Loan No. 2: Purchase machinery and equipment. Collateral now held-[000 omitted]: 1, 671, 000 40, 776 $594 Total. Machinery and equipment: Cost__ Net book value_ Appraised value_ Loan value___. 348 1478 1167 1 For details see attached memorandum of RFC Engineer M. M. Repass, covering his inspection of Feb. 2 and 3, 1947. (Agency gives appraised value as $528,000 and loan value of $141,000.) Guaranty: Personal guaranty of R. J. Blauner, vice president and general manager, and wife. Guaranty is secured by a mortage on the bank and building occupied by the borrower, subject to a first mortgage in the amount of $42,734.70 held by Neimeyer Estate. Land and buildings, as indicated in Mr. Repass' report, are appraised at $247,500 and in his opinion have a loan value of $119,586, or $76,852 in excess of the outstanding first mortgage. Collateral offered for new loan ($548,219.50).-In addition to the above collateral borrower also proposes: 1. To assign current accounts receivable, in the amount of $250,000, of which around $149,800 are to be repurchased from Heller & Co., assignment to be on basis of 80-percent loan value. 2. Pledge of inventory (acceptable carbon paper and paper) with value of $177,000, advances to be made at 65 percent of its value. To recapitulate collateral on above basis: Collateral offered for alternative loan of $125,000.-Upon payment of $42,000 to retire balance owing on first mortgage on land and buildings, R. J. Blauner and his wife have agreed to accept common stock of the borrower in exchange for the property. Borrower then proposes to execute a first lien to the RFC. No mention is made of the fact that the RFC already, through the secured guaranty of the Blauners, has a lien on these properties subject to the existing first mortgage. Financial statement as of October 31, 1948 (cents omitted).— 1 Includes commissions paid to sales agents controlled by R. A. Blauner (son). He re Management.-R. J. Blauner is vice president and general manager. sides in Chicago and is said to be absent from the home office about 80 percent of the time. He does spend considerable time on the road in the interest of sales, is capable in the matter of production and sales, but apparently has poorly handled financial matters, control of costs, and expenses. Mr. Blauner is also an officer of American Carbon Co. which supplies borrowers with carbon paper. In addition to his salary of $12,000 from borrower, he, in 1947, drew a salary of $30,600 from American Carbon. He is also interested in a copartnership known as Machinery Development Co., to which the borrower paid $41,700 in 1947 for equipment, rental, and engineering services. A. M. Bridell, son-in-law of R. J. Blauner, handles Chicago sales. His commission through October 1948 amounted to $36,943.14. R. A. Blauner, son of R. J. Blauner, formerly handled sales in the East. In 1947 he drew from the borrower salary and commission totaling $18,907. Commissions of $38,082 were paid by borrower to Atlantic Coast Sales, a proprietorship wholly owned by R. A. Blauner. Also commissions of $13,555 were paid by borrower to Systems Engineering Co. and B-K Supply Co., controlled by R. A. Blauner. At request of his father, R. A. Blauner resigned in October 1948, but it is not clear to what extent his sales organizations will continue to serve the company. As evidence of lax financial control agency points out that the average of selling expenses, general and administrative expenses, and officers' salaries for the past 6 years equaled 22.9 percent of sales, as compared to average of 15.5 percent experienced by eight similar companies for the same period. Comments of Washington Examiner.-The financial statement of borrower clearly shows the need of additional working capital and the desirability of paying off the Heller inventory and receivables loans. Company is paying approximately 14 percent for money from the factors, which, if borrowed from the RFC, would result in a savings of 10 percent. On the $225,000 now borrowed from Heller this would result in a savings of $22,500 per annum. The financial statement also indicates a heavy inventory, particularly in items purchased from companies in which officers of borrower have an interest. Reference has already been made to apparently excessive selling expenses, general and administrative expenses, and officers' salaries. With better control of these items, or at least some reinvestment in the company by interested parties of the amounts withdrawn by them, company would probably find itself in much better shape today. Original loan of $1,671,000 approved by SWPC in July 1944, was primarily for purpose of paying out the Commercial Investment Trust and supplying additional working capital. While this loan has been paid down to