TRIPLE-S MANAGEMENT CORP - 10-Q Quarterly Report

United States Securities and Exchange Commission

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2004

[ ]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 March 31, 2004
Common Stock, $40.00 par value		8,943

Part I – Financial Information

Item 1. Financial Statements

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

(Dollar amounts in thousands, except per share data)


	(Unaudited)
	March 31,		December 31,
	2004		2003
ASSETS
Investments and cash:
Securities held for trading, at fair value:
Fixed maturities	$	70,850		68,681
Equity securities		67,745		66,824
Securities available for sale, at fair value:
Fixed maturities		393,129		407,530
Equity securities		55,310		56,040
Securities held to maturity, at amortized cost:
Fixed maturities		4,889		4,941
Cash and cash equivalents		94,767		48,280

Total investments and cash		686,690		652,296

Premiums and other receivables, net		103,637		93,491
Deferred policy acquisition costs		17,258		16,671
Property and equipment, net		33,391		34,212
Other assets		38,009		37,953

Total assets	$	878,985		834,623

LIABILITIES AND STOCKHOLDERS’ EQUITY
Claim liabilities:
Claims processed and incomplete	$	121,171		121,015
Unreported losses		125,076		112,449
Unpaid loss-adjustment expenses		14,675		14,456

Total claim liabilities		260,922		247,920

Unearned premiums		75,741		78,704
Individual retirement annuities		29,073		26,661
Liability to Federal Employees Health Benefits Program		9,947		7,471
Accounts payable and accrued liabilities		102,039		88,342
Income tax payable		34,385		32,222
Net deferred tax liability		3,870		1,892
Additional minimum pension liability		10,081		10,081
Short-term borrowings		38,700		38,700
Loans payable to bank		48,102		48,375

Total liabilities		612,860		580,368

Stockholders’ equity:
Common stock, $40 par value. Authorized 12,500 shares; issued and outstanding 8,943 at March 31, 2004 and 9,030 at December 31, 2003		358		361
Additional paid-in capital		150,407		150,407
Retained earnings		99,884		88,728
Accumulated other comprehensive income		15,476		14,759

Total stockholders’ equity		266,125		254,255

Total liabilities and stockholders’ equity	$	878,985		834,623

See accompanying notes to unaudited consolidated financial statements.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Consolidated Statements of Earnings (Unaudited)

For the three months ended March 31, 2004 and 2003

(Dollar amounts in thousands, except per share data)


	Three months ended
	March 31,
	2004			2003
REVENUES:
Premiums earned, net	$	318,646			315,556
Amounts attributable to self-funded arrangements		43,038			40,003
Less amounts attributable to claims under self-funded arrangements		(40,582	)		(37,359	)

		321,102			318,200
Net investment income		6,582			6,098
Net realized investment gains (losses)		1,383			(3,023	)
Net unrealized investment gain on trading securities		1,819			2,092
Other income, net		566			850

Total revenue		331,452			324,217

BENEFITS AND EXPENSES:
Claims incurred		275,748			270,831
Operating expenses, net of reimbursement for services		39,838			38,490
Interest expense		901			703

Total benefits and expenses		316,487			310,024

Income before taxes		14,965			14,193

INCOME TAX EXPENSE:
Current		3,298			377
Deferred		511			339

Total income taxes		3,809			716

Net income	$	11,156			13,477

Net income available to stockholders	$	11,156			4,208

Basic net income per share	$	1,239			451

See accompanying notes to unaudited consolidated financial statements.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity and

Comprehensive Income (Unaudited)

For the three months

ended March 31, 2004 and 2003

(Dollar amounts in thousands, except per share data)


	2004			2003
BALANCE AT JANUARY 1	$	254,255			231,664
Stock redemption		(3	)		—
Comprehensive income:
Net income		11,156			13,477
Net unrealized change in investment securities		1,062			231
Net change in fair value of cash flow hedges		(345	)		(160	)

Total comprehensive income		11,873			13,548

BALANCE AT MARCH 31	$	266,125			245,212

See accompanying notes to unaudited consolidated financial statements.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)
For the three months ended March 31, 2004 and 2003
(Dollar amounts in thousands, except per share data)


