News Release Details

Apr 28, 2006
Magellan Health Services Reports First Quarter 2006 Financial Results; Company Reaffirms 2006 Segment Profit Guidance and Raises Net Income Guidance

Magellan Health Services Reports First Quarter 2006 Financial Results; Company Reaffirms 2006 Segment Profit Guidance and Raises Net Income Guidance

AVON, Conn.--(BUSINESS WIRE)--April 28, 2006--Magellan Health Services, Inc. (Nasdaq:MGLN) today reported operating results for the first quarter of fiscal year 2006. The Company also reaffirmed its 2006 segment profit guidance of $173 million to $193 million and raised its net income guidance to $59 million to $75 million, or $1.53 to $1.94 per share on a diluted basis. The Company's previous 2006 net income guidance was $56 million to $72 million, or $1.44 to $1.86 per share on a diluted basis.

Financial Results

For the quarter ended March 31, 2006, the Company reported net revenue of $400.6 million and net income of $22.3 million, or $.59 per diluted common share. For the prior year quarter, net revenue was $452.8 million. Net income for the prior year quarter, as restated, was $23.1 million, or $.63 per diluted common share. Segment profit (net revenue less cost of care and direct service costs and other operating expenses plus equity in earnings of unconsolidated subsidiaries) for the current year quarter was $49.2 million, compared with $61.3 million in the prior year.

See the attached tables detailing the Company's operating results, including results by segment.

The Company ended the quarter with unrestricted cash and investments of $196.6 million, having used approximately $120 million to fund the previously announced acquisition of National Imaging Associates, Inc. (NIA), which closed on January 31, 2006. Cash flow from operations for the quarter was $19.9 million compared with $37.8 million for the prior year quarter. Cash flow was affected, as anticipated, by payment of claims for previously announced terminated contracts.

"Again this quarter we produced excellent financial results," said Steven J. Shulman, chairman and chief executive officer. "In addition to our strong financial performance, we consummated our agreement to acquire NIA on January 31, 2006, and our first quarter financials reflect two months of operating results from our new line of business. Our integration efforts related to NIA are proceeding well and we have made significant progress in applying Magellan's expertise to developing a risk radiology product and to enhancing NIA's call center operations. With respect to risk contracting, we are pleased with the interest we are seeing in the marketplace for a risk product and we continue to have productive discussions with a variety of prospects about this offering.

"As expected, our behavioral health business continues to perform well," Shulman added. "We are very pleased by recent successes in our sales efforts in the Medicaid arena. Although there have been delays in the timing of some of the other Medicaid opportunities that we are pursuing, our total pipeline of new business opportunities continues to grow and we are actively pursuing a large number of prospects in both our behavioral and radiology benefits management businesses."

2006 Guidance

Based on its performance to date, the Company reaffirmed segment profit guidance of $173 million to $193 million and raised its net income guidance to a range of $59 million to $75 million, yielding earnings per share in the range of $1.53 to $1.94 on a diluted basis, an increase of $.08 to $.09 per share over the Company's previous guidance.

See the attached tables detailing the Company's revised financial guidance.

Chief Financial Officer Mark S. Demilio said, "Our careful management of expenses and effective use of our cash position are paying off in the form of strong financials and excellent prospects. Given our robust performance in the behavioral business, as demonstrated by our first quarter financial results, we are reaffirming our original segment profit guidance despite some delays in new business contract awards. In addition, we have raised our guidance for 2006 net income primarily due to estimated higher net interest income. Our entry into the radiology benefits management space through our acquisition of NIA affords us significant growth potential and we continue to evaluate other opportunities to invest in the Company's future growth. In addition, we continue to manage our behavioral health business carefully and to make investments in building out our risk radiology platform and in business development efforts in the public sector and other areas."

Earnings Results Conference Call

A conference call will be held to discuss the earnings at 11:00 a.m. Eastern time on Friday, April 28. To participate in the call, interested parties should call 1-888-390-4698 and reference the passcode First Quarter Earnings and conference leader Steve Shulman approximately 15 minutes before the start of the call.

The conference call also will be available via a live Webcast at the investor relations page of Magellan's Web site, www.MagellanHealth.com.

