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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): August 24, 1995
KEMPER FINANCIAL COMPANIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-15253 36-3451068
(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
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Kemper Financial Companies, Inc.
FORM 8-K
Page
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS....................... 3
ITEM 5. OTHER EVENTS............................................... 5
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.......................... 6
SIGNATURES......................................................... 14
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
DIVESTITURE OF SECURITIES BROKERAGE SEGMENT
On September 13, 1995, Kemper Corporation ("Kemper") and Kemper Financial
Companies, Inc. ("KFC" or the "Company") completed the divestiture of
their securities brokerage segment. These discontinued operations
consist of EVEREN Securities Holdings, Inc., formerly Kemper Securities
Holdings, Inc. ("ESHI"), and its subsidiaries. In connection with the
divestiture, ESHI became wholly owned by EVEREN Capital Corporation, a
newly formed Delaware corporation ("EVEREN"), and EVEREN became an
independent employee owned company with publicly traded preferred stock.
Completion of the divestiture satisfied an important condition to
Kemper's previously announced proposed merger transaction. See "Merger
Transaction Update" in Item 5 below of this Current Report on Form 8-K.
As part of the divestiture, Kemper distributed 1,202,805 shares of Series
A Exchangeable Preferred Stock of EVEREN, having a liquidation preference
of $25 per share (an aggregate liquidation preference of $30.1 million)
and a dividend rate of 13.5% per annum (the "Exchangeable Preferred
Stock"), to holders of shares of common stock of Kemper ("Kemper Common
Stock") and to holders of certain Kemper Common Stock options and phantom
stock units as a taxable distribution (the "Kemper Distribution"). On
the same day as the Kemper Distribution, KFC sold 10,437,781 shares of
common stock, par value $.01 per share, of EVEREN (the "EVEREN Common
Stock"), representing all of the shares of EVEREN Common Stock then held
by KFC, to the EVEREN Capital Corporation 401(k) and Employee Stock
Ownership Trust which is part of the EVEREN Capital Corporation 401(k)
and Employee Stock Ownership Plan (the "KSOP"), for an aggregate purchase
price of $71.4 million in cash, of which $46.4 million was paid on
September 13, 1995 and $25.0 million is to be paid not later than January
2, 1996 (the "KSOP Purchase," and together with the Kemper Distribution,
the "Transfers").
Immediately prior to the Transfers, (i) Kemper and KFC contributed to
ESHI and its subsidiaries intercompany indebtedness of approximately
$81.8 million owed by ESHI and its subsidiaries to Kemper, KFC and their
subsidiaries, (ii) a KFC subsidiary purchased certain illiquid securities
from ESHI for approximately $15.6 million, (iii) Kemper assumed in their
entirety (and KFC agreed to indemnify Kemper with respect thereto) all of
EVEREN's obligations with respect to certain specified outstanding
litigation matters (including the Melridge securities litigation matter
described in Item 3, Legal Proceedings, of the Company's 1994 Annual
Report on Form 10-K), (iv) KFC transferred to EVEREN all of the
outstanding shares of common stock of ESHI in exchange for 10,437,681
shares of EVEREN Common Stock and 1,202,805 shares of Exchangeable
Preferred Stock, and (v) Kemper purchased from KFC, at a price of
approximately $30.1 million, all of the outstanding shares of
Exchangeable Preferred Stock then held by KFC in repayment of
intercompany indebtedness owed by KFC to Kemper (collectively, the
"Preliminary Transactions").
Kemper and EVEREN, and certain of their respective subsidiaries, entered
into certain agreements setting forth the various actions agreed to be
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taken by such parties to effectuate the Transfers and the Preliminary
Transactions and also to provide for, among other things, (i) the orderly
separation of EVEREN and its subsidiaries from Kemper and the Company,
(ii) the indemnification of EVEREN by KFC for the first $20.0 million of
employer contributions (other than 401(k) contributions) to the KSOP,
(iii) the provision by EVEREN and Kemper and the Company of certain
support services to each other for a period of time following the
Transfers, (iv) the limited use by EVEREN of the "Kemper" name for
transitional purposes only, (v) indemnities from EVEREN to Kemper and its
subsidiaries with respect to all liabilities arising out of the operation
of the business of EVEREN not specifically assumed by Kemper or a
subsidiary of the Company, (vi) indemnities from Kemper to EVEREN with
respect to all liabilities arising out of the operation of the business
of Kemper and its subsidiaries (other than that of EVEREN and its
subsidiaries), and (vii) the allocation and management of certain tax
matters. Certain agreements entered into by Kemper and the Company and
their subsidiaries in connection with the Transfers and the Preliminary
Transactions are filed as exhibits to this Current Report on Form 8-K and
are incorporated herein by reference.
