UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended March 31, 1996
Commission file number 000-24366
GORAN CAPITAL INC.
(Exact name of registrant as specified in its charter)
CANADA Not Applicable
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
181 University Avenue
Suite 1101 - Box 11
Toronto, Ontario Canada M5H 3M7
(Address of principal executive offices)
Registrant's telephone number, including area code 416 594-1155 (Canada)
317 259-6300 (USA)<PAGE>
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. Yes X No
As of March 31, 1996, there were 5,130,104 shares of Registrant's common
stock issued and outstanding exclusive of shares held by Registrant.
<PAGE>
Form 10-Q Index
For the Quarter Ended March 31, 1996
Page
Number
PART 1. FINANCIAL INFORMATION
Item 1 Financial Statements. . . . . . . . . . . . . . . . . . 4
Consolidated Financial Statements:
Consolidated Balance Sheets at December 31, 1995
and March 31, 1996. . . . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Operations for the Three
Months Ending March 31, 1996 and 1995. . . . . . . . . . . 6
Consolidated Statements of Changes in Cash Resources
for the Three Months Ending March 31, 1996 and 1995. . . . 7
Notes to Consolidated Financial Statements . . . . . . . . 9
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . 12
PART 2. OTHER INFORMATION. . . . . . . . . . . . . . . . . . . 14
Consolidated Analysis of Earnings per Share - US GAAP. . . 15
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . 16<PAGE>
GORAN CAPITAL INC.
PART 1 - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
In the opinion of management, the financial information reflects all
adjustments (consisting only of normal recurring adjustments) which are
necessary for a fair presentation of financial position, results of
operations and cash flows for the interim periods. The results for the three
months ended March 31, 1996 are not necessarily indicative of the results to be
expected for the entire year.
These quarterly interim financial statements are unaudited.<PAGE>
<TABLE>
GORAN CAPITAL INC.
UNAUDITED CONSOLIDATED BALANCE SHEET
(Canadian GAAP, stated in CDN $)
<CAPTION>
March 31, December 31,
ASSETS 1996 1995
<S> <C> <C>
Cash and Investments $ 69,658,730 $ 74,220,053
Investments, held in trust 0 0
Accounts Receivable
Premiums receivable 22,434,882 15,335,827
Due from insurance companies 33,649,236 47,559,037
Due from associated companies 539,119 0
Accrued and other receivables 3,089,797 1,681,132
Sub-total 59,713,034 64,575,996
Capital Assets 3,476,559 2,850,614
Other Assets 4,385,163 1,934,676
Deferred policy acquisition costs 9,333,895 10,431,122
Deferred income taxes 75,000 100,000
Goodwill 0 0
Total Assets $146,642,381 $154,112,461
LIABILITIES
Accounts Payable
Due to insurance companies $ 2,722,209 $ 2,711,807
Due to associated companies 0 257,114
Accrued and other payables 11,015,142 11,345,581
Sub-total 13,737,351 14,314,502
Outstanding claims 58,956,116 62,783,211
Unearned premiums 37,945,233 36,717,588
Bank loans 343,500 7,933,176
Subordinated Debenture 15,132,250 15,132,250
Minority interest in subsidiary 0 0
Total Liabilities $126,114,450 $136,880,727
SHAREHOLDERS' EQUITY
Capital stock $ 23,258,520 $ 23,037,645
Deficit (2,665,074) (5,681,921)
Cumulative translation adjustment (65,515) (123,990)
Total Shareholders' Equity $ 20,527,931 $ 17,231,734
Total Liabilities and
Shareholders' Equity $146,642,381 $154,112,461
</TABLE>
<PAGE>
<TABLE>
GORAN CAPITAL INC.
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDING
(Canadian GAAP, Stated in CDN $)
<CAPTION>
March 31, March 31,
1996 1995
<S> <C> <C>
Gross premium revenue $ 56,710,336 $50,370,720
Net premiums earned 33,568,019 21,501,260
Net investment and other income 2,003,334 1,784,029
Total Revenue $ 35,571,353 $23,285,289
Net claims incurred 22,723,093 13,960,848
General and administrative expenses 8,204,747 6,222,607
Interest expense 461,467 411,214
Total Expenses $ 31,389,307 $20,594,669
Income before undernoted items 4,182,046 2,690,620
Unusual Items 0 0
Provision for income taxes 1,165,199 930,719
Minority interest 0 4,221
Net Income $ 3,016,847 $ 1,755,680
Earnings per share - basic $ 0.59 $ 0.36
Earnings per share - fully diluted $ 0.55 $ 0.34
</TABLE>
See Notes to Consolidated Financial Statements<PAGE>
<TABLE>
GORAN CAPITAL INC.
