MOLINA HEALTHCARE, INC. - FORM 8-K - EX-99.1 - EXHIBIT 99.1

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8-K - MOLINA HEALTHCARE, INC. 8-K - MOLINA HEALTHCARE, INC.	a6615809.htm

Exhibit 99.1

News Release

Contact:

Juan José Orellana

Investor Relations

562-435-3666, ext. 111143

MOLINA HEALTHCARE REPORTS

FOURTH QUARTER AND YEAR-END 2010 RESULTS

·	Earnings per diluted share for 2010 of $1.98, up 66% over 2009

·	Annual premium revenues of $4 billion, up 9% over 2009

·	Annual operating income of $105 million, up 100% over 2009

·	Aggregate membership up 11% over 2009

Long Beach, California (February 17, 2011) – Molina Healthcare, Inc. (NYSE: MOH) today reported its financial results for the fourth quarter and year ended December 31, 2010.

Net income for the quarter was $17.6 million, or $0.58 per diluted share, compared with a net loss of $4.5 million, or $0.18 per diluted share, for the quarter ended December 31, 2009. Net income for the year ended December 31, 2010, was $55.0 million, or $1.98 per diluted share, compared with net income of $30.9 million, or $1.19 per diluted share, for the year ended December 31, 2009.

“Our strong 2010 results reflect a year of accomplishment and growth. We continue to deliver on our strategy of providing a diversified suite of health care services to meet the needs of low-income families and the government programs that serve them,” said J. Mario Molina, M.D., president and chief executive officer of Molina Healthcare. “By delivering administrative value to state agencies through our Molina Medicaid Solutions segment and by continuing to provide quality, cost-effective care in the increasingly challenging rate environment, we have positioned our Company to continue to deliver strong revenue growth and management of medical costs in 2011.”

Guidance

The Company confirms its guidance issued on January 26, 2011.

Overview of Financial Results

Fourth Quarter 2010 Compared with Third Quarter 2010

Net income for the fourth quarter of 2010 increased $1.5 million from the third quarter of 2010. Operating income increased over 11%, primarily due to lower fee-for-service medical care costs. Medical care costs as a percentage of premium revenue (the medical care ratio) were 82.7% in the fourth quarter of 2010 compared with 84.2% in the third quarter of 2010.

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MOH Reports Fourth Quarter and Year-End 2010 Results

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February 17, 2011

Fourth Quarter 2010 Compared with Fourth Quarter 2009

Health Plans Segment

Premium revenue grew 8.4% in the fourth quarter of 2010 compared with the fourth quarter of 2009, due to a membership increase of 10.9%. On a PMPM basis, however, consolidated premium revenue decreased 3.0% because of declines in premium rates. The decrease in PMPM revenue was primarily due to the transfer of the pharmacy benefit to the state fee-for-service program in Ohio effective February 1, 2010. Exclusive of the transfer of the pharmacy benefit in Ohio, Medicaid premium revenue PMPM was unchanged from the fourth quarter of 2009. Medicare enrollment exceeded 24,000 members at December 31, 2010, and Medicare premium revenue for the quarter was $76.5 million compared with $40.0 million in the fourth quarter of 2009.

The medical care ratio decreased to 82.7% in the fourth quarter of 2010 compared with 87.5% for the same period of 2009.

The medical care ratio of the California health plan decreased to 81.9% in the fourth quarter of 2010 from 90.4% in the fourth quarter of 2009, primarily due to lower inpatient facility fee-for-service costs resulting from provider network restructuring and improved medical management.

The medical care ratio of the Florida health plan increased to 100.2% in the fourth quarter of 2010 from 97.1% in the fourth quarter of 2009, primarily due to higher capitation costs and higher fee-for-service costs in the outpatient and physician categories. The Company has undertaken a number of measures – focused on both utilization and unit cost reductions – to improve the profitability of the Florida health plan.

The medical care ratio of the Michigan health plan increased to 81.9% in the fourth quarter of 2010 from 80.0% in the fourth quarter of 2009, primarily due to lower premium revenue PMPM and higher inpatient facility fee-for-service costs.

The medical care ratio of the New Mexico health plan decreased to 82.1% in the fourth quarter of 2010 from 85.3% in the fourth quarter of 2009, primarily due to reduced fee-for-service costs which more than offset a premium reduction of approximately 9% PMPM effective November 1, 2010.

The medical care ratio of the Ohio health plan decreased to 74.5% in the fourth quarter of 2010 from 87.5% in the fourth quarter of 2009, due to an increase in Medicaid premium PMPM of approximately 6% effective January 1, 2010, (exclusive of the reduction related to pharmacy benefits) and reduced fee-for-service costs in the outpatient and physician categories, partially offset by higher inpatient facility fee-for-service costs.