around $140,500, company is again in a position where it is requesting funds to pay off a factor and to supply additional working capital. As for the larger loan applied for, earnings for the past 3 years do not give assurance of retirement of loan within a reasonable period of time. Borrower, however, points out the savings to be effected by payment of borrowings from factor and also states that other savings are assured. With these savings and anticipated volume somewhat in excess of $3,000,000 borrower has submitted a projection for the next 12 months, indicating a net profit of $55,643. Even on this basis the loan would not be paid off in a period much under 10 years, which, in this Examiner's opinion is too extended a time, especially considering that a large percentage of the loan is to be secured by assignment of accounts receivable and pledged inventory. As for the alternative additional loan of $125,000 for which borrower has requested consideration, this would appear not warranted, as no security is being offered other than that which we now have indirectly for the existing loans under the secured guaranty of the Blauners, and the loan value of existing collateral would be insufficient to support this loan together with outstanding loans. The favorable factors of the situation are: 1. Borrower is maintaining a substantial volume of business. production. satisfactory from standpoint of 3. Security, with assignment of accounts receivable and pledged inventories, on loan values established by RFC Engineer Repass, would appear sufficient to support loan in larger amount requested. 4. Expenses of borrower would be substantially reduced through savings in interest charges. The unfavorable factors, which in examiner's opinion, outweigh the favorable, are: 1. Unsatisfactory ratio of debt to net worth. 2. Unsatisfactory earnings. 3. Excessive sales commissions. 4. Continuous drawing off of profits through large payments to controlled companies and partnerships. 5. Lack of satisfactory cost records and inability to determine such, as indicated by the 1947 audit. 6. Need for injection of additional equity capital. Comments of Small Business Division.-Attached is copy of memorandum of the Small Business Division, in which is suggested consideration of loan in the amount of $500,000, or alternative of $80,000. Recommendation of Washington Examiner-Declines refunding and additional loan of $548,219.50 and alternative additional loan of $125,000. Review committee concurs with Washington examiner: G. W. BRODIE, Examiner. G. P. LUCE. EXHIBIT No. 5 REPORT OF WASHINGTON EXAMINER ON AGENCY-DECLINED LOAN American Lithofold Corp., St. Louis, Mo. Established.-June 15, 1936. Business.-Printing and sale of continuous business forms, tabulating forms, fanfold and snap-out forms. Selling to some 2,000 customers east of the Rockies, and to a number of Federal Government offices. Employment.-378. Loan applied for.-$548,219.50. Maturity requested.-December 1, 1956. Participation.--None. Previous action.-None by RFC. Following is status covering outstanding SWPC loans, transferred to RFC pursuant to Executive Order 9665. Purpose of new loan Refund existing RFC (SWPC) loans. Pay W. E. Heller & Co. (Inventory loan). Repurchase accounts receivable from W. E. Heller & Co.... Total____ Collateral (000 omitted).— $371,000 40,000 400, 000 860,000 1, 671,000 40, 776 158,219.50 101, 747. 40 149, 768.66 138,483.94 $548,219.50 Additional collateral.-Personal guaranty of R. J. Blauner, vice president and general manager, and wife; outside net worth $100,000, secured by a mortgage on the land and building occupied by the applicant; appraised by agency examiner at $247,500 (raised from $174,240, assigned by Agency Examiners Sandfort and Cutts in September 1946), subject to a prior lien of $42,734.70, held by Neimeyer estate. (Subsequently received appraisal of Lowell-Thomas Co., showing net sound value $293,972. Agency assigns a loan value of $119,586.63.) Financial statement as of October 31, 1948 (cents omitted).— 1 Consists of paper and carbon paper. Inventory has not been checked with reference to cost and usefulness. Adequate stock records not maintained. Includes commissions paid to sales agents controlled by R. A. Blauner (son). Comments. The primary need of the applicant is funds for working capital, and for approximately $225,000 with which to pay Heller & Co. loans made on security of receivables and inventory at interest rate of 12 percent with probably additional service charges which is now costing the company some $15,000 per annum more than a 4 percent loan would cost. The loan applied for-$548.219.50-for the purpose of- Repaying loans from Heller & Co. (factoring). Total___ $158, 219, 50 251, 516. 06 138,483.94 548, 219. 50 |