Molina Healthcare Reports Fourth Quarter and Year-End 2011 Results

Molina Healthcare, Inc. (NYSE: MOH):

• Annual cash flow from operations of $225.4 million, up 40% from 2010
• Annual premium revenues of $4.6 billion, up 15% over 2010
• Full year and quarterly earnings (loss) per diluted share of $0.45 and $(0.72), respectively, including non-cash Missouri health plan impairment charge of $1.34 per diluted share
• Full year and quarterly earnings per diluted share of $1.79 and $0.62, respectively, not including Missouri impairment charge

Molina Healthcare, Inc. (NYSE: MOH) today reported its financial results for the fourth quarter and year ended December 31, 2011.

Net loss for the quarter was $33.0 million, or $0.72 per diluted share, compared with net income of $17.6 million, or $0.39 per diluted share, for the quarter ended December 31, 2010. Net income for the year ended December 31, 2011, was $20.8 million, or $0.45 per diluted share, compared with net income of $55.0 million, or $1.32 per diluted share, for the year ended December 31, 2010. Earnings per diluted share for the quarter and year ended December 31, 2011, were affected by significant items as follows:

• The Company recorded an impairment charge of $64.6 million in the fourth quarter of 2011 related to its Missouri health plan. On February 17, 2012, the Division of Purchasing of the Missouri Office of Administration notified the Missouri health plan that it had not been awarded a contract under the Missouri HealthNet Managed Care Request for Proposal. As a result, the Missouri health plan’s existing contract with the state will expire without renewal on June 30, 2012. The impairment charge reflects the write off of goodwill and intangible assets recorded at the time of the Company’s acquisition of the Missouri health plan in 2007. Most of the impairment charge is not tax deductible, resulting in a disproportionate impact to diluted earnings per share.
• In the fourth quarter of 2011, operating income increased $15.9 million (approximately $0.21 per diluted share) due to a contract amendment entered into by the Company’s New Mexico health plan that more closely aligned the calculation of revenue with the methodology adopted under the Affordable Care Act. The contract amendment changed the calculation of the amount of revenue that may be recognized relative to medical costs by the Company’s New Mexico heath plan. Approximately $5.4 million ($0.07 per diluted share) of the increase in 2011 operating income related to the periods prior to 2011.
• In the fourth quarter of 2011, operating income decreased $7.5 million (approximately $0.10 per diluted share) due to the settlement of an acquisition-related arbitration matter at the Florida health plan and certain provider termination costs.

The following table captures the impact of these developments to diluted earnings per share:

		Impact To:
		(Loss) Income Before Income Taxes				(Loss) Earnings Per Diluted Share				(Loss) Income Before Income Taxes				(Loss) Earnings Per Diluted Share
		Three Months EndedDecember 31, 2011								Year EndedDecember 31, 2011
		(In thousands, except diluted (loss) income per share)
Impairment of goodwill and intangible assets		$	(64,575	)		$	(1.34	)		$	(64,575	)		$	(1.34	)
New Mexico health plan revenue adjustment			15,856				0.21				5,396				0.07
Arbitration and provider termination costs			(7,463	)			(0.10	)			(7,463	)			(0.10	)
Total		$	(56,182	)		$	(1.23	)		$	(66,642	)		$	(1.37	)

“Our strong results for the fourth quarter and all of 2011 give us much cause for optimism,” said J. Mario Molina, M.D., chief executive officer of Molina Healthcare, Inc. “Our cash flow from operations of $225 million in 2011 was a record for our company. Were it not for the loss of our Missouri contract, which represented only 5% of our 2011 revenue, net income for both the fourth quarter and all of 2011 would also have been records for our company. In 2011, we laid the foundations for future growth, achieving certification of our Medicaid management information system in Maine, winning large contract awards in Texas, serving more of the Aged, Blind or Disabled, or ABD, in California, and preparing for the dual-eligible opportunity in many of our states.”Earnings Per Share Guidance



The Company has revised its guidance for fiscal year 2012 earnings to $1.75 per diluted share. Additional details regarding the Company’s guidance is provided later in this release. Overview of Financial ResultsFourth Quarter 2011 Compared with Third Quarter 2011



Pretax results in the fourth quarter of 2011 decreased by approximately $49.1 million compared with the third quarter of 2011:

• Missouri impairment charge of $64.6 million discussed above.
• Premium revenue increased approximately 10%. Absent the $16.5 million increase in revenue ($15.9 million net of premium tax) due to the contract amendment in New Mexico, premium revenue increased approximately 8.8%, primarily due to the addition of pharmacy benefits to the Company’s premium revenue in Ohio effective October 1, 2011.
• Consolidated medical costs as a percentage of premium revenue decreased to 82.7 in the third quarter of 2011. Absent the adjustment of New Mexico premium revenue, the medical care ratio was 83.8% in the fourth quarter of 2011. Pharmacy costs increased sharply between the third and fourth quarters due to the addition of pharmacy benefits in Ohio effective October 1, 2011.
• Hospital utilization decreased approximately 2% between the third and fourth quarters of 2011.
• Operating income increased approximately $6.3 million at the Company’s Molina Medicaid Solutions segment between the third and fourth quarters of 2011.
• Administrative costs increased approximately $25.4 million between the third and fourth quarters of 2011 due to the costs of the Florida arbitration settlement, higher variable compensation and employee health care costs, and investment in administrative infrastructure in anticipation of opportunities in Texas and among the dual-eligible population.