The medical care ratio of the Utah health plan decreased to 83.2% in the fourth quarter of 2010 from 95.4% in the fourth quarter of 2009, primarily due to reduced fee-for-service costs in the outpatient and physician categories and an increase in Medicaid premium PMPM of approximately 7% effective July 1, 2010.

The medical care ratio of the Washington health plan decreased to 83.2% in the fourth quarter of 2010 from 87.0% in the fourth quarter of 2009, primarily due to reduced fee-for-service costs in the outpatient and physician categories and an increase in Medicaid premium PMPM of approximately 2.5% effective July 1, 2010.

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MOH Reports Fourth Quarter and Year-End 2010 Results

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February 17, 2011

Days in medical claims and benefits payable. Beginning January 1, 2010, and for all prior periods presented, the Company is reporting days in medical claims and benefits payable relating to fee-for-service medical claims only. This computation includes only fee-for-service medical care costs and related liabilities and therefore calculates the extent of reserves for those liabilities that are most subject to estimation.

The days in medical claims and benefits payable amount reported prior to 2010 included all medical care costs (fee-for-service, capitation, pharmacy, and administrative), and all medical claims liabilities, including those liabilities that are typically paid concurrently, or shortly after the costs are incurred, such as capitation cost and pharmacy costs. Medical claims liabilities used in this calculation do not include accrued costs, such as salaries, associated with the administrative portion of medical costs.

By including only fee-for-service medical costs and liabilities in this computation, the Company’s days in claims payable metric will be more indicative of the size of the Company’s reserves for liabilities subject to a substantial degree of estimation. The days in medical claims and benefits payable, excluding the Company’s Wisconsin health plan acquired September 1, 2010, were as follows:

(Dollars in thousands)	Dec. 31, 2010		Sept. 30, 2010		Dec. 31, 2009
Days in claims payable – fee-for-service only	42 days		42 days		44 days
Number of claims in inventory at end of period		143,600		110,200		93,100
Billed charges of claims in inventory at end of period	$	218,900	$	158,900	$	131,400

Consolidated Expenses

General and administrative expenses, or G&A, were $100.4 million, or 9.3% of total revenue, for the fourth quarter of 2010 compared with $77.0 million, or 8.0% of total revenue, for the fourth quarter of 2009. The increase in the G&A ratio was the result of higher administrative expenses for the Health Plan segment, driven in part by the cost of the Company’s Medicare expansion, higher variable compensation expense as a result of substantially improved financial performance in 2010, and the acquisition of Molina Medicaid Solutions.

	Three Months Ended December 31,
	2010					2009
	Amount		% of Total Revenue			Amount		% of Total Revenue
	(In thousands)
Medicare-related administrative costs	$	9,275		0.9	%	$	5,721		0.6	%
Non Medicare-related administrative costs:
Molina Medicaid Solutions segment administrative costs		1,974		0.2			–		–
Health Plans segment administrative payroll, including employee incentive compensation		72,350		6.7			53,905		5.6
All other Health Plans segment administrative expense		16,775		1.5			17,420		1.8
	$	100,374		9.3	%	$	77,046		8.0	%

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MOH Reports Fourth Quarter and Year-End 2010 Results

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February 17, 2011

Premium tax expense decreased to 3.4% of premium revenue in the fourth quarter of 2010 from 4.3% in the fourth quarter of 2009, primarily due to lower premium taxes in California. California premium taxes in the fourth quarter of 2009 included an adjustment imposed by the state that was retroactive to January 1, 2009. No such retroactive adjustment was made in the fourth quarter of 2010.

Depreciation and amortization expense related to the Company’s Health Plans segment is all recorded in “Depreciation and Amortization” in the Company’s consolidated statements of operations. Depreciation and amortization related to the Company’s Molina Medicaid Solutions segment is recorded within three different captions in the Company’s consolidated statements of operations as follows:

·	Amortization of purchased intangibles relating to customer relationships is reported as amortization in “Depreciation and Amortization;”

·	Amortization of purchased intangibles relating to contract backlog is recorded as a reduction of service revenue; and

·	Depreciation is recorded as 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, and reconciles that amount to the condensed consolidated statements of cash flows.

	Three Months Ended December 31,
	2010					2009
	Amount		% of Total Revenue			Amount		% of Total Revenue
	(In thousands)
Depreciation and amortization	$	12,470		1.2	%	$	9,642		1.0	%
Amortization recorded as reduction of service revenue		4,070		0.4			–		–
Depreciation recorded as cost of service revenue		3,740		0.3			–		–
Depreciation and amortization reported in the condensed consolidated statements of cash flows	$	20,280		1.9	%	$	9,642		1.0	%

Interest expense was $3.5 million for the fourth quarter of 2010, consistent with the fourth quarter of 2009.

Income tax expense (benefit) was recorded at an effective rate of 41.2% in the fourth quarter of 2010 compared with (53.7%) in the fourth quarter of 2009. The lower rate in 2009 was primarily due to the Company’s pre-tax loss recognized during the quarter and higher than previously estimated California enterprise zone tax credits.

