MAGELLAN HEALTH SERVICES INC – 10-Q – Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Edgar Online, Inc.

 The following discussion and analysis of the financial condition and results of operations of Magellan and its majority-owned subsidiaries and all VIEs for which Magellan is the primary beneficiary should be read together with the Consolidated Financial Statements and the notes to the Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q and the Company's Annual Report on Form 10-K for the year ended December 31, 2011, which was filed with the SEC on February 28, 2012.  

Forward-Looking Statements

    This Form 10-Q includes "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Although the Company believes that its plans, intentions and expectations as reflected in such forward-looking statements are reasonable, it can give no assurance that such plans, intentions or expectations will be achieved. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. Important factors currently known to management that could cause actual results to differ materially from those in forward-looking statements include:  

º •

º the Company's inability to renegotiate or extend expiring customer

          contracts, or the termination of customer contracts;          º •         º the Company's inability to integrate acquisitions in a timely and           effective manner;          º •         º changes in business practices of the industry, including the           possibility that certain of the Company's managed care customers could           seek to provide managed healthcare services directly to their           subscribers, instead of contracting with the Company for such           services, particularly as a result of further consolidation in the           managed care industry and especially regarding managed healthcare           customers that have already done so with a portion of their           membership;          º •

º the impact of changes in the contracting model for Medicaid contracts,

          including certain changes in the contracting model used by states for           managed healthcare services contracts relating to Medicaid lives;          º •

º the Company's ability to accurately predict and control healthcare

          costs, and to properly price the Company's services;          º •         º Fluctuation in quarterly operating results due to seasonal and other           factors;          º •         º the Company's dependence on government spending for managed

healthcare, including changes in federal, state and local healthcare

          policies;          º •         º restrictive covenants in the Company's debt instruments;          º •         º present or future state regulations and contractual requirements that           the Company provide financial assurance of its ability to meet its           obligations;          º •

º the impact of the competitive environment in the managed healthcare

services industry which may limit the Company's ability to maintain or

          obtain contracts, as well as its ability to maintain or increase its           rates;          º •         º the impact of healthcare reform legislation;          º •

º the Mental and Substance Abuse Benefit Parity Law and Regulations;

         º •         º government regulation;                                         23 

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º •

º the possible impact of additional regulatory scrutiny and liability

          associated with the Company's Specialty Pharmaceutical Management           segment;          º •

º the inability to realize the value of goodwill and intangible assets;

         º •         º pending or future actions or claims for professional liability;          º •

º claims brought against the Company that either exceed the scope of the

          Company's liability coverage or result in denial of coverage;          º •         º class action suits and other legal proceedings;          º •         º the impact of governmental investigations;          º •

º the impact of varying economic and market conditions on the Company's

investment portfolio; and

º •

º the state of the national economy and adverse changes in economic

conditions.

      Further discussion of factors currently known to management that could cause actual results to differ materially from those in forward-looking statements is set forth under the heading "Risk Factors" in Item 1A of Magellan's Annual Report on Form 10-K for the year ended December 31, 2011. When used in this Quarterly Report on Form 10-Q, the words "estimate," "anticipate," "expect," "believe," "should," and similar expressions are intended to be forward-looking statements. Magellan undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time, except as required by law.  Business Overview      The Company is engaged in the specialty managed healthcare business. Through 2005, the Company predominantly operated in the managed behavioral healthcare business. As a result of certain acquisitions, the Company expanded into radiology benefits management and specialty pharmaceutical management during 2006, and into Medicaid administration during 2009. The Company provides services to health plans, insurance companies, employers, labor unions and various governmental agencies. The Company's business is divided into the following six segments, based on the services it provides and/or the customers that it serves, as described below.  

Managed Behavioral Healthcare

      Two of the Company's segments are in the managed behavioral healthcare business. This line of business generally reflects the Company's coordination and management of the delivery of behavioral healthcare treatment services that are provided through its contracted network of third-party treatment providers, which includes psychiatrists, psychologists, other behavioral health professionals, psychiatric hospitals, general medical facilities with psychiatric beds, residential treatment centers and other treatment facilities. The treatment services provided through the Company's provider network include outpatient programs (such as counseling or therapy), intermediate care programs (such as intensive outpatient programs and partial hospitalization services), inpatient treatment and crisis intervention services. The Company generally does not directly provide or own any provider of treatment services.      The Company provides its management services primarily through: (i) risk-based products, where the Company assumes all or a substantial portion of the responsibility for the cost of providing treatment services in exchange for a fixed per member per month fee, (ii) ASO products, where the Company provides services such as utilization review, claims administration and/or provider network management, but does not assume responsibility for the cost of the treatment services, and (iii) EAPs where the Company provides short-term outpatient behavioral counseling services.                                         24

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The managed behavioral healthcare business is managed based on the services provided and/or the customers served, through the following two segments:

      Commercial.  The Commercial segment generally reflects managed behavioral healthcare services and EAP services provided under contracts with health plans and insurance companies for some or all of their commercial, Medicaid and Medicare members, as well as with employers, including corporations, governmental agencies, and labor unions. Commercial's contracts encompass risk-based, ASO and EAP arrangements. As of June 30, 2012, Commercial's covered lives were 5.4 million, 13.2 million and 12.1 million for risk-based, ASO and EAP products, respectively. For the six months ended June 30, 2012, Commercial's revenue was $256.7 million, $61.2 million and $40.9 million for risk-based, ASO and EAP products, respectively.      Public Sector.  The Public Sector segment generally reflects services provided to recipients under Medicaid and other state sponsored programs under contracts with state and local governmental agencies. Public Sector contracts encompass either risk-based or ASO arrangements. As of June 30, 2012, Public Sector's covered lives were 1.9 million and 1.1 million for risk-based and ASO products, respectively. For the six months ended June 30, 2012, Public Sector's revenue was  and $11.6 million for risk-based and ASO products, respectively.  

