Schedule II - Condensed Financial Information of Triple-S Management Corporation
 12 Months Ended
Dec. 31, 2016
Schedule II - Condensed Financial Information of Triple-S Management Corporation  
Schedule II Condensed Financial Information of Triple-S Management Corporation
Schedule II
Condensed Financial Information of Triple-S Management Corporation
(Registrant)
Balance Sheets
(in thousands)

 
  
As of December 31,
 
  
2016
  
2015
 
       
Assets:
      
Cash and cash equivalents
 
$
14,153
  
$
12,304
 
Securities available for sale, at fair value:
        
Equity Securities (cost of $2,869 in 2016)
  
2,880
   
-
 
Investment in subsidiaries
  
866,010
   
866,712
 
Notes receivable and accrued interest from subsidiaries
  
47,153
   
48,858
 
Due from subsidiaries
  
5,255
   
3,730
 
Deferred tax assets
  
14,976
   
26,767
 
Other assets
  
29,050
   
28,138
 
Total assets
 
$
979,477
  
$
986,509
 
         
Liabilities:
        
Notes payable and accrued interest to subsidiary
  
16,475
   
15,720
 
Due to subsidiaries
  
22,661
   
11,860
 
Long-term borrowings
  
35,085
   
36,827
 
Liability for pension benefits
  
30,892
   
62,945
 
Other liabilities
  
11,201
   
11,631
 
Total liabilities
  
116,314
   
138,983
 
         
Stockholders' equity:
        
Common stock, class A
  
951
   
951
 
Common stock, class B
  
23,321
   
24,048
 
Additional paid-in-capital
  
65,592
   
83,438
 
Retained earnings
  
730,904
   
713,466
 
Accumulated other comprehensive income, net
  
42,395
   
25,623
 
Total stockholders' equity
  
863,163
   
847,526
 
Total liabilities and stockholders' equity
 
$
979,477
  
$
986,509
 

The accompanying notes are an integral part of these condensed financial statements
 
Triple-S Management Corporation
Schedule II
Condensed Financial Information of Triple-S Management Corporation
Triple-S Management Corporation
Statements of Earnings
(in thousands)

  
2016
  
2015
  
2014
 
          
Investment income
 
$
19
  
$
53
  
$
95
 
Other revenues
  
11,644
   
12,015
   
11,034
 
Total revenues
  
11,663
   
12,068
   
11,129
 
             
Operating expenses:
            
General and administrative expenses
  
9,739
   
18,858
   
14,571
 
Interest expense
  
1,763
   
2,435
   
2,998
 
Total operating expenses
  
11,502
   
21,293
   
17,569
 
             
Income (loss) before income taxes
  
161
   
(9,225
)
  
(6,440
)
Income tax expense (benefit)
  
1,183
   
(1,071
)
  
(162
)
Loss of parent company
  
(1,022
)
  
(8,154
)
  
(6,278
)
Equity in net income of subsidiaries
  
18,460
   
60,275
   
71,938
 
Net income
 
$
17,438
  
$
52,121
  
$
65,660
 

The accompanying notes are an integral part of these condensed financial statements
 
Triple-S Management Corporation
Schedule II
Condensed Financial Information of Triple-S Management Corporation
(Registrant)
Statements of Cash Flows
(in thousands)

  
2016
  
2015
  
2014
 
Net income
 
$
17,438
  
$
52,121
  
$
65,660
 
Adjustment to reconcile net income to net cash provided by operating activities:
            
Equity in net income of subsidiaries
  
(18,460
)
  
(60,275
)
  
(71,938
)
Depreciation and amortization
  
839
   
872
   
863
 
Shared- based compensation
  
2,799
   
8,290
   
2,371
 
Deferred income tax expense (benefit)
  
1,042
   
(1,227
)
  
(137
)
Dividends received from subsidiaries
  
19,000
   
47,000
   
36,600
 
Other
  
-
   
42
   
34
 
Changes in assets and liabilities:
            
