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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 September 30, 2004

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 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   (I.R.S. Employer Identification No.)
incorporation or 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 September 30, 2004
  		 
 
Common Stock, $40.00 par value   8,883

 

Triple-S Management Corporation

FORM 10-Q

For the Quarter Ended September 30, 2004

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    41  
    42  
 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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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)    
    September 30,   December 31,
    2004
   2003
ASSETS
                
Investments and cash:
                
Securities held for trading, at fair value:
                
Fixed maturities
   $ 69,911       68,681  
Equity securities
     79,490       66,824  
Securities available for sale, at fair value:
                
Fixed maturities
     411,177       407,530  
Equity securities
     54,907       56,040  
Securities held to maturity, at amortized cost:
                
Fixed maturities
     4,372       4,941  
Cash and cash equivalents
     63,668       48,280  
 
    
 		      
 		  
Total investments and cash
     683,525       652,296  
 
    
 		      
 		  
Premiums and other receivables, net
     103,779       93,491  
Deferred policy acquisition costs
     18,675       16,671  
Property and equipment, net
     32,842       34,212  
Other assets
     46,126       37,953  
 
    
 		      
 		  
Total assets
   $ 884,947       834,623  
 
    
 		      
 		  
LIABILITIES AND STOCKHOLDERS’ EQUITY
                
Claim liabilities:
                
Claims processed and incomplete
   $ 121,638       121,015  
Unreported losses
     140,938       112,449  
Unpaid loss-adjustment expenses
     14,885       14,456  
 
    
 		      
 		  
Total claim liabilities
     277,461       247,920  
 
    
 		      
 		  
Unearned premiums
     79,450       78,704  
Individual retirement annuities
     32,995       26,661  
Liability to Federal Employees Health Benefits Program
     8,833       7,471  
Accounts payable and accrued liabilities
     97,892       88,342  
Income tax payable
     —       32,222  
Net deferred tax liability
     900       1,892  
Additional minimum pension liability
     13,839       10,081  
Short-term borrowings
     1,700       38,700  
Long-term borrowings
     96,277       48,375  
 
    
 		      
 		  
Total liabilities
     609,347       580,368  
 
    
 		      
 		  
Stockholders’ equity:
                
Common stock, $40 par value. Authorized 12,500 shares; issued and outstanding 8,883 at September 30, 2004 and 9,030 at December 31, 2003
     355       361  
Additional paid-in capital
     150,408       150,407  
Retained earnings
     113,457       88,728  
 
    
 		      
 		  
Accumulated other comprehensive income
     11,380       14,759  
 
    
 		      
 		  
Total stockholders’ equity
     275,600       254,255  
 
    
 		      
 		  
Total liabilities and stockholders’ equity
   $ 884,947       834,623  
 
    
 		      
 		  

See accompanying notes to unaudited consolidated financial statements.

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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Consolidated Statements of Earnings (Unaudited)
 For the three months and nine months ended September 30, 2004 and 2003
(Dollar amounts in thousands, except per share data)
                                 
    Three months ended   Nine months ended
    September 30,
   September 30,
    2004
   2003
   2004
   2003
REVENUES:
                                
Premiums earned, net
   $ 325,926       314,043       967,468       943,388  
Amounts attributable to self-funded arrangements
     46,044       40,790       135,127       120,974  
Less amounts attributable to claims under self-funded arrangements
     (42,925 )     (38,410 )     (125,992 )     (112,960 )
 
    
 		      
 		      
 		      
 		  
 
     329,045       316,423       976,603       951,402  
Net investment income
     6,516       5,868       19,491       18,252  
Net realized investment gains
     4,237       3,669       6,985       7,290  
Net unrealized investment gain (loss) on trading securities
     (435 )     (345 )     (1,868 )     9,023  
Other income, net
     728       532       2,414       2,906  
 
    
 		      
 		      
 		      
 		  
Total revenue
     340,091       326,147       1,003,625       988,873  
 
    
 		      
 		      
 		      
 		  
BENEFITS AND EXPENSES:
                                
Claims incurred
     283,946       264,202       845,940       794,205  
Operating expenses, net of reimbursement for services
     40,416       37,301       122,889       115,708  
Interest expense
     1,018       776       2,850       2,244  
 