A taped replay of the conference call will be available from approximately 12:00 noon Eastern time on Friday, April 28, until midnight on Friday, May 5. The call-in numbers for the replay are 1-888-568-0868 and 1-203-369-3782 (from outside the U.S.).

Those who plan to listen to the call and/or Webcast are encouraged to read Magellan's Annual Report on Form 10-K for the year ended December 31, 2005, filed with the Securities and Exchange Commission on March 8, 2006, including the section entitled "Risk Factors."

About Magellan: Headquartered in Avon, Conn., Magellan Health Services, Inc. (Nasdaq:MGLN) is the country's leading manager of behavioral health and radiology benefits. Its customers include health plans, corporations and government agencies.

Cautionary Statement: Certain of the statements made in this press release including, without limitation, statements regarding estimates of segment profit, net income, earnings per share, integration of NIA, development of NIA's risk radiology product, NIA risk contracting opportunities, future growth, new business opportunities, and other matters constitute forward-looking statements contemplated under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and are subject to known and unknown uncertainties and risks which could cause actual results to differ materially from those contemplated or implied by such forward-looking statements, including (among others) risk concerning the possible election of certain of the Company's health plan customers to manage the behavioral health care services of their members directly; renegotiation of rates paid to and/or by the Company by customers and/or to providers; higher utilization of behavioral health treatment services by members; delays, higher costs or inability to implement the Company's initiatives; termination or non-renewal of contracts by customers; the impact of new or amended laws or regulations; governmental inquiries and/or litigation; and the impact of increased competition on the Company's ability to maintain or obtain contracts; the impact of increased competition on rates paid to or by the Company; and other factors. Any forward-looking statements made in this document are qualified in their entirety by the more complete discussion of risks set forth in the section entitled "Risk Factors" in Magellan's Annual Report on Form 10-K for the year ended December 31, 2005, filed with the Securities and Exchange Commission on March 8, 2006, and posted on the Company's Web site. Segment profit information referred to in this press release may be considered a non-GAAP financial measure. Further information regarding this measure, including the reasons management considers this information useful to investors, is included in Magellan's Annual Report on Form 10-K for the year ended December 31, 2005.

            MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
              CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                              (Unaudited)
               (In thousands, except per share amounts)

                                        Three Months Ended March 31,
                                       ------------------------------
                                            2005           2006 (1)
                                       -------------    -------------
                                         (restated)

Net revenue                            $     452,754    $     400,596

Cost and expenses:
    Cost of care                             304,208          269,835
    Direct service costs                      62,874           57,341
    Other operating expenses                  25,847           24,627
    Equity in earnings of
     unconsolidated subsidiaries              (1,449)            (390)
                                       -------------    -------------
                                             391,480          351,413
                                       -------------    -------------
    Segment profit                            61,274           49,183
                                       -------------    -------------

    Depreciation and amortization             11,218           10,657
    Interest expense                           8,639            1,969
    Interest income                           (3,033)          (4,217)
    Stock compensation expense                 3,750            5,500
    Gain on sale of assets                         -           (4,745)
                                       -------------    -------------

Income from continuing operations
 before income taxes and minority
 interest                                     40,700           40,019
Provision for income taxes                    17,552           17,704
                                       -------------    -------------
Income from continuing operations
 before minority interest                     23,148           22,315
Minority interest, net                            68                -
                                       -------------    -------------
Income from continuing operations             23,080           22,315
                                       -------------    -------------
Discontinued operations:
Income from discontinued operations(2)            14                -
                                       -------------    -------------
Net income                                    23,094           22,315
Other comprehensive (loss) income               (930)             210
                                       -------------    -------------
Comprehensive income                   $      22,164    $      22,525
                                       =============    =============

Weighted average number of common
 shares outstanding -- basic(3)               35,403           36,704
                                       =============    =============
Weighted average number of common
 shares outstanding -- diluted(3)             36,847           38,101
                                       =============    =============

Income per common share available to
 common stockholders -- basic:
    Income from continuing operations  $        0.66    $        0.61
                                       =============    =============
    Income from discontinued
     operations                        $           -    $           -
                                       =============    =============
Net income                             $        0.66    $        0.61
                                       =============    =============

Income per common share available to
 common stockholders -- diluted:
    Income from continuing operations  $        0.63    $        0.59
                                       =============    =============
    Income from discontinued
     operations                        $           -    $           -
                                       =============    =============
Net income                             $        0.63    $        0.59
                                       =============    =============