Through December 31, 2009, the Company’s income tax expense included both the Michigan business income tax, or BIT, and the Michigan modified gross receipts tax, or MGRT. Effective January 1, 2010, the Company has recorded the MGRT as a premium tax and not as an income tax. The Company will continue to record the BIT as an income tax. For the fourth quarter and year ended December 31, 2009, premium tax expense and income tax expense have been reclassified to conform to this presentation.

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MOH Reports Fourth Quarter and Year-End 2010 Results

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February 17, 2011

Year Ended December 31, 2010, Compared with Year Ended December 31, 2009

Health Plans Segment

Premium revenue grew 9% in the year ended December 31, 2010, compared with the same period in 2009, due to a membership increase of 10.9%. On a PMPM basis, however, consolidated premium revenue decreased 2.1% because of declines in premium rates. The decrease in PMPM revenue was primarily due to the transfer of the pharmacy benefit to the state fee-for-service programs in Ohio (effective February 1, 2010) and Missouri (effective October 1, 2009). Exclusive of the transfer of the pharmacy benefit in Ohio and Missouri, Medicaid premium revenue PMPM increased approximately 1.5% from 2009. Medicare enrollment exceeded 24,000 members at December 31, 2010, and Medicare premium revenue for 2010 was $265.2 million compared with $135.9 million for the same period in 2009.

The medical care ratio decreased to 84.5% for 2010 compared with 86.8% for 2009.

The medical care ratio of the California health plan decreased to 83.5% for the year ended December 31, 2010, from 92.2% for the same period in 2009, primarily due to lower inpatient facility fee-for-service costs resulting from provider network restructuring and improved medical management.

The medical care ratio of the Florida health plan increased to 95.4% for the year ended December 31, 2010, from 93.8% for 2009, primarily due to higher capitation costs and higher fee-for-service costs in the outpatient and physician categories.

The medical care ratio of the Michigan health plan increased to 83.7% for the year ended December 31, 2010, from 81.5% for 2009, primarily due to higher inpatient facility fee-for-service costs.

The medical care ratio of the New Mexico health plan decreased to 80.6% for the year ended December 31, 2010, from 85.7% for the same period in 2009, primarily due to reduced fee-for-service costs which more than offset decreased premium revenue PMPM.

The medical care ratio of the Ohio health plan decreased to 79.1% for the year ended December 31, 2010, from 86.1% for the same period in 2009, primarily due to an increase in Medicaid premium PMPM of approximately 6% effective January 1, 2010, (exclusive of the reduction related to pharmacy benefits), partially offset by higher inpatient facility fee-for-service costs.

The medical care ratio of the Utah health plan decreased to 91.3% for the year ended December 31, 2010, from 91.8% for the same period in 2009, due to improved financial performance in the second half of 2010. That improved financial performance was the result of reduced fee-for-service costs in the second half of 2010 and an increase in Medicaid premium PMPM of approximately 7% effective July 1, 2010.

The medical care ratio of the Washington health plan decreased to 83.9% for the year ended December 31, 2010, from 84.5% for the same period in 2009, primarily due to reduced fee-for-service costs which more than offset decreased premium revenue PMPM. Premium revenue PMPM decreased for all of 2010 compared to 2009 because the rate increase of approximately 2.5% effective July 1, 2010, was not enough to offset decreases received during the second half of 2009.

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MOH Reports Fourth Quarter and Year-End 2010 Results

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February 17, 2011

Consolidated Expenses

General and administrative expenses were $346.0 million, or 8.5% of total revenue, for 2010 compared with $276.0 million, or 7.5% of total revenue, for 2009. The increase in the G&A ratio was the result of higher administrative expenses for the Health Plan segment, driven in part by the cost of the Company’s Medicare expansion, higher variable compensation expense as a result of substantially improved financial performance in 2010, employee severance and settlement costs of $5.5 million, and costs relating to the acquisitions of Molina Medicaid Solutions and the Wisconsin health plan.

	Year Ended December 31,
	2010					2009
	Amount		% of Total Revenue			Amount		% of Total Revenue
	(In thousands)
Medicare-related administrative costs	$	30,254		0.7	%	$	18,564		0.5	%
Non Medicare-related administrative costs:
Employee severance and settlement costs		5,548		0.1			1,257		–
Molina Medicaid Solutions segment administrative costs		5,135		0.1			–		–
Molina Medicaid Solutions and Wisconsin plan acquisition costs		2,957		0.1			–		–
Health Plans segment administrative payroll, including employee incentive compensation		239,146		5.9			204,432		5.6
All other Health Plans segment administrative expense		62,953		1.6			51,774		1.4
	$	345,993		8.5	%	$	276,027		7.5	%

Premium tax expense was 3.5% of premium revenue in 2010, consistent with 2009.

