SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 1O-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended September 30, 1996
Commission File Number: 33-56334
VK/AC Holding. Inc.
(Exact name of registrant as specified in its charter)
Delaware 36-3852549
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o Van Kampen American Capital, Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois
Attn: Ronald A. Nyberg, Esq. 60181
(Address of principal executive offices) (Zip Code)
(630)684-6000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days
[x]Yes No
As of September 30, 1996 there were 2,317,474 shares of the
registrant's Class A Common Stock, par value $.01 per share ("Class A
Common Stock"), and 117,817 shares of the registrant's Class B Common Stock,
par value $.01 per share ("Class B Common Stock"), outstanding. There is no
established public trading market for any class of the registrant's common
equity securities.
VK/AC Holding, Inc.
Form 10-Q
For The Quarter Ended September 30,1996
Index
Page
Part I: Financial Information ............................................. 2
Item 1: Financial Statements
Consolidated Balance Sheets at September 30, 1996 (unaudited)
and December 31, 1995 ...................................... 2
Consolidated Statements of Income (unaudited) for the
Three Months Ended September 30, 1996 and 1995 and
for the Nine Months Ended September 30, 1996 and 1995 ...... 3
Consolidated Statements of Cash Flows (unaudited) for the
Nine Months Ended September 30, 1996 and 1995 .............. 4
Notes to Consolidated Financial Statements (unaudited) ...... 5
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations ................................... 8
Part II: Other Information ................................................ 15
Signatures ................................................................ 16
Exhibits .................................................................. 17
<TABLE>
VK/AC HOLDING, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In 000's except for par value and shares)
<CAPTION>
9/30/96 12/31/95
----------- -----------
<S> <C> <C>
Assets (Unaudited)
- ------
Cash and Cash Equivalents $ 691 $ 1,585
Cash Equivalents Segregated Under Regulation or Collateral Agreement 10,000 10,000
Short-Term Investments - Mutual Funds, at market 24,579 42,110
Receivables 47,948 41,696
Trading Inventory, at market 74,564 71,875
Furniture, Equipment, and Leasehold Improvements, net 22,890 22,312
Deferred Company Funded Distribution Costs, net 292,355 259,822
Deferred Financing Costs, net 11,503 13,012
Excess of Cost over Fair Value of Net Assets Acquired, net 513,932 526,917
Net Assets of Discontinued Operations -- 25,760
Other Assets 9,938 7,017
----------- -----------
Total Assets $ 1,008,400 $ 1,022,106
=========== ===========
Liabilities and Stockholders' Equity
- ------------------------------------
Liabilities
- -----------
Bank Loans $ 270,800 $ 331,100
Senior Secured Notes 150,000 150,000
Accounts Payable and Accrued Expenses 64,942 76,988
Payable to Affiliates, net -- 2,828
Payable to Trustee 14,501 5,587
Deferred Compensation 25,915 21,957
Deferred Income Taxes 87,049 55,617
----------- -----------
Total Liabilities 613,207 644,077
----------- -----------
Redeemable Common Stock
- -----------------------
At redemption value of $297.40 per share at September 30, 1996 and $200
per share at December 31, 1995; 156,210 shares outstanding at September
30, 1996; 155,673 shares outstanding at December 31, 1995 46,457 31,135
----------- -----------
Shareholders' Equity
- --------------------
Junior Non-Cumulative Participating Preferred Stock, $200 par value,
32,500 shares authorized; 32,500 shares issued and outstanding
at September 30, 1996 and December 31, 1995 6,500 6,500
Class A Common Stock, $.01 par value; 3,250,000 shares authorized,
2,163,255 nonredeemable shares issued, 2,161,264 nonredeemable
shares outstanding at September 30 ,1996; 2,163,792 nonredeemable shares
issued, 2,161,264 nonredeemable shares outstanding at December 31, 1995 22 22
Class B Common Stock, $.01 par value, nonvoting, 3,250,000 shares
authorized; 117,817 shares issued and outstanding at September 30, 1996
and December 31, 1995 1 1
Additional Paid-In Capital 299,185 299,292
Retained Earnings 43,426 41,584
----------- -----------
349,134 347,399
Less Treasury Stock, Class A Common Stock, at cost; 1,991 shares at
September 30, 1996; 2,528 shares at December 31, 1995 (398) (505)
----------- -----------
Total Stockholders' Equity 348,736 346,894
----------- -----------
Total Liabilities & Stockholders' Equity $ 1,008,400 $ 1,022,106
=========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
VK/AC HOLDING, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
(In 000's except per share data)
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
-------------------- -------------------
1996 1995 1996 1995
-------- -------- --------- ----------
<S> <C> <C> <C> <C>
Revenues
- --------
Investment Advisory Fees $ 75,824 $ 64,279 $ 221,090 $ 182,659
Distribution of Investment Products 8,683 8,392 23,794 23,452
Fiduciary Fees 2,014 2,159 6,588 6,290
Other Revenue 1,376 2,048 4,753 6,132
-------- -------- --------- ----------
Total Revenues 87,897 76,878 256,225 218,533
-------- -------- --------- ----------
Expenses
- --------
Compensation and Benefits 26,213 24,115 74,966 69,436
Amortization of Deferred Company Funded
Distribution Costs 16,341 13,308 46,584 37,229
Occupancy 8,489 8,346 25,276 22,781
Marketing and Promotion 8,121 6,867 24,525 21,347
Other Expenses 2,386 9,871 16,502 25,389
Reimbursements (14,119) (13,236) (42,216) (36,708)
Interest and Acquisition Expenses:
Amortization of Excess of Cost over Fair
Value of Net Assets Acquired 4,278 4,408 12,836 13,424
Interest Expense 8,150 10,600 25,576 32,593
Amortization of Deferred Financing Costs 503 503 1,509 1,509
-------- -------- --------- ----------
Total Expenses 60,362 64,782 185,558 187,000
-------- -------- --------- ----------
Income From Continuing Operations Before Taxes 27,535 12,096 70,667 31,533
Income Tax Provision 11,182 4,704 28,778 12,339
-------- -------- --------- ----------
Income From Continuing Operations 16,353 7,392 41,889 19,194
Discontinued Operations:
Income From Discontinued Operations, net of tax 575 528 2,057 1,176
Gain on Disposal of Discontinued Operations,
net of tax 2,172 -- 4,207 --
-------- -------- --------- ----------
Net Income $ 19,100 $ 7,920 $ 48,153 $ 20,370
======== ======== ========= ==========
