##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2005
  o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission
File Number: 000-50360
 DIRECT GENERAL CORPORATION
 
  Tennessee
    
    62-1564496(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 1281 Murfreesboro Road, Nashville, TN
    
    37217(Address of principal executive offices)
    
    (Zip Code)
 
  þ o
  þ o
  o þ




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TABLE OF CONTENTS  PART I  FINANCIAL INFORMATIONItem 1. Financial StatementsItem 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPART II  OTHER INFORMATIONItem 1. Legal ProceedingsItem 2. Unregistered Sales of Equity Securities and Use of ProceedsItem 6. ExhibitsSIGNATURESEX-10.1  FIRST AMENDMENT TO EMPLOYMENT AGREEMENTEX-10.2  EMPLOYMENT AGREEMENTEX-10.3  INDENTUREEX-10.4  GUARANTEE AGREEMENTEX-10.5  AMENDED AND RESTATED DECLARATION OF TRUSTEX-31.1  SECTION 302 CEO CERTIFICATIONEX-31.2  SECTION 302 CFO CERTIFICATIONEX-32.1  SECTION 906 CEO CERTIFICATIONEX-32.2  SECTION 906 CFO CERTIFICATION    Table of Contents  
 PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 DIRECT GENERAL CORPORATION AND SUBSIDIARIES
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(In thousands  except per share amounts)RevenuesPremiums earned
    
    $
    100,716
    
    
    $
    97,318
    
    
    $
    307,366
    
    
    $
    273,622Finance income
    
    
    10,379
    
    
    
    11,695
    
    
    
    34,680
    
    
    
    37,158Commission and service fee income
    
    
    10,906
    
    
    
    11,874
    
    
    
    36,289
    
    
    
    37,349Net investment income
    
    
    3,741
    
    
    
    2,789
    
    
    
    10,616
    
    
    
    7,686Net realized gains (losses) on securities and other
    
    
    188
    
    
    
    86
    
    
    
    (67
    )
    
    
    146Total revenues
    
    
    125,930
    
    
    
    123,762
    
    
    
    388,884
    
    
    
    355,961ExpensesInsurance losses and loss adjustment expenses
    
    
    78,725
    
    
    
    71,765
    
    
    
    231,092
    
    
    
    200,852Selling, general and administrative costs
    
    
    33,127
    
    
    
    28,393
    
    
    
    100,233
    
    
    
    78,781Interest expense
    
    
    2,259
    
    
    
    1,257
    
    
    
    5,519
    
    
    
    4,148Total expenses
    
    
    114,111
    
    
    
    101,415
    
    
    
    336,844
    
    
    
    283,781Income before income taxes
    
    
    11,819
    
    
    
    22,347
    
    
    
    52,040
    
    
    
    72,180Income tax expense
    
    
    4,559
    
    
    
    7,999
    
    
    
    19,701
    
    
    
    26,796Net income
    
    $
    7,260
    
    
    
    14,348
    
    
    $
    32,339
    
    
    $
    45,384Earnings per ShareBasic earnings per common share
    
    $
    0.34
    
    
    $
    0.64
    
    
    $
    1.49
    
    
    $
    2.06Diluted earnings per common share
    
    $
    0.34
    
    
    $
    0.63
    
    
    $
    1.49
    
    
    $
    2.00
  2




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##### Table of Contents



DIRECT GENERAL CORPORATION AND SUBSIDIARIES
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Unaudited)September 30,
    
    
    December 31,2005
    
    
    2004(In thousands)AssetsInvestments:Debt securities available-for-sale at fair value (amortized cost
$387,447 and $334,770 at September 30, 2005 and December 31, 2004,
respectively)
    
    $
    382,098
    
    
    $
    334,816Short-term investments and other invested assets
    
    
    3,276
    
    
    
    1,663Total investments
    
    
    385,374
    
    
    
    336,479Cash and cash equivalents
    
    
    80,772
    
    
    
    70,988Finance receivables, net
    
    
    225,956
    
    
    
    214,180Reinsurance balances receivable
    
    
    34,607
    
    
    
    35,671Prepaid reinsurance premiums
    
    
    25,617
    
    
    
    29,544Deferred policy acquisition costs
    
    
    13,355
    
    
    
    12,666Income taxes recoverable
    
    
    5,005
    
    
    
