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Sun-Times Media Group Inc – ‘10-K’ for 12/31/00

On:  Monday, 4/2/01, at 1:21pm ET   ·   For:  12/31/00   ·   Accession #:  950144-1-500454   ·   File #:  1-14164

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 4/02/01  Sun-Times Media Group Inc         10-K       12/31/00    3:696K                                   Bowne of Atlanta Inc/FA

Document/Exhibit                   Description                      Pages   Size 

 1: 10-K        Hollinger International Inc.                        HTML    723K 
 2: EX-21.1     Significant Subsidiaries of Hollinger Int'L         HTML     10K 
 3: EX-23.1     Independent Auditors' Consent                       HTML      6K 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-K

[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the Fiscal Year ended December 31, 2000
OR
[   ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from _____ to _____
Commission File No. 0-24004

HOLLINGER INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)

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. Yes   x    No

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

      The aggregate market value of Class A Common Stock held by non-affiliates as of March 21, 2001, was approximately $950,937,000. 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 21, 2001 was as follows: 84,285,671 shares of Class A Common Stock and 14,990,000 shares of Class B Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE

HOLLINGER INTERNATIONAL INC.

2000 FORM 10-K

PART I

Item 1. Business

Overview

      Hollinger International Inc. (the “Company”), through subsidiaries and affiliated companies, is a global publisher with English-language newspapers in the United States, the United Kingdom, Canada and Israel. Its assets include The Daily Telegraph, the Chicago Sun-Times, The Jerusalem Post, a large number of community newspapers in the Chicago area, and a portfolio of new media investments. The Company’s Canadian newspapers are primarily in Ontario and British Columbia and are owned through Hollinger Canadian Newspapers, Limited Partnership (“Hollinger L.P.”), in which the Company has approximately an 87% interest. In addition, the Company also has a 50% interest in The National Post Company (“National Post”) and a 15.6% equity interest in CanWest Global Communications Corp. (“CanWest”), an international media company, with substantial interests in conventional television, specialty cable channels, radio networks and newspapers.

      During 2000 the Company sold virtually all of its United States Community Group newspapers, with only one Community Group newspaper and The Jerusalem Post remaining at December 31, 2000. In addition, the Company’s Canadian operations were significantly reduced on completion of the sale to CanWest of a significant number of Canadian newspapers and Internet properties for total sale proceeds of $1.8 billion including both cash and CanWest equity shares.

      The operations of the Company for the year ended December 31, 2000 consisted of the Chicago Group, Community Group, U.K. Newspaper Group, and Canadian Newspaper Group, which accounted for 19%, 3%, 27% and 51%, respectively, of the Company’s total operating revenues of $2,096.0 million.

      Unless the context requires otherwise, all references herein to the “Company” mean Hollinger International Inc., its predecessors and combined subsidiaries, “Publishing” refers to Hollinger International Publishing Inc. and “Hollinger Inc.” refers to Hollinger Inc.

      Chicago Group

      The Company’s Chicago Group consists of more than 100 titles in the greater Chicago metropolitan area including the Chicago Sun-Times, the fourth largest metropolitan daily newspaper in the United States in terms of daily readership, the Post Tribune in northwest Indiana and the Daily Southtown. The Chicago Sun-Times is published in a tabloid format and has become Chicago’s best read newspaper, attracting 1.7 million readers every day. The suburban papers include Pioneer Newspapers Inc. (“Pioneer Press”), which currently publishes 55 weekly newspapers in Chicago’s north and northwest suburbs, Midwest Suburban Publishing Inc. (“Midwest Suburban Publishing”) which currently publishes the Daily Southtown, 11 weekly newspapers, 23 biweekly newspapers and five free distribution papers, primarily in Chicago’s south and southwest suburbs and the recently acquired Copley Chicago Suburban newspapers which publishes The Herald News, The Beacon News, The Courier News and The News Sun, among others.

      Community Group

      During 2000, the Company sold virtually all of its remaining United States community newspapers for proceeds of approximately $215.0 million. Only one United States community newspaper was still owned at December 31, 2000. For accounting and management purposes, the Community Group also includes the Company’s wholly-owned subsidiary (“Jerusalem Post”) which publishes The Jerusalem Post, Israel’s most important English-language daily newspaper, with a paid daily circulation of approximately 13,300. The related weekend edition of The Jerusalem Post, including the English and French-language international weekly editions, have a combined paid circulation of approximately 70,000.

