United States Securities and Exchange Commission
FORM 10-Q
(Mark One)
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2003
OR
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: 0-49762
Triple-S Management Corporation
(Exact name of registrant as specified in its charter)
| Puerto Rico (State or other jurisdiction of incorporation or organization) |
66-0555678 (I.R.S. Employer Identification No.) |
|
| 1441 F.D. Roosevelt Avenue San Juan, Puerto Rico (Address of principal executive offices) |
00920 (Zip code) |
(787) 749-4949
(Registrant’s telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the 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. þ Yes o No
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). o Yes þ No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Title of each class | Outstanding at September 30, 2003 | |
| Common Stock, $40.00 par value | 9,060 |
Triple-S Management Corporation
FORM 10-Q
For the Quarter Ended September 30, 2003
Table of Contents
| PAGE | |||||||
PART I — FINANCIAL INFORMATION |
|||||||
Item 1. |
Financial Statements
Consolidated Balance Sheets as of September 30, 2003 and December 31, 2002 |
3 | |||||
| Consolidated Statements of Operations for the three months and nine months periods ended September 30, 2003 and 2002 | 4 | ||||||
| Consolidated Statements of Stockholders’ Equity and Comprehensive Income for the nine months periods ended September 30, 2003 and 2002 | 5 | ||||||
| Consolidated Statements of Cash Flows for the nine months periods ended September 30, 2003 and 2002 | 6 | ||||||
| Notes to Consolidated Financial Statements | 7 | ||||||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 25 | |||||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 42 | |||||
| Item 4. | Controls and Procedures | 42 | |||||
PART II — OTHER INFORMATION |
|||||||
| Item 1. | Legal Proceedings | 43 | |||||
| Item 2. | Changes in Securities and Use of Proceeds | 44 | |||||
| Item 3. | Defaults Upon Senior Securities | 44 | |||||
| Item 4. | Submissions of Matters to a Vote of Security Holders | 44 | |||||
| Item 5. | Other Information | 44 | |||||
| Item 6. | Exhibits and Reports on Form 8-K | 45 | |||||
SIGNATURES |
46 | ||||||
2
Part I — Financial Information
Item 1. Financial Statements
TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
| (Unaudited) | ||||||||||
| September 30, | December 31, | |||||||||
| 2003 | 2002 | |||||||||
ASSETS |
||||||||||
Investments and cash: |
||||||||||
Securities held for trading, at fair value: |
||||||||||
Fixed maturities |
$ | 68,920 | 50,317 | |||||||
Equity securities |
60,100 | 44,621 | ||||||||
Securities available for sale, at fair value: |
||||||||||
Fixed maturities |
359,909 | 321,244 | ||||||||
Equity securities |
52,384 | 47,406 | ||||||||
Securities held to maturity, at amortized cost: |
||||||||||
Fixed maturities |
5,265 | 5,982 | ||||||||
Cash and cash equivalents |
92,439 | 82,776 | ||||||||
Total investments and cash |
639,017 | 552,346 | ||||||||
Premiums and other receivables, net |
98,117 | 88,027 | ||||||||
Deferred policy acquisition costs |
16,460 | 13,770 | ||||||||
Property and equipment, net |
35,695 | 36,721 | ||||||||
Other assets |
38,016 | 34,814 | ||||||||
Total assets |
$ | 827,305 | 725,678 | |||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||||
Claim liabilities: |
||||||||||
Claims processed and incomplete |
$ | 122,805 | 127,628 | |||||||
Unreported losses |
110,657 | 103,310 | ||||||||
Unpaid loss-adjustment expenses |
14,343 | 13,644 | ||||||||
Total claim liabilities |
247,805 | 244,582 | ||||||||
Unearned premiums |
79,332 | 70,961 | ||||||||
Individual retirement annuities |
24,251 | 15,143 | ||||||||
Liability to Federal Employees Health Benefits Program |
10,985 | 7,066 | ||||||||
Accounts payable and accrued liabilities |
97,327 | 88,034 | ||||||||
Short-term borrowings |
37,000 | — | ||||||||
Income tax payable |
32,613 | 716 | ||||||||
Net deferred tax liability |
5,365 | 8,048 | ||||||||
Additional minimum pension liability |
12,089 | 9,449 | ||||||||
Loans payable to bank |
48,922 | 50,015 | ||||||||
Total liabilities |
595,689 | 494,014 | ||||||||
Stockholders’ equity: |
||||||||||
Common stock, $40 par value. Authorized 12,500 shares;
issued and outstanding 9,060 and 9,337 at
September 30, 2003 and December 31, 2002, respectively |
362 | 373 | ||||||||
Additional paid-in capital |
150,407 | 150,406 | ||||||||
Retained earnings |
69,452 | 62,499 | ||||||||
Accumulated other comprehensive income |
11,395 | 18,386 | ||||||||
Total stockholders’ equity |
231,616 | 231,664 | ||||||||
Total liabilities and stockholders’ equity |
$ | 827,305 | 725,678 | |||||||
See accompanying notes to unaudited consolidated financial statements.
