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 March 31, 1999
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: 8,266,859 shares of Common
Stock, $1.00 par value, outstanding on April 30, 1999.
<PAGE>
Part I. Financial Information
Item 1. Financial Statements.
Donegal Group Inc. And Subsidiaries
Consolidated Balance Sheet
<TABLE>
<CAPTION>
Assets March 31, 1999 December 31, 1998
-------------- -----------------
<S> <C> <C>
Investments (Unaudited)
Fixed maturities
Held to maturity, at amortized cost $124,145,593 $127,183,788
Available for sale, at market value 87,037,344 90,525,855
Equity securities, available for sale at market 12,161,332 6,763,943
Short-term investments, at cost, which
approximates market 15,549,675 30,521,887
------------ ------------
Total Investments 238,893,944 254,995,473
Cash 3,161,432 8,227,042
Accrued investment income 3,058,729 3,164,599
Premiums receivable 20,365,502 19,824,894
Reinsurance receivable 51,008,386 48,339,223
Deferred policy acquisition costs 11,140,610 11,334,301
Federal income tax receivable --- 227,841
Deferred federal income taxes 3,974,913 3,536,692
Prepaid reinsurance premiums 27,996,876 27,203,111
Property and equipment, net 6,228,566 5,920,420
Accounts receivable - securities --- 329,299
Other 2,065,656 2,128,611
------------ ------------
Total Assets $367,894,614 $385,231,506
============ ============
Liabilities and Stockholders' Equity
Liabilities
Losses and loss expenses $142,974,241 $141,409,008
Unearned premiums 94,668,936 94,722,785
Accrued expenses 4,063,649 4,821,594
Drafts payable 1,878,585 1,394,373
Reinsurance balances payable 1,260,775 1,785,914
Federal income tax payable 323,823 ---
Cash dividend declared to stockholders --- 708,513
Line of credit 15,000,000 37,500,000
Accounts payable - securities 1,075,000 503,840
Other 1,161,980 884,392
Due to affiliate - Other 2,896,606 870,083
------------- ------------
Total Liabilities 265,303,595 284,600,502
----------- -----------
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 8,371,019 and 8,325,221 shares and outstanding
8,248,731 and 8,202,933 shares 8,371,019 8,325,221
Additional paid-in capital 41,813,463 41,271,322
Accumulated other comprehensive income 536,134 1,315,425
Retained earnings 52,762,159 50,610,792
Treasury stock (891,756) (891,756)
------------ ------------
Total Stockholders' Equity 102,591,019 100,631,004
------------ ------------
Total Liabilities and
Stockholders' Equity $367,894,614 $385,231,506
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
-1-
<PAGE>
Donegal Group Inc. and Subsidiaries
Consolidated Statement of Income
(Unaudited)
For the three months ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
---- ----
<S> <C> <C>
Revenues:
Premiums earned $51,836,183 $40,478,779
Premiums ceded 15,742,212 13,274,235
----------- -----------
Net premiums earned 36,093,971 27,204,544
Investment income, net of investment
expenses 3,369,261 2,845,267
Realized gain (16,930) 311,793
Lease income 197,137 183,064
Service charge income 466,551 351,476
----------- -----------
Total Revenues 40,109,990 30,896,144
----------- -----------
Expenses:
Losses and loss expenses 36,601,455 24,926,996
Reinsurance recoveries 12,149,804 9,125,091
----------- -----------
Net losses and loss expenses 24,451,651 15,801,905
Amortization of deferred policy
acquisition costs 6,031,000 4,700,000
Other underwriting expenses 5,757,757 4,696,951
Policy dividends 331,376 477,858
Interest 430,944 183,059
Other expenses 382,387 421,809
----------- -----------
Total Expenses 37,385,115 26,281,582
----------- -----------
Income (loss) before income taxes 2,724,875 4,614,562
Income taxes 573,508 1,297,909
----------- -----------
Net income $ 2,151,367 $ 3,316,653
=========== ===========
Earnings per common share
Basic $.26 $.41
=== ===
Diluted $.26 $.40
=== ===
</TABLE>
Statement of Comprehensive Income
(Unaudited)
Three Months Ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net Income $ 2,151,367 $ 3,316,653
----------- -----------
Other comprehensive income (loss), net of tax
Unrealized gains on securities:
Unrealized holding gain arising
during the period (688,049) 343,502
Less: Reclassification adjustment for
gains and (losses) included in
Net income --- (41,336)
----------- ------------
Other comprehensive income (loss) (688,049) 302,166
----------- -----------
Comprehensive income $ 1,463,318 $ 3,618,819
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
-2-
<PAGE>