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN
CASH RESOURCES FOR THE THREE MONTHS ENDING
(Canadian GAAP, stated in CDN $)
<CAPTION>
March 31, March 31,
1996 1995
<S> <C> <C>
CASH PROVIDED BY OPERATING ACTIVITIES
Net income for the period $3,016,847 $1,755,680
Items not affecting cash resources:
Amortization 40,347 25,192
Loss (gain) on disposal of investments (48,783) 86,755
Minority interest in net income of
consolidated subsidiary 0 (15,449)
Decrease (increase) in accounts
receivable 4,862,962 (4,372,486)
Decrease (increase) in other assets (2,450,487) 40,180
Decrease (increase) in deferred
policy acquisition costs 1,097,227 (515,867)
Decrease (increase) in deferred
income taxes 25,000 50,000
Increase (decrease) in accounts
payable (577,151) 4,690,870
Increase (decrease) in unearned
premiums 1,227,645 3,417,439
Increase (decrease) in outstanding
losses (3,827,095) (2,935,168)
Sub-total 3,366,512 $2,227,146
FINANCING ACTIVITIES
Increase (reduction) of borrowed funds (7,589,676) (2,533,950)
Issue of share capital 220,875 210,000
Sub-total (7,368,801) (2,323,950)
INVESTING ACTIVITIES
Net purchase of marketable securities (4,150,287) (3,840,235)
Net purchase of capital assets 652,650 (582,400)
Sub-total (3,497,637) (4,422,635)
Effect of exchange rate changes on
cash resources 58,475 (18,455)
Change in cash resources during the year (7,441,451) (4,537,984)
Cash resources, beginning of year 14,488,905 10,644,636
Cash resources, end of year 7,047,454 6,106,742
Cash resources are comprised of:
Cash (1,883,398) (1,947,637)
Short-term investments 8,930,852 8,054,379
Sub-total 7,047,454 6,106,742
</TABLE>
<PAGE>
<TABLE>
UNAUDITED CONSOLIDATED STATEMENT OF DEFICIT
(Canadian GAAP, stated in CDN $)
<CAPTION>
March 31, March 31,
1996 1995
<S> <C> <C>
Deficit, beginning of year $(5,681,921) ($15,523,250)
Net income for the year $ 3,016,847 1,755,680
Deficit, end of year $(2,665,074) ($13,767,570)
</TABLE>
<PAGE>
GORAN CAPITAL INC.
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
For the Three Months Ended March 31, 1996
(All amounts in Canadian dollars unless otherwise stated)
The unaudited consolidated financial statements should be read in conjunction
with the following notes, with the Company's Annual Report on Form 10-K for
1995 and with the Company's quarterly report on Form 10-Q for the quarters
ended September 30, 1995 and June 30, 1995. In the opinion of management,
the financial information reflects all adjustments which are necessary for
a fair presentation of financial position, results of operations and cash
flows for the interim period. The results for the three months ended March,
31, 1996 are not necessarily indicative of the results to be expected for the
entire year.
NOTE 1 - BASIS OF ACCOUNTING
These unaudited consolidated financial statements have been prepared by the
Company in accordance with accounting principles generally accepted in Canada
(CDN GAAP). These principles also conform in all material respects with
accounting principles generally accepted in the United States (US GAAP)
except as disclosed in Note 4.
NOTE 2 - REINSURANCE
The effects of reinsurance on the Company's premiums and claims incurred are as
follows:
<TABLE>
<CAPTION>
For The Three Months Ended: For The Three Months Ended:
March 31, 1996 March 31, 1995
<S> <C> <C> <C> <C>
Premiums Written Earned Written Earned
Gross $56,710,336 $65,651,278 $50,370,270 $38,263,601
Ceded (22,018,325) (32,083,259) (25,577,610) (16,762,341)
Net $34,692,011 $33,568,019 $24,792,660 $21,501,260
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Claims Incurred:
Gross $39,798,344 $21,647,694
Ceded (17,075,251) (7,686,846)
Net $22,723,093 $13,960,848
</TABLE>
<PAGE>
The effects of reinsurance on the Company's unearned premiums and outstanding
claims are as follows:
<TABLE>
<CAPTION>
As at As at
March 31, 1996 December 31, 1995
<S> <C> <C>
Unearned Premiums:
Gross $ 71,892,621 $ 45,268,401
Ceded (33,947,388) (8,550,813)
Net $ 37,945,233 $ 36,717,588
Outstanding Claims:
Gross $103,825,470 $119,666,323
Ceded (44,869,354) (56,883,112)
Net $ 58,956,116 $ 62,783,211
</TABLE>
NOTE 3 - CAPITAL STOCK
For the three months ended March 31, 1996 and for the twelve months ended
December 31, 1995, 69,875 common shares and 141,450 common shares, respectively
were issued by the Company pursuant to warrants previously issued to debenture
holders and pursuant to an established Company Employee Stock Option Plan.
