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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
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Current Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 4, 2004
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MOLINA HEALTHCARE, INC.
(Exact name of registrant as specified in its charter)
Delaware 1-31719 13-4204626
(State of incorporation) (Commission File Number) (I.R.S. Employer
Identification Number)
------------------
One Golden Shore Drive, Long Beach, California 90802
(Address of principal executive offices)
Registrant's telephone number, including area code: (562) 435-3666
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Item 7. Financial Statements and Exhibits.
(c) Exhibits:
Exhibit
No. Description
99.1 Press release of Molina Healthcare, Inc. issued August 4, 2004, as
to financial results for the quarter and six months ended June 30,
2004.
Item 12. Disclosure of Results of Operations and Financial Condition.
On August 4, 2004, Molina Healthcare, Inc. issued a press release
announcing its financial results for the quarter and six months ended June 30,
2004. The full text of the press release is included as Exhibit 99.1 to this
report. The information contained in the websites cited in the press release is
not part of this report.
The information in this Form 8-K and the exhibit attached here to
shall not be deemed to be "filed" for purposes of Section 18 of the Securities
Act of 1934 or otherwise subject to the liabilities of that section, nor shall
it be deemed incorporated by reference in any filing under the Securities Act of
1933 or the Securities Act of 1934, except as expressly set forth by specific
reference in such a filing.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
MOLINA HEALTHCARE, INC.
Date: August 4, 2004 By: /s/ Mark L. Andrews
-----------------------------------------------
Mark L. Andrews
Executive Vice President, Legal Affairs,
General Counsel and Corporate Secretary
EXHIBIT INDEX
Exhibit
No. Description
99.1 Press release of Molina Healthcare, Inc. issued August 4, 2004, as
to financial results for the quarter and six months ended June 30,
2004.
Exhibit 99.1
Molina Healthcare Reports Second Quarter Results
LONG BEACH, Calif.--(BUSINESS WIRE)--Aug. 4, 2004--Molina
Healthcare, Inc. (NYSE: MOH), a multi-state managed care organization
providing quality care and accessible services to low-income families
and individuals, today announced results for the second quarter and
six months ended June 30, 2004.
Net income for the second quarter ended June 30, 2004, was $12.0
million, or $0.43 per diluted share, compared with net income for the
quarter ended June 30, 2003, of $10.9 million, or $0.57 per diluted
share. Net income per diluted share for the second quarter of 2004 was
calculated based upon diluted shares outstanding of 27.7 million, as
compared with the prior year's 19.2 million diluted shares
outstanding. The increase in diluted shares was principally the result
of the Company's issuance of 7.6 million shares in its July 2003
initial public offering of common stock and 1.8 million shares in its
secondary offering in March 2004, partially offset by share
repurchases. Operating activities provided $12.0 million in cash for
the quarter ended June 30, 2004.
Net income for the six months ended June 30, 2004, was $23.0
million, or $0.86 per diluted share, compared with net income for the
six months ended June 30, 2003, of $18.9 million, or $0.97 per diluted
share. Net income per diluted share for the first six months of 2004
was calculated based upon diluted shares outstanding of 26.8 million,
as compared with the prior year's 19.5 million diluted shares
outstanding. Operating activities provided $24.0 million in cash for
the six months ended June 30, 2004.
Commenting on recent events, J. Mario Molina, M.D., president and
chief executive officer of Molina Healthcare, stated, "I am pleased
with the execution of our business plan. We are successfully
integrating acquisitions in both new and existing markets. We continue
to leverage our robust and flexible administrative infrastructure
across a growing member base. Excluding premium taxes, SG&A expenses
for the second quarter of 2004 were less than 6% of premium and other
operating revenue. Lastly, the announcement of rate increases in
Michigan to take effect October 1, 2004, coupled with the announcement
of smaller than anticipated reductions to rates in California, suggest
that we will see improved margins and strong results beginning in the
fourth quarter of this year and well into 2005."
