-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LZW2OuvmWZbW/eidgnR0BPU2ZpHCB6pc6T8zyxb1Efrf6WuGVSxzhqjReGzvNnTu hmdEZbggcdtyv/EscAxlpQ== 0000950115-99-000721.txt : 19990517 0000950115-99-000721.hdr.sgml : 19990517 ACCESSION NUMBER: 0000950115-99-000721 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DONEGAL GROUP INC CENTRAL INDEX KEY: 0000800457 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 232424711 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-15341 FILM NUMBER: 99621674 BUSINESS ADDRESS: STREET 1: 1195 RIVER RD PO BOX 302 CITY: MARIETTA STATE: PA ZIP: 17547-0302 BUSINESS PHONE: 7174261931 MAIL ADDRESS: STREET 1: 1195 RIVER ROAD STREET 2: BOX 302 CITY: MARIETTA STATE: PA ZIP: 17547 10-Q 1 QUARTERLY REPORT 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. Part I. Financial Information Item 1. Financial Statements. Donegal Group Inc. And Subsidiaries Consolidated Balance Sheet
Assets March 31, 1999 December 31, 1998 -------------- ----------------- 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 ============ ============
See accompanying notes to consolidated financial statements. -1- Donegal Group Inc. and Subsidiaries Consolidated Statement of Income (Unaudited) For the three months ended March 31, 1999 and 1998
Three Months Ended March 31, 1999 1998 ---- ---- 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 === ===
Statement of Comprehensive Income (Unaudited) Three Months Ended March 31, 1999 and 1998
1999 1998 ---- ---- 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 =========== ===========
See accompanying notes to consolidated financial statements. -2- DONEGAL GROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited) FOR THE THREE MONTHS ENDED MARCH 31, 1999
Common Stock Accumulated Total ------------ Additional Other Com- Stock- Paid-In prehensive Retained Treasury holders' Shares Amount Capital Income Earnings Stock Equity ------ ------ ------- ------ -------- -------- -------- 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 ========= ========== =========== ========== =========== ========= ============
See accompanying notes to consolidated financial statements. -3- DONEGAL GROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) For the three months ended March 31, 1999 and 1998
Three months ended March 31, 1999 1998 ---- ---- 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
See accompanying notes to consolidated financial statements. -4- 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- 3 -- Earnings Per Share The computation of basic and diluted earnings per share is as follows:
Weighted Average Earnings Net Shares Per Income Outstanding Share ------ ----------- --------- 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 ---------- --------- -----
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- 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- 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- 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- 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- 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- 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- 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- EX-27 2 FDS --
7 3-MOS DEC-31-1999 MAR-31-1999 87,037,344 124,145,593 127,595,728 12,161,332 0 2,472,339 238,893,944 3,161,432 0 11,140,610 367,894,614 142,974,241 94,668,936 0 0 15,000,000 0 0 8,371,019 102,591,019 367,894,614 36,093,971 3,369,261 (16,930) 663,688 24,451,651 6,031,000 5,757,757 2,724,875 573,508 2,151,367 0 0 0 2,151,367 .26 .26 93,863 26,610 (2,158) 13,420 11,070 93,825 (2,158)
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