      U.K. Newspaper Group

      The Company’s U.K. Newspaper Group (“The Telegraph”) consists of its wholly owned subsidiary, The Telegraph Group Limited and its consolidated subsidiaries . The Telegraph publishes The Daily Telegraph, which was launched in 1855. The Telegraph also publishes The Sunday Telegraph, The Weekly Telegraph, telegraph.co.uk, and The Spectator magazine. The Daily Telegraph is the largest circulation quality daily newspaper in the United Kingdom with an average daily circulation of approximately 1,025,000, representing a 35% share of the quality daily newspaper market, a substantially greater share than that of its nearest direct competitor. The Daily Telegraph’s Saturday edition has the highest average daily circulation (approximately 1,222,000) among quality daily newspapers in the United Kingdom. The Sunday Telegraph is the second largest circulation quality Sunday newspaper in the United Kingdom with an average Sunday circulation of approximately 810,000.

      Canadian Newspaper Group

      At December 31, 2000 the Company’s Canadian Newspaper Group primarily consisted of the operations of XSTM Holdings (2000) Inc. (formerly Southam Inc.) (“Southam”), an 87.0% interest in Hollinger L.P. and a 50% interest in National Post.

      On November 16, 2000, the Company and its affiliates, Southam and Hollinger L.P. (“Hollinger Group”) completed the sale of Canadian newspapers and related assets to CanWest for total sale proceeds, at fair value, of approximately $1.8 billion. Included in the sale was a 50% interest in National Post, all the metropolitan newspapers, including the Ottawa Citizen, The Gazette (Montreal), the Calgary Herald, the Edmonton Journal, The Vancouver Sun and The Province (Vancouver), a large number of community newspapers and operating Canadian Internet properties, including canada.com.

      At December 31, 2000 Southam and Hollinger L.P. had 32 daily newspaper properties remaining, including National Post, and the Southam Magazine and Information Group which publishes Canadian business magazines and tabloids for the automotive, trucking, construction, natural resources, manufacturing and other industries. In 2000, the National Post had an average six-day readership of 1.72 million with average daily paid circulation of over 330,000.

      Bank Credit Facility

      Using the cash proceeds from the CanWest transaction described above, $972 million of borrowings under the Restated Credit Facility were repaid and the Restated Credit Facility was reduced to $5 million. Subsequent to December 31, 2000, the Company entered into a new credit facility in the amount of $120 million of which $58 million had been drawn by March 21, 2001. This facility matures September 30, 2001.

      HCPH Special Shares

      On June 12, 2000, the Company exercised its option to pay cash on the mandatory conversion of HCPH Special shares. Each Special share was exchanged for $8.88 cash resulting in a payment in July to HCPH Special shareholders of $58.2 million. This payment was $10.9 million in excess of the recorded book amount. This excess amount was presented as minority interest in the Statement of Operations.

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      Ownership by Hollinger Inc.

      At December 31, 2000, Hollinger Inc. directly and indirectly owned 37.0% of the combined equity interest and 73.3% of the combined voting power of the outstanding Class A Common Stock and Class B Common Stock of the Company (without giving effect to the future issuance of Class A Common Stock upon conversion of the Company’s Series C Preferred Stock or remaining Series E Preferred Stock). As a result, Hollinger Inc. will continue to be able to control the outcome of any election of directors and to direct management policy, strategic direction and financial decisions of the Company and its subsidiaries. Hollinger Inc. owns all of the outstanding Series C Preferred Stock which shall convert into Class A Common Stock of the Company automatically on June 1, 2001 pursuant to the conversion formula set forth in its Certificate of Designations and Series E Preferred Stock of the Company, which is convertible at any time into shares of Class A Common Stock based on the conversion formula set forth in its Certificate of Designations.

      Hollinger Inc. is effectively controlled by The Hon. Conrad M. Black, Chairman of the Board and Chief Executive Officer of Hollinger Inc. and of the Company, through his direct and indirect ownership and control of Hollinger Inc.’s securities. Mr. Black has advised the Company that Hollinger Inc. does not presently intend to reduce its voting power in the Company’s outstanding Common Stock to less than 50%. Furthermore, Mr. Black has advised the Company that he does not presently intend to reduce his voting control over Hollinger Inc. such that a third party would be able to exercise effective control over it.

