<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) October 25, 1994
KEMPER CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 1-10242 36-6169781
(State or other (Commission File Number) (I.R.S. Employer
jurisdiction of Identification Number)
incorporation or
organization)
One Kemper Drive 60049
Long Grove, Illinois (Zip Code)
(Address of principal
executive offices)
Registrant's telephone number, including area code (708) 320-4700
<PAGE> 2
Kemper Corporation
FORM 8-K
<TABLE>
<CAPTION>
Page
<S> <C>
ITEM 5. OTHER EVENTS . . . . . . . . . . . . . . . . . . . . . 3
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. . . . . . . . . . . 3
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . 13
EXHIBIT 20 . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
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ITEM 5. OTHER EVENTS
Interim Earnings Update
On October 25, 1994, Kemper Corporation (the "Company") announced its earnings
for the three months and nine months ended September 30, 1994. A copy of the
Company's press release dated October 25, 1994 is attached hereto as Exhibit 20
and is incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(A) Financial statements of business acquired - not applicable.
(B) Pro forma financial information.
As previously reported, the Company, Conseco, Inc. ("Conseco") and KC
Acquisition, Inc. ("Acquisition"), a wholly owned subsidiary of Conseco,
entered into an Agreement and Plan of Merger dated June 26, 1994 (the "Merger
Agreement"), pursuant to which Acquisition would merge with and into the
Company (the "Merger"), and the Company as the surviving corporation would
become a wholly owned subsidiary of Conseco. On October 25, 1994, Conseco
announced that it will not complete the Merger prior to year-end 1994 and that
under the Merger Agreement, Conseco has until March 31, 1995 to complete the
transaction. In the same announcement, Conseco noted that the Merger is not
contingent on Conseco's sales of its equity interests in other life insurance
companies, although it is exploring such sales and any such sales may impact
the financing structure for the Merger. The following pro forma financial
information assumes no such sales.
The following unaudited pro forma condensed consolidated statements of
operations for the six months ended June 30, 1994 and the year ended December
31, 1993 present the Company's results of operations as adjusted to give effect
to the Merger and certain related and other transactions as if they all
occurred on January 1, 1993. The accompanying unaudited pro forma consolidated
balance sheet as of June 30, 1994 presents the Company's financial position as
if the Merger and certain related and other transactions all occurred on June
30, 1994. If the Merger and such related and other transactions are
consummated, the Company's financial statements will reflect their effects only
from the date each such transaction occurs. No assurance can be given that the
Merger will be consummated as or when currently contemplated.
The Merger is being accounted for herein as a "purchase" under the purchase
method of accounting. All information contained in the pro forma financial
information relating to Conseco or its merger-related plans and assumptions
have been supplied by Conseco, and the Company does not have independent
knowledge of portions of such information. Under purchase accounting, the total
purchase cost of the Company will be allocated by Conseco to the assets and
liabilities acquired by Conseco based on their relative fair values estimated
by Conseco as of the dates the transactions are closed, with any excess of the
total purchase costs over the estimated fair value of the assets acquired
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less the estimated fair value of the liabilities assumed recorded as
goodwill. The cost allocations will be based on appraisals and other studies,
which are not yet completed. Accordingly, the final allocations will be
different from the amounts reflected herein. Although the final allocations
will differ, the Company has been informed that the pro forma information
herein reflects Conseco management's best estimates based on currently
available information.
The pro forma financial statements should be read in conjunction with the
Company's consolidated financial statements and notes thereto previously filed
as part of the Company's most recent annual and quarterly reports on Forms 10-K
and 10-Q. The pro forma information below is provided for informational
purposes only and is not necessarily indicative of what the actual financial
position or results of operations of the Company would have been had the
transactions actually occurred on the dates indicated, nor does it purport to
indicate the future financial position or results of operations of the Company.
Results of operations for the six months ended June 30, 1994 may not be
indicative of results of operations to be expected for a full year. The pro
forma adjustments are based upon available information and certain assumptions
believed to be reasonable in the circumstances, including assumptions with
respect to financing the Merger and Conseco's future business plans. There can
be no assurance that such information, assumptions and plans will not change
from those reflected in the pro forma financial statements and notes thereto.
