UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: August 13, 1999
GORAN CAPITAL, INC.
Jurisdiction of Incorporation:
Canada
Commission File Number IRS Employer Id. Number
No. 000-24366 Not Applicable
Address of Principal Executive Offices:
181 University Avenue
Box 11, Suite 1101
Toronto, Ontario M5H 3M7
4720 Kingsway Drive
Indianapolis, Indiana 46205
Telephone No.
(416) 594-1155 (Canada)
(317) 259-6400 (U.S.)
ITEM 5. OTHER EVENTS.
On August 12, 1999, the Company filed the following Press Release see Exhibit 1.
Goran Capital Inc.
By: /s/ Alan G. Symons
Alan G. Symons
Date: August 13, 1999
INDEX TO EXHIBITS
(1) Press Release.
EXHIBIT 1 [GORAN LOGO]
NEWS RELEASE
Media Contact: Tad Gage
Financial Relations Board
(312) 266-7800
Alan G. Symons
(317) 259-6302
Douglas H. Symons
(317) 259-6413
FOR IMMEDIATE RELEASE
GORAN CAPITAL INC.
RETAINS DONALDSON, LUFKIN & JENRETTE TO
ADVISE ON SALE OF ALL OR PART OF ITS
BUSINESS AND REPORTS
SECOND QUARTER 1999 RESULTS
(Stated in $U.S.)
Toronto, Ontario (August 12, 1999) - Goran Capital Inc. (TSE: GNC; NASDAQ/NM:
GNCNF), a leading provider of nonstandard automobile and crop insurance, today
announces that it has retained Donaldson, Lufkin and Jenrette to advise the
Company with respect to the sale of its business and the Company today also
announces 2nd Quarter 1999 financial results.
Goran Capital Inc. ("Company") announces that it has retained Donaldson, Lufkin
and Jenrette ("DLJ") to advise the Company with respect to the sale of all or
part of its insurance business. This announcement follows the Company's
announcement on June 8, 1999 that DLJ had been retained to advise the Company
with respect to the sale of its crop insurance business.
The Company's nonstandard automobile insurance business is the 12th largest U.S.
nonstandard auto insurer and the Company's crop insurance business is that
nations 4th largest. The Company confirms today that it has held preliminary
discussions with interested parties regarding the sale of its business,
including its nonstandard auto insurance business.
Stated in $U.S.
Company CEO Alan Symons stated "while we were working with DLJ on the sale of
the crop business, we received inquiries concerning a possible sale of the auto
business or potentially a tender offer to all stockholders whereby the whole
Company might be acquired. We have retained DLJ to advise us regarding the best
strategy to pursue to maximize shareholder value. This may take the form of a
sale of either or both of our primary business units, a sale of the entire
Company, or something else.
Symons continued "we have built what we consider to be a fine nonstandard auto
insurance business. Our auto premium growth over the last five (5) years has
been impressive, averaging 69% per year during that period layering in the
Superior acquisition. We have built this business to the point that it is the
12th largest U.S. nonstandard auto insurer, and our auto premiums for last year
were $303 Million. However, at this time we feel it is in the best interests of
our shareholders to explore the possibility of a sale."
The Company declined to disclose an estimated sales price for either the crop or
auto business, with Symons adding, "for obvious reasons, it would be
inappropriate for us to comment on estimated price ranges for our business in
that discussions are ongoing. Further, given the nature of this process, we will
not comment on this matter, publicly or privately, until such time as definitive
documentation is executed and the transactions, if any, are awaiting regulatory
approval."
With respect to 2nd quarter earnings, gross written premium for the quarter
ending June 30, 1999 is $173.9 Million compared with $170.5 Million for the
quarter ended June 30, 1998. Management believes the business of the Company is
starting to grow again after a very difficult period in the market.
The Company's consolidated net loss for the quarter ended June 30, 1999 totaled
$5.9 Million or ($1.00) per share compared to consolidated net earnings of $4.8
Million or $0.82 per share for the same period last year. The Company's
consolidated net loss for the six (6) months ended June 30, 1999 is $5.7 Million
or ($0.97) per share, which compares with consolidated net earnings of $8.3
Million or $1.42 per share for the same period last year.
The Company's crop operations for 1999 are doing very well in that year to date
crop hail loss ratios are at historic lows and the crops covered by the
Company's MPCI policies are estimated to have average to above average yields.
The Company has very little exposure in those areas hit by the much publicized
Eastern drought. Crop operating pre-tax income from 1999 operations is $13.1
Million for the first six (6) months of 1999 before net change in loss reserves.
