AVON, Conn., Mar 07, 2006 (BUSINESS WIRE) -- Magellan Health Services, Inc. (Nasdaq:MGLN) today reported operating results for the fourth quarter and fiscal year 2005. The Company also announced that it has completed its evaluation of the accounting treatment relating to the use of deferred tax assets that existed prior to its emergence from bankruptcy, other than net operating loss carryforwards (NOLs), and has determined that the realization of the tax benefits associated with the use of such deferred tax assets should be credited to goodwill. As a result, it is restating previously reported net income and earnings per share for the year ended December 31, 2004 and for the nine months ended September 30, 2005. This revision does not affect segment profit or cash flow results, nor does it impact any of the Company's tax positions or its taxes payable now or in the future.
The Company reaffirmed that for 2006 it expects to generate segment profit in the range of $173 million to $193 million and net income in the range of $1.44 to $1.86 per diluted share, including the impact of the NIA acquisition.
Management will discuss the Company's financial results, the restatement, and its outlook in a conference call to be held Wednesday, March 8, at 8:30 a.m.
Steven J. Shulman, chairman and chief executive officer, said, "I am very pleased with the Company's position at year end and I am optimistic about its prospects for the coming year and beyond. We exceeded our previously announced guidance for segment profit, coming in at $246 million, while continuing to demonstrate operational excellence and diligent focus on positioning the Company strategically for the future. Restating certain results for 2004 and 2005 is disappointing, certainly, but we value the integrity of our accounting practices and I am pleased that this matter was resolved quickly and accurately. The restatement has no impact on the strong financial performance and strategic prospects for the Company."
Fourth Quarter and Fiscal Year 2005 Results
For the fiscal year ended December 31, 2005, the Company reported net revenue of $1.8 billion and net income of $130.6 million, or $3.46 per diluted common share. For the prior year, net revenue was $1.8 billion and net income, as restated, was $64.3 million, or $1.77 per diluted common share. Net income for the year ended December 31, 2005, as well as for the fourth quarter of 2005, was positively impacted by the previously announced sale of certain assets to Aetna, Inc. which generated a pre-tax gain of $56.4 million. Because of the revision in tax accounting referenced above, the Company has recorded tax expense of approximately $21.7 million with respect to this gain although, as previously disclosed, the cash taxes payable on such transaction are expected to be minimal. For 2005, the Company's segment profit (net revenue less cost of care, and direct service costs and other operating expenses plus equity in earnings of unconsolidated subsidiaries) was $246.0 million, compared with $233.2 million in the prior year.
For the fourth quarter of 2005, the Company reported net revenue of $436.4 million, compared with $445.2 million in the prior year fourth quarter. Net income in the quarter was $52.2 million, or $1.38 per diluted common share, compared with $9.9 million, or $0.27 per diluted common share in the fourth quarter of 2004, as restated. Segment profit for the fourth quarter was $56.9 million, compared with $59.6 million in the prior year quarter.
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 $274.2 million, of which approximately $122 million was subsequently used to fund the previously announced acquisition of National Imaging Associates, Inc. (NIA), which closed on January 31, 2006. Cash flow from operations for 2005 was $188.0 million compared with $163.4 million for the prior year period.
Mark S. Demilio, chief financial officer, said, "Magellan's strong financial performance in 2005 is the result of continued fiscal discipline and focus on operational efficiency. This diligence in managing our business yielded the financial flexibility to execute on two key initiatives - improving our capital structure and furthering our long-term business strategy through acquisition. In the fourth quarter we repaid our Senior Notes in the principal amount of $241 million and our Note payable to Aetna of $49 million. With just $63 million of debt and $274 million of unrestricted cash and investments at December 31, 2005, we have the financial foundation from which to fund additional market expansion and accelerated growth. Our acquisition of NIA in January was an example of such expansion."
Restated Results
The Company has completed its evaluation of the accounting treatment of the use of deferred tax assets and determined that the reversal of valuation allowances with respect to the use of deferred tax assets that existed prior to its emergence from bankruptcy, other than NOLs, should be credited to goodwill as opposed to the Company's treatment since its emergence from bankruptcy of recording such tax benefit as a reduction of its provision for income taxes. As a result, the Company is restating net income and earnings per share for fiscal year 2004 and the nine months ended September 30, 2005 and each of the quarters in those periods. As a result of the restatement, net income for 2004 was reduced by $24.1 million, or $0.66 per fully diluted share, and net income for the nine months ended September 30, 2005 was reduced by $2.3 million, or $0.06 per fully diluted share.