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Kemper Corporation
Consolidated Balance Sheet
June 30, 1994
(in thousands)
<TABLE>
<CAPTION>
Life Insurance and Real Estate Purchase
------------------------------ Accounting
Sale of Add back and other
Historical Segments(1) Eliminations(2) Adjustments Pro Forma
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets
Investments:
Fixed maturities $ 5,268,144 $(5,267,113) $ 1,031
Equity securities 34,112 (33,795) 317
Short-term investments 431,787 (384,521) $173,705 (5) 220,971
Joint venture mortgage loans 936,407 (936,407)
Third-party mortgage loans 155,423 (155,423)
Other real estate-related investments 278,910 (278,910)
Other loans and investments 444,843 (424,086) 20,757
---------------------------------------------------------------------------
Total investments 7,549,626 (7,480,255) 173,705 243,076
Cash 210,934 (22,037) 350,000 (4)
1,296,900 (2,298,200) (4)
(173,705) (5)
(79,392) (6)
823,500 (6)
(108,000) (7)
Securities purchased under resale agreements 180,010 180,010
Securities held by brokerage firm subsidiaries 203,414 203,414
Accounts receivable from brokerage firms and customers 832,937 832,937
Other accounts and notes receivable 627,575 (377,977) $31,680 281,278
Reinsurance recoverable 801,453 (801,453)
Deferred insurance acquisition costs 643,771 (643,771)
Deferred investment product sales costs 181,806 181,806
Other assets 286,537 (11,263) (50,586) (3)
(5,519) (8) 219,169
Goodwill 5,102 1,316,034 (9) 1,321,136
Assets of separate accounts 1,826,535 (1,826,535)
---------------------------------------------------------------------------
Total assets $13,349,700 $(9,866,391) $31,680 $ (52,163) $3,462,826
===========================================================================
</TABLE>
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Kemper Corporation
Consolidated Balance Sheet
June 30, 1994
(in thousands)
<TABLE>
<CAPTION>
Life Insurance and Real Estate Purchase
------------------------------ Accounting
Sale of Add back and Other
Historical Segments(1) Eliminations(2) Adjustments Pro Forma
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Liabilities
Life policy benefits $ 8,095,793 $(8,095,793)
Securities sold under repurchase agreements 152,501 $ 152,501
Securities sold, not yet purchased, at market 68,233 68,233
Accounts payable to brokerage firms and customers 333,524 333,524
Other accounts payable and liabilities 723,111 (99,400) $ 18,830 $ 1,400 (10)
(125,000) 61,800 (11)
20,551 (12) 601,292
Notes payable 394,226 (24,100) (6) 370,126
Long-term debt 390,987 (12,850) 12,850 823,500 (6)
(14,737) (6)
(30,700) (7)
(39,100) (14) 1,129,950
Convertible debentures of subsidiary 40,555 (40,555) (6)
Liabilities of separate accounts 1,826,535 (1,826,535)
---------------------------------------------------------------------------
Total liabilities 12,025,465 (10,159,578) 31,680 758,059 2,655,626
---------------------------------------------------------------------------
Minority interest 123,900 (13) 123,900
Stockholders' equity
Preferred stock 360,497 (130,000) (13)
(230,497) (15)
Common stock 326,055 (326,055) (4) --|
Additional paid-in capital 335,486 683,300 (4) |---683,300
(335,486) (4) --|
Unrealized loss on foreign currency translation (44,217) 44,100 117 (4)
Unrealized loss on investments (231,023) 230,900 123 (4)
Retained earnings 1,600,055 18,187 (1,618,242) (4)
Treasury shares, at cost (1,022,618) 1,022,618 (4)
----------------------------------------------------------------------------
Total stockholders' equity 1,324,235 293,187 (934,122) 683,300
----------------------------------------------------------------------------
Total liabilities & stockholders' equity $13,349,700 $(9,866,391) $ 31,680 $ (52,163) $3,462,826
===========================================================================
</TABLE>
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Kemper Corporation
Consolidated Statement of Operations
For the six months ended June 30, 1994
(in thousands)
<TABLE>
<CAPTION>
Life Insurance and Real Estate Purchase
------------------------------ Accounting
Sale of Add back and other
Historical Segments(1) Eliminations(2) Adjustments Pro Forma
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue
Asset management income $234,724 $10,294 $ (2,368) (16)
(2,800) (3) $239,850
Net investment income 222,602 $(220,087) 412 2,927
