Sun-Times Media Group Inc – ‘10-K’ for 12/31/97

As of:  Friday, 3/27/98   ·   For:  12/31/97   ·   Accession #:  950137-98-1248   ·   File #:  1-14164

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Annual Report   —   Form 10-K
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Document/Exhibit                   Description                      Pages   Size 

 1: 10-K        Annual Report                                        114    568K 
 2: EX-23.1     Consent                                                1      6K 
 3: EX-27.1     Financial Data Schedule                                1      6K 
 4: EX-27.2     Financial Data Schedule                                1      7K 

10-K   —   Annual Report
Document Table of Contents

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UNITED STATES 
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-K 

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE 
SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the Fiscal Year ended December 31, 1997 
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [No Fee Required] 
For the transition period from _____ to _____ 
Commission File No. 0-24004 

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

Delaware                                           95-3518892       
--------                                           ----------       
(State or other jurisdiction             (I.R.S. Employer Identification Number)
of incorporation or organization)                                               

401 North Wabash Avenue, Suite 740, Chicago, Illinois       60611     
-----------------------------------------------------  -------------- 
    (Address of Principal Executive Office)               (Zip Code)

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

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: 

                                                        [Enlarge/Download Table]


TITLE OF EACH CLASS:                                   NAME OF EACH EXCHANGE ON WHICH REGISTERED:
----------------------------------------------  -------------------------------------------------
                                                                                                 
Class A Common Stock par value $.01 per share          New York Stock Exchange                   
9 1/4% Senior Subordinated Notes due 2006              New York Stock Exchange                   
9 3/4% Preferred Redeemable Increased Dividend         New York Stock Exchange                   
    Equity Securities                                                                            
8 5/8% Senior Notes due 2005                           New York Stock Exchange                   
9 1/4% Senior Subordinated Notes due 2007              New York Stock Exchange                   

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: 
None

 Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of   
1934 during the preceding 12 months and (2) has been subject to such filing     
requirements for the past 90 days.  Yes   x    No                               
               --     ----

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

   The aggregate market value of Class A Common Stock held by non-affiliates
as of  March 16, 1998, was approximately $571,648,000.  As of such date,        
non-affiliates held no shares of Class B Common Stock.  There is no active      
market for the Class B Common Stock.                                            

   The number of outstanding shares of each class of the registrant's common
stock as of March 16, 1998, was as follows: 71,577,799 shares of Class A        
Common Stock and 14,990,000 shares of Class B Common Stock.                     

DOCUMENTS INCORPORATED BY REFERENCE 

                                                                [Download Table]
                                                                                   
DOCUMENT                                                                   LOCATION
--------                                                                   --------
Proxy Statement for 1998 Annual Meeting of Stockholders filed pursuant to          
Regulation 14A under the Securities Exchange Act of 1934...................Part III

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HOLLINGER INTERNATIONAL INC.
1997 FORM 10-K
______________

                                    PART I                                PAGE
                                                                          ----

    Item 1.  Business ...................................................    1
    Item 2.  Properties .................................................   25
    Item 3.  Legal Proceedings ..........................................   26
    Item 4.  Submission of Matters to a Vote of Security Holders ........   26

PART II 

Item 5.  Market for the Registrant's Common Equity and Related        
             Stockholder Matters ........................................   29
    Item 6.  Selected Financial Data ....................................   31
Item 7.  Management's Discussion and  Analysis of Financial Condition 
             and Results of Operations ..................................   33
    Item 8.  Financial Statements and Supplementary Data ................   52
Item 9.  Changes in and Disagreements with Accountants on Accounting  
             and Financial Disclosure ...................................   52

PART III

Item 10.  Directors and Executive Officers of                         
              the Registrant ............................................   53
    Item 11.  Executive Compensation ....................................   53
Item 12.  Security Ownership of Certain Beneficial                    
              Owners and Management .....................................   53
    Item 13.  Certain Relationships and Related Transactions ............   53

PART IV 

Item 14.  Exhibits, Financial Statement Schedules and Reports on      
              Form 8-K                                                      54

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PART I

ITEM 1. BUSINESS                                                                

OVERVIEW                                                                        

Hollinger International Inc. (the "Company"), through subsidiaries and
affiliated companies, is a leading publisher of English-language newspapers in  
the United States, the United Kingdom, Canada and Israel.  Included among the   
167 paid daily newspapers, which the Company owns or has an interest in, are    
the Chicago Sun-Times, The Daily Telegraph and the Ottawa Citizen.  These 167   
newspapers have a worldwide daily combined circulation of approximately         
4,504,000.  In addition, the Company owns or has an interest in 361 non-daily   
newspapers as well as magazines and other publications.  The Company's strategy 
is to achieve growth through acquisitions and improvements in the cash flow and 
profitability of its newspapers. Since the Company's formation in 1986, the     
existing senior management team has acquired over 400 newspapers and related    
publications (net of dispositions) in the United States, The Daily Telegraph in 
the United Kingdom, The Jerusalem Post in Israel, and has made significant      
investments in newspapers in Canada, including a controlling interest in        
Southam Inc. ("Southam"), Canada's largest newspaper publisher and the          
acquisition of the Canadian Newspapers in 1997 from Hollinger Inc. In December  
1996 and the first quarter of 1997 the Company sold its 24.7% interest in John  
Fairfax Holdings Limited ("Fairfax"), a publicly held Australian newspaper      
publisher.                                                                      

The operations of the Company consist of its United States Newspaper  
Group, its U.K. Newspaper Group, and Canadian Newspaper Group which accounted   
for 29%, 22% and 49%, respectively, of the Company's total operating revenues   
of $2,211.5 million for the year ended December 31, 1997.                       

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

UNITED STATES NEWSPAPER GROUP                                         

  The Company's United States operations consist of its Chicago Group, led
by the Chicago Sun-Times, the eighth largest circulation metropolitan daily     
newspaper in the United States, and its Community Group, consisting of 324      
newspapers and related publications.  As of December 31, 1997, the Company      
published a total of 402 newspapers and related publications in the United      
States consisting of 107 daily newspapers with a total paid circulation of      
approximately 1,272,000, 141 paid non-daily newspapers with a combined paid     
circulation of approximately 1,191,000 and 154 free circulation publications    
with a combined circulation of approximately 2,354,000, and a total combined    
circulation of approximately 4,817,000. For accounting and management purposes, 
the Community Group also includes the Company's wholly-owned subsidiary         
("Jerusalem Post") which publishes The Jerusalem Post, Israel's most important  
English-language daily newspaper, with a paid daily circulation of              
approximately 14,700.  The related weekend edition of The Jerusalem Post,       
including the English and French-language international weekly editions, have a 
combined paid circulation of approximately 120,000.  The Chicago Group and the  
Community Group accounted for 15.4% and 13.2%, respectively, of the Company's   
total operating revenues for the year ended December 31, 1997.                  

U.K. NEWSPAPER GROUP                                                  

The Company's U.K. Newspaper Group consists of its wholly owned       
subsidiary, The Telegraph Group Limited and its consolidated subsidiaries ("The 
Telegraph").  The Telegraph publishes The Daily Telegraph, the leading quality  
(or broadsheet) newspaper in the United Kingdom.  The Telegraph also publishes  
The Sunday Telegraph, The Weekly Telegraph, the Electronic Telegraph and The    
Spectator magazine.  The Daily Telegraph is the largest circulation quality     
daily newspaper in the United Kingdom with an average daily circulation of      
approximately 1,111,000, representing a 39% share of the quality daily          
newspaper market.  The Daily Telegraph's Saturday edition has the highest       
average daily circulation (approximately 1,273,000) among quality daily         
newspapers in the United Kingdom.  The Sunday Telegraph is the second largest   
circulation quality Sunday newspaper in the United Kingdom with an average      
Sunday circulation of approximately 890,000.  The Telegraph's operating         
revenues were $492.3 million for the year ended December 31, 1997.              

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   On December 16, 1996, the Company announced that Daily Telegraph Holdings
BV ("DTH BV"), a Dutch subsidiary of The Telegraph, had agreed conditionally to 
sell its 24.7% interest in Fairfax to three Australian  subsidiaries of Brierley
Investments Limited ("BIL") of New Zealand.  The first tranche of the sale      
consisted of a 12.0% interest and was completed on December 20,1996 for gross   
cash proceeds of A$254.8 million ($202.3 million).  The second tranche consisted
of a 7.9% interest, including seven million non-voting convertible debentures   
and was completed on January 10, 1997 for gross cash proceeds of A$192.2 million
($150.3 million). The Company sold its remaining 4.8% interest on March 27,     
1997 for gross cash proceeds of A$112.5 million ($88.7 million).                

CANADIAN NEWSPAPER GROUP                                              

The Company's Canadian Newspaper Group consists of its 58.6% equity   
interest in Southam and its consolidated subsidiaries and the Canadian          
Newspapers.                                                                     

  During 1997, the Company increased its indirect interest in Southam from
50.7% to 58.6%.  Southam is a publicly held Canadian corporation with           
operations in newspaper publishing, and to a lesser extent, in business         
communications.  Southam is Canada's largest publisher of daily newspapers with 
33 daily newspapers and 58 non-daily newspapers with a total daily circulation  
of approximately 1,600,000.  Southam's principal publications include The       
Gazette (Montreal), The Ottawa Citizen, the Calgary Herald, The Vancouver Sun,  
The Province (Vancouver) and The Edmonton Journal.  In addition, the Southam    
Magazine and Information Group publishes Canadian and United States business    
magazines and tabloids for the automotive, trucking, construction, natural      
resources, manufacturing and other industries.  Southam's operating revenues    
were $861.8 million for the year ended December 31, 1997.                       

  The Canadian Newspapers consist of ten daily, five non-daily and 18 free
distribution newspapers located in Ontario, four daily, one non-daily and       
six free distribution newspapers located in Saskatchewan, eight daily, five     
non-daily and 10 free distribution newspapers located in British Columbia and   
three daily, one non-daily and 11 free distribution newspapers in Quebec.       
Total paid daily circulation for the Canadian Newspapers is approximately       
475,000.  Canadian Newspapers' operating revenues were $223.9 million for the   
year ended December 31, 1997.                                                   

REORGANIZATION                                                        

  On October 13, 1995 the Company acquired Hollinger Inc.'s indirect 58.2%
interest in The Telegraph, including The Telegraph's approximate 24.7% interest 
in Fairfax and its approximate 19.4% voting interest in Southam,  and its       
rights and obligations under an option pursuant to which Hollinger Inc. had the 
right to purchase 7,000,000 ordinary shares of The Telegraph (the "Telegraph    
Option"), in exchange for 33,610,754 shares of the Company's Class A Common     
Stock, par value $.01 per share ("Class A Common Stock"), 739,500 shares of its 
Series A Preferred Stock, par value $.01 per share ("Series A Preferred Stock") 
which are convertible to Class A Common Stock at an initial conversion price of 
the Canadian dollar equivalent of $14 per share and paid Hollinger Inc.         
$13,832,000 in cash as a working capital adjustment (the "Reorganization"). The 
Series A Preferred Stock was subsequently exchanged for Series D Preferred      
Stock. The Company also exercised the Telegraph Option which increased its      
interest in The Telegraph to 63.5%.  On December 15, 1995, the Company,         
through an English subsidiary, acquired an additional 995,000 ordinary shares   
of The Telegraph for approximately $6.9 million, thereby increasing its total   
interest in The Telegraph to approximately 64% of the outstanding ordinary      
shares.  On August 8, 1996, the Company acquired of all of the outstanding      
ordinary shares of The Telegraph (approximately 36%) not previously controlled  
by it (the "Telegraph Minority Shares") for apprximately $455.7 million.   As a 
result, the Telegraph became an indirect wholly owned subsidiary of the         
Company.                                                                        

REORGANIZATION OF CANADIAN NEWSPAPER INTERESTS                        

  On January 7, 1997, the Boards of Directors of the Company and Hollinger
Inc. announced that they had reached an agreement for the transfer by Hollinger 
Inc. of certain of its wholly owned Canadian publishing interests directly or   
indirectly to Hollinger Canadian Publishing Holdings Inc. ("HCPH"), including   
newspaper assets located mainly in Ontario, Saskatchewan, British Columbia, and 
UniMedia, Inc. (collectively the "Canadian Newspapers") for an aggregate        
consideration of approximately $382.0 million (Cdn.$523.0 million), subject to  
working capital                                                                 

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adjustments and currency exchange adjustments (the "Hollinger Inc.              
Transaction").  The purchase price was satisfied by payment of cash in the      
amount of $250.0 million, and by the issuance of a new series of preferred stock
of the Company, which was converted into (i) 829,409 shares of a new series of  
mandatorily convertible preferred stock of the Company similar to the   PRIDES  
issued by the Company in August 1996 having a face value of $90.0 million and   
(ii) 3,207,245 shares of Class A Common Stock of the Company having a nominal   
agreed value of $42.0 million, subject to adjustment as described above.        

PUBLIC OFFERINGS                                                      

1996 OFFERINGS.  On February 7, 1996, the Company completed an        
underwritten public offering of 14,000,000 shares of its Class A Common Stock   
at a public offering price of $9.25 per share and on February 20, 1996, the     
Underwriters exercised their over-allotment option and purchased an additional  
2,100,000 shares (the "Stock Offering").  Net proceeds to the Company from the  
Stock Offering were approximately $142.1 million.                               

    In addition, on February 7, 1996, Publishing, a Delaware corporation and a
wholly owned subsidiary of the Company, completed a public offering of $250     
million principal amount of 9.25% Senior Subordinated Notes due February 1,     
2006 (the "Notes") priced at par (the "Notes Offering").  Payment of the        
principal, premium, if any, and interest on the Notes was guaranteed by the     
Company on an unsecured senior subordinated basis.  Net proceeds to Publishing  
from the Notes Offering were approximately $242.5 million.  In connection with  
the consummation of the Notes Offering, the Company transferred to Publishing   
all of the shares owned by it of its United States and foreign subsidiaries     
together with associated debt and other liabilities.                            

  The Company applied the net proceeds of the Stock Offering and the Notes
Offering to (i) repay in full outstanding bank debt of the Company and its      
subsidiaries in the aggregate principal amount of $290 million, plus accrued    
interest of $3.5 million; and (ii) repay $20.8 million due to Hollinger Inc.    
The remaining net proceeds, after paying accrued interest and costs associated  
with this offering, were added to the Company's cash and cash equivalents for   
general corporate purposes.                                                     

 In a series of transactions occurring in early August 1996, the Company
sold 11,500,000 shares of Class A Common Stock at a price of $9.75 per share    
and 20,700,000 9.75% Preferred Redeemable Increased Dividend Equity Securities  
("PRIDES") at a price of $9.75 per PRIDES.  The $301.1 million combined net     
proceeds of these sales, together with the related bank financing, were used in 
the acquisition of the Telegraph Minority Shares, to paydown Telegraph          
indebtedness and to pay transaction costs.                                      

   1997 OFFERINGS.  On March 4, 1997, Publishing filed both a Prospectus and
a Prospectus Supplement offering $200 million of Senior Notes due 2005 (the     
"Senior Notes") and $200 million of Senior Subordinated Notes due 2007 (the     
"Senior Subordinated Notes") pursuant to its universal shelf registration       
statements.  On March 12, 1997, Publishing increased the size of the offerings  
to $550.0 million, which closed on March 18, 1997.  Both the Senior Notes and   
the Senior Subordinated Notes are guaranteed by the Company.                    

The Senior Notes are unsecured senior obligations of Publishing,      
rank pari-passu with all other unsecured senior indebtedness of Publishing      
including Publishing's bank credit facilities, mature on March 15, 2005 and     
bear interest at 8.625% per annum.  The Senior Subordinated Notes are unsecured 
senior subordinated obligations of Publishing and rank pari-passu with all other
senior subordinated indebtedness of Publishing including its existing 9.25%     
Senior Subordinated Notes due 2006.  The Senior Subordinated Notes mature on    
March 15, 2007 and bear interest payable semi-annually at a rate of 9.25% per   
annum.  The Indentures relating to the Senior Notes and the Senior Subordinated 
Notes contain financial covenants and negative covenants that limit             
Publishing's ability to, among other things, incur indebtedness, pay dividends  
or make other distributions on its capital stock.                               

   Publishing and its restricted subsidiaries utilized the proceeds of these
offerings to repay bank indebtedness, to repay the redeemable preference shares 
of DT Holdings Limited ("DTH") and First DT Holdings Limited ("FDTH") and for   
general working capital purposes.                                               

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OWNERSHIP BY HOLLINGER INC.                                           

  Hollinger Inc. directly and indirectly owns 59.9% of the combined equity
interest and 84.3% of the combined voting power of the outstanding Class A      
Common Stock and Class B Common Stock of the Company (without giving effect to  
the future issuance of Class A Common Stock in connection with the Company's    
PRIDES or upon conversion of the Company's Series C Preferred Stock or Series   
D Preferred Stock or the Special Shares of HCPH as defined in Note 12 of the    
Consolidated Financial Statements).  As a result, Hollinger Inc. will           
continue to be able to control the outcome of any election of directors and to  
direct management policy, strategic direction and financial decisions of the    
Company and its subsidiaries.  Hollinger Inc. owns all of the outstanding       
Series C Preferred Stock which shall convert automatically on June              
1, 2001 pursuant to the conversion formula set forth in its Certificate of      
Designations and Series D Preferred Stock of the Company, which is convertible  
at any time into shares of Class A Common Stock at the initial conversion price 
of the Canadian dollar equivalent of $14 per share.  Based on the initial       
conversion price,  5,654,582  shares of Class A Common Stock would have been    
issuable as of March 16, 1998.                                                  

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

GENERAL                                                               

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

BUSINESS STRATEGY                                                               

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

   The Company's newspaper operating strategy in the U.S. Community Group is
to operate newspapers in regional clusters where feasible. This enables the     
Company to market advertising on a regional basis and allows for regionalized   
management which results in  cost savings from reduction in overhead,           
centralized purchasing and, to the extent practicable, regionalized             
printing.  The Company intends to generate additional cost savings              
opportunities through operating efficiencies and automation in the Community    
Group.  Further, improvements in profitability at  properties acquired during   
the past three years will be emphasized.                                        

In Chicago, the focus on overall cost reduction will continue.        
Significant emphasis on continuing to increase circulation at the Chicago       
Sun-Times and the continued focus on deploying human resources to sales and     
marketing, both locally through a combined network of all Chicago Group         
newspapers, and nationally by bringing national salesmen in-house and opening   
national sales offices in major business centers. In addition, efficiencies     
through automation and an upgrade of printing facilities are expected.          

The focus for The Daily Telegraph will continue to be increased       
circulation and resulting advertising revenue increases.  The successful        
prepaid subscription program will continue, albeit at higher subscription       
prices than the initial introductory offer.  The Company will continue to focus 
on maintaining and increasing the circulation increase for The Sunday           
Telegraph.  Operationally, continued efficiencies in producing the newspapers   
through joint ventures in West Ferry Printers and Trafford Park Printers are    
expected. Through its new joint venture with Express Newspapers, Newsprint      
Management and Supply Services, Ltd. ("NMSS"), The Telegraph expects to realize 
efficiencies in the control of waste with a resulting decrease in newspaper     
costs.                                                                          

   After the acquisition of the Canadian Newspapers from Hollinger Inc., the
Company intends to continue current efforts to improve the profitability of the 
acquired papers and to capitalize on profitability improvements already         
introduced by Hollinger Inc.  The Company also intends to achieve additional    
cost savings through the                                                        

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centralization of newsprint purchasing and certain other functions, such as     
accounting and personnel.  The Company intends to coordinate, to the extent     
practicable, its newsprint purchases for its United States newspapers with      
those of the Canadian Newspapers as well as Southam. To achieve greater         
product quality and cost reductions, the Company, where justified by economic   
and operational criteria, may regionalize production operations at its          
Canadian community newspapers and may explore the feasibility of such           
regionalization with Southam's newspaper operations in Canada.  The Company     
also intends to enhance advertising and circulation revenues by focusing on the 
natural circulation and readership advantages of the particular newspapers      
acquired.                                                                       

Southam intends to continue to improve profitability of its existing  
and newly acquired newspapers, magazines and other publications through the     
implementation of the previously announced labor cost reduction program, the    
decentralization of certain administrative and corporate functions, and         
enhancements to editorial and product quality.  By the end of 1997 Southam had  
made significant progress in its staff reduction plan announced in 1995         
which included the elimination of 750 positions and the write-down of redundant 
assets at its Pacific Press facility in Vancouver, including printing equipment 
and other operating assets.  Southam installed new printing equipment at the    
Pacific Press facilities which became operational in 1997, which has improved   
product print quality is expected to reduce labor and other operating costs as  
the equipment becomes fully operational.  In addition, Southam's business       
strategy includes improvement of circulation and advertising revenues by        
focusing on the natural circulation or readership advantages of each newspaper  
and improvement in its newsprint purchase agreements by coordinating, to the    
extent practicable, its newsprint purchases with that of the Company.  The      
Company also intends to explore with Southam possible regional printing         
arrangements between Southam's various newspapers located in different          
communities throughout Canada and the Canadian Newspapers.                      

The Company constantly seeks newspaper acquisition candidates that are
underperforming in terms of cash flow but have a long history of publishing     
within a community and, from the Company's point of view, possess strong        
readership and advertiser loyalty; have the potential for increased gross       
operating profit through cost reductions, revenue enhancements and synergies    
with the Company's existing operations; and are available at attractive prices. 
The Company expects that its future acquisitions in the United States and       
Canada will be principally of community newspapers; however, the Company may    
consider the acquisition of selected  larger circulation publications that meet 
the Company's acquisition criteria.                                             

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

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Certain statements contained in this report under various sections,   
including but not limited to "Business Strategy" and "Management's Discussion   
and Analysis", are forward-looking statements that involve risks and            
uncertainties.  Such statements are subject to the following important factors, 
among others, which in some cases have affected, and in the future could        
affect, the Company's actual results and could cause the Company's actual       
consolidated results for the first quarter of 1998, and beyond, to differ       
materially from those expressed in any forward-looking statements made by, or   
on behalf of, the Company:                                                      

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

o    Growth Strategy -- The Company's strategy is to achieve growth through     
 acquisitions and improvements in the cash flow and profitability of its
newspapers, principally through cost reductions.  The Company's growth
strategy presents risks inherent in assessing the value, strengths and
 weaknesses of acquisition opportunities, in evaluating the costs of new
  growth opportunities at existing operations and in managing the numerous
publications it has acquired and improving their operating efficiency.
    While the Company believes that there are significant numbers of potential
acquisition candidates, the Company is unable to predict the number or
timing of future acquisition opportunities or whether any such        
opportunities will meet the Company's acquisition criteria or, if such
  acquisitions occur, whether the Company will be able to achieve improved
operating efficiencies or enhanced profitability.  In addition, the   
Company's acquisition strategy is largely dependent on the Company's  
ability to continue to obtain financing on acceptable terms.          

o    Restrictions in Debt Agreements and Other Restrictive Arrangements -- The  
Company and its subsidiaries have substantial leverage and            
substantial debt service obligations as well as obligations under the 
preferred stock of the Company and the PRIDES.  The instruments       
    governing the terms of the principal indebtedness and redeemable preferred
stock of the Company, Publishing and its principal United States and  
foreign subsidiaries contain various covenants, events of default and 
other provisions that could limit the financial flexibility of the    
 Company, including the payment of dividends with respect to outstanding
common stock and preferred stock and the implementation of its growth 
strategy.                                                             

o    Cyclicality of Revenues -- Advertising and, to a lesser extent,            
circulation revenues of the Company, as well as those of the newspaper
industry in general, are cyclical and dependent upon general economic 
conditions. Historically, increases in advertising revenues have      
   corresponded with economic recoveries while decreases, as well as changes
in the mix of advertising, have corresponded with general economic    
downturns and regional and local economic recessions.  The Company    
   believes, however, that the geographic diversity of its global operations
  may mitigate, to some degree, the effects of an economic downturn in any
particular market served by the Company.                              

o    Newsprint Costs -- Newsprint represents the single largest raw             
material expense of the Company's newspapers throughout the world and,
together with employee costs, is one of the most significant operating
costs. Newsprint costs vary widely from time to time. For example,    
  newsprint cost increased approximately 40% per metric ton in 1995  on an
   industry-wide basis, and the average cost per metric ton of newsprint was
  substantially higher in the first half of 1996 than in the first half of
    1995.  However, newsprint costs decreased significantly in the second half
of 1996, continued to decline through the second quarter of 1997 and  
  increased slightly in the second half of 1997.  Although the Company has
  implemented measures in an attempt to offset a rise in newsprint prices,
such as reducing page width and managing its return policy, price     
increases have had an adverse effect on                               

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   Company's results of operations.  The Company has no effective ability to
    use long term fixed price newsprint supply contracts to hedge its exposure
to price fluctuations.                                                

o    Foreign Operations and Currency Exchange Rates -- Operations outside of    
the United States accounted for approximately 72.3% of the Company's  
operating revenues and approximately 71.8% of the Company's operating 
    income for the year ended December 31, 1997.  In general, the Company does
   not hedge against foreign currency exchange rate risks.  As a result, the
     Company may experience economic loss and a negative impact on earnings with
    respect to its investments and on dividends from its foreign subsidiaries,
solely as a result of currency exchange rate fluctuations.            

o    Newspaper Industry Competition -- Revenues in the newspaper industry are   
dependent primarily upon advertising revenues and paid circulation.   
  Competition for advertising and circulation revenue comes from local and
  regional newspapers, radio, broadcast and cable television, direct mail,
and other communications and advertising media that operate in the    
   Company's markets. The extent and nature of such competition is, in large
  part, determined by the location and demographics of the markets and the
number of media alternatives in those markets.  Some of the Company's 
competitors are larger and have greater financial resources than the  
Company.  For example, in the Chicago metropolitan area, the Chicago  
   Sun-Times competes with a large established metropolitan daily and Sunday
     newspaper that is the fifth largest metropolitan daily and Sunday newspaper
in the United States. In the United Kingdom, The Daily Telegraph      
    competes with other national newspapers, principally The Times, which over
the past several years has from time to time substantially reduced its
    cover price in an effort to increase its circulation.  The Daily Telegraph
has met this competition and has from time to time engaged in its own 
   price reduction or promotional  initiatives. These competitive activities
can and have from time to time  had an adverse effect on revenues and 
operating costs.                                                      

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UNITED STATES NEWSPAPER GROUP                                                   

CHICAGO GROUP                                                   

The Chicago Group consists of The Sun-Times Company which, with its   
subsidiaries (the "Chicago Sun-Times"), publishes the Chicago Sun-Times,        
presently the eighth largest metropolitan daily newspaper in the United States, 
and one suburban daily and 74 suburban weekly and biweekly newspapers in the    
Chicago area.                                                                   

The Chicago Sun-Times, which has an average daily paid circulation of 
approximately 500,000 and is published in a tabloid format, has the largest     
daily circulation in Cook County, Illinois, which includes the City of Chicago. 
The suburban papers include Pioneer Newspapers Inc. ("Pioneer Press") which     
currently publishes 48 weekly newspapers in Chicago's north and northwest       
suburbs, 20 biweekly newspapers published by Star Publications in  Chicago's    
south and southwest suburbs and one daily newspaper, one weekly newspaper, and  
five free distribution papers published by Daily Southtown.  On December 27,    
1997 Star Publications Inc. merged into Daily Southtown Inc.; the surviving     
entity charged its name to Midwest Suburban Publishing Inc.                     

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

                                                        [Enlarge/Download Table]


                                                            YEAR ENDED DECEMBER 31,                             
                               -------------------------------------------------------------------------------- 
                                     1997                          1996                             1995        
                               -------------------------------------------------------------------------------- 
                                                            (DOLLARS IN THOUSANDS)                              
                                                                                                                
 Advertising..................  $     243,301   71%           $      228,676   69%           $     228,685   69%
 Circulation .................         79,574   23                    80,693   24                   78,518   24 
 Job Printing                                                                                                   
   and Other .................         18,493    6                    24,263    7                   23,419    7 
                               -------------------------------------------------------------------------------- 
Total ........................  $     341,368  100%           $      333,632  100%           $     330,622  100%
                               ================================================================================ 

    ADVERTISING  Substantially all advertising revenues are derived from local
and national retailers and classified advertisers.  Advertising rates and rate  
structures vary among the publications and are based, among other things, on    
circulation, penetration and type of advertising (whether classified or display 
and national or retail).  In 1997, retail advertising accounted for the largest 
share of advertising revenues (51%), followed by classified (38%) and           
national (11%).                                                                 

The Chicago Sun-Times offers a variety of advertising alternatives,   
including full-run advertisements, geographically zoned issues, special         
interest pull-out sections and advertising supplements in addition to regular   
sections of the newspaper targeted to different readers, such as arts, food,    
real estate, TV listings, weekend, travel and special.  The Chicago area        
suburban newspapers also offer weekly both separate and special sections.       
Management has also developed the Sun-Times Newspaper Network, an advertising   
vehicle which can reach the combined readership base of the Chicago Sun-Times   
and the Chicago area suburban newspapers, including the Daily Southtown.        

  CIRCULATION  Circulation revenues are derived from single copy newspaper
sales made through retailers and vending racks and home delivery newspaper      
sales to subscribers.  Approximately 67% of the copies of the Chicago           
Sun-Times sold in 1997 were single copy sales.  Approximately 42% of 1997       
circulation revenues of the Chicago area suburban newspapers were derived       
from subscription sales.                                                        

   The average paid daily and Sunday circulation of the Chicago Sun-Times is
approximately 500,000 and 427,000, respectively, the daily and Sunday paid      
circulation of the Daily Southtown is approximately 53,500 and 61,100,          
respectively, and the aggregate non-daily paid and free circulation of the      
Chicago area suburban newspapers is approximately 263,600 and 586,200,          
respectively.                                                                   

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

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

 EMPLOYEES AND LABOR RELATIONS.  As of March 16, 1998, the Chicago Group
employed approximately 2,800 employees (including approximately 600 part-time   
employees).  Approximately 1,300 employees are represented by 15 collective     
bargaining units.  Employee costs (including salaries, wages, fringe benefits,  
employment-related taxes and other direct employee costs) equaled approximately 
38% of the Chicago Group's revenues in the year ended December 31, 1997.  There 
have been no strikes or general work stoppages at any of the Chicago Group's    
newspapers in the past five years.  The Chicago Group believes that its         
relationships with its employees are generally good.                            

RAW MATERIALS.  The basic raw material for newspapers is newsprint.   
Newsprint costs equaled approximately 18% of the Chicago Group's revenues in    
the year ended December 31, 1997.  The newspaper industry has seen the cost of  
newsprint increase significantly since March of 1994. Newsprint prices began    
decreasing in the second quarter of 1996 and continued to decline through the   
first quarter of 1997.  Newsprint prices increased slightly though the          
remainder of 1997.  The Chicago Group is not dependent upon any single          
newsprint supplier and currently obtains newsprint from four principal          
suppliers.  To ensure an adequate supply of newsprint, the Chicago Group has    
newsprint supply contracts with certain minimum purchase requirements.  The     
Chicago Group, like other newspaper publishers, has not entered into any        
long-term fixed price newsprint supply contracts in the current environment of  
volatile newsprint costs.  The Chicago Group believes that its sources of       
supply for newsprint are adequate for its anticipated needs.                    

PRINTING AND PRODUCTION.  The Chicago Group has eight operating and   
production facilities.  All editorial, pre-press, press, marketing, sales and   
administrative activities for the Chicago Sun-Times are conducted at its main   
facility in Chicago.  The Chicago Sun-Times plans to commence construction of a 
new press facility during 1998 at an expected total cost of approximately       
$100.0 million, to be operational in 1999.                                      

  Pioneer Press uses its facility in north suburban Chicago for editorial,
pre-press, sales and administrative activities.  Production activities occur in 
a neighboring suburb.  In February 1997 Star Publications and Daily Southtown   
moved to a new combined facility for editorial, pre-press, marketing, sales and 
administrative activities.                                                      

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COMMUNITY GROUP                                                       

The Community Group consists of smaller newspaper publications in the 
United States and Israel.  The Community Group's United States daily newspapers 
have been published on average for almost 100 years and are typically the only  
paid daily newspapers of general circulation in their respective communities.   
Circulation for community newspapers range from 1,100 to 46,400 for paid        
dailies and from 100 to 53,500 for paid non-dailies.  Generally, the Company's  
community newspapers combine news, sports and features with a special emphasis  
on local information and provide one of the primary sources of such community   
information for the towns in which they are distributed.  In addition to        
reaching the local population through paid daily and non-daily community        
newspapers, the Company also publishes free circulation "total market coverage" 
publications, including shoppers, with limited or no news or editorial content. 
As a group, these publications provide the Company with a stable and            
established circulation within the communities they serve, which it believes    
provides an effective medium for advertisers to reach a significant portion of  
the households in these communities.                                            

On January 27, 1998, the Company completed a sale of approximately 80 
community newspapers. The newspapers sold had paid daily circulation of         
approximately 240,000.                                                          

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

       YEAR ENDED DECEMBER 31,
        ------------------------------------------------------------
            1997              1996                1995
        ------------------------------------------------------------
        (DOLLARS IN THOUSANDS)

Advertising...    $190,215  65%    $174,652  64%    $143,912     63%            
Circulation...      69,499  24       64,575  24       51,167     22             
Job Printing..                                                                  
and Other.....      32,551  11       34,513  12       33,512     15             
        ------------------------------------------------------------
Total.........    $292,265  100%   $273,740  100%   $228,591    100%            
        ============================================================

  ADVERTISING.  Substantially all of the United States community newspaper
advertising revenues in 1997 were derived from local retailers and classified   
advertisers, which management believes are less subject to fluctuation than     
national advertising.  Advertising rates and rate structures vary among the     
publications and are based, among other things, on circulation penetration and  
type of advertising (whether classified, display, or retail).  In 1997, United  
States local and regional advertising accounted for the largest share of        
advertising revenues (56%), followed by classified (25%), preprinted inserts    
(17%) and national (2%).  Management believes that the Company's strategy of    
acquiring and operating community newspapers in regional clusters parallels an  
emerging trend of larger retailers to advertise on a regional basis and         
positions the Company to benefit from this trend.                               

   Management intends to continue to develop new advertising revenue sources
such as regional and national display advertising, co-op advertising, national  
classified advertising and other targeted advertising.  The Company believes    
its existing sales, editorial and distribution resources provide it with        
significant cost advantages in developing new shoppers, other "total market     
coverage" and targeted publications in these markets.                           

    CIRCULATION.  Circulation revenues are derived from home delivery sales of
newspapers to subscribers and single copy sales made through retailers and      
vending racks.  Approximately 76% of the 1997 United States community newspaper 
circulation revenue was derived from subscription sales.  When possible         
subscription and single copy sales rates are increased in an effort to          
increase circulation revenues.  Single copy cover prices currently range from   
35 cents to 50 cents.                                                           

   JOB PRINTING.  Job printing revenues are derived from utilizing available
press capacity for printing customers' orders for newspapers, fliers, retail    
store advertisements and real estate listings.  The Company currently has a     
substantial number of printing customers and believes that its growth potential 
for job printing exists mainly in low volume (less than 100,000 copies) offset  
printing.                                                                       

   COMPETITION.  Each of the Company's community newspapers and total market
coverage publications competes in varying degrees with radio, television,       
direct marketing and other communications and advertising media as well as with 
other newspapers having local, regional or national circulation.  The Company   
also competes with other commercial printers for job printing orders.           

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 The Company's United States community publications are located in small
towns which, for the most part, are not suburbs of larger cities but are either 
county seats or are located on significant transportation corridors.  The       
Company's community dailies are typically the only paid daily newspapers of     
general circulation published in their respective communities.  The Company     
believes that distribution of its total market coverage publications with       
nearly 100% penetration levels in conjunction with community daily or non-daily 
newspapers strengthens its competitive position in the relevant market areas.   
Some of the Company's dailies face competition from dailies published by others 
in adjacent or nearby locations and circulated in the markets where the Company 
publishes a newspaper.                                                          

The Company's total market coverage publications, including shoppers, 
compete primarily with direct mail advertising, shared mail packages and other  
private advertising delivery services.  The Company believes that because of    
its significant presence in the small towns served by its community             
publications, which are predominantly in rural areas, not close to metropolitan 
areas, and its established distribution network, it has been able to compete    
effectively.                                                                    

   EMPLOYEES AND LABOR RELATIONS.  As of March 16, 1998, the Community Group
employed approximately 3,000 employees (including approximately 1,100 part-time 
employees) at its community publications in the United States.  Approximately   
3% of these employees are represented by unions.  Total Community Group         
employee costs (including salaries, wages, fringe benefits, employment-related  
taxes and other direct employee costs) equaled approximately 33.7% of the       
Community Group's revenues in fiscal year 1997.  There have been no strikes or  
general work stoppages at any of the Company's community newspapers in the past 
five years.  The Company believes that its relationships with its employees are 
generally good.                                                                 

RAW MATERIALS.  The basic raw material for newspapers is newsprint.   
Newsprint costs equaled approximately 9.9% of revenues for the Community Group  
in 1997.  The newspaper industry has seen the cost of newsprint increase        
significantly since March of 1994.  Newsprint prices began decreasing in        
the second quarter of 1996 and continued to decline through first quarter of    
1997.  Newsprint prices increased slightly though the remainder of 1997.  The   
Community Group is not dependent upon any single newsprint supplier and does    
not have long-term fixed price contracts with newsprint suppliers for its       
community publications.  It currently obtains newsprint from a number of        
suppliers, foreign and domestic.  The Community Group believes that its         
newsprint sources of supply are adequate for its anticipated needs.             