Earnings per share:
Primary:
Net Income From Continuing Operations
Available to Common Shareholders $ 6.03 $ 2.89 $ 10.19 $ 6.91
Income From Discontinued Operations 0.22 0.20 0.79 0.46
Gain on Disposal of Discontinued Operations 0.82 -- 1.61 --
-------- -------- --------- ----------
Net Income Available to Common Shareholders $ 7.07 $ 3.09 $ 12.59 $ 7.37
======== ======== ========= ==========
Assuming Full Dilution:
Net Income From Continuing Operations
Available to Common Shareholders $ 6.03 $ 2.89 $ 10.05 $ 6.91
Income From Discontinued Operations 0.22 0.20 0.78 0.46
Gain on Disposal of Discontinued Operations 0.82 -- 1.59 --
-------- -------- --------- ----------
Net Income Available to Common Shareholders $ 7.07 $ 3.09 $ 12.42 $ 7.37
======== ======== ========= ==========
Weighted Average Common Shares and
Common Share Equivalents: (In 000's)
Primary 2,648 2,559 2,613 2,545
Assuming Full Dilution 2,648 2,559 2,649 2,545
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
VK/AC HOLDING, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
(In 000's)
<CAPTION>
Nine Months
Ended September 30,
------------------------
1996 1995
-------- ---------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 48,153 $ 20,370
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 4,563 4,774
Amortization:
Deferred Company Funded Distribution Costs 46,584 37,229
Excess of Cost over Fair Value of Net
Assets Acquired 12,836 13,424
Deferred Financing Costs 1,509 1,509
Gain on Sale of Subsidiary (7,041) --
Net Change in:
Short-Term Investments - Mutual Funds 17,531 5,127
Receivables (6,252) (4,715)
Trading Inventory (2,689) 18,153
Net Assets of Discontinued Operations 25,760 (928)
Other Assets (5,927) (12,847)
Accounts Payable and Accrued Expenses (13,546) (1,599)
Payable to Affiliates, net (2,828) (270)
Payable to Trustee 8,914 5,887
Deferred Compensation 3,958 6,635
Deferred Income Taxes 31,432 6,091
-------- ---------
Total Adjustments 114,804 78,470
-------- ---------
Net Cash Provided by Operating Activities 162,957 98,840
-------- ---------
Cash Flows from Investing Activities;
Proceeds from Sale of Subsidiary 11,696 --
Deferred Company Funded Distribution Costs (79,117) (52,879)
Net Additions of Fixed Assets (5,141) (4,464)
-------- ---------
Net Cash Used by Investing Activities (72,562) (57,343)
-------- ---------
Cash Flows from Financing Activities:
Loan Principal Payments (60,300) (70,335)
Dividends (31,048) --
Stock Issuance -- 9,437
Reissuance of Treasury Stock 59 46
-------- ---------
Net Cash Used by Financing Activities (91,289) (60,852)
-------- ---------
Net Decrease in Cash and Cash Equivalents (894) (19,355)
Cash and Cash Equivalents:
Beginning of Period 1,585 21,328
-------- ---------
End of Period $ 691 $ 1,973
======== =========
Supplementary Disclosure of Cash Flow Information:
Cash paid for: Income Taxes $ 811 $ 2,951
Interest 30,353 36,892
See accompanying notes to consolidated financial statements.
</TABLE>
VK/AC Holding, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
September 30, 1996
Note 1 - Basis of Presentation
- ------------------------------
The consolidated financial statements include the accounts of VK/AC Holding,
Inc. ("VK/AC Holding") and its subsidiaries, Van Kampen American Capital, Inc.
("VKAC"), McCarthy, Crisanti & Maffei, Inc. ("MCM"), and Advantage Capital
Corporation ("Advantage Capital") (VK/AC Holding together with its subsidiaries,
the "Company"). All material intercompany accounts and transactions have been
eliminated in consolidation.
The consolidated financial statements included herein have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission with respect to quarterly financial statements. Certain information
and note disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. VK/AC Holding's Annual Report
on Form 10-K for the year ended December 31, 1995, filed with the Securities
and Exchange Commission, includes the information and note disclosures normally
included in the financial statements prepared in accordance with generally
accepted accounting principles and should be referred to for further
information. The Company believes that the accompanying consolidated financial
statements contain all adjustments (consisting of normal recurring accruals)
necessary to present fairly the Company's consolidated financial position as of
September 30, 1996 and December 31, 1995, its consolidated results of
operations for the three months ended September 30, 1996 and 1995, and the nine
months ended September 30, 1996 and 1995, and its consolidated cash flows for
the nine months ended September 30, 1996 and 1995.
Primary and fully diluted earnings per share are computed based upon the
weighted average number of shares outstanding during the period, including
shares of redeemable common stock.
Note 2- Redeemable Common Stock
- -------------------------------
The shares of redeemable common stock are reported on the balance sheets at
redemption value, which, at September 30, 1996, is based upon the estimated
per share merger consideration to be paid in connection with the Merger
as more fully described in Note 3. The accretion to redemption value of
$15,262,854 has been reflected as a reduction of retained earnings at
September 30, 1996 and as a reduction of net income available to common
stockholders for the nine months ended September 30, 1996 in determining
earnings per share. The accretion to redemption value of $374,904 has been
reflected as a reduction of net income available to common stockholders for
the three months ended September 30, 1996 in determining earnings per share
and is included in the $15,262,854 reduction of retained earnings. This
accretion reduced primary and fully diluted earnings per share for the
three months ended September 30, 1996 by $0.14 and for the nine months
ended September 30, 1996 by $5.84 and $5.76, respectively.
Options to purchase shares of Class A Common Stock were granted to certain
members of management and other employees of the Company pursuant to a stock
option plan, under which such options will vest over a period of time up to
five years.
VK/AC Holding, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
September 30, 1996
Stock options transactions consisted of the following:
Number of
Options
---------
Balance, December 31, 1995 365,832
Granted; exercise price $200 1,912
Exercised (537)
Canceled (10,862)
---------
Balance, September 30, 1996 356,345
=========
As of the Merger on October 31,1996 (see Note 3), all of the options
vested.