Fourth Quarter 2011 Compared with Fourth Quarter 2010



Excluding the impairment charge, fourth quarter 2011 results were marked by improved performance of the Company’s Health Plans segment due to a 20.3% increase in premium revenue and improved profitability of the Company’s Molina Medicaid Solutions segment compared with the fourth quarter of 2010. Membership on a member-month basis grew by 4.9%. Health Plans SegmentPremium Revenue



In the three months ended December 31, 2011, compared with the three months ended December 31, 2010, premium revenue grew 20.3% due to a membership increase of approximately 4.9% (on a member-month basis) and PMPM revenue increase of approximately 14.7%. Absent the adjustment to New Mexico premium revenue and the addition of the pharmacy benefit in Ohio, premium revenue PMPM increased approximately 6.7%, from $216 in the fourth quarter of 2010 to $230 in the fourth quarter of 2011. Increased enrollment among ABD and Medicare populations contributed to the higher premium revenue PMPM. Medicare premium revenue was $105.9 million for the three months ended December 31, 2011, compared with $76.5 million for the three months ended December 31, 2010. Medical Care Costs



The ratio of medical care costs to premium revenue (the medical care ratio, or MCR) was essentially flat at 82.7% in the three months ended December 31, 2011 and 2010. Absent the adjustment to New Mexico premium revenue, the medical care ratio was 83.8% in the fourth quarter of 2011. The Company attributes the increase in the medical care ratio between the fourth quarter of 2010 and the fourth quarter of 2011 (absent the New Mexico premium adjustment) to premium rates that have not kept pace with medical costs as a result of state budget constraints. Total medical care costs increased approximately 15% PMPM.

• Capitation costs decreased approximately 11% PMPM, primarily due to the transition of members in Michigan and Washington into fee-for-service networks.
• Fee-for-service costs increased approximately 14% PMPM, partially due to the transition of members from capitated provider networks into fee-for-service networks.
• Fee-for-service and capitation costs combined increased approximately 9% PMPM. Excluding the Texas health plan, fee-for-service and capitation costs combined increased approximately 5% PMPM.
• Pharmacy costs increased approximately 10% PMPM, excluding the addition of pharmacy benefits in Ohio effective October 1, 2011. Approximately two-thirds of the increase in pharmacy costs was attributable to higher unit costs, with the remainder due to increased utilization.
• Hospital utilization decreased 3% between the fourth quarters of 2011 and 2010.

The medical care ratio of the California health plan increased to 85.5% in the three months ended December 31, 2011, from 81.9% in the three months ended December 31, 2010. Decreases in the PMPM premium earned for the Temporary Aid to Needy Families, or TANF, population, coupled with higher pharmacy and fee-for-service costs, were the cause of the higher medical care ratio in 2011 compared with 2010. In the fourth quarter of 2011, the California health plan added approximately 7,800 ABD members with average premium revenue of approximately $385 PMPM.

The medical care ratio of the Florida health plan decreased to 85.2% in the three months ended December 31, 2011, from 100.2% in the three months ended December 31, 2010, primarily due to initiatives implemented to reduce pharmacy and behavioral health costs and a premium rate increase of approximately 7.5% effective September 1, 2011.

The medical care ratio of the Michigan health plan increased to 83.0% in the three months ended December 31, 2011, from 81.9% in the three months ended December 31, 2010, primarily due to increased pharmacy costs and higher physician capitation and outpatient costs combined.

The medical care ratio of the Missouri health plan decreased to 80.0% in the three months ended December 31, 2011, from 82.5% in the three months ended December 31, 2010.

The medical care ratio of the New Mexico health plan decreased to 72.0% in the three months ended December 31, 2011, from 82.1% in the three months ended December 31, 2010. During the fourth quarter of 2011, the plan entered into a contract amendment with the state of New Mexico that more closely aligned the calculation of revenue with the methodology adopted under the Affordable Care Act. The contract amendment changed the calculation of the amount of revenue that may be recognized relative to medical costs. Premium revenue increased $16.5 million due to this amendment, of which $5.6 million related to periods prior to January 1, 2011. The increase in revenue was partially offset by $0.6 million of premium tax expense associated with the adjustment.

The medical care ratio of the Ohio health plan increased to 79.2% in the three months ended December 31, 2011, from 74.5% in the three months ended December 31, 2010. In connection with the addition of the pharmacy benefit in Ohio effective October 1, 2011, a transition of care period was in effect for the first 90 days after the addition, which inhibited the Company’s ability to manage the cost of the benefit.

The medical care ratio of the Texas health plan increased to 93.4% in the three months ended December 31, 2011, from 83.2% in the three months ended December 31, 2010. The higher medical care ratio in Texas in the fourth quarter of 2011 was primarily the result of the Company’s ABD population in the Dallas-Fort Worth region (added effective February 1, 2011), where medical costs were well in excess of premium revenue. Excluding the ABD population in the Dallas-Fort Worth region, the medical care ratio of the Texas health plan was 87.7% for the fourth quarter of 2011.

The medical care ratio of the Utah health plan decreased to 78.9% in the three months ended December 31, 2011, from 83.2% in the three months ended December 31, 2010, primarily due to a reduction in inpatient utilization.

The medical care ratio of the Washington health plan decreased to 81.5% in the three months ended December 31, 2011, from 83.2% in the three months ended December 31, 2010. Lower capitation costs were partially offset by higher fee-for-service and pharmacy costs.

