        |            |   |                              | 4,064   |              |   |           | 658,287   |   |   |           | 662,351   |  
|                                                                       | Stock-based compensation                              |   |               | 1,518   |            |   |                              |        |              |   |           |          |   |   |           | 1,518     |  
|                                                                       | Other operating costs                                 |   |               | 4,291   |            |   |                              | 4,177   |              |   |           | 717,639   |   |   |           | 726,107   |  
|                                                                       | Other operating costs incurred
through joint ventures |   |               |        |            |   |                              |        |              |   |           | 49,534    |   |   |           | 49,534    |  
|                                                                       | Infrequent items                                      |   |               |        |            |   |                              |        |              |   |           | 7,950     |   |   |           | 7,950     |  
|                                                                       | Depreciation                                          |   |               |        |            |   |                              | 1,231   |              |   |           | 63,315    |   |   |           | 64,546    |  
|                                                                       | Amortization                                          |   |               |        |            |   |                              |        |              |   |           | 58,088    |   |   |           | 58,088    |  
|                                                                       |                                                       |   |               |         |            |   |                              |         |              |   |           |           |   |   |           |          
|Total operating costs and expenses                                     |                                                       |   | 5,809         |         |            |   | 9,472                        |         |              |   | 1,858,990 |           |   |   | 1,874,271 |          
|                                                                       |                                                       |   |               |         |            |   |                              |         |              |   |           |           |   |   |           |          
|Operating income (loss)                                                |                                                       |   | (5,809        | )       |            |   | (9,472                       | )       |              |   | 237,029   |           |   |   | 221,748   |          
|                                                                       |                                                       |   |               |         |            |   |                              |         |              |   |           |           |   |   |           |          
|Other income (expense):                                                |                                                       |   |               |         |            |   |                              |         |              |   |           |           |   |   |           |          
|                                                                       | Interest expense                                      |   |               |        |            |   |                              | (78,094 | )            |   |           | (64,619   | ) |   |           | (142,713  | )
|                                                                       | Amortization of debt issue costs                      |   |               |        |            |   |                              | (10,367 | )            |   |           | (102      | ) |   |           | (10,469   | )
|                                                                       | Interest and dividend income                          |   |               | 2,491   |            |   |                              | 965     |              |   |           | 15,080    |   |   |           | 18,536    |  
|                                                                       | Foreign currency gains (losses), net                  |   |               | 36      |            |   |                              | 125     |              |   |           | (16,209   | ) |   |           | (16,048   | )
|                                                                       | Other income (expense), net                           |   |               | 198,111 |            |   |                              | 288,900 |              |   |           | 37,858    |   |   |           | 524,869   |  
|                                                                       | Dilution gain                                         |   |               |        |            |   |                              |        |              |   |           | 17,008    |   |   |           | 17,008    |  
|                                                                       |                                                       |   |               |         |            |   |                              |         |              |   |           |           |   |   |           |          
|Total other income (expense)                                           |                                                       |   | 200,638       |         |            |   | 201,529                      |         |              |   | (10,984   | )         |   |   | 391,183   |          
|                                                                       |                                                       |   |               |         |            |   |                              |         |              |   |           |           |   |   |           |          
|Earnings before income taxes, minority
interest and extraordinary item |                                                       |   | 194,829       |         |            |   | 192,057                      |         |              |   | 226,045   |           |   |   | 612,931   |          
|Income taxes (recovery)                                                |                                                       |   | 26,485        |         |            |   | (35,441                      | )       |              |   | 407,408   |           |   |   | 398,452   |          
|                                                                       |                                                       |   |               |         |            |   |                              |         |              |   |           |           |   |   |           |          
|Earnings (loss) before minority interest
and extraordinary item        |                                                       |   | 168,344       |         |            |   | 227,498                      |         |              |   | (181,363  | )         |   |   | 214,479   |          
|Minority interest                                                      |                                                       |   | 10,920        |         |            |   |                             |         |              |   | 39,840    |           |   |   | 50,760    |          
|                                                                       |                                                       |   |               |         |            |   |                              |         |              |   |           |           |   |   |           |          
|Earnings (loss) before extraordinary item                              |                                                       |   | 157,424       |         |            |   | 227,498                      |         |              |   | (221,203  | )         |   |   | 163,719   |          
|Extraordinary loss on debt
extinguishments, net of tax                 |                                                       |   | (37           | )       |            |   | (6,295                       | )       |              |   |          |           |   |   | (6,332    | )        
|                                                                       |                                                       |   |               |         |            |   |                              |         |              |   |           |           |   |   |           |          
|Net earnings (loss)                                                    |                                                       | $ | 157,387       |         |            | $ | 221,203                      |         |              | $ | (221,203  | )         |   | $ | 157,387   |          
|                                                                       |                                                       |   |               |         |            |   |                              |         |              |   |           |           |   |   |           |          

F-76



---



##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000

---



| |  | Hollinger International Inc.         
| |  | -------------------------------------
| |  | Condensed Consolidating Balance Sheet