Note 3 - Merger
- ---------------
On October 31, 1996, pursuant to an Agreement and Plan of Merger dated as
of June 21, 1996 among VK/AC Holding, Morgan Stanley Group Inc. ("Morgan
Stanley"), MSAM Holdings II, Inc. and MSAM Acquisition Inc., MSAM
Acquisition Inc. was merged with and into VK/AC Holding ("the Merger") and
VK/AC Holding and its subsidiaries, including VKAC, became subsidiaries of
Morgan Stanley. In connection with the Merger, VKAC repaid all of its bank
debt outstanding under its secured credit facility.
At the closing of the Merger, MSAM Acquisition Inc. paid approximately $761
million in cash to the stockholders of VK/AC Holding (excluding certain
management stockholders) and to persons owning options to purchase stock of
VK/AC Holding. As part of the Merger, certain officers and directors of the
Comany will contribute to MSAM Holdings II, Inc. their existing shares of
common stock of VK/AC Holding in exchange for approximately $26 million of
shares of preferred stock of MSAM Holdings II, Inc. which, in turn, will be
exchangeable into common stock, par value $1.00 per share, of Morgan Stanley
at specified times over a four year period. Such shares of preferred stock
will represent, in the aggregate, 5% of the combined voting power in MSAM
Holdings II, Inc., the remaining voting power of which is held by Morgan
Stanley.
Note 4 - Discontinued Operations
- --------------------------------
On January 2, 1996 Advantage Capital, a retail broker-dealer, was sold to
SunAmerica, Inc. The Company currently has no intention of re-entering the
retail broker-dealer business. Assets and liabilities of Advantage Capital
relating to periods prior to its sale were assumed by VKAC.
On August 31, 1996, VK/AC Holding distributed to its current stockholders all
of VK/AC Holding's investment in MCM, a wholly owned subsidiary engaged in the
business of distributing research and financial information. Accordingly, the
consolidated financial statements of the Company have been reclassified to
report separately the net assets at December 31, 1995 and operating results
of the discontinued operations of MCM and Advantage Capital for all periods
presented.
VK/AC Holding, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
September30, 1996
The results of operations for Advantage Capital and MCM for the three
months ended September 30, 1996 and 1995 and the nine months ended
September 30, 1996 and 1995, which are classified separately as discontinued
operations in the accompanying consolidated statements of income, are
summarized as follows:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
--------------------- --------------------
1996 1995 1996 1995
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Revenues $ 6,078 $ 9,947 $ 23,899 $ 29,076
======== ======== ======== =========
Income Before Income Taxes $ 1,105 $ 1,123 $ 3,917 $ 2,164
Income Taxes $ 530 $ 595 $ 1,860 $ 988
-------- --------- -------- ---------
Net Income $ 575 $ 528 $ 2,057 $ 1,176
======== ======== ======== =========
</TABLE>
Net assets of discontinued operations at December 31, 1995 consist
principally of accounts receivable and excess of cost over fair value of net
assets acquired.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
VK/AC Holding, Inc. ("Holding") and Van Kampen American Capital,
Inc. ("VKAC"), a wholly-owned subsidiary of Holding, were
organized in 1992 to acquire a company then named The Van Kampen
Merritt Companies, Inc. ("VKM") and certain of its subsidiaries.
Effective February 17, 1993, VKAC acquired VKM and VKM merged
with and into VKAC (the "VKM Acquisition").
On December 20, 1994, Holding and VKAC acquired American Capital
Management & Research, Inc. and its subsidiaries (the "AC
Acquisition"). American Capital Management & Research, Inc.
(together with its subsidiaries, "American Capital") then merged
into VKAC.
The Company sold Advantage Capital Corporation ("ACC"), its
retail broker-dealer subsidiary, acquired as a result of the AC
Acquisition, for $7.6 million in January 1996. The Company
received an additional $4.1 million in August 1996 in connection
with the sale of ACC as a result of a contingent payment made
pursuant to the ACC stock purchase agreement based upon the
achievement of certain revenue targets by certain
representatives of ACC for the twelve month period ended July 1,
1996. On August 31, 1996, Holding also distributed to its
current stockholders (i) all of its investment in McCarthy,
Crisanti & Maffei, Inc. ("MCM"), a wholly owned subsidiary
engaged in the business of distributing research and financial
information, (ii) all of its investment in Hansberger Global
investors, Inc., a company in which Holding made a minority
investment in May 1996, and (iii) certain related cash amounts.
On October 31, 1996, pursuant to an Agreement and Plan of Merger
(the "Merger Agreement") dated as of June 21, 1996 among
Holding, Morgan Stanley Group Inc. ("Morgan Stanley"), MSAM
Holdings II, Inc. and MSAM Acquisition Inc., MSAM Acquisition
Inc. was merged with and into Holding (the "Merger") and Holding
and its subsidiaries, including VKAC, became subsidiaries of
Morgan Stanley. In connection with the Merger, VKAC repaid all
of its bank debt outstanding under its secured credit facility.
See "--Liquidity and Capital Resources" below and "Part II -
Other Information -- Item 5: Other Information."
Unless the context otherwise requires, the term "Company" as
used herein means Holding and its subsidiaries. The following
discussion should be read in conjunction with the unaudited
consolidated financial statements and related notes found in
"Item 1 - Financial Information" and the Company's Form 10-K for
the fiscal year ended December 31, 1995, since they contain
important information that may be helpful in evaluating the
Company's results of operations and financial condition. The
financial condition and results of operations for MCM and ACC
are shown as discontinued operations in the Financial
Information.
Overview
The Company markets and provides investment advisory and
administrative services to open end and closed end funds
("Funds"), unit investment trusts ("UITs") and institutional
clients ("Institutional Accounts") which consist of insurance
companies, pension funds, municipalities, high net worth
individuals and mutual funds sponsored by third parties. As of
September 30, 1996, the Company had approximately $59 billion of
assets under management and/or supervision, including $36.5
billion in over 100 open end and closed end Funds, $5.1 billion
in the Van Kampen American Capital Prime Rate Income Trust
("Prime Rate Trust"), $5.6 billion in assets managed on behalf
of Institutional Accounts and $11.5 billion in UITs. The
Company's total assets under management rose from $42 billion at
September 30, 1995 to over $47 billion at September 30, 1996 as
a result of increased market values of equity and fixed income
securities during this period and increased sales of Fund
shares, particularly Class B shares of certain open end Funds
and the Prime Rate Trust.
