Ladies and gentlemen, thank you for standing by, and welcome to the Molina Healthcare third quarter conference call. During the presentation, all participants will be in a listen-only mode. Afterwards we will conduct a question-and-answer session. (Operator instructions) I would now like to turn the conference over to Juan Jose Orellana, Vice President of Investor Relations. Please go ahead, sir. Juan José Orellana: Thank you, Kim. Hello, everyone, and thank you for joining us. The purpose of this call is to discuss Molina Healthcare's financial results for the third quarter ended September 30, 2008. The company's earnings release reporting its results was issued today after the market closed and is now posted for viewing on our company website. On the call with me today are several members of our executive team; Dr. Mario Molina, our CEO; John Molina, our CFO; Terry Bayer, our COO; Dr. James Howatt, our Chief Medical Officer; and Joseph White, our Chief Accounting Officer. After the completion of our prepared remarks, we will open the call and take your questions. I also would like to remind you that our comments today contain numerous forward-looking statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act. All of our forward-looking statements are based on the current expectations and assumptions that are subject to numerous risks, uncertainties and other factors that could cause our actual results to differ materially. A description of such risk factors can be found in our earnings release, our 10-K annual report and our 10-Q quarterly reports filed with the Securities and Exchange Commission. These reports can be accessed under the Investor Relations tab of our company website or on the SEC's website. All forward-looking statements made during today's call represent our judgment as of October 22, 2008, and we disclaim any obligation to update such statements. This call is being recorded and a 30-day replay of the conference call will be available over the Internet through the company's website at www.molinahealthcare.com. I would now like to turn the call over to Dr. Mario Molina.

Thank you, Juan Jose, and hello, everyone. Like all of you, we have been closely monitoring the capital markets and the extraordinary pace of change during the past few weeks. Despite these headwinds, we are pleased to report solid financial results for the quarter as well as continued opportunities in both our business and our industry. Earnings for the third quarter were $0.62 per diluted share. And as John will cover in greater detail, these results continue to reflect strong revenue growth, continued enrollment gains, and a constant focus on administrative efficiency. I want to point out to everyone that today we are confirming 2008 guidance with a midpoint of $2.30 per share. That means that after a year dominated by bad news in our industry that included declining investment income, state budget shortfalls, a bad flu season, a crisis in the credit markets, and the impairment of investment securities previously thought to be safe, we expect the year to end for our company much as we thought it would before most of these events occurred. Our success speaks both to the resiliency of our Medicaid managed care business model and to the unique strengths of our company. We have 28 years of experience in this business. And we know that a weakening economy brings opportunities as well as challenges. So long as we stay focused on operations, administrative cost control, and conservative cash management, we will continue to serve the increasing Medicaid population that generally accompanies a weakening economy. We stand ready to assist our state and federal partners in providing high quality, accessible healthcare services to those most deeply affected by the current economic downturn. Once again, John and I will use the framework of our strategic plan to discuss our financial and operating results. The five years…

Thank you, Mario. And hello, everyone. Results for the third quarter of 2008 were $0.62 per diluted share, which matched our third quarter 2007 performance despite a $3 million year-over-year decrease in investment income. Year-to-date earnings per share are $1.67, a 17% improvement over 2007 results. With all the concerns in our industry about investment income, state budget shortfalls, last spring’s flu season, credit market issues, and the impairment of investment securities, today’s results demonstrate they are strength and resilience of our company. I think it’s worth emphasizing what Mario just said. Not only have we achieved solid financial performance, but we’ve also capitalized on some challenges just mentioned. We’ve grown enrollment, renegotiated key provider contracts, controlled our administrative expenses, and prudently managed our cash to achieve positive results in an uncertain environment. In the past, we have discussed non-GAAP measures that are also very helpful in evaluating our financial performance. For example, while net income grew by 17% year-over-year, EBITDA grew by 25% during the same period. You will find an expanded discussion on EBITDA in today’s earnings release. We believe that EBITDA is a useful supplemental measure to investors because it is consistent with how we evaluate our financial performance as it provides greater clarity on the basic operations of our business. EBITDA is frequently used by securities analysts and others to evaluate companies in our industry. One of the key areas of focus in our strategic plan is growth, which also leads to diversification in revenue and enrollment. The 26% growth in our premium revenues over third quarter of 2007 is primarily the result of our diversification efforts. Our Michigan acquisition contributed about one-third of our growth in revenue, while Ohio and Medicare health plans contributed another third. The remaining third of our revenue growth came from…

(Operator instructions) Our first question comes from the line of Joshua Raskin of Barclays Capital. Please go ahead. Joshua Raskin – Barclays Capital: Hi, thanks. Good evening. First question, just on the membership growth in the economy, it sounded like you guys alluding to the 28 years of history in the business. I’m curious if you look back, maybe the most recent, the early 2000 period, or even early ‘90s, and I guess you could look back to the ‘80s as well, what are your certain expectations for membership growth? What would you think sort of in an ’09 period in terms of organic membership?