Insurance premium income 75,170 (75,170)
Securities brokerage income 267,408 1,992 269,400
Realized investment gain 24,752 (23,198) 1,554
Other income 49,531 (50,357) 1,116 290
-------------------------------------------------------------------------
Total 874,187 (368,812) 13,814 (5,168) 514,021
Benefits and expenses
Asset management expenses 132,972 9,779 142,751
Amortized investment product sales costs 27,495 27,495
Insurance claim costs and policyholder benefits 236,285 (236,285)
Amortized policy acquisition costs 40,718 (40,718)
Securities brokerage expenses 259,127 1,992 (6,000) (19) 255,119
Interest expense 37,651 (1,868) 412 28,100 (6)
(2,072) (14) 62,223
Other expenses 20,904 (5,456) 1,631 (2,100) (11)
17,400 (17)
(10,700) (20) 21,679
-------------------------------------------------------------------------
Total 755,152 (284,327) 13,814 24,628 509,267
Earnings (loss) from continuing
operations before income tax (benefit) 119,035 (84,485) 0 (29,796) 4,754
Income tax (benefit) 43,948 (31,444) (3,555) (12) 8,949
-------------------------------------------------------------------------
Income (loss) from continuing operations 75,087 (53,041) 0 (26,241) (4,195)
Less minority interest 5,177 (18) 5,177
-------------------------------------------------------------------------
Income (loss) before discontinued operations $75,087 $(53,041) $ 0 $(31,418) $(9,372)
=========================================================================
</TABLE>
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Kemper Corporation
Consolidated Statement of Operations
For the year ended December 31, 1993
(in thousands)
<TABLE>
<CAPTION>
Life Insurance and Real Estate Purchase
------------------------------ Accounting
Sale of Add back and other
Historical Segments(1) Eliminations(2) Adjustments Pro Forma
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue
Asset management income $ 498,153 $13,121 $(10,476) (16)
(4,800) (3) $ 495,998
Net investment income 426,807 $(422,236) 699 5,270
Insurance premium income 157,667 (157,667)
Securities brokerage income 639,991 1,806 641,797
Realized investment gain (loss) (255,702) 273,840 18,138
Other income 82,258 (79,048) 3,210
------------------------------------------------------------------------
Total 1,549,174 (385,111) 15,626 (15,276) 1,164,413
Benefits and expenses
Asset management expenses 295,785 13,049 308,834
Amortized investment product sales costs 48,011 48,011
Insurance claim costs and policyholder benefits 514,304 (514,304)
Amortized policy acquisition costs 60,367 (60,367)
Insurance operating expenses 23,133 (23,133)
Securities brokerage expenses 617,455 1,806 (30,000) (19) 589,261
Interest expense 73,201 (771) 771 56,200 (7)
(2,659) (14) 126,742
Other expenses 26,065 (4,018) (4,300) (13)
34,900 (17) 52,647
------------------------------------------------------------------------
Total 1,658,321 (602,593) 15,626 54,141 1,125,495
Earnings (loss) from continuing operations
before income tax (benefit) (109,147) 217,482 0 (69,417) 38,918
------------------------------------------------------------------------
Income tax (benefit) (19,749) 42,524 (12,137) (12) 10,638
------------------------------------------------------------------------
Income (loss) from continuing operations (89,398) 174,958 0 (57,280) 28,280
Less minority interest 9,728 (18) 9,728
------------------------------------------------------------------------
Income (loss) before discontinued operations
and cumulative effect, net of tax $(89,398) $174,958 $ 0 $(67,008) $18,552
========================================================================
</TABLE>
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ADJUSTMENTS
(1) Immediately following the closing of the Merger (the "Effective Time"), all
of the issued and outstanding shares of capital stock of the Company's life
insurance subsidiaries (the "Life Companies") will be sold to a life
insurance subsidiary of CCP II Holdings, Inc., an affiliate of Conseco (the
"Life Company Dispositions"), and certain real estate interests currently
held by subsidiaries of the Company will be transferred to one or more of
CCP II Holdings' real estate acquisition subsidiaries (the "Real Estate
Transfers"). It is currently anticipated that the amount to be paid in
connection with the sale and transfers is $1,296.9 million in cash.