The Company increased its loss reserves (net of reinsurance) by $9.7 Million
during the first half of 1999 for a 1998 program as losses became known and
claims were filed. Despite this loss reserve increase for this 1998 program, the
crop operations posted a six (6) month operating profit of $3.4 Million, and
management feels that, based on present conditions, the crop operation should be
profitable for 1999.
2
Stated in $U.S.
Nonstandard auto premiums for the 2nd quarter of 1999 increased approximately 8%
from the 1st quarter of 1999. However, the nonstandard auto business posted a
2nd quarter pre-tax operating loss of approximately $11.8 Million which is
primarily due to higher than expected losses and expenses, both associated with
the service issues the Company experienced in prior periods. Management believes
the Company has significantly improved its service to agents and has changed
underwriting procedures, reduced overhead expense and filed new rates in key
states. Management believes that the benefits of these actions will be seen in
future periods. The Company believes its auto expense ratio will decline as a
result of lower staffing requirements from the levels that had been necessary to
support the business during the time of its service problems and return to prior
period low cost of delivery.
Conference Call: The conference call this quarter is at 10:00 a.m. Central
Daylight Time on Friday, August 13, 1999. Dial 1-800-553-2178 and ask for the
Symons conference call. A digital replay of this call will be available
immediately after the call. Anyone who misses the call may call 1-800- 696-1588.
The password is 581850 and listen to the replay. The replay will be available
until the end of the business day on August 20, 1999.
Goran Capital Inc. (TSE: GNC; NASDAQ/NM: GNCNF) is the 12th largest nonstandard
automobile insurer in the United States. Nonstandard auto insurance is sold
through independent insurance agents. It generally carries higher premiums, and
low limits of liabilities. The Company utilizes proprietary systems and
procedures to achieve operating efficiencies. Goran's subsidiaries Pafco General
Insurance Company and Superior Insurance Company write nonstandard auto
insurance in 22 U.S. states. IGF Insurance Company is the fourth largest insurer
of crops in the US. IGF Insurance Company writes business in 42 states plus
Canada. Visit the Company's Web site at WWW.IGFINS.COM. For free fax
information on the Company, dial 1-800-FRO-INFO and enter the ticker: GNCNF.
All statements, trend analyses, and other information contained in this release
and elsewhere (such as in other filings by the Company or its affiliates with
the Securities and Exchange Commission, press releases, presentations by the
Company or its management or oral statements) relative to markets for the
Company's products and/or trends in the Company's operations or financial
results, as well as other statements including words such as "anticipate,"
"could," "feel(s)," "believe(s)," "plan," "estimate," "expect," "should,"
"intend" and other similar expressions, constitute forward-looking statements
under the Private Securities Litigation Reform Act of 1995. These
forward-looking statements are subject to known and unknown risks, uncertainties
and other factors which may cause actual results to be materially different from
those contemplated by the forward-looking statements. Such factors include,
among other things: (i) general economic conditions, including prevailing
interest rate levels and stock market performance; (ii) factors affecting the
Company's crop operations such as weather-related events, final harvest results,
commodity price levels, governmental program changes, new product acceptance and
commission levels paid to agents; and (iii) factors affecting the Company's
nonstandard automobile operations such as premium volume, levels of operating
expenses as compared to premium volume, ultimate development of loss reserves
and implementation of the Company's operation system.
Stated in $U.S.
3
Stated in $U.S.
-FINANCIAL TABLES TO FOLLOW-
Anyone wishing further information may contact:
Douglas H. Symons
Indianapolis (317) 259-6413
Websites: SIG www.sigins.com
IGF www.igfinsurance.com
4
GORAN CAPITAL INC.