Well, we’re not making projections today about 2009, but we do know that there are some metrics you can apply to correlate between unemployment and growth in the Medicaid population. We do anticipate it to grow. And as John mentioned, there is going to be a delay because people have to spend down their assets before they qualify for Medicaid. But I think we can confidently say that the pool of Medicaid beneficiaries should grow in 2009. Joshua Raskin – Barclays Capital: Okay. But I guess not necessary for ’09 guidance, Mario, but maybe even looking back historically, maybe what are some of the data points that you saw? What was sort of growth rates you would expect, or at least –?

Yes. Josh, I think Kaiser Family Foundation put out some numbers recently, and they suggest that for every 1% increase in unemployment, you get about another 1 million people eligible for Medicaid and SCHIP.

And just to be clear, at the end of John’s comments, when he used the word thus, I want everyone to know that John regularly uses the word thus in conversation. Joshua Raskin – Barclays Capital: Yes, I’ve got it in my notes several times. Second question, just around the risk-adjusted revenues in Medicare, I know it’s still a very small part of the book. It was about $2.6 million. Were those final settlements related to ’07, or what would be – I don’t know if Joe is around, but what exactly was the accounting for that one?

Hi, Josh. Yes, it’s Joe. Those are related to 2007 and 2008, risk-adjusters and a part fee settlement. Joshua Raskin – Barclays Capital: Okay. So that’s just you are catching up – so some of that I guess would theoretically be related to (inaudible) as well.

That’s correct. And going forward, as we grow, it’s going to be a bigger part of our business. We see that every year. Joshua Raskin – Barclays Capital: Okay. And then I guess the confirmation of earnings, we can sort of take that for face value, but it sort of implies a very wide range for the fourth quarter. And I was wondering is that just sort of really just a factor of we are confirming guidance for the full year or is there really a lot of uncertainty that could create – how would you get from the high end to the low end for the fourth quarter guidance?

Josh, there’s really two components. Number one, we don’t give quarterly guidance. And number two, we are confirming the annual guidance that we gave in July. Joshua Raskin – Barclays Capital: Well, I guess you could have narrowed your annual guidance in an effort?

Yes, we could have, but that would in effect when giving quarterly guidance since there is only one quarter left, Josh. So, in keeping with our policy to only issue annual guidance, we’re simply going to confirm our annual guidance. We think we are on track to hit those numbers. Joshua Raskin – Barclays Capital: Okay, understood.

Thank you. Our next question comes from Greg Nersessian of Credit Suisse. Please go ahead. Greg Nersessian – Credit Suisse: Hey, thanks. And I’ll be the first one to wish John a happy birthday. Appreciate your spending it with us this evening. First question, could you just clarify the California rate? I guess you said you got the 3% cut through that injunction date and then you went back to the historical rate. So if the cut goes into effect, then can we assume you’d back to a 3% cut and that would apply retroactively? I wasn't sure exactly about the moving pieces there.

Well, what we have done is taken a decrease in revenue for that period, I believe it was July 1 to August 18, and then gone back to the pre-injunction rates for the revenue. We were all back to provider decreases. And in fact, some of the provider decreases like the capitation, I don't think ever occurred. The injunction is still in effect. And the state is appealing it. So we’ll just have to wait and see what the outcome is. But for right now, we are operating with the pre-injunction revenue and pre-injunction provider contracts.

Yes. Greg, it’s Joe. If I could just add to that, if you want to look at it in shortcut, remember we talked about roughly a 6% decrease. For this quarter, we implemented that for half the quarter and worked out about a 3% decrease. So that is taking a lot shortcuts, but I think you can see how it works out. Greg Nersessian – Credit Suisse: Okay. So, that 3% that you are alluding to, that’s sort of the net effect of the revenue and the offsetting change in the provider fee schedule?

