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<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
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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 September 30, 2011, these health
plans served approximately 1.7 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 our contract for a replacement Medicaid Management Information System,
or MMIS, to another firm. 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 nine months ended September 30, 2011, our revenue under the Louisiana MMIS contract was
approximately $36 million. Until the replacement MMIS is designed, developed, and implemented, 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>
<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>
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</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 prior to January 1,
2011 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.
</div>
<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 a portion 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. As noted above, direct
costs in excess of the estimated future net revenues associated with a contract may not be
deferred. For the three and nine months ended September 30, 2011, we recorded $2.5 million and
$9.5 million, respectively, of direct contract costs associated with our Idaho contract. We were
not able to defer these direct contract costs because estimated future net revenues as of each
measurement date did not
exceed estimated future direct costs of the contract. We currently expect the Idaho 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. If our break-even assumptions were to change, we may not be able to
continue to defer direct contract costs.
</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%">We began to recognize revenue and the related deferred costs associated with our Maine
contract in September 2010.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Molina Medicaid Solutions’ deferred revenue was $53.1 million at September 30, 2011, and $10.9
million at December 31, 2010, and unamortized deferred contract costs were $52.8 million at
September 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, 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 services, 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, VSOE should first be used, if available. Since VSOE is unavailable under our contracts, we
will attempt to use third-party evidence, or TPE, of vendors selling similar services to similarly
situated customers on a standalone basis, if available. If TPE is not 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>
<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 September 30, 2011, the reserve balance was zero.
</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 $10.9 million, and $11.0 million as of
September 30, 2011 and December 31, 2010, respectively. Approximately $8.4 million of the
unrecognized tax benefits recorded at September 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 $7.6 million as of September 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 $8.8 million due to the expiration of statute of limitations
and the resolution to the state refund claim described above.
</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%">Our continuing practice is to recognize interest and/or penalties related to unrecognized tax
benefits in income tax expense. As of September 30, 2011, and December 31, 2010, we had accrued
$61,000 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 nine months
ended September 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>
<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"> </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>The FASB issued the following guidance which modifies goodwill
impairment testing.
</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. 2011-08, Intangibles—Goodwill and Other (ASC Topic 350) — Testing Goodwill
for Impairment, </i>a consensus of the FASB Emerging Issues Task Force. This guidance allows an
entity the option to first assess qualitative factors to determine whether it is necessary
to perform the two-step quantitative goodwill impairment test. Under that option, an entity
would no longer be required to calculate the fair value of a reporting unit unless the
entity determines, based on the qualitative assessment, that it is more likely than not
that its fair value is less than its carrying amount. We do not expect the adoption of this
guidance to impact our consolidated financial position, results of operations or cash
flows. This guidance is effective for interim and annual goodwill impairment tests
performed for fiscal years beginning after December 15, 2011.
</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"><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. Effective for interim and annual reporting beginning on or after December 15, 2010, we
adopted this guidance in full effective January 1, 2011.
</div></td>
</tr>
</table>
</div>
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<div style="margin-top: 10pt">
</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>
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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>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="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>Nine 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>September 30,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>September 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">46,062</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">38,717</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 repurchased
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(235</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(160</td>
<td nowrap="nowrap">)</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">Weighted-average number of shares issued
</div></td>
<td> </td>
<td> </td>
<td align="right">7</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">3,460</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">390</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,357</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">Denominator for basic earnings per share
</div></td>
<td> </td>
<td> </td>
<td align="right">45,834</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">42,177</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">45,693</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">39,767</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td nowrap="nowrap">
<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">462</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">369</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">641</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">436</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">Denominator for diluted earnings per share (2)
</div></td>
<td> </td>
<td> </td>
<td align="right">46,296</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">42,546</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">46,334</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">40,203</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: 10pt; margin-top: 10pt; width: 18%; border-bottom: 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 September 30, 2011, and 2010, there
were approximately 316,000 and 708,000 antidilutive weighted options, respectively. For the
nine months ended September 30, 2011, and 2010, there were approximately 126,000 and 738,000
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. For the three months ended
September 30, 2011 and 2010, there were approximately 57,000 and 9,000 antidilutive weighted
restricted shares, respectively. For the nine months ended September 30, 2011 there were no
antidilutive restricted shares. For the nine months ended September 30, 2010, there were
approximately 9,000 antidilutive restricted shares.