All accounts related to the Life Companies and real estate subsidiaries are
eliminated to reflect the sale and transfers. The difference between the
cash consideration and the net book value of the assets sold and transferred
is recognized as an adjustment to retained earnings.
(2) Eliminations between the Life Companies and real estate subsidiaries and
the remaining subsidiaries of the Company are reversed. They are chiefly
comprised of accounts and notes receivable, the related interest expense,
commissions received by Kemper Sales Company and Kemper Securities, Inc. on
the sales of life products, and fees for services provided by Kemper Service
Company.
(3) Subsequent to June 30, 1994, the Company signed a definitive agreement
to sell Investors Fiduciary Trust Company ("IFTC"), a 50%-owned subsidiary,
to State Street Boston Corporation ("State Street"). State Street plans to
exchange approximately 3 million shares of its common stock for the
Company's ownership interest in IFTC. Consummation of the transaction is
subject to certain regulatory actions and approvals.
Other assets have been decreased by $50.6 million to eliminate the
Company's investment in IFTC. A tax payable of $30.9 million has been
included in the adjustment to Other accounts payable and liabilities (see
Note 12). Asset management income has been reduced by $4.8 million for 1993
and $2.8 million for the six months ended June 30, 1994 to eliminate the
earnings of IFTC for those periods. The State Street common stock is not
included in the pro forma financial statements since it is assumed such
stock will be transferred to the Life Companies.
(4) Under "push down" accounting, when a major change in the ownership of a
company's voting stock occurs, the economic effect of that change should be
reflected (pushed down) in the financial statements of the acquired
company. Accordingly, the total consideration paid by Conseco to acquire
the Company (net of amounts paid by CCP II Holdings to purchase the assets
of the Life Insurance Companies and certain
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<PAGE> 10
real estate interests) are reflected as the new equity of the Company.
As partial financing for the Merger, Conseco plans to borrow $350.0 million
under a senior subordinated note and will issue common stock which is
assumed to be valued at $343.8 million (such amount has been calculated
based on the closing price and the average closing price of
Conseco common stock as of and for the 20 trading days ended
October 26, 1994).
The merger consideration would consist of $2,298.2 million of cash and
$343.8 million of Conseco common stock. Goodwill of $1,321.1 million will
be recorded in connection with the Merger. The consideration per
equivalent share of the Company's common stock is (i) $56.00 per share,
without interest, and (ii) the fraction (rounded to the nearest
ten-thousandth) of a share of Conseco common stock determined by dividing
$11.00 by the average closing price of Conseco common stock prior to the
Merger (such fraction to be not more than 0.2418 nor less than 0.1982).
The Company's historical Common stock, Additional paid-in capital,
Unrealized loss on foreign currency translation, Unrealized loss on
investments, Retained earnings and Treasury stock are eliminated and
replaced with the anticipated capital of Acquisition after the Merger.
(5) After the Merger, Conseco intends to invest all cash in short-term
investments.
(6) In order to finance a portion of the merger consideration, Acquisition
intends to issue $823.5 million of senior debt, as shown in the following
table. $79.4 million of the proceeds of the new debt issues will be used
to retire previously existing debt as follows: $24.1 million Notes
payable, $14.7 million Long-term debt and $40.6 million Convertible
debentures of subsidiary.