JERUSALEM POST.  At the time of acquisition by Hollinger Inc. in 1989,
Jerusalem Post was suffering operating losses.  Since then, a turnaround        
strategy has been implemented by senior officers of the Company and Jerusalem   
Post to reduce operating and labor costs and upgrade printing capability and    
the physical plant.  In the years ended December 31, 1997, 1996, and 1995,      
Jerusalem Post had operating margins of 7.4 %, 10.8%, and 14.7%, respectively.  

Over 40.4% of Jerusalem Post's revenues of $20.3 million in 1997 were 
derived from circulation, with 30.6% from job printing and 24.7% from           
advertising.  Jerusalem Post derives a greater percentage of its revenues from  
job printing than the Company's United States newspapers.  Jerusalem Post has   
entered into a long-term contract to print and bind copies of the "Golden       
Pages", Israel's equivalent of the "Yellow Pages" telephone directory.          
Newsprint costs relating to publication of The Jerusalem Post equaled           
approximately 9.1% of Jerusalem Post's revenues in 1997.  Newsprint used in     
producing the "Golden Pages" is provided by the owners of that publication.     

Newspapers in Israel are required by law to obtain a license from the 
country's interior minister, who is authorized to restrain publication of       
certain information if, among other things, it may endanger the public safety.  
To date, Jerusalem Post has not experienced any difficulties in maintaining its 
license to publish or been subject to any efforts to restrain publication.  In  
addition, all written media publications in Israel are reviewed by Israel's     
military censor prior to publication in order to prevent the publication of     
information that could threaten national security. Such censorship is           
considered part of the ordinary course of business in the Israeli media and has 
not adversely affected Jerusalem Post's business in any significant way.        

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MANAGEMENT ORGANIZATION                                               

   The senior management of the United States Newspaper Group is responsible
for developing operating strategies, approving business plans and significant   
capital expenditures, identifying acquisition opportunities, negotiating        
acquisitions and overseeing the integration of acquired newspapers and other    
newspapers into the Company.  Financial management of the Company, including    
the arrangement of financing to fund acquisitions and working capital           
needs of the Company, accounting, payroll and other financial functions and     
newsprint purchases, are centralized and undertaken by corporate staff at the   
Company's principal executive offices in Chicago and its offices in Marion,     
Illinois.  Each of the principal newspaper operations of the United             
States Newspaper Group has a separate management structure and team which is    
responsible for operational and editorial matters affecting the publications    
under their supervision.                                                        

UNITED STATES REGULATION                                              

 Paid circulation newspapers that are delivered by second class mail are
required to obtain permits from, and to file an annual statement of ownership   
and circulation with, the United States Postal Service.  Free circulation       
publications such as shoppers are delivered to subscribers and non subscribers  
both by mail and without the use of the mail.  Second class mail costs in 1997  
for the Company's community newspapers were $3.5 million, or 1.2% of the        
Community Group's revenues, and third class mail costs were $4.5 million in     
1997, or 1.5% of that group's revenues.  Second class mail costs in 1997 for    
the Chicago Group were $1.6 million or 0.5% of the Chicago Group's revenues,    
and third class mail costs were $2.9 million or 0.8% of the Chicago Group's     
revenues.  There is no significant regulation with respect to acquisitions of   
newspapers, other than filings under the Hart-Scott-Rodino Antitrust            
Improvements Act of 1976 if certain threshold requirements under such act are   
satisfied.                                                                      

ENVIRONMENTAL                                                         

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

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U.K. NEWSPAPER GROUP                                                            

The Company's U.K. Newspaper Group consists of The Telegraph and its  
investment in two joint venture printing companies.                             

THE TELEGRAPH                                                         

The Telegraph is the publisher of the leading quality (or broadsheet) 
newspapers in the United Kingdom, The Daily Telegraph, The Sunday               
Telegraph, The Weekly Telegraph, the Electronic Telegraph and The Spectator     
magazine.  Its most important property, The Daily Telegraph, was launched in    
1855 and is the largest circulation quality daily newspaper in the United       
Kingdom.  As of December 31, 1997, The Daily Telegraph's average daily          
circulation of approximately 1,111,000 represents a 39% share of the quality    
daily national newspaper market, a substantially greater share than that of its 
nearest direct competitor.  The Daily Telegraph's Saturday edition has the      
highest circulation (1,273,000 as of December 31, 1997) among quality daily     
newspapers in the United Kingdom.  The Sunday Telegraph is the second largest   
circulation quality Sunday newspaper in the United Kingdom with a Sunday        
circulation of approximately 890,000 as of December 31, 1997.                   

  THE UNITED KINGDOM NATIONAL NEWSPAPER INDUSTRY.  The newspaper market in
the United Kingdom is segmented and, within each segment, highly competitive.   
The market segment in which The Daily Telegraph competes is generally known as  
the quality (or broadsheet) daily newspaper segment.  This segment consists of  
all the broadsheets, and none of the tabloid daily newspapers.  The Daily       
Telegraph and its competitors in this market segment appeal to the middle and   
upper end of the demographic scale.                                             

  Newspapers in the United Kingdom differ from their counterparts in North
America in several respects.  First, they have substantially fewer pages.  In   
1997, The Daily Telegraph averaged 57 pages per issue, printed in one section   
on Wednesdays and Fridays, two sections on Mondays, Tuesdays and Thursdays, and 
six sections plus a magazine and television guide on Saturdays.  The Sunday     
Telegraph is published in five sections with two magazines, one which           
was launched in September 1995 and the other magazine, Rx, launched in          
April 1997.  Second, pre-printed advertising inserts, which have been a major   
source of revenue growth in North America, are less common in the United        
Kingdom.  Third, the advertising to news ratio in British newspapers is far     
lower.  Fourth, British national newspapers more closely resemble North         
American magazines in that they have broad distribution and readership across   
the country and derive a much larger portion of their advertising revenue from  
national advertisers - unlike North American newspapers which, because of their 
relatively small geographical distribution, derive a substantial portion of     
their advertising from local advertisers.  Finally, newspapers in the United    
Kingdom generally have charged higher cover prices, which in turn leads to      
higher circulation revenues than North American newspapers with similar         
circulation bases.  However, since September 1993, when The Times first         
substantially reduced its cover price on its weekday newspaper, the national    
newspaper market in the United Kingdom has experienced intense cover price      
competition.  Since July 1995, The Daily Telegraph and The Times have increased 
their respective cover prices.  See "Circulation" below.                        

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The following charts illustrate the circulation trends of The Daily   
Telegraph and The Sunday Telegraph and its principal competitors in the United  
Kingdom for the three years ended December 31, 1997.                            

CIRCULATION: MARKET SHARE AND AVERAGE DAILY SALES (1) (2)   

                                                        [Enlarge/Download Table]

                                             YEAR ENDED DECEMBER 31,                              
                       ---------------------------------------------------------------------------
                               1997                        1996                     1995          
                       -------------------------  -------------------------  ---------------------
                                     AVERAGE                    AVERAGE                    AVERAGE
                       MARKET         DAILY        MARKET        DAILY        MARKET        DAILY 
                       SHARE          SALES        SHARE         SALES        SHARE         SALES 

                                        (AVERAGE SALES IN THOUSANDS)                              
                                                                                                  
The Daily Telegraph...  39%           1,111        38%         1,065          39%            1,060
The Times.............  27              770        27            738          24               658
The Guardian..........  14              406        14            386          15               397
Financial Times.......  11              321        11            299          11               295
The Independent.......   9              259        10            272          11               294
                       ---------------------------------------------------------------------------
                       100%           2,867       100%         2,760         100%            2,704
                       ===========================================================================

--------------------                                                            
(1) Circulation is defined as average sales of a newspaper per issue, net of    
returns.                                                                        
(2) Derived from the twelve-month average circulation and market share index    
information published by the Audit Bureau of Circulations Limited.              

CIRCULATION: MARKET SHARE AND AVERAGE DAILY SALES (1) (2) 

                                                        [Enlarge/Download Table]

                                                YEAR ENDED DECEMBER 31,                                  
                             ----------------------------------------------------------------------------
                                     1997                        1996                      1995          
                             --------------------------  -------------------------  ---------------------
                                            AVERAGE                    AVERAGE                    AVERAGE
                             MARKET          DAILY        MARKET        DAILY        MARKET        DAILY 
                             SHARE           SALES        SHARE         SALES        SHARE         SALES 
                                              (AVERAGE SALES IN THOUSANDS)                               
                                                                                                         
The Sunday Times............   44%           1,273        47%         1,313        46%              1,253
The Sunday Telegraph........   31              890        26            724        25                 683
Observer....................   15              448        16            453        17                 463
The Independent on Sunday...   10              282        11            296        12                 327
                              ---------------------------------------------------------------------------
                              100%           2,893       100%         2,786       100%              2,726
                              ===========================================================================

(1)  Circulation is defined as average sales of a newspaper per issue, net of   
returns.                                                                        
(2) Derived from the twelve-month average circulation and market share index    
information published by Audit Bureau of Circulations Limited.                  

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    SOURCES OF REVENUE.  The following table sets forth the sources of revenue
and their percentage of total revenues for The Telegraph (including its         
subsidiaries) during the past three years.                                      

                                                        [Enlarge/Download Table]

                                        YEAR ENDED DECEMBER 31,                                   
        ----------------------------------------------------------------------------------------- 
                    1997                          1996                             1995           
        -----------------------------  ---------------------------  ----------------------------- 
                               (IN THOUSANDS OF BRITISH POUNDS STERLING)                          
                                                                                                  
Advertising...  (Pound)204,498    68%      (Pound)177,997    62%             (Pound)162,720    64%
Circulation...          82,917    28              100,258    35                      83,666    33 
Other.........          12,232     4                9,863     3                       8,440     3 
                --------------------------------------------------------------------------------- 
Total.........         299,647   100%      (Pound)288,118   100%             (Pound)254,826   100%
                ================================================================================= 

(1) Does not include revenues from Fairfax, Southam or joint venture printing   
companies.                                                              
(2) Financial data is in accordance with U.K. GAAP.                             

ADVERTISING.  Advertising is the largest source of revenue at The     
Telegraph, representing approximately 68% of newspaper revenue in 1997.  In     
1997 the combined share of display advertising volume of The Daily Telegraph    
and The Sunday Telegraph in the quality newspaper sector was 24% with           
classified advertising's share 19%.  These percentages are fairly consistent    
with prior years.  Management believes that because The Daily Telegraph is able 
to charge advertisers a premium rate over that of its competitors in the        
quality daily sector by virtue of the size of its readership, The Telegraph is  
able to achieve a higher market share in terms of revenue.                      

The rates charged by The Telegraph for display and classified         
advertisements are determined in part by the total number of people in the      
various demographic groupings who read each publication.  Readership is         
measured by a continuous independent survey conducted for National Readership   
Surveys Limited ("NRS").  NRS estimates of readership are based upon the number 
of people responding to the NRS survey who report having read or looked at one  
or more issues of a given newspaper or magazine during a particular period.     

  According to NRS, The Daily Telegraph's readers are primarily in the top
three of the six socio-economic groups, collectively ABC1.  The Daily Telegraph 
has a readership of almost 2.1 million ABC1 adults, the highest of any quality  
daily newspaper and 338,000 more than its nearest competitor for the six-month  
period ended December 31, 1997.  Management believes The Daily Telegraph        
readership position is highly advantageous in attracting advertisers, thereby   
permitting it to charge higher advertising rates per page than its direct       
competitors.  The Sunday Telegraph has seen ABC1 readership rise by 14% year on 
year.  This represents 241,000 additional ABC1 readers.  In combined            
socio-economic groups The Sunday Telegraph has grown by 10%, faster than any    
other national Sunday newspaper.                                                

 The Telegraph's display advertising strengths are in the automobile and
travel sections.  Display advertising revenue grew to pound.99.4 million in 1997
from pound.88.3 million in 1996.  Financial advertising markets grew by 14% in  
1997 and The Daily Telegraph is holding its market leadership position in       
terms of volume.  Advertising revenues in this segment grew to pound.21.4       
million in 1997, compared with pound.18.8 million in 1996.                      

   Advertising in The Daily Telegraph's Saturday Magazine grew to pound.23.6
million in 1997 from pound.20.7 million in 1996, an increase of 14%.            
Advertising in The Sunday Telegraph Magazine, which was launched in September   
1995, grew to pound.7.5 million in 1997 compared to pound.5.6 million in 1996.  

The level of classified advertisements, especially recruitment        
advertisements, fluctuates with the economy.  The Telegraph's revenue from this 
source increased to pound.67.3 million in 1997 compared with pound.58.0         
million in 1996.  The Telegraph's strategy with respect to classified           
advertising is to improve volume and yield in four sectors: recruitment,        
property, travel and automobiles.  Recruitment advertising is the largest       
classified advertising category, representing about two-thirds of all           
classified advertising in terms of revenue.                                     

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

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CIRCULATION.  The target audience of The Telegraph's newspapers is    
generally conservative, middle and upper income readers, with an increased      
emphasis on gaining new younger readers.  The editorial strengths of The        
Telegraph's newspapers provide national and international news, financial news  
and features and comprehensive sports coverage.  Net circulation revenue for    
The Daily Telegraph and The Sunday Telegraph for the three years ended December 
31, 1997 is set forth below:                                                    

NET NEWSPAPER CIRCULATION REVENUE (1) (2) 

                                                        [Enlarge/Download Table]

                                                YEAR ENDED DECEMBER 31,                       
                        --------------------------------------------------------------------- 
                                  1997                    1996                 1995           
                        --------------------------------------------------------------------- 
                                      (IN MILLIONS OF BRITISH POUNDS STERLING)                
                                                                                              
The Daily Telegraph         (Pound)70.6    90%     (Pound)84.2    87%     (Pound)68.9      86%
The Sunday Telegraph...             7.8    10             12.1    13             10.8      14 
                        --------------------------------------------------------------------- 
Total..................     (Pound)78.4   100%     (Pound)96.3   100%     (Pound)79.7     100%
                        ===================================================================== 

Proportion of The                                                                             
Telegraph's newspaper                                                                         
revenue................                    28%                    35%                      33%

(1)  Net newspaper circulation revenue is shown as a proportion of The          
Telegraph's newspaper revenue, not total revenue.                     
(2)  Financial data is in accordance with U. K. GAAP.                           

    Between 1986 and 1993, The Telegraph's strategy was to enhance circulation
revenue by increasing cover prices annually, at least in line with inflation,   
and generally before its competitors.  Since Hollinger Inc. acquired control of 
The Telegraph in 1986, the cover price of The Daily Telegraph was increased     
from 25p to 48p for the weekday edition and to 70p for the Saturday edition.    
At the same time, the cover price of The Sunday Telegraph was increased from    
40p to 70p.  Aggregate newspaper circulation revenue for all of The Telegraph's 
publications increased during that period by 53% from L.74 million in 1988 to   
L.113.5 million in 1993, an important factor contributing to the relative       
stability of The Telegraph's operating revenue during that period.              

In September 1993, The Times, the principal competitor of The Daily   
Telegraph, reduced the cover price of its weekday edition from 45p to 30p and   
its Saturday edition from 50p to 40p.  The Telegraph did not respond initially, 
but pursued a strategy of increasing its promotional activities, which proved   
successful in maintaining The Telegraph's circulation levels.  However, the     
strategy failed to stem the growth in circulation of The Times.  In order to    
protect The Daily Telegraph's market leadership and to secure its premium       
advertising position in the longer term, management of The Telegraph decided in 
June 1994 to reduce the cover price of its weekday edition from 48p to 30p.     
The Times responded with a further reduction in the cover price of its weekday  
edition from 30p to 20p and its Saturday edition from 40p to 30p.               

In addition, The Telegraph launched a joint promotion involving the   
Saturday edition of The Daily Telegraph and The Sunday Telegraph, whereby       
readers could use a voucher to purchase both weekend titles for L.1.00 (later   
reduced to 80p) compared to a combined cover price of pound.1.40.  The          
strategy was to use its circulation dominance on Saturday to increase           
circulation of The Sunday Telegraph and place pressure on its competitors'      
weekend titles.                                                                 

On July 3, 1995, The Times increased the cover price on its weekday   
edition by 5p to 25p and The Telegraph immediately responded by increasing the  
cover price on its weekday edition 5p to 35p.  The value of the discount        
voucher for The Sunday Telegraph was reduced from 60p to 40p.  The Telegraph    
ended its voucher promotion in September 1995.                                  

  On November 20, 1995, The Times increased the cover price on its weekday
and Saturday editions by 5p to 30p per copy.  The Telegraph responded by        
increasing the cover price of the weekday edition of The Daily Telegraph by 5p  
to 40p per copy.  The price of the Saturday issue of The Daily Telegraph        
remained at 70p.  Management believes that maintaining the weekday cover price  
difference of 10p per copy above that of The Times has not led to any           
significant erosion of its circulation levels.                                  

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   On June 3, 1996 The Times reduced the cover price of their Monday edition
from 35p to 10p.  In response, The Telegraph introduced vouchers to purchase    
the Monday edition of The Daily Telegraph for 10p on Monday June 10, 1996.      
These vouchers were printed in the Saturday and Sunday Telegraph and as a       
consequence of this activity The Telegraph's Monday circulation immediately     
increased by 3-4%.                                                              

     On October 8, 1996 the cover price of the Tuesday to Friday editions of The
Daily Telegraph was increased by 5p to 45p.  The Saturday edition cover price   
was increased by 5p to 75p.  On the same date The Times increased the cover     
price of its Tuesday to Friday editions by 5p to 35p and the Saturday edition by
5p and 50p.                                                                     

In May 1996 The Telegraph introduced the first United Kingdom national
advance purchase subscription program.  In the past, newspaper subscribers in   
the U.K. dealt directly with independent news agents for the purchase of        
newspapers.  A significant portion of the newspaper readers did not take the    
paper every day and this was especially true for Sunday  This program has proven
successful in driving circulation increases although there has been some        
inevitable cannibalization of circulation revenues.  By the end of 1996, the    
plan had added about 100,000 new weekday and 200,000 new Sunday average sales   
and the average prepaid subscription was for a period of about 40 weeks.  In    
order to gain broad acceptance of this revolutionary plan, the subscriptions    
were offered at a significant discount.  The amount of that discount was reduced
throughout 1997.  By obtaining long term subscribers, The Telegraph expects to  
reduce its traditional promotional spending.  The Sunday Telegraph's cover price
increased form 70p to 80p in May 1997.  In September 1997, the cover price of   
the Monday edition of The Daily Telegraph increased to 45p, in-line with the    
Tuesday to Friday editions.                                                     

    OTHER PUBLICATIONS AND BUSINESS ENTERPRISES.  The Telegraph is involved in
several other publications and business enterprises, including The Spectator,   
The Weekly Telegraph, and the Electronic Telegraph.  The Telegraph utilizes its 
brand in developing third party revenue opportunities including Reader Offers   
and Books Direct.                                                               

  EMPLOYEES AND LABOR RELATIONS.  At March 16, 1998, The Telegraph and its
subsidiaries employed approximately 1,100 persons and the two joint venture     
printing companies employed an additional 987 persons.  Collective              
agreements between The Telegraph and the trade unions representing certain      
portions of The Telegraph's workforce expired on June 30, 1990 and have not     
been renewed or replaced.  The absence of such collective agreements has had no 
adverse effect on The Telegraph's operations and, in management's view, is      
unlikely to do so in the foreseeable future.                                    

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

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

RAW MATERIALS.  Newsprint represents the single largest raw material  
expense of The Telegraph's newspapers and, together with employee costs, is one 
of the most significant operating costs.  Up to 163,000 metric tons are         
consumed annually and in 1997 the total cost was approximately pound.62.6       
million, or 22% of its newspaper revenues.                                      

In the last quarter of 1997, The Telegraph formed a new joint venture 
with  Express Newspapers to manage the newsprint resource. This was a further   
extension of the successful joint printing activity at West Ferry Printers that 
Telegraph and Express have benefited from for the last eight years. The new     
joint venture company - Newsprint Management & Supply Services Ltd (NMSS) - has 
as its main purpose the control of specifications, sourcing and the monitoring  
of usage through the printing plants operated by the joint venture partners,    
and other locations where the partners' publications are printed on a contract  
basis. NMSS commenced operations on January 1, 1998. Through close liaison with 
printing management, the benefits of common newsprint specifications and better 
control over inventory levels,  reductions in operating waste are becoming      
evident.                                                                        

    West Ferry Printers is the largest printing unit, in respect of which NMSS
supplies and monitors approximately 250,000 tonnes of newsprint per annum       
consumed on the products of the joint venture partners. In total, including     
other printing plants operated by the partners or with which they are           
associated, mainly in the North of England (including Trafford Park Printers),  
NMSS is responsible for about 400,000 tons per annum of newsprint               
consumption.                                                                    

   During 1998 the activities of NMSS will be extended to cover up to 70,000
tonnes of magazine paper used by Telegraph and Express, at a cost of some pound 
30 million per annum.                                                           

The newsprint supply agreements entered into by NMSS for 1998 provide 
for tonnages from individual suppliers of between 30,000 and 65,000 metric      
tons. In the main, prices are fixed throughout 1998 at levels some 5% below the 
average price paid during last year. Inventory held at each printing location   
is sufficient for three to four days production and in addition, suppliers'     
stock held in the United Kingdom on behalf of NMSS represents a further four to 
five weeks consumption by the joint venture partners.                           

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   PRINTING.  All copies of The Daily Telegraph and The Sunday Telegraph are
printed by The Telegraph's two 50% owned joint venture printing companies, West 
Ferry Printers and Trafford Park Printers.  The Telegraph has a very close      
involvement in the management of the joint venture companies and regards them   
as being important to The Telegraph's day-to-day operations.  The magazine      
sections of the Saturday edition of The Daily Telegraph and of The Sunday       
Telegraph are printed under contract by external magazine printers.             

   The managements of both joint venture printing companies continually seek
to improve production performance.  Major capital expenditures require the      
approval of the boards of directors of the joint venture partners.  The presses 
used to print The Telegraph's newspapers were upgraded in 1992 by the addition  
of two color satellites for each press, enabling color to be printed on up to 12
pages of a 48 page newspaper on each print run.  A further capital expenditure  
of around L.1 million was incurred with the addition of "balloon formers" to the
presses. These permit The Telegraph's weekend newspapers to be printed in       
multiple sections.                                                              

 There is high utilization of the plants at West Ferry and Trafford Park
Printers, with little spare capacity.  At Trafford Park Printers, revenue       
earned from contract printing for third parties has a marginal effect on The    
Telegraph's printing costs.  West Ferry Printers also undertakes some contract  
printing for third parties, which results in increased profitability.  In April 
1995 West Ferry Printers entered into a 13-year printing contract with Pearson  
plc, the media group that owns the Financial Times, to print the Financial      
Times' southern editions (160,000 copies) Monday to Saturday.  Pearson plc      
closed its London printing plant that prints the Financial Times and one of     
this plant's two Rockwell Goss Headliner web-offset presses was sold along with 
ancillary equipment to West Ferry Printers for pound 6 million in cash and      
pound 3 million in redeemable preference shares of West Ferry Printers which    
are supported by guarantees of the joint venture partners.  The press commenced 
printing The Financial Times in April 1996.                                     

  In addition, following damage to its own printing plant as a result of a
terrorist bomb in February 1996, The Guardian was printed as an emergency       
measure at West Ferry Printers.  This developed into a long term arrangement    
whereby The Guardian closed its own press center and entered into a 12-year     
printing agreement with West Ferry Printers.  As a result, new presses and      
ancillary equipment were being installed at a capital cost of over (Pound) 30   
million, paid for by West Ferry and charged back to the Guardian.               

West Ferry Printers will has eighteen presses, six of which are       
configured for The Telegraph's newspapers, eight are used for the               
newspapers published by The Telegraph's joint venture partner, United News &    
Media plc, and the remaining four for contract printing customers, of which The 
Guardian and the Financial Times are the largest.  Trafford Park Printers has   
four presses, two of which are used primarily for The Telegraph's newspapers.   

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

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  Wholesalers distribute newspapers to retail news outlets.  The number of
retail news outlets throughout the United Kingdom has increased as a result of  
a 1994 ruling by the British Department of Trade and Industry that prohibits    
wholesalers from limiting the number of outlets in a particular area.  More     
outlets do not necessarily mean more sales and The Telegraph's circulation      
department has continued to develop its control of wastage while taking steps   
to ensure that copies remain in those outlets with high casual (single copy)    
sales.  In addition to casual sales, many retail news outlets offer home        
delivery services.  In 1997 home deliveries accounted for 46% of sales of The   
Daily Telegraph and 41% of sales of The Sunday Telegraph.                       

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

MANAGEMENT.  The Telegraph's management consists of five executive    
directors: Conrad M. Black, Executive Chairman; Daniel W. Colson, Deputy        
Chairman and Chief Executive Officer; Jeremy W. Deedes, Managing Director;      
Leonard M. Sanderson, Advertisement Director; and Niamh O'Donnell-Keenan,       
Finance Director, together with fifteen non-executive directors, including F.   
David Radler.  Mr. Black is Chairman of the Board of Directors, Chief Executive 
Officer and Director of the Company and Chairman of the Board and Chief         
Executive Officer of Hollinger Inc., and Chairman and a Director of Southam.    
Mr. Colson is a Director of the Company and Hollinger Inc., and a Director of   
Southam.  Mr. Radler is President and Chief Operating Officer and a Director of 
the Company and Hollinger Inc. and a Director of Southam.                       

  ARTICLES OF ASSOCIATION.  As a result of the minority buyout on July 31,
1996, The Telegraph was delisted from the London Stock Exchange and The         
Telegraph's articles of association were amended by special resolutions passed  
on July 26, July 31, August 5, and November 26, 1996.  One of the principal     
changes was to dispense with the former requirements that a majority of the     
Board, or any committee thereof, be independent of Hollinger Inc.               

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

    Special provisions of the Fair Trading Act 1973 apply to certain newspaper
mergers (in addition to the general merger control system).  In particular,     
where a proprietor of newspapers circulating in the United Kingdom acquires a   
controlling interest in a newspaper or newspaper assets such that total sales   
of all the newspapers concerned are 500,000 or more copies per day of           
publication, such transfer is unlawful and void unless made with the written    
consent of the Secretary of State for Trade and Industry.  That consent can,    
with limited exceptions, be given only after a Monopolies and Mergers           
Commission investigation.                                                       

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

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CANADIAN NEWSPAPER OPERATIONS                                                   

The Company's Canadian Newspaper Group consists of its majority equity
interest in Southam and the Canadian Newspapers.                                

Southam                                                               

   The Company indirectly has an approximate 58.6% interest in Southam.  The
results of Southam have been consolidated for 1997 and 1996.                    

 BUSINESS OF SOUTHAM.  Southam is a diversified publicly held enterprise
with operations in two principal business segments: newspaper publishing (94%   
of Southam's consolidated revenue of Cdn.$1.2 billion in 1997) and business     
communications (6% of Southam's 1997 consolidated revenue).                     

Southam is Canada's largest publisher of daily newspapers.  In two    
separate transactions during 1997, Southam acquired one paid daily newspaper,   
one paid non-daily newspaper and 13 free distribution newspapers.  The 33 daily 
newspapers published by Southam have a total paid daily circulation of          
approximately 1,600,000. In addition Southam published 18 paid non-daily        
community newspapers and 48 free distribution publications with a combined      
circulation of approximately 2,800,000.                                         

    Southam also provides communications and information services to business,
government and the professions mainly in Canada and also in the United States   
including business magazines and tabloids in the automotive, trucking,          
construction, natural resources, manufacturing and other markets.               

  The following table sets forth the revenue mix for Southam for the three
years ended December 31, 1997:                                                  

                                                        [Enlarge/Download Table]

                                                       YEAR ENDED DECEMBER 31,                                     
                -------------------------------------------------------------------------------------------------- 
                            1997                              1996                                1995             
                -----------------------------  ----------------------------------  ------------------------------- 
                                                 (IN THOUSANDS OF CANADIAN DOLLARS)                                
                                                                                                                   

Newspapers      Cdn.$   1,118,934    94%             Cdn.$     928,845    85%            Cdn.$     846,262      83%
Business                                                                                                           
Communications             75,852     6                        166,805    15                       176,083      17 
                -------------------------------------------------------------------------------------------------- 
Total           Cdn.$   1,194,786   100%             Cdn.$   1,095,650   100%            Cdn.$   1,022,345     100%
                ================================================================================================== 

ADVERTISING.  Advertising revenues represented 76% of Southam's daily 
newspaper revenues in 1997 (daily newspapers represented 93% of total Southam   
newspaper group revenues in the year, with 7% derived from non-daily newspapers 
and other revenues).  Advertisements are carried either within the body of the  
newspapers, and referred to as run-of-press (ROP) advertising, or as inserts.   
ROP, which represented 87% of total advertising revenues in 1997 is categorized 
as either retail, classified or national.  The three categories represented     
41%, 31% and 28%, respectively, of ROP advertising revenues in 1997.  ROP       
advertising volume at Southam's daily newspapers in 1997 was 445.9 million      
lines, an increase of 8.9% over 1996.                                           

  CIRCULATION.   Average circulation of Southam's daily newspapers in 1997
was 1.6 million copies.  On a same-paper basis, circulation revenues increased  
by 6% in 1997.  Home delivery represents approximately 77% of daily newspapers  
sold and single copy sales account for 23%.                                     

    BUSINESS COMMUNICATIONS.  During 1996 Southam disposed of its construction
data and consumer and trade show groups.  For ongoing operations, revenues grew 
by 5.7%, led by U.S. magazines.                                                 

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COMPETITION.  The majority of Southam's revenues are from advertising.
Advertising linage in the company's newspapers is affected by a variety of      
factors including competition from print and other media as well as general     
economic performance and the level of consumer confidence.  Specific            
advertising segments such as real estate, automotive and help wanted will be    
significantly affected by local factors.  Each one percent change in annual ROP 
linage in Southam's newspaper operations has a pre-tax earnings impact of       
approximately Cdn.$5 million.                                                   

   Southam's business communications operations are concentrated in a number
of cyclical industries - construction, trucking, automotive, mining and forest  
products.  Performance of these sectors will have a significant effect on       
profitability, particularly on advertising-based products in the trade magazine 
group.                                                                          

EMPLOYEES AND LABOR RELATIONS.  As of March 16, 1998, Southam had     
approximately 6,400 full-time employees.  Southam has approximately 100 union   
contracts in its newspaper operations.  The percentage of unionized employees   
varies widely from paper to paper.  For Southam's nine largest newspapers,      
which represent 71% of the total number of employees in the daily newspaper     
operations, approximately 63% of the workforce is unionized.  As of December    
31, 1997 23 union contracts have expired and are being renegotiated.  With the  
large number of contracts being renegotiated every year, labor disruptions are  
always possible.                                                                

RAW MATERIALS.  The basic raw materials for newspapers is newsprint.  
Newsprint consumption in 1997 was 204,400 tons and newsprint costs represented  
approximately 13% of total revenues.  Newsprint consumption at the daily        
newspapers was up 15.5%, primarily due to an increase in advertising; however,  
the cost per ton was down by 16.8%.  Southam has access to adequate supplies to 
meet anticipated production needs.                                              

   SOUTHAM RESTRUCTURING PLANS.  In the last quarter of 1995, Southam took a
pretax charge against its 1995 earnings of Cdn.$120.0 million ($88.1 million).  
Approximately Cdn.$40.0 million of the charge related to the writedown of       
redundant assets at its Pacific Press facility and other non-recurring costs,   
with the remaining Cdn.$80 million relating to employee termination costs       
in respect of the elimination of 750 positions.  By the end of 1997 Southam had 
made significant progress in its staff reduction plan announced in 1995.        

   REGULATORY MATTERS.  The publication, distribution and sale of newspapers
and magazines in Canada is regarded as a "cultural business" under the          
Investment Canada Act and consequently, any acquisition of control of Southam   
by a non-Canadian investor would be subject to the prior review and approval by 
the Minister of Industry of Canada.                                             

   CONSTRAINED SHARE PROVISIONS.  Southam is a constrained share corporation
under the Canada Business Corporations Act.  The general effects of its         
constrained share status are to restrict the holding or ownership of its shares 
by non-Canadians, either individually or in the aggregate, within limits set    
from time to time by the Board of Directors; to prevent the issue or transfer   
of its shares in circumstances where these limits would be exceeded; and to     
limit the voting rights attached to its shares in circumstances where these     
limits are exceeded.  These provisions were enacted in order to ensure the      
ability of advertisers in Southam's newspapers and other periodicals to deduct, 
for Canadian income tax purposes, the cost of advertising in these              
publications.                                                                   

   The Board of Directors of Southam determined that the "constrained class"
includes: (1) individuals other than Canadian citizens and (ii) corporations    
that are controlled directly or indirectly by citizens or subjects of a country 
other than Canada.  The Board of Directors also has determined that the maximum 
aggregate holdings of members of the constrained class will be 25% and that the 
maximum individual holdings of members of the constrained class will be 25%.    
Because the Company's indirect interest in Southam is held by a Canadian        
corporation which is controlled directly or indirectly by Mr. Conrad M. Black,  
a Canadian citizen, Southam's constrained share provisions should not restrict  
the Company's investment in Southam.  Accordingly, so long as the Company's     
investment maintains its current structure, the Company would be free to make   
additional indirect investments in Southam.                                     

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PRICE RANGE OF COMMON SHARES AND DIVIDENDS.  The ordinary shares of   
Southam are listed on the Toronto and Montreal stock exchanges.  The twelve     
month high and low closing sales prices for the ordinary shares of Southam on   
the Toronto Stock Exchange as of March 16, 1998 were Cdn.$29.90 ($21.16) and    
Cdn.$18.95 ($13.41), respectively.  The closing price for the ordinary shares   
of Southam on March 16, 1998 was Cdn.$29.90 ($21.16).  The payment and the      
level of future dividends will be determined by the Board of Directors of       
Southam based on considerations such as earnings from operations, capital       
requirements and the financial condition of Southam.                            

RELATIONSHIP WITH THE COMPANY.  The Company and Hollinger Inc. now    
directly own a combined 58.6% interest in Southam through Hollinger Canadian    
Publishing Holdings Inc. ("HCPH"), a New Brunswick holding company.  Effective  
March 18, 1997, the Company completed an internal reorganization of its         
interest in Southam which previously had been held as follows:  (i) 18.5%       
through Hollinger Telegraph Holdings Inc. ("HTH"), a Canadian corporation which 
is jointly owned by two wholly owned subsidiaries of the Company, and 0.6%      
through such subsidiaries; (ii) 21.2% held through HCPH; and (iii) 10.4%        
through a wholly owned subsidiary of FDTH as a  result of the Southam share     
acquisition in December 1996.  The Company's  majority interest in Southam, is  
held by HCPH in which Publishing and Hollinger Inc. own, directly or            
indirectly, the following interests; (i) Publishing and its subsidiaries own    
100% of the non-voting equity shares and non-voting preference shares and (ii)  
each of Publishing and Hollinger Inc. (through its wholly-owned subsidiary)     
own 50% of the voting preference shares which have only nominal equity value.   
It is anticipated that Hollinger Inc. will pledge its interest in HCPH          
collateral for bank financing arrangements of the Company and its subsidiaries. 

    In connection with this internal reorganization, the Company substituted a
direct pledge of Southam common shares owned by the Company for the previous    
pledge of 50% of the HTH Shares under the Southam-Linked Debentures. At the     
time, HTH owned an 18.5% interest in Southam.  At December 31, 1997 this pledge 
represented approximately 8% of Southam's outstanding common shares.  The       
Southam-Linked Debentures bear a redemption price of Cdn.$9.0 million ($6.3     
million).                                                                       

    In 1997, the Series A Preferred Stock was exchanged for Series D Preferred
Stock.  As the holder of the Company's Series D Preferred Stock, Hollinger      
Inc.'s and its subsidiaries' redemption rights are linked to the number of      
shares of HTH or Southam that at the time of exercise are free and clear of     
encumbrances.  The Share Exchange Agreement entered into in connection with the 
1995 Reorganization contained a covenant by Hollinger Inc. limiting the         
exercise of its redemption rights as the holder of the Series D Preferred       
Stock.  The Share Exchange Agreement has been modified to reflect the           
substitution of the Southam common shares for the HTH Shares as collateral for  
the Southam-Linked Debentures.  Hollinger Inc. is now contractually entitled to 
exercise its redemption rights under the Series D Preferred Stock proportionate 
to the number of such Southam common shares that became free of the pledge      
under the Southam-Linked Debentures.  The Series D Preferred Stock has an       
aggregate redemption price of $75.9 million at December 31, 1997, of which up   
to approximately $45.0 million may be subject to redemption by Hollinger Inc.   