Accrued interest from subsidiaries, net
  
(646
)
  
(1,046
)
  
(1,614
)
Due from subsidiaries
  
(1,525
)
  
4,869
   
(2,831
)
Other assets
  
(1,751
)
  
(1,953
)
  
1,004
 
Due to subsidiaries
  
10,801
   
(2,162
)
  
5,654
 
Other liabilities
  
(4,812
)
  
4,614
   
(1,948
)
Net cash provided by operating activities
  
24,725
   
51,145
   
33,718
 
Cash flows from investing activities:
            
Acquisition of investment in securities classified as available for sale
  
(2,869
)
  
-
   
(27,572
)
Proceeds from sale and maturities of investment in securities classified as available for sale
  
-
   
27,500
   
28,016
 
Collection of note receivable from subsidiary
  
4,500
   
9,000
   
9,250
 
Issuance of note receivable to subsidiary
  
(1,394
)
  
(2,369
)
  
(13,131
)
Capital contribution to subsidiary
  
-
   
-
   
(908
)
Net acquisition of property and equipment
  
-
   
(3,676
)
  
-
 
Net cash provided by (used in) investing activities
  
237
   
30,455
   
(4,345
)
Cash flow from financing activities:
            
Repayments of long-term borrowings
  
(1,742
)
  
(37,640
)
  
(1,640
)
Repurchase of common stock
  
(21,371
)
  
(48,287
)
  
(11,337
)
Net cash used in financing activities
  
(23,113
)
  
(85,927
)
  
(12,977
)
Net increase (decrease) in cash and cash equivalents
  
1,849
   
(4,327
)
  
16,396
 
Cash and cash equivalents, beginning of year
  
12,304
   
16,631
   
235
 
Cash and cash equivalents, end of year
 
$
14,153
  
$
12,304
  
$
16,631
 

The accompanying notes are an integral part of these condensed financial statements
 
Triple-S Management Corporation
(Parent Company Only)
Notes to Condensed Financial Statements
 December 31, 2016, 2015 and 2014
(dollar amounts in thousands)
 
The accompanying notes to the condensed financial statements should be read in conjunction with the consolidated financial statements and the accompanying notes thereto included in Item 15 to the Annual Report on Form 10-K.

(1)
For purposes of these condensed financial statements, Triple‑S Management Corporation’s (the Company or TSM) investment in its wholly owned subsidiaries is recorded using the equity method of accounting.

(2)
Significant Accounting Policies

The significant accounting policies followed by the Company are set forth in the notes to the consolidated financial statements and the accompanying notes thereto.  Refer to Item 15 to the Annual Report on Form 10‑K.

(3)
Long‑Term Borrowings

A summary of the long‑term borrowings entered into by the Company at December 31, 2016 and 2015 follows:

 
2016
  
2015
 
       
Senior unsecured notes payable of $60,000 issued on
      
December 2005; due December 2020. Interest is payable monthly at a fixed rate of 6.60%.
 
$
24,000
  
$
24,000
 
Secured loan payable of $41,000, payable in monthly installments of $137 through July 1, 2024, plus interest at a rate reset periodically of 100 basis points over selected LIBOR maturity (which was 1.23% at December 31, 2015.)
  
-
   
12,827
 
Secured loan payable of $11,187, payable in monthly installments of $137 through October 1, 2023, plus interest at a rate reset periodically of 100 basis points over selected LIBOR maturity (which was 1.77% at December 31, 2016.)
  
11,187
   
-
 
Total borrowings
  
35,187
   
36,827
 
         
Less unamortized debt issuance costs
  
102
   
-
 
  
$
35,085
  
$
36,827
 

 
Aggregate maturities of the Company’s long term borrowings as of December 31, 2016 are summarized as follows:

Year ending December 31
   
2017
 
$
1,640
 
2018
  
1,640
 
2019
  
1,640
 
2020
  
25,640
 
2021
  
1,640
 
Thereafter
  
2,987
 
  
$
35,187
 

All of the Company’s senior notes may be prepaid at par, in total or partially, five years after issuance as determined by the Company.  These senior unsecured notes contain certain non-financial covenants with which the Company has complied at December 31, 2016.