Depreciation and amortization expense is reported as discussed earlier. The following table presents all depreciation and amortization recorded in the Company’s statements of operations regardless of whether the item appears as depreciation and amortization, a reduction of revenue, or as cost of service revenue, and reconciles that amount to the condensed consolidated statements of cash flows.

	Year Ended December 31,
	2010					2009
	Amount		% of Total Revenue			Amount		% of Total Revenue
	(In thousands)
Depreciation and amortization	$	45,704		1.1	%	$	38,110		1.0	%
Amortization recorded as reduction of service revenue		8,316		0.2			–		–
Depreciation recorded as cost of service revenue		6,745		0.2			–		–
Depreciation and amortization reported in the condensed consolidated statements of cash flows	$	60,765		1.5	%	$	38,110		1.0	%

Interest expense increased to $15.5 million for 2010 compared with $13.8 million for 2009.

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MOH Reports Fourth Quarter and Year-End 2010 Results

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February 17, 2011

Income tax expense was recorded at an effective rate of 38.6% for the year ended December 31, 2010, compared with 19.1% in the same period of 2009. The lower rate in 2009 was primarily due to discrete tax benefits recorded in 2009 as a result of settling tax examinations, and higher than previously estimated tax credits.

Molina Medicaid Solutions Segment (acquired May 1, 2010)

Molina Medicaid Solutions contributed $2.6 million to operating income for the year ended December 31, 2010, but reported an operating loss of $3.6 million for the quarter ended December 31, 2010. The operating loss for the fourth quarter of 2010 was primarily the result of system stabilization costs incurred for two of Molina Medicaid Solutions’ contracts.

Performance of Molina Medicaid Solutions for the quarter and year ended December 31, 2010, was as follows:

	Three Months Ended			Year Ended
	December 31, 2010
	(In thousands)
Service revenue before amortization	$	40,554		$	98,125
Amortization of contract backlog recorded as contra-service revenue		(4,070	)		(8,316	)
Service revenue		36,484			89,809

Cost of service revenue		36,788			78,647
General and administrative costs		1,974			5,135
Amortization of customer relationships intangibles		1,275			3,418
Operating (loss) income	$	(3,553	)	$	2,609

Cash Flow

Cash provided by operating activities for 2010 was $161.6 million compared with $155.4 million for 2009, an increase of $6.2 million.

Deferred revenue, which was a source of operating cash totaling $88.2 million in 2009, was a use of operating cash totaling $41.9 million in 2010. The change in deferred revenue was offset by increases in net income, depreciation and amortization, and other current liabilities.

Cash used in investing activities increased significantly in 2010 compared with 2009 due chiefly to the acquisition of Molina Medicaid Solutions, which totaled $131.3 million.

Cash provided by financing activities increased due to funds generated by the Company’s equity offering in the third quarter of 2010, which totaled $111.1 million net of issuance costs. Amounts borrowed under the Company’s credit facility to fund the acquisition of Molina Medicaid Solutions in the second quarter of 2010 were repaid in the third quarter using proceeds from the equity offering.

At December 31, 2010, the Company had cash and investments (not including restricted investments) of $771.7 million, including non-current auction rate securities with a fair value of $20.4 million. At December 31, 2010, the parent company had unrestricted cash and investments of $65.1 million, including auction rate securities with a fair value of $6.0 million.

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MOH Reports Fourth Quarter and Year-End 2010 Results

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February 17, 2011

Investment income decreased to $6.3 million in 2010 compared with $9.1 million in 2009. This decline was due primarily to lower interest rates.

Reconciliation of Non-GAAP to GAAP Financial Measures

EBITDA (1)

	Three Months Ended December 31,					Year Ended December 31,
	2010		2009			2010		2009
	(In thousands)
Operating income (loss)	$	33,432	$	(5,804	)	$	105,001	$	51,934
Add back:
Depreciation and amortization reported in the condensed consolidated statements of cash flows		20,280		9,642			60,765		38,110
EBITDA	$	53,712	$	3,838		$	165,766	$	90,044

(1)

The Company calculates EBITDA consistently on a quarterly and annual basis by adding back depreciation and amortization to operating income. 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 its industry.

Equity Offering

The Company issued 4,350,000 shares in connection with the equity offering it conducted in the third quarter of 2010 as described earlier. The offering added approximately 1.7 million shares to the weighted average number of common shares outstanding for the year ended December 31, 2010.

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 17, 2011. The number to call for the interactive teleconference is (212) 271-4657. A telephonic replay of the conference call will be available from 7:00 p.m. Eastern time on Thursday, February 17, 2011, through 6:00 p.m. on Friday, February 18, 2011, by dialing (800) 633-8284 and entering confirmation number 21502798. 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. Molina’s licensed health plans in California, Florida, Michigan, Missouri, New Mexico, Ohio, Texas, Utah, Washington, and Wisconsin currently serve approximately 1.6 million members, and the Company’s 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.

