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<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 1 - us-gaap:OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-->
<!-- xbrl,ns -->
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<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="center" style="font-size: 10pt; margin-top: 0pt"><b></b>
</div>
<div align="left">
</div>
<div align="center" style="font-size: 10pt; margin-top: 0pt"><b>
</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b>1. Basis of Presentation</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b><i>Organization and Operations</i></b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">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.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Our Health Plans segment comprises health plans in California, Florida, Michigan, Missouri,
New Mexico, Ohio, Texas, Utah, Washington, and Wisconsin. As of June 30, 2011, these health plans
served approximately 1.6 million members eligible for Medicaid, Medicare, and other
government-sponsored health care programs for low-income families and individuals. The health plans
are operated by our respective wholly owned subsidiaries in those states, each of which is licensed
as a health maintenance organization, or HMO.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Our Molina Medicaid Solutions segment, which we acquired during the second quarter of 2010,
provides business processing and information technology development and administrative services to
Medicaid agencies in Idaho, Louisiana, Maine, New Jersey, and West Virginia, and drug rebate
administration services in Florida.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">On June 9, 2011, Molina Medicaid Solutions received notice from the state of Louisiana that
the state intends to award the contract for a replacement Medicaid Management Information System,
or MMIS, to another firm. We have submitted a protest in connection with this notice, and in response the state has issued a stay of the
intent to award and all contract negotiations have ceased. Our revenue under the Louisiana MMIS contract from May 1, 2010, the date we
acquired Molina Medicaid Solutions, through December 31, 2010, was approximately $32 million. For
the six months ended June 30, 2011, our revenue under the Louisiana MMIS contract was approximately
$24 million. Until the replacement MMIS is designed, developed, and implemented by the vendor that
ultimately enters into a contract with the state, we will continue to perform under the existing
MMIS contract, a period which we expect to last at least two years.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b><i>Consolidation and Interim Financial Information</i></b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The consolidated financial statements include the accounts of Molina Healthcare, Inc. and all
majority owned subsidiaries. In the opinion of management, all adjustments considered necessary for
a fair presentation of the results as of the date and for the interim periods presented have been
included; such adjustments consist of normal recurring adjustments. All significant intercompany
balances and transactions have been eliminated in consolidation. The consolidated results of
operations for the current interim period are not necessarily indicative of the results for the
entire year ending December 31, 2011. Financial information related to subsidiaries acquired during
any year is included only for periods subsequent to their acquisition.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The unaudited consolidated interim financial statements have been prepared under the
assumption that users of the interim financial data have either read or have access to our audited
consolidated financial statements for the fiscal year ended December 31, 2010. Accordingly, certain
disclosures that would substantially duplicate the disclosures contained in the December 31, 2010
audited consolidated financial statements have been omitted. These unaudited consolidated interim
financial statements should be read in conjunction with our December 31, 2010 audited financial
statements.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b><i>Adjustments and Reclassifications</i></b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We have adjusted all applicable share and per-share amounts to reflect the retroactive effects
of the three-for-two stock split in the form of a stock dividend that was effective May 20, 2011.
</div>
<!-- Folio -->
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</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We have reclassified certain amounts in the 2010 consolidated statement of cash flows to
conform to the 2011 presentation.
</div>
</div>
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<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b>2. Significant Accounting Policies</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b><i>Recognition of Service Revenue and Cost of Service Revenue — Molina Medicaid Solutions Segment</i></b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The payments received by our Molina Medicaid Solutions segment under its state contracts are
based on the performance of three elements of service. The first of these is the design,
development and implementation, or DDI, of a Medicaid Management Information System, or MMIS. The
second element, following completion of the DDI element, is the operation of the MMIS under a
business process outsourcing, or BPO, arrangement. While providing BPO services, we also provide
the state with the third contracted element — training and IT support and hosting services
(training and support).
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Because they include these three elements of service, our Molina Medicaid Solutions contracts
are multiple-element arrangements. The following discussion applies to our contracts with multiple
elements entered into prior to January 1, 2011, before our prospective adoption of <i>Accounting
Standards Update, or ASU, No. 2009-13, Revenue Recognition (Accounting Standards Codification, or
ASC, Topic 605) — Multiple-Deliverable Revenue Arrangements</i>.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">For those contracts entered into prior to January 1, 2011, we have no vendor specific
objective evidence, or VSOE, of fair value for any of the individual elements in these contracts,
and at no point in the contract will we have VSOE for the undelivered elements in the contract. We
lack VSOE of the fair value of the individual elements of our Molina Medicaid Solutions contracts
for the following reasons:
</div>
<div style="margin-top: 10pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="4%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>
<div style="text-align: justify">Each contract calls for the provision of its own specific set of products and services,
which vary significantly between contracts; and
</div></td>
</tr>
</table>
</div>
<div style="margin-top: 10pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="4%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>
<div style="text-align: justify">The nature of the MMIS installed varies significantly between our older contracts
(proprietary mainframe systems) and our newer contracts (commercial off-the-shelf
technology solutions).
</div></td>
</tr>
</table>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The absence of VSOE within the context of a multiple element arrangement requires us to delay
recognition of any revenue for an MMIS contract until completion of the DDI phase of the contract.
As a general principle, revenue recognition will therefore commence at the completion of the DDI
phase, and all revenue will be recognized over the period that BPO services and training and
support services are provided. Consistent with the deferral of revenue, recognition of all direct
costs (such as direct labor, hardware, and software) associated with the DDI phase of our contracts
is deferred until the commencement of revenue recognition. Deferred costs are recognized on a
straight-line basis over the period of revenue recognition.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Provisions specific to each contract may, however, lead us to modify this general principle.
In those circumstances, the right of the state to refuse acceptance of services, as well as the
related obligation to compensate us, may require us to delay recognition of all or part of our
revenue until that contingency (the right of the state to refuse acceptance) has been removed. In
those circumstances we defer recognition of any revenue at risk (whether DDI, BPO services, or
training and support services) until the contingency has been removed. When we defer revenue
recognition we also defer recognition of incremental direct costs (such as direct labor, hardware,
and software) associated with the revenue deferred. Such deferred contract costs are recognized on
a straight-line basis over the period of revenue recognition.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">However, direct costs in excess of the estimated future net revenues associated with a
contract may not be deferred. In circumstances where estimated direct costs over the life of a
contract exceed estimated future net revenues of that contract, the excess of direct costs over
revenue is expensed as a period cost. As noted below, we were unable to defer $7.0 million of
direct contract costs associated with our Idaho contract during the second quarter of 2011 because
estimated direct costs over the life of the contract exceed estimated future net revenues.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We began to recognize revenue and the related deferred costs associated with our Maine
contract in September 2010.