The Company also has transfer agency and trust company
capabilities through ACCESS Investor Services, Inc. ("ACCESS")
and through Van Kampen American Capital Trust Company.
The investment management industry has exhibited rapid growth in
recent years, driven by a combination of favorable stock and
bond market performance and demographic trends. Industry sales
of equity funds are affected by stock market performance and, to
a lesser extent, interest rates. A strong stock market
stimulates investment in equity funds; low interest rates also
favor equity investments because of the diminished
attractiveness of fixed income investment alternatives.
Industry sales of bond funds, particularly those that invest in
long-term fixed income tax-exempt municipal securities, are
affected by the relationship between long-term and short-term
interest rates, the strength of the stock market and the
perception of investors concerning certain proposed tax
regulations and the future direction of interest rates. Based
on industry sales from 1994 to the present, demand for municipal
bond funds has decreased significantly and demand for fixed
income funds in general has slowed. The Company attributes this
decline primarily to the combination of certain proposed changes
in federal income tax regulations which may impact the future
tax status of municipal securities, the strength of the stock
market and the general uncertainty of investors over the future
direction of interest rates. The Company believes that by
significantly broadening its product offerings through the AC
Acquisition (more than one-third of the Company's Fund assets
under management as of September 30, 1996 were in equity Funds),
it has helped to offset the potential negative impact of
declining interest in its fixed income Funds.
The Company's investment advisory fee revenues, which accounted
for 84% of the Company's total revenues in 1995 and 86% of its
total revenues for the quarter ended September 30, 1996, consist
primarily of (i) fees for managing the assets of the Funds
(including seven open end Funds distributed by PFS Investments,
Inc. and advised by the Company (the "Common Sense Funds")), and
the Institutional Accounts, (ii) "12b-1 fees" which arise from
the reimbursement of certain distribution expenses, including
reimbursement of commissions paid to unaffiliated retail
distribution firms for selling Class B and Class C shares of
open end Funds and (iii) administrative fees paid by the closed
end Funds and the Prime Rate Trust. The Company's investment
advisory fees fluctuate due to changes in the total value of the
assets under management and are calculated based on daily,
weekly or quarterly average balances, depending on the Fund or
Institutional Account. Variations in the level of the assets
under management are due to both net sales (gross sales less
redemptions of Fund shares) and market value changes.
Consequently, significant fluctuations in the prices of
securities (e.g., as the result of substantial changes in the
equity and fixed income markets resulting from changes in
interest rates, inflation rates or other economic factors) or
the level of redemptions of open end Funds may affect materially
the amount of assets under management and thus the Company's
revenue and profitability.
Revenues from the distribution of the Company's investment
products are primarily derived from (i) the sales charge, less
an applicable concession to dealers, for the sale of UIT units,
which is the largest contributor to distribution revenues, (ii)
the net profit realized or net loss incurred to the extent that
the market price of securities deposited by the Company in a UIT
exceeds or is less than the original cost of the securities to
the Company, (iii) the net profit realized or net loss incurred
to the extent that the public offering price of UIT units
increases or decreases before the UIT units are sold, (iv) a
portion of the sales charge paid by investors who buy open end
Fund Class A shares and (v) certain concessions and fees that
the Company receives as U.S. distributor for the Govett Family
of Funds. The Company's distribution arrangement with The
Govett Family of Funds will terminate on March 31, 1997.
Management of the Company believes that such termination will
not have a material effect on the Company's financial condition
or results of operations.
A significant portion of the Company's operating expenses is
attributable to amortization of deferred Company funded
distribution costs, which originates primarily from the
commissions and sales expense paid by the Company to
unaffiliated retail distribution firms for selling Class B and
Class C shares of open end Funds, the Prime Rate Trust and most
of the closed end Funds. These up-front expenditures are
capitalized and amortized to match, through straight line
amortization, future investment advisory fee revenues derived
from management advisory contracts for these Funds. The
amortization periods for these costs vary from four to ten
years, depending upon the Fund type. Because amounts capitalized
in prior years have not been fully amortized, this expense tends
to grow each year as amortization of current year additions to
this expense item is added to that of prior years.
The Company provides daily pricing and ongoing credit
surveillance services for its UITs and certain of the Funds.
The Company also furnishes accounting, legal, pricing, transfer
agency and shareholder services to certain of the Funds and
UITs. The Company receives payments from such Funds and UITs
equal to the cost of providing these services, which payments
are reflected as "reimbursements." In July 1995, ACCESS, which
had been the transfer agent for only some of the open end Funds,
was appointed the transfer agent for all of the open end Funds,
which resulted in the addition of personnel and the incurrence
of other costs which are reimbursable by the open end Funds.
Results of Operations
The following tables list the investment advisory fees and
assets under management by source for the three month and nine
month periods ended September 30, 1996 and 1995:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended 1996 Ended 1996
September 30 Compared September 30 Compared
---------------- ----------------
Investment Advisory Fees (in millions) 1996 1995 to 1995 1996 1995 to 1995
- -------------------------------------- ----- ----- ------- ----- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Funds:
Open End:
Equity $22.7 $18.2 25% $ 65.5 $ 50.1 31%
Fixed Income 21.1 21.5 (2) 65.1 63.9 2
Prime Rate Trust 14.3 7.3 96 37.9 17.6 115
Closed End
Equity 0.1 0.1 -- 0.3 0.3 --
Fixed Income 15.1 14.9 1 44.9 43.9 2
Institutional Accounts 2.5 2.3 9 7.4 6.9 7
----- ----- ------ ------
Total $75.8 $64.3 18% $221.1 $182.7 21%
===== ===== ====== ======
</TABLE>
<TABLE>
<CAPTION>
1996
September 30 Compared
------------
Assets Under Management (in billions) 1996 1995 to 1995
- ------------------------------------
<S> <C> <C> <C>
Funds:
Open End:
Equity $15.6 $12.5 25%
Fixed Income 13.3 13.6 (2)
Prime Rate Trust 5.1 3.0 70
Closed End:
Equity 0.1 0.1 --
Fixed Income 7.5 7.4 1
Institutional Accounts 5.6 5.7 (2)
----- -----
Total $47.2 $42.3 12%
===== =====
</TABLE>
Fund assets under management increased by $5.0 billion or 14%
from September 30, 1995 to September 30, 1996, primarily as a
result of growth in equity open end Fund assets and Prime Rate
Trust assets. Equity open end Fund assets grew 25% during the
period due to $1.0 billion of net sales and market value
appreciation of $2.1 billion. The growth in the Prime Rate Trust
was due to net sales of $2.1 billion during the period. Fixed
income Fund assets decreased by $0.3 billion or 2% from
September 30, 1995 to September 30, 1996, as a result of net
redemptions of $0.7 billion, partially offset by market value
appreciation and exchanges.
