Molina Healthcare Reports Second Quarter 2012 Results16:00 EDT Thursday, July 26, 2012 LONG BEACH, Calif. (Business Wire) -- Molina Healthcare, Inc. (NYSE: MOH): Loss per diluted share for second quarter 2012 of $0.80 Premium deficiency reserves of $13 million Quarterly premium revenues of $1.5 billion, up 32% over 2011 Aggregate membership up 13% over 2011 Cash provided by operating activities up $155 million over 2011 Molina Healthcare, Inc. (NYSE: MOH) today reported its financial results for the second quarter and six months ended June 30, 2012. Net loss for the quarter was $37.3 million, or $0.80 per diluted share, compared with net income of $17.4 million, or $0.38 per diluted share, for the quarter ended June 30, 2011. “The second quarter of 2012 illustrated both the opportunities and the challenges facing Molina Healthcare today,” said J. Mario Molina, M.D., chief executive officer of Molina Healthcare, Inc. “The opportunities before us are clear. The renewal of our contract in Ohio, the continued development of the dual eligible opportunity across many of our markets, our entry into the Florida Nursing Home Diversion Program, the certification of our Idaho MMIS, and the Supreme Court's decision upholding many aspects of the Affordable Care Act make it clear that our company's revenue potential is far greater than it ever has been. However, developments in Texas during the second quarter emphasize the importance of adequate rates and disciplined cost control for new populations and markets. I remain confident that Molina Healthcare will overcome the challenges that come with the many opportunities before us, delivering much improved financial results in the future.” Earnings Per Share Guidance Because of uncertainties surrounding the pace at which our medical cost containment initiatives in Texas will take effect, we previously withdrew and are not issuing fiscal year 2012 guidance with respect to matters related to or derived from medical costs, including earnings guidance. Overview of Financial Results The Company's financial performance in the second quarter of 2012 was impacted by the previously disclosed challenges with the Company's aged, blind or disabled, or ABD, contracts in Texas, particularly in the Hidalgo and El Paso service areas, and losses in Missouri (where our health plan terminated operations effective June 30, 2012) and in Wisconsin. The Company believes that its financial performance issues in the quarter were limited to its Texas, Missouri, and Wisconsin health plans. Excluding the Texas, Missouri, and Wisconsin health plans, the Company's overall medical care ratio was 85.3% and 84.4% for the three and six months ended June 30, 2012, respectively. The Company will receive rate increases in Texas effective September 1, 2012, which, together with various initiatives to reduce utilization and decrease unit costs, are expected to improve the performance of the Texas health plan. As stated above, the Company has now exited the Missouri market. Health Plans Segment ResultsSecond Quarter 2012 Compared with Second Quarter 2011Premium Revenue Premium revenue for the second quarter of 2012 increased 32% over the second quarter of 2011, due primarily to membership increases, a shift in member mix to populations generating higher premium revenue per member per month (PMPM), and increased revenue linked to benefit expansions. Membership at the Texas health plan more than doubled year over year, while also growing significantly in Ohio and Washington. Growth in the Company's ABD membership led to higher premium revenue PMPM in 2012. ABD membership, as a percent of total membership, has increased over 40% year over year. Premium revenue PMPM also increased in the second quarter of 2012 as a result of the inclusion of revenue from the pharmacy benefit for the Ohio health plan effective October 1, 2011, and as a result of the inclusion of revenue from the inpatient facility and pharmacy benefits across all of the Texas health plan's membership effective March 1, 2012. Medical Care Costs Medical care costs increased in the second quarter of 2012 primarily due to high costs at the Texas health plan and the addition of the pharmacy benefit in Ohio effective October 1, 2011. The Company's medical margin deteriorated year over year primarily due to: Higher medical costs in Texas and higher medical costs for ABD members in California; and Rate decreases of approximately 2% in Ohio effective January 1, 2012, and of approximately 3% in California effective July 1, 2011. Individual Health Plan Analysis The Texas health plan added 172,000 members and $255.1 million in revenue year over year. Most of this growth was due to regional and benefit expansions effective March 1, 2012. The medical care ratio of the Texas health plan was 109.4% for the second quarter of 2012, compared with 95.0% for the second quarter of 2011. Because revenues of the Texas health plan constituted nearly 25% of the Company's total premium revenue for the second quarter of 2012, the high medical care ratio in that state had a disproportionately large impact on the Company's overall financial results. Absent $14.1 million of unfavorable prior period development of claims reserves from the first quarter of 2012 and the impact of the $10.0 million premium deficiency reserve