NOTE 4 - UNITED STATES ACCOUNTING PRINCIPLES
These unaudited consolidated financial statements have been prepared in
accordance with CDN GAAP. The differences between CDN GAAP and US GAAP are
as follows:<PAGE>
<TABLE>
<CAPTION>
As At As At
March 31, 1996 March 31, 1995
<S> <C> <C>
Net Income - CDN GAAP $ 3,016,847 $ 1,755,680
US/CANADA GAAP Differences
Deferred Income Taxes $ 28,397 $ 157,000
Net Income - US GAAP $ 3,045,244 $ 1,912,680
Primary and Fully Diluted
Earnings Per Share - US GAAP $ 0.54 $ 0.35
</TABLE>
<TABLE>
<CAPTION>
As At As At
March 31, 1996 March 31, 1995
<S> <C> <C>
Assets - CDN GAAP $146,642,381 $134,943,684
US/CANADA GAAP Differences
Loans to Purchase Shares (769,000) (825,000)
Deferred Income Taxes 2,060,397 2,601,000
Outstanding Claims Ceded 44,869,354 0
Unearned Premiums Ceded 33,947,388 0
Unrealized Loss on Investment (111,387) (1,311,000)
Assets - US GAAP $226,639,132 $135,408,684
Shareholders' Equity - CDN GAAP $ 20,527,931 $ 9,055,412
US/CANADA GAAP Differences
Deferred Income Taxes 2,060,397 2,601,000
Discounting on Claims (1,812,000) (1,591,000)
Loans to Purchase Shares (769,000) (825,000)
Unrealized Loss on Investment (111,387) (1,311,000)
Shareholders' Equity - US GAAP $ 19,895,941 $ 7,929,412
NOTE 5 - CONTINGENT LIABILITY
One of the Company's subsidiaries, IGF Insurance Company ("IGF"), is the
administrator of a run-off book of business. The Federal Crop Insurance
Corporation ("FCIC") has requested that IGF take responsibility for the claim
liabilities of these policies under its administration. IGF has requested
reimbursement of certain expenses from the FCIC with respect to this run-off
activity. IGF instituted litigation against the FCIC on March 23, 1995 in the
United States District Court for the Southern District of Iowa seeking $4.3
million (US) as reimbursement for these expenses. The FCIC has counterclaimed
for approximately $1.2 million (US) in claims that FCIC contends IGF is
responsible for as successor to the run-off book of business. While the final
result of this lawsuit cannot be predicted with certainty, the Company believes
that the final resolution of this lawsuit will not have a material adverse
effect on the financial condition of the Company.<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
The Company's total assets of $146,642,381 at March 31, 1996 decreased slightly
from the $154,112,461 total as of December 31, 1995. The decrease is
principally due to decreases in cash and Accounts Receivables (primarily from
other insurance companies)due to settlement of claims and collection of
amounts due to the Company, respectively.
The Company's total liabilities as of March 31, 1996 of $126,114,450 are down as
well from the total liabilities as of December 31, 1995 of $136,880,727. This
decrease in total liabilities is attributed to a reduction in Accounts Payable
and Outstanding Claims, which together are approximately $5,700,000 less than at
December 31, 1995 and a decrease in bank loans payable of approximately $7.6
million. Unearned premiums increased approximately $1.2 million for the period
ended March 31, 1996 compared to December 31, 1995. The Company's indebtedness
was reduced as a result of payments made during the first quarter of 1996.
The invested assets of the Company are $69,658,730 as of March 31, 1996, down
from $74,220,053 at December 31, 1995.
RESULTS OF OPERATIONS
For the three months ending March 31, 1996, the Company recorded net income of
$3,016,847 or $0.59 per share. This is an approximately 72% increase from 1995
first quarter net income of $1,755,680 or $0.36 per share. The improved
earnings were attributed to strong profits generated by the crop business, which
continues to perform well on the heels of its record 1995 performance.
The increase in IGF's volume in earnings in the first quarter continue to
outpace its performance of the same quarter of 1995 due to the positive impact
of the Freedom to Farm bill and an increased market share which has resulted
from management's sales efforts. Approximately 35% of IGF's estimated annual
sales and a minority of its earnings are recorded early in a calendar year,
although the bulk of applications for policies are received during this period.
Total acreage planted (and thus billed premium) will only be finalized in the
second and third quarters, but higher grain, corn and soy bean prices have
resulted in farmers planting significantly increased acreage in 1996 as opposed
to 1995.
