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, 2003
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. |X| Yes |_| 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, 2003
------------------- -----------------------------
Common Stock, $40.00 par value 9,337
TRIPLE-S MANAGEMENT CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 2003
Table of Contents
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2003 and December 31, 2002 3
Consolidated Statements of Operations for the three months ended March 31,
2003 and 2002 4
Consolidated Statements of Stockholders' Equity and Comprehensive Income for
the three months ended March 31, 2003 and 2002 5
Consolidated Statements of Cash Flows for the three months ended March 31, 6
2003 and 2002
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 20
Item 3. Quantitative and Qualitative Disclosures About Market Risk 31
Item 4. Controls and Procedures 31
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 31
Item 2. Changes in Securities and Use of Proceeds 32
Item 3. Defaults Upon Senior Securities 32
Item 4. Submissions of Matters to a Vote of Security Holders 32
Item 5. Other Information 32
Item 6. Exhibits and Reports on Form 8-K 32
SIGNATURES 34
CERTIFICATIONS 35
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollar amounts in thousands)
(UNAUDITED)
MARCH 31, DECEMBER 31,
2003 2002
----------- ------------
ASSETS
Investments and cash:
Securities held for trading, at fair value:
Fixed maturities $ 53,400 50,317
Equity securities 43,553 44,621
Securities available for sale, at fair value:
Fixed maturities 351,992 321,244
Equity securities 49,905 47,406
Securities held to maturity, at amortized cost:
Fixed maturities 5,981 5,982
Cash and cash equivalents 64,477 82,776
-------- -------
Total investments and cash 569,308 552,346
-------- -------
Premiums and other receivables, net 104,178 88,027
Deferred policy acquisition costs 15,002 13,770
Property and equipment, net 36,553 36,721
Other assets 32,792 34,814
-------- -------
Total assets $757,833 725,678
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Claim liabilities:
Claims processed and incomplete $117,439 127,628
Unreported losses 126,850 103,310
Unpaid loss-adjustment expenses 14,362 13,644
-------- -------
Total claim liabilities 258,651 244,582
-------- -------
Unearned premiums 70,319 70,961
Individual retirement annuities 15,524 15,143
Liability to Federal Employees Health Benefits Program 4,636 7,066
Accounts payable and accrued liabilities 96,120 88,750
Additional minimum pension liability 9,449 9,449
Net deferred tax liability 8,317 8,048
Loans payable to bank 49,605 50,015
-------- -------
Total liabilities 512,621 494,014
-------- -------
Stockholders' equity:
Common stock, $40 par value. Authorized 12,500 shares;
issued and outstanding 9,337 at March 31, 2003 and
December 31, 2002 373 373
Additional paid-in capital 150,406 150,406
Operating reserve 75,976 62,499
Accumulated other comprehensive income 18,457 18,386
-------- -------
Total stockholders' equity 245,212 231,664
-------- -------
Total liabilities and stockholders' equity $757,833 725,678
======== =======
See accompanying notes to unaudited consolidated financial statements.
3
TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
For the three months ended March 31, 2003 and 2002
(Dollar amounts in thousands, except net income per share)
THREE MONTHS ENDED
MARCH 31,
2003 2002
--------- --------
REVENUES:
Premiums earned, net $ 315,556 309,842
Amounts attributable to self-funded
arrangements 40,003 34,838
Less amounts attributable to claims under
self-funded arrangements (37,359) (32,458)
--------- --------
318,200 312,222
Net investment income 6,098 5,990
Net realized investment losses (3,023) (156)
Net unrealized investment gain on trading securities 2,092 285
Other income, net 850 213
--------- --------
Total revenue 324,217 318,554
--------- --------
BENEFITS AND EXPENSES:
Claims incurred 270,831 271,773
Operating expenses, net of reimbursement
for services 38,490 38,711
Interest expense 703 1,119
--------- --------
Total benefits and expenses 310,024 311,603
--------- --------
Income before taxes 14,193 6,951
--------- --------
INCOME TAX EXPENSE:
Current 377 199
Deferred 339 301
--------- --------
Total income taxes 716 500
--------- --------
Net income $ 13,477 6,451
========= ========
Basic net income per share if Triple-S, Inc.
operated without its tax exemption $ 1,068 576
--------- --------
Basic net income per share excluding
Triple-S, Inc.'s net income $ 451 287
========= ========
See accompanying notes to unaudited consolidated financial statements.
4
TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity and
Comprehensive Income (Unaudited)
For the three months
ended March 31, 2003 and 2002
(Dollar amounts in thousands)
2003 2002
--------- ---------
BALANCE AT JANUARY 1 $ 231,664 186,028
Stock redemption -- (3)
Comprehensive income:
Net income 13,477 6,451
Net unrealized change in investment securities 231 (2,929)
Net change in fair value of cash flow hedges (160) --
--------- ---------
Total comprehensive income 13,548 3,522
--------- ---------
BALANCE AT MARCH 31 $ 245,212 189,547
========= =========
See accompanying notes to unaudited consolidated financial statements.
5
TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
For the three months ended March 31, 2003 and 2002
(Dollar amounts in thousands)
THREE MONTHS ENDED
MARCH 31,
2003 2002
--------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Premiums collected $ 298,169 290,271
Cash paid to suppliers and employees (38,460) (33,269)
Claims, losses and benefits paid (256,762) (249,212)
Interest received 6,778 6,410
Proceeds from trading securities sold or matured:
Fixed maturities sold 10,908 6,000
Equity securities 6,363 64
Acquisitions of investments in trading portfolio:
Fixed maturities (13,501) (5,966)
Equity securities (6,795) --
Interest paid (177) (454)
Expense reimbursement from Medicare 3,562 3,450
--------- --------
Net cash provided by operating activities 10,085 17,294
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from investments sold or matured:
Securities available for sale:
Fixed maturities sold 27,511 2,424
Fixed maturities matured 70,334 42,781
Equity securities -- 2,643
Acquisitions of investments:
Securities available for sale:
Fixed maturities (128,563) (61,537)
Equity securities (2,010) --
Capital expenditures (1,543) (1,393)
Proceeds from sale of property and equipment 289 337
--------- --------
Net cash used in investing activities (33,982) (14,745)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in outstanding checks in excess of bank balances 6,153 (5,505)
Payments of long term debt (410) (1,273)
Redemption of common stock -- (4)
Proceeds from individual retirement annuities 148 277
Surrenders of individual retirement annuities (293) (305)
--------- --------
Net cash provided by (used in) financing activities 5,598 (6,810)
--------- --------
Net decrease in cash and cash equivalents (18,299) (4,261)
Cash and cash equivalents at beginning of the period 82,776 80,970
--------- --------
Cash and cash equivalents at end of the period $ 64,477 76,709
========= ========
See accompanying notes to unaudited consolidated financial statements.
6
TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2003
(Dollar amounts in thousands)
(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, 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.
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, 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 ended March 31, 2003 and 2002:
7
TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 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
---------------------------------------------------------------------------
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 5,203 11,116 330,011
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 5,772 11,116 335,914
============== =========== ========= ======= ======= =========
Net income $ 4,854 4,415 2,567 1,605 296 13,737
============== =========== ========= ======= ======= =========
Claims incurred $ 154,557 104,167 9,810 2,297 - 270,831
============== =========== ========= ======= ======= =========
Operating expenses $ 21,159 8,318 8,519 1,558 10,658 50,212
============== =========== ========= ======= ======= =========
Depreciation expense, included in operating
expenses 980 - 136 29 - 1,145
============== =========== ========= ======= ======= =========
Interest expense $ 172 101 - 156 - 429
============== =========== ========= ======= ======= =========
Income taxes $ - - 387 156 162 705
============== =========== ========= ======= ======= =========
* Includes segments which are not required to be reported separately. These
segments include the data processing services organization as well as the
third party administrator of the health insurance services.