ESHI and subsidiaries have been reported as discontinued operations in
the Company's periodic reports since the first quarter of 1995. See the
pro forma financial statements included in Item 7 below in this Form 8-K.
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ITEM 5. OTHER EVENTS
A. KFS ACQUISITION OF DREMAN ASSETS
On August 24, 1995, the Company's principal asset management subsidiary,
Kemper Financial Services, Inc. ("KFS"), announced the completion of the
acquisition of substantially all of the assets of Dreman Value
Management, L.P. ("Dreman"), including assignment of the Dreman-managed
mutual funds' advisory contracts. The acquisition required an initial
cash payment of approximately $18 million and calls for contingent cash
payments in future periods.
The four Dreman mutual funds account for approximately $60 million of
assets under management and, following the acquisition, were renamed as
follows: the Kemper-Dreman High Return Fund, the Kemper-Dreman Small Cap
Value Fund, the Kemper-Dreman Contrarian Fund, and the Kemper-Dreman
Fixed Income Fund. Dreman also had approximately $1.5 billion of
institutional assets under management which, subject to advisory client
approvals, would be managed by a KFS subsidiary. The acquisition
broadened KFS' retail and institutional product offerings to include the
value style of equity investing and complement KFS' growth style.
B. MERGER TRANSACTION UPDATE
On September 6, 1995, Kemper announced a $0.30 per share adjustment in
the merger consideration to be received by its common stockholders in the
previously announced proposed merger transaction with an investor group
comprised of Zurich Insurance Company and Insurance Partners. Kemper and
the investor group agreed to the adjustment, to $49.80 per share from
$49.50 per share, because of increased benefits to the investor group
from modifications announced in late August with respect to the plan to
divest the securities brokerage segment.
Completion of the merger transaction is subject to certain conditions,
including certain approvals by state insurance regulators and the common
stockholders of Kemper. On September 26, 1995, the investor group filed
with the Illinois Department of Insurance a Form A seeking approval of
the change of control of Kemper's life insurance subsidiaries. At
special meetings held September 19, 1995, the shareholders of investment
companies with assets managed by KFS and its subsidiaries (the "Kemper
Funds") representing more than 90 percent of the Kemper Funds' net assets
approved new investment advisory contracts with KFS and its asset
management subsidiaries, as required to satisfy one of the conditions to
the merger agreement. The investor group has informed Kemper that it
currently expects that the transaction will close in early January 1996.
In connection with this transaction, KFS will be sold to Zurich Insurance
Company for approximately $932 million.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of business acquired - not applicable.
(b) Pro forma financial information.
The following unaudited pro forma condensed consolidated statements of
operations for the six months ended June 30, 1995 and the year ended
December 31, 1994 present the Company's results of operations as adjusted
to give effect to the divestiture of ESHI and its subsidiaries as if it
occurred on January 1, 1994. The accompanying unaudited pro forma
consolidated balance sheet as of June 30, 1995 presents the Company's
financial position as if the divestiture occurred on June 30, 1995. The
Company's historical financial statements reflected ESHI and its
subsidiaries as discontinued operations since the first quarter of 1995
and as the Company's securities brokerage segment in and for 1994.
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, 1995 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 assumptions believed to be reasonable in the
circumstances. There can be no assurance that such information and
assumptions will not change from those reflected in the pro forma
financial statements and notes thereto.