Financial Results - Comparison of Quarters Ended June 30, 2004 and
2003
Premium revenues for the second quarter of 2004 were $247.5
million, representing an increase of $54.0 million (27.9%) over 2003
premium revenue of $193.5 million.
Membership growth contributed $38.6 million in increased premium
revenue. Effective June 1, 2004, the Company's Washington HMO added
approximately 56,000 members as a result of its acquisition of the
Healthy Options (Medicaid) and Basic Health Plan contracts of Premera
Blue Cross.
Increased premium rates contributed an additional $15.4 million in
premium revenue during the second quarter of 2004 when compared with
the same period in 2003. Membership growth in Washington and Michigan,
which have higher premium rates than California, was the primary
source of higher premium rates on a blended basis. During the second
quarter of 2004, the Company recognized $1.1 million of out of period
premium revenue as a result of the publication by the state of
California of new rates for the contract year beginning October 1,
2003. The revenue recognized represents the extent to which rate
reductions expected for the period of October 1, 2003 through March
31, 2004, have been scaled back.
Medical care costs as a percentage of premium and other operating
revenue (medical care ratio) increased to 84.2% in the second quarter
of 2004 from 82.5% in the second quarter of 2003. Medical care costs
increased in absolute terms to $209.0 million in the second quarter of
2004 from $160.6 million in the second quarter of 2003. Hospital,
specialty and pharmacy costs all increased as a percentage of premium
and other operating revenues. Increases in these costs were partially
the result of changes in contracting arrangements at the Company's
Washington HMO between 2004 and 2003. During the third quarter of
2003, there was a significant shift of membership at the Washington
HMO subsidiary from full risk capitation to fee-for-service contracts,
resulting in a shift from medical costs (where capitation expense is
reported) to hospital, specialty and pharmacy costs.
The increase in the medical care ratio was most pronounced at the
Company's Michigan HMO. Despite a slight decline in per member per
month medical costs compared with the second quarter of 2003, per
member per month premium revenue declined by a greater amount due to
shifts in the geographic mix of the Company's membership in that
state, as well as shifts between aid categories. This resulted in a
higher medical care ratio in Michigan. The state of Michigan has
announced that actuarially sound premium rates will be implemented
effective October 1, 2004. Based upon available information, the
Company believes that it will receive a blended rate increase of
approximately 10% for its current membership as of that date. The
Company further believes that the anticipated rate increase will
significantly reduce the medical care ratio of its Michigan HMO.
Temporary increases in utilization among membership acquired from
Premera Blue Cross of Washington effective June 1, 2004, also led to
increased medical care costs in the second quarter of 2004. The
Company has in the past experienced similar temporary increases in
medical care costs for newly acquired blocks of membership.
Salary, general and administrative expenses were $18.8 million for
the second quarter of 2004, representing 7.6% of operating revenue, as
compared with $15.4 million, or 7.9% of total operating revenue, for
the second quarter of 2003. Excluding premium taxes, SG&A expenses
decreased to 5.9% of operating revenue in the second quarter of 2004
as compared with 6.7% in the second quarter of 2003.
Financial Results - Comparison of Six Months Ended June 30, 2004
and 2003
Premium revenues for the six months ended June 30, 2004, were
$465.3 million, representing an increase of $80.4 million (20.9%) over
premium revenue for the six months ended June 30, 2003, of $384.9
million.
Membership growth for the first half of 2004 contributed $63.7
million in increased premium revenue. Excluding the state of Utah,
increased premium rates contributed an additional $21.7 million in
premium revenue during the first half of 2004 when compared with the
same period in 2003.