discussed below, the medical care ratio of the Texas health plan would have been approximately 102.7% in the second quarter of 2012. The following table captures the effect of prior period development and the premium deficiency reserve on the Texas health plan's medical care ratio and medical care costs for the quarter ended June 30, 2012:   Texas ResultsFor Quarter EndedJune 30, 2012MedicalCare Ratio   MedicalCare Costs(Dollars in thousands) Reported financial performance   109.4 % $ 393,237 Impact of prior period claims development (3.9 ) (14,100 ) Impact of premium deficiency reserve (two months ending August 31, 2012)   (2.8 )   (10,000 ) Medical ratio and medical care cost adjusted to exclude impact of prior period development and premium deficiency reserve   102.7 % $ 369,137     As previously disclosed, the Company believes that premium rates associated with the ABD contracts in the Hidalgo and El Paso service areas are not adequate to cover the medical costs associated with serving members under existing conditions. Utilization of long-term care services, including personal attendant services and adult day health care services, is currently far exceeding the utilization of those services elsewhere in the state and also far exceeding the utilization assumptions used by the state of Texas in the development, and the Company's evaluation of, premium rates. The Company recorded a premium deficiency reserve for the Texas health plan at June 30, 2012, of $10.0 million. This premium deficiency reserve encompasses the two months ending August 31, 2012. The state of Texas has released preliminary rates effective September 1, 2012. The Company believes that these preliminary rates, if enacted, will yield a blended rate increase of approximately 6% overall (approximately $7.4 million per month) for the Texas health plan. The Company believes that the premium rates effective in Texas on September 1, 2012, together with various medical cost containment initiatives, will allow the Texas health plan to return to profitability during Texas state fiscal year 2013 (September 1, 2012, through August 31, 2013). Accordingly, the Company does not believe that a premium deficiency reserve will be required in Texas subsequent to September 1, 2012. The medical care ratio for the ABD membership in the Hidalgo and El Paso service areas was 139% and 146%, respectively, during the second quarter of 2012. Absent unfavorable prior period development from the first quarter of 2012 and the premium deficiency reserve, the medical care ratios of the ABD membership in the Hidalgo and El Paso service areas would have been 116% and 133%, respectively, consistent with the Company's previously disclosed estimates. The medical care ratio for the aggregate ABD membership in Texas was approximately 119%. Absent unfavorable prior period development of claims reserves and the premium deficiency reserve, the medical care ratio for the aggregate ABD membership in Texas was approximately 109%. ABD membership overall constitutes approximately 70% of all Texas health plan revenue. ABD membership in the Hidalgo and El Paso service areas alone contributed 28% of the Texas health plan's total revenue for the second quarter of 2012. The Company estimates that its current monthly loss before taxes for the Texas health plan overall is approximately $14 million, inclusive of payments made under its management services agreement with Molina Healthcare, Inc., the corporate parent of the Texas health plan. The Company believes that the profitability of the Texas health plan will improve over time by the estimated amounts shown below. The Company also believes that enrollment may decrease at the Texas health plan during the third quarter of 2012.   ExpectedMonthlyIncrease toProfitability(In thousands) Blended rate increase effective September 1, 2012 $ 7,400 Provider contract changes expected to be effective by December 2012 3,400 Other initiatives (including changes to hospital payments and prior authorizations) expected to be effective by December 2012   3,200 $ 14,000   The increase in the medical care ratio of the California health plan year over year was primarily due to premium rate reductions effective July 1, 2011, and the mandatory assignment of ABD members previously served under fee-for-service arrangements. These members were transitioned into managed care plans effective upon their month of birth beginning in June 2011. The last of these members were transitioned into managed care in May 2012. The medical care ratio for these new members is approximately 95%, compared with a medical care ratio of approximately 85% for ABD members not subject to mandatory enrollment. Individuals who are new to managed care often have higher utilization of medical services upon initially enrolling into managed care plans. Utilization of heath care services is declining, however, for those ABD members added earlier in the mandatory enrollment process. This data leads the Company to believe that medical care costs will decrease for the mandatory ABD members over time. Profitability at the Florida health plan improved substantially year over year due to a premium rate increase effective September 1, 2011, the re-contracting of portions of the health plan's specialty care network, and lower inpatient utilization. The