Molina Medicaid Solutions - DHHR

e10vkMOLINA HEALTHCARE, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)recorded an other-than-temporary impairment of the underlying auction rate securities, and prior unrealized losses on the auction rate securities that had been recorded to othercomprehensive loss through November 2008 were charged to income, totaling $7.2 million. We expect that the future changes in the fair value of the Rights will continue to besubstantially offset by the fair value movements in the underlying auction rate securities.As of December 31, 2009, the remainder of our auction rate securities (designated as available-for-sale securities) amounted to $26.9 million par value (fair value of$23.0 million). As a result of the increase in fair value of auction rate securities designated as available-for-sale, we recorded unrealized gains of $0.8 million ($0.5 million, netof tax) to accumulated other comprehensive income for the year ended December 31, 2009. We recorded unrealized losses of $7.6 million ($4.7 million, net of tax) to othercomprehensive loss for the year ended December 31, 2008. We have deemed these unrealized gains and losses to be temporary and attribute the decline in value to liquidityissues, as a result of the failed auction market, rather than to credit issues. Any future fluctuation in fair value related to these instruments that we deem to be temporary,including any recoveries of previous write-downs, would be recorded to accumulated other comprehensive loss. If we determine that any future valuation adjustment wasother-than-temporary, we would record a charge to earnings as appropriate.Based on market conditions that resulted in the absence of quoted prices in active markets for our auction rate securities, we changed our valuation methodology forauction rate securities to a discounted cash flow analysis during the first quarter of 2008. Our assets measured at fair value on a recurring basis at December 31, 2009, were asfollows:Fair Value Measurements at Reporting Date UsingTotal Level 1 Level 2 Level 3(In thousands)Investments (not including auction rate securities) $ 174,844 $ 174,844 $ — $ —Auction rate securities (available-for-sale) 22,957 — — 22,957Auction rate securities (trading) 36,730 — — 36,730Auction rate securities rights 3,807 — — 3,807Restricted investments 36,274 36,274 — —Total assets measured at fair value $ 274,612 $ 211,118 $ — $ 63,494The following table presents our assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3):(Level 3)(In thousands)Balance at December 31, 2008 $ 65,076Total gains (realized or unrealized):Included in earnings 294Included in other comprehensive income 824Settlements (2,700)Balance at December 31, 2009 $ 63,494The amount of total gains for the period included in other comprehensive income attributable to the change in unrealized gains relating to assets still heldat December 31, 2009 $ 82481Table of ContentsMOLINA HEALTHCARE, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)6. InvestmentsThe following tables summarize our investments as of the dates indicated:December 31, 2009Cost or Gross EstimatedAmortized Unrealized FairCost Gains Losses Value(In thousands)Government-sponsored enterprise securities $ 89,451 $ 504 $ 281 $ 89,674Municipal securities (including auction rate securities) 82,009 3,120 4,154 80,975U.S. treasury notes 28,052 92 84 28,060Certificates of deposit 3,258 — — 3,258Corporate bonds 32,543 206 185 32,564$ 235,313 $ 3,922 $ 4,704 $ 234,531December 31, 2008Cost or Gross EstimatedAmortized Unrealized FairCost Gains Losses Value(In thousands)Government-sponsored enterprise securities $ 93,994 $ 1,309 $ 79 $ 95,224Municipal securities (including auction rate securities) 85,973 23 5,313 80,683U.S. treasury notes 8,604 295 — 8,899Certificates of deposit 13,494 — — 13,494Corporate bonds 50,315 155 731 49,739$ 252,380 $ 1,782 $ 6,123 $ 248,039The contractual maturities of our investments as of December 31, 2009 are summarized below.EstimatedAmortized FairCost Value(In thousands)Due in one year or less $ 67,475 $ 67,387Due one year through five years 106,624 106,934Due after five years through ten years 1,430 1,400Due after ten years 59,784 58,810$ 235,313 $ 234,531Gross realized gains and gross realized losses from sales of available-for-sale securities are calculated under the specific identification method and are included ininvestment income. Total proceeds from sales of available-for-sale securities were $60.3 million, $55.3 million, and $13.1 million for the years ended December 31, 2009,2008 and 2007, respectively. Net realized investment gains (losses) for the years ended December 31, 2009, 2008 and 2007 were $267,000, $342,000 and $(78,000)respectively.We monitor our investments for other-than-temporary impairment. For investments other than our municipal securities, we have determined that unrealized gains andlosses at December 31, 2009 and 2008 are temporary in nature, because the change in market value for these securities has resulted from fluctuating interest rates, rather than adeterioration of the credit worthiness of the issuers. So long as we hold these securities to maturity, we are unlikely to experience gains or losses. In the event that we dispose ofthese securities before maturity, we expect that realized gains or losses, if any, will be immaterial.82Table of ContentsMOLINA HEALTHCARE, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Our investment in municipal securities consists primarily of auction rate securities. As described in Note 5, “Fair Value Measurements,” the unrealized losses on theseinvestments were caused primarily by the illiquidity in the auction markets. Because the decline in market value is not due to the credit quality of the issuers, and because we dohttp://sec.gov/Archives/edgar/data/1179929/000095012310025132/a55407e10vk.htm[1/6/2012 11:12:35 AM]