	Three months ended
	March 31,
	2004			2003			Change			%
CASH FLOWS FROM OPERATING ACTIVITIES:
Premiums collected	$	309,144			298,169			10,975			3.7	%
Cash paid to suppliers and employees		(38,739	)		(38,460	)		(279	)		0.7	%
Claims, losses and benefits paid		(262,746	)		(256,762	)		(5,984	)		2.3	%
Interest received		6,322			6,778			(456	)		-6.7	%
Proceeds from trading securities sold or matured:
Fixed maturities sold		7,185			10,908			(3,723	)		-34.1	%
Equity securities		3,346			6,363			(3,017	)		-47.4	%
Acquisitions of investments in trading portfolio:
Fixed maturities		(7,951	)		(13,501	)		5,550			-41.1	%
Equity securities		(3,692	)		(6,795	)		3,103			-45.7	%
Interest paid		(680	)		(177	)		(503	)		284.2	%
Expense reimbursement from Medicare		3,696			3,562			134			3.8	%

Net cash provided by operating activities		15,885			10,085			5,800			57.5	%

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from investments sold or matured:
Securities available for sale:
Fixed maturities sold		15,199			27,511			(12,312	)		-44.8	%
Fixed maturities matured		29,126			70,334			(41,208	)		-58.6	%
Equity securities		1,475			—			1,475			100.0	%
Securities held to maturity:
Fixed maturities matured		2,662			—			2,662			100.0	%
Acquisitions of investments:
Securities available for sale:
Fixed maturities		(27,004	)		(128,563	)		101,559			-79.0	%
Equity securities		(1,023	)		(2,010	)		987			-49.1	%
Securities held to maturity:
Fixed maturities		(2,612	)		—			(2,612	)		100.0	%
Capital expenditures		(576	)		(1,543	)		967			-62.7	%
Proceeds from sale of property and equipment		3			289			(286	)		-99.0	%

Net cash provided by (used in) investing activities		17,250			(33,982	)		51,232			-150.8	%

CASH FLOWS FROM FINANCING ACTIVITIES:
Change in outstanding checks in excess of bank balances		11,437			6,153			5,284			85.9	%
Payments of long term debt		(273	)		(410	)		137			-33.4	%
Redemption of common stock		(3	)		—			(3	)		100.0	%
Proceeds from individual retirement annuities		3,325			148			3,177			2146.6	%
Surrenders of individual retirement annuities		(1,134	)		(293	)		(841	)		287.0	%

Net cash provided by financing activities		13,352			5,598			7,754			138.5	%

Net increase (decrease) in cash and cash equivalents		46,487			(18,299	)
Cash and cash equivalents at beginning of the period		48,280			82,776

Cash and cash equivalents at end of the period	$	94,767			64,477

See accompanying notes to unaudited consolidated financial statements.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

March 31, 2004

(Dollar amounts in thousands, except per share data)

(Unaudited)

(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, 2003, 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. 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 Annual Report on Form 10-K for the year ended December 31, 2003.

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 ended March 31, 2004 are not necessarily indicative of the results for the full year.

(2) Segment Information

Separate disclosure of information about operating segments is required for any operating segment that meets any of the quantitative thresholds determined by FASB Statement No. 131, “Disclosures about Segments of an Enterprise and Related Information” (SFAS No. 131). In determining whether information about segments is required for a particular year, the evaluation should be based on comparability between years. Thus, information would be required in the current period – even if immaterial pursuant to the provisions of SFAS No. 131 – if a segment has been significant in the immediate preceding period and is expected to be significant in the future. Based on the requirements of SFAS No. 131, the only reportable segments for TSM are: the Health Insurance – Commercial, the Health Insurance – Healthcare Reform and the Property and Casualty Insurance segments. The Life and Disability Insurance Segment is not presented as a reportable segment in the 2004 period since it did not meet any of the quantitative thresholds in the years 2003 and 2002 and is not expected to meet them in the year 2004. The segment information for the 2003 period was restated to present the results of operations and financial position of the Life and Disability operating segment within the other non-reportable operating segments of the Corporation.