|                                                                        |                                           |   |               |         |            |   |                         |           |              |   |            |            |   |   |           |         | 
|----------------------------------------------------------------------- | ----------------------------------------- | - | ------------- | ------- | ---------- | - | ----------------------- | --------- | ------------ | - | ---------- | ---------- | - | - | --------- | ------- | 
|                                                                        |                                           |   |               |         |            |   | As of December 31, 2002 |           |              |   |           
|                                                                        |                                           |   |              
|                                                                        |                                           |   | Hollinger     |         |            |   |                         |           |              |   |            |            |   |   |          
|                                                                        |                                           |   | International |         |            |   |                         |           |              |   |            |            |   |   |          
|                                                                        |                                           |   | Inc.          |         | Publishing |   | Eliminations            |           | Consolidated
|                                                                        |                                           |   |               |         |            |   |                         |           |             
|                                                                        |                                           |   |               |         |            |   | (in thousands)          |           |              |   |           
|Assets                                                                  |                                           |   |               |         |            |   |                         |           |              |   |            |            |   |   |           |        
|Current assets:                                                         |                                           |   |               |         |            |   |                         |           |              |   |            |            |   |   |           |        
|                                                                        | Cash and cash equivalents                 |   | $             | 39,750  |            |   | $                       | 11,394    |              |   | $          | 62,224     |   |   | $         | 113,368 | 
|                                                                        | Accounts receivable, net                  |   |               | 407     |            |   |                         | 282       |              |   |            | 205,154    |   |   |           | 205,843 | 
|                                                                        | Amounts due from related companies,
net   |   |               | 191     |            |   |                         | 15,968    |              |   |            | (16,159    | ) |   |           |        | 
|                                                                        | Intercompany accounts receivable          |   |               | 8,921   |            |   |                         | 358,950   |              |   |            | (367,871   | ) |   |           |        | 
|                                                                        | Inventories                               |   |               |        |            |   |                         |          |              |   |            | 10,194     |   |   |           | 10,194  | 
|                                                                        | Prepaid expenses and other current
assets |   |               | 7       |            |   |                         | 56        |              |   |            | 18,295     |   |   |           | 18,358  | 
|                                                                        | Escrow deposits and restricted cash       |   |               |        |            |   |                         | 545,952   |              |   |            |           |   |   |           | 545,952 | 
|                                                                        |                                           |   |               |         |            |   |                         |           |              |   |            |            |   |   |           |        
|Total current assets                                                    |                                           |   | 49,276        |         |            |   | 932,602                 |           |              |   | (88,163    | )          |   |   | 893,715   |        
|Loan to affiliate                                                       |                                           |   | 45,848        |         |            |   |                        |           |              |   |           |            |   |   | 45,848    |        
|Investments                                                             |                                           |   | 273,151       |         |            |   | 1,340,857               |           |              |   | (1,489,932 | )          |   |   | 124,076   |        
|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    |        
|                                                                        |                                           |   |               |         |            |   |                         |           |              |   |            |            |   |   |           |        
|                                                                        |                                           | $ | 368,341       |         |            | $ | 2,315,806               |           |              | $ | (496,015   | )          |   | $ | 2,188,132 |        
|                                                                        |                                           |   |               |         |            |   |                         |           |              |   |            |            |   |   |           |        
|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                          |   |               | 247     |            |   |                         | 207       |              |   |            | 86,991     |   |   |           | 87,445  | 
|                                                                        | Accounts payable  joint ventures         |   |               |        |            |   |                         |          |              |   |            | 12,454     |   |   |           | 12,454  | 
|                                                                        | Accrued expenses                          |   |               | 5,101   |            |   |                         | 18,748    |              |   |            | 83,029     |   |   |           | 106,878 | 
|                                                                        | Amounts due to related parties, net       |   |               | 194,182 |            |   |                         | 1,034,417 |              |   |            | (1,198,241 | ) |   |           | 30,358  | 
|                                                                        | Income taxes payable (recoverable)        |   |               | 53,310  |            |   |                         | (22,226   | )            |   |            | 264,887    |   |   |           | 295,971 | 
|                                                                        | Deferred revenue                          |   |               |        |            |   |                         |          |              |   |            | 42,792     |   |   |           | 42,792  | 
|                                                                        |                                           |   |               |         |            |   |                         |           |              |   |            |            |   |   |           |        
|Total current liabilities                                               |                                           |   | 252,840       |         |            |   | 1,536,052               |           |              |   | (703,274   | )          |   |   | 1,085,618 |        
|                                                                        |                                           |   |               |         |            |   |                         |           |              |   |            |            |   |   |           |        
|Long-term debt, less current installments                               |                                           |   |              |         |            |   | 305,082                 |           |              |   | 269,576    |            |   |   | 574,658   |        
|Deferred income taxes                                                   |                                           |   | (23,300       | )       |            |   | 69,362                  |           |              |   | 203,669    |            |   |   | 249,731   |        
|Other liabilities                                                       |                                           |   | 10,276        |         |            |   |                        |           |              |   | 122,227    |            |   |   | 132,503   |        
|                                                                        |                                           |   |               |         |            |   |                         |           |              |   |            |            |   |   |           |        
|Total liabilities                                                       |                                           |   | 239,816       |         |            |   | 1,910,496               |           |              |   | (107,802   | )          |   |   | 2,042,510 |        
|                                                                        |                                           |   |               |         |            |   |                         |           |              |   |            |            |   |   |           |        
|Minority interest                                                       |                                           |   |              |         |            |   |                        |           |              |   | 17,097     |            |   |   | 17,097    |        
|                                                                        |                                           |   |               |         |            |   |                         |           |              |   |            |            |   |   |           |        
|Redeemable preferred stock                                              |                                           |   | 8,650         |         |            |   | 138,309                 |           |              |   | (138,309   | )          |   |   | 8,650     |        
|                                                                        |                                           |   |               |         |            |   |                         |           |              |   |            |            |   |   |           |        
|Total stockholders equity                                              |                                           |   | 119,875       |         |            |   | 267,001                 |           |              |   | (267,001   | )          |   |   | 119,875   |        
|                                                                        |                                           |   |               |         |            |   |                         |           |              |   |            |            |   |   |           |        
|                                                                        |                                           | $ | 368,341       |         |            | $ | 2,315,806               |           |              | $ | (496,015   | )          |   | $ | 2,188,132 |        
|                                                                        |                                           |   |               |         |            |   |                         |           |              |   |            |            |   |   |           |        