No, that’s purely revenue impact to us. Greg Nersessian – Credit Suisse: Okay. And then on the decline in the DCP in the quarter, I think you alluded to both the – obviously the inventory being down significantly, but also you mentioned the IBNR also down. Could you sort of break out that drop in DCP between the IBNR and the inventory?

I think they are interrelated. So it’s not really – we’re not really able to separate the two into two distinct things, Greg. They sort of – the decrease in claims does feed into the decrease in the IBNR because we are getting claims faster than getting them paid faster. So the component of IBNR, which is really incurred by not paid in-house, received but not paid goes down. Greg Nersessian – Credit Suisse: Okay. And then – okay. And then just on that Michigan tax payment, is it fair to say that $3.7 million, that applied to the nine-month period, so just break that out evenly if you were to sort of recap each of the quarters to appropriately reflect that change?

That would work. Greg Nersessian – Credit Suisse: Okay. Okay, thank you.

Thank you. Our next question comes from Daryn Miller of Goldman Sachs. Shelley Gnall – Goldman Sachs: Hi, thanks. This is Shelley Gnall in for Daryn Miller. My first question, in California, can you provide us some details on the progress of your recontracting, and also comment on what would happen if the 10% provider cut is permanently blocked? What would happen to those recontracted rate?

Well, as – go ahead, Terry?

Yes. This is Terry Bayer. Based on the injunction, we are not taking a fee-for-service reduction of 10%, and we have rolled back the contracts we negotiated and we stored those to pre-cut rate. So those are off the table at this time. Shelley Gnall – Goldman Sachs: Okay, great. And then moving on to Ohio, do you have a sense of how the Ohio MCR would have looked if your central region recontracting was affected for this quarter?

I’m sorry, could you ask the question again? I didn’t quite understand. Shelley Gnall – Goldman Sachs: Sorry, this is a question that is coming from Daryn. Hopefully I'm asking it correctly. He is wondering, do you have a sense of how the Ohio MCR would have looked if your central region recontracting was affected for this quarter?

I think it’s – this is Joe speaking. I think it’s fair to say it would have looked better, but we don’t have that calculation at hand, no. Shelley Gnall – Goldman Sachs: Okay. And then maybe moving on to the medical cost side, are there interesting trends emerging on the hospital inpatient or outpatient utilization side?

That’s such a broad question.

Do you mean in Ohio? Do you mean across the country? Shelley Gnall – Goldman Sachs: I mean, I guess if there is regional variances, I mean I think what we’ve heard from some of the commercial managed care providers is that there has been sort of weak inpatient utilization whereas outpatient I think has been a little bit higher. I’m just wondering if you are seeing any trends emerging.

This is Dr. Howatt. We’ve not seen any unique identifying trends. Shelley Gnall – Goldman Sachs: Okay, I appreciate it. That’s it for our questions.

Thank you.

Thank you. Our next question comes from Tom Carroll of Stifel Nicolaus. Tom Carroll – Stifel Nicolaus: Hi, good evening. Just couple of clarifications, Ohio and Michigan. Is there any reason to assume that the draft Ohio rates will differ materially from actual? And then secondly, on Michigan, is the rate increase there that you talked about and alluded to in the press release, is that basically all going to be passed through to providers? And I’ll stop there.

Okay. Let me talk about Ohio. We don’t want to make assumptions on the rates, which is why we didn’t say anything other than – we’ve got draft rates but nothing official, Tom. So I don’t want to speculate.

We don’t generally quote things like that until the ink is dry on the contract. So that’s why we are holding off.

And as far as Michigan, the rate increase was not tied to any specific provider rate increase. So it’s not a complete pass-through. But I’m sure that some of it to the extent that the provider rates do go up, we passed on. Tom Carroll – Stifel Nicolaus: So what do you think the net impact will be at Michigan? Is that up?

We would think it will be a positive.

Yes, there will be some net positive effect. Tom Carroll – Stifel Nicolaus: Okay, thank you.

Thank you. Our next question comes from John Rex of J.P. Morgan. John Rex – J.P. Morgan: Thanks. I want to just focus on Washington for a moment here. I suppose that rate process is ongoing right now. Could you just give us a little color, remind us of the timeline here, I think it’s a Jan. 1 renewal? And then maybe a little bit about the environment right now so we can get some expectations for them?

Washington is a Jan.1 rate year. I think we’ve got the draft rates in and are commenting on them, John. At this point, I don’t have a specific number for Washington. John Rex – J.P. Morgan: I mean, I guess should we have an expectation – margins aren’t fairly decent and not planned. Just given the broader environment, would one have an expectation that could possibly be a down rate?