DONEGAL GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
FOR THE THREE MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
Common Stock Accumulated Total
------------ Additional Other Com- Stock-
Paid-In prehensive Retained Treasury holders'
Shares Amount Capital Income Earnings Stock Equity
------ ------ ------- ------ -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1998 8,325,221 $8,325,221 $41,271,322 $1,315,425 $50,610,792 $(891,756) $100,631,004
Issuance of
Common Stock 45,798 45,798 542,141 587,939
Net Income 2,151,367 2,151,367
Other Comprehensive
Income (779,291) (779,291)
--------- ---------- ----------- ---------- ----------- --------- ------------
Balance,
March 31, 1999 8,371,019 $8,371,019 $41,813,463 $ 536,134 $52,762,159 $(891,756) $102,591,019
========= ========== =========== ========== =========== ========= ============
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<PAGE>
DONEGAL GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
For the three months ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
Three months ended March 31,
1999 1998
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 2,151,367 $ 3,316,653
----------- -----------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 211,460 114,373
Realized investment (gain) loss 16,930 (311,793)
Changes in Assets and Liabilities:
Losses and loss expenses 1,565,233 1,008,614
Unearned premiums (53,849) 1,905,731
Premiums receivable (540,608) (700,623)
Deferred acquisition costs 193,691 (196,952)
Deferred income taxes (45,404) 86,774
Reinsurance receivable (2,669,163) (797,561)
Prepaid reinsurance premiums (793,765) (1,498,494)
Accrued investment income 105,870 198,404
Due from affiliate 2,026,523 141,313
Accounts payable reinsurance (525,139) (75,370)
Current income taxes 551,664 1,212,008
Other, net 14,835 (788,247)
----------- -----------
Net adjustments 58,278 298,177
----------- -----------
Net cash provided by operating activities 2,209,645 3,614,830
----------- -----------
Cash flows from investing activities:
Purchase of fixed maturities
Held to maturity (2,774,667) (5,391,567)
Available for sale (4,180,764) (11,341,414)
Purchase of equity securities, available for sale (5,223,848) (7,459,192)
Maturity of fixed maturities
Held to maturity 10,926,853 8,520,875
Available for sale 1,500,000 3,200,000
Sale of fixed maturities - available for sale --- 535,765
Sale of equity securities, available for sale 565,850 2,394,367
Purchase of property and equipment (440,317) (284,638)
Net sales of short-term investments 14,972,212 10,607,720
----------- -----------
Net cash used in investing activities 15,345,319 781,916
----------- -----------
Cash flows from financing activities:
Cash dividends paid (708,513) (604,054)
Issuance of common stock 587,939 527,823
Line of credit, net (22,500,000) (5,500,000)
------------ -----------
Net cash provided by (used in)
financing activities (22,620,574) (5,576,231)
----------- ----------
Net decrease in cash (5,065,610) (1,179,485)
Cash at beginning of year 8,227,042 3,413,315
----------- -----------
Cash at end of quarter $ 3,161,432 $ 2,233,830
=========== ===========
Cash paid during period - Interest $ 417,304 $ 2,711
- Income taxes $ 0 $ 112,045
</TABLE>
See accompanying notes to consolidated financial statements.
-4-
<PAGE>
DONEGAL GROUP INC. AND SUBSIDIARIES
(Unaudited)
Summary Notes to Consolidated Financial Statements
1 -- Organization
Donegal Group Inc. (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 the Mid-Atlantic and Southern states through its
wholly-owned stock insurance companies, Atlantic States Insurance Company
("Atlantic States"), Southern Heritage Insurance Company ("Southern Heritage"),
Southern Insurance Company of Virginia ("Southern"), Delaware Atlantic Insurance
Company ("Delaware"), Pioneer Insurance Company ("Pioneer") ( collectively
"Insurance Subsidiaries"). The Company has three operating segments: the
investment function, the personal lines of insurance and the commercial lines of
insurance. Products offered in the personal lines of insurance consist primarily
of homeowners and private passenger automobile policies. Products offered in the
commercial lines of insurance consist primarily of commercial automobile,
commercial multiple peril and workers' compensation policies. The Insurance
Subsidiaries are subject to regulation by Insurance Departments in those states
in which they operate and undergo periodic examinations by those departments.