3
TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
| Three months ended | Nine months ended | ||||||||||||||||
| September 30, | September 30, | ||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||
REVENUES: |
|||||||||||||||||
Premiums earned, net |
$ | 314,043 | 304,586 | 943,388 | 922,906 | ||||||||||||
Amounts attributable to self-funded
arrangements |
40,790 | 38,524 | 120,974 | 110,789 | |||||||||||||
Less amounts attributable to claims under
self-funded arrangements |
(38,410 | ) | (35,210 | ) | (112,960 | ) | (104,047 | ) | |||||||||
| 316,423 | 307,900 | 951,402 | 929,648 | ||||||||||||||
Net investment income |
5,868 | 6,186 | 18,252 | 18,535 | |||||||||||||
Net realized investment gains |
3,669 | 683 | 7,290 | 533 | |||||||||||||
Net unrealized investment gain (losses) on trading securities |
(345 | ) | (6,695 | ) | 9,023 | (12,072 | ) | ||||||||||
Other income, net |
532 | 6,174 | 2,906 | 6,598 | |||||||||||||
Total revenue |
326,147 | 314,248 | 988,873 | 943,242 | |||||||||||||
BENEFITS AND EXPENSES: |
|||||||||||||||||
Claims incurred |
264,202 | 263,274 | 794,205 | 795,925 | |||||||||||||
Operating expenses, net of reimbursement
for services |
37,301 | 35,550 | 115,708 | 112,903 | |||||||||||||
Interest expense |
776 | 830 | 2,244 | 2,821 | |||||||||||||
Total benefits and expenses |
302,279 | 299,654 | 912,157 | 911,649 | |||||||||||||
Income before taxes |
23,868 | 14,594 | 76,716 | 31,593 | |||||||||||||
INCOME TAX EXPENSE (BENEFIT): |
|||||||||||||||||
Current |
6,967 | 185 | 71,253 | 702 | |||||||||||||
Deferred |
139 | 460 | (1,490 | ) | 1,224 | ||||||||||||
Total income taxes |
7,106 | 645 | 69,763 | 1,926 | |||||||||||||
Net income |
$ | 16,762 | 13,949 | 6,953 | 29,667 | ||||||||||||
Basic net income per share (see note 8) |
$ | 1,844 | 187 | 753 | 779 | ||||||||||||
See accompanying notes to unaudited consolidated financial statements.
4
TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
| 2003 | 2002 | ||||||||||
BALANCE AT JANUARY 1 |
$ | 231,664 | 186,028 | ||||||||
Stock redemption |
(10 | ) | (15 | ) | |||||||
Comprehensive income: |
|||||||||||
Net income |
6,953 | 29,667 | |||||||||
Net unrealized change in investment securities |
(7,872 | ) | 4,098 | ||||||||
Net change in minimum pension liability |
1,052 | — | |||||||||
Net change in fair value of cash flow hedges |
(171 | ) | — | ||||||||
Total comprehensive income (loss) |
(38 | ) | 33,765 | ||||||||
BALANCE AT SEPTEMBER 30 |
$ | 231,616 | 219,778 | ||||||||
See accompanying notes to unaudited consolidated financial statements.