</div></td>
</tr>
<tr style="font-size: 3pt">
<td> </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 nine month periods ended September 30, 2011 and 2010.
</div></td>
</tr>
</table>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
</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>4. Share-Based Compensation</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">At September 30, 2011, we had employee equity incentives outstanding under three plans: (1)
the 2011 Equity Incentive Plan; (2) the 2002 Equity Incentive Plan; and (3) 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 September 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 nine month periods ended September 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>Nine 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>September 30,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>September 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">4,004</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">2,367</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">11,742</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">6,113</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Stock options (including shares issued under our
employee stock purchase plan)
</div></td>
<td> </td>
<td> </td>
<td align="right">345</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">393</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">981</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,155</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Total stock-based compensation expense
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">4,349</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">2,760</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">12,723</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">7,268</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 September 30, 2011, there was $17.7 million of total unrecognized compensation expense
related to unvested restricted stock awards, which we expect to recognize over a remaining
weighted-average period of two years. As of September 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 nine months ended September
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">759,300</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">23.52</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">(483,735</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">17.39</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">(69,531</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">15.44</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 September 30, 2011
</div></td>
<td> </td>
<td> </td>
<td align="right">1,459,658</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">19.09</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 nine months ended September 30,
2011 and 2010 was $17.9 million and $11.9 million, respectively. The total fair value of restricted
shares vested during the nine months ended September 30, 2011 and 2010 was $11.5 million and $6.1
million, respectively.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Stock option activity for the nine months ended September 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">(21,700</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">21.45</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 September
30, 2011
</div></td>
<td> </td>
<td> </td>
<td align="right">563,049</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">20.74</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">204</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">4.2</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Stock options exercisable and expected to
vest as of September 30, 2011
</div></td>
<td> </td>
<td> </td>
<td align="right">562,965</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">20.74</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">204</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">4.2</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 September 30, 2011
</div></td>
<td> </td>
<td> </td>
<td align="right">560,799</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">20.73</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">204</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">4.2</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>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
</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 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 $168.1 million and $164.0 million as
of September 30, 2011, and December 31, 2010, respectively. Based on quoted market prices, the fair
value of the convertible senior notes was approximately $179.2 million and $188.4 million as of
September 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 as follows:
</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="2%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>
<div style="text-align: justify"><i>Level 1 — Observable inputs such as quoted prices in active markets: </i>Our Level 1
securities consist of government-sponsored enterprise securities (GSEs) and U.S. treasury
notes. Level 1 securities are classified as current investments in
the accompanying consolidated balance sheets. These securities are actively traded and
therefore the fair value for these securities is based on quoted market prices on one or more
securities exchanges.
</div></td>
</tr>
<tr style="font-size: 8pt">
<td> </td>
</tr> <tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="2%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>
<div style="text-align: justify"><i>Level 2 — Inputs other than quoted prices in active markets that are either directly or
indirectly observable: </i>Our Level 2 securities consist of corporate debt securities, municipal
securities, and certificates of deposit, and are classified as current investments in
the accompanying consolidated balance sheets. Our investments in
securities classified as Level 2 are traded frequently though not necessarily daily. Fair
value for these securities is determined using a market approach based on quoted prices for
similar securities in active markets or quoted prices for identical securities in inactive
markets.