      General

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

Business Strategy

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

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

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

      At the Canadian Newspaper Group, following the asset sales completed during the year, the Company continues to own a group of community newspapers and magazines and a 50% interest in National Post. It is expected that the balance of the community newspapers and magazines will be sold during 2001. The focus for National Post is to reduce the level of operating losses by increasing circulation, particularly in the greater Toronto area, and increasing advertising revenue while controlling operating costs.

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

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

      The print-related and joint venture strategies represent an opportunity to fortify the newspapers in their local markets by providing them with the necessary tools to offer a complete suite of online and print options for their clients. The Company has stayed competitive by building significant websites at all our major newspapers. The strategy is specifically designed to achieve rapid acceleration of the Web activities. The Company is building a solid foundation for expansion and growth, an even more valuable asset base, and technology and services which further strengthen the print and online publications.

      The Company’s strategy regarding minority investments is primarily to identify promising internet and technology opportunities and make investments that are eventually expected to be monetized. Often a significant part of the purchase price of these investments is paid for with advertising in our publications.

Risks

      Certain statements contained in this report under various sections, including but not limited to “Business Strategy” and “Management’s Discussion and Analysis”, are forward-looking statements that involve risks and uncertainties. Such statements are subject to the following important factors, among others, which in some cases have affected, and in the future could affect, the Company’s actual results and could cause the Company’s actual consolidated results for the first quarter of 2001, and beyond, to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company:

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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.

      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 2000, retail advertising accounted for the largest share of advertising revenues (48%), followed by classified (39%) and national (13%).

      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 weekly both separate and special sections. The Chicago Group operates the Sun-Times Newspaper Network, an advertising vehicle that can reach the combined readership base of all the Chicago Group publications, with the exception of the recently acquired Copley Chicago Suburban newspapers. The Chicago Group continues to strengthen its online dominance. www.classifiedschicago.com regional classified-advertising website, which was created through a partnership with Paddock Publications, pools classified advertisements from nearly 100 daily and weekly newspapers including three of the Chicago metropolitan area’s biggest dailies, to create a valuable new venue for advertisers, readers and on-line users. In keeping with the focus of online classified advertising, during 2000, the Chicago Group joined again with Paddock Publications and a new partner, the Chicago Automobile Trade Association, to launch an automotive website. The new site, www.DriveChicago.com pools the automotive classified advertising of three of Chicago metropolitan area’s biggest dailies with the automotive inventories of many of Chicago’s metropolitan car dealerships.

      Circulation. Circulation revenues are derived from single copy newspaper sales made through retailers and vending racks and home delivery newspaper sales to subscribers. Approximately 65% of the copies of the Chicago Sun-Times sold in 2000 were single copy sales. Approximately 78% of 2000 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 478,000 and 393,000, respectively. The daily and Sunday paid circulation of the Daily Southtown is approximately 51,000 and 60,000, respectively. The daily and Sunday paid circulation of the Post-Tribune is approximately 64,000 and 67,000, respectively. The aggregate non-daily paid and free circulation of the Chicago area suburban newspapers is approximately 314,000 and 975,000, respectively. The average paid daily and Sunday circulation of the recently acquired Copley Chicago Suburban newspapers is approximately 105,000 and 92,000, respectively,

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

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

      Employees and Labor Relations. As of March 21, 2001, the Chicago Group employed approximately 4,300 employees (including approximately 1,000 part-time employees). Approximately 1,600 employees are represented by 24 collective bargaining units. Employee costs (including salaries, wages, fringe benefits, employment-related taxes and other direct employee costs) equaled approximately 38% of the Chicago Group’s revenues in the year ended December 31, 2000. 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. Newsprint costs equaled approximately 17% of the Chicago Group’s revenues in the year ended December 31, 2000. Average newsprint prices for the Chicago Group increased about 7% in 2000 from 1999. The Chicago Group is not dependent upon any single newsprint supplier. To ensure an adequate supply of newsprint, the Chicago Group has newsprint supply contracts with certain minimum purchase requirements. The Chicago Group, like other newspaper publishers in North America, has not entered into any long-term fixed price newsprint supply contracts in the current environment of newsprint costs. The Chicago Group believes that its sources of supply for newsprint are adequate for its anticipated needs.