F-77



---



##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000

---



| |  | Hollinger International Inc.         
| |  | -------------------------------------
| |  | Condensed Consolidating Balance Sheet

|                                                                        |                                              |   |                         |         |            |   |                |           |              |   |            |            |   |   |           |         | 
|----------------------------------------------------------------------- | -------------------------------------------- | - | ----------------------- | ------- | ---------- | - | -------------- | --------- | ------------ | - | ---------- | ---------- | - | - | --------- | ------- | 
|                                                                        |                                              |   | As of December 31, 2001
|                                                                        |                                              |   |                        
|                                                                        |                                              |   | Hollinger               |         |            |   |                |           |              |   |            |            |   |   |          
|                                                                        |                                              |   | International           |         |            |   |                |           |              |   |            |            |   |   |          
|                                                                        |                                              |   | Inc.                    |         | Publishing |   | Eliminations   |           | Consolidated
|                                                                        |                                              |   |                         |         |            |   |                |           |             
|                                                                        |                                              |   |                         |         |            |   | (in thousands) |           |              |   |           
|Assets                                                                  |                                              |   |                         |         |            |   |                |           |              |   |            |            |   |   |           |        
|Current assets:                                                         |                                              |   |                         |         |            |   |                |           |              |   |            |            |   |   |           |        
|                                                                        | Cash and cash equivalents                    |   | $                       | 64,247  |            |   | $              | 101,333   |              |   | $          | 313,934    |   |   | $         | 479,514 | 
|                                                                        | Accounts receivable, net                     |   |                         | 3,678   |            |   |                | 259       |              |   |            | 195,301    |   |   |           | 199,238 | 
|                                                                        | Accounts receivable, joint ventures          |   |                         |        |            |   |                |          |              |   |            | 803        |   |   |           | 803     | 
|                                                                        | Amounts due from (to) related
companies, net |   |                         | 191     |            |   |                | (6,969    | )            |   |            | 6,778      |   |   |           |        | 
|                                                                        | Intercompany accounts receivable             |   |                         | 7,888   |            |   |                | 392,027   |              |   |            | (399,915   | ) |   |           |        | 
|                                                                        | Inventories                                  |   |                         |        |            |   |                |          |              |   |            | 21,209     |   |   |           | 21,209  | 
|                                                                        | Prepaid expenses and other current
assets    |   |                         | 7       |            |   |                | 61        |              |   |            | 12,565     |   |   |           | 12,633  | 
|                                                                        | Escrow deposits and restricted cash          |   |                         | 7,548   |            |   |                | 5,000     |              |   |            |           |   |   |           | 12,548  | 
|                                                                        |                                              |   |                         |         |            |   |                |           |              |   |            |            |   |   |           |        
|Total current assets                                                    |                                              |   | 83,559                  |         |            |   | 491,711        |           |              |   | 150,675    |            |   |   | 725,945   |        
|Loan to affiliate                                                       |                                              |   | 43,982                  |         |            |   |               |           |              |   |           |            |   |   | 43,982    |        
|Investments                                                             |                                              |   | 495,796                 |         |            |   | 1,991,449      |           |              |   | (2,343,234 | )          |   |   | 144,011   |        
|Advances under printing contracts and
notes receivable  joint ventures |                                              |   |                        |         |            |   |               |           |              |   | 52,036     |            |   |   | 52,036    |        
|Property, plant and equipment, net of
accumulated depreciation          |                                              |   |                        |         |            |   | 6,134          |           |              |   | 303,138    |            |   |   | 309,272   |        
|Intangible
assets, net of accumulated amortization                      |                                              |   |                        |         |            |   |               |           |              |   | 477,231    |            |   |   | 477,231   |        
|Goodwill                                                                |                                              |   |                        |         |            |   |               |           |              |   | 180,958    |            |   |   | 180,958   |        
|Prepaid pension benefit cost                                            |                                              |   |                        |         |            |   |               |           |              |   | 62,825     |            |   |   | 62,825    |        
|Deferred financing costs and other assets                               |                                              |   |                        |         |            |   | 35,809         |           |              |   | 25,907     |            |   |   | 61,716    |        
|                                                                        |                                              |   |                         |         |            |   |                |           |              |   |            |            |   |   |           |        
|                                                                        |                                              | $ | 623,337                 |         |            | $ | 2,525,103      |           |              | $ | (1,090,464 | )          |   | $ | 2,057,976 |        
|                                                                        |                                              |   |                         |         |            |   |                |           |              |   |            |            |   |   |           |        
|Liabilities and Stockholders Equity                                    |                                              |   |                         |         |            |   |                |           |              |   |            |            |   |   |           |        
|Current liabilities:                                                    |                                              |   |                         |         |            |   |                |           |              |   |            |            |   |   |           |        
|                                                                        | Current installments of long-term debt       |   | $                       |        |            |   | $              |          |              |   | $          | 3,008      |   |   | $         | 3,008   | 
|                                                                        | Accounts payable                             |   |                         | 175     |            |   |                | 15        |              |   |            | 89,915     |   |   |           | 90,105  | 
|                                                                        | Accounts payable  joint ventures            |   |                         |        |            |   |                |          |              |   |            | 6,992      |   |   |           | 6,992   | 
|                                                                        | Accrued expenses                             |   |                         | 22,396  |            |   |                | 25,177    |              |   |            | 87,118     |   |   |           | 134,691 | 
|                                                                        | Amounts due to related parties, net          |   |                         | 168,474 |            |   |                | 1,145,433 |              |   |            | (1,302,153 | ) |   |           | 11,754  | 
|                                                                        | Intercompany notes payable                   |   |                         |        |            |   |                | 34,640    |              |   |            | (34,640    | ) |   |           |        | 
|                                                                        | Income taxes payable (recoverable)           |   |                         | 61,091  |            |   |                | (33,989   | )            |   |            | 263,485    |   |   |           | 290,587 | 
|                                                                        | Deferred revenue                             |   |                         |        |            |   |                |          |              |   |            | 41,208     |   |   |           | 41,208  | 
|                                                                        |                                              |   |                         |         |            |   |                |           |              |   |            |            |   |   |           |        
|Total current liabilities                                               |                                              |   | 252,136                 |         |            |   | 1,171,276      |           |              |   | (845,067   | )          |   |   | 578,345   |        
|                                                                        |                                              |   |                         |         |            |   |                |           |              |   |            |            |   |   |           |        
|Long-term debt, less current installments                               |                                              |   |                        |         |            |   | 800,000        |           |              |   | 9,652      |            |   |   | 809,652   |        
|Deferred income taxes                                                   |                                              |   | (11,380                 | )       |            |   | 83,279         |           |              |   | 115,489    |            |   |   | 187,388   |        
|Other liabilities                                                       |                                              |   | 7,372                   |         |            |   |               |           |              |   | 83,926     |            |   |   | 91,298    |        
|                                                                        |                                              |   |                         |         |            |   |                |           |              |   |            |            |   |   |           |        
|Total liabilities                                                       |                                              |   | 248,128                 |         |            |   | 2,054,555      |           |              |   | (636,000   | )          |   |   | 1,666,683 |        
|                                                                        |                                              |   |                         |         |            |   |                |           |              |   |            |            |   |   |           |        
|Minority interest                                                       |                                              |   |                        |         |            |   |               |           |              |   | 16,084     |            |   |   | 16,084    |        
|                                                                        |                                              |   |                         |         |            |   |                |           |              |   |            |            |   |   |           |        
|Redeemable preferred stock                                              |                                              |   | 8,582                   |         |            |   |               |           |              |   |           |            |   |   | 8,582     |        
|                                                                        |                                              |   |                         |         |            |   |                |           |              |   |            |            |   |   |           |        
|Total stockholders equity                                              |                                              |   | 366,627                 |         |            |   | 470,548        |           |              |   | (470,548   | )          |   |   | 366,627   |        
|                                                                        |                                              |   |                         |         |            |   |                |           |              |   |            |            |   |   |           |        
|                                                                        |                                              | $ | 623,337                 |         |            | $ | 2,525,103      |           |              | $ | (1,090,464 | )          |   | $ | 2,057,976 |        
|                                                                        |                                              |   |                         |         |            |   |                |           |              |   |            |            |   |   |           |        