8
TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 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
-------------- ---------- ------------ ---------- ------- -------
THREE MONTHS ENDED MARCH 31, 2002
Premiums earned, net $ 164,998 124,447 16,088 3,813 -- 309,346
Amounts attributable to self-funded
arrangements 35,334 -- -- -- -- 35,334
Less: Amounts attributable to claims under
self-funded arrangements (32,458) -- -- -- -- (32,458)
Intersegment premiums earned/service revenues 668 -- -- -- 11,474 12,142
--------- -------- ------- ------ ------ --------
168,542 124,447 16,088 3,813 11,474 324,364
Net investment income 2,558 1,188 1,578 590 -- 5,914
Realized gain (loss) on sale of securities (174) 3 (55) 70 -- (156)
Unrealized gain (loss) on trading securities 386 (266) 165 -- -- 285
Other 35 (14) 70 24 -- 115
--------- -------- ------- ------ ------ --------
Total revenues $ 171,347 125,358 17,846 4,497 11,474 330,522
========= ======== ======= ====== ====== ========
Net income $ 3,527 148 1,732 764 268 6,439
========= ======== ======= ====== ====== ========
Claims incurred $ 145,804 115,984 7,801 2,184 -- 271,773
========= ======== ======= ====== ====== ========
Operating expenses $ 21,803 8,999 8,126 1,276 11,058 51,262
========= ======== ======= ====== ====== ========
Depreciation expense, included in operating
expenses 1,091 -- 119 13 -- 1,223
========= ======== ======= ====== ====== ========
Interest expense $ 213 227 -- 222 -- 662
========= ======== ======= ====== ====== ========
Income taxes $ -- -- 187 51 148 386
========= ======== ======= ====== ====== ========
* Includes segments which are not required to be reported separately. These
segments include the data processing services organization as well as the
third party administrator of the health insurance services.
9
TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2003
(Dollar amounts in thousands)
(Unaudited)
BALANCE SHEET ITEMS OPERATING SEGMENTS
- ---------------------------------------------------------------------------------------------------------------------------
HEALTH HEALTH
INSURANCE INSURANCE PROPERTY LIFE AND
COMMERCIAL REFORM AND CASUALTY DISABILITY
PROGRAM PROGRAM INSURANCE INSURANCE OTHER * TOTAL
- ---------------------------------------------------------------------------------------------------------------------------
AS OF MARCH 31, 2003
Segment assets $ 345,646 120,685 211,605 54,856 2,109 734,901
- ---------------------------------------------------------------------------------------------------------------------------
Significant noncash item - net change in
unrealized gain on securities available
for sale $ (16) (182) 168 247 - 217
- ---------------------------------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 2002
Segment assets $ 324,628 115,499 205,753 51,354 1,633 698,867
- ---------------------------------------------------------------------------------------------------------------------------
Significant noncash item:
Net change in unrealized gain on
securities available for sale $ 3,928 598 652 613 - 5,791
Net change in minimum pension liability (6,961) - (231) (102) (633) (7,927)
- ---------------------------------------------------------------------------------------------------------------------------
* Includes segments which are not required to be reported separately. These
segments include the data processing services organization as well as the
third party administrator of the health insurance services.
10
TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2003
(Dollar amounts in thousands)
(Unaudited)
RECONCILIATION OF REPORTABLE SEGMENT TOTALS
WITH FINANCIAL STATEMENTS
THREE MONTHS ENDED
MARCH 31,
2003 2002
--------- ---------
TOTAL REVENUES
Total revenues for reportable segments $ 324,798 319,048
Total revenues for other segments 11,116 11,474
--------- ---------
335,914 330,522
Elimination of intersegment earned premiums (695) (668)
Elimination of intersegment service revenues (11,116) (11,474)
Unallocated amount - revenues from external sources 114 174
--------- ---------
(11,697) (11,968)
--------- ---------
Consolidated total revenues $ 324,217 318,554
========= =========
NET INCOME (LOSS)
Net income for reportable segments $ 13,441 6,171
Net income for other segments 296 268
--------- ---------
13,737 6,439
--------- ---------
Elimination of TSM charges:
Rent expense 1,564 1,546
Interest expense 172 213
--------- ---------
1,736 1,759
--------- ---------
Unallocated amounts related to TSM:
General and administrative expenses (1,653) (1,137)
Interest expense (446) (670)
Other revenues from external sources 103 60
--------- ---------
(1,996) (1,747)
--------- ---------
Consolidated net income $ 13,477 6,451
========= =========
11
TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2003
(Dollar amounts in thousands)
(Unaudited)
RECONCILIATION OF REPORTABLE SEGMENT TOTALS WITH FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2003
-------------------------------------------
SEGMENT CONSOLIDATED
TOTALS ADJUSTMENTS * TOTALS
---------- ------------- ------------
Claims incurred $ 270,831 -- 270,831
Operating expenses 50,212 (11,722) 38,490
Depreciation expense 1,145 278 1,423
Interest expense 429 274 703
Income taxes 705 11 716
THREE MONTHS ENDED MARCH 31, 2002
-------------------------------------------
SEGMENT CONSOLIDATED
TOTALS ADJUSTMENTS * TOTALS
---------- ------------- ------------
Claims incurred $ 271,773 -- 271,773
Operating expenses 51,262 (12,551) 38,711
Depreciation expense 1,223 285 1,508
Interest expense 662 457 1,119
Income taxes 386 114 500
* Adjustments represent TSM operations and the elimination of
intersegment charges.
12
TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2002
(Dollar amounts in thousands)
(Unaudited)
RECONCILIATION OF REPORTABLE SEGMENT TOTALS WITH FINANCIAL STATEMENTS
MARCH 31, DECEMBER 31,
2003 2002
---------- ------------
ASSETS
Total assets for reportable segments $ 732,792 697,234
Total assets for other segments 2,109 1,633
---------- ----------
734,901 698,867
---------- ----------
Elimination entries - intersegment receivables (12,322) (7,690)
---------- ----------
Unallocated amounts:
Parent cash, cash equivalents and investments 7,287 6,424
Parent net property and equipment 27,479 27,755
Parent other assets 488 322
---------- ----------
35,254 34,501
---------- ----------
Consolidated assets $ 757,833 725,678
========== ==========
OTHER SIGNIFICANT ITEMS
AS OF MARCH 31, 2003
-------------------------------------------
SEGMENT CONSOLIDATED
TOTALS ADJUSTMENTS * TOTALS
------- ------------- ------------
Significant noncash item - net change in unrealized
gain on securities available for sale $ 217 14 231
AS OF DECEMBER 31, 2002
-------------------------------------------
SEGMENT CONSOLIDATED
TOTALS ADJUSTMENTS * TOTALS
------- ------------- ------------
Significant noncash items:
Net change in unrealized gain on securities
available for sale $ 5,791 195 5,986
Net change in minimum pension liability (7,927) (187) (8,114)
* Adjustments represent TSM operations and the elimination of
intersegment charges.