On December 28, 2016, TSM entered into a $35,500 credit agreement with a commercial bank in Puerto Rico. The agreement consists of three term loans: (i) Term Loan A in the principal amount of $11,187, (ii) Term Loan B in the principal amount of $20,150 and (iii) Term Loan C in the principal amount of $4,116. Term Loan A matures in October 2023 while the Term Loans B and C mature in January 2024.  Term Loan A was used to refinance the previous $41,000 secured loan payable with the same commercial bank in Puerto Rico.  Proceeds from Term Loans B and C were received on January 11, 2017 and were used to prepay the outstanding principal amount plus accrued interest of the 6.6% Senior Unsecured Notes due January 2021 ($24,000), and fund a portion of a debt service reserve for the Loan (approximately $200).  Pursuant to the credit agreement, interest is payable on the outstanding balance of the Loan at the following annual rate: (1) 1% over LIBOR for Term Loan A, (ii) 2.75% over LIBOR for Term Loan B, and (iii) 3.25% over LIBOR for Term Loan C.  Interest shall be payable commencing on January 1, 2017, in the case of Term Loan A, and on February 1, 2017, in the case of Term Loan B and Term Loan C.  The Credit Agreement includes certain financial and non-financial covenants, including negative covenants imposing certain restrictions on the Corporation’s business.  The Company was in compliance with all these covenants as of December 31, 2016.

The credit agreement is guaranteed by a first mortgage held by the bank on the Company’s land, building, and substantially all leasehold improvements, as collateral for the term of the loan under a continuing general security agreement.  This credit agreement contains certain non-financial covenants, which are customary for this type of facility, including but not limited to, restrictions on the granting of certain liens, limitations on acquisitions and limitations on changes in control and dividends.

The Company may, at its option, upon notice, as specified in the credit agreement, redeem and prepay prior to maturity, all or any part of the Loan and from time to time upon the payment of a penalty fee of 3% during the first year, 2% during the second year and 1% during the third year, and thereafter, at par, as specified in the credit agreement, together with accrued and unpaid interest, if any, to the date of redemption specified by the Company.
 
(4)
Transactions with Related Parties

The following are the significant related parties transactions made for the three‑year period ended December 31, 2016, 2015 and 2014:

  
2016
  
2015
  
2014
 
Rent charges to subsidiaries
 
$
7,801
  
$
7,801
  
$
7,801
 
Interest charged to subsidiaries on notes receivable
  
2,258
   
2,758
   
2,527
 
Interest charged from subsidiary on note payable
  
755
   
720
   
755
 
 
As of December 31, 2016 and 2015 the Company has three notes receivable from subsidiaries amounting to $30,750 and $35,250, respectively, pursuant to the provisions of Article 29.30 of the Puerto Rico Insurance Code. The notes receivable from subsidiaries are due on demand; however, pursuant to the requirements established by the Commissioner of Insurance, the parties agreed that no payment of the total principal nor the interest due on the loans will be made without first obtaining written authorization from the Commissioner of Insurance within at least 60 days prior to the proposed payment date. These notes bear interest at 4.7%.  Accrued interest at December 31, 2016 and 2015 amounted to $5,660 and $4,100, respectively.

In addition, as of December 31, 2016 and 2015, the Company has various notes receivable from a subsidiary amounting to $10,645 and $9,460, respectively.  Accrued interest at December 31, 2016 and 2015 amounted to $98 and $48, respectively.  These notes are due in different years, which due dates range from 2019 to 2020, and bear an average interest of 5.1%.

As of December 31, 2016 and 2015 the Company has a note payable to a subsidiary amounting to $15,000.  The note is due on December 31, 2017 and bears interest at 4.7%.  Accrued interest at December 31, 2016 and 2015 amounted to $1,475 and $720, respectively.