</div>
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<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">In Idaho, revenue recognition is expected to begin during the second half of 2012. Consistent
with the deferral of revenue, we have deferred recognition of the direct contract costs associated
with that revenue. Deferred contract costs, if any, deferred through the date revenue recognition
begins will be recognized simultaneously with revenue.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">In late April of 2011, Idaho Department of Health and Welfare indicated that it wished to
remit to us an amount approximately $5 to $6 million less than the amount of our invoices for the
operation of the MMIS in that state for the period June 1, 2010
through December 31, 2010. The Department claimed at that time
that we were not in compliance with certain contractual requirements
during the period June 1, 2010 through December 31, 2010. We do
not believe the basis of the proposed reduction was contractually
sound. In June 2011, we reached tentative agreement with the Department regarding the determination of our monthly
operating revenue in Idaho. As a result of the tentative agreement, we estimate that revenue from
operations in Idaho will be reduced by approximately $3 million for the period June 1, 2010 through
June 30, 2011, and by an additional $1 million for the period July 1, 2011 through December 31,
2011. We do not believe that the tentative agreement will result in any reduction to amounts
previously expected to be received for operations subsequent to December 31, 2011. As noted above,
all revenue associated with our Idaho MMIS contract is currently being deferred.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">In assessing the recoverability of the deferred contract costs associated with the Idaho
contract at June 30, 2011, we determined that our current estimate of expenses over the life of the
Idaho MMIS contract exceeded our current estimate of net revenues to be derived from that contract
by approximately $7.0 million. Accordingly, we expensed through cost of service revenue $7.0
million of direct costs associated with the Idaho contract that otherwise would have been recorded
as deferred contract costs. The reduction in revenue discussed above, as well as
higher expected costs over the term of the contract, have lowered the net amount that we expect to realize
under the contract, requiring us to write down deferred contract costs. We currently expect the
contract to perform financially at a break-even basis through its initial term. So long as we
continue to defer revenue recognition under the contract, we will also continue to defer direct
costs associated with the agreement, unless our analysis indicates that the contract is performing
at less than break even.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Molina Medicaid Solutions’ deferred revenue totalled $38.6 million at June 30, 2011, and $10.9
million at December 31, 2010, and unamortized deferred contract costs were $42.6 million at June
30, 2011, and $28.4 million at December 31, 2010.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">For all new or materially modified revenue arrangements with multiple elements entered into on
or after
January 1, 2011, which we expect will consist of contracts entered into by our Molina Medicaid
Solutions segment, we apply the guidance contained in ASU No. 2009-13. For these arrangements,
we allocate total arrangement consideration to the elements of the arrangement, which are
expected to be DDI, BPO, and training and support, because this is consistent with the current
elements included in our Molina Medicaid Solutions contracts. The
arrangement allocation is performed using the relative selling-price method. When determining the selling price of each
element, we first attempt to use VSOE if available. If VSOE is not available, we attempt
to use third-party evidence, or TPE, of vendors selling similar services to similarly situated
customers on a standalone basis, if available. If neither VSOE nor TPE are available, we use
our best estimate of the selling price for each element.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We then evaluate whether, at each stage in the life cycle of the contract, we are able to
recognize revenue associated with that element. To the extent that our revenue arrangements have
provisions that allow our state customers to refuse acceptance of
services performed, we are still
required to defer revenue recognition until such state customers accept our performance. Once
this acceptance is achieved, we immediately recognize the revenue associated with any
delivered elements which differs from our current practice for arrangements entered into prior to
January 1, 2011, where the revenue associated with delivered elements is recognized over the final
service element of the arrangement because VSOE for the other elements does not exist. As such, we
expect that the adoption of ASU No. 2009-13 will result in an overall acceleration of revenue
recognition with respect to any multiple-element arrangements entered into on or after January 1,
2011. We have entered into no new or materially modified revenue
arrangements with multiple elements since January 1, 2011.
</div>
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<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b><i>Premium Deficiency Reserve</i></b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We assess the profitability of each contract by state for providing medical care services to
our members and identify any contracts where current operating results or forecasts indicate
probable future losses. Anticipated future premiums are compared to anticipated medical care costs,
including the cost of processing claims. If the anticipated future costs exceed the premiums, a
loss contract accrual is recognized. In the first quarter of 2011, our Wisconsin health plan
recorded a premium deficiency reserve in the amount of $3.35 million to medical claims and benefits
payable. As of June 30, 2011, the reserve balance was $1.6 million.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b><i>Income Taxes</i></b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The provision for income taxes is determined using an estimated annual effective tax rate,
which is generally greater than the U.S. federal statutory rate primarily because of state taxes.
The effective tax rate may be subject to fluctuations during the year as new information is
obtained. Such information may affect the assumptions used to estimate the annual effective tax
rate, including factors such as the mix of pretax earnings in the various tax jurisdictions in
which we operate, valuation allowances against deferred tax assets, the recognition or
derecognition of tax benefits related to uncertain tax positions, and changes in or the
interpretation of tax laws in jurisdictions where we conduct business. We recognize deferred tax
assets and liabilities for temporary differences between the financial reporting basis and the tax
basis of our assets and liabilities, along with net operating loss and tax credit carryovers.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The total amount of unrecognized tax benefits was $11.0 million as of June 30, 2011 and
December 31, 2010. Approximately $8.4 million of the unrecognized tax benefits recorded at June 30,
2011, relate to a tax position claimed on a state refund claim that will not result in a cash
payment for income taxes if our claim is denied. The total amount of unrecognized tax benefits
that, if recognized, would affect the effective tax rate was $7.8 million as of June 30, 2011. We
expect that during the next 12 months it is reasonably possible that unrecognized tax benefit
liabilities may decrease by as much as $8.9 million due to the expiration of statute of limitations
and the resolution to the state refund claim described above.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Our continuing practice is to recognize interest and/or penalties related to unrecognized tax
benefits in income tax expense. As of June 30, 2011, and December 31, 2010, we had accrued $95,000
and $82,000, respectively, for the payment of interest and penalties.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b><i>Recent Accounting Pronouncements</i></b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><i>Revenue Recognition. </i>In late 2009, the Financial Accounting Standards Board, or FASB, issued
the following accounting guidance relating to revenue recognition. Effective for interim and annual
reporting beginning on or after December 15, 2010, we adopted this guidance in full effective
January 1, 2011.
