TABLE OF CONTENTS

SIGNATURE COMPANY PROFILE RECENT DEVELOPMENTS NEW ACCOUNTING STANDARDS OPERATING RESULTS LIQUIDITY AND CAPITAL RESOURCES NATURE OF BUSINESS

FORM 6-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

REPORT OF FOREIGN ISSUER

Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934

For the month of August, ~~2007~~ 2008

SUN MEDIA CORPORATION

(Translation of registrant’s name into English)

333 King Street East, Toronto, Ontario M5A 3X5 CANADA ~~(Address of principal executive offices)~~

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Form 20-F þ Form 40-F o

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes o No þ

TABLE OF CONTENTS


SIGNATURE

Quarterly Report for the Period Ending June 30, ~~2007~~2008 of SUN MEDIA CORPORATION Filed in this Form 6-K

Documents index

1. Quarterly report for the period ending June 30, ~~2007~~2008 for Sun Media Corporation

~~SIGNATURE~~SUN MEDIA CORPORATION MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SECOND QUARTER 2008

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	SUN MEDIA CORPORATION
	By:	/s/ Michel Slight
Date: August 29, 2007		Name:	Michel Slight
		Title:	Executive Vice President, Finance

SUN MEDIA CORPORATION MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SECOND QUARTER 2007

COMPANY PROFILE

Sun Media Corporation (“Sun Media” or “the “Company”), a newspaper publishing company, is a subsidiary of Quebecor Media Inc. (“Quebecor Media”), itself a subsidiary of Quebecor Inc., ~~is the second largest newspaper~~Sun ~~publishing~~Media ~~company~~publishes in205 ~~Canada, publishing eight paid urban daily newspapers, seven free urban daily newspapers and 195 weekly newspapers and specialty~~ publications across Canada. ~~Sun Media operates its newspaper businesses~~ in urban and community markets. The Urban Daily Group consists of eight paid daily newspapers, and three weekly publications as well as Sun Media’s distribution business, Messageries Dynamiques. In addition, the Urban Daily Group operates ~~seven~~ six free daily publications, 24 Hours in Toronto, Ottawa, Calgary, Edmonton and Vancouver and 24 Heures in Montreal ~~and Ottawa~~. The Community Newspaper Group includes the majority of Sun Media’s other publications, including nine paid daily community newspapers, ~~183~~and 179 weekly newspapers, weekly shopping guides and agricultural and other specialty publications. The Community Newspaper Group has its own distribution sales operation, NetMedia. ~~Sun Media also owns a 25% interest in SUN TV Company (“SUN~~ ~~TV”), a general interest television station in Toronto, Ontario.~~

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations covers the main activities of the second quarter of ~~2007~~2008 and the major changes from the last financial year. It should be read in conjunction with the information in the Annual Report (Form 20-F/A) for the year ended December 31, ~~2006~~2007 which is available on the website of the U.S. Securities and Exchange Commission at www.sec.gov. References to Canadian dollars, Cdn$ and $ are to the currency of Canada, and references to U.S. dollars and US$ are to the currency of the United States.

~~RECENT~~HIGHLIGHTS ~~DEVELOPMENTS~~SINCE FIRST QUARTER 2008

~~Acquisition~~On ofJuly 2, ~~Additional~~2008, ~~Shares~~management ofat Lethe ~~Courrier~~Journal dude ~~Sud~~Québec ~~Inc~~and its unionized pressroom, newsroom and office employees reached an agreement in principle to end the labour disruption that began in April 2007. The employees returned to work in August 2008.

On July 322, ~~2007~~2008, ~~the~~Sun ~~Company~~Media ~~exercised~~acquired ~~its~~the ~~option~~remaining ~~to acquire an additional 2,500 shares or 25~~24.099% shares of Le Courrier du Sud (1998) Inc., (“Courrier”) ~~a community newspaper publisher in Quebec,~~ for acash ~~purchase~~consideration ~~price~~ of $7.9 2 million~~, plus acquisition costs~~. ~~The acquisition was completed on August 7, 2007 and increased the Company’s total ownership of Le~~ Courrier dupublishes ~~Sud~~five ~~Inc.~~weekly ~~to 75.01%. Following the acquisition of~~publications ~~additional~~in ~~shares,~~ the ~~Company~~Montreal ~~will~~region ~~continue~~in ~~to consolidate Le Courrier du Sud Inc~~Quebec. ~~within the~~ ~~financial statements of Sun Media.~~

~~NEW~~NON-GAAP ~~ACCOUNTING~~FINANCIAL ~~STANDARDS~~MEASURE

~~The~~Management ~~accounting~~uses ~~policies~~the ~~described~~supplemental infinancial ~~the~~measure ~~Company’s~~operating ~~latest~~income. ~~audited~~Operating ~~annual~~income, ~~consolidated~~and ratios using this measure, are not required by or recognized under Canadian GAAP or U.S. GAAP. Operating income is not intended to be a measure that should be regarded as an alternative to other financial ~~statements~~operating ~~have~~performance ~~been~~measures ~~consistently~~or ~~applied~~to ~~except~~the statement of cash flows as a measure of liquidity. It is not intended to represent funds available for ~~the~~debt ~~new~~service, ~~accounting~~dividends, ~~standards~~reinvestment ~~described~~or ~~below~~other ~~and~~discretionary ~~Notes~~uses; 2it ~~and~~should 5not inbe ~~the~~considered ~~unaudited~~in ~~interim~~isolation ~~consolidated~~as ~~financial~~a ~~statements~~substitute for measures of performance prepared in accordance with Canadian GAAP and U.S. GAAP. Operating income is used by Sun Media because management believes it is a meaningful measure of performance commonly used in the ~~six~~publishing ~~months~~industry and by the investment community to analyze and compare companies. ~~ended~~Operating ~~June 30~~income has limitations as an analytical tool, ~~2007.~~including:

~~Effective~~• ~~January 1,~~it ~~2007,~~does not reflect financial expenses or the ~~Company~~cash ~~adopted~~necessary to pay interest and other financial expenses; • it does not reflect income tax expense or the ~~Canadian~~cash ~~Institute~~necessary ofto ~~Chartered~~pay ~~Accountants (“CICA”)~~income ~~Handbook~~taxes; ~~Section 1530,~~• ~~Comprehensive~~although ~~Income~~amortization ~~(“CICA~~is ~~1530”),~~a ~~Handbook~~non-cash ~~Section 3855~~charge, ~~Financial~~ ~~Instruments~~the —assets ~~Recognition~~being ~~and~~amortized ~~Measurement~~will ~~(“CICA~~often ~~3855”)~~have ~~and~~to ~~Handbook~~be ~~Section 3865~~replaced in the future, ~~Hedges~~ ~~(“CICA~~and ~~3865”).~~operating ~~The~~income ~~significant~~does ~~changes~~not ~~related~~reflect cash requirements for such expenditures; • it does not reflect the cash required to ~~these~~pay ~~new~~expenses ~~accounting~~relating ~~standards~~to ~~are~~the ~~as follows:~~ Company’s restructuring initiatives; • it does not reflect cash outlays for future contractual commitments.

~~Comprehensive income~~1

CICA 1530 introduces the concept of comprehensive income, which is calculated by including other comprehensive income with net income. Other comprehensive income represents changes in shareholders’ equity arising from transactions and other events with non-owner sources, such as unrealized gains and losses on financial assets classified as available-for-sale and changes in the fair value of the effective portion of cash flow hedging instruments. With the adoption of this section, the unaudited interim consolidated financial statements now include consolidated statements of comprehensive income.

SUN MEDIA CORPORATION MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SECOND QUARTER ~~2007~~2008

~~Financial~~Sun ~~assets~~Media defines operating income as net income before amortization, financial expenses, gain/loss on valuation and translation of financial ~~liabilities~~instruments, reserve for restructuring of operations, equity losses and impairment, income taxes and non-controlling interest. Sun Media’s definition of operating income may differ from the methods used by other companies, limiting the usefulness of operating income as a comparative measure. Table 1 provides the reconciliation of net income to operating income under Canadian GAAP and the reconciliation of operating income to cash provided by operations under Canadian GAAP, for the three and six months ended June 30, 2008 and 2007.

~~CICA~~Table ~~3855 establishes standards for recognizing and measuring financial assets, financial~~1 liabilities and derivatives. Under this standard, financial instruments are now classified as held-for-trading, available-for-sale, held-to-maturity, loans and receivables, or other financial liabilities and measurement in subsequent periods depends on their classification. Transaction costs are expensed as incurred for financial instruments classified as held-for-trading. For other financial instruments, transaction costs are capitalized on initial recognition and presented as a reduction of the underlying financial instruments.

~~Financial~~Reconciliation ~~assets~~between ~~and financial liabilities held-for-trading are measured at fair value with changes recognized in financial expenses. Available-for-sale financial assets are measured at fair value or at cost, in~~ the ~~case~~operating ofincome ~~financial~~measure ~~assets~~used ~~that do not have a quoted market price~~ in anthis ~~active market,~~report and ~~changes~~the innet ~~fair value are recorded in comprehensive~~ income. ~~Financial assets classified as held-to-maturity, loans~~ and ~~receivables, and other financial liabilities are measured at amortized cost using the effective interest method of amortization. The Company has classified its~~ cash ~~and cash equivalents and temporary investments as held-for-trading. Trade receivables,~~ ~~receivables~~provided ~~from~~by ~~related~~operations ~~parties,~~measures ~~loans~~used ~~and other long-term receivables were classified as loans and receivables. Investments~~ in ~~preferred shares of related companies were classified as available-for-sale. All of~~ the ~~Company’s~~consolidated financial ~~liabilities, including convertible obligations~~statements ~~to related companies, were classified as other liabilities.~~

Derivative instruments are recorded as financial assets or liabilities at fair value, including those derivatives that are embedded in financial or non-financial contracts that are not closely related to the host contracts. Changes in fair values of the derivatives are recognized in financial expenses, with the exception of derivatives designated as a cash flow hedge for which hedge accounting is used. In accordance with the new standards, the Company selected January 1, 2003 as its transition date for adopting this standard related to embedded derivatives. Derivative instruments are recorded in other liabilities in the consolidated balance sheets.


	Three months ended June 30						Six months ended June 30
	2008			2007			2008			2007
				(in millions of Canadian dollars)
Net income	$	31.1		$	23.4		$	52.1		$	40.8
Amortization		6.1			8.6			11.7			16.5
Financial expenses		10.6			11.2			21.4			22.5
(Gain) loss on valuation and translation of financial instruments		(3.5	)		10.9			(9.4	)		4.8
Restructuring charges		1.1			4.8			2.7			10.7
Equity loss on investment in SUN TV		0.4			0.6			1.0			1.2
Income taxes		8.7			(4.1	)		12.8			(5.3	)
Non-controlling interest		0.3			0.5			0.4			0.8

Operating income	$	54.8		$	55.9		$	92.7		$	92.0

Financial expenses		(10.6	)		(11.2	)		(21.4	)		(22.5	)
Restructuring charges		(1.1	)		(4.8	)		(2.7	)		(10.7	)
Current income taxes		(0.4	)		(0.4	)		(0.6	)		(0.6	)
Amortization of deferred financing costs and long-term debt discount and other		0.2			0.4			0.6			0.9
Change in non-cash operating working capital		(4.6	)		7.2			(19.1	)		14.0

Cash provided by operations	$	38.3		$	47.1		$	49.5		$	73.1

~~Hedges~~2008/2007 SECOND QUARTER COMPARISON

~~CICA~~Revenues: ~~3865~~$240.9 million, ~~specifies~~an ~~the~~increase ~~criteria that must be satisfied in order for hedge accounting to be applied and the accounting for each~~ of ~~the~~$0.4 million ~~permitted hedging strategies~~(0.2%).

~~Accordingly,~~• ~~for~~Advertising ~~derivatives~~revenues ~~designated~~increased as1.5%, ~~fair~~circulation ~~value~~revenues ~~hedges~~decreased 6.3%, ~~such~~and ascombined ~~certain~~revenues ~~cross~~from ~~currency interest~~commercial ~~rate~~printing ~~swaps~~and ~~used~~other bysources ~~the~~decreased ~~Company,~~0.8%. ~~changes~~• inRevenues of the ~~fair~~Urban ~~value~~Daily ofGroup ~~the~~were ~~hedging~~0.7% ~~derivative recorded~~below inlast ~~financial~~year. ~~expenses~~This ~~are~~variance ~~substantially~~is ~~offset~~explained by ~~changes~~the infree ~~the~~dailies ~~fair~~that ~~value~~recorded an increase of ~~the~~34.6%, ~~hedged item~~as towell as the ~~extent~~consolidation ~~that~~of the ~~hedging~~Vancouver ~~relationship~~24 isHours ~~effective.~~at ~~When~~100% ainstead ~~fair~~of ~~value~~50%. ~~hedge~~This ~~is discontinued,~~was ~~the~~offset ~~carrying~~by ~~value~~a ofreduction in the ~~hedged~~paid ~~item~~dailies ismainly noin ~~longer~~Ontario ~~adjusted~~ and ~~the~~Quebec. ~~cumulative~~• ~~fair value~~The ~~adjustments~~revenues ~~to the carrying value~~ of the ~~hedged~~community ~~item~~operations ~~are~~increased ~~amortized~~2.9% due to ~~financial~~particularly ~~expenses~~strong ~~over the~~results ~~remaining~~in ~~term~~publications west of ~~the original hedging relationship~~Ontario.

~~For~~Cost ~~derivative~~of ~~instruments designated as cash flow hedges~~Sales, ~~such~~Selling ~~as certain cross currency interest rate swaps~~ and ~~forward~~Administrative ~~exchange~~Expenses: ~~contracts used by the Company~~$186.1 million, ~~the~~an ~~effective~~increase ~~portion~~ of a hedge is reported in other comprehensive income until it is recognized in income during the same period in which the hedged item affects income, while the ineffective portion is immediately recognized in the consolidated statements of income$1. ~~When a cash flow hedge is discontinued, the amounts~~5 million ~~previously recognized in accumulated other comprehensive income are reclassified to income when the variability in the cash flows of the hedged item affects income~~(0.8%).

~~Upon~~• ~~adoption~~Payroll ofexpenses ~~these~~decreased ~~new standards~~7.3%, ~~the~~newsprint ~~transition~~expense ~~rules~~decreased ~~require~~14.3% ~~that~~and ~~the~~all ~~Company adjust either the opening retained earnings or accumulated~~ other ~~comprehensive~~cost ~~income as if the new standards had always been applied in the past, without restating comparative figures~~ of ~~prior years. Accordingly~~sales, ~~the~~selling ~~following~~and ~~adjustments~~administrative ~~were~~expenses ~~recorded~~increased ~~in the consolidated financial statements as at January 1, 2007:~~ 17.2%.

— Decrease in other assets of $17.0 million — Increase in other liabilities of $14.9 million — Decrease in long-term debt of $23.1 million — Decrease in future income tax liabilities of $11.5 million — Increase in retained earnings of $2~~.8 million~~ ~~— Increase in accumulated other comprehensive loss of $0.1 million~~

SUN MEDIA CORPORATION MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SECOND QUARTER ~~2007~~2008

In• ~~addition,~~Payroll ~~the~~expenses ~~adoption of these new standards~~ decreased ~~net~~in ~~income by $3.1 million for~~ the ~~three months~~quarter ~~ended~~primarily ~~June 30,~~due ~~2007 and increased net income by $0.1 million for the six months ended June 30, 2007.~~ to:

~~OPERATING~~o ~~RESULTS~~ restructuring initiatives implemented in the areas of production, editorial as well as other general workforce reduction programs; o labour savings resulting from the labour disruption at the Journal de Québec; o reduced stock compensation expense of $3.0 million;

~~The~~Partially ~~comments~~offset ~~and analysis in this report are based on Sun Media’s primary consolidated financial~~by: statements, which are prepared in accordance with Canadian GAAP (elements of the reconciliation to U.S. GAAP are presented in Note 14 of the attached unaudited interim consolidated financial statements).

Management uses the supplemental financial measure “operating income” to assess its operating results and financial performance. Operating income, as defined by the Company, and ratios using this measure, are not required by or recognized under Canadian GAAP. Operating income, as reconciled to net income under Canadian GAAP, is defined by the Company as net income before amortization, restructuring charges, financial expenses, equity losses, income taxes and non-controlling interest. Operating income and ratios using this measure are not intended to represent funds available for debt service, dividends, reinvestment or other discretionary uses, and this non-GAAP measure is not intended or designed to replace other financial operating performance measures or the statement of cash flows as a measure of liquidity. Operating income should not be considered in isolation from, or as a substitute for analysis of, the Company’s financial information reported under Canadian GAAP. Operating income is used by Sun Media because management believes it is a meaningful measure of performance commonly used in the publishing industry and by financial analysts and other users of the Company’s financial information to analyze and compare companies in our industry. Operating income, as defined by the Company, has limitations as an analytical tool, including:

	o		normal wage and benefit increases;

	o		staff additions to support increased business primarily in the western operations, and new operations such as the press facility in Ottawa and the additional 50% ownership of Vancouver 24 Hours.

— it does not reflect interest expense or the cash necessary to make interest payments; — it does not reflect income tax expense or the cash necessary to pay income taxes; — although amortization is a non-cash charge, the assets being amortized will often have to be replaced in the future, and operating income does not reflect cash requirements for such capital expenditures; — it does not reflect financial expenses or the cash necessary to pay financial expenses; — it does not reflect the cash necessary to pay expenses relating to the Company’s restructuring initiatives; — it does not reflect cash outlays for future contractual commitments; — it does not reflect equity losses, including equity losses in SUN TV; and — it does not reflect potential cash requirements to maintain the Company’s interest in SUN TV.

•		The decrease in newsprint was mainly the result of reduced newsprint pricing of 6.2% and higher newsprint rebates as compared to the prior year.

•		The increase in other cost of sales, selling and administrative expenses of 17.2% was due to:

~~Sun~~o ~~Media’s~~higher ~~definition~~external ofprinting ~~operating~~costs ~~income~~which isare ~~not~~offset ~~identical~~by tosalary ~~similarly~~savings ~~titled~~realized ~~measures~~in ~~reported by~~connection ~~other~~with ~~companies,~~the ~~limiting~~transfer ~~the~~of ~~usefulness~~printing of ~~operating~~certain ~~income~~publications asto aQuebecor ~~comparative~~Media ~~measure.~~ press facilities;

Partially offset by:

	o		savings in the management fee charged by Quebecor Media of $0.7 million;

	o		savings in capital tax expense.

Operating income: $54.8 million, a decrease of $1.1 million (2.0%).

•

Operating income decreased primarily due to:

	o		higher external printing costs in connection with the transfer of printing of certain publications to Quebecor Media press facilities from internal presses;

	o		weaker revenues in the paid urban daily newspapers in Ontario and Quebec;

Partially offset by:

	o		growth in the free daily publications of 32.6%, with improved contributions in the majority of the publications;

	o		a decrease in overall labour costs resulting from the transfer of printing to Quebecor Media press facilities and other restructuring initiatives, newsprint savings and a decrease in certain corporate expenses including stock compensation of $3.0 million, Quebecor Media management fees of $0.7 million and capital taxes.

Amortization expense: $6.1 million, a decrease of $2.5 million (29.6%).

•

Amortization expense decreased as 2007 included an additional amortization charge of $2.0 million related to the shortened estimated useful life of production equipment associated with the consolidation of the Company’s printing facilities.

Financial expenses: $10.6 million, a decrease of $0.6 million (5.7%).

•

The decrease was mainly due to:

lower interest rates on the senior notes as a result of a fixed-for-fixed cross-currency interest rate swap maturing and being replaced with a fixed-for-floating cross-currency interest rate swap in February 2008;

Gain/loss on valuation and translation of financial instruments: gain of $3.5 million, compared to a loss of $10.9 million in the second quarter of 2007.