Premium revenue increases were partially offset by a $5.0 million
decline in revenue recognized under the Company's cost reimbursement
contract with the state of Utah. This decline in revenue was a direct
result of the Company's successful management of healthcare costs in
that state. Improved healthcare cost management in Utah also led to
the recognition during the first half of 2004 of $1.4 million of
savings sharing income. The savings sharing income is reported as
"other operating revenue" in the Company's Consolidated Income
Statements and represents the estimated savings incentive payments
generated during the period of July 1, 2003 through June 30, 2004.
The medical care ratio increased to 84.2% in the first half of
2004 from 83.7% in the same six-month period of 2003. Medical care
costs increased in absolute terms to $393.3 million in the six months
ended June 30, 2004, from $323.3 million in the same period of 2003.
Hospital, specialty and pharmacy costs all increased as a percentage
of premium and other operating revenues. As noted in the discussion of
quarterly results above, increases in these costs were partially the
result of changes in contracting arrangements at the Company's
Washington HMO between 2004 and 2003. As also noted above, the
increase in the medical care ratio was most pronounced at the
Company's Michigan HMO.
Salary, general and administrative expenses were $36.3 million for
the first half of 2004, representing 7.7% of operating revenue, as
compared with $30.1 million, or 7.8% of total operating revenue, for
the first half of 2003. Excluding premium taxes, SG&A expenses
decreased to 6.2% of operating revenue for the six months ended June
30, 2004, as compared with 6.8% in the same six-month period of 2003.
Acquisition Update
During the second quarter, the Company announced that it had
completed its acquisition of the Healthy Options (Medicaid) and Basic
Health Plan contracts of Premera Blue Cross, adding approximately
56,000 members to the Company's Washington HMO. In addition, on July
1, 2004, the Company completed its acquisition of Health Care
Horizons, Inc., the parent company of New Mexico-based Cimarron Health
Plan, adding approximately 66,000 Salud (Medicaid) members. Effective
as of August 1, 2004, Cimarron changed its name to Molina Healthcare
of New Mexico, Inc.
On June 21, 2004, the Company announced that the Rehabilitator of
The Wellness Plan of Michigan has petitioned for approval to sell to
the Company the rights to serve over 85,000 Wellness Plan members
located in several counties. Closing of the transaction remains
subject to purchase price adjustments and the negotiation of a
definitive agreement. However, the Company anticipates the transaction
to close in the fourth quarter of 2004.
Cash Flow
Operating activities provided $12.0 million in cash for the
quarter ended June 30, 2004. Sequentially, the Company's days in
claims payable also decreased from 53 days at the end of the first
quarter of 2004 to 51 days at the end of the second quarter of 2004.
Net cash provided by operating activities for the six months ended
June 30, 2004, was $24.0 million, compared with $14.8 million for the
six months ended June 30, 2003.
At June 30, 2004, the Company had consolidated cash and short-term
investments of approximately $295.5 million. On July 1, 2004, the
Company paid approximately $69.0 million in consideration for Health
Care Horizons and approximately $5.8 million for the settlement of
Health Care Horizons bank debt.
Membership
The following table details the Company's membership by state at
June 30, 2004 and 2003:
% Increase
2004 2003 (Decrease)
--------- --------- --------
Michigan 90,000 36,000 150.0%
Washington 269,000 177,000 52.0%
California 245,000 258,000 (5.0%)
Utah 48,000 44,000 9.1%
--------- --------- --------
Total 652,000 515,000 26.6%
========= ========= ========
The following table details member months (defined as the
aggregation of each month's membership for the period) by state for
the quarter and six months ended June 30, 2004 and 2003:
Quarter Ended
June 30,
-------------------- % Increase
2004 2003 (Decrease)
--------- --------- --------
Michigan 268,000 106,000 152.8%
Washington 679,000 536,000 26.7%
California 742,000 768,000 (3.4%)
Utah 138,000 133,000 3.8%
--------- --------- --------
Total 1,827,000 1,543,000 18.4%
========= ========= ========
Six Months Ended
June 30,
-------------------- % Increase
2004 2003 (Decrease)
--------- --------- --------
Michigan 524,000 211,000 148.3%
Washington 1,269,000 1,062,000 19.5%
California 1,503,000 1,527,000 (1.6%)
Utah 270,000 267,000 1.1%
--------- --------- --------
Total 3,566,000 3,067,000 16.3%
========= ========= ========
These tables exclude the Health Care Horizons acquisition, which
added 66,000 Medicaid members to the Company on July 1, 2004, and the
expected addition of up to 85,000 Wellness Plan members anticipated to
occur in the fourth quarter of 2004.