<TABLE>
<CAPTION>
Pro Forma
-----------------------------
Interest Interest
Assumed Expense for Expense for
Principal Interest the Year the six months
(in millions) Amount Rate Ended 12/31/93 Ended 6/30/94
--------- -------- -------------- --------------
<S> <C> <C> <C> <C>
Senior Tranche A Term Loan (a) $523.5 7.3% $38.3 $19.1
Senior Tranche B Term Loan (a) 200.0 8.1% 16.1 8.1
Senior Bridge Loan (b) 100.0
Amortization of debt issue costs 6.1 3.2
Less interest on debt repaid (4.3) (2.3)
------ ----- -----
$823.5 $56.2 $28.1
====== ===== =====
</TABLE>
(a) Principal and interest under the Senior Tranche A Term Loan and the
Senior Tranche B Term Loan are repayable in quarterly installments of
varying minimum amounts over a seven year period.
(b) The Senior Bridge Loan is required to be repaid on the second
business day after the Effective Time. It is anticipated that
simultaneously with or immediately following the Effective Time, Kemper
Financial Services, Inc. ("KFS") will transfer all of the broker-dealer
businesses of KFS and all of the property and assets related thereto into a
new wholly owned subsidiary of KFS (the "KFS
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<PAGE> 11
Broker-Dealer Transfer"). As a result of the KFS Broker-Dealer Transfer,
it is expected that certain funds will be made available and that these
funds will be used to repay a portion of the Senior Bridge Loan.
A change in interest rates on the borrowings summarized above of .5% would
result in (i) an increase (or decrease) in pro forma interest expense of
$3.6 million and $1.8 million for 1993 and the six months ended June 30,
1994, respectively, and (ii) a decrease (or increase) in pro forma net
income of $2.4 million and $1.2 million for the same respective periods.
As a result of the Merger, the debt issued by Acquisition is consolidated
herein.
(7) Acquisition is expected to pay debt issuance costs totaling $41.2 million,
of which $30.7 million is associated with the issuance of the $823.5
million debt and $10.5 million is associated with the $350.0 million debt
to be issued by Conseco, the proceeds of which will be subsequently
contributed to Acquisition. Balance sheet adjustments have been made to
Long-term debt and Additional paid-in capital for these amounts.
Acquisition is also expected to pay $14.8 million of other
acquisition-related costs. The Company is expected to pay $52.0 million of
severance and other costs.
(8) Other assets are decreased to reflect the elimination of the Company's
previously deferred debt issue costs since all existing debt is either
repaid or adjusted to fair value.
(9) Goodwill reflects the excess of cost of the Company over the net assets
acquired at the assumed acquisition date.
(10) Other accounts payable and liabilities are increased to reflect the
actuarially determined amount allocated to pension, postretirement and
postemployment benefit obligations.
(11) Other accounts payable and liabilities are increased to reflect the excess
of existing operating lease obligations over the fair value of such
obligations, based on current market rental rates. Other expenses are
decreased $4.3 million for 1993 and $2.1 million for the six months ended
June 30, 1994 to reflect this change.
(12) All of the applicable pro forma adjustments made to the consolidated
balance sheet and consolidated statements of operations are tax effected
at the appropriate rate. In addition, certain additional adjustments have
been made to the historical tax accounts including:
(i) The Company will recognize a net tax loss upon the Life Company
Dispositions and the Real Estate Transfers which can be carried back to
recover capital gains tax paid in previous years resulting in a tax
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<PAGE> 12
receivable at the assumed Effective Time. The anticipated tax benefit is
$125.0 million.
(ii) A tax liability of $30.9 million was recorded for the IFTC
disposition.
(13) Shares of Series C preferred stock and Series D preferred stock that are
to remain outstanding after the Merger are transferred to minority
interest. The $130.0 million par value of the shares has been decreased
by $6.1 million to reflect fair value.
(14) The value of the Company's existing Long-term debt remaining after the
Merger is adjusted to reflect current interest rates ranging from 7.72% to
10.18% depending on maturity. Interest expense has been decreased by $2.7
million for 1993 and $2.1 million for the six months ended June 30, 1994.
(15) It is assumed that all holders of Series A preferred stock and Series E
preferred stock will convert such shares to the Company's common stock at
or prior to the Effective Time. Such conversions are assumed in the total
merger consideration.
(16) After the Merger, investment advisory services formerly provided by KFS to
the Life Companies and real estate subsidiaries will be provided by
Conseco Capital Management, Inc., a wholly owned subsidiary of
Conseco, or by the real estate subsidiaries. Asset management income has
been decreased by $10.5 million for 1993 and $2.4 million for the six
months ended June 30, 1994 to reflect this change.