•

The decrease was mainly due to:

	o		$5.1 million decrease in net loss on derivative instruments and foreign currency translation of financial instruments;

	o		$9.3 million favourable impact related to a change in accounting estimates of the fair value of derivative financial instruments, reflecting market developments and recent accounting guidelines (see “Recent accounting developments” below);

SUN MEDIA CORPORATION MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SECOND QUARTER ~~2007~~ 2008

~~The~~Restructuring ~~following~~charge: ~~table~~$1.1 million, ~~provides~~compared ~~the~~with ~~reconciliation~~$4.8 million ofin ~~net~~the ~~income~~second ~~and~~quarter ~~the reconciliation~~ of ~~operating income to cash flows provided by operations under Canadian GAAP, for the three and six months ended June 30,~~ 2007 ~~and 2006~~.

	Three Months Ended						Six Months Ended
	June 30,			June 30,			June 30,			June 30,
	2007			2006			2007			2006
	(In thousands of Canadian dollars)
Net income	$	23,380		$	31,735		$	40,812		$	53,252
Amortization		8,630			9,387			16,538			17,917
Restructuring charges		4,783			7,765			10,707			7,765
Financial expenses		22,190			15,046			27,349			28,468
Equity loss on investment in SUN TV		678			859			1,215			1,838
Income tax recovery		(4,235	)		(4,537	)		(5,349	)		(12,200	)
Non-controlling interest		434			449			741			803
Operating income, as defined	$	55,860		$	60,704		$	92,013		$	97,843
Restructuring charges		(4,783	)		(7,765	)		(10,707	)		(7,765	)
Financial expenses		(22,190	)		(15,046	)		(27,349	)		(28,468	)
Current income taxes		(394	)		(639	)		(670	)		(1,158	)
Other items not involving cash		11,416			4,467			5,845			7,999
Changes in non-cash operating working capital		7,228			(50	)		13,986			(11,535	)
Cash flows provided by operations	$	47,137		$	41,671		$	73,118		$	56,916

•		Restructuring charges for the second quarter of 2008 were $1.1 million relating to the centralization of classified sales and service functions of certain urban daily publications, and the restructuring of the newspaper layout and production operations at the Toronto Sun.

•		During the quarter, payments of $2.2 million were made relating to the press consolidation and general workforce reduction charges that were recorded in 2006 and 2007.

•		Restructuring charges for the second quarter of 2007 of $4.8 million related to the restructuring of printing facilities, news production operations, as well as general workforce reduction initiatives.

Income tax expense: $8.7 million (effective tax rate of 21.6%), compared to $4.1 million recovery in the same quarter of 2007 (effective tax rate of -21.6%).

•

The unfavourable variance was mainly due to:

	o		$20.4 million increase in income before taxes and non-controlling interest;

	o		unfavourable future tax adjustments relating to SUN TV equity losses ($2.2 million), the disposition of certain publications ($2.0 million) and the acquisition of non-capital losses in prior periods ($1.5 million).

Net income: $31.1 million, compared with $23.4 million in the same quarter in 2007.

•

The increase was mainly due to:

	o		less amortization of $2.5 million;

	o		reduced financial expenses and gain on valuation and translation of financial instruments of $15.0 million;

	o		lower restructuring charges of $3.7 million;

	o		reduction in earnings attributed to a non-controlling interest and reduced equity loss on investment in SUN TV Company of $0.4 million.

Offset by:

	o		lower operating income of $1.1 million;

	o		increase in income tax expense of $12.8 million;

2008/2007 SECOND QUARTER YEAR-TO-DATE COMPARISON

Revenues: $454.2 million, a decrease of $6.6 million (1.4%).

•		Advertising revenues decreased 0.3%, circulation revenues decreased 7.7%, and combined revenues from commercial printing and other sources increased 1.4%.

•		Revenues of the Urban Daily Group were 2.4% below last year. This variance is explained by the free dailies that recorded an increase of 30.7%, as well as the consolidation of the Vancouver 24 Hours at 100% instead of 50%. This was offset by a reduction in the paid dailies mainly in Ontario and Quebec.

•		The revenues of the community operations increased 0.5% due to strong results in the Alberta operations.

Cost of Sales, Selling and Administrative Expenses: $361.5 million, a decrease of $7.3 million (2.0%).

•

Payroll expenses decreased 7.9%, newsprint expense decreased 16.0% and all other cost of sales, selling and administrative expenses increased 11.1%.

SUN MEDIA CORPORATION MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SECOND QUARTER ~~2007~~2008

~~Three~~• ~~Months~~Payroll ~~Ended~~expenses ~~June 30,~~decreased ~~2007~~primarily ~~compared~~due to ~~the Three Months Ended June 30, 2006~~ :

~~Revenues~~ o labour savings resulting from the labour disruption at the Journal de Québec; o restructuring initiatives, with the most significant savings at the Journal de Montréal and the Toronto Sun relating to the closure of the majority of the press operations; o additional charges recorded in 2007 by the Journal de Montréal relating to press operations and an unfavourable ruling on the lockout of its press employees; o reduced stock compensation expense of $4.8 million;

	Three months ended June 30,
	2007		2006
	(In thousands of Canadian dollars)
Advertising revenues	$	177,741	$	174,501
Circulation revenues		38,161		39,635
Distribution, commercial printing and other revenues		24,643		26,800
Total revenues	$	240,545	$	240,936

Partially offset by:

Consolidated revenues for the three months ended June 30, 2007 were $240.5 million compared to $240.9 million for the three months ended June 30, 2006.

	o		normal wage and benefit increases;

	o		staff additions to support increased business as well as new operations such as the press facility in Ottawa, 24 Hours in Edmonton and Calgary, and the additional 50% ownership in Vancouver 24 Hours.

Advertising revenues were $177.7 million for the three months ended June 30, 2007, an increase of $3.2 million or 1.9%, from $174.5 million for the three months ended June 30, 2006. The Company’s recently launched free daily publications in Ottawa, Edmonton and Calgary accounted for $1.1 million of the increase in advertising revenues. In addition, the Company continued to generate growth in its free daily publications in Toronto, Montreal and Vancouver, as well as in its community publications. These increases in advertising revenue were offset partly by declines in the Company’s paid urban daily newspapers, which experienced softness in the retail advertising category.

•		Newsprint expenses decreased primarily due to reduced newsprint pricing of 10.5% and increased corporate rebates.

•		Incremental cost of sales, selling and administrative expenses of 11.1% were incurred year-to-date as a result of:

~~Circulation~~o ~~revenues~~increased ~~were~~external ~~$38.2 million~~printing ~~for~~costs ~~the~~due ~~three~~to ~~months~~the ~~ended~~transfer ~~June 30, 2007, a decrease~~ of ~~$1.5 million~~ orprinting ~~3.7%,~~to ~~from~~Quebecor ~~$39.6 million~~Media ~~for~~and the ~~three~~related ~~months~~closure ~~ended June 30, 2006. A significant portion~~ of ~~the~~certain ~~decline~~Sun ~~relates~~Media topress ~~the~~facilities; ~~Toronto~~o ~~Sun~~increased promotion and Lecirculation ~~Journal~~costs deto ~~Montréal~~support ~~which~~circulation ~~continued~~levels, ~~their investments~~primarily in ~~circulation during~~ the ~~quarter~~Montreal ~~by increasing promotional activities within their respective markets~~ and ~~providing~~Quebec ~~additional discounts to increase circulation and readership levels.~~ markets;

~~Distribution,~~Offset ~~commercial printing and other revenues of $24.6 million for the three months ended~~by: June 30, 2007, were $2.2 million or 8.0% less than the same period in the prior year. Distribution revenues decreased mainly due to the closure of an unprofitable distribution facility in Calgary, in the first quarter of 2007. Commercial printing revenues decreased mainly due to lower third party printing in the quarter.

~~Cost~~o reduced corporate costs including a lower Quebecor Media management fee of ~~Sales,~~$1.0 ~~Selling~~million and ~~Administrative~~capital ~~Expenses~~ tax expense.

~~Cost~~Operating ofincome: ~~sales, selling and administrative expenses were~~ $~~184~~92.7 million ~~for the three months ended June 30~~, ~~2007,~~ an increase of $40.57 million ~~or 2~~(0.57% ~~from $180~~).~~2 million for the three months ended~~ ~~June 30, 2006.~~

~~Payroll~~• ~~expenses~~Increased ~~were~~operating ~~$89.4 million~~income ~~for~~can ~~the~~be ~~three~~attributed ~~months ended June 30, 2007, a decrease of $1.0 million or 1.1% from $90.4 million for the three months ended June 30, 2006. Payroll expenses decreased primarily due~~ to staff reductions resulting from the Company’s restructuring initiatives, which began in mid-2006, and savings recorded by Le Journal de Québec relating to the current labour disruption with its unionized pressroom, newsroom and office employees since April 22, 2007. These savings were partly offset by higher stock compensation expense of $2.3 million, compared to last year, and normal wage increases. In addition, payroll expenses in the second quarter of 2006 included favourable pay equity settlements, and labour savings as a result of a strike at Le Journal de Montréal beginning in June 2006. :

Other expenses, including newsprint, production, sales and administration costs, were $95.3 million for the three months ended June 30, 2007, an increase of $5.5 million or 6.1% from $89.8 million for the three months ended June 30, 2006. The increase in other expenses was due to the additional costs relating to the newly launched free daily publications in Ottawa, Edmonton and Calgary, and incremental expenses, such as security costs, relating to the current labour disruption at Le Journal de Québec. In addition, other expenses in the second quarter of 2006 included favourable tax recoveries, offset in part by incremental costs as a result of the strike at Le Journal de Montréal

	o		growth in the free daily publications of 25.8%;

	o		reduced corporate expenses including stock compensation of $4.8 million, Quebecor Media management fees of $1.0 million and capital taxes;

Partially offset by:

a decline in the operating results of the Ontario paid urban dailies, primarily the Toronto Sun as a result of soft revenues.

Amortization expense: $11.7 million, a decrease of $4.8 million (29.3%).

•

Amortization expense decreased as 2007 included an additional amortization charge of $3.9 million related to the shortened estimated useful life of production equipment associated with the consolidation of the Company’s press facilities.

Financial expenses: $21.4 million, a decrease of $1.1 million (4.8%).

•

The decrease was mainly due to:

Gain/loss on valuation and translation of financial instruments: gain of $9.4 million, compared to a loss of $4.8 million in the first six months of 2007.

•

The decrease was mainly due to:

	o		$4.9 million decrease in net (gain) loss on derivative instruments and foreign currency translation of financial instruments;

	o		$9.3 million favourable impact related to a change in accounting estimates of the fair value of derivative financial instruments, reflecting market developments and recent accounting guidelines (see “Recent accounting developments” below);

SUN MEDIA CORPORATION MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SECOND QUARTER ~~2007~~2008

~~beginning~~Restructuring incharge: ~~June 2006~~$2.7 million, ~~The~~compared ~~increases~~with $10.7 million in ~~other~~the ~~expenses~~first ~~were~~six ~~offset~~months ~~partly~~of ~~by lower newsprint prices and management fees paid to Quebecor Media compared to the prior year~~2007.

~~Operating Income~~ • Restructuring charges for the six months ended June 30, 2008 were $2.7 million relating to the centralization of classified sales, restructuring of newspaper layout and press operations as well as other general workforce reduction programs. • Restructuring charges for the six months ended June 30, 2007 of $10.7 million related to the restructuring of printing facilities, news production operations, as well as general workforce reduction initiatives. • During the year, payments of $5.1 million (2007 — $7.6 million) have been made as a result of these plans.

~~Operating~~Income ~~income,~~tax asexpense: ~~defined by the Company, was~~ $5512.98 million ~~for~~(effective ~~the~~tax ~~three~~rate ~~months ended June 30, 2007, a decrease~~ of $419.~~8 million or 8.0~~6%), ~~from~~compared to $605.73 million ~~for the three months ended June 30,~~recovery ~~2006.~~in ~~Excluding~~ the ~~losses~~first ~~relating~~six tomonths ~~the~~of ~~newly~~2007 ~~launched~~(effective ~~free daily publications, as well as the one-time favourable pay equity settlements and~~ tax ~~recoveries~~rate inof ~~2006, operating income increased by $0~~-14.~~5 million compared to the prior year~~8%).

• The ~~Company’s~~unfavourable ~~operating~~variance ~~income margin for the three months ended June 30, 2007~~ was ~~23.2%~~mainly ~~compared to~~due ~~25.2% for the three months ended June 30, 2006.~~ to:

Amortization

	o		$29.1 million increase in income before income taxes and non-controlling interest;

	o		unfavourable future tax adjustments relating to SUN TV equity losses ($2.2 million), the disposition of certain publications ($2.0 million) and the acquisition of non-capital losses in prior periods ($2.1 million).

~~Amortization~~Net ~~was~~income: $852.61 million ~~for the three months ended June 30~~, ~~2007 compared to $9.4 million for the three months ended June 30, 2006. Amortization for the three months ended June 30, 2007 includes~~ an ~~additional~~increase ~~amortization~~ of $211.03 million (~~2006 — $2~~27.7 ~~million~~%) relating to the shortened estimated useful life of production equipment associated with the consolidation and relocation of the Company’s printing plants, as further described in Note 4(a) of the Company’s unaudited interim consolidated financial statements.

~~Restructuring~~• ~~Charges~~ The increase was mainly due to:

~~Restructuring~~o ~~charges~~higher ~~for~~operating ~~the~~income ~~three~~of ~~months~~$0.7 ~~ended~~million; ~~June 30,~~o ~~2007~~less ~~were~~amortization of $4.8 million,; ~~compared~~o toreduced financial expenses and gain on valuation and translation of financial instruments of $715.3 million; o lower restructuring charges of $8 .0 million; ~~during~~o ~~the~~reduction ~~same~~in ~~period~~earnings attributed to a non-controlling interest and reduced equity loss on investment in ~~2006~~SUN TV Company of $0. 6 million;

InOffset August 2005, Quebecor Media announced a plan to invest in a new printing facility located in Toronto, Ontario and transfer the printing of certain of its publications in Ontario to the new facility. In addition, in August 2005, Quebecor Media announced a plan to relocate the printing of certain Sun Media publications to a new printing facility owned by ~~Quebecor Media to be located in~~: Saint-Janvier-de-Mirabel, Québec. As of August 2007, the Company has completely transferred the printing of 24 Hours (Toronto) to the Ontario printing facility and has transferred the printing of 24 heures (Montreal), the Ottawa Sun and several Quebec community publications to the Quebec printing facility. The Company plans to transfer the printing of additional publications to these printing facilities during the remainder of 2007.

~~During~~o ~~the~~increase ~~second quarter of 2007, the Company recorded special termination benefits of $3.2 million~~ in ~~connection~~income ~~with~~tax ~~the~~expense ~~restructuring~~ of ~~printing facilities at the Toronto Sun and~~ $018.1 ~~million~~ ~~in connection with the Ottawa Sun~~million.

InCASH ~~addition,~~FLOWS ~~during~~AND ~~the~~FINANCIAL ~~second quarter of 2007, the Company recorded severance costs of $0.5~~POSITION ~~million relating to the restructuring of the Company’s news production operations and another $1.0 million relating to general workforce reduction initiatives.~~

~~Sun~~Operating ~~Media expects that during the remainder of 2007, it will record additional restructuring~~activities ~~charges relating to special termination benefits for the Toronto Sun printing facilities. Sun~~ ~~Media also anticipates that it will record additional restructuring charges relating to other potential workforce reduction initiatives.~~

~~Financial~~Cash ~~Expenses~~flows provided by operations: $38.3 million in the second quarter of 2008, compared with $47.1 million in the same quarter of 2007.

~~Financial~~• ~~expenses~~The ~~for the three months ended June 30, 2007 were 22.2 million, an increase of~~ $78.~~2 million~~8 ~~from $15.0~~ million ~~for~~decrease ~~the~~was ~~three~~due months ended June 30, 2006. For the three months ended June 30, 2007, the Company recorded a net unrealized loss on derivative instruments and on foreign currency translation of financial instruments of $10.9 million, compared to ~~a net unrealized loss of $4.0 million in the comparable period last year.~~ :

	o		payments of $15.6 million to related parties in connection with stock options exercised in the current and previous quarter;

	o		$1.1 million decrease in operating income;

Partially offset by:

timing of payments for operating expenses and restructuring costs.

SUN MEDIA CORPORATION MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SECOND QUARTER ~~2007~~2008

~~Sun~~• ~~Media~~Year-to-date ~~also~~cash ~~earned~~flows ~~dividend~~provided ~~income~~by ofoperations ~~$16.9 million~~decreased ~~during the three months ended June 30, 2007 (2006 —~~ $3723.7 million) comprised of dividend income on its investments in Quebecor Media preferred shares of $16.0 million (2006 — $36.7 million) and dividend income on its investment in SUN TV preferred shares of $0.9 million (2006 — $1.0 million). Concurrently, Sun Media incurred interest expense of $16.4 million during the three months ended June 30, 2007 (2006 — $36.6 ~~million) comprised~~ ~~of interest expense on its convertible obligation to Quebecor Media of $15.5~~ million ~~(2006~~ —due ~~$35.6 million) and interest expense on its convertible obligation~~ to ~~SUN TV of $0.9 million (2006 — $1.0 million).~~ :

Excluding the net unrealized losses on derivative instruments and on foreign currency translation of financial instruments, dividend income and interest on convertible obligations, interest expense decreased $0.4 million compared to the prior year due to a lower average debt balance.

	o		payments of approximately $21 million in connection with exercised stock options;

	o		timing of collections in accounts receivable across the majority of operations;

~~Income~~Partially ~~Taxes~~offset by:

Sun Media’s income tax recovery was $4.2 million for the three months ended June 30, 2007 compared to $4.5 million for the three months ended June 30, 2006. The following table summarizes the main components which resulted in the Company’s income tax recovery for the three months ended June 30, 2007 and 2006:

	o		higher operating income of $0.7 million;

	o		lower payments for restructuring costs.

	Three months ended June 30,
	2007			2006
	(In thousands of Canadian dollars)
Income before income taxes and non-controlling interest	$	19,579		$	27,647
Add: Net loss on derivative instruments and on foreign currency translation of financial instruments		10,917			3,976
Less: Non-taxable dividend income		(16,910	)		(37,726	)
	$	13,586		$	(6,103	)
Statutory tax rate		33.8	%		33.8	%
		4,592			(2,062	)
Tax effect on net loss on derivative instruments and on foreign currency translation of financial instruments		(4,333	)		(1,932	)
Reversal of future income tax liability (1)		(2,000	)		—
Recognition of deferred credit relating to acquisition of non-capital losses (2)		(2,190	)		—
Other		(304	)		(543	)
Income tax recovery	$	(4,235	)	$	(4,537	)

Investing activities

(1) During the quarter, the Company determined that a future income tax liability initially recorded on the disposition of certain publications was no longer required. Accordingly, the reversal of this liability was recorded in the consolidated statements of income.

•		Additions to property, plant and equipment decreased $2.4 million in the second quarter of 2008 as management made significant investments in 2007 relating to Sun Media’s call centre operations, advertising and circulation systems, and editorial content management system.

•		Sun Media made an investment of $500.0 million in preferred shares of Mirabel in the second quarter of 2008 using proceeds from the issuance of convertible obligations for tax consolidation purposes between Quebecor Media and its subsidiaries.

