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 June 30, 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		66-0555678
(State or other jurisdiction of incorporation or		(I.R.S. Employer Identification No.)
organization)


1441 F.D. Roosevelt Avenue
San Juan, Puerto Rico		00920
(Address of principal executive offices)		(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 June 30, 2004

Common Stock, $40.00 par value		8,906

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)
	June 30,		December 31,
	2004		2003
ASSETS
Investments and cash:
Securities held for trading, at fair value:
Fixed maturities	$	68,818		68,681
Equity securities		80,385		66,824
Securities available for sale, at fair value:
Fixed maturities		389,606		407,530
Equity securities		54,581		56,040
Securities held to maturity, at amortized cost:
Fixed maturities		4,784		4,941
Cash and cash equivalents		56,788		48,280

Total investments and cash		654,962		652,296

Premiums and other receivables, net		104,822		93,491
Deferred policy acquisition costs		17,461		16,671
Property and equipment, net		33,127		34,212
Other assets		43,814		37,953

Total assets	$	854,186		834,623

LIABILITIES AND STOCKHOLDERS’ EQUITY
Claim liabilities:
Claims processed and incomplete	$	134,699		121,015
Unreported losses		130,972		112,449
Unpaid loss-adjustment expenses		14,717		14,456

Total claim liabilities		280,388		247,920

Unearned premiums		78,792		78,704
Individual retirement annuities		32,841		26,661
Liability to Federal Employees Health Benefits Program		4,315		7,471
Accounts payable and accrued liabilities		100,231		88,342
Income tax payable		—		32,222
Net deferred tax liability		1,448		1,892
Additional minimum pension liability		10,081		10,081
Short-term borrowings		38,700		38,700
Loans payable to bank		46,687		48,375

Total liabilities		593,483		580,368

Stockholders’ equity:
Common stock, $40 par value. Authorized 12,500 shares; issued and outstanding 8,906 at June 30, 2004 and 9,030 at December 31, 2003		356		361
Additional paid-in capital		150,407		150,407
Retained earnings		101,363		88,728
Accumulated other comprehensive income		8,577		14,759

Total stockholders’ equity		260,703		254,255

Total liabilities and stockholders’ equity	$	854,186		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 and six months ended June 30, 2004 and 2003

(Dollar amounts in thousands, except per share data)


	Three months ended						Six months ended
	June 30,						June 30,
	2004			2003			2004			2003
REVENUES:
Premiums earned, net	$	322,896			313,789			641,542			629,345
Amounts attributable to self-funded arrangements		46,045			40,181			89,083			80,184
Less amounts attributable to claims under self-funded arrangements		(42,485	)		(37,191	)		(83,067	)		(74,550	)

		326,456			316,779			647,558			634,979
Net investment income		6,393			6,286			12,975			12,384
Net realized investment gains		1,365			6,644			2,748			3,621
Net unrealized investment gain (loss) on trading securities		(3,252	)		7,276			(1,433	)		9,368
Other income, net		1,120			1,524			1,686			2,374

Total revenue		332,082			338,509			663,534			662,726

BENEFITS AND EXPENSES:
Claims incurred		286,246			259,172			561,994			530,003
Operating expenses, net of reimbursement for services		42,635			39,917			82,473			78,407
Interest expense		931			765			1,832			1,468

Total benefits and expenses		329,812			299,854			646,299			609,878

Income before taxes		2,270			38,655			17,235			52,848

INCOME TAX EXPENSE (BENEFIT):
Current		1,248			63,909			4,546			64,286
Deferred		(457	)		(1,968	)		54			(1,629	)

Total income taxes		791			61,941			4,600			62,657

Net income (loss)	$	1,479			(23,286	)		12,635			(9,809	)

Basic net income (loss) per share	$	166			(2,514	)		1,411			(1,055	)

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 six months

ended June 30, 2004 and 2003

(Dollar amounts in thousands, except per share data)


	2004			2003
BALANCE AT JANUARY 1	$	254,255			231,664
Stock redemption		(5	)		(4	)
Comprehensive income:
Net income (loss)		12,635			(9,809	)
Net unrealized change in investment securities		(6,555	)		(4,581	)
Net change in minimum pension liability		—			2,715
Net change in fair value of cash flow hedges		373			(537	)

Total comprehensive income		6,453			(12,212	)

BALANCE AT JUNE 30	$	260,703			219,448

See accompanying notes to unaudited consolidated financial statements.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

For the six months ended June 30, 2004 and 2003

(Dollar amounts in thousands, except per share data)


	Six months ended
	June 30,
	2004			2003
CASH FLOWS FROM OPERATING ACTIVITIES:
Premiums collected	$	631,773			614,467
Cash paid to suppliers and employees		(84,127	)		(82,367	)
Claims, losses and benefits paid		(529,526	)		(526,488	)
Interest received		13,487			12,561
Income taxes paid		(40,638	)		(1,308	)
Proceeds from trading securities sold or matured:
Fixed maturities sold		31,611			31,148
Equity securities		15,526			10,512
Acquisitions of investments in trading portfolio:
Fixed maturities		(33,686	)		(49,452	)
Equity securities		(27,048	)		(11,217	)
Interest paid		(1,362	)		(785	)
Expense reimbursement from Medicare		7,547			6,270
Contingency reserve funds from FEHBP		—			13,023