medical care ratio of the Michigan health plan increased to 87.1% in the second quarter of 2012 from 78.7% in the second quarter of 2011. The higher medical care ratio in 2012 was the result of a reduction to premium rates that was linked to a decrease in premium taxes, and higher pharmacy and inpatient facility costs. Partially offsetting the higher medical care ratio was a decrease of $8.7 million in premium tax expense. Both premium taxes and premium rates were reduced equivalently effective April 1, 2012. If the reduction to premium rates linked to a decrease in premium taxes had been in effect in the prior year, the medical care ratio for the second quarter of 2011 would have been approximately 82%. The medical care ratio of the Missouri health plan increased to 104.9% in the second quarter of 2012 compared with 90.2% in the second quarter of 2011. The increase in the medical care ratio was primarily the result of higher inpatient utilization and high dollar claims. Unfavorable prior period development of claims reserves from the first quarter of 2012 was $7.6 million in the second quarter of 2012. Profitability at the New Mexico health plan improved substantially year over year due to the absence in 2012 of contractually required reductions to revenue made in 2011. The medical care ratio of the Ohio health plan increased to 82.6% for the second quarter of 2012 from 77.6% for the second quarter of 2011. The increase in the Ohio health plan's medical care ratio was primarily the result of a 2% rate reduction effective January 1, 2012, together with the assumption of the lower margin pharmacy benefit effective October 1, 2011. Although the Ohio health plan's medical care ratio increased in 2012, the medical margin (measured as total premium revenue less total medical care costs) remained constant. Absent a one-time revenue benefit of $12.1 million recorded in the second quarter of 2011, the medical care ratio of the Utah health plan decreased to 82.5% in the second quarter of 2012 from 89.4% in the second quarter of 2011. Lower inpatient facility costs tied to reduced inpatient utilization led the Washington health plan to report improved profitability year over year. The Wisconsin health plan reported a medical care ratio of 121.1% for the second quarter of 2012 compared with 80.8% for the second quarter of 2011. The Company believes that premium rates associated with its contract in the state of Wisconsin are not adequate to cover the costs of servicing that contract. Accordingly, the Company recorded a premium deficiency reserve for the Wisconsin health plan at June 30, 2012, of $3.0 million. The Wisconsin health plan will receive new premium rates effective January 1, 2013. Absent the $3.0 million premium deficiency reserve, the medical care ratio of the Wisconsin health plan would have been approximately 105.2% for the second quarter of 2012. Molina Medicaid Solutions Segment Results Performance of the Molina Medicaid Solutions segment was as follows:   Three Months EndedJune 30,   Six Months EndedJune 30,2012   20112012   2011(In thousands) Service revenue before amortization $ 41,877 $ 38,434 $ 84,235 $ 77,294 Amortization recorded as reduction of service revenue   (153 )   (1,546 )   (306 )   (3,732 ) Service revenue 41,724 36,888 83,929 73,562 Cost of service revenue 30,613 39,215 61,107 70,436 General and administrative costs 3,187 1,875 5,207 4,352 Amortization of customer relationship intangibles recorded as amortization   1,282     1,282     2,564     2,564   Operating income (loss) $ 6,642   $ (5,484 ) $ 15,051   $ (3,790 )   Operating income for the Company's Molina Medicaid Solutions segment improved $12.1 million and $18.8 million for the three months and six months ended June 30, 2012, respectively. This improvement was primarily the result of stabilization of the Company's newest Medicaid Management Information Systems, or MMIS, in Idaho and Maine. On July 17, 2012, the Company announced that the Centers for Medicare and Medicaid Services, or CMS, had certified the MMIS implemented by Molina Medicaid Solutions in Idaho retroactive to June 1, 2010. This certification will allow the state of Idaho to receive 75% federal financial participation for the operation of the MMIS retroactive to that date. Among the reasons cited by the Company for purchasing Molina Medicaid Solutions effective May 1, 2010, was the benefit of reducing the Company's reliance on health plan operations. For the quarter ended June 30, 2012, the Molina Medicaid Solutions segment gross profit margin rate was 27%, compared with 8% for the Health Plans segment. Cash Flow Cash provided by operating activities was $236.0 million for the six months ended June 30, 2012, compared with $114.9 million for the six months ended June 30, 2011. Deferred revenue was a source of operating cash amounting to $125.4 million in 2012, compared with $38.1 million in 2011. At June 30, 2012, the Company had cash and investments of $1.1 billion, and the parent company had cash and investments of $39.8 million. Reconciliation of Non-GAAP (1) to GAAP Financial MeasuresEBITDA (2)         Three Months EndedJune 30,Six Months EndedJune 30,2012201120122011(In thousands) Net (loss) income $ (37,306 ) $ 17,440 $ (19,217 ) $ 34,828 Add back: Depreciation and amortization reported in the consolidated