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MOH Reports Fourth Quarter and Year-End 2010 Results

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February 17, 2011

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, and anticipated future events. Actual results could differ materially due to numerous known and unknown risks and uncertainties, including, without limitation, risk factors related to the following:

·	significant budgetary pressures on state governments and their potential inability to maintain the currently agreed-upon payment rates to our health plans, to implement expected rate increases, or to maintain existing benefit packages or membership eligibility thresholds or criteria;

·	increases in our Aged, Blind or Disabled membership at our California and Texas health plans consistent with our expectations;

uncertainties regarding the impact of the Patient Protection and Affordable Care Act, including its possible repeal, judicial overturning of the individual insurance mandate, the effect of various implementing regulations, and uncertainties regarding the likely impact of other federal or state health care and insurance reform measures;

·	management of our medical costs, including seasonal flu patterns and rates of utilization that are consistent with our expectations;

·	the success of our efforts to retain existing government contracts in connection with upcoming state requests for proposals (RFPs) in Washington and Louisiana;

·	the success of our efforts to obtain new government contracts in connection with upcoming RFPs in both existing states (Texas and Florida) and new states (Arizona, Georgia, and Illinois) and our ability to grow our revenues through 2012 consistent with our expectations;

·	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;

·	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 our health plans and of Molina Medicaid Solutions and the terms on 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;

·	additional administrative costs and the potential payment of additional amounts to providers and/or the state as a result of MMIS implementation issues in Idaho;

·	the certification of the MMIS systems in both Maine and Idaho during 2011;

·	government audits and reviews, including the audit of our Medicare plans by CMS;

·	changes with respect to our 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 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 or arbitration matters;

·	restrictions and covenants in our credit facility, and the approach of its maturity date in May 2012;

·	the relatively small number of states in which we operate health plans;

·	the availability of financing to fund and capitalize our acquisitions and start-up activities and to meet our 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;

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 17, 2011, and we disclaim any obligation to update any forward-looking statements to conform the statement to actual results or changes in our expectations.

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MOH Reports Fourth Quarter and Year-End 2010 Results

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February 17, 2011

MOLINA HEALTHCARE, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per-share data)

	Three Months Ended December 31,						Year Ended December 31,
	2010			2009			2010			2009
Revenue:
Premium revenue	$	1,042,889		$	962,411		$	3,989,909		$	3,660,207
Service revenue		36,484			−			89,809			−
Investment income		1,379			1,813			6,259			9,149
Total operating revenue		1,080,752			964,224			4,085,977			3,669,356

Expenses:
Medical care costs		862,491			842,371			3,370,857			3,176,236
Cost of service revenue		36,788			−			78,647			−
General and administrative expenses		100,374			77,046			345,993			276,027
Premium tax expenses (1)		35,197			40,969			139,775			128,581
Depreciation and amortization		12,470			9,642			45,704			38,110
Total expenses		1,047,320			970,028			3,980,976			3,618,954
Gain on purchase of convertible senior notes		−			−			−			1,532
Operating income (loss)		33,432			(5,804	)		105,001			51,934
Interest expense		(3,453	)		(3,860	)		(15,509	)		(13,777	)

Income (loss) before income taxes		29,979			(9,664	)		89,492			38,157
Income tax expense (benefit) (1)		12,351			(5,192	)		34,522			7,289
Net income (loss)	$	17,628		$	(4,472	)	$	54,970		$	30,868

Net income (loss) per share:
Basic	$	0.58		$	(0.18	)	$	2.00		$	1.19
Diluted	$	0.58		$	(0.18	)	$	1.98		$	1.19

Weighted average number of common shares and potentially dilutive common shares outstanding		30,495			25,552			27,754			25,984

Operating Statistics:
Ratio of medical care costs paid directly to providers to premium revenue		80.4	%		85.5	%		82.3	%		84.8	%
Ratio of medical care costs not paid directly to providers to premium revenue		2.3			2.0			2.2			2.0
Medical care ratio (2)		82.7	%		87.5	%		84.5	%		86.8	%
General and administrative expense ratio (3)		9.3	%		8.0	%		8.5	%		7.5	%
Premium tax ratio (1), (2)		3.4	%		4.3	%		3.5	%		3.5	%
Effective tax rate (1)		41.2	%		(53.7	)%		38.6	%		19.1	%

(1)	Effective January 1, 2010, the Company has recorded the MGRT as a premium tax and not as an income tax. For the three months and year ended December 31, 2009, premium tax expense and income tax expense have been reclassified to conform to this presentation.

(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 operating revenue.

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MOH Reports Fourth Quarter and Year-End 2010 Results

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February 17, 2011

MOLINA HEALTHCARE, INC.