</div></td>
</tr>
<tr style="font-size: 8pt">
<td> </td>
</tr> <tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="2%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>
<div style="text-align: justify"><i>Level 3 — Unobservable inputs in which little or no market data exists, therefore
requiring an entity to develop its own assumptions: </i>We hold investments in auction rate
securities which are designated as available-for-sale, and are reported at fair value of $18.1
million (par value of $21.3 million) as of September 30, 2011. 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
September 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 September 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 September 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></td>
</tr>
</table>
</div>
<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 $0.9 million and pretax unrealized
losses of $0.5 million to accumulated other comprehensive income (loss) for the nine months ended
September 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>
<!-- 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%">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 nine months
ended September 30, 2010, we recorded pretax gains of $4.2 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 nine months ended September
30, 2010, we recorded pretax losses of $3.8 million on the Rights, attributable to the decline in
the fair value of the Rights. When the remaining eligible auction rate securities were sold at par
value on July 1, 2010, the value of the Rights was zero.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Our assets measured at fair value on a recurring basis at September 30, 2011, were as follows:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="44%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Total</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Level 1</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Level 2</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Level 3</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="14"><b>(In thousands)</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Corporate debt securities
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">215,875</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">215,875</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">45,224</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">45,224</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">36,088</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">36,088</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">24,454</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">24,454</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">3,261</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">3,261</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">18,112</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">18,112</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">343,014</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">69,678</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">255,224</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">18,112</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%">
In prior periods we reported our investments in corporate debt securities, municipal securities
and certificates of deposit in Level 1. Upon re-evaluation of the inputs used to measure
fair value within the fair value hierarchy, we have determined that these investments should
be reported in Level 2, and have reclassified the tabular disclosure accordingly.
</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 (Level 3):
</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">913</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">(3,250</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 September 30, 2011
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">18,112</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">The amount of total gains for the period included in other comprehensive income attributable to
the change in unrealized gains relating to assets still held at September 30, 2011
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">913</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 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 September 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>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
</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 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>September 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">219,955</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">98</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">4,178</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">215,875</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">45,338</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">44</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">158</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">45,224</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">57,477</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">165</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">3,442</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">54,200</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">24,323</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">136</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">5</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">24,454</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">3,261</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">3,261</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">350,354</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">443</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">7,783</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">343,014</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>
<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 September 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">159,060</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">156,445</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Due one year through five years
</div></td>
<td> </td>
<td> </td>
<td align="right">170,494</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">168,888</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Due after ten years
</div></td>
<td> </td>
<td> </td>
<td align="right">20,800</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">17,681</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">350,354</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">343,014</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="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 $105.0 million and $52.0
million for the three months ended September 30, 2011, and 2010, respectively. Total proceeds from
sales and maturities of available-for-sale securities were $226.4 million and $143.3 million for
the nine months ended September 30, 2011, and 2010, respectively. Net realized investment gains for
the three months ended September 30, 2011, and 2010 were $153,000 and $21,000 respectively. Net
realized investment gains for the nine months ended September 30, 2011, and 2010 were $331,000 and
$81,000 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 September 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>
<!-- 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%">Approximately 33% 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 September 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 September 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">169,582</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">3,625</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">17,720</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">553</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">187,302</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">4,178</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">18,522</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">78</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,167</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">80</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">19,689</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">158</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">22,731</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">188</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">21,055</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">3,254</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">43,786</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">3,442</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">4,705</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">5</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">4,705</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">5</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">215,540</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">3,896</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">39,942</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">3,887</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">255,482</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">7,783</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>
</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 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>September 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">31,742</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">11,265</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">24,025</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">9,722</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">27,901</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">Washington
</div></td>
<td> </td>
<td> </td>
<td align="right">11,766</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">14,486</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Wisconsin
</div></td>
<td> </td>
<td> </td>
<td align="right">7,777</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">5,437</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Others
</div></td>
<td> </td>
<td> </td>
<td align="right">7,029</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">5,187</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:45px; text-indent:-15px">Total Health Plans segment
</div></td>
<td> </td>
<td> </td>
<td align="right">131,227</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">147,961</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Molina Medicaid Solutions segment
</div></td>
<td> </td>
<td> </td>
<td align="right">48,812</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">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">180,039</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>
<!-- 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%">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>
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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 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 certain 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>September 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">8,196</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">4,672</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">505</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">15,902</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">9,077</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">2,799</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">50,494</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">42,100</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The contractual maturities of our held-to-maturity restricted investments as of September 30,
2011 are summarized below.