The medical care ratio of the Wisconsin health plan increased to 93.5% in the three months ended December 31, 2011, from 90.3% in the three months ended December 31, 2010. The primary driver was an 11% premium rate decrease effective January 1, 2011. Molina Medicaid Solutions Segment



The Company acquired Molina Medicaid Solutions on May 1, 2010. Performance of the Molina Medicaid Solutions segment was as follows:

		Three Months Ended December 31,
		2011				2010
		(In thousands)
Service revenue before amortization		$	50,702			$	40,554
Amortization recorded as reduction of service revenue			(1,545	)			(4,070	)
Service revenue			49,157				36,484
Cost of service revenue			38,967				36,788
General and administrative costs			2,849				1,974
Amortization of customer relationship intangibles recorded as amortization			1,281				1,275
Operating income (loss)		$	6,060			$	(3,553	)

The Company is currently deferring recognition of all revenue as well as all direct costs (to the extent that such costs are estimated to be recoverable) in Idaho until the Medicaid Management Information System, or MMIS, in that state receives certification from the Centers for Medicare and Medicaid Services, or CMS. Cost of service revenue for the fourth quarter of 2011 includes $2.0 million of direct costs associated with the Idaho contract that would otherwise have been recorded as deferred contract costs. In assessing the recoverability of the deferred contract costs associated with the Idaho contract at December 31, 2011, the Company determined that these costs should be expensed as a period cost. In December 2011, the Company’s MMIS in Maine received full certification from CMS. Consolidated ExpensesGeneral and Administrative Expenses



General and administrative, or G&A, expenses, were $125.0 million, or 9.6% of total revenue, for the three months ended December 31, 2011, compared with $100.4 million, or 9.3% of total revenue, for the three months ended December 31, 2010. The Company incurred additional expenses in the fourth quarter of 2011 due to the settlement of an acquisition-related arbitration matter at the Florida health plan, higher variable compensation and employee health care costs, and investment in administrative infrastructure in anticipation of opportunities in Texas and among the dual-eligible population. Premium Tax Expenses



Premium tax expense increased slightly to 3.5% of premium revenue in the three months ended December 31, 2011, from 3.4% in the three months ended December 31, 2010. Interest Expense



Interest expense increased to $3.9 million for the three months ended December 31, 2011, from $3.5 million for the three months ended December 31, 2010, primarily due to $48.6 million borrowed under a term loan to acquire the Molina Center in early December 2011. Interest expense includes non-cash interest expense relating to the Company’s convertible senior notes, which amounted to $1.4 million and $1.3 million for the three months ended December 31, 2011 and 2010, respectively. Income Taxes



Income tax expense is recorded at an effective rate of (65.2)% for the three months ended December 31, 2011, compared with 41.2% for the three months ended December 31, 2010. The rate change in 2011 is primarily due to the non-deductible nature of the majority of the Missouri health plan impairment charge. Year Ended December 31, 2011, Compared with Year Ended December 31, 2010



Excluding the Missouri health plan impairment charge, improved performance of both the Health Plans segment and the Molina Medicaid Solution segment led to improved performance for the year ended December 31, 2011, compared with the year ended December 31, 2010. Health plan membership on a member-month basis grew by 8.4%. Health Plans SegmentPremium Revenue



In the year ended December 31, 2011, compared with the year ended December 31, 2010, premium revenue increased 15.4% due to a membership increase of approximately 8.4% (on a member-month basis) and a PMPM revenue increase of approximately 6.4%. Absent the adjustment to New Mexico premium revenue and the addition of the pharmacy benefit in Ohio, premium revenue PMPM increased approximately 4.4%, from $218 in 2010 to $227 in 2011. Increased enrollment among the ABD and Medicare populations contributed to the higher premium revenue PMPM. Medicare premium revenue was $388.2 million for the year ended December 31, 2011, compared with $265.2 million for the year ended December 31, 2010. Medical Care Costs



The medical care ratio decreased to 83.9% for the year ended December 31, 2011, compared with 84.5% for the year ended December 31, 2010. Absent that portion of the adjustment to New Mexico premium revenue that related to 2010, the medical care ratio was 84.0% for the year ended December 31, 2011. Total medical care costs increased less than 6% PMPM.

• Pharmacy costs increased approximately 7% PMPM, excluding the addition of pharmacy benefits in Ohio effective October 1, 2011. Approximately two-thirds of the increase in pharmacy costs was attributable to higher unit costs, with the remainder due to increased utilization.
• Capitation costs decreased approximately 14% PMPM, primarily due to the transition of members in Michigan and Washington into fee-for-service networks.
• Fee-for-service costs increased approximately 8% PMPM, partially due to the transition of members from capitated provider networks into fee-for-service networks.
• Fee-for-service and capitation costs combined increased approximately 4% PMPM. Excluding the Texas health plan, fee-for-service and capitation costs combined increased approximately 2% PMPM.
• Hospital utilization decreased approximately 5%.