    7,177Deferred income taxes
    
    
    22,007
    
    
    
    20,040Property and equipment
    
    
    17,114
    
    
    
    15,823Goodwill, net
    
    
    31,665
    
    
    
    22,188Other assets
    
    
    26,367
    
    
    
    22,696Total assets
    
    $
    867,839
    
    
    $
    787,452Liabilities and Shareholders EquityLoss and loss adjustment expense reserves
    
    $
    130,816
    
    
    $
    124,858Unearned premiums
    
    
    227,796
    
    
    
    223,303Reinsurance balances payable and funds held
    
    
    37,580
    
    
    
    33,996Accounts payable and accrued expenses
    
    
    14,091
    
    
    
    11,949Notes payable
    
    
    160,579
    
    
    
    135,626Debentures payable
    
    
    41,238
    
    
    
    Capital lease obligations
    
    
    2,903
    
    
    
    3,772Payable for securities
    
    
    6,693
    
    
    
    510Other liabilities
    
    
    12,361
    
    
    
    8,357Total liabilities
    
    
    634,057
    
    
    
    542,371Shareholders equityCommon stock, no par; authorized shares  100,000.0; issued shares 
20,431.6 and 22,360.0 at September 30, 2005 and December 31, 2004,
respectively
    
    
    70,949
    
    
    
    109,163Retained earnings
    
    
    165,922
    
    
    
    136,178Accumulated other comprehensive (loss) income:Net unrealized (depreciation) appreciation on investment securities
    
    
    (3,477
    )
    
    
    30Net gain (loss) on cash flow hedge
    
    
    388
    
    
    
    (290
    )Total shareholders equity
    
    
    233,782
    
    
    
    245,081Total liabilities and shareholders equity
    
    $
    867,839
    
    
    $
    787,452
  3




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DIRECT GENERAL CORPORATION AND SUBSIDIARIES
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Nine Months Ended September 30,2005
    
    
    2004(In thousands)Operating activitiesNet income
    
    $
    32,339
    
    
    $
    45,384Adjustments to reconcile net income to net cash provided by operating
activities:Net realized losses (gains) on securities and other
    
    
    67
    
    
    
    (146
    )Depreciation and amortization
    
    
    5,007
    
    
    
    4,170Deferred income taxes
    
    
    (436
    )
    
    
    (3,495
    )Changes in operating assets and liabilities:Finance receivables
    
    
    (11,776
    )
    
    
    (23,329
    )Reinsurance balances receivable
    
    
    942
    
    
    
    9,077Prepaid reinsurance premiums
    
    
    3,927
    
    
    
    16,110Deferred policy acquisition costs
    
    
    (689
    )
    
    
    (621
    )Income taxes recoverable/payable
    
    
    2,447
    
    
    
    (4,904
    )Loss and loss adjustment expense reserves
    
    
    5,958
    
    
    
    7,568Unearned premiums
    
    
    4,493
    
    
    
    22,850Reinsurance balances payable and funds held
    
    
    3,269
    
    
    
    (16,654
    )Accounts payable and accrued expenses
    
    
    2,140
    
    
    
    (500
    )Other
    
    
    2,974
    
    
    
    (7,538
    )Net cash provided by operating activities
    
    
    50,662
    
    
    
    47,972Investing activitiesProceeds from sales and maturities of debt securities available-for-sale
    
    
    67,235
    
    
    
    100,308Purchase of debt securities available-for-sale
    
    
    (115,825
    )
    
    
    (144,712
    )Payable for securities
    
    
    6,183
    
    
    
    Net sales of short-term investments
    
    
    (375
    )
    
    
    (339
    )Purchase of common stock in trust
    
    
    (1,238
    )
    
    
    Purchase of property and equipment, net
    
    
    (5,920
    )
    
    
    (5,901
    )Purchase of insurance agency assets
    
    
    (5,560
    )
    
    
    Purchase of life insurance company
    
    
    
    
    
    
    (7,330
    )Purchase of property and casualty insurance company
    
    
    (10,432
    )
    
    
    Net cash used in investing activities
    
    
    (65,932
    )
    
    
    (57,974
    )Financing activitiesRepurchase of common stock
    
    
    (38,228
    )
    
    
    Issuance of common stock
    
    
    557
    
    
    