Radiology Benefits Management

      The Radiology Benefits Management segment generally reflects the management of the delivery of diagnostic imaging and other therapeutic services to ensure that such services are clinically appropriate and cost effective. The Company's radiology benefits management services currently are provided under contracts with health plans and insurance companies for some or all of their commercial, Medicaid and Medicare members. The Company also contracts with state and local governmental agencies for the provision of such services to Medicaid recipients. The Company offers its radiology benefits management services through risk-based contracts, where the Company assumes all or a substantial portion of the responsibility for the cost of providing diagnostic imaging services, and through ASO contracts, where the Company provides services such as utilization review and claims administration, but does not assume responsibility for the cost of the imaging services. As of June 30, 2012, covered lives for Radiology Benefits Management were 4.3 million and 12.8 million for risk-based and ASO products, respectively. For the six months ended June 30, 2012, revenue for Radiology Benefits Management was $145.0 million and $20.7 million for risk-based and ASO products, respectively.  

Drug Benefits Management

      Two of the Company's segments are in the drug benefits management business. This line of business generally reflects the Company's clinical management of drugs paid under medical and pharmacy benefit programs. The Company's services include the coordination and management of the specialty drug spending for health plans, employers, and governmental agencies, and the management of pharmacy programs for Medicaid and other state-sponsored programs. The two segments in this business line are:      Specialty Pharmaceutical Management.  The Specialty Pharmaceutical Management segment comprises programs that manage specialty drugs used in the treatment of complex conditions such as cancer, multiple sclerosis, hemophilia, infertility, rheumatoid arthritis, chronic forms of hepatitis and other diseases. Specialty pharmaceutical drugs represent high-cost injectible, infused, or oral drugs with sensitive handling or storage needs, many of which may be physician administered. Patients receiving these drugs require greater amounts of clinical support than those taking more traditional agents. Payors require clinical, financial and technological support to maximize the value delivered to their members using these expensive agents. The Company's specialty pharmaceutical management services are provided under contracts with health plans, insurance companies, employers, and governmental                                         25

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  agencies for some or all of their commercial, Medicare and Medicaid members. The Company's specialty pharmaceutical services include: (i) contracting and formulary optimization programs; (ii) specialty pharmaceutical dispensing operations; and (iii) medical pharmacy management programs. The Company's Specialty Pharmaceutical Management segment had contracts with 40 health plans and several pharmaceutical manufacturers and state Medicaid programs as of June 30, 2012.      Medicaid Administration.  The Medicaid Administration segment generally reflects integrated clinical management services provided to the public sector to manage Medicaid pharmacy, mental health, and long-term care programs. The primary focus of the Company's Medicaid Administration unit involves providing pharmacy benefits administration ("PBA") and pharmacy benefits management ("PBM") services under contracts with health plans and public sector healthcare clients for Medicaid and other state sponsored program recipients. The Company's services include pharmacy point-of-sale claims processing systems and administration, drug utilization review, clinical prior authorization, utilization and formulary management services, Preferred Drug List programs, Maximum Allowable Cost programs, and drug rebate program services. Medicaid Administration's contracts encompass Fee-For-Service ("FFS") arrangements. In addition to Medicaid Administration's FFS contracts, effective September 1, 2010, Public Sector has subcontracted with Medicaid Administration to provide pharmacy benefits management services on a risk basis for one of Public Sector's customers.  Corporate      This segment of the Company is comprised primarily of operational support functions such as sales and marketing and information technology, as well as corporate support functions such as executive, finance, human resources and legal.  Significant Customers       Consolidated Company

The Company provides behavioral healthcare management and other related services to approximately 715,000 members in Maricopa County, Arizona, the ("Maricopa Contract").

      Under the Maricopa Contract, the Company is responsible for providing covered behavioral health services to persons eligible under Title XIX (Medicaid) and Title XXI (State Children's Health Insurance Program) of the Social Security Act, non-Title XIX and non-Title XXI eligible children and adults with a serious mental illness, and to certain non-Title XIX and non-Title XXI adults with behavioral health or substance abuse disorders. The Maricopa Contract began on September 1, 2007 and extends through September 30, 2013 unless sooner terminated by the parties. The State of Arizona has the right to terminate the Maricopa Contract for cause, as defined, upon ten days' notice with an opportunity to cure, and without cause immediately upon notice from the State. The Maricopa Contract generated net revenues of $383.6 million and $383.2 million for the six months ended June 30, 2011 and 2012, respectively.                                         26

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  Table of Contents       By Segment      In addition to the Maricopa Contract previously discussed, the following customers generated in excess of ten percent of net revenues for the respective segment for the six months ended June 30, 2011 and 2012 (in thousands):  Segment                                 Term Date                   2011       2012 Commercial Customer A                December 31, 2013                       $ 91,606   $  96,106 Customer B                June 30, 2014                             33,402      32,137 *                           December 31, 2012 to December 14, Customer C                2013(1)                                   54,796      60,923 Customer D                December 31, 2019                              -      67,381 Public Sector Customer E                June 30, 2013(2)                          81,060     111,259 Radiology Benefits Management Customer F                December 31, 2015                         67,392      53,405                           June 30, 2011 to November 30, Customer G                2011(1)(3)                                30,934           - Customer H                June 30, 2014                             26,720      29,049 Customer I                March 31, 2013                            16,157 *    28,092 Customer J                January 31, 2014                          15,801 *    18,333 Specialty Pharmaceutical Management                           November 30, 2012 to December 31, Customer K                2013(1)                                   42,989      64,651                           September 1, 2012 to April 29, Customer L                2013(1)                                   27,963      30,643                           December 31, 2012 to September 27, Customer B                2013(1)                                    9,733 *    33,746 Medicaid Administration Customer M                December 4, 2011(3)                       13,805           - Customer N                September 30, 2013(4)                     40,774      37,826 Customer O                March 31, 2015 to June 30, 2017(1)        12,466      12,880                           June 30, 2013 to September 30, Customer P                2014(1)                                   11,411       9,879  

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   º *    º Revenue amount did not exceed ten percent of net revenues for the      respective segment for the period presented. Amount is shown for      comparative purposes only.     º (1)    º The customer has more than one contract. The individual contracts are

scheduled to terminate at various points during the time period indicated

above.