"The restatement arose out of a misinterpretation of the complex accounting literature on this topic," Demilio noted. "Because of the lack of guidance directly addressing this issue for companies emerging from bankruptcy, it was necessary to interpret various accounting pronouncements in order to conclude on the appropriate treatment. As we reviewed this literature again, we determined that the revised conclusion represents the proper tax accounting treatment and it now parallels the treatment the Company has been applying to reversals of valuation allowance with respect to the use of NOLs."
See the attached tables detailing the Company's restated results for the fourth quarter and fiscal year 2004. For the restated results for each of the first three quarters of 2004 and 2005, and other information concerning the restatement, please see the Company's Current Report on Form 8-K and Annual Report on Form 10-K for the year ended December 31, 2005 to be filed with the Securities and Exchange Commission tomorrow.
2006 Outlook
The Company reaffirmed its expectations for 2006 of segment profit in the range of $173 million to $193 million and net income in the range of $1.44 to $1.86 per diluted share, including the impact of the NIA acquisition.
"Magellan's expansion into the radiology benefits management space is an exciting step forward in our development into a diversified managed health care services company with significant growth prospects," Shulman added. "Radiology affords the opportunity for dramatic growth by addressing a fast-growing, relatively uncontrolled portion of medical expenses in a targeted manner."
"At the same time, we see opportunity to grow in the behavioral health sector, particularly in the Medicaid market, and have made investments in resources to support business development in that area. We have the strategic acumen, financial resources and discipline to seize additional opportunities that will benefit our customers and their constituents as well as our shareholders and employees," Shulman said.
Earnings Results Conference Call
A conference call will be held to discuss the Company's financial results at 8:30 a.m. Eastern time on Wednesday, March 8. To participate in the call, interested parties should call 1-888-390-4698 and reference the passcode Fourth 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 10:30 a.m. Eastern time on Wednesday, March 8, until midnight on Wednesday, March 15. The call-in numbers for the replay are 1-888-566-0697 and 1-402-998-0831 (from outside the U.S.).
About Magellan: Headquartered in Avon, Conn., Magellan Health Services, Inc. (Nasdaq:MGLN) is the country's leading manager of behavioral health care 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 and earnings per share 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, to be filed with the Securities and Exchange Commission tomorrow 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, will be included in Magellan's Annual Report on Form 10-K for the year ended December 31, 2005.
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Three Months Ended Fiscal Year Ended
December 31, December 31,
----------------------- -----------------------
2004 2005 (1) 2004 2005 (1)
----------- ----------- ----------- -----------
(Restated) (Restated)
(unaudited) (unaudited)
Net revenue $ 445,168 $ 436,439 $1,795,402 $1,808,003
Cost and expenses:
Cost of care 291,799 284,396 1,190,594 1,204,659
Direct service costs
and other operating
expenses 93,485 94,792 376,871 361,726
Equity in loss
(earnings) of
unconsolidated
subsidiaries 284 361 (5,277) (4,350)
----------- ----------- ----------- -----------
385,568 379,549 1,562,188 1,562,035
----------- ----------- ----------- -----------
Segment profit 59,600 56,890 233,214 245,968
----------- ----------- ----------- -----------
Depreciation and
amortization 11,011 12,136 42,489 49,088
Gain on disposition
of Aetna Assets - (56,367) - (56,367)
Interest expense 9,625 18,044 37,124 44,005
Interest income (2,534) (5,537) (6,127) (17,464)
Stock compensation
expense 7,254 3,783 23,152 15,807
Special charges
(benefits) 734 - 5,038 (556)
----------- ----------- ----------- -----------
Income from continuing
operations before
income taxes and
minority interest 33,510 84,831 131,538 211,455
Provision for income
taxes 22,257 32,709 64,835 82,405
----------- ----------- ----------- -----------
Income from continuing
operations before
minority interest 11,253 52,122 66,703 129,050
Minority interest, net (197) 11 347 58
----------- ----------- ----------- -----------
Income from continuing
operations 11,450 52,111 66,356 128,992