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

Community Group

      The Community Group consisted of smaller newspaper publications in the United States and The Jerusalem Post in Israel. The Community Group’s United States daily newspapers were typically the only paid daily newspapers of general circulation in their respective communities. During 2000, the Company sold virtually all of its United States Community Group newspapers with only one Community Group newspaper remaining at December 31, 2000.

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

      Jerusalem Post. Over 40% of Jerusalem Post’s revenues of $21.1 million in 2000 were derived from circulation, with 32% from job printing and other and 28% from advertising. Jerusalem Post derives a relatively high percentage of its revenues from job printing as a result of a long-term contract to print and bind copies of the Golden Pages, Israel’s equivalent of a Yellow Pages telephone directory. Newsprint costs relating to publication of The Jerusalem Post equaled approximately 8.5% of Jerusalem Post’s revenues in 2000. Newsprint used in producing the Golden Pages is provided by the owners of that publication.

      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.

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

U.K. Newspaper Group

      The Telegraph

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

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

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

      Advertising. Advertising is the largest source of revenue at The Telegraph. The Telegraph’s display advertising strengths are in the financial, automobile and travel sections. The level of classified advertisements, especially recruitment advertisements, fluctuates with the economy. The Telegraph’s strategy with respect to classified advertising is to improve volume and yield in four sectors: recruitment, property, travel and automobiles. Classified advertising revenue, which represents 29% of total advertising revenue, increased in 2000 primarily due to a 15% increase in recruitment advertising. Recruitment advertising is the largest classified advertising category, representing about 53% of all classified advertising in terms of revenue.

      Circulation. The target audience of The Telegraph’s newspapers is generally conservative, middle and upper income readers, with a continuing emphasis on gaining new younger readers. The editorial strengths of The

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Telegraph’s newspapers provide national and international news, financial news and features and comprehensive sports coverage.

      In May 1996 the Telegraph introduced the first United Kingdom national advance purchase subscription program. In the past, newspaper subscribers in the U.K. dealt directly with independent newsagents for the purchase of newspapers. A significant portion of newspaper readers did not take the paper every day and this was especially true for Sunday. This program has proven successful in driving circulation increases although there has been some inevitable cannibalization of circulation revenues. By the end of 1996, the plan had added about 100,000 new weekday and 200,000 new Sunday average sales and the average prepaid subscription was for a period of about 40 weeks. In order to gain broad acceptance of this revolutionary plan, the subscriptions were offered at a significant discount. The amount of that discount was reduced throughout 1997 and continued to be reduced thereafter. The program currently has approximately 310,000 subscribers.

      Other Publications and Business Enterprises. The Telegraph is involved in several other publications and business enterprises, including The Spectator, The Weekly Telegraph and telegraph.co.uk (formerly Electronic Telegraph). telegraph.co.uk has more than a million registered users with some 80,000 logging on every day. The Telegraph utilizes its brand in developing third party revenue opportunities including Reader Offers and Books Direct.

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

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

      Employees and Labor Relations. At March 21, 2001, The Telegraph and its subsidiaries employed approximately 1,200 persons and the joint venture printing companies employed an additional 1,100 persons. Collective agreements between The Telegraph and the trade unions representing certain portions of The Telegraph’s workforce expired on June 30, 1990 and have not been renewed or replaced. The absence of such collective agreements has had no adverse effect on The Telegraph’s operations and, in management’s view, is unlikely to do so in the foreseeable future.

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

      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 good.

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      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 180,000 metric tons are consumed annually and in 2000 the total cost was approximately 18% of its newspaper revenues. Prices are fixed throughout 2001 at levels some 13% above the average price paid during 2000. 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.

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

      West Ferry Printers has eighteen 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 plc, and the remaining four for contract printing customers. Trafford Park Printers has four presses, two of which are used primarily for The Telegraph’s newspapers.

      Distribution. Since 1988, The Telegraph’s newspapers have been distributed to wholesalers by truck under a contract with a subsidiary of TNT Express (UK) Limited. During 1996, the Express titles and The Daily Telegraph and The Sunday Telegraph, which are all printed at West Ferry Printers in London, began distribution to wholesalers on the same trucks. At Trafford Park Printers in Manchester, where The Daily Telegraph, The Sunday Telegraph and The Guardian are printed, a joint distribution service was arranged. Previously, the Express titles and the Guardian were distributed separately from the Telegraph titles. The Telegraph’s arrangements with wholesalers contain performance provisions to ensure minimum standards of copy availability while controlling the number of unsold copies.