statements of cash flows 19,671 16,508 38,010 34,602 Interest expense 3,808 3,683 8,106 7,286 Provision for income taxes   (25,769 )   10,287     (14,736 )   20,596   EBITDA $ (39,596 ) $ 47,918   $ 12,163   $ 97,312     (1) GAAP stands for U.S. generally accepted accounting principles. (2) EBITDA is not prepared in conformity with GAAP because it excludes depreciation and amortization, as well as interest expense, and the provision for income taxes. This non-GAAP financial measure should not be considered as an alternative to the GAAP measures of net income, operating income, operating margin, or cash provided by operating activities, nor should EBITDA be considered in isolation from these GAAP measures of operating performance. Management uses EBITDA as a supplemental metric in evaluating the Company's financial performance, in evaluating financing and business development decisions, and in forecasting and analyzing future periods. For these reasons, management believes that EBITDA is a useful supplemental measure to investors in evaluating the Company's performance and the performance of other companies in the Company's industry. Conference Call The Company's management will host a conference call and webcast to discuss its second quarter results at 5:00 p.m. Eastern time on Thursday, July 26, 2012. The number to call for the interactive teleconference is (212) 231-2927. A telephonic replay of the conference call will be available from 7:00 p.m. Eastern time on Thursday, July 26, 2012, through 6:00 p.m. on Friday, July 27, 2012, by dialing (800) 633-8284 and entering confirmation number 21596713. A live broadcast of Molina Healthcare's conference call will be available on the Company's website, www.molinahealthcare.com, or at www.earnings.com. A 30-day online replay will be available approximately an hour following the conclusion of the live broadcast. About Molina Healthcare Molina Healthcare, Inc. provides quality and cost-effective Medicaid-related solutions to meet the health care needs of low-income families and individuals and to assist state agencies in their administration of the Medicaid program. The Company's licensed health plans in California, Florida, Michigan, New Mexico, Ohio, Texas, Utah, Washington, and Wisconsin currently serve approximately 1.8 million members, and its subsidiary, Molina Medicaid Solutions, provides business processing and information technology administrative services to Medicaid agencies in Idaho, Louisiana, Maine, New Jersey, and West Virginia, and drug rebate administration services in Florida. Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: This earnings release contains “forward-looking statements” regarding the Company's plans, expectations, anticipated future events, and projected earnings per diluted share for fiscal year 2012.Actual results could differ materially due to numerous known and unknown risks and uncertainties, including, without limitation, risk factors related to the following:the success and timing of our medical cost containment initiatives in Texas, the finalization of rate increases in Texas effective September 1, 2012, and other risks associated with the expansion of our Texas health plan's service areas as of March 1, 2012;significant budget pressures on state governments and their potential inability to maintain current rates, to implement expected rate increases, or to maintain existing benefit packages or membership eligibility thresholds or criteria;uncertainties regarding the implementation of the Patient Protection and Affordable Care Act, including the potential refusal of a state to expand Medicaid eligibility to its uninsured population, issues surrounding state insurance exchanges, the impact of the health insurance industry excise tax, the effect of various implementing regulations, and uncertainties regarding the impact of other federal or state health care and insurance reform measures;management of the Company's medical costs, including seasonal flu patterns and rates of utilization that are consistent with the Company's expectations, and the reduction over time of the high medical costs associated with new populations;the success of the Company's efforts to retain existing government contracts and to obtain new government contracts in connection with state requests for proposals (RFPs) in both existing and new states, and the Company's ability to grow the Company's revenues consistent with the Company's expectations;the accurate estimation of incurred but not reported medical costs across the Company's health plans;risks associated with the continued growth in new Medicaid and Medicare enrollees, and the development of actuarially sound rates with respect to such new enrollees, including dually eligible enrollees;retroactive adjustments to premium revenue or accounting estimates which require adjustment based upon subsequent developments, including Medicaid pharmaceutical rebates;the continuation and renewal of the government contracts of both the Company's health plans and Molina Medicaid Solutions and the terms under which such contracts are renewed;the timing of receipt and recognition of revenue and the amortization of expense under the state contracts of Molina Medicaid Solutions in Maine or Idaho;additional administrative costs and the potential payment