~~(2)~~Financing On September 30, 2006, Sun Media’s ultimate parent company, Quebecor Inc., transferred to the Company $74.2 million of non-capital tax losses in exchange for net cash consideration of $16.1 million. This transaction was recorded at the exchange amount. As a result, the Company recorded an income tax asset of $24.5 million and the difference of $8.4 million between the net cash consideration and the income tax asset was recorded as a deferred credit. During the second quarter of 2007, the Company recognized $2.2 million of this deferred credit and increased its future income tax recovery by the same amount.activities

•

The decrease in long-term debt of $29.5 million in the second quarter of 2008 was mainly due to the following cash changes:

	o		repayments of $24.0 million on the revolving bank credit facilities using proceeds from the issuance of subordinated debt to Quebecor Media of $24.0 million;

	o		mandatory and other principal debt repayments by Sun Media in the amount of $0.4 million;

Other non-cash adjustments:

$5.5 million favourable impact of foreign currency translation and fair value adjustments;

Marginally offset by:

amortization of financing costs and long-term debt discount of $0.4 million.

•

The increase in long-term debt of $16.9 million in the six months ended June 30, 2008 was mainly due to the following cash changes in the year:

net borrowings under revolving bank facilities of $10.0 million;

Offset by:

mandatory principal and other debt repayments in the amount of $0.5 million;

Other non-cash adjustments:

	o		$6.7 million unfavourable impact of foreign currency translation and fair value adjustments;

	o		amortization of financing costs and long-term debt discount of $0.7 million.

•

Related party transactions increased cash by $491.0 million in the second quarter of 2008 and $433.0 million year-to-date.

	o		The Company issued subordinated debt of $24.0 million to Quebecor Media in the second quarter of 2008 to repay net borrowings under revolving bank facilities;

	o		Sun Media issued a convertible obligation of $500.0 million to Imprimerie Mirabel Inc. (“Mirabel”), using the proceeds to purchase preferred shares of Mirabel as part of a tax consolidation transaction;

	o		Dividends of $33.0 million and $91.0 million were declared and paid in the second quarter and six months ending June 30, 2008, respectively, to Quebecor Media.

SUN MEDIA CORPORATION MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SECOND QUARTER ~~2007~~ 2008

~~Six~~FINANCIAL ~~Months~~POSITION ~~Ended~~AT ~~June 30,~~JUNE ~~2007 compared to the Six Months Ended June~~ 30, ~~2006~~ 2008

~~Revenues~~Total available liquidity: total available liquidity is comprised of the revolving credit facility of $70.0 million and a bank overdraft facility of $5.0 million, of which $18.0 million was drawn, resulting in available liquidity of $57.0 million.

	Six months ended June 30,
	2007		2006
	(In thousands of Canadian dollars)
Advertising revenues	$	335,852	$	330,426
Circulation revenues		76,829		79,768
Distribution, commercial printing and other revenues		48,136		50,457
Total revenues	$	460,817	$	460,651

Long-term debt: total $242.0 million, compared with $225.1 million at December 31, 2007, a $16.9 million increase (see “Financing activities” above).

~~Consolidated~~Management ~~revenues~~expects that its principal needs for ~~the~~cash ~~six~~relating ~~months~~to ~~ended~~Sun ~~June 30~~Media’s existing operations will be to fund operating activities and working capital, ~~2007~~capital ~~were~~expenditures, ~~$460~~distributions to its shareholder, debt repayment and debt service.~~8 million~~ ~~compared~~Management also believes that cash flow from operations and the available sources of financing described above will be sufficient to ~~$460.7~~cover the ~~million~~Company’s ~~for~~principal cash requirements. Pursuant to its financing agreements, the ~~six~~Company ~~months~~is required ~~ended~~to maintain certain financial ratios. The key indicators listed in these agreements include interest coverage ratio and leverage ratio (long-term debt over operating income). At June 30, ~~2006~~2008, the Company was in compliance with required ratios.

Advertising revenues were $335.9 million for the six months ended June 30, 2007, an increase of $5.4 million or 1.6%, from $330.4 million for the six months ended June 30, 2006. The Company’s free daily publications in Ottawa, Edmonton and Calgary, launched in late 2006 and early 2007, accounted for $1.7 million of the increase in advertising revenues. In addition, the Company continued to generate growth in its free daily newspapers in Toronto, Montreal and Vancouver, as well as in its community publications. These increases in advertising revenue were offset partly by declines in the Company’s paid urban daily newspapers, of which the largest declines were in the Toronto Sun and Le Journal de Montreal.

Circulation revenues were $76.8 million for the six months ended June 30, 2007, a decrease of $2.9 million or 3.7%, from $79.8 million for the six months ended June 30, 2006. A significant portion of the decline relates to the Toronto Sun and Le Journal de Montréal which continued their investments in circulation during 2007 by increasing promotional activities within their respective markets and providing additional discounts to increase circulation and readership levels.

Distribution, commercial printing and other revenues of $48.1 million for the six months ended June 30, 2007, were $2.3 million or 4.6% less than the same period in the prior year. Distribution revenues decreased mainly due to the closure of an unprofitable distribution facility in Calgary, in the first quarter of 2007. Commercial printing revenues decreased mainly due to lower third party printing, compared to the prior year.

Cost of Sales, Selling and Administrative Expenses

Cost of sales, selling and administrative expenses were $368.8 million for the six months ended June 30, 2007, an increase of $6.0 million or 1.7% from $362.8 million for the six months ended June 30, 2006.

Payroll expenses were $180.9 million for the six months ended June 30, 2007, a decrease of $2.4 million or 1.3% from $183.3 million for the six months ended June 30, 2006. Payroll expenses decreased primarily due to staff reductions resulting from the Company’s restructuring initiatives, which began in mid 2006, savings recorded by Le Journal de Québec relating to the current labour disruption with its unionized pressroom, newsroom and office employees since April 22, 2007, and a favourable pension adjustment of $0.9 million recorded in the first quarter of 2007. These savings were partly offset by normal wage increases, higher stock compensation expense of $2.4 million and additional charges recorded by Le Journal de Montréal relating to an unfavourable arbitrator ruling on the lockout of its press employees, which ended on February 21, 2007. In addition, payroll expenses in the second quarter of 2006 included favourable pay equity settlements, and labour savings as a result of a strike at Le Journal de Montréal beginning in June 2006.

SUN MEDIA CORPORATION MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SECOND QUARTER 2007

Other expenses, including newsprint, production, sales and administrative costs, were $187.9 million for the six months ended June 30, 2007, an increase of $8.4 million or 4.7% from $179.5 million for the six months ended June 30, 2006. The increase in other expenses was due to the additional costs relating to the newly launched free daily publications in Ottawa, Edmonton and Calgary, the timing of marketing expenses in some urban daily publications and incremental expenses, such as security costs, relating to the current labour disruption at Le Journal de Québec and lockout of Le Journal de Montréal’s press employees, which ended earlier in 2007. In addition, other expenses in the second quarter of 2006 included favourable tax recoveries. The increases in other expenses were offset partly by lower newsprint prices and management fees compared to the prior year.

Operating Income

Operating income, as defined by the Company, was $92.0 million for the six months ended June 30, 2007, a decrease of $5.8 million or 6.0%, from $97.8 million for the six months ended June 30, 2006. Excluding the losses relating to the newly launched free daily publications, as well as the one-time favourable pay equity settlements and tax recoveries in 2006, operating income increased by $1.3 million compared to the prior year.

The Company’s operating income margin for the six months ended June 30, 2007 was 20.0% compared to 21.2% for the six months ended June 30, 2006.

Amortization

Amortization was $16.5 million for the six months ended June 30, 2007 compared to $17.9 million for the six months ended June 30, 2006. Amortization for the six months ended June 30, 2007 includes additional amortization of $3.9 million (2006 — $5.0 million) relating to the shortened estimated useful life of production equipment associated with the consolidation and relocation of the Company’s printing plants.

Restructuring Charges

Restructuring charges for the six months ended June 30, 2007 were $10.7 million, compared to $7.8 million during the same period in 2006.

During the six months ended June 30, 2007, the Company recorded special termination benefits of $4.0 million in connection with the restructuring of printing facilities at the Toronto Sun and $0.1 million in connection with the Ottawa Sun. The Company also recorded additional severance costs of $2.3 million relating to the elimination of an equivalent of 39 full-time editorial positions in operations across the organization. Finally, the Company recorded additional severance costs of $4.3 million for the elimination of an equivalent of 107 full-time positions relating to general workforce reduction initiatives.

Financial Expenses

Financial expenses for the six months ended June 30, 2007 were $27.3 million, a decrease of $1.1 million from $28.5 million for the six months ended June 30, 2006. For the six months ended June 30, 2007, the Company recorded a net unrealized loss on derivative instruments and on foreign currency translation of financial instruments of $4.9 million, compared to a net unrealized loss of $7.0 million in the comparable period last year.

Sun Media also earned dividend income of $33.8 million during the six months ended June 30, 2007 (2006 — $76.5 million) comprised of dividend income on its investments in Quebecor Media preferred shares of $32.0 million (2006 — $74.5 million) and dividend income on its investment in SUN TV preferred shares of $1.8 million (2006 — $2.0 million). Concurrently, Sun Media incurred interest expense of $32.8 million during the six months ended June 30, 2007 (2006 — $74.3 million) comprised of interest expense on its convertible obligation to Quebecor Media of $31.0 million (2006 — $72.3 million) and interest expense on its convertible obligation to SUN TV of $1.8 million (2006 — $2.0 million).

SUN MEDIA CORPORATION MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SECOND QUARTER 2007

Excluding the net unrealized losses on derivative instruments and on the foreign currency translation of financial instruments, dividend income and interest on convertible obligations, interest expense decreased $0.1 million compared to the prior year.

Income Taxes

Sun Media’s income tax recovery was $5.3 million for the six months ended June 30, 2007 compared to $12.2 million for the six months ended June 30, 2006. The following table summarizes the main components which resulted in the Company’s income tax recovery for the six months ended June 30, 2007 and 2006:

	Six months ended June 30,
	2007			2006
	(In thousands of Canadian dollars)
Income before income taxes and non-controlling interest	$	36,204		$	41,855
Add: Net loss on derivative instruments and on foreign currency translation of financial instruments		4,862			7,042
Less: Non-taxable dividend income		(33,820	)		(76,486	)
	$	7,246		$	(27,589	)
Statutory tax rate		33.8	%		33.8	%
		2,449			(9,325	)
Tax effect on net loss on derivative instruments and on foreign currency translation of financial instruments		(3,291	)		(3,044	)
Reversal of future income tax liability (1)		(2,000	)		—
Recognition of deferred credit relating to acquisition of non-capital losses(2)		(2,740	)		—
Other		233			169
Income tax recovery	$	(5,349	)	$	(12,200	)

(1) During the second quarter of 2007, the Company determined that a future income tax liability initially recorded on the disposition of certain publications was no longer required. Accordingly, the reversal of this liability was recorded in the consolidated statements of income.

(2) On September 30, 2006, Sun Media’s ultimate parent company, Quebecor Inc., transferred to the Company $74.2 million of non-capital tax losses in exchange for net cash consideration of $16.1 million. This transaction was recorded at the exchange amount. As a result, the Company recorded an income tax asset of $24.5 million and the difference of $8.4 million between the net cash consideration and the income tax asset was recorded as a deferred credit. During the six months end June 30, 2007, the Company recognized $2.7 million of this deferred credit and increased its future income tax recovery by the same amount.

LIQUIDITY AND CAPITAL RESOURCES

Operating Activities

For the three months ended June 30, 2007, cash flows provided by operations increased $5.5 million to $47.1 million from $41.7 million in the same period in 2006. The positive variance was primarily due to improved collections of accounts receivable at certain publications, as well as the timing of newsprint rebates, which were received during the second quarter of 2007. In addition, the timing of other operating expense payments contributed to the positive variance in cash flows provided by operations. These positive variances were offset partly by a decrease in operating income, as defined by the Company, of $4.8 million during the quarter, compared to the prior year.

SUN MEDIA CORPORATION MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SECOND QUARTER 2007

For the six months ended June 30, 2007, cash flows provided by operations increased $16.2 million to $73.1 million from $56.9 million in the same period in 2006. The positive variance was primarily due the timing of newsprint and other operating expense payments, as well as improved collections of accounts receivable at certain divisions. These positive variances were offset partly by a decrease in operating income, as defined by the Company, of $5.8 million during the six months ended June 30, 2007, compared to the prior year.

Investing Activities

Capital expenditures in the three months ended June 30, 2007 were $6.7 million, compared to $2.4 million in the three months ended June 30, 2006. Capital expenditures in the six months ended June 30, 2007 were $12.8 million, compared to $5.2 million in the six months ended June 30, 2006. In 2007, the Company has made significant investments in its call centre operations, advertising and circulation systems and editorial content management systems, with the objective of standardizing, improving and streamlining Sun Media’s business processes.

On July 13, 2007, subsequent to the end of the second quarter, the Company sold $235,000 of its investment in the Series A Cumulative First Preferred Shares of Quebecor Media and used the proceeds to redeem $235,000 of its November 2008 convertible obligation issue.

On July 27, 2007, subsequent to the end of the second quarter, the Company issued a new convertible obligation to Quebecor Media in the amount of $240,000. This new convertible obligation matures on December 20, 2022, bears interest at 10.5% payable semi-annually and otherwise has terms and conditions substantially similar to existing convertible obligations. The Company used the proceeds from the issuance of this new convertible obligation issue to invest in $240,000 of Quebecor Media Series G Cumulative First Preferred Shares carrying a 10.85% annual fixed cumulative preferential dividend payable semi-annually and otherwise having terms and conditions substantially similar to its Preferred Shares of Quebecor Media.

Financing Activities

During the first and second quarter of 2007, Sun Media made scheduled debt repayments of US$0.6 million (Cdn$0.9 million) on its Term Loan B Credit Facility and Cdn$0.1 million on its Term Loan C Credit Facility.

In the three months ended June 30, 2007, Sun Media paid dividends of $42.0 million (2006 — $55.0 million) to Quebecor Media in connection with its ownership of Sun Media’s 1,261,001 common shares. In the six months ended June 30, 2007, Sun Media paid dividends of $47.0 million (2006 — $70.0 million) to Quebecor Media in connection with its ownership of Sun Media’s 1,261,001 common shares.

Financial Position

As at June 30, 2007, Sun Media had cash and cash equivalents of $12.6 million compared to cash and cash equivalents of $3.9 million at December 31, 2006 and had $75.0 million available from its revolving credit facility.

As at June 30, 2007, the carrying value of Sun Media’s debt, including the current portion, was $426.1 million. This represents a decrease in debt of $60.6 million from the December 31, 2006 balance of $486.7 million. The decrease was primarily due to changes in the period-end exchange rates used to translate the Company’s foreign-denominated debt as well as the adoption of new accounting standards described in Note 2 and detailed further in Note 9 of the Company’s unaudited interim consolidated interim financial statements.

As at June 30, 2007, the aggregate amount outstanding under the Term Loan B Credit Facility was US$180.2 million, the aggregate amount outstanding under the Term Loan C Credit Facility was Cdn$38.9 million and the aggregate amount outstanding under the Senior Notes was US$205.0 million.

Sun Media believes that cash flow from operations and available sources of financing will be sufficient to cover cash requirements for working capital, restructuring activities, capital expenditures, interest payments and scheduled debt repayments.

SUN MEDIA CORPORATION MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SECOND QUARTER 2007

Pursuant to its financing agreements, Sun Media is required to maintain certain financial ratios. The key indicators listed in these agreements include debt service coverage ratios and a leverage ratio (long-term debt over operating income, as defined by its financing agreements). As at June 30, 2007, the Company was in compliance with all required financial ratios.

Contractual Obligations

As of June 30, ~~2007~~2008, material contractual obligations included principal and interest ~~repayments~~payments on convertible obligations, long-term debt, ~~principal~~subordinated ~~and interest repayments on convertible obligations~~loan, ~~operating lease arrangements and other commitments and~~ obligations related to derivative financial instruments~~. Except~~ ~~for~~and ~~the~~operating ~~changes~~lease inarrangements. ~~convertible~~Table ~~obligations~~2 ~~issued~~shows toa ~~Quebecor~~summary ~~Media~~of ~~as described in Note~~contractual ~~13(b)~~obligations ofrelated ~~the~~to ~~unaudited consolidated interim~~ financial ~~statements,~~instruments. ~~there~~There ~~was~~is no material change during the ~~first~~second quarter ~~six~~of ~~months~~2008 ofin ~~2007~~lease arrangements compared to the disclosures in the Annual Report for the ~~financial~~ year ended December 31, ~~2006~~2007 (Form 20-F/A).

Table 2

Financial Contractual Obligations as at June 30, 2008
(in millions of Canadian dollars)


			Less than						5 years
	Total		1 year		1-3 years		3-5 years		and more

Convertible obligations ^(a)	$	1,069.7	$	—	$	—	$	—	$	1,069.7
Interest on convertible obligations ^(a)		1,605.6		114.5		229.0		229.0		1,033.1
Long-term debt		253.8		0.4		0.8		252.6		—
Interest on long-term debt ^(b)		121.9		24.0		48.0		47.0		2.9
Subordinated loan		261.5		—		—		—		261.5
Interest on subordinated loan		98.4		18.3		36.5		36.5		7.1
Derivative instruments ^(c)		105.0		—		—		105.0		—


Total financial contractual obligations	$	3,515.9	$	157.2	$	314.3	$	670.1	$	2,374.3


^(a)		These amounts are offset by investments in preferred shares of related parties and associated dividends.

^(b)		Estimate of interest to be paid on long-term debt based on the hedged and unhedged interest rates and hedged foreign exchange rate at June 30, 2008.

^(c)		Estimated future disbursements on the principal portion of derivative financial instruments related to foreign exchange hedging.

SUN MEDIA CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SECOND QUARTER 2008

Financial Instruments

InSun ~~the~~Media ~~normal~~uses ~~course~~a number of ~~business~~financial instruments, ~~Sun~~mainly ~~Media~~cash isand ~~exposed~~cash toequivalents, ~~fluctuations~~trade receivables, intemporary ~~interest~~investments, ~~rates~~long-term ~~and~~investments, bank indebtedness, trade payables, ~~exchange~~accrued ~~rates~~liabilities, long-term debt and derivative financial instruments.

AsIn atthe ~~June 30,~~normal ~~2007~~course of business, Sun Media ~~used~~is ~~derivative~~exposed ~~financial instruments~~ to ~~manage~~fluctuations ~~its~~in ~~exchange~~interest ~~rate~~ and ~~interest rate exposures~~exchange rates. The Company ~~has~~manages ~~entered~~this ~~into~~exposure ~~foreign~~through ~~exchange~~staggered ~~forward~~maturities ~~contracts~~ and ~~cross-currency~~ ~~swap~~an ~~arrangements~~optimal tobalance ~~hedge the foreign currency risk exposure on the entirety~~ of ~~its~~ ~~U.S. dollar~~fixed-~~denominated~~ ~~long-term~~and ~~debt. Sun Media also uses interest~~ variable-rate ~~swaps in order to manage the impact of interest rate fluctuations on its long-term~~ debt.

As at June 30, 2008, Sun Media was using derivative financial instruments to reduce its exchange and interest rates exposure. The Company has entered into foreign-exchange forward contracts and cross-currency interest rate swap arrangements to hedge the foreign currency risk exposure on the entirety of its U.S. dollar-denominated long-term debt. Sun Media also uses interest rate swaps in order to manage the impact of interest rate fluctuations on its long-term debt.

The Company does not hold or use any derivative instruments for trading purposes.

The fair value of derivative financial instruments is estimated using period-end ~~market~~swap rates ~~and~~, ~~reflects~~adjusted ~~the~~to ~~amount~~reflect the Company’s ~~would~~non-performance ~~receive~~risk or(see ~~pay~~Table ~~if the instruments were terminated at those dates, as follows:~~ 3).