Consolidated Financial Highlights
(unaudited)
(Stated in US$)
Three Months Ended For The Six Months
June 30, Ended June 30,
STATEMENT OF EARNINGS 1999 1998 1999 1998
$ $ $ $
REVENUE
Gross premiums written 173,870,000 170,505,000 325,892,000 347,701,000
Net premiums written 79,150,000 109,729,000 146,421,000 208,090,000
Premiums earned 76,527,000 99,618,000 143,651,000 171,503,000
Fee income 3,153,000 4,901,000 7,617,000 11,390,000
Net investment income 3,507,000 3,720,000 7,015,000 6,896,000
Net realized capital gain (loss) 366,000 846,000 (956,000) 2,814,000
83,553,000 109,085,000 157,327,000 192,603,000
EXPENSES
Loss and loss adjustment expenses 72,293,000 71,187,000 131,288,000 126,489,000
Operating expenses 21,015,000 24,244,000 32,645,000 40,266,000
Amortization of intangibles 651,000 510,000 1,256,000 1,021,000
Interest expense 105,000 49,000 179,000 232,000
94,064,000 95,990,000 165,368,000 168,008,000
Income (loss) before income taxes,
minority interest and distributions
on preferred securities (10,511,000) 13,095,000 (8,041,000) 24,595,000
Provision for income taxes (3,576,000) 4,415,000 (2,960,000) 8,438,000
Minority interest (3,149,000) 1,809,000 (3,516,000) 3,454,000
Distributions on Pref Sec, net of tax 2,096,000 2,096,000 4,151,000 4,226,000
Earnings from continuing operations (5,882,000) 4,775,000 (5,716,000) 8,477,000
Loss from discontinued operations - - - (185,000)
NET EARNINGS (LOSS) (5,882,000) 4,775,000 (5,716,000) 8,292,000
Earnings per share-basic ($1.00) $0.82 ($0.97) $1.46
Earnings per share-fully diluted ($1.00) $0.78 ($0.97) $1.40
Operating EPS ($1.04) $0.72 ($0.87) $1.11
June 30, December 31, June 30, June 30,
BALANCE SHEETS (US$) 1999 1998 STATEMENT OF CASH FLOWS US$ 1999 1998
$ $ $ $
ASSETS OPERATING ACTIVITIES
Cash and investments 262,021,000 253,718,000 Net earnings (5,716,000) 8,292,000
Due from insured and reinsurers 482,524,000 207,781,000 Change in net assets 16,160,000 28,001,000
Other receivables 9,910,000 17,486,000 Cash provided by operations 10,444,000 36,293,000
Property and equipment 20,872,000 19,350,000
Deferred acquisition costs 17,454,000 16,332,000 INVESTING ACTIVITIES
Intangible assets 45,158,000 46,300,000 Net purchase of investments (8,660,000) (21,567,000)
Other assets 12,140,000 10,022,000 Net purchase of fixed assets (3,685,000) (6,545,000)
Other (126,000) -
850,079,000 570,989,000 Cash used in investing (12,471,000) (28,112,000)
LIABILITIES
Loss and loss adjustment expenses 218,436,000 207,432,000 FINANCING ACTIVITIES
Unearned premiums 226,483,000 110,665,000 Proceeds from minority interest - (1,111,000)
Notes payable 13,435,000 13,744,000 Increase (decrse) notes payable (309,000) (4,147,000)
Other payables 196,834,000 34,636,000 Issue of share capital - 366,000
655,188,000 366,477,000 Net loans(to)from related 3,306,000 (3,548,000)
MINORITY INTEREST Cash provided byfinancing 2,997,000 (8,440,000)
Preferred securities 135,000,000 135,000,000
Equity in net assets of subsidiary 16,271,000 19,787,000 Change in cash resources 970,000 (259,000)
SHAREHOLDERS' EQUITY 43,620,000 49,725,000 Cash resources bgn. of period 42,759,000 36,557,000
850,079,000 570,989,000 Cash resources end of period 43,729,000 36,298,000
End of period shares o/s 5,876,398 5,876,398 Cash resources are comprised of cash and short-term
investments
Book value per share $7.42 $8.46
GORAN CAPITAL INC.
Consolidated Financial Highlights
(unaudited)
(Stated in US$)
Three Months Ended June 30, 1999 AUTO CROP CORPORATE TOTAL
Gross premiums written 66,072,000 107,524,000 274,000 173,870,000
Net premiums written 64,154,000 11,633,000 3,363,000 79,150,000
Premiums earned 66,836,000 6,074,000 3,617,000 76,527,000
Fee income 2,895,000 197,000 61,000 3,153,000
Net investment income 3,296,000 (18,000) 229,000 3,507,000
Net realized capital gain 366,000 - - 366,000
TOTAL REVENUE 73,393,000 6,253,000 3,907,000 83,553,000
Loss and loss adjustment expenses 61,631,000 8,894,000 1,768,000 72,293,000
Operating expenses 23,609,000 (4,654,000) 2,060,000 21,015,000
Amortization of intangibles - 141,000 510,000 651,000
Interest expense - 105,000 - 105,000
TOTAL EXPENSES 85,240,000 4,486,000 4,338,000 94,064,000