of additional amounts to providers and/or the state by Molina Medicaid Solutions as a result of MMIS implementation issues in Maine or Idaho;government audits and reviews, and any enrollment freeze or monitoring program that may result therefrom;changes with respect to the Company's provider contracts and the loss of providers;the establishment of a federal or state medical cost expenditure floor as a percentage of the premiums we receive, and the interpretation and implementation of medical cost expenditure floors, administrative cost and profit ceilings, and profit sharing arrangements;the interpretation and implementation of at-risk premium rules regarding the achievement of certain quality measures;approval by state regulators of dividends and distributions by the Company's health plan subsidiaries;changes in funding under the Company's contracts as a result of regulatory changes, programmatic adjustments, or other reforms;high dollar claims related to catastrophic illness;the favorable resolution of litigation, arbitration, or administrative proceedings, including the Medicaid RFA litigation and duals RFA protest matters now pending in the state of Ohio;restrictions and covenants in the Company's credit facility;the relatively small number of states in which we operate health plans;the availability of financing to fund and capitalize the Company's acquisitions and start-up activities and to meet the Company's liquidity needs;a state's failure to renew its federal Medicaid waiver;an inadvertent unauthorized disclosure of protected health information;changes generally affecting the managed care or Medicaid management information systems industries;increases in government surcharges, taxes, and assessments;changes in general economic conditions, including unemployment rates;increasing consolidation in the Medicaid industry;and numerous other risk factors, including those discussed in the Company's periodic reports and filings with the Securities and Exchange Commission.These reports can be accessed under the investor relations tab of the Company's website or on the SEC's website at www.sec.gov.Given these risks and uncertainties, we can give no assurances that the Company's forward-looking statements will prove to be accurate, or that any other results or events projected or contemplated by the Company's forward-looking statements will in fact occur, and we caution investors not to place undue reliance on these statements.All forward‐looking statements in this release represent the Company's judgment as of July 26, 2012, and we disclaim any obligation to update any forward-looking statements to conform the statement to actual results or changes in the Company's expectations.         MOLINA HEALTHCARE, INC.UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS     Three Months EndedSix Months EndedJune 30,June 30,2012201120122011(Amounts in thousands, except net (loss) income per share)Revenue: Premium revenue $ 1,492,272 $ 1,128,770 $ 2,819,721 $ 2,210,208 Service revenue 41,724 36,888 83,929 73,562 Investment income 1,108 1,446 2,825 3,040 Rental income   1,320     –     3,529     –   Total revenue   1,536,424     1,167,104     2,910,004     2,286,810   Expenses: Medical care costs 1,377,577 949,359 2,508,565 1,862,891 Cost of service revenue 30,613 39,215 61,107 70,436 General and administrative expenses 131,485 96,921 251,708 191,357 Premium tax expenses 39,629 37,709 83,059 74,259 Depreciation and amortization   16,387     12,490     31,412     25,157   Total expenses   1,595,691     1,135,694     2,935,851     2,224,100   Operating (loss) income (59,267 ) 31,410 (25,847 ) 62,710 Interest expense   3,808     3,683     8,106     7,286   (Loss) income before income taxes (63,075 ) 27,727 (33,953 ) 55,424 Provision for income taxes   (25,769 )   10,287     (14,736 )   20,596   Net (loss) income $ (37,306 ) $ 17,440   $ (19,217 ) $ 34,828     Net (loss) income per share: Basic $ (0.80 ) $ 0.38   $ (0.42 ) $ 0.76   Diluted $ (0.80 ) $ 0.38   $ (0.42 ) $ 0.75   Weighted average shares outstanding: Basic   46,355     45,897     46,176     45,743   Diluted   46,355     46,471     46,176     46,392     Operating Statistics: Ratio of medical care costs paid directly to providers to premium revenue 90.3 % 81.9 % 86.8 % 82.1 % Ratio of medical care costs not paid directly to providers to premium revenue   2.0 %   2.2 %   2.2 %   2.2 % Medical care ratio (1)   92.3 %   84.1 %   89.0 %   84.3 % General and administrative expense ratio (2) 8.6 % 8.3 % 8.6 % 8.4 % Premium tax ratio (1) 2.7 % 3.3 % 2.9 % 3.4 % Effective tax rate (40.9 %) 37.1 % (43.4 %) 37.2 %   (1)  Medical care ratio represents medical care costs as a percentage of premium revenue; premium tax ratio represents premium taxes as a percentage of premium revenue. (2)  Computed as a percentage of total operating revenue.       