</div>
<div style="margin-top: 10pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="4%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>
<div style="text-align: justify"><i>ASU No. 2009-13, Revenue Recognition (ASC Topic 605) — Multiple-Deliverable Revenue
Arrangements</i>, a consensus of the FASB Emerging Issues Task Force. This guidance modifies
previous requirements by requiring the use of the “best estimate of selling price” in the
absence of vendor-specific objective evidence (“VSOE”) or verifiable objective evidence
(“VOE”) (now referred to as “TPE” or third-party evidence) for determining the selling
price of a deliverable. A vendor is now required to use its best estimate of the selling
price when more objective evidence of the selling price cannot be determined. By providing
an alternative for determining the selling price of deliverables, this guidance allows
companies to allocate arrangement consideration in multiple deliverable arrangements in a
manner that better reflects the transaction’s economics. In addition, the residual method
of allocating arrangement consideration is no longer permitted under this new guidance. We
have adopted this guidance effective January 1, 2011, and will apply it on a prospective
basis for all new or materially modified revenue arrangements with multiple deliverables
entered into on or after January 1, 2011. Because we did not enter into any new or
materially modified agreements with multiple elements and fixed payments in the six months
ended June 30, 2011 that would have been impacted by this guidance, the adoption did not
have a material impact on the timing or pattern of revenue recognition.
</div></td>
</tr>
</table>
</div>
<!-- Folio -->
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<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="4%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td>
<td>
<div style="text-align: justify">For the year ended December 31, 2010, there would have been no change in revenue recognized
relating to multiple-element arrangements if we had adopted this guidance retrospectively for
contracts entered into prior to January 1, 2011.
</div></td>
</tr>
</table>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><i>Goodwill Impairment Testing. </i>In December 2010, the FASB issued the following guidance which
modifies goodwill impairment testing. Effective for interim and annual reporting beginning on or
after December 15, 2010, we adopted this guidance in full effective January 1, 2011.
</div>
<div style="margin-top: 10pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="4%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>
<div style="text-align: justify"><i>ASU No. 2010-28, Intangibles—Goodwill and Other (ASC Topic 350) — When to Perform Step
2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying
Amounts, </i>a consensus of the FASB Emerging Issues Task Force. This guidance modifies Step 1
of the goodwill impairment test for reporting units with zero or negative carrying amounts.
For those reporting units, an entity is required to perform Step 2 of the goodwill
impairment test if it is more likely than not that a goodwill impairment exists. In
determining whether it is more likely than not that a goodwill impairment exists, an entity
should consider whether there are any adverse qualitative factors indicating that an
impairment may exist. The adoption of this guidance did not impact our consolidated
financial position, results of operations or cash flows.
</div></td>
</tr>
</table>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><i>Presentation of Financial Statements. </i>In June 2011, the FASB and International Accounting
Standards Board, or IASB, issued the following guidance which modifies how other comprehensive
income, or OCI, is reported under U.S. Generally Accepted Accounting Principles, or GAAP, and
International Financial Reporting Standards, or IFRS. This guidance is effective for interim and
annual reporting beginning on or after December 15, 2011.
</div>
<div style="margin-top: 10pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="4%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>
<div style="text-align: justify"><i>ASU No. 2011-05, Comprehensive Income (ASC Topic 220) — Presentation of Comprehensive
Income, </i>a consensus of the FASB Emerging Issues Task Force. This guidance eliminates the
option to present components of OCI as part of the statement of changes to stockholders’
equity. All filers are required to present all non-owner changes in stockholders’ equity in
a single statement of comprehensive income or in two separate but consecutive statements. We
do not expect the adoption of this guidance to impact our consolidated financial position,
results of operations or cash flows.
</div></td>
</tr>
</table>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task
Force), the American Institute of Certified Public Accountants, or AICPA, and the Securities and
Exchange Commission, or SEC, did not have, or are not believed by management to have, a material
impact on our present or future consolidated financial statements.
</div>
</div>
</div>
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<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b>3. Earnings per Share</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The denominators for the computation of basic and diluted earnings per share were calculated
as follows:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="52%"> </td>
<td width="1%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="1%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="1%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="1%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>Three Months Ended</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>Six Months Ended</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>June 30,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>June 30,</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="14"><b>(In thousands)</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Shares outstanding at the beginning of the period
</div></td>
<td> </td>
<td> </td>
<td align="right">45,828</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">38,592</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">45,463</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">38,410</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Weighted-average number of shares issued
</div></td>
<td> </td>
<td> </td>
<td align="right">69</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">19</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">280</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">131</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Denominator for basic earnings per share
</div></td>
<td> </td>
<td> </td>
<td align="right">45,897</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">38,611</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">45,743</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">38,541</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Dilutive effect of employee stock options and
stock grants (1)
</div></td>
<td> </td>
<td> </td>
<td align="right">574</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">315</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">649</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">388</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Denominator for diluted earnings per share (2)
</div></td>
<td> </td>
<td> </td>
<td align="right">46,471</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">38,926</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">46,392</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">38,929</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left">
<div style="font-size: 3pt; margin-top: 10pt; width: 18%; border-top: 1px solid #000000"> 
</div>
</div>
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr style="font-size: 6pt">
<td width="3%"> </td>
<td width="1%"> </td>
<td width="96%"> </td>
</tr>
<tr valign="top">
<td nowrap="nowrap" align="left">(1)</td>
<td> </td>
<td>
<div style="text-align: justify">Options to purchase common shares are included in the calculation of diluted earnings per
share when their exercise prices are below the average fair value of the common shares for
each of the periods presented. For the three months ended June 30, 2011, and 2010, there were
approximately 81,200 and 724,500 antidilutive weighted options, respectively. For the six
months ended June 30, 2011, and 2010, there were approximately 122,100 and 745,500
antidilutive weighted options, respectively. Restricted shares are included in the calculation
of diluted earnings per share when their grant date fair values are below the average fair
value of the common shares for each of the periods presented. There were no antidilutive weighted restricted
shares for the three months and six months ended June 30, 2011. For the three months and six
months ended June 30, 2010, there were approximately 1,500, and 13,500 antidilutive weighted
restricted shares, respectively.
</div></td>
</tr>
</table>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr style="font-size: 6pt">
<td width="3%"> </td>
<td width="1%"> </td>
<td width="96%"> </td>
</tr>
<tr valign="top">
<td nowrap="nowrap" align="left">(2)</td>
<td> </td>
<td>
<div style="text-align: justify">Potentially dilutive shares issuable pursuant to our convertible senior notes were not
included in the computation of diluted earnings per share because to do so would have been
anti-dilutive for the three month and six month periods ended June 30, 2011 and 2010.