13
TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2003
(Dollar amounts in thousands)
(Unaudited)
(3) INVESTMENT IN SECURITIES
The Corporation's investment at March 31, 2003 and December 31, 2002, consist of
the following:
(UNAUDITED)
MARCH 31, DECEMBER 31,
2003 2002
---------- ------------
Trading securities, at fair value $ 96,953 94,938
Available for sale, at fair value 401,897 368,650
Held to maturity, at amortized cost 5,981 5,982
---------- -------
Total investments $ 504,831 469,570
========== =======
The amortized cost for debt securities and equity securities, gross unrealized
gain, gross unrealized losses, and estimated fair value for trading, available
for sale and held to maturity securities by major security type and class of
security at March 31, 2003 and December 31, 2002, were as follows:
MARCH 31, 2003 (UNAUDITED)
---------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
Trading securities:
Fixed maturities $ 50,354 3,099 (53) 53,400
Equity securities 48,956 2,521 (7,924) 43,553
-------- ------ ------- -------
$ 99,310 5,620 (7,977) 96,953
======== ====== ======= =======
MARCH 31, 2003 (UNAUDITED)
---------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
Securities available for sale:
Fixed maturities $346,383 5,990 (381) 351,992
Equity securities 27,250 22,758 (103) 49,905
-------- ------ ------- -------
$373,633 28,748 (484) 401,897
======== ====== ======= =======
MARCH 31, 2003 (UNAUDITED)
---------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
Securities held to maturity:
Fixed maturities $ 5,981 9 (6) 5,984
======== === === ======
14
TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2003
(Dollar amounts in thousands, except per share data)
(Unaudited)
DECEMBER 31, 2002
---------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
Trading securities:
Fixed maturities $ 47,487 2,848 (18) 50,317
Equity securities 51,859 2,793 (10,031) 44,621
-------- ------ ------- -------
$ 99,346 5,641 (10,049) 94,938
======== ====== ======= =======
DECEMBER 31, 2002
---------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
Securities available for sale:
Fixed maturities $ 315,478 5,925 (159) 321,244
Equity securities 25,239 22,218 (51) 47,406
--------- ------- ----- --------
$ 340,717 28,143 (210) 368,650
========= ======= ===== ========
DECEMBER 31, 2002
---------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
Securities held to maturity:
Fixed maturities $ 5,982 3 (9) 5,976
======= === === ======
Investment in securities at March 31, 2003 are mostly comprised of U.S. Treasury
securities and obligations of U.S. government instrumentalities (40.9%),
mortgage backed and collateralized mortgage obligations that are U.S.
agency-backed (22.2%), obligations of the government of Puerto Rico and its
instrumentalities (5.1%) and obligations of states and political subdivisions
(1.2%). The remaining 30.6% of the investment portfolio is comprised of
corporate debt and equity securities.
The Corporation regularly monitors the difference between the costs and
estimated fair value of their investments. If a decline in the market value of
any available for sale or held to maturity security below cost is deemed to be
other than temporary, the carrying amount will be reduced to fair value. If
investments experience a decline in fair value that is deemed to be other than
temporary, the security is written down to fair value with a charge to
operations and new cost basis for the security is established. No impairment has
been noted nor recognized by the Corporation during the three months ended March
31, 2003.
15
TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2003
(Dollar amounts in thousands, except per share data)
(Unaudited)
(4) PREMIUMS AND OTHER RECEIVABLES
Premiums and other receivables as of March 31, 2003 and December 31, 2002 were
as follows:
(UNAUDITED)
MARCH 31, DECEMBER 31,
2003 2002
----------- ------------
Premiums $ 56,602 46,531
Self-funded group receivables 15,051 14,244
FEHBP 13,868 7,636
Accrued interest 4,064 4,880
Reinsurance recoverable on paid losses 17,401 17,552
Other 12,938 10,978
---------- --------
119,924 101,821
---------- --------
Less allowance for doubtful receivables:
Premiums 9,661 8,081
Other 6,085 5,713
---------- --------
15,746 13,794
---------- --------
Total premiums and other receivables $ 104,178 88,027
========== ========
(5) CLAIM LIABILITIES
The activity in the total claim liabilities for the three months ended March 31,
2003 and 2002 is as follows:
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
2003 2002
---------- --------
Claim liabilities at beginning of period $ 244,582 229,440
Reinsurance recoverable on claim liabilities (13,589) (10,062)
---------- --------
Net claim liabilities at beginning of period 230,993 219,378
---------- --------
Incurred claims and loss-adjustment expenses:
Current period insured events 282,180 278,016
Prior period insured events (11,349) (6,243)
---------- --------
Total 270,831 271,773
---------- --------
Payments of losses and loss-adjustment expenses:
Current period insured events 133,821 154,085
Prior period insured events 124,069 96,814
---------- --------
Total 257,890 250,899
---------- --------
Net claim liabilities at end of period 243,934 240,252
Reinsurance recoverable on claim liabilities 14,717 11,749
---------- --------
Claim liabilities at end of period $ 258,651 252,001
========== ========
As a result of changes in estimates of insured events in prior years, the
amounts included as incurred claims for prior period insured events differs from
anticipated claims incurred.
16
TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2003
(Dollar amounts in thousands, except per share data)
(Unaudited)
(6) COMPREHENSIVE INCOME
The accumulated balances for each classification of comprehensive income are as
follows:
(UNAUDITED)
ACCUMULATED
UNREALIZED MINIMUM OTHER
GAINS ON PENSION CASH FLOW COMPREHENSIVE
SECURITIES LIABILITY HEDGES INCOME
---------- --------- --------- -------------
BALANCE AT JANUARY 1 $ 26,970 (8,114) (470) 18,386
Net current period change 231 -- (160) 71
-------- ------- ----- -------
BALANCE AT MARCH 31 $ 27,201 (8,114) (630) 18,457
======== ======= ===== =======
(7) NET INCOME AVAILABLE TO STOCKHOLDERS AND NET INCOME PER SHARE
The Corporation presents only basic earnings per share, which amount consists of
the net income that could be available to common stockholders divided by the
weighted-average number of common shares outstanding for the period.
The Corporation is a for-profit organization that has operated as a
not-for-profit organization by virtue of the affirmative vote of its
stockholders. As a result the Corporation has not distributed dividends.
However, a resolution was approved by the Shareholders at the Annual Meeting
held on April 27, 2003, acknowledging that the Board of Directors (the Board)
may declare dividends subject to the Board's determination that in their best
judgment the payment of dividends is financially and legally feasible and that
in determining the amount to declare as a dividend, the Board shall only take
into consideration TSM's profits and the dividends received from the
subsidiaries except Triple-S, Inc. (TSI), and shall not take into consideration
TSM's investment in TSI and TSI's operating reserves. Thus, the amount that
could be available for distribution would exclude TSI's operating reserve and
capital contributions made by TSI to its former subsidiaries before the
corporate reorganization due to TSI's tax exemption. This fact was reaffirmed by
a letter issued by the Department of the Treasury of Puerto Rico on July 3,
2001.
For purposes of computing the basic earnings per share presented in the
consolidated statement of operations, the Corporation considers the operations
of TSI as if TSI operated without the tax exemption. Under this scenario, in
order to determine the net income that could be available to stockholders, the
Corporation estimates the Puerto Rico income taxes that would have otherwise
resulted and deducts it from the results of operations of each period. TSI's
estimate of Puerto Rico income taxes, computed for such purposes, was determined
as for an other than life insurance entity, as defined in the Puerto Rico
Internal Revenue Code of 1994, as amended. The effective tax rate used was 39%
for the three months ended March 31, 2003 and 2002.
The following table sets forth the resulting net income that could be available
to stockholders if TSI operated without the tax exemption for the three months
ended March 31, 2003 and 2002 (dollar amounts in thousands).
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
2003 2002
--------- ------
Net income for the period $ 13,477 6,451
Less tax effect on TSI operations 3,503 876
--------- ------
Net income available to stockholders $ 9,974 5,575
========= ======
17
TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2003
(Dollar amounts in thousands, except per share data)
(Unaudited)
The following table sets forth the computation of basic earnings per share for
the three months ended March 31, 2003 and 2002 if TSI operated without the tax
exemption (in thousands, except for outstanding shares and net income per
share).