Molina Medicaid Solutions Segment



The Company acquired Molina Medicaid Solutions on May 1, 2010; therefore, the year ended December 31, 2010, includes only eight months of operating results for this segment. Performance of the Molina Medicaid Solutions segment was as follows:

		Twelve Months Ended Dec. 31, 2011				Eight Months Ended Dec. 31, 2010
		(In thousands)
Service revenue before amortization		$	167,269			$	98,125
Amortization recorded as reduction of service revenue			(6,822	)			(8,316	)
Service revenue			160,447				89,809
Cost of service revenue			143,987				78,647
General and administrative costs			9,270				5,135
Amortization of customer relationship intangibles recorded as amortization			5,127				3,418
Operating income		$	2,063			$	2,609

Cost of service revenue for the year ended December 31, 2011, includes $11.5 million of direct costs associated with the Idaho contract that would otherwise have been recorded as deferred contract costs, for the same reasons discussed above, in “Fourth Quarter 2011 Compared with Fourth Quarter 2010.”Consolidated Expenses and OtherGeneral and Administrative Expenses



General and administrative expenses were $415.9 million, or 8.7% of total revenue, for the year ended December 31, 2011, compared with $346.0 million, or 8.5% of total revenue, for the year ended December 31, 2010. Premium Tax Expense



Premium tax expense decreased to 3.4% of premium revenue, for the year ended December 31, 2011, from 3.5% for the year ended December 31, 2010. Interest Expense



Interest expense was $15.5 million for the years ended December 31, 2011 and 2010. Interest expense includes non-cash interest expense relating to our convertible senior notes, which amounted to $5.5 million and $5.1 million for the years ended December 31, 2011 and 2010, respectively. Income Taxes



Income tax expense is recorded at an effective rate of 67.8% for the year ended December 31, 2011, compared with 38.6% for the year ended December 31, 2010. The effective rate for the year ended December 31, 2011 reflects the non-deductible nature of the majority of the Missouri impairment charge, discrete tax benefits of $1.7 million recognized for statute closures, prior year tax return to provision reconciliations, and certain non-recurring income that is not subject to income tax. Excluding the impact from the Missouri impairment charge and discrete tax benefits, the effective tax rate for the year ended December 31, 2011 was 37.9%. Cash Flow



Cash provided by operating activities for the year ended December 31, 2011 was $225.4 million compared with $161.4 million for the year ended December 31, 2010, an increase of $64.0 million. This increase was primarily due to the change in deferred revenue. In 2011, deferred revenue was a use of cash amounting to $8.2 million, compared with $41.9 million in 2010.

At December 31, 2011, the Company had cash and investments of $893.0 million, and the parent company had cash and investments of $23.6 million. Molina Center



On December 7, 2011, the Company acquired the Molina Center, a 460,000 square foot office building in Long Beach, California. The purchase price was $81.0 million, of which $32.4 million was paid in cash and $48.6 million was borrowed under a term loan. The Company acquired the Molina Center primarily to facilitate space needs for the projected future growth of the Company.

Reconciliation of Non-GAAP(1) to GAAP Financial Measures
EBITDA(2)
		Three Months Ended December 31,				Year Ended December 31,
		2011		2010		2011		2010
		(In thousands)
Net (loss) income		$ (32,960)		$ 17,628		$ 20,818		$ 54,970
Add back:
Depreciation and amortization reported in the consolidated statements of cash flows
		21,969		20,280		74,383		60,765
Interest expense		3,853		3,453		15,519		15,509
Provision for income taxes		13,004		12,351		43,836		34,522
EBITDA		$ 5,866		$ 53,712		$ 154,556		$ 165,766

⁽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 our 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 our performance and the performance of other companies in our industry. Revised Guidance 2012 Details



The Company is revising its guidance for fiscal year 2012 as follows (all amounts are approximate):

Premium revenue							$5.8 billion
Service revenue							$185 million
Investment income							$6 million
Total revenue							$6.0 billion
Medical care costs							$5.0 billion
Medical care ratio							86%
Service costs							$158 million
Service revenue ratio							85%
General and administrative, or G&A, expense							$464 million
G&A ratio							7.8%
Premium tax expense							$169 million
Depreciation							$35 million
Amortization							$15 million
Interest expense							$17 million
Income before tax							$133 million
Net income							$83 million
Diluted earnings per share							$1.75
Weighted average diluted shares outstanding							47.3 million
EBITDA							$213 million
Effective tax rate							38%

Conference Call



The Company’s management will host a conference call and webcast to discuss its fourth quarter and year-end results at 5:00 p.m. Eastern time on Thursday, February 23, 2012. The number to call for the interactive teleconference is (212) 231-2918. A telephonic replay of the conference call will be available from 7:00 p.m. Eastern time on Thursday, February 23, 2012, through 6:00 p.m. on Friday, February 24, 2012, by dialing (800) 633-8284 and entering confirmation number 21574629. 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. Our licensed health plans in California, Florida, Michigan, Missouri, New Mexico, Ohio, Texas, Utah, Washington, and Wisconsin currently serve approximately 1.7 million members, and our 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 and other projected financial results 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:

• significant budget pressures on state governments which cause them to lower rates unexpectedly or to rescind expected rate increases, or their failure to maintain existing benefit packages or membership eligibility thresholds or criteria;
• uncertainties regarding the impact of the Patient Protection and Affordable Care Act, including its possible repeal, judicial overturning of the individual insurance mandate or Medicaid expansion, the effect of various implementing regulations, and uncertainties regarding the impact of other federal or state health care and insurance reform measures;
• management of our medical costs, including costs associated with unexpectedly severe or widespread illnesses such as influenza, and rates of utilization that are consistent with our expectations;
• the success of our efforts to retain existing government contracts and to obtain new government contracts in connection with state requests for proposals (RFPs), including without limitation upcoming RFPs in Ohio and New Mexico;
• the accurate estimation of incurred but not reported medical costs across our health plans;
• risks associated with the continued growth in new Medicaid and Medicare enrollees, and in the expansion of dual eligible members into managed care;
• retroactive adjustments to premium revenue or accounting estimates which require adjustment based upon subsequent developments;
• the continuation and renewal of the government contracts of both our 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 and Idaho;
• government audits and reviews;
• changes with respect to our provider contracts and the loss of providers;
• the establishment, interpretation, and implementation of a federal or state medical cost expenditure floor as a percentage of the premiums we receive, 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;
• the successful integration of our acquisitions;
• approval by state regulators of dividends and distributions by our health plan subsidiaries;
• changes in funding under our 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, and the costs associated therewith;
• restrictions and covenants in our credit facility;
• the availability of financing to fund and capitalize our acquisitions and start-up activities and to meet our liquidity needs, and the costs and fees associated therewith;
• a state’s failure to renew its federal Medicaid waiver;
• an inadvertent unauthorized disclosure of protected health information by us or our business associates;
• 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;

and numerous other risk factors, including those discussed in our periodic reports and filings with the Securities and Exchange Commission.These reports can be accessed under the investor relations tab of our Company website or on the SEC’s website at www.sec.gov.Given these risks and uncertainties, we can give no assurances that our forward-looking statements will prove to be accurate, or that any other results or events projected or contemplated by our 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 our judgment as of February 23, 2012, and we disclaim any obligation to update any forward-looking statements to conform the statement to actual results or changes in our expectations.

MOLINA HEALTHCARE, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except net (loss) income per share)
		Three Months Ended December 31,								Year Ended December 31,
		2011				2010				2011				2010
Revenue:
Premium revenue		$	1,254,969			$	1,042,889			$	4,603,407			$	3,989,909
Service revenue			49,157				36,484				160,447				89,809
Investment income			1,735				1,379				5,539				6,259
Rental income			547				—				547				—
Total revenue			1,306,408				1,080,752				4,769,940				4,085,977
Operating Costs and Expenses:
Medical care costs			1,037,945				862,491				3,859,994				3,370,857
Cost of service revenue			38,967				36,788				143,987				78,647
General and administrative expenses			124,965				100,374				415,932				345,993
Premium tax expenses			43,956				35,197				154,589				139,775
Depreciation and amortization			12,103				12,470				50,690				45,704
Total operating costs and expenses			1,257,936				1,047,320				4,625,192				3,980,976
Impairment of goodwill and intangible assets			64,575				—				64,575				—
Operating (loss) income			(16,103	)			33,432				80,173				105,001
Interest expense			3,853				3,453				15,519				15,509
(Loss) income before income taxes			(19,956	)			29,979				64,654				89,492
Provision for income taxes			13,004				12,351				43,836				34,522
Net (loss) income		$	(32,960	)		$	17,628			$	20,818			$	54,970
Net (loss) income per share (1):
Basic		$	(0.72	)		$	0.39			$	0.45			$	1.34
Diluted		$	(0.72	)		$	0.39			$	0.45			$	1.32
Weighted average shares outstanding (1):
Basic			45,702				45,351				45,756				41,174
Diluted			46,309				45,743				46,425				41,631
Operating Statistics:
Ratio of medical care costs paid directly to providers to premium revenue			80.6	%			80.4	%			81.7	%			82.4	%
Ratio of medical care costs not paid directly to providers to premium revenue			2.1	%			2.3	%			2.2	%			2.1	%
Medical care ratio (2)			82.7	%			82.7	%			83.9	%			84.5	%
General and administrative expense ratio (3)			9.6	%			9.3	%			8.7	%			8.5	%
Premium tax ratio (2)			3.5	%			3.4	%			3.4	%			3.5	%
Effective tax rate			(65.2	%)			41.2	%			67.8	%			38.6	%
(1) All applicable share and per-share amounts reflect the retroactive effects of the three-for-two common stock split in the form of a stock dividend that was effective May 20, 2011.
(2) 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.
(3) Computed as a percentage of total revenue.

MOLINA HEALTHCARE, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per-share data)
		December 31,
		2011				2010
ASSETS
Current assets:
Cash and cash equivalents		$	493,827			$	455,886
Investments			336,916				295,375
Receivables			167,898				168,190
Income tax refundable			11,679				—
Deferred income taxes			18,327				15,716
Prepaid expenses and other current assets			19,435				25,050
Total current assets			1,048,082				960,217
Property, equipment, and capitalized software, net			190,934				100,537
Deferred contract costs			54,582				28,444
Intangible assets, net			101,796				105,500
Goodwill and indefinite-lived intangible assets			153,954				212,228
Auction rate securities			16,134				20,449
Restricted investments			46,164				42,100
Receivable for ceded life and annuity contracts			23,401				24,649
Other assets			17,099				15,090
		$	1,652,146			$	1,509,214
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Medical claims and benefits payable		$	402,476			$	354,356
Accounts payable and accrued liabilities			147,214				137,930
Deferred revenue			50,947				60,086
Income taxes payable			—				13,176
Current maturities of long-term debt			1,197				—
Total current liabilities			601,834				565,548
Long-term debt			216,929				164,014
Deferred income taxes			33,127				16,235
Liability for ceded life and annuity contracts			23,401				24,649
Other long-term liabilities			21,782				19,711
Total liabilities			897,073				790,157
Stockholders’ equity(1):
Common stock, $0.001 par value; 80,000 shares authorized; outstanding: 45,815 shares at December 31, 2011 and 45,463 shares at December 31, 2010			46				45
Preferred stock, $0.001 par value; 20,000 shares authorized, no shares issued and outstanding			—				—
Additional paid-in capital			266,022				251,612
Accumulated other comprehensive loss			(1,405	)			(2,192	)
Retained earnings			490,410				469,592
Total stockholders’ equity			755,073				719,057
		$	1,652,146			$	1,509,214
(1) All applicable share and per-share amounts reflect the retroactive effects of the three-for-two common stock split in the form of a stock dividend that was effective May 20, 2011.