The Insurance Subsidiaries are also subject to competition from other insurance
companies in their operating areas. Atlantic States participates in an
inter-company pooling arrangement with the Mutual Company and assumes 65% of the
pooled business. Southern cedes 50% of its business to the Mutual Company and
Delaware cedes 70% of its Workers' Compensation business to the Mutual Company.
At March 31, 1999, the Mutual Company held 60% of the outstanding common stock
of the Company.
In addition to the Company's Insurance Subsidiaries, it also owns all of
the outstanding stock of Atlantic Insurance Services, Inc. ("AIS"), an insurance
services organization currently providing inspection and policy auditing
information on a fee-for-service basis to its affiliates and the insurance
industry.
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, are
necessary to a fair presentation of the financial position, results of
operations and cash flow for the interim period included herein. The results of
operations for the three months ended March 31, 1999, are not necessarily
indicative of results of operations to be expected for the twelve months ended
December 31, 1999.
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, 1998.
-5-
<PAGE>
3 -- Earnings Per Share
The computation of basic and diluted earnings per share is as follows:
<TABLE>
<CAPTION>
Weighted
Average Earnings
Net Shares Per
Income Outstanding Share
------ ----------- ---------
<S> <C> <C> <C>
Three Months Ended March 31:
1999
- ----
Basic $2,151,367 8,237,582 $ .26
Effect of stock options --- --- ---
---------- --------- -----
Diluted $2,151,367 8,237,582 $ .26
---------- --------- -----
1998
- ----
Basic $3,316,653 8,186,855 $ .41
Effect of stock options --- 100,125 (.01)
---------- --------- -----
Diluted $3,316,653 8,286,980 $ .40
---------- --------- -----
</TABLE>
4 -- The performance of the personal lines and commercial lines based upon
underwriting results as determined under statutory accounting practices
(SAP) for the total business of the Company.
Financial data by segment is as follows:
1999 1998
- -------------------------------------------------------------------------------
($ in thousands)
- -------------------------------------------------------------------------------
Revenues:
Premiums earned:
Commercial lines $11,385 $11,084
Personal lines 24,709 16,120
- -------------------------------------------------------------------------------
Total premiums earned 36,094 27,204
- -------------------------------------------------------------------------------
Net investment income 3,369 2,845
Realized investment
gains (losses) (17) 312
Other 664 535
- -------------------------------------------------------------------------------
Total revenues $40,110 $30,896
===============================================================================
Income before income taxes:
Underwriting income (loss)
Commercial lines $ (621) $ 2,605
Personal lines 622 (954)
- -------------------------------------------------------------------------------
SAP underwriting gain
(loss) 1 1,651
GAAP adjustments (479) (123)
- -------------------------------------------------------------------------------
GAAP underwriting gain
(loss) (478) 1,528
Net investment income 3,369 2,845
Realized investment gains (losses) (17) 312
Other (149) (71)
- -------------------------------------------------------------------------------
Income before income taxes $ 2,725 $ 4,614
===============================================================================
-6-
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Overview
Donegal Group Inc. (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 the Mid-Atlantic and Southern states through its
wholly-owned stock insurance companies, Atlantic States Insurance Company
("Atlantic States"), Southern Heritage Insurance Company ("Southern Heritage"),
Southern Insurance Company of Virginia ("Southern"), Delaware Atlantic Insurance
Company ("Delaware"), Pioneer Insurance Company ("Pioneer") ( collectively
"Insurance Subsidiaries"). The Company has three operating segments: the
investment function, the personal lines of insurance and the commercial lines of
insurance. Products offered in the personal lines of insurance consist primarily
of homeowners and private passenger automobile policies. Products offered in the
commercial lines of insurance consist primarily of commercial automobile,
commercial multiple peril and workers' compensation policies. The Insurance
Subsidiaries are subject to regulation by Insurance Departments in those states
in which they operate and undergo periodic examinations by those departments.
The Insurance Subsidiaries are also subject to competition from other insurance
companies in their operating areas. Atlantic States participates in an
inter-company pooling arrangement with the Mutual Company and assumes 65% of the
pooled business. Southern cedes 50% of its business to the Mutual Company and
Delaware cedes 70% of its Workers' Compensation business to the Mutual Company.
At March 31, 1999, the Mutual Company held 60% of the outstanding common stock
of the Company.