Institutional Account assets under management decreased by
approximately 2% from September 30, 1995 to September 30, 1996
as a result of a reduction in the level of accounts managed for
certain affiliates of Xerox Corporation, partially offset by new
accounts, additional sales to existing accounts and market
value increases.
Income from continuing operations before interest and
acquisition expenses and income taxes ("Operating Earnings") for
the third quarter of 1996 was $40.5 million, an increase of
$12.9 million or 47% over the corresponding period in 1995. For
the nine months ended September 30, 1996 Operating Earnings was
$110.6 million, $31.5 million or 40% greater than the same
period in 1995.
Three Months Ended September 30, 1996 Compared to Three Months
Ended September 30, 1995
Revenues increased during the quarter ended September 30, 1996
by $11.0 million or 14% over the same period in 1995, primarily
due to an increase in investment advisory fees. Investment
advisory fees increased during the third quarter of 1996 by
$11.5 million to $75.8 million or 18% over the same period in
1995, due primarily to greater assets under management,
significant growth in the Prime Rate Trust, which has a higher
investment advisory fee rate than the other Funds, and increased
sales of Class B shares of open end Funds, which generate 12b-1
fees to compensate for Company funded distribution costs.
Total expenses excluding interest and acquisition expenses
("Operating Expenses") decreased during the third quarter of
1996 by $1.8 million to $47.4 million or 4% less than the
corresponding period of 1995. This was due primarily to the
recovery of nearly $4.0 million from the Funds, which amount
represented a substantial portion of costs expended by the
Company relating to the consolidation of the Fund boards in
July, 1995. Compensation and benefits expense increased by $2.1
million to $26.2 million during the third quarter of 1996 or 9%
over the same period in 1995. Growth in this expense resulted
from annual salary increases and the additional costs of ACCESS
personnel to service the additional open end Funds as discussed
above. Amortization of deferred Company funded distribution
costs increased during the third quarter of 1996 by $3.0 million
to $16.3 million or 23% over the same period in 1995, due
principally to increased sales of shares of the Prime Rate
Trust, which resulted in approximately $2.2 million more in
amortization expense for the quarter. Marketing and promotion
expense increased by $1.2 million to $8.1 million or 17%, as
investments were made to expand the coverage of the Company's
distribution network. Other expenses decreased by $7.5 million
to $2.4 million or 76%, due to certain nonrecurring expenses in
1995 related to the combination of VKM and American Capital and
certain of the Funds. As discussed above, the Funds repaid a
substantial portion of these expenses during the third quarter
of 1996 as a result of cost savings that were realized by the
Funds. Reimbursements increased during the third quarter of 1996
by $0.9 million to $14.1 million over the same period in 1995,
primarily due to higher personnel and occupancy costs incurred
in 1996 as a result of ACCESS being named transfer agent to all
of the open end Funds beginning in July 1995.
Interest and acquisition expenses during the third quarter of
1996 decreased by $2.6 million to $12.9 million or 17% less
than the same period in 1995, due largely to a decrease in
interest expense of $2.4 million or 23%, resulting from lower
bank borrowings and lower interest rates. The Company's
achievement of certain financial ratios under its secured credit
facility resulted in a reduction of its effective interest rate
beginning in the first quarter of 1996.
Income from continuing operations before taxes for the three
months ended September 30, 1996 increased by $15.4 million to
$27.5 million or 127% more than the corresponding period in
1995, due to higher operating income and lower interest and
acquisition expenses. The Company also recognized an additional
gain of $2.2 million net of tax relating to the sale of ACC in
the third quarter of 1996.
Nine Months Ended September 30, 1996 Compared to Nine Months
Ended September 30, 1995
Revenues increased during the first nine months of 1996 by $37.7
million to $256.2 million or 17% over the same period of 1995,
primarily due to an increase in investment advisory fees.
Investment advisory fees increased during the first nine months
of 1996 by $38.4 million to $221.1 million or 21% over the same
period of 1995, due primarily to greater assets under
management, significant growth in the Prime Rate Trust, which
has a higher investment advisory fee rate than the other Funds,
and increased sales of Class B shares of open end Funds, which
generate 12b-1 fees to compensate for Company funded
distribution costs. Advisory fees earned for managing the Common
Sense Funds were $20.3 million for the nine months ended
September 30, 1996 as compared to $17.2 million for the nine
months ended September 30, 1995.
Operating Expenses increased during the first nine months of
1996 by $6.2 million to $145.6 million or 4% over the
corresponding period in 1995. Compensation and benefits expense
increased by $5.5 million to $75.0 million for the first nine
months of 1996, an 8% increase over the same period in 1995.
This was due primarily to annual salary increases and the
expansion of ACCESS as described above. Amortization of
deferred company funded distribution costs increased during the
first nine months of 1996 by $9.4 million to $46.6 million or
25% over the same period of 1995, due principally to increased
sales of the Prime Rate Trust, which resulted in $7.4 million
more in amortization expense for the first nine months of 1996.
Occupancy expense increased during the first nine months of 1996
by $2.5 million to $25.3 million or 11% over the same period of
1995, due to increased data processing costs related to ACCESS.