</div></td>
</tr>
</table>
</div>
</div>
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<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b>4. Share-Based Compensation</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">At June 30, 2011, we had employee equity incentives outstanding under two plans: (1) the 2002
Equity Incentive Plan; and (2) the 2000 Omnibus Stock and Incentive Plan (from which equity
incentives are no longer awarded). On March 1, 2011, our chief executive officer, chief financial
officer, and chief operating officer were awarded 150,000 shares, 112,500 shares, and 27,000
shares, respectively, of restricted stock with performance and service conditions. Each of the
grants shall vest on March 1, 2012, provided that: (i) the Company’s total operating revenue for
2011 is equal to or greater than $3.7 billion, and (ii) the respective officer continues to be
employed by the Company as of March 1, 2012. In the event both vesting conditions are not achieved,
the equity compensation awards shall lapse. As of June 30, 2011, we expect these awards to vest in
full.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Charged to general and administrative expenses, total stock-based compensation expense was as
follows for the three month and six month periods ended June 30, 2011 and 2010:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="44%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>Three Months Ended</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>Six Months Ended</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>June 30,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>June 30,</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="14"><b>(in thousands)</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Restricted stock awards
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">3,932</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">2,106</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">7,738</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">3,745</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Stock options (including shares issued under our
employee stock purchase plan)
</div></td>
<td> </td>
<td> </td>
<td align="right">378</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">265</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">636</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">763</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Total stock-based compensation expense
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">4,310</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">2,371</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">8,374</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">4,508</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">As of June 30, 2011, there was $22.0 million of total unrecognized compensation expense
related to unvested restricted stock awards, which we expect to recognize over a remaining
weighted-average period of 2.2 years. As of June 30, 2011, there was no remaining unrecognized
compensation expense related to unvested stock options.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Unvested restricted stock and restricted stock activity for the six months ended June 30, 2011
is summarized below:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="72%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Weighted</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Average</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Grant Date</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Shares</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Fair Value</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Unvested balance as of December 31, 2010
</div></td>
<td> </td>
<td> </td>
<td align="right">1,253,624</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">15.55</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Granted
</div></td>
<td> </td>
<td> </td>
<td align="right">754,800</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">23.53</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Vested
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(450,324</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">16.88</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Forfeited
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(53,029</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">15.22</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Unvested balance as of June 30, 2011
</div></td>
<td> </td>
<td> </td>
<td align="right">1,505,071</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">19.16</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The total fair value of restricted shares granted during the six months ended June 30, 2011
and 2010 was $17.7 million and $11.2 million, respectively. The total fair value of restricted
shares vested during the six months ended June 30, 2011 and 2010 was $10.9 million and $4.6
million, respectively.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Stock option activity for the six months ended June 30, 2011 is summarized below:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="44%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Weighted</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Weighted</b></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Average</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Average</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Average</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Remaining</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Grant Date</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Intrinsic</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Contractual</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Shares</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Fair Value</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Value</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>term</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>(In thousands)</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>(Years)</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Stock options outstanding as of December 31, 2010
</div></td>
<td> </td>
<td> </td>
<td align="right">770,421</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">20.39</td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Exercised
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(185,672</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">19.23</td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Forfeited
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(8,275</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">22.29</td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Stock options outstanding as of June 30, 2011
</div></td>
<td> </td>
<td> </td>
<td align="right">576,474</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">20.75</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">3,839</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">4.4</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Stock options exercisable and expected to vest as of
June 30, 2011
</div></td>
<td> </td>
<td> </td>
<td align="right">576,369</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">20.75</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">3,838</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">4.3</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Exercisable as of June 30, 2011
</div></td>
<td> </td>
<td> </td>
<td align="right">570,849</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">20.72</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">3,817</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">4.4</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 5 - us-gaap:FairValueDisclosuresTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b>5. Fair Value Measurements</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Our consolidated balance sheets include the following financial instruments: cash and cash
equivalents, investments, receivables, trade accounts payable, medical claims and benefits payable,
long-term debt, and other liabilities. We consider the carrying amounts of cash and cash
equivalents, receivables, other current assets and current liabilities to approximate their fair
value because of the relatively short period of time between the origination of these instruments
and their expected realization or payment. For a comprehensive discussion of fair value
measurements with regard to our current and non-current investments, see below.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The carrying amount of the convertible senior notes was $166.7 million and $164.0 million as
of June 30, 2011, and December 31, 2010, respectively. Based on quoted market prices, the fair
value of the convertible senior notes was approximately $215.8 million and $188.4 million as of
June 30, 2011, and December 31, 2010, respectively.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">To prioritize the inputs we use in measuring fair value, we apply a three-tier fair value
hierarchy. These tiers include: Level 1, defined as observable inputs such as quoted prices in
active markets; Level 2, defined as inputs other than quoted prices in active markets that are
either directly or indirectly observable; and Level 3, defined as unobservable inputs in which
little or no market data exists, therefore requiring an entity to develop its own assumptions.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">As of June 30, 2011, we held certain assets that are required to be measured at fair value on
a recurring basis. These included current investments in investment-grade debt securities that are
designated as available-for-sale, and are reported at fair value based on market prices that are
readily available (Level 1). See Note 6, “Investments,” for further information regarding fair
value.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We also held investments in auction rate securities which are designated as
available-for-sale, and are reported at fair value of $19.0 million (par value of $22.4 million) as
of June 30, 2011.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Our investments in auction rate securities are collateralized by student loan portfolios
guaranteed by the U.S. government. We continued to earn interest on substantially all of these
auction rate securities as of June 30, 2011. Due to events in the credit markets, the auction rate
securities held by us experienced failed auctions beginning in the first quarter of 2008. As such,
quoted prices in active markets were not readily available during the majority of 2008, 2009, and
2010, and continued to be unavailable as of June 30, 2011. To estimate the fair value of these
securities, we used pricing models that included factors such as the collateral underlying the
securities, the creditworthiness of the counterparty, the timing of expected future cash flows, and
the expectation of the next time the security would have a successful auction. The estimated values
of these securities were also compared, when possible, to valuation data with respect to similar
securities held by other parties. We concluded that these estimates,
given the lack of market available pricing, provided a reasonable basis for determining the
fair value of the auction rate securities as of June 30, 2011. For our investments in auction rate
securities, we do not intend to sell, nor is it more likely than not that we will be required to
sell, these investments before recovery of their cost.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">As
a result of changes in the fair value of auction rate securities designated as
available-for-sale, we recorded pretax unrealized gains of $0.7 million and pretax unrealized
losses of $0.2 million to accumulated other comprehensive income (loss) for the six months ended
June 30, 2011, and 2010, respectively. Any future fluctuation in fair value related to these
instruments that we deem to be temporary, including any recoveries of previous write-downs, would
be recorded to accumulated other comprehensive income (loss). If we determine that any future
valuation adjustment was other-than-temporary, we would record a charge to earnings as appropriate.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Until July 2, 2010, we held certain auction rate securities (designated as trading securities)
with an investment securities firm. In 2008, we entered into a rights agreement with this firm that
(1) allowed us to exercise rights (the “Rights”) to sell the eligible auction rate securities at
par value to this firm between June 30, 2010 and July 2, 2012, and (2) gave the investment
securities firm the right to purchase the auction rate securities from us any time after the
agreement date as long as we received the par value. On June 30, 2010, and July 1, 2010, all of the
eligible auction rate securities remaining at that time were settled at par value. During 2010, the
aggregate auction rate securities (designated as trading securities) settled amounted to $40.9
million par value (fair value $36.7 million). Substantially all of the difference between par value
and fair value on these securities was recovered through the rights agreement. For the six months
ended 2010, we recorded pretax gains of $2.9 million on the auction rate securities underlying the
Rights.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We accounted for the Rights as a freestanding financial instrument and, until July 2, 2010,
