Mr. Chairman, we at National General Corp. believe these hearings serve a commendable purpose. You, yourself, have observed that the emergence of innovation and new concepts of management could make a valuable contribution to our business and economic society. Indeed, they might well be the progenitors of, to use your language, "an assault against much which is outmoded, inefficient, and timid."

We respectfully agree with this statement about the possible value of evolving techniques of management. In our opinion, this trend of the 1960's served our society well in helping to revitalize stagnant areas of our economy and contributing to an effective free enterprise system. In this sense an innovative company, which I consider National General to be, serves as a catalyst in the continuing development of American business.

Parenthetically, I might say that I am not certain what a so-called conglomerate is. If it applies to any company that is simply engaged in more than one line of business, then we fall within its definition, as do the vast majority of large corporations in the United States; on the other hand, if it applies to those industrial giants operating multicomplex subsidiaries and units engaged in many unrelated lines of business, then National General does not qualify. We are engaged in two lines of business, leisure time and financial services.

We are proud to have the opportunity to appear before this committee which is composed of knowledgeable men, well versed in all relevant legal and economic matters. By our appearance we hope that we can lend some assistance to the effort of this committee.

Some months ago we began our contribution by submitting large quantities of information about our company. In the following statement I will outline the history of National General, its development since 1961, and briefly summarize current operations.

The history of National General as a corporation dates from 1952 when the company was organized to acquire the motion picture theatre chain then owned by 20th Century Fox Corp. which, along with other major studios, was required to divest itself of its theaters.

National General, therefore, operates its theaters under a "consent decree" and, indeed, pursues its other activities associated with the motion picture industry under the continuing jurisdiction of the cognizant Federal court.

For example, when National General desired to enter the fields of motion picture production and distribution, it was incumbent upon us to seek and obtain the permission of such court.

I should like to point out to this honorable committee that the events leading to the consent decree took place long before this management was involved with National General, and the persons involved with such events have not been with this company for a long, long time.

As initially constituted, National General-then known as National Theaters, Inc. was a motion picture theater company, restricting itself for several years to the operation of theaters.

It then entered the television field, and in the years 1959, 1960, and 1961, it sustained very large losses totaling $22.5 million.

When the present management of National General. assumed stewardship of the company in 1961, the unprofitable activities were dras

tically curtailed, and subsequently eliminated; so that commencing with fiscal 1963, the company entered upon an era of profit which I will refer to later.

After the comparatively short period of time required to turn the corporation around, management formulated a new concept of growth. The company would vigorously seek out expansion opportunities under this concept, not only in the theater business but also in the leisure time and financial services field.

Management envisioned a society with increasing leisure time on its hands and the company would endeavor to anticipate and fulfill these needs.

As a concomitant to this expansion into what management believed would become a dynamic and extraordinary growth field, we recognized that there would be a need for new and expanded financial services. I believe that the facts speak for themselves in assessing the soundness of managements vision and planning.

Since 1961, there has been a tenfold expansion of revenues. Gross revenues increased from $44 million in 1961 to $458 million for the 52week period ending in September 1961. Operating income grew from less than $1 million in 1961 to $12.7 million in 1969.

In other standard measurements of corporate performance, the increases have been equally dramatic. Net worth, for example, rose from approximately $8 million in 1961 to $278 million in 1969; and assets climbed from $39.5 million to $1.073 billion.

From the losses experienced in years 1959 through 1961, the company beginning in 1963 showed continuing increases in after-tax dollar profit for each of the subsequent years.

How has all of this been accomplished? By National General pursuing a course of internal and external growth throughout the 1960's. In motion picture theaters National General has, since 1961, expanded internally from a chain essentially operating west of the Mississippi River to an operation encompassing areas to the eastern seaboard. In the last 5 years, National General has obtained court approval for 108 additional theaters.

Since the advent of the order permitting National General to embark upon the production and distribution of motion pictures, starting from scratch, our production company, National General Productions, Inc., has produced 11 pictures, which have been released or are ready for release in the near future.

