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United States Securities and Exchange Commission

Washington, D.C. 20549

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 March 31, 2005

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   66-0555678
(State or other jurisdiction of incorporation or
organization) 		  (I.R.S. Employer Identification No.)
     
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 March 31, 2005
     
Common Stock, $40.00 par value   8,904
 
 

 

Triple-S Management Corporation

FORM 10-Q

For the Quarter Ended March 31, 2005

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 EX-31.1 SECTION 302, CERTIFICATION OF THE CEO
 EX-31.2 SECTION 302, CERTIFICATION OF THE CFO
 EX-32.1 SECTION 906, CERTIFICAITON 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)        
    March 31,     December 31,  
    2005     2004  
 
ASSETS
                
 
Investments and cash:
                
Securities held for trading, at fair value:
                
Fixed maturities
   $ 52,388       72,423  
Equity securities
     84,076       86,596  
Securities available for sale, at fair value:
                
Fixed maturities
     454,123       444,637  
Equity securities
     53,168       59,186  
Securities held to maturity, at amortized cost:
                
Fixed maturities
     14,973       14,280  
Cash and cash equivalents
     58,168       35,115  
 
Total investments and cash
     716,896       712,237  
 
Premiums and other receivables, net
     129,100       113,323  
Deferred policy acquisition costs
     18,252       18,712  
Property and equipment, net
     32,454       32,364  
Other assets
     45,125       43,021  
 
Total assets
   $ 941,827       919,657  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
                
 
Claim liabilities:
                
Claims processed and incomplete
   $ 140,987       137,282  
Unreported losses
     148,595       127,324  
Unpaid loss-adjustment expenses
     15,050       14,719  
 
Total claim liabilities
     304,632       279,325  
 
Unearned premiums
     81,190       84,583  
Annuity contracts
     36,348       34,071  
Liability to Federal Employees Health Benefits Program
     10,779       9,791  
 
Accounts payable and accrued liabilities
     114,603       100,388  
Short-term borrowings
     1,700       1,700  
Income tax payable
     3,044       1,827  
Net deferred tax liability
     —       1,969  
Additional minimum pension liability
     9,999       8,840  
Long-term borrowings
     95,457       95,730  
 
Total liabilities
     657,752       618,224  
 
Stockholders’ equity:
                
Common stock, $40 par value. Authorized 12,500 shares; issued and outstanding 8,904 at March 31, 2005 and December 31, 2004
     356       356  
Additional paid-in capital
     150,408       150,408  
Retained earnings
     129,324       134,531  
Accumulated other comprehensive income
     3,987       16,138  
 
Total stockholders’ equity
     284,075       301,433  
 
Total liabilities and stockholders’ equity
   $ 941,827       919,657  
 

See accompanying notes to unaudited consolidated financial statements.

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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Consolidated Statements of Earnings (Loss) (Unaudited)
For the three months ended March 31, 2005 and 2004
(Dollar amounts in thousands, except per share data)
                 
    Three months ended  
    March 31,  
    2005     2004  
 
REVENUE:
                
 
Premiums earned, net
   $ 333,389       318,646  
Amounts attributable to self-funded arrangements
     51,915       43,038  
Less amounts attributable to claims under self-funded arrangements
     (48,540 )     (40,582 )
 
 
     336,764       321,102  
Net investment income
     7,064       6,582  
Net realized investment gains
     3,314       1,383  
Net unrealized investment gain (loss) on trading securities
     (5,793 )     1,819  
Other income, net
     632       566  
 
Total revenue
     341,981       331,452  
 
BENEFITS AND EXPENSES:
                
 
Claims incurred
     302,923       275,748  
Operating expenses, net of reimbursement for services
     43,766       39,838  
Interest expense
     1,788       901  
 
Total benefits and expenses
     348,477       316,487  
 
Income (loss) before taxes
     (6,496 )     14,965  
 
INCOME TAX EXPENSE (BENEFIT):
                