      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 2000 home deliveries accounted for 41% of sales of The Daily Telegraph and 42% of sales of 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

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and retailer commissions amounted to approximately 34% of the then cover price. Notwithstanding the reduction of the cover price, the commissions paid were not reduced. In line with other national newspapers, The Telegraph has recently moved away from a commission paid on a percentage of cover price to a fixed price in pence per copy and has reduced the amount paid to wholesalers and retailers in terms of pence per copy.

      Regulatory and Environmental Matters. United Kingdom companies are subject to various competition laws, including the Restrictive Trade Practices Act 1956-1976 (the “RTPA”), which requires the registration of certain restrictive or information-sharing agreements with the Office of Fair Trading and, under certain circumstances, prohibits such agreements. In common with other major newspaper publishers, The Telegraph has given undertakings in proceedings under the RTPA to the Restrictive Practices Court in respect of, among other things, both daily and Sunday papers. These undertakings include a general undertaking not to enter into any kind of agreement registrable under the RTPA of which particulars are not furnished to the Office of Fair Trading within the prescribed period. The Telegraph has also given a number of specific undertakings (concerning pricing, wholesaler discounts and other conditions upon which newspapers may be supplied) which prohibit the entering of agreements containing the restrictions specified in the undertakings or any agreements to the like effect. A breach of any of the undertakings may result in The Telegraph (and potentially any individuals involved) being held in contempt of court. The Telegraph has instituted procedures designed to ensure that all personnel in relevant managerial positions are required to acknowledge quarterly that they have been reminded of the requirements of the RTPA, the meaning and scope of the undertakings given, the necessity of obtaining legal advice in case of doubt and the consequences and seriousness of any breach. A code of conduct, which contains this information, has been circulated among relevant personnel.

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

Canadian Newspaper Group

      Sources of Revenue. As indicated previously, on November 16, 2000 the Company completed the sale to CanWest of 50% of National Post, the Canadian Newspaper Group metropolitan and a large number of community newspapers and certain operating Internet properties. Revenue for the years ended December 31, 2000 and 1999, of operations not sold at December 31, 2000 excluding National Post, was Cdn.$390.9 million and Cdn.$384.1 million, respectively. National Post revenue for the years ended December 31, 2000 and 1999 was Cdn.$135.4 million and Cdn.$104.2 million, respectively. The following table sets forth the sources of revenue and the revenue mix of the total Canadian Newspaper Group, including operations sold, during the past three years:

      Advertising. Newspaper advertising revenue in 2000, for operations not sold at December 31, 2000, totalled Cdn. $287.0 million. Advertisements are carried either within the body of the newspapers, and referred to as run-of-press (ROP) advertising, or as inserts and other. ROP, which represented 88% of total advertising revenue in 2000, for operations not sold, is categorized as either retail, classified or national. The three categories represented 43%, 22% and 35% respectively, of ROP advertising revenue in 2000, for operations not sold at December 31, 2000.

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      Circulation. Circulation revenue is derived from subscription sales and single copy sales. Approximately 67% of circulation revenue in 2000, for operations not sold at December 31, 2000, was from subscription sales.

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

      Employees and Labor Relations. As of March 21, 2001, the Canadian Newspaper Group had approximately 3000 employees. This excludes employees of UniMedia Inc. which was sold in January 2001. The Canadian Newspaper Group has union contracts in place at approximately 24 of the 45 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.

      Raw Materials. The basic raw material for newspapers is newsprint. Newsprint consumption in 2000, for operations not sold at December 31, 2000 was approximately 82,000 tonnes. The newspapers within the Canadian Newspaper Group have access to adequate supplies to meet anticipated production needs. They are not dependent upon any single newsprint supplier. The Canadian Newspaper Group, like other newspaper publishers in North America, has not entered into any long-term fixed price newsprint supply contracts in the current environment of newsprint costs.

      Regulatory Matters. The publication, distribution and sale of newspapers and magazines in Canada is regarded as a “cultural business” under the Investment Canada Act and consequently, any acquisition of control of Southam by a non-Canadian investor would be subject to the prior review and approval by the Minister of Industry of Canada. Because Hollinger International Inc. is controlled by Hollinger Inc. that in turn is controlled by Canadians, the current ownership is acceptable.