F-78



---



##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000

---



| |  | Hollinger International Inc.                   
| |  | -----------------------------------------------
| |  | Condensed Consolidating Statement of Cash Flows

|                                                |                                                   |                                                                        |         |                              |         |            |          |                |         |              |          |          |          |   |          |          |        |  
|----------------------------------------------- | ------------------------------------------------- | ---------------------------------------------------------------------- | ------- | ---------------------------- | ------- | ---------- | -------- | -------------- | ------- | ------------ | -------- | -------- | -------- | - | -------- | -------- | ------ | -
|                                                |                                                   |                                                                        |         | Year ended December 31, 2002
|                                                |                                                   |                                                                        |         |                             
|                                                |                                                   |                                                                        |         | Hollinger                    |         |            |          |                |         |              |          |          |          |   |          |         
|                                                |                                                   |                                                                        |         | International                |         |            |          |                |         |              |          |          |          |   |          |         
|                                                |                                                   |                                                                        |         | Inc.                         |         | Publishing |          | Eliminations   |         | Consolidated
|                                                |                                                   |                                                                        |         |                              |         |            |          |                |         |             
|                                                |                                                   |                                                                        |         |                              |         |            |          | (in thousands) |         |              |          |         
|Cash flows from operating activities            |                                                   |                                                                        |         |                              |         |            |          |                |         |              |          |          |          |   |          |         
|                                                | Net earnings (loss)                               |                                                                        | $       | (238,823                     | )       |            | $        | (198,437       | )       |              | $        | 198,437  |          |   | $        | (238,823 | )     
|                                                | Items not involving cash:                         |                                                                        |         |                              |         |            |          |                |         |              |          |          |          |   |          |          |       
|                                                |                                                   | Depreciation and amortization                                          |         |                              |        |            |          |                | 1,297   |              |          |          | 52,855   |   |          |          | 54,152 |  
|                                                |                                                   | Amortization of debt issue 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 | )
|                                                |                                                   | Total Return Equity Swap                                               |         |                              | 9,106   |            |          |                |        |              |          |          |         |   |          |          | 9,106  |  
|                                                |                                                   | Foreign currency translation loss                                      |         |                              | 13,722  |            |          |                |        |              |          |          | 64,495   |   |          |          | 78,217 |  
|                                                |                                                   | Cumulative effect of change in
accounting principle                    |         |                              |        |            |          |                |        |              |          |          | 20,079   |   |          |          | 20,079 |  
|                                                |                                                   | Other non-cash items                                                   |         |                              | 283,110 |            |          |                | 149,084 |              |          |          | (372,662 | ) |          |          | 59,532 |  
|                                                | Changes in working capital, net                   |                                                                        |         | (79,684                      | )       |            |          | (29,022        | )       |              |          | 120,686  |          |   |          | 11,980   |       
|                                                |                                                   |                                                                        |         |                              |         |            |          |                |         |              |          |          |          |   |          |         
|Cash provided by (used in) operating activities |                                                   |                                                                        | 656     |                              |         |            | (34,367  | )              |         |              | 92,146   |          |          |   | 58,435   |         
|                                                |                                                   |                                                                        |         |                              |         |            |          |                |         |              |          |          |          |   |          |         
|Cash flows from investing activities:           |                                                   |                                                                        |         |                              |         |            |          |                |         |              |          |          |          |   |          |         
|                                                | Capital expenditures                              |                                                                        |         |                             |         |            |          | (1,542         | )       |              |          | (27,360  | )        |   |          | (28,902  | )     
|                                                | Additions to investments and other assets         |                                                                        |         | (1,145                       | )       |            |          |               |         |              |          | (10,256  | )        |   |          | (11,401  | )     
|                                                | Proceeds from disposal of investments
and 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 | )        |   |          |         |       
|                                                | Payment of total return equity swap               |                                                                        |         | (100,000                     | )       |            |          |               |         |              |          |         |          |   |          | (100,000 | )     
|                                                | Changes in amounts due from related
companies     |                                                                        |         | 91,568                       |         |            |          | (124,134       | )       |              |          | 58,864   |          |   |          | 26,298   |       
|                                                | Dividends and distributions to minority
interests |                                                                        |         |                             |         |            |          |               |         |              |          | (917     | )        |   |          | (917     | )     
|                                                | Cash dividends paid                               |                                                                        |         | (28,762                      | )       |            |          | (100,000       | )       |              |          | 100,000  |          |   |          | (28,762  | )     
|                                                | Other financing activities                        |                                                                        |         | 1,391                        |         |            |          | (12,315        | )       |              |          | (5,630   | )        |   |          | (16,554  | )     
|Cash used in financing activities               |                                                   |                                                                        | (24,008 | )                            |         |            | (656,230 | )              |         |              | 275,365  |          |          |   | (404,873 | )       
|                                                |                                                   |                                                                        |         |                              |         |            |          |                |         |              |          |          |          |   |          |         
|Effect of exchange rate changes on cash         |                                                   |                                                                        |        |                              |         |            |         |                |         |              | 7,719    |          |          |   | 7,719    |         
|                                                |                                                   |                                                                        |         |                              |         |            |          |                |         |              |          |          |          |   |          |         
|Net decrease in cash and cash equivalents       |                                                   |                                                                        | (24,497 | )                            |         |            | (89,939  | )              |         |              | (251,710 | )        |          |   | (366,146 | )       
|Cash and cash equivalents at beginning of year  |                                                   |                                                                        | 64,247  |                              |         |            | 101,333  |                |         |              | 313,934  |          |          |   | 479,514  |         
|                                                |                                                   |                                                                        |         |                              |         |            |          |                |         |              |          |          |          |   |          |         
|Cash and cash equivalents at end of year        |                                                   | $                                                                      | 39,750  |                              |         | $          | 11,394   |                |         | $            | 62,224   |          |          | $ | 113,368  |         
|                                                |                                                   |                                                                        |         |                              |         |            |          |                |         |              |          |          |          |   |          |         