Guidance
The Company provides the following guidance for calendar year
2004. This guidance includes the acquisitions of Health Care Horizons,
Inc. and the Medicaid and Basic Health contracts of Premera Blue Cross
of Washington. The commercial line of business of Health Care Horizons
will be treated for accounting purposes as discontinued operations and
is excluded from this guidance. The guidance does not take into
account the anticipated transfer of Michigan Wellness Plan members in
the fourth quarter of 2004.
Specifically, guidance for calendar year 2004 is:
-- Earnings per diluted share from continuing operations will be
in the range of $1.89 to $2.03, consistent with previously
announced guidance;
-- Net income from continuing operations will be in the range of
$52.0 million to $55.8 million;
-- Premium revenue from continuing operations will be in the
range of $1.1 billion to $1.15 billion;
-- The medical care ratio will be in the range of 83.5% to 84.0%
of premium and other operating revenue; and
-- Administrative expenses (including premium taxes) will be in
the range of 7.9% to 8.3% of total revenue.
These estimates assume an effective tax rate of 37.5%, which does
not take into account any favorable state tax credits the Company
might receive from prior periods during 2004. The Company anticipates
that it will recognize out of year tax benefits during the third
quarter of $0.02 to $0.03 per diluted share, inclusive of associated
tax consulting fees. Management expects weighted average dilutive
shares outstanding of 27.5 million for the year ending December 31,
2004.
The Company will provide guidance for calendar year 2005 during
its third quarter earnings call in November.
Conference Call
The live broadcast of Molina Healthcare's conference call will
begin at 5:00 p.m. Eastern Time, August 4, 2004. The number to call
for this interactive conference call is 212-341-7093. A 30-day online
replay will be available beginning approximately one hour following
the conclusion of the live broadcast. A link to these events can be
found on the Company's website at www.molinahealthcare.com or at
www.fulldisclosure.com.
Molina Healthcare, Inc. is a rapidly growing, multi-state managed
care organization that arranges for the delivery of healthcare
services to persons eligible for Medicaid and other programs for
low-income families and individuals. The Company currently operates
health plans in California, Washington, Michigan, Utah and New Mexico.
This press release contains "forward-looking statements"
identified by words such as "will," "expects," "believes,"
"anticipates," "plans," "projects," "estimates," "intends," "assumes,"
and similar words and expressions. In addition, any statements that
refer to earnings guidance, expectations, projections, or other
characterizations of future events or circumstances are
forward-looking statements. Except for the historical information
contained in this release, all of the Company's forward-looking
statements are based on current expectations and assumptions that are
subject to numerous risks and uncertainties. Actual results could
differ materially because of factors such as: the Company's ability to
successfully integrate its acquisitions, the Company's third-party
contracts, the Company's ability to accurately predict and effectively
manage health benefits and other operating expenses, competition,
changes in healthcare practices, changes in federal or state laws or
regulations or the interpretation thereof, the implementation of
announced rate increases, reduction in provider payments by
governmental payors, disasters, and other risks and uncertainties as
detailed in the Company's reports and filings with the Securities and
Exchange Commission and available on its website at www.sec.gov. All
forward-looking statements in this release represent the Company's
judgment as of the date of this release. The Company disclaims,
however, any intent or obligation to update any forward-looking
statement to conform the statement to actual results or changes in the
Company's expectations.