º (2)

º Contract has options for the customer to extend the term for two additional

     one-year periods.     º (3)    º The contract has terminated.     º (4)

º This customer represents a subcontract with a Public Sector customer and is

     eliminated in consolidation.       Concentration of Business      The Company also has a significant concentration of business with various counties in the State of Pennsylvania (the "Pennsylvania Counties") which are part of the Pennsylvania Medicaid program, and with various areas in the State of Florida (the "Florida Areas") which are part of the Florida Medicaid program. Net revenues from the Pennsylvania Counties in the aggregate totaled $178.2 million and                                         27

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$182.4 million for the six months ended June 30, 2011 and 2012, respectively. Net revenues from the Florida Areas in the aggregate totaled $67.2 million and $67.7 million for the six months ended June 30, 2011 and 2012, respectively.      The Company's contracts with customers typically have terms of one to three years, and in certain cases contain renewal provisions (at the customer's option) for successive terms of between one and two years (unless terminated earlier). Substantially all of these contracts may be immediately terminated with cause and many of the Company's contracts are terminable without cause by the customer or the Company either upon the giving of requisite notice and the passage of a specified period of time (typically between 60 and 180 days) or upon the occurrence of other specified events. In addition, the Company's contracts with federal, state and local governmental agencies generally are conditioned on legislative appropriations. These contracts generally can be terminated or modified by the customer if such appropriations are not made.  

Critical Accounting Policies and Estimates

      The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates of the Company include, among other things, accounts receivable realization, valuation allowances for deferred tax assets, valuation of goodwill and intangible assets, medical claims payable, other medical liabilities, stock compensation assumptions, tax contingencies and legal liabilities. Actual results could differ from those estimates. Except as noted below, the Company's critical accounting policies are summarized in the Company's Annual Report on Form 10-K, filed with the SEC on February 28, 2012.  

Income Taxes

      The Company's effective income tax rates were 40.5 percent and 41.0 percent for the six months ended June 30, 2011 and 2012, respectively. These rates differ from the federal statutory income tax rate primarily due to state income taxes and permanent differences between book and tax income. The Company also accrues interest and penalties related to unrecognized tax benefits in its provision for income taxes. The effective income tax rate for the six months ended June 30, 2012 is higher than the effective rate for the six months ended June 30, 2011 mainly due to an increase in effective state tax rates.      The Company files a consolidated federal income tax return for the Company and its eighty percent or more owned subsidiaries, and the Company and its subsidiaries file income tax returns in various states and local jurisdictions. With few exceptions, the Company is no longer subject to state or local income tax assessments by tax authorities for years ended prior to 2008. Further, it is reasonably possible the statutes of limitation regarding the assessment of federal and certain state and local income taxes for 2008 will expire during 2012.  Results of Operations 

    The accounting policies of the Company's segments are the same as those described in Note A-"General." The Company evaluates performance of its segments based on Segment Profit. Management uses Segment Profit information for internal reporting and control purposes and considers it important in making decisions regarding the allocation of capital and other resources, risk assessment and employee compensation, among other matters. Effective September 1, 2010, Public Sector has subcontracted with Medicaid Administration to provide pharmacy benefits management services on a risk basis for one of Public Sector's customers. As such, revenue and cost of care related to this                                         28

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intersegment arrangement are eliminated. The Company's segments are defined above. The following tables summarize, for the periods indicated, operating results by business segment (in thousands):

                                                    Radiology        Specialty                            Corporate Three Months Ended                    Public       Benefits      Pharmaceutical        Medicaid            and June 30, 2011         Commercial      Sector      Management       Management       Administration     Elimination     Consolidated Net revenue           $   139,686   $  362,284    $    90,608    $        69,366    $        56,637    $    (20,243 )  $     698,338 Cost of care              (79,122 )   (309,934 )      (53,828 )                -            (18,805 )        20,243         (441,446 ) Cost of goods sold              -            -              -            (53,404 )                -               -          (53,404 ) Direct service costs                     (39,112 )    (16,486 )      (15,858 )           (6,083 )          (25,849 )             -         (103,388 ) Other operating expenses                        -            -              -                  -                  -         (28,391 )        (28,391 ) Stock compensation expense(1)                    218          214            401                133                 41           3,198            4,205  Segment profit (loss)                $    21,670   $   36,078    $    21,323    $        10,012    $        12,024    $    (25,193 )  $      75,914                                                       Radiology        Specialty                            Corporate Three Months Ended                   Public       Benefits      Pharmaceutical        Medicaid            and June 30, 2012        Commercial      Sector      Management       Management       Administration     Elimination     Consolidated Net revenue           $  178,227   $  410,136    $    88,826    $       101,976    $        43,026    $    (16,718 )  $     805,473 Cost of care            (110,847 )   (355,113 )      (57,874 )                -            (14,714 )        16,718         (521,830 ) Cost of goods sold             -            -              -            (82,855 )                -               -          (82,855 ) Direct service costs                    (42,456 )    (23,304 )      (13,582 )           (6,206 )          (20,742 )             -         (106,290 ) Other operating expenses                       -            -              -                  -                  -         (34,043 )        (34,043 ) Stock compensation expense(1)                   270          269            360                152                 84           3,230            4,365  Segment profit (loss)                $   25,194   $   31,988    $    17,730    $        13,067    $         7,654    $    (30,813 )  $      64,820                                                     Radiology       Specialty                            Corporate Six Months Ended                   Public      Benefits      Pharmaceutical        Medicaid            and June 30, 2011      Commercial      Sector     Management       Management  

Administration Elimination Consolidated Net revenue $ 289,721$ 712,800$ 179,820 $ 139,596 $ 109,930 $ (40,774 ) $ 1,391,093 Cost of care (154,435 ) (614,855 ) (108,545 )

                -            (38,085 )        40,774         (875,146 ) Cost of goods sold                         -            -             -           (109,923 )                -               -         (109,923 ) Direct service costs                  (76,920 )    (33,462 )     (32,563 )          (12,095 )          (51,835 )             -         (206,875 ) Other operating expenses                     -            -             -                  -                  -         (56,471 )        (56,471 ) Stock compensation expense(1)                 469          436           883                259                 64           6,872            8,983  Segment profit (loss)              $   58,835   $   64,919    $   39,595    $        17,837    $        20,074    $    (49,599 )  $     151,661                                           29 

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   Table of Contents                                                  Radiology       Specialty                            Corporate Six Months Ended                   Public      Benefits      Pharmaceutical        Medicaid            and June 30, 2012      Commercial      Sector     Management       Management  

Administration Elimination Consolidated Net revenue $ 358,751$ 799,024$ 165,683 $ 202,174 $ 90,880 $ (37,826 ) $ 1,578,686 Cost of care (223,019 ) (699,425 ) (108,284 )

                -            (34,221 )        37,826      (1,027,123 ) Cost of goods sold                         -            -             -           (163,893 )                -               -        (163,893 ) Direct service costs                  (84,818 )    (43,901 )     (27,068 )          (12,673 )          (43,294 )             -        (211,754 ) Other operating expenses                     -            -             -                  -                  -         (65,168 )       (65,168 ) Stock compensation expense(1)                 537          556           760                324                142           7,148           9,467  Segment profit (loss)              $   51,451   $   56,254    $   31,091    $        25,932    $        13,507    $    (58,020 )  $    120,215   

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º (1)

º Stock compensation expense is included in direct service costs and other

operating expenses, however this amount is excluded from the computation of

Segment Profit since it is managed on a consolidated basis.