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
2003 2002
------ ------
Numerator for basic earnings per share:
Net income available to stockholders $9,974 5,575
====== ======
Denominator for basic earnings per share:
Weighted average of outstanding common shares 9,337 9,671
====== ======
Basic net income per share $1,068 576
====== ======
Should the Corporation decide to preserve the tax exemption granted to TSI by
the previously mentioned income tax ruling, then dividends cannot be distributed
out of the results of operations of TSI. The following table sets forth the
resulting net income that would otherwise be available for distribution after
excluding the net result of operations of TSI for the three months ended March
31, 2003 and 2002 (dollar amounts in thousands).
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
2003 2002
-------- ------
Net income for the period $ 13,477 6,451
Less TSI results of operations 9,269 3,675
-------- ------
Net income available to stockholders $ 4,208 2,776
======== ======
The following table sets forth the computation of basic net income per share for
the three months ended March 31, 2003 and 2002 if the Corporation excludes TSI's
results of operations (in thousands, except for outstanding shares and net
income per share):
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
2003 2002
------ ------
Numerator for basic earnings per share:
Net income available to stockholders $4,208 2,776
====== ======
Denominator for basic earnings per share:
Weighted average of outstanding common shares 9,337 9,671
====== ======
Basic net income per share after excluding the net
results of operations of TSI $ 451 287
====== ======
(8) CONTINGENCIES
The Puerto Rico House of Representatives Banking and Insurance Committee (the
Committee) is conducting an investigation of TSI's tax treatment under rulings
issued by the Puerto Rico Treasury Department that grant TSI's tax exempt
status. A similar resolution was approved by the Puerto Rico Senate and referred
to the Health and Government Integrity Committees (the Senate Committees). TSI
has
18
TRIPLE-S MANAGEMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2003
(Dollar amounts in thousands, except per share data)
(Unaudited)
provided to the Committee and the Senate Committees the information and
documents as requested and will cooperate with all aspects of the investigation.
In addition, representatives of the Puerto Rico Treasury Department are
currently conducting a compliance audit of the tax ruling requirements. The
Corporation cannot predict when or on what basis the investigation will conclude
or its effects, if any, on the Corporation.
(9) RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
A reconciliation of net income to net cash provided by operating activities is
as follows:
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
2003 2002
---------- --------
Net income $ 13,477 6,451
---------- --------
Adjustments to reconcile net income to net cash provided
by operating expenses:
Depreciation and amortization 1,423 1,508
Amortization of investments discounts 229 29
Accretion in value of securities (365) (540)
Loss on sale of securities 3,023 156
Unrealized gain of trading securities (2,092) (285)
Proceeds from trading securities sold:
Fixed maturities 10,908 6,000
Equity securities 6,363 64
Acquisition of securities in trading portfolio:
Fixed maturities (13,501) (5,966)
Equity securities (6,795) --
Increase in provision for doubtful receivables 1,952 509
Loss on sale of property and equipment (1) --
(Increase) decrease in assets:
Premiums receivable (17,110) (18,860)
Accrued interest receivable 816 931
Reinsurance receivable 151 (1,925)
Other receivables (1,960) 508
Deferred policy acquisition costs (1,232) (300)
Other assets 2,022 4,115
Increase (decrease) in liabilities:
Claims processed and incomplete (10,189) 8,242
Unreported losses 23,540 13,769
Unpaid loss-adjustment expenses 718 550
Unearned premiums (642) 1,125
Individual retirement annuities 526 221
Liability to FEHBP (2,430) (2,291)
Accounts payable and accrued liabilities 1,254 3,283
---------- --------
Net cash provided by operating
activities 10,085 17,294
========== ========
19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Management's Discussion and Analysis of Financial Condition and Results of
Operations included in this Form 10-Q is intended to update the reader on
matters affecting the financial condition and results of operations of Triple-S
Management Corporation (TSM) and its subsidiaries (the Corporation) for the
period from January 1, 2003 to March 31, 2003. Therefore, the following
discussion should be read in conjunction with the consolidated financial
statements and notes thereto included in the Form 10-K filed with the United
States Securities and Exchange Commission as of and for the year ended December
31, 2002.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This form and other publicly available documents may include statements that may
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995, including, among other things:
statements concerning the financial condition, results of operations and
business of the Corporation. These statements are not historical, but instead
represent the Corporation's belief regarding future events, any of which, by
their nature, are inherently uncertain and outside of the Corporation's control.
These statements may address, among other things, financial results, strategy
for growth, and market position. It is possible that the Corporation's actual
results and financial condition may differ, possibly materially, from the
anticipated results and financial conditions indicated in these forward-looking
statements. The factors that could cause actual results to differ from those in
the forward-looking statements are discussed throughout this form. The
Corporation is not under any obligation to update or alter any forward-looking
statement (and expressly disclaims any such obligations), whether as a result of
new information, future events or otherwise. Factors that may cause actual
results to differ materially from those contemplated by such forward looking
statements include, but are not limited to, rising healthcare costs, business
conditions and competition in the different insurance segments, government
action and other regulatory issues.
STRUCTURE OF THE ORGANIZATION
TSM is incorporated under the laws of the Commonwealth of Puerto Rico. It is the
holding company of several entities, through which it offers a wide range of
insurance products and services. These products and services are offered through
the following TSM's subsidiaries:
- - TSI, a health insurance company serving two major segments: the
Commercial Program and the Commonwealth of Puerto Rico Healthcare
Reform Program (the Healthcare Reform) of the Commonwealth of Puerto
Rico;
- - Seguros Triple-S, Inc. (STS), a property and casualty insurance
company; and
- - Seguros de Vida Triple-S, Inc. (SVTS), a life and disability insurance
and annuity products company.
In addition to the insurance subsidiaries mentioned above, TSM has the following
subsidiaries: Interactive Systems, Inc. (ISI) and Triple-C, Inc. (TCI). ISI
provides data processing services to the Corporation. TCI is currently engaged
as the third-party administrator in the administration of the Healthcare Reform
and also provides healthcare advisory services to TSI and other health-related
services.
The Corporation is a for-profit organization that has operated as a
not-for-profit organization by virtue of the affirmative vote of its
stockholders. As a result the Corporation has not distributed dividends.
However, a resolution was approved by the Shareholders at the Annual Meeting
held on April 27, 2003, acknowledging that the Board of Directors (the Board)
may declare dividends subject to the Board's determination that in their best
judgment the payment of dividends is financially and legally feasible and that
in determining the amount to declare as a dividend, the Board shall only take
into consideration TSM's
20
profits and the dividends received from the subsidiaries except TSI, and shall
not take into consideration TSM's investment in TSI and TSI's operating
reserves. Thus, the amount of net income that could be available for
distribution would exclude TSI's net income due to TSI's tax exempt status
obtained through an income tax ruling issued by the Treasury Department of
Puerto Rico. As a result of the above conditions, the portion of the
consolidated net income disclosed in the consolidated financial statements and
in this Management's Discussion and Analysis of Financial Condition and Results
of Operations included in this Form 10-Q, corresponding to the Health Insurance
- - Commercial and Healthcare Reform segments within TSI, is not available for
distribution to shareholders.
RECENT DEVELOPMENTS
On March 1, 2003, the Government of Puerto Rico (the Government) announced that,
effective July 1, 2003, it will begin a pilot project where it will be
contracting healthcare services for the medically indigent population directly
with some of the medical groups, instead of through the health insurance
companies. This change is expected to decrease the Healthcare Reform segment's
enrollment by approximately 46 thousand members and related annualized premiums
by approximately $30.0 million.
ADOPTION OF ACCOUNTING STANDARD
Effective January 1, 2003, the Financial Accounting Standards Board (the FASB)
issued the Statement of Financial Accounting Standard (SFAS) No. 143, Accounting
for Asset Retirement Obligations. SFAS No. 143 requires the Corporation to
record the fair value of an asset retirement obligation as a liability in the
period in which it incurs a legal obligation associated with the retirement of
tangible long-lived assets that result from the acquisition, construction,
development, and/or normal use of the assets. The Corporation would also record
a corresponding asset which is depreciated over the life of the asset. The
adoption of this standard did not have an impact on the Corporation's financial
position or results of operations.