Our distribution company, National General Pictures Corp., has placed in distribution a total of 17 pictures produced by National General Productions, Cinema Center Films-CBS-and others, with a projected program to distribute approximately 15 pictures in 1970. The acquisition of Grosset & Dunlap and Bantam Books publishing companies in March 1968 represented another significant expansion of leisure time activities.

A well-known reprint and hard-cover publishing firm established in 1898, Grosset & Dunlap organized Bantam in 1945 to publish and distribute mass market paperback books. Grosset & Dunlap currently has a total of approximately 3,800 titles of original and reprint books in print.

Bantam publishes approximately 300 new paperback titles a year, both reprints and originals, for a broad cross-section of the reading public.

Bantam has pioneered as a public service and as good business the "instant publication" of important titles of current national interest, such as "The Report of the Warren Commission on the Assassination of President Kennedy" and "The Report of the National Advisory Commission on Civil Disorders."

The most recent title of this type was "We Reach the Moon," the complete story of America's space program and featuring the exploits of Apollo 11 astronauts.

Bantam, which has published 112 titles that have sold more than 1 million copies of each title, distributes books through more than 100,000 retail outlets in North America and 110 countries elsewhere in the world.

The publishing activities since joining National General have grown consistently in a highly competitive market, resulting in a marked increase in profits.

Our first venture into financial services took place in 1964 with the acquisition of Columbia Savings & Loan Association, which is based in the Los Angeles area. Columbia, since joining the National General family, has been a consistently profitable operation.

Columbia now has assets of $198 million-which ranks it in the top 2 percent nationally-and operates eight offices in southern California. We expanded further with the purchase of Harbor Savings & Loan

in 1969.

To further expand our financial services, National General acquired Great American Holding Corp. in late 1968. In our opinion, the Great American Insurance Group offered maximum possibilities.

The company was overcapitalized and in our opinion the excessive surplus capital could be much more profitably and economically utilized in other areas while still preserving the stability of the growing insurance corporation.

A sound and growing company, Great American has been doing business since 1872. It is principally a fire and casualty insurer. Great American is licensed in all States of the United States and in addition, transacts business in other U.S. territories as well as various foreign countries. The Great American Group ranked 24th in premiums among the stock, mutual and reciprocal fire and casualty groups in the United States in 1968.

It is our opinion that with the infusion of management talent and enthusiasm from National General, Great American Insurance Co. will become a better company for its policyholders and as a contributor to the profits of National General.

Subsequent to the purchase of Great American, Republic Indemnity Insurance Co. was acquired in March 1969. This firm specializes in workmen's compensation insurance in California.

A highly efficient operation, Republic had the lowest combined expense and loss ratio in California for its field over the past 5 years. It achieved an approximate 17-percent volume increase in 1969.

As can be seen from National General's record we are not an acquisition-minded company, seeking and consummating acquisitions solely for the purpose of acquiring new companies.

Since the advent of present management, approximately 9 years of stewardship, the company has only made four major acquisitions, defining a major acquisition as one costing in excess of $10 million. We are now entering a new decade and our management is enthusiastic about the opportunities and challenges of the 1970's. We hope to vigorously pursue our concept of leisure time and financial services and our policy of internal and external expansion.

We would like this committee to know that we stand ready to cooperate with it at any time in the future when called upon. Again, thank you for permitting me to make this statement. (Mr. Klein's prepared statement appears at p. 91.)

The CHAIRMAN. Mr. Harkins.

Mr. HARKINS. Mr. Chairman, Mr. Klein, I would like to give a few words of explanation concerning the way the hearing will proceed.

First, we will examine the general scope and objectives of National General. Then we will go into specific acquisitions, including acquisition of Republic Insurance, and tomorrow, for the most part, we will devote time to the acquisition of the Great American Holding Corp.

Mr. KLEIN. Yes, sir.