F-79



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000

---



| |  | Hollinger International Inc.                   
| |  | -----------------------------------------------
| |  | Condensed Consolidating Statement of Cash Flows

|                                                |                                                      |                                                                               |         |                              |         |            |         |                |         |              |          |          |          |   |          |          |         |  
|----------------------------------------------- | ---------------------------------------------------- | ----------------------------------------------------------------------------- | ------- | ---------------------------- | ------- | ---------- | ------- | -------------- | ------- | ------------ | -------- | -------- | -------- | - | -------- | -------- | ------- | -
|                                                |                                                      |                                                                               |         | Year ended December 31, 2001
|                                                |                                                      |                                                                               |         |                             
|                                                |                                                      |                                                                               |         | Hollinger                    |         |            |         |                |         |              |          |          |          |   |          |         
|                                                |                                                      |                                                                               |         | International                |         |            |         |                |         |              |          |          |          |   |          |         
|                                                |                                                      |                                                                               |         | Inc.                         |         | Publishing |         | Eliminations   |         | Consolidated
|                                                |                                                      |                                                                               |         |                              |         |            |         |                |         |             
|                                                |                                                      |                                                                               |         |                              |         |            |         | (in thousands) |         |              |          |         
|Cash flows from operating activities            |                                                      |                                                                               |         |                              |         |            |         |                |         |              |          |          |          |   |          |         
|                                                | Net earnings (loss)                                  |                                                                               | $       | (335,111                     | )       |            | $       | (257,623       | )       |              | $        | 257,623  |          |   | $        | (335,111 | )      
|                                                | Items not involving cash:                            |                                                                               |         |                              |         |            |         |                |         |              |          |          |          |   |          |          |        
|                                                |                                                      | Depreciation and amortization                                                 |         |                              |        |            |         |                | 1,950   |              |          |          | 71,778   |   |          |          | 73,728  |  
|                                                |                                                      | Amortization of debt issue 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 |  
|                                                |                                                      | Loss (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 | )
|                                                |                                                      | Total Return Equity Swap                                                      |         |                              | 42,845  |            |         |                |        |              |          |          |         |   |          |          | 42,845  |  
|                                                |                                                      | Other non-cash items                                                          |         |                              | 275,681 |            |         |                | 240,103 |              |          |          | (535,778 | ) |          |          | (19,994 | )
|                                                | Changes in working capital, net                      |                                                                               |         | 756                          |         |            |         | (7,830         | )       |              |          | (36,507  | )        |   |          | (43,581  | )      
|                                                |                                                      |                                                                               |         |                              |         |            |         |                |         |              |          |          |          |   |          |         
|Cash provided by (used in) operating activities |                                                      |                                                                               | 1,926   |                              |         |            | (15,924 | )              |         |              | (120,193 | )        |          |   | (134,191 | )       
|                                                |                                                      |                                                                               |         |                              |         |            |         |                |         |              |          |          |          |   |          |         
|Cash flows from investing activities:           |                                                      |                                                                               |         |                              |         |            |         |                |         |              |          |          |          |   |          |         
|                                                | Capital expenditures                                 |                                                                               |         |                             |         |            |         | (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 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   |        
|                                                | Proceeds on issuance of common shares                |                                                                               |         | 6,863                        |         |            |         |               |         |              |          |         |          |   |          | 6,863    |        
|                                                | Repurchase of common shares,
redemption of preferred |                                                                               |         | (143,055                     | )       |            |         |               |         |              |          |         |          |   |          | (143,055 | )      
|                                                | Changes in amounts due from related
companies        |                                                                               |         | 281,082                      |         |            |         | 169,795        |         |              |          | (460,366 | )        |   |          | (9,489   | )      
|                                                | Escrow deposits and restricted cash                  |                                                                               |         | (7,548                       | )       |            |         | (5,000         | )       |              |          |         |          |   |          | (12,548  | )      
|                                                | Dividends and distributions to minority
interest     |                                                                               |         |                             |         |            |         |               |         |              |          | (53,673  | )        |   |          | (53,673  | )      
|                                                | Cash dividends paid                                  |                                                                               |         | (53,157                      | )       |            |         | (14,400        | )       |              |          | 14,400   |          |   |          | (53,157  | )      
|                                                | Other financing activities                           |                                                                               |         | (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         |                                                      |                                                                               |        |                              |         |            |        |                |         |              | (9,438   | )        |          |   | (9,438   | )       
|                                                |                                                      |                                                                               |         |                              |         |            |         |                |         |              |          |          |          |   |          |         
|Net increase in cash and cash equivalents       |                                                      |                                                                               | 62,138  |                              |         |            | 79,007  |                |         |              | 200,698  |          |          |   | 341,843  |         
|Cash and cash equivalents at beginning of year  |                                                      |                                                                               | 2,109   |                              |         |            | 22,326  |                |         |              | 113,236  |          |          |   | 137,671  |         
|                                                |                                                      |                                                                               |         |                              |         |            |         |                |         |              |          |          |          |   |          |         
|Cash and cash equivalents at end of year        |                                                      | $                                                                             | 64,247  |                              |         | $          | 101,333 |                |         | $            | 313,934  |          |          | $ | 479,514  |         
|                                                |                                                      |                                                                               |         |                              |         |            |         |                |         |              |          |          |          |   |          |         