MOLINA HEALTHCARE, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
		Three Months Ended December 31,								Year Ended December 31,
		2011				2010				2011				2010
Operating activities:
Net (loss) income		$	(32,960	)		$	17,628			$	20,818			$	54,970
Adjustments to reconcile net income to net cashprovided by operating activities:
Depreciation and amortization			21,969				20,280				74,383				60,765
Deferred income taxes			5,767				(8,555	)			13,836				(4,092	)
Stock-based compensation			4,329				2,263				17,052				9,531
Non-cash interest on convertible senior notes			1,417				1,314				5,512				5,114
Impairment of goodwill and intangible assets			64,575			―					64,575			―
Amortization of premium/discount on investments			1,942				1,006				7,242				2,029
Amortization of deferred financing costs			367				502				2,818				1,780
Gain on acquisition			(1,676	)		―					(1,676	)		―
Unrealized gain on trading securities		―				―				―					(4,170	)
Loss on rights agreement		―				―				―					3,807
Tax deficiency from employee stock compensation			(67	)			(292	)			(714	)			(968	)
Changes in operating assets and liabilities:
Receivables			12,141				57,357				352				(7,539	)
Prepaid expenses and other current assets			5,127				(3,727	)			3,308				(12,034	)
Medical claims and benefits payable			41,421				416				48,120				34,363
Accounts payable and accrued liabilities			2,532				25,351				2,778				40,482
Deferred revenue			(50,754	)			22,438				(8,154	)			(41,899	)
Income taxes			(5,898	)			15,931				(24,855	)			19,258
Net cash provided by operating activities			70,232				151,912				225,395				161,397
Investing activities:
Purchases of equipment			(14,660	)			(16,620	)			(60,581	)			(48,538	)
Purchases of investments			(87,759	)			(140,222	)			(345,968	)			(302,842	)
Sales and maturities of investments			76,254				38,907				302,667				223,077
Net cash paid in business combinations			(81,000	)			(3,512	)			(84,253	)			(130,743	)
Increase in deferred contract costs			(10,065	)			(8,703	)			(42,830	)			(29,319	)
Increase in restricted investments			4,330				2,947				(4,064	)			(5,566	)
Change in other noncurrent assets and liabilities			(1,365	)			2,768				(1,898	)			5,108
Net cash used in investing activities			(114,265	)			(124,435	)			(236,927	)			(288,823	)
Financing activities:
Amount borrowed under term loan			48,600			―					48,600			―
Amount borrowed under credit facility		―				―				―					105,000
Proceeds from common stock offering, net of issuance costs		―					(115	)		―					111,131
Repayment of amount borrowed under credit facility		―				―				―					(105,000	)
Treasury stock purchases		―				―					(7,000	)		―
Credit facility fees paid		―				―					(1,125	)			(1,671	)
Proceeds from employee stock plans			1,707				2,194				7,347				4,056
Excess tax benefits from employee stock compensation			61				(125	)			1,651				295
Net cash provided by financing activities			50,368				1,954				49,473				113,811
Net increase (decrease) in cash and cash equivalents			6,335				29,431				37,941				(13,615	)
Cash and cash equivalents at beginning of period			487,492				426,455				455,886				469,501
Cash and cash equivalents at end of period		$	493,827			$	455,886			$	493,827			$	455,886

MOLINA HEALTHCARE, INC.
UNAUDITED DEPRECIATION AND AMORTIZATION DATA
(Dollar amounts in thousands)



Depreciation and amortization related to our Health Plans segment is all recorded in “Depreciation and Amortization” in the consolidated statements of operations. Amortization related to our 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 • Amortization of capitalized software is recorded within the heading “Cost of Service Revenue.”



The following table presents all depreciation and amortization recorded in our consolidated statements of operations, regardless of whether the item appears as depreciation and amortization, a reduction of service revenue, or as cost of service revenue.

		Three Months Ended December 31,
		2011						2010
		Amount			% of Total Revenue			Amount			% of Total Revenue
Depreciation and amortization of capitalized software		$	8,005		0.6	%		$	7,266		0.7	%
Amortization of intangible assets			4,098		0.3				5,204		0.5
Depreciation and amortization reported as such in the consolidated statements of income			12,103		0.9				12,470		1.2
Amortization recorded as reduction of service revenue			1,545		0.1				4,070		0.4
Amortization of capitalized software recorded as cost of service revenue			8,321		0.6				3,740		0.3
Total		$	21,969		1.6	%		$	20,280		1.9	%