    17,031Net proceeds from borrowings
    
    
    25,315
    
    
    
    (1,872
    )Proceeds from debentures issued
    
    
    41,238
    
    
    
    Payment of principal on borrowings
    
    
    (1,231
    )
    
    
    (1,238
    )Payment of dividends on common stock
    
    
    (2,597
    )
    
    
    (2,648
    )Net cash provided by financing activities
    
    
    25,054
    
    
    
    11,273Net increase in cash and cash equivalents
    
    
    9,784
    
    
    
    1,271Cash and cash equivalents at beginning of period
    
    
    70,988
    
    
    
    87,342Cash and cash equivalents at end of period
    
    $
    80,772
    
    
    $
    88,613
  4




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DIRECT GENERAL CORPORATION AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 1.
    
    Nature of Operations
  2.
    
    Basis of Presentation
  3.
    
    Acquisitions
   4.
    
    Common Stock Repurchase
  5.
    
    Notes Payable
  5




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6.
    
    Debentures Payable
     7.
    
    Earnings Per Share
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(In thousands, except per share amounts)Numerator:Net income
    
    $
    7,260
    
    
    $
    14,348
    
    
    $
    32,339
    
    
    $
    45,384Denominator:Weighted average common shares outstanding
    
    
    21,229.8
    
    
    
    22,352.1
    
    
    
    21,708.4
    
    
    
    22,032.6Dilutive stock options
    
    
    45.6
    
    
    
    420.7
    
    
    
    65.2
    
    
    
    620.8Weighted average common shares
outstanding for purposes of computing
diluted earnings per common share
    
    
    21,275.4
    
    
    
    22,772.8
    
    
    
    21,773.6
    
    
    
    22,653.4Basic earnings per common share
    
    $
    0.34
    
    
    $
    0.64
    
    
    $
    1.49
    
    
    $
    2.06Diluted earnings per common share
    
    $
    0.34
    
    
    $
    0.63
    
    
    $
    1.49
    
    
    $
    2.00
 8.
    
    Stock Options
   6




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Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(In thousands, except per share amounts)Net income, as reported
    
    $
    7,260
    
    
    $
    14,348
    
    
    $
    32,339
    
    
    $
    45,384Deduct: Total
stock-based employee
compensation expense
determined under the
fair value based
method, net of related
tax effects
    
    
    (217
    )
    
    
    (219
    )
    
    
    (649
    )
    
    
    (659
    )Net income, pro forma
    
    $
    7,043
    
    
    $
    14,129
    
    
    $
    31,690
    
    
    $
    44,725Income for purposes of
computing diluted
earnings per share
common, as reported
    
    $
    7,260
    
    
    $
    14,348
    
    
    $
    32,339
    
    
    $
    45,384Deduct: Total
stock-based employee
compensation expense
determined under the
fair value based
method, net of related
tax effects
    
    
    (217
    )
    
    
    (219
    )
    
    
    (649
    )
    
    
    (659
    )Income for purposes of
computing diluted
earnings per share
common, pro forma
    
    $
    7,043
    
    
    $
    14,129
    
    
    $
    31,690
    
    
    $
    44,725Earnings per shareBasic  as reported
    
    $
    0.34
    
    
    $
    0.64
    
    
    $
    1.49
    
    
    $
    2.06Basic  pro forma
    
    $
    0.33
    
    
    $
    0.63
    
    
    $
    1.46
    
    
    $
    2.03Diluted  as reported
    
    $
    0.34
    
    
    $
    0.63
    
    
    $
    1.49
    
    
    $
    2.00Diluted  pro forma
    
    $
    0.33
    
    
    $
    0.62
    
    
    $
    1.46
    
    
    $
    1.97
 9.
    
    Comprehensive Income
  10.
    
    Contingencies
  11.
    