recorded the value of the Rights under the fair value option. For the six months ended 2010, we
recorded pretax losses of $2.6 million on the Rights, attributable to the decline in the fair value
of the Rights. When the remaining eligible auction rate securities were sold at par value on July
1, 2010, the value of the Rights was zero.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Our assets measured at fair value on a recurring basis at June 30, 2011, were as follows:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="44%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Total</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Level 1</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Level 2</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Level 3</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="14"><b>(In thousands)</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Corporate debt securities
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">243,277</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">243,277</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Government-sponsored
enterprise securities
(GSEs)
</div></td>
<td> </td>
<td> </td>
<td align="right">36,797</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">36,797</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Municipal securities
</div></td>
<td> </td>
<td> </td>
<td align="right">41,028</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">41,028</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">U.S. treasury notes
</div></td>
<td> </td>
<td> </td>
<td align="right">32,240</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">32,240</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Certificates of deposit
</div></td>
<td> </td>
<td> </td>
<td align="right">3,258</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">3,258</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Auction rate securities
</div></td>
<td> </td>
<td> </td>
<td align="right">18,958</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">18,958</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">375,558</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">356,600</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">18,958</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The following table presents our assets measured at fair value on a recurring basis using
significant unobservable inputs <font style="white-space: nowrap">(Level 3):</font>
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="86%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>(Level 3)</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>(In thousands)</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Balance at December 31, 2010
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">20,449</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Total gains (realized or unrealized):
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Included in other comprehensive income
</div></td>
<td> </td>
<td> </td>
<td align="right">659</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Settlements
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(2,150</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Balance at June 30, 2011
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">18,958</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">The amount of total gains for the period included in other comprehensive income attributable to
the change in unrealized gains relating to assets still held at June 30, 2011
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">659</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">In 2010, we recorded a $2.8 million liability for contingent consideration related to the
acquisition of our Wisconsin health plan. In the first quarter of 2011, we determined that there
was no liability for contingent
consideration relating to the acquisition. The liability for contingent consideration related
to this acquisition was measured at fair value on a recurring basis using significant unobservable
inputs (Level 3). The following table presents a roll forward of this liability for 2011:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="86%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>(Level 3)</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>(In thousands)</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Balance at December 31, 2010
</div></td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(2,800</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Total gains included in earnings
</div></td>
<td> </td>
<td> </td>
<td align="right">2,800</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Balance at June 30, 2011
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 6 - us-gaap:MarketableSecuritiesTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b>6. Investments</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The following tables summarize our investments as of the dates indicated:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="44%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="14" style="border-bottom: 1px solid #000000"><b>June 30, 2011</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>Gross</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Estimated</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>Unrealized</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Fair</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Cost</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Gains</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Losses</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Value</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="14"><b>(In thousands)</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Corporate debt securities
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">246,215</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">230</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">3,168</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">243,277</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">GSEs
</div></td>
<td> </td>
<td> </td>
<td align="right">36,917</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">50</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">170</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">36,797</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Municipal securities (including non-current auction rate
securities)
</div></td>
<td> </td>
<td> </td>
<td align="right">63,772</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">70</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">3,856</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">59,986</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">U.S. treasury notes
</div></td>
<td> </td>
<td> </td>
<td align="right">32,132</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">119</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">11</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">32,240</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Certificates of deposit
</div></td>
<td> </td>
<td> </td>
<td align="right">3,258</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">3,258</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">382,294</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">469</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">7,205</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">375,558</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="44%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="14" style="border-bottom: 1px solid #000000"><b>December 31, 2010</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>Gross</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Estimated</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>Unrealized</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Fair</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Cost</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Gains</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Losses</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Value</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="14"><b>(In thousands)</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Corporate debt securities
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">179,124</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">193</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1,388</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">177,929</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">GSEs
</div></td>
<td> </td>
<td> </td>
<td align="right">59,790</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">293</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">370</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">59,713</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Municipal securities (including non-current auction rate
securities)
</div></td>
<td> </td>
<td> </td>
<td align="right">55,247</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">78</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">4,313</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">51,012</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">U.S. treasury notes
</div></td>
<td> </td>
<td> </td>
<td align="right">23,864</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">114</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">60</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">23,918</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Certificates of deposit
</div></td>
<td> </td>
<td> </td>
<td align="right">3,252</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">3,252</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">321,277</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">678</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">6,131</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">315,824</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The contractual maturities of our investments as of June 30, 2011 are summarized below:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="72%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Estimated</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Cost</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Fair Value</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>(In thousands)</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Due in one year or less
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">190,202</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">188,005</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Due one year through five years
</div></td>
<td> </td>
<td> </td>
<td align="right">170,192</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">169,025</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Due after ten years
</div></td>
<td> </td>
<td> </td>
<td align="right">21,900</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">18,528</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">382,294</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">375,558</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Gross realized gains and gross realized losses from sales of available-for-sale securities are
calculated under the specific identification method and are included in investment income. Total
proceeds from sales and maturities of available-for-sale securities were $60.1 million and $42.8
million for the three months ended June 30, 2011, and 2010, respectively. Total proceeds from sales
and maturities of available-for-sale securities were $121.4 million and
$91.3 million for the six months ended June 30, 2011, and 2010, respectively. Net realized
investment gains for the three months ended June 30, 2011, and 2010 were $21,000 and $43,000
respectively. Net realized investment gains for the six months ended June 30, 2011, and 2010 were
$178,000 and $57,000 respectively.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We monitor our investments for other-than-temporary impairment. For investments other than our
municipal securities, we have determined that unrealized gains and losses at June 30, 2011, and
December 31, 2010, are temporary in nature, because the change in market value for these securities
has resulted from fluctuating interest rates, rather than a deterioration of the credit worthiness
of the issuers. So long as we hold these securities to maturity, we are unlikely to experience
gains or losses. In the event that we dispose of these securities before maturity, we expect that
realized gains or losses, if any, will be immaterial.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Approximately 32% of our investment in municipal securities consists of auction rate
securities. As described in Note 5, “Fair Value Measurements,” the unrealized losses on these
investments were caused primarily by the illiquidity in the auction markets. Because the decline in
market value is not due to the credit quality of the issuers, and because we do not intend to sell,
nor is it more likely than not that we will be required to sell, these investments before recovery
of their cost, we do not consider the auction rate securities that are designated as
available-for-sale to be other-than-temporarily impaired at June 30, 2011.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The following tables segregate those available-for-sale investments that have been in a
continuous loss position for less than 12 months, and those that have been in a loss position for
12 months or more as of June 30, 2011.