		Year Ended December 31,
		2011						2010
		Amount			% of Total Revenue			Amount			% of Total Revenue
Depreciation and amortization of capitalized software		$	30,864		0.7	%		$	27,230		0.7	%
Amortization of intangible assets			19,826		0.4				18,474		0.4
Depreciation and amortization reported as such in the consolidated statements of income			50,690		1.1				45,704		1.1
Amortization recorded as reduction of service revenue			6,822		0.1				8,316		0.2
Amortization of capitalized software recorded as cost of service revenue			16,871		0.4				6,745		0.2
Total		$	74,383		1.6	%		$	60,765		1.5	%

MOLINA HEALTHCARE, INC.
UNAUDITED MEMBERSHIP DATA
		As of December 31,
		2011		2010		2009
Total Ending Membership by Health Plan:
California		355,000		344,000		351,000
Florida		69,000		61,000		50,000
Michigan		222,000		227,000		223,000
Missouri		79,000		81,000		78,000
New Mexico		88,000		91,000		94,000
Ohio		248,000		245,000		216,000
Texas		155,000		94,000		40,000
Utah		84,000		79,000		69,000
Washington		355,000		355,000		334,000
Wisconsin (1)		42,000		36,000		―
Total		1,697,000		1,613,000		1,455,000
Total Ending Membership by State for Molina’s Medicare Advantage Plans(1):
California		6,900		4,900		2,100
Florida		800		500		―
Michigan		8,200		6,300		3,300
New Mexico		800		600		400
Ohio		200		―		―
Texas		700		700		500
Utah		8,400		8,900		4,000
Washington		5,000		2,600		1,300
Total		31,000		24,500		11,600
Total Ending Membership by State for Molina’s Aged, Blind or Disabled Population:
California		31,500		13,900		13,900
Florida		10,400		10,000		8,800
Michigan		37,500		31,700		32,200
New Mexico		5,600		5,700		5,700
Ohio		29,100		28,200		22,600
Texas		63,700		19,000		17,600
Utah		8,500		8,000		7,500
Washington		4,800		4,000		3,200
Wisconsin (1)		1,700		1,700		―
Total		192,800		122,200		111,500

⁽¹⁾ We acquired the Wisconsin health plan on September 1, 2010. As of December 31, 2011, the Wisconsin health plan had approximately 2,000 Medicare Advantage members covered under a reinsurance contract with a third party; these members are not included in the membership tables herein.

MOLINA HEALTHCARE, INC.
UNAUDITED SELECTED FINANCIAL DATA BY HEALTH PLAN
(Amounts in thousands, except per-member-per-month amounts)
		Three Months Ended December 31, 2011
		Member Months(1)		Premium Revenue						Medical Care Costs						Medical Care Ratio			Premium Tax Expense
				Total			PMPM			Total			PMPM
California		1,057		$	156,215		$	147.81		$	133,575		$	126.39		85.5	%		$	2,562
Florida		200			53,384			266.23			45,486			226.84		85.2				7
Michigan		658			166,156			252.58			137,827			209.52		83.0				9,515
Missouri		237			59,596			251.32			47,697			201.14		80.0			―
New Mexico		266			99,509			374.30			71,679			269.61		72.0				2,813
Ohio		748			295,067			394.25			233,733			312.30		79.2				23,048
Texas		462			118,508			256.74			110,667			239.76		93.4				2,101
Utah		249			72,085			289.39			56,908			228.46		78.9			―
Washington		1,067			214,325			200.83			174,744			163.74		81.5				3,766
Wisconsin		124			18,070			145.93			16,896			136.45		93.5			―
Other (2)		―			2,054		―				8,733		―			―				144
		5,068		$	1,254,969		$	247.61		$	1,037,945		$	204.79		82.7	%		$	43,956

		Three Months Ended December 31, 2010
		Member Months(1)		Premium Revenue						Medical Care Costs						Medical Care Ratio			Premium Tax Expense
				Total			PMPM			Total			PMPM
California		1,039		$	130,060		$	125.18		$	106,452		$	102.46		81.9	%		$	1,759
Florida		181			46,648			257.35			46,760			257.96		100.2				3
Michigan		679			161,411			237.66			132,146			194.57		81.9				9,882
Missouri		242			53,978			223.40			44,525			184.28		82.5			―
New Mexico		270			85,635			316.84			70,287			260.05		82.1				2,139
Ohio		734			218,641			297.78			162,851			221.80		74.5				17,107
Texas		282			57,835			205.13			48,121			170.68		83.2				1,004
Utah		236			67,036			284.00			55,760			236.23		83.2			―
Washington		1,061			196,013			184.78			163,008			153.67		83.2				3,235
Wisconsin		106			23,723			224.90			21,420			203.07		90.3			―
Other (2)		―			1,909		―				11,161		―			―				68
		4,830		$	1,042,889		$	215.93		$	862,491		$	178.58		82.7	%		$	35,197

⁽¹⁾ A member month is defined as the aggregate of each month’s ending membership for the period presented.
⁽²⁾“Other” medical care costs also include medically related administrative costs of the parent company.