    Recent Accounting Pronouncements
  7




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 This Managements Discussion and Analysis of Financial Condition and Results of Operations
should be read in conjunction with the Companys discussion presented under the caption
Managements Discussion and Analysis of Financial Condition and Results of Operations that is
available in the Annual Report on Form 10-K for the year ended December 31, 2004 filed with the
Securities and Exchange Commission.
 Overview of Operating Results
    Summary of Key Measures of Financial Results
  (Unaudited)
    
    (Unaudited)Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,($ in millions)
    
    2005
    
    2004
    
    % Change
    
    2005
    
    2004
    
    % ChangeSelected Financial DataGross premiums written
    
    $
    97.1
    
    
    $
    106.9
    
    
    
    (9.2
    )
    
    $
    356.7
    
    
    $
    377.7
    
    
    
    (5.6
    )Ancillary income
    
    
    21.3
    
    
    
    23.6
    
    
    
    (9.7
    )
    
    
    71.0
    
    
    
    74.5
    
    
    
    (4.7
    )Net investment income
    
    
    3.7
    
    
    
    2.8
    
    
    
    32.1
    
    
    
    10.6
    
    
    
    7.7
    
    
    
    37.7Gross revenues
    
    $
    122.1
    
    
    $
    133.3
    
    
    
    (8.4
    )
    
    $
    438.3
    
    
    $
    459.9
    
    
    
    (4.7
    )Ceded premiums written
    
    
    (11.6
    )
    
    
    (17.5
    )
    
    
    (33.7
    )
    
    
    (40.9
    )
    
    
    (65.1
    )
    
    
    (37.2
    )Change in net unearned premiums
    
    
    15.2
    
    
    
    7.9
    
    
    
    92.4
    
    
    
    (8.5
    )
    
    
    (38.9
    )
    
    
    (78.1
    )Net realized gains (losses) on investments
    
    
    0.2
    
    
    
    0.1
    
    
    NM
    
    
    (0.1
    )
    
    
    0.1
    
    
    NMTotal revenues
    
    $
    125.9
    
    
    $
    123.8
    
    
    
    1.7
    
    
    $
    388.8
    
    
    $
    356.0
    
    
    
    9.2Net income
    
    $
    7.3
    
    
    $
    14.3
    
    
    
    (48.9
    )
    
    $
    32.3
    
    
    $
    45.4
    
    
    
    (28.9
    )Key Financial RatiosLoss ratio  net
    
    
    78.2
    %
    
    
    73.7
    %
    
    
    
    
    
    
    75.2
    %
    
    
    73.4
    %Expense ratio  net
    
    
    14.0
    %
    
    
    6.2
    %
    
    
    
    
    
    
    11.3
    %
    
    
    3.1
    %Combined ratio  net
    
    
    92.2
    %
    
    
    79.9
    %
    
    
    
    
    
    
    86.5
    %
    
    
    76.5
    %Ancillary income to gross premiums earned
    
    
    18.6
    %
    
    
    19.8
    %
    
    
    
    
    
    
    20.2
    %
    
    
    21.0
    %Ancillary income to net operating expenses
    
    
    60.2
    %
    
    
    79.5
    %
    
    
    
    
    
    
    67.2
    %
    
    
    89.8
    %
  8




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Explanation of Key Measures
  Gross Premiums Written
 Net Premiums Written.
 Gross Revenues (a non-GAAP financial measure).
 Loss Ratio
 Expense Ratio
 Combined Ratio
 Ancillary Income Measures.
 Seasonality
 9




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Results of Operations
 Revenues
 Premiums
  (Unaudited)
    
    (Unaudited)Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,($ in millions)
    
    2005
    
    2004
    
    % Change
    
    2005
    
    2004
    
    % ChangeGross premiums writtenFlorida
    
    $
    51.8
    
    
    $
    53.2
    
    
    
    (2.6
    )
    
    $
    176.5
    
    
    $
    189.3
    
    
    
    (6.8
    )Tennessee
    
    
    12.9
    
    
    
    14.6
    
    
    
    (11.6
    )
    
    
    47.7
    
    
    
    51.6
    
    
    
    (7.6
    )Texas
    
    
    7.9
    
    
    
    7.8
    
    
    
    1.3
    
    
    
    30.9
    
    
    
    22.8
    
    
    
    35.5Georgia
    
    
    6.3
    
    
    
    6.7
    
    
    
    (6.0
    )
    
    
    22.5
    
    
    
    25.7
    
    
    
    (12.5
    )Louisiana
    
    
    2.7
    
    
    
    7.6
    
    
    
    (64.5
    )
    
    
    19.8
    
    
    
    26.2
    
    
    
    (24.4
    )Mississippi
    
    
    4.4
    
    
    
    5.0
    
    
    
    (12.0
    )
    
