UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 11, 2004
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
Item 7. Financial Statements and Exhibits.
(c) Exhibits.
| Exhibit No. |
Description | |
| 99.1 | Press release of Molina Healthcare, Inc. issued May 11, 2004 as to financial results for the quarter ended March 31, 2004. |
Item 12. Disclosure of Results of Operations and Financial Condition.
On May 11, 2004, we issued a press release announcing our financial results for the quarter ended December 31, 2003. 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 hereto shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange 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 Exchange Act of 1934, except as expressly set forth by specific reference in such a filing.
Signatures
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: May 11, 2004 | By: | /s/ Mark L. Andrews | ||||||
| Mark L. Andrews Executive Vice President, Legal Affairs, General Counsel and Corporate Secretary | ||||||||
EXHIBIT 99.1
News Release
Contact:
J. Mario Molina, M.D.
President and Chief Executive Officer
562-435-3666
MOLINA HEALTHCARE REPORTS
FIRST QUARTER RESULTS
Long Beach, California (May 11, 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 quarter ended March 31, 2004.
Net income for the quarter ended March 31, 2004, was $11.1 million, or $0.43 per diluted share. Net income included an after-tax gain of $0.7 million, or $0.03 per diluted share, arising from the termination of a split dollar life insurance arrangement between the Company and a related party. Net income for the quarter ended March 31, 2003, was $8.0 million, or $0.40 per diluted share.
Net income per diluted share for the first quarter of 2004 was calculated based upon diluted shares outstanding of 25.9 million, as compared with the prior year’s 19.8 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, partially offset by share repurchases and the exercise of employee stock options.
The Company had previously announced the completion of its offering of 1.8 million shares of common stock on March 29, 2004, resulting in net proceeds to the Company of approximately $47.4 million. The completion of this transaction had very little impact on diluted shares outstanding for the quarter, as those shares were only outstanding for three out of ninety-one days in the quarter.
Operating activities provided $12.0 million in cash for the quarter ended March 31, 2004.
Acquisition Update
The Company had previously announced that it has signed a definitive agreement to acquire Health Care Horizons, which is the parent company of Albuquerque, New Mexico-based Cimarron Health Plan, for approximately $69 million (subject to adjustments) and that it has reached an agreement with Premera Blue Cross to transfer Premera’s Medicaid and Basic Health contracts and members to the Company’s Washington subsidiary. Both transactions remain subject to regulatory approval.
The Company is moving forward with integration planning for both Health Care Horizons and the Healthy Options and Basic Health membership of Premera. While both acquisitions remain subject to regulatory approval, the Company confirms its previous statements that both acquisitions will likely close
MOH Announces First Quarter Results
Page 2
May 11, 2004
in the third quarter of 2004, with full integration of the Premera membership and Health Care Horizons occurring in 2004 and 2005, respectively.
Commenting on the first quarter results, J. Mario Molina, M.D., president and chief executive officer of Molina Healthcare, stated “These results demonstrate that our core operations remain strong and stable as we integrate our recent acquisitions. We have the ability to effectively manage current operations while at the same time laying the foundations for enhanced performance from acquisitions to be consummated later in the year.”
Financial Results – Comparison of Quarters Ended March 31, 2004 and 2003
Premium revenues for the first quarter of 2004 were $217.9 million, representing an increase of $26.5 million (13.8%) over 2003 premium revenue of $191.4 million.
Membership growth contributed $26.9 million in increased premium revenue. Member months (defined as the aggregation of each month’s membership for the period) for the first quarter of 2004 were 14.1% higher than in the first quarter of 2003.
Excluding the state of Utah, increased premium rates contributed an additional $7.7 million in premium revenue during the first quarter of 2004 when compared with the same period in 2003. Premium rates were higher in Washington and Michigan, more than offsetting declining premium rates in California.
Premium revenue increases resulting from higher enrollment and increased premium rates were partially offset by an $8.1 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 quarter of $1.0 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 March 31, 2004.
Medical care cost as a percentage of premium and other operating revenue declined to 84.1% in the first quarter of 2004 from 84.9% in the first quarter of 2003. Medical care costs increased in absolute terms to $184.2 million in the first quarter of 2004 from $162.7 million in the first quarter of 2003.