      The following table reconciles Segment Profit to income before income taxes (in thousands):                                          Three Months Ended       Six Months Ended                                              June 30,                June 30,                                          2011        2012        2011        2012       Segment profit                   $  75,914   $  64,820   $ 151,661   $ 120,215

Stock compensation expense (4,205 ) (4,365 ) (8,983 )

(9,467 )

Depreciation and amortization (14,267 ) (15,152 ) (28,219 )

 (29,933 )       Interest expense                      (494 )      (576 )      (965 )    (1,176 )       Interest income                        858         857       1,673       1,269 

Income before income taxes $ 57,806$ 45,584$ 115,167$ 80,908

Quarter ended June 30, 2012 ("Current Year Quarter"), compared to the quarter ended June 30, 2011 ("Prior Year Quarter")

Commercial

Net Revenue

      Net revenue related to Commercial increased by 27.6 percent or $38.5 million from the Prior Year Quarter to the Current Year Quarter. The increase in revenue is mainly due to new business of $34.2 million, favorable rate changes of $6.6 million, and higher performance-based revenue in the Current Year Quarter of $2.3 million, which increases were partially offset by program changes of $2.7 million, terminated contracts of $1.0 million, and other net decreases of $0.9 million.  Cost of Care      Cost of care increased by 40.1 percent or $31.7 million from the Prior Year Quarter to the Current Year Quarter. The increase in cost of care is primarily due to new business of $28.2 million, unfavorable medical claims development for the Prior Year Quarter which was recorded after the Prior Year Quarter of $2.1 million, and unfavorable care trends and other net variances of $5.1 million, which increases were partially offset by program changes of $2.7 million and favorable prior period medical claims development recorded in the Current Year Quarter of $1.0 million. Cost of care increased as a percentage of risk revenue (excluding EAP business) from 78.4 percent in the Prior Year Quarter to 80.4 percent in the Current Year Quarter, mainly due to changes in business mix.                                         30 

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Direct Service Costs

      Direct service costs increased by 8.5 percent or $3.3 million from the Prior Year Quarter to the Current Year Quarter, mainly due to costs to support new business. Direct service costs decreased as a percentage of revenue from 28.0 percent in the Prior Year Quarter to 23.8 percent in the Current Year Quarter, mainly due to changes in business mix.  

Public Sector

Net Revenue

      Net revenue related to Public Sector increased by 13.2 percent or $47.9 million from the Prior Year Quarter to the Current Year Quarter. This increase is primarily due to new business of $55.3 million, unfavorable retroactive contract funding adjustments in the Prior Year Quarter of $6.6 million, increased membership from existing customers of $4.1 million, and other net increases of $3.7 million, which increases were partially offset by unfavorable rate changes of $15.0 million and net incentive revenue recorded in the Prior Year Quarter of $6.8 million.  

Cost of Care

      Cost of care increased by 14.6 percent or $45.2 million from the Prior Year Quarter to the Current Year Quarter. This increase is primarily due to new business of $43.2 million, care associated with retroactive contract funding changes in the Prior Year Quarter of $7.4 million, increased membership from existing customers of $4.0 million, and unfavorable care trends and other net variances of $3.9 million, which increases were partially offset by care associated with rate changes for contracts with minimum care requirements of $11.1 million and favorable contractual settlements of $2.2 million in the Current Year Quarter. Cost of care increased as a percentage of risk revenue from 85.9 percent in the Prior Year Quarter to 88.3 percent in the Current Year Quarter mainly due to unfavorable rate changes, unfavorable care trends, and changes in business mix.  Direct Service Costs 

    Direct service costs increased by 41.4 percent or $6.8 million from the Prior Year Quarter to the Current Year Quarter, mainly due to costs to support new business. Direct service costs increased as a percentage of revenue from 4.6 percent for the Prior Year Quarter to 5.7 percent in the Current Year Quarter mainly due to rate decreases and changes in business mix.  

Radiology Benefits Management

Net Revenue Net revenue related to Radiology Benefits Management decreased by 2.0 percent or $1.8 million from the Prior Year Quarter to the Current Year Quarter. This decrease is primarily due to the net impact of decreased membership from terminated contracts and existing customers of $14.5 million, unfavorable rate changes of $5.5 million, and other net unfavorable variances of $0.4 million, which decreases were partially offset by new business of $12.3 million, favorable contractual settlements of $4.4 million in the Current Year Quarter, and the profit share impact of $1.9 million related to favorable prior period medical claims development in the Prior Year Quarter.

Cost of Care

      Cost of care increased by 7.5 percent or $4.0 million from the Prior Year Quarter to the Current Year Quarter. This increase is primarily attributed to new business of $10.8 million, and favorable prior period medical claims development recorded in the Prior Year Quarter of $4.1 million, which increases were partially offset by the impact of care associated with decreased membership from terminated                                         31 

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  contracts and existing customers of $8.6 million, favorable medical claims development for the Prior Year Quarter which was recorded after the Prior Year Quarter of $2.2 million, and other net favorable variances of $0.1 million. Cost of care increased as a percentage of risk revenue from 69.8 percent in the Prior Year Quarter to 73.6 percent in the Current Year Quarter mainly due to unfavorable rate changes in excess of care trends and changes in business mix.  