June 30, 2007

Notional

Carrying Amount

Fair Value

Value

Asset (Liability)

(In thousands of dollars)

Cross-currency interest rate swaps and forward contracts

US$

385,200

$ (215,341

)

$ (216,598

)

Table 3

~~During~~Fair ~~the~~Value ~~three and six-month periods ended June 30, 2007, Sun Media recorded a loss~~ of ~~$6.0 million~~Derivative ~~and~~Financial ~~$4.0 million, respectively, on derivative financial instruments for which hedge~~Instruments ~~accounting is not applied~~ (~~$4.0 million and $7.0 million~~ in ~~2006).~~millions ~~Also, during the three and six-month periods ended June 30, 2007, Sun Media recorded a loss~~ of $3.4 million and a gain of $0.1 million, respectively, for the ineffective portion of fair value hedges. Finally, a total loss of $0.4 million and gain of $0.3 million was recorded under other comprehensive income in the three and six-month periods ended June 30, 2007, respectively, in connection with the Company’s cash flow hedge. dollars)

Principal Repayments

June 30, 2008

December 31, 2007

Notional

Fair value

Notional

Fair value

value

asset (liability)

value

asset (liability)

Derivative financial instruments

Interest rate swap agreement

CA $ 39.1

0.1

$ —

—

Foreign-exchange forward contracts

US $205.0

(89.0

)

US $205.0

(85.8

)

Cross-currency interest rate swap agreements

US $205.0

(25.7

)

US $205.0

(47.3

)

AsIn the second quarter, Sun Media recorded a net gain of ~~June~~nil on embedded derivatives that are not closely related to the host contracts and derivative financial instruments for which hedge accounting is not used ($19.4 ~~30,~~million ~~2007,~~loss in the ~~aggregate~~second ~~amount~~quarter of ~~minimum~~2007). ~~principal~~A ~~payments~~gain ~~required~~of $1.5 million ($11.9 million gain in ~~each~~the second quarter of 2007) was recognized in connection with the foreign ~~next~~currency ~~five~~translation ~~years~~of ~~and~~financial ~~thereafter~~instruments. In the second quarter of 2008, ~~based~~Sun Media recorded a $2.0 million gain on ~~borrowing~~the ~~levels~~ineffective asportion atof ~~that~~fair ~~date~~value hedges ($3.4 million loss in the second quarter of 2007). Finally, ~~were~~a asgain ~~follows~~of ($0.1 million was recorded under other comprehensive income in ~~thousands~~the second quarter of ~~Canadian~~2008 ~~dollars):~~in relation to cash flow hedges ($0.2 million loss in the second quarter of 2007).

2008	$	2,850
2009	$	2,850
2010	$	222,435
2011	$	—
2012	$	—
2013 and thereafter	$	203,589

In the six months ended June 30, 2008, Sun Media recorded an $11.9 million gain on embedded derivatives that are not closely related to the host contracts and derivative financial instruments for which hedge accounting is not used ($20.0 million loss in the six months ended June 30, 2007). A loss of $4.3 million ($15.1 million gain in the six months ended June 30, 2007) was recognized in connection with the foreign currency translation of financial instruments. In the six months ended June 30, 2008, Sun Media recorded a $1.8 million gain on the ineffective portion of fair value hedges ($0.1 million gain in the six months ended June 30, 2007). Finally, a gain of $1.6 million was recorded under other comprehensive income in the six months ended June 30, 2008 in relation to cash flow hedges ($0.1 million gain in the six months ended June 30, 2007).

Related party transactions

The Company has earned revenue for advertising and other services, and incurred expenses for purchases and services, with related companies under common control in the normal course of operations, including the printing of certain publications at Quebecor Media’s printing facilities in Toronto, Ontario and Saint-Janvier-de-Mirabel, Quebec. As at June 30, 2008, other related party transactions included investments in preferred shares, convertible obligations and subordinated loans from Quebecor Media. These transactions are described in note 5 to the Consolidated Financial Statements included in this Quarterly Report.

SUN MEDIA CORPORATION MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SECOND QUARTER ~~2007~~2008

~~Forward-Looking~~RECENT ~~Statements~~ACCOUNTING DEVELOPMENTS Canadian GAAP

~~This~~Current ~~quarterly~~changes report contains forward-looking statements with respect to our financial condition, results of operations, business strategies and certain plans and objectives. These forward-looking statements are made pursuant to the “Safe Harbor” provisions of the United States Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations, estimates, forecasts and projections about the industry in ~~which~~accounting ~~we operate~~policies as well as beliefs and assumptions made by our management. Such statements include, in particular, statements about our plans, prospects, financial position and business strategies. Words such as “may,” “will,” “expect,” “continue,” “intend,” “estimate,” “anticipate,” “plan,” “foresee,” “believe” or “seek” or the negatives of these terms or variations of them or similar terminology are intended to identify such forward-looking statements. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these statements, by their nature, involve risks and uncertainties and are not guarantees of future performance. Such statements are also subject to assumptions concerning, among other things: our anticipated business strategies; anticipated trends in our business; and our ability to continue to control costs. We can give no assurance that these estimates and expectations will prove to have been correct. Actual outcomes and results may, and often do, differ from what is expressed, implied or projected in such forward-looking statements, and such differences may be material. Some important factors that could cause actual results to differ materially from those expressed in these forward-looking statements include, but are not limited to:

—On ~~general~~January 1, ~~economic~~2008, ~~financial~~the orCompany ~~market~~adopted ~~conditions;~~Canadian —Institute ~~the intensity~~ of ~~competition~~Chartered ~~within~~Accountants ~~the~~(“CICA”) Section 3031, ~~newspaper~~Inventories, ~~industry~~which ~~and~~provides ~~from~~more ~~other~~extensive ~~communications~~guidance ~~and~~on ~~advertising~~the ~~media~~recognition and measurement ~~platforms; — cyclical and seasonal variations in the businesses~~ of ~~our local~~inventories, ~~regional or national advertisers~~ and inrelated our advertising revenue; — labour disputes or strikes; — changes in our ability to obtain raw materials critical to our operations, such as newsprint, in sufficient quantities and at reasonable prices; — exchange rate fluctuations that affect our ability to repay our Udisclosures.S. ~~dollar-denominated~~The ~~debt;~~adoption ~~and~~of —this ~~interest~~new ~~rate~~section ~~fluctuations~~had ~~that~~no impact ~~affect~~on ~~our~~the ~~ability~~consolidated tofinancial ~~repay our U~~statements.~~S. dollar-denominated debt, or that could impact our accounting estimates.~~

WeOn ~~caution~~January 1, ~~you~~2008, ~~that~~ the ~~above~~Company ~~list~~adopted ~~of cautionary statements is not exhaustive. These and other factors are discussed in further detail elsewhere in~~ the ~~Quarterly~~CICA ~~Report~~Section 1535, ~~and~~Capital inDisclosures, ~~Sun Media’s~~Section 3862, ~~Annual~~Financial ~~Report~~Instruments on— ~~Form 20-F/A~~Disclosures, ~~for~~and ~~the fiscal year ended December~~Section 313863, ~~2006,~~Financial ~~including~~Instruments ~~under~~— ~~the~~Presentation. These sections ~~“Risk~~relate ~~Factors”.~~to ~~Each~~disclosures ofand ~~these~~presentation ~~forward-looking~~of ~~statements~~information ~~speaks~~and ~~only~~did asnot ofaffect the ~~date of~~consolidated ~~this~~financial ~~report~~results. ~~Sun~~All ~~Media~~the ~~will~~disclosure ~~not~~requirements ~~update~~related to these ~~statements~~new ~~unless~~accounting ~~securities~~standards ~~laws require us to do~~are ~~so.~~presented Wein ~~advise~~note ~~you~~13 to ~~consult any documents we may file or furnish with~~ the ~~U.S.~~Consolidated ~~Securities~~Financial ~~and Exchange Commission~~Statements.

Current changes in accounting estimates

The Company estimates the fair value of its derivative financial instruments using a discounted cash flow valuation technique, since no quoted market prices exist for such instruments. During the second quarter of 2008, the Company made some amendments to the technique used in measuring the fair value of its derivatives in a liability position. These amendments change the way the Company factored its non-performance risk in its valuation technique, considering market developments and recent accounting guidelines. As a result of these changes, the fair value of these derivatives decreased by $9,274 and the gain on valuation and translation of financial instruments increased by $9,274 ($7,815 net of income taxes).

Future changes in accounting policies

In January 2008, the CICA issue Section 3064, Goodwill and Intangible Assets, which will replace Section 3062, Goodwill and Other Intangible Assets, and results in the withdrawal of Section 3450, Research and Development Costs and Emerging Issues Committee (“EIC”) Abstract 27, Revenues and Expenditures During the Pre-operating Period, and amendments to AcG-11, Enterprises in the Development Stage. The standard provides guidance on the recognition of intangible assets in accordance with the definition of an asset and the criteria for asset recognition as well as clarifying the application of the concept of matching revenues and expenses, whether these assets are separately acquired or internally developed. This standard applies to interim and annual financial statements relating to fiscal years beginning on or after October 1, 2008. The Company is currently evaluating the effects of adopting this standard.

In February 2007, Canada’s Accounting Standards Board confirmed that Canadian GAAP, as used by publicly accountable enterprises, will be fully converged into International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”). The Company will be required to report under IFRS for its 2011 interim and annual financial statements. The Company is currently assessing the impacts of the IFRS convergence initiative.

U.S. GAAP

On January 1, 2008, the Company adopted the provisions of Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”), that enhance guidance for using fair value to measure assets and liabilities. In February 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) FAS 157-1, Application of SFAS 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13, which removes certain leasing transactions from the scope of SFAS No. 157, and FSP FAS 157-2, Effective Date of SFAS 157, which defers the effective date of SFAS 157 for one year for certain non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis. The Company is still in the process of evaluating this standard with respect to its effect on non-financial assets and liabilities and has not yet determined the impact that it will have on its financial statements upon full adoption in 2009.

SUN MEDIA CORPORATION ~~CONSOLIDATED~~MANAGEMENT’S ~~STATEMENTS~~DISCUSSION AND ANALYSIS OF ~~INCOME~~FINANCIAL CONDITION ~~(In~~AND ~~thousands~~RESULTS ofOF ~~Canadian~~OPERATIONS SECOND ~~dollars)~~QUARTER 2008 ~~(Unaudited)~~

	Three months ended						Six months ended
	June 30,			June 30,			June 30,			June 30,
	2007			2006			2007			2006
REVENUES	$	240,545		$	240,936		$	460,817		$	460,651
Cost of sales, selling and administrative expenses (note 6)		184,685			180,232			368,804			362,808
Amortization (note 4(a)(i))		8,630			9,387			16,538			17,917
Restructuring charges (note 4)		4,783			7,765			10,707			7,765
Financial expenses (note 3)		22,190			15,046			27,349			28,468
Equity loss on investment in SUN TV Company		678			859			1,215			1,838
INCOME BEFORE INCOME TAXES AND NON-CONTROLLING INTEREST		19,579			27,647			36,204			41,855
Income Taxes
Current		394			639			670			1,158
Future		(4,629	)		(5,176	)		(6,019	)		(13,358	)
		(4,235	)		(4,537	)		(5,349	)		(12,200	)
		23,814			32,184			41,553			54,055
Non-controlling interest		434			449			741			803
NET INCOME	$	23,380		$	31,735		$	40,812		$	53,252

In December 2007, the FASB issued SFAS 141 (Revised 2007), Business Combinations (“SFAS 141R”), and SFAS 160, Non-controlling Interests in Consolidated Financial Statements (“SFAS 160”), to improve and converge internationally the accounting for business combinations, the reporting of non-controlling interests in consolidated financial statements, accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. The provisions of SFAS 141R apply prospectively to business combinations for which the acquisition date is on or after December 31, 2008 and SFAS 160 shall be affective as of the beginning of 2009. The Company is currently evaluating the impact of adopting SFAS 141R and SFAS 160 on its consolidated financial statements.

~~See~~In ~~accompanying~~February 2007, ~~notes~~the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement No. 115 (“SFAS 159”). The statement permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value and establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. The Company adopted SFAS No. 159 on January 1, 2008 with no impact on its consolidated financial statements.

Forward-looking statements

This quarterly report contains forward-looking statements with respect to the Company’s financial condition, results of operations, business strategies and certain plans and objectives. These forward-looking statements are made pursuant to the “Safe Harbor” provisions of the United States Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations, estimates, forecasts and projections about the industry in which Sun Media operates as well as beliefs and assumptions made by management. Such statements include, in particular, statements about plans, prospects, financial position and business strategies. Words such as “may,” “will,” “expect,” “continue,” “intend,” “estimate,” “anticipate,” “plan,” “foresee,” “believe” or “seek” or the negatives of these terms or variations of them or similar terminology are intended to identify such forward-looking statements. Although management believes that the expectations reflected in these forward-looking statements are reasonable, these statements, by their nature, involve risks and uncertainties and are not guarantees of future performance. Such statements are also subject to assumptions concerning, among other things: anticipated business strategies; anticipated trends in business; and the Company’s ability to continue to control costs. Management can give no assurance that these estimates and expectations will prove to have been correct. Actual outcomes and results may, and often do, differ from what is expressed, implied or projected in such forward-looking statements, and such differences may be material.

Some important factors that could cause actual results to differ materially from those expressed in these forward-looking statements include, but are not limited to:

	•		general economic, financial or market conditions;

	•		the intensity of competition within the newspaper industry and from other communications and advertising media and platforms;

	•		cyclical and seasonal variations in the businesses of local, regional or national advertisers and in the Company’s advertising revenue;

	•		labour disputes or strikes;

	•		changes in the Company’s ability to obtain raw materials critical to the operations, such as newsprint, in sufficient quantities and at reasonable prices;

	•		exchange rate fluctuations that affect the Company’s ability to repay its U.S. dollar-denominated debt; and

	•		interest rate fluctuations that affect Sun Media’s ability to repay its U.S. dollar-denominated debt, or that could impact Sun Media’s accounting estimates.

SUN MEDIA CORPORATION ~~CONSOLIDATED~~MANAGEMENT’S ~~STATEMENTS~~DISCUSSION AND ANALYSIS OF ~~COMPREHENSIVE~~FINANCIAL ~~INCOME~~CONDITION ~~(In~~AND ~~thousands~~RESULTS ofOF ~~Canadian~~OPERATIONS SECOND ~~dollars)~~QUARTER 2008 ~~(Unaudited)~~

	Three months ended					Six months ended
	June 30,			June 30,		June 30,		June 30,
	2007			2006		2007		2006
NET INCOME	$	23,380		$	31,735	$	40,812	$	53,252
Other comprehensive loss, net of income taxes (note 11):
Unrealized gain (loss) on derivative financial instruments, net of income tax recovery of $231 for the three months ended June 30, 2007 and income tax expense of $239 for the six months ended June 30, 2007.		(154	)		—		68		—
COMPREHENSIVE INCOME	$	23,226		$	31,735	$	40,880	$	53,252

Management cautions you that the above list of cautionary statements is not exhaustive. These and other factors are discussed in further detail elsewhere in the Quarterly Report, and in Sun Media’s Annual Report on Form 20-F, for the fiscal year ended December 31, 2007, including under the section “Risk Factors”. Each of these forward-looking statements speaks only as of the date of this report. Sun Media will not update these statements unless securities laws require it to do so. Management advises you to consult any documents the Company may file or furnish with the U.S. Securities and Exchange Commission.

SUN MEDIA CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands of Canadian dollars)
(unaudited)


	Three months ended June 30						Six months ended June 30
	2008			2007			2008			2007
REVENUES	$	240,931		$	240,545		$	454,179		$	460,817

Cost of sales and selling and administrative expenses		186,168			184,685			361,504			368,804
Amortization		6,078			8,630			11,700			16,538
Financial expenses (note 3)		10,632			11,273			21,402			22,487
(Gain) loss on valuation and translation of financial instruments (note 3)		(3,556	)		10,917			(9,442	)		4,862
Reserve for restructuring of operations (note 4)		1,125			4,783			2,711			10,707
Equity loss on investment in SUN TV Company		461			678			1,023			1,215


INCOME BEFORE INCOME TAXES AND NON-CONTROLLING INTEREST		40,023			19,579			65,281			36,204

Income taxes
Current		406			394			639			670
Future		8,244			(4,629	)		12,158			(6,019	)

		8,650			(4,235	)		12,797			(5,349	)

		31,373			23,814			52,484			41,553

Non-controlling interest		223			434			348			741


NET INCOME	$	31,150		$	23,380		$	52,136		$	40,812

See accompanying notes to consolidated financial statements.

SUN MEDIA CORPORATION CONSOLIDATED STATEMENTS OF ~~RETAINED~~COMPREHENSIVE ~~EARNINGS~~INCOME (Inin thousands of Canadian dollars) (~~Unaudited~~unaudited)

	Three months ended						Six months ended
	Three months ended June 30						Six months ended June 30
	June 30,			June 30,			June 30,			June 30,
	2008			2007			2008			2007
	2007			2006			2007			2006
Net income	$	31,150		$	23,380		$	52,136		$	40,812
RETAINED EARNINGS AT BEGINNING OF PERIOD, AS PREVIOUSLY REPORTED	$	54,109		$	34,139		$	38,894		$	27,622
Other comprehensive income, net of income taxes:
Cumulative effect of change in accounting policies (note 2)		—			—			2,783			—
Unrealized gain (loss) on derivative instruments, net of income taxes expense (recovery) of $37 and $723 in the three and six-month periods ended June 30, 2008 (2007 - $(231) and $239)		100			(154	)		1,621			68
RETAINED EARNINGS AT BEGINNING OF PERIOD, AS RESTATED		54,109			34,139			41,677			27,622
Comprehensive income	$	31,250		$	23,226		$	53,757		$	40,880
Net income		23,380			31,735			40,812			53,252
Dividends		(42,000	)		(55,000	)		(47,000	)		(70,000	)
RETAINED EARNINGS AT END OF PERIOD	$	35,489		$	10,874		$	35,489		$	10,874

See accompanying notes to consolidated financial statements.

SUN MEDIA CORPORATION
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(in thousands of Canadian dollars)
(unaudited)


	Three months ended June 30						Six months ended June 30
	2008			2007			2008			2007
Retained earnings — beginning of period	$	40,060		$	54,109		$	77,074		$	41,677

Net income		31,150			23,380			52,136			40,812

		71,210			77,489			129,210			82,489
Dividends		(33,000	)		(42,000	)		(91,000	)		(47,000	)


Retained earnings — end of period	$	38,210		$	35,489		$	38,210		$	35,489

See accompanying notes to consolidated financial statements.