    
 		      
 		      
 		      
 		  
Total benefits and expenses
     325,380       302,279       971,679       912,157  
 
    
 		      
 		      
 		      
 		  
Income before taxes
     14,711       23,868       31,946       76,716  
 
    
 		      
 		      
 		      
 		  
INCOME TAX EXPENSE (BENEFIT):
                                
Current
     2,756       6,967       7,302       71,253  
Deferred
     (139 )     139       (85 )     (1,490 )
 
    
 		      
 		      
 		      
 		  
Total income taxes
     2,617       7,106       7,217       69,763  
 
    
 		      
 		      
 		      
 		  
Net income
   $ 12,094       16,762       24,729       6,953  
 
    
 		      
 		      
 		      
 		  
Basic net income per share
   $ 1,361       1,844       2,769       753  
 
    
 		      
 		      
 		      
 		  

See accompanying notes to unaudited consolidated financial statements.

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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity and
Comprehensive Income (Unaudited)
For the nine months
ended September 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 )     (10 )
Comprehensive income:
                
Net income
     24,729       6,953  
Net unrealized change in investment securities
     (1,136 )     (7,872 )
Net change in minumum pension liability
     (2,361 )     1,052  
Net change in fair value of cash flow hedges
     118       (171 )
 
    
 		      
 		  
Total comprehensive income
     21,350       (38 )
 
    
 		      
 		  
BALANCE AT SEPTEMBER 30
   $ 275,600       231,616  
 
    
 		      
 		  

See accompanying notes to unaudited consolidated financial statements.

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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)
 For the nine months ended September 30, 2004 and 2003
(Dollar amounts in thousands, except per share data)
                 
    Nine months ended
    September 30,
    2004
   2003
CASH FLOWS FROM OPERATING ACTIVITIES:
                
Premiums collected
   $ 963,274       941,702  
Cash paid to suppliers and employees
     (130,355 )     (120,636 )
Claims, losses and benefits paid
     (816,399 )     (790,982 )
Interest received
     19,288       19,109  
Income taxes paid
     (43,464 )     (38,881 )
Proceeds from trading securities sold or matured:
                
Fixed maturities sold
     44,196       66,319  
Equity securities
     19,686       18,310  
Acquisitions of investments in trading portfolio:
                
Fixed maturities
     (45,595 )     (84,367 )
Equity securities
     (32,336 )     (28,183 )
Interest paid
     (2,116 )     (1,367 )
Expense reimbursement from Medicare
     9,620       9,437  
Contingency reserve funds from FEHBP
     5,217       13,023  
 
    
 		      
 		  
Net cash (used in) provided by operating activities
     (8,984 )     3,484  
 
    
 		      
 		  
CASH FLOWS FROM INVESTING ACTIVITIES:
                
Proceeds from investments sold or matured:
                
Securities available for sale:
                
Fixed maturities sold
     39,859       81,093  
Fixed maturities matured
     68,942       174,645  
Equity securities
     6,544       13,527  
Securities held to maturity:
                
Fixed maturities matured
     3,161       700  
Acquisitions of investments:
                
Securities available for sale:
                
Fixed maturities
     (112,821 )     (295,987 )
Equity securities
     (1,024 )     (12,823 )
Securities held to maturity:
                
Fixed maturities
     (2,612 )     —  
Capital expenditures
     (2,731 )     (3,259 )
Proceeds from sale of property and equipment
     12       55  
 
    
 		      
 		  
Net cash used in investing activities
     (670 )     (42,049 )
 
    
 		      
 		  
CASH FLOWS FROM FINANCING ACTIVITIES:
                
Change in outstanding checks in excess of bank balances
     8,545       4,100  
Payments of short-term borrowings
     (37,000 )     —  
Proceeds from short-term borrowings
     —       37,000  
Payments of long-term borrowings
     (2,098 )     (1,093 )
Proceeds from long-term borrowings
     50,000       —  
Redemption of common stock
     (5 )     (10 )
Proceeds from individual retirement annuities
     9,259       9,728  
Surrenders of individual retirement annuities
     (3,659 )     (1,497 )
 
    
 		      
 		  
Net cash provided by financing activities
     25,042       48,228  
 
    
 		      
 		  
Net increase in cash and cash equivalents
     15,388       9,663  
Cash and cash equivalents at beginning of the period
     48,280       82,776  
 
    
 		      
 		  
Cash and cash equivalents at end of the period
   $ 63,668       92,439  
 
    
 		      
 		  

See accompanying notes to unaudited consolidated financial statements.