 
Current
     1,221       3,298  
Deferred
     (2,510 )     511  
 
Total income taxes
     (1,289 )     3,809  
 
Net income (loss)
   $ (5,207 )     11,156  
 
Basic net income (loss) per share
   $ (585 )     1,239  
 

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 three months
ended March 31, 2005 and 2004
(Dollar amounts in thousands, except per share data)
                 
    2005     2004  
 
BALANCE AT JANUARY 1
   $ 301,433       254,255  
 
Stock redemption
     —       (3 )
Comprehensive income:
                
Net income (loss)
     (5,207 )     11,156  
Net unrealized change in investment securities
     (12,488 )     1,062  
Net change in fair value of cash flow hedges
     337       (345 )
 
Total comprehensive income (loss)
     (17,358 )     11,873  
 
BALANCE AT MARCH 31
   $ 284,075       266,125  
 

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 three months ended March 31, 2005 and 2004
(Dollar amounts in thousands, except per share data)
                 
    Three months ended  
    March 31,  
    2005     2004  
 
CASH FLOWS FROM OPERATING ACTIVITIES:
                
 
Premiums collected
   $ 323,459       309,144  
Cash paid to suppliers and employees
     (44,943 )     (38,739 )
Claims, losses and benefits paid
     (276,277 )     (262,746 )
Interest received
     6,359       6,322  
Proceeds from trading securities sold or matured:
                
Fixed maturities sold
     31,946       7,185  
Equity securities
     5,027       3,346  
Acquisitions of investments in trading portfolio:
                
Fixed maturities
     (14,463 )     (7,951 )
Equity securities
     (5,116 )     (3,692 )
Interest paid
     (1,509 )     (680 )
Expense reimbursement from Medicare
     3,003       3,696  
 
Net cash provided by operating activities
     27,486       15,885  
 
CASH FLOWS FROM INVESTING ACTIVITIES:
                
 
Proceeds from investments sold or matured:
                
Securities available for sale:
                
Fixed maturities sold
     5,038       15,199  
Fixed maturities matured
     206       29,126  
Equity securities
     2,677       1,475  
Securities held to maturity:
                
Fixed maturities matured
     290       2,662  
Acquisitions of investments:
                
Securities available for sale:
                
Fixed maturities
     (17,919 )     (27,004 )
Equity securities
     (2,821 )     (1,023 )
Securities held to maturity:
                
Fixed maturities
     (993 )     (2,612 )
Capital expenditures
     (1,338 )     (576 )
Proceeds from sale of property and equipment
     2       3  
 
Net cash (used in) provided by investing activities
     (14,858 )     17,250  
 
CASH FLOWS FROM FINANCING ACTIVITIES:
                
 
Change in outstanding checks in excess of bank balances
     8,700       11,437  
Payments of short-term borrowings
     (17,125 )     (6,200 )
Proceeds from short-term borrowings
     17,125       6,200  
Payments of long-term borrowings
     (273 )     (273 )
Redemption of common stock
     —       (3 )
Proceeds from annuity contracts
     3,164       3,325  
Surrenders of annuity contracts
     (1,166 )     (1,134 )
 
Net cash provided by financing activities
     10,425       13,352  
 
Net increase in cash and cash equivalents
     23,053       46,487  
Cash and cash equivalents at beginning of the period
     35,115       48,280  
 
Cash and cash equivalents at end of the period
   $ 58,168       94,767  
 

See accompanying notes to unaudited consolidated financial statements.

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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

March 31, 2005

(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, 2004, 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, 2004.

