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 26, 1997
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.)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On August 12, 1997, Goran's 67% owned subsidiary, Symons International Group,
Inc. ("SIG") acquired from GS Capital Partners II, L.P. and certain other
investment funds affiliated with Goldman, Sachs & Co. ("GSCP"), GSCP's 48%
interest in the Company's nonstandard automobile insurance business for $61
million in an all cash transaction. The purchase price was determined through
arm's-length negotiations.
The acquisition was financed by a $135 million offering ("Offering") of trust
preferred securities ("Preferred Securities") by SIG Capital Trust 1, which was
closed August 12, 1997. The Preferred Securities were offered pursuant to Rule
144A of the Securities Act of 1993 and enabled SIG Capital Trust 1 to invest
$135 million in senior subordinated notes ("Sub Notes") of SIG. Both the
Preferred Securities and the Sub Notes will carry a 30-year term.
In addition to financing, the $61 million acquisition from GSCP, the proceeds to
SIG from the Offering were used to (i) retire the approximately $45 million term
debt incurred in March 1996, (ii) to provide additional capital to the Company's
operating insurance subsidiaries, (iii) general corporate purposes, and (iv) pay
expenses of the offering of the Preferred Securities.
The Preferred Securities have not been registered pursuant to applicable
securities laws and may not be offered or sold absent such registration or an
applicable exemption from registration requirements.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements.
As of the date of filing of this Current Report on Form 8-K, it is impracticable
for the Registrant to provide the financial statement required by this Item
7(a). In accordance with Item 7(a)(4) of Form 8-K, such financial statement
shall be filed by amendment to this form 8-K no later than 60 days after August
27, 1997.
(b) Pro Forma Financial Information.
The following unaudited pro forma consolidated balance sheet and statements of
earning of the company for the year ended December 31, 1996 and as of and for
the six months ended June 30, 1997 present the financial position and results
for the Company as if the Offering had occurred as of January 1, 1996. The pro
forma adjustments are based on available information and certain assumptions the
Company currently believes are reasonable in the circumstances. The unaudited
pro forma consolidated balance sheet and statements of earnings have been
derived from and should be read in conjunction with the historical Consolidated
six months ended June 30, 1997, and should be read in conjunction with the
accompanying Notes to Unaudited Pro Forma Consolidated Balance Sheet and
Statements of Earnings. The pro forma adjustments and pro forma consolidated
amounts are provided for informational purposes only.
The pro forma information is presented for illustrative purposes only and is not
necessarily indicative of the results of operations or financial position that
would have occurred had the Offering been consummated on the dates assumed, nor
is the pro forma information intended to be indicative of the Company's future
results.
<PAGE>
All amounts are stated in U.S. Dollars.
<TABLE>
Goran Capital Inc.
Unaudited Pro Forma Consolidated Balance Sheet
(Canadian GAAP, stated in U.S. Dollars)
<CAPTION>
Goran Historical Pro Forma Pro Forma
As of June 30, 1997 Adjustments for the Offering
<S> <C> <C> <C>
Cash & investments 229,616,714 24,228,000 (1) 255,878,714
2,034,000 (2)
Accounts receivable
Premiums receivable 177,407,073 177,407,073
Due from insurance companies 20,617,795 20,617,795
Due from associated companies 107,718 107,718
Accrued and other receivables 4,533,731 4,533,731
Reinsurance recoverable on outstanding claims 71,642,210 71,642,210
Prepaid reinsurance premiums 74,139,403 74,139,403
Capital assets 6,258,199 6,258,199
Other assets 3,493,023 4,900,000 (3) 7,277,023
(1,116,000)(4)
Deferred policy acquisition costs 14,223,788 14,223,788
Goodwill 1,455,077 34,276,000 (5) 35,731,077
--------- ---------- ----------
Total Assets 603,494,731 64,322,000 667,816,731
=========== ========== ===========
Accounts payable
Due to insurance companies 104,033,136 104,033,136
Accrued and other receivables 24,107,297 (391,000)(6) 23,716,297
Outstanding claims 163,102,998 163,102,998
Unearned premiums 164,972,765 164,972,765
Term debt 44,872,000 (44,872,000)(7) 0
501,088,196 (45,263,000) 455,825,196
Minority interest:
Preferred securities 0 135,000,000 (8) 135,000,000
Equity in net assets of subsidiary 47,683,878 (26,724,000)(9) 22,993,878
2,034,000 (2)
Total Liabilities 548,772,074 65,047,000 613,819,074
Capital stock 17,469,388 17,469,388
Contributed surplus 2,774,606 2,774,606
Retained earnings 34,743,748 (725,000)(10) 34,018,748
Cumulative translation adjustment (265,085) (265,085)
--------- ----------
Total Shareholders' Equity 54,722,657 (725,000) 53,997,657
---------- ---------- ----------
Total Liabilities & Shareholders' Equity 603,494,731 64,322,000 667,816,731
=========== ========== ===========
</TABLE>
<PAGE>
<TABLE>
Goran Capital Inc.
Unaudited Pro Forma Consolidated Statement of Earnings
(Canadian GAAP, stated in U.S. Dollars)
<CAPTION>
Goran Historical
For the Six Months Pro Forma Pro Forma
Ended June 30, 1997 Adjustments for the Offering
<S> <C> <C> <C>
Gross premiums written 280,138,810 280,138,810
=========== ===========
Net premiums written 157,381,995 157,381,995
=========== ===========
Net premiums earned 142,765,330 142,765,330
Other income 11,346,027 11,346,027
Net investment income 8,036,553 8,036,533
Total revenues 162,147,910 162,147,910
Net claims incurred 107,544,390 107,544,390
General and administrative expenses 33,864,132 82,000 (11) 34,324,648
(116,000) (12)
788,000 (13)
(293,484) (14)
Interest expense 2,451,411 (2,413,411) (14) 38,000
Total Expenses 143,859,933 (1,952,895) 141,907,038
Earnings before income taxes
and minority interest 18,287,977 1,952,895 20,240,872
Provision for income taxes 6,222,481 959,313 (15) 7,181,794
Minority Interest:
Distributions on Preferred Securities 0 4,168,000 (16) 4,168,000
Equity in earnings of subsidiary 4,722,984 (1,559,519) (17) 2,669,592
(493,873) (18)
Net earnings from continuing operations 7,342,512 (1,121,026) 6,221,486
========= =========== =========
Net earnings per common share from
continuing operations $ 1.32 $ 1.12
Weighted average shares outstanding 5,552,097 5,552,097
</TABLE>
<PAGE>
<TABLE>
Goran Capital Inc.
Unaudited Pro Forma Consolidated Statement of Earnings
(Canadian GAAP, stated in U.S. Dollars)
<CAPTION>
Goran Historical
For the Year Pro Forma Pro Forma
Ended Dec. 31, 1996 Adjustments for the Offering
<S> <C> <C> <C>
Gross premiums written 307,633,588 307,633,588
============ ============
Net premiums written 220,432,384 220,432,384
============ ============
Net premiums earned 214,346,267 214,346,267
Other income 8,529,249 8,529,249
Net investment income 7,877,156 7,877,156
--------- ---------
Total Revenues 230,752,672 230,752,672
Net claims incurred 151,384,114 151,384,114
General and administrative expenses 50,352,160 163,000 (11) 51,987,160
(231,000) (12)
1,703,000 (13)
Interest expense 4,960,571 (3,927,000) (14) 1,033,571
--------- ----------- ---------
Total Expenses 206,696,845 (2,292,000) 204,404,845
Earnings before income taxes
and minority interest 24,055,827 2,292,000 26,347,827
Provision for income taxes 8,126,795 1,398,000 (15) 9,524,795
Minority Interest:
Distributions on Preferred Securities 0 8,336,000 (16) 8,336,000
Equity in earnings of subsidiary 2,801,336 (2,401,336) (17) 400,000
--------- ----------- -------
Earnings before unusual item 13,127,696 (5,040,664) 8,087,032
---------- ----------- ---------
Gain on SIG Initial Public Offering 18,168,556 18,168,556
---------- ----------
Net earnings from continuing operations 31,296,252 (5,040,664) 26,255,588
========== =========== ==========
Net earnings per common share from continuing
operations before unusual item $ 2.48 $ 1.53
Net earnings per common share from continuing
operations $ 5.92 $ 4.97
Weighted average shares outstanding 5,286,270 5,286,270
</TABLE>
<PAGE>
Notes to Unaudited Pro Forma Consolidated Financial Statements
(1) Application of the net proceeds from the Offering are invested as of
June 30, 1997 as follows:
Offering Proceeds $ 135,000,000
Estimated fees and expenses (4,900,000)
Repayment of GGS Senior Credit Facility (44,872,000)
Purchase of Minority Interest in GGS Holdings (61,000,000)
-------------
General corporate purposes $ 24,228,000
=============
The pro forma statement of earnings for the six months ended June 30,
1997 and the year ended December 31, 1996 assumes no investment income
on funds remaining, however, the Company fully expects to invest such
funds.
(2) Cash & investments and minority interest in net assets of subsidiary at
June 30, 1997 increased by $ 2,034,000 for the after tax effects of the
elimination of the GGS Management Holdings, Inc. minority interest
portion of the unrealized gain on investments held for sale.
(3) Other assets at June 30, 1997 increase by $ 4,900,000 representing
deferred Preferred Securities issuance cost to be amortized over their
term (30 years).
(4) Other assets at June 30, 1997 are reduced by $ 1,116,000 representing
the write-off of unamortized debt issuance costs in connection with the
GGS Credit Facility that was repaid with the proceeds of the offering.
(5) Goodwill at June 30, 1997 is increased by $ 34,276,000 for the excess
of the purchase price of the GGS Management Holdings, Inc. minority
interest share, over the minority interest liability of $ 26,724,000,
as the entire excess purchase price is applied to goodwill as all
identifiable assets approximate fair value.
(6) Income taxes payable at June 30, 1997 are reduced by $ 391,000 for the
tax effect of the write-off of the debt issuance costs associated with
the term debt repaid from the proceeds of the offering.
(7) Existing term debt is completely repaid with the proceeds of the
Offering.
(8) Issuance of Preferred Securities from the Offering.
(9) Minority interest liability at June 30, 1997 is eliminated with the
purchase of the GGS Management Holdings, Inc. minority interest share
from the proceeds of the Offering.
<PAGE>
(10) Retained earnings at June 30, 1997 is reduced by $ 725,000 for the
after tax effects of the write-off of the debt issuance costs
associated with the GGS Senior Credit Facility repaid from the proceeds
of the Offering.
(11) General and administrative expenses for the six months ended June 30,
1997 and the year ended December 31, 1996 are increased by $ 82,000 and
$ 163,000, respectively, for the amortization of the Preferred
Securities issuance costs. Such costs are amortized over the life of
the Preferred Securities of thirty years.
(12) General and administrative expenses for the six month ended June 30,
1997 and the year ended December 31, 1996 are increased by $ 116,000
and $ 231,000, respectively, for the amortization of the debt issuance
costs associated with the GGS Senior Credit Facility.
(13) General and administrative expenses for the six months ended June 30,
1997 and the year ended December 31, 1996 are increased by $ 788,000
and $ 1,703,000, respectively, for the amortization of goodwill created
by the excess of the purchase price of the GGS Management Holdings,
Inc. minority interest share in the excess of the minority interest
liability. Goodwill is amortized over a 25 year period on a straight
line basis based on management's estimate of the expected benefit
period.
(14) General and administrative expenses and interest expense for the six
months ended June 30, 1997 are decreased by $ 293,484 and $ 2,413,411,
respectively, for the interest incurred on the GGS Senior Credit
Facility which was repaid from the proceeds of the Offering. Interest
expense for the year ended December 31, 1996 is decreased by $
3,927,000 for the interest incurred on the GGS Senior Credit Facility.
(15) All applicable pro forma adjustments to operations are tax effected at
a rate of 35%. Amortization on goodwill is added back to earnings in
determining the provision for income taxes as goodwill amortization is
non-deductible for tax purposes.
(16) Distributions on Preferred Securities for the six months ended June 30,
1997 and the year ended December 31, 1996, net of income taxes at 35%,
of $ 4,168,000 and $ 8,336,000, respectively, were based on an interest
rate of 9.5%.
(17) Minority interest earnings at June 30, 1997 and December 31, 1996 are
eliminated with the purchase of the remaining minority interest share
in GGS Management Holdings, Inc.
(18) Minority interest earnings at June 30, 1997 are adjusted to reflect the
impact of items (11) to (17) on the 33% minority interest in SIG, Inc.
<PAGE>
(c) Exhibits.
As of the date of filing of this Current report on Form 8-K, it is impracticable
for the Registrant to provide all the exhibits required by the provisions of
Item 601 of Regulation S-K. In accordance with the provisions of Item 601 of
Regulation S-K, such exhibits shall be filed by amendment to this form 8-K no
later than 60 days after August 27, 1997.
<PAGE>
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.
Date: August 27, 1997
GORAN CAPITAL, INC.
By: __/s/ Gary P. Hutchcraft____________
Gary P. Hutchcraft
Treasurer and Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit No. 99 Press Release of Transaction
NEWS RELEASE
Media Contact: Alan G. Symons Analyst Contact: Jeff Davis
President and CEO NatCity Investments
(317) 259-6302 (317) 635-4551
FOR IMMEDIATE RELEASE
GORAN CAPITAL, INC.'S SUBSIDIARY
SYMONS INTERNATIONAL GROUP, INC.
COMPLETES ACQUISITION AND DEBT FINANCING
Toronto, Ontario (August 12 , 1997) - Goran Capital, Inc. (Toronto Stock
Exchange: GNC) (NASDAQ/NM:GNCNF) a leading provider of crop, nonstandard
automobile insurance and reinsurance, today announces that its subsidiary,
Symons International Group, Inc. ("SIG"), has completed the acquisition of the
remaining 48% interest in its nonstandard automobile insurance business and has
also completed the $135,000,000 offering of Trust Preferred securities.
The Company today announces that SIG has successfully closed its $135,000,000
Offering of 30 year Trust Preferred Securities which carry a 9.5% coupon and are
initially callable in 2007 and also bought the remaining interest in its
nonstandard automobile division.
"We chose the Trust Preferred which are, in effect, thirty year bonds that bear
tax deductible interest at 9.5% but affords SIG the ability to defer payment of
interest for up to five years at any time. These debt instruments are gaining
popularity with financial institutions because the rating authorities give a
partial credit toward equity when rating the Trust Preferreds as opposed to pure
debt. Most of the equity credit granted results from limited covenants and the
ability to defer payment of interest for up to five years. The Trust Preferreds
almost feel like equity without the diluted effect of equity," says company
President and CEO, Alan G. Symons.
The proceeds of the $135,000,000 were used (i) to purchase the outstanding 48%
to bring Symons International Group, Inc.'s ownership of the nonstandard
operation up to 100%, (ii) to pay off outstanding term debt, (iii) the balance
used to increase working and acquisition capital for Symons International Group,
Inc. and pay the cost of the issue. The Trust Preferred issue was very well
received and was oversubscribed by a ratio of 2:1, thus enabling the Company to
draw down an additional $5,000,000 over the original intent of $130,000,000.
Goran Capital, Inc. of Toronto is primarily engaged in the nonstandard auto,
crop insurance and reinsurance business and maintains active business licenses
in Canada, 35 U.S. states and Barbados.
Anyone wishing further information may contact:
Alan G. Symons
President and Chief Executive Officer
Toronto (416) 594-1155 and Indianapolis (317) 259-6302