Marketing and promotion expense increased during the first nine
months of 1996 by $3.2 million to $24.5 million or 15% over the
same period of 1995, related to increased sales of Funds and
UITs in the first nine months of 1996 compared to such sales
during the same period in 1995. Other expenses decreased during
the first nine months of 1996 by $8.9 million to $16.5 million
or 35% compared to the same period in 1995, due to
combination-related expenses incurred in 1995 as discussed
above. Reimbursements increased during the first nine months of
1996 by $5.5 million to $42.2 million or 15% over the same
period in 1995, due primarily to increases in compensation and
benefits and occupancy expenses attributable to ACCESS.
Interest and acquisition expenses decreased during the first
nine months of 1996 by $7.6 million to $39.9 million or 16% less
than the same period in 1995, due largely to a decrease in
interest expense of $7.0 million or 21%, resulting from lower
bank borrowings and lower interest rates. The Company's
achievement of certain financial ratios under its secured credit
facility resulted in a reduction of its effective interest rate
for the nine months ended September 30, 1996.
Income from continuing operations before taxes for the nine
months ended September 30, 1996 increased by $39.2 million to
$70.7 million or 124% more than over the corresponding period in
1995, due to higher operating income and lower interest and
acquisition expenses.
Liquidity and Capital Resources
The Company's primary source of liquidity during the first nine
months of 1996 and 1995 was cash generated from operations,
which totaled $174.7 million (including $11.7 million in cash
proceeds from the sale of ACC) and $98.8 million, respectively.
Cash from operations permitted the Company to prepay $70 million
of long-term debt in 1995, fund the Company's working capital
needs and finance its capital expenditures, including the
funding of deferred Company funded distribution costs. The
Company's cash flow from operations during 1996 also funded the
payment in the first quarter of 1996 of approximately $20
million in annual employee bonuses earned and accrued during
1995, and the prepayment in the first nine months of 1996 of $55
million of long-term debt.
The Company incurred substantial indebtedness in connection with
the VKM Acquisition and the AC Acquisition. As of September 30,
1996, the Company had outstanding $385 million of indebtedness
(excluding $35.8 million of collateralized borrowings of Van
Kampen American Capital Distributors, Inc. ("VKAC
Distributors"), VKAC's broker-dealer subsidiary), consisting of
$150 million in the form of the Company's 9.75% Senior Secured
Notes due 2003 (the "Notes") and $235 million in borrowings
pursuant to the Company's secured credit facility. The amount
outstanding under the secured credit facility was repaid at the
closing of the Merger. See "Part II - Other Information -- Item
5: Other Information."
VKAC's obligations under the Notes are secured by all of the
issued and outstanding capital of its significant subsidiaries,
and certain cash and other collateral of VKAC, including certain
stock of certain future subsidiaries. VKAC's obligations under
the Notes are also guaranteed by the Company, which guarantees
are secured by a pledge of the Company of all of the outstanding
stock of VKAC and certain other collateral of the Company.
The Indenture contains various events of default,
various affirmative and negative covenants, including
restrictions on the ability of the Company to incur
indebtedness, incur liens and other encumbrances, pay dividends
or make other restricted payments, become liable on guarantees
and other contingent obligations, enter into agreements with
respect to mergers or consolidations, sell or transfer assets,
make investments or capital expenditures, make acquisitions,
make loans and advances, enter into transactions with
affiliates, create subsidiaries or engage in new types of
business, a negative pledge with respect to unencumbered assets,
and fixed charge coverage restrictions. Except for the execution
of the Merger Agreement, for which the Company notified the
banks party to the secured credit facility, the financial
covenants and other restrictions set forth in the secured credit
facility and the Indenture governing the Notes were satisfied
during the quarter and nine months ended September 30, 1996.
The Merger constituted a "Change in Control" (as defined in the
Indenture), which entitles the holders of the Notes to require
the Company to repurchase such holders' Notes at a purchase
price in cash in an amount equal to 101% of the principal amount
thereof plus accrued and unpaid interest, if any, to the date of
purchase.
VKAC Distributors also incurs certain additional short-term bank
loans to fund the purchase of securities related to the UIT
business for such subsidiary's inventories. The $35.8 million
outstanding at September 30, 1996 is payable on demand and bears
interest at approximately 1/2% over the federal funds rate. This
loan is secured by VKAC Distributors' UIT trading inventory.
The Company believes that cash generated from operations and
borrowing resources will be adequate to permit the Company to
meet both its current debt service requirements and working
capital needs in the foreseeable future, including the funding
of anticipated levels of future commissions in connection with
sales of shares of closed end Funds, open end Funds and the
Prime Rate Trust. The Company also anticipates that the letters
of credit and trading inventory financing facilities provided to
VKAC Distributors in connection with its sponsorship of new UITs
and the overnight financing of its trading inventory,
respectively, will remain available. However, no assurance can
be given as to the adequacy of such funds or continued
availability of such facilities.
The Company is a holding company formed for the purpose of
effecting the VKM Acquisition and has no substantial independent
operations. VKAC is a services company which primarily provides
administrative services to its operating subsidiaries and
virtually all of its revenues are derived from such operating
subsidiaries. Payment by VKAC of interest and principal due on
the Notes and payment of the Company's obligations under its
guarantee of VKAC's obligations under the Indenture are
dependent upon cash payments from their subsidiaries. This cash
flow is effected through the payment of dividends and
intercompany service charges.
Effect of Hedging Against Market Value Changes in UIT Inventories
The Company's broker-dealer subsidiary, VKAC Distributors,
regularly purchases and holds in inventory for its own account
securities to be deposited into UITs and holds for sale primary
and secondary UIT units. These inventory positions are regularly
marked to market, resulting in profit or loss. The market values
of securities and UIT units fluctuate. In addition, in
connection with a primary UIT offering, if securities are sold
or deposited into UITs at a price below VKAC Distributors' cost,
VKAC Distributors will incur a loss with respect to such
difference. The Company uses United States Treasury and
municipal bond index futures contracts, which are types of
derivative financial instruments, primarily to hedge against
market value changes in its UIT trading inventory. Although it
is the Company's policy to protect its inventory through
hedging, it does not hedge the entire inventory, nor does
hedging provide total protection against market value loss. The
Company's hedging activities with respect to its UIT inventories
during the periods ended September 30, 1996 and 1995 have not
had a material impact on the Company's revenues.