SUN MEDIA CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Inin thousands of Canadian dollars) (~~Unaudited~~unaudited)

	Three months ended						Six months ended
	Three months ended June 30						Six months ended June 30
	June 30,			June 30,			June 30,			June 30,
	2008			2007			2008			2007
	2007			2006			2007			2006
CASH FLOWS RELATED TO OPERATIONS
Net income	$	2331,~~380~~150		$	3123,~~735~~380		$	4052,~~812~~136		$	5340,~~252~~812
Adjustments for:
Amortization of property, plant and equipment		85,~~328~~761			8,~~685~~328			1511,~~937~~067			1615,~~523~~937
Amortization of intangible assets		302			702			601			1,394
Amortization of other assets		317			302			633			601
Net unrealized loss on derivative instruments and on foreign currency translation of financial instruments		10,917			3,976			4,862			7,042
(Gain) loss on valuation and translation of financial instruments (note 3)		(3,556	)		10,917			(9,442	)		4,862
Future income taxes		(4,629	)		(5,176	)		(6,019	)		(13,358	)
Amortization of financing costs and long-term debt discount		354			487			706			972
Non-controlling interest		434			449			741			803
Future income taxes		8,244			(4,629	)		12,158			(6,019	)
Equity loss on investment in SUN TV Company		678			859			1,215			1,838
Non-controlling interest		223			434			348			741
Other		499			491			983			957
Equity loss on investment in SUN TV Company		461			678			1,023			1,215
		39,909			41,721			59,132			68,451
Other		(4	)		12			(4	)		11
Changes in non-cash balances related to operations		7,228			(50	)		13,986			(11,535	)
		42,950			39,909			68,625			59,132
Cash flows provided by operations		47,137			41,671			73,118			56,916
Net change in non-cash balances related to operations		(4,659	)		7,228			(19,139	)		13,986
Cash flows provided by operations		38,291			47,137			49,486			73,118
CASH FLOWS RELATED TO INVESTING ACTIVITIES
Business acquisitions, net of cash acquired		—			(1,125	)		—			(1,125	)
Additions to property, plant and equipment		(4,262	)		(6,678	)		(7,245	)		(12,774	)
Additions to property, plant and equipment		(6,678	)		(2,404	)		(12,774	)		(5,168	)
Equity investment in SUN TV Company		—			(1,300	)		—			(1,300	)
Disposal of preferred shares of Quebecor Media Inc.		—			255,000			—			255,000
Investment in preferred shares of related company (note 5)		(500,000	)		—			(500,000	)		—
Investment in preferred shares of Quebecor Media Inc.		—			(120,000	)		—			(120,000	)
Advances to affiliated companies		—			(870	)		—			(870	)
Equity investment in SUN TV Company		(1,300	)		(4,618	)		(1,300	)		(4,618	)
Other		588			108			49			114
Advances to affiliated companies		(870	)		—			(870	)		—
Cash flows used in investing activities		(503,674	)		(8,740	)		(507,196	)		(14,830	)
Other		108			1			114			3
Cash flows provided by (used in) investing activities		(8,740	)		126,854			(14,830	)		124,092
CASH FLOWS RELATED TO FINANCING ACTIVITIES
Issuance of long-term debt, net of financing fees		—			—			—			40,000
Net (repayments) borrowings under revolving bank facilities		(23,979	)		—			9,964			—
Repayment of long-term debt		(973	)		(1,155	)		(1,945	)		(2,430	)
Issuance of subordinated debt to Quebecor Media (note 5)		24,000			—			24,000			—
Increase in bank indebtedness		—			4,452			—			4,452
Issuance of convertible obligations to related company (note 5)		500,000			—			500,000			—
Redemption of convertible obligations to Quebecor Media Inc.		—			(255,000	)		—			(255,000	)
Repayment of long-term debt		(428	)		(973	)		(500	)		(1,945	)
Issuance of convertible obligations to Quebecor Media Inc.		—			120,000			—			120,000
Dividends to Quebecor Media		(33,000	)		(42,000	)		(91,000	)		(47,000	)
Dividends		(42,000	)		(55,000	)		(47,000	)		(70,000	)
Other		(51	)		(168	)		(51	)		(589	)
Reduction in paid-up capital		—			—			—			(40,000	)
Cash flows provided by (used in) financing activities		466,542			(43,141	)		442,413			(49,534	)
Other		(168	)		(651	)		(589	)		(850	)
Net increase (decrease) in cash and cash equivalents / bank indebtedness		1,159			(4,744	)		(15,297	)		8,754
Cash flows used in financing activities		(43,141	)		(187,354	)		(49,534	)		(203,828	)
(Bank indebtedness) cash and cash equivalents — beginning of period		(9,195	)		17,363			7,261			3,865
INCREASE (DECREASE)IN CASH AND CASH EQUIVALENTS		(4,744	)		(18,829	)		8,754			(22,820	)
(BANK INDEBTEDNESS) CASH AND CASH EQUIVALENTS — END OF PERIOD	$	(8,036	)	$	12,619		$	(8,036	)	$	12,619
CASH AND CASH EQUIVALENTS — BEGINNING OF PERIOD		17,363			18,829			3,865			22,820
CHANGES IN NON-CASH OPERATING WORKING CAPITAL
CASH AND CASH EQUIVALENTS — END OF PERIOD	$	12,619		$	—		$	12,619		$	—
Accounts receivable		2,632			318			9,149			12,034
CHANGES IN NON-CASH BALANCES RELATED TO OPERATIONS
Inventories		(272	)		(310	)		(714	)		377
Accounts receivable		318			(8,064	)		12,034			6,833
Accrued restructuring charges		(1,111	)		993			(2,379	)		3,115
Inventories		(310	)		63			377			688
Accounts payable and accrued charges		(6,903	)		7,115			(25,462	)		2,183
Accounts payable and accrued liabilities		8,108			6,549			5,298			(17,590	)
Dividend income receivable from related companies		14,199			(15,050	)		(1,213	)		351
Dividend income receivable from related companies		(15,050	)		(22,696	)		351			14,875
Interest payable on convertible obligations to related companies		(13,727	)		14,596			1,188			(341	)
Interest payable to related companies		14,596			22,033			(341	)		(14,461	)
Other		523			(434	)		292			(3,733	)
Other		(434	)		2,065			(3,733	)		(1,880	)
	$	(4,659	)	$	7,228		$	(19,139	)	$	13,986
	$	7,228		$	(50	)	$	13,986		$	(11,535	)
Cash interest payments on long-term debt	$	572		$	5,155		$	14,401		$	23,246
Cash interest payments (including interest paid on convertible obligations)	$	6,954		$	19,599		$	56,378		$	110,731
Cash interest payments on convertible obligations and subordinated loan	$	35,046		$	1,800		$	39,181		$	33,132
Cash income tax payments	$	337		$	832		$	691		$	1,805
Cash income tax payments (net of refunds)	$	285		$	313		$	547		$	667

See accompanying notes to consolidated financial statements.

SUN MEDIA CORPORATION CONSOLIDATED BALANCE SHEETS (Inin thousands of Canadian dollars ~~except for share information~~) (~~Unaudited~~unaudited)

	June 30,			December 31,
	2007			2006
	2008			2007
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	~~12,619~~—		$	37,~~865~~261
Accounts receivable		~~128~~130,~~075~~041			~~140~~139,~~109~~190
Dividend income receivable from related companies (note 6)		29,613			29,964
Income taxes		732			1,445
Inventories		8,215			8,592
Dividend income receivable from related companies (note 5)		2,914			1,701
Prepaid expenses		7,046			4,881
Inventories		7,258			6,544
Future income taxes		26,990			26,869
Prepaid expenses		6,845			3,973
		212,558			214,280
Future income taxes		27,888			23,527
INVESTMENT IN PREFERRED SHARES OF RELATED COMPANIES (note 6)		589,375			589,375
		175,678			183,641
EQUITY INVESTMENT IN SUN TV COMPANY		3,830			3,745
INVESTMENT IN PREFERRED SHARES OF RELATED COMPANIES (NOTE 5)		1,069,750			569,750
PROPERTY, PLANT AND EQUIPMENT		152,400			155,680
EQUITY INVESTMENT IN SUN TV COMPANY		2,712			3,735
FUTURE INCOME TAXES		36,159			34,047
PROPERTY, PLANT AND EQUIPMENT		146,278			150,100
OTHER ASSETS		16,236			32,303
FUTURE INCOME TAXES		22,786			36,224
GOODWILL (note 5)		756,115			756,115
OTHER ASSETS		15,173			17,291
	$	1,766,673		$	1,785,545
GOODWILL		769,159			769,159
LIABILITIES
	$	2,201,536		$	1,729,900
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities	$	154,220		$	148,922
Bank indebtedness	$	8,036		$	—
Income and other taxes payable		1,697			3,763
Accounts payable and accrued charges		122,284			150,125
Interest payable to related companies (note 6)		28,716			29,057
Deferred revenue		19,554			19,094
Deferred revenue		18,842			19,340
Interest payable on convertible obligations to related companies (note 5)		2,834			1,646
Current portion of long-term debt (note 9)		2,850			3,080
Current portion of long-term debt (note 6)		400			400
		206,325			204,162
		153,108			171,265
LONG-TERM DEBT (note 9)		423,218			483,637
LONG-TERM DEBT (NOTE 6)		241,587			224,745
FUTURE INCOME TAXES		10,637			22,981
SUBORDINATED LOAN TO QUEBECOR MEDIA (NOTE 5)		261,500			237,500
OTHER LIABILITIES		237,815			182,975
CONVERTIBLE OBLIGATIONS TO RELATED COMPANIES (NOTE 5)		1,069,750			569,750
NON-CONTROLLING INTEREST		2,061			1,720
DERIVATIVE FINANCIAL INSTRUMENTS (NOTE 11)		114,634			133,090
CONVERTIBLE OBLIGATIONS TO RELATED COMPANIES (note 6)		589,375			589,375
OTHER LIABILITIES		24,874			24,985
		1,469,431			1,484,850
FUTURE INCOME TAXES		24,188			19,724
SHAREHOLDER’S EQUITY
NON-CONTROLLING INTEREST		1,157			860
Capital stock (note 10)		261,801			261,801
SHAREHOLDERS’ EQUITY
Retained earnings		35,489			38,894
Capital stock		272,428			272,428
Accumulated other comprehensive loss (note 11)		(48	)		—
Retained earnings		38,210			77,074
		297,242			300,695
Accumulated other comprehensive income (loss) (note 8)		100			(1,521	)
	$	1,766,673		$	1,785,545
		310,738			347,981
	$	2,201,536		$	1,729,900
Subsequent event (note 13)

See accompanying notes to consolidated financial statements.

SUN MEDIA CORPORATION ~~NOTES~~Notes TOto ~~CONSOLIDATED~~Consolidated ~~FINANCIAL~~Financial ~~STATEMENTS~~Statements For the three-month and six-month ~~period~~periods ended June 30, ~~2007~~2008 (Inin thousands of Canadian dollars, except for share information) (~~Unaudited~~unaudited)

NATURE OF BUSINESS

~~The primary operation of~~ Sun Media Corporation (“Sun Media” or “the “Company”), isa newspaper publishing company, is a subsidiary of Quebecor Media Inc. ~~The~~(“Quebecor Media”), itself a subsidiary of Quebecor Inc. The Company publishes urban daily newspapers, community newspapers, as well as other ~~specialty~~ specialty publications in communities across Canada. Sun Media is also active in the newspaper, ~~and~~ magazine and flyer distribution business. In addition, Sun Media provides a wide range of commercial printing and other related services to third parties through its national network of production and printing facilities. ~~Sun Media also owns a 25% interest in SUN TV Company (“SUN TV”), a general interest television station in Toronto, Ontario.~~

1. BASIS OF PRESENTATION

These ~~unaudited interim~~ consolidated financial statements have been prepared in ~~conformity~~accordance with ~~generally~~ ~~accepted~~Canadian ~~accounting~~Generally Accepted ~~principles~~Accounting inPrinciples ~~Canada~~(“GAAP”). ~~Sun~~The ~~Media has consistently applied the~~ same accounting policies as described in the Company’s latest ~~audited~~ annual consolidated financial statements, ~~except~~have asbeen used with the exception of the changes described in ~~Notes~~note 2 ~~and 5~~ below. However, these ~~unaudited interim~~ consolidated financial statements do not include all ~~the~~ disclosures required under ~~generally accepted~~Canadian ~~accounting~~GAAP ~~principles~~for inannual ~~Canada~~consolidated ~~and~~financial statements and accordingly should be read in conjunction with ~~Sun Media~~the Company’s latest ~~audited~~ annual consolidated financial statements and the notes thereto. ~~The~~In ~~results of operations for~~ the ~~interim~~opinion ~~periods should not be considered indicative~~ of ~~the~~management, ~~results~~these toconsolidated befinancial ~~expected~~statements ~~for~~contain ~~the~~all ~~full year due to~~ the ~~seasonality~~adjustments ofconsidered ~~Sun Media’s business~~necessary. ~~References to Canadian~~ ~~dollars, Cdn$ and $ are to the currency of Canada, and references to U.S. dollar and US$ are to the currency of the United States.~~

~~Certain~~Sun ~~comparative~~Media’s ~~figures~~business ~~for~~is seasonal due, among other factors, to seasonal advertising patterns and influences on people’s reading habits. Because the ~~previous~~Company ~~period~~depends ~~have~~on ~~been~~the ~~reclassified~~sale toof ~~conform~~advertising for a significant portion of its revenue, operating results are also sensitive to ~~the~~prevailing economic ~~presentation~~conditions, ~~adopted~~including ~~for~~changes ~~the~~in ~~three~~local, regional and ~~six-month~~national ~~period~~economic ~~ended~~conditions, ~~June 30~~particularly as they may affect advertising expenditures. Accordingly, ~~2007~~the results of operations for interim periods should not necessarily be considered indicative of full-year results.

2References to Canadian dollars, Cdn$ and $ are to the currency of Canada, and references to U. ~~NEW~~S. dollars ~~ACCOUNTING~~and ~~STANDARDS~~US$ are to the currency of the United States.

~~Effective~~Certain ~~January 1,~~comparative ~~2007,~~figures ~~the~~for ~~Company~~previous ~~adopted~~periods ~~the~~have ~~Canadian~~been ~~Institute~~reclassified ofto ~~Chartered~~conform ~~Accountants (“CICA”)~~to ~~Handbook Section 1530, Comprehensive Income (“CICA 1530”), Handbook Section 3855,~~the ~~Financial~~presentation ~~Instruments~~adopted —for ~~Recognition~~the three-month and ~~Measurement~~six-month ~~(“CICA~~periods ~~3855”)~~ended ~~and Handbook Section~~June ~~3865~~30, ~~Hedges~~ ~~(“CICA 3865”)~~2008. ~~The significant changes related to these new accounting standards are as~~ ~~follows:~~

~~(a) Comprehensive~~2. ~~income~~CHANGES IN ACCOUNTING POLICIES AND ESTIMATES

~~CICA~~Current ~~1530 introduces the concept of comprehensive income, which is calculated by including other comprehensive income with net income. Other comprehensive income represents~~ changes in ~~shareholder’s~~accounting equity during a period arising from transactions and other events with non-owner sources, such as unrealized gains and losses on financial assets classified as available-for sale and changes in the fair value of the effective portion of cash flow hedging instruments. With the adoption of this section, the unaudited interim consolidated financial statements now include consolidated statements of comprehensive income.policies

On January 1, 2008, the Company adopted Canadian Institute of Chartered Accountants (b“CICA”) Section ~~Financial~~3031, ~~assets~~Inventories, which provides more extensive guidance on the recognition and measurement of inventories and related disclosures. The adoption of this new section had no impact on the consolidated financial ~~liabilities~~statements.

~~CICA~~On ~~3855~~January 1, ~~establishes~~2008, ~~standards~~the ~~for~~Company ~~recognizing~~adopted ~~and~~the ~~measuring~~CICA ~~financial assets~~Section 1535, ~~financial~~Capital ~~liabilities~~Disclosures, ~~and~~Section 3862, Financial ~~derivatives.~~Instruments ~~Under~~— ~~this standard~~Disclosures, ~~financial~~and ~~instruments~~Section 3863, ~~are~~Financial ~~now~~Instruments ~~classified~~— asPresentation. ~~held-for-trading,~~These sections ~~available-for-sale,~~relate ~~held-~~to~~-maturity,~~ ~~loans~~disclosures and ~~receivables,~~presentation orof ~~other~~information ~~financial liabilities~~ and ~~measurement~~did innot ~~subsequent~~affect ~~periods~~the ~~depends on their classification. Transaction costs are expensed as incurred for~~ consolidated financial ~~instruments classified as held-for-trading~~results. ~~For~~All ~~other~~the ~~financial~~disclosure ~~instruments,~~requirements ~~transaction~~related ~~costs~~to ~~are~~these ~~capitalized~~new onaccounting ~~initial~~standards ~~recognition and~~ are presented asin anote ~~reduction of the underlying financial instruments~~11.

~~Financial~~Current ~~assets and financial liabilities held-for-trading are measured at fair value with~~ changes ~~recognized~~ in financial expenses. Available-for-sale financial assets are measured at fair value or at cost, in the case of financial assets that do not have a quoted market price in an active market, and changes in fair value are recorded in comprehensive income. Financial assets classified as held-to-maturity, loans and receivables, and other financial liabilities are measured at amortized cost using the effective interest method of amortization. The Company has classified its cash and cash equivalents and temporary investments as held-for-trading. Trade receivables, receivables from related parties, loans and other long-term receivables were classified as loans and receivables. Investments in preferred shares of related companies were classified as available-for-sale. All of the Company’s financial liabilities, including convertible obligations to related companies, were classified as other liabilities. Derivative instruments are recorded as financial assets or liabilities at fair value, including those derivatives that are embedded in financial or non-financial contracts that are not closely related to the host contracts. Changes in fair values of the derivatives are recognized in financial expenses, with the exception of derivatives designated as a cash flow hedge for which hedge accounting is used. In accordance with the new standards, the Company selected January 1, 2003 as its transition date for adopting this standard related to embedded derivatives. Derivative instruments are recorded in other liabilities in the consolidated balance sheets.estimates

~~CICA~~Future ~~3865~~changes ~~specifies the criteria that must be satisfied~~ in ~~order for hedge~~ accounting to be applied and the accounting for each of the permitted hedging strategies. Accordingly, for derivatives designated as fair value hedges, such as certain cross currency interest rate swaps used by the Company, changes in the fair value of the hedging derivative recorded in financial expenses are substantially offset by changes in the fair value of the hedged item to the extent that the hedging relationship is effective. When a fair value hedge is discontinued, the carrying value of the hedged item is no longer adjusted and the cumulative fair value adjustments to the carrying value of the hedged item are amortized to financial expenses over the remaining term of the original hedging relationship. For derivative instruments designated as cash flow hedges, such as certain cross currency interest rate swaps and forward exchange contracts used by the Company, the effective portion of a hedge is reported in other comprehensive income until it is recognized in income during the same period in which the hedged item affects income, while the ineffective portion is immediately recognized in the consolidated statements of income. When a cash flow hedge is discontinued, the amounts previously recognized in accumulated other comprehensive income are reclassified to income when the variability in the cash flows of the hedged item affects income.policies

~~Upon~~In ~~adoption~~January 2008, ofthe ~~these~~CICA ~~new~~issued ~~standards~~Section 3064, ~~the~~Goodwill ~~transition~~and ~~rules~~Intangible ~~require~~Assets, ~~that~~which will replace Section 3062, Goodwill and Other Intangible Assets, and results in the ~~Company~~withdrawal ~~adjust~~of ~~either~~Section 3450, ~~the~~Research ~~opening~~and ~~retained~~Development ~~earnings~~Costs orand ~~accumulated~~Emerging ~~other~~Issues ~~comprehensive~~Committee ~~income~~(“EIC”) asAbstract if27, Revenues and Expenditures During the ~~new~~Pre-operating ~~standards~~Period, ~~had always~~and ~~been~~amendments ~~applied~~to AcG-11, Enterprises in the Development ~~past,~~Stage. ~~without~~The ~~restating~~standard ~~comparative~~provides ~~figures~~guidance on the recognition of ~~prior~~intangible ~~years.~~assets in ~~Accordingly,~~accordance with the ~~following~~definition ~~adjustments~~of ~~were~~an ~~recorded~~asset inand the ~~consolidated~~criteria ~~financial~~for ~~statements~~asset recognition as atwell as ~~January~~clarifying the application of the concept of matching revenues and expenses, whether those assets are separately acquired or internally developed. This standard applies to interim and annual financial statements relating to financial years beginning on or after October 1, ~~2007:~~2008. The Company is currently evaluating the effects of adopting this standard.

In ~~— Decrease~~February 2008, inCanada’s ~~other~~Accounting ~~assets~~Standards ofBoard ~~$17~~confirmed that Canadian GAAP,~~031~~ as used by publicly ~~— Increase~~accountable inenterprises, ~~other~~will ~~liabilities~~be offully ~~$14,933~~converged into International Financial Reporting Standards ~~— Decrease~~(“IFRS”) inas ~~long-term~~issued ~~debt~~by ofthe ~~$23,094~~International Accounting Standards Board (“IASB”). The Company will ~~— Decrease~~be inrequired ~~future~~to ~~income~~report ~~tax~~under ~~liabilities~~IFRS offor ~~$11,537~~ its ~~— Increase~~2011 ininterim ~~retained~~and ~~earnings~~annual offinancial ~~$2,783~~statements. The Company ~~— Increase~~is incurrently ~~accumulated~~assessing ~~other~~the ~~comprehensive~~impacts ~~loss~~ of ~~$116~~ the IFRS convergence initiative.