In addition to the Company's Insurance Subsidiaries, it also owns all of
the outstanding stock of Atlantic Insurance Services, Inc. ("AIS"), an insurance
services organization currently providing inspection and policy auditing
information on a fee-for-service basis to its affiliates and the insurance
industry.
-7-
<PAGE>
Results of Operations - Three Months Ended March 31, 1999
to Three Months Ended March 31, 1998
Revenues for the three months ended March 31, 1999 were $40,109,990 an
increase of $9,213,846 or 29.8%, over the same period of 1998. An increase in
net premiums earned of $8,889,427 or 32.7%, represented most of this change.
Premium growth escalated as a result of the Company's acquisition of Southern
Heritage in November, 1998. Southern Heritage accounted for $7,209,212, or
26.5%, of the increase in premiums earned. Investment income for the first
quarter increased $523,994 or 18.4% with Southern Heritage accounting for most
of the increase. A decrease in the annualized average return on investments from
5.6% in the third quarter 1998 to 5.5% in the first quarter 1999, offset by an
increase in average invested assets from $202.9 million in the first quarter
1998 to $246.9 million in the first quarter 1999, accounted for the remaining
change. Realized investment gains or (losses), which resulted from normal
turnover of the Company's investment portfolio, were ($16,930) in the first
quarter 1999 compared to $311,793 for the same period of 1998.
The GAAP combined ratio of insurance operations in the first quarter of
1999 was 101.3% compared to 94.4% for the same period in 1998. 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's loss ratio in the first quarter of 1999 was 67.7% compared to
58.1% in the first quarter of 1998. Results for the first quarter reflect the
integration of Southern Heritage and a return to more expected weather patterns
and storm activity as compared to the very mild winter weather of 1998. The
expenses ratio for the first quarter 1999 was 32.7% compared to 34.5% for the
first quarter 1998. The decrease in the expense ratio reflects some positive
impact of the economies of scale from the early stages of integration of the
Southern Heritage acquisition. The dividend ratio decreased to 0.9% for the
first quarter of 1999 compared to 1.8% for the same period of 1998 do to higher
loss ratios in the workers' compensation line of business.
Federal income taxes for the first quarter represented 21.0% of the income
before income taxes compared to 28.1% for the same period of 1998. Decreased
underwriting profits resulted in tax free investment income representing a
higher percentage of the income before income taxes in 1999 compared to 1998.
-8-
<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 March
31, 1999 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 March 31, 1999, pursuant to a credit agreement dated December 29,
1995, with Fleet National Bank of Connecticut, the Company had unsecured
borrowings of $15.0 million. Per the terms of the credit agreement, the Company
may borrow up to $40 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 March 31, 1999, the interest rate on the outstanding balance was 6.76%. 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 July 27,
commencing July 27, 2001, the credit line will be reduced by $8 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, 1998, all five Companies' capital was substantially above
the RBC requirements. At December 31, 1998, amounts available for distribution
as dividends to Donegal Group without prior approval of the insurance regulatory
authorities are $6,480,524 from Atlantic States, $638,832 from Southern,
$530,035 from Pioneer, $1,085,807 from Delaware and $1,580,564 from Southern
Heritage.
-9-
<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.
Year 2000 Issues
The Year 2000 issue (i.e. the ability of computer systems to properly
process information which contains dates beginning with January 1, 2000 and
thereafter) affects virtually all companies. All Computer systems used for
processing of business for the Company are owned and operated by Donegal Mutual
Insurance Company (the "Mutual Company").
The ability to process information in a timely and accurate manner is vital
to the Company's property and casualty insurance business. The Company
recognizes that the systems used to process its business must be able to
accurately identify and process information containing year 2000 dates. The
Mutual Company has had a vigorous and comprehensive project underway since 1995
to ensure substantial compliance by the end of 1998. This project was initiated
as part of a review of the main application systems utilized by the Mutual
Company and was geared towards the implementation of new or current versions of
its application software to bring greater efficiencies and operational
improvements to its users. The project was expanded to include a review of all
hardware, peripheral software and inquires of agents and vendors to determine
the readiness of each related to the Year 2000 problem. During 1998 the Mutual
Company put into production its updated, Year 2000 compliant versions of its
main application softwares and late in the year began issuing policies with
expiration dates in the year 2000. The implementation of these updated systems
were without major problems and the Mutual Company's mission critical systems
were substantially Year 2000 compliant by the end of 1998. Testing of less
critical systems, documentation of vendors' readiness, replacement of some
hardware and final testing of certain other potential problem dates continues in
1999 and is anticipated to be complete near the end of the second quarter. Costs
directly related to the Year 2000 changes were not material.