(17) Other expenses are increased to reflect the amortization of goodwill
calculated as of January 1, 1993, the assumed date of acquisition, over
a 40-year period on a straight-line basis.
(18) Minority interest reflects dividends on the Series C and Series D
preferred stock which will remain outstanding after the Effective Time.
(19) Securities brokerage expenses are reduced to eliminate a special addition
to the Company's legal reserve in 1993 and principally to reflect certain
recoveries in 1994 that were credited to the legal reserve.
(20) Other expenses are reduced to eliminate the costs incurred during the six
months ended June 30, 1994, primarily in connection with a now-terminated
proxy contest.
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(C) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Page
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<S> <C> <C>
20 Press release dated 14
October 25, 1994
</TABLE>
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 hereunto duly authorized.
KEMPER CORPORATION
(Registrant)
Date: October 31, 1994 By: /s/ JOHN H. FITZPATRICK
John H. Fitzpatrick
Executive Vice President and
Chief Financial Officer
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<PAGE> 1
EXHIBIT 20
NEWS RELEASE [KEMPER LOGO]
FOR IMMEDIATE RELEASE
October 25, 1994
FOR MORE INFORMATION:
Ira Nathanson 708/320-4463 or
Bob Schuerings 708/320-4808
KEMPER CORPORATION REPORTS
THIRD-QUARTER AND NINE-MONTH RESULTS
LONG GROVE, IL (Oct. 25) -- Kemper Corporation (NYSE: KEM) today
reported operating earnings from continuing operations of $44.5 million, or
$1.12 per share, for the quarter ended Sept. 30, compared with $32.8 million, or
$.69 per share, for the same period in 1993. In the 1994 period, operating
earnings included a benefit of $14.7 million after-tax, primarily from an
investment portfolio repositioning, and an after-tax charge of $2.9 million
relating to the planned merger of the company with Conseco, Inc.
For the third quarter of 1994, the company reported net income from
continuing operations of $14.3 million, or $.24 per share, compared with a net
loss of $118.8 million, or $3.24 per share, for the same period in 1993. These
results included net realized investment losses of $30.3 million in the third
quarter of 1994, compared with net realized investment losses of $151.6 million
in the 1993 period. The 1994 net realized investment losses were primarily from
a repositioning of the life insurance subsidiaries' investment portfolios. The
1993 realized investment losses primarily were related to the company's
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<PAGE> 2
KEMPER REPORTS THIRD-QUARTER, NINE MONTH EARNINGS -- PAGE 2
provisions for real estate-related losses of $250.0 million pre-tax, or $184.7
million after tax.
Net income including discontinued operations for the third quarter of
1994 was $17.5 million, or $.34 per share, compared with $162.4 million, or
$4.05 per share, for the third quarter of 1993. The 1993 third-quarter results
included gains of $269.0 million from the sale of Economy Fire & Casualty
Company and the exchange of Kemper's reinsurance and risk management
subsidiaries for 17.4 million shares of Kemper common stock. Also in the 1993
third quarter, there was a $3.3 million benefit relating to a 1 percent
retroactive increase in the corporate income tax rate.
"Overall, I am pleased with these results," said David B. Mathis,
chairman and chief executive officer of Kemper Corporation. "The earnings
level becomes even more meaningful when you consider the unusual conditions
under which these results were generated. The complexity of the planned merger
transaction, including the lengthy third-party approval processes and the
overall distraction to our operations, added new challenges for our people who
already are facing industry-wide pressures in our core businesses."
NINE-MONTH RESULTS
For the first nine months of 1994, Kemper reported operating earnings
from continuing operations of $103.7 million, or $2.51 per share, compared with
$57.0 million, or $.96 per share, in the year-ago period. The 1994 period
included the previously mentioned $14.7 million benefit and a charge of $9.8
million after-tax relating to a proxy contest and the subsequent merger
process. The 1993 results included charges of $11.9 million related to the
company's adoption of new accounting rules.