Marketing, general and administrative expenses were $17.5 million for the first quarter of 2004, representing 7.9% of operating revenue, as compared with $14.7 million, or 7.7% of total operating revenue, for the first quarter of 2003. Excluding premium taxes, MG&A expenses decreased to 6.6% of operating revenue in the first quarter of 2004 as compared with 6.9% in the first quarter of 2003.
Other income includes a pretax gain of $1.16 million recognized upon the termination of certain Collateral Assignment Split-Dollar Insurance Agreements between the Company and the Molina Siblings Trust, a related party. The Company had agreed to make premium payments towards the life insurance policies held by the Trust on the life of Mary R. Molina. The Company was not an insured under the policies, but was entitled to receive repayment of all premium advances from the Trust upon the earlier of Mrs. Molina’s death or cancellation of the policies. Receivables, representing premium payments made by the Company, were discounted based on Mrs. Molina’s remaining actuarial life. On March 2, 2004, the Collateral Assignment Split-Dollar Insurance Agreements were terminated by the early repayment of
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MOH Announces First Quarter Results
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May 11, 2004
the advances to the Trust. The gain of $1.16 million ($725,000 after tax; $0.03 per diluted share) represents the recovery of the discounts previously recorded.
Cash Flow
Net cash provided by operating activities for the quarter ended March 31, 2004, was $12.0 million, compared with $4.0 million for the quarter ended March 31, 2003.
At March 31, 2004, the Company had cash and short-term investments of approximately $302.4 million.
Membership
The following table details the Company’s membership by state at March 31, 2004 and 2003:
| 2004 |
2003 |
% Increase (Decrease) |
|||||
| Michigan |
89,000 | 35,000 | 154.3 | % | |||
| Washington |
203,000 | 178,000 | 14.0 | % | |||
| California |
252,000 | 254,000 | (0.8 | %) | |||
| Utah |
44,000 | 44,000 | 0.0 | % | |||
| Total |
588,000 | 511,000 | 15.1 | % | |||
The following table details member months by state for the quarters ended March 31, 2004 and 2003:
| 2004 |
2003 |
% Increase (Decrease) |
|||||
| Michigan |
256,000 | 104,000 | 146.2 | % | |||
| Washington |
590,000 | 526,000 | 12.2 | % | |||
| California |
761,000 | 760,000 | 0.1 | % | |||
| Utah |
132,000 | 134,000 | (1.5 | %) | |||
| Total |
1,739,000 | 1,524,000 | 14.1 | % | |||
These tables exclude the effects of the Health Care Horizons acquisition and the transfer of Premera’s Medicaid and Basic Heath Contracts, both of which are expected to occur in the third quarter of 2004.
Guidance
The Company reconfirms guidance given during the first quarter of 2004 regarding both current operations and acquisitions. The following recapitulation of that guidance excludes the anticipated acquisitions of Health Care Horizons, Inc. and the Medicaid and Basic Health contracts of Premera Blue Cross of Washington. Specifically, this guidance for calendar year 2004 is:
| • | Net income will be in the range of $ 47.5 million to $50.2 million; |
| • | Enrollment growth will be in the range of 6% to 9%; |
| • | The medical care ratio will be in the range of 83.0% to 83.2% of premium and other operating revenue; and |
| • | Administrative expenses (including premium taxes) will be in the range of 8.0 % to 8.3 % of total revenue. |
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May 11, 2004
These estimates assume an effective tax rate of 37.5%, which does not take into account any favorable state tax credits we might receive from prior periods during 2004. Management expects weighted average dilutive shares outstanding of 27.5 million for all of 2004 reflecting the additional 1.8 million shares of common stock issued March 29, 2004.
Conference Call
The live broadcast of Molina Healthcare’s conference call will begin at 10:00 a.m. Eastern Time, May 12, 2004. 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 and Utah.