Effective January 1, 2003, the FASB issued SFAS No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. SFAS No. 145 amends existing guidance on reporting gains and losses
on the extinguishment of debt to prohibit the classification of the gain or loss
as extraordinary, as the use of such extinguishments have become part of the
risk management strategy of many companies. SFAS No. 145 also amends SFAS No. 13
to require sale-leaseback accounting for certain lease modifications that have
economic effects similar to sale-leaseback transactions. The provisions of the
statement related to the rescission of SFAS No. 4 are effective for fiscal years
beginning after May 15, 2002. The provisions of the statement related to SFAS
No. 13 were effective for transactions occurring after May 15, 2002. The
adoption of SFAS No. 145 did not have an impact on the Corporation's financial
statements.
Effective January 1, 2003, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. SFAS No. 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force (EITF) Issue 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity. The provisions of this statement were effective for exit or disposal
activities initiated after December 31, 2002. The adoption of SFAS No. 146 did
not have an impact on the Corporation's financial statements.
Effective January 1, 2003, the FASB issued FASB Interpretation No. 45,
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness to Others, an interpretation of FASB
Statements No. 5, 57, and 107 and a rescission of FASB Interpretation No. 34.
This interpretation elaborates on the disclosures to be made by a guarantor in
its interim and annual financial statements about its obligations under
guarantees issued. The interpretation also clarifies that a guarantor is
required to recognize, at inception of a guarantee, a liability for the fair
value of the obligation undertaken. The initial recognition and measurement
provisions of the interpretation were applicable to guarantees issued or
modified after December 31, 2002. The disclosure requirements were effective for
financial statements of interim and annual periods ending after December 31,
2002. The adoption of FASB Interpretation No. 45 did not have an impact on the
Corporation's financial statements.
21
Effective January 1, 2003, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation - Transition and Disclosure, an amendment of FASB
Statement No. 123. This statement amends FASB Statement No. 123, Accounting for
Stock-Based Compensation, to provide alternative methods of transition for a
voluntary change to the fair value method of accounting for stock-based employee
compensation. This statement also amends the disclosure requirements of SFAS No.
123 to require prominent disclosures in both annual and interim financial
statements. Certain of the disclosure modifications were effective for fiscal
years ending after December 15, 2002. The provisions of SFAS No. 148 do not
apply to the Corporation's financial statements.
GENERAL INFORMATION
Substantially all of the revenues of the Corporation are generated from premiums
earned and investment income. Claims incurred include the payment of benefits
and losses, mostly to physicians, hospitals and other service providers, and to
policyholders. A portion of the claims incurred for each period consists of a
management and actuarial estimate of claims incurred but not reported to the
segment during the period. Each segment's results of operations depend largely
on their ability to accurately predict and effectively manage these claims.
Administrative expenses comprise general, selling, commissions, depreciation and
payroll and payroll related expenses.
The Corporation (on a consolidated basis and for each reportable segment), along
with most insurance entities, uses the loss ratio, the expense ratio and the
combined ratio as measures of performance. The loss ratio is the claims incurred
divided by the premiums earned, net and fee revenue. The expense ratio is the
operating expenses divided by the premiums earned, net and fee revenue. The
combined ratio is the sum of the loss ratio and the expense ratio. These ratios
are relative measurements that describe, for every $100 of premiums earned, net
and fee revenue, the costs of claims and operating expenses. The combined ratio
represents the total cost per $100 of premium production. A combined ratio below
100 demonstrates underwriting profit; a combined ratio above 100 demonstrates
underwriting loss.
22
CONSOLIDATED OPERATING RESULTS
The analysis in this section provides an overall view of the consolidated
statements of operations and key financial information. Further details of the
results of operations of each reportable segment are included in the analysis
of operating results for the respective segments.
THREE MONTHS ENDED
MARCH 31,
(dollar amounts in thousands) 2003 2002
-------- -----
CONSOLIDATED EARNED PREMIUMS, NET
AND FEE REVENUE:
Health Insurance - Commercial Program $178,149 167,874
Health Insurance - Healthcare Reform 115,795 124,447
Property and casualty 19,053 16,088
Life and disability 5,203 3,813
-------- -------
318,200 312,222
======== =======
CONSOLIDATED CLAIMS INCURRED $270,831 271,773
CONSOLIDATED OPERATING EXPENSES 38,490 38,711
-------- -------
CONSOLIDATED OPERATING COSTS $309,321 310,484
======== =======
CONSOLIDATED LOSS RATIO 85.1% 87.0%
CONSOLIDATED EXPENSE RATIO 12.1% 12.4%
-------- -------
CONSOLIDATED COMBINED RATIO 97.2% 99.4%
======== =======
NET INVESTMENT INCOME $ 6,098 5,990
REALIZED LOSS ON SALE OF SECURITIES (3,023) (156)
UNREALIZED GAIN ON TRADING SECURITIES 2,092 285
-------- -------
TOTAL CONSOLIDATED NET INVESTMENT INCOME $ 5,167 6,119
======== =======
CONSOLIDATED INCOME TAX EXPENSE $ 716 500
======== =======
CONSOLIDATED NET INCOME PER SEGMENT:
Health Insurance - Commercial Program $ 4,854 3,527
Health Insurance - Healthcare Reform 4,415 148
Property and casualty 2,567 1,732
Life and disability 1,605 764
Other 36 280
-------- -------
CONSOLIDATED NET INCOME $ 13,477 6,451
======== =======
Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002
Consolidated earned premiums, net and fee revenue for the three months ended
March 31, 2003 increased by $6.0 million or 1.9% when compared to the
consolidated earned premiums, net and fee revenue for the same period of last
year. This increase is mostly due to a combined increase of $13.2 million in
the earned premiums, net and fee revenue of the Health Insurance -Commercial
Program and the Property and Casualty Insurance segments together with a
decrease of $8.7 million in the earned premiums, net of the Health Insurance -
Healthcare Reform segment.
- The earned premiums, net and fee revenue corresponding to the
Health Insurance - Commercial segment increased by $10.3
million or 6.1% during this period. Increases in premium
rates account for the segment's total increase in earned
premiums and fee revenue for the period.
- The earned premiums, net of the Property and Casualty
Insurance segment increased by $3.0 million or 18.4% during
this period. This increase is mostly reflected in the
premiums written for the commercial multiperil line, which
experienced an increase in premiums of $1.6 million, or
13.2%, during this period and is due to the increase in
volume of business.
23
- The earned premiums, net corresponding to the Health
Insurance - Healthcare Reform segment decreased by $8.7
million or 6.9% during this period. This decrease is the net
result of a decrease in average membership and an increase in
premium rates effective July 1, 2002.
- The earned premiums, net of the Life and Disability Insurance
segment increased by $1.4 million during this period.
Consolidated claims incurred for the three months ended March 31, 2003 reflect
a decrease of $942 thousand, or 0.4%, when compared to the claims incurred for
the three months ended March 31, 2002. The consolidated loss ratio reflects a
decrease of 1.9 percentage points during this period. The decrease in the loss
ratio is the result of management's ability to adjust its pricing strategy to
cope with the increase in claims costs and the implementation of several
measures for cost containment. The consolidated expense ratio for the three
months ended March 31, 2003 decreased by 0.3 percentage points when compared to
the consolidated expense ratio for the same period of the prior year.
The consolidated realized loss on sale of securities of $3.0 million and $156
thousand for the three months ended March 31, 2003 and 2002, respectively, is
the result of the sound and timely management of the investment portfolio in
accordance with corporate investment policies, and from the normal portfolio
turnover of the trading and available-for-sale securities.