Net cash (used in) provided by operating activities		(16,443	)		16,364

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from investments sold or matured:
Securities available for sale:
Fixed maturities sold		21,464			42,555
Fixed maturities matured		46,441			124,619
Equity securities		1,476			9,675
Securities held to maturity:
Fixed maturities matured		2,762			150
Acquisitions of investments:
Securities available for sale:
Fixed maturities		(55,415	)		(193,820	)
Equity securities		(1,024	)		(4,010	)
Securities held to maturity:
Fixed maturities		(2,612	)		—
Capital expenditures		(1,676	)		(2,525	)
Proceeds from sale of property and equipment		6			45

Net cash provided by (used in) investing activities		11,422			(23,311	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Change in outstanding checks in excess of bank balances		9,512			666
Payments of long term debt		(1,688	)		(683	)
Redemption of common stock		(5	)		(4	)
Proceeds from individual retirement annuities		7,975			5,716
Surrenders of individual retirement annuities		(2,265	)		(1,088	)

Net cash provided by financing activities		13,529			4,607

Net increase (decrease) in cash and cash equivalents		8,508			(2,340	)
Cash and cash equivalents at beginning of the period		48,280			82,776

Cash and cash equivalents at end of the period	$	56,788			80,436

See accompanying notes to unaudited consolidated financial statements.

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 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 and six months ended June 30, 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 periods 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 periods 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 and six months ended June 30, 2004 and 2003:

TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 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 JUNE 30, 2004
Premiums earned, net	$	179,017			119,601			20,209			4,069			322,896
Amounts attributable to self-funded arrangements		46,045			—			—			—			46,045
Less: Amounts attributable to claims under self-funded arrangements		(42,485	)		—			—			—			(42,485	)
Intersegment premiums earned/service revenues		1,077			—			—			12,316			13,393

		183,654			119,601			20,209			16,385			339,849
Net investment income		3,025			768			1,834			680			6,307
Realized gain (loss) on sale of securities		1,494			(83	)		(14	)		(32	)		1,365
Unrealized loss on trading securities		(3,158	)		—			(24	)		(70	)		(3,252	)
Other		142			(7	)		710			95			940

Total revenues	$	185,157			120,279			22,715			17,058			345,209

Net income (loss)	$	(130	)		727			1,445			(502	)		1,540

Claims incurred	$	162,616			109,605			10,501			3,524			286,246

Operating expenses	$	22,619			9,050			10,719			13,559			55,947

Depreciation expense, included in operating expenses	$	934			—			121			28			1,083

Interest expense	$	286			80			—			248			614

Income tax expense (benefit)	$	(234	)		817			50			229			862

* 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
June 30, 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 JUNE 30, 2003
Premiums earned, net	$	168,478			122,852			18,254		4,205			313,789
Amounts attributable to self-funded arrangements		40,181			—			—		—			40,181
Less: Amounts attributable to claims under self-funded arrangements		(37,191	)		—			—		—			(37,191	)
Intersegment premiums earned/service revenues		551			—			—		11,027			11,578

		172,019			122,852			18,254		15,232			328,357
Net investment income		2,654			1,279			1,700		557			6,190
Realized gain on sale of securities		4,737			189			620		448			5,994
Unrealized gain (loss) on trading securities		5,028			1,385			956		(93	)		7,276
Other		77			(8	)		1,391		(98	)		1,362

Total revenues	$	184,515			125,697			22,921		16,046			349,179

Net income	$	19,435			3,505			2,899		1,918			27,757

Claims incurred	$	138,164			108,786			10,645		1,577			259,172

Operating expenses	$	21,861			8,428			8,966		12,301			51,556

Depreciation expense, included in operating expenses	$	1,054			—			66		31			1,151

Interest expense	$	168			104			—		158			430

Income tax expense	$	4,887			4,874			411		92			10,264


		PAGE
PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets as of June 30, 2004 and December 31, 2003		3
	Consolidated Statements of Operations for the three months and six months ended June 30, 2004 and 2003		4
	Consolidated Statements of Stockholders’ Equity and Comprehensive Income for the six months ended June 30, 2004 and 2003		5
	Consolidated Statements of Cash Flows for the six months ended June 30, 2004 and 2003		6
	Notes to Consolidated Financial Statements		7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		36
Item 4.	Controls and Procedures		36
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings		36
Item 2.	Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities		38
Item 3.	Defaults Upon Senior Securities		38
Item 4.	Submissions of Matters to a Vote of Security Holders		38
Item 5.	Other Information		40
Item 6.	Exhibits and Reports on Form 8-K		41
SIGNATURES			42
EX-3(ii) BY-LAWS OF TRIPLE-S MANAGEMENT CORPORATION, AS AMENDED (ENGLISH TRANSLATION)
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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