UNAUDITED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except per-share data)

	Dec. 31, 2010			Dec. 31, 2009

ASSETS
Current assets:
Cash and cash equivalents	$	455,886		$	469,501
Investments		295,375			174,844
Receivables		168,190			136,654
Income and related taxes refundable		−			6,067
Deferred income taxes		15,716			8,757
Prepaid expenses and other current assets		22,772			14,383
Total current assets		957,939			810,206
Property and equipment, net		100,537			78,171
Deferred contract costs		28,444			−
Intangible assets, net		105,500			80,846
Goodwill and indefinite-lived intangible assets		212,228			133,408
Investments		20,449			59,687
Restricted investments		42,100			36,274
Receivable for ceded life and annuity contracts		24,649			25,455
Other assets		17,368			19,988
	$	1,509,214		$	1,244,035

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Medical claims and benefits payable	$	354,356		$	315,316
Accounts payable and accrued liabilities		137,930			71,732
Deferred revenue		60,086			101,985
Income taxes payable		13,176			−
Total current liabilities		565,548			489,033
Long-term debt		164,014			158,900
Deferred income taxes		16,235			12,506
Liability for ceded life and annuity contracts		24,649			25,455
Other long-term liabilities		19,711			15,403
Total liabilities		790,157			701,297

Stockholders’ equity:
Common stock, $0.001 par value; 80,000 shares authorized, outstanding 30,309 shares at December 31, 2010, and 25,607 shares at December 31, 2009		30			26
Preferred stock, $0.001 par value; 20,000 shares authorized, no shares outstanding		−			−
Additional paid-in capital		251,627			129,902
Accumulated other comprehensive loss		(2,192	)		(1,812	)
Retained earnings		469,592			414,622
Total stockholders’ equity		719,057			542,738
	$	1,509,214		$	1,244,035

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MOH Reports Fourth Quarter and Year-End 2010 Results

Page 12

February 17, 2011

MOLINA HEALTHCARE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Three Months Ended December 31,						Year Ended December 31,
	2010			2009			2010			2009
Operating activities:
Net income (loss)	$	17,628		$	(4,472	)	$	54,970		$	30,868
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		20,280			9,642			60,765			38,110
Unrealized loss (gain) on trading securities		−			115			(4,170	)		(3,394	)
(Gain) loss on rights agreement		−			(104	)		3,807			3,100
Deferred income taxes		(8,555	)		(2,323	)		(4,092	)		(1	)
Stock-based compensation		2,263			1,755			9,531			7,485
Non-cash interest on convertible senior notes		1,314			1,219			5,114			4,782
Gain on purchase of convertible senior notes		−			−			−			(1,532	)
Amortization of deferred financing costs		502			832			1,780			1,872
Tax deficiency from employee stock compensation		(292	)		(45	)		(968	)		(749	)
Changes in operating assets and liabilities:
Receivables		57,357			7,475			(7,539	)		(8,092	)
Prepaid expenses and other current assets		(1,449	)		(71	)		(9,756	)		383
Medical claims and benefits payable		416			12,202			34,363			22,874
Accounts payable and accrued liabilities		25,351			(10,877	)		40,482			(26,467	)
Deferred revenue		22,438			17,350			(41,899	)		88,181
Income taxes		15,931			(7,610	)		19,258			(2,049	)
Net cash provided by operating activities		153,184			25,088			161,646			155,371

Investing activities:
Purchases of property and equipment		(16,620	)		(7,480	)		(48,538	)		(35,870	)
Purchases of investments		(140,222	)		(59,429	)		(302,842	)		(186,764	)
Sales and maturities of investments		39,913			54,595			225,106			204,365
Net cash paid in business combinations		(3,512	)		(394	)		(130,743	)		(11,294	)
Increase in deferred contract costs		(8,703	)		−			(29,319	)		−
(Increase) decrease in restricted investments		2,947			6,126			(5,566	)		1,928
Change in other long-term assets and liabilities		490			587			2,830			(10,078	)
Net cash used in investing activities		(125,707	)		(5,995	)		(289,072	)		(37,713	)

Financing activities:
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		−			−			−			(27,712	)
Purchase of convertible senior notes		−			−			−			(9,653	)
Credit facility fees paid		−			−			(1,671	)		−
Excess tax benefits from employee stock compensation		(125	)		5			295			31
Proceeds from employee stock plans		2,194			934			4,056			2,015
Net cash provided by (used in) financing activities		1,954			939			113,811			(35,319	)
Net increase (decrease) in cash and cash equivalents		29,431			20,032			(13,615	)		82,339
Cash and cash equivalents at beginning of period		426,455			449,469			469,501			387,162
Cash and cash equivalents at end of period	$	455,886		$	469,501		$	455,886		$	469,501

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MOH Reports Fourth Quarter and Year-End 2010 Results

Page 13

February 17, 2011

MOLINA HEALTHCARE, INC.