This press release contains “forward-looking statements” identified by words such as “expects,” “believes,” “anticipates,” “plans,” “projects,” “intends,” “assume,” “will,” and similar words and expressions. In addition, any statements that refer to 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 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, reduction in provider payments by governmental payors, the Company’s ability to successfully integrate its acquisitions, 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.
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MOLINA HEALTHCARE, INC.
CONSOLIDATED INCOME STATEMENTS
(In thousands, except for per share data and operating statistics)
(Unaudited)
| Three Months Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| Revenue: |
||||||||
| Premium revenue |
$ | 217,868 | $ | 191,377 | ||||
| Other operating revenue |
1,295 | 391 | ||||||
| Investment income |
863 | 339 | ||||||
| Total operating revenue |
220,026 | 192,107 | ||||||
| Expenses: |
||||||||
| Medical care costs: |
||||||||
| Medical services |
50,768 | 52,473 | ||||||
| Hospital and specialty services |
109,789 | 93,516 | ||||||
| Pharmacy |
23,660 | 16,743 | ||||||
| Total medical care costs |
184,217 | 162,732 | ||||||
| Marketing, general and administrative expenses |
17,458 | 14,709 | ||||||
| Depreciation and amortization |
1,599 | 1,317 | ||||||
| Total expenses |
203,274 | 178,758 | ||||||
| Operating income |
16,752 | 13,349 | ||||||
| Other income (expense): |
||||||||
| Interest expense |
(255 | ) | (127 | ) | ||||
| Other, net(1) |
1,162 | 53 | ||||||
| Total other expense |
907 | (74 | ) | |||||
| Income before income taxes |
17,659 | 13,275 | ||||||
| Provision for income taxes |
6,561 | 5,295 | ||||||
| Net income |
$ | 11,098 | $ | 7,980 | ||||
| Net income per share: |
||||||||
| Basic |
$ | 0.44 | $ | 0.41 | ||||
| Diluted |
$ | 0.43 | $ | 0.40 | ||||
| Weighted average number of common shares and potential dilutive common shares outstanding |
25,918 | 19,802 | ||||||
| Operating Statistics: |
||||||||
| Medical care ratio(2) |
84.1 | % | 84.9 | % | ||||
| Marketing, general and administrative expense ratio (3) excluding premium taxes |
6.6 | % | 6.9 | % | ||||
| Premium taxes included in marketing, general and administrative expenses |
1.3 | % | 0.8 | % | ||||
| Total marketing, general and administrative expense ratio |
7.9 | % | 7.7 | % | ||||
| Members(4) |
588,000 | 511,000 | ||||||
| Days in claims payable |
53.1 | 64.4 | ||||||
| (1) | Includes $1.162 million in income arising from the termination 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) | Marketing, general and administrative expense ratio represents such expenses as a percentage of total operating revenue. |
| (4) | Number of members at end of period. |
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May 11, 2004
MOLINA HEALTHCARE, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
| Mar. 31, 2004 |
Dec. 31, 2003 |
|||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 170,138 | $ | 141,850 | ||||
| Investments |
132,285 | 98,822 | ||||||
| Receivables |
52,545 | 53,689 | ||||||
| Deferred income taxes |
2,149 | 2,442 | ||||||
| Prepaid and other current assets |
4,680 | 5,254 | ||||||
| Total current assets |
361,797 | 302,057 | ||||||
| Property and equipment, net |
17,811 | 18,380 | ||||||
| Goodwill and intangible assets, net |
11,838 | 12,284 | ||||||
| Restricted investments |
2,000 | 2,000 | ||||||
| Deferred income taxes |
1,377 | 1,996 | ||||||
| Advances to related parties and other assets |
5,732 | 7,868 | ||||||
| Total assets |
$ | 400,555 | $ | 344,585 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: |
||||||||
| Medical claims and benefits payable |
$ | 98,496 | $ | 105,540 | ||||
| Accounts payable and accrued liabilities |
12,173 | 11,419 | ||||||
| Income taxes payable |
4,290 | 2,882 | ||||||
| Total current liabilities |
114,959 | 119,841 | ||||||
| Other long-term liabilities |