The consolidated unrealized gain on trading securities of $2.1 million and $285
thousand for the three months ended March 31, 2003 and 2002, respectively, is
related to investments held by the Health Insurance - Commercial Program,
Health Insurance - Healthcare Reform and the Property and Casualty Insurance
segments. This unrealized gain is mostly attributed to the fact that certain
investments with unrealized losses within such portfolio were sold during this
quarter. This caused most of the above mentioned realized losses and had the
effect of reducing securities with unrealized losses within the trading
portfolio at March 31, 2003.
24
HEALTH INSURANCE - COMMERCIAL PROGRAM OPERATING RESULTS
THREE MONTHS ENDED
MARCH 31,
(dollar amounts in thousands) 2003 2002
-------- -------
AVERAGE ENROLLMENT:
Corporate accounts 313,558 316,525
Self-funded employers 127,166 125,969
Individual accounts 83,604 81,386
Federal employees 54,321 56,114
Local government employees 43,559 43,597
-------- -------
TOTAL ENROLLMENT 622,208 623,591
======== =======
Earned premiums $176,066 165,666
Amounts attributable to self-funded arrangements 40,137 35,334
Less: Amounts attributable to claims under
self-funded arrangements (37,359) (32,458)
-------- -------
EARNED PREMIUMS AND FEE REVENUE $178,844 168,542
======== =======
CLAIMS INCURRED $154,557 145,804
OPERATING EXPENSES 21,159 21,803
-------- -------
TOTAL UNDERWRITING COSTS $175,716 167,607
======== =======
UNDERWRITING INCOME $ 3,128 935
======== =======
LOSS RATIO 86.4% 86.5%
EXPENSE RATIO 11.8% 12.9%
-------- -------
COMBINED RATIO 98.3% 99.4%
======== =======
NET INVESTMENT INCOME $ 2,619 2,558
REALIZED LOSS ON SALE OF SECURITIES (2,303) (174)
UNREALIZED GAIN ON TRADING SECURITIES 1,550 386
-------- -------
TOTAL NET INVESTMENT INCOME $ 1,866 2,770
======== =======
NET INCOME $ 4,854 3,527
======== =======
Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002
Earned premiums and fee revenue for the three months ended March 31, 2003
reflect an increase of $10.3 million, or 6.1%, when compared to the three
months ended March 31, 2002. This increase is the result of the following:
- This segment has been successful in monitoring premium rates,
particularly in the rated Corporate Accounts business,
assuring adequate premium rates that cover actual claims
trends. Increases in premium rates account for the total
increase in earned premiums and fee revenue for the period.
- Average enrollment as of March 31, 2003 decreased by 1,383
members, or 0.2%, when compared to the enrollment as of the
same date of last year. The decrease in average enrollment is
mostly reflected in the Corporate Accounts groups and Federal
Employees, which membership decreased by 2,967 members, or
0.9%, and 1,793, or 3.2%, during this period respectively.
The average enrollment of the Individual Accounts and
Self-funded Employers reflect an increase in membership by
2,218, or 2.7% and 1,197, or 1.0%, during this period,
respectively.
Claims incurred during the three months ended March 31, 2003 increased by $8.8
million or 6.0% when compared to the same period in 2002. The segment's loss
ratio for the three months ended March 31, 2003 decreased by only 0.1
percentage points when compared to the loss ratio for the three months ended
March 31, 2002. The segment has been able to control the increase in the loss
ratio with its better premium pricing and claims costs containment measures
established throughout the years. As a result of these cost containment
initiatives, cost and utilization trends have remained at levels consistent
with pricing and
25
margin objectives. The behavior of the loss ratio reflects that the segment has
been able to maintain the increase in premium rates consistent with to the
behavior of claims trends.
The operating expenses for the three months ended March 31, 2003 reflect a
decrease of $644 thousand, or 3.0%, when compared to the three months ended
March 31, 2002. This decrease is due to cost control measures established since
no enrollment increase was experienced during the period. The expense ratio for
the three months ended March 31, 2003 decreased by 1.1 percentage points
compared to the three months ended March 31, 2002.
HEALTH INSURANCE - HEALTHCARE REFORM PROGRAM OPERATING RESULTS
THREE MONTHS ENDED
MARCH 31,
(dollar amounts in thousands) 2003 2002
-------- -------
Average enrollment:
North area 237,580 256,887
Metro-north area 226,050 169,387
Southwest area 170,368 151,316
Northwest area -- 156,625
-------- -------
633,998 734,215
======== =======
EARNED PREMIUMS $115,795 124,447
======== =======
CLAIMS INCURRED $104,167 115,984
OPERATING EXPENSES 8,318 8,999
-------- -------
TOTAL UNDERWRITING COSTS $112,485 124,983
======== =======
UNDERWRITING INCOME (LOSS) $ 3,310 (536)
======== =======
LOSS RATIO 90.0% 93.2%
EXPENSE RATIO 7.2% 7.2%
-------- -------
COMBINED RATIO 97.1% 100.4%
======== =======
NET INVESTMENT INCOME $ 1,274 1,188
REALIZED GAIN (LOSS) ON SALE OF SECURITIES (298) 3
UNREALIZED GAIN (LOSS) ON TRADING SECURITIES 237 (266)
-------- -------
TOTAL NET INVESTMENT INCOME $ 1,213 925
======== =======
NET INCOME $ 4,415 148
======== =======
Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002
Earned premiums of the Healthcare Reform segment for the three months ended
March 31, 2003 decreased by $8.7 million, or 6.9%, when compared to the same
period of last year. This decrease is the result of the following:
- The average monthly enrollment for this segment decreased by
100,217 insureds when comparing the average enrollment for the
three months ended March 31, 2003 to the three months ended
March 31, 2002. This decrease is due to the net effect of the
following: the loss of seven municipalities of the Northwest
area, which were merged into the West area (served by another
carrier) effective July 1, 2001, the award of the Southwest
area effective October 1, 2001 and the fact that six new
municipalities were assigned into areas serviced by the
segment effective July 1, 2002.
- Premium rates were increased by approximately 13.2% during
the Healthcare Reform contract renegotiation processes. New
premium rates were negotiated effective October 1, 2001 for a
nine-month period and effective July 1, 2002 for a
twelve-month period ending on June 30, 2003.
Claims incurred during the three months ended March 31, 2003 reflect a decrease
of $11.8 million, or 10.2%, when compared to the three months ended March 31,
2002. This fluctuation is due to the decrease
26
in volume of business of the Healthcare Reform segment. Also, during the three
months ended March 31, 2003, the loss ratio experienced a decrease of 3.2
percentage points. The decrease experienced in the loss ratio is the result of
the effect of better premium pricing and claims cost containment measures
established throughout the years.
Operating expenses for the three months ended March 31, 2003, decreased by $681
thousand, or 7.6%, when compared to the three months ended March 31, 2002. This
decrease is due to the segment's decreased volume of business.