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="72%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Amortized</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Estimated</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Cost</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Fair Value</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>(In thousands)</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Due in one year or less
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">45,281</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">45,292</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Due one year through five years
</div></td>
<td> </td>
<td> </td>
<td align="right">5,213</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">5,266</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">50,494</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">50,558</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>
<!--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 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%">On September 9, 2011, we entered into a credit agreement for a $170 million revolving credit
facility (the “Credit Facility”) with various lenders and U.S. Bank National Association, as LC
Issuer, Swing Line Lender, and Administrative Agent. The Credit Facility will be used for general
corporate purposes.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The Credit Facility has a term of five years under which all amounts outstanding will be due
and payable on September 9, 2016. Subject to obtaining commitments from existing or new lenders and
satisfaction of other specified conditions, we may increase the Credit Facility to up to $195
million. As of September 30, 2011 there was no outstanding principal balance under the Credit
Facility. However, as of September 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, which reduces the amount available under the Credit
Facility.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Borrowings under the Credit Facility will bear interest based, at our election, on the base
rate plus an applicable margin or the Eurodollar rate. The base rate is, for any day, a rate of
interest per annum equal to the highest of (i) the prime rate of interest announced from time to
time by U.S. Bank or its parent, (ii) the sum of the federal funds rate for such day plus 0.50% per
annum and (iii) the Eurodollar rate (without giving effect to the applicable margin) for a one
month interest period on such day (or if such day is not a business day, the immediately preceding
business day) plus 1.00%. The Eurodollar rate is a reserve adjusted rate at which Eurodollar
deposits are offered in the interbank Eurodollar market plus an applicable margin. In addition to
interest payable on the principal amount of indebtedness outstanding from time to time under the
Credit Facility, we are required to pay a quarterly commitment fee of 0.25% to 0.50% (based upon
our leverage ratio) of the unused amount of the lenders’ commitments under the Credit Facility. The
initial commitment fee shall be set at 0.35% until our delivery of its financials for the quarter
ended September 30, 2011. The applicable margins range between 0.75% to 1.75% for base rate loans
and 1.75% to 2.75% for Eurodollar loans, in each case, based upon our leverage ratio.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Our obligations under the Credit Facility are secured by a lien on substantially all of our
assets, with the exception of certain of our real estate assets, and by a pledge of the capital
stock or membership interests of our operating subsidiaries and health plans (with the exception of
the California health plan).
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">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, and investments. 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 as of the end of each fiscal quarter and a fixed charge
coverage ratio of not less than 1.75 to 1.00. At September 30, 2011, we were in compliance with all
financial covenants under the Credit Facility.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">In the event of a default, including cross-defaults relating to specified other debt in excess
of $20 million, the lenders may terminate the commitments under the Credit Facility and declare the
amounts outstanding, including all accrued interest and unpaid fees, payable immediately. In
addition, the lenders may enforce any and all rights and remedies created under the Credit Facility
or applicable law.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">In connection with our entrance into the Credit Facility, on September 9, 2011, we terminated
our existing credit agreement with Bank of America, dated March 9, 2005, as amended to date, which
had provided us with a $150 million revolving credit facility. As of September 30, 2011 and
December 31, 2010, there was no outstanding principal balance under this credit agreement.
</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 September 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 September 30, 2011, we expect the Notes to be outstanding until their October 1, 2014
maturity date, for a remaining amortization period of 36 months. The Notes’ if-converted value did
not exceed their principal amount as of September 30, 2011. At September 30, 2011, the equity
component of the Notes, net of the impact of deferred taxes, was $24.0 million. The following table
provides the details of the liability amounts recorded:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="72%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>As of</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>As of</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>September 30,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>December 31,</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>(In thousands)</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Details of the liability component:
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Principal amount
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">187,000</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">187,000</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Unamortized discount
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(18,891</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(22,986</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Net carrying amount
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">168,109</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>Nine 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>September 30,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>September 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">5,259</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">5,259</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Amortization of the discount on the liability
component
</div></td>
<td> </td>
<td> </td>
<td align="right">1,384</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,291</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">4,095</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">3,800</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Total interest cost recognized
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">3,137</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">3,044</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">9,354</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">9,059</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>
<!--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 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%"><i>Securities Repurchase Program. </i>Effective as of October 26, 2011, our board of directors has
authorized the repurchase of $75 million in aggregate of either our common stock or our convertible
senior notes due 2014 (see Note 9, “Long-Term Debt”). The repurchase program will be funded with
working capital or the Company’s credit facility, and repurchases may be made from time to time on
the open market or through privately negotiated transactions. The repurchase program extends
through October 25, 2012, but the Company reserves the right to suspend or discontinue the program
at any time.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">On
July 27, 2011, our board of directors approved a stock repurchase program of up to $7
million to be used to purchase shares of our common stock under a Rule 10b5-1 trading plan. Under
this program, we purchased approximately 400,000 shares of our common stock for $7 million (average
cost of approximately $17.47 per share) during August 2011. These purchases did not materially
impact diluted earnings per share for the three months or nine months ended September 30, 2011.