MANAGEMENT.  Mr. Conrad M. Black, Chairman of the Board of Directors, 
Chief Executive Officer and Director of the Company and Chairman of the Board   
and Chief Executive Officer of Hollinger Inc., Chairman and a Director of The   
Telegraph, is Chairman and a Director of Southam.  Mr. F. David Radler,         
President and Chief Operating Officer and a Director of Hollinger Inc. and the  
Company and a Director of The Telegraph, is a Director of Southam.  Mr. Stephen 
A. Jarislowsky, a Director of The Telegraph, is a Director of Southam.  Mr. J.  
A. Boultbee, Executive Vice President and Chief Financial Officer of the        
Company and Vice President, Finance and Treasury of Hollinger Inc., is a        
Director of Southam.  Mrs. Barbara Amiel Black, Vice President Editorial and    
Director of the Company and Hollinger Inc., is a Director of Southam.  Mr.      
Peter Y. Atkinson, Vice President of the Company and Vice President and General 
Counsel of Hollinger Inc., is a Director of Southam.  Mr. Daniel W. Colson, a   
Director of the Company and Deputy Chairman and Chief Executive Officer of The  
Telegraph is a Director of Southam.  Mr. Peter G. White, Chairman of UniMedia   
Inc., is a Director of Southam.                                                 

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Canadian Newspapers                                                             

The Company acquired its interest in the Canadian Newspapers from     
Hollinger Inc. in 1997.  The Canadian Newspapers have been accounted for using  
the "as-if" pooling of interests method.                                        

BUSINESS OF THE CANADIAN NEWSPAPERS.  The Canadian Newspapers consist 
of ten daily, five non-daily and 18 free distribution newspapers located in     
Ontario, four daily, one non-daily and six free distribution newspapers located 
in Saskatchewan, eight daily, five non-daily and 10 free distribution           
newspapers located in British Columbia and three daily, one non-daily and 11    
free distribution newspapers in Quebec. These newspapers are operated by        
Sterling Newspaper Company and UniMedia Inc., wholly owned subsidiaries of the  
Company. Total paid daily circulation for the  Canadian Newspapers is           
approximately 475,000.                                                          

    The following table sets forth the revenue mix for the Canadian Newspapers
for the three years ended December 31, 1997:                                    

                                                        [Enlarge/Download Table]

                                                        YEAR ENDED DECEMBER 31,                                    
                  ------------------------------------------------------------------------------------------------ 
                             1997                            1996                                1995              
                  ------------------------------------------------------------------------------------------------ 
                                                  (IN THOUSANDS OF CANADIAN DOLLARS)                               
                                                                                                                   
Advertising       Cdn.$  179,560    58%           Cdn.$      164,275    57%              Cdn.$       87,673     56%
Circulation              101,668    33                        98,081    34                           53,606     34 
Job printing and                                                                                                   
Other                     27,521     9                        25,783     9                           15,558     10 
                  ------------------------------------------------------------------------------------------------ 
Total             Cdn.$  308,749   100%           Cdn.$      288,139   100%              Cdn.$      156,837    100%
                  ================================================================================================ 

 ADVERTISING.  Advertising revenue represents mainly advertisements that
are carried within the body of the newspapers and includes retail, national or  
classified.  Advertising revenues in 1997 increased from 1996 due to strong     
national advertising growth.  Classified advertising also showed increases.  In 
1997, advertising revenue represented 58% of the total revenues.                

CIRCULATION.  Circulation revenue accounted for approximately 33% of  
total revenue in 1997 and increased by 4% from 1996.  In Quebec, home delivery  
represented approximately 82% of daily newspapers sold while single copy sales  
accounted for 18%.                                                              

COMPETITION.  The majority of the Canadian Newspaper revenues are from
advertising.  The amount of advertising in the newspapers is affected           
by a variety of factors including competition from print and other media as     
well as general and local economic conditions and the level of consumer         
confidence.                                                                     

EMPLOYEES AND LABOR RELATIONS.  As of March 16, 1998, the Canadian    
Newspapers had approximately 3,200 full-time employees. Approximately half of   
the work force is unionized, but the percentage of unionized employees varies   
widely from paper to paper.  The Company does not expect any undue              
difficulties in renewing any collective agreements that have expired or will    
expire in the future.                                                           

RAW MATERIALS.  The basic raw material for newspapers is newsprint.   
Newsprint consumption in 1997 was 46,400 tons and newsprint costs represented   
approximately 11% of total revenues.  The Canadian Newspapers have access       
to adequate supplies of newsprint in order to meet production needs.            

   REGULATORY MATTERS.  The publication, distribution and sale of newspapers
and magazines in Canada is regarded as a "cultural business" under the          
Investment Canada Act and consequently, any acquisition of control of the       
Canadian Newspapers by a non-Canadian investor would be subject to the prior    
review and approval by the Minister of Industry of Canada.                      

In August 1998, Hollinger Inc. and UniMedia Group Inc. entered into an
agreement with Sodec (Societe de developpment des enterprieses culturelles), an 
agency of the Quebec government, pursuant to which Sodec was granted an         
assignable right of first refusal in the event of the proposed acquisition by a 
person not resident in Quebec of the assets of LeSoleil and Le Quotidien or of  
the proposed direct or indirect acquisition by a person not resident in Quebec  
of control on UniMedia Group Inc., a wholly-owned subsidiary of UniMedia Inc.   

MANAGEMENT.  Mr. Conrad M. Black, Chairman of the Board of Directors, 
Chief Executive Officer and Director of the Company and Chairman of the Board   
and Chief Executive Officer of Hollinger Inc., Chairman and a Director of The   
Telegraph, is Vice Chairman and a Director of UniMedia Inc. and Chairman of     
Sterling Newspaper Company.  Mr. F. David Radler, President and Chief Operating 
Officer and a Director of the Company and Hollinger Inc. and a Director of The  
Telegraph, is Vice Chairman and Director of UniMedia Inc. and President and     
Chief Executive Officer of Sterling Newspaper Company.  Mr. Stephen A.          
Jarislowsky, a Director of The Telegraph, is a Director of UniMedia Inc.  Mr.   
Daniel W. Colson, a Director of the Company and  Deputy Chairman and Chief      
Executive Officer of The Telegraph is Chairman of the Board and a Director of   
UniMedia Inc.                                                                   

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ITEM 2.  PROPERTIES                                                             

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

UNITED STATES NEWSPAPER GROUP                                         

CHICAGO GROUP.  The Chicago Group has eight operating and production  
facilities.  All editorial, pre-press, press, marketing, sales, and             
administrative activities for the Chicago Sun-Times are conducted in a 535,000  
square foot, seven-story building owned by the Chicago Sun-Times.  The          
circulation fleet is garaged and maintained in a three-story building.          
Mechanized insertion and pre-print storage occurs in a complex of seven single  
story buildings.  The Company intends to replace these facilities with a new    
press facility, at an expected cost of approximately $100.0 million, to be      
operational in 1999.                                                            

  Pioneer Press utilizes and owns a building in north suburban Chicago for
editorial, pre-press, sales and administrative activities.  Production          
activities occur in a 65,000 square foot leased building in a neighboring       
suburb.  In February 1997 Star Publications and Daily Southtown moved to a new  
combined facility for editorial, pre-press, marketing sales and administrative  
activities.  Production activities occur at a separate facility.  Both          
facilities are located in Chicago's south suburbs.                              

COMMUNITY GROUP.  The Community Group has 169 operating and production
facilities for its community publications in the United States, of which nine   
have been newly constructed by the Company since 1986.  The group uses modern   
data processing equipment in its business management operations and in its      
typesetting.  The group believes that all of its properties are in generally    
good condition, well maintained and adequate for their current operations.  The 
group's operating and production facilities for its community publications are  
owned or leased by its subsidiaries, with approximately 157 being owned and the 
remaining 12 being leased for terms ranging from two to five years.             

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

U.K. NEWSPAPER GROUP                                                  

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

CANADIAN NEWSPAPER GROUP                                              

SOUTHAM.  Southam's newspapers and magazines are published at numerous
facilities throughout Canada.  Southam publishes predominantly all of its       
newspapers and performs all pre-press work on its magazines in facilities owned 
by Southam.  Southam's magazines are printed at facilities owned by third       
parties.  Southam has constructed a new production facility in                  
Vancouver and has recently commissioned a new printing plant in Windsor,        
Ontario.  Subject to the completion of the conversion of a few remaining letter 
press operations to web-offset, such facilities meet Southam's current needs    
and have ample capacity to meet anticipated future demands.                     

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ITEM 3.  LEGAL PROCEEDINGS                                                      

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

   Management believes that the outcome of any pending claims or proceedings
will not have a material adverse effect on the Company taken as a whole.  See   
Note 19 to the Consolidated Financial Statements.                               

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                    

None                                                                  

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EXECUTIVE OFFICERS OF THE COMPANY                                               

The following table sets forth the names and ages (as of March 16,    
1998) of each of the Company's current executive officers, followed by a        
description of their principal occupations during the past five years and       
current directorships of public reporting companies and investment companies in 
the United States, Canada and the United Kingdom.  Unless otherwise indicated,  
each of the executive officers has held his or her position with the Company,   
or a similar position with the Company, for at least the past five years.       

                                                        [Enlarge/Download Table]

          Name             Age                   Position with the Company                  
         -----             ---                   -------------------------                  
                                                                                            
The Hon. Conrad M. Black,                                                                   
P.C., O.C.                 53   Chairman of the Board, Chief Executive Officer and Director 
F. David Radler            55   President, Chief Operating Officer and Director             
J. A. Boultbee             54   Executive Vice President and Chief Financial Officer        
Fredrick A. Creasey        47   Group Corporate Controller                                  
J. David Dodd              54   Vice President of Publishing and Chief Financial Officer of 
                                Southam                                                     
Barbara Amiel Black        57   Vice President, Editorial and Director                      
Paul B. Healy              34   Vice President, Corporate Development and Investor Relations
Daniel W. Colson           50   Deputy Chairman and Chief Executive Officer of The          
                                Telegraph and Director                                      
Jerry J. Strader           61   President, American Publishing Company                      

  THE HON CONRAD M. BLACK, P.C., O.C., Chairman of the Board of Directors,
Chief Executive Officer and  Director.  Mr. Black has served as Chairman of the 
Board of Directors and Chief Executive Officer of the Company since October 25, 
1995, and has served as a Director of the Company since 1990.  Mr. Black served 
as Deputy Chairman of the Board of Directors of the Company from 1991 to        
October 25, 1995.  Mr. Black has served for the past five years as the Chairman 
of the Board and Chief Executive Officer of Hollinger Inc.  He currently serves 
as the Chairman and as a Director of  The Telegraph, as the Chairman and as a   
Director of Southam and the Jerusalem Post, and as Chairman of the Board, Chief 
Executive Officer and as a Director of Argus, as a Director of EdperBrascan     
Limited and the Canadian Imperial Bank of Commerce, both of which are public    
reporting companies in Canada, as a Director of Livent Inc. and Sotheby's       
Holding Inc. and as a Member of the Advisory Board of Gulfstream Aerospace      
Corporation.  Mr. Black served as a Director of John Fairfax Holdings Inc. from 
1992 to 1997.                                                                   

F. DAVID RADLER, President, Chief Operating Officer and Director.  Mr.
Radler has served as President and Chief Operating Officer of the Company since 
October 25, 1995 and a Director of the Company since 1990.  Mr. Radler was      
Chairman of the Board of Directors of the Company from 1990 to October 25,      
1995.  Mr. Radler has served for the past five years as President and Chief     
Operating Officer and a Director of Hollinger Inc.  He currently serves as a    
director of The Telegraph, and as a Director of  Southam, Argus, Dominion       
Malting Limited, and West Fraser Timber Co. Ltd., all of which are Canadian     
public reporting companies.  Mr. Radler is also a Director or the Jerusalem     
Post.                                                                           

    J. A. BOULTBEE, Executive Vice President and Chief Financial Officer.  Mr.
Boultbee has served as Executive Vice President and Chief Financial Officer of  
the Company since June 14, 1996.  Mr. Boultbee has served as a Vice President   
of the Company from 1990 to 1995.  Mr. Boultbee served as a Director of the     
Company from 1990 to October 25, 1995.  Mr. Boultbee has served for the past    
five years as a Director and as the Vice-President, Finance and Treasury of     
Hollinger Inc.  Mr. Boultbee also serves as a Director of Argus, Southam,       

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Iamgold International African Mining Gold Corporation and Consolidated Enfield  
Corporation, all of which are Canadian public reporting companies.              

   FREDERICK A. CREASEY, Group Corporate Controller.  Mr. Creasey has served
as Group Corporate Controller of the Company since June 14, 1996.  Mr. Creasey  
also has served for the past five years as the Controller of Hollinger Inc.     

  J. DAVID DODD, Vice President of Publishing and Vice President and Chief
Financial Officer of Southam.  Mr. Dodd has served as Vice President of         
Publishing since October 25, 1995 and as Vice President and Chief Financial     
Officer of Southam since January 1997.  He previously served as Executive Vice  
President and a Director of the Company from 1991 to October 25, 1995 and as    
Chief Financial Officer of the Company from 1994 to October 25, 1995.  Mr. Dodd 
served as a Vice President of the Company from 1990 to 1991.                    

  BARBARA AMIEL BLACK, Vice President, Editorial and Director.  Mrs. Black
has served as Vice President, Editorial of the Company since September 1995 and 
as a director of the Company since February 1996.  Mrs. Black is the wife of    
Mr. Black.  Mrs. Black is currently a columnist for The Daily Telegraph.  After 
an extensive career in both on and off air television production, Mrs. Black    
was the editor of The Toronto Sun from 1982 to 1984, a columnist of The Times   
and The Sunday Times of London from 1986 to 1994 and a columnist of MacLean's   
magazine since 1976.  Mrs. Black also serves as Vice President, Editorial and   
as a Director of Hollinger Inc. and as a Director of Southam and the Jerusalem  
Post.                                                                           

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

DANIEL W. COLSON, Deputy Chairman and Chief Executive Officer of The  
Telegraph and Director.  Mr. Colson has served as a Director of the Company     
since February 1995.  Mr. Colson served as Vice Chairman of The Telegraph from  
1992 to 1995 and as Deputy Chairman of The Telegraph since 1995 and Chief       
Executive Officer of The Telegraph since 1994.  Mr. Colson currently serves as  
a Director of Hollinger Inc., Southam, and Argus, The Molson Companies Limited, 
and as Vice Chairman of HCPH which are Canadian public reporting companies, as  
a Director of The Telegraph, and as a Director of  John Fairfax Holdings        
Limited from 1991 to 1997.                                                      

    JERRY J. STRADER, President, American Publishing Company.  Mr. Strader was
appointed President of the Company's Community Group (American Publishing       
Company) in February of 1996.  He served as Senior Vice President of American   
Publishing Company from 1994 to 1996 and as a Regional Manager of American      
Publishing Company and as publisher of The Meridian Star, one of the Company's  
daily newspapers, since 1990.                                                   

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PART II 

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER      
MATTERS                                                                         

 The Class A Common Stock is listed on the New York Stock Exchange under
the trading symbol "HLR." At March 16, 1998 there were 71,577,799 shares of     
Class A Common Stock outstanding and held by approximately 245 holders of       
record and approximately 4,000 beneficial owners.  The Class A Common Stock     
traded on the NASDAQ Stock Market from the Company's initial public offering on 
May 4, 1994 through January 15, 1996.  On January 16, 1996, the Class A Common  
Stock was listed on the New York Stock Exchange.  The Class B Common Stock of   
the Company is not publicly traded.  As of March 16, 1998, 14,990,000 shares of 
Class B Common Stock were outstanding and owned by Hollinger Inc.  In addition, 
the Company issued 739,500 shares of its Series A Preferred Stock owned by      
Hollinger Inc. until August of 1997 when the Series A Preferred Stock was       
exchanged for Series D Preferred Stock.  The Series D Preferred Stock is        
convertible into 5,654,582 shares of Class A Common Stock (as of March 16,      
1998).  The Company has issued 20,700,000 Preferred Redeemable Increased        
Dividend Equity Securities ("PRIDES"), each of which represents one-half share  
of the Company's Series B Preferred Stock, par value $.01 per share.  The       
PRIDES are listed on the New York Stock Exchange and are held by one holder of  
record and approximately 2,700 beneficial owners.  The Company has issued       
829,409 shares of Series C Convertible Preferred Stock, par value $0.1 per      
share ("Series C Preferred Stock") to Hollinger Inc.  The Series C Preferred    
Stock was issued at $108.50 each and pays a dividend of 9.5% per annum.  The    
Series C Preferred Stock is convertible into 7,052,465 shares of Class A Common 
Stock (as of March 16, 1998).                                                   

The following table sets forth for the periods indicated the high and 
low sales prices for the Class A Common Stock, as reported by the New York      
Stock Exchange Composite Transactions Tape for the period since January 16,     
1996, and the cash dividends declared per share on the Class A Common Stock.    

                                                                [Download Table]

                                                       CASH DIVIDENDS
                                          PRICE RANGE     DECLARED   
                                        ----------------             
CALENDAR PERIOD                          HIGH      LOW    PER SHARE  
---------------                         -------  -------  ---------  
                                                                     
1996                                                                 
First Quarter                           $12.375  $ 9.250      $0.10  
Second Quarter                           13.125   10.625       0.10  
Third Quarter                            12.500    9.375       0.10  
Fourth Quarter                           12.875   10.000       0.10  

1997                                                                 
First Quarter                           $12.000  $ 9.125      $0.10  
Second Quarter                           12.000    9.000       0.10  
Third Quarter                            13.438   11.125       0.10  
Fourth Quarter                           14.125   12.375       0.10  

1998                                                                 
First Quarter (through March 16, 1998)  $16.750   13.000       0.10  

    On March 16, 1998 the closing price of the Class A Common Stock was $16.50
per share.  Each share of Class A Common Stock and Class B Common Stock is      
entitled to receive dividends if, as and when declared by the Board of          
Directors of the Company.  Dividends must be paid equally, share for share, on  
both the Class A Common Stock and the Class B Common Stock at any time that     
dividends are paid.  Up until the first quarter of 1996, the Company paid a     
quarterly dividend of $0.025 per share of common stock.  As a result of the     
1995 Reorganization, the Company had greater financial capacity to support      
substantially higher level of dividends with respect to its common stock.       
Since the first quarter 1996 the Company has paid a quarterly dividend of $0.10 
per share of common stock.                                                      

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

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ITEM 6.  SELECTED FINANCIAL DATA (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)  

                                                        [Enlarge/Download Table]

                                                              YEAR ENDED DECEMBER 31,                        
                                       ----------------------------------------------------------------------
                                                      (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)               
                                           1997       1996               1995          1994          1993    
                                       ----------------------------------------------------------------------
                                                                                                             
STATEMENT OF OPERATIONS DATA: (1) (2)                                                                        
Operating Revenues:                                                                                          
  Advertising                            $1,556,041     $1,364,527     $ 699,434     $ 577,092     $ 316,640 
  Circulation                               535,447        562,122       301,724       278,280       217,608 
  Job Printing                               80,024         80,132        58,750        36,207        25,044 
  Other                                      40,018         67,241        18,606        14,329       107,223 
                                       --------------------------------------------------------------------- 
Total Operating Revenues                  2,211,530      2,074,022     1,078,514       905,908       666,515 

Operating Costs and Expenses              1,783,995      1,782,053       951,187       781,750       536,669 
Direct Subscription Campaign Costs,                                                                          
  Net and Infrequent Items                   25,243         41,567         8,000            --            -- 
Depreciation and Amortization               114,570        102,435        57,463        48,984        38,655 
                                       --------------------------------------------------------------------- 
Operating Income                            287,722        147,967        61,864        75,174        91,191 
Interest Expense                           (113,558)       (84,356)      (44,727)      (33,192)      (27,292)
Amortization of Debt Issue Costs            (13,466)       (16,640)         (168)           --            -- 
Equity in Earnings of Affiliates              5,807         12,050        14,356        35,896        12,468 
Other Income, net (3)                        77,644         70,917        18,199        92,181        27,356 
                                       --------------------------------------------------------------------- 
Earnings before income taxes,                                                                                
minority interest, cumulative                                                                                
effect of change in accounting for                                                                           
income taxes and extraordinary item         244,149        129,938        49,524       170,059       103,723 
Income Taxes                                 93,655         51,865        20,564        45,050        35,540 
                                       --------------------------------------------------------------------- 
Earnings before minority interest,                                                                           
  cumulative effect of change in                                                                             
  accounting for income taxes and                                                                            
  extraordinary item                        150,494         78,073        28,960       125,009        68,183 
Minority Interest                            45,973         33,138        22,637        21,409        25,475 
                                       --------------------------------------------------------------------- 
Earnings before cumulative effect of                                                                         
  change in accounting for income                                                                            
  taxes and extraordinary item              104,521         44,935         6,323       103,600        42,708 
Cumulative effect of change in                                                                               
  accounting for income taxes                    --             --            --            --       (24,256)
Extraordinary loss on debt                                                                                   
  extinguishments                                --         (2,150)           --            --            -- 
                                       --------------------------------------------------------------------- 
Net Earnings                             $  104,521     $   42,785     $   6,323     $ 103,600     $  18,452 
                                       ===================================================================== 
Basic earnings per share                 $     0.93     $     0.41     $    0.09     $    1.81     $    0.36 
                                       ===================================================================== 
Cash dividends declared per common                                                                           
  share                                  $     0.40     $     0.40     $    0.10     $    0.05     $    0.05 
                                       ===================================================================== 

BALANCE SHEET DATA: (4)                                                                                      
  Working Capital (deficit)              $   56,365     $ (695,760)    $(390,673)    $(275,265)    $(319,237)
  Total Assets (5)                        3,023,921      3,425,544     1,737,980     1,551,172     1,104,394 
  Minority Interest                         203,034        109,943        97,298       109,518        79,290 
  Total Long-Term Debt                    1,428,415        711,348       475,048       475,429       374,772 
  Redeemable Preferred Stock                 75,891        605,579       306,452       204,101       206,846 
  Total Stockholders' Equity (6)            687,602        686,326       159,973        91,143      (105,598)

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                                                        [Enlarge/Download Table]

                                                   YEAR ENDED DECEMBER 31,                    
                               ---------------------------------------------------------------
                                          (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)            
                                  1997         1996         1995        1994          1993    
                               ---------------------------------------------------------------
                                                                                              
SEGMENT DATA:                                                                                 
Operating Revenues:                                                                           
  United States Newspaper Group $  633,633   $  607,372  $  559,213     $422,067      $185,043
  U.K. Newspaper Group             492,270      451,902     405,038      386,243       384,558
  Canadian Newspaper Group       1,085,627    1,014,748     114,263       97,598        96,914
                               ---------------------------------------------------------------
Total Operating Revenues        $2,211,530   $2,074,022  $1,078,514     $905,908      $666,515
                               ===============================================================
Operating Income:                                                                             
  United States Newspaper Group $   89,461   $   63,881  $   32,125      $39,039      $ 18,069
  U.K. Newspaper Group              26,657        1,601      27,000       33,953        71,416
  Canadian Newspaper Group         171,604       82,485       2,739        2,182         1,706
                               ---------------------------------------------------------------
Total Operating Income          $  287,722   $  147,967  $   61,864      $75,174      $ 91,191
                               ===============================================================
EBITDA (7)                                                                                    
  United States Newspaper Group $  131,119   $  106,707  $   74,139      $74,885      $ 43,582
  U.K. Newspaper Group              44,733       15,918      37,374       43,307        80,448
  Canadian Newspaper Group         226,440      127,777       7,814        5,966         5,816
                               ---------------------------------------------------------------
Total EBITDA                    $  402,292   $  250,402  $  119,327     $124,158      $129,846
                               ===============================================================

(1)  The financial data presented above is derived from the Consolidated        
 Financial Statements of the Company.  Such financial statements include
 the accounts of The Telegraph and the Canadian Newspapers on an "as-if"
pooling-of-interests basis.                                           

(2)  The statement of operations data include data for Jerusalem Post for all   
periods presented, data for Chicago Sun-Times from the date of its    
acquisition by the Company on March 31, 1994, and data is included for
   Daily Southtown from January 1, 1995, and data for Southam is included as
equity earnings for 1995 and 1994 and consolidated for 1997 and 1996. 

(3)  Other income, net includes gain on the sale of Fairfax, the gain on the    
  sale of The Telegraph shares, gain on dilution of Fairfax interest, gain
    on the sale of marketable securities, foreign currency gains (losses), and
interest and dividend income.                                         

(4)  The balance sheet data include The Telegraph, Canadian Newspapers and      
   Jerusalem Post for all periods presented, the Chicago Sun-Times and Daily
    Southtown as at December 31, 1994 and thereafter.  Long-term debt does not
include intercompany indebtedness owed to Hollinger Inc.              

(5)  Includes intangible assets, net of accumulated amortization, which         
amounted to $1,671,210,000 at December 31, 1997 and $1,641,485,000 at 
December 31, 1996.  Such intangible assets consist of the value of    
acquired subscriber and advertiser lists, noncompetition agreements,  
   archives and goodwill.  The amortization periods for intangible assets do
not exceed 40 years.                                                  

(6)  See Consolidated Statements of Stockholders' Equity.                       

(7)  EBITDA represents earnings before interest expense, income taxes,          
 depreciation and amortization, minority interest, equity in earnings of
affiliates and certain other income items.  EBITDA is not intended to 
   represent an alternative to operating income (as determined in accordance
with generally accepted accounting principles) as an indicator of the 
Company's operating performance, or to cash flows from operating      
    activities (as determined in accordance with generally accepted accounting
  principles) as a measure of liquidity.  The Company believes that EBITDA
  largely determines its ability to fund current operations and to service
 debt, due to the significant number of acquisitions made by the Company
    which have resulted in non-cash charges for depreciation and amortization.
   These non-cash charges have adversely affected net earnings, but have not
affected EBITDA.                                                      

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ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OVERVIEW                                        

         The Company's business is concentrated in the publication of newspapers
in the United States, Canada, United Kingdom, and Israel. Its revenues are      
derived principally from advertising, paid circulation and, to a lesser extent, 
job printing. Approximately 29% of the Company's total operating revenues in    
1997 were attributable to the United States Newspaper Group, approximately 22%  
were attributable to its U.K. Newspaper Group, and 49% from its Canadian        
Newspaper Group. The Company's United States Newspaper Group consists of the    
Chicago Group (comprised of the Chicago Sun-Times and suburban newspapers in the
Chicago metropolitan area) and the Community Group, which includes Jerusalem    
Post. The Company's U.K. Newspaper Group consists of the operations of The      
Telegraph, its subsidiaries and two joint venture printing companies. The       
Canadian Newspaper Group consists of the Company's majority investment in       
Southam and the operation of the Canadian Newspapers.                           

        The Company's revenues have grown substantially since the beginning of
1986, principally through acquisitions. Over that period, the Company acquired  
The Telegraph, a majority interest in which was acquired by Hollinger Inc. in   
1986; Jerusalem Post, which was acquired by Hollinger Inc. in 1989; Chicago     
Sun-Times, 61 related newspapers and Daily Southtown, which were acquired by the
Company in 1994; the Canadian Newspapers, which were acquired in a number of    
transactions by Hollinger Inc. from 1986 through 1996, 19 daily newspapers,     
which were acquired by the Company from Thomson Newspapers Corporation          
("Thomson") in 1995 and 1996; and 86 other paid daily community newspapers,     
together with related publications, net of dispositions, acquired in numerous   
transactions over the past eleven years, and majority control of Southam which  
was acquired by Hollinger Inc. and the Company during the period 1993 to the    
present time.                                                                   

   The Consolidated Financial Statements include the accounts of the
Company and its majority-owned subsidiaries. At December 31, 1997, 1996, and    
1995, the Company's interest in The Telegraph was 100.0%, 100.0%, and 64.0% and 
in Southam was 58.6%, 50.7%, and 19.4%, respectively. Investments in less than  
majority-owned affiliated companies are accounted for using the equity method of
accounting. All intercompany balances and transactions have been eliminated on  
consolidation.                                                                  

SIGNIFICANT TRANSACTIONS                                                        

         On January 7, 1997 the Boards of Directors of the Company and Hollinger
Inc. announced that they had reached an agreement for the transfer by Hollinger 
Inc. of certain of its wholly owned Canadian publishing interests directly or   
indirectly to Hollinger Canadian Publishing Holdings Inc. ("HCPH"), a           
subsidiary of the Company, including newspaper assets located mainly in         
Ontario, Saskatchewan, British Columbia, and UniMedia Inc., (collectively the   
"Canadian Newspapers") for an aggregate consideration of approximately $382.0   
million (Cdn.$523.0 million), subject to working capital adjustments and        
currency exchange adjustments (the "Hollinger Inc. Transaction"). The purchase  
price was satisfied by payment of cash in the amount of $250.0 million and by   
the issuance of a new series of preferred stock of the Company, which was       
converted into (i) 829,409 shares of a new series of mandatorily convertible    
preferred stock of the Company similar to the PRIDES issued by the Company in   
August 1996 having a face value of $90.0 million, and (ii) 3,207,245 shares of  
Class A Common Stock of the Company to Hollinger Inc. having a nominal agreed   
value of $42.0 million, subject to adjustments as described above. The          
mandatorily convertible preferred stock was issued for a price of $108.5 each   
and pays dividends of 9.5% per annum. The preferred stock and common stock was  
issued subsequent to receiving the requisite approval of the stockholders of    
the Company.                                                                    

    The initial payment of $250.0 million cash and the issuance of the
preferred stock in respect of the Hollinger Inc. Transaction was made on April  
18, 1997. Interest on the purchase price was accrued for the period from January
1, 1997 to April 18, 1997.                                                      

         1997 OFFERINGS On March 4, 1997, Publishing filed both a Prospectus and
a Prospectus Supplement offering $200 million of Senior Notes due 2005 (the     
"Senior Notes") and $200 million of Senior Subordinated Notes due 2007 (the     
"Senior Subordinated Notes") pursuant to its universal shelf registration       
statements. On March 12, 1997, Publishing increased the size of the offerings to
$550.0 million, closing on March 18, 1997. Both the Senior Notes and the Senior 
Subordinated Notes are guaranteed by the Company.                               

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         The Senior Notes are unsecured and senior obligations of Publishing and
rank pari-passu with all other unsecured senior indebtedness of Publishing      
including Publishing's bank credit facilities, mature on March 15, 2005 and bear
interest at 8.625% per annum. The Senior Subordinated Notes are unsecured senior
subordinated obligations of Publishing and rank pari-passu with all other senior
subordinated indebtedness of Publishing including its existing 9.25% Senior     
Subordinated Notes due 2006. The Senior Subordinated Notes mature on March 15,  
2007 and bear interest payable semi-annually at a rate of 9.25% per annum. The  
Indentures relating to the Senior Notes and the Senior Subordinated Notes       
contain financial covenants and negative covenants that limit Publishing's      
ability to, among other things, incur indebtedness, pay dividends or make other 
distributions on its capital stock.                                             

     Publishing and its restricted subsidiaries utilized the proceeds of
these offerings to repay bank indebtedness, to repay the redeemable preference  
shares of DTH and FDTH and for general working capital.                         

        In February 1996, the Company sold 16,100,000 shares of Class A Common
Stock, at $9.25 per share and $250,000,000 principal amount of 9.25%            
Subordinated Notes due 2006. Combined net proceeds of $384.6 million were used  
to repay short-term and long-term bank loans, and short-term debt due to        
Hollinger Inc. of $20.8 million.                                                

         In a series of transactions in August 1996, the Company sold 11,500,000
shares of Class A Common Stock at a price of $9.75 per share and 20,700,000     
9-3/4% Preferred Redeemable Increased Dividend Equity Securities ("PRIDES") at a
price of $9.75 per PRIDES. The combined net proceeds of these sales of $301.1   
million were used in the acquisition of the Telegraph shares, to paydown        
Telegraph indebtedness and to pay transaction costs.                            

        The PRIDES are depository shares representing one-half share of Series
B Convertible Preferred Stock of the Company that will mandatorily convert on   
the mandatory conversion date of August 1, 2000 into one share of Class A Common
Stock and the right to receive an amount in cash equal to all accrued and unpaid
dividends thereon, unless either previously redeemed by the Company or converted
at the option of the holder. The PRIDES will pay cumulative quarterly dividends 
at a rate of 9.75% per annum (equivalent to $0.9506 per PRIDES) and will have an
aggregate liquidation preference equal to their price plus any accrued and      
unpaid dividends thereon.                                                       

       On July 31, 1996 the Company acquired all of the outstanding ordinary
shares of The Telegraph which it did not already own. The purchase price for the
shares was (pound)5.60 ($8.68) per share. The total consideration paid,         
including a special dividend paid to holders of Telegraph minority shares and   
the net amount payable in respect of outstanding Telegraph options, was         
approximately $455.7 million. On the same date, The Telegraph changed its name  
to the Telegraph Group Limited and canceled its listing on the London Stock     
Exchange.                                                                       

       On May 24, 1996 the Company acquired from Power Corporation of Canada
("Power"), 16,349,743 common shares of Southam representing approximately 21.5% 
of Southam's then outstanding common shares, for an aggregate consideration of  
Cdn.$294.3 million ($214.1 million). The acquisition was financed through a     
short-term facility with a Canadian chartered bank. On December 11, 1996, the   
Company purchased an additional 8,000,300 shares of Southam representing        
approximately 10.4% of Southam's then outstanding common shares for an aggregate
consideration of Cdn.$160.0 million ($117.4 million). The acquisition was       
financed through short-term bank facilities and working capital. The 1996       
acquisitions increased the Company's indirect equity interest in Southam to     
50.7%. During 1997, a subsidiary of the Company acquired 6,552,425 additional   
shares of Southam, increasing the ownership interest to 58.6%. The accounts of  
Southam were consolidated in the financial statements for all of 1996 and 1997. 
Southam has been accounted for using the equity method in the 1995 consolidated 
financial statements.                                                           

         On December 16, 1996, a subsidiary of the Company announced that it had
agreed conditionally to sell its 24.7% interest in Fairfax in three tranches.   
The first tranche of the sale consisted of a 12.0% interest and was completed on
December 20, 1996 for gross cash proceeds of A$254.8 million ($202.3 million).  
This sale resulted in a gain before income taxes of $53.5 million. The second   
tranche consisted of a 7.9% interest including seven million non-voting         
convertible debentures and was completed on January 10, 1997 for gross cash     
proceeds of A$192.2 million ($150.3 million). The Company sold its remaining    
4.8% interest in Fairfax on March 27, 1997 for gross cash proceeds of A$112.5   
million ($88.7 million). The sales pursuant to the second and third tranches    
gave rise to a $66.1 million pre-tax gain that is recorded in the 1997 accounts.

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  On September 20, 1995, October 3, 1995 and October 16, 1995, the
Company consummated three separate agreements resulting in the acquisition of a 
total of 16 United States daily newspapers and related publications from Thomson
Newspapers for approximately $95.0 million. These acquisitions were financed    
through the Company's then existing credit facility and new interim bank        
arrangements entered into on September 28, 1995. On April 30, 1996, the Company 
completed a trade with Garden States Newspapers, Inc. The Company acquired the  
Tribune-Democrat in Johnstown, Pennsylvania in exchange for six small daily     
newspapers, several weekly newspapers and $31.4 million in cash. On December 16,
1996, the Company completed an exchange of newspaper assets with Thomson and Cox
Newspapers Inc. through which the Company acquired the Mount Vernon Register    
News in Mount Vernon, Illinois, the Enid News in Enid, Oklahoma, and the        
Herald-Palladium in St. Joseph/Benton Harbor, Michigan and related publications 
in exchange for four daily newspapers in Indiana, a daily newspaper in Texas,   
related publications and approximately $32.4 million in cash.                   

SUBSEQUENT EVENTS                                                               

       On January 27, 1998, the Company completed a sale of approximately 80
community newspapers for aggregate cash consideration of approximately $310.0   
million. The proceeds from the sale were used to pay off the AP-91 Notes and pay
down $175.0 million of outstanding debt on the Bank Credit Facility. A pre-tax  
gain resulting from this transaction of approximately $206.0 million will be    
included in the first quarter 1998 accounts.                                    

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    The following table sets forth, for the periods indicated, certain
items included in the Company's Consolidated Statements of Operations.          