Mr. HARKINS. Mr. Klein, when did you first become associated with National General?

Mr. KLEIN. My first association with National General was in February 1959 when I was elected a director of the corporation.

Mr. HARKINS. And in 1960, you were vice chairman of the board? Mr. KLEIN. Yes, sir.

Mr. HARKINS. And in 1960, National General's financial condition. was poor. It was a losing company at that point?

Mr. KLEIN. Extremely poor, sir.

Mr. HARKINS. In 1960, for example, it took a $6.2 million loss on NTA-National Telefilm Associates.

Mr. KLEIN. Yes, sir.

Mr. HARKINS. Ánd a $764,000 loss on Cinemiracle properties?
Mr. KLEIN. Yes, sir.

Mr. HARKINS. That is a combined $3.1 million loss.

On March 9, 1961, you took over active management?

Mr. KLEIN. That is correct.

Mr. HARKINS. At that time, Jack M. Ostrow and Alan May were associated with you on the board or as officers?

Mr. KLEIN. Correct.

Mr. HARKINS. Of the officers and directors listed in your annual report for 1960, those two gentlemen, Mr. Ostrow and Mr. May, are the only two whose names appear on the latest board for September 23, 1969.

Were there any other associates at the board or officer level in 1960, who are still with National General?

Mr. KLEIN. Aside from myself, sir, I don't think there are.

Mr. HARKINS. Are Mr. Ostrow and Mr. May still associated with the company?

Mr. KLEIN. Yes, with the exception of Mr. Ostrow.

Mr. HARKINS. During the subcommittee's study period, 1960 to January 1, 1969, National General has had a deliberate program to diversify operations by means of corporate acquisitions, would you agree with that?

Mr. KLEIN. I think I might quarrel with that statement, sir. I do not think that National General has a deliberate program of acquisitions in that National General did not have and does not have an acquisitions department, if you will.

The acquisitions that National General has effected in the stewardship of this management have been rather sparse compared to other companies who are acquisition-minded companies.

I don't think I can truthfully say that we had a deliberate acquisition program as such.

Mr. HARKINS. The basis of that question was a letter dated March 24, 1969, addressed to Senator Kuchel, from Harold Lipton, concerning the subcommittee's investigation.

I will read from page two of that letter:

In 1961 a change in management of the Company was effected after the Company suffered a serious business loss, and Mr. E. V. Klein was elected President on March 9, 1961. New management recognized that the interests of its stockholders and employees could best be served by embarking upon a diversification program whereby the Company could contribute to and profit from the dynamic and progressive forces which have materially assisted the country's economic growth over the past ten years, but of course there was no magic or novelty in the concept of diversification, for industry leaders for many years have been cognizant of the wisdom of not placing all of one's eggs in one basket. As I indicated to you I firmly believe that one of the prime factors contributing to the success of so many of our major companies has been the ability to move with the times by entry into new businesses and to buttress against the perils of single business operations (so vulnerable to depressed seasonable phases) by a judicious diversification program. Through business acumen, accompanied by blood, sweat and tears, the Company has undergone the transition from a precarious financial position in 1961 to a soundly based and progressive company, which it is today. This transition has occurred by virtue of a mixture of internal expansion and outside acquisitions.

The acquisitions of profitable companies within the sphere of influence that a business would like to enter and would like to operate in is of primary importance to any company.

Mr. KLEIN. Again, I think perhaps we are talking about semantics, sir. Diversification, of course, encompasses acquisitions.

When we talk about a deliberate acquisition program in my context, I will talk about it and think about it as a company who has a large staff devoted to sifting over company after company and looking for acquisitions.

This is not the way we have operated and we do not operate that way, sir. So semantically, you may be correct, but in philosophy I am trying to explain what we think and what we do at National General, how we do it.

The CHAIRMAN. You did acquire other companies.

Mr. KLEIN. Yes, sir.

Mr. HARKINS. And you have also disposed of a number of companies? Mr. KLEIN. Yes, sir.