Subsequently, we retired the $7.0 million of treasury shares purchased, which reduced additional
paid-in capital as of September 30, 2011.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><i>Stock Split. </i>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%"><i>Stock Plans. </i>In connection with the plans described in Note 4, “Share-Based Compensation,” we
issued approximately 627,000 shares of common stock, net of shares used to settle employees’ income
tax obligations, for the nine months ended September 30, 2011. Stock plan activity resulted in a
$15.6 million increase to additional paid-in capital for the same period.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
</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 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>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Molina Medicaid Solutions was acquired on May 1, 2010; therefore, the nine months ended
September 30, 2010 include only five months of operating results for this segment. Operating
segment revenues and profitability for the three months and nine months ended September 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 September 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">1,138,230</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1,138,230</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">37,728</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">37,728</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">764</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">764</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">$</td>
<td align="right">1,138,994</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">37,728</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1,176,722</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Operating income (loss)
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">33,773</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(207</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="left">$</td>
<td align="right">33,566</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>Nine months ended September 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">$</td>
<td align="right">3,348,438</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">3,348,438</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Service revenue
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">111,290</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">111,290</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Investment income
</div></td>
<td> </td>
<td> </td>
<td align="right">3,804</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">3,804</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Total revenue
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">3,352,242</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">111,290</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">3,463,532</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">$</td>
<td align="right">100,273</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(3,997</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="left">$</td>
<td align="right">96,276</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"><b>Three months ended September 30, 2010</b>
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Premium revenue
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">1,005,115</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1,005,115</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">32,271</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">32,271</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">1,760</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,760</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">$</td>
<td align="right">1,006,875</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">32,271</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1,039,146</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Operating income
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">28,796</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1,157</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">29,953</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>Nine months ended September 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">$</td>
<td align="right">2,947,020</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">2,947,020</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Service revenue
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">53,325</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">53,325</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Investment income
</div></td>
<td> </td>
<td> </td>
<td align="right">4,880</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">4,880</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Total revenue
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">2,951,900</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">53,325</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">3,005,225</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">$</td>
<td align="right">65,407</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">6,162</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">71,569</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 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>Nine 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>September 30,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>September 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">33,566</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">29,953</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">96,276</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">71,569</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Interest expense
</div></td>
<td> </td>
<td> </td>
<td align="right">4,380</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">4,600</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">11,666</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">12,056</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Income before income taxes
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">29,186</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">25,353</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">84,610</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">59,513</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 September 30, 2011
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">1,389,940</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">228,364</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1,618,304</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>
</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>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 $456.2 million at September 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>
<!-- 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 of September 30, 2011, our health plans had aggregate statutory capital and surplus of
approximately $463.1 million compared with the required minimum aggregate statutory capital and
surplus of approximately $273.9 million. All of our health plans were in compliance with the
minimum capital requirements at September 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>
</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>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 September 30, 2011, and December 31, 2010,
our carrying amount for this investment amounted to $3.9 million, and $3.8 million, respectively.
For the three months ended September 30, 2011 and 2010, we paid $5.0 million, and $6.0 million,
respectively, for medical service fees to this provider. For the nine months ended September 30,
2011 and 2010, we paid $16.8 million, and $15.7 million, respectively, for medical service fees to
this provider.
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<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b>14. Subsequent Events</b>
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<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Effective as of October 26, 2011, our board of directors has authorized the repurchase of $75
million in aggregate of either our common stock or our convertible senior notes due 2014 (see Note
9, “Long-Term Debt”). The repurchase program will be funded with working capital or the Company’s
credit facility, and repurchases may be made from time to time on the open market or through
privately negotiated transactions. The repurchase program extends through October 25, 2012, but
the Company reserves the right to suspend or discontinue the program at any time.
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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.