Direct Service Costs

    Direct service costs decreased by 14.4 percent or $2.3 million from the Prior Year Quarter to the Current Year Quarter. The decrease in direct service costs is mainly attributable to terminated contracts. As a percentage of revenue, direct service costs decreased from 17.5 percent in the Prior Year Quarter to 15.3 percent in the Current Year Quarter, mainly due to changes in business mix.  

Specialty Pharmaceutical Management

Net Revenue

    Net revenue related to Specialty Pharmaceutical Management increased by 47.0 percent or $32.6 million from the Prior Year Quarter to the Current Year Quarter. This increase is primarily due to net increased specialty pharmacy revenue of $30.8 million, retroactive revenue adjustments recorded in the Current Year Quarter of $2.0 million, increased formulary optimization revenue of $0.7 million, and increased medical pharmacy management revenue of $0.7 million, which increases were partially offset by the recognition of medical pharmacy management revenue in the Prior Year Quarter which was previously deferred of $1.6 million.  

Cost of Goods Sold

      Cost of goods sold increased by 55.1 percent or $29.5 million from the Prior Year Quarter to the Current Year Quarter. This increase is primarily due to increased specialty pharmacy business. As a percentage of the portion of net revenue that relates to dispensing activity, cost of goods sold decreased from 94.4 percent in the Prior Year Quarter to 93.6 percent in the Current Year Quarter, mainly due to business mix.  

Direct Service Costs

      Direct service costs increased by 2.0 percent or $0.1 million from the Prior Year Quarter to the Current Year Quarter. As a percentage of revenue, direct service costs decreased from 8.8 percent in the Prior Year Quarter to 6.1 percent in the Current Year Quarter, mainly due to changes in business mix.  Medicaid Administration  Net Revenue      Net revenue related to Medicaid Administration decreased by 24.0 percent or $13.6 million from the Prior Year Quarter to the Current Year Quarter. This decrease is primarily due to terminated contracts of $5.0 million, decreased revenue associated with the subcontract with Public Sector of $3.5 million, decreased pharmacy revenue of $2.1 million, and other net decreases of $3.0 million.  

Cost of Care

      Cost of care decreased by 21.8 percent or $4.1 million from the Prior Year Quarter to the Current Year Quarter. This decrease is primarily due to favorable care trends. Cost of care decreased as a percentage of risk revenue from 92.9 percent in the Prior Year Quarter to 88.0 percent in the Current Year Quarter, mainly due to favorable care trends.                                         32

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Direct Service Costs

      Direct service costs decreased by 19.8 percent or $5.1 million. This decrease was primarily due to terminated contracts. As a percentage of revenue, direct service costs increased from 45.6 percent in the Prior Year Quarter to 48.2 percent in the Current Year Quarter, mainly due to changes in business mix.  Corporate and Other  Other Operating Expenses      Other operating expenses related to the Corporate and Other Segment increased by 19.9 percent or $5.7 million from the Prior Year Quarter to the Current Year Quarter. The increase results primarily from an increase in costs of $2.6 million related to our growth initiatives, one-time favorable adjustments recorded in the Prior Year Quarter of $1.1 million, and other net increases of $2.0 million. As a percentage of total net revenue, other operating expenses increased from 4.1 percent for the Prior Year Quarter to 4.2 percent for the Current Year Quarter, primarily due to changes in business mix.  

Depreciation and Amortization

Depreciation and amortization expense increased by 6.2 percent or $0.9 million for the Prior Year Quarter to the Current Year Quarter, primarily due to asset additions after the Prior Year Quarter.

Interest Expense

      Interest expense increased by $0.1 million from the Prior Year Quarter to the Current Year Quarter, mainly due to higher costs associated with the 2011 Credit Facility.  Interest Income 

Interest income was $0.9 million in the Current Year Quarter, which is consistent with the Prior Year Quarter.

Income Taxes

The Company's effective income tax rate was 40.8 percent for both the Prior Year Quarter and Current Year Quarter. This rate differs from the federal statutory income tax rate primarily due to state income taxes and permanent differences between book and tax income.

Six months ended June 30, 2012 ("Current Year Period"), compared to the six months ended June 30, 2011 ("Prior Year Period")

Commercial

Net Revenue

      Net revenue related to Commercial increased by 23.8 percent or $69.0 million from the Prior Year Period to the Current Year Period. The increase in revenue is mainly due to new business of $68.8 million, favorable rate changes of $13.3 million, and higher performance-based revenue in the Current Year Period of $8.9 million ($5.9 million relating to the prior year), which increases were partially offset by favorable retroactive membership and rate adjustments recorded in the Prior Year Period of $7.6 million, program changes of $6.1 million, terminated contracts of $2.1 million, net decreased membership from existing customers of $1.3 million, and other net decreases of $4.9 million.                                         33

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Cost of Care

      Cost of care increased by 44.4 percent or $68.6 million from the Prior Year Period to the Current Year Period. The increase in cost of care is primarily due to new business of $58.0 million, unfavorable medical claims development for the Prior Year Period which was recorded after the Prior Year Period of $2.5 million, and unfavorable care trends and other net variances of $16.9 million, which increases were partially offset by program changes of $6.1 million and favorable prior period medical claims development recorded in the Current Year Period of $2.7 million. Cost of care increased as a percentage of risk revenue (excluding EAP business) from 72.3 in the Prior Year Period to 81.6 percent in the Current Year Period, mainly due to the impact of retroactive rate adjustments in the Prior Year Period, unfavorable care trends in excess of rate changes, and changes in business mix.  

Direct Service Costs

Direct service costs increased by 10.3 percent or $7.9 million from the Prior Year Period to the Current Year Period, mainly due to costs to support new business. Direct service costs decreased as a percentage of revenue from 26.5 percent in the Prior Year Period to 23.6 percent in the Current Year Period, mainly due to changes in business mix.