I don’t think we have any expectation until we see all the information from the state. And I just don’t think we want to speculate on what it looks like. John Rex – J.P. Morgan: Any color just in terms of what you are seeing in the – so moving away from that specific Medicaid, but just what you are seeing more globally in the budgeting process in Washington state right now and the challenges they are having?

Well, I think the State of Washington like most states is going to face some budget challenges. And they will probably address those after the first of the year. John Rex – J.P. Morgan: All right. Okay. By that you're implying not potentially part of this rate cycle for you?

I don’t think so, but you never know. John Rex – J.P. Morgan: Okay, okay, that’s fine. I just want to be clear on California and the expectation here. So, should we expect then kind of when you think about the post injunction rate that you are recording, should we expect then as long as the injunction holds? Should that PMPM go back up again then in the 4Q?

It’s Joe. That’s a fair statement. It should be consistent – as long as the injunction holds, it should be consistent with what we saw the first half of the year. John Rex – J.P. Morgan: Okay.

Yes. No, let me add something though. I mean, first of all, that injunction is a big if. We don’t know which way it’s going to go. But second, October 1 is our normal rate cycle for California. And so we need to see in addition to what happened with the July 1 rate issues, what’s going to happen for October 1, how is that going to roll out. And our San Diego contract is a negotiated rate and we are still working on that. So that’s retro to July 1. So capital [ph] rates going to a little bit murky for a little while still. John Rex – J.P. Morgan: Okay. And then back to the question that Josh had in the beginning of the call. So, what would be kind of – give us maybe then kind of the reasoning around the $0.20 band on the 4Q in terms of kind of what are the negative scenarios and the positive scenarios that create that kind of fluctuation in your outlook for the fourth quarter, just so we can kind of be thinking why we would have that kind of band.

Well, I don’t want you to take away from this that we’re saying that’s a $0.20 band on the fourth quarter. What we’re really saying I think is that we are tracking in line for the first nine months of the year. And so we see no reason to change guidance. John Rex – J.P. Morgan: Okay. But there is no specific things you’d point to that say, hey, this is why it would be $0.72 and this is why it would be $0.52?

No, we are not seeing any material changes. I think it’s – things are stable, tracking in line. We are running towards the midpoint of guidance, and we think that’s where we are going to end up at the end of the year. John Rex – J.P. Morgan: Okay, great. Perfect. Thanks.

Thank you. Our next question comes from the line of Brian Wright of Banc of America Securities. Brian Wright – Banc of America Securities: Thanks. Is it possible that you are seeing a positive member mix issue as far as your average kind of claims per member kind of size, with kind of the changing demographics in the Medicaid population, given the increase in the unemployment rate? Do you think that there is something going on with that?

That’s a really good question. And I don’t know. I think it’s probably too early to tell. We probably have to wait until next year. One of the things that I think you are seeing though is as our claims inventory is dropping, we are also paying the larger claims, the hospital claims faster as well. And that’s part of the reason that not only is the inventory dropping, but the cost per claim in inventory is coming down as well. So you are seeing both those effects. Brian Wright – Banc of America Securities: Is there any sort of recent medical management initiatives that would prevent getting to out their payments more effectively than you have in past years or anything like that?

No, I don’t think so. And I think we are continuing to do the same things. We follow every patient in the hospital every day in every state. And I think if you look at the Ohio experience, one of the things we learned when we got an influx of members was that not everyone is managing their hospital days as carefully as we are. Brian Wright – Banc of America Securities: Okay, all right. Thank you.

(Operator instructions) Our next question comes from Carl Mcdonald of Oppenheimer. Carl Mcdonald – Oppenheimer: Thanks. Would you mind walking us through how the conversion process in Florida will work from the ASO model to the risk model? Some specific questions. Can you have both an ASO and a risk model at the same time? I know some states don’t allow that. Will it be something that happens over an elongated period, or is it a specific date that a choice has to be made?

There is a lot of questions in there, Carl. The short answer is, we cannot have the ASO model and the fully Cap model in the same counties at the same time. So letters were sent out and will continue to be sent out on a county-by-county basis, given the patients the option to either to disenroll back into MediPass or they will be automatically rolled over into Molina’s full risk program. Carl Mcdonald – Oppenheimer: And will the rollout happen at the same time in all counties or do you expect that will be elongated?