UNAUDITED MEMBERSHIP DATA

Total Ending Membership By Health Plan:	Dec. 31, 2010		Sept. 30, 2010		Dec. 31, 2009
California		344,000		349,000		351,000
Florida		61,000		57,000		50,000
Michigan		227,000		225,000		223,000
Missouri		81,000		79,000		78,000
New Mexico		91,000		91,000		94,000
Ohio		245,000		241,000		216,000
Texas		94,000		96,000		40,000
Utah		79,000		78,000		69,000
Washington		355,000		353,000		334,000
Wisconsin (1)		36,000		28,000		–
		1,613,000		1,597,000		1,455,000

Total Ending Membership By State for the Medicare Advantage Plans (1):
California		4,900		4,300		2,100
Florida		500		500		–
Michigan		6,300		5,700		3,300
New Mexico		600		600		400
Texas		700		600		500
Utah		8,900		8,600		4,000
Washington		2,600		2,300		1,300
		24,500		22,600		11,600

Total Ending Membership By State for the Aged, Blind or Disabled Population:
California		13,900		13,500		13,900
Florida		10,000		9,500		8,800
Michigan		31,700		31,400		32,200
New Mexico		5,700		5,700		5,700
Ohio		28,200		27,900		22,600
Texas		19,000		18,900		17,600
Utah		8,000		7,900		7,500
Washington		4,000		3,700		3,200
Wisconsin (1)		1,700		1,700		–
		122,200		120,200		111,500

(1)	The Company acquired the Wisconsin health plan on September 1, 2010. As of December 31, 2010, the Wisconsin health plan had approximately 3,000 Medicare Advantage members covered under a reinsurance contract with a third party; these members are not included in the membership tables herein.

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MOH Reports Fourth Quarter and Year-End 2010 Results

Page 14

February 17, 2011

MOLINA HEALTHCARE, INC.

UNAUDITED SELECTED FINANCIAL DATA BY HEALTH PLAN

(Amounts in thousands except per member per month amounts)

Three Months Ended December 31, 2010

Premium Revenue

Medical Care Costs

Member

Months (1)

Total

PMPM

Total

PMPM

Medical

Care Ratio

Premium

Tax

Expense (2)

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 (2)	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 (3)	106		23,723		224.90		21,420		203.07	90.3			–
Other (4)	–		1,909		–		11,161		–	–			68
	4,830	$	1,042,889	$	215.93	$	862,491	$	178.58	82.7	%	$	35,197

Three Months Ended December 31, 2009

Premium Revenue

Medical Care Costs

Member

Months (1)

Total

PMPM

Total

PMPM

Medical

Care Ratio

Premium

Tax

Expense (2)

California	1,059	$	127,716	$	120.56	$	115,506	$	109.03	90.4	%	$	6,035
Florida	141		35,910		254.97		34,882		247.67	97.1			6
Michigan (2)	651		151,845		233.07		121,457		186.43	80.0			10,443
Missouri	232		52,507		226.21		45,954		197.97	87.5			–
New Mexico	279		102,079		365.48		87,090		311.82	85.3			3,008
Ohio	637		216,849		340.60		189,796		298.11	87.5			15,759
Texas	119		41,205		347.41		31,633		266.71	76.8			683
Utah	206		51,912		252.21		49,528		240.63	95.4			–
Washington	997		179,617		180.21		156,251		156.77	87.0			5,033
Wisconsin (3)	–		–		–		–		–	–			–
Other (4)	–		2,771		–		10,274		–	–			2
	4,321	$	962,411	$	222.68	$	842,371	$	194.91	87.5	%	$	40,969

(1)	A member month is defined as the aggregate of each month’s ending membership for the period presented.

(2)	Effective January 1, 2010, the Company has recorded the Michigan gross receipts tax, or MGRT, as a premium tax and not as an income tax. The 2009 amounts have been reclassified to conform to this presentation.

(3)	The Company acquired the Wisconsin health plan on September 1, 2010.

(4)	“Other” medical care costs primarily include medically related administrative costs at the parent company.

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MOH Reports Fourth Quarter and Year-End 2010 Results

Page 15

February 17, 2011

MOLINA HEALTHCARE, INC.

UNAUDITED SELECTED FINANCIAL DATA BY HEALTH PLAN

(Amounts in thousands except per member per month amounts)

			Year Ended December 31, 2010
			Premium Revenue				Medical Care Costs
	Member Months (1)		Total		PMPM		Total		PMPM	Medical Care Ratio			Premium Tax Expense (2)
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)	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 (3)	134		30,033		224.75		27,574		206.35	91.8			–
Other (4)	–		8,587		–		38,194		–	–			253
	18,340	$	3,989,909	$	217.56	$	3,370,857	$	183.80	84.5	%	$	139,775

Year Ended December 31, 2009

Premium Revenue

Medical Care Costs

Member

Months (1)