PROPERTY AND CASUALTY INSURANCE OPERATING RESULTS
THREE MONTHS ENDED
MARCH 31,
(dollar amounts in thousands) 2003 2002
------- ------
PREMIUMS WRITTEN:
Commercial multiperil $14,043 12,409
Dwelling 4,753 3,956
Auto physical damage 3,494 4,241
Commercial auto liability 3,045 2,708
Medical malpractice 1,002 964
All other 3,038 2,346
------- ------
Total premiums written 29,375 26,624
------- ------
Premiums ceded (6,435) (4,959)
Change in unearned premiums (3,887) (5,577)
------- ------
NET PREMIUMS EARNED $19,053 16,088
======= ======
CLAIMS INCURRED $ 9,810 7,801
OPERATING EXPENSES 8,519 8,126
------- ------
TOTAL UNDERWRITING COSTS $18,329 15,927
======= ======
UNDERWRITING INCOME $ 724 161
======= ======
LOSS RATIO 51.5% 48.5%
EXPENSE RATIO 44.7% 50.5%
------- ------
COMBINED RATIO 96.2% 99.0%
======= ======
NET INVESTMENT INCOME $ 1,644 1,578
REALIZED LOSS ON SALE OF SECURITIES (425) (55)
UNREALIZED GAIN ON TRADING SECURITIES 305 165
------- ------
TOTAL NET INVESTMENT INCOME $ 1,524 1,688
======= ======
NET INCOME $ 2,567 1,732
======= ======
Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002
Total premiums written for the three months ended March 31, 2003 increased by
$2.7 million, or 10.3%, when compared to the three months ended March 31, 2002.
This increase is mostly reflected in the premiums written for the commercial
multiperil line, which experienced an increase in premiums of $1.6 million, or
13.2%, during this period. This increase is due to the production of new
business.
Premiums ceded to reinsurers during the three months ended March 31, 2003
increased by $1.5 million, or 29.8%, when compared to the same period for the
prior year. The increase in the amount of premiums ceded in the property and
casualty segment is directly related to its increased volume of business. The
ratio of premiums ceded to premiums written reflects an increase of 3.3 basis
points, from 18.6% as of March 31, 2002 to 21.9% as of March 31, 2003. The
increase in the premiums ceded to premiums written is due to the net effect of
the following:
27
- The effect of the new property quota share treaty, which has
a higher cession percentage, coupled with the increase in
property business subscribed during this period.
- Catastrophe reinsurance costs increased by over 10% during
this period. This increase is due to recent worldwide
catastrophes.
- A decrease resulting from the cancellation of the property
surplus treaty, which propitiated reinsurance portfolio
transfer resulting in a net incoming business and a reduction
in the amount of premiums ceded.
The increase in the claims incurred of $2.0 million, or 25.8%, is basically due
to the segment's increased volume of business. The property and casualty loss
ratio experienced an increase of 3.0 percentage points during the three months
ended March 31, 2003 as compared to the same period of the prior year. This
increase is mostly due to an increase in the frequency of the number of claims
received in the auto liability line of business. The effect of this situation
is offset by favorable underwriting results of the commercial multiperil line
of business.
The operating expenses for the three months ended March 31, 2003 increased by
$393 thousand, or 4.8%, when compared to the operating expenses for the three
months ended March 31, 2002. The expense ratio decreased by 9.2 percentage
points during this period. The decrease in the expense ratio is due to an
increase in the amount of expenses included in the deferred policy acquisition
costs.
LIFE AND DISABILITY INSURANCE OPERATING RESULTS
THREE MONTHS
ENDED MARCH 31,
(dollar amounts in thousands) 2003 2002
------- ------
NET EARNED PREMIUMS AND COMMISSION INCOME:
Earned premiums $ 6,913 4,877
Earned premiums ceded (1,872) (1,235)
------- ------
Net earned premiums 5,041 3,642
------- ------
Commission income on reinsurance 162 171
------- ------
TOTAL $ 5,203 3,813
======= ======
CLAIMS INCURRED $ 2,297 2,184
OPERATING EXPENSES 1,558 1,276
------- ------
TOTAL UNDERWRITING COSTS $ 3,855 3,460
======= ======
UNDERWRITING INCOME $ 1,348 353
======= ======
LOSS RATIO 44.1% 57.3%
EXPENSE RATIO 29.9% 33.5%
------- ------
COMBINED RATIO 74.1% 90.7%
======= ======
NET INVESTMENT INCOME $ 523 590
REALIZED GAIN ON SALE OF SECURITIES 3 70
------- ------
TOTAL NET INVESTMENT INCOME $ 526 660
======= ======
NET INCOME $ 1,605 764
======= ======
28
Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002
Earned premiums for the three months ended March 31, 2003 increased by $2.0
million, or 41.8%, when compared to the three months ended March 31, 2002. This
increase is mostly due to the fact that during this quarter, the segment
revised its methodology for estimating the premiums of its short term
disability business. This revision resulted in a non-recurring adjustment to
earned premiums of $1.1 million during the three months period ended March 31,
2003. In addition, the segment experienced an increased volume of business
during this period. Total average certificates in force in the group life and
group disability business as of March 31, 2003 increased by 33,310
certificates, or 10.2%, when compared to the same period for last year.
Premiums ceded to reinsurers during the three months ended March 31, 2003
reflect an increase of $637 thousand, or 51.6%, when compared to the same
period of the prior year. The increase in premiums ceded during this period is
due to a change in the mix of business subscribed by the segment and each
business reinsurance program. During this period in 2003, the segment
subscribed more disability policies than in 2002. The disability insurance
business has a higher cession percentage than the life insurance business, thus
causing an increase in the amount of premiums ceded and an increase in the
earned premiums ceded to earned premiums ratio.
Claims incurred for the three months ended March 31, 2003 increased by $113
thousand, or 5.2%, when compared to the three months ended March 31, 2002. The
life and disability segment's operating expenses reflect an increase of $282
thousand, or 22.1%, when compared to the prior period. The increase in the
operating expenses is mostly the result of an increase in the commission
expense, payroll and payroll related expenses and infrastructure projects. The
increase of these expenses is due to the increase in the volume of business
noted during this period.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
The Corporation maintains good liquidity measures due to the quality of its
assets, the predictability of its liabilities, and the duration of its
contracts. The liquidity of the Corporation is primarily derived from the
operating cash flows of its insurance subsidiaries.
As of March 31, 2003 and December 31, 2002, the Corporation's cash and cash
equivalents amounted to $64.5 million and $82.8 million, respectively. The
sources of funds considered in meeting the objectives of the Corporation's
operations include: cash provided from operations, maturities and sales of
securities classified within the trading and available-for-sale portfolios,
securities sold under repurchase agreements, and issuance of long and
short-term debt.
Management believes that the Corporation's net cash flows from operations are
expected to sustain the operations for the next year and thereafter, as long as
the operations continue showing positive results. The Corporation is
continually monitoring premium rates and claims incurred to ascertain the
sustainability of its net cash flows from operations. In addition the
Corporation has the ability to increase premium rates throughout the year in
the policies' renewal process that is performed on a monthly basis.
29
Cash Flows from Operations
Most of the cash flows from operating activities are generated from the
insurance subsidiaries. The basic components of the cash flows from operations
are premium collections, claims payments less reinsurance premiums, and payment
of operating expenses.
Net cash flows provided by operating activities amounted to $10.1 million and
$17.3 million for the three months ended March 31, 2003 and 2002, respectively,
a decrease of $7.2 million. This decrease in cash flows provided by operating
activities is mainly attributed to the net effect of the following:
- The amount of claims losses and benefits paid for the three
months ended March 31, 2003 reflect an increase of $7.6
million when compared to the same amount of the prior year.
The increase in the amount of claims losses and benefits paid
is mostly the result of the segments' increased volume of
business.
- The amount of cash paid to suppliers and employees reflects
an increase of $5.2 million when comparing the three months
ended March 31, 2003 with the three months ended March 31,
2002. The amount of cash paid to suppliers and employees
increased as a result of additional commission expense
generated from the acquisition of new business.
- The net acquisitions of investments in the trading portfolio
increased by $3.1 million for the three months ended March
31, 2003, when compared to the three months ended March 31,
2002.
- Premiums collected increased by $7.9 million when comparing
collections during the three months ended March 31, 2003 with
the three months ended March 31, 2002. This increase is
mostly the result of the increased volume of business and
increased premium rates of the operating segments.