3,616 | 3,422 | ||||||
| Total liabilities |
118,575 | 123,263 | ||||||
| Commitments and contingencies |
— | — | ||||||
| Stockholders’ equity: |
||||||||
| Common stock, $0.001 par value; 80,000,000 shares authorized; issued and outstanding: 27,346,187 shares at March 31, 2004 and 27,373,785 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 |
153,340 | 103,854 | ||||||
| Accumulated other comprehensive income |
126 | 54 | ||||||
| Retained earnings |
148,877 | 137,779 | ||||||
| Treasury stock (1,201,174 shares, at cost) |
(20,390 | ) | (20,390 | ) | ||||
| Total stockholders’ equity |
281,980 | 221,322 | ||||||
| Total liabilities and stockholders’ equity |
$ | 400,555 | $ | 344,585 | ||||
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MOLINA HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
| Three Months Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| Operating activities | ||||||||
| Net income |
$ | 11,098 | $ | 7,980 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
1,599 | 1,317 | ||||||
| Amortization of capitalized credit facility fees |
157 | — | ||||||
| Deferred income taxes |
870 | 294 | ||||||
| Stock-based compensation |
— | 187 | ||||||
| Changes in operating assets and liabilities: |
||||||||
| Receivables |
1,144 | (17,152 | ) | |||||
| Prepaid and other current assets |
574 | (3,826 | ) | |||||
| Medical claims and benefits payable |
(7,044 | ) | 9,901 | |||||
| Accounts payable and accrued liabilities |
754 | (253 | ) | |||||
| Income taxes payable and receivable |
2,819 | 5,590 | ||||||
| Net cash provided by operating activities |
11,971 | 4,038 | ||||||
| Investing activities | ||||||||
| Purchase of equipment |
(584 | ) | (930 | ) | ||||
| Purchases of investments |
(140,237 | ) | — | |||||
| Dispositions and maturities of investments |
106,888 | — | ||||||
| Other long-term liabilities |
194 | 48 | ||||||
| Advances to related parties and other assets |
1,979 | (1,484 | ) | |||||
| Net cash used in investing activities |
(31,760 | ) | (2,366 | ) | ||||
| Financing activities | ||||||||
| Issuance of common stock |
47,360 | — | ||||||
| Proceeds from exercise of stock options |
717 | — | ||||||
| Borrowings under credit facility |
— | 5,000 | ||||||
| Principal payments on notes payable |
— | (14 | ) | |||||
| Purchase of treasury stock |
— | (20,390 | ) | |||||
| Net cash provided by (used for) financing activities |
48,077 | (15,404 | ) | |||||
| Net increase in cash and cash equivalents |
28,288 | (13,732 | ) | |||||
| Cash and cash equivalents at beginning of period |
141,850 | 139,300 | ||||||
| Cash and cash equivalents at end of period |
$ | 170,138 | $ | 125,568 | ||||
| Supplemental cash flow information | ||||||||
| Cash paid during the period for: |
||||||||
| Income taxes |
$ | 2,877 | $ | (589 | ) | |||
| Interest |
$ | 98 | $ | 153 | ||||
| Schedule of non-cash investing and financing activities: | ||||||||
| Tax benefit from stock option exercises recorded as additional paid-in capital |
$ | 1,411 | $ | — | ||||
| Change in unrealized gain on investments |
$ | 114 | $ | — | ||||
| Deferred income taxes |
(42 | ) | — | |||||
| Change in net unrealized gain on investments |
$ | 72 | $ | — | ||||
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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 quarters ending March 31, 2003 and 2004:
| Three Months Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| Balances at beginning of period |
$ | 105,540 | $ | 90,811 | ||||
| Components of medical care costs related to: |
||||||||
| Current year |
190,943 | 167,489 | ||||||
| Prior years |
(6,726 | ) | (4,757 | ) | ||||
| Total medical care costs |
184,217 | 162,732 | ||||||
| Payments for medical care costs related to: |
||||||||
| Current year |
115,097 | 93,365 | ||||||
| Prior years |
76,164 | 59,466 | ||||||
| Total paid |
191,261 | 152,831 | ||||||
| Balances at end of period |
$ | 98,496 | $ | 100,712 | ||||
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