      Relationship with the Hollinger Inc. The Company and Hollinger Inc. directly own a combined 100% interest in Southam through Hollinger Canadian Publishing Holdings Inc. (“HCPH”), a New Brunswick holding company, in which Publishing and Hollinger Inc. own, directly or indirectly, the following interests; (i) Publishing and its subsidiaries own 100% of the non-voting equity shares and non-voting preference shares and (ii) each of Publishing and Hollinger Inc. (through its wholly-owned subsidiary) own 50% of the voting preference shares which have only nominal equity value. It is anticipated that Hollinger Inc. will pledge its interest in HCPH as collateral for bank financing arrangements of the Company and its subsidiaries. The Company indirectly owns an 87.0% interest in Hollinger L.P. and a 50% interest in National Post.

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Item 2. Properties

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

      Chicago Group

      The Chicago Sun-Times conducts its editorial, pre-press, marketing, sales and administrative activities in a 535,000 square foot, seven-story building in downtown Chicago. The Company has nearly completed the full conversion of its Chicago Sun-Times production operations to a new 320,000 square foot state of the art printing facility, at a total construction cost of approximately $115.0 million. It is intended that once conversion is completed, new facilities will be identified to house the Chicago Sun-Times non-production activities and the downtown Chicago building will be sold.

      Pioneer Press utilizes and owns a building in north suburban Chicago for editorial, pre-press, sales and administrative activities. Pioneer leases several outlying satellite offices for its editorial and sales staff in surrounding suburbs. Production currently occurs at a 65,000 square foot leased building in a neighboring suburb. It is anticipated that the printing of the Pioneer product will be moved to the new Chicago Sun-Times printing facility by early summer 2001. Midwest Suburban Publishing utilizes one building for editorial, pre-press, marketing, sales and administrative activities. Production activities occur at a separate facility. Both facilities are located in Chicago’s south suburbs. The Post-Tribune editorial, pre-press, marketing, sales and administrative activities are housed in the newly completed facility in Merrillville, Indiana. The headquarters for the newly acquired Copley Chicago Suburban newspapers is in Plainfield, Illinois. This 172,000 square foot owned facility houses the press and administrative activities as well as certain sales and marketing functions. The editorial and sales activities are housed at five facilities located in surrounding suburbs.

      Community Group

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

      U.K. Newspaper Group

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

      Canadian Newspaper Group

      The Canadian Newspaper Group’s newspapers and magazines are published at numerous facilities throughout Canada. Southam’s magazines are printed at facilities owned by third parties.

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Item 3. Legal Proceedings

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

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

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

      None

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Executive Officers of the Company

      The following table sets forth the names and ages (as of March 21, 2001) of each of the Company’s current executive officers, followed by a description of their principal occupations during the past five years and current directorships of public reporting companies and investment companies in the United States, Canada and the United Kingdom. Unless otherwise indicated, each of the executive officers has held his or her position with the Company, or a similar position with the Company, for at least the past five years.

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

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

      Daniel W. Colson, Vice Chairman and Director of the Company and Deputy Chairman, Chief Executive Officer and Director of Telegraph Group Limited. Mr. Colson has served as a Director of the Company since February 1995 and a Vice Chairman since May 1998. He has served as Deputy Chairman of the Telegraph since 1995 and as Chief Executive Officer of the Telegraph since 1994 and was Vice Chairman of the Telegraph from 1992 to 1995. Mr. Colson currently serves as Vice Chairman and as a Director of Hollinger Digital Inc. He also serves as Vice Chairman and a Director of Hollinger Inc., Hollinger Canadian Publishing Holdings Inc. and Hollinger Canadian Newspapers G.P. Inc. and as Director of Argus and Molson Inc, all of which are Canadian public reporting companies. Mr. Colson also serves as Deputy Chairman and Director of Interactive Investor International.