Public Sector

Net Revenue

      Net revenue related to Public Sector increased by 12.1 percent or $86.2 million from the Prior Year Period to the Current Year Period. This increase is primarily due to new business of $84.4 million, increased membership from existing customers of $17.6 million, unfavorable retroactive contract funding adjustments in the Prior Year Period of $12.7 million, the revenue impact for favorable prior period medical claims development recorded in the Prior Year Period of $3.2 million, and other net increases of $4.2 million, which increases were partially offset by unfavorable rate changes of $29.1 million, and net incentive revenue recorded in the Prior Year Period of $6.8 million.  Cost of Care      Cost of care increased by 13.8 percent or $84.6 million from the Prior Year Period to the Current Year Period. This increase is primarily due to new business of $68.4 million, increased membership from existing customers of $17.3 million, care associated with retroactive contract funding changes in the Prior Year Period of $13.4 million, favorable prior period medical claims development recorded in the Prior Year Period of $3.3 million, and unfavorable care trends and other net variances of $6.1 million, which increases were partially offset by care associated with rate changes for contracts with minimum care requirements of $21.7 million, and favorable contractual settlements of $2.2 million in the Current Year Period. Cost of care increased as a percentage of risk revenue from 86.6 percent in the Prior Year Period to 88.8 percent in the Current Year Period mainly due to unfavorable rate changes, unfavorable care trends, and changes in business mix.  

Direct Service Costs

      Direct service costs increased by 31.2 percent or $10.4 million from the Prior Year Period to the Current Year Period, mainly due to costs to support new business. Direct service costs increased as a percentage of revenue from 4.7 percent for the Prior Year Period to 5.5 percent in the Current Year Period mainly due to rate decreases and changes in business mix.                                         34

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  Table of Contents  Radiology Benefits Management  Net Revenue      Net revenue related to Radiology Benefits Management decreased by 7.9 percent or $14.1 million from the Prior Year Period to the Current Year Period. This decrease is primarily due to the net impact of decreased membership from terminated contracts and existing customers of $30.6 million, unfavorable rate changes of $8.5 million, and other net unfavorable variances of $4.4 million, which decreases were partially offset by new business of $21.2 million, favorable contractual settlements of $4.4 million in the Current Year Period, program changes of $2.9 million, and the profit share impact of $0.9 million related to favorable prior period medical claims development in the Prior Year Period.  Cost of Care      Cost of care decreased by 0.2 percent or $0.3 million from the Prior Year Period to the Current Year Period. This decrease is primarily attributed to the impact of care associated with decreased membership from terminated contracts and existing customers of $18.2 million, favorable medical claims development for the Prior Year Period which was recorded after the Prior Year Period of $2.7 million, and other net favorable variances of $2.5 million, which decreases were partially offset by new business of $17.8 million, program changes of $2.9 million, and favorable prior period medical claims development recorded in the Prior Year Period of $2.4 million. Cost of care increased as a percentage of risk revenue from 70.7 percent in the Prior Year Period to 74.7 percent in the Current Year Period mainly due to unfavorable rate changes in excess of care trends and changes in business mix.  

Direct Service Costs

Direct service costs decreased by 16.9 percent or $5.5 million from the Prior Year Period to the Current Year Period. The decrease in direct service costs is mainly attributable to terminated contracts. As a percentage of revenue, direct service costs decreased from 18.1 percent in the Prior Year Period to 16.3 percent in the Current Year Period, mainly due to changes in business mix.

Specialty Pharmaceutical Management

Net Revenue

    Net revenue related to Specialty Pharmaceutical Management increased by 44.8 percent or $62.6 million from the Prior Year Period to the Current Year Period. This increase is primarily due to net increased specialty pharmacy revenue of $58.0 million, increased formulary optimization revenue of $3.1 million, increased medical pharmacy management revenue of $2.3 million, retroactive revenue adjustments recorded in the Current Year Period of $1.0 million, and other net increases of $0.8 million, which increases were partially offset by the recognition of medical pharmacy management revenue in the Prior Year Period which was previously deferred of $2.6 million.  

Cost of Goods Sold

      Cost of goods sold increased by 49.1 percent or $54.0 million from the Prior Year Period to the Current Year Period. This increase is primarily due to increased specialty pharmacy business. As a percentage of the portion of net revenue that relates to dispensing activity, cost of goods sold decreased from 94.0 percent in the Prior Year Period to 93.3 percent in the Current Year Period, mainly due to business mix.                                         35

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Direct Service Costs

      Direct service costs increased by 4.8 percent or $0.6 million from the Prior Year Period to the Current Year Period. As a percentage of revenue, direct service costs decreased from 8.7 percent in the Prior Year Period to 6.3 percent in the Current Year Period, mainly due to changes in business mix.  

Medicaid Administration

Net Revenue

      Net revenue related to Medicaid Administration decreased by 17.3 percent or $19.1 million from the Prior Year Period to the Current Year Period. This decrease is primarily due to terminated contracts of $12.7 million, decreased pharmacy revenue of $2.2 million, decreased revenue associated with the subcontract with Public Sector of $2.9 million, and other net decreases of $1.3 million.  

Cost of Care

      Cost of care decreased by 10.1 percent or $3.9 million from the Prior Year Period to the Current Year Period. This decrease is primarily due to favorable care trends. Cost of care decreased as a percentage of risk revenue from 93.4 percent in the Prior Year Period to 90.5 percent in the Current Year Period, mainly due to favorable care trends.  

Direct Service Costs

      Direct service costs decreased by 16.5 percent or $8.5 million. This decrease was primarily due to terminated contracts. As a percentage of revenue, direct service costs increased from 47.2 percent in the Prior Year Period to 47.6 percent in the Current Year Period, mainly due to changes in business mix.  Corporate and Other  Other Operating Expenses      Other operating expenses related to the Corporate and Other Segment increased by 15.4 percent or $8.7 million from the Prior Year Period to the Current Year Period. The increase results primarily from an increase in costs of $4.9 million related to our growth initiatives, net one-time favorable adjustments recorded in the Prior Year Period of $1.5 million, and other net increases of $2.3 million. As a percentage of total net revenue, other operating expenses were 4.1 percent for both the Prior Year Period and the Current Year Period.  

Depreciation and Amortization

Depreciation and amortization expense increased by 6.1 percent or $1.7 million from the Prior Year Period to the Current Year Period, primarily due to asset additions after the Prior Year Period.

Interest Expense

      Interest expense increased by $0.2 million from the Prior Year Period to the Current Year Period, mainly due to higher costs associated with the 2011 Credit Facility.  Interest Income 

Interest income decreased by $0.4 million from the Prior Year Period to the Current Year Period, mainly due to lower yields.