MOLINA HEALTHCARE, INC.UNAUDITED CONSOLIDATED BALANCE SHEETS     June 30,Dec. 31,20122011(Amounts in thousands, except per-share data)ASSETSCurrent assets: Cash and cash equivalents $ 727,092 $ 493,827 Investments 344,910 336,916 Receivables 161,007 167,898 Income tax refundable 31,389 11,679 Deferred income taxes 26,858 18,327 Prepaid expenses and other current assets   29,780     19,435   Total current assets 1,321,036 1,048,082 Property, equipment, and capitalized software, net 206,489 190,934 Deferred contract costs 71,344 54,582 Intangible assets, net 90,402 101,796 Goodwill and indefinite-lived intangible assets 151,088 153,954 Auction rate securities 13,101 16,134 Restricted investments 43,608 46,164 Receivable for ceded life and annuity contracts – 23,401 Other assets   20,400     17,099   $ 1,917,468   $ 1,652,146     LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities: Medical claims and benefits payable $ 525,538 $ 402,476 Accounts payable and accrued liabilities 136,065 147,214 Deferred revenue 176,373 50,947 Current maturities of long-term debt   1,130     1,197   Total current liabilities 839,106 601,834 Long-term debt 269,338 216,929 Deferred income taxes 40,713 33,127 Liability for ceded life and annuity contracts – 23,401 Other long-term liabilities   22,301     21,782   Total liabilities   1,171,458     897,073   Stockholders' equity: Common stock, $0.001 par value; 80,000 shares authorized; outstanding: 46,527 shares at June 30, 2012 and 45,815 shares at December 31, 2011 46 46 Preferred stock, $0.001 par value; 20,000 shares authorized, no shares issued and outstanding – – Additional paid-in capital 275,556 266,022 Accumulated other comprehensive loss (785 ) (1,405 ) Retained earnings   471,193     490,410   Total stockholders' equity   746,010     755,073   $ 1,917,468   $ 1,652,146             MOLINA HEALTHCARE, INC.UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS     Three Months EndedSix Months EndedJune 30,June 30,   2012     2011     2012     2011   (Amounts in thousands)Operating activities: Net (loss) income $ (37,306 ) $ 17,440 $ (19,217 ) $ 34,828 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 19,671 16,508 38,010 34,602 Deferred income taxes (9,527 ) (4,458 ) (621 ) (2,839 ) Stock-based compensation 5,146 4,310 9,812 8,374 Gain on sale of subsidiary – – (2,390 ) – Non-cash interest on convertible senior notes 1,472 1,371 2,915 2,711 Change in fair value of interest rate swap agreement 1,086 – 1,086 – Amortization of premium/discount on investments 1,765 1,795 3,615 3,439 Amortization of deferred financing costs 257 504 515 1,007 Tax deficiency from employee stock compensation (19 ) (225 ) (50 ) (489 ) Changes in operating assets and liabilities: Receivables 61,247 7,611 6,891 26,999 Prepaid expenses and other current assets (5,065 ) 5,289 (10,352 ) (2,780 ) Medical claims and benefits payable 69,705 (9,769 ) 123,062 (12,743 ) Accounts payable and accrued liabilities 12,167 17,081 (22,982 ) (8,715 ) Deferred revenue 80,883 (24,541 ) 125,426 38,075 Income taxes   (16,074 )   (2,141 )   (19,737 )   (7,571 ) Net cash provided by operating activities   185,408     30,775     235,983     114,898     Investing activities: Purchases of equipment (19,796 ) (15,925 ) (33,301 ) (30,866 ) Purchases of investments (56,149 ) (78,663 ) (144,348 ) (183,647 ) Sales and maturities of investments 71,005 60,159 136,772 121,434 Proceeds from sale of subsidiary, net of cash surrendered – – 9,162 – Net cash paid in business combinations – – – (3,253 ) Increase in deferred contract costs (10,062 ) (6,770 ) (23,055 ) (16,405 ) Increase in restricted investments (1,661 ) (1,023 ) (2,154 ) (8,230 ) Change in other noncurrent assets and liabilities   (1,926 )   3,200     (4,383 )   2,190   Net cash used in investing activities   (18,589 )   (39,022 )   (61,307 )   (118,777 )   Financing activities: Amount borrowed under credit facility 50,000 – 60,000 – Repayment of amount borrowed under credit facility (10,000 ) – (10,000 ) – Principal payments on term loan (272 ) – (573 ) – Proceeds from employee stock plans 2,737 3,178 5,485 5,640 Excess tax benefits from employee stock compensation   85     490     3,677     1,566   Net cash provided by financing activities   42,550     3,668     58,589     7,206   Net increase (decrease) in cash and cash equivalents 209,369 (4,579 ) 233,265 3,327 Cash and cash equivalents at beginning of period   517,723     463,792     493,827     455,886   Cash and cash equivalents at end of period $ 727,092   $ 459,213   $ 727,092   $ 459,213       MOLINA HEALTHCARE, INC.UNAUDITED DEPRECIATION AND AMORTIZATION DATA Depreciation and amortization related to the Company's Health Plans segment is all recorded in “Depreciation and Amortization” in the consolidated statements of operations. Depreciation and amortization related to the Company's Molina Medicaid Solutions segment is recorded within three different headings in the consolidated statements of operations as follows: Amortization of purchased intangibles relating to customer relationships is reported as amortization within the heading “Depreciation and Amortization;” Amortization of purchased intangibles relating to contract backlog is recorded as a reduction of “Service Revenue;” and Depreciation is recorded within the heading “Cost of Service Revenue.” The following table presents all depreciation and amortization recorded in the Company's consolidated statements of operations, regardless of whether the item appears as depreciation and amortization, a reduction of revenue, or as cost of service revenue.   