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="28%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="7%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="7%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="7%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="7%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="7%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="7%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>In a Continuous Loss</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>In a Continuous Loss</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"> </td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>Position</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>Position</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"> </td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>for Less than 12 Months</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>for 12 Months or More</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>Total</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Estimated</b></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Estimated</b></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Estimated</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Fair</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Unrealized</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Fair</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Unrealized</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Fair</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Unrealized</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Value</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Losses</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Value</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Losses</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Value</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Losses</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="22"><b>(In thousands)</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Corporate debt securities
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">159,261</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">2,881</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">12,715</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">287</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">171,976</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">3,168</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">GSEs
</div></td>
<td> </td>
<td> </td>
<td align="right">14,745</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">102</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2,034</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">68</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">16,779</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">170</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Municipal securities
</div></td>
<td> </td>
<td> </td>
<td align="right">28,335</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">270</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">24,199</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">3,585</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">52,534</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">3,855</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">U.S. treasury notes
</div></td>
<td> </td>
<td> </td>
<td align="right">1,155</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2,059</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">11</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">3,214</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">12</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">203,496</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">3,254</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">41,007</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">3,951</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">244,503</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">7,205</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The following table segregates those available-for-sale investments that have been in a
continuous loss position for less than 12 months, and those that have been in a loss position for
12 months or more as of December 31, 2010.
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="28%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="7%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="7%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="7%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="7%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="7%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="7%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>In a Continuous Loss</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>In a Continuous Loss</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"> </td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>Position</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>Position</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"> </td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>for Less than 12 Months</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>for 12 Months or More</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>Total</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Estimated</b></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Estimated</b></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Estimated</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Fair</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Unrealized</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Fair</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Unrealized</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Fair</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Unrealized</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Value</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Losses</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Value</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Losses</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Value</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Losses</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="22"><b>(In thousands)</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Corporate debt securities
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">103,225</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1,060</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">10,490</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">328</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">113,715</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1,388</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">GSEs
</div></td>
<td> </td>
<td> </td>
<td align="right">13,014</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">71</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">7,539</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">299</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">20,553</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">370</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Municipal securities
</div></td>
<td> </td>
<td> </td>
<td align="right">18,884</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">117</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">25,271</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">4,196</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">44,155</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">4,313</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">U.S. treasury notes
</div></td>
<td> </td>
<td> </td>
<td align="right">5,480</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">40</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">6,806</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">20</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">12,286</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">60</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">140,603</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1,288</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">50,106</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">4,843</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">190,709</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">6,131</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
</div>
</div>
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<!-- Begin Block Tagged Note 7 - us-gaap:LoansNotesTradeAndOtherReceivablesDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b>7. Receivables</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Health Plans segment receivables consist primarily of amounts due from the various states in
which we operate. Such receivables are subject to potential retroactive adjustment. Because all of
our receivable amounts are readily determinable and our creditors are in almost all instances state
governments, our allowance for doubtful accounts is
immaterial. Any amounts determined to be uncollectible are charged to expense when such
determination is made. Accounts receivable were as follows:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="72%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>June 30,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>December 31,</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>(In thousands)</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Health Plans segment:
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">California
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">30,501</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">46,482</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Michigan
</div></td>
<td> </td>
<td> </td>
<td align="right">14,974</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">13,596</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Missouri
</div></td>
<td> </td>
<td> </td>
<td align="right">23,848</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">22,841</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">New Mexico
</div></td>
<td> </td>
<td> </td>
<td align="right">9,629</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">18,310</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Ohio
</div></td>
<td> </td>
<td> </td>
<td align="right">19,511</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">21,622</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Utah
</div></td>
<td> </td>
<td> </td>
<td align="right">5,634</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,589</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Washington
</div></td>
<td> </td>
<td> </td>
<td align="right">12,371</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">14,486</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Wisconsin
</div></td>
<td> </td>
<td> </td>
<td align="right">8,511</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">5,437</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Others
</div></td>
<td> </td>
<td> </td>
<td align="right">3,796</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">3,598</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:45px; text-indent:-15px">Total Health Plans segment
</div></td>
<td> </td>
<td> </td>
<td align="right">128,775</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">147,961</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Molina Medicaid Solutions segment
</div></td>
<td> </td>
<td> </td>
<td align="right">43,899</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">20,229</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">172,674</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">168,190</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">During the second quarter of 2011, we settled certain claims we had made against the state of
Utah regarding the savings share provision of our contract in effect from 2003 through June of
2009. Additionally, we recognized a liability for certain overpayments received from the state for
the period 2003 through 2009. As a result of these developments, we recognized $6.9 million in
premium revenue without any corresponding charge to expense during the second quarter of 2011.
</div>
</div>
</div>
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<!-- Begin Block Tagged Note 8 - us-gaap:HeldToMaturitySecuritiesTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b>8. Restricted Investments</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Pursuant to the regulations governing our Health Plan subsidiaries, we maintain statutory
deposits and deposits required by state Medicaid authorities in certificates of deposit and U.S.
treasury securities. Additionally, we maintain restricted investments as protection against the
insolvency of capitated providers. The following table presents the balances of restricted
investments by health plan, and for our insurance company:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="72%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>June 30,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>December 31,</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>(In thousands)</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">California
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">372</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">372</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Florida
</div></td>
<td> </td>
<td> </td>
<td align="right">8,044</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">4,508</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Insurance Company
</div></td>
<td> </td>
<td> </td>
<td align="right">4,680</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">4,689</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Michigan
</div></td>
<td> </td>
<td> </td>
<td align="right">1,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,000</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Missouri
</div></td>
<td> </td>
<td> </td>
<td align="right">506</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">508</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">New Mexico
</div></td>
<td> </td>
<td> </td>
<td align="right">15,894</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">15,881</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Ohio
</div></td>
<td> </td>
<td> </td>
<td align="right">9,076</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">9,066</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Texas
</div></td>
<td> </td>
<td> </td>
<td align="right">3,500</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">3,501</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Utah
</div></td>
<td> </td>
<td> </td>
<td align="right">2,787</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,279</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Washington
</div></td>
<td> </td>
<td> </td>
<td align="right">151</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">151</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Wisconsin
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">260</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Other
</div></td>
<td> </td>
<td> </td>
<td align="right">4,320</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">885</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">50,330</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">42,100</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The contractual maturities of our held-to-maturity restricted investments as of June 30, 2011
are summarized below.
