The Film Daily (1938)

Friday, July 29, 193! RKO Plan Constitutional Issue Lacks in Merit—Alger I Am Satisfied that Amended Plan is Feasible" — Alger the {Continued from Page 1) not sign the order should the phrasing in question be altered. Alger's present report, filed yesterday, supplementing that submitted by him as of Nov. 17, last, brought from the Special Master the explanation that it now appears that while RKO's earnings for 1937 are somewhat less than in 1936, and far higher than in 1935, nevertheless the earnings available for the debenture interest contemplated by the prior plan and for preferred dividends on stock into which the unsecured debt of the company was to have been transformed, have proved inadequate. This, it was said, was principally through a disappointing return in the operations of one of its operating companies, RKO Radio Pictures, Inc. Alger noted that during 1937 the subsidiaries have continued to substantially cut their funded debt. Under the plan the reorganized corporation will have total assets of $72,279,075.15 and a net equity of $23,212,793.09, or $9.81 for each of 2,365,518 shares of new common stock to be issued to debenture holders, unsecured creditors and stockholders. Earnings Below Anticipation Instead of the anticipated available earnings in 1937 from this company of $1,745,687.20, Alger points out, — a figure based upon a projection of actual results for the first three quarters, — the earnings for this period as finally ascertained are $1,207,846 in contrast to $2,052,148 corresponding earnings for 1936. To show the available income v to the debtor corporation, and as a barometer registering certain premises which figured largely in his recommendations, the Special Master tabulated comparative figures for 1936 and against 1937. During the former year, available to the debtor corporation, and from which alone it could meet its obligations on the proposed debentures and preferred stock of the prior plan, were $12,998 from Pathe News; $1,880,591 from RKO Radio Pictures; $6,323 from Union Hill Corp.; nothing from Stadium Theaters-RKO Orpheum; and, of the total income of $1,237,141 of Keith-Albee-Orpheum, $152,327 was available to RKO, making a 1936 total of $2,052,148. Orpheum Admission Boosts Get Results Special Master Ceorge W. Alger, while gathering data at the recent hearings held before him on the RKO reorganization plan's fairness and feasibility, was struck with the fact that boosting of admish prices by the Orpheum Circuit grabbed $2,369,965.96, which, but for such increase, would have been but $189,032.64 in the operation of other RKO subsidiaries. "It is too early," Alger remarks, "to calculate the exact effect of this new circuit on the operating income of the parent company." Lony Time In Court While observers agree that the end of the protracted RKO reorganization hearings are "in sight," industry statisticians are pointing to the fact that the proceedings are now nearly 50 months old, having commenced on June 13, 1934. The reorganization plan was submitted on Nov. 20, 1936, from which sprang the present amended plan. As against this, the Special Master tabulated for 1937 the following sums,— $76,309 from Pathe News; $787,739 from RKO Radio Pictures; $11,471 from Union Hill Corp.; $70,043 from Stadium Theaters-RKO Orpheum, and $152,327, the same as in 1936, from K-A-O, the total coming to $1,097,889, or $954,259 less than in 1936. Prior plan, according to the Special Master, would have required $1,314,780.10 to cover new debentures, fixed charges, sinking fund, and preferred stock dividends when applied to operations for the year 1936. On the same basis for 1937, the plan would have required $1,119,354.20, and the $1,097,889 available from earnings of 1937 would have been, from the inception of the plan, inadequate to meet its requirements. Cites Safety Precaution Alger called attention to the fact that he had recommended as an additional precaution for safety the omission for three years of the sinking fund provision from the prior plan which amounted to 10 per cent of the available income after deductions of the requirements for new debentures. With its sinking fund requirements eliminated, there would, he states, nevertheless have been a shortage for meeting the requirements of the then proposed debentures and preferred stock, of $81,628 for 1937. Moreover, current earnings for 1938 now show not an increase but a decrease in such current available earnings. Alger called attention to his prior report which commented upon the "extraordinary oscillation" of the earnings of the debtor from the loss of nearly $5,000,000 in 1932, to a profit of nearly $3,000,000 in 1936, and of nearly $2,300,000 in 1937. The Plan as Amended He sets forth the following as the contemplated steps of the plan as now amended: (1) OLD DEBENTURES: As to these, there are now outstanding $12,718,500 of principal old debentures. Accrued thereon is approximately $4,200,000 interest. These are to be satisfied by the issuance to their holders, for each $100 of principal amount thereof, upon