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Mr. KLEIN. I believe those figures are correct.
Mr. HARKINS. Mr. Chairman, I offer this letter for the record.
The CHAIRMAN. It will be accepted for the record.
(The document referred to appears on p. 99.)

Mr. Fogt. Mr. Klein, in 1961, when I believe you came into the company, was your intention or the company's intention to diversify as a means of stabilizing the earnings of the company or just what was your intial intention regarding diversification?

Mr. KLEIN. The initial intention was to survive, survive by any legal, legitimate, economic means. We were drowning at that point, and it was a day-to-day fight for survival.

We wanted to make sure we met the payroll and kept the business going

Mr. Fogt. Your solution for survival was to make acquisitions ? Mr. KLEIN. That was one of the solutions, yes, sir.

Mr. Fogt. Now that you have clearly survived, do you anticipate an increased level of merger activity? Do you anticipate large major acquisitions, like Great American?

Mr. Klein. That is really a very difficult question to answer. I don't know the answer to that. I would say that clearly we are not looking for any acquisitions. That is not to say that if we were presented with an acquisition by a responsible broker or investment banker, or whomever, that looked to us to be an exciting and challenging and profitable growth area that would fit within our concept, that we would not be interested.

We are not, per se, looking for acquisitions. But then that doesn't preclude, again, as I say, if someone brought to our attention a deal Îike Grosset & Dunlap-that was done in 1968—we would be delighted to investigate it.

If it had the same kind of potential that we saw in Grosset & Dunlap and if it fit, I would say we would be vitally interested in doing that.

But, again, let me state we do not have an acquisitions department. We don't have it. However, I am sure you are aware that there are many, many business brokers in the United States.

I think across my desk must come 20 or 30 proposed acquisitions a month, better than one a day or about one a day, that you look at and examine and discard, for the most part.

As I said, in all the times of my association in active management we have made four major acquisitions. Again, I paraphrase that by saying a major acquisition is one costing more than $10 million. They will be brought to our attention, we will sift them, we will look, but we do not have a policy of acquisitions. We are not looking for acquisitions. Our primary motivation, our primary purpose, our primary objective is to consolidate the subsidiaries that we have and get them operating efficiently, getting to market our merchandise at the lowest possible cost to the consumer, and being ahead of our competition.

We are in a very competitive business in every area and we have to keep that competitive edge honed or we are going to lose whatever position we have obtained.

Mr. Fogt. One of the provisions of the Tax Reform Act of 1969 dealt with corporate acquisitions. In the past, National General has,

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on occasion, used convertible subordinate debentures to make acquisitions.

What effect do you think that provision of the Tax Reform Act will have on Nationaľ General's ability or desire to make future big acquisitions ?

Mr. KLEIN. That is hard to say. I am really not that familiar with the act and all its implications. I really should have a memorandum prepared to boil it down so that we understand what the ramifications

Are you speaking specifically of the interest effect on debentures? Mr. Fogt. Yes.

Mr. Klein. If, indeed, interest on debentures used for an acquisition are not a deductible item, I think that effectively eliminates the use of the debenture.

Mr. Fogt. You do?

Mr. KLEIN. Yes, I think the economic disadvantages would be greater than the prior economic advantages.

Mr. Fogt. You would then change convertibles for preferred stock? Mr. KLEIN. Or whatever.

Mr. Fogt. It would not, in your judgment, diminish merger activity or prevent mergers from being made!

Mr. Klein. In my opinion, sir, it would not. I believe if a merger is contemplated or a merger is going to be made, and it is the desire of the party to merge or to acquire a company, they will find a way through cash or through common stock, preferred stock, warrants, or whatever is a recognized, legitimate piece of paper.

Mr. Fogt. Thank you.
The CHAIRMAN. Mr. Counsel.

Mr. HARKINS. Mr. Chairman. Mr. Klein, your company has been furnished four tables. Table I is Selected Financial Statistics. Table II is National General Capitalization Ratios. Table III is National General Financial Stability Ratios. Table IV is National General Quarterly Common Stock Prices for January 1964 Through June 1969.

Are those tables accurate?

Mr. KLEIN. I have not gone over the percentage calculations, but assuming the mathematics are accurate, I assume the tables are accurate.

Mr. HARKINS. Mr. Chairman, I will offer for the record those tables at this point.

I will point out that on table III, Financial Stability Ratios, National General had an interest coverage of 2.77 in 1960 and 2.34 in 1968, whereas, by way of comparison with the information we have compiled on the companies that are included in the Dow Jones Industrial Average the mean interest coverage is 17, for those companies.

In regard to your stock prices, in 1964, the first quarter, the high was 10, and the low was 834. During the period between then and 1969, the highest figure for common stock was in the second quarter of 1968, 60, whereas, in 1969, at the end of the second quarter, it was 4312, and the low was 2839.

On January 26, 1970, the common stock was 1578; the warrants were 548, and 878.

Mr. Chairman, I offer those tables for the record.
The CHAIRMAN. They will be accepted for the record.
(The tables referred to follow :)

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TABLE 1.--NATIONAL GENERAL CORP., SELECTED FINANCIAL STATISTICS

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( 1) Total revenue.
(2) Net income
(3) Total assets.
(4) Long-term debt.

5) Convertible subordinated debt.
(6) Total (4) and (5).
( 7) Preferred stock.
( 8) Total (6) and (7).
( 9) Net worth
(10) Common stock equity.

i Net income before extraordinary items.

Source: National General's annual reports as filed with the SEC. Prepared by the Antitrust Subcommittee staff.

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I Long term debt plus preferred stock divided by common stock equity.
? Net income plus taxes plus interest divided by interest.
3 Net income plus taxes plus interest plus rent divided by interest plus 2 times preferred dividends plus rent.

Prepared by the Antitrust Subcommittee staff.

TABLE IV.-NATIONAL GENERAL QUARTERLY COMMON STOCK PRICES, FROM JANUARY 1964 THROUGH JUNE 1969

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Mr. HARKINS. Additional information which we will now incorporate into the record for subsequent use is the organizational chart of National General that has been provided and the management structure and subsidiary structure charts.

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