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Income Taxes

      The Company's effective income tax rates were 40.5 percent and 41.0 percent for the Prior Year Period and Current Year Period, respectively. These rates differ from the federal statutory income tax rate primarily due to state income taxes and permanent differences between book and tax income. The effective income tax rate for the Current Year Period is higher than the effective rate for the Prior Year Period mainly due to an increase in effective state tax rates.  

Outlook-Results of Operations

      The Company's Segment Profit and net income are subject to significant fluctuations from period to period. These fluctuations may result from a variety of factors such as those set forth under Item 2-"Forward-Looking Statements" as well as a variety of other factors including: (i) changes in utilization levels by enrolled members of the Company's risk-based contracts, including seasonal utilization patterns; (ii) contractual adjustments and settlements; (iii) retrospective membership adjustments; (iv) timing of implementation of new contracts, enrollment changes and contract terminations; (v) pricing adjustments upon contract renewals (and price competition in general); and (vi) changes in estimates regarding medical costs and IBNR.      A portion of the Company's business is subject to rising care costs due to an increase in the number and frequency of covered members seeking behavioral healthcare or radiology services, and higher costs per inpatient day or outpatient visit for behavioral services, and higher costs per scan for radiology services. Many of these factors are beyond the Company's control. Future results of operations will be heavily dependent on management's ability to obtain customer rate increases that are consistent with care cost increases and/or to reduce operating expenses.      In relation to the managed behavioral healthcare business, the Company is a market leader in a mature market with many viable competitors. The Company is continuing its attempts to grow its business in the managed behavioral healthcare industry through aggressive marketing and development of new products; however, due to the maturity of the market, the Company believes that the ability to grow its current business lines may be limited. In addition, as previously discussed, substantially all of the Company's Commercial segment revenues are derived from Blue Cross Blue Shield health plans and other managed care companies, health insurers and health plans. Certain of the managed care customers of the Company have decided not to renew all or part of their contracts with the Company, and to instead manage the behavioral healthcare services directly for their subscribers.      Care Trends.  The Company expects that same-store normalized cost of care trend for the 12-month forward outlook to be approximately 7 to 9 percent, 1 to 3 percent and 4 to 6 percent for Commercial, Public Sector and Radiology Benefits Management, respectively.      Interest Rate Risk.  Changes in interest rates affect interest income earned on the Company's cash equivalents and investments, as well as interest expense on variable interest rate borrowings under the Company's 2011 Credit Facility. Based on the amount of cash equivalents and investments and the borrowing levels under the 2011 Credit Facility as of June 30, 2012, a hypothetical 10 percent increase or decrease in the interest rate associated with these instruments, with all other variables held constant, would not materially affect the Company's future earnings and cash outflows.  

Historical-Liquidity and Capital Resources

      Operating Activities.  The Company reported net cash used in operating activities of $1.9 million for the Prior Year Period and net cash provided by operating activities of $75.0 million for the Current Year Period. The $76.9 million increase in operating cash flows from the Prior Year Period to the Current Year Period is primarily attributable to the net shift of restricted funds between cash and investments, which results in an operating cash flow change that is directly offset by an investing cash                                         37

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flow change, as well as the net favorable impact of working capital changes between periods. Partially offsetting these items is the reduction in Segment Profit between periods.

      During the Prior Year Period and Current Year Period, restricted investments of $84.1 million and $19.5 million, respectively, were shifted to restricted cash that reduced operating cash flows for both periods, resulting in a net increase in operating cash flows between periods of $64.6 million. The net favorable impact of working capital changes between periods totaled $43.7 million, with $26.3 million of this change related to pharmaceutical inventory levels and timing of the settlement of the associated inventory payables. Segment Profit for the Current Year Period decreased $31.4 million from the Prior Year Period.      During the Current Year Period, the Company's restricted cash increased $22.8 million. The change in restricted cash is attributable to an increase in restricted cash of $3.5 million associated with the Company's regulated entities and the net shift of restricted investments to restricted cash of $19.5 million, partially offset by other net decreases of $0.2 million. The net change in restricted cash for the Company's regulated entities is attributable to an increase in restricted cash of $2.4 million that is offset by changes in other assets and liabilities, primarily accounts receivable, accrued liabilities, medical claims payable and other medical liabilities, thus having no impact on operating cash flows, and a net increase of $1.1 million in restricted cash requirements that resulted in an operating cash flow use.      Investing Activities.  The Company utilized $26.7 million and $36.9 million during the Prior Year Period and Current Year Period, respectively, for capital expenditures. The additions related to hard assets (equipment, furniture, leaseholds) and capitalized software for the Prior Year Period were $11.1 million and $15.6 million, respectively, as compared to additions for the Current Year Period related to hard assets and capitalized software of $20.2 million and $16.7 million, respectively. In addition, during the Prior Year Period the Company used net cash of $64.8 million for the net purchase of "available for sale" securities, with the Company receiving net cash of $7.7 million from the net maturity of "available for sale" securities.      During the Prior Year Period, the Company purchased certain provider network contracts from a third party for $1.2 million, which resulted in the establishment of an intangible asset. In addition, during the Prior Year Period, the Company received the final working capital settlement of $0.9 million from Coventry in regards to the Company's acquisition of First Health, Inc.      Financing Activities.  During the Prior Year Period, the Company paid $211.5 million for the repurchase of treasury stock under the Company's share repurchase program. In addition, the Company received $20.0 million under a share purchase agreement pursuant to which Blue Shield of California purchased shares of the Company's common stock, received $28.8 million from the exercise of stock options and warrants and had other net favorable items of $0.4 million.  

During the Current Year Period, the Company received $3.0 million from the exercise of stock options and had other net unfavorable items of $0.7 million.

Outlook-Liquidity and Capital Resources

      Liquidity.  During the remainder of 2012, the Company expects to fund its estimated capital expenditures of $27 million to $37 million with cash from operations. The Company does not anticipate that it will need to draw on amounts available under the 2011 Credit Facility for cash flow needs related to its operations, capital needs or debt service in 2012. The Company also currently expects to have adequate liquidity to satisfy its existing financial commitments over the periods in which they will become due. The Company plans to maintain its current investment strategy of investing in a diversified, high quality, liquid portfolio of investments and continues to closely monitor the situation in the financial markets. The Company estimates that it has no risk of any material permanent loss on its                                         38

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investment portfolio; however, there can be no assurance that the Company will not experience any such losses in the future.