This excess liquidity is available, among other things, to invest in high
quality and diversified fixed income securities and, to a lesser degree, to
invest in marketable equity securities.
Cash Flows from Investing Activities
The basic components of the cash flows from investing activities are derived
from acquisitions and proceeds from investments in the available-for-sale and
held-to-maturity portfolios and capital expenditures. The Corporation monitors
the duration of its investment portfolio and executes the purchases and sales
of these investments with the objective of having adequate funds available to
satisfy its maturing liabilities.
Net cash flows used in investing activities amounted to $34.0 million and $14.7
million for the three months ended March 31, 2003 and 2002, respectively. The
cash flows used in investing activities during these periods are attributed to
the investment of the excess cash generated from the operations. Total
acquisition of investments exceeded the proceeds from investments sold or
matured by $32.7 million and $13.7 million during the three months ended March
31, 2003 and 2002, respectively.
Cash Flows from Financing Activities
Net cash flows provided by (used in) financing activities amounted to $5.6
million and ($6.8) million for the three months ended March 31, 2003 and 2002,
respectively. The increase of $12.4 million when compared to the same period of
the prior year is mainly due to the combined effect of the following:
- The change in outstanding checks in excess of bank balances
reflects an increase of $11.7 million during the three months
ended March 31, 2003 compared to the three months ended March
31, 2002. The amount of checks in excess of bank balances
represents a timing difference between the issuance of checks
and the cash balance in the bank account at one point in
time.
- The payments of long-term debt decreased from $1.3 million
for the three months ended March 31, 2002 to $410 thousand
for the three months ended March 31, 2003, a decrease of $863
30
thousand. This decrease is due to additional payments made
during the 2002 period over the scheduled principal payments
of the credit agreements.
Financing and Financing Capacity
The Corporation has significant short-term liquidity supporting its businesses.
It also has available short-term borrowings from time to time to address timing
differences between cash receipts and disbursements. These short-term
borrowings are mostly in the form of securities sold under repurchase
agreements. As of March 31, 2003, the Corporation had $81.0 million in
available credit under these agreements, although there is no balance due as of
that date.
In addition, the Corporation has two credit agreements with a commercial bank,
FirstBank Puerto Rico. These credit agreements bear interest rates determined
by the London Interbank Offered Rate (LIBOR) plus a margin specified by the
commercial bank at the time of the agreement. As of March 31, 2003, the two
credit agreements have an outstanding balance of $33.6 million and $16.0
million and an average annual interest rate of 4.0% and 2.7%, respectively.
These credit agreements contain several restrictive covenants, including, but
not limited to, restrictions to incur additional indebtedness and the granting
of certain liens, limitations on acquisitions and limitations on changes in
control. As of March 31, 2003, management believes the Corporation is in
compliance with these covenants. Further details regarding these credit
agreements are incorporated by reference to Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations of the Corporation's
December 31, 2002 Form 10-K.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Corporation is exposed to certain market risks that are inherent in the
Corporation's financial instruments, which arise from transactions entered into
in the normal course of business. The Corporation has exposure to market risk
mostly in its investment activities. For purposes of this disclosure, "market
risk" is defined as the risk of loss resulting from changes in interest rates
and equity prices. No material changes have occurred in the Corporation's
exposure to financial market risks since December 31, 2002. A discussion of the
Corporation's market risk as of December 31, 2002 is incorporated by reference
to Item 7a of the Corporation's Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
Within the 90 days prior to the date of this quarterly report, TSM management,
including the Chief Executive Officer and Chief Financial Officer, has
conducted an evaluation of the effectiveness of disclosure controls and
procedures pursuant to Exchange Act Rule 13a-14. Based on that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that the
disclosure controls and procedures are effective in ensuring that all material
information required to be filed in their quarterly report has been made known
to them in a timely fashion. There have been no significant changes in internal
controls, or in factors that could significantly affect internal controls,
subsequent to the date the Chief Executive Officer and Chief Financial Officer
completed their evaluation.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Corporation is a defendant in various lawsuits arising out of the ordinary
course of business. Management believes, based on the opinion of legal counsel,
that the aggregate liabilities, if any, arising from such actions would not
have a material adverse effect on the Corporation's consolidated financial
position and results of operations.
31
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
TSM held a special meeting of shareholders on October 13, 2002 (the "Special
Meeting") to vote on a series of amendments to TSM's Articles of Incorporation
and By-Laws, relating to changes to its capital structure in order to allow TSM
to expand its base of shareholders. At the Special Meeting, only 57.3% of total
shares outstanding were represented, but more than 75.0% were required in order
to take a vote to implement the proposals to amend TSM's capital structure.
Therefore, a resolution to recess the Special Meeting and continue it at a
later date was put to a vote. This Resolution received 5,190 votes in favor,
165 votes against and 3 abstentions and, therefore, it was approved.
On February 23, 2003, the Corporation held the continuation of the Special
Meeting commenced on October 13, 2002. In the continuation of the Special
Meeting 98.4% of the shares present and represented voted in favor of
continuing the meeting at a later date. This was necessary since 69% of total
shares outstanding were represented at the Special Meeting and 75% or more was
required in order to take a vote to implement the proposals to amend TSM's
capital structure. Therefore, a resolution to recess the Special Meeting and
continue it at a later date was approved with 6,302 votes in favor, 81 votes
against and 21 abstentions. The continuation of the Special Meeting was
scheduled to be held on April 26, 2003.
ITEM 5. OTHER INFORMATION
Nothing to report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 11 Statement re computation of per share earnings; an exhibit
describing the computation of the earnings per share for the three months
ended March 31, 2003 has been omitted as the detail necessary to determine
the computation of earnings per share can be clearly determined from the
material contained in Part I of this Form 10-Q.
Exhibit 12 Statements re computation of ratios; an exhibit describing the
computation of the loss ratio, expense ratio and combined ratio for the
three months ended March 31, 2003 has been omitted as the detail necessary
to determine the computation of the loss ratio, expense ratio and combined
ratio can be clearly determined from the material contained in Part I of
this Form 10-Q.
All other exhibits for which provision is made in the applicable accounting
regulation of the United States Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore
have been omitted.
Exhibit 99.1 Certification of the Chief Executive Officer Required Pursuant
to 18 U.S.C. Section 1350
Exhibit 99.2 Certification of the Chief Financial Officer Required Pursuant
to 18 U.S.C. Section 1350
32
(b) Reports on Form 8-K:
Two reports on Form 8-K were filed for the quarter ended March 31, 2003:
Dated: January 10, 2003
Items reported: Item 5 - Other Events (Announcement that the continuation
of the Special Meeting was scheduled to be held on
February 28, 2003)
Dated: March 3, 2003
Items reported: Item 5 - Other Events (Press Release announcing the
results of the continuation of the Special Meeting held on
February 23, 2003)
33
SIGNATURES
Pursuant to the requirements of the United States Securities and Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
TRIPLE-S MANAGEMENT CORPORATION
Registrant
Date: May 13, 2003 By: /s/ Ramon M. Ruiz
---------------------------------------
Ramon M. Ruiz-Comas, CPA
President and
Chief Executive Officer
Date: May 13, 2003 By: /s/ Juan J. Roman
---------------------------------------
Juan J. Roman, CPA
Vice President of Finance
and Chief Financial Officer
34
CERTIFICATION
I, Ramon M. Ruiz-Comas, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Triple-S
Management Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: May 13, 2003 By: /s/ Ramon M. Ruiz-Comas
-----------------------------------
Ramon M. Ruiz-Comas, CPA
President and
Chief Executive Officer
35
CERTIFICATION
I, Juan J. Roman, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Triple-S
Management Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: May 13, 2003 By: /s/ Juan J. Roman
-------------------------------------
Juan J. Roman, CPA
Vice President of Finance
and Chief Financial Officer
36