                                                        [Enlarge/Download Table]

                                                        Year Ended December 31,                  
                                     ------------------------------------------------------------
                                           1997                  1996                  1995      
                                     ----------------      ----------------      ----------------
                                                     (dollar amounts in thousands)               
                                                                                                 
Operating revenues                                                                               
      United States Newspaper Group  $        633,633      $        607,372      $        559,214
      U.K. Newspaper Group                    492,270               451,902               405,037
      Canadian Newspaper Group              1,085,627             1,014,748               114,263
                                     ----------------      ----------------      ----------------
      Total operating revenue        $      2,211,530      $      2,074,022      $      1,078,514
                                     ================      ================      ================

Operating income (4)                                                                             
      United States Newspaper Group  $         89,461      $         63,881      $         32,125
      U.K. Newspaper Group                     26,657                 1,601                27,000
      Canadian Newspaper Group                171,604                82,485                 2,739
                                     ----------------      ----------------      ----------------
      Total operating income         $        287,722      $        147,967      $         61,864
                                     ================      ================      ================

EBITDA (2)                                                                                       
      United States Newspaper Group  $        131,119      $        106,707      $         74,139
      U.K. Newspaper Group                     44,733                15,918                37,374
      Canadian Newspaper Group                226,440               127,777                 7,814
                                     ----------------      ----------------      ----------------
      Total EBITDA                   $        402,292      $        250,402      $        119,327
                                     ================      ================      ================

                                                        [Enlarge/Download Table]

                                                       PERCENTAGE RELATIONSHIPS                   
                                                        Year Ended December 31,                   
                                     ------------------------------------------------------------ 
                                           1997                  1996                  1995       
                                     ----------------      ----------------      ---------------- 
                                                                                                  
Operating revenues                                                                                
      United States Newspaper Group             28.65%                29.28%                51.85%
      U.K. Newspaper Group                      22.26%                21.79%                37.56%
      Canadian Newspaper Group                  49.09%                48.93%                10.59%
                                     ----------------      ----------------      ---------------- 
      Total operating revenue                  100.00%               100.00%               100.00%
                                     ================      ================      ================ 

Operating income                                                                                  
      United States Newspaper Group             31.10%                43.17%                51.93%
      U.K. Newspaper Group                       9.26%                 1.08%                43.64%
      Canadian Newspaper Group                  59.64%                55.75%                 4.43%
                                     ----------------      ----------------      ---------------- 
      Total operating income                   100.00%               100.00%               100.00%
                                     ================      ================      ================ 

EBITDA Margin (3)                                                                                 
      United States Newspaper Group             20.69%                17.57%                13.26%
      U.K. Newspaper Group                       9.09%                 3.52%                 9.23%
      Canadian Newspaper Group                  20.86%                12.59%                 6.84%
      Total EBITDA                              18.19%                12.07%                11.06%

EBITDA                                                                                            
      United States Newspaper Group             32.59%                42.61%                62.13%
      U.K. Newspaper Group                      11.12%                 6.36%                31.32%
      Canadian Newspaper Group                  56.29%                51.03%                 6.55%
                                     ----------------      ----------------      ---------------- 
      Total EBITDA                             100.00%               100.00%               100.00%
                                     ================      ================      ================ 

(Footnotes following tables)                                                    

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    The following table sets forth, for the periods indicated, certain
items included in the Company's Consolidated Statements of Operations.          

                                                        [Enlarge/Download Table]

                                                                           Year Ended December 31,                  
                                                        ------------------------------------------------------------
                                                              1997                  1996                  1995      
                                                        ----------------      ----------------      ----------------
                                                                        (dollar amounts in thousands)               
                                                                                                                    
United States Newspaper Group                                                                                       
      Operating revenues                                                                                            
           Advertising                                  $        433,516      $        403,328      $        372,597
           Circulation                                           149,073               145,268               129,685
           Job printing and other                                 51,044                58,776                56,932
                                                        ----------------      ----------------      ----------------
      Total operating revenues                                   633,633               607,372               559,214
                                                        ----------------      ----------------      ----------------

      Operating costs                                                                                               
           Newsprint                                              89,302               109,045               101,748
           Compensation costs                                    229,994               218,832               197,319
           Other Operating costs                                 181,364               172,788               178,008
           Direct subscription campaign costs, net and                                                              
                infrequent items                                   1,854                    --                 8,000
           Depreciation and amortization                          41,658                42,826                42,014
                                                        ----------------      ----------------      ----------------
      Total operating costs                                      544,172               543,491               527,089
                                                        ----------------      ----------------      ----------------
      Operating income                                  $         89,461      $         63,881      $         32,125
                                                        ================      ================      ================

U.K. Newspaper Group                                                                                                
      Operating revenues                                                                                            
           Advertising                                  $        335,115      $        278,156      $        262,963
           Circulation                                           137,073               158,220               132,985
           Job printing and other                                 20,082                15,526                 9,089
                                                        ----------------      ----------------      ----------------
      Total operating revenues                                   492,270               451,902               405,037
                                                        ----------------      ----------------      ----------------

      Operating costs                                                                                               
           Newsprint                                              89,851               101,259                87,648
           Compensation costs                                     86,887                76,892                74,216
           Other operating costs                                 248,232               225,506               205,799
           Direct subscription campaign costs, net and                                                              
                infrequent items                                  22,567                32,327                    --
           Depreciation and amortization                          18,076                14,317                10,374
                                                        ----------------      ----------------      ----------------
      Total operating costs                                      465,613               450,301               378,037
                                                        ----------------      ----------------      ----------------
      Operating income                                  $         26,657      $          1,601      $         27,000
                                                        ================      ================      ================

Canadian Newspaper Group                                                                                            
      Operating revenues                                                                                            
           Advertising                                  $        787,410      $        683,043      $         63,874
           Circulation                                           249,301               258,634                39,054
           Job printing and other                                 48,916                73,071                11,335
                                                        ----------------      ----------------      ----------------
      Total operating revenues                                 1,085,627             1,014,748               114,263
                                                        ----------------      ----------------      ----------------

      Operating costs                                                                                               
           Newsprint                                             132,857               136,142                14,678
           Compensation costs                                    419,272               435,949                47,539
           Other operating costs                                 306,236               305,640                44,232
           Direct subscription campaign costs, net and                                                              
                infrequent items                                     822                 9,240                    --
           Depreciation and amortization                          54,836                45,292                 5,075
                                                        ----------------      ----------------      ----------------
      Total operating costs                                      914,023               932,263               111,524
                                                        ----------------      ----------------      ----------------
      Operating income                                  $        171,604      $         82,485      $          2,739
                                                        ================      ================      ================

(Footnotes following tables)                                                    

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

                                                        [Enlarge/Download Table]

                                                                          PERCENTAGE RELATIONSHIPS                   
                                                                           Year Ended December 31,                   
                                                        ------------------------------------------------------------ 
                                                              1997                  1996                  1995       
                                                        ----------------      ----------------      ---------------- 
                                                                                                                     
United States Newspaper Group                                                                                        
      Operating revenues                                                                                             
           Advertising                                             68.41%                66.40%                66.63%
           Circulation                                             23.53                 23.92                 23.19 
           Job printing and other                                   8.06                  9.68                 10.18 
                                                        ----------------      ----------------      ---------------- 
      Total operating revenues                                    100.00%               100.00%               100.00%
                                                        ----------------      ----------------      ---------------- 

      Operating costs (1)                                                                                            
           Newsprint                                               14.09%                17.95%                18.20%
           Compensation costs                                      36.30                 36.03                 35.29 
           Other operating costs                                   28.62                 28.45                 31.83 
           Direct subscription campaign costs, net and                                                               
                infrequent items                                    0.30                    --                  1.43 
           Depreciation and amortization                            6.57                  7.05                  7.51 
                                                        ----------------      ----------------      ---------------- 
      Total operating costs                                        85.88                 89.48                 94.26 
                                                        ----------------      ----------------      ---------------- 
      Operating income (1)                                         14.12%                10.52%                 5.74%
                                                        ================      ================      ================ 

U.K. Newspaper Group                                                                                                 
      Operating revenues                                                                                             
           Advertising                                             68.07%                61.55%                64.93%
           Circulation                                             27.85                 35.01                 32.83 
           Job printing and other                                   4.08                  3.44                  2.24 
                                                        ----------------      ----------------      ---------------- 
      Total operating revenues                                    100.00%               100.00%               100.00%
                                                        ----------------      ----------------      ---------------- 

      Operating costs (1)                                                                                            
           Newsprint                                               18.25%                22.41%                21.64%
           Compensation costs                                      17.65                 17.02                 18.32 
           Other operating costs                                   50.43                 49.90                 50.81 
           Direct subscription campaign costs, net and                                                               
                infrequent items                                    4.58                  7.15                    -- 
           Depreciation and amortization                            3.67                  3.17                  2.56 
                                                        ----------------      ----------------      ---------------- 
      Total operating costs                                        94.58                 99.65                 93.33 
                                                        ----------------      ----------------      ---------------- 
      Operating income (1)                                          5.42%                 0.35%                 6.67%
                                                        ================      ================      ================ 

Canadian Newspaper Group                                                                                             
      Operating revenues                                                                                             
           Advertising                                             72.53%                67.31%                55.90%
           Circulation                                             22.96                 25.49                 34.18 
           Job printing and other                                   4.51                  7.20                  9.92 
                                                        ----------------      ----------------      ---------------- 
      Total operating revenues                                    100.00%               100.00%               100.00%
                                                        ----------------      ----------------      ---------------- 

      Operating costs (1)                                                                                            
           Newsprint                                               12.24%                13.41%                12.85%
           Compensation costs                                      38.62                 42.96                 41.60 
           Other operating costs                                   28.21                 30.13                 38.71 
           Direct subscription campaign costs, net and                                                               
                infrequent items                                    0.07                  0.91                    -- 
           Depreciation and amortization                            5.05                  4.46                  4.44 
                                                        ----------------      ----------------      ---------------- 
      Total operating costs                                        84.19                 91.87                 97.60 
                                                        ----------------      ----------------      ---------------- 
      Operating income (1)                                         15.81%                 8.13%                 2.40%
                                                        ================      ================      ================ 

(1)      Expressed as a percentage of related revenues.                         
(2)      EBITDA represents earnings before interest expense, income taxes,      
         depreciation and amortization, minority interest, equity in earnings of
      affiliates and certain other income items. EBITDA is not intended to
represent an alternative to operating income (as determined in
 accordance with generally accepted accounting principles) as an
      indicator of the Company's operating performance, or cash flows from
  operating activities (as determined in accordance with generally
        accepted accounting principles) as a measure of liquidity. The Company
     believes that EBITDA largely determines its ability to fund current
 operations and to service debt due to the significant number of
  acquisitions made by the Company which have resulted in non-cash
        charges for depreciation and amortization. These non-cash charges have
adversely affected net income, but have not affected EBITDA.  
(3)      EBITDA Margin represents EBITDA divided by related operating revenues. 
(4)      Includes allocation of corporate expenses.                             

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RESULTS OF OPERATIONS                                                           

1997 COMPARED WITH 1996                                                         

    NET EARNINGS The Company had net earnings of $104.5 million, or 93
cents per share in 1997, compared with net earnings of $42.8 million, or 41     
cents per share in 1996. Earnings in 1997 and 1996 include a number of          
non-recurring items. For the year ended December 31, 1997, earnings from        
continuing operations excluding non-recurring items were $72.6 million or 56    
cents per share, compared to $12.0 million or 2 cents per share in 1996. The    
method for computing per share numbers has been changed in 1997. On the basis   
that was used prior to 1997 earnings from continuing operations, excluding      
non-recurring items, were 63 cents per share in 1997 compared to 12 cents per   
share in 1996.                                                                  

      OPERATING INCOME Operating income increased $139.7 million to $287.7
million in 1997 from $148.0 million in 1996. Operating income at the Canadian   
Newspaper Group more than doubled primarily due to strong results at Southam.   
The operating income of The Telegraph increased by $25.1 million to $26.7       
million in 1997, from $1.6 million in 1996, principally as a result of increased
advertising revenues due in part by the increased circulation from the direct   
subscription campaign. The United States Newspaper Group's operating income     
increased $25.6 million to $89.5 million from $63.9 million, due to increased   
advertising revenues, decreased newsprint expense, and income contributed by    
newspapers acquired at the Community Group.                                     

     OPERATING REVENUES Operating revenues increased $137.5 million from
$2,074.0 million in 1996 to $2,211.5 million in 1997. Due to a strong           
advertising market for all groups, advertising revenues increased 14.0% to      
$1,556.0 million. Total circulation revenues decreased $26.7 million from $562.1
million in 1996 to $535.4 million primarily due to $21.1 million lower          
circulation revenue at the Telegraph resulting from the direct prepaid          
subscription campaign and a $11.1 million decrease in total circulation revenue 
at Southam. 1996 circulation revenue at Southam included $46.0 million related  
to its information technology group which was disposed of in 1996.              

      OPERATING EXPENSES Total operating costs and expenses decreased $2.3
million to $1,923.8 million in 1997 from $1,926.1 million in 1996. The decrease 
is primarily due to a decrease in newsprint expense offset in part by increased 
compensation costs, other costs and depreciation and amortization and the       
separate reporting of costs associated with the direct prepaid subscription     
campaign. Newsprint expense for the United States Newspaper Group decreased by  
18.1%, the U.K. Newspaper Group decreased by 11.3%, and the Canadian Newspaper  
Group decreased by 2.4% from the prior year. Newsprint prices began declining in
1996, continued to decline in the early part of 1997 and started to increase    
through the latter part of 1997. Compensation costs increased $4.5 million from 
$731.7 million in 1996 to $736.2 million in 1997. Increases in compensation at  
the United States Newspaper Group and the U.K. Newspaper Group were offset, in  
part, by a decrease at Southam. Other operating expenses, excluding special     
charges, increased by $31.9 million from $703.9 million in 1996 to $735.8       
million in 1997. Depreciation and amortization increased $12.2 million from     
$102.4 million in 1996 to $114.6 million in 1997. Increased depreciation and    
amortization resulted from the acquisitions by Southam and the Community Group  
and increased ownership of Southam acquired in December 1996 and July 1997 and  
the August 1996 buyout of the Telegraph minority.                               

   EQUITY IN EARNINGS OF AFFILIATES Equity in earnings of affiliates
decreased to $5.8 million in 1997 from $12.1 million in 1996. The decrease is   
due to the sales of the interests in Fairfax at the end of 1996 and early 1997  
and of a portion of the Chicago joint venture in the second quarter of 1997.    

        OTHER INCOME Other income of $67.3 million in 1997 consisted mostly of
the gain on sale of Fairfax interest of $66.1 million and the gain on sale of   
several U.S. community newspapers of $2.3 million. Other income of $58.3 million
in 1996 consisted mostly of the gain on sale of Fairfax interest of $53.5       
million, the gain on sale of some U.S. community newspapers of $17.9 million and
the write-off of fixed assets and other investments at Southam of $13.2 million.

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   INTEREST EXPENSE Interest expense increased by $29.2 million. The
increase in interest expense resulted from increased borrowings that related to 
the purchase of the additional Southam interest in December 1996 and July 1997, 
the August 1996 buyout of the Telegraph minority and the acquisition of the     
Canadian Newspapers in 1997. These increases in borrowings were offset, in part,
by the proceeds of the sale of Fairfax.                                         

   AMORTIZATION OF DEBT ISSUE COSTS Amortization of debt issue costs
represents debt issue costs on the Senior Subordinated Notes issued in February 
1996 and the Senior Notes and Senior Subordinated Notes issued in February 1997 
and the Publishing Credit Facility. Amortization of debt issue costs includes   
regular amortization of these costs and a one-time write-off of balances in the 
amount of $4.6 million in 1997 and $12.7 million in 1996.                       

      INCOME TAXES Income tax expense for 1997 was $93.7 million, compared
with $51.9 million in 1996. Income tax expense for 1997 and 1996 included tax on
the gain on sale of Fairfax of $22.5 million and $13.5 million, respectively.   

  MINORITY INTEREST Minority interest reflects the interest of the
minority holders of ordinary shares of The Telegraph in the earnings of The     
Telegraph its affiliated companies until the minority buyout in August 1996, the
minority interest in earnings of Southam and dividends paid on redeemable       
preferred stock of two subsidiary companies until they were redeemed in 1997.   
The amount attributable to minority interests increased to $46.0 million in     
1997, compared with $33.1 million in 1996, primarily as a result of the increase
in earnings of Southam.                                                         

UNITED STATES NEWSPAPER GROUP                                 

     Operating revenues in the United States Newspaper Group were $633.6
million in 1997 (or 28.7% of total operating revenues), an increase of $26.3    
million over the same period in 1996. Chicago Group operating revenues increased
2.3% primarily due to strong advertising revenues. The Community Group's        
revenues increased 6.8%. For newspapers in the Community Group operated         
throughout both years, revenues increased $2.7 million or 1.3%.                 

       Advertising revenues in the United States Newspaper Group were $433.5
million in 1997, an increase of $30.2 million over 1996. Advertising revenues at
the Chicago Group increased 6.4% and the Community Group increased 8.9%. For    
newspapers in the Community Group operated throughout both years, advertising   
revenues increased 2.6%. Circulation revenues in the United States Newspaper    
Group were $149.1 million in 1997, an increase of 2.6% over 1996. Circulation   
revenues for the Chicago Group decreased 1.4% from 1996, while circulation      
revenues at the Community Group increased $4.9 million, primarily due to        
acquisitions. For newspapers in the Community Group operated throughout both    
years, circulation revenues for 1997 remained consistent with 1996. Job printing
revenues decreased $7.7 million, partially due to a decrease in newsprint       
prices, but also affected by a loss of printing contracts at the Chicago Group. 

      Total operating costs and expenses, excluding the special charge for
the cost of terminated employees, were $542.3 million, a decrease of $1.2       
million from 1996. A decrease in newsprint expense was offset in part by        
increased compensation costs and other expenses. However, as a percentage of    
total United States Newspaper Group revenues, operating costs and expenses,     
excluding the special charge, decreased to 85.6% from 89.5%. Newsprint expense  
decreased $19.7 million, or 18.1% to $89.3 million in 1997. Newsprint as a      
percentage of operating revenues also decreased to 14.1% in 1997 from 18.0% in  
1996. The decrease in newsprint expense is the result of lower newsprint prices 
throughout 1997. Even though newsprint prices increased during the second half  
of 1997, the prices still remained lower that the prices that were in effect    
during most of 1996. Compensation costs increased $11.2 million from $218.8     
million in 1996 to $230.0 million in 1997; however, as a percentage of revenues 
compensation costs remained relatively flat at 36.3% in 1997 and 36.0% in 1996. 
Increases in compensation costs were due to standard wage increases and         
increases in the minimum wage. Other operating costs, excluding the special     
charge, increased $8.6 million to $181.4 million in 1997 from $172.8 million in 
1996; however, as a percentage of sales they remained fairly consistent at 28.6%
in 1997 and 28.5% in 1996. Depreciation and amortization costs at $41.7 million 
in 1997 compared with $42.8 million in 1996 were relatively flat.               

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         Operating income in the United States Newspaper Group was $89.5 million
in 1997, an increase of $25.6 million from 1996. The increases in operating     
income were primarily due to the growth in advertising revenues and the         
reduction of newsprint expense. As a percentage of total United States Newspaper
Group revenues, operating income increased to 14.1% in 1997 from 10.5% in 1996. 

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U.K. NEWSPAPER GROUP                                          

       Operating revenues in the U.K. Newspaper Group were $492.3 million in
1997 (or 22.3% of total operating revenues), an increase of $40.4 million, or   
8.9%, from 1996. When expressed in British pounds sterling, revenues increased  
by 3.8%. Advertising revenues for 1997 increased $57.0 million to $335.1        
million, or 20.5% over 1996. When expressed in British pounds sterling,         
advertising revenues increased 14.9%. Circulation revenues for 1997 were $137.1 
million, a decrease of $21.1 million, or 13.4% from 1996. When expressed in     
British pounds sterling, circulation revenues decreased by 17.6%.               

      Total operating costs and expenses, excluding the special charge, at
The Telegraph were $443.0 million in 1997, an increase of $25.0 million, or     
6.0%, over 1996. Total operating costs and expenses, excluding the special      
charge, as a percentage of Telegraph revenues, were 90.0% in 1997, compared with
92.5% in 1996. As a percentage of Telegraph revenues, newsprint costs, excluding
the special charge, were 18.3% in 1997 and 22.4% in 1996. Newsprint prices in   
the U.K. started to decline in the fourth quarter of 1996.                      

         Operating income, including the $22.6 million special charge, was $26.7
million in 1997. Operating income, including the $32.3 million special charge,  
was $1.6 million in 1996. As a percentage of revenues, operating income         
increased to 5.5% from 0.4%. Without the special charges for the direct         
subscription campaign and the cost of terminated employees, operating income    
would have been $49.2 million in 1997 compared to $33.9 million in 1996. The    
increase in operating income was primarily due to increases in advertising      
revenues resulting partially due to the growth in circulation from the direct   
subscription campaign and decreases in newsprint expense.                       

     During 1996 the Telegraph began a program to solicit direct prepaid
subscriptions. In the past, newspaper subscribers in the U.K. dealt directly    
with independent news agents for the purchase of newspapers. A significant      
portion of our newspaper readers did not take the paper every day and this was  
especially true for Sunday. In the summer of 1996 the Telegraph began a direct  
mail campaign to solicit prepaid seven-day-a-week subscriptions. By the end of  
1996, the plan had added about 100,000 new weekday and 200,000 new Sunday       
average sales and the average prepaid subscription was for a period of about 40 
weeks. In order to gain broad acceptance of this revolutionary plan, the        
subscriptions were offered at a significant discount. The amount of that        
discount was reduced throughout 1997. The Company grouped all the net costs     
associated with the program including an estimate in 1996 of costs that would be
incurred in 1997 for subscribers that were signed up at December 31, 1996. This 
amounted to $32.3 million and was deducted as a separately identifiable         
operating expense in arriving at earnings for the year ended December 31, 1996. 
During the first three quarters of 1997 these net costs associated with the     
campaign amounted to $22.2 million net and were also grouped together and       
deducted separately in arriving at operating income. In the fourth quarter the  
net costs associated with the campaign had declined and advertising revenue had 
increased, sufficient that no separate charge was necessary.                    

CANADIAN NEWSPAPER GROUP                                      

  Operating revenues in the Canadian Newspaper Group were $1,085.6
million in 1997 (or 49.1% of total operating revenues), an increase of $70.9    
million, or 7.0%, from 1996. Advertising revenues for 1997 increased $104.4     
million to $787.4 million, or 15.3% over 1996. The majority of the increase was 
at Southam. Circulation revenues for 1997 were $249.3 million, a decrease of    
$9.3 million, or 3.6% from the 1996. The decrease was primarily due to the      
disposition by Southam of its information technology group which in 1996 had    
circulation revenue of $46.0 million.                                           

      Total operating costs and expenses, excluding the special charge for
the cost of terminated employees, were $913.2 million in 1997, a decrease of    
$9.8 million, or 1.1%, from 1996. Newsprint expense decreased 2.4% and          
compensation costs decreased 3.8%. The decrease in compensation costs is        
primarily due to staff reductions at Southam. Total operating costs and         
expenses, excluding the special charge, as a percentage of revenues were 84.1%  
in 1997 compared with 91.0% in 1996. Depreciation and amortization increased    
$9.5 million to $54.8 million. The increase is primarily due to additional      
amortization resulting from the purchase of additional interests in Southam in  
December 1996 and July 1997.                                                    

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         Operating income in 1997 increased by $89.1 million or 108.0% to $171.6
million. Operating income in 1996 included a charge of $9.2 million for the cost
of terminated employees. As a percentage of revenues, operating income increased
to 15.8% from 8.1%. The increase in operating income was primarily due to an    
increase in advertising revenues and decreases in compensation and newsprint    
expenses.                                                                       

1996 COMPARED WITH 1995                                       

     NET EARNINGS The Company had net earnings of $42.8 million in 1996,
compared with net earnings of $6.3 million in 1995. Net earnings per share were 
$0.41 per share in 1996, compared with $0.09 per share in 1995. Earnings in 1996
and 1995 include several significant infrequently occurring items. The after    
tax, after minority interest impact of such items in 1996 was as follows: a     
charge of $4.8 million in respect of severance payments at Southam, the         
Telegraph and Fairfax; a charge of $10.0 million in respect of finance costs    
including $2.2 million disclosed as an extraordinary charge; a charge of $2.8   
million representing the write-off of the carrying value of fixed assets and    
certain investments at Southam; a $1.2 million loss on dilution of the          
investment in Southam; a gain on sale of the Fairfax interest of $40.0 million  
and a $9.6 million gain on sale of assets. The after tax after minority interest
impact of such items in 1995 was as follows: restructuring costs and a loss on  
discontinued operations at Southam totaling $10.7 million; a charge in respect  
of reorganization expenses of $4.8 million; a charge in respect of severance    
payments at the Telegraph and Fairfax of $1.6 million and a $4.7 million gain on
sale of marketable securities. Excluding these items, the Company would have    
reported net earnings of $0.02 per share in 1996, compared with $0.27 per share 
in 1995.                                                                        

     OPERATING INCOME Operating income increased $86.1 million to $148.0
million in 1996 from $61.9 million in 1995. Of the increase, $62.4 million      
relates to operating income of Southam. The operating income of The Telegraph   
declined by $25.4 million to $1.6 million in 1996, from $27.0 million in 1995,  
caused principally by the $32.3 million of costs for the direct subscription    
campaign. The United States Newspaper Group's operating income increased $31.8  
million to $63.9 million from $32.1 million, due to decreasing newsprint prices 
at the Chicago Group, improved results at Community Group operations owned      
throughout both years and income contributed by newspapers acquired at the      
Community Group. The Chicago Group experienced an increase of $8.4 million to   
$16.7 million, from approximately $8.3 million, caused largely by a decrease in 
newsprint costs and overall cost controls. Operating income at the Canadian     
Newspapers increased $17.4 million due to acquisitions during 1996 and the      
latter part of 1995.                                                            

     OPERATING REVENUES Operating revenues increased $995.5 million from
$1,078.5 million in 1995 to $2,074.0 million in 1996. Of the increase $803.4    
million is attributable to revenues from Southam. Advertising revenues increased
$665.1 million from $699.4 million to $1,364.5 million, of which $562.6 million 
is attributable to advertising revenues of Southam. Circulation revenues        
increased $244.3 million of which $186.7 million related to circulation revenues
of Southam.                                                                     

        OPERATING EXPENSES Total operating costs and expenses increased $909.4
million from $1,016.7 million in 1995 to $1,926.1 million in 1996. The increase 
in operating expenses without the inclusion of $741.1 million operating expense 
from Southam was $168.3 million. Newsprint expense for the United States        
Newspaper Group and the U.K. Newspaper Group increased by 11.0% from the prior  
year. Acquisitions at the Community Group added $8.0 million to newsprint       
expense. Even though newsprint prices began declining in 1996 the effects were  
not realized until the second quarter in the United States and the fourth       
quarter of 1996 in the United Kingdom. Compensation costs increased $412.6      
million from $319.1 million in 1995 to $731.7 million in 1996. Compensation     
costs at Southam were $352.7 million for 1996. Other operating expenses,        
excluding special charges, increased by $275.9 million from $428.0 million in   
1995 to $703.9 million in 1996. The increase in other operating expenses was    
$39.5 million excluding $236.4 million of other operating expenses at Southam.  
Depreciation and amortization increased $44.9 million from $57.5 million in 1995
to $102.4 million in 1996. The increase in depreciation and amortization was    
$4.5 million excluding depreciation and amortization at Southam.                

   EQUITY IN EARNINGS OF AFFILIATES Equity in earnings of affiliates
decreased $2.3 million from $14.4 million in 1995 to $12.1 million in 1996. In  
December 1996, the Company announced the sale in three tranches of its interest 
in Fairfax. The first tranche was sold in December 1996 resulting in proceeds of
$202.3 million and a                                                            

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gain recognized of $53.5 million in 1996. The second and third tranches were    
accounted for in 1997. The 1996 equity earnings were $12.0 million and include  
Fairfax up to the date of sale and the Chicago joint venture. The results of    
Southam were consolidated for the year ended December 31, 1996. The 1995 results
include the Company's shares of equity in earnings for Fairfax, Southam and the 
joint venture. Excluding Southam from the 1995 results, equity in earnings would
have been $25.4 million. Equity in earnings of Fairfax decreased $13.5 million  
primarily due to higher deprecation and interest costs related to the new       
production plant in Sydney and weakness in the Australian economy.              

        OTHER INCOME Other income of $58.3 million in 1996 consisted mostly of
the gain on sale of Fairfax interest of $53.5 million, the gain on sale of some 
U.S. community newspapers of $17.9 million and the write-off of fixed assets and
other investments at Southam of $13.2 million. Comparable other income in 1995  
consisted mostly of the gain on sale of subsidiary shares and marketable        
securities of $12.0 million.                                                    

       INTEREST EXPENSE Interest expense increased by $39.7 million to $84.4
million in 1996, compared with $44.7 million in 1995. The increase in interest  
expense resulted from increased borrowings that related to the purchase of the  
additional Southam interest, the buyout of the Telegraph minority interest and  
acquisitions at the Community Group.                                            

   AMORTIZATION OF DEBT ISSUE COSTS Amortization of debt issue costs
represents debt issue costs on Senior Subordinated Notes issued in February 1996
and include regular amortization of these costs in 1996 and a one time write-off
of balances in 1996 in the amount of $12.7 million.                             

      INCOME TAXES Income tax expense for 1996 was $51.9 million, compared
with $20.6 million in 1995. Income tax expense for 1996 consisted of $17.1      
million in United States taxes and $34.8 million in foreign taxes, compared with
$2.5 million United States taxes and $18.1 million in foreign taxes for 1995.   
Taxes related to Southam were $13.3 million in 1996. In 1995 taxes at Southam   
were included in equity earnings.                                               

   MINORITY INTERESTS Minority interest reflects the interest of the
minority holders of ordinary shares of The Telegraph in the earnings of The     
Telegraph its affiliated companies until the minority buyout in August 1996, the
minority interest in earnings of Southam for 1996 and dividends paid on         
redeemable preferred stock of two subsidiary companies. The amount attributable 
to minority interests increased to $33.1 million in 1996, as compared with $22.6
million in 1995 and $17.7 million of this was represented by minority interests 
in Southam.                                                                     

UNITED STATES NEWSPAPER GROUP                                 

     Operating revenues in the United States Newspaper Group were $607.4
million in 1996 (or 29.3% of total operating revenues), an increase of $48.2    
million, or 8.6%, over the same period in 1995. The Community Group's revenues  
increased $45.1 million, or 19.8%. For newspapers in the Community Group        
operated throughout both years, revenues increased $4.6 million, or 2.7%.       

       Advertising revenues in the United States Newspaper Group were $403.3
million in 1996, an increase of $30.7 million, or 8.2%, over 1995. The Community
Group increased $30.7 million, or 21.4%. For newspapers in the Community Group  
operated throughout both years, advertising revenues increased $3.2 million, or 
2.8%.                                                                           

       Circulation revenues in the United States Newspaper Group were $145.3
million in 1996, an increase of $15.6 million, or 12.0% over 1995. Circulation  
revenues for the Chicago Group increased $2.2 million, while circulation        
revenues at the Community Group increased $13.4 million, or 26.2%. For          
newspapers in the Community Group operated throughout both years, circulation   
revenues increased $2.5 million, or 7.3%.                                       

        Job printing revenues, derived from utilizing available press capacity
for printing unaffiliated newspapers, fliers, retail store advertisements and   
real estate listings for third parties, increased $1.9 million, or 3.2%, to     
$58.8 million in 1996 from $56.9 million in the same period in 1995.            

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  Total operating costs and expenses, excluding the reorganization
expense in 1995, were $543.5 million, an increase of $24.4 million, or 4.7%,    
over 1995. As a percentage of total United States Newspaper Group revenues,     
operating costs and expenses decreased to 89.5% from 94.3%.                     

        Newsprint expense increased $7.3 million, or 7.2% to $109.0 million in
1996. Newsprint as a percentage of operating revenues remained relatively flat  
at 18.0% in 1996 and 18.2% in 1995. Acquisitions at the Community Group added   
$8.0 million in newsprint costs to 1996. Compensation costs increased $21.5     
million from $197.3 million in 1995 to $218.8 million in 1996 and as a          
percentage of revenues compensation costs remained relatively flat at 36.0% in  
1996 and 35.3% in 1995. Other operating costs, excluding the reorganization     
expense in 1995, decreased $5.2 million to $172.8 million in 1995 from $178.0   
million in 1995. Depreciation and amortization costs at $42.8 million in 1996   
compared with $42.0 million in 1995 were relatively flat. Increased depreciation
and amortization on Community Group acquisitions was offset by reduced          
amortization resulting from the revaluation of the remaining useful lives of    
certain intangible assets.                                                      

       Expenses associated with the Reorganization were $8.0 million in 1995
and there were no comparable expenses in 1996.                                  

         Operating income in the United States Newspaper Group was $63.9 million
in 1996, an increase of $31.8 million from 1995. The Community Group's          
performance, notwithstanding newsprint cost increases, improved by 48.4% as a   
result of both operating improvements at operations owned in both years and     
acquisitions, and the Chicago Group showed an improvement of 100.5% generated   
largely by cost controls. As a percentage of total United States Newspaper Group
revenues, operating income increased to 10.5% from 5.7%.                        

U.K. NEWSPAPER GROUP                                          

       Operating revenues in the U.K. Newspaper Group were $451.9 million in
1996 (or 21.8% of total operating revenues), an increase of $46.9 million, or   
11.6%, from 1995. When expressed in British pounds sterling, revenues increased 
by 13.5%. Advertising revenues for 1996 increased $15.2 million to $278.2       
million, or 5.8% over 1995. When expressed in British pounds sterling,          
advertising revenues increased 7.6%. Circulation revenues for 1996 were $158.2  
million, an increase of $25.2 million, or 19.0%, from the 1995 period. When     
expressed in British pounds sterling, circulation revenues increased by 21.3%.  

      Total operating costs and expenses, excluding the special charge, at
The Telegraph were $418.0 million in 1996, an increase of $40.0 million, or     
10.6%, over 1995. When expressed in British pounds sterling, total operating    
costs and expenses increased 10.0% over 1995. Total operating costs and         
expenses, excluding the special charge, as a percentage of Telegraph revenues,  
were 92.5% in 1996, compared with 93.3% in 1995. As a percentage of Telegraph   
revenues, newsprint costs, excluding the special charge, were approximately 22% 
in both 1996 and 1995. Newsprint prices in the U.K. started to decline in the   
fourth quarter of 1996.                                                         

      Operating income, including the $32.3 million special charge, at The
Telegraph was $1.6 million in 1996, a decrease of $25.4 million, or 94.1%, from 
1995. As a percentage of Telegraph revenues, operating income declined to 0.4%  
from 6.7%. When expressed in British pounds sterling, the operating income      
decrease was 64.7%. Without the special charge for the prepaid subscription     
campaign, operating income would have been $33.9 million in 1996 compared to    
$27.0 million in 1995. The decline in operating income due to this fourth       
quarter special charge was partially offset by improved advertising revenues. In
addition, amortization of intangibles increased as a result of the August 1996  
buyout of the minority.                                                         

   For the first time in the United Kingdom, the Telegraph solicited
direct prepaid subscriptions from potential readers. In the past, newspaper     
subscribers have dealt directly with independent news agents for the purchase of
newspapers. These agents deal in numerous publications. A significant portion of
the newspaper readers did not take the paper every day and this has been        
especially true for Sunday. Starting in the late summer the Telegraph began a   
direct mail campaign to solicit prepaid seven-day-a-week subscriptions. These   
were offered for 12, 24, 36 and 52 week periods. By year end, the plan had added
about 100,000 new weekday and 200,000 new                                       

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Sunday average sales. The average prepaid subscription was for a period of about
40 weeks. In order to gain broad acceptance of this revolutionary plan, the     
subscriptions were offered at a significant discount. As a result the Company   
has grouped all the net costs associated with the program including an estimate 
of costs that would be incurred in 1997 for subscribers that were signed up at  
December 31, 1996. This amounted to $32.3 million and we have deducted this as a
separately identifiable operating expense in arriving at earnings.              

CANADIAN NEWSPAPER GROUP                                      

  For 1996, the Canadian Newspaper Group consists of the Company's
majority interest in Southam and the Canadian Newspapers. For 1995, only the    
Canadian Newspapers are included as the ownership interest in Southam was       
recorded as equity earnings.                                                    

      Operating revenues for the Canadian Newspaper Group increased $900.5
million to $1,104.7 million in 1996, of which Southam represented $803.4 million
of the increase. Advertising revenues for the Canadian Newspapers increased     
$56.6 million to $120.5 million in 1996 and circulation revenues increased $32.9
million to $71.9 million in 1996. An acquisition of a group of newspapers in    
1996 added $53.9 million to revenues. A full year of operating results from the 
acquisition of another group of newspapers at the end of 1995 also contributed  
to the increase in revenues. For 1996 Southam's advertising revenues were $562.6
million and circulation revenues were $186.7 million.                           