~~In addition, the adoption of these new standards decreased net income by $~~3~~,083~~. ~~for~~FINANCIAL ~~the~~EXPENSES ~~three months~~AND ~~ended~~(GAIN) ~~June 30,~~LOSS ~~2007~~ON ~~and~~VALUATION ~~increased~~AND ~~net~~TRANSLATION ~~income~~OF byFINANCIAL ~~$128 for the six months ended June 30, 2007.~~ INSTRUMENTS


	Three months ended June 30						Six months ended June 30
*Financial expenses*	2008			2007			2008			2007
Interest on long-term debt	$	6,278		$	11,538		$	13,092		$	22,997
Interest on subordinated loan to related party (note 5)		4,501			—			8,635			—
Amortization of financing costs and long-term debt discount		354			487			706			972
Interest on convertible obligations to related companies (note 5)		16,877			16,395			31,792			32,791
Dividend income on preferred shares of related companies (note 5)		(17,417	)		(16,910	)		(32,829	)		(33,820	)
Other		39			(237	)		6			(453	)


	$	10,632		$	11,273		$	21,402		$	22,487

3. FINANCIAL EXPENSES


	Three months ended June 30						Six months ended June 30
*(Gain) loss on valuation and translation of financial instruments*	2008			2007			2008			2007
(Gain) loss on embedded derivatives and derivative instruments for which hedge accounting is not used	$	(13	)	$	19,381		$	(11,953	)	$	20,055
(Gain) loss on foreign currency translation of financial instruments for which hedge accounting is not used		(1,502	)		(11,877	)		4,274			(15,144	)
(Gain) loss on the ineffective portion of fair value hedges		(2,041	)		3,413			(1,763	)		(49	)


	$	(3,556	)	$	10,917		$	(9,442	)	$	4,862

	Three months ended						Six months ended
	June 30, 2007			June 30, 2006			June 30, 2007			June 30, 2006
Interest on long-term debt	$	11,661		$	11,835		$	23,241		$	23,024
Net loss on derivative instruments and on foreign currency translation of financial instruments (a) (b)		10,917			3,976			4,862			7,042
Amortization of deferred financing costs		364			371			728			723
Dividend income on preferred shares of related companies (note 6)		(16,910	)		(37,726	)		(33,820	)		(76,486	)
Interest on convertible obligations to related companies (note 6)		16,395			36,633			32,791			74,274
Other		(237	)		(43	)		(453	)		(109	)
Total financial expenses	$	22,190		$	15,046		$	27,349		$	28,468

4. RESERVE FOR RESTRUCTURING OF OPERATIONS

(a)		During the three-month and six-month periods ended June 30, 2007, the Company recorded a loss of $6,006 and $3,958, respectively, on derivative instruments for which hedge accounting is not applied ($3,976 and $7,042 in 2006).
(b)		During the three-month and six-month periods ended June 30, 2007, the Company recorded a loss of $3,412 and a gain of $49 for the ineffective portion of fair value hedges.

In the second quarter of 2008, Sun Media management began to centralize classified sales and service functions of certain urban daily publications to centres of expertise in Ontario. In addition, management began to restructure the newspaper layout and production operations at the Toronto Sun. The Company recorded a severance related restructuring charge of $1,125 (2007 — $4,783) in the quarter in respect of amounts expected to be incurred relating to these new initiatives. Payments of $2,236 (2007 — $3,790) were made in the quarter relating to press consolidation and general workforce reduction charges that were recorded in fiscal 2006 and 2007.

~~4. RESTRUCTURING~~During OFthe ~~OPERATIONS~~six-month period ended June 30, 2008, the Company recorded termination benefits of $2,711 (2007 — $10,707) and made payments of $5,090 (2007 — $7,592) relating to workforce reduction initiatives.

During the first six months of 2007, the Company recorded charges for the restructuring of its operations, consisting substantially of employee termination benefits, summarized as follows:


	Three months ended June 30						Six months ended June 30
*Continuity of reserve for restructuring*	2008			2007			2008			2007
Beginning balance	$	4,568		$	14,900		$	5,836		$	12,778
Workforce reduction initiatives		1,125			4,783			2,711			10,707
Payments		(2,236	)		(3,790	)		(5,090	)		(7,592	)


Ending balance	$	3,457		$	15,893		$	3,457		$	15,893

	Total
	Estimated
	Number of
	Full-time		Restructuring							Restructuring
	Equivalent		Accrual at		Restructuring					Accrual at
	Positions		December 31,		Charges		Payments in			June 30,
	Affected		2006		2007		2007			2007
(a) Restructuring of printing facilities
— London Free Press		113	$	4,435	$	—	$	—		$	4,435
— Toronto Sun		194		4,371		4,013		(467	)		7,917
— Ottawa Sun		40		1,130		123		(675	)		578
— Le Journal de Montréal		146		910		—		—			910
(b) Restructuring of news production operations		124		327		2,288		(2,320	)		295
(c) General workforce reduction		205		1,605		4,283		(4,130	)		1,758
		822	$	12,778	$	10,707	$	(7,592	)	$	15,893

5. TRANSACTIONS WITH RELATED COMPANIES

(a) Investment in and convertible obligations issued to related companies

Sun Media has invested in certain preferred shares issued by related companies: Quebecor Media, SUN TV Company (“SUN TV”) and Imprimerie Mirabel Inc. (“Mirabel”). Concurrently, Sun Media issued convertible obligations to Quebecor Media, SUN TV and Mirabel. These transactions are for tax consolidation purposes of Quebecor Media and its subsidiaries.

The convertible obligations are redeemable by the Company, in whole or in part, including accrued interest, at any time prior to maturity. The holder may, upon the occurrence of certain events, require the Company to redeem the convertible obligations at a redemption amount equal to the then outstanding principal plus any accrued and unpaid interest.

~~(a) Restructuring~~The convertible obligations are also convertible by the holder, in whole or in part, including accrued interest, at any time prior to maturity, into fully-paid and non-assessable common shares of ~~Printing~~the ~~Facilities~~Company. The number of such shares shall be determined by dividing the amount to be so converted by the fair value of one common share as determined by the Board of Directors.

InThe ~~August 2005,~~Company ~~Quebecor~~may ~~Media~~elect ~~announced~~to adefer, ~~plan~~at toany ~~invest~~time inand afrom ~~new~~time ~~printing~~to ~~facility~~time, tocoupon bepayments ~~located~~on the inconvertible ~~Toronto,~~obligations ~~Ontario~~by ~~and~~extending ~~transfer~~ the ~~printing~~coupon ofpayment ~~certain~~period ofon ~~its~~the ~~publications~~obligations infor ~~Ontario~~a period of up to ~~the~~12 ~~new facility.~~consecutive Insemi-annual ~~addition~~periods, inprovided, ~~August 2005~~however, ~~Quebecor~~that ~~Media~~no ~~announced~~extension aperiod ~~plan~~may toextend beyond ~~relocate~~ the ~~printing~~maturity ~~of certain~~date ~~Sun~~for ~~Media~~each ~~publications~~obligation, torespectively. aThe ~~new~~Company ~~printing~~may, ~~facility~~at ~~owned~~any bytime, ~~Quebecor~~at ~~Media~~its option, elect to besatisfy ~~located~~its inobligations to pay any coupon (including any deferred coupon) by ~~Saint-Janvier-de-Mirabel,~~issuing ~~Québec.~~and ~~During~~delivering ~~2006,~~to the ~~Company~~holder ~~recorded~~fully-paid ~~severance~~and ~~costs~~non-assessable common shares of ~~$10,976~~its ~~and~~capital ~~made~~stock. ~~payments~~The number of ~~$130~~such inshares ~~connection~~shall ~~with~~be ~~this~~determined ~~initiative.~~by ~~During~~dividing the ~~first~~amount ~~six~~to ~~months~~be ofso ~~2007,~~satisfied ~~the~~by ~~Company~~the ~~recorded~~fair value of one common share as determined by the ~~following~~Board ~~additional~~of ~~charges:~~Directors.

~~(i)~~Quebecor Property, Plant and Equipment As a result of these new investments, the Company accelerated the amortization of certain presses and related equipment to reflect the shortened useful life of such equipment beginning in the fourth quarter of 2005. For the three months ended June 30, 2007, the Company recorded additional amortization of $1,989 (2006 — $2,685). For the six months ended June 30, 2007, the Company recorded additional amortization of $3,944 (2006 — $4,979). (ii) Severance and Termination Benefits During the first six months of 2007, the Company recorded special termination benefits of $4,013 relating to employees of the Toronto Sun and severances of $123 relating to employees of the Ottawa Sun. During the period, payments of $467 and $675 have been made to employees of the Toronto Sun and Ottawa Sun, respectively.Media

The ~~Company~~following ~~expects~~tables tosummarize ~~draw~~the ~~down~~Company’s aissuance ~~substantial amount~~ of ~~its~~convertible ~~restructuring~~obligations ~~accrual~~to ~~over~~and ~~the~~its ~~remainder~~investments ofin ~~2007,as~~Quebecor ~~the~~Media ~~printing~~Preferred ~~of additional publications are transferred to the new press~~Shares: ~~facilities.~~

(b) Restructuring of News Production Operations


	Convertible obligation issue
Issue or redemption date	2008			2020		2021		2022		Total
Balance — January 1, 2007 and June 30, 2007	$	235,000		$	200,000	$	120,000	$	—	$	555,000
July 13, 2007		(235,000	)		—		—		—		(235,000	)
July 27, 2007		—			—		—		240,000		240,000


Balance — December 31, 2007 and June 30, 2008	$	—		$	200,000	$	120,000	$	240,000	$	560,000

In June 2006, Sun Media announced a plan to restructure its news production operations by introducing new content management technologies and streamlining the news gathering process. During 2006, the Company recorded severance costs of $2,881 relating to the elimination of an equivalent of 85 full-time editorial positions and made payments of $2,554 in connection with this initiative. During the first six months of 2007, the Company recorded additional severance costs of $2,288 relating to the elimination of an equivalent of 39 full-time editorial positions in operations across the organization. During the period, payments of $2,320 have been made.


	Quebecor Media Preferred Shares
	12.50%			10.85%			10.85%
Issue	Series A			Series F			Series G		Total
Balance — January 1, 2007 and June 30, 2007	$	235,000		$	320,000		$	—	$	555,000
July 13, 2007		(235,000	)		—			—		(235,000	)
July 27, 2007		—			—			240,000		240,000
December 20, 2007		—			(320,000	)		320,000		—


Balance — December 31, 2007 and June 30, 2008	$	—		$	—		$	560,000	$	560,000

During the three and six months ended June 30, 2008, the interest expense on the Company’s convertible obligations amounted to $14,660 and $29,320 (c2007 — $15,495 and $30,991) ~~General~~. ~~Workforce~~For ~~Reductions~~the three and six months ended June 30, 2008, the total interest paid on the convertible obligations was $29,481 (2007 — nil and $31,332). As at June 30, 2008, the unpaid interest on the convertible obligations was $1,450 (December 31, 2007 — $1,611).

~~In 2006, Sun Media implemented a number of voluntary and involuntary workforce reduction programs.~~8 During 2006, the Company recorded severance costs of $3,176 relating to the elimination of an equivalent of 98 full-time positions and made payments of $1,571 in connection with these initiatives. During the first six months of 2007, the Company continued its workforce reduction programs and recorded additional severance costs of $4,283 for the elimination of an equivalent of 107 full-time positions relating to these workforce reduction initiatives. During the period, payments of $4,130 have been made.

5. GOODWILL

During the second quarter 2007, the Company changed its annual date for the impairment test for goodwill from October 1 to April 1. Accordingly, the Company performed its impairment test for goodwill on April 1, 2007 and concluded that goodwill was not impaired.

6During the three and six months ended June 30, 2008, dividends of $15,148 and $30,296 (2007 — $15,980 and $31,960) were declared on the Cumulative First Preferred Shares of Quebecor Media. ~~TRANSACTIONS~~ During ~~WITH~~the ~~RELATED~~three ~~COMPANIES~~and six months ended June 30, 2008, Sun Media received payments of dividend income of $30,463 (2007 — nil and $32,311) from Quebecor Media. As at June 30, 2008, the unpaid dividend receivable from Quebecor Media was $1,498 (December 31, 2007 — $1,665).

~~(a) Investment~~SUN ~~in and Convertible Obligations Issued to Quebecor Media Inc. (“Quebecor Media”)~~TV

The following ~~tables~~table ~~summarize~~summarizes the Company’s issuance of convertible obligations, to and ~~investments~~its investment in ~~Quebecor~~SUN ~~Media~~TV Preferred Shares:

	Convertible Obligation Issue
	2020
Issue or Redemption Date	2007			2008			2020			2021		Total
	Convertible			SUN TV
Balance — January 1, 2006	$	640,000		$	350,000		$	255,000		$	—	$	1,245,000
Issue or redemption date	Obligation Issue			Preferred Shares
June 12, 2006		(255,000	)		—			—			120,000		(135,000	)
Balance — January 1, 2007 and June 30, 2007	$	34,375		$	34,375
December 28, 2006		(385,000	)		(115,000	)		(55,000	)		—		(555,000	)
December 20, 2007		(24,625	)		(24,625	)
Balance — December 31, 2006 and June 30, 2007	$	—		$	235,000		$	200,000		$	120,000	$	555,000
Balance — December 31, 2007 and June 30, 2008	$	9,750		$	9,750

	Quebecor Media Preferred Shares
	12.5%			10.85%
Issue or Redemption Date	Series A			Series F			Total
Balance — January 1, 2006	$	990,000		$	255,000		$	1,245,000
June 12, 2006		(255,000	)		120,000			(135,000	)
December 28, 2006		(500,000	)		(55,000	)		(555,000	)
Balance — December 31, 2006 and June 30, 2007	$	235,000		$	320,000		$	555,000

During the three and six months ended June 30, 2008, interest expense on the convertible obligations amounted to $258 and $513 (2007 — $900 and $1,800). For the three and six months ended June 30, 2008, the total interest paid by Sun Media was $520 (2007 — $1,800). As at June 30, 2008, the unpaid interest on the convertible obligation was $28 (December 31, 2007 — $35).

During the three and six months ended June 30, ~~2007~~2008, dividends of $~~15,980~~266 and $530 (~~2006~~2007 — $36930 and $1,~~717~~860) were declared on the ~~Cumulative~~SUN ~~First~~TV Preferred Shares ~~of Quebecor Media~~. ~~During~~For the three and six months ended June 30, ~~2007~~2008, ~~dividends of $31,960 (2006 — $74,468) were declared on the Company’s Cumulative First Preferred Shares of Quebecor Media.~~ Sun Media received payments of dividend income of $~~32,311~~ 537 (~~2006~~2007 — $891,~~343~~860) ~~from Quebecor Media during the six months ended June 30, 2007~~. As at June 30, ~~2007,~~ 2008, the unpaid dividend receivable from ~~Quebecor~~SUN ~~Media~~TV was $29~~,501~~ (December 31, ~~2006~~2007 — $~~29,852~~36).

~~During the three months ended June 30, 2007, the interest expense on the Company’s convertible~~Mirabel obligations amounted to $15,496 (2006 — $35,656). During the six months ended June 30, 2007, the interest expense on the Company’s convertible obligations amounted to $30,991 (2006 — $72,321). For the six months ended June 30, 2007, the total interest paid on the convertible obligations was $31,332 (2006 — $86,782). As at June 30, 2007, the unpaid interest on the convertible obligations was $28,607 (December 31, 2006 — $28,948).

On June 16, 2008, the Company issued a new convertible obligation to Mirabel in the amount of $500,000. This new convertible obligation matures on June 16, 2023 (b“2023 Convertible Obligation Issue”) ~~Investment~~ Inand bears interest at 11.00% payable semi-annually. The Company used the proceeds from the issuance of this new convertible obligation to invest in $500,000 of Mirabel Series G Preferred Shares, carrying an 11.25% annual fixed cumulative preferential dividend payable semi-annually and otherwise ~~Convertible~~having ~~Obligation~~terms ~~Issued~~and conditions substantially similar to the Quebecor Media and SUN TV Preferred Shares.

~~During~~The ~~the~~following ~~three~~table ~~months~~summarizes ~~ended~~the ~~June 30,~~Company’s ~~2007,~~issuance ~~dividends~~ of ~~$930~~convertible ~~(2006~~obligations —to ~~$1,009)~~and ~~were declared on~~its ~~the~~investment ~~SUN~~in TVMirabel Preferred Shares~~. During the six months ended June 30, 2007, dividends of $1,860 (2006~~: — $2,018) were declared on the SUN TV Preferred Shares. Sun Media received payments of dividend income of $1,860 (2006 — $2,018) from SUN TV during the six months ended June 30, 2007. As at June 30, 2007, the unpaid dividend receivable from SUN TV was $112 (December 31, 2006 — $112).


	2023
	Convertible		Mirabel
Issue or redemption date	Obligation Issue		Preferred Shares
Balance — January 1, 2007, June 30, 2007 and December 31, 2007	$	—	$	—
June 16, 2008		500,000		500,000

Balance — June 30, 2008	$	500,000	$	500,000

During the three and six months ended June 30, 2008, interest expense on the convertible obligation amounted to $1,959 (2007 — nil) and total interest paid by Sun Media was $603 (2007 — nil). As at June 30, 2008, the unpaid interest on the convertible obligation was $1,356 (December 31, 2007 — nil).

During the three ~~months~~and ~~ended June 30, 2007, interest expense on the convertible obligations amounted to $900 (2006 — $977). During the~~ six months ended June 30, ~~2007~~2008, ~~interest~~dividends ~~expense~~of ~~on the convertible obligations amounted to~~ $12,~~800~~003 (~~2006~~2007 — ~~$1,953~~nil). ~~For~~were declared on the ~~six~~Mirabel ~~months~~Preferred ~~ended~~Shares. ~~June 30, 2007,~~Sun ~~the~~Media ~~total~~received ~~interest~~payments ~~paid~~of ondividend ~~the~~income ~~convertible~~of ~~obligations was~~ $~~1,800~~616 (~~2006~~2007 — ~~$1,953~~ nil). As at June 30, ~~2007~~2008, the unpaid ~~interest~~dividend onreceivable ~~the~~from ~~convertible~~Mirabel ~~obligations~~ was $~~109~~1,387 (December 31, 2007 ~~2006~~ — ~~$109~~ nil).

~~As at June 30, 2007, the Company’s investment in SUN TV preferred shares and convertible obligations was $34,375~~ (~~December~~b) ~~31,~~Subordinated ~~2006 — $34,375).~~loans

On October 31, 2007, the Company entered into a $237,500 subordinated loan agreement (c“2013 Subordinated Loan”) ~~Management~~ ~~Fees~~with Quebecor Media which bears interest at an annual rate of 7.00% and matures on October 31, 2013. The 2013 Subordinated Loan is prepayable by the Company, in whole or in part, including accrued interest, at any time prior to maturity. Proceeds from the 2013 Subordinated Loan were used to repay the Company’s loan “B” credit facility and related hedging contracts. Quebecor Media may, upon the occurrence of certain events, cause the outstanding principal and accrued interest to become immediately due and payable.