F-80



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000

---



| |  | Hollinger International Inc.                   
| |  | -----------------------------------------------
| |  | Condensed Consolidating Statement of Cash Flows

|                                                |                                                      |                                                                               |         |                              |          |            |          |                |          |              |            |           |          |   |            |            |          |  
|----------------------------------------------- | ---------------------------------------------------- | ----------------------------------------------------------------------------- | ------- | ---------------------------- | -------- | ---------- | -------- | -------------- | -------- | ------------ | ---------- | --------- | -------- | - | ---------- | ---------- | -------- | -
|                                                |                                                      |                                                                               |         | Year ended December 31, 2000
|                                                |                                                      |                                                                               |         |                             
|                                                |                                                      |                                                                               |         | Hollinger                    |          |            |          |                |          |              |            |           |          |   |            |           
|                                                |                                                      |                                                                               |         | International                |          |            |          |                |          |              |            |           |          |   |            |           
|                                                |                                                      |                                                                               |         | Inc.                         |          | Publishing |          | Eliminations   |          | Consolidated
|                                                |                                                      |                                                                               |         |                              |          |            |          |                |          |             
|                                                |                                                      |                                                                               |         |                              |          |            |          | (in thousands) |          |              |            |          
|Cash flows from operating activities            |                                                      |                                                                               |         |                              |          |            |          |                |          |              |            |           |          |   |            |           
|                                                | Net earnings                                         |                                                                               | $       | 157,387                      |          |            | $        | 221,203        |          |              | $          | (221,203  | )        |   | $          | 157,387    |         
|                                                | Items not involving cash:                            |                                                                               |         |                              |          |            |          |                |          |              |            |           |          |   |            |            |         
|                                                |                                                      | Depreciation and amortization                                                 |         |                              |         |            |          |                | 1,806    |              |            |           | 120,828  |   |            |            | 122,634  |  
|                                                |                                                      | Amortization of debt issue costs                                              |         |                              |         |            |          |                | 10,367   |              |            |           | 102      |   |            |            | 10,469   |  
|                                                |                                                      | Minority interest                                                             |         |                              | 10,920   |            |          |                |         |              |            |           | 39,840   |   |            |            | 50,760   |  
|                                                |                                                      | Loss (gain) on sale of investments                                            |         |                              |         |            |          |                |         |              |            |           | (49,577  | ) |            |            | (49,577  | )
|                                                |                                                      | Loss (gain) on sale of property,
plant and equipment and
publishing interests |         |                              |         |            |          |                | (718     | )            |            |           | (555,607 | ) |            |            | (556,325 | )
|                                                |                                                      | Write-down of investments                                                     |         |                              | 4,876    |            |          |                | 3,874    |              |            |           | 11,871   |   |            |            | 20,621   |  
|                                                |                                                      | Total Return Equity Swap                                                      |         |                              | 12,276   |            |          |                |         |              |            |           |         |   |            |            | 12,276   |  
|                                                |                                                      | Other non-cash items                                                          |         |                              | (185,024 | )          |          |                | (353,445 | )            |            |           | 560,192  |   |            |            | 21,723   |  
|                                                | Changes in working capital, net                      |                                                                               |         | (1,005                       | )        |            |          | 114,410        |          |              |            | 156,399   |          |   |            | 269,804    |         
|                                                |                                                      |                                                                               |         |                              |          |            |          |                |          |              |            |           |          |   |            |           
|Cash provided by (used in) operating activities |                                                      |                                                                               | (570    | )                            |          |            | (2,503   | )              |          |              | 62,845     |           |          |   | 59,772     |           
|                                                |                                                      |                                                                               |         |                              |          |            |          |                |          |              |            |           |          |   |            |           
|Cash flows from investing activities:           |                                                      |                                                                               |         |                              |          |            |          |                |          |              |            |           |          |   |            |           
|                                                | Capital expenditures                                 |                                                                               |         |                             |          |            |          | (771           | )        |              |            | (73,253   | )        |   |            | (74,024    | )       
|                                                | Additions to investments and other assets            |                                                                               |         | (67,359                      | )        |            |          | (362,023       | )        |              |            | 349,782   |          |   |            | (79,600    | )       
|                                                | Acquisition, net of cash acquired                    |                                                                               |         |                             |          |            |          |               |          |              |            | (117,134  | )        |   |            | (117,134   | )       
|                                                | Proceeds from disposal of investments
and assets     |                                                                               |         |                             |          |            |          | 200,514        |          |              |            | 1,149,773 |          |   |            | 1,350,287  |         
|                                                | Other                                                |                                                                               |         |                             |          |            |          |               |          |              |            | 1,293     |          |   |            | 1,293      |         
|                                                |                                                      |                                                                               |         |                              |          |            |          |                |          |              |            |           |          |   |            |           
|Cash provided by (used in) investing activities |                                                      |                                                                               | (67,359 | )                            |          |            | (162,280 | )              |          |              | 1,310,461  |           |          |   | 1,080,822  |           
|                                                |                                                      |                                                                               |         |                              |          |            |          |                |          |              |            |           |          |   |            |           
|Cash flows from financing activities:           |                                                      |                                                                               |         |                              |          |            |          |                |          |              |            |           |          |   |            |           
|                                                | Repayments of debt                                   |                                                                               |         |                             |          |            |          | (370,512       | )        |              |            | (895,677  | )        |   |            | (1,266,189 | )       
|                                                | Proceeds from bank and other debt                    |                                                                               |         |                             |          |            |          | 275,500        |          |              |            | 175,039   |          |   |            | 450,539    |         
|                                                | Proceeds on issuance of common shares                |                                                                               |         | 5,497                        |          |            |          | 73,863         |          |              |            | (73,863   | )        |   |            | 5,497      |         
|                                                | Repurchase of common shares,
redemption of preferred |                                                                               |         | (58,164                      | )        |            |          |               |          |              |            |          |          |   |            | (58,164    | )       
|                                                | Changes in amounts due from related
companies        |                                                                               |         | 25,691                       |          |            |          | 365,991        |          |              |            | (432,828  | )        |   |            | (41,146    | )       
|                                                | Dividends and distributions to minority
interests    |                                                                               |         |                             |          |            |          |               |          |              |            | (63,083   | )        |   |            | (63,083    | )       
|                                                | Cash dividends received                              |                                                                               |         | 163,008                      |          |            |          |               |          |              |            | (163,008  | )        |   |            |           |         
|                                                | Cash dividends paid                                  |                                                                               |         | (61,234                      | )        |            |          | (162,437       | )        |              |            | 162,437   |          |   |            | (61,234    | )       
|                                                | Other financing activities                           |                                                                               |         | (4,938                       | )        |            |          | 1,109          |          |              |            | (2,622    | )        |   |            | (6,451     | )       
|                                                |                                                      |                                                                               |         |                              |          |            |          |                |          |              |            |           |          |   |            |           
|Cash provided by (used in) financing activities |                                                      |                                                                               | 69,860  |                              |          |            | 183,514  |                |          |              | (1,293,605 | )         |          |   | (1,040,231 | )         
|                                                |                                                      |                                                                               |         |                              |          |            |          |                |          |              |            |           |          |   |            |           
|Effect of exchange rate changes on cash         |                                                      |                                                                               |        |                              |          |            |         |                |          |              | (2,595     | )         |          |   | (2,595     | )         
|                                                |                                                      |                                                                               |         |                              |          |            |          |                |          |              |            |           |          |   |            |           
|Net increase in cash and cash equivalents       |                                                      |                                                                               | 1,931   |                              |          |            | 18,731   |                |          |              | 77,106     |           |          |   | 97,768     |           
|Cash and cash equivalents at beginning of year  |                                                      |                                                                               | 178     |                              |          |            | 3,595    |                |          |              | 36,130     |           |          |   | 39,903     |           
|                                                |                                                      |                                                                               |         |                              |          |            |          |                |          |              |            |           |          |   |            |           
|Cash and cash equivalents at end of year        |                                                      | $                                                                             | 2,109   |                              |          | $          | 22,326   |                |          | $            | 113,236    |           |          | $ | 137,671    |           
|                                                |                                                      |                                                                               |         |                              |          |            |          |                |          |              |            |           |          |   |            |           