    
    19.4
    
    
    
    20.1
    
    
    
    (3.5
    )All other states
    
    
    11.1
    
    
    
    12.0
    
    
    
    (7.5
    )
    
    
    39.9
    
    
    
    42.0
    
    
    
    (5.0
    )Gross premiums written
    
    $
    97.1
    
    
    $
    106.9
    
    
    
    (9.2
    )
    
    $
    356.7
    
    
    $
    377.7
    
    
    
    (5.6
    )Ceded premiums written
    
    
    (11.6
    )
    
    
    (17.5
    )
    
    
    (33.7
    )
    
    
    (40.9
    )
    
    
    (65.1
    )
    
    
    (37.2
    )Net premiums written
    
    $
    85.5
    
    
    $
    89.4
    
    
    
    (4.4
    )
    
    $
    315.8
    
    
    $
    312.6
    
    
    
    1.0Gross premiums earned
    
    $
    114.3
    
    
    $
    119.4
    
    
    
    (4.3
    )
    
    $
    352.2
    
    
    $
    354.8
    
    
    
    (0.7
    )Ceded premiums earned
    
    
    (13.6
    )
    
    
    (22.1
    )
    
    
    (38.5
    )
    
    
    (44.8
    )
    
    
    (81.2
    )
    
    
    (44.7
    )Net premiums earned
    
    $
    100.7
    
    
    $
    97.3
    
    
    
    3.5
    
    
    $
    307.4
    
    
    $
    273.6
    
    
    
    12.4Net premiums written to gross premiums written
    
    
    88.1
    %
    
    
    83.6
    %
    
    
    
    
    
    
    88.5
    %
    
    
    82.8
    %Gross premiums earned to gross premiums written
    
    
    117.7
    %
    
    
    111.7
    %
    
    
    
    
    
    
    98.7
    %
    
    
    93.9
    %Net premiums earned to net premiums written
    
    
    117.8
    %
    
    
    108.8
    %
    
    
    
    
    
    
    97.3
    %
    
    
    87.5
    %
   10




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Ancillary Income
    Net Investment Income
  11




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Realized Gains on Securities and Other
   Expenses
 Insurance Losses and Loss Adjustment Expenses
    Operating Expenses
   12




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Income Taxes
  Financial Condition
 Liquidity and Capital Resources
 Sources and Uses of Funds
       Financing and Capital
  13




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Reinsurance
  Investments
 Debt securities
    Amortized
    
    Gross Unrealized
    
    Gross Unrealized
    
    Fair($ in millions)
    
    Cost
    
    Gains
    
    Losses
    
    ValueU.S. Treasury securities and
obligations of U.S. government
corporations and agencies
    
    $
    61.7
    
    
    $
    0.1
    
    
    $
    1.2
    
    
    $
    60.6Obligations of states and
political subdivisions
    
    
    70.7
    
    
    
    0.6
    
    
    
    0.5
    
    
    
    70.8Corporate debt securitiesBanks and financial institutions
    
    
    90.3
    
    
    
    0.1
    
    
    
    1.9
    
    
    
    88.5Credit cards and auto loans
    
    
    84.5
    
    
    
    
    
    
    
    1.3
    
    
    
    83.2Industrial
    
    
    46.1
    
    
    
    0.1
    
    
    
    1.0
    
    
    
    45.2Telecommunications
    
    
    16.2
    
    
    
    0.1
    
    
    
    0.2
    
    
    
    16.1Utilities and electric services
    
    
    17.9
    
    
    
    0.1
    
    
    
    0.3
    
    
    
    17.7Corporate debt securities
    
    
    255.0
    
    
    
    0.4
    
    
    
    4.7
    
    
    
    250.7Total
    
    $
    387.4
    
    
    $
    1.1
    
    
    $
    6.4
    
    
    $
    382.1
 14




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##### Table of Contents



($ in millions)
    
    Amortized Cost
    
    Fair ValueYears to maturity:One or less
    
    $
    11.6
    
    
    $
    11.5After one through five
    
    
    173.7
    
    
    
    171.2After five through ten
    
    
    123.6
    
    
    
    122.1After ten
    
    
    78.5
    
    
    