Three Months Ended June 30,2012   2011Amount   % of TotalRevenueAmount   % of TotalRevenue(Dollar amounts in thousands) Depreciation and amortization of capitalized software $ 10,851   0.7 % $ 7,225   0.6 % Amortization of intangible assets   5,536     0.4     5,265     0.5   Depreciation and amortization reported as such in the consolidated statements of operations 16,387 1.1 12,490 1.1 Amortization recorded as reduction of service revenue 153 – 1,546 0.1 Amortization of capitalized software recorded as cost of service revenue   3,131     0.2     2,472     0.2   Total $ 19,671     1.3 % $ 16,508     1.4 %               Six Months Ended June 30,20122011Amount% of TotalRevenueAmount% of TotalRevenue(Dollar amounts in thousands) Depreciation, and amortization of capitalized software $ 20,323 0.7 % $ 14,625 0.6 % Amortization of intangible assets   11,089     0.4     10,532     0.5   Depreciation and amortization reported as such in the consolidated statements of operations 31,412 1.1 25,157 1.1 Amortization recorded as reduction of service revenue 306 – 3,732 0.2 Amortization of capitalized software recorded as cost of service revenue   6,292     0.2     5,713     0.2   Total $ 38,010     1.3 % $ 34,602     1.5 %           MOLINA HEALTHCARE, INC.UNAUDITED MEMBERSHIP DATA     June 30,March 31,Dec. 31,June 30,2012201220112011Total Ending Membership by Health Plan: California 350,000 351,000 355,000 348,000 Florida 70,000 69,000 69,000 66,000 Michigan 220,000 222,000 222,000 220,000 Missouri (1) 79,000 81,000 79,000 80,000 New Mexico 89,000 89,000 88,000 89,000 Ohio 260,000 249,000 248,000 245,000 Texas 301,000 280,000 155,000 129,000 Utah 86,000 86,000 84,000 82,000 Washington 356,000 356,000 355,000 345,000 Wisconsin 42,000 42,000 42,000 41,000 Total 1,853,000 1,825,000 1,697,000 1,645,000   Total Ending Membership by State for the Medicare Advantage Plans: California 7,000 6,900 6,900 6,000 Florida 900 800 800 600 Michigan 8,900 8,500 8,200 7,100 New Mexico 900 900 800 700 Ohio 200 200 200 200 Texas 800 800 700 600 Utah 8,300 8,100 8,400 7,000 Washington 5,700 5,200 5,000 4,000 Total 32,700 31,400 31,000 26,200   Total Ending Membership by State for the Aged, Blind or Disabled Population: California 41,100 37,300 31,500 17,000 Florida 10,400 10,500 10,400 10,300 Michigan 40,000 38,800 37,500 31,600 New Mexico 5,600 5,600 5,600 5,600 Ohio 29,600 29,700 29,100 28,700 Texas 111,000 109,000 63,700 52,000 Utah 8,800 8,700 8,500 8,300 Washington 4,400 4,700 4,800 4,400 Wisconsin 1,700 1,700 1,700 1,700 Total 252,600 246,000 192,800 159,600   (1)  The Company's contract with the state of Missouri expired without renewal on June 30, 2012.                 MOLINA HEALTHCARE, INC.UNAUDITED SELECTED FINANCIAL DATA BY HEALTH PLAN(Amounts in thousands except per member per month amounts)     Three Months Ended June 30, 2012MemberMonths(1)Premium RevenueMedical Care CostsMedicalCare RatioPremium TaxExpenseTotalPMPMTotalPMPM California 1,056 $ 167,644 $ 158.77 $ 149,239 $ 141.34 89.0 % $ 2,695 Florida 210 57,303 273.00 48,442 230.79 84.5 (20 ) Michigan 662 162,758 245.89 141,682 214.04 87.1 1,073 Missouri (2) 240 57,205 237.97 59,981 249.52 104.9 – New Mexico 266 85,360 320.92 67,836 255.03 79.5 2,257 Ohio 762 297,069 389.85 245,284 321.89 82.6 23,012 Texas 907 359,486 396.63 393,237 433.87 109.4 6,669 Utah 259 76,911 297.00 63,419 244.90 82.5 – Washington 1,068 207,376 194.14 174,045 162.93 83.9 3,799 Wisconsin 125 18,788 150.12 22,758 181.84 121.1 – Other (3) –   2,372 –   11,654 – –   144   5,555 $ 1,492,272 $ 268.65 $ 1,377,577 $ 248.00 92.3 % $ 39,629       Three Months Ended June 30, 2011MemberMonths(1)Premium RevenueMedical Care CostsMedicalCare RatioPremium TaxExpenseTotalPMPMTotalPMPM California 1,043 $ 139,097 $ 133.35 $ 117,511 $ 112.66 84.5 % $ 1,921 Florida 197 49,770 252.78 48,294 245.29 97.0 34 Michigan 668 165,575 247.74 130,325 195.00 78.7 9,728 Missouri (2) 243 56,625 232.80 51,100 210.08 90.2 – New Mexico 270 81,973 304.29 68,579 254.57 83.7 2,423 Ohio 736 230,874 313.36 179,102 243.09 77.6 17,782 Texas 391 104,399 267.06 99,154 253.64 95.0 2,063 Utah 244 77,507 318.32 58,473 240.15 75.4 – Washington 1,027 202,595 197.39 171,742 167.33 84.8 3,662 Wisconsin 121 17,840 147.02 14,415 118.79 80.8 44 Other (3) –   2,515 –   10,664 – –   52   4,940 $ 1,128,770 $ 228.50 $ 949,359 $ 192.18 84.1 % $ 37,709     (1) A member month is defined as the aggregate of each month's ending membership for the period presented. (2) The Company's contract with the state of Missouri expired without renewal on June 30, 2012. (3) “Other” medical care costs also include medically related administrative costs at the parent company.                 MOLINA HEALTHCARE, INC.UNAUDITED SELECTED FINANCIAL DATA BY HEALTH PLAN(Amounts in thousands except per member per month amounts)     Six Months Ended June 30, 2012MemberMonths(1)Premium RevenueMedical Care CostsMedicalCare RatioPremium TaxExpenseTotalPMPMTotalPMPM California 2,115 $ 329,329 $ 155.70 $ 290,588 $ 137.39 88.2 % $ 5,004 Florida 418 113,493 271.44 98,011 234.41 86.4 (13 ) Michigan 1,327 330,664 249.20 275,893 207.92 83.4 10,157 Missouri (2) 483 113,818 235.63 113,101 234.15 99.4 – New Mexico 532 168,621 317.10 134,947 253.78 80.0 4,210 Ohio 1,508 590,594 391.77 481,985 319.72 81.6 45,865 Texas 1,499 557,722 372.11 573,326 382.53 102.8 9,866 Utah 511 152,049 297.29 121,300 237.17 79.8 – Washington 2,135 422,986 198.11 355,470 166.49 84.0 7,711 Wisconsin 250 35,930 143.54 39,644 158.31 110.3 – Other (3) –   4,515 –   24,300 – –   259   