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44 HARVARD BUSINESS REPORTS
secure an independent evaluation of the management. The recent success of the Fox Film Corporation and of Warner Bros. Pictures, Inc., in the production of sound pictures, was indicative of the rapid development of this field, in which the KeithAlbee-Orpheum Corporation was favored by its connection with the Radio Corporation of America, one of the largest interests in the field.
The Keith Memorial Theater, being newly furnished and well located, was considered by the bankers to be in an excellent competitive position in relation to the other motion picture theaters of the city.
The mortgage indenture provided for a sinking fund, commencing in 1930, sufficient to retire each year the following amounts of bonds:
1930 and 193 1 $60,000 each year
1932 to 1934 inclusive 70,000 " "
1935 to 1939 " 80,000 "
1940 to 1942 " 90,000 " "
Cash deposited in the sinking fund was to be used for the purchase of bonds in the open market below the current redemption price, or, if not so obtainable, through call by lot at the current redemption price on or before August i of each year. The operation of the sinking fund would retire 66%% of the issue at or before maturity. The new issue was offered to the public in November, 1928, at 100 and interest with delivery in the form of temporary bonds. The bonds were redeemable as a whole or in part on any interest date, upon 60 days' notice, at 105 and interest on or before November, 1933; the premium thereafter decreased by H of 1% for each additional year to maturity.
Commentary: In the face of the successful flotation of the bond issue referred to in this case, it is perhaps questionable to raise any doubt as to the wisdom of the venture.
On the surface, every argument would suggest success. The proposed theater occupied an excellent location. The plan called for the erection of a beautiful building. The goodwill attached to the company in the past should prove an asset. From the point of view of the local bank, the endorsement of the Greater New York Vaudeville Theaters Corporation was an element of strength. The appeal to local pride in the selling of the bonds perhaps had some value.
On the other hand, a theater is a building which can be used for entertainment purposes only. Moreover, the motion picture and