would not be adequately secured, and the proceeds are to be used in too great a proportion for refunding existing debts. Consideration has been given to the feasibility of a loan for the purpose of— but this would leave the applicant with the necessity of factoring its accounts receivable and inventory at an excessive cost which would be financed by our 4 percent money. The agency also declined to favorably consider this, in which the undersigned concurs. The building now occupied by the plant belongs to Mr. and Mrs. Blauner, vice president and general manager) and was appraised by agency examiners in 1946 at $174,240 but is revised upward at this time. The agency assigns a loan value of $119,587, but is subject to a first mortgage of $42,734.40 (reduced from $60,000) held by the Niemeyer estate. The applicant pays $16,000 per annum as rental. Mr. Blauner proposes to transfer this property to the applicant-subject to the existing first mortgage-in exchange for its capital stock, so as to make it available as collateral for a loan in an amount including enough to pay off the first mortgage. He further proposes to seek a long-term loan from an insurance company on the building in an amount sufficient to repay approximately $100,000 by which amount the new loan would be increased, if made, and use any excess as working capital. This would take time and, of course, there is no assurance it would be accomplished. From an earnings standpoint the applicant's principal difficulty is its cost of sales. Commissions paid to members of the family and to sales organizations owned or controlled by them represents substantial amounts. In some instances flat prices were made by the company to furnish product, to which price the sales representatives were permitted to add any amount the traffic would stand as his commission. Such practices are not helpful to sales volume in peacetime. A. M. Bridell, son-in-law of R. J. Blauner (vice president and general manager), handling Chicago sales, was paid $36,943.14 in commissions through October 1948. R. A. Blauner, son of R. J. Blauner and son-in-law of William F. Leschen, president and chairman of the board, but not active in management, in the year 1947 drew salary and commission totaling $18,906.88, while Atlantic Sales Co., wholly owned by him, drew $38,082.08, and System Engineering Co. and B-K Supply Co., controlled by him were paid $13,555.12 in that year. He is also an officer in American Carbon Paper Co., which sells carbon to the applicant, his income from this source is not stated. At the 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. Mr. Toole says all connection is severed. R. J. Blauner (vice president and general manager), whose salary from the applicant is now shown as $12,000 per annum, drew a total of $42,600 salaries from the applicant and American Carbon Co., in 1947. He is also interested in a copartnership known as Machinery Development Co. to which the applicant paid $41,700 in 1947 for equipment rental and engineering services. It appears that even if the salaries and commissions received by these three stockholders were reasonable, they might have purchased more stock or loaned the company money with which to meet working capital requirements, which would be the net benefit to the applicant if any further loan were made. The average cost of sales, general and administrative expenses and officers' salaries over the 6-year period under review equaled 22.9 percent of sales as compared with 15.5 percent average experienced by eight similar companies. R. J. Blauner is said to be absent from the home office about 80 percent of the time. He resides in Chicago, and spends considerable time on the road in the interest of sales. It is quite evident that he is capable in the matter of production and sales, but the manner in which financial matters, expenses, etc., are handled appears to leave much to be desired. Strenuous efforts are reported to have been made to interest St. Louis banks in some of the needed financing. But they will not as much as consider filrancing inventory and receivables. After conferences in the Washington office with Mr. R. J. Blauner and Mr. J. E. Toole they returned to St. Louis to make further efforts toward bank financing and further talks with the agency manager. No progress was made and the agency continues its unfavorable attitude toward any loan. During 1943-45 surplus was increased by $82,000 out of earnings. In 1946 and 1947, and to date in 1948 reduced volume and increased costs has resulted in losses even after a tax refund of $81,000 in 1947. Conversion from large sales to the Government to building volume in commercial accounts reduced volume in 1946. Removal of the New Jersey plant to St. Louis and training of new men to operate it is said to have cost the company $129,000 in 1947. Large amounts have been