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, 2005 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 ended March 31, 2005 and 2004:

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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2005
(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, 2005
                                        
 
Premiums earned, net
   $ 184,300       123,140       22,096       3,853       333,389  
Amounts attributable to self-funded arrangements
     51,915       —       —       —       51,915  
Less: Amounts attributable to claims under self-funded arrangements
     (48,540 )     —       —       —       (48,540 )
Intersegment premiums earned/service revenues
     1,076       —       —       13,638       14,714  
 
 
     188,751       123,140       22,096       17,491       351,478  
Net investment income
     3,413       741       2,105       711       6,970  
Realized gain (loss) on sale of securities
     2,103       (25 )     1,176       60       3,314  
Unrealized loss on trading securities
     (4,806 )     —       (793 )     (194 )     (5,793 )
Other
     188       (5 )     338       62       583  
 
Total revenue
   $ 189,649       123,851       24,922       18,130       356,552  
 
Net income (loss)
   $ (6,803 )     (911 )     2,658       (345 )     (5,401 )
 
Claims incurred
   $ 172,829       116,088       11,373       2,633       302,923  
 
Operating expenses
   $ 24,240       8,914       10,341       15,387       58,882  
 
Depreciation expense, included in operating expenses
   $ 825       —       107       39       971  
 
Interest expense
   $ 1,058       204       —       279       1,541  
 
Income tax expense (benefit)
   $ (1,675 )     (444 )     550       176       (1,393 )
 

*  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
March 31, 2005
(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  
Amounts attributable to self-funded arrangements
     43,038       —       —       —       43,038  
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 revenue
   $ 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 tax expense
   $ 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.

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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2005
(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  
 
AS OF MARCH 31, 2005
                                        
 
Segment assets
   $ 459,193       88,535       284,920       92,442       925,090  
 
Significant noncash item:
                                        
Net change in unrealized gain on securities available for sale
   $ (8,225 )     (817 )     (2,338 )     (993 )     (12,373 )
 
AS OF DECEMBER 31, 2004
                                        
 
Segment assets
   $ 443,710       84,627       282,393       90,713       901,443  
 
Significant noncash item:
                                        
Net change in unrealized gain on securities available for sale
   $ 523       (151 )     867       (156 )     1,083  
Net change in minimum pension liability
     313       —       (60 )     (314 )     (61 )
 

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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2005
(Dollar amounts in thousands, except per share data)
(Unaudited)

RECONCILIATION OF REPORTABLE SEGMENT TOTALS
WITH FINANCIAL STATEMENTS

                 
    Three months ended  
    March 31,  
    2005     2004  
 
TOTAL REVENUE
                
 
                
Total revenues for reportable segments
   $ 338,422       327,568  
Total revenues for other segments
     18,130       16,311  
 
 
     356,552       343,879  
 
                
Elimination of intersegment earned premiums
     (1,076 )     (904 )
Elimination of intersegment service revenues
     (13,638 )     (11,537 )
Unallocated amount - revenues from external sources
     143       14  
 
 
     (14,571 )     (12,427 )
 
Consolidated total revenue
   $ 341,981       331,452  
 
NET INCOME (LOSS)
                
 
                
Net income (loss) for reportable segments
   $ (5,056 )     11,019  
Net income (loss) for other segments
     (345 )     239  
 
 
     (5,401 )     11,258  
 
Elimination of TSM charges:
                
Rent expense
     1,624       1,573  
Interest expense
     256       159  
 
 
     1,880       1,732  
 
Unallocated amounts related to TSM:
                
General and administrative expenses
     (1,222 )     (1,335 )
Income tax expense
     (104 )     (33 )
Interest expense
     (503 )     (480 )
Other revenues from external sources
     143       14  
 
 
     (1,686 )     (1,834 )
 
Consolidated net income (loss)
   $ (5,207 )     11,156  
 

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TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2005
(Dollar amounts in thousands, except per share data)
(Unaudited)

RECONCILIATION OF REPORTABLE SEGMENT TOTALS WITH FINANCIAL STATEMENTS

                         
    Three months ended March 31, 2005  
    Segment             Consolidated  
    Totals     Adjustments *     Totals  
 
Claims incurred
   $ 302,923       —       302,923  
Operating expenses