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KEMPER FINANCIAL COMPANIES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1995
(in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
<S> <C> <C> <C>
ASSETS
Investments:
Fixed maturities available for sale, at fair value
(cost 1995, $3,583,537; 1994, $3,711,839) $3,614,993 15,859 (1) $3,630,852
Short-term investments 191,800 191,800
Joint venture mortgage loans 413,197 413,197
Third-party mortgage loans 302,407 302,407
Other real estate-related investments 236,157 236,157
Policy loans 281,691 281,691
Other invested assets 45,045 45,045
-----------------------------------------
Total investments 5,085,290 15,859 5,101,149
Cash 283,177 46,400 (2) 267,318
(46,400)(3)
(15,859)(1)
Other accounts and notes receivable 457,021 25,000 (4) 491,021
9,000 (5)
Reinsurance recoverable 550,607 550,607
Deferred insurance acquisition costs 286,956 286,956
Deferred investment product sales costs 154,466 154,466
Fixed assets, at cost less accumulated depreciation 39,505 39,505
Other assets 13,088 13,088
Net assets of discontinued operations 132,686 (102,616)(6) 0
(30,070)(6)(7)
Assets of separate accounts 1,641,106 1,641,106
-----------------------------------------
Total assets $8,643,902 (98,686) $8,545,216
=========================================
LIABILITIES
Future policy benefits $4,645,628 $4,645,628
Other accounts payable and liabilites 901,049 (4,083)(8) 896,966
Notes payable 1,112,096 (30,070)(7) 1,035,626
(46,400)(3)
Convertible debentures 26,676 26,676
Liabilites of separate accounts 1,641,106 1,641,106
-----------------------------------------
Total liabilites 8,326,555 (80,553) 8,246,002
-----------------------------------------
Commitments and contingent liabilites
STOCKHOLDERS' EQUITY
Class A common stock-$.10 par value
authorized 135,000,000 shares; outstanding 1995
and 1994, 43,268,038 shares 4,327 4,327
Additional paid-in capital 442,828 442,828
Unrealized loss on foregn currency translations (21,938) (21,938)
Unrealized gain on investments 13,308 13,308
Retained deficit (121,178) (18,133)(9) (139,311)
-----------------------------------------
Total stockholders' equity 317,347 (18,133) 299,214
-----------------------------------------
Total liabilities and stockholders' equity $8,643,902 (98,686) $8,545,216
=========================================
</TABLE>
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Notes to Pro Forma Consolidated
Balance Sheet
as of June 30, 1995
(1) Purchase of illiquid securities from ESHI.
(2) Receipt of cash proceeds on date of divestiture.
(3) Use of cash proceeds (see Note 2 above) to repay certain borrowings
from Kemper.
(4) Receivable for the remainder of the purchase price payable by the
KSOP no later than January 2, 1996.
(5) Federal income tax benefit recorded in the third quarter of 1995 due
to modifications to original plan of divestiture.
(6) Elimination of net assets of the discontinued securities brokerage
operations.
(7) Use by KFC of EVEREN Preferred Stock to repay certain borrowings
from Kemper.
(8) Adjustment of intercompany payables and receivables.
(9) Reflects additional (third-quarter 1995) loss on divestiture, net of
tax.
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KEMPER FINANCIAL COMPANIES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1995
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
<S> <C> <C> <C>
REVENUE
Investment management and other fees $164,139 $164,139
Commissions 26,160 26,160
Investment income 186,648 186,648
Securities gain, net 1,130 1,130
Realized investment loss (23,225) (23,225)
Other income 24,133 24,133
--------------------------------------
Total revenue 378,985 0 378,985
--------------------------------------
EXPENSES
Operating expenses 131,286 131,286
Benefits and interest credited to policyholders 123,197 123,197
Commissions 40,523 40,523
Deferral of mutual fund and insurance acquisition costs (34,839) (34,839)
Amortization of mutual fund
and insurance acquisition costs 48,566 48,566
Interest expense 50,843 (3,427)(1) 47,416
--------------------------------------
Total expenses 359,576 (3,427) 356,149
--------------------------------------
Earnings from continuing operations before tax 19,409 3,427 22,836
Income tax expense 22,681 1,199 (2) 23,880
--------------------------------------
Gain (loss) from continuing operations (3,272) 2,228 (1,044)
Gain (loss) from discontinued operations, net of tax (2,712) 2,712 (3) --
Gain (loss) on divestiture
of discontinued operations, net of tax (66,536) 66,536 (4) --
--------------------------------------
Net income (loss) ($72,520) 71,476 ($1,044)
======================================
Gain (loss) per share from continuing operations ($0.08) $0.06 ($0.02)
Gain (loss) per share from discontinued operations (1.60) 1.60 --
--------------------------------------
Net income (loss) per share ($1.68) 1.66 ($0.02)
======================================
</TABLE>
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Notes to Pro Forma Consolidated
Statement of Operations
for the six months ended June 30, 1995
(1) Reduction of interest expense due to KFC's use of proceeds from sale
of ESHI to repay $76.5 million of borrowings from Kemper.