Total operating costs and expenses increased $79.7 million due
primarily to the acquisitions described above. Operating costs and expenses,    
excluding costs in respect of terminated employees for Southam were $731.8      
million.                                                                        

Operating income for the Canadian Newspaper Group increased $79.7 million to    
$82.5 million in 1996. Operating income of Southam represented $62.4 million of 
the increase.                                                                   

LIQUIDITY AND CAPITAL RESOURCES                                                 

         WORKING CAPITAL Working capital consists of current assets less current
liabilities. Current assets were $505.3 million and $523.7 million at December  
31, 1997 and 1996, respectively. Current liabilities, excluding debt            
obligations, were $413.3 million and $680.2 million, respectively, at December  
31, 1997 and 1996, of which $160.0 million related to current liabilities       
(excluding debt obligations) of Southam in 1996. Short-term debt was $503.4     
million in 1996. There was no short-term debt outstanding at December 31, 1997. 
Amounts due from affiliates were $18.4 million in 1997 compared with            
intercompany indebtedness and other amounts due to affiliates of $273.7 in 1996.
The amount at December 31, 1996 includes $260.6 million payable to Hollinger    
Inc. for the Canadian Newspapers plus a working capital adjustment. The         
Company's consolidated working capital at December 31, 1997 was $56.4 million   
compared to a deficit of $695.8 million in 1996.                                

        EBITDA EBITDA, which represents the Company's earnings before interest
expense, income taxes, depreciation and amortization, minority interest, equity 
in earnings of affiliates and certain other income items was $402.3 million in  
1997, $250.4 million in 1996 and $119.3 million in 1995, respectively. The      
Company believes that EBITDA largely determines its ability to fund current     
operations and to service debt                                                  

        CASH FLOW Cash flows on a consolidated basis from operating activities
(calculated in accordance with United States generally accepted accounting      
principles) were $242.8 million, $198.4 million, and $21.2 million in 1997,     
1996, and 1995, respectively. Excluding changes in working capital (other than  
cash), cash from operating activities was $265.1 million, $146.0 million, and   
$71.3 million for 1997 1996, and 1995, respectively Working capital changes     
required cash of $22.3 million and $50.1 million in 1997 and 1995, respectively 
and provided cash of $52.4 million in 1996. Changes reflect normal variations   
from year to year in inventory, accounts receivable, short-term liabilities and 
other working capital items.                                                    

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       Cash flows provided by investing activities were $8.5 million in 1997
principally reflecting proceeds from the disposal of Fairfax offset by capital  
expenditures and acquisitions at the Community Group and Southam and the        
purchase of the additional interest in Southam. Cash flows used in investing    
activities were $895.3 million in 1996 and $217.4 million in 1995, principally  
reflecting the acquisitions of the Telegraph minority, the additional interest  
in Southam and acquisitions at the Community Group in 1996, the acquisition of  
16 paid daily community newspapers and the purchase of additional Telegraph     
shares in 1995, offset by the proceeds from the sale of the Fairfax in 1996 and 
the sale of other marketable securities in 1995. Cash flows used in financing   
activities were $276.9 million reflecting changes in borrowings offset by the   
redemption of preference shares at DTH and FDTH, payment of dividends and       
payments made to Hollinger for the Canadian Newspapers. Cash flows provided by  
financing activities were $814.7 million in 1996 and $103.7 million in 1995,    
reflecting changes in borrowings and proceeds from the sale of Class A Common   
Stock and PRIDES offset by dividend payments.                                   

        CAPITAL EXPENDITURES AND ACQUISITION FINANCING In the past three years
the United States Newspaper Group, the U.K. Newspaper Group, and the Canadian   
Newspaper Group have funded their capital expenditures and acquisition and      
investment activities out of cash provided by their respective operating        
activities, borrowings under their bank credit facilities and, in the case of   
the United States Newspaper Group, borrowings from institutional lenders,       
advances from Hollinger Inc. and proceeds from one debt offering, two equity    
offerings and one PRIDES offering in 1996 and two debt offerings in 1997.       

UNITED STATES NEWSPAPER GROUP                                 

       Capital expenditures at the United States Newspaper Group amounted to
$28.4 million, $17.2 million, and $16.3 million in 1997 1996, and 1995,         
respectively, primarily for purchases of computerized pre-press and other       
production equipment and improvements to its properties in the United States and
Israel. The Company plans to commence construction of a new printing facility in
Chicago during 1998 at an estimated cost of approximately $100.0 million, to be 
operational in 1999.                                                            

      The Company acquired newspapers and other publications in the United
States in 1997, 1996, and 1995, for aggregate cash consideration of $180.9      
million funded primarily through bank borrowings. Such amount does not include  
notes payable to former owners and amounts due under noncompetition agreements  
with former owners. In 1997, the Community Group purchased four paid daily      
newspapers, four paid non-daily newspapers and six free distribution newspapers 
for $22.1 million. In addition, the Community Group acquired two paid daily     
newspapers and one paid non-daily newspaper in exchange for one daily newspaper,
three non-daily newspapers and one free distribution newspaper. In 1996, the    
Community Group acquired seven paid daily, 12 paid non-daily and sixteen free   
non-daily newspapers. In 1996, the Community Group disposed of 15 paid daily    
newspapers and 18 free non-daily newspapers for $63.8 million. In 1995, the     
Community Group acquired 16 paid daily newspapers, three paid non-dailies and 20
free non-daily publications in nine states at an aggregate cash cost of         
approximately $95.0 million.                                                    

        The Company's acquisition of Hollinger Inc.'s indirect interest in The
Telegraph, Fairfax, and Southam occurred in October 1995 and involved the       
issuance to Hollinger Inc. of 33,610,754 shares of Class A Common Stock and     
739,500 shares of Series A Preferred Stock (changed to Series D Preferred Stock 
in 1997). The acquisition of an additional 5.1% interest in The Telegraph at a  
cash cost of $49.6 million was accomplished through the exercise of the         
Telegraph Option in October 1995. The acquisition of the Telegraph minority     
occurred in August 1996 and acquisitions of additional interests in Southam     
occurred in May and December of 1996 and July of 1997. The Company acquired     
Canadian Newspapers from Hollinger Inc, in April 1997.                          

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U.K. NEWSPAPER GROUP                                          

        Capital expenditures at The Telegraph were $5.6 million, $4.6 million,
and $5.4 million, in 1997, 1996, , and 1995, respectively. Not included in the  
capital expenditures of The Telegraph are capital expenditures of the two joint 
venture printing companies, which aggregated $61.1 million in the three years   
ended December 31, 1997. The capital expenditures and depreciation charges of   
the joint venture printing companies are not consolidated in the accounts of The
Telegraph, but are reflected through the normal equity accounting procedures    
applied to affiliated companies.                                                

CANADIAN NEWSPAPER GROUP                                      

 Capital expenditures at the Canadian Newspaper Group were $84.3
million, $102.8 million and $5.7 million in 1997, 1996 and 1995, respectively.  
The capital expenditure amount includes $79.3 million and $98.0 million in 1997 
and 1996, respectively for Southam, which primarily relate to the construction  
of a new press facility in Vancouver, which was put into service in 1997.       

         DEBT OBLIGATIONS The Company, Publishing and its principal subsidiaries
are parties to various debt agreements that have been entered into to fund      
acquisitions, working capital requirements and other corporate purposes. At     
December 31, 1997, the indebtedness of the Company was $1,428.4 million.        

         1997 OFFERINGS On March 4, 1997, Publishing filed both a Prospectus and
a Prospectus Supplement offering $200 million of Senior Notes due 2005 (the     
"Senior Notes") and $200 million of Senior Subordinated Notes due 2007 (the     
"Senior Subordinated Notes") pursuant to its universal shelf registration       
statements. On March 12, 1997, Publishing increased the size of the offerings to
$550.0 million, closing on March 18, 1997. Both the Senior Notes and the Senior 
Subordinated Notes are guaranteed by the Company.                               

         The Senior Notes are unsecured and senior obligations of Publishing and
rank pari-passu with all other senior unsecured indebtedness of Publishing      
including Publishing's bank credit facilities, mature on March 15, 2005 and bear
interest at 8.625% per annum. The Senior Subordinated Notes are unsecured senior
subordinated obligations of Publishing and rank pari-passu with all other senior
subordinated indebtedness of Publishing including its existing 9.25% Senior     
Subordinated Notes due 2006. The Senior Subordinated Notes mature on March 15,  
2007 and bear interest payable semi-annually at a rate of 9.25% per annum. The  
Indentures relating to the Senior Notes and the Senior Subordinated Notes       
contain financial covenants and negative covenants that limit Publishing's      
ability to, among other things, incur indebtedness, pay dividends or make other 
distributions on its capital stock. The Company is in compliance with its       
covenants.                                                                      

     Publishing and its restricted subsidiaries utilized the proceeds of
these offerings to repay the Amended Publishing Credit Facility, the FDTH Credit
Facility and the Southam Credit Facility, to repay the redeemable preference    
shares of DTH and FDTH and for general working capital.                         

   SENIOR SECURED NOTES American Publishing (1991) Inc. ("AP-91"), a
wholly owned subsidiary of Publishing, issued $150 million in senior secured    
notes (collectively, the "AP-91 Senior Notes") which are held by 19 insurance   
companies of which $105 million were outstanding at December 31, 1997. The AP-91
Senior Notes were issued in five series due on September 1, 1998, September 1,  
1999, and September 1, 2000, in the principal amounts of $30 million, $20       
million and $55 million, respectively, and bearing interest at rates ranging    
from 10.44% to 10.53%. The Notes were repaid together with a makewhole premium  
of $8.4 million in January 1998 in conjunction with the 1998 sale of the        
Community Group newspapers as previously discussed.                             

  SENIOR SUBORDINATED NOTES Publishing sold $250 million aggregate
principal amount of Notes on February 7, 1996. The Notes mature on February 1,  
2006, and are unsecured senior subordinated obligations of Publishing. Each Note
bears interest at the rate of 9.25% per annum payable semiannually on February 1
and August 1 of each year, commencing on August 1, 1996. The Notes may be       
redeemed at any time on or after February 1, 2001, at the option of Publishing, 
in whole or in part, at a price of 104.625% of the principal amount thereof,    
declining ratably to par on or after February 1, 2004, together with accrued and
unpaid interest to the                                                          

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redemption date. Payment of the principal, premium,, and interest on the Notes  
is guaranteed by the Company on a senior subordinated basis (the "Guarantee").  
The Notes and the Guarantee are expressly subordinated to all senior            
indebtedness of Publishing and the Company, including all indebtedness and other
obligations under the Publishing Credit Facility and the Company's guarantee    
thereof.                                                                        

The indenture relating to the Notes (the "Indenture") contains
covenants that, among other things, limit the ability of Publishing and the     
Restricted Subsidiaries (defined to include the United States subsidiaries of   
Publishing, the Telegraph, the Canadian Newspapers and Jerusalem Post) to, incur
indebtedness, pay dividends or make other distributions on its capital stock,   
subject in each case to certain exceptions. The Company and the Restricted      
subsidiaries are in compliance with the covenants.                              

   CONSENT SOLICITATION On February 19, 1997, Publishing completed a
solicitation of consents from the holders of the 9.25% Notes with respect to    
certain amendments (the "Amendments") to the Indenture governing the 9.25% Notes
dated as of February 1, 1996 between Publishing and Fleet National Bank, as     
trustee (the "Trustee"). The primary purpose of the Amendments was to facilitate
the inclusion of certain international subsidiaries of the Company as Restricted
Subsidiaries of Publishing and to enhance its corporate and financing           
flexibility.                                                                    

    PUBLISHING CREDIT FACILITY In May 1996, Publishing entered into an
amended and restated credit agreement (the "Amended Publishing Credit Facility")
with a lender, which consisted of a secured non-amortizing revolving credit     
facility. The facility was for a maximum amount of $160 million and matured on  
April 7, 1997. At December 31, 1996 $157.0 million was outstanding under this   
facility. The facility was used to finance the acquisition of the Telegraph     
minority shares and was repaid with the proceeds of the 1997 issue of Senior    
Notes and Senior Subordinated Notes.                                            

  On April 7, 1997, Publishing, HCPH, The Telegraph and a group of
financial institutions entered into a new long-term bank credit facility (the   
"Bank Credit Facility"). This facility replaced the Amended Publishing Credit   
Facility. The purchase price of the Canadian Newspapers was financed in part    
through a $175 million borrowing by HCPH under the Bank Credit Facility. The    
Bank Credit Facility originally provided up to $900 million in total credit     
availability under four tranches. In July 1997, the Company reduced its total   
available commitments to $515 million. The Bank Credit Facility matures on March
15, 2004 with required reductions in availability equal to 6.25% of the         
commitment per calendar quarter commencing on June 30, 2000.                    

      Loans under the Bank Credit Facility bear interest, at the option of
the respective borrower, at a rate per annum tied to specified floating rates or
a reserve adjusted Eurocurrency rate, in each case plus a specified margin      
determined based on leverage ratios. The obligations of each borrower under the 
Bank Credit Facility are guaranteed by the Company and by each U.S. subsidiary. 
The obligations of HCPH are guaranteed in whole or in part by each of its wholly
owned Canadian subsidiaries and by The Telegraph and its subsidiaries. The      
obligations of The Telegraph are guaranteed in whole or in part by each United  
Kingdom ("U.K.") subsidiary and by HCPH and each of its Canadian subsidiaries.  

     The obligations of all borrowers under the Bank Credit Facility are
secured by a pledge by the Company of all stock of Publishing, the pledge by    
Publishing and its restricted subsidiaries of the stock of their United States  
subsidiaries (other than AP-91 and its subsidiaries), certain intercompany notes
and security agreements, and portions of the stock of certain Canadian and U.K. 
subsidiaries. The obligations of HCPH and the Canadian and U.K. subsidiaries    
which have guaranteed its debt are secured by all or part of the pledge of the  
stock of the Canadian subsidiaries, including approximately 58% of the stock of 
Southam, and all or part of the stock of The Telegraph and the U.K.             
subsidiaries. The obligations of The Telegraph and the Canadian and U.K.        
subsidiaries which have guaranteed its debt are secured by the pledge of all or 
part of the stock of the U.K. subsidiaries, and all or part of the stock of The 
Telegraph and the Canadian subsidiaries.                                        

        The parties to the Bank Credit Facility entered into a First Amendment
Agreement to the Bank Credit Facility (the "First Amendment") dated May 12,     
1997. The First Amendment amends certain terms and conditions of the Bank Credit
Facility to permit HCPH to bid for the remaining shares of Southam not currently
owned by it. The First Amendment allows for the Southam offer as an "Approved   
Acquisition" and modifies certain definitions,                                  

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representations and covenants to account for, among other things, the issuance  
of the HCPH Special Shares, the operation of the Exchange Indenture, approval by
the lenders of the bid circular and related documentation, and the provision and
timing of additional security under the Bank Credit Facility.                   

    The parties to the Bank Credit Facility have entered into a Second
Amendment Agreement to the Bank Credit Facility (the "Second Amendment") dated  
June 23, 1997. The Second Amendment amends certain terms and conditions of the  
Bank Credit Facility primarily to allow HCPH to take up less than all of the    
outstanding Southam shares and allow Publishing to pay up to $20 million in     
dividends to the Company for Class A Common Stock repurchases.                  

 The Bank Credit Facility contains both affirmative and negative
covenants, and various financial covenants. The Company was in compliance with  
all covenants at December 31, 1997.                                             

        FDTH CREDIT FACILITY In May 1996, FDTH entered into a credit agreement
(the "FDTH Credit Facility") with certain lenders, which consisted of a secured 
non-amortizing revolving credit facility. The Facility was for a maximum of     
(pound)250 million ($428.1 million) and matured on April 7, 1997. At December   
31, 1996 $191.3 million was outstanding under this facility. The facility was   
used to finance the acquisition of the Telegraph minority shares and pay        
outstanding indebtedness of the Telegraph. The FDTH Credit Facility was repaid  
as to approximately (pound)30 million ($51.4 million) with the proceeds of the  
first two tranches of the sale of its stake in Fairfax and remaining balance    
repaid with the proceeds of the Senior Notes and Senior Subordinated Notes.     

  SOUTHAM FACILITY In May 1996, the Company, through a subsidiary,
entered into a short-term facility with a Canadian chartered bank in the amount 
of Cdn$300 million (the "Southam Facility"). The maturity date on the loan was  
March 31, 1997 or earlier upon the occurrence of certain events. The Company    
borrowed $218.8 million (Cdn$298.8 million) under the facility and the proceeds 
of the facility were used in 1996 to acquire the additional 21.5% interest in   
Southam. The Company repaid the Southam Facility with the proceeds of the Senior
Notes and the Senior Subordinated Notes.                                        

       REDEEMABLE PREFERRED STOCK The Company's interest in The Telegraph is
held through intermediate English holding companies, DTH and FDTH, whose only   
significant long-term assets are their direct or indirect interests in The      
Telegraph.                                                                      

       On December 29, 1995, DTH transferred all outstanding FDTH Preference
shares which it then held (with an aggregate redemption amount of Cdn$140       
million ($102.6 million )) to Argsub Limited (Argsub), in exchange for newly    
issued preference shares (with an aggregate redemption amount of Cdn$140 million
($102.6 million )) of Argsub. Argsub was a wholly owned English subsidiary of   
Argus Corporation Limited. Argus Corporation Limited is a Canadian corporation, 
all the voting stock of which is indirectly owned or controlled by the principal
shareholder of Hollinger Inc. On September 30, 1996, FDTH issued 600 Fourth     
Preference Shares Series 1996 (with an aggregate redemption amount of $300      
million) to Argsub in exchange for 600 newly issued Second Preference Shares,   
Series 1996 of Argsub (with an aggregate redemption amount of $300 million).    
Both series of Argsub shares have terms substantially identical to those of the 
FDTH shares for which they were exchanged. At December 31, 1996 DTH and FDTH had
outstanding preference shares held by persons other than the Company and its    
affiliates with an aggregate redemption amount of $526.4 million. In June 1997  
DTH purchased 100% of the common shares of Argsub Limited ("Argsub") from Argus 
Corporation Limited. Argsub is the holder of $401.2 million preference shares of
FDTH. In addition, in May and June 1997 DTH paid approximately $123.3 million in
respect of the redemption of their redeemable preferred stock.                  

      In addition, the Company issued to Hollinger Inc. in connection with
the 1995 Reorganization in which the Company acquired Hollinger Inc.'s interest 
in The Telegraph and Southam, 739,500 shares of Series A Preferred Stock. The   
Series A Preferred Stock was subsequently exchanged for Series D Preferred Stock
as part of the Hollinger Inc. transaction. The shares of Series D Preferred     
Stock are redeemable in whole or in part, at any time and from time to time,    
subject to restrictions in the Company's credit facilities, by the Company or by
a holder of such shares. The redemption price of the Series D Preferred Stock   
was $75.9. million at December 31, 1997.                                        

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      HCPH SPECIAL SHARES HCPH issued 6,552,425 Cdn.$10 Non-Voting Special
Shares in July 1997 for a total issue price of Cdn.$65.5 million.               

         On July 18, 1997 HCPH, the Company and Montreal Trust Company of Canada
as trustee, entered into an Exchange Indenture providing for the exchange of the
HCPH special shares at the option of the holder ("Optional Exchange") at any    
time after December 23, 1997 but prior to June 26, 2000, into Class A Common    
Stock of the Company based on an exchange ratio set out in the Exchange         
Indenture. Each HCPH special share will be automatically exchanged ("Mandatory  
Exchange") on June 26, 2000 into a number of Class A Common Shares of the       
Company equal to a) US$8.88 divided by b) 95% of the current market price of the
Class A Common Stock. Upon either an Optional Exchange or a Mandatory Exchange, 
the Company will have the option in lieu of delivering all or any of the Class A
Common Stock issuable on exchange, to make a cash payment.                      

         INFLATION During the past three years, inflation has not had a material
effect on the Company's newspaper business in the United States, United Kingdom,
Australia and Canada. However, operations of Jerusalem Post, in local currency  
terms, have been affected by inflation amounting to 7.0%,10.0%, and 8.1%,       
annually in 1997, 1996, and 1995, respectively, which to a certain extent have  
been offset by the devaluation of the NIS in relation to the United States      
dollar in each of these years by 8.8%, 3.7%, and 3.9 %, respectively.           

       NEWSPRINT Newsprint prices continued to fluctuate throughout 1997 and
on a consolidated basis amounted to $312.0 million ($345.3 million in 1996 and  
$204.1 million in 1995). Management believes that while newsprint prices could  
continue to show wide price variations in the future, they will be more stable  
than they were through 1996. Operating divisions take steps to ensure that they 
have sufficient supply of newsprint and have mitigated the cost increases by    
adjusting pagination and page sizes and printing and distributing practices. For
the Company and subsidiaries at the end of 1997, total newsprint usage was about
580,000 tons per annum. At those levels of usage and based on properties and    
ownership levels at December 31, 1997, a change in the price of newsprint of $50
per ton would increase or decrease net income by about $15.6 million.           

       YEAR 2000 The Company is currently analyzing its internally developed
and purchased software that utilize embedded date codes. Such embedded date     
codes may experience operational problems with respect to dates on or after     
January 1, 2000, the so-called Year 2000 problem. A corporate wide task force is
in place, with all major business segments involved. The Company has already    
made some modifications and during 1998 and 1999 plans to make further necessary
modifications to the identified software and to test systems. The Company is    
also communicating with suppliers and others with which we do business to       
coordinate Year 2000 conversion. The Company presently believes that, with      
modifications to existing software and converting to new software, the Year 2000
problem will not pose significant operational difficulties for the Company. It  
is not anticipated that modifying or replacing software will have a material    
effect in any one year on the Company's financial statements or results of      
operations taken as a whole.                                                    

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Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                            

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

Item 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND        
FINANCIAL DISCLOSURE.                                         

Not applicable.                                               

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PART III                                                                        

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                    

     The information required by this item is incorporated by reference to the
  Company's Proxy Statement for the 1998 Annual Meeting of Stockholders.

ITEM 11.  EXECUTIVE COMPENSATION                                                

     The information required by this item is incorporated by reference to the
  Company's Proxy Statement for the 1998 Annual Meeting of Stockholders.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT        

     The information required by this item is incorporated by reference to the
  Company's Proxy Statement for the 1998 Annual Meeting of Stockholders.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                        

     The information required by this item is incorporated by reference to the
  Company's Proxy Statement for the 1998 Annual Meeting of Stockholders.

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PART IV                                                                         

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K      

(A)  DOCUMENTS FILED AS PART OF THIS REPORT.                                    

(1)  FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULES.               

        The consolidated financial statements filed as part of this report
appear beginning at page F-1.                             

(2)  EXHIBITS.                                                      

                                                       PRIOR FILING OR
EXHIBIT NO.  DESCRIPTION OF EXHIBIT                     SEQUENTIAL PAGE NUMBER  
-----------  ----------------------                    -------------------------
2.1  UniMedia Class A Stock Purchase           Incorporated by  
        Agreement dated as of April 18, 1997      reference to Exhibit
          among Hollinger Inc., UniMedia Holding    2.01 to Current Report
           Company and Hollinger International       on Form 8-K dated April
Inc.                                      18, 1997.   

2.2  UniMedia Class B Stock Purchase           Incorporated by  
        Agreement dated as of April 18, 1997      reference to Exhibit
          among Hollinger Inc., UniMedia Holding    2.02 to Current Report
           Company and Hollinger International       on Form 8-K dated April
Inc.                                      18, 1997.   

2.3  Sterling Purchase Agreement dated as of   Incorporated by  
        April 18, 1997 among Hollinger Inc. and   reference to Exhibit
          Hollinger Canadian Publishing Holdings    2.03 to Current Report
           Inc.                                      on Form 8-K dated April
                                       18, 1997.

2.4  Purchase Agreement relating to the        Incorporated by  
        Senior Notes, dated March 12, 1997        reference to Exhibit
                                                    1.01 to Current Report
                                                     on Form 8-K dated March
                                       18, 1997.

2.5  Purchase Agreement relating to the        Incorporated by  
        Senior Subordinated Notes, dated March    reference to Exhibit
          12, 1997                                  1.02 to Current Report
                                                     on Form 8-K dated March
                                       18, 1997.

3.1  Restated Certificate of Incorporation     Incorporated by  
                                                      reference to Exhibit 3.1
                                                  to Current Report on
                                                    Form 8-K dated October
                                      13, 1995

3.2  Bylaws, as amended and restated.          Incorporated by  
                                                      reference to Exhibit 3.2
                                             to Registration
                                                   Statement on Form S-1
                                            (No. 33-74980)

3.3  Certificate of Designations for Series    Incorporated by  
        B Convertible Preferred Stock             reference to Exhibit
                                                    3.01 to Current Report
                                                      on Form 8-K dated August
                                      7, 1996.

3.4  Certificate of Designations for Series    Incorporated by  
        C Convertible Preferred Stock             reference to Exhibit
                                                       1.1.3.2 to Current Report
                                                      on Form 8-K dated May 5,
                                   1997.

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                                                                [Download Table]

                                                              PRIOR FILING OR    
EXHIBIT NO.  DESCRIPTION OF EXHIBIT                        SEQUENTIAL PAGE NUMBER
-----------  ----------------------                        ----------------------
                                                                                 
        4.1  Second Amended Bank Credit Facility dated     Pursuant to S-K       
             April 7, 1997 among Hollinger International   601(b)(4)(iii), the   
             Publishing Inc., Telegraph Group Limited,     Registrant has not    
             Hollinger Canadian Publishing Holdings        filed a copy of this  
             Inc., various financial institutions, The     exhibit but will      
             Toronto Dominion Bank, as Issuing Bank, the   furnish a copy upon   
             Bank of Nova Scotia, as Syndication Agent,    the Commission's      
             Canadian Imperial Bank of Commerce, as        request.              
             Documentation Agent, and Toronto Dominion                           
             (Texas), Inc., as Administrative Agent.                             

        4.2  Senior Indenture, dated as of March 18, 1997  Incorporated by       
                                                           reference to Exhibit  
                                                           4.01 to Current       
                                                           Report on Form 8-K    
                                                           dated March 18, 1997  

        4.3  Senior Subordinated Indenture, dated as of    Incorporated by       
             March 18, 1997                                reference to Exhibit  
                                                           4.03 to Current       
                                                           Report on Form 8-K    
                                                           dated March 18, 1997  

        4.4  Exchange Indenture, dated July 17, 1997       Incorporated by       
             among Hollinger Canadian Publishing           reference to Exhibit  
             Holdings Inc., Hollinger International        4.01 to Registration  
             Inc. and Montreal Trust Company of Canada     Statement on Form S-3 
                                                           (333-35619)           

       10.1  Composite conformed copy of twenty-one        Incorporated by       
             separate Note Purchase Agreements, each       reference to Exhibit  
             dated as of September 12, 1990, among         10.4 to Registration  
             American Publishing Company and the           Statement on Form S-1 
             Purchasers identified on Schedule 1           (No. 33-74980)        
             thereof.                                                            

       10.2  Credit Agreement, dated February 7, 1996,     Incorporated by       
             by and among Hollinger International Inc.,    reference to Exhibit  
             Various Financial Institutions, The Toronto   10.3 to Current       
             Dominion Bank, as Issuing Bank,               Report on Form 8-K    
             Toronto-Dominion (Texas), Inc., as            Dated February 7,     
             Administrative Agent and The First National   1996                  
             Bank of Chicago as Documentation Agent.                             

       10.3  Indenture dated as of February 7, 1996        Incorporated by       
             among Hollinger International Publishing      reference to Exhibit  
             Inc., Hollinger International Inc. and        10.4 to Current       
             Fleet National Bank of Connecticut as         Report on Form 8-K    
             Trustee.                                      Dated February 7,     
                                                           1996                  

       10.4  Services Agreement between the Company and    Incorporated by       
             Hollinger Inc., as Amended and Restated as    reference to Exhibit  
             of February 7, 1996.                          10.4 to Report on     
                                                           Form 10-K for the     
                                                           year ended December   
                                                           31, 1995              

       10.5  Business Opportunities Agreement between      Incorporated by       
             the Company and Hollinger Inc., as Amended    reference to Exhibit  
             and Restated as of February 7, 1996.          10.5 to Report on     
                                                           Form 10-K for the     
                                                           year ended December   
                                                           31, 1995              

       10.6  Employment and Noncompetition Letter          Incorporated by       
             Agreements with executive officers.           reference to Exhibit  
                                                           10.9 to Registration  
                                                           Statement on Form S-1 
                                                           (No. 33-74980)        

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                                                        [Enlarge/Download Table]

                                                                    PRIOR FILING OR      
EXHIBIT NO.  DESCRIPTION OF EXHIBIT                              SEQUENTIAL PAGE NUMBER  
-----------  ----------------------                              ----------------------  
                                                                                         
       10.7  American Publishing Company 1994 Stock Option Plan. Incorporated by         
                                                                 reference to Exhibit    
                                                                 10.10 to Registration   
                                                                 Statement on Form S-1   
                                                                 (No. 33-74980)          

       10.8  American Publishing Management Services, Inc.       Incorporated by         
             Executive Benefit Plan.                             reference to Exhibit    
                                                                 10.11 to Registration   
                                                                 Statement on Form S-1   
                                                                 (No. 33-74980)          

       10.9  Share Exchange Agreement dated as of July 19, 1995  Incorporated by         
             between Hollinger Inc. and American Publishing      reference to Exhibit    
             Company.                                            2.1 to Current Report   
                                                                 on Form 8-K Dated       
                                                                 July 18, 1995           

      10.10  DTH/FDTH Preference Share Agreement dated as of     Incorporated by         
             October 13, 1995 between Hollinger Inc. and         reference to Exhibit    
             Hollinger International Inc.                        2.1 to Current Report   
                                                                 on Form 8-K Dated       
                                                                 July 18, 1995           

      10.11  HTH/FDTH Share Exchange Agreement dated as of July  Incorporated by         
             19, 1995 between Hollinger Inc. and First DT        reference to Exhibit    
             Holdings Limited.                                   2.1 to Current Report   
                                                                 on Form 8-K Dated       
                                                                 July 18, 1995           

      10.12  Deposit Agreement dated August 1, 1996              Incorporated by         
                                                                 reference to Exhibit    
                                                                 10.01 to Current        
                                                                 Report on Form 8-K      
                                                                 dated August 7, 1996    

      10.13  Exchange Agreement dated as of April 18, 1997       Incorporated by         
             among Hollinger International Inc., Hollinger Inc.  reference to Exhibit    
             and UniMedia Holding Company.                       10.1 to Current         
                                                                 Report on Form 8-K      
                                                                 dated April 18, 1997.   

      10.14  Amendment, dated as of March 18, 1997, to the       Incorporated by         
             Share Exchange Agreement                            reference to Exhibit    
                                                                 10.1 to Current         
                                                                 Report on Form 8-K      
                                                                 dated March 18, 1997.   

      10.15  Amendment, dated as of March 18, 1997, to the       Incorporated by         
             HTH/FDTH Share Exchange Agreement                   reference to Exhibit    
                                                                 10.2 to Current         
                                                                 Report on Form 8-K      
                                                                 dated March 18, 1997.   

      10.16  1997 Stock Incentive Plan                           Incorporated by         
                                                                 reference to Proxy      
                                                                 Statement of Schedule   
                                                                 14A dated March 28, 1997


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                                                        [Enlarge/Download Table]

                                                                         PRIOR FILING OR    
EXHIBIT NO.  DESCRIPTION OF EXHIBIT                                   SEQUENTIAL PAGE NUMBER
-----------  ----------------------                                   ----------------------
                                                                                            
       21.1  Significant Subsidiaries of Hollinger International Inc. Incorporated by       
                                                                      reference to Exhibit  
                                                                      21.1 to Report on     
                                                                      Form 10-K for the     
                                                                      year ended December   
                                                                      31, 1995              
       23.1  Consent of KPMG Peat Marwick LLP.                                              
       27.1  Financial Data Schedule                                                        
       27.2  Financial Data Schedule for years ended                                        
             December 31, 1996 and 1995                                                     

(b)  Reports on Form 8-K.                                           

                The Company filed a report on Form 8-K under Items 5 to report
an event dated November 26, 1997.                       

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SIGNATURES

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

Date:  March 26, 1998                                                           

                    HOLLINGER INTERNATIONAL INC.
    (Registrant)

               By: /s/ Conrad M. Black
                   ---------------------
                       Conrad M. Black, Chairman
                         and Chief Executive Officer

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

SIGNATURE                TITLE                                    DATE          
---------                -----                                    ----          
/s/ Conrad M. Black      Chairman, Chief Executive Officer and                  
-------------------                                                             
Conrad M. Black          Director (Principal Executive Officer)   March 26, 1998
    Executive Vice President and Chief
/s/ J. A. Boultbee       Financial Officer                                      
-------------------                                                             
J. A. Boultbee           (Principal Financial Officer)            March 26, 1998

/s/ Fredrick A. Creasey  Group Corporate Controller                             
-------------------                                                             
Frederick A. Creasey     (Principal Accounting Officer)           March 26, 1998

/s/ F. David  Radler     President, Chief Operating Officer and                 
-------------------                                                             
F. David Radler          Director                                 March 26, 1998

/s/ Barbara Amiel Black                                                         
-------------------                                                             
Barbara Amiel Black      Vice President - Editorial and Director  March 26, 1998

/s/ Dwayne O. Andreas                                                           
-------------------                                                             
Dwayne O. Andreas        Director                                 March 26, 1998

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SIGNATURE                          TITLE               DATE                     
---------                          -----               ----                     
/s/ Richard R. Burt                                                             
-----------------------                                                         
Richard R. Burt                    Director            March 26, 1998           

/s/ Raymond G. Chambers                                                         
-----------------------                                                         
Raymond G. Chambers                Director            March 26, 1998           

/s/ Daniel W. Colson                                                            
-----------------------                                                         
Daniel W. Colson                   Director            March 26, 1998           

/s/ Henry A. Kissinger                                                          
-----------------------                                                         
Henry A. Kissinger                 Director            March 26, 1998           

/s/ Marie-Josee Kravis                                                          
-----------------------                                                         
Marie-Josee Kravis                 Director            March 26, 1998           

-----------------------                                                         
Shmuel Meitar                      Director            March   , 1998           

/s/ Richard N. Perle                                                            
-----------------------                                                         
Richard N. Perle                   Director            March 26, 1998           

-----------------------                                                         
Robert S. Strauss                  Director            March   , 1998           

/s/ A. Alfred Taubman                                                           
-----------------------                                                         
A. Alfred Taubman                  Director            March 26, 1998           

-----------------------                                                         
James R. Thompson                  Director            March   , 1998           

-----------------------                                                         
Lord Weidenfeld                    Director            March   , 1998           

/s/ Leslie H. Wexner                                                            
-----------------------                                                         
Leslie H. Wexner                   Director            March 26, 1998           

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INDEPENDENT AUDITORS' REPORT

To Board of Directors                                                           
Hollinger International Inc.:                                                   

We have audited the accompanying consolidated balance sheets of Hollinger       
International Inc. and subsidiaries as of December 31, 1997 and 1996, and the   
related consolidated statements of operations, stockholders' equity, and cash   
flows for each of the years in the three-year period ended December 31, 1997.   
These consolidated financial statements are the responsibility of the Company's 
management. Our responsibility is to express an opinion on these consolidated   
financial statements based on our audits.                                       

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

In our opinion, the consolidated financial statements referred to above present 
fairly, in all material respects, the financial position of Hollinger           
International Inc. and subsidiaries as of December 31, 1997 and 1996, and the   
results of their operations and their cash flows for each of the years in the   
three-year period ended December 31, 1997, in conformity with generally accepted
accounting principles.                                                          

KPMG Peat Marwick LLP                                                           

February 23, 1998                                                               

Chicago, Illinois                                                               

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HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES                                   

Consolidated Balance Sheets                                                     

December 31, 1997 and 1996                                                      

                                                        [Enlarge/Download Table]

--------------------------------------------------------------------------------------------------------------------------------

                       ASSETS                                                                       1997               1996     
--------------------------------------------------------------------------------------------------------------------------------
                                                                                                            (in thousands)      
                                                                                                                                
Current assets:                                                                                                                 
     Cash and cash equivalents                                                                 $      107,384     $      148,550
     Accounts receivable, net of allowance for doubtful accounts                                                                
        of $24,966 in 1997 and $17,667 in 1996                                                        315,894            321,586
     Due from affiliates                                                                               18,411                 --
     Inventories                                                                                       32,454             30,056
     Prepaid expenses and other current assets                                                         31,110             23,494
--------------------------------------------------------------------------------------------------------------------------------
Total current assets                                                                                  505,253            523,686

Investments in affiliates, at equity (note 3)                                                          50,011            198,496
Other investments, at cost (note 4)                                                                    75,720            487,547
Property, plant and equipment, net of accumulated depreciation (note 5)                               615,579            561,731
Intangible assets, net of accumulated amortization of $257,702 in 1997                                                          
     and $210,102 in 1996                                                                           1,671,210          1,641,485
Deferred financing costs and other assets                                                             106,148             12,599
--------------------------------------------------------------------------------------------------------------------------------

                                                                                               $    3,023,921     $    3,425,544
--------------------------------------------------------------------------------------------------------------------------------

                                                                     (Continued)

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HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES                                   

Consolidated Balance Sheets                                                     

December 31, 1997 and 1996                                                      

                                                        [Enlarge/Download Table]

--------------------------------------------------------------------------------------------------------------------------------

        LIABILITIES AND STOCKHOLDERS' EQUITY                                                        1997               1996     
--------------------------------------------------------------------------------------------------------------------------------
                                                                                                         (in thousands)         
                                                                                                                                
Current liabilities:                                                                                                            
     Current installments of long-term debt (note 7)                                           $       35,560     $       35,920
     Bank loans (note 6)                                                                                   --            503,364
     Accounts payable                                                                                 101,925            114,545
     Accrued expenses                                                                                 195,109            173,832
     Income taxes payable                                                                              30,407             38,896
     Deferred revenue                                                                                  85,887             79,182
     Due to affiliates                                                                                     --            273,707
--------------------------------------------------------------------------------------------------------------------------------
Total current liabilities                                                                             448,888          1,219,446
Long-term debt, less current installments (note 7)                                                  1,392,855            675,428
Deferred income taxes (note 9)                                                                        132,137             70,121
Accrued employee benefits (note 11)                                                                    57,269              4,290
Other liabilities                                                                                      26,245             54,411
--------------------------------------------------------------------------------------------------------------------------------
Total liabilities                                                                                   2,057,394          2,023,696
--------------------------------------------------------------------------------------------------------------------------------
Minority interest (note 12)                                                                           203,034            109,943
--------------------------------------------------------------------------------------------------------------------------------
Redeemable preferred stock (note 13)                                                                   75,891            605,579
--------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity (note 14):                                                                                                 
Convertible preferred stock                                                                           195,104            195,104
Class A common stock, $0.01 par value. Authorized 250,000,000                                                                   
shares; issued and outstanding 72,852,799 and 72,772,799 shares in                                                              
1997 and 1996, respectively                                                                               726                726
Class B common stock, $0.01 par value. Authorized 50,000,000                                                                    
shares; issued and outstanding 14,990,000 shares in 1997 and 1996                                         150                150
Additional paid-in capital                                                                            358,871            336,609
Cumulative foreign currency translation adjustment                                                    (27,978)            22,995
Retained earnings                                                                                     175,802            130,742
--------------------------------------------------------------------------------------------------------------------------------
                                                                                                      702,675            686,326

Class A common stock in treasury, at cost - 1,295,900 shares in 1997                                  (15,073)                --
--------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity                                                                            687,602            686,326
Commitments and contingencies (note 19)                                                                                         
                                                                                               $    3,023,921     $    3,425,544
--------------------------------------------------------------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.                    