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="72%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Amortized</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Estimated</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Cost</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Fair Value</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>(In thousands)</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Due in one year or less
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">46,732</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">46,756</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Due one year through five years
</div></td>
<td> </td>
<td> </td>
<td align="right">3,598</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">3,642</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">50,330</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">50,398</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 9 - us-gaap:LongTermDebtTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b>9. Long-Term Debt</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b><i>Credit Facility</i></b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We are a party to an Amended and Restated Credit Agreement, dated as of March 9, 2005, as
amended by the first amendment on October 5, 2005, the second amendment on November 6, 2006, the
third amendment on May 25, 2008, the fourth amendment on April 29, 2010, and the fifth amendment on
April 29, 2010, among Molina Healthcare Inc., certain lenders, and Bank of America N.A., as
Administrative Agent (the “Credit Facility”) for a revolving credit line of $150 million that
matures in May 2012. The Credit Facility is intended to be used for general corporate purposes. As
of June 30, 2011, and December 31, 2010, there was no outstanding principal balance under the
Credit Facility. However, as of June 30, 2011, our lenders had issued two letters of credit in the
aggregate principal amount of $10.3 million in connection with the Molina Medicaid Solutions
contracts with the states of Maine and Idaho.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">To the extent that in the future we incur any obligations under the Credit Facility, such
obligations will be secured by a lien on substantially all of our assets and by a pledge of the
capital stock of our health plan subsidiaries (with the exception of the California health plan).
The Credit Facility includes usual and customary covenants for credit facilities of this type,
including covenants limiting liens, mergers, asset sales, other fundamental changes, debt,
acquisitions, dividends and other distributions, capital expenditures, investments, and a fixed
charge coverage ratio. The Credit Facility also requires us to maintain a ratio of total
consolidated debt to total consolidated EBITDA of not more than 2.75 to 1.00 at any time. At June
30, 2011, we were in compliance with all financial covenants in the Credit Facility.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The commitment fee on the total unused commitments of the lenders under the Credit Facility is
50 basis points on all levels of the pricing grid, with the pricing grid referring to our ratio of
consolidated funded debt to consolidated EBITDA. The pricing for LIBOR loans and base rate loans is
200 basis points at every level of the pricing grid. Thus, the applicable margins under the Credit
Facility range between 2.75% and 3.75% for LIBOR loans, and between 1.75% and 2.75% for base rate
loans. The Credit Facility carves out from our indebtedness and restricted payment covenants under
the Credit Facility the $187.0 million current principal amount of the convertible senior notes,
although the $187.0 million indebtedness is included in the calculation of our consolidated
leverage ratio. The fixed charge coverage ratio under the Credit Facility is required to be no less
than 3.00x.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The fifth amendment increased the maximum consolidated leverage ratio under the Credit
Facility to 3.50 to 1.0 for the first and second quarters of 2010 and through August 14, 2010 (on a
pro forma basis). Effective as of August 15, 2010, the maximum consolidated leverage ratio under
the Credit Facility reverted back to 2.75 to 1.0.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b><i>Convertible Senior Notes</i></b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">As of June 30, 2011, $187.0 million in aggregate principal amount of our 3.75% Convertible
Senior Notes due 2014 (the “Notes”) remain outstanding. The Notes rank equally in right of payment
with our existing and future senior indebtedness. The Notes are convertible into cash and, under
certain circumstances, shares of our common stock. The initial conversion rate is 31.9601 shares of
our common stock per one thousand dollar principal amount of the Notes. This represents an initial
conversion price of approximately $31.29 per share of our common stock. In
addition, if certain corporate transactions that constitute a change of control occur prior to
maturity, we will increase the conversion rate in certain circumstances.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The proceeds from the issuance of the Notes have been allocated between a liability component
and an equity component. We have determined that the effective interest rate of the Notes is 7.5%,
principally based on the seven-year U.S. treasury note rate as of the October 2007 issuance date,
plus an appropriate credit spread. The resulting debt discount is being amortized over the period
the Notes are expected to be outstanding, as additional non-cash interest expense. As of June 30,
2011, we expect the Notes to be outstanding until their October 1, 2014 maturity date, for a
remaining amortization period of 39 months. The Notes’ if-converted value did not exceed their
principal amount as of June 30, 2011. At June 30, 2011, the equity component of the Notes, net of
the impact of deferred taxes, was $24.0 million. The following table provides the details of the
liability amounts recorded:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="72%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>As of</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>As of</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>June 30,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>December 31,</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>(In thousands)</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Details of the liability component:
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Principal amount
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">187,000</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">187,000</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Unamortized discount
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(20,275</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(22,986</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Net carrying amount
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">166,725</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">164,014</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="44%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>Three Months Ended</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>Six Months Ended</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>June 30,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>June 30,</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="14"><b>(in thousands)</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Interest cost recognized for the period relating to the:
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Contractual interest coupon rate of 3.75%
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">1,753</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1,753</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">3,506</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">3,506</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Amortization of the discount on the liability
component
</div></td>
<td> </td>
<td> </td>
<td align="right">1,371</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,266</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2,711</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2,509</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Total interest cost recognized
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">3,124</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">3,019</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">6,217</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">6,015</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 10 - us-gaap:StockholdersEquityNoteDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b>10. Stockholders’ Equity</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">On April 27, 2011, we announced that our board of directors authorized a 3-for-2 stock split
of our common stock to be effected in the form of a stock dividend of one share of our stock for
every two shares outstanding. The dividend was distributed on May 20, 2011.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">In connection with the plans described in Note 4, “Share-Based Compensation,” we issued
approximately 599,000 shares of common stock, net of shares retired to settle employees’ income tax
obligations, for the six months ended June 30, 2011. For the six months ended June 30, 2011, the
$11.4 million increase in additional paid-in capital was primarily generated by employee stock plan
transactions.