surrender of the debentures with all unpaid interest coupons attached, one share of new preferred stock and five shares of (2) ROCKEFELLER CENTER: To it, there is to be issued 500,000 shares of common. Rockefeller Center is now considered as an unsecured debtor to the amount of $5,000,000, and Holders of Old Common Stock to Get One-Sixth Share of New the stock to be issued to it is intended to be in satisfaction thereof. (3) UNSECURED CLAIMS: There remains an amount of $8,000,000 of unsecured allowed claims. For these, including all principal thereof and all interest thereon, there will be issued ten shares of new common stock for each $100 "of so much of the amount of said claims as does not include interest accruing after Jan. 27, 1933." (4) CONTINGENT AND INDETERMINATE CLAIMS: Holders will receive 10 shares of common stock for each $100 subject to deduction for collateral realizations. (5) HOLDERS OF OLD COMMON STOCK: These are to receive for each share of such stock, on surrender of certificate therefor, one-sixth of a share of the new common, and an option warrant entitling the holder to purchase at his selection for a period of ten years from its issuance, one share of new common at $15 a share, or for a period of five years after its issuance, one-half share of new common at $10 a share. Says Squawks Without Merit Objections to the amended plan on alleged constitutional grounds, Alger says, are without merit in his opinion. Such objections have been lodged by three different channels, two of whom are Copia Realty Corp. and Fabian Operating Corp. of New York. The other objector claims to represent directly or indirectly some $175,000 of the $12,718,500 secured debentures, as bases contention on the Fifth Amendment of the Constitution. "I am satisfied," reports Alger, "that the amended plan is feasible," — a conclusion, he declares, personally reached after examination of attending testimony. He states that he conferred with the Trustee on the question of whether sufficient cash will be available under the amended plan to conduct operations satisfactorily, and that he is advised that the parent company now has approximately $400,000, and it is conservatively estimated that there may be expected an additional $200,000 before the end of the year from the operation of the theater companies, making a total of $600,000. The amended plan contemplates procuring $1,500,000 to be acquired from the sale of stock, which, added to the foregoing, would make the sum total of cash then in the hands of the parent company some $2,100,000. From this would have to be paid the balance nowi remaining on the unsecured -note.' of $100,000, and the incide|, ) expenses of reorganization. "Substantially Fair" — Alger With respect to determination ol fairness, Alger points out thai mathematical precision is obvious ly impossible, and that the questior ] should be determined by a considera tion of all aspects of the operating company, and he characterizes the allocation of stock to secured anc unsecured creditors and stockholders as "substantially fair." The new preferred stock, Algei points out, is convertible into common on the basis of eight shares of new common for one share of the new preferred. This conversion wil doubtless not occur in fact unti earnings for the common shares wil have made such a course desirable From a purely asset standpoint, he] adds, if such conversion be assumec | to have occurred now, "we woulc have, translating these pref errec I shares into common, 3,382,998 which would be allocated as follows: Se-J cured creditors, 1,653,405 shares;! Unsecured creditors, 1,300,00c, shares, Old common stock, 429,593.' | On this basis, he states, secured creditors would receive 48.87 per cent of the equity; unsecured creditors, 38.43 per cent; and common stockholders, 12.7 per cent; and common stockholders would receive in addition subscription warrants of an indeterminate value. It is also to be noted, adds Alger, that, disregarding interest as to both classes of creditors, the respective amounts due to the secured and unsecured creditors are approximately equal,— $12,718,500 for the secured, and $13,000,000 for the unsecured but "the two classes of creditors obviously should not be treated alike since the secured creditors are being asked to relinquish a creditor position to which they are entitled and a priority as to both principal and interest over the unsecured creditors. For these two classes of creditors of substantially the same amount the difference between them in percentage of equity indicated above, having regard to the respective priorities, would not seem unreasonable." A Three-Way Deal RKO will receive an annual fixed fee of $25,000 for "consultant and advisory services" rendered in connection with the operation of the Radio City Music Hall and the Center Theater. If a picture policy or a combination picture and stage show policy shall be put into, effect at the Center, RKO is to receive additional compensation if annual earnings of that exceed $60,000 and the Music Hall's revenue is coincidentally satisfactory.