No, it will go – we are hoping that we can get it done in about four months. Carl Mcdonald – Oppenheimer: Okay. And any sense of the 55,000? What you think a decent retention number would look like?

Well, this is the first time, I think, in Florida we’re really seeing this type of situation. We think we’ve got – because of the network overlaps between what we’ve got and what Florida NetPASS had, we think that there is a good chance we will get a very good rollover. Carl Mcdonald – Oppenheimer: Okay. And then the second question is, I know you guys tend to have M&A discussions over a long period of time, in some cases years. Has there been any change in the tone of the discussion over the last couple of months as the economy has turned?

No. It’s fairly remarkable. The hospitals have the same attitude. Every seller has the attitude that their baby is the most beautiful one on the block. And we just keep going back to our same principles that we’ve used every time. We’re fairly consistent, Carl, in our M&A practices use every [ph] year. Carl Mcdonald – Oppenheimer: Great. Thank you.

Thank you. Our next question comes from Andrew Morey of Cowen Asset Management. Please go ahead. Andrew Morey – Cowen Asset Management: Yes, thanks for taking my question. On Ohio, I might have missed part of your description earlier in the call. But the changes in your network on the behavioral side, is that enough of a fix? I guess because I’m just looking at a 91.5 MCR and just thinking roughly kind of a 7.5% or 8.0% SG&A. So it wouldn't appear that you're really earning any money there currently. So I guess the question is, are those network changes enough or do you need to do other things in Ohio?

Well, I don’t think it’s primarily the network. We talked in Ohio about a number of things that are going to help us. We have done some provider recontracting, which is going to lower unit cost. Those contracts went into effect in mid-September. And so you really haven’t had a chance to see that yet. The other change we did was to bring behavioral health in-house. And as I alluded to earlier, we think that we manage things a little more tightly than most, and we can help bring down costs by tighter utilization management and making more appropriate use of the resources that are available in Ohio for behavioral health. And the third thing is the risk-adjusted payments for the ABD patients, which has gone up. And we’ll add about $500,000 a month I believe in additional revenue. So those combination of things we think will begin to show an impact in the fourth quarter in 2008. Some of those things went into effect at the end of the third quarter, but really haven’t been around long enough to have any impact on third quarter results.

I just want to add a comment that the recontracting is broader than behavioral health. It sounded like your question might have been asking for the specific to behavioral health. While we have network changes to bring behavioral in-house, Dr. Molina’s first point related to the recontracting was broader recontracting. Andrew Morey – Cowen Asset Management: Okay, thank you for that clarification.

Thank you. Our final question comes from Scott Fidel of Deutsche Bank. Scott Fidel – Deutsche Bank: Thanks. I just want to follow up on California, and did you basically say that you are reinstating the higher provider payments, given the injunction? And just wondering how this works if the cuts end up going back through, you basically just go back to those lower reimbursement rates, and how much timing does it take to adjust based on what California is doing with these rates relative to your provider reimbursements?

Well, right now we have rolled back the contracts to the ones that we had before. We do have the ability if we need to institute the new contracts if the state does reinstitute the 10% provider cut. I personally think that’s unlikely. But we have the ability to make the change and we’ll take sometime because you’ve got to change computer systems. But we've done it once, we reversed it once, and we can do it again if we need to. Scott Fidel – Deutsche Bank: Okay. So basically it’s a bit of a – it will be a bit of a roller coaster around those reimbursements right now?

Yes, but I suspect that it’s more likely than not that the injunction will be upheld. Scott Fidel – Deutsche Bank: Okay. And I just had a follow-up just around the DC and I’m talking the second stimulus package. Maybe if you can give us an update on what you are hearing around what that can include around Medicaid?

That’s a really good question. Both the House and the Senate have proposed to increase federal matching funds for Medicaid in the neighborhood of $14 billion to perhaps as much as $20 billion. And that may get put into the package for the stimulus. That I think would be helpful. All the states would like to see more federal dollars put into the Medicaid programs. It helps them and they are having a tough time. But it remains to be seen if that’s going to pass. Scott Fidel – Deutsche Bank: Do you have any sense of what that would do for the map? I know it’s 57% federal right now, where that would take it to if that went through?

I’m not sure out of top of my head, and it also varies on a state-by-state basis as well. Scott Fidel – Deutsche Bank: Right. Okay, thanks.

Okay. Thank you, everyone. We’ll see next quarter.

Ladies and gentlemen, that does conclude today’s conference call. We thank you for your participation and we ask that you please disconnect your line.