MOLINA HEALTHCARE, INC.
CONSOLIDATED INCOME STATEMENTS
(In thousands, except for per share data and operating statistics)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
Revenue:
Premium revenue $247,455 $193,519 $465,323 $384,896
Other operating revenue 691 1,141 1,986 1,532
Investment income 912 323 1,775 662
---------- ---------- ---------- ----------
Total operating revenue 249,058 194,983 469,084 387,090
Expenses:
Medical care costs:
Medical services 51,511 54,830 102,279 107,303
Hospital and
specialty services 132,964 89,225 242,753 182,741
Pharmacy 24,573 16,538 48,233 33,281
---------- ---------- ---------- ----------
Total medical care costs 209,048 160,593 393,265 323,325
Salary, general and
administrative expenses 18,842 15,422 36,300 30,131
Depreciation and
amortization 1,734 1,374 3,333 2,691
---------- ---------- ---------- ----------
Total expenses 229,624 177,389 432,898 356,147
---------- ---------- ---------- ----------
Operating income 19,434 17,594 36,186 30,943
Other income (expense):
Interest expense (258) (625) (513) (752)
Other, net (1) (19) 21 1,143 74
---------- ---------- ---------- ----------
Total other expense (277) (604) 630 (678)
---------- ---------- ---------- ----------
Income before
income taxes 19,157 16,990 36,816 30,265
Provision for
income taxes 7,207 6,043 13,768 11,338
---------- ---------- ---------- ----------
Net income $11,950 $10,947 $23,048 $18,927
========== ========== ========== ==========
Net income per share:
Basic $0.44 $0.58 $0.87 $0.99
========== ========== ========== ==========
Diluted $0.43 $0.57 $0.86 $0.97
========== ========== ========== ==========
Weighted average number
of common shares and
potential dilutive
common shares
outstanding 27,738,000 19,169,000 26,829,000 19,485,000
========== ========== ========== ==========
Operating Statistics:
Medical care ratio (2) 84.2% 82.5% 84.2% 83.7%
Salary, general and
administrative expense
ratio (3) excluding
premium taxes 5.9% 6.7% 6.2% 6.8%
Premium taxes included
in salary, general and
administrative expenses 1.7% 1.2% 1.5% 1.0%
---------- ---------- ---------- ----------
Total salary, general
and administrative
expense ratio 7.6% 7.9% 7.7% 7.8%
========== ========== ========== ==========
Members (4) 652,000 515,000
Days in claims payable 51 61
(1) For the six months ended June 30, 2004, includes $1.162 million
in income arising from the termination in the first quarter of
2003 of a split dollar life insurance arrangement between the
Company and a related party.
(2) Medical care ratio represents medical care costs as a percentage
of premium and other operating revenue.
(3) Salary, general and administrative expense ratio represents such
expenses as a percentage of total operating revenue.
(4) Number of members at end of period.