5
TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
| Nine months ended | ||||||||||
| September 30, | ||||||||||
| 2003 | 2002 | |||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||||
Premiums collected |
$ | 941,702 | 920,027 | |||||||
Cash paid to suppliers and employees |
(159,517 | ) | (110,906 | ) | ||||||
Claims, losses and benefits paid |
(790,982 | ) | (776,803 | ) | ||||||
Interest received |
19,109 | 18,256 | ||||||||
Proceeds from trading securities sold or matured: |
||||||||||
Fixed maturities sold |
66,319 | 82,762 | ||||||||
Equity securities |
18,310 | 9,813 | ||||||||
Acquisitions of investments in trading portfolio: |
||||||||||
Fixed maturities |
(84,367 | ) | (82,930 | ) | ||||||
Equity securities |
(28,183 | ) | (12,447 | ) | ||||||
Interest paid |
(1,367 | ) | (1,993 | ) | ||||||
Expense reimbursement from Medicare |
9,437 | 9,648 | ||||||||
Contingency reserve funds from FEHBP |
13,023 | 5,976 | ||||||||
Net cash provided by operating activities |
3,484 | 61,403 | ||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||||
Proceeds from investments sold or matured: |
||||||||||
Securities available for sale: |
||||||||||
Fixed maturities sold |
81,093 | 33,239 | ||||||||
Fixed maturities matured |
174,645 | 143,006 | ||||||||
Equity securities |
13,527 | 3,681 | ||||||||
Securities held to maturity: |
||||||||||
Fixed maturities matured |
700 | 1,458 | ||||||||
Acquisitions of investments: |
||||||||||
Securities available for sale: |
||||||||||
Fixed maturities |
(295,987 | ) | (187,383 | ) | ||||||
Equity securities |
(12,823 | ) | — | |||||||
Securities held to maturity: |
||||||||||
Fixed maturities |
— | (3,621 | ) | |||||||
Capital expenditures |
(3,259 | ) | (4,463 | ) | ||||||
Proceeds from sale of property and equipment |
55 | 1,113 | ||||||||
Net cash used in investing activities |
(42,049 | ) | (12,970 | ) | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||||
Change in outstanding checks in excess of bank balances |
4,100 | (3,365 | ) | |||||||
Proceeds from short-term borrowings |
37,000 | — | ||||||||
Payments of long term debt |
(1,093 | ) | (4,473 | ) | ||||||
Redemption of common stock |
(10 | ) | (15 | ) | ||||||
Proceeds from individual retirement annuities |
9,728 | 1,071 | ||||||||
Surrenders of individual retirement annuities |
(1,497 | ) | (5,141 | ) | ||||||
Net cash provided by (used in) financing activities |
48,228 | (11,923 | ) | |||||||
Net increase in cash and cash equivalents |
9,663 | 36,510 | ||||||||
Cash and cash equivalents at beginning of the period |
82,776 | 80,970 | ||||||||
Cash and cash equivalents at end of the period |
$ | 92,439 | 117,480 | |||||||
See accompanying notes to unaudited consolidated financial statements.
6
TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
(1) Basis of Presentation
The accompanying consolidated interim financial statements prepared by Triple-S Management Corporation (TSM) and its subsidiaries (the Corporation) are unaudited, except for the balance sheet information as of December 31, 2002, which is derived from the Corporation’s audited consolidated financial statements, pursuant to the rules and regulations of the United States Securities and Exchange Commission. Accordingly, the consolidated interim financial statements do not include all of the information and the footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. These consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements included in the Corporation’s Form 10-K for the year ended December 31, 2002.
Certain amounts in prior period financial statements were reclassified to conform to the 2003 presentation.
In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of such consolidated interim financial statements have been included. The results of operations for the three months and nine months periods ended September 30, 2003 are not necessarily indicative of the results for the full year.
(2) Segment Information
The following tables summarize the operations by major operating segment for the three months and nine months periods ended September 30, 2003 and 2002:
7
TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2003
(Dollar amounts in thousands)
(Unaudited)
| Operating Segments | |||||||||||||||||||||||||
| Health | Health | ||||||||||||||||||||||||
| Insurance | Insurance | Property | Life and | ||||||||||||||||||||||
| Commercial | Reform | and Casualty | Disability | ||||||||||||||||||||||
| Program | Program | Insurance | Insurance | Other* | Total | ||||||||||||||||||||