~~During~~On ~~the three months ended June~~April 3010, ~~2007~~2008, the Company ~~recorded~~entered ~~Quebecor~~into ~~Media~~an ~~management~~additional ~~fees of~~ $124,~~800~~000 subordinated loan agreement (~~2006~~“2014 —Subordinated ~~$2,422~~Loan”). ~~During~~with ~~the~~Quebecor ~~six~~Media ~~months~~which ~~ended~~bears ~~June 30,~~interest ~~2007,~~at ~~the~~an ~~Company~~annual ~~recorded~~rate ~~Quebecor Media~~of ~~management~~7.00% ~~fees~~and matures ofon $3April 10,~~600~~ ~~(2006 — $4,343)~~2014. ~~These~~The ~~management~~proceeds ~~fees~~of ~~are~~2014 ~~included~~Subordinated ~~in cost~~Loan ofwere ~~sales,~~used ~~selling~~to ~~and~~pay ~~administrative~~down ~~expenses~~a inportion of the ~~consolidated~~balance ~~statements~~outstanding ofon ~~income.~~the AsCompany’s revolving credit facilities at the time. Aside from ~~June 30,~~the ~~2007~~maturity date, ~~there~~the ~~was~~2014 noSubordinated ~~outstanding~~Loan ~~balance~~has ~~relating~~the tosame ~~the~~principal ~~management~~terms ~~fees~~and ~~(2006~~conditions —as ~~$nil)~~the 2013 Subordinated Loan.

For the three and six months ended June 30, 2008 interest expense on the 2013 Subordinated Loan and 2014 Subordinated Loan (dcollectively “Subordinated Loans”) ~~Additional~~ ~~Equity~~was ~~Investment~~$4,501 inand ~~Sun~~$8,635 TV(2007 — nil). For the three and six months ended June 30, 2008, the total interest paid on the Subordinated Loans was $4,442 and $8,577 (2007 — nil). As at June 30, 2008, interest payable was $650 (December 31, 2007 - $592). The balance of Subordinated Loans as at June 30, 2008 totalled $261,500 (December 31, 2007 — $237,500).

~~During~~6. ~~the~~LONG-TERM ~~three months ended June 30, 2007, the Company made $1,300 (2006 — $4,618) in additional~~DEBT ~~cash contributions to Sun TV to maintain its 25% equity interest in Sun TV.~~

(e) Other Transactions


	June 30,			December 31,
	2008			2007
Bank credit facilities	$	48,592		$	39,091
Senior notes		205,191			198,910

		253,783			238,001

Change in fair value related to hedged interest rate risks		(7,333	)		(8,571	)
Adjustment related to embedded derivatives		(504	)		82
Financing fees, net of amortization		(3,959	)		(4,367	)

		241,987			225,145
Less current portion		(400	)		(400	)


	$	241,587		$	224,745

~~The Company has earned revenue for advertising and other services, and incurred expenses for~~10 purchases and services, at prices and conditions prevailing on the open market, with related parties under common control in the normal course of operations. These transactions were concluded and accounted for at their exchange values.

7. PENSION PLANS

The Company maintains defined contribution and benefit pension plans for its employees. The total benefit cost of these employee future benefit plans is as follows:

	Three months ended				Six months ended
	June 30,		June 30,		June 30,		June 30,
	2007		2006		2007		2006
Defined contribution plans	$	887	$	816	$	1,591	$	1,633
Defined benefit plans		2,113		2,884		5,670		6,034
Total benefit cost	$	3,000	$	3,700	$	7,261	$	7,667

87. STOCK-BASED ~~OPTION PLANS~~COMPENSATION

The following table provides details of changes to outstanding options of Sun Media employees in the stock-based compensation plan of Quebecor Media for the six-month period ended June 30, ~~2007~~2008:

				Weighted-average
	Number			exercise price
Outstanding options, as at December 31, 2006		777,620		$	18.57
Outstanding options, as at December 31, 2007		1,370,748		$	30.65
Cancelled		(41,846	)	$	17.86
Options exercised during six months ended June 30, 2008		(645,245	)	$	17.33
Outstanding options, as at June 30, 2007		735,774		$	19.08
Outstanding options, as at June 30, 2008		725,503		$	42.50
Vested options, as at June 30, 2007		574,890		$	17.07
Vested options, as at June 30, 2008		15,265		$	23.32

During the ~~three~~six-month ~~months~~period ended June 30, ~~2007~~2008, ~~the Company recognized~~ a ~~stock~~net ~~compensation~~reversal ~~expense~~ of ~~$2,444~~ ~~(2006~~the —compensation ~~$154)~~charges related to the Quebecor Media stock-based compensation plan. ~~During~~was ~~the~~recorded ~~six months~~in ~~ended June 30, 2007,~~ the ~~Company~~amount ~~recognized stock compensation expense~~ of $~~3,856~~953 (~~2006~~2007 — net charge of $13,~~467~~856) ~~related to the Quebecor Media stock-based compensation plan~~.

~~9. LONG~~During the six-~~TERM~~month ~~DEBT~~period ended June 30, 2008, 645,245 stock options were exercised in the amount of $21,394.

	June 30,			December 31,
	2007			2006
Long-term debt(a)	$	446,882		$	486,717
Change in fair value of debt for hedged interest rate risks		(14,031	)		—
Adjustment related to embedded derivatives		(1,127	)		—
Financing fees, net of amortization		(5,656	)		—
	$	426,068		$	486,717
Less: Current portion		(2,850	)		(3,080	)
	$	423,218		$	483,637

8. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

(a) Period-end exchange rates were used to translate foreign-denominated debt.


Balance — December 31, 2006	$	—
Cumulative effect of changes in accounting policies		(116	)
Other comprehensive income, net of income taxes of $239		68


Balance — June 30, 2007		(48	)
Other comprehensive loss, net of income taxes of $401		(1,473	)


Balance — December 31, 2007		(1,521	)
Other comprehensive income, net of income taxes of $723		1,621


Balance — June 30, 2008	$	100

10No significant amount is expected to be reclassified in income over the next 12 months in connection with derivatives designated as cash flow hedges. ~~CAPITAL~~ ~~STOCK~~The balance is expected to be reversed over a four-year period.

~~(a) Authorized capital stock:~~11

10,000,000,000 Voting Class A Common Shares, without par value; 10,000,000,000 Non-voting redeemable Class B Preferred Shares, without par value; 10,000,000,000 Non-voting Class C Preferred Shares, without par value;

(b) Issued and outstanding capital stock:

	Common Shares
	Number		Amount
Balance as at December 31, 2006 and June 30, 2007		1,261,001	$	261,801

~~SUN MEDIA CORPORATION~~ ~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the three and six-month period ended June 30, 2007 (In thousands of Canadian dollars except for share information) (Unaudited)~~ \

~~11. ACCUMULATED~~SUN ~~OTHER~~MEDIA ~~COMPREHENSIVE~~CORPORATION Notes ~~LOSS~~to Consolidated Financial Statements For the three-month and six-month periods ended June 30, 2008 (in thousands of Canadian dollars, except for share information) (unaudited)

Balance — December 31, 2006	$	—
Cumulative effect of change in accounting policies (note 2)		(116	)
Other comprehensive income, net of income tax expense of $239		68
Balance — June 30, 2007	$	(48	)

PENSION PLANS

NoThe ~~significant~~Company ~~amount~~maintains isdefined ~~expected~~benefit toand bedefined ~~reclassified~~contribution inpension ~~income~~plans ~~over~~for ~~the~~its ~~next 12 months, in~~employees. ~~connection~~The ~~with~~total ~~derivatives~~costs ~~designated~~were as ~~cash flow hedges.~~ follows:

12. SEGMENTED INFORMATION


	Three months ended June 30				Six months ended June 30
	2008		2007		2008		2007
Defined benefit plans	$	2,665	$	2,113	$	5,684	$	5,670
Defined contribution plans		796		887		1,604		1,591


	$	3,461	$	3,000	$	7,288	$	7,261

~~Management has reviewed the requirements of CICA Handbook 1701, Segment Disclosures, and determined that there are no reportable segments requiring disclosure~~10. ~~This~~SEGMENTED ~~conclusion was reached on the basis that Sun Media’s newspaper divisions exhibit similar economic characteristics, with similar products, production processes, and classes of customers.~~ INFORMATION

13Management has determined that there are no reportable segments requiring disclosure. ~~SUBSEQUENT~~ ~~EVENTS~~This conclusion was reached on the basis that the Company’s newspaper divisions exhibit similar economic characteristics, with similar products, production processes, and classes of customers.

~~(a) Acquisition~~11. ofFINANCIAL ~~Additional~~INSTRUMENTS ~~Shares~~AND ofFINANCIAL LeRISK ~~Courrier du Sud Inc.~~ MANAGEMENT

OnThe ~~July 3,~~Company’s ~~2007,~~risk ~~the~~management ~~Company~~policies ~~exercised~~are ~~its~~established ~~option~~ to ~~acquire~~identify anand ~~additional~~analyze ~~2,500~~the ~~shares~~risks orfaced ~~25.0% of~~by Lethe ~~Courrier du Sud Inc.~~Company, ato ~~community~~set ~~newspaper~~appropriate ~~publisher~~risk inlimits ~~Quebec,~~and ~~for a purchase price of $7~~controls,~~867, plus~~ ~~acquisition~~and ~~costs.~~to ~~The~~monitor ~~acquisition~~risks ~~was completed on August 7, 2007~~ and ~~increased~~adherence ~~the~~to ~~Company’s~~limits. ~~total~~Risk ~~ownership~~management ofpolicies Leare ~~Courrier~~reviewed duregularly ~~Sud Inc.~~ to ~~75.01%.~~reflect ~~Following~~changes ~~the~~in ~~acquisition~~market ofconditions ~~additional~~and ~~shares,~~ the Company’s ~~will continue to consolidate Le Courrier du Sud Inc~~activities. ~~within the financial statements of Sun Media.~~

From its use of financial instruments, the Company is exposed to credit risk, liquidity risk, market risks relating to foreign exchange fluctuations, and to interest rate fluctuations, and capital risk. In order to manage its foreign exchange and interest rate risks, the Company uses derivative financial instruments (bi) ~~Changes~~ to achieve a targeted balance of fixed and variable rate debts and (ii) to set in ~~Investments~~Canadian dollars all future payments on debts denominated in U.S. dollars (interest and ~~Convertible~~principal) ~~Obligations~~and ~~Issued~~certain capital or inventory expenditures denominated in a foreign currency. The Company does not intend to ~~Quebecor~~settle ~~Media~~its financial derivative instruments prior to their maturity as none of these instruments are held or issued for speculative purposes. The Company designates its derivative financial instruments either as fair value hedges or cash flow hedges when they qualify for hedge accounting.

On(a) ~~July 13,~~Description ~~2007, the Company sold $235,000~~ of ~~its~~derivative ~~investment~~financial ~~in the Series A Cumulative First Preferred Shares of Quebecor Media and used the proceeds to redeem $235,000 of its November 2008 convertible obligation issue.~~ instruments

On(i) ~~July 27,~~Foreign ~~2007,~~exchange ~~the~~forward Company issued a new convertible obligation to Quebecor Media in the amount of $240,000. This new convertible obligation matures on December 20, 2022, bears interest at 10.5% payable semi-annually and otherwise has terms and conditions substantially similar to existing convertible obligations. The Company used the proceeds from the issuance of this new convertible obligation issue to invest in $240,000 of Quebecor Media Series G Cumulative First Preferred Shares carrying a 10.85% annual fixed cumulative preferential dividend payable semi-annually and otherwise having terms and conditions substantially similar to its Preferred Shares of Quebecor Media. contracts:

14. MATERIAL DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND THE UNITED STATES


Currencies (sold/bought)	Maturing	Average exchange rate	Notional amount
Cdn$ / US$	February 15, 2013	1.5227	$312,154

The unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles as applied in Canada which are different in some respects from those applicable in the United States, as described below. The following tables set forth the impact of material differences between GAAP in Canada and GAAP in the United States on Sun Media’s unaudited interim consolidated financial statements, including disclosures that are required under GAAP in the United States. 12

~~Restatement~~(ii) ofCross-currency ~~U.S.~~interest ~~GAAP~~rate ~~Reconciliation Note to Financial Statements Relating to Accounting for Fair Value Hedge Relationships~~ swaps:

The following U.S. GAAP financial information from the consolidated statements of income and comprehensive income for the three and six-month periods ended June 30, 2006 has been restated and the consolidated balance sheet as at December 31, 2006 was previously restated, to reflect certain adjustments to previously reported financial information for the correction of an error related to the accounting for certain fair value hedge relationships. The Company has entered into fair value hedges of its debt with derivative instruments. The accounting of a fair value hedge in accordance with U.S. GAAP requires that the change in fair value of the hedging instrument and the change in fair value of the hedged item attributable to the hedged risk, be recognized currently in earnings. The Company has determined that the adjustment to the carrying value of the debt (hedged item) attributable to the hedged risks was calculated and recorded incorrectly in previously presented financial information calculated in accordance with GAAP in the United States due to a misinterpretation of the applicable U.S. GAAP.

Annual

CDN dollar

effective

Annual

exchange rate of

interest rate

nominal

interest and principal

Period

Notional

using

interest rate

payments per

covered

amount

hedge rate

of debt

one US dollar

Senior Notes

2008 to 2013

US$155,000

Cdn bankers’

7.625%

1.5227

acceptances

3 months

+3.696%

Senior Notes

2003 to 2013

US$ 50,000

Cdn bankers’

7.625%

1.5227

acceptances

3 months

+3.696%

~~The~~Also, ~~following~~the ~~tables~~cross-currency ~~summarize~~interest rate swaps entered into by the ~~effects~~Company ofinclude an option that allows each party to unwind the ~~adjustments~~transactions on ~~previously~~a ~~reported~~specific ~~U.S.~~date ~~GAAP information~~at the then-market value.

	Three months			Six months
	ended			ended
Consolidated Statements of Income and Comprehensive Income	June 30, 2006			June 30, 2006
Decrease in change in fair value and ineffective portion of derivative instruments	$	(2,568	)	$	(5,136	)
Decrease in income tax expense		66			516
Net decrease in net income and comprehensive income	$	(2,502	)	$	(4,620	)

	(iii)		Interest rate swap:

			Effective April 30, 2008, the Company entered into a variable-for-fixed interest rate swap on its term loan “C” thereby receiving floating three months Canadian bankers’ acceptance and paying fixed 3.75% until October 31, 2012. The notional amount of the swap at June 30, 2008 was $39,100. This interest rate swap was designated as a cash flow hedge.

	Three months ended						Six months ended
Consolidated Statements of Income	June 30,			June 30,			June 30,			June 30,
	2007			2006			2007			2006
				(restated)						(restated)
Net income per Canadian GAAP	$	23,380		$	31,735		$	40,812		$	53,252
Adjustments:
Pension and post-retirement benefits (a)		150			41			299			81
Derivative financial instruments (c)		1,500			(1,146	)		955			(792	)
Non-monetary transactions (d)		(15	)		(16	)		(31	)		(31	)
Related party transactions (f)		(2,190	)		—			(2,740	)		—
Income taxes on U.S. adjustments		(547	)		(768	)		(396	)		(946	)
Net income per U.S. GAAP	$	22,278		$	29,846		$	38,899		$	51,564

(b)

Fair value of financial instruments

The carrying amount of accounts receivable from external or related parties (classified as loans and receivables), accounts payable and accrued charges to external or related parties (classified as other financial liabilities) approximates their fair value since these items will be realized or paid within one year or are due on demand.

Carrying value and fair value of long-term debt and derivative financial instruments as at June 30, 2008 and December 31, 2007 are as follows:


	June 30, 2008				December 31, 2007
	Carrying value		Fair value		Carrying value		Fair value
Long- term debt ^(a)(note 6)	$	253,783	$	248,192	$	238,001	$	234,063
Cross-currency interest rate swaps, foreign exchange forward contract, and interest rate swap	$	114,634	$	114,634	$	133,090	$	133,090


^(a)		The carrying value of long-term debt excludes adjustments to record changes in fair value of long-term debt related to hedged interest risk, embedded derivatives and financing fees.

The fair value of long-term debt is estimated based on discounted cash flows using period-end market yields or market value of similar instruments with the same maturity, or quoted market prices when available. The interest rates used to discount estimated cash flows are based on swap yield curves at the reporting date. The fair value of the derivative financial instruments is estimated using period-end swap rates, adjusted to reflect the Company’s non-performance risk.

~~SUN~~Credit ~~MEDIA~~risk ~~CORPORATION NOTES~~is TOthe ~~CONSOLIDATED~~risk ~~FINANCIAL~~of ~~STATEMENTS For~~financial loss to the ~~three~~Company ~~and~~if ~~six-month~~a ~~period~~customer ~~ended~~or ~~June 30,~~counterparty ~~2007~~to a ~~(In~~financial ~~thousands~~asset offails ~~Canadian~~to ~~dollars~~meet ~~except~~its ~~for~~contractual ~~share information)~~obligations. ~~(Unaudited)~~

	Three months ended						Six months ended
	June 30,			June 30,			June 30,			June 30,
Consolidated Statements of Comprehensive Income	2007			2006			2007			2006
				(restated )						(restated )
Net income per Canadian GAAP	$	23,380		$	31,735		$	40,812		$	53,252
Other comprehensive loss per Canadian GAAP		(154	)		—			68			—
		23,226			31,735			40,880			53,252
U.S. GAAP adjustments to net income, per above		(1,102	)		(1,889	)		(1,913	)		(1,688	)
Adjustments:
Pension and post-retirement benefits (a)		1,093			1,385			2,187			2,770
Derivative financial instruments (c)		—			(394	)		—			524
Income taxes on comprehensive income		(373	)		(771	)		(746	)		(1,833	)
Comprehensive income per U.S. GAAP	$	22,844		$	30,066		$	40,408		$	53,025

SUN MEDIA CORPORATION
Notes to Consolidated Financial Statements
For the three-month and six-month periods ended June 30, 2008
(in thousands of Canadian dollars, except for share information)
(unaudited)

	June 30,			December 31,
Accumulated other comprehensive loss	2007			2006
Accumulated other comprehensive loss per Canadian GAAP	$	(48	)	$	—
Adjustments:
Pension and post-retirement benefits (a)		(23,253	)		(25,440	)
Derivative financial instruments (c)		—			(1,441	)
Income taxes on comprehensive income		7,587			9,658
Accumulated other comprehensive loss per U.S. GAAP	$	(15,714	)	$	(17,223	)

(c)

Credit risk management

	June 30,			December 31,
Consolidated Shareholder’s Equity	2007			2006
Shareholder’s Equity per Canadian GAAP	$	297,242		$	300,695
Cumulative Adjustments:
Pension and post-retirement benefits (a)		(19,829	)		(22,315	)
Restructuring charges (b)		(6,981	)		(6,981	)
Derivative financial instruments (c)		(1,126	)		(10,952	)
Non-monetary transactions (d)		1,734			1,765
Share-based payments (e)		(900	)		(900	)
Related party transactions (f)		5,660			8,400
Income taxes on U.S. adjustments (g)		9,388			22,067
Shareholder’s Equity per U.S. GAAP	$	285,188		$	291,779

In the normal course of business, the Company continuously monitors the financial condition of its customers and reviews the credit history of each new customer. As at June 30, 2008, no customer balance represented a significant portion of the Company’s consolidated trade receivables. The Company establishes an allowance for doubtful accounts based on the specific credit risk of its customers and historical trends. The allowance for doubtful accounts amounted to $8,637 as at June 30, 2008 (December 31, 2007 — $7,611). As at June 30, 2008, 10.0% of trade receivables were 90 days past their billing date (7.6% as at December 31, 2007).

The Company believes that its product lines and the diversity of its customer base are instrumental in reducing its credit risk, as well as the impact of fluctuations in product line demand. The Company does not believe that it is exposed to an unusual level of customer credit risk.

When the Company enters into derivative contracts, the counterparties (either foreign or Canadian) must have credit ratings at least in accordance with the Company’s credit risk management policy and are subject to concentration limits. Given the high minimum credit ratings required under the Company’s policy, the Company does not foresee any failure by counterparties to meet their obligations.