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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 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 nine months ended September 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 nine months ended September 30, 2004 and 2003:

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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 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 SEPTEMBER 30, 2004
                                        
Premiums earned, net
   $ 178,164       121,980       21,557       4,225       325,926  
Amounts attributable to self-funded arrangements
     46,044       —       —       —       46,044  
Less: Amounts attributable to claims under self-funded arrangements
     (42,925 )     —       —       —       (42,925 )
Intersegment premiums earned/service revenues
     906       —       —       11,611       12,517  
 
    
 		      
 		      
 		      
 		      
 		  
 
     182,189       121,980       21,557       15,836       341,562  
Net investment income
     3,026       793       1,906       705       6,430  
Realized gain on sale of securities
     2,973       —       530       734       4,237  
Unrealized gain (loss) on trading securities
     (483 )     —       (49 )     97       (435 )
Other
     (10 )     (7 )     643       54       680  
 
    
 		      
 		      
 		      
 		      
 		  
Total revenues
   $ 187,695       122,766       24,587       17,426       352,474  
 
    
 		      
 		      
 		      
 		      
 		  
Net income
   $ 5,216       2,381       3,128       1,253       11,978  
 
    
 		      
 		      
 		      
 		      
 		  
Claims incurred
   $ 157,186       111,141       13,007       2,612       283,946  
 
    
 		      
 		      
 		      
 		      
 		  
Operating expenses
   $ 23,209       8,618       8,469       13,001       53,297  
 
    
 		      
 		      
 		      
 		      
 		  
Depreciation expense, included in operating expenses
   $ 934       —       90       35       1,059  
 
    
 		      
 		      
 		      
 		      
 		  
Interest expense
   $ 343       113       —       265       721  
 
    
 		      
 		      
 		      
 		      
 		  
Income tax expense (benefit)
   $ 1,741       513       (17 )     295       2,532  
 
    
 		      
 		      
 		      
 		      
 		  

*   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.

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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 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 SEPTEMBER 30, 2003
                                        
Premiums earned, net
   $ 171,500       118,367       20,002       4,174       314,043  
Amounts attributable to self-funded arrangements
     40,790       —       —       —       40,790  
Less: Amounts attributable to claims under self-funded arrangements
     (38,410 )     —       —       —       (38,410 )
Intersegment premiums earned/service revenues
     1,002       —       —       11,331       12,333  
 
    
 		      
 		      
 		      
 		      
 		  
 
     174,882       118,367       20,002       15,505       328,756  
Net investment income
     2,472       1,019       1,702       598       5,791  
Realized gain (loss) on sale of securities
     2,883       (27 )     598       215       3,669  
Unrealized gain (loss) on trading securities
     99       (433 )     22       (33 )     (345 )
Other
     35       (12 )     450       67       540  
 
    
 		      
 		      
 		      
 		      
 		  
Total revenues
   $ 180,371       118,914       22,774       16,352       338,411  
 
    
 		      
 		      
 		      
 		      
 		  
Net income
   $ 10,782       2,538       2,832       839       16,991  
 
    
 		      
 		      
 		      
 		      
 		  
Claims incurred
   $ 143,576       107,296       10,325       3,005       264,202  
 
    
 		      
 		      
 		      
 		      
 		  
Operating expenses
   $ 19,586       8,783       9,043       12,306       49,718  
 
    
 		      
 		      
 		      
 		      
 		  
Depreciation expense, included in operating expenses
   $ 1,013       —       108       32       1,153  
 
    
 		      
 		      
 		      
 		      
 		  
Interest expense
   $ 157       84       —       196       437  
 
    
 		      
 		      
 		      
 		      
 		  
Income tax expense
   $ 6,270       213       574       6       7,063  
 
    
 		      
 		      
 		      
 		      
 		  

*   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.

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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2004
(Dollar amounts in thousands, except per share data)
(Unaudited)

                                         
    Operating Segments
    Health   Health            
    Insurance   Insurance   Property        
    Commercial