    77.3Total
    
    $
    387.4
    
    
    $
    382.1
   ($ in millions)NAIC
    
    S&P
    
    AmortizedRating
    
    Rating
    
    Cost
    
    Fair Value
    
    %1
    
    AAA
    
    $
    151.8
    
    
    $
    149.8
    
    
    
    39.2
    %1
    
    AA
    
    
    34.5
    
    
    
    34.4
    
    
    
    9.0
    %1
    
    A
    
    
    102.6
    
    
    
    101.1
    
    
    
    26.5
    %2
    
    BBB
    
    
    36.0
    
    
    
    35.4
    
    
    
    9.3
    %3
    
    BB
    
    
    0.8
    
    
    
    0.8
    
    
    
    0.2
    %1
    
    Agency
    
    
    61.7
    
    
    
    60.6
    
    
    
    15.8
    %$
    387.4
    
    
    $
    382.1
    
    
    
    100.0
    %
   -100 Basis Point
    
    
    
    
    
    +100 Basis Point($ in millions)
    
    Change
    
    Fair Value
    
    ChangeDebt securities, available-for-sale
    
    $
    399.3
    
    
    $
    382.1
    
    
    $
    364.9
 Short-term investments.
 Cash and cash equivalents
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##### Table of Contents



Forward-Looking Statements
  
    
    statements and assumptions relating to future growth, earnings, earnings per
share and other financial performance measures, as well as managements short-term and
long-term performance goals;
    
    statements relating to the anticipated effects on results of operations or
financial condition from recent and expected developments or events;
    
    statements relating to our business and growth strategies; and
    
    any other statements or assumptions that are not historical facts.
   
 Item 3. Quantitative and Qualitative Disclosures About Market Risk.
  
 Item 4. Controls and Procedures.
  16




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
      
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  Issuer Purchases of Equity Securities
 Total number of
    
    Approximate dollarshares purchased as
    
    value of shares thatTotal number of
    
    Average price
    
    part of publicly
    
    may yet be purchasedPeriod
    
    shares purchased
    
    paid per share
    
    announced program
    
    under the programJuly 1 to July 31
    
    
    0
    
    
    $
    0.00
    
    
    
    0
    
    
    $
    0August 1 to August 31
    
    
    370,000
    
    
    $
    17.91
    
    
    
    370,000
    
    
    $
    23,373,261September 1 to
September 30
    
    
    729,113
    
    
    $
    18.29
    
    
    
    729,113
    
    
    $
    10,038,558Total
    
    
    1,099,113
    
    
    $
    18.16
    
    
    
    1,099,113
    
    
    $
    10,038,558
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##### Table of Contents



Item 6. Exhibits.
 10.1
    
    First Amendment to Employment Agreement by and between Direct General Corporation
and Barry D. Elkins dated as of August 15, 2005.10.2
    
    Employment Agreement by and between Direct General Corporation and J. Todd Hagely
dated as of August 15, 2005.10.3
    
    Indenture by and between Direct General Corporation and Wilmington Trust Company
dated as of September 15, 2005.10.4
    
    Guarantee Agreement by and between Direct General Corporation and Wilmington
Trust Company dated as of September 15, 2005.10.5
    
    Amended and Restated Declaration of Trust by and among Wilmington Trust Company,
Direct General Corporation and William J. Harter, J. Todd Hagely and Matthew P. McClure
dated as of September 15, 2005.31.1
    
    Rule 13a-14(a) Certifications of CEO (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002).31.2
    
    Rule 13a-14(a) Certifications of CFO (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002).32.1
    
    Rule 1350 Certifications of CEO (pursuant to Section 906 of the Sarbanes-Oxley Act of 2002).32.2
    
    Rule 1350 Certifications of CFO (pursuant to Section 906 of the Sarbanes-Oxley Act of 2002).
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##### Table of Contents



SIGNATURES
  DIRECT GENERAL CORPORATION(Registrant)November 9, 2005
    
    
    
    By:
    
    /s/ William C. Adair, Jr.Date
    
    
    
    
    
    (Signature)Name:
    
    William C. Adair, Jr.Title:
    
    Chairman and Chief Executive Officer
 November 9, 2005
    
    
    
    By:
    
    /s/ J. Todd HagelyDate
    
    
    
    
    
    (Signature)Name:
    
    J. Todd HagelyTitle:
    
    Senior Vice President and Chief Financial Officer
 19