paid as commissions to officers and to sales organizations owned by them. Rental and fees in considerable amounts have been paid copartnerships in which officers have a substantial interest. Carbon paper is purchased from a concern owned to a great extent by stockholders. The proposed loan, if made, would relieve the applicant of approximately $15,000 per annum factoring expense, but there are many factors which preclude favorable consideration, among which are: 1. The company exists principally on borrowed money; 2. Earning record is not indicative of ability to repay the loan from that source; 3. Failure on the part of other interests to contribute to the applicant's needs; 4. There is a definite need for additional risk capital; 5. Proceeds of the loan to be used largely for payment of existing debts. Agency recommends:-Decline. Washington Examiner Wm J. Rochelle recommends :-Decline. R. G. Dickinson recommends:-Decline. G. P. LUCE. FRANK T. RONAN. EXHIBIT No. 8 JANUARY 26, 1949. Memorandum to the Board. Re: American Lithofold Corp., St. Louis, Mo. Pursuant to your request, I have reviewed the loan application of the American Lithofold Corp., St. Louis, Mo. Mr. Toole, an employee of the company, has discussed the application with me several times, and this morning Mr. R. J. Blauner, vice president and general manager, was in for a discussion of the company's affairs with me. It seems to me this company occupies a position of considerable importance in its community, since Mr. Blauner advises me that the company employs between three and four hundred people. Also, because of the fact that most of the company's stock is owned by employees of the company I have two suggestions under which I believe loans might be considered for this company, which are as follows: First, a loan be considered in the amount of $500,000 for the purpose of refunding the two existing loans held by this corporation aggregating approximately $159,000; refunding inventory and receivables, loans now held by factors in Chicago aggregating approximately $235,000. It would leave approximately $106,000 for working capital which is badly needed, and is the primary purpose for the submission of the application. This is $48,000 less than the applicant requested but for which, I believe, reasonable collateral could be secured, as follows: First mortgage on machinery and equipment appraised at $529,000 to which agency gives a loan value of $141,000. (I seriously question the loan value fixed by the agency. It seems to me it is cut too low.) Inventory on a three-to-two basis for $150,000 and receivables on an 80-percent basis for $150,000. Second mortgage on real estate owned by Mr. and Mrs. Blauner appraised by agency at $247,500, subject to a first mortgage of $42,734.70, and to which agency assigns a loan value of approximately $120,000, or about one-half of the appraised value. (This seems to be a little conservative.) To recapitulate collateral: Machinery and equipment- Receivables____ Equity in real estate____. Total_____ $141, 000 150, 000 150,000 78,000 519,000 The above collateral picture could be strengthened some by requiring additional receivables or inventory, if considered necessary. Personally, I rather doubt it in view of the conservative loan or liquidating value given machinery and equipment and real estate by the agency. On the foregoing basis, it would appear to be all right from a collateral standpoint leaving the question of earnings as the debatable feature. After my discussion with Mr. Blauner, I am convinced that earnings should be better in the future since there are several substantial nonrecurring items of expense, one or two of which in themselves would provide enough earnings to service the loan. To illustrate, the company is paying approximately 14 percent at the present time for money from the factorswould be a saving of 10 percent on an average of about $300,000 or about $30,000 per year. Mr. Blauner pointed out to me several other substantial savings which have been effected, and which he promised to itemize in a letter he is preparing for me. There seems to be little doubt as to the company's ability to get satisfactory volume of business. As an alternative proposal, I think you might consider an additional loan of $80,000 for working capital, taking as collateral a second mortgage on the fixed assets now held and a second mortgage on the real estate mentioned above. Mr. Blauner seems to be of the opinion that he could get along with that much additional working capital if he is compelled to. Of the two proposals, I would very much prefer the first as it is a cleaner loan from the standpoint of both RFC and the borrower. We could control the situation entirely, and greater savings would be effected in the operations of the company. Also, I think our collateral position would be better. C. Y. DODDS. |