MOLINA HEALTHCARE, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
June 30, Dec. 31,
2004 2003
---------- ----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $178,339 $141,850
Investments 117,187 98,822
Receivables 56,489 53,689
Deferred income taxes 2,486 2,442
Prepaid and other current assets 5,827 5,254
---------- ----------
Total current assets 360,328 302,057
Property and equipment, net 18,277 18,380
Goodwill and intangible assets, net 29,426 12,284
Restricted investments 2,000 2,000
Deferred income taxes 1,397 1,996
Advances to related parties and other assets 4,601 7,868
---------- ----------
Total assets $416,029 $344,585
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Medical claims and benefits payable $101,722 $105,540
Accounts payable and accrued liabilities 13,325 11,419
Income taxes payable 2,786 2,882
---------- ----------
Total current liabilities 117,833 119,841
Other long-term liabilities 3,417 3,422
---------- ----------
Total liabilities 121,250 123,263
Commitments and contingencies -- --
Stockholders' equity:
Common stock, $0.001 par value; 80,000,000
shares authorized; issued and outstanding:
27,428,679 shares at June 30, 2004 and
25,373,785 shares at December 31, 2003 27 25
Preferred stock, $0.001 par value; 20,000,000
shares authorized, no shares issued
and outstanding -- --
Additional paid-in capital 154,719 103,854
Accumulated other comprehensive income (404) 54
Retained earnings 160,827 137,779
Treasury stock (1,201,174 shares, at cost) (20,390) (20,390)
---------- ----------
Total stockholders' equity 294,779 221,322
---------- ----------
Total liabilities and stockholders' equity $416,029 $344,585
========== ==========
MOLINA HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Six Months Ended
June 30,
2004 2003
---------- ----------
Operating activities:
Net income $23,048 $18,927
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 3,333 2,691
Amortization of capitalized
credit facility fees 314 210
Deferred income taxes 516 (393)
Stock-based compensation -- 369
Changes in operating assets and liabilities:
Receivables (2,800) (40,414)
Prepaid and other current assets (573) (4,178)
Medical claims and benefits payable (4,018) 10,868
Deferred revenue -- 23,392
Accounts payable and accrued liabilities 1,906 1,057
Income taxes payable and receivable 2,247 2,297
---------- ----------
Net cash provided by operating activities 23,973 14,826
Investing activities:
Purchase of equipment (2,172) (3,319)
Purchases of investments (401,644) --
Dispositions and maturities of investments 382,546 --
Net cash paid in purchase transactions (18,000) --
Other long-term liabilities (5) (14)
Advances to related parties and other assets 2,953 (68)
---------- ----------
Net cash used in investing activities (36,322) (3,401)
Financing activities:
Issuance of common stock 47,360 --
Proceeds from exercise of stock options
and employee stock purchases 1,478 --
Borrowings under credit facility -- 8,500
Payment of credit facility fee -- (1,887)
Repayment of mortgage note -- (3,350)
Purchase of treasury stock -- (20,390)
---------- ----------
Net cash provided by (used in)
financing activities 48,838 (17,127)
---------- ----------
Net increase (decrease) in cash
and cash equivalents 36,489 (5,702)
Cash and cash equivalents
at beginning of period 141,850 139,300
---------- ----------
Cash and cash equivalents at end of period $178,339 $133,598
========== ==========
MOLINA HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Supplemental cash flow information:
Cash paid during the period for:
Income taxes $11,008 $9,434
========== ==========
Interest $197 $440
========== ==========
Schedule of non-cash investing
and financing activities:
Tax benefit from stock option
exercises recorded as additional
paid-in capital $2,029 $--
========== ==========
Change in unrealized gain on investments $(733) $--
Deferred income taxes 275 $--
---------- ----------
Change in net unrealized gain on investments $(458) $--
========== ==========
Details of acquisitions:
Fair value of assets acquired $18,200 $--
Liabilities assumed (200) --
---------- ----------
Cash paid for acquisitions $18,000 $--
========== ==========
MOLINA HEALTHCARE, INC.
CHANGE IN MEDICAL CLAIMS AND BENEFITS PAYABLE
(Dollars in thousands)
(Unaudited)
The following table shows the components of the change in medical
claims and benefits payable for the six months ending June 30, 2004
and 2003:
Six Months Ended
June 30,
2004 2003
---------- ----------
Balances at beginning of period $105,540 $90,811
Components of medical care costs related to:
Current year 398,970 332,352
Prior years (5,705) (9,027)
---------- ----------
Total medical care costs 393,265 323,325
Payments for medical care costs related to:
Current year 310,162 246,177
Prior years 86,921 66,280
---------- ----------
Total paid 397,083 312,457
---------- ----------
Balances at end of period $101,722 $101,679
========== ==========
CONTACT: Molina Healthcare Inc., Long Beach
J. Mario Molina, M.D., 562-435-3666