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HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES                                   

Consolidated Statements of Operations                                           

For the Years Ended December 31, 1997, 1996 and 1995                            

                                                        [Enlarge/Download Table]

----------------------------------------------------------------------------------------------------------------------------------- 

                                                                                           1997              1996              1995 
----------------------------------------------------------------------------------------------------------------------------------- 
                                                                                         (in thousands, except per share data)      
                                                                                                                                    
Operating revenues:                                                                                                                 
     Advertising                                                                   $  1,556,041      $  1,364,527      $    699,434 
     Circulation                                                                        535,447           562,122           301,724 
     Job printing                                                                        80,024            80,132            58,750 
     Other                                                                               40,018            67,241            18,606 
----------------------------------------------------------------------------------------------------------------------------------- 
Total operating revenues                                                              2,211,530         2,074,022         1,078,514 
----------------------------------------------------------------------------------------------------------------------------------- 
Operating costs and expenses:                                                                                                       
     Newsprint                                                                          312,010           346,446           204,074 
     Compensation costs                                                                 736,153           731,673           319,074 
     Other operating costs                                                              735,832           703,934           428,039 
     Direct subscription campaign costs, net and infrequent items                                                                   
           (note 16)                                                                     25,243            41,567             8,000 
     Depreciation and amortization                                                      114,570           102,435            57,463 
----------------------------------------------------------------------------------------------------------------------------------- 
Total operating costs and expenses                                                    1,923,808         1,926,055         1,016,650 
----------------------------------------------------------------------------------------------------------------------------------- 
Operating income                                                                        287,722           147,967            61,864 
----------------------------------------------------------------------------------------------------------------------------------- 
Other income (expense):                                                                                                             
     Interest expense                                                                  (113,558)          (84,356)          (44,727)
     Amortization of debt issue costs                                                   (13,466)          (16,640)             (168)
     Equity in earnings of affiliates (note 3)                                            5,807            12,050            14,356 
     Interest and dividend income                                                         9,924            12,460             4,590 
     Foreign currency gains (losses), net                                                   459               198            (1,089)
     Other income, net (note 17)                                                         67,261            58,259            14,698 
----------------------------------------------------------------------------------------------------------------------------------- 
Total other income (expense)                                                            (43,573)          (18,029)          (12,340)
----------------------------------------------------------------------------------------------------------------------------------- 
Earnings before income taxes, minority interest and                                                                                 
extraordinary item                                                                      244,149           129,938            49,524 
Income taxes (note 9)                                                                    93,655            51,865            20,564 
----------------------------------------------------------------------------------------------------------------------------------- 
Earnings before minority interest and extraordinary item                                150,494            78,073            28,960 
Minority interest (note 12)                                                              45,973            33,138            22,637 
----------------------------------------------------------------------------------------------------------------------------------- 
Earnings before extraordinary item                                                      104,521            44,935             6,323 
Extraordinary loss on debt extinguishments (note 14)                                         --            (2,150)               -- 
----------------------------------------------------------------------------------------------------------------------------------- 
Net earnings                                                                       $    104,521      $     42,785      $      6,323 
----------------------------------------------------------------------------------------------------------------------------------- 

Basic earnings per share before extraordinary item                                 $       0.93      $       0.43      $       0.09 
----------------------------------------------------------------------------------------------------------------------------------- 
Diluted earnings per share before extraordinary items                              $       0.87      $       0.42      $       0.09 
----------------------------------------------------------------------------------------------------------------------------------- 

Basic earnings per share                                                           $       0.93      $       0.41      $       0.09 
----------------------------------------------------------------------------------------------------------------------------------- 
Diluted earnings per share                                                         $       0.87      $       0.39      $       0.09 
----------------------------------------------------------------------------------------------------------------------------------- 

See accompanying notes to consolidated financial statements.                    

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HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES                                   

Consolidated Statements of Stockholders' Equity                                 

For the Years Ended December 31, 1997, 1996 and 1995                            

                                                        [Enlarge/Download Table]

                                                                                   Unrealized                                       
                                Convertible   Common     Additional   Cumulative    gain on                                         
                                 Preferred     stock      paid-in    translation   marketable   Retained     Treasury               
                                   Stock    Class A & B   capital     adjustment   securities   earnings       stock        Total   
----------------------------------------------------------------------------------------------------------------------------------- 
                                                                    (in thousands)                                                  
                                                                                                                                    
Balance at December 31, 1994     $      --   $     600   $ (42,116)   $  (2,568)   $   7,825    $ 127,402    $      --    $  91,143 

Jerusalem Post adjustment               --          --        (288)          --           --           --           --         (288)
Translation adjustments                 --          --          --       (2,782)          --           --           --       (2,782)
Unrealized holding gain                 --          --          --           --       (7,825)          --           --       (7,825)
Cash dividends - Class A and                                                                                                        
    Class B, $0.10 per share            --          --          --           --           --       (3,175)          --       (3,175)
Dividends on redeemable                                                                                                             
    preferred stock                     --          --          --           --           --         (271)          --         (271)
Contribution by Hollinger Inc.          --          --      76,941           --           --          (93)          --       76,848 
Net earnings                            --          --          --           --           --        6,323           --        6,323 
----------------------------------------------------------------------------------------------------------------------------------- 

Balance at December 31, 1995            --         600      34,537       (5,350)          --      130,186           --      159,973 

Issuance of 20,700,000                                                                                                              
    Convertible Preferred Shares   195,104          --          --           --           --           --           --      195,104 
Issuance of 27,600,000                                                                                                              
    Class A Common Shares               --         276     245,537           --           --           --           --      245,813 
Cash dividends - Class A and                                                                                                        
    Class B, $0.40 per share            --          --          --           --           --      (31,522)          --      (31,522)
Dividends on redeemable                                                                                                             
    preferred stock                     --          --          --           --           --       (1,087)          --       (1,087)
Dividends on convertible                                                                                                            
    preferred stock                     --          --          --           --           --       (9,620)          --       (9,620)
Contribution by Hollinger Inc.          --          --      56,535           --           --           --           --       56,535 
Translation adjustments                 --          --          --       28,345           --           --           --       28,345 
Net earnings                            --          --          --           --           --       42,785           --       42,785 
----------------------------------------------------------------------------------------------------------------------------------- 

Balance at December 31, 1996       195,104         876     336,609       22,995           --      130,742           --      686,326 

Shares issued for acquisition           --          --       1,000           --           --           --           --        1,000 
Cash dividends - Class A and                                                                                                        
    Class B, $0.40 per share            --          --          --           --           --      (34,150)          --      (34,150)
Dividends on redeemable                                                                                                             
    preferred stock                     --          --          --           --           --       (1,060)          --       (1,060)
Dividends on convertible                                                                                                            
    preferred stock                     --          --          --                        --      (22,408)          --      (22,408)
Contribution by Hollinger Inc.          --          --      17,986           --           --       (1,843)          --       16,143 
Translation adjustments                 --          --       3,276      (50,973)          --           --           --      (47,697)
Net earnings                            --          --          --           --           --      104,521           --      104,521 
Common shares repurchased               --          --          --           --           --           --      (15,073)     (15,073)
----------------------------------------------------------------------------------------------------------------------------------- 

Balance at December 31, 1997     $ 195,104   $     876   $ 358,871    $ (27,978)   $      --    $ 175,802    $ (15,073)   $ 687,602 
----------------------------------------------------------------------------------------------------------------------------------- 

See accompanying notes to consolidated financial statements.                    

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HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES                                   

Consolidated Statements of Cash Flows                                           

For the Years Ended December 31, 1997, 1996 and 1995                            

                                                        [Enlarge/Download Table]

----------------------------------------------------------------------------------------------------------------------------------- 

                                                                                       1997              1996              1995     
----------------------------------------------------------------------------------------------------------------------------------- 
                                                                                                    (in thousands)                  
                                                                                                                                    
Cash flows from operating activities:                                                                                               
     Net earnings                                                                  $    104,521      $     42,785      $      6,323 
     Adjustments to reconcile net earnings to net cash provided by                                                                  
        operating activities:                                                                                                       
           Depreciation and amortization                                                114,570           102,435            57,463 
           Deferred income taxes                                                         62,016            31,226            (3,678)
           Amortization of debt issue costs                                              13,466            20,097               168 
           Minority interest                                                             45,973            33,138            22,637 
           Equity in earnings of affiliates, net of dividends received                   (5,851)           (1,104)            1,418 
           Gain on sale of investments                                                  (66,128)          (53,518)          (11,968)
           (Gain) loss on sale of assets                                                 (3,286)          (14,264)            1,569 
           Amortization of deferred gain                                                 (1,616)           (1,616)           (1,616)
           Unrealized foreign exchange gain on redeemable preferred stock                  (464)             (481)             (257)
           Other                                                                          1,872           (12,704)             (732)
     Changes in assets and liabilities, net of acquisitions:                                                                        
        Accounts receivable                                                              (4,556)          (20,022)           (6,513)
        Inventories                                                                      (3,064)           20,158           (13,801)
        Prepaid expenses and other current assets                                       (10,405)           (1,300)          (10,130)
        Accounts payable                                                                (14,614)           (3,598)           12,113 
        Accrued expenses                                                                 12,741            70,481            (7,786)
        Accrued pension                                                                   3,960           (14,307)           (4,024)
        Income taxes payable                                                             (7,209)           27,131           (14,582)
        Deferred revenue and other                                                          854           (26,115)           (5,411)
----------------------------------------------------------------------------------------------------------------------------------- 
Cash provided by operating activities                                                   242,780           198,422            21,193 
----------------------------------------------------------------------------------------------------------------------------------- 
Cash flows from investing activities:                                                                                               
     Purchase of property, plant and equipment                                         (118,291)         (124,625)          (27,422)
     Proceeds from sale of property, plant and equipment                                  5,613           197,698             2,243 
     Proceeds on disposal of marketable securities                                           50                --            17,700 
     Purchase of subsidiaries' stock and other investments, net of cash acquired        (67,344)         (780,167)          (57,283)
     Acquisitions, net of cash acquired                                                 (58,839)         (400,125)         (164,834)
     Repayment of long-term receivables                                                  11,267            11,855            10,393 
     Proceeds on disposal of other investments                                          247,418           191,878                -- 
     Other                                                                              (11,421)            8,171             1,832 
----------------------------------------------------------------------------------------------------------------------------------- 
Cash provided by (used in) investing activities                                    $      8,453      $   (895,315)     $   (217,371)
----------------------------------------------------------------------------------------------------------------------------------- 

                                                                     (Continued)

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HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES                                   

Consolidated Statements of Cash Flows, Continued                                

                                                        [Enlarge/Download Table]

----------------------------------------------------------------------------------------------------------------------------------- 

                                                                                           1997              1996              1995 
----------------------------------------------------------------------------------------------------------------------------------- 
                                                                                                     (in thousands)                 
                                                                                                                                    
Cash flows from financing activities:                                                                                               
     Repayment of debt                                                             $   (141,623)     $   (330,757)     $    (16,602)
     Proceeds from issuance of bank debt                                                877,942           413,039            20,000 
     Repayment of bank loans                                                           (495,835)         (395,752)               -- 
     Proceeds from bank loans                                                                --           734,335           131,589 
     Payment of debt issue costs                                                        (38,988)          (27,016)               -- 
     Change in borrowings from affiliates                                              (302,587)          (34,582)          (79,394)
     Net proceeds from issuance of equity                                                    --           440,917                -- 
     Issuance of common shares by a subsidiary                                            8,119            21,816             4,131 
     Repurchase of common shares                                                        (15,073)               --                -- 
     Redemption of preference shares                                                   (116,863)               --                -- 
     Dividends paid                                                                     (57,618)          (42,502)           (3,175)
     Contributions by  Hollinger Inc.                                                    16,143                --               (93)
     Acquisitions paid for by Hollinger Inc.                                                 --            68,600            67,902 
     Dividends paid by subsidiaries to minority stockholders, net of                                                                
        related swap income                                                             (10,443)          (33,399)          (20,890)
     Other                                                                                  (98)               --               257 
----------------------------------------------------------------------------------------------------------------------------------- 
Cash provided by (used in) financing activities                                        (276,924)          814,699           103,725 
----------------------------------------------------------------------------------------------------------------------------------- 
Effect of exchange rate changes on cash                                                 (15,475)            6,934            (1,162)
----------------------------------------------------------------------------------------------------------------------------------- 
Net increase (decrease) in cash and cash equivalents                                    (41,166)          124,740           (93,615)
Cash and cash equivalents at beginning of year                                          148,550            23,810           117,425 
----------------------------------------------------------------------------------------------------------------------------------- 
Cash and cash equivalents at end of year                                           $    107,384      $    148,550      $     23,810 
----------------------------------------------------------------------------------------------------------------------------------- 

See accompanying notes to consolidated financial statements.                    

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HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES                                   

Notes to Consolidated Financial Statements                                      

December 31, 1997 and 1996                                                      

--------------------------------------------------------------------------------

(1)      DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 

(a)      PRINCIPLES OF PRESENTATION AND CONSOLIDATION         

 Hollinger International Inc. (the "Company") is a subsidiary of
      Hollinger Inc., a Canadian corporation. Hollinger Inc. owns 59.9% of
    the combined equity and 84.3 % of the combined voting power of the
       outstanding Common Stock of the Company, without giving effect to the
future issuance of Class A Common Stock in connection with the
     Company's Preferred Redeemable Increased Dividend Equity Securities
      ("PRIDES") ("Convertible preferred stock") or upon conversion of the
      Company's Series D Convertible Redeemable Preferred Stock ("Series D
Preferred Stock").                                            

         On January 7, 1997, the Board of Directors of the Company and Hollinger
       Inc. announced that they had reached an agreement for the transfer by
      Hollinger Inc. of certain of its owned Canadian publishing interests
       directly or indirectly to Hollinger Canadian Publishing Holdings Inc.
   ("HCPH"), a subsidiary of the Company, including newspaper assets
         located mainly in Ontario, Saskatchewan, British Columbia, and UniMedia
Inc. (collectively the "Canadian Newspapers") for an aggregate
  consideration of approximately $382,000,000 (Cdn.$ 523,000,000),
subject to working capital adjustments and currency exchange  
        adjustments (the "Hollinger Inc. Transaction"). The purchase price was
        satisfied in cash in the amount of $250,00,000, and by the issuance of
      preferred stock of the Company, which was converted into (i) 829,409
      shares of a new series of mandatorily convertible preferred stock of
        the Company similar to the PRIDES issued by the Company in August 1996
         having an face value of $90,000,000, and (ii) 3,207,045 shares of Class
A Common Stock of the Company having a nominal agreed value of
       $42,000,000, subject to adjustments as described above. The preferred
         stock and common stock was issued subsequent to receiving the requisite
approval of the stockholders of the Company.                  

    The initial payment of $250.0 million cash and the issuance of the
       preferred stock in respect of the Hollinger Inc. Transaction was made
        on April 18, 1997. Interest on the purchase price has been accrued for
the period from January 1, 1997 to April 18, 1997.            

   On October 13, 1995, the Company and Hollinger Inc. consummated a
 reorganization of their international newspaper operations (the
         "Reorganization"). In summary, the Reorganization consisted principally
       of the Company's acquisition of the outstanding shares of DT Holdings
Limited ("DTH"), a subsidiary of Hollinger Inc., through which
  Hollinger Inc. owned a 58.2% interest in The Telegraph plc ("The
  Telegraph") and a 19.4% interest in Southam Inc. ("Southam"). In
       exchange for all of the ordinary shares of DTH, the Company issued to
      Hollinger Inc. 33,610,754 shares of Class A Common Stock and 739,500
      shares of Series A Redeemable Convertible Preferred Stock ("Series A
     Preferred Stock"), and paid Hollinger Inc. $13,832,000 in cash as a
working capital adjustment. The Series A Preferred Stock was  
subsequently exchanged for Series D Preferred Stock.          

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HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES                                   

Notes to Consolidated Financial Statements, Continued                           

--------------------------------------------------------------------------------

   The Reorganization and the Hollinger Inc. Transaction represent a
      combination of entities under common control and have been accounted
     for on an "as-if" pooling-of-interests basis, with the accompanying
financial statements restated for all periods presented.      

   In May and December 1996, subsidiaries of the Company acquired an
  additional 24,350,043 shares of Southam increasing the Company's
       indirect ownership interest in Southam to 50.7% at December 31, 1996.
         In July 1997 an additional 6,552,425 shares of Southam were acquired to
    increase the ownership to 58.6%. The accounts of Southam have been
     consolidated in the 1997 and 1996 financial statements. Southam has
     been accounted for using the equity method in the 1995 consolidated
financial statements.                                         

   The consolidated financial statements include the accounts of the
        Company and its majority-owned subsidiaries. The Company's interest in
       the Telegraph was 100.0%, 100.0%, and 64.0% and in Southam was 58.6%,
     50.7% and 19.4% at December 31, 1997, 1996, and 1995, respectively.
  Investments in less than majority-owned affiliated companies are
     accounted for using the equity method. All significant intercompany
  balances and transactions have been eliminated on consolidation.

(b)      DESCRIPTION OF BUSINESS                              

        The Company is engaged in the publishing, printing and distribution of
       newspapers and magazines in the United States, the United Kingdom and
Canada through subsidiaries and affiliates. The Company's raw 
         materials, mainly newsprint and ink, are available and not dependent on
a single or limited number of suppliers. Customers range from 
individual subscribers to local and national advertisers.     

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HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES                                   

Notes to Consolidated Financial Statements, Continued                           

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(c)      USE OF ESTIMATES                                     

      The preparation of financial statements in conformity with generally
      accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
        liabilities and disclosure of contingent assets and liabilities at the
       date of the financial statements and the reported amounts of revenues
       and expenses during the reporting period. Actual results could differ
from those estimates.                                         

(d)      CASH AND CASH EQUIVALENTS                            

    Cash equivalents consist of certain highly liquid investments with
original maturities of three months or less.                  

(e)      INVENTORIES                                          

     Inventories consist principally of newsprint which is valued at the
     lower of cost or net realizable value. Cost is determined using the
        first-in, first-out (FIFO) method, except for newsprint inventories of
 certain subsidiaries which are accounted for using the last-in,
      first-out method (LIFO). At December 31, 1997 and December 31, 1996,
     approximately 11% and 12%, respectively, of the Company's newsprint
       inventories were valued using LIFO. If the FIFO method had been used,
     such newsprint inventories would have been $1,198,000 and $713,000,
respectively, higher.                                         

(f)      IMPAIRMENT OF LONG-LIVED ASSETS                      

        The Company assesses the recoverability of its long-lived assets, such
        as property, plant and equipment and intangible assets whenever events
      or changes in business circumstances indicate the carrying amount of
       the assets, or related group of assets, may not be fully recoverable.
       The assessment of recoverability is based on management's estimate of
       undiscounted future operating cash flows of its long-lived assets. If
        the assessment indicates that the undiscounted operating cash flows do
not exceed the net book value of the long-lived assets, then a
 permanent impairment has occurred. The Company would record the
       difference between the net book value of the long-lived asset and the
         fair value of such asset as a charge against income in the statement of
       operations if such a difference arose. The Company determined that no
   material permanent impairments had occurred at December 31, 1997.

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HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES                                   

Notes to Consolidated Financial Statements, Continued                           

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(g)      DERIVATIVES                                          

      The Company is a limited user of derivative financial instruments to
  manage risks generally associated with interest rate and foreign
     exchange rate market volatility. The Company does not hold or issue
derivative financial instruments for trading purposes. Amounts
   receivable under the interest rate cap agreement are accrued as a
  reduction of interest expense and amounts payable are accrued as
interest expense. The interest rate differential on the swap  
       arrangements related to preferred stock of subsidiaries is treated as
  an adjustment to the underlying dividends which are disclosed as
  minority interest. Interest rate differentials on all other swap
     arrangements are accrued as interest rates change over the contract
period.                                                       

(h)      PROPERTY, PLANT AND EQUIPMENT                        

         Property, plant and equipment are recorded at cost. Routine maintenance
        and repairs are expensed as incurred. Depreciation is calculated under
         the straight-line method over the estimated useful lives of the assets,
       principally 25 to 40 years for buildings and improvements and 3 to 10
         years for machinery and equipment. Leasehold improvements are amortized
         using the straight-line method over the shorter of the estimated useful
    life of the asset and the lease term. Construction in progress for
       production facilities is not depreciated until facilities are in use.

(i)      INTANGIBLE ASSETS                                    

      Intangible assets consist principally of circulation related assets,
       non-competition agreements with former owners of acquired newspapers,
      and the excess of acquisition costs over estimated fair value of net
        assets acquired (goodwill). The fair market value of intangible assets
  purchased is determined primarily through the use of independent
       appraisals. Amortization is calculated using the straight-line method
   over the respective estimated useful lives which do not exceed 40
years.                                                        

(j)      DEFERRED FINANCING COSTS                             

Deferred financing costs consist of certain costs incurred in 
connection with debt financings. Such costs are amortized on a
        straight-line basis over the remaining term of the related debt, up to
ten years.                                                    

(k)      DEFERRED REVENUE                                     

       Deferred revenue represents subscription payments which have not been
         earned and are recognized on a straight-line basis over the term of the
related subscription.                                         

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HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES                                   

Notes to Consolidated Financial Statements, Continued                           

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(l)      INCOME TAXES                                         

       Deferred tax assets and liabilities are recognized for the future tax
         consequences attributable to the difference between financial statement
carrying amounts of existing assets and liabilities and their 
        respective tax bases. Deferred tax assets and liabilities are measured
    using enacted tax rates expected to apply to taxable income in the
         years in which those temporary differences are expected to be recovered
    or settled. The effect on deferred tax assets and liabilities of a
         change in tax rates is recognized in income in the period that includes
the enactment date.                                           

(m)      FOREIGN CURRENCY TRANSLATION                         

  Foreign operations of the Company have been translated into U.S.
      dollars in accordance with the principles prescribed in Statement of
        Financial Accounting Standards No. 52, "Foreign Currency Translation",
        (FAS 52). All assets, liabilities and minority interest are translated
   at year-end exchange rates, stockholders' equity is translated at
   historical rates, and revenues and expenses are translated at the
 average rates of exchange prevailing throughout the year. These
       exchange gains or losses are not included in earnings unless they are
       actually realized through a reduction of the Company's net investment
        in the foreign subsidiary. Gains and losses arising from the Company's
foreign currency transactions are reflected in net earnings.  

(n)      EARNINGS PER SHARE                                   

     For the years ended December 31, 1997, 1996, and 1995, earnings per
         share was computed in accordance with Statement of Financial Accounting
        Standards No. 128, which the Company adopted during the fourth quarter
        of 1997. See note 15 for a reconciliation of numerator and denominator
  for the calculation of the basic and diluted earnings per share.

(o)      STOCK-BASED COMPENSATION                             

         The Company utilizes the intrinsic value based method of accounting for
its stock-based compensation arrangements.                    

(p)      RECLASSIFICATIONS                                    

        Certain 1996 and 1995 amounts in the consolidated financial statements
have been reclassified to conform to the 1997 presentation.   

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HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES                                   

Notes to Consolidated Financial Statements, Continued                           

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(2)      ACQUISITIONS AND DISPOSITIONS                                          

        All of the following acquisitions are accounted for using the purchase
      method of accounting. Based on estimated fair values of the acquired
      assets and liabilities, the purchase price including direct costs is
  allocated to working capital, property, plant and equipment, and
intangible assets.                                            

       (a)      On April 30, 1996, the Company completed a trade with Garden
    States Newspapers, Inc. The Company acquired the
               Tribune-Democrat in Johnstown, Pennsylvania in exchange for
             six small daily newspapers, several weekly newspapers and
          $31,400,000 in cash. On December 16, 1996, the Company
          completed an exchange of newspaper assets with Thomson
             Newspapers Inc. and Cox Newspapers Inc. through which the
            Company acquired the Mount Vernon Register News in Mount
              Vernon, Illinois, the Enid News in Enid, Oklahoma, and the
              Herald-Palladium in St. Joseph/Benton Harbor, Michigan and
                related publication in exchange for four daily newspapers in
                 Indiana, a daily newspaper in Texas, related publications and
approximately $32,400,000 in cash.          

                 The excess purchase price of $ 111,272,000 over the estimated
                  fair value of tangible assets acquired in 1996 was recorded as
             identifiable intangibles and goodwill. The results of the
              newspapers acquired have been included in the consolidated
                results of operations since the date of acquisition. The pro
        forma effect of the 1996 acquisitions is immaterial.

               In three separate transactions throughout 1997, the Company
            acquired four paid daily newspapers, four paid non-daily
                 newspapers and six free distribution newspapers. In addition,
               the Company acquired two paid daily newspapers and one paid
                  non-daily newspaper in exchange for one daily newspaper, three
             non-daily newspapers and one free distribution newspaper.
            Total cash consideration paid for these transactions was
               $22,138,000. The excess purchase price of $ 19,645,000 over
                the estimated fair value of tangible assets acquired in 1997
              was recorded as identifiable intangibles and goodwill. The
                results of the newspapers acquired have been included in the
        consolidated results of operations since the date of
         acquisition. The pro forma effect of the current year
acquisitions is immaterial.                 

        (b)      On July 31, 1996, the Company acquired all of the outstanding
                  ordinary shares of The Telegraph which it did not already own.
       The purchase price for the shares was approximately
               $455,700,000. As a result, The Telegraph became an indirect
                 wholly owned subsidiary of the Company. On the same date, The
                 Telegraph changed its name to the Telegraph Group Limited and
          canceled its listing on the London Stock Exchange. The
                  purchase price was allocated to assets acquired based on their
                estimated fair values. This treatment resulted in the excess
            purchase price over the estimated fair value of tangible
                  assets acquired being recorded as identifiable intangibles and
goodwill of $343,995,000.                   

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HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES                                   

Notes to Consolidated Financial Statements, Continued                           

--------------------------------------------------------------------------------

      (c)      During 1997, a subsidiary of the Company acquired 6,552,425
                  additional shares of Southam increasing the ownership interest
          to 58.6%. During 1996, the Company, through subsidiary
          companies, acquired an additional 24,350,043 shares of
                Southam, representing a 30.9% interest. The acquisitions are
described in note 3(b).                     

     (d)      The unaudited pro forma consolidated results of operations
               giving effect to the acquisitions of the additional Southam
                interest and the buyout of the Telegraph minority as if they
          had occurred as of the beginning of the period were as
follows:                                    

                                                                [Download Table]

                                                                1996            
--------------------------------------------------------------------------------
                                                           (in thousands,       
                                                       except per share data)   
                                                                                
         Net revenue                                         $2,074,022         
         Net earnings                                            25,795         
         Basic earnings per share                                  0.15         
         Diluted earnings per share                                0.15         
--------------------------------------------------------------------------------

        (e)      On December 16, 1996, the Company announced The Telegraph had
               agreed conditionally to sell its 24.7% interest in Fairfax.
The disposal is described in note 3(a).     

     (f)      In 1996, in three separate acquisitions Southam acquired a
     total of 15 Canadian daily newspapers and related
                publications. The total cost of these acquisitions of $182.5
                  million was financed through use of existing cash and drawdown
         of existing credit facilities. The purchase price was
              allocated to assets acquired based on their estimated fair
                 values. This treatment resulted in the excess of the purchase
          price over the estimated fair value of tangible assets
           acquired being recorded as identifiable intangibles and
             goodwill of $161.9 million. The results of the newspapers
              acquired have been included in the consolidated results of
                operations since the date of the acquisitions. The pro forma
effect of these acquisitions is immaterial. 

           In 1996, Southam sold certain operating divisions to an
                outside third party for proceeds of $116.1 million. The gain
            recognized by Southam was $59.3 million. The Company had
               recorded identifiable goodwill on acquisition of Southam in
           respect of these operating divisions. This goodwill was
                 written off reducing the Company's share of the gain to zero.

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HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES                                   

Notes to Consolidated Financial Statements, Continued                           

--------------------------------------------------------------------------------

                  In two separate transactions during 1997, Southam acquired one
                  paid daily newspaper, one paid non-daily newspaper and 13 free
               distribution newspapers. Total cash consideration for these
                  transactions was $16.8 million. The excess purchase price of $
                 14.4 million over the estimated fair value of tangible assets
         acquired was recorded as identifiable intangibles and
              goodwill. The results of the newspapers acquired have been
                included in the consolidated results of operations since the
      date of acquisition. The pro forma effect of these
acquisitions is immaterial.                 

        (g)      In 1996, the Canadian Newspapers acquired 2 paid daily and 12
                non-daily newspapers. The total cost of this acquisition was
             $68.6 million. The purchase price was allocated to assets
                 acquired based on their estimated fair values. This treatment
         resulted in the excess of the purchase price over the
          estimated fair value of tangible assets acquired being
              recorded as identifiable intangibles and goodwill of $61.4
             million. The results of the newspapers acquired have been
                included in the consolidated results of operations since the
           date of the acquisitions. The pro forma effect of these
acquisitions is immaterial.                 

               In 1997, the Canadian Newspapers sold two weekly newspapers
               and one free distribution publication for total proceeds of
$1.5 million.                               

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HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES                                   

Notes to Consolidated Financial Statements, Continued                           

--------------------------------------------------------------------------------

(3)  INVESTMENTS IN AFFILIATES                                                  

                                                                [Download Table]


--------------------------------------------------------------------------------
                                                         1997           1996    
--------------------------------------------------------------------------------
                                                           (in thousands)       
                                                                                
        John Fairfax Holdings Limited (Fairfax)        $   --        181,001    
        3396754 Canada Limited                           29,018         --      
        Joint ventures                                   20,993       17,495    
--------------------------------------------------------------------------------
                                                       $ 50,011      198,496    
--------------------------------------------------------------------------------

(a)  JOHN FAIRFAX HOLDINGS LIMITED                                    

   On December 16, 1996, the Company announced that Daily Telegraph Holdings
BV ("DTH BV"), a Dutch subsidiary of The Telegraph, had agreed        
 conditionally to sell its 24.7% interest in Fairfax to three Australian
  subsidiaries of Brierley Investments Limited ("BIL") of New Zealand. The
   first tranche of the sale consisted of a 12.0% interest and was completed
on December 20,1996 for gross cash proceeds of A$254.8 million ($202.3
    million). The second tranche consisted of a 7.9% interest, including seven
    million non-voting convertible debentures and was completed on January 10,
1997 for gross cash proceeds of A$192.2 million ($150.3 million). The 
   Company sold its remaining 4.8% interest in Fairfax on March 27, 1997 for
gross cash proceeds of A$112.5 million ($88.7 million). Total gross   
  proceeds from the entire sale were approximately A$559.5 million ($441.3
   million). The sale of the second and third tranches have been recorded in
1997.                                                                 

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HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES                                   

Notes to Consolidated Financial Statements, Continued                           

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    While Fairfax has a June 30 year end for its financial reporting purposes,
    the Company's equity in the earnings of Fairfax is for the 12 months ended
  December 31. Selected financial information in Australian dollars and in
accordance with Australian generally accepted accounting principles   
    reported by Fairfax in its annual report for the years ended June 30, 1996
and 1995 is as follows:                                               

                                                        [Enlarge/Download Table]

------------------------------------------------------------------------------------------
                                                                1996              1995    
------------------------------------------------------------------------------------------
                                                                    (in thousands)        
                                                                                          
        Statements of Operations Data:                                                    
             Operating revenues                         A$   1,006,148      A$   948,433  
             Operating income                                  151,611           216,491  
             Net earnings                                       87,429           147,078  
        Balance Sheet Data:                                                               
             Current assets                                    195,018                    
             Total assets                                    2,223,117                    
             Current liabilities                               337,335                    
             Total liabilities                               1,137,070                    
             Stockholders' equity                            1,086,047                    
------------------------------------------------------------------------------------------

(B)  SOUTHAM INC.                                                     

     In May 1997 HCPH made an offer to shareholders of Southam to acquire all of
    the common shares of Southam not presently controlled by the Company for a
   consideration valued by the offeror at Cdn.$23.50 per share payable as to
Cdn.$13.50 in cash and as to Cdn.$10 by the issue of a HCPH Non-Voting
 Special Share, described in note 12. The offer expired on July 7, 1997.
   HCPH purchased 6,552,425 common shares of Southam which had been tendered
under this offer for an aggregate consideration of Cdn.$156.1 million 
  ($113.4 million). This purchase of shares brings the Company's ownership
interest in Southam to approximately 58.6%. The cash portion of the   
    purchase price was funded through borrowings by HCPH under the Bank Credit
Facility described in note 7.                                         

   On May 24, 1996, the Company acquired 16,349,743 common shares of Southam
representing approximately 21.5% of Southam's then outstanding common 
shares, for an aggregate consideration of Cdn.$294.3 million ($214.1  
     million). The acquisition was financed through a short-term facility with a
 Canadian chartered bank. On December 11, 1996, the Company purchased an
    additional 8,000,300 shares of Southam representing approximately 10.4% of
    Southam's then outstanding common shares for an aggregate consideration of
   Cdn.$160.0 million ($117.4 million). The acquisition was financed through
short term bank facilities and working capital. The 1996 acquisitions 
   increased the Company's indirect equity interest in Southam to 50.7%. The
   accounts of Southam have been consolidated in the 1997 and 1996 financial

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HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES                                   

Notes to Consolidated Financial Statements, Continued                           

--------------------------------------------------------------------------------

   statements. Southam has been accounted for using the equity method in the
1995 consolidated financial statements.                               

The total purchase price of the Company's 58.6% indirect interest was 
 allocated to assets acquired based on their estimated fair values. This
   treatment resulted in the excess of the purchase price over the estimated
   fair value of the tangible assets acquired being recorded as identifiable
intangibles and goodwill of $486.2 million.                           

   368,572 Southam common shares indirectly owned by the Company are pledged
   as collateral securing certain Hollinger Inc. debentures in the principal
amount of Cdn.$6.5 million due November 1, 1998 (Southam-Linked       
    Debentures). In the event that Hollinger Inc. does not deliver clear legal
title to such shares on or prior to April 1, 1999, or upon demand,    
     approximately 8% of the Company's indirect equity interest in Southam would
   be subject to the rights of the Holders of the Southam-Linked Debentures.