Stock Repurchases

On October 25, 2011 the Company's board of directors approved a stock repurchase plan which authorized the Company to purchase up to $200 million of its outstanding common stock through October 25, 2013.

    Stock repurchases under the program may be executed through open market repurchases, privately negotiated transactions, accelerated share repurchases or other means. The board of directors authorized management to execute stock repurchase transactions from time to time and in such amounts and via such methods as management deems appropriate. The stock repurchase program may be limited or terminated at any time without prior notice. Pursuant to this program, the Company made open market purchases of 671,776 shares of the Company's common stock at an average price of $48.72 per share for an aggregate cost of $32.7 million (excluding broker commissions) during the period from November 11, 2011 through December 31, 2011.  

The Company made no open market purchases during the six months ended June 30, 2012 or for the period from July 1, 2012 through July 24, 2012.

Off-Balance Sheet Arrangements. As of June 30, 2012, the Company has no material off-balance sheet arrangements.

      2011 Credit Facility.  On December 9, 2011, the Company entered into the 2011 Credit Facility that provides for up to $230.0 million of revolving loans with a sublimit of up to $70.0 million for the issuance of letters of credit for the account of the Company. The 2011 Credit Facility is guaranteed by substantially all of the subsidiaries of the Company and is secured by substantially all of the assets of the Company and the subsidiary guarantors. The 2011 Credit Facility will mature on December 9, 2014.      Under the 2011 Credit Facility, the annual interest rate on Revolving Loan borrowings is equal to (i) in the case of U.S. dollar denominated loans, the sum of a borrowing margin of 1.00 percent plus the higher of the prime rate, one-half of one percent in excess of the overnight "federal funds" rate, or the Eurodollar rate for one month plus 1.00%, or (ii) in the case of Eurodollar denominated loans, the sum of a borrowing margin of 2.00 percent plus the Eurodollar rate for the selected interest period. The Company has the option to borrow in U.S. dollar denominated loans or Eurodollar denominated loans at its discretion. Letters of Credit issued under the Revolving Loan Commitment bear interest at the rate of 2.125 percent. The commitment commission on the 2011 Credit Facility is 0.375 percent of the unused Revolving Loan Commitment.      Restrictive Covenants in Debt Agreements.  The 2011 Credit Facility contains covenants that limit management's discretion in operating the Company's business by restricting or limiting the Company's ability, among other things, to:          º •         º incur or guarantee additional indebtedness or issue preferred or           redeemable stock;          º •         º pay dividends and make other distributions;          º •         º repurchase equity interests;          º •         º make certain advances, investments and loans;          º •         º enter into sale and leaseback transactions;          º •         º create liens;          º •         º sell and otherwise dispose of assets;                                         39 

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  Table of Contents          º •         º acquire or merge or consolidate with another company; and          º •         º enter into some types of transactions with affiliates.      These restrictions could adversely affect the Company's ability to finance future operations or capital needs or engage in other business activities that may be in the Company's interest.      The 2011 Credit Facility also requires the Company to comply with specified financial ratios and tests. Failure to do so, unless waived by the lenders under the 2011 Credit Facility pursuant to its terms, would result in an event of default under the 2011 Credit Facility. As of June 30, 2012, the Company was in compliance with all covenants, including financial covenants, under the 2011 Credit Facility.      Although the 2011 Credit Facility expires on December 9, 2014, the Company believes it will be able to obtain a new facility or, if not, to use cash on hand to fund letters of credit and other liquidity needs.      Net Operating Loss Carryforwards.  The Company has federal net operating loss carryforwards ("NOLs") as of December 31, 2011 of approximately $4.8 million available to reduce future federal taxable income. These NOLs, if not used, expire in 2017 through 2019 and are subject to examination and adjustment by the IRS. In addition, the Company's utilization of such NOLs is subject to limitation under Section 382, which affects the timing of the use of these NOLs. At this time, the Company does not believe these limitations will limit its ability to use any federal NOLs before they expire.      As of December 31, 2011, the Company's valuation allowances against deferred tax assets were $3.4 million, mostly relating to uncertainties regarding the eventual realization of certain state NOLs. Determination of the amount of deferred tax assets considered realizable requires significant judgment and estimation regarding the forecasts of future taxable income which are consistent with the plans and estimates the Company uses to manage the underlying businesses. Changes in these estimates in the future could materially affect the Company's financial condition and results of operations.  

Recent Accounting Pronouncements

      In May 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2011-04, "Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs", ("ASU 2011-04"). ASU 2011-04 amends ASC Topic 820, "Fair Value Measurements and Disclosures", to provide guidance on how fair value measurement should be applied where existing GAAP already requires or permits fair value measurements. In addition, ASU 2011-04 requires expanded disclosures regarding fair value measurements. ASU 2011-04 became effective for the Company on January 1, 2012. The adoption of ASU 2011-04 did not have a material impact on the Company's results of operations or financial position.      In June 2011, the FASB issued ASU No. 2011-05, "Comprehensive Income (Topic 220): Presentation of Comprehensive Income" ("ASU 2011-05"). ASU 2011-05 requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements and eliminates the option to present the components of other comprehensive income as part of the statement of equity. ASU 2011-05 became effective for the Company on January 1, 2012. While the adoption of this guidance impacts the Company's disclosures for annual and interim filings for the year ending December 31, 2012, it does not impact the Company's results of operations or financial position.  

In September 2011, the FASB issued ASU 2011-08, "Testing Goodwill for Impairment" ("ASU 2011-8"), which provides authoritative guidance to simplify how entities, both public and nonpublic, test

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  goodwill for impairment. This accounting update permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. This guidance was effective for the Company beginning on January 1, 2012. This guidance did not impact the Company's financial position, results of operations or cash flows.      In December 2011, the FASB issued ASU 2011-12 "Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU 2011-05" ("ASU 2011-12"), which defers the requirement that companies present reclassification adjustments for each component of accumulated other comprehensive income in both net income and other comprehensive income on the face of the financial statements. The effective dates for ASU 2011-12 are consistent with the effective dates for ASU 2011-05 and, similar to our expectations for the adoption of ASU 2011-05, while the adoption of this guidance impacts the Company's disclosures for annual and interim filings for the year ending December 31, 2012, it does not impact the Company's results of operations or financial position. 

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