For the first nine months of 1994, net income from continuing
operations was $89.4 million, or $2.09 per share, compared with a net loss of
$160.3 million, or $3.78 per share, in the first nine months of 1993.
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<PAGE> 3
KEMPER REPORTS THIRD-QUARTER, NINE MONTH EARNINGS -- Page 3
The 1994 period included realized investment losses of $14.3 million, or
$.42 per share. The 1993 period included realized investment losses of $217.3
million, or $4.74 per share.
Net income including discontinued operations for the first nine months
of 1994 was $95.1 million, or $2.26 per share, compared with $148.0 million, or
$2.95 per share, for the 1993 first nine months. The 1993 period includes the
previously mentioned third quarter realized gains on the divestiture of certain
nonstrategic businesses.
ASSET MANAGEMENT
The asset management segment reported nine-month 1994 operating earnings
of $57.4 million, or $1.68 per share, compared with $68.5 million, or $1.49 per
share, for the same period in 1993. The drop in earnings was caused by a
decrease in commissions earned due to reduced new sales and lower management
fees reflecting a decline in assets under management.
Assets under management totaled $65.4 billion at Sept. 30, down from
$69.3 billion at year-end 1993, but up slightly from June 30, 1994. The 1994
decrease is related to net redemptions of mutual funds and reductions in market
values of assets under management.
On Sept. 27, 1994, Kemper Financial Services, Inc. signed a definitive
agreement to sell its 50 percent interest in Investors Fiduciary Trust Company
to State Street Boston Corporation for approximately three million shares of
State Street common stock.
LIFE INSURANCE
The life insurance segment reported significantly higher operating
earnings of $101.7 million, or $2.97 per share, for the first nine months of
1994, compared with $62.9 million, or $1.37 per share, for the same period in
1993. The increased earnings were attributable primarily to increased spreads
on fixed-rate annuities and the positive impact
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<PAGE> 4
KEMPER REPORTS THIRD-QUARTER, NINE MONTHS EARNINGS -- PAGE 4
of a repositioning of the life insurance segment's investment portfolio during
September. The repositioning resulted in a reduced level of amortization of
deferred policy acquisition costs during the period. Earnings also benefited
from adjustments with respect to investments in collateralized mortgage
obligations as well as increasing yields from the fixed-maturity portfolio.
The segment reported net income of $63.2 million, or $1.84 per share,
for the first nine months of 1994, compared with net income of $31.1 million, or
$.68 per share, for the year-ago period. Net income included net realized
investment losses of $38.5 million for the 1994 period, compared with net
realized investment losses of $31.9 million for the year-ago period.
The third-quarter 1994 repositioning of the segment's investment
portfolio resulted in a realized investment loss of approximately $39.7 million
after-tax from sales of certain investment-grade corporate securities and
collateralized mortgage obligations. The $868.7 million of proceeds from the
sales, together with $325.0 million of cash and short-term investments, were
reinvested primarily in higher yielding U.S. Government guaranteed mortgage
pass-through securities.
SECURITIES BROKERAGE
The securities brokerage segment reported an operating loss of $3.0
million, or $.09 per share, in the first nine months of 1994, compared with a
loss of $6.4 million, or $.14 per share, for the year-ago period. The 1993
period included a $19.8 million after-tax supplemental addition to legal
reserves and a $5.5 million expense after-tax related to a change in accounting
principles.
The 1994 loss is primarily due to lower revenues reflecting the
industry-wide downturn in the retail brokerage business and uncertainties with
respect to the company's ownership. The segment began to address the downturn
early this year by refocusing the organization on key business opportunities.
In addition, steps were taken to reduce
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KEMPER REPORTS THIRD-QUARTER, NINE MONTHS EARNINGS -- PAGE 5
overhead costs. The full impact of these measures is not expected to be realized
until 1995. Additionally, despite recent competitive pressures, the segment
continues to work toward its long-term strategies to recruit brokers and to
expand into selected communities.
REAL ESTATE
The real estate segment reported a net loss of $2.5 million, or $.07 per
share, for the first nine months of 1994, down significantly from a loss of
$231.0 million, or $5.04 per share, for the first nine months of 1993. Included
in the 1994 period were realized investment gains of $22.6 million, compared
with realized investment losses of $185.4 million for the same period in 1993.