(c)  JOINT VENTURES                                                   

     The Telegraph has a 50% interest in two printing joint ventures, West Ferry
    Printers and Trafford Park Printers. These joint ventures operate printing
     plants in which The Telegraph and the other joint venturers' newspapers are
printed on a break even basis.                                        

     The Chicago Sun Times owns a 50% interest in a joint venture which operates
 a news gathering service focusing primarily on Chicago area stories. In
 1997 the joint venture sold its newswire service that it had previously
operated.                                                             

(d)  3396754 CANADA LIMITED                                           

  In September 1997, HCPH, a subsidiary of the Company, acquired 4,146,107
Non-Voting Special Shares ("Special Shares") of 3396754 Canada Limited
("3396754"), a subsidiary of Hollinger Inc. in exchange for 4,146,107 
    special shares in HCPH (see note 12). The total cost of the investment was
Cdn.$41.5 million ($29.0 million).                                    

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HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES                                   

Notes to Consolidated Financial Statements, Continued                           

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(e)  EQUITY IN EARNINGS OF AFFILIATES                                 

Equity in earnings of affiliates is comprised of the following:       

                                                                [Download Table]

-------------------------------------------------------------------------------
                                               1997        1996        1995    
-------------------------------------------------------------------------------
                                                      (in thousands)           
                                                                               
        Fairfax                              $  --        11,126      24,662   
        Southam                                 --          --       (10,968)  
        Joint ventures and other               5,807         924         662   
-------------------------------------------------------------------------------
                                             $ 5,807      12,050      14,356   
-------------------------------------------------------------------------------

Equity in earnings of Fairfax is computed as follows:                 

                                                                [Download Table]

--------------------------------------------------------------------------------
                                                           1996          1995   
--------------------------------------------------------------------------------
                                                             (in thousands)     
                                                                                
        Share of net earnings as reported by Fairfax     $ 12,777        22,779 
        Consolidation and U.S. GAAP adjustments            (1,651)        1,883 
--------------------------------------------------------------------------------
                                                         $ 11,126        24,662 
--------------------------------------------------------------------------------

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HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES                                   

Notes to Consolidated Financial Statements, Continued                           

--------------------------------------------------------------------------------

Equity in earnings of Southam for the year ended December 31, 1995 is computed  
as follows:                                                                     

                                                                [Download Table]

-------------------------------------------------------------------------------
                                                                   1995        
-------------------------------------------------------------------------------
                                                               (in thousands)  
                                                                               
        Share of operating results as reported by Southam:                     
             Income before special charge                        $  8,426      
             Special charge                                       (17,324)     
             Tax benefit                                            3,189      
             Loss from discontinued operations, net of tax         (2,084)     
             Consolidation and U.S. GAAP adjustments               (3,175)     
-------------------------------------------------------------------------------

                                                                 $(10,968)     
-------------------------------------------------------------------------------

(4)  OTHER INVESTMENTS                                                          

                                                        [Enlarge/Download Table]

----------------------------------------------------------------------------------------
                                                                    1997        1996    
----------------------------------------------------------------------------------------
                                                                     (in thousands)     
                                                                                        
        Investment in Argsub Limited                             $   --        402,214  
        Note receivable from West Ferry                            16,296       29,020  
        Advances under printing contracts with joint ventures      45,012       40,677  
        Other                                                      14,412       15,636  
----------------------------------------------------------------------------------------
                                                                 $ 75,720      487,547  
----------------------------------------------------------------------------------------

       (a) Argsub Limited ("Argsub") is a wholly owned English subsidiary of
            Argus Corporation Limited. Argus Corporation Limited is a Canadian
           corporation, all the voting stock of which is indirectly owned or
      controlled by the principal shareholder of Hollinger Inc. On
     December 29, 1995, DTH transferred all outstanding First DT
        Holdings Limited ("FDTH") Preference shares which it then held
          (with an aggregate redemption amount of Cdn.$140 million ($102.6
             million)) to Argsub, in exchange for newly issued preference shares
          (with an aggregate redemption amount of Cdn.$140 million ($102.6
million)) of Argsub.                                  

         On September 30, 1996, FDTH issued 600 Fourth Preference Shares
           Series 1996 (with an aggregate redemption amount of $300 million)
to Argsub in exchange for 600 newly issued            

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            Second Preference Shares, Series 1996 of Argsub (with an aggregate
          redemption amount of $300 million). Both series of Argsub shares
            have terms substantially identical to those of the FDTH shares for
which they were exchanged.                            

             In June 1997 DTH purchased 100% of the common shares of Argsub from
         Argus Corporation Limited. As a result of this acquisition, the
          consolidated financial statements include the accounts of Argsub
            and therefore this results in the elimination of the investment in
          Argsub preference shares which was previously disclosed as other
        investments and of the FDTH share capital which was previously
disclosed as redeemable preferred stock (note 13).    

       (b) The note receivable from West Ferry represents amounts due to The
             Telegraph following the granting of rights to West Ferry equivalent
        to ownership of certain of The Telegraph's fixed assets. These
          fixed assets have been treated as if they had been sold outright
       with the long-term element of the note receivable included in
     investments. The current portion of the note receivable was
             $11,544,000 and $11,727,000 for 1997 and 1996, respectively, and is
             included in accounts receivable. The income related to this note is
computed based on the effective interest rate method. 

    (c) Advances under printing contracts represent loans to the joint
          venture by way of amounts prepaid under The Telegraph's printing
contracts.                                            

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HOLLINGER INTERNATIONAL INC, AND SUBSIDIARIES                                   

Notes to Consolidated Financial Statements, Continued                           

--------------------------------------------------------------------------------
(5)     PROPERTY, PLANT AND EQUIPMENT                                           

                                                        [Enlarge/Download Table]

-------------------------------------------------------------------------------------------------------------

                                                                                       1997           1996   
-------------------------------------------------------------------------------------------------------------
                                                                                            (in thousands)   
                                                                                                             
        Land                                                                 $         58,636        63,659  
        Building and leasehold interests                                              286,933       216,535  
        Machinery and equipment                                                       712,890       637,358  
        Construction in progress                                                       24,737        69,200  
-------------------------------------------------------------------------------------------------------------
                                                                                    1,083,196       986,752  
        Less accumulated depreciation and amortization                                467,617       425,021  
-------------------------------------------------------------------------------------------------------------

                                                                             $        615,579       561,731  
-------------------------------------------------------------------------------------------------------------

      Depreciation and amortization of property, plant and equipment totaled
$61,635,000, $60,640,000 and $28,264,000 in 1997, 1996 and 1995,
respectively.                                                   

(6)     BANK LOANS                                                              

In May 1996, the Company, through a subsidiary, entered into a  
   short-term facility with a Canadian chartered bank in the amount of
       Cdn.$300 million. At December 31, 1996, there was $155.0 million (Cdn.$
  212.3 million) outstanding under this facility which was repaid on
 February 7, 1997 with the proceeds of the Senior Notes and Senior
Subordinated Notes (note 7).                                    

   In May 1996, Hollinger International Publishing Inc. ("Publishing")
   entered into an amended and restated credit agreement (the "Amended
        Publishing Credit Facility") which consisted of a secured non-amortizing
 revolving credit facility. At December 31, 1996, there was $157.0
 million outstanding under this facility. The facility was used to
      finance the acquisition of the Telegraph minority shares. The loan was
    repaid on February 7, 1997 with the proceeds of the Senior Notes and
Senior Subordinated Notes (note 7).                             

  Also, in May 1996, FDTH entered into a credit agreement (the "FDTH
       Credit Facility") which consisted of a secured non-amortizing revolving
     credit facility. The facility was for a maximum of (pound)250 million
     ($428.1 million ). At December 31, 1996, there was $191.3 million was
        outstanding under this facility. The loan was repaid on February 7, 1997
   with the proceeds of the Senior Notes and Senior Subordinated Notes
(note 7).                                                       

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HOLLINGER INTERNATIONAL INC, AND SUBSIDIARIES                                   

Notes to Consolidated Financial Statements, Continued                           

--------------------------------------------------------------------------------
(7)     LONG-TERM DEBT                                                          

                                                        [Enlarge/Download Table]

-------------------------------------------------------------------------------------------------------------

                                                                                      1997            1996   
-------------------------------------------------------------------------------------------------------------
                                                                                           (in thousands)    
                                                                                                             
        Hollinger International Publishing:                                                                  
             Senior Subordinated Notes due 2006                             $         250,000       250,000  
             Senior Notes due 2005                                                    260,000             -  
             Senior Subordinated Notes due 2007                                       290,000             -  
             Credit facility due 2004                                                  85,000             -  
        US Newspaper Group:                                                                                  
             Senior secured notes due 1998-2000                                       105,000       135,000  
             Amounts due under non-interest bearing                                                          
                non-competition agreements due 1998-2004                                5,889         7,445  
             Other due 1998-2006                                                                             
                (at varying interest rates up to 9%)                                    4,516         3,344  
        The Telegraph:                                                                                       
             Obligations under capital leases (note 8)                                 12,699        15,947  
             Other                                                                      5,967         8,830  
        Hollinger Canadian Publishing Holdings:                                                              
             Credit facility due 2004                                                 233,840             -  
        Southam:                                                                                             
             Promissory notes due 1999-2002                                                                  
                (at varying interest rates up to 6.0%)                                 72,090       188,000  
             Notes due 1999-2005                                                                             
                (at varying interest rates up to 8.5%)                                102,851       101,982  
        Other:                                                                                               
             Other debt                                                                   481           586  
             Other capital leases                                                          82           214  
-------------------------------------------------------------------------------------------------------------
                                                                                    1,428,415       711,348  
        Less current portion included in current liabilities                           35,560        35,920  
-------------------------------------------------------------------------------------------------------------

                                                                            $       1,392,855       675,428  
-------------------------------------------------------------------------------------------------------------

(a)     (i)  In February 1996, the Company through its subsidiary,    
         Publishing, sold $250,000,000 million of 9.25% Senior
              Subordinated Notes ("Subordinated Notes"). Interest on the
                 Subordinated Notes is payable semi-annually on February 1 and
           August 1 of each year. The Subordinated Notes mature on
        February 1, 2006 and are redeemable at the option of
            Publishing, in whole or in part, at any time on or after
February 1, 2001, at set                    

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HOLLINGER INTERNATIONAL INC, AND SUBSIDIARIES                                   

Notes to Consolidated Financial Statements, Continued                           

--------------------------------------------------------------------------------

                 redemption prices based on a percentage of the principal plus
           any accrued and unpaid interest, if any, to the date of
            redemption. The Subordinated Notes are guaranteed by the
Company.                                    

         (ii) On March 4, 1997, Publishing filed both a Prospectus and a
               Prospectus Supplement offering $200 million of Senior Notes
            due 2005 (the "Senior Notes") and $200 million of Senior
                 Subordinated Notes due 2007 (the "Senior Subordinated Notes")
               pursuant to its universal shelf registration statements. On
                  March 12, 1997, Publishing increased the size of the offerings
                 to a total of $550.0 million, which closed on March 18, 1997.
           Both the Senior Notes and Senior Subordinated Notes are
guaranteed by the Company.                  

        The Senior Notes are unsecured senior obligations of
                  Publishing and rank pari-passu with all other unsecured senior
                 indebtedness of Publishing including Publishing's bank credit
                  facilities. The Senior Notes mature on March 15, 2005 and bear
               interest at 8.625% per annum. The Senior Subordinated Notes
               are unsecured senior subordinated obligations of Publishing
          and rank pari-passu with all other senior subordinated
                  indebtedness of Publishing including its existing 9.25% Senior
              Subordinated Notes due 2006. The Senior Subordinated Notes
      mature on March 15, 2007 and bear interest payable
              semi-annually at a rate of 9.25% per annum. The Indentures
                  relating to the Senior Notes and the Senior Subordinated Notes
                 contain financial covenants and negative covenants that limit
      Publishing's ability to, among other things, incur
                  indebtedness, pay dividends or make other distributions on its
capital stock.                              

           Publishing and its restricted subsidiaries utilized the
              proceeds of these offerings to repay bank indebtedness, to
              repay redeemable preference shares of DTH and FDTH and for
general working capital.                    

            (iii)On April 7, 1997, Publishing, HCPH, The Telegraph and a group
               of financial institutions entered into a new long-term bank
              credit facility (the "Bank Credit Facility"). The purchase
                 price of the Canadian Newspapers was financed in part through
          a $175 million borrowing by HCPH under the Bank Credit
                 Facility. The Bank Credit Facility originally provided for up
           to $900 million in total credit availability under four
         tranches. In July 1997, the Company reduced its total
              available commitments to $515 million and reduced the HCPH
                tranche to $315 million. The Bank Credit Facility matures on
                 March 15, 2004 with required reductions in availability equal
                 to 6.25% of the commitment per calendar quarter commencing on
June 30, 2000.                              

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              Loans under the Bank Credit Facility bear interest, at the
                  option of the respective borrower, at a rate per annum tied to
               specified floating rates or a reserve adjusted Eurocurrency
                  rate, in each case plus a specified margin determined based on
               leverage ratios. The obligations of each borrower under the
                  Bank Credit Facility are guaranteed by the Company and by each
          U.S. subsidiary (other than American Publishing (1991)
          Inc.("AP-91"), which provides a partial guaranty). The
                  obligations of HCPH are guaranteed in whole or in part by each
                  of its wholly owned Canadian subsidiaries and by The Telegraph
              and its subsidiaries. The obligations of The Telegraph are
                  guaranteed in whole or in part by each United Kingdom ("U.K.")
                 subsidiary and by HCPH and each of its Canadian subsidiaries.

          The obligations of all borrowers under the Bank Credit
                Facility are secured by a pledge by the Company of all stock
              of Publishing, the pledge by Publishing and its restricted
                 subsidiaries of the stock of their United States subsidiaries
                 (other than AP-91 and its subsidiaries), certain intercompany
               notes and security agreements, and portions of the stock of
              certain Canadian and U.K. subsidiaries. The obligations of
          HCPH and the Canadian and U.K. subsidiaries which have
                guaranteed its debt are secured by all or part of the pledge
        of the stock of the Canadian subsidiaries, including
                 approximately 58% of the stock of Southam, and all or part of
             the stock of The Telegraph and the U.K. subsidiaries. The
          obligations of The Telegraph and the Canadian and U.K.
                  subsidiaries which have guaranteed its debt are secured by the
                pledge of all or part of the stock of the U.K. subsidiaries,
                  and all or part of the stock of The Telegraph and the Canadian
subsidiaries.                               

                The parties to the Bank Credit Facility entered into a First
               Amendment Agreement to the Bank Credit Facility (the "First
              Amendment") dated May 12, 1997. The First Amendment amends
               certain terms and conditions of the Bank Credit Facility to
              permit HCPH to bid for the remaining shares of Southam not
             currently owned by it. The First Amendment allows for the
           Southam offer as an "Approved Acquisition" and modifies
                 certain definitions, representations and covenants to account
             for, among other things, the issuance of the HCPH Special
                Shares, the operation of the Exchange Indenture, approval by
                  the lenders of the bid circular and related documentation, and
                  the provision and timing of additional security under the Bank
Credit Facility.                            

               The parties to the Bank Credit Facility have entered into a
               Second Amendment Agreement to the Bank Credit Facility (the
                 "Second Amendment") dated June 23, 1997. The Second Amendment
          amends certain terms and conditions of the Bank Credit
                Facility primarily to allow HCPH to take up less than all of
                 the outstanding Southam shares and allow Publishing to pay up
                 to $20 million in dividends to the Company for Class A Common
Stock repurchases.                          

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             At December 31, 1997 Publishing had borrowings under this
               facility of $85.0 million and HCPH had borrowings of $233.8
million.                                    

      (b) US Newspaper Group Senior Secured Notes ("Notes") are secured by
           (1) a pledge of the capital stock and certain promissory notes of
      the subsidiaries of American Publishing (1991) Inc., (2) the
         general intangibles of such subsidiaries and (3) a guarantee by
            Hollinger Inc. The Notes are repayable in annual installments from
          September 1, 1998 through September 1, 2000 and bear interest at
           rates ranging from 10.44% to 10.53%. These notes were paid off in
January 1998 (see note 22).                           

    (c) (i)  Southam has Cdn.$310.0 million credit facilities with its
               banks. For Cdn.$145.0 million of the facilities, an initial
        revolving period extends to December 31, 1998 and is
             extendible for successive 364-day periods to December 31,
              2001. For Cdn.$165.0 million of the facilities, an initial
                  term extends to December 31, 1998 after which it converts to a
      reducing term loan with equal annual reductions in
                  availability until expiration on December 31, 2002. The credit
             facilities are used to support short-term promissory note
                 issuances, capital expenditures, acquisitions and for general
                corporate purposes. The amount borrowed at December 31, 1997
               and December 31, 1996 was $72.1 million and $188.0 million,
respectively.                               

            (ii) Southam has converted a portion of its variable rate interest
                exposure to fixed rate by entering into a ten year Cdn.$25.0
                million fixed rate interest swap at 8.7%, maturing May 2004.
           Southam pays interest at the fixed rate and it receives
              interest based on the three month bankers acceptance rate,
       which is reset quarterly, on the nominal principal.

   (d) The Company's agreements with banks and other debtors contain
           various restrictive provisions relating to maintenance of certain
    financial ratios, restrictions on additional indebtedness,
             occurrence of certain corporate transactions and limitations on the
       amount of capital expenditures and restricted payments (which
           generally include dividends and management fees). At December 31,
     1997, the Company was in compliance with the aforementioned
restrictive provisions.                               

        (e) Principal amounts payable on long-term debt, excluding obligations
            under capital leases, are: 1998 - $32,546,000, 1999 - $43,661,000,
2000 - $100,858,000, 2001 - $51,838,000, and          
2002 - $10,412,000.                                   

        (f) Interest paid for 1997, 1996 and 1995 was $89,661,000, $72,616,000
and $40,716,000, respectively.                        

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HOLLINGER INTERNATIONAL INC, AND SUBSIDIARIES                                   

Notes to Consolidated Financial Statements, Continued                           

--------------------------------------------------------------------------------

(8)     LEASES                                                                  

   The following summarizes assets held under capital leases which are
included in property, plant and equipment:                      

                                                                [Download Table]

--------------------------------------------------------------------------------

                                                      1997        1996          
--------------------------------------------------------------------------------
                                                         (in thousands)         
                                                                                
        Machinery and equipment                   $   7,919         8,865       
        Less accumulated amortization                 7,421         7,602       
--------------------------------------------------------------------------------

                                                  $     498         1,263       
--------------------------------------------------------------------------------

The Company also leases various facilities and equipment under  
    noncancelable operating lease arrangements. Rental expense under all
operating leases was approximately $15,422,000, $17,809,000 and 
$11,434,000 in 1997, 1996 and 1995, respectively.               

        Minimum lease commitments together with the present value of obligations
at December 31, 1997 are as follows:                            

                                                        [Enlarge/Download Table]

-----------------------------------------------------------------------------------------------
                                                                       Capital       Operating 
                                                                       leases         leases   
-----------------------------------------------------------------------------------------------
                                                                            (in thousands)     
                                                                                               
        1998                                                         $   4,225      $  16,664  
        1999                                                             4,141         14,431  
        2000                                                             4,141         12,895  
        2001                                                             3,106         11,830  
        2002                                                                --         11,374  
        Later years                                                         --        113,794  
-----------------------------------------------------------------------------------------------

                                                                        15,613     $  180,988  
                                                                                   ------------

        Less imputed interest and executory costs                        2,832                 
--------------------------------------------------------------------------------               

        Present value of net minimum payments                           12,781                 
        Less current portion included in current liabilities             3,014                 
--------------------------------------------------------------------------------               

        Long-term obligations                                        $   9,767                 
--------------------------------------------------------------------------------               

Minimum lease payments have been reduced for rental income from 
   noncancelable subleases by approximately $88,000 in 1998 and lesser
amounts thereafter (total reductions $228,000).                 

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HOLLINGER INTERNATIONAL INC, AND SUBSIDIARIES                                   

Notes to Consolidated Financial Statements, Continued                           

--------------------------------------------------------------------------------

(9)     INCOME TAXES                                                            

     U.S. and foreign components of earnings before income taxes, minority
interest, and extraordinary item are presented below:           

                                                                [Download Table]

-----------------------------------------------------------------

                                1997          1996           1995
-----------------------------------------------------------------
                                         (in thousands)          
                                                                 
        U.S                   $ 12,148       35,708        3,462 
        Foreign                232,001       94,230       46,062 
---------------------------------------------------------------- 

                              $244,149      129,938       49,524 
---------------------------------------------------------------- 

Income tax expense for the periods shown below consists of:     

                                                                [Download Table]

--------------------------------------------------------------------------------
                                          Current      Deferred        Total    
--------------------------------------------------------------------------------
                                                      (in thousands)            
                                                                                
Year ended December 31, 1997:                                                   
     U.S. Federal                       $   3,019         6,713         9,732   
     Foreign                               27,856        54,344        82,200   
     State and local                          764           959         1,723   
--------------------------------------------------------------------------------
                                        $  31,639        62,016        93,655   
--------------------------------------------------------------------------------
Year ended December 31, 1996:                                                   
     U.S. Federal                       $     810         13,192       14,002   
     Foreign                               19,829         14,928       34,757   
     State and local                           --          3,106        3,106   
--------------------------------------------------------------------------------
                                        $  20,639         31,226       51,865   
--------------------------------------------------------------------------------
Year ended December 31, 1995:                                                   
     U.S. Federal                       $   2,619           (749)       1,870   
     Foreign                               20,889         (2,822)      18,067   
     State and local                          734           (107)         627   
--------------------------------------------------------------------------------
                                        $  24,242         (3,678)      20,564   
--------------------------------------------------------------------------------

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HOLLINGER INTERNATIONAL INC, AND SUBSIDIARIES                                   

Notes to Consolidated Financial Statements, Continued                           

--------------------------------------------------------------------------------

     Income tax expense differed from the amounts computed by applying the
       U.S. Federal income tax rate of 35% for 1997, 1996 and 1995 as a result
of the following:                                               

                                                        [Enlarge/Download Table]

-------------------------------------------------------------------------------------------------------------

                                                                                  1997       1996      1995  
-------------------------------------------------------------------------------------------------------------
                                                                                      (in thousands)         
                                                                                                             
        Computed "expected" tax expense                                    $   85,452      45,478     17,333 
        Increase (reduction) in income taxes resulting from:                                                 
             Nondeductible expenses for income tax purposes                    11,083       7,412      3,621 
             Resolution of foreign tax issues                                      --          --     (3,492)
             Results of foreign subsidiaries for which income tax                                            
                 benefit has not been recognized                                   --       4,284      3,327 
             Additional U.S. taxes on foreign earnings                             --       1,750      1,050 
             U.S. state and local income taxes, net of federal benefit          1,409       1,889        411 
             Impact of taxation at different foreign rates, repatriation                                     
                 and other                                                     (2,639)        908       (880)
             Utilization of net operating loss carryforwards and                                             
                 investment tax credits for which no previous                                                
                 benefit has been recognized                                       --          --     (1,520)
             Advance corporation tax recovery                                      --      (1,880)        -- 
             Difference arising on sale of Fairfax interest                        --      (7,963)        -- 
             Other                                                             (1,650)        (13)       714 
-------------------------------------------------------------------------------------------------------------

                                                                           $   93,655      51,865     20,564 
-------------------------------------------------------------------------------------------------------------

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HOLLINGER INTERNATIONAL INC, AND SUBSIDIARIES                                   

Notes to Consolidated Financial Statements, Continued                           

--------------------------------------------------------------------------------

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

                                                        [Enlarge/Download Table]

-------------------------------------------------------------------------------------------------------------
                                                                              1997               1996        
-------------------------------------------------------------------------------------------------------------
                                                                                  (in thousands)             
                                                                                                             
        Deferred tax assets:                                                                                 
             Accounts receivable, principally due to allowance                                               
                for doubtful accounts                                      $   2,040               6,014     
             Accrued compensation including vacation, bonus,                                                 
                severance and deferred compensation                           12,633              32,648     
             Excess of tax over book basis                                     4,593               6,278     
             Net operating loss carryforwards                                 25,660              14,453     
             Accrued medical and workers' compensation claims                  1,629               4,011     
             Basis in subsidiaries, tax in excess of book                       --                 5,257     
             Prepaid expenses                                                   --                 3,237     
             Advance corporation tax receivable                                2,472               8,680     
--------------------------------------------------------------------------------------------------------     
        Gross deferred tax assets                                             49,027              80,578     
        Less valuation allowance                                             (11,423)            (10,897)    
--------------------------------------------------------------------------------------------------------     

        Net deferred tax assets                                               37,604              69,681     
--------------------------------------------------------------------------------------------------------     

        Deferred tax liabilities:                                                                            
             Property, plant and equipment, principally due to                                               
                differences in depreciation                                   37,609              36,337     
             Intangible assets, principally due to differences in                                            
                basis and amortization                                        38,828              54,931     
             Foreign exchange basis differences                               16,126              12,448     
             Long term advances under printing contract                       13,953              13,424     
             Deferred gain on swap of assets                                   9,634                --       
             Unremitted earnings of a foreign equity investment               19,942              11,433     
             Other                                                            33,649              11,229     
--------------------------------------------------------------------------------------------------------     

        Gross deferred tax liabilities                                       169,741             139,802     
--------------------------------------------------------------------------------------------------------     

        Net deferred taxes                                                 $ 132,137              70,121     
--------------------------------------------------------------------------------------------------------     

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HOLLINGER INTERNATIONAL INC, AND SUBSIDIARIES                                   

Notes to Consolidated Financial Statements, Continued                           

--------------------------------------------------------------------------------

      A valuation allowance is provided when it is more likely than not that
   some portion or all of the deferred assets will not be realized. In
     1995, the Company established a valuation allowance primarily for net
        operating loss carryforwards and other deferred tax assets. From 1996 to
 1997, the valuation allowance increased by a net $526,000. A full
    valuation allowance against the net operating loss carryforwards has
been assessed.                                                  

       Jerusalem Post has net operating loss and other credit carryforwards of
   approximately $3,869,000 for Israeli tax purposes which do not have
       expiration dates and may be used to reduce future Israeli income taxes.

       Total income taxes paid in 1997, 1996 and 1995 amounted to $31,181,000,
$22,775,000 and $34,368,000 respectively.                       

(10)    FINANCIAL INSTRUMENTS                                                   

      The Company has entered into various types of financial instruments in
 the normal course of business. Fair value estimates are made at a
      specific point in time, based on assumptions concerning the amount and
timing of estimated future cash flows and assumed discount rates
       reflecting varying degrees of perceived risk and the country of origin.
      These estimates are subjective in nature and involve uncertainties and
        matters of significant judgment and, therefore, may not represent actual
 values of the financial instruments that could be realized in the
future.                                                         

       At December 31, 1997 and 1996, the comparison of the carrying value and
      the estimated fair value of the Company's financial instruments was as
follows:                                                        

                                                        [Enlarge/Download Table]

----------------------------------------------------------------------------------------------------------------------------

                                                                              1997                           1996           
                                                                  ------------------------         -----------------------  
                                                                  Carrying           Fair          Carrying          Fair   
                                                                    value            value           value           value  
----------------------------------------------------------------------------------------------------------------------------
                                                                               (in thousands)                               
                                                                                                                            
        Long-term debt                                            $1,415,634      $  928,348      $  695,187      $  565,458
        Interest rate swaps, currency swaps and                                                                             
             forward exchange  contracts                                --             2,890            --             8,722
----------------------------------------------------------------------------------------------------------------------------

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HOLLINGER INTERNATIONAL INC, AND SUBSIDIARIES                                   

Notes to Consolidated Financial Statements, Continued                           

--------------------------------------------------------------------------------

     The fair value of the interest rate swaps, currency swaps and forward
        exchange contracts is the estimated amount that the Company would pay to
       terminate the agreements (note 7). It is not practical to determine the
     fair value of redeemable preferred stock held by related parties. The
      carrying value of all other financial instruments at December 31, 1997
and 1996 approximate their estimated fair values.               

(11)    EMPLOYEE BENEFIT PLANS                                                  

DEFINED CONTRIBUTION PLANS                            

    The Company sponsors six domestic defined contribution plans, two of
   which have provisions for Company matching contributions. Under the
    Company's matching program for the two plans, $471,000, $246,000 and
        $225,000 was contributed for the years ended December 31, 1997, 1996 and
1995, respectively.                                             

       The Telegraph sponsors a defined contribution plan, The Telegraph Staff
     Pension Plan, for the majority of its employees, as well as a defined
    contribution plan to provide pension benefits for senior executives.
Contributions to each of the plans were as follows:             

                                                        [Enlarge/Download Table]

-------------------------------------------------------------------------------------------------------------
                                                                          1997          1996           1995  
-------------------------------------------------------------------------------------------------------------
                                                                                   (in thousands)            
                                                                                                             
        The Telegraph Staff Pension Plan                               $   5,780          5,176        6,970 
        The Telegraph Executive Pension Scheme                               724          1,005          805 
-------------------------------------------------------------------------------------------------------------

    The Telegraph plans' assets consist principally of U.K. and overseas
equities, unit trusts and bonds.                                

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HOLLINGER INTERNATIONAL INC, AND SUBSIDIARIES                                   

Notes to Consolidated Financial Statements, Continued                           

--------------------------------------------------------------------------------

DEFINED BENEFIT PLANS                                                           

 The Company and subsidiaries have nine domestic and seven foreign
single-employer defined benefit plans and contributes to various
       union-sponsored, collectively bargained domestic multi-employer pension
     plans. The Company's contributions to these plans for the years ended
December 31, 1997, 1996, and 1995 were:                         

                                                        [Enlarge/Download Table]

-------------------------------------------------------------------------------------------------------------
                                                         1997               1996                 1995        
-------------------------------------------------------------------------------------------------------------
                                                                       (in thousands)                        
                                                                                                             
        Single-employer plans                       $   5,146              5,440                 3,820       
        Multi-employer plans                            2,185              2,052                 1,886       
-------------------------------------------------------------------------------------------------------------

     The Telegraph has a defined benefit plan, which was closed on July 1,
        1991 and provides only benefits accrued up to that date. The liabilities
    of the plan have been actuarially valued as at December 31, 1997. At
that date the market value of the plan assets was $20,020,000,  
representing 100% of the estimated cost of purchasing the plan's
       benefits from an insurance company. The actuary assumed a discount rate
 of 6.29%. Increases to pension payments are discretionary and are
     awarded by the trustees, with The Telegraph's consent, from surpluses
      arising in the fund from time to time. Contributions to the trust were
    $1,896,000 and $2,480,000 for 1997 and 1995, respectively, and there
were no contributions made in 1996.                             

       Pursuant to the West Ferry joint venture agreement, The Telegraph has a
   commitment to fund 50% of the obligation under West Ferry's defined
benefit plan.                                                   

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HOLLINGER INTERNATIONAL INC, AND SUBSIDIARIES                                   

Notes to Consolidated Financial Statements, Continued                           

--------------------------------------------------------------------------------

SINGLE-EMPLOYER PENSION PLANS                                                   

    The benefits under the subsidiary companies' single-employer pension
      plans are based primarily on years of service and compensation levels.
The Company funds the annual provision deductible for income tax
    purposes. The plan's assets consist principally of marketable equity
securities and corporate and government debt securities.        

Pension expense for the plans include the following components: 

                                                        [Enlarge/Download Table]

-------------------------------------------------------------------------------------------------------------

                                                                          1997          1996          1995   
-------------------------------------------------------------------------------------------------------------
                                                                                   (in thousands)            
                                                                                                             
        Service cost - benefits earned during the period             $   8,444          2,339         1,710  
        Interest on projected benefit obligation                        34,554          8,962         8,806  
        Expected return on assets                                      (50,356)       (10,949)       (7,987) 
        Net amortization and deferral                                    5,506          1,862          (404) 
-------------------------------------------------------------------------------------------------------------

        Net periodic pension expense                                 $  (1,852)         2,214         2,125  
-------------------------------------------------------------------------------------------------------------

The funded status of the plans and the amounts recognized in the
Company's consolidated financial statements are as follows:     

                                                        [Enlarge/Download Table]

----------------------------------------------------------------------------------------------------------------
                                                                                      Funded       Unfunded     
----------------------------------------------------------------------------------------------------------------
        Year ended December 31, 1997                                                       (in thousands)       
                                                                                                                
             Actuarial present value of benefit obligations - vested benefit                                    
                 obligation                                                           $(333,831)        (69,373)
----------------------------------------------------------------------------------------------------------------
             Accumulated benefit obligation                                           $(333,961)        (71,558)
----------------------------------------------------------------------------------------------------------------
             Projected benefit obligation                                             $ 406,144          77,829 
             Plan assets at fair value                                                  474,146          52,900 
----------------------------------------------------------------------------------------------------------------
             Plan assets in excess (deficit) of projected benefit obligation             68,002         (24,929)
             Unrecognized net loss                                                       10,813           1,054 
----------------------------------------------------------------------------------------------------------------
             Prepaid pension asset / (Accrued pension liability)                      $  78,815         (23,875)
----------------------------------------------------------------------------------------------------------------

      The prepaid pension asset in 1997 is included with other assets on the
balance sheet.                                                  

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HOLLINGER INTERNATIONAL INC, AND SUBSIDIARIES                                   

Notes to Consolidated Financial Statements, Continued                           

--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]

-------------------------------------------------------------------------------------------------------------
                                                                                      Funded       Unfunded  
-------------------------------------------------------------------------------------------------------------
        Year ended December 31, 1996                                                       (in thousands)    
                                                                                                             
             Actuarial present value of benefit obligations - vested benefit                                 
                 Obligation                                                     $     (121,470)      (50,804)
-------------------------------------------------------------------------------------------------------------
             Accumulated benefit obligation                                     $     (121,520)      (53,245)
-------------------------------------------------------------------------------------------------------------
             Projected benefit obligation                                       $      121,766        57,730 
             Plan assets at fair value                                                 131,533        48,611 
-------------------------------------------------------------------------------------------------------------
             Plan assets in excess (deficit) of projected benefit obligation             9,767        (9,119)
             Unrecognized net loss                                                      (5,874)          935 
-------------------------------------------------------------------------------------------------------------
             Prepaid pension asset / (Accrued pension liability)                $        3,893        (8,184)
-------------------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------

        The projected benefit obligation related to the Company's domestic plans
was determined using the following assumptions:                 

                                                        [Enlarge/Download Table]

-------------------------------------------------------------------------------------------------------------
                                                                       1997          1996           1995     
-------------------------------------------------------------------------------------------------------------
                                                                                                             
        Discount rate                                               7.0 - 7.5%       7.0%           7.5%     
        Long-term rate of return on plan assets                     7.0 - 9.0%       9.0%           9.0%     
        Compensation increase                                       3.0 - 4.0%       3.0%           3.0%     
-------------------------------------------------------------------------------------------------------------

     The assumptions used for the Company's foreign plans were as follows:

                                                        [Enlarge/Download Table]

-------------------------------------------------------------------------------------------------------------
                                                                        1997          1996           1995    
-------------------------------------------------------------------------------------------------------------
                                                                                                             
        Discount rate                                               6.25 - 7.50%      7.62%          7.68%   
        Long-term rate of return on plan assets                     3.50 - 6.29%      7.62%          7.68%   
-------------------------------------------------------------------------------------------------------------

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HOLLINGER INTERNATIONAL INC, AND SUBSIDIARIES                                   

Notes to Consolidated Financial Statements, Continued                           

--------------------------------------------------------------------------------

MULTI-EMPLOYER PENSION PLANS                          

    Certain U.S. employees are covered by union-sponsored multi-employer
        pension plans, all of which are defined benefit plans. Contributions are
determined in accordance with the provisions of negotiated labor
    contracts and are generally based on the number of man hours worked.
Pension expense for these plans was $2,185,000, $2,052,000 and  
$1,886,000 for the years ended December 31, 1997, 1996, 1995,   
       respectively. The passage of the Multi-employer Pension Plan Amendments
  Acts of 1980 (the Act) may, under certain circumstances, cause the
 Company to become subject to liabilities in excess of the amounts
provided for in the collective bargaining agreements. Generally,
     liabilities are contingent upon withdrawal or partial withdrawal from
  the plans. The Company has not undertaken to withdraw or partially
      withdraw from any of the plans as of December 31, 1997. Under the Act,
     withdrawal liabilities would be based upon the Company's proportional
    share of each plan's unfunded vested benefits. As of the date of the
       latest actuarial valuations, the Company's share of the unfunded vested
liabilities of the plans was zero.                              

POST RETIREMENT BENEFITS                              

    Southam sponsors a defined post retirement plan, which provides post
retirement benefits to certain employees.                       