(1) For a more detailed discussion of Magellan's results for the
    quarter ended March 31, 2006, refer to the Company's Quarterly
    Report on Form 10-Q, which will be filed with the SEC on April 28,
    2006, and the live broadcast or taped replay of the Company's
    earnings conference call on April 28, 2006, which will be
    available at www.MagellanHealth.com.
(2) Net of income tax provision of $105 for the three months ended
    March 31, 2005.
(3) Weighted average number of common shares outstanding for the three
    months ended March 31, 2005 were calculated using outstanding
    shares of the Company's Ordinary Common Stock and Multi-Vote
    Common Stock.


            MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
            CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (Unaudited)
                            (In thousands)

                                        Three Months Ended March 31,
                                       ------------------------------
                                           2005             2006
                                       -------------    -------------
                                         (restated)
Cash Flows From Operating Activities:
 Net income                            $      23,094    $      22,315

 Adjustments to reconcile net income
  to net cash from operating activities:
    Gain on sale of assets                         -           (4,745)
    Depreciation and amortization             11,218           10,657
    Equity in earnings of
     unconsolidated subsidiaries              (1,449)            (390)
    Non-cash interest expense                    347              347
    Non-cash stock compensation expense        3,750            5,500
    Non-cash income tax expense               16,000           15,938
    Cash flows from changes in assets
     and liabilities:
        Restricted cash                      (11,914)         (22,044)
        Accounts receivable, net              (1,020)           1,953
        Other assets                           2,207            4,984
        Accounts payable and accrued
         liabilities                         (20,055)         (10,126)
        Medical claims payable and other
         medical liabilities                  15,299           (4,460)
        Other liabilities                        (23)              21
        Minority interest, net of
         dividends paid                          116                -
        Other                                    187              (90)
                                       -------------    -------------
            Net cash provided by
             operating activities             37,757           19,860
                                       -------------    -------------

Cash Flows From Investing Activities:
 Capital expenditures                          (5,047)         (4,185)
 Proceeds from sale of assets                       -          20,475
 Purchase of investments                     (118,081)        (12,568)
 Maturity of investments                       77,002         171,672
 Acquisition, net of cash acquired                  -        (120,029)
 Proceeds from note receivable                  7,000               -
                                       -------------    -------------
            Net cash (used in) provided
             by investing activities         (39,126)          55,365
                                       -------------    -------------

Cash Flows From Financing Activities:
 Payments on long-term debt and
  capital lease obligations                   (7,413)          (6,385)
 Proceeds from exercise of stock
  options and warrants                           445            5,218
                                       -------------    -------------
Net cash used in financing activities         (6,968)          (1,167)
                                       -------------    -------------
Net (decrease) increase in cash and
 cash equivalents                             (8,337)          74,058
Cash and cash equivalents at
 beginning of period                          45,390           81,039
                                       -------------    -------------
Cash and cash equivalents at end of
 period                                $      37,053    $     155,097A
                                       =============    =============

A   Cash and cash equivalents as of March 31, 2006 does not include
    unrestricted investments of $41,498.


            MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
              CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                              (Unaudited)
         (In thousands, except membership amounts in millions)

                                        Three Months Ended March 31,
                                       ------------------------------
                                            2005             2006
                                       -------------    -------------
Net revenue
    -  Health Plan Solutions           $     224,902    $     157,787
    -  Employer Solutions                     31,660           33,180
    -  Public Sector Solutions               196,192          201,899
    -  Radiology Benefits Solutions                -            7,730
                                       -------------    -------------
    Total revenue                            452,754          400,596
                                       -------------    -------------

Cost of care
    -  Health Plan Solutions                 121,728           86,276
    -  Employer Solutions                      7,860            8,155
    -  Public Sector Solutions               174,620          175,404
                                       -------------    -------------
    Total cost of care                       304,208          269,835
                                       -------------    -------------

Direct service costs
    -  Health Plan Solutions                  39,582           26,334
    -  Employer Solutions                     15,705           16,695
    -  Public Sector Solutions                 7,587            8,062
    -  Radiology Benefits Solutions                -            6,250
                                       -------------    -------------
    Total direct services costs               62,874           57,341
                                       -------------    -------------