F-81



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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000

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|(24) |  | Quarterly Financial Data (Unaudited)                                            
|---- |  | --------------------------------------------------------------------------------
|    
|     |  | Quarterly financial data for the years ended December 31, 2002 and 2001
follows:

|                                                                                        |                                                     |   |            |       |            |   |                                       |       |         |   |         |   |  |   |         |   | 
|--------------------------------------------------------------------------------------- | --------------------------------------------------- | - | ---------- | ----- | ---------- | - | ------------------------------------- | ----- | ------- | - | ------- | - |  | - | ------- | - | 
|                                                                                        |                                                     |   | 2002      
|                                                                                        |                                                     |   |           
|                                                                                        |                                                     |   | First      |       | Second     |   | Third                                 |       | Fourth 
|                                                                                        |                                                     |   | quarter    |       | quarter    |   | quarter                               |       | quarter
|                                                                                        |                                                     |   |            |       |            |   |                                       |       |        
|                                                                                        |                                                     |   |            |       |            |   | (in thousands, except per share data) |       |         |   |        
|                                                                                        |                                                     |   | (Restated) |       | (Restated) |   | (Restated)                            |       |         |   |        
|Total operating revenues                                                                |                                                     | $ | 246,963    |       |            | $ | 250,777                               |       |         | $ | 244,419 |   |  | $ | 264,003 |  
|Total operating income                                                                  |                                                     |   | 17,699     |       |            |   | 17,236                                |       |         |   | 7,868   |   |  |   | 14,399  |  
|                                                                                        |                                                     |   |            |       |            |   |                                       |       |         |   |         |   |  |   |         |  
|Loss before extraordinary items
and cumulative effect of change
in accounting principle |                                                     | $ | (63,108    | )     |            | $ | (2,559                                | )     |         | $ | (32,170 | ) |  | $ | (99,631 | )
|Extraordinary loss on debt
extinguishment                                               |                                                     |   | (20,841    | )     |            |   | (435                                  | )     |         |   |        |   |  |   |        |  
|                                                                                        |                                                     |   |            |       |            |   |                                       |       |         |   |         |   |  |   |         |  
|Loss before cumulative effect of
change in accounting principle                         |                                                     |   | (83,949    | )     |            |   | (2,994                                | )     |         |   | (32,170 | ) |  |   | (99,631 | )
|Cumulative effect of change in
accounting principle                                     |                                                     |   | (20,079    | )     |            |   |                                      |       |         |   |        |   |  |   |        |  
|                                                                                        |                                                     |   |            |       |            |   |                                       |       |         |   |         |   |  |   |         |  
|Net loss                                                                                |                                                     |   | (104,028   | )     |            |   | (2,994                                | )     |         |   | (32,170 | ) |  |   | (99,631 | )
|                                                                                        |                                                     |   |            |       |            |   |                                       |       |         |   |         |   |  |   |         |  
|Basic net loss per share                                                                |                                                     |   | (1.08      | )     |            |   | (0.03                                 | )     |         |   | (0.33   | ) |  |   | (1.04   | )
|Diluted net loss per share                                                              |                                                     |   | (1.08      | )     |            |   | (0.03                                 | )     |         |   | (0.33   | ) |  |   | (1.04   | )
|                                                                                        |                                                     |   |            |       |            |   |                                       |       |         |   |         |   |  |   |         |  
|Impact on a per share basis of:                                                         |                                                     |   |            |       |            |   |                                       |       |         |   |         |   |  |   |         |  
|                                                                                        | Extraordinary item                                  |   |            | (0.22 | )          |   |                                       | (0.01 | )       |   |         |  |  |   |         |  | 
|                                                                                        | Cumulative effect of change in
accounting principle |   |            | (0.21 | )          |   |                                       |      |         |   |         |  |  |   |         |  | 
|                                                                                        |                                                     |   |            |       |            |   |                                       |       |         |   |         |   |  |   |         |  