The following tables summarize the operations by major operating segment for the three months ended March 31, 2004 and 2003:

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2004
(Dollar amounts in thousands, except per share data)
(Unaudited)


	Operating Segments
	Health			Health
	Insurance			Insurance			Property
	Commercial			Reform			And Casualty
	Program			Program			Insurance		Other *			Total
THREE MONTHS ENDED MARCH 31, 2004
Premiums earned, net	$	174,505			119,398			20,783		3,960			318,646		686
Amounts attributable to self-funded arrangements		43,038			—			—		—			43,038		218
Less: Amounts attributable to claims under self-funded arrangements		(40,582	)		—			—		—			(40,582	)
Intersegment premiums earned/service revenues		904			—			—		11,537			12,441

		177,865			119,398			20,783		15,497			333,543
Net investment income		3,145			840			1,854		658			6,497
Realized gain (loss) on sale of securities		1,149			211			35		(12	)		1,383
Unrealized gain on trading securities		1,402			—			282		135			1,819
Other		52			(10	)		562		33			637

Total revenues	$	183,613			120,439			23,516		16,311			343,879

Net income	$	6,047			1,644			3,328		239			11,258

Claims incurred	$	153,240			109,215			10,627		2,666			275,748

Operating expenses	$	21,994			8,752			8,709		13,062			52,517

Depreciation expense, included in operating expenses	$	969			—			121		28			1,118

Interest expense	$	289			69			—		222			580

Income taxes	$	2,043			759			852		122			3,776

* Includes segments which are not required to be reported separately. These segments include the life and disability insurance segment, the data processing services organization as well as the third party administrator of health insurance services.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2004
(Dollar amounts in thousands, except per share data)
(Unaudited)


	Operating Segments
	Health			Health
	Insurance			Insurance			Property
	Commercial			Reform			And Casualty
	Program			Program			Insurance			Other *		Total
THREE MONTHS ENDED MARCH 31, 2003
Premiums earned, net	$	175,505			115,795			19,053			5,203		315,556
Amounts attributable to self-funded arrangements		40,003			—			—			—		40,003
Less: Amounts attributable to claims under self-funded arrangements		(37,359	)		—			—			—		(37,359	)
Intersegment premiums earned/service revenues		695			—			—			11,116		11,811

		178,844			115,795			19,053			16,319		330,011
Net investment income		2,619			1,274			1,644			523		6,060
Realized gain (loss) on sale of securities		(2,303	)		(298	)		(425	)		3		(3,023	)
Unrealized gain on trading securities		1,550			237			305			—		2,092
Other		32			(7	)		706			43		774

Total revenues	$	180,742			117,001			21,283			16,888		335,914

Net income	$	4,854			4,415			2,567			1,901		13,737

Claims incurred	$	154,557			104,167			9,810			2,297		270,831

Operating expenses	$	21,159			8,318			8,519			12,216		50,212

Depreciation expense, included in operating expenses


			PAGE
PART I – FINANCIAL INFORMATION
	Item 1.	Financial Statements
		Consolidated Balance Sheets as of March 31, 2004 and December 31, 2003		3
		Consolidated Statements of Operations for the three months ended March 31, 2004 and 2003		4
		Consolidated Statements of Stockholders’ Equity and Comprehensive Income for the three months ended March 31, 2004 and 2003		5
		Consolidated Statements of Cash Flows for the three months ended March 31, 2004 and 2003		6
		Notes to Consolidated Financial Statements		7
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		21
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		29
	Item 4.	Controls and Procedures		29
PART II – OTHER INFORMATION
	Item 1.	Legal Proceedings		29
	Item 2.	Changes in Securities and Use of Proceeds		31
	Item 3.	Defaults Upon Senior Securities		31
	Item 4.	Submissions of Matters to a Vote of Security Holders		31
	Item 5.	Other Information		31
	Item 6.	Exhibits and Reports on Form 8-K		31
SIGNATURES				32
EX-31.1 SECTION 302 CERTIFICATION OF THE CEO
EX-31.2 SECTION 302 CERTIFICATION OF THE CFO
EX-32.1 SECTION 906 CERTIFICATION OF THE CEO
EX-32.2 SECTION 906 CERTIFICATION OF THE CFO

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