Income (loss) before income taxes and
distributions on preferred securities (11,847,000) 1,767,000 (431,000) (10,511,000)
Provision for income taxes (3,576,000)
Minority interest (3,149,000)
Distributions on preferred securities, net of tax 2,096,000
Earnings from continuing operations (5,882,000)
Loss from discontinued operations -
NET EARNINGS (LOSS) (5,882,000)
=========
Loss ratio 92.21%
Expense ratio, net of billing fees 30.99%
Combined ratio 123.20%
Three Months Ended June 30, 1998 AUTO CROP CORPORATE TOTAL
Gross premiums written 79,530,000 92,020,000 (1,045,000) 170,505,000
Net premiums written 69,154,000 35,560,000 5,015,000 109,729,000
Premiums earned 70,498,000 28,460,000 660,000 99,618,000
Fee income 4,553,000 350,000 (2,000) 4,901,000
Net investment income 3,133,000 112,000 475,000 3,720,000
Net realized capital gain (loss) 673,000 170,000 3,000 846,000
TOTAL REVENUE 78,857,000 29,092,000 1,136,000 109,085,000
Loss and loss adjustment expenses 53,502,000 18,679,000 (994,000) 71,187,000
Operating expenses 18,681,000 3,897,000 1,666,000 24,244,000
Amortization of intangibles - 1,000 509,000 510,000
Interest expense - 49,000 - 49,000
TOTAL EXPENSES 72,183,000 22,626,000 1,181,000 95,990,000
Income (loss) before income taxes and
minority interest 6,674,000 6,466,000 (45,000) 13,095,000
Provision for income taxes 4,415,000
Minority interest 1,809,000
Distributions on preferred securities, net of tax 2,096,000
Earnings from continuing operations 4,775,000
Loss from discontinued operations -
NET EARNINGS (LOSS) 4,775,000
=========
Loss ratio 75.89%
Expense ratio, net of billing fees 20.04%
Combined ratio 95.93%
GORAN CAPITAL INC.
Consolidated Financial Highlights
(unaudited)
(Stated in US$)
Year-to-date June 30, 1999 AUTO CROP CORPORATE TOTAL
Gross premiums written 127,243,000 198,247,000 402,000 325,892,000
Net premiums written 126,679,000 13,246,000 6,496,000 146,421,000
Premiums earned 132,233,000 5,014,000 6,404,000 143,651,000
Fee income 7,417,000 138,000 62,000 7,617,000
Net investment income 6,460,000 39,000 516,000 7,015,000
Net realized capital gain (1,016,000) - 60,000 (956,000)
TOTAL REVENUE 145,094,000 5,191,000 7,042,000 157,327,000
Loss and loss adjustment expenses 112,944,000 14,068,000 4,276,000 131,288,000
Operating expenses 43,204,000 (12,662,000) 2,103,000 32,645,000
Amortization of intangibles - 237,000 1,019,000 1,256,000
Interest expense - 179,000 - 179,000
TOTAL EXPENSES 156,148,000 1,822,000 7,398,000 165,368,000
Income (loss) before income taxes and
distributions on preferred securities (11,054,000) 3,369,000 (356,000) (8,041,000)
Provision for income taxes (2,960,000)
Minority interest (3,516,000)
Distributions on preferred securities, net of tax 4,151,000
Earnings from continuing operations (5,716,000)
Loss from discontinued operations -
NET EARNINGS (LOSS) (5,716,000)
=========
Loss ratio 85.41%
Expense ratio, net of billing fees 27.06%
Combined ratio 112.48%
Year-to-date June 30, 1998 AUTO CROP CORPORATE TOTAL
Gross premiums written 169,506,000 178,195,000 - 347,701,000
Net premiums written 151,421,000 52,854,000 3,815,000 208,090,000
Premiums earned 138,821,000 28,621,000 4,061,000 171,503,000
Fee income 8,708,000 2,682,000 - 11,390,000
Net investment income 5,934,000 165,000 797,000 6,896,000
Net realized capital gain (loss) 2,641,000 170,000 3,000 2,814,000
TOTAL REVENUE 156,104,000 31,638,000 4,861,000 192,603,000
Loss and loss adjustment expenses 106,648,000 18,738,000 1,103,000 126,489,000
Operating expenses 36,804,000 250,000 3,212,000 40,266,000
Amortization of intangibles - 1,000 1,020,000 1,021,000
Interest expense - 232,000 - 232,000
TOTAL EXPENSES 143,452,000 19,221,000 5,335,000 168,008,000
Income (loss) before income taxes and
minority interest 12,652,000 12,417,000 (474,000) 24,595,000
Provision for income taxes 8,438,000
Minority interest 3,454,000
Distributions on preferred securities, net of tax 4,226,000
Earnings from continuing operations 8,477,000
Loss from discontinued operations (185,000)
NET EARNINGS (LOSS) 8,292,000
=========
Loss ratio 76.82%
Expense ratio, net of billing fees 20.24%
Combined ratio 97.06%