(2) Federal income tax increase due to reduction of interest payable to
Kemper. (See note (1) above.)
(3) Elimination of income from discontinued securities brokerage
operations.
(4) Elimination of the loss on divestiture recorded by KFC in the first
half of 1995. (KFC recorded in the third quarter of 1995 an
additional loss on divestiture of approximately $18.1 million.)
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KEMPER FINANCIAL COMPANIES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
<S> <C> <C> <C>
REVENUE
Investment management and other fees $381,215 (23,011)(1) $358,204
Commissions 408,430 (343,533)(1) 64,897
Investment income 405,374 (67,594)(1) 337,780
Securities gain (loss), net 17,016 (17,602)(1) (586)
Realized investment loss (84,058) (84,058)
Other income 96,474 (45,230)(1) 51,244
-------------------------------------
Total revenue 1,224,451 (496,970) 727,481
-------------------------------------
EXPENSES
Operating expenses 786,198 (494,713)(2) 291,485
Benefits and interest credited to policyholders 248,494 248,494
Commissions 68,991 23,579 (2) 92,570
Deferral of mutual fund and insurance acquisition costs (68,641) (68,641)
Amortization of mutual fund
and insurance acquisition costs 78,132 78,132
Interest expense 119,856 (38,610)(2) 75,706
(5,540)(3)
-------------------------------------
Total expenses 1,233,030 (515,284) 717,746
-------------------------------------
Earnings (loss) from
continuing operations before tax (8,579) 18,314 9,735
Income tax expense (benefit) (11,743) 10,537 (4) 733
1,939 (5)
-------------------------------------
Net income $3,164 5,838 $9,002
=====================================
Net income per share $0.07 0.14 $0.21
=====================================
</TABLE>
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Notes to Pro Forma Consolidated
Statement of Operations
for the year ended December 31, 1994
(1) Elimination of the discontinued operations' revenue from the
historical consolidated statement of operations for the year ended
December 31, 1994, when such operations were classified as the
Company's securities brokerage segment.
(2) Elimination of the discontinued operations' expense. (See note (1)
above.)
(3) Reduction of interest expense payable by KFC to Kemper due to KFC's
repayment of $76.5 million of its borrowings from proceeds of the
sale of EVEREN common stock to the KSOP.
(4) Federal income tax adjustment due to elimination of securities
brokerage revenue and expenses.
(5) Federal income tax adjustment due to reduction of interest expense
payable to Kemper.
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(c) Exhibits
Exhibit No.
-----------
10 Transactions Agreement, dated as of September 13, 1995,
between EVEREN Capital Corporation ("EVEREN"), Kemper
Financial Companies, Inc. ("KFC") and Kemper.*
99.1 Interim Services Agreement, dated as of September 13, 1995,
between EVEREN and Kemper.*
99.2 Stock Purchase Agreement, dated as of September 13, 1995,
between EVEREN and KFC.*
99.3 Stock Purchase Agreement, dated as of September 13, 1995,
between the Trustee of the EVEREN Capital Corporation 401(k)
and Employee Stock Ownership Trust and KFC.*
99.4 Securities Purchase Agreement, dated as of September 13,
1995, between EVEREN Securities Holdings, Inc. ("ESHI") and
KFC.*
99.5 Assumption Agreement, dated as of September 13, 1995,
between Kemper and EVEREN Securities, Inc. ("ESI").*
99.6 Names Agreement, dated as of September 13, 1995, among
EVEREN, ESHI, ESI, EVEREN Clearing Corp. and Kemper.*
99.7 Tax Sharing Agreement, dated as of September 13, 1995,
between EVEREN and Kemper.*
99.8 Employee Benefits Agreement, dated as of September 13,
1995, among Kemper, Kemper Financial Services, Inc., INVEST
Financial Corporation and EVEREN.*
*The nine asterisked exhibits above are incorporated herein by reference
to exhibits nos. 10.1, 10.2, 10.3, 10.4, 10.5, 10.6, 10.12, 10.13 and
10.14, respectively, to the Current Report on Form 8-K filed
September 27, 1995 by EVEREN Capital Corporation (file no. 1-13864).
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SIGNATURE
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.
KEMPER FINANCIAL COMPANIES, INC.
By: /s/JOHN H. FITZPATRICK
----------------------
John H. Fitzpatrick
Executive Vice President
and Chief Financial Officer
September 28, 1995
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