Total

PMPM

Total

PMPM

Medical

Care Ratio

Premium

Tax

Expense (2)

California	4,135	$	481,717	$	116.49	$	443,892	$	107.34	92.2	%	$	16,446
Florida	386		102,232		264.94		95,936		248.62	93.8			16
Michigan (2)	2,523		557,421		220.94		454,431		180.12	81.5			36,482
Missouri	927		230,222		248.25		191,585		206.59	83.2			–
New Mexico	1,042		404,026		387.67		346,044		332.03	85.7			11,043
Ohio	2,411		803,521		333.33		691,402		286.82	86.1			47,849
Texas	402		134,860		335.69		110,794		275.78	82.2			2,513
Utah	793		207,297		261.43		190,319		240.02	91.8			–
Washington	3,847		726,137		188.77		613,876		159.58	84.5			14,175
Wisconsin (3)	–		–		–		–		–	–			–
Other (4)	–		12,774		–		37,957		–	–			57
	16,466	$	3,660,207	$	222.24	$	3,176,236	$	192.85	86.8	%	$	128,581

(1)	A member month is defined as the aggregate of each month’s ending membership for the period presented.

(2)	Effective January 1, 2010, the Company has recorded the Michigan gross receipts tax, or MGRT, as a premium tax and not as an income tax. The 2009 amounts have been reclassified to conform to this presentation.

(3)	The Company acquired the Wisconsin health plan on September 1, 2010.

(4)	“Other” medical care costs primarily include medically related administrative costs at the parent company.

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MOH Reports Fourth Quarter and Year-End 2010 Results

Page 16

February 17, 2011

MOLINA HEALTHCARE, INC.

UNAUDITED SELECTED FINANCIAL DATA

(Dollars 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, 2010							Three Months Ended December 31, 2009
	Amount		PMPM		% of Total Medical Care Costs			Amount		PMPM		% of Total Medical Care Costs
Fee-for-service	$	597,183	$	123.64		69.2	%	$	556,118	$	128.68		66.0	%
Capitation		145,166		30.06		16.8			145,187		33.59		17.2
Pharmacy		84,645		17.53		9.8			108,617		25.13		12.9
Other		35,497		7.35		4.2			32,449		7.51		3.9
	$	862,491	$	178.58		100.0	%	$	842,371	$	194.91		100.0	%

	Year Ended December 31, 2010							Year Ended December 31, 2009
	Amount		PMPM		% of Total Medical Care Costs			Amount		PMPM		% of Total Medical Care Costs
Fee-for-service	$	2,360,858	$	128.73		70.0	%	$	2,077,489	$	126.14		65.4	%
Capitation		555,487		30.29		16.5			558,538		33.91		17.6
Pharmacy		325,935		17.77		9.7			414,785		25.18		13.1
Other		128,577		7.01		3.8			125,424		7.62		3.9
	$	3,370,857	$	183.80		100.0	%	$	3,176,236	$	192.85		100.0	%

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

	Dec. 31, 2010		Sept. 30, 2010		Dec. 31, 2009
Fee-for-service claims incurred but not paid (IBNP)	$	275,259	$	271,285	$	246,508
Capitation payable		49,598		53,410		39,995
Pharmacy payable		14,649		14,663		20,609
Other		14,850		13,982		8,204
	$	354,356	$	353,340	$	315,316

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MOH Reports Fourth Quarter and Year-End 2010 Results

Page 17

February 17, 2011

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, variation 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 periods” represent the amount by which the Company’s original estimate of claims and benefits payable at the beginning of the period exceeded 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
	Dec. 31, 2010			Dec. 31, 2009
Balances at beginning of period	$	315,316		$	292,442
Balance of acquired subsidiary		3,228			–
Components of medical care costs related to:
Current period		3,420,235			3,227,794
Prior periods		(49,378	)		(51,558	)
Total medical care costs		3,370,857			3,176,236
Payments for medical care costs related to:
Current period		3,085,388			2,920,015
Prior periods		249,657			233,347
Total paid		3,335,045			3,153,362
Balances at end of period	$	354,356		$	315,316

Benefit from prior period as a percentage of:
Balance at beginning of period		15.7	%		17.6	%
Premium revenue		1.2	%		1.4	%
Total medical care costs		1.5	%		1.6	%

Claims Data (1):
Days in claims payable, fee for service only		42			44
Number of members at end of period		1,613,000			1,455,000
Number of claims in inventory at end of period		143,600			93,100
Billed charges of claims in inventory at end of period	$	218,900		$	131,400
Claims in inventory per member at end of period		0.09			0.06
Billed charges of claims in inventory per member at end of period	$	135.71		$	90.31
Number of claims received during the period		14,554,800			12,930,100
Billed charges of claims receivedduring the period	$	11,686,100		$	9,769,000

(1)	“Claims Data” does not include the Company’s Wisconsin health plan acquired September 1, 2010.

-END-

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