With respect to insurance policies issued by the Company providing coverage
to insureds who may incur losses as a result of year 2000 problems, the Company
is evaluating its possible exposure under such coverages. Endorsements excluding
losses related to or resulting from year 2000 issues are being attached to
commercial policies.
Given the nature of its business, the Company believes that its exposure to
embedded chip Year 2000 issues in minimal. The Company believes that its most
significant Year 2000 exposure is the potential business disruption that would
be caused by widespread failure of public utility systems. Prolonged failure of
power and telecommunications systems could have a material adverse effect on the
Company's results of operation, cash flow and consolidated financial position.
This Year 2000 disclosure contains statements which are forward looking
statements that involve risks and uncertainties and qualify for the statutory
safe harbor under the Private Securities Litigation Reform Act of 1995. Future
Year 2000 readiness activities may not adhere to the anticipated schedule
because more problems may be encountered than anticipated in the various stages
of testing and trained personnel may not be available to work on internal
systems in the time required; or there may be unexpected problems with the
readiness of third party business partners and vendors who cannot produce
services, or utility companies may not be able to provide the vital services
required to maintain operations.
Impact of New Accounting Standards
Accounting for Derivative Instruments and Hedging Activities
In June, 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No.
133 establishes accounting and reporting standards for derivative instruments
and for hedging activities. SFAS No. 133 is effective for fiscal years beginning
after June 15, 1999, with earlier adoption permitted.
Insurance Related Assessments
In December 1997, the AICPA Accounting Standards Executive Committee issued
Statement of Position (SOP) 97-3, Accounting by Insurance and Other Enterprises
for Insurance-Related Assessments. The accounting guidance of this SOP focuses
on the timing of recognition and measurement of liabilities for insurance-
related assessments. The SOP is effective for fiscal years beginning after
December 15, 1998. The Company believes that they are in compliance with the
provisions of this SOP and no impact on the Company's financial reporting is
expected.
-10-
<PAGE>
Computer Software Development Costs
On March 4, 1998, the AICPA Accounting Standards Executive Committee issued
Statement of Position (SOP) 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use. This SOP requires that certain costs
related to the development or purchase of internal-use software be capitalized
and amortized over the estimated useful life of the software. This SOP also
requires that costs related to the preliminary project stage and the
post-implementation/operations stage in an internal-use computer software
development project be expensed as incurred. SOP 98-1 is effective for financial
statements issued for fiscal years beginning after December 15, 1998. The
Company believes that they are in compliance with the provisions of this SOP and
no material impact of the Company's financial reporting is expected.
-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.
Annual Stockholders meeting held April 15,1999
Directors elected at meeting
Robert S. Bolinger
Votes for 7,250,679
Votes withheld 287,299
Patricia A. Gilmartin
Votes for 7,240,013
Votes withheld 297,965
Philip A. Glatfelter
Votes for 7,250,679
Votes withheld 287,299
Directors Continuing
Thomas J. Finley, Jr.
C. Edwin Ireland
Donald H. Nikolaus
R. Richard Sherbahn
Amendment to change authorized shares to 20,000,000 shares of
Common and 15,000,000 shares of Class A Common
Votes for 5,947,674
Votes against 1,170,911
Abstained 2,844
Amendment to the 1996 Equity Incentive Plan
Votes for 6,694,339
Votes against 419,356
Abstained 7,734
Approve KPMG, LLP as Auditors for 1999
Votes for 7,504,584
Votes against 31,924
Abstained 1,470
Item 5. Other Information.
None.
-12-
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) EX-27 Financial Data Schedule
(b) Reports on 8-K:
No reports on Form 8-K were filed by the Company during the quarter
ended March 31, 1999.
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.
May 13, 1999 By:____________________________________
Donald H. Nikolaus, President
and Chief Executive Officer
May 13, 1999 By:____________________________________
Ralph G. Spontak, Senior Vice President,
Chief Financial Officer and Secretary
-13-
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<DEBT-HELD-FOR-SALE> 87,037,344
<DEBT-CARRYING-VALUE> 124,145,593
<DEBT-MARKET-VALUE> 127,595,728
<EQUITIES> 12,161,332
<MORTGAGE> 0
<REAL-ESTATE> 2,472,339
<TOTAL-INVEST> 238,893,944
<CASH> 3,161,432
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0
0
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36,093,971
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</TABLE>