Forward-Looking Statements
This section titled "Management's Discussion and Analysis of
Financial Condition and Results of Operations," contains
forward-looking statements within the meaning of Section 21E of
the Securities Exchange Act of 1934, as amended, including
statements regarding, among other items, (i) cash flow
sufficient to fund the Company's debt service requirements and
working capital needs and (ii) anticipated trends in the
Company's business and the investment management industry.
Forward-looking statements are typically identified by the words
"believe," "expect," "anticipate," "intend," "estimate," and
similar expressions. These forward-looking statements are based
largely on the Company's expectations and are subject to a
number of risks and uncertainties, certain of which are beyond
the Company's control. Actual results could differ materially
from these forward-looking statements as a result of, among
other things, (i) changes in the investment management industry
as a result of economic or regulatory influences, (ii) changes
in the competitive marketplace, including new products and
pricing changes by the Company's competitors, and (iii) changes
resulting from the consummation of the transactions contemplated
by the Merger Agreement. In light of these risks and
uncertainties, there can be no assurance that the
forward-looking information contained herein will in fact
transpire. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of their
dates. The Company undertakes no obligation to publicly update
or revise any forward-looking statements.
Part II: OTHER INFORMATION
Item 1:Legal Proceedings. Not applicable.
Item 2:Changes in Securities. Pursuant to the Merger Agreement, each share
of Holding's common stock and preferred stock outstanding on October
31, 1996 were, by virtue of the Merger, converted into the right to
receive $297.40 per share, the "Per Share Merger Consideration"
calculated pursuant to the Merger Agreement. On October 31, 1996,
Holding filed a Restated Certificate of Incorporation with the
Secretary of State of the State of Delaware authorizing the
issuance of 1,000 shares of common stock, $1.00 par value per share,
all of which shares were issued and held by MSAM Holdings II, Inc.
Item 3:Defaults Upon Senior Securities. Not applicable.
Item 4:Submission of Matters to a Vote of Securities Holders. Not
applicable.
Item 5:Other Information. On October 31, 1996, pursuant to the Merger
Agreement, a change in control of Holding occurred when MSAM
Acquisition Inc. was merged with and into Holding and Holding became a
wholly owned subsidiary of MSAM Holdings II, Inc. MSAM Acquisition
Inc. is a wholly owned subsidiary of MSAM Holdings II, Inc., which, in
turn, is a wholly owned subsidiary of Morgan Stanley. Morgan Stanley,
through MSAM Holdings II, Inc., acquired all of the outstanding capital
stock of Holding for approximately $1.175 billion. Prior to the
Merger, a substantial majority of Holding's common stock was
held by (i) The Clayton & Dubilier Private Equity Fund IV Limited
Partnership, a Connecticut limited partnership and (ii) management of
Holding and its subsidiaries. Morgan Stanley paid approximately $761
million in cash to stockholders of Holding (excluding certain
management stockholders described below) and to persons holding stock
options to purchase common stock of Holding and repaid Holding's
outstanding balance of approximately $223 million under its secured
credit facility.
In connection with the Merger Agreement, Holding filed a Restated
Certificate of Incorporation with the Secretary of State of the State
of Delaware authorizing the issuance of 1,000 shares of common stock,
$1.00 par value per share, all of which shares were issued to MSAM
Holdings II, Inc., 1585 Broadway, New York, New York 10036.
Pursuant to the Merger Agreement, certain members of senior management
entered into a contribution and exchange agreement with Morgan Stanley
and MSAM Holdings II, Inc. pursuant to which such members of senior
management contributed their respective shares of Holding in exchange
for approximately $26 million of shares of preferred stock of MSAM
Holdings II, Inc., which, in turn, will be exchangeable into common
stock of Morgan Stanley at specified times over a four year period.
Such shares of preferred stock represent, in the aggregate, 5% of the
combined voting power in MSAM Holdings II, Inc., the remaining voting
power of which is held by Morgan Stanley.
Item 6:Exhibits and Reports on Form 8-K.
(a) Exhibits. The exhibits required by Item 601 of Regulation S-K and
filed herewith are listed in the Exhibit Index which follows the
signature page and immediately precedes the exhibits filed.
(b) Reports on Form 8-K. No reports on Form 8-K were filed by the
Registrant during the third quarter ended September 30, 1996.
[16]
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VK/AC HOLDING, INC.
Date: November 14, 1996 /s/ WILLIAM R. RYBAK
William R. Rybak
Executive Vice President and
Chief Financial Officer
(principal financial officer and
duly authorized officer of
Registrant)
[17]
VK/AC HOLDING, INC.
EXHIBIT INDEX
(Pursuant to Item 601 of Regulation S-K)
Exhibit
Number Description
------- -----------
1 None
2 Agreement and Plan of Merger, dated as of June 21, 1996, among
VK/AC Holding, Inc., Morgan Stanley Group Inc., MSAM Holdings
II, Inc. and MSAM Acquisition Inc. (incorporated by reference
to Exhibit 2.2 to VK/AC Holding, Inc.'s Form 10-Q for the
second quarter ended June 30, 1996, Commission File No.
33-56334).
3 Certificate of Merger of MSAM Acquisition Inc. into VK/AC
Holding, Inc. (including Restated Certificate of
Incorporation of VK/AC Holding, Inc.) +
11 Statement re computation of per share earnings. +
27 Financial Data Schedule +
_____________________
+ Filed herewith
[18]
Exhibit 3
State of Delaware Page 1
Office of the Secretary of State
____________________________
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
MERGER, WHICH MERGES:
"MSAM ACQUISITION INC.", A DELAWARE CORPORATION,
WITH AND INTO "VK/AC HOLDING, INC." UNDER THE NAME OF "VK/AC HOLDING,
INC.", A CORPORATION ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF
DELAWARE, AS RECEIVED AND FILED IN THIS OFFICE THE THIRTY-FIRST DAY OF
OCTOBER, A.D. 1996, AT 1:15 O'CLOCK P.M.
[SEAL OF DELAWARE
SECRETARY'S OFFICE]
/s/ Edward J. Freel
Edward J. Freel, Secretary of State
2311669 8100M AUTHENTICATION: 8172548
960317590 DATE: 10-31-96
CERTIFICATE OF MERGER
OF
MSAM ACQUISITION INC.
INTO
VK/AC HOLDING, INC.
