REVENUES CONSIDERABLE, SO ARE LOSSES

WEST FRANKFORT, Ill. -- American Publishing Company generated $185 million in revenues during 1993.

But despite impressive revenues, the company has reported net losses each year since its entry into the newspaper business in 1986.

Net losses were $1.48 million in 1993, $7.47 million in 1992, and $13.68 million in 1991, according to the company's prospectus prepared for its first recent public stock offering.

The company is the U.S. subsidiary of Canadian media mogul Conrad Black. The parent company, Hollinger, owns papers and magazines in the United Kingdom, Canada, Australia, Israel, and the United States.

"American Publishing is a Conrad Black company, essentially," said John Morton, who publishes a national newspaper stock newsletter based in Washington, D.C.

"They specialized, until recently, in buying small-town newspapers. More recently, they bought the Chicago Sun-Times, which is quite a departure for them," said Morton.

Since 1986, the West Frankfort-based company has purchased 340 small-town daily and weekly newspapers. On March 31, American purchased the Sun-Times for $180 million.

"American Publishing's story is not unusual," said Morton.

"Several other companies grew the same way, such as Park Communications and Thomson in this country. Their strategy is to buy small-town newspapers and cut expenses to the bone and use the cash flow to buy more," he said.

Average operating profit margins of American newspapers increase significantly one year after the purchase date. According to the prospectus, profit margins in 1993 ranged from 12 to 30 percent.

Gary Farbar, with the Paul Kagan Newspaper Investor newsletter in Los Angeles, called American Publishing "turn-around specialists." He likened them to a mini "merger and acquisition vehicle."

He said American's turnaround strategy "focuses on labor-cost containment -- employee costs as a percentage of annual newspaper revenues are targeted not to exceed 30 percent."

American Publishing offered its first public stock offering on May 5. The company had hoped to raise about $104 million from the sale, based on $15 per share.

But the stock sold at $13 a share, and netted only $87 million. The sale, which closed May 11, was underwritten by Smith Barney Shearson, A.G. Edwards & Sons, and Merrill Lynch.

Net proceeds were divided in this way, according to the prospectus: $50 million to a short-term bank loan and $37 million of intercompany indebtedness to Hollinger. After the stock offering, Hollinger continues to own all outstanding shares of the company's B common stock, which represents 95 percent of combined voting power of both A and B stock.

Jeff Reed, with A.G. Edwards corporate offices in St. Louis, said the market determines the price of a new stock. "The market for new issues is very soft right now," he said.

In all, 7.3 million shares were sold. But Reed said the underwriters have 30 days to exercise a 15 percent stock overallotment.

Reed said, "It's just like the airlines overbooking flights because they think some people may not show up." He said brokers typically oversell a stock in case some orders do not materialize.

He could not talk specifically about the stock sale, noting the Securities Exchange Commission mandates a 30-day quiet period since the offering is "still in stabilization."

But Morton suspects the lower stock price is due in part to the Sun-Times acquisition, which also delayed the public offering.

While ownership of the Sun-Times will certainly make American Publishing a more recognizable company, Morton questions whether "institutional investors will be notably impressed given the rather bleak financial history of second newspapers."

Morton said, "The Sun-Times is a second newspaper, and the history of second newspapers is not particularly good. It is in a very difficult struggle against its competitor, the Chicago Tribune."

The Sun-Times and its subsidiaries also posted net losses in each of the last eight quarters.