</div>
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 11 - us-gaap:SegmentReportingDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b>11. Segment Reporting</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Our reportable segments are consistent with how we manage the business and view the markets we
serve. In the second quarter of 2010, we added a segment to our internal financial reporting
structure as a result of the acquisition of Molina Medicaid Solutions. We report our financial
performance based on two reportable segments: Health Plans and Molina Medicaid Solutions.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We rely on an internal management reporting process that provides segment information to the
operating income level for purposes of making financial decisions and allocating resources. The
accounting policies of the segments are the same as those described in Note 2, “Significant
Accounting Policies.” The cost of services shared between the Health Plans and Molina Medicaid
Solutions segments is charged to the Health Plans segment.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Molina Medicaid Solutions was acquired on May 1, 2010; therefore, the three months and six
months ended June 30, 2011 include only two months of operating results for this segment. Operating
segment revenues and profitability for the three months and six months ended June 30, 2011 and 2010
were as follows:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="58%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Molina</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Medicaid</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Health Plans</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Solutions</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Total</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="10"><b>(In thousands)</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"><b>Three months ended June 30, 2011</b>
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Premium revenue
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">1,128,770</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1,128,770</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Service revenue
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">36,888</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">36,888</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Investment income
</div></td>
<td> </td>
<td> </td>
<td align="right">1,446</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,446</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Total revenue
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">1,130,216</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">36,888</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1,167,104</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Operating income (loss)
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">36,894</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(5,484</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="left">$</td>
<td align="right">31,410</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"><b>Six months ended June 30, 2011</b>
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Premium revenue
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">2,210,208</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">2,210,208</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Service revenue
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">73,562</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">73,562</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Investment income
</div></td>
<td> </td>
<td> </td>
<td align="right">3,040</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">3,040</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Total revenue
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">2,213,248</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">73,562</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">2,286,810</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Operating income (loss)
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">66,500</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(3,790</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="left">$</td>
<td align="right">62,710</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"><b>Three months ended June 30, 2010</b>
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Premium revenue
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">976,685</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">976,685</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Service revenue
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">21,054</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">21,054</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Investment income
</div></td>
<td> </td>
<td> </td>
<td align="right">1,599</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,599</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Total revenue
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">978,284</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">21,054</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">999,338</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Operating income
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">16,173</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">5,005</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">21,178</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"><b>Six months ended June 30, 2010</b>
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Premium revenue
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">1,941,905</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1,941,905</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Service revenue
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">21,054</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">21,054</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Investment income
</div></td>
<td> </td>
<td> </td>
<td align="right">3,120</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">3,120</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Total revenue
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">1,945,025</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">21,054</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1,966,079</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Operating income
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">36,611</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">5,005</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">41,616</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b><i>Reconciliation to Income before Income Taxes</i></b>
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="44%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>Three Months Ended</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>Six Months Ended</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>June 30,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>June 30,</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="14"><b>(In thousands)</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Segment operating income
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">31,410</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">21,178</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">62,710</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">41,616</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Interest expense
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(3,683</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(4,099</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(7,286</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(7,456</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Income before income taxes
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">27,727</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">17,079</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">55,424</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">34,160</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b><i>Segment Assets</i></b>
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="58%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Molina</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Medicaid</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Health Plans</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Solutions</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Total</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="10"><b>(In thousands)</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">As of June 30, 2011
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">1,382,365</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">218,056</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1,600,421</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">As of December 31, 2010
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">1,333,599</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">175,615</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1,509,214</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
</div>
</div>
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<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b>12. Commitments and Contingencies</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b><i>Legal</i></b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The health care industry is subject to numerous laws and regulations of federal, state, and
local governments. Compliance with these laws and regulations can be subject to government review
and interpretation, as well as regulatory actions unknown and unasserted at this time. Penalties
associated with violations of these laws and regulations include significant fines, exclusion from
participating in publicly funded programs, and the repayment of previously billed and collected
revenues.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We are involved in various legal actions in the normal course of business, some of which seek
monetary damages, including claims for punitive damages, which are not covered by insurance. These
actions, when finally concluded and determined, are not likely, in our opinion, to have a material
adverse effect on our business, consolidated financial position, cash flows, or results of
operations.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b><i>Provider Claims</i></b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Many of our medical contracts are complex in nature and may be subject to differing
interpretations regarding amounts due for the provision of various services. Such differing
interpretations have led certain medical providers to pursue us for additional compensation. The
claims made by providers in such circumstances often involve issues of contract compliance,
interpretation, payment methodology, and intent. These claims often extend to services provided by
the providers over a number of years.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Various providers have contacted us seeking additional compensation for claims that we believe
to have been settled. These matters, when finally concluded and determined, will not, in our
opinion, have a material adverse effect on our business, consolidated financial position, results
of operations, or cash flows.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b><i>Regulatory Capital and Dividend Restrictions</i></b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">
Our health plans are subject to state laws and regulations that, among other things, require the maintenance
of minimum levels of statutory capital, as defined by each state, and restrict the timing, payment,
and amount of dividends and other distributions that may be paid to us as the sole stockholder. To
the extent the subsidiaries must comply with these regulations, they may not have the financial
flexibility to transfer funds to us. The net assets in these subsidiaries (after intercompany
eliminations) which may not be transferable to us in the form of loans, advances, or cash dividends
was $438.5 million at June 30, 2011, and $397.8 million at December 31, 2010.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The National Association of Insurance Commissioners, or NAIC, adopted rules effective December
31, 1998, which, if implemented by the states, set minimum capitalization requirements for
insurance companies, HMOs, and other entities bearing risk for health care coverage. The
requirements take the form of risk-based capital (RBC) rules. Michigan, Missouri, New Mexico, Ohio,
Texas, Utah, Washington, and Wisconsin have adopted these rules, which may vary from state to
state. California and Florida have not yet adopted NAIC risk-based capital requirements for HMOs
and have not formally given notice of their intention to do so. Such requirements, if adopted by
California and Florida, may increase the minimum capital required for those states.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">As of June 30, 2011, our health plans had aggregate statutory capital and surplus of
approximately $448.0 million compared with the required minimum aggregate statutory capital and
surplus of approximately $273.6 million. All of our health plans were in compliance with the
minimum capital requirements at June 30, 2011. We have the ability and commitment to provide
additional capital to each of our health plans when necessary to ensure that statutory capital and
surplus continue to meet regulatory requirements.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
</div>
</div>
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<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b>13. Related Party Transactions</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We have an equity investment in a medical service provider that provides certain vision
services to our members. We account for this investment under the equity method of accounting
because we have an ownership interest in the investee that confers significant influence over
operating and financial policies of the investee. As of both June 30, 2011, and December 31, 2010,
our carrying amount for this investment totaled $4.4 million. For the three months ended June 30,
2011 and 2010, we paid $6.6 million, and $5.3 million, respectively, for medical service fees to
this provider. For the six months ended June 30, 2011 and 2010, we paid $11.9 million, and $9.7
million, respectively, for medical service fees to this provider.
</div>
</div>
</div>
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.
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.