(Pursuant to Section 251 of
the General Corporation Law of the State of Delaware)
* * * * * *
The undersigned does hereby certify that:
FIRST: The names and state of incorporation of each of the
constituent corporations is as follows:
Name State of Incorporation
---- ----------------------
VK/AC Holding, Inc. Delaware
MSAM Acquisition Inc. Delaware
SECOND: An Agreement and Plan of Merger (the "Agreement") dated
as of June 21, 1996, among VK/AC Holding, Inc., Morgan Stanley Group Inc.,
MSAM Holdings II, Inc. and MSAM Acquisition Inc. has been approved, adopted,
certified, executed and acknowledged by each of the constituent corporations
in accordance with the requirements of Section 251 of the General Corporation
Law of the State of Delaware.
THIRD: The name of the surviving corporation is VK/AC Holding,
Inc.
FOURTH: The restated certificate of incorporation of the
surviving corporation is attached hereto as Exhibit A.
FIFTH: The executed Agreement is on file at the principal place
of business of the surviving corporation at One Parkview Plaza, Oakbrook
Terrace, Illinois 60181.
SIXTH: A copy of the Agreement will be furnished by the surviving
corporation, on request and without cost, to any stockholder of any
constituent corporation.
SEVENTH: This Certificate of Merger shall be effective at the
time of filing with the Secretary of State of the State of Delaware.
IN WITNESS WHEREOF, the undersigned has caused this instrument to
be duly executed by its authorized officer.
Dated: October 31, 1996
VK/AC HOLDING, INC.
By: /s/ Ronald A. Nyberg
Name: Ronald A. Nyberg
Title: Executive Vice President
Exhibit A
---------
RESTATED CERTIFICATE
OF INCORPORATION
OF
VK/AC HOLDING, INC.
1. The name of the corporation is: VK/AC Holding, Inc.
2. The address of its registered office in the Sate of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington,
County of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
3. The nature of the business or purposes to be conducted or promoted
is to engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
4. The total number of shares of common stock which the corporation
shall have authority to issue is One Thousand (1,000) and the par value of
each of such shares is One Dollar ($1.00) amounting in the aggregate to One
Thousand Dollars ($1,000).
5. The board of directors is authorized to make, alter or repeal the
by-laws of the corporation. Election of directors need not be by written
ballot.
6. A director of the corporation shall not be personally liable to
the corporation or its stockholders for monetary damages for any breach of
fiduciary duty as a director, except for liability (i) for any breach by the
director of his duty of loyalty to the corporation, or its stockholders, (ii)
for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
General Corporation Law of the State of Delaware or (iv) for any transaction
from which the director derived an improper personal benefit.
No repeal, modification or amendment of, or adoption of any provision
inconsistent with, this Paragraph 6 nor, to the fullest extent permitted by
law, any modification of law shall adversely affect any right or protection of
a director of the corporation existing at the time of such repeal, amendment,
adoption or modification or affect the liability of any director of the
corporation for any action taken or any omission that occurred prior to the
time of such repeal, amendment, adoption or modification.
If the General Corporation Law of the State of Delaware shall be amended
after this Restated Certificate of Incorporation is filed with the Secretary
of State of Delaware to authorize corporate action further eliminating or
limiting the liability of directors, then a director of the corporation, in
addition to the circumstances in which he is not liable immediately prior to
such amendment, shall be free of liability to the fullest extent permitted by
the General Corporation Law of Delaware, as so amended.
<TABLE>
VK/AC HOLDING, INC. AND SUBSIDIARIES
Computation of Earnings Per Share
(In 000's except per share data)
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
--------------------------------------------- ----------------------------------------------
1996 1995 1996 1995
---------------------- ---------------------- ---------------------- -----------------------
Primary Fully Diluted Primary Fully Diluted Primary Fully Diluted Primary Fully Diluted
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Income $19,100 $19,100 $7,920 $7,920 48,153 48,153 20,370 20,370
Less Accretion to Redemption Value (375) (375) 0 0 (15,263) (15,263) (1,620) (1,620)
---------------------- ---------------------- ---------------------- -----------------------
Net Income Available to
Common Stockholders 18,725 18,725 7,920 7,920 32,890 32,890 18,750 18,750
---------------------- ---------------------- ---------------------- -----------------------
Weighted Average Common Shares 2,435 2,435 2,434 2,434 2,434 2,434 2,416 2,416
Effect of Stock Options Calculated
According to Treasury Stock Method 180 180 92 92 146 182 96 96
Preferred Shares Convertible into
Common Shares 33 33 33 33 33 33 33 33
---------------------- ---------------------- ---------------------- -----------------------
Weighted Average Number of Common
and Common Equivalent Shares
Outstanding 2,648 2,648 2,559 2,559 2,613 2,649 2,545 2,545
---------------------- ---------------------- ---------------------- -----------------------
Earnings Per Share $7.07 $7.07 $3.09 $3.09 $12.59 $12.42 $7.37 $7.37
===================== ====================== ====================== ======================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<CAPTION>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1995
<PERIOD-END> SEP-30-1996 SEP-30-1996
<CASH> 10691 10691
<SECURITIES> 24579 24579
<RECEIVABLES> 47948 47948
<ALLOWANCES> 0 0
<INVENTORY> 74564 74564
<CURRENT-ASSETS> 0<F1> 0
<PP&E> 22890 22890<F1>
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 1008400 1008400
<CURRENT-LIABILITIES> 0<F1> 0<F1>
<BONDS> 150000 150000
0 0
6500 6500
<COMMON> 46480 46480
<OTHER-SE> 342213 342213
<TOTAL-LIABILITY-AND-EQUITY> 1008400 1008400
<SALES> 0 0
<TOTAL-REVENUES> 87897 256225
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 8653 27085
<INCOME-PRETAX> 27535 70667
<INCOME-TAX> 11182 28778
<INCOME-CONTINUING> 16353 41889
<DISCONTINUED> 575 2057
<EXTRAORDINARY> 2172 4207
<CHANGES> 0 0
<NET-INCOME> 19100 48153
<EPS-PRIMARY> 7.07 12.59
<EPS-DILUTED> 7.07 12.42
<FN>
<F1>
Industry does not use a classified balance sheet.
</FN>
</TABLE>