      J. A. Boultbee, Executive Vice President. Mr. Boultbee has served as Executive Vice President since June 14, 1996 and as Chief Financial Officer from 1995 to 1999. Mr. Boultbee served as a Vice President of the

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

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

      Barbara Amiel Black, Vice President, Editorial and Director. Mrs. Black has served as Vice President, Editorial since September 1995 and as a director since February 1996. Mrs. Black is the wife of Mr. Black. After an extensive career in both on and off-camera television production, Mrs. Black was the editor of The Toronto Sun from 1983 to 1985, a columnist of The Times and senior political columnist of The Sunday Times of London from 1986 to 1994 and The Telegraph from 1994 to 1998. She has also been a columnist of Maclean’s magazine since 1977. Mrs. Black also serves as Vice President, Editorial of Hollinger Inc. and Hollinger Canadian Newspapers G.P. Inc., the general partner of Hollinger Canadian Newspapers, Limited Partnership, a public reporting company in Canada, and as a director of Hollinger Inc. and Jerusalem Post. She is the author of two books: “By Persons Unknown” (Co-author), which won the Mystery Writers of America Edgar Award for best non-fiction in 1978, and “Confessions”, a book of political essays published in 1980, which won the Canadian periodical publishers prize.

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

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

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

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

      Frederic Lebolt, Vice President, New Media. Mr. Lebolt has served as Vice President, New Media since February 1999. He has served as Vice President of Hollinger Digital Inc. since 1997. Mr. Lebolt was previously Director of Online Publications of the Chicago Sun-Times, which he joined in 1994.

      Robert T. Smith, Treasurer. Mr. Smith has served as Treasurer since May 1998. Mr. Smith was Vice President of Chase Securities, Inc. and The Chase Manhattan Bank in the Media and Telecommunications Group from 1987 to 1998 and 1976 through 1982. From 1983 to 1987, Mr. Smith served as Assistant Treasurer for AT&T Long Lines and AT&T Communications, AT&T’s long distance subsidiary.

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

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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 21, 2001 there were 84,285,671 shares of Class A Common Stock outstanding and held by approximately 220 holders of record and approximately 4000 beneficial owners. The Class B Common Stock of the Company is not publicly traded. As of March 21, 2001, 14,990,000 shares of Class B Common Stock were outstanding and owned by Hollinger Inc. The 134,126 shares of Series E Preferred Stock, held by Hollinger Inc., are convertible into 891,173 shares of Class A Common Stock (as of March 21, 2001). The Company issued in 1997, 829,409 shares of Series C Convertible Preferred Stock, par value $0.1 per share (“Series C Preferred Stock”) to Hollinger Inc. The Series C Preferred Stock was issued at $108.50 per share and pays a dividend of 9.5% per annum. The Series C Preferred Stock is convertible into 8,181,788 shares of Class A Common Stock (as of March 21, 2001).

      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, 1999, and the cash dividends declared per share on the Class A Common Stock.

      On March 21, 2001 the closing price of the Class A Common Stock was $14.87 per share. Each share of Class A Common Stock and Class B Common Stock is entitled to receive dividends if, as and when declared by the Board of Directors of the Company. Dividends must be paid equally, share for share, on both the Class A Common Stock and the Class B Common Stock at any time that dividends are paid.

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

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Item 6. Selected Financial Data

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

Overview

      The Company’s business is concentrated in the publication of newspapers in the United States, Canada, United Kingdom, and Israel. Revenues are derived principally from advertising, paid circulation and, to a lesser extent, job printing. Of the Company’s total operating revenues in 2000, approximately 19.0% were attributable to the Chicago Group, 3.0% to the Community Group, 27.0% to the U.K. Newspaper Group, and 51.0% to the Canadian Newspaper Group. The Company’s Chicago Group is comprised of the Chicago Sun-Times and other daily and weekly newspapers in the greater Chicago metropolitan area. The Company’s Community Group operated and published newspapers in small and medium markets in the United States and also includes The Jerusalem Post. The Company’s U.K. Newspaper Group consists of the operations of the Telegraph Group Ltd. (“Telegraph”), its subsidiaries and joint ventures. The Canadian Newspaper Group consists of the operations of XSTM Holdings (2000) Inc. (formerly Southam Inc.) (“Southam”), the Company’s investment in Hollinger Canadian Newspapers, Limited Partnership (“Hollinger L.P.”) and The National Post Company (“National Post”).

      During 2000, the Company sold virtually all of its United States Community Group newspapers with only one Community Group newspaper and The Jerusalem Post remaining at December 31, 2000. In addition, as described in greater detail below, the Company’s Canadian operations were significantly reduced on completion of the sale to CanWest Global Communications Corp. (“CanWest”) of a significant number of Canadian newspapers and Internet properties.