|                              |  |         |         |         |  |                                       |         |         |  |   |          |   |  |             |          |  
|----------------------------- |  | ------- | ------- | ------- |  | ------------------------------------- | ------- | ------- |  | - | -------- | - |  | ----------- | -------- | -
|                              |  | 2001   
|                              |  |        
|                              |  | First   |         | Second  |  | Third                                 |         | Fourth 
|                              |  | quarter |         | quarter |  | quarter                               |         | quarter
|                              |  |         |         |         |  |                                       |         |        
|                              |  |         |         |         |  | (in thousands, except per share data) |         |         |  |  
|                              |  |         |         |         |  |                                       |         |         |  |   |          |   |  | (Restated 
|                              |  |         |         |         |  |                                       |         |         |  |   |          |   |  | note 21)   
|Total operating revenues      |  | $       | 326,350 |         |  | $                                     | 306,173 |         |  | $ | 263,524  |   |  | $           | 250,274  |  
|Total operating income (loss) |  |         | 2,119   |         |  |                                       | (8,729  | )       |  |   | (19,549  | ) |  |             | (9,824   | )
|Net earnings (loss)           |  |         | 1,386   |         |  |                                       | (15,535 | )       |  |   | (139,615 | ) |  |             | (181,347 | )
|Basic net loss per share      |  |         | (0.01   | )       |  |                                       | (0.17   | )       |  |   | (1.37    | ) |  |             | (1.89    | )
|Diluted net loss per share    |  |         | (0.01   | )       |  |                                       | (0.17   | )       |  |   | (1.37    | ) |  |             | (1.89    | )
|                              |  |         |         |         |  |                                       |         |         |  |   |          |   |  |             |          |  

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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000

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| |  | Previously reported financial information for each of the three months
ended March 31, June 30 and September 30, 2002 has been revised to
reflect the following adjustments:
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (a) |  | At March 31 and June 30, 2002, the Companys Business
Information Group (BIG), which publishes trade magazines in
Canada, was classified as held for sale under the provisions of SFAS
No. 144 and its results were reported in discontinued operations.
Effective in the third quarter of 2002 due to changes in
circumstances, this group of assets no longer met the criteria under
GAAP to be classified as held for sale. Accordingly, the above
results have been reclassified to reflect BIG as a component of
continuing operations. As a result, operating revenues increased by
$6,161,000 and $7,906,000 in the first and second quarter,
respectively and operating income increased by $210,000 and
$1,300,000 in the first and second quarter, respectively. There was
no impact on net earnings (loss).
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | Upon initial adoption of SFAS No. 142, Goodwill and Other
Intangible Assets, on January 1, 2002, the Company classified
$117,287,000 of advertiser and subscriber relationship intangible
assets as goodwill. However, based on the consensus reached by the
Emerging Issues Task Force in Issue No. 02-17, Recognition of
Customer Relationship Intangible Assets Acquired in a Business
Combination, the Company has subsequently concluded that its
advertiser and subscriber relationship intangible assets do meet the
criteria for recognition apart from goodwill under SFAS No. 142.
Therefore, the advertiser and subscriber relationship intangible
assets were reclassified from goodwill to identifiable intangible
assets and continue to be amortized over 30 years.                                  
|
| |     |  | Amortization expense was increased by $1,145,750 and income tax
expense was reduced by approximately $458,500 for each of the three
months ended March 31, June 30 and September 30, 2002 to reflect the
adjustment to amortization and related tax effect.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |     |  | The Companys reclassification of advertiser and subscriber
relationship intangible assets apart from goodwill had no impact on
the asset impairment tests and the Companys cumulative effect of a
change in accounting principle.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |     |  | In connection with the above reclassification of advertiser and
subscriber relationship intangible assets apart from goodwill,
intangible assets were increased by approximately $117.3 million,
deferred income tax liability was increased by approximately $35
million, and goodwill decreased by $82.3 million from what had
previously been reported as of January 1, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                        

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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000

---



| | (c) |  | The Company completed its
transitional impairment test as of January 1, 2002 in the
fourth quarter, and wrote down goodwill amounting to $20,079,000.
In accordance with SFAS No. 142, the results for the first quarter
have also been restated to reflect this adjustment.
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (d) |  | See note 21 for a description of the restatement in 2001
related to the Companys pension plan assets.                                                                                                                                                                      



|(25) |  | Subsequent Event                                                                                                                                                                                                                                                                                                                                                                       
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|     |  | On March 10, 2003, the Company repurchased shares of its Class A common
stock and redeemed shares of Series E preferred stock from a subsidiary of Hollinger Inc.
and has revised certain debt arrangements it had in place with Hollinger
Inc.s subsidiary. These transactions were completed in conjunction with Hollinger
Inc. closing a private placement of Senior Secured Notes.
|    
|     |  | Contemporaneously with the closing of the private placement, the Company:                                                                                                                                                                                                                                                                                                              



| | (a) |  | repurchased for cancellation, from one of Hollinger Inc.s
wholly-owned subsidiaries, 2,000,000 shares of Class A common stock
of the Company at $8.25 per share for $16.5 million; and                                                                                             
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | 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.



| |  | As a result, Hollinger Inc.s equity and voting interests have been
reduced to 30.3% and 72.6%, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Proceeds from the repurchase and redemption were offset against debt due
from Hollinger Inc.s subsidiary (totalling $45,848,000 as of December
31, 2002 and classified as loan to affiliate on the consolidated balance
sheet), resulting in net outstanding debt due to the Company of
approximately $20.4 million as of March 10, 2003. The remaining debt
bears interest at 14.25% or, if paid in additional notes, 16.5% and is
subordinated to the Hollinger Inc. Notes (so long as the Notes are
outstanding), guaranteed by The Ravelston Corporation Limited, the
controlling shareholder of Hollinger Inc., and secured by certain assets
of Ravelston.

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##### Table of Contents



HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

For the Years Ended December 31, 2002, 2001 and 2000

---



| |  | Following a review by a special committee of the Board of Directors of
the Company, comprised entirely of independent directors, of all aspects
of the transaction relating to the changes in the debt arrangements with
Hollinger Inc. and the subordination of this remaining debt, the special
committee approved the new debt arrangements, including the
subordination.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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