10,778 $ 2,819,721 $ 261.61 $ 2,508,565 $ 232.75 89.0 % $ 83,059       Six Months Ended June 30, 2011MemberMonths(1)Premium RevenueMedical Care CostsMedicalCare RatioPremium TaxExpenseTotalPMPMTotalPMPM California 2,084 $ 274,073 $ 131.49 $ 231,248 $ 110.95 84.4 % $ 3,823 Florida 389 98,992 254.68 95,863 246.63 96.8 51 Michigan 1,346 330,335 245.38 264,053 196.15 79.9 19,575 Missouri (2) 488 111,792 229.05 102,707 210.44 91.9 – NewMexico 541 166,579 308.12 138,616 256.40 83.2 4,388 Ohio 1,473 461,213 313.02 350,853 238.12 76.1 35,557 Texas 740 185,210 250.28 172,769 233.47 93.3 3,403 Utah 480 145,442 303.28 112,312 234.20 77.2 – Washington 2,061 397,867 193.09 340,857 165.42 85.7 7,323 Wisconsin 241 34,257 142.17 33,794 140.25 98.7 44 Other (3) –   4,448 –   19,819 – –   95   9,843 $ 2,210,208 $ 224.56 $ 1,862,891 $ 189.27 84.3 % $ 74,259     (1) A member month is defined as the aggregate of each month's ending membership for the period presented. (2) The Company's contract with the state of Missouri expired without renewal on June 30, 2012. (3) “Other” medical care costs also include medically related administrative costs of the parent company.   MOLINA HEALTHCARE, INC.UNAUDITED SELECTED FINANCIAL DATA(Amounts in thousands except per member per month amounts) The following tables provide the details of the Company's medical care costs for the periods indicated:   Three Months Ended June 30,2012   2011Amount   PMPM   % of TotalAmount   PMPM   % of Total Fee for service $ 981,002 $ 176.60 71.2 % $ 695,551 $ 140.80 73.2 % Capitation 138,891 25.00 10.1 125,958 25.50 13.2 Pharmacy 212,944 38.33 15.5 87,870 17.79 9.4 Other   44,740   8.07 3.2     39,980   8.09 4.2   Total $ 1,377,577 $ 248.00 100.0 % $ 949,359 $ 192.18 100.0 %               Six Months Ended June 30,20122011AmountPMPM% of TotalAmountPMPM% of Total Fee for service $ 1,758,269 $ 163.13 70.1 % $ 1,351,435 $ 137.31 72.5 % Capitation 274,929 25.51 11.0 254,640 25.87 13.7 Pharmacy 386,181 35.83 15.4 179,446 18.23 9.6 Other   89,186   8.28 3.5     77,370   7.86 4.2   Total $ 2,508,565 $ 232.75 100.0 % $ 1,862,891 $ 189.27 100.0 %   The following table provides the details of the Company's medical claims and benefits payable as of the dates indicated:   June 30,   Dec. 31,   June 30,201220112011(In thousands) Fee-for-service claims incurred but not paid (IBNP) $ 378,782 $ 301,020 $ 270,558 Capitation payable 79,739 53,532 43,131 Pharmacy 34,848 26,178 15,094 Other   32,169   21,746   12,830 $ 525,538 $ 402,476 $ 341,613   MOLINA HEALTHCARE, INC.UNAUDITED CHANGE IN MEDICAL CLAIMS AND BENEFITS PAYABLE The Company's claims liability includes an allowance for adverse claims development based on historical experience and other factors including, but not limited to, variations in claims payment patterns, changes in utilization and cost trends, known outbreaks of disease, and large claims. The Company's reserving methodology is consistently applied across all periods presented. The amounts displayed for “Components of medical care costs related to: Prior periods” represent the amount by which the Company's original estimate of claims and benefits payable at the beginning of the period were (more) or less than the actual amount of the liability based on information (principally the payment of claims) developed since that liability was first reported. The following table shows the components of the change in medical claims and benefits payable as of the periods indicated:   Six Months EndedJune 30,   Three Months EndedJune 30,   Year EndedDec. 31,20112012   20112012   2011(Dollars in thousands, except per-member amounts) Balances at beginning of period $ 402,476 $ 354,356 $ 455,833 $ 351,382 $ 354,356 Components of medical care costs related to: Current period 2,544,922 1,908,289 1,377,084 969,100 3,911,803 Prior periods   (36,357 )   (45,398 )   493     (19,741 )   (51,809 ) Total medical care costs   2,508,565     1,862,891     1,377,577     949,359     3,859,994   Payments for medical care costs related to: Current period 2,033,611 1,584,636 891,573 666,081 3,516,994 Prior periods   351,892     290,998     416,299     293,047     294,880   Total paid   2,385,503     1,875,634     1,307,872     959,128     3,811,874   Balances at end of period $ 525,538   $ 341,613   $ 525,538   $ 341,613   $ 402,476   Benefit from prior period as a percentage of: Balance at beginning of period 9.0 % 12.8 % (0.1 %) 5.6 % 14.6 % Premium revenue 1.3 % 2.1 % 0.0 % 1.7 % 1.1 % Total medical care costs 1.4 % 2.4 % 0.0 % 2.1 % 1.3 %   Claims Data: Days in claims payable, fee for service 44 39 44 39 40 Number of members at end of period 1,853,000 1,645,000 1,853,000 1,645,000 1,697,000 Number of claims in inventory at end of period 209,200 121,900 209,200 121,900 111,100 Billed charges of claims in inventory at end of period $ 324,500 $ 205,800 $ 324,500 $ 205,800 $ 207,600 Claims in inventory per member at end of period 0.11 0.07 0.11 0.07 0.07 Billed charges of claims in inventory per member at end of period $ 175.12 $ 125.11 $ 175.12 $ 125.11 $ 122.33 Number of claims received during the period 10,375,700 8,715,200 5,520,100 4,373,000 17,207,500 Billed charges of claims received during the period $ 9,388,700 $ 6,963,300 $ 5,051,800 $ 3,576,700 $ 14,306,500   Molina Healthcare, Inc.Juan José Orellana, 562-435-3666, ext. 111143