MOLINA HEALTHCARE, INC.
UNAUDITED SELECTED FINANCIAL DATA BY HEALTH PLAN
(Amounts in thousands, except per-member-per-month amounts)
		Year Ended December 31, 2011
		Member Months(1)		Premium Revenue						Medical Care Costs						Medical Care Ratio			Premium Tax Expense
				Total			PMPM			Total			PMPM
California		4,190		$	575,176		$	137.27		$	493,419		$	117.75		85.8	%		$	7,499
Florida		788			203,945			258.70			187,358			237.66		91.9				41
Michigan		2,660			662,127			248.91			537,779			202.16		81.2				38,733
Missouri		959			229,584			239.38			195,832			204.19		85.3			―
New Mexico		1,074			345,732			321.94			277,338			258.25		80.2				9,285
Ohio		2,966			988,896			333.40			766,949			258.57		77.6				76,677
Texas		1,616			409,295			253.40			382,390			236.74		93.4				7,117
Utah		972			287,290			295.51			224,513			230.94		78.1			―
Washington		4,171			823,323			197.42			690,513			165.57		83.9				14,865
Wisconsin (2)		488			69,596			142.56			64,346			131.81		92.5				44
Other (3)		―			8,443		―				39,557		―			―				328
		19,884		$	4,603,407		$	231.51		$	3,859,994		$	194.13		83.9	%		$	154,589

		Year Ended December 31, 2010
		Member Months(1)		Premium Revenue						Medical Care Costs						Medical Care Ratio			Premium Tax Expense
				Total			PMPM			Total			PMPM
California		4,197		$	506,871		$	120.77		$	423,021		$	100.79		83.5	%		$	6,912
Florida		664			170,683			256.87			162,839			245.07		95.4				1
Michigan		2,708			630,134			232.66			527,596			194.80		83.7				39,187
Missouri		946			210,852			222.98			180,291			190.66		85.5			―
New Mexico		1,104			366,784			332.02			295,633			267.61		80.6				9,300
Ohio		2,817			860,324			305.42			680,802			241.69		79.1				67,358
Texas		708			188,716			266.72			162,714			229.97		86.2				3,251
Utah		921			258,076			280.27			235,576			255.84		91.3			―
Washington		4,141			758,849			183.27			636,617			153.75		83.9				13,513
Wisconsin (2)		134			30,033			224.75			27,574			206.35		91.8			―
Other (3)		―			8,587		―				38,194		―			―				253
		18,340		$	3,989,909		$	217.56		$	3,370,857		$	183.80		84.5	%		$	139,775

⁽¹⁾ A member month is defined as the aggregate of each month’s ending membership for the period presented.
⁽²⁾ We acquired the Wisconsin health plan on September 1, 2010.
⁽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 December 31,
		2011									2010
		Amount			PMPM			% of Total			Amount			PMPM			% of Total
Fee for service		$	713,879		$	140.85		68.8	%		$	597,183		$	123.64		69.2	%
Capitation			134,880			26.61		13.0				145,166			30.06		16.8
Pharmacy			149,370			29.47		14.4				84,645			17.53		9.8
Other			39,816			7.86		3.8				35,497			7.35		4.2
Total		$	1,037,945		$	204.79		100.0	%		$	862,491		$	178.58		100.0	%

		Year Ended December 31,
		2011									2010
		Amount			PMPM			% of Total			Amount			PMPM			% of Total
Fee for service		$	2,764,309		$	139.02		71.6	%		$	2,360,858		$	128.73		70.0	%
Capitation			518,835			26.09		13.4				555,487			30.29		16.5
Pharmacy			418,007			21.02		10.8				325,935			17.77		9.7
Other			158,843			8.00		4.2				128,577			7.01		3.8
Total		$	3,859,994		$	194.13		100.0	%		$	3,370,857		$	183.80		100.0	%

The following table provides the details of the Company’s medical claims and benefits payable as of the dates indicated:

		Dec. 31, 2011			Sept. 30, 2011			Dec. 31, 2010
Fee-for-service claims incurred but not paid (IBNP)		$	301,020		$	283,160		$	275,259
Capitation payable			53,532			49,259			49,598
Pharmacy			26,178			16,615			14,649
Other			21,746			12,021			14,850
		$	402,476		$	361,055		$	354,356

MOLINA HEALTHCARE, INC.
CHANGE IN MEDICAL CLAIMS AND BENEFITS PAYABLE
(Dollars in thousands, except per-member amounts)
(Unaudited)



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 negative amounts displayed for “Components of medical care costs related to: Prior year” represent the amount by which the Company’s original estimate of claims and benefits payable at the beginning of the period exceeding 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:

		Year Ended December 31,
		2011				2010
Balances at beginning of period		$	354,356			$	315,316
Balance of acquired subsidiary		―					3,228
Components of medical care costs related to:
Current year			3,911,803				3,420,235
Prior year			(51,809	)			(49,378	)
Total medical care costs			3,859,994				3,370,857
Payments for medical care costs related to:
Current year			3,516,994				3,085,388
Prior year			294,880				249,657
Total paid			3,811,874				3,335,045
Balances at end of year		$	402,476			$	354,356
Benefit from prior years as a percentage of:
Balance at beginning of year			14.6	%			15.7	%
Premium revenue			1.1	%			1.2	%
Total medical care costs			1.3	%			1.5	%
Claims Data (1):
Days in claims payable, fee for service			40				42
Number of members at end of period			1,697,000				1,613,000
Number of claims in inventory at end of period			111,100				143,600
Billed charges of claims in inventory at end of period		$	207,600			$	218,900
Claims in inventory per member at end of period			0.07				0.09
Billed charges of claims in inventory per member end of period		$	122.33			$	135.71
Number of claims received during the period			17,207,500				14,554,800
Billed charges of claims received during the period		$	14,306,500			$	11,686,100

(1) “Claims Data” for the year ended December 31, 2010, does not include our Wisconsin health plan acquired September 1, 2010.