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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 10-K

Commission File No. 1-14164

Hollinger International Inc.

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

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

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.

     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

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HOLLINGER INTERNATIONAL INC.

2002 FORM 10-K

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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-Times is 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 Spectator and Apollo magazines. The Daily Telegraph was 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 Telegraph is 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-Times has been recognized for its editorial quality with several Pulitzer Prize-winning writers and awards for excellence from Illinois’s major press organizations. The Daily Telegraph and The Sunday Telegraph are 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 Telegraph in 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-Times and 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-Times and The Daily Telegraph have experienced small declines in circulation. According to figures published by the Audit Bureau of Circulations, circulation of the Chicago Sun-Times experienced a compounded annual growth rate (CAGR) of -1.0% since we acquired it in 1994 through 2002, while circulation of The Daily Telegraph experienced 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-Times has 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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     The Chicago Group consists of more than 100 titles in the greater Chicago metropolitan area including the Chicago Sun-Times, the Post Tribune in 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 News and 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-Times offers a variety of advertising alternatives, including full-run advertisements, geographically zoned issues, special interest pull-out sections and advertising supplements in addition to regular sections of the newspaper targeted to different readers, such as arts, food, real estate, TV listings, weekend, travel and special sections. The Chicago area suburban newspapers also offer similar alternatives to the Chicago Sun-Times platform 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-Times sold 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-Times is approximately 481,000 and 383,000, respectively. The Chicago Sun-Times has had consecutive increases over the past two years in paid daily circulation. The daily and Sunday paid circulation of the Daily Southtown is approximately 48,000 and 53,000, respectively. The daily and Sunday paid circulation of the Post-Tribune is 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-Times has 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 Saver address list containing 435,000 household names. The Post-Tribune marketing 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-Times is distributed through both an employee and contractor network depending upon the geographic location. The Chicago Sun-Times takes advantage of a joint distribution program with its sister publication, Fox Valley Publications, in which Fox Valley Publications distributes the Chicago Sun-Times in areas outside of Cook County. The Chicago Sun-Times has 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 Southtown is distributed primarily by Chicago Sun-Times independent contractors. Additionally, in certain western suburbs, the Daily Southtown also has a joint distribution program with Fox Valley Publications. The Daily Southtown and 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 Saver is 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’s circulation 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-Tribune has 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-Times competes in the Chicago region with the Chicago Tribune, a large established metropolitan daily and Sunday newspaper, which is the fifth largest metropolitan daily newspaper in the United States based on circulation. 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.

     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 Post in the past derived a relatively high percentage of its revenues from job printing as a result of a long-term contract to print and bind copies of the Golden Pages, Israel’s equivalent of a Yellow Pages telephone directory. During 2002, Golden Pages effectively abrogated this agreement and has ceased placing printing orders. An action was commenced by the Jerusalem Post in 2003 seeking damages for the alleged breach. Newsprint costs relating to publication of The Jerusalem Post equaled 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 Post has not experienced any difficulties in maintaining its license to publish or been subject to any efforts to restrain publication. In addition, all written media publications in Israel are reviewed by Israel’s military censor prior to publication in order to prevent the publication of information that could threaten national security. Such censorship is considered part of the ordinary course of business in the Israeli media and has not adversely affected Jerusalem Post’s business in any significant way.

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.

     The U.K. Newspaper Group’s operations include The Daily Telegraph, The Sunday Telegraph, The Weekly Telegraph, telegraph.co.uk, and The Spectator and Apollo magazines.

     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

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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 Telegraph and telegraph.co.uk (formerly Electronic Telegraph). Telegraph.co.uk has 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 Telegraph and The Sunday Telegraph.

     Historically, wholesalers and retailers have been paid commissions based on a percentage of the cover price. Prior to June 1994 when competitive pressures caused The Telegraph to reduce its cover price, wholesaler and retailer commissions amounted to approximately 34% of the then cover price. Notwithstanding the reduction of the cover price, the commissions paid were not reduced. In line with other national newspapers, The Telegraph has 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 Telegraph and The Sunday Telegraph are printed by The Telegraph’s two 50% owned joint venture printing companies, West Ferry Printers and Trafford Park Printers. The Telegraph has a very close involvement in the management of the joint venture companies and regards them as being important to The Telegraph’s day-to-day operations. The magazine sections of the Saturday edition of The Daily Telegraph and of The Sunday Telegraph are printed under contract by external magazine printers. The Telegraph also prints the majority of its overseas copies under contracts with external printers in Northern Ireland, Spain and Belgium.

     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.

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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-Times conducts its editorial, pre-press, marketing, sales and administrative activities in a 535,000 square foot, seven-story building in downtown Chicago. The Company has completed the full conversion of its Chicago Sun-Times production operations to a new 320,000 square foot state of the art printing facility at a total construction cost of approximately $115 million. It is intended that new facilities will be designated to house the Chicago Sun-Times non-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-Tribune editorial, 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 Post is produced and distributed in Israel from a three-story building in Jerusalem owned by the Jerusalem Post. The Jerusalem Post also leases a sales office in Tel Aviv and a sales and distribution office in New York.

U.K. Newspaper Group

     The Telegraph occupies five floors of a tower 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.

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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.

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     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.

     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

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

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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

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(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-Times and 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 Spectator and Apollo magazines (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:

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	•		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 News and 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.