----------- ----------- ----------- -----------
Discontinued
operations:
Income (loss) from
discontinued
operations (2) (1,534) 71 (2,041) 1,597
----------- ----------- ----------- -----------
Net income 9,916 52,182 64,315 130,589
Other comprehensive
income (loss) (506) 319 (506) (109)
----------- ----------- ----------- -----------
Comprehensive income $ 9,410 $ 52,501 $ 63,809 $ 130,480
=========== =========== =========== ===========
Weighted average
number of common
shares outstanding --
basic (3) 35,371 36,474 35,367 35,966
=========== =========== =========== ===========
Weighted average
number of common
shares outstanding --
diluted (3) 36,734 37,712 36,361 37,691
=========== =========== =========== ===========
Income per common
share available to
common stockholders
-- basic:
Income from
continuing
operations $ 0.33 $ 1.43 $ 1.88 $ 3.59
=========== =========== =========== ===========
Income (loss) from
discontinued
operations $ (0.04) $ - $ (0.06) $ 0.04
=========== =========== =========== ===========
Net income $ 0.29 $ 1.43 $ 1.82 $ 3.63
=========== =========== =========== ===========
Income per common
share available to
common stockholders
-- diluted:
Income from
continuing
operations $ 0.31 $ 1.38 $ 1.83 $ 3.42
=========== =========== =========== ===========
Income (loss) from
discontinued
operations $ (0.04) $ - $ (0.06) $ 0.04
=========== =========== =========== ===========
Net income $ 0.27 $ 1.38 $ 1.77 $ 3.46
=========== =========== =========== ===========
(1) For a more detailed discussion of Magellan's results for the
fiscal year ended December 31, 2005, refer to the Company's Annual
Report on Form 10-K, which will be filed with the SEC on March 8,
2006, and the live broadcast or taped replay of the Company's
earnings conference call on March 8, 2006, which will be available
at www.MagellanHealth.com.
(2) Net of income tax (benefit) provision of $(1,074) and $(21) for
the three months ended December 31, 2004 and 2005, respectively,
and $(1,429) and $1,052 for the fiscal year ended December 31,
2004 and 2005, respectively.
(3) Weighted average number of common shares outstanding for the three
months and fiscal years ended December 31, 2004 and 2005 were
calculated using outstanding shares of the Company's Ordinary
Common Stock and Multi-Vote Common Stock.
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED SUMMARIZED STATEMENTS OF CASH FLOWS
(In thousands)
Fiscal Year Ended December 31,
------------------------------
2004 2005
------------ ------------
(Restated)
Net cash provided by operating
activities $ 163,438 $ 187,982
Net cash (used in) provided by
investing activities (349,447) 150,239
Net cash provided by (used in)
financing activities 24,451 (302,572)
------------ ------------
Net (decrease) increase in cash and
cash equivalents (161,558) 35,649
Cash and cash equivalents at beginning
of period 206,948 45,390
------------ ------------
Cash and cash equivalents at end of
period $ 45,390 $ 81,039 A
============ ============
A Cash and cash equivalents as of December 31, 2005 does not include
unrestricted investments of $193,177.
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except membership amounts in millions)
Three Months Ended Fiscal Year Ended
December 31, December 31,
----------------------- ---------------------
2004 2005 2004 2005
----------- ----------- ---------- ----------
(unaudited) (unaudited)
Net revenue
- Health Plan
Solutions $ 220,777 $ 220,552 $ 904,872 $ 907,796
- Employer
Solutions 33,422 32,252 135,676 127,090
- Public Sector
Solutions 190,969 183,635 754,854 773,117
----------- ----------- ---------- ----------
Total revenue 445,168 436,439 1,795,402 1,808,003
----------- ----------- ---------- ----------
Cost of care
- Health Plan
Solutions 113,793 119,286 484,047 501,831
- Employer
Solutions 8,140 7,134 37,168 30,256
- Public Sector
Solutions 169,866 157,976 669,379 672,572
----------- ----------- ---------- ----------
Total cost of care 291,799 284,396 1,190,594 1,204,659
----------- ----------- ---------- ----------
Direct service costs and
other operating
expenses
- Health Plan
Solutions 41,151 41,013 170,131 162,507
- Employer
Solutions 16,313 16,710 66,294 64,552
- Public Sector
Solutions 9,337 7,283 40,528 29,475
- Corporate &
Other 26,684 29,786 99,918 105,192
----------- ----------- ---------- ----------
Total direct
services costs and
other operating
expenses 93,485 94,792 376,871 361,726
----------- ----------- ---------- ----------
Equity in loss
(earnings) of
unconsolidated
subsidiaries
- Health Plan
Solutions 284 361 (5,277) (4,350)
----------- ----------- