DONEGAL GROUP INC.
AGENCY STOCK PURCHASE PLAN
PROSPECTUS SUPPLEMENT
TO PROSPECTUS DATED AUGUST 22, 1996
--------------------
On November 14, 1997, Donegal Group Inc. (the "Company") filed with the
Securities and Exchange Commission a Form 10-Q Quarterly Report for the quarter
ended September 30, 1997, a copy of which, without exhibits, is attached to this
Prospectus Supplement.
This Prospectus Supplement should be read in conjunction with the
Company's Prospectus dated August 22, 1996 and the Company's 1996 Annual
Report to Stockholders.
The date of this Prospectus Supplement is November 21, 1997.
<PAGE>
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
(Mark One)
[x] Quarterly Report Pursuant to Section 13 of the Securities Exchange
Act of 1934
For the Quarterly Period Ended September 30, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _________________ to ___________________.
Commission File No. 0-15341
Donegal Group Inc.
(Exact name of registrant as specified in its charter)
Delaware 23-2424711
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1195 River Road, P.O. Box 302, Marietta, PA 17547-0302
(Address of principal executive offices, including zip code)
(717) 426-1931
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether 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. ____.
Applicable Only to Issuers Involved in Bankruptcy
Proceedings During the Preceding Five Years:
Indicate by check mark whether the registrant has filed all documents
and reports required by Sections 12, 13, or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court. Yes ____. No ____.
Applicable Only to Corporate Issuers:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: 6,013,446 shares of
Common Stock, $1.00 par value, outstanding on October 31, 1997.
<PAGE>
Part I. Financial Information
Item 1. Financial Statements.
Donegal Group Inc. And Subsidiaries
Consolidated Balance Sheet
<TABLE>
<CAPTION>
Assets September 30, 1997 December 31, 1996*
------------------ -----------------
(Unaudited)
<S> <C> <C>
Investments
Fixed maturities
Held to maturity, at amortized cost $118,316,954 $114,339,006
Available for sale, at market value 57,632,900 53,536,543
Equity securities, available for sale at market 5,381,089 3,142,944
Short-term investments, at cost, which
approximate market 12,331,720 21,470,757
------------ ------------
Total Investments 193,662,663 192,489,250
Cash 3,305,340 3,700,163
Accrued investment income 2,626,174 2,628,563
Premiums receivable 11,318,367 11,075,415
Reinsurance receivable 39,372,817 40,894,788
Deferred policy acquisition costs 8,173,055 7,837,899
Due from affiliate 217,428 ---
Deferred federal income taxes 3,496,892 3,613,307
Prepaid reinsurance premiums 23,031,408 22,373,319
Property and equipment, net 4,900,124 2,622,399
Accounts receivable - securities -- 98,622
Other 2,238,380 677,048
------------ ------------
Total Assets $292,342,648 $288,010,773
============ ============
Liabilities and Stockholders' Equity
Liabilities
Losses and loss expenses $116,749,638 $114,641,740
Unearned premiums 72,240,255 70,555,906
Accrued expenses 2,361,454 2,387,040
Reinsurance balances payable 724,372 746,935
Federal income tax payable 27,025 644,529
Cash dividend declared to stockholders -- 492,619
Line of credit 5,000,000 8,500,000
Accounts payable - securities -- 2,748,838
Other 784,630 204,989
Due to affiliate - Pioneer acquisition 5,191,774 5,191,774
- Other -- 297,129
------------ ------------
Total Liabilities 203,079,148 206,411,499
------------ ------------
Stockholders' Equity
Preferred stock, $1.00 par value, authorized
1,000,000 shares; none issued
Common stock, $1.00 par value, authorized
10,000,000 shares, issued
6,092,657 and 4,540,569 shares
and outstanding 6,000,941
and 4,471,782 shares 6,092,657 4,540,569
Additional paid-in capital 38,374,249 37,862,715
Net unrealized gains on investments 826,926 422,916
Retained earnings 44,861,424 39,664,830
Treasury stock (891,756) (891,756)
------------ ------------
Total Stockholders' Equity 89,263,500 81,599,274
------------ ------------
Total Liabilities and
Stockholders' Equity $292,342,648 $288,010,773
============ ============
</TABLE>
* Restated
See accompanying notes to consolidated financial statements.
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<PAGE>
Donegal Group Inc. and Subsidiaries
Consolidated Statement of Income
(Unaudited)
For the three months ended September 30, 1997 and 1996
Three Months Ended September 30,
1997 1996
---- ----
Revenues:
Premiums earned $40,572,081 $38,735,851
Premiums ceded 13,311,388 12,475,077
----------- -----------
Net premiums earned 27,260,693 26,260,774
Investment income, net of investment
expenses 2,937,109 2,625,835
Realized gain (loss) 120,098 16,780
Lease income 165,997 138,613
Service charge income 426,019 387,200
----------- -----------
Total Revenues 30,909,916 29,429,202
----------- -----------
Expenses:
Losses and loss expenses 27,136,180 26,238,867
Reinsurance recoveries 10,025,051 8,941,471
----------- -----------
Net losses and loss expenses 17,111,129 17,297,396
Amortization of deferred policy
acquisition costs 4,638,000 4,278,000
Other underwriting expenses 4,301,001 4,171,533
Policy dividends 279,070 282,956
Interest 256,852 81,513
Other expenses 380,619 350,108
----------- -----------
Total Expenses 26,966,671 26,461,506
----------- -----------
Income before income taxes 3,943,245 2,967,696
Income taxes 1,031,517 683,651
----------- -----------
Net income $ 2,911,728 $ 2,284,045
=========== ===========
Earnings per common share $ .48 $ .39
=========== ===========
See accompanying notes to consolidated financial statements.
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<PAGE>
Donegal Group Inc. and Subsidiaries
Consolidated Statement of Income
(Unaudited)
For the nine months ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1997 1996
---- ----
<S> <C> <C>
Revenues:
Premiums earned $119,335,186 $106,675,212
Premiums ceded 38,846,655 28,599,572
---------- ------------
Net premiums earned 80,488,531 78,075,640
Investment income, net of investment
expenses 8,663,863 7,814,474
Realized gain (loss) 193,452 311,528
Lease income 462,845 404,970
Service charge income 1,178,456 1,119,917
----------- -----------
Total Revenues 90,987,147 87,726,529
---------- ----------
Expenses:
Losses and loss expenses 76,842,909 72,194,603
Reinsurance recoveries 25,489,834 18,903,579
----------- -----------
Net losses and loss expenses 51,353,075 53,291,024
Amortization of deferred policy
acquisition costs 13,368,000 12,576,000
Other underwriting expenses 13,018,871 11,910,251
Policy dividends 1,020,839 982,276
Interest 699,777 290,194
Other expenses 1,154,432 1,149,143
----------- -----------
Total Expenses 80,614,994 80,198,888
---------- ----------
Income before income taxes 10,372,153 7,527,641
Income taxes 2,497,395 1,399,166
---------- ----------
Net income $ 7,874,758 $ 6,128,475
========== ==========
Earnings per common share $1.31 $1.04
==== ====
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<PAGE>
DONEGAL GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Net Unrealized
Additional Gains (Losses)
Common Stock Common Stock Paid-In on Investments
Shares Amount Capital Available for Sale
<S> <C> <C> <C> <C>
Balance,
December 31, 1996* 4,540,569 $ 4,540,569 $37,862,715 $ 422,916
Issuance of Common
Stock 31,749 31,749 511,534
Net Income
Change in unrealized
gains (losses) on
investments (Net of
applicable federal
income taxes) 404,010
Stock Dividend 1,520,339 1,520,339
Cash Dividends
--------- ----------- ----------- -----------
Balance,
September 30, 1997 6,092,657 $ 6,092,657 $38,374,249 $ 826,926
========= =========== =========== ===========
<CAPTION>
Total
Retained Treasury Stockholders'
Earnings Stock Equity
<S> <C> <C> <C>
Balance,
December 31, 1996* $39,664,830 $ (891,756) $81,599,274
Issuance of Common
Stock 543,283
Net Income 7,874,758 7,874,758
Change in unrealized
gains (losses) on
investments (Net of
applicable federal
income taxes) 404,010
Stock Dividend 1,520,339
Cash Dividends (1,157,825) (1,157,825)
----------- ----------- -----------
Balance,
September 30, 1997 $44,861,424 $ (891,756) $89,263,500
=========== =========== ===========
</TABLE>
*Restated
See accompanying notes to financial statements.
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<PAGE>
DONEGAL GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
For the nine months ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
Nine months ended September 30,
1997 1996*
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 7,874,758 $ 6,128,475
------------ ------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 280,359 304,176
Realized investment gain (loss) (193,452) (311,528)
Changes in Assets and Liabilities:
Losses and loss expenses 2,107,898 11,483,846
Unearned premiums 1,684,349 13,605,348
Premiums receivable (242,952) (1,465,296)
Deferred acquisition costs (335,156) (1,007,909)
Deferred income taxes (91,710) (46,995)
Reinsurance receivable 1,521,971 (7,328,644)
Prepaid reinsurance premiums (658,089) (7,856,128)
Accrued investment income 2,389 217,806
Due from affiliate (514,557) (382,173)
Accounts payable reinsurance (22,563) 15,342
Current income taxes payable (617,504) 143,847
Other, net (1,007,277) (1,078,310)
------------ ------------
Net adjustments 1,913,706 7,057,728
------------ ------------
Net cash provided by operating activities 9,788,464 13,186,203
------------ ------------
Cash flows from investing activities:
Purchase of fixed maturities
Held to maturity (15,583,302) (22,370,849)
Available for sale (15,332,409) (12,011,300)
Purchase of equity securities, available for sale (4,539,449) (8,818,784)
Maturity of fixed maturities
Held to maturity 9,074,739 6,928,676
Available for sale 7,444,999 15,219,295
Sale of fixed maturities - available for sale 4,010,313 3,603,517
Sale of equity securities - available for sale 2,804,257 8,396,561
Acquisition of Delaware Atlantic -- (202,243)
Purchase of property and equipment (2,594,311) (209,000)
Net sales of short-term investments 9,139,037 (3,084,219)
------------ ------------
Net cash used in investing activities (5,576,126) (12,548,346)
------------ ------------
Cash flows from financing activities:
Cash dividends paid (1,650,444) (1,387,221)
Issuance of common stock 543,283 2,910,261
------------ ------------
Line of credit, net (3,500,000) (1,500,000)
------------ ------------
Net cash provided by (used in)
financing activities (4,607,161) 23,040
------------ ------------
Net decrease in cash (394,823) 660,897
Cash at beginning of year 3,700,163 2,397,386
------------ ------------
Cash at end of quarter $ 3,305,340 $ 3,058,283
============ ============
Cash paid during period - Interest $ 375,780 $ 169,806
- Income taxes $ 3,450,055 $ 1,268,143
</TABLE>
*Restated
See accompanying notes to consolidated financial statements.
-5-
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Overview
Donegal Group Inc. ("DGI" or the "Company") is a regional insurance
holding company doing business in Pennsylvania, Maryland, Delaware, Virginia and
Ohio through its four wholly owned property-casualty insurance subsidiaries,
Atlantic States Insurance Company ("Atlantic"), Southern Insurance Company of
Virginia ("Southern"), Pioneer Insurance Company ("Pioneer") and Delaware
Atlantic Insurance Company ("Delaware"). The Company's major lines of business
in 1996 and their percentage of total net earned premiums were Automobile
Liability (27.7%), Workers' Compensation (18.0%), Automobile Physical Damage
(16.0%), Homeowners (16.6%), and Commercial Multiple Peril (16.0%). The
subsidiaries are subject to regulation by Insurance Departments in those states
in which they operate and undergo periodic examination by those departments. The
subsidiaries are also subject to competition from other insurance carriers in
their operating areas. DGI was formed in September 1986 by Donegal Mutual
Insurance Company (the "Mutual Company"), which owns 58% of the outstanding
common shares of the Company as of September 30, 1997.
Atlantic States participates in an intercompany pooling arrangement
with the Mutual Company and assumes 65% of the pooled business, 60% prior to
January 1, 1996. Southern cedes 50% of its business to the Mutual Company and
Delaware cedes 70% of its Workers' Compensation business to the Mutual Company.
Because the Mutual Company places substantially all of the business assumed from
Southern and Delaware into the pool, from which the Company has a 65%
allocation, the Company's results of operations include approximately 80% of the
business written by Southern and approximately 75% of the Workers' Compensation
business written by Delaware.
On March 31, 1997, the Company acquired all of the outstanding stock of
Pioneer Insurance Company. This transaction was accounted for as if it were a
"Pooling of interest," and as such, the Company's financial statements have been
restated to include Pioneer as a consolidated subsidiary from January 1, 1994 to
the present.
In January 1994, the Company organized a new subsidiary, Atlantic Insurance
Services, Inc. ("AIS"), which began business in that same month. AIS is an
insurance services organization currently providing inspection and policy
auditing information on a fee for service basis to its affiliates and the
insurance industry.
-6-
<PAGE>
DONEGAL GROUP INC. AND SUBSIDIARIES
(Unaudited)
Summary Notes to Consolidated Financial Statements
1 - Organization
The Company was organized as a regional insurance holding company by
Donegal Mutual Insurance Company (the "Mutual Company") on August 26, 1986 and
operates in Pennsylvania, Maryland, Delaware, Virginia and Ohio through its
wholly owned stock insurance companies, Atlantic States Insurance Company
("Atlantic States"), Southern Insurance Company of Virginia ("Southern"),
Delaware Atlantic Insurance Company ("Delaware"), Pioneer Insurance Company
("Pioneer") and Atlantic Insurance Services, Inc. ("AIS"). The Company's major
lines of business are Automobile Liability, Automobile Physical Damage,
Homeowners, Commercial Multiple Peril and Workers' Compensation. Atlantic,
Southern and Delaware are subject to regulation by Insurance Departments in
those states in which they operate and undergo periodic examination by those
departments. They are also subject to competition from other insurance carriers
in their operating areas. Atlantic States engages in the insurance business
primarily through an intercompany pooling arrangement with the Mutual Company.
Southern was acquired by the Company on December 31, 1988 pursuant to a plan of
conversion from a mutual to a stock company and cedes 50% of its business to the
Mutual Company, 80% prior to 1991. On December 29, 1995, the Company acquired
all of the outstanding stock of Delaware. This transaction was accounted for as
if it were a "Pooling of interest," and as such, the Company's financial
statements have been restated to include Delaware as a consolidated subsidiary
from January 1, 1994 to the present. On March 31, 1997, the Company acquired all
of the outstanding stock of Pioneer. This transaction was accounted for as if it
were a "Pooling of Interest", and as such the Company's financial statements
have been restated to include Pioneer as a consolidated subsidiary from January
1, 1994 to the present. At September 30, 1997, the Mutual Company held 58% of
the outstanding common stock of the Company.
2 - Basis of Presentation
The financial information for the interim period included herein is
unaudited; however, such information reflects all adjustments, consisting only
of normal recurring adjustments, which, in the opinion of management of
Registrant, are necessary to a fair presentation of Registrant's financial
position, results of operations and changes in financial position for the
interim period included herein. The results of operations for the nine months
ended September 30, 1997, are not necessarily indicative of results of
operations to be expected for the twelve months ended December 31, 1997.
These financial statements should be read in conjunction with the
financial statements and notes thereto contained in the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1996.
-7-
<PAGE>
Results of Operations - Three Months Ended September 30, 1997
to Three Months Ended September 30, 1996
Revenues for the three months ended September 30,1997 were $30,909,916
an increase of $1,480,714, or 5.0%, over the same period of 1996. An increase in
net premiums earned of $999,919 or 3.8%, represented most of this change.
Investment income for the third quarter of 1997 was $2,937,109 an increase of
$311,274, or 11.9%, over the third quarter of 1996. An increase in the average
invested assets of $16,083,544 or 9.0%, to $194,874,494 and an increase in the
average return on investments to an annualized rate of 6.0% for the third
quarter of 1997 compared to 5.9% for the third quarter of 1996, accounted for
the change. Realized investment gains, which resulted from the normal turnover
of the Company's investment portfolio, increased $103,318 for the three months
ended September 30, 1997 compared to the same period in 1996, to $120,098.
The GAAP combined ratio of insurance operations in the third quarter of
1997 was 96.6% compared to 91.1% for the same period in 1996. The GAAP combined
ratio is the sum of the ratios of incurred losses and loss adjusting expenses to
premiums earned (loss ratio), policyholders dividends to premiums earned
(dividend ratio), and underwriting expenses to premiums earned (expense ratio).
The company posted a loss ratio of 62.8% for the third quarter 1997 compared to
the 65.9% loss ratio it posted for the third quarter 1996. The expense ratio
increased from 32.2% to 32.8% for the three months ended September 30, 1997 due
to higher inspection costs related to a reunderwriting program for existing
Homeowners business and increases in incentive expenses for employees and agents
related to the lower claims activity for the first nine months of the year. The
dividend ratio decreased slightly from 1.1% for the third quarter of 1996 to
1.0% for the third quarter of 1997, due primarily to a 25% mandatory rate
rollback in Pennsylvania Workers' Compensation rates.
Federal income taxes for the third quarter of 1997 represented 26.1% of
income before income taxes, compared to 23.0% for the same period of 1996. A tax
benefit from the exercise of options in 1996 which reduced that year's tax
expense accounted for the difference.
-8-
<PAGE>
Results of Operations - Nine Months Ended September 30, 1997
to Nine Months Ended September 30, 1996
Revenues for the nine months ended September 30,1997 were $90,987,147
an increase of $3,260,618, or 3.7%, over the same period of 1996. An increase in
net premiums earned of $2,412,891, or 3.1%, represented most of this change.
Investment income for the first nine months of 1997 was $8,663,863 an increase
of $849,389, or 10.9%, over the first nine months of 1996. An increase in the
average invested assets of $19,228,155, or 11.1%, to $193,075,956 and an
increase in the average return on investments to an annualized rate of 6.0% for
the first nine months of 1997 compared to 5.4% for the first nine months of
1996, accounted for the change. Realized investment gains, which resulted from
the normal turnover of the Company's investment portfolio, decreased $118,076
for the nine months ended September 30, 1997 compared to the same period in
1996, to $193,452.
The GAAP combined ratio of insurance operations in the first nine
months of 1997 was 97.5% compared to 100.9% for the same period in 1996. The
GAAP combined ratio is the sum of the ratios of incurred losses and loss
adjusting expenses to premiums earned (loss ratio), policyholders dividends to
premiums earned (dividend ratio), and underwriting expenses to premiums earned
(expense ratio). The company posted a loss ratio of 63.1% for the first nine
months of 1997 compared to the 68.3% loss ratio it posted for the first nine
months of 1996. Dramatically improved weather conditions in 1997 compared to the
severe and unusual weather that was experienced in early 1996 accounted for the
improvement. The expense ratio increased from 31.4% to 32.8% for the nine months
ended September 30, 1997 due to higher inspection costs related to a
reunderwriting process in the Homeowners line and increases in incentive
expenses for employees and agents related to the lower claims activity for the
first quarter. The dividend ratio remained the same at 1.3%.
Federal income taxes for the first nine months of 1997 represented
24.1% of income before income taxes, compared to 18.6% for the same period of
1996. Larger underwriting profits in 1997 representing a larger portion of
overall income than in 1996 and tax deductions from the exercise of options in
1996 reducing that year's tax liability accounted for the increase.
-9-
<PAGE>
Liquidity and Capital Resources
The Company generates sufficient funds from its operations and
maintains a high degree of liquidity in its investment portfolio. The primary
source of funds to meet the demands of claim settlements and operating expenses
are premium collections, investment earnings and maturing investments. As of
September 30, 1997, the Company had no material commitment for capital
expenditures.
In investing funds made available from operations, the Company
maintains securities maturities consistent with its projected cash needs for the
payment of claims and expenses. The Company maintains a portion of its
investment portfolio in relatively short-term and highly liquid assets to ensure
the availability of funds.
As of September 30, 1997, pursuant to a credit agreement dated December
29, 1995, with Fleet National Bank of Connecticut, the Company had unsecured
borrowings of $5.0 million. Per the terms of the credit agreement, the Company
may borrow up to $20 million at interest rates equal to the bank's then current
prime rate or the then current London interbank Eurodollar bank rate plus 1.70%.
At September 30, 1997, the interest rate on the outstanding balance was
7.57891%. In addition, the Company will pay a non-use fee at a rate of 3/10 of
1% per annum on the average daily unused portion of the Bank's commitment. On
each December 29, commencing December 29, 1998, the credit line will be reduced
by $4 million. Any outstanding loan in excess of the remaining credit line,
after such reduction, will then be payable.
The Company's principal source of cash with which to pay stockholder
dividends is dividends from Atlantic States, Southern, Pioneer and Delaware,
which are required by law to maintain certain minimum surplus on a statutory
basis and are subject to regulations under which payment of dividends from
statutory surplus is restricted and may require prior approval of their
domiciliary insurance regulatory authorities. Atlantic States, Southern, Pioneer
and Delaware are subject to Risk Based Capital (RBC) requirements effective for
1994. At December 31, 1996, all four Companies' capital was substantially above
the RBC requirements. At December 31, 1996, amounts available for distribution
as dividends to Donegal Group without prior approval of the insurance regulatory
authorities are $5,410,536 from Atlantic States, $255,480 from Southern, $48,582
from Pioneer and $1,120,952 from Delaware.
-10-
<PAGE>
Credit Risk
The company provides property and liability coverages through its
subsidiaries' independent agency systems located throughout its operating area.
The majority of this business is billed directly to the insured although a
portion of Donegal Group's commercial business is billed through its agents who
are extended credit in the normal course of business.
The Company's subsidiaries have reinsurance agreements in place with
the Mutual Company and with a number of other major authorized reinsurers.
Impact of Inflation
Property and casualty insurance premiums are established before the
amount of losses and loss settlement expenses, or the extent to which inflation
may impact such expenses, are known. Consequently, the Company attempts, in
establishing rates, to anticipate the potential impact of inflation.
Impact of New Accounting Standards
Stock-Based Compensation
Stock-based compensation plans are accounted for under the provisions
of Accounting Principles Board (APB) Opinion No. 25. "Accounting for Stock
Issued to Employees," and related interpretations. As such, compensation expense
would be recorded on the date of a stock option grant only if the current market
price of the underlying stock exceeded the exercise price. Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-based
Compensation" was effective for 1996 and permits entities to recognize as
expense, over the vesting period, the fair value of all stock-based awards on
the date of the grant. Alternatively, SFAS No. 123 allows entities to continue
to apply the provisions of APB Opinion No. 25 and provide pro forma net income
and earnings per share disclosures for employee stock option grants made in 1995
and 1997 as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosures under SFAS No. 123.
Impairment of Long-Lived Assets
The Company has adopted Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets
to be Disposed Of" (SFAS No. 121) effective January 1, 1996, SFAS No. 121
provides guidance for recognition and measurement of impairment long-lived
assets, certain identifiable intangibles and goodwill related both to assets to
be held and used and assets to be disposed of.
SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. In performing the review for recoverability, an entity
should estimate the future cash flows expected to result from the use of the
asset and its eventual disposition. If the sum of the expected future cash flows
(undiscounted and without interest charges) is less than the carrying amount of
the asset, an impairment loss is not recognized. Measurement of an impairment
loss for long-lived assets and identifiable intangibles that an entity expects
to hold and use should be based on the fair value of the asset.
SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles to be disposed of be reported at the lower of carrying amount or
fair value less cost to sell.
Management believes the adoption of SFAS No. 121 has no material effect
on its financial condition or results of operation.
-11-
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) EX-27 Financial Data Schedule
(b) Reports on Form 8-K
During the quarter ended September 30, 1997 - None
-12-
<PAGE>
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, thereunto duly authorized.
Donegal Group Inc.
Date: November 14, 1997 By:
------------------------
Donald H. Nikolaus,
President and
Chief Executive Officer
Date: November 14, 1997 By:
------------------------
Ralph G. Spontak,
Corporate Secretary,
Senior Vice President and
Chief Financial Officer
-13-