The 1994 period included gains from the third-quarter sale of equity interests
in certain multifamily projects to a newly formed real estate investment trust.
Operating losses decreased to $25.1 million, compared with operating
losses of $45.6 million in the same period of 1993. This improvement was due
primarily to sales, refinancings and restructurings respecting certain joint
ventures that reduced the level of losses the company is required to record.
This segment continues to manage the real estate portfolio to decrease risk and
reduce operating losses.
Kemper Corporation is a holding company with principal subsidiaries in
asset management, life insurance and securities brokerage.
-30-
Editor's notes:
1. Operating earnings/loss denotes net income/loss excluding realized
investment results and the gain on the sale of discontinued operations.
2. Earnings per share are calculated on a primary basis.
3. Discontinued operations include property-casualty insurance, reinsurance
and risk management.
(Table follows)
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<PAGE> 6
KEMPER REPORTS THIRD-QUARTER, NINE MONTH EARNINGS -- PAGE 6
Kemper Corporation Consolidated Financial Highlights (unaudited)
(in millions, except per share data)
<TABLE>
<CAPTION>
9 Months Ended 9-30 3 Months Ended 9-30
------------------- -------------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income (loss)
Continuing operations before cumulative
effect of changes in accounting principles $ 89.4 $ (148.4) $ 14.3 $ (118.8)
Cumulative effect of changes in
accounting principles - (11.9) - -
---------- -------- -------- ---------
Net income (loss) from continuing operations 89.4 (160.3) 14.3 (118.8)
Net income from discontinued operations,
including cumulative effect of changes in
accounting principles (A) 5.7 308.3 3.2 281.2
---------- -------- -------- ---------
Net income $ 95.1 $ 148.0 $ 17.5 $ 162.4
========== ======== ======== =========
Average common and
equivalent shares outstanding 34.3 45.8 34.6 38.6
========== ======== ======== =========
Net income (loss) applicable to
common shareholders $ 77.4 $ 135.2 $ 11.6 $ 156.3
========== ======== ======== =========
Net income (loss) per share (B):
Primary
Continuing operations before cumulative
effect of changes in accounting principles $ 2.09 $ (3.52) $ .24 $ (3.24)
Cumulative effect of changes in
accounting principles - (.26) - -
--------- -------- -------- ----------
Net income (loss) from continuing operations 2.09 (3.78) .24 (3.24)
Net income from discontinued operations,
including cumulative effect of changes in
accounting principles .17 6.73 .10 7.29
--------- -------- -------- ---------
Net income per share $ 2.26 $ 2.95 $ .34 $ 4.05
========= ======== ======== =========
Fully diluted
Continuing operations before cumulative
effect of changes in accounting principles $ 2.08 $ (3.17) $ .24 $ (2.75)
Cumulative effect of changes in
accounting principles - (.24) - -
--------- -------- -------- ---------
Net income (loss) from continuing operations 2.08 (3.41) .24 (2.75)
Net income from discontinued operations,
including cumulative effect of changes
in accounting principles .14 6.30 .10 6.38
--------- -------- -------- ---------
Net income per share $ 2.22 $ 2.89 $ .34 $ 3.63
========= ========= ======== =========
Revenue $1,241.4 $1,046.6 $ 371.4 $ 242.4
========= ======== ======== =========
</TABLE>
<TABLE>
<CAPTION>
September 30, 1994 December 31, 1993 Percentage Change
------------------ ----------------- -----------------
<S> <C> <C> <C>
Invested assets $ 7,873.1 $ 8,071.7 (2.5)%
Total assets 13,877.4 14,038.1 (1.1)
Total stockholders' equity 1,358.0 1,619.0 (16.1)
Book value per common share 29.21 38.24 (23.6)
</TABLE>
(A) Net income from discontinued operations reflects the effects of a change in
accounting principles of $14.4 million for the nine months ended 9-30-93.
(B) Per share results reflect the effect of employee interests in Kemper
Financial Companies, Inc.
Kemper Corporation
Long Grove, Illinois
October 25, 1994