Other operating expenses -
 Corporate & Other                            25,847           24,627
                                       -------------    -------------

Equity in earnings of unconsolidated
 subsidiaries
    -  Health Plan Solutions                  (1,449)            (390)
                                       -------------    -------------

Segment profit (loss)
    -  Health Plan Solutions                  65,041           45,567
    -  Employer Solutions                      8,095            8,330
    -  Public Sector Solutions                13,985           18,433
    -  Radiology Benefits Solutions                -            1,480
    -  Corporate & Other                     (25,847)         (24,627)
                                       -------------    -------------
    Total segment profit               $      61,274    $      49,183
                                       =============    =============

Reconciliation of segment profit to
 income from continuing operations
 before income taxes and minority
 interest:
 Segment profit                        $      61,274    $      49,183
 Depreciation and amortization               (11,218)         (10,657)
 Interest expense                             (8,639)          (1,969)
 Interest income                               3,033            4,217
 Stock compensation expense                   (3,750)          (5,500)
 Gain on sale of assets                            -            4,745
                                       -------------    -------------
    Income from continuing
     operations before income taxes
     and minority interest             $      40,700    $      40,019
                                       =============    =============

Membership
    -  Health Plan Solutions                                     26.0
    -  Employer Solutions                                        13.7
    -  Public Sector Solutions                                    1.9
    -  Radiology Benefits Solutions                              16.7
                                                        -------------
    Total membership                                             58.3
                                                        =============


Magellan Health Services, Inc. and Subsidiaries
Revised Fiscal 2006 Forecast Guidance - Earnings
(In millions, except per share amounts)

                                            Low             High
                                       -------------    -------------
Net revenue                            $       1,630    $       1,665

Cost of care                                   1,105            1,115
Direct service costs and other
 operating expenses                              352              357
                                       -------------    -------------
Segment profit                                   173              193

Gain on sale of unconsolidated
 subsidiary                                       (5)              (5)
Stock compensation expense                        29               27
Depreciation and amortization                     50               46
Interest expense (income), net                    (8)             (10)
                                       -------------    -------------
Income from continuing operations                107              135
Income taxes                                      48               60
                                       -------------    -------------
Net income                             $          59    $          75
                                       =============    =============

Weighted average shares outstanding -
 diluted                                        38.6             38.6
                                       =============    =============

EPS - diluted as revised               $        1.53    $        1.94
EPS - diluted per original guidance             1.44             1.86
                                       -------------    -------------
Change in EPS guidance                 $        0.09    $        0.08
                                       =============    =============

Note - Includes NIA activity for the eleven months ended December 31,
       2006, based upon the January 31, 2006 closing date for such
       acquisition.


Magellan Health Services, Inc. and Subsidiaries
Revised Fiscal 2006 Forecast Guidance - Cash Flow
(In millions)

                                            Low             High
                                       -------------    -------------
Cash Flows From Operating Activities
Net income                             $          59    $          75
Adjusting items:
    Stock compensation expense                    29               27
    Depreciation and amortization                 50               46
    Non-cash income taxes                         43               53
    Other net cash flows from changes
     in assets and liabilities                   (38)             (32)
                                       -------------    -------------
    Net cash provided by operating
     activities                                  143              169
                                       -------------    -------------

Cash Flows From Investing Activities
Capital expenditures                             (32)             (22)
Cash used for NIA acquisition                   (120)            (120)
Proceeds from sale of unconsolidated
 subsidiary                                       21               21
                                       -------------    -------------
    Net cash used in investing
     activities                                 (131)            (121)
                                       -------------    -------------

Cash Flows From Financing Activities
Payments on long-term debt and
 capital leases                                  (25)             (25)
Proceeds from exercise of stock
 options and warrants                              6                9
                                       -------------    -------------
    Net cash used in financing
     activities                                  (19)             (16)
                                       -------------    -------------

    Net change in cash, cash
     equivalents and unrestricted
     investments                       $          (7)   $          32
                                       =============    =============

Note - Includes NIA activity for the eleven months ended December 31,
       2006, based upon the January 31, 2006 closing date for such
       acquisition.

CONTACT: Magellan Health Services, Inc.
Investors
Melissa Rose, 877-645-6464
or
Media
Erin Somers, 410-953-2405
SOURCE: Magellan Health Services, Inc.