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

      The Consolidated Financial Statements include the accounts of the Company and its majority-owned subsidiaries and other controlled entities. At December 31, 2000, 1999 and 1998, the Company’s interest in Southam was 100.0%, 100.0% and 71.0%, respectively. The Company’s interest in Hollinger L.P. was 87.0% and 85.0% at December 31, 2000 and 1999. The Company’s interest in National Post was 50.0%, 100.0% and 100.0% at December 31, 2000, 1999 and 1998, respectively. All intercompany balances and transactions have been eliminated on consolidation.

Significant Transactions

      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, 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.

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

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      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 approximates an additional $40.7 million. $972 million of the cash proceeds from this sale were used to pay down the Company’s Bank Credit Facility.

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

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

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

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

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

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

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

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

      On April 30, 1999, Hollinger L.P. completed a Cdn. $200.0 million ($137.2 million) private placement and investors subsequently received 20 million partnership units of Hollinger L.P. During July 1999 Hollinger L.P. completed its initial public offering issuing four million units at Cdn. $10 per unit for total proceeds of Cdn. $40.0 million ($27.0 million). All partnership units, including the 20 million units issued through the April 30, 1999 private placement, are listed on The Toronto Stock Exchange. After the initial public offering the Company continued to hold indirectly approximately 85% of the equity of Hollinger L.P. The net proceeds of the offerings were applied to reduce bank debt of the Hollinger Group. The reduction in the Company’s indirect ownership interest in Hollinger L.P. due to the sales of partnership units resulted in the recognition of dilution gains of $77.3 million. The Company’s indirect ownership in the equity of Hollinger L.P. was 85.0% at December 31, 1999.

      On April 30, 1999, Hollinger International Publishing Inc. (“Publishing”), HCPH, Telegraph, Southam, HIF Corp. (“HIF”) and a group of financial institutions entered into a Fourth Amended and Restated Credit Facility (“Restated Credit Facility”) for a total of $725.0 million consisting of a $475.0 million revolving credit line maturing on September 30, 2004 and a $250.0 million term loan maturing on December 31, 2004. This facility replaced the previous Bank Credit Facility. The loans under the Restated Credit Facility bore interest, at the option of the respective borrower, at a rate per annum tied to specified floating rates or a reserve adjusted Eurocurrency rate, in each case plus a specified margin determined based on leverage ratios. On June 4, 1999, the revolving credit line was increased by $50.0 million. On September 30, 1999, the Restated Credit Facility was increased to $875.0 million when the revolving credit line and the term loan were each increased by $50.0 million. As noted elsewhere, this facility was substantially repaid in November 2000 with the facility being reduced to $5.0 million.

      In January 1998, the Company completed a sale of approximately 80 community newspapers for aggregate cash consideration of approximately $310.0 million. The proceeds from the sale were used to repay notes at the Community Group and pay down $175.0 million of outstanding debt on the Bank Credit Facility. A pre-tax gain of $201.2 million was recognized on this transaction. In addition, the Company’s Canadian subsidiaries, in three separate transactions in 1998, sold a magazine and four newspaper properties for total proceeds of $267.4 million resulting in pre-tax gains of $161.8 million.

      In three separate transactions in 1998, the Company and its subsidiaries acquired five daily and certain community newspapers for total cash consideration of $250.3 million. Included in these transactions was the acquisition by Southam of the Financial Post Company, which published the Financial Post. In October 1998, Southam launched the National Post, a new national daily newspaper in Canada, incorporating the Financial Post as the business section of the National Post.

      During 1998, the Company issued an exchange offer to convert the PRIDES into Class A Common Stock. 19,993,531 PRIDES were exchanged for 18,394,048 shares of Class A Common Stock.

      During 1998, HCPH acquired 8,268,900 additional shares of Southam increasing its ownership interest to 69.1%. Subsequently, Southam repurchased some its own common shares, increasing the Company’s ownership interest to 71.0%.

Subsequent Event

      In November 2000, Hollinger L.P. approved the sale of UniMédia Company to Gesca Limited, a subsidiary of Power Corporation of Canada. The sale closed effective January 2001. The publications sold represent the French- language newspapers of Hollinger L.P. including three paid circulation dailies and 15 weeklies published in Quebec and Ontario.

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

(Footnotes following tables)

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