       The components of net period post retirement expense for the year ended
December 31, 1997 are as follows:                               

                                                        [Enlarge/Download Table]

----------------------------------------------------------------------------------------------------
                                                                                             1997   
----------------------------------------------------------------------------------------------------
                                                                                   (in thousands)   
                                                                                                    
        Service cost - benefits earned during the period                                   $   1,103
        Interest cost on accumulated post retirement benefit obligation                        2,692
        Expected return on assets                                                               --  
        Net amortization and deferral                                                           --  
----------------------------------------------------------------------------------------------------

        Net periodic post retirement benefit cost                                          $   3,795
----------------------------------------------------------------------------------------------------

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HOLLINGER INTERNATIONAL INC, AND SUBSIDIARIES                                   

Notes to Consolidated Financial Statements, Continued                           

--------------------------------------------------------------------------------

     The table below sets forth the plans' funded status reconciled to the
amounts recognized in the Company's financial statements:       

                                                        [Enlarge/Download Table]

---------------------------------------------------------------------------------------- 

                                                                                  1997   
---------------------------------------------------------------------------------------- 
                                                                        (in thousands)   
                                                                                         
        Accumulated post retirement benefit obligation                                   
             Retirees                                                         $   19,576 
             Fully eligible pan participants                                       5,923 
             Other active plan participants                                       17,862 
---------------------------------------------------------------------------------------- 
        Total accumulated post retirement benefit obligation                  $   43,361 
---------------------------------------------------------------------------------------- 
        Unrecognized prior period loss                                            (2,852)
---------------------------------------------------------------------------------------- 
        Accrued post retirement benefit cost                                  $   40,509 
---------------------------------------------------------------------------------------- 

      The weighted average discount rate used in determining the accumulated
       post retirement benefit obligation is 6.5%. All benefits under the plan
     are paid for by Southam's contribution to the Plan. For measuring the
 expected post retirement benefit obligation, a 10% annual rate of
     increase in the per capita claims was assumed for 1997. This rate was
      assumed to decrease 1% per year to 5% in 2002 and remain at that level
     thereafter. If the health care cost trend rate were increased 1%, the
    accumulated post retirement benefits of December 31, 1997 would have
       increased 9%. The effect of this change on the aggregate of service and
interest cost for 1997 would have be an increased of 10%.       

Southam provides post employment benefits to former or inactive 
   employees. The benefits are accrued in accordance with Statement of
Financial Accounting Standards No. 112 "Employers Accounting for
Postemployment Benefits."                                       

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HOLLINGER INTERNATIONAL INC, AND SUBSIDIARIES                                   

Notes to Consolidated Financial Statements, Continued                           

--------------------------------------------------------------------------------

(12)    MINORITY INTEREST                                                       

                                                                [Download Table]

--------------------------------------------------------------------------------
                                                          1997            1996  
--------------------------------------------------------------------------------
                                                             (in thousands)     
                                                                                
        Common shares of subsidiary                   $  128,156         109,943
        Special shares of subsidiary                      74,878            --  
--------------------------------------------------------------------------------
                                                      $  203,034         109,943
--------------------------------------------------------------------------------

 Minority interest in the consolidated statements of operations is
comprised of the following:                                     

                                                        [Enlarge/Download Table]

-------------------------------------------------------------------------------------------------------------

                                                                            1997           1996        1995  
-------------------------------------------------------------------------------------------------------------
                                                                                      (in thousands)         
                                                                                                             
        Minority interest in The Telegraph earnings                      $   --           3,537        13,359
        Minority interest in Southam earnings                              41,135        17,725          --  
        Dividends on FDTH and DTH redeemable preferred                                                       
             stock, net of related interest rate swap adjustments           4,838        11,876         9,278
-------------------------------------------------------------------------------------------------------------
                                                                         $ 45,973        33,138        22,637
-------------------------------------------------------------------------------------------------------------

       HCPH, a subsidiary company, issued 6,552,425 Cdn.$10 Non-Voting Special
      Shares in July 1997 for a total issue price of Cdn.$65.5 million. This
 issue of the Special Shares was part of the consideration for the
purchase of Southam shares described in note 3(c).              

        In September 1997 an additional 4,146,107 Special Shares were issued for
  a total issue price of Cdn.$41.5 million in exchange for 4,146,107
Special Shares in 3396754 (note 4(d)).                          

       On July 18, 1997 HCPH, the Company and Montreal Trust Company of Canada
as trustee, entered into an Exchange Indenture providing for the
exchange of the HCPH special shares at the option of the holder 
      ("Optional Exchange") at any time after December 23, 1997 but prior to
     June 26, 2000, into newly issued Class A Subordinate Voting Shares of
 Hollinger International based on an exchange ratio set out in the
     Exchange Indenture (initially 0.510 Class A Subordinate Voting Shares
        per HCPH special share and increasing to 0.602 after June 8, 2000.) Each
HCPH special share will be automatically exchanged ("Mandatory  
    Exchange") on June 26, 2000 into a number of Hollinger International
       Class A Subordinate Voting Shares equal to a) US$8.88 divided by b) 95%
     of the current market price of the Class A Subordinate Voting Shares.
Upon either an                                                  

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HOLLINGER INTERNATIONAL INC, AND SUBSIDIARIES                                   

Notes to Consolidated Financial Statements, Continued                           

--------------------------------------------------------------------------------

       Optional Exchange or a Mandatory Exchange, Hollinger International will
have the option in lieu of delivering all or any of the Class A 
       Subordinate Voting Shares issuable on exchange, to make a cash payment.

   On September 3, 1997, 3396754, HCPH and the Company entered into an
      Exchange Agreement, in respect of the special shares issued by 3396754
   and held by HCPH. The terms of the Exchange Agreement are virtually
        identical to the Exchange Indenture described above, such that the issue
     of any Class A Subordinate Voting Shares or cash payment by Hollinger
        International resulting from the Optional Exchange or Mandatory Exchange
     in respect of the 4,146,107 HCPH special shares previously described,
will be provided by 3396754. Such shares or cash amounts will be
provided to 3396754 by Hollinger Inc.                           

(13)    REDEEMABLE PREFERRED STOCK                                              

                                                        [Enlarge/Download Table]

---------------------------------------------------------------------------------------
                                                                 1997            1996  
---------------------------------------------------------------------------------------
                                                                    (in thousands)     
                                                                                       
        Preferred stock of subsidiaries                      $     --           526,412
        Series D Preferred Stock of the Company                  75,891          79,167
---------------------------------------------------------------------------------------
                                                             $   75,891         605,579
---------------------------------------------------------------------------------------

 (a)   During 1992 two wholly owned U.K. subsidiaries of the Company
issued preference shares as follows:                  

             (i)  On May 19, 1992 FDTH issued to unrelated, unaffiliated persons
                 60 floating rate cumulative redeemable retractable preference
              shares, Series A, with a nominal value of Cdn.$500,000 per
                share and 60 floating rate cumulative redeemable retractable
        preference shares, Series B, with a nominal value of
        Cdn.$500,000 per share to certain Canadian financial
        institutions. Total gross proceeds of the issue were
            $50,276,000 (Cdn.$60,000,000). The Series A and Series B
        preference shares were redeemed in full in May 1997.

          In addition DTH issued 2,540,000 cumulative redeemable
               preference shares, Series 1 at a price of Cdn.$25 per share
                 and 1,100,000 cumulative redeemable preference shares, Series
                 2, at a price of $25 per share. The total gross proceeds were
                  $53,209,000 (Cdn.$63,500,000) for Series 1 and $27,500,000 for
                  Series 2. The preference shares Series 1 and preference shares
Series 2 were redeemed in full in June 1997.

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HOLLINGER INTERNATIONAL INC, AND SUBSIDIARIES                                   

Notes to Consolidated Financial Statements, Continued                           

--------------------------------------------------------------------------------

            (ii) In December 1995 FDTH Series A and Series B preference shares
          with an aggregate redemption value of Cdn.$140,000,000
               ($102,600,000) held by DTH were transferred to Argsub (note
               4). On September 30, 1996 FDTH issued 600 Fourth Preference
             Shares Series 1996 with an aggregate redemption amount of
             $300.0 million to Argsub in exchange for 600 newly issued
           Second Preference Shares Series 1996 of Argsub (with an
                 redemption amount of $300.0 million). The newly issued Second
      Preference Shares Series 1996 of Argsub have terms
               substantially identical to those of the newly issued Fourth
             Preference Shares Series 1996 of FDTH for which they were
               exchanged. Both Argsub and FDTH have waived their rights to
dividends on both series of shares (note 4).

                  In June 1997 DTH purchased 100% of the common shares of Argsub
                  from Argus Corporation Limited. Argsub is the holder of $401.2
          million preference shares of FDTH. As a result of this
                  acquisition, the consolidated financial statements include the
        accounts of Argsub and therefore this results in the
             elimination of the investment in Argsub preference shares
                  which was previously disclosed as other investments and of the
        FDTH share capital which was previously disclosed as
redeemable preferred stock.                 

          (iii)In 1992, Hollinger Inc. entered into interest rate swap and
                 currency swap arrangements until June 30, 1997 to effectively
              convert substantially all of the DTH Series 1 and Series 2
               preference dividends to U.S. dollar variable rate dividends
               and to convert Cdn.$60,000,000 of the capital amount of the
                DTH Series 1 preference shares to $50,300,000. In connection
              with the Reorganization, the Company entered into interest
               rate and currency exchange arrangements with Hollinger Inc.
               that are intended to permit the Company to receive benefits
             that correspond to those obtained by Hollinger Inc. under
                these swap arrangements. These swap arrangements were closed
           out in 1997 when the related DTH preference shares were
redeemed.                                   

        (iv) The carrying value at December 31, 1996 of the redeemable
               preference shares of DTH and FDTH reflect exchange rates in
effect at that time.                        

       (b) The Company is authorized to issue 20,000,000 shares of preferred
  stock in one or more series and to designate the rights,
         preferences, limitations and restrictions of and upon shares of
          each series, including voting, redemption and conversion rights.

          Pursuant to the Reorganization, on October 13, 1995, the Company
             issued 739,500 shares of Series A Preferred Stock to Hollinger Inc.
           as a partial consideration for all of the ordinary shares of DTH.
          In conjunction with the Hollinger Inc. Transaction, the Series A
         Preferred Stock was exchanged for Series D Preferred Stock. The
             value ascribed to the Series A Preferred Stock at December 31, 1996
         is the redemption value of the shares expressed in U.S. dollars
           based on actual rates of exchange on December 31, 1996. The value
ascribed to the                                       

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HOLLINGER INTERNATIONAL INC, AND SUBSIDIARIES                                   

Notes to Consolidated Financial Statements, Continued                           

--------------------------------------------------------------------------------

         Series D Preferred Stock at December 31, 1997 is the redemption
             value of the shares expressed in U.S. dollars based on actual rates
of exchange on December 31, 1997.                     

       The Series D Preferred Stock is non-voting and is entitled to
             receive cumulative cash dividends, payable quarterly. The amount of
          each quarterly dividend per share will be equal to the aggregate
             amount of ordinary course cash dividends paid during the proceeding
           calendar quarter on 7,395,000 of the Southam shares held by HCPH,
             divided by 739,500. The Series D Preferred Stock has the same terms
     as the Series A Preferred Stock for which it was exchanged.

            The Series D Preferred Stock is redeemable in whole or in part, at
        any time by the Company or a holder of such shares, subject to
           restrictions in the Company's credit facilities. In addition, the
         Company is not obligated to redeem the Series D Preferred Stock
           held by Hollinger Inc. in the event that clear legal title to the
          shares of Southam previously transferred by Hollinger Inc. on or
         prior to April 1, 1999 is not delivered to HCPH. The redemption
            price per share will be Cdn.$146.63 ($102.63 based on December 31,
1997 exchange rates) plus accrued dividends.          

          A holder of shares of this Series may convert such shares at any
      time into shares of Class A Common Stock of the Company. The
        conversion price will initially be $14.00 per share of Class A
            Common Stock, subject to adjustment upon the occurrence of certain
events.                                               

(14)    STOCKHOLDERS' EQUITY                                                    

      In February 1996, the Company sold 16,100,000 shares of Class A Common
Stock, at $9.25 per share and $250,000,000 principal amount of  
       Subordinated Notes (see note 7). Combined net proceeds of $384,628,000,
      were used to repay short-term bank loans of $130,000,000 due September
     6, 1996 and long-term bank loans, due 1996-2001, of $160,000,000. The
Company also repaid short-term debt due to Hollinger Inc. of    
      $20,843,000. The Company expensed as an extraordinary item the related
    unamortized deferred financing fees of approximately $3,600,000 upon
       repayment of the short-term and long-term debt. The remaining proceeds,
      after paying accrued interest and costs associated with this offering,
 were added to the Company's cash and cash equivalents for general
corporate purposes.                                             

       In a series of transactions occurring in early August 1996, the Company
      sold 11,500,000 shares of Class A Common Stock at a price of $9.75 per
      share and 20,700,000 9-3/4% PRIDES at a price of $9.75 per PRIDES. The
     combined net proceeds of these sales were $301.1 million were used in
the acquisition of the Telegraph shares (note 2(b)), to paydown 
Telegraph indebtedness and to pay transaction costs.            

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HOLLINGER INTERNATIONAL INC, AND SUBSIDIARIES                                   

Notes to Consolidated Financial Statements, Continued                           

--------------------------------------------------------------------------------

     Pursuant to the Hollinger Inc. Transaction the Company issued 829,409
        shares of a new series of mandatorily convertible preferred stock of the
        Company similar to the PRIDES having a face value of approximately $90.0
    million, and 3,207,045 shares of Class A Common Stock of the Company
having a nominal agreed value of approximately $42.0 million.   

        Class A Common Stock and Class B Common Stock have identical rights with
       respect to cash dividends and in any sale of liquidation, but different
    voting rights. Each share of Class A Common Stock is entitled to one
        vote per share and each share of Class B Common Stock is entitled to ten
     votes per share, on all matters, including the election of directors,
where the two classes vote together as a single class.          

Class B Common Stock is convertible at any time at the option of
       Hollinger Inc. into Class A Common Stock on a share-for-share basis and
is transferable by Hollinger Inc. under certain conditions.     

        The PRIDES are depository shares representing one-half share of Series B
        Convertible Preferred Stock of the Company that will mandatorily convert
    on the mandatory conversion date of August 1, 2000 into one share of
        Class A Common Stock and the right to receive an amount in cash equal to
  all accrued and unpaid dividends thereon, unless either previously
       redeemed by the Company or converted at the option of their holder. The
     PRIDES will pay cumulative quarterly dividends at a rate of 9.75% per
   annum (equivalent to $0.9506 per PRIDES) and will have an aggregate
       liquidation preference equal to their price plus any accrued and unpaid
dividends thereon.                                              

        A significant portion of the Company's operating income and net earnings
    is derived from foreign subsidiaries and affiliated companies. As an
international holding company, the Company's ability to meet its
      financial obligations is dependent upon the availability of cash flows
from foreign subsidiaries and affiliated companies (subject to  
       applicable withholding taxes) through dividends, intercompany advances,
  management fees and other payments. The Company's subsidiaries and
affiliated companies are under no obligation to pay dividends.  

 The contributions by Hollinger Inc. represent amounts paid for by
        Hollinger Inc. and net distributions prior to the Reorganization and the
Hollinger Inc. Transaction.                                     

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HOLLINGER INTERNATIONAL INC, AND SUBSIDIARIES                                   

Notes to Consolidated Financial Statements, Continued                           

--------------------------------------------------------------------------------

(15)    EARNINGS PER SHARE                                                      

    The following table reconciles the numerator and denominator for the
       calculation of basic and diluted earnings per share for the years ended
December 31, 1997, 1996 and 1995:                               

                                                        [Enlarge/Download Table]

------------------------------------------------------------------------------------------------------------- 
                                                                        Year ended December 31, 1997          

                                                                Income               Shares          Per-Share
                                                              (Numerator)         (Denominator)       Amount  
------------------------------------------------------------------------------------------------------------- 
                                                                                   (in thousands)             
                                                                                                              
        Basic EPS                                                                                             
        Net income available to common stockholders            $  81,052               87,130          $0.93  

          Effect of dilutive securities                                                                       
          PRIDES                                                  22,409               24,521                 
          Series D redeemable preferred stock                      1,060                5,421                 
          HCPH Special Shares                                                           2,237                 
          Stock options                                                                   177                 

        Diluted EPS                                                                                           
        Net income available to common stockholders                                                           
             and assumed conversions                           $ 104,521              119,486          $0.87  
------------------------------------------------------------------------------------------------------------- 

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HOLLINGER INTERNATIONAL INC, AND SUBSIDIARIES                                   

Notes to Consolidated Financial Statements, Continued                           

--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]

--------------------------------------------------------------------------------------------------------------
                                                 Year ended December 31, 1996                                 

                                                                Income               Shares          Per-Share
                                                              (Numerator)         (Denominator)       Amount  
--------------------------------------------------------------------------------------------------------------
                                                                                 (in thousands)               
                                                                                                              
        Basic EPS                                                                                             
        Net income available to common stockholders            $  32,077               79,081        $  0.41  

        Effect of dilutive securities                                                                         
             Series D redeemable preferred stock                   1,087                5,655                 
             Stock options                                                                 48                 

        Diluted EPS                                                                                           
        Net income available to common stockholders                                                           
             and assumed conversions                           $  33,164               84,784        $  0.39  
--------------------------------------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]

                                                 Year ended December 31, 1995                                 

                                                                Income               Shares          Per-Share
                                                              (Numerator)         (Denominator)       Amount  
--------------------------------------------------------------------------------------------------------------
                                                                                 (in thousands)               
                                                                                                              
        Basic EPS                                                                                             
        Net income available to common stockholders            $   6,052               67,215        $  0.09  

        Effect of dilutive securities                                                                         
                Series D redeemable preferred stock                  271                1,228                 

        Diluted EPS                                                                                           
        Net income available to common stockholders                                                           
             and assumed conversions                           $   6,323               68,443        $  0.09  
--------------------------------------------------------------------------------------------------------------

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HOLLINGER INTERNATIONAL INC, AND SUBSIDIARIES                                   

Notes to Consolidated Financial Statements, Continued                           

--------------------------------------------------------------------------------

(16)   DIRECT SUBSCRIPTION CAMPAIGN COSTS, NET AND INFREQUENT ITEMS           

                                                        [Enlarge/Download Table]

-----------------------------------------------------------------------------------------------------------------------
                                                                                1997             1996          1995    
-----------------------------------------------------------------------------------------------------------------------
                                                                                   (in thousands)                      
                                                                                                                       
        Costs related to direct subscription campaign                       $   22,191          32,327            --   
        Costs incurred with respect to terminated employees                      3,052           9,240            --   
        Reorganization expenses                                                   --              --             8,000 
-----------------------------------------------------------------------------------------------------------------------

                                                                            $   25,243          41,567           8,000 
-----------------------------------------------------------------------------------------------------------------------

(17)    OTHER INCOME                                                            

                                                        [Enlarge/Download Table]

--------------------------------------------------------------------------------------------------------------
                                                                      1997              1996             1995 
--------------------------------------------------------------------------------------------------------------
                                                                                   (in thousands)             
                                                                                                              
Gain on sale of Fairfax investment (note 3)                       $   66,128           53,518             --  
Gain on sale of marketable securities                                   --               --             11,968
Gain on sales of assets (note 2(a))                                    2,768           17,899             --  

Other                                                                 (1,635)         (13,158)           2,730
--------------------------------------------------------------------------------------------------------------
                                                                  $   67,261           58,259           14,698
--------------------------------------------------------------------------------------------------------------

   The other in 1996 represents the write off of the carrying value of
fixed assets and certain investments at Southam.                

(18)    STOCK OPTION PLAN                                                       

     During May 1994, the Company adopted the Hollinger International Inc.
      1994 Stock Option Plan (the "1994 Plan"). The 1994 Plan was amended in
        September 1996 to increase the numbers of shares authorized for issuance
   up to 1,471,140 shares. In 1997, the Company adopted the 1997 Stock
       Incentive Plan (the "Incentive Plan") which replaces the 1994 Plan. The
  Plan is administered by a committee of the Board of Directors. The
     Committee has the authority to determine the employees to whom awards
    will be made, the amount and type of awards, and the other terms and
conditions of the awards.                                       

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HOLLINGER INTERNATIONAL INC, AND SUBSIDIARIES                                   

Notes to Consolidated Financial Statements, Continued                           

--------------------------------------------------------------------------------

   The Incentive Plan provides for awards of up to 5,156,915 shares of
Class A Common Stock. The Incentive Plan authorizes the grant of
    incentive stock options and nonqualified stock options. The exercise
  price for stock options must be at least equal to 100% of the fair
     market value of the Class A Common Stock on the date of grant of such
option.                                                         

     The Company applies APB Opinion No. 25 and related Interpretations in
    accounting for its plans. Accordingly, no compensation cost has been
       recognized for its fixed stock option plans. Had the Company determined
   compensation costs based on the fair value at the grant date of its
        stock options under FASB Statement of Financial Accounting Standards No.
        123 ("FAS 123"), the Company's net earnings and earnings per share would
   have been reduced to the pro forma amounts indicated below. The pro
      forma effect includes compensation expense related to stock options at
Southam.                                                        

                                                        [Enlarge/Download Table]

-----------------------------------------------------------------------------------------------------
                                                             1997             1996              1995 
-----------------------------------------------------------------------------------------------------
                                                            (in thousand except per share amounts)   

                                                                                                     
Net earnings as reported                                $   104,521           42,785            6,323
Pro forma net earnings                                      102,469           41,924            5,872

Basic earnings per share as reported                    $      0.93             0.41             0.09

Diluted earnings per share as reported                         0.87             0.39             0.09

Pro forma basic earnings per share                      $      0.90             0.39             0.08

Pro forma diluted earnings per share                           0.85             0.38             0.08
-----------------------------------------------------------------------------------------------------

      Pro forma net earnings reflects only options granted in 1997, 1996 and
     1995. Therefore, the full impact of calculating compensation cost for
 stock options under FAS 123 is not reflected in the pro forma net
       earnings amounts presented above because compensation cost is reflected
     over the options' vesting period of 4 years and the compensation cost
for options granted prior to January 1, 1995 is not considered. 

   Calculating the compensation cost consistent with FAS 123, the fair
 value of each stock option granted during 1997, 1996 and 1995 was
     estimated on the date of grant using the Black-Scholes option-pricing
        model with the following weighted-average assumptions used for grants in
      fiscal 1997, 1996 and 1995, respectively: dividend yield of 2.9%, 4.0%
 and 0.8%; expected volatility of 25.7%,47.5% and 47.4%; risk-free
       interest rates of 5.4%, 6.6% and 6.1%, and expected lives of ten years.
    Weighted average fair value of options granted by the Company during
 1997, 1996 and 1995 was $5.80, $4.11 and $7.64, respectively. For
    Southam, the fair value of each stock option granted during 1996 and
1995 was estimated on the date of grant using the Black-Scholes 
option-                                                         

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HOLLINGER INTERNATIONAL INC, AND SUBSIDIARIES                                   

Notes to Consolidated Financial Statements, Continued                           

--------------------------------------------------------------------------------

     pricing model with the following weighted-average assumptions used in
        grants in fiscal 1996 and 1995, respectively: dividend yield of 1.3% and
      1.1%; expected volatility of 30.4% and 30.4%; risk-free interest rates
       of 6.1% and 7.5%; and expected lives of six years. The weighted average
       fair value of options granted by Southam during 1996 and 1995 was $4.24
        and $4.29, respectively. The were no stock options granted by Southam in
1997.                                                           

        Stock option activity with respect of the Company's stock options was as
follows:                                                        

                                                        [Enlarge/Download Table]

-------------------------------------------------------------------------------------------------------------
                                                                        Number of        Weighted Average    
                                                                         Shares           Exercise Price     
-------------------------------------------------------------------------------------------------------------

                                                                                                             
        Options outstanding at December 31, 1994                          505,500             $    13.00     
        Options granted                                                   355,000                  12.40     
        Options canceled                                                  (29,000)                 13.00     
-------------------------------------------------------------------------------------------------------------
        Options outstanding at December 31, 1995                          831,500                  12.74     
        Options granted                                                   492,000                   9.93     
        Options canceled                                                  (42,000)                 13.00     
-------------------------------------------------------------------------------------------------------------
        Options outstanding at December 31, 1996                        1,281,500                  11.65     
        Options granted                                                   832,000                  10.06     
        Options canceled                                                  (14,000)                  9.71     
-------------------------------------------------------------------------------------------------------------
        Options outstanding at December 31, 1997                        2,099,500             $    11.01     
-------------------------------------------------------------------------------------------------------------
        Options exercisable at December 31, 1995                          119,125             $    13.00     
        Options exercisable at December 31, 1996                          306,000             $    12.82     
        Options exercisable at December 31, 1997                          601,875             $    12.22     
-------------------------------------------------------------------------------------------------------------

        Southam has a stock option plan under which options have been granted to
  executives and employees. At December 31, 1997, 10,000 options for
       shares had been granted and 5,000 shares were exercisable at that date.
      At December 31, 1996, options for 683,400 shares had been granted with
       185,700 options exercisable at that date. Southam's total common shares
outstanding at December 31, 1997 were 77,974,023.               

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HOLLINGER INTERNATIONAL INC, AND SUBSIDIARIES                                   

Notes to Consolidated Financial Statements, Continued                           

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(19)    COMMITMENTS AND CONTINGENCIES                                           

       (a) The Telegraph has guaranteed the joint venture partners' share of
             leasing obligations to third parties of the printing joint ventures
           which amounted to $22,959,000 ((pound)13,976,000) at December 31,
           1997. These obligations are also guaranteed jointly and severally
by each joint venture partner.                        

    (b) In connection with the Company's insurance program, letters of
   credit are required to support certain projected workers'
           compensation obligations. At December 31, 1997, letters of credit
in the amount of $2,441,0000 were outstanding.        

(20)    SEGMENT INFORMATION                                                     

        The Company operates principally in the business of publishing, printing
  and distribution of newspapers and magazines and holds investments
  principally in companies which operate in the same business as the
     Company. The following is a summary of the geographic segments of the
Company:                                                        

                                                        [Enlarge/Download Table]

-------------------------------------------------------------------------------------------------------------------
                                                                  Year ended December 31, 1997                     
                                            -----------------------------------------------------------------------
                                                                      United          United                       
                                                     Total             States         Kingdom        Canada        
-------------------------------------------------------------------------------------------------------------------
                                                                     (in thousands)                                
                                                                                                                   
Operating revenues                                 $2,211,530         633,633         492,270       1,085,627      
-------------------------------------------------------------------------------------------------------------------

Total operating costs and expenses                  1,923,808         551,962         463,428         908,418      
-------------------------------------------------------------------------------------------------------------------

Operating income                                   $  287,722          81,672          28,842         177,208      
-------------------------------------------------------------------------------------------------------------------

Equity in earnings of affiliates                   $    5,807           5,765            --                42      
-------------------------------------------------------------------------------------------------------------------

Identifiable assets                                $2,973,910         899,261         627,182       1,447,467      
Investments in affiliates                              50,011           2,027          17,367          30,617      
-------------------------------------------------------------------------------------------------------------------

Total assets                                       $3,023,921         901,288         644,549       1,478,084      
-------------------------------------------------------------------------------------------------------------------

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HOLLINGER INTERNATIONAL INC, AND SUBSIDIARIES                                   

Notes to Consolidated Financial Statements, Continued                           

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                                                        [Enlarge/Download Table]

                                                                  Year ended December 31, 1996                               
                                            ---------------------------------------------------------------------------------
                                                                      United          United                          Other  
                                                     Total             States         Kingdom        Canada         Countries
-----------------------------------------------------------------------------------------------------------------------------
                                                                     (in thousands)                                          

                                                                                                                             
Operating revenues                                 $2,074,022         607,372         451,902       1,014,748            --  
-----------------------------------------------------------------------------------------------------------------------------

Total operating costs and expenses                  1,926,055         549,862         443,930         932,263            --  
-----------------------------------------------------------------------------------------------------------------------------

Operating income                                   $  147,967          57,510           7,972          82,485            --  
-----------------------------------------------------------------------------------------------------------------------------

Equity in earnings of affiliates                   $   12,050             911            --                13          11,126
-----------------------------------------------------------------------------------------------------------------------------

Identifiable assets                                $3,227,048         818,163       1,071,846       1,337,039            --  
Investments in affiliates                             198,496           1,513         194,946           2,037            --  
-----------------------------------------------------------------------------------------------------------------------------

Total assets                                       $3,425,544         819,676       1,266,792       1,339,076            --  
-----------------------------------------------------------------------------------------------------------------------------

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HOLLINGER INTERNATIONAL INC, AND SUBSIDIARIES                                   

Notes to Consolidated Financial Statements, Continued                           

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                                                        [Enlarge/Download Table]

                                                                  Year ended December 31, 1995                                
                                            --------------------------------------------------------------------------------- 
                                                                      United          United                          Other   
                                                     Total             States         Kingdom        Canada         Countries 
----------------------------------------------------------------------------------------------------------------------------- 
                                                                     (in thousands)                                           

                                                                                                                              
Operating revenues                                 $1,078,514         559,214         405,037         114,263             --  
----------------------------------------------------------------------------------------------------------------------------- 

Total operating costs and expenses                  1,016,650         527,774         377,352         111,524             --  
----------------------------------------------------------------------------------------------------------------------------- 

Operating income                                   $   61,864          31,440          27,685           2,739             --  
----------------------------------------------------------------------------------------------------------------------------- 

Equity in earnings of affiliates                   $   14,356             716            --           (11,022)          24,662
----------------------------------------------------------------------------------------------------------------------------- 

Identifiable assets                                $1,274,171         745,051         361,527         167,593             --  
Investments in affiliates                             463,809           1,102         462,425             282             --  
----------------------------------------------------------------------------------------------------------------------------- 

Total assets                                       $1,737,980         746,153         823,952         167,875             --  
----------------------------------------------------------------------------------------------------------------------------- 

--------------------------------------------------------------------------------

      The "Other Countries" geographic segment includes equity earnings from
Australia.                                                      

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HOLLINGER INTERNATIONAL INC, AND SUBSIDIARIES                                   

Notes to Consolidated Financial Statements, Continued                           

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(21)   RELATED-PARTY TRANSACTIONS                                             

     During 1996, the Company paid Hollinger Inc. the remaining balance of
        the working capital adjustment of $13,832,000 due under the terms of the
Reorganization. Approximately $6,000,000 of the working capital 
     adjustment was paid in 1995. In 1996, the Company also paid Hollinger
Inc. $3,500,000 for expenses incurred in connection with the    
Reorganization.                                                 

Other than the amounts due to Hollinger Inc. with respect to the
      Reorganization, all other amounts due to Hollinger Inc. represent cash
       advances and management and administrative expenses billed by Hollinger
       Inc. and a corporate affiliate of Hollinger Inc. Hollinger Inc. and its
affiliate billed the Company for allocable expenses amounting to
$26,506,000, $8,485,000 and $5,605,000 for 1997, 1996 and 1995, 
respectively.                                                   

(22)    SUBSEQUENT EVENTS                                                       

     On January 27, 1998, the Company completed a sale of approximately 80
      community newspapers for aggregate cash consideration of approximately
   $310.0 million. The proceeds from the sale were used to pay off the
       AP-91 Notes and pay down $175.0 million of outstanding debt on the Bank
  Credit Facility. A pre-tax gain resulting from this transaction of
approximately $206.0 million will be accounted for in 1998.     

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HOLLINGER INTERNATIONAL INC, AND SUBSIDIARIES                                   

Notes to Consolidated Financial Statements, Continued                           

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(23)    SUMMARIZED FINANCIAL INFORMATION                                        

Summarized balance sheet and income statement data for Hollinger
International Publishing Inc. is as follows:                    

                                                        [Enlarge/Download Table]

-----------------------------------------------------------------------------------------------------
                                                             1997            1996             1995   
-----------------------------------------------------------------------------------------------------
                                                                        (in thousands)               
                                                                                                     
Balance Sheet Data:                                                                                  
        Current assets                                  $   344,365          261,193          197,567
        Total assets                                      2,454,324        2,143,519        1,443,651
        Current liabilities                                 282,386          665,221          263,929
        Total liabilities                                 1,615,954        1,145,514          813,299
        Minority interest                                    74,878             --             97,297
        Redeemable preferred stock                           75,891          526,412          226,982
        Stockholder's equity                                687,602          471,593          306,073

Income Statement Data:                                                                               
        Operating revenues                                1,349,766        1,059,274          964,251

        Operating income                                    142,386           76,715           59,125
        Net earnings                                        104,520           55,574           10,135
-----------------------------------------------------------------------------------------------------

F-52

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HOLLINGER INTERNATIONAL INC, AND SUBSIDIARIES                                   

Notes to Consolidated Financial Statements, Continued                           

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(24)    QUARTERLY FINANCIAL DATA (UNAUDITED)                                    

       Quarterly financial data for the years ended December 31, 1997 and 1996
are as follows:                                                 

                                                        [Enlarge/Download Table]

-------------------------------------------------------------------------------------------------------------
                                                                             1997                            
                                                 ------------------------------------------------------------
                                                  First          Second           Third          Fourth      
                                                 quarter        quarter         quarter         quarter      
-------------------------------------------------------------------------------------------------------------
                                                         (in thousands, except per share data)               
                                                                                                             
Total operating revenues                      $  514,243         562,021         523,658         611,608     

Total operating income                        $   55,128          86,460          45,692         100,442     

Net earnings                                      55,426          28,125           5,609          15,361     

Basic earnings per share                            0.57            0.26            0.00            0.09     
Diluted earnings per share                          0.47            0.24            0.00            0.09     
-------------------------------------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]

                                                                             1996                             
                                                 -------------------------------------------------------------
                                                  First          Second           Third          Fourth       
                                                 quarter        quarter         quarter         quarter       
--------------------------------------------------------------------------------------------------------------
                                                                      (in thousands, except per share data)   

                                                                                                              
        Operating revenues as reported        $   303,024           324,027          300,609           342,922
        Operating revenues for Southam            181,875           208,629          194,557           218,379
                                              -----------       -----------      -----------       -----------
        Total operating revenues              $   484,899           532,656          495,166           561,301

        Operating income                      $    14,565            35,327           21,999            13,725
        Operating income for Southam                5,045            19,402            9,002            28,902
                                              -----------       -----------      -----------       -----------
        Total operating income                $    19,610            54,729           31,001            42,627

        Net earnings (loss)                        (4,540)           10,864           (3,993)           40,454

        Basic earnings (loss) per share             (0.07)             0.15            (0.11)             0.40
        Diluted earnings (loss) per share           (0.07)             0.14            (0.11)             0.34
--------------------------------------------------------------------------------------------------------------

F-53

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘10-K’ Filing		Date		First		Last			Other Filings
		3/15/07		5		85
		2/1/06		5		84			3
		3/15/05		5		85
		3/15/04		51		85
		2/1/04		50
		12/31/02		87
		12/31/01		87					10-K,  4,  424B3
		6/1/01		6
		2/1/01		50		84
		9/1/00		50		87
		8/1/00		36		103
		6/30/00		51		85			10-Q
		6/26/00		53		99
		6/8/00		99
		1/1/00		53
		9/1/99		50
		4/1/99		79		102
		12/31/98		87					10-K405,  5
		11/1/98		79
		9/1/98		50		87
		3/30/98
Filed on:		3/27/98
		3/26/98		60		61
		3/16/98		1		31
		2/23/98		62
		1/27/98		12		112			8-K
		1/1/98		19
For Period End:		12/31/97		1		114
		12/27/97		10
		12/23/97		53		99
		11/26/97		59					8-K
		9/3/97		100
		7/18/97		53		99
		7/17/97		57
		7/7/97		78
		6/30/97		101					10-Q
		6/23/97		52		86
		5/12/97		51		86
		5/5/97		56					8-K
		4/18/97		35		69
		4/7/97		51		85
		3/31/97		52					10-K,  10-Q
		3/28/97		58					DEF 14A
		3/27/97		4		77
		3/18/97		5		85			8-K
		3/12/97		5		85			S-3MEF
		3/4/97		5		85
		2/19/97		51
		2/7/97		83					SC 13G/A
		1/10/97		4		77
		1/7/97		4		69			8-K
		1/1/97		35		69
		12/31/96		13		114			10-K,  DEF 14A
		12/20/96		36
		12/16/96		4		77
		12/11/96		36		78			8-K/A
		11/26/96		21
		10/8/96		19
		9/30/96		52		101			10-Q,  10-Q/A
		9/6/96		102
		8/8/96		4
		8/7/96		56		58			8-K
		8/1/96		50		58			S-3MEF
		7/31/96		21		74			S-3/A
		6/30/96		78					10-Q
		6/14/96		29		30			S-3
		6/10/96		19
		6/3/96		19
		5/24/96		36		78
		4/30/96		37		74
		2/20/96		5
		2/7/96		5		57
		2/1/96		51
		1/16/96		31
		1/15/96		31
		12/31/95		13		111			10-K/A
		12/29/95		52		81
		12/15/95		4
		12/12/95		6
		11/20/95		18
		10/25/95		29		30
		10/16/95		37
		10/13/95		4		101
		10/3/95		37
		9/28/95		37
		9/20/95		37
		7/19/95		58
		7/18/95		58
		7/3/95		18
		6/30/95		78
		1/1/95		34		107
		12/31/94		34		66
		5/4/94		31
		3/31/94		34
		5/19/92		100
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