(d)

Liquidity risk management

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due or at excessive cost. Management of the Company believes that cash flows from continuing operations and available sources of financing should be sufficient to cover committed cash requirements for capital investments, working capital, interest payments, debt repayments, pension plan contributions and dividends (or distributions) in the future.

As at June 30, 2008, material contractual obligations related to financial instruments included capital repayment and interest on long-term debt and derivative instruments, where their maturities are as follows:


			Less than						5 years
	Total		1 year		1-3 years		3-5 years		and more

Convertible obligations ^(a) (note 5)	$	1,069,750	$	—	$	—	$	—	$	1,069,750
Interest on convertible obligations ^(a)		1,605,600		114,509		229,018		229,018		1,033,055
Long-term debt (note 6)		253,783		400		800		252,583		—
Interest on long-term debt ^(b)		121,900		24,000		48,000		47,000		2,900
Subordinated loan (note 5)		261,500		—		—		—		261,500
Interest on subordinated loan		98,384		18,255		36,510		36,510		7,109
Derivative instruments ^(c)		104,981		—		—		104,981		—


Total contractual obligations	$	3,515,898	$	157,164	$	314,328	$	670,092	$	2,374,314


^(a)		These amounts are offset by investments in preferred shares of related parties and associated dividends.


^(b)		Estimate of interest to be paid on long-term debt based on the hedged and unhedged interest rates and hedged foreign exchange rate at June 30, 2008.


^(c)		Estimated future disbursements on the principal portion of derivative financial instruments related to foreign exchange hedging.

Consolidated Balance Sheet Data	June 30, 2007				December 31, 2006
	CDN GAAP		U.S. GAAP		CDN GAAP		U.S. GAAP
Current assets	$	212,558	$	212,558	$	214,280	$	214,280
Goodwill		756,115		752,692		756,115		752,692
Future income tax asset		36,159		38,859		34,047		34,047
Other assets		16,236		11,273		32,303		17,427
Current liabilities		206,325		201,565		204,162		196,662
Future income tax liability		10,637		3,564		22,981		3,230
Long-term debt		423,218		424,344		483,637		469,008
Convertible obligations		589,375		589,375		589,375		589,375
Other liabilities		237,815		254,890		182,975		215,472
Total shareholder’s equity		297,242		285,188		300,695		291,779

(e)

Market risk

~~Consolidated~~Market ~~Statements~~risk is the risk that changes in market prices due to foreign exchange rates, interest rates and equity prices will affect the Company’s income or the value of ~~Cash~~its ~~Flows~~financial instruments. The objective of market risk management is to mitigate and control exposures within acceptable parameters while optimizing the return on risk.

~~The~~Foreign ~~disclosure~~currency of a subtotal of the amount of cash provided by operations before changes in non-cash operating working capital items in the consolidated statements of cash flows is allowed under Canadian GAAP while it is not allowed under U.S. GAAP. risk:

~~(a) Pension~~The Company is exposed to foreign currency risk on principal and ~~Post~~interest repayments on U.S. dollar-~~Retirement~~denominated ~~Benefits~~debt. Most of the Company’s revenues and expenses are denominated in Canadian dollars. The Company hedges the foreign currency risk exposure on 100% of U.S. dollar-denominated debt obligations outstanding as at June 30, 2008. Accordingly, the Company’s sensitivity to the variation of foreign currency rates is economically limited.

~~Under~~An ~~U.S.~~increase ~~GAAP,~~or ~~Statement~~a decrease of ~~Financial~~1% ~~Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and Other Post-retirement Plans (“SFAS158”), was issued~~ in ~~2006 and requires~~ the ~~recognition~~exchange inrate ~~the consolidated balance sheet~~ of ~~the~~a ~~over~~Canadian ordollar ~~under~~compared ~~funded~~to ~~positions of defined benefit pension and other post-retirement plans, along with~~ a ~~corresponding non-cash adjustment, which is recorded in the accumulated other comprehensive loss~~U.S. ~~The recognition and~~dollar ~~disclosure~~would ~~provisions~~have ofno ~~SFAS158~~material ~~are~~impact ~~effective~~on ~~prospectively~~earnings ~~for~~or ~~fiscal~~capital ~~years~~expenditures ~~ended after December 15, 2006 and did~~ not ~~have~~hedged anby ~~impact~~derivative instruments on ~~the~~a ~~Company’s~~yearly ~~consolidated statements of income~~basis.

~~Under~~Interest ~~U.S.~~rate GAAP, prior to 2007, if the accumulated benefit obligation exceeds the fair value of a pension plan’s assets, the Company is required to recognize a minimum accrued liability equal to the unfunded accumulated benefit obligation, which was recorded in accumulated other comprehensive loss. The additional minimum liability concept has been eliminated with the adoption of SFAS158. risk:

~~Under~~The ~~Canadian~~Company ~~GAAP,~~is ~~when~~exposed ~~a defined benefit plan gives rise~~ to aninterest ~~accrued~~rate ~~benefit~~risk ~~asset,~~on a ~~company must~~portion ~~recognize~~of aits ~~valuation~~long-term ~~allowance~~debt ~~for~~and ~~the~~has ~~excess,~~entered into ifvarious ~~any,~~interest ofrate ~~the~~and ~~adjusted~~cross-currency ~~benefit~~interest ~~asset~~rate ~~over~~swap ~~the expected~~agreements ~~future~~in ~~benefit~~order to bemanage ~~realized~~cash flow ~~from~~and ~~the~~fair ~~plan~~value ~~asset.~~risk ~~U.S.~~exposure ~~GAAP~~to ~~does~~changes ~~not~~in ~~provide for a valuation allowance against pension assets~~interest rates.

~~(b) Restructuring~~An ~~Charges~~increase or decrease of 25 basis points in the Canadian bankers’ acceptance rate for the reporting period would have increased or decreased interest expense by approximately $200 in the second quarter and by $400 in the first half of 2008 using debt levels prevailing as at June 30, 2008.

(f)

Capital management

The Company’s primary objective in managing capital is to maintain an optimal capital base in order to support the capital requirements of its various businesses, including growth opportunities.

In managing its capital structure, the Company takes into account the asset characteristics of its underlying group of companies and planned requirements for funds. Management of the capital structure involves the issuance of new debt, the repayment of existing debt using cash generated by operations and the level of distributions to shareholders. Since the last financial year, the Company has not significantly changed its strategy regarding the management of the capital structure.

The capital structure of the Company is composed of shareholders’ equity, bank indebtedness, long-term debt, liabilities related to derivative financial instruments, related party subordinated debt, convertible obligations and investments in preferred shares, non-controlling interests less cash and cash equivalents and temporary investments.

The Company was in compliance with all debt covenants and is not subject to any externally imposed capital requirements.

12. SIGNIFICANT DIFFERENCES BETWEEN GAAP IN CANADA AND IN THE UNITED STATES

The Company’s consolidated financial statements are prepared in accordance with Canadian GAAP, which differ in some respects from those applicable in the United States (“U.S. GAAP”). The following tables set forth the impact of the material differences between Canadian and U.S. GAAP on the Company’s consolidated financial statements.


	Three months ended June 30						Six months ended June 30
*(a) Consolidated statements of income*	2008			2007			2008			2007
Net income as per Canadian GAAP	$	31,150		$	23,380		$	52,136		$	40,812
Adjustments:
Pension and post-retirement benefits (i)		141			150			282			299
Change in fair values and ineffective portion of derivative instruments (iii)		(1,257	)		1,500			(586	)		955
Stock-based compensation (v)		(500	)		—			(1,100	)		—
Related party transactions (vi)		(661	)		(2,190	)		(661	)		(2,740	)
Other		735			(15	)		(31	)		(31	)
Income taxes (vii)		162			(547	)		363			(396	)


Net income as adjusted as per U.S. GAAP	$	29,770		$	22,278		$	50,403		$	38,899


	Three months ended June 30						Six months ended June 30
*(b) Consolidated statements of comprehensive income*	2008			2007			2008			2007
Comprehensive income as per Canadian GAAP	$	31,250		$	23,226		$	53,757		$	40,880
Adjustments to net income as per (a) above		(1,380	)		(1,102	)		(1,733	)		(1,913	)
Adjustments to other comprehensive income:
Pension and post-retirement benefits (i)		701			1,093			1,402			2,187
Income taxes (vii)		(188	)		(373	)		(375	)		(746	)


Comprehensive income as per U.S. GAAP	$	30,383		$	22,844		$	53,051		$	40,408


	June 30,			December 31,
*Accumulated other comprehensive income (loss)*	2008			2007
Accumulated other comprehensive income (loss) as per Canadian GAAP	$	100		$	(1,521	)
Adjustments:
Pension and post-retirement benefits (i)		(34,956	)		(36,358	)
Income taxes (vii)		11,154			11,529


Accumulated other comprehensive loss as per U.S. GAAP	$	(23,702	)	$	(26,350	)


	June 30,			December 31,
*(c) Consolidated shareholders’ equity*	2008			2007
Shareholders’ equity as per Canadian GAAP	$	310,738		$	347,981
Cumulative adjustments:
Pension and post-retirement benefits (i)		(31,916	)		(33,600	)
Restructuring charges (ii)		(6,981	)		(6,981	)
Derivative financial instruments (iii)		(504	)		82
Non-monetary transactions (iv)		1,673			1,704
Stock-based compensation (v)		(2,700	)		(1,600	)
Related party transactions (vi)		—			661
Income taxes on U.S. adjustments (vii)		12,072			12,084


Shareholders’ equity as per U.S. GAAP	$	282,382		$	320,331

June 30, 2008

December 31, 2007

(d) Consolidated balance sheets

CDN GAAP

U.S. GAAP

CDN GAAP

U.S. GAAP

Future income tax assets

22,786

25,181

36,224

38,137

Other assets

15,173

7,992

17,291

8,698

Goodwill

769,159

765,736

769,159

765,736

Current liabilities

153,108

155,808

171,265

172,201

Long-term debt

241,587

242,091

224,745

224,663

Other liabilities

24,874

51,570

24,985

51,443

Future income tax liabilities

24,188

14,435

19,724

9,959

Total shareholders’ equity

310,738

282,382

347,981

320,331

(i)

Pension and post-retirement benefits

U.S. GAAP, Statement of Financial Accounting Standards (“SFAS”) No. 158, Employers’ Accounting for Defined Benefit Pension and Other Post-retirement Plans requires the recognition of over or under-funded positions of defined benefit pension and other post-retirement plans on the balance sheet, along with a corresponding non-cash adjustment, to be recorded in accumulated other comprehensive income (loss).

Under Canadian GAAP, a company is not required to recognize the over or under-funded positions or to recognize an additional minimum liability. However, when a defined benefit plan gives rise to an accrued benefit asset, a company must recognize a valuation allowance for the excess of the adjusted benefit asset over the expected future benefit to be realized from the plan asset. U.S. GAAP does not provide for a valuation allowance against pension assets.

(ii)

Restructuring charges

In respect of the 1999 acquisition of Sun Media, certain of the restructuring charges related to the acquired newspapers are recorded in the purchase equation as goodwill under Canadian GAAP, but are excluded from the purchase equation and expensed under U.S. GAAP.

~~(c) Derivative Financial Instruments~~17

Prior to 2007, under Canadian GAAP, derivative financial instruments were accounted for on an accrual basis. Realized and unrealized gains and losses were deferred and recognized in income in the same period and in the same financial statement category as the income or expense arising from the corresponding hedged positions. Since January 1, 2007, standards for hedge accounting under Canadian GAAP are now similar to those under U.S. GAAP, as established by Statement of Financial Accounting Standards No.133, Accounting for Derivative Instruments and Hedging Activities.

~~However, under~~(iii) ~~Canadian~~Change ~~GAAP, certain embedded derivatives, such as early settlement options included~~ in ~~some of the Company’s borrowing agreements, do not meet the criteria to be considered closely related to their host contracts and therefore must be recorded at their~~ fair ~~value~~ ~~with~~values ~~changes in earnings. Under U.S. GAAP, these embedded derivatives are considered closely related to their host contract~~ and doineffective ~~not~~portion ~~have to be recorded at their fair value. Accordingly, measurement~~ of ~~hedging~~derivative ~~relationships ineffectiveness recorded in earnings under U.S. GAAP could differ from the measurement under Canadian GAAP.~~ instruments

~~Further~~Since ~~differences~~January 1, ~~result~~2007, ~~from~~standards ~~the~~for ~~different~~hedge ~~transition~~accounting ~~rules~~under ~~and~~Canadian ~~timing~~GAAP ofare ~~the~~now ~~adoption~~similar ofto ~~the~~those ~~current~~under ~~standards~~U.S. inGAAP, ~~Canada~~as ~~and~~established inby ~~the~~SFAS ~~United~~133, ~~States~~Accounting for ~~derivative~~Derivative ~~financial~~Instruments ~~instruments~~ and ~~hedge~~Hedging ~~accounting~~Activities.

~~(d) Non-Monetary~~However, ~~Transactions~~under Canadian GAAP, certain embedded derivatives, such as the early settlement options included in one of the Company’s borrowing agreements, do not meet the criteria to be considered closely related to their host contracts and therefore must be recorded at their fair value with changes in income. Under U.S. GAAP, these embedded derivatives are considered closely related to their host contract and do not have to be recorded separately at their fair value. Accordingly, the measurement of ineffective hedging relationships recorded in income under U.S. GAAP differs from the measurement under Canadian GAAP.

In(iv) April 2005, the Company exchanged a community publication for another community publication. Under U.S. GAAP, this exchange of businesses is recorded in accordance with FASB Statement No. 141, Business Combinations and the cost of the purchase should be determined as the fair value of the consideration given or the fair value the net assets or equity interest received, whichever is more reliably measurable. Under Canadian GAAP, since this exchange of businesses was a non-monetary transaction, it was accounted for in accordance with CICA Handbook 3830, Non-monetary ~~Transactions, and recorded at the carrying value of the asset or service given up in the exchange adjusted by any monetary consideration received or given.~~ transactions

~~Accordingly~~In April 2005, ~~under~~Sun Media exchanged a community publication for another community publication. Under U.S. GAAP, this ~~transaction~~exchange ~~resulted~~of inbusinesses ais ~~gain~~recorded onin ~~disposal~~accordance ofwith ~~the~~SFAS ~~Company’s~~141, Business ~~publication~~Combinations, inand ~~2005~~the ~~and~~cost ~~also~~of ~~resulted~~the inpurchase anshould ~~increase~~be ofdetermined as the ~~purchase~~fair ~~price~~value of the ~~publication~~ ~~acquired.~~consideration Agiven ~~portion~~or the fair value of the ~~increase~~net inassets ~~purchase~~or ~~price~~equity ~~was~~interest ~~allocated~~received, towhichever ~~amortizable intangible~~is ~~assets~~more ~~for~~reliably Umeasurable.S. ~~GAAP~~Under ~~purposes~~Canadian GAAP, ~~and~~since this exchange of businesses is a non-monetary transaction, it is ~~being~~accounted ~~amortized~~for ~~over~~in 10accordance with CICA Section ~~years~~3831, Non-monetary Transactions, and recorded at the carrying value of the asset or service given up in the exchange adjusted by any monetary consideration received or given.

~~(e) Share-Based~~Accordingly, ~~Payments~~under U.S. GAAP, this transaction resulted in a gain on disposal of a publication and also resulted in an increase of the purchase price of the publication acquired.

~~Under U.S. GAAP, the Company adopted Financial Accounting Standards No. 123R, Share-Based Payments~~ (~~“SFAS123R”~~v). ~~In accordance with SFAS123R, the liability related to stock~~Stock-based awards that call for settlement in cash or other assets must be measured at its fair value based on the fair value of stock option awards, and shall be remeasured at the end of each reporting period until settled. Under Canadian GAAP, the liability is measured and remeasured based on the intrinsic value of the stock option awards instead of the fair value. compensation

Under U.S. GAAP, in accordance with SFAS 123(fR) ~~Related~~ ~~Party~~Share ~~Transactions~~Based Payment, the liability related to stock-based awards that call for settlement in cash or other asset, must be measured at its fair value based on the fair value of stock option awards and is to be re-measured at the end of each reporting period. Under Canadian GAAP, the liability is measured and re-measured based on the intrinsic value of the stocks option awards instead of their fair value.

In(vi) the third quarter of 2006, the Company entered into a tax consolidation transaction by which Quebecor Inc., the ultimate parent company, transferred to the Company non-capital tax losses for net cash consideration of $16,142. Under GAAP in Canada, the transaction was recorded in accordance with CICA Handbook 3840, Related ~~Party~~party Transactions, and resulted in the recognition of a deferred credit of $8,400, which reduces future income tax expense as these tax deductions are used. Under GAAP in the United States, since this transaction related to an asset transfer from Quebecor Inc. to the Company, the difference between the carrying value of the tax deductions transferred and the cash consideration paid has been recognized in contributed surplus. transactions

The Company entered into a tax consolidation transaction with a related party through which tax losses were transferred between the parties. Under Canadian GAAP, it resulted in the recognition of a deferred credit of $8,400 in 2006, and in a $7,739 and $661 reduction in the Company’s income tax expense in 2007 and 2008, respectively. Under U.S. GAAP, since this transaction related to an asset transfer between related parties, the difference between the carrying value of the tax benefits transferred and the cash consideration paid would have been recognized in contributed surplus.

(vii)

Income taxes

Under U.S. GAAP, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN48”), an interpretation of SFAS 109, Accounting for Income Taxes. FIN48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS 109 and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This interpretation also provides guidance as to derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.

Under Canadian GAAP, there is no such interpretation and therefore the reserve related to income tax contingencies is not based on the same level of likelihood as prescribed by FIN48.

~~(g) Income~~Furthermore, ~~Taxes~~under Canadian GAAP, income taxes are measured using substantively enacted tax rates, while under U.S. GAAP, measurement is based on enacted tax rates.

~~Under~~Other ~~U.S.~~adjustments ~~GAAP,~~represent ~~on January 1, 2007,~~ the ~~FASB~~tax ~~issued~~impact ~~interpretation No. 48, Accounting for Uncertainty in Income Taxes — an interpretation~~ of ~~FASB Statement No~~U. ~~109 (“FIN48”)~~S. ~~FIN48 clarifies~~GAAP ~~the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No~~adjustments. 109, Accounting for Income Taxes and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This interpretation also provides guidance as to derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The adoption of FIN48 did not have an impact on Sun Media’s consolidated statements of income.

~~Under~~(viii) ~~Canadian~~Fair ~~GAAP,~~value ~~there is no such interpretation and therefore, the reserve related to income taxes contingencies is not based on the same level of likelihood as the one used under the new rules of FIN48.~~ measurements

~~Further~~On ~~adjustments~~January 1, ~~represent~~2008, the ~~tax~~Company ~~impact~~adopted the provisions of USFAS 157, Fair Value Measurements, that enhance guidance for using fair value to measure assets and liabilities.S In February 2008, the FASB issued FASB Staff Position (“FSP”) FAS 157-1, Application of SFAS 157 to FASB Statement No. 13 and ~~GAAP~~Other ~~adjustments~~Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13, which removes certain leasing transactions from the scope of SFAS 157, and FSP FAS 157-2, Effective Date of SFAS 157, which defers the effective date of SFAS 157 for one year for certain non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis. The Company is still in the process of evaluating this standard with respect to its effect on non-financial assets and liabilities and has not yet determined the impact that it will have on its financial statements upon full adoption in 2009.

13. SUBSEQUENT EVENT

On July 22, 2008, Sun Media acquired the remaining 24.99% of the shares of Le Courrier du Sud 1998 (Inc.) making it a wholly-owned subsidiary. The cash purchase consideration totalled approximately $7,227. This acquisition will be accounted for under the purchase method of accounting.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	SUN MEDIA CORPORATION
	By:	/s/ John Leader
Date: August 26, 2008	Name:	John Leader
	Title:	Executive Vice President, Finance and Chief Financial Officer

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Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

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