Granite Reinsurance Company Ltd. ("Granite Re"), a wholly owned Goran
subsidiary, performed well during the first quarter of 1996 even though it
canceled its largest 1995 quota share agreement.
Gross premiums written increased to $56,710,336 for the first quarter of 1996.
This reflects an increase of approximately 12.6% for gross premiums in the
corresponding period in 1995 of $50,370,720. Net premiums earned have increased
approximately 56% to $33,568,019 for the first quarter of 1996 from $21,501,260
for the first quarter of 1995. Total revenue for the first quarter of 1996 of
$35,571,353 is up approximately 53% from $23,285,289 for the first quarter of
1995. In addition to the rapidly growing crop business, the performance of
Goran's non-standard automobile business (Pafco General Insurance Company) has
strengthened to date in 1996 as management has been successful in improving
Pafco's loss ratios from 1995 levels. Additionally, Pafco now retains 100% of
its business as compared to 1995 when it reinsured 25% through quota share
reinsurance. Net claims incurred is $22,723,093 or 67.7% of net premium earned
for the first quarter of 1996 versus $13,960,848 or 64.9% of net premium earned
for the corresponding period of 1995. Operating expenses have increased as a
result of the increased volume of business produced by the Company combined with
a higher percentage of net premiums retained and corresponding reductions in
reinsurance commission income. Operating expenses rose to $8,204,747 or 24.4%
of net premium earned in the first quarter of 1996 compared to $6,222,607 or
28.9% of net premium earned in the corresponding period of 1995. There is a
disproportionate relationship between increased operating expenses and increased
net retention of business.
Goran's shareholders equity grew from $9,055,412 at March 31, 1995 to
$20,527,927 at March 31, 1996. The long term debt to equity ratio has
substantially improved during the last year as long term debt was reduced by
$1,995,750 and operating profits increased shareholders' equity. Long term debt
to equity was 1.9 to 1 at March 31, 1995 and .74 to 1 at March 31, 1996.<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
One of the Company's subsidiaries, IGF Insurance Company ("IGF"),
is the administrator of a run-off book of business. The
Federal Crop Insurance Corporation ("FCIC") has requested that IGF
take responsibility for the claim liabilities of these policies
under its administration. IGF has requested reimbursement of
certain expenses from the FCIC with respect to this run-off
activity. IGF instituted litigation against the FCIC on March
23, 1995 in the United States District Court for the Southern
District of Iowa seeking $4.3 million (US) as reimbursement for
these expenses. The FCIC has counterclaimed for approximately
$1.2 million (U.S.) in claims that FCIC contends IGF is
responsible for as successor to the run-off book of business.
While the final result of this litigation cannot be predicted
with certainty, the Company believes that the final resolution
of this lawsuit will not have a material adverse effect on the
financial condition of the Company.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11.01 computation of earnings per share in accordance
with United States Generally Accepted Accounting
Principles.
(b) Reports on Form 8-K
The Company filed a Form 8-K on February 9, 1996
announcing the agreement to forma non-standard auto
insurance joint venture with investment funds
affiliated with Goldman Sachs, as well as the
execution of an agreement for such joint venture to
acquire, subject to regulatory approval, Superior
Insurance Company and subsidiaries.
<PAGE>
</TABLE>
<TABLE>
GORAN CAPITAL INC. Exhibit 11.01
CONSOLIDATED ANALYSIS OF EARNINGS PER SHARE - U.S. GAAP
FOR THE THREE MONTHS ENDING
<CAPTION>
March 31, March 31,
1996 1995
TSE Trading Activity:
<S> <C> <C>
Period Covered Jan - March Jan - March
Volume Number 610,151 501,515
Value (CDN $) $9,576,192 $3,702,113
Average Price (CDN$) $ 15.69 $ 7.38
</TABLE>
<TABLE>
<CAPTION>
****************
<S> <C> <C>
Proceeds from Exercise
of Warrants and
Options (CDN $) $1,636,614 $2,063,395
Shares Repurchased - Treasury 104,278 279,521
Shares Outstanding - Weighted Average 5,085,046 4,941,668
Add: Option & Warrants Outstanding 704,160 845,485
Less Treasury Method - Shares
Repurchase (104,278) (279,521)
Shares Outstanding for US GAAP Purpose 5,684,928 5,507,632
Net Earnings in Accordance with US GAAP 3,045,244 1,912,680
Earnings Per Share - US GAAP
(Primary and Fully Diluted) $ 0.54 $ 0.35
</TABLE> <PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: May 15, 1996 By: /s/ Alan G. Symons
President
Dated: May 15, 1996 By: /s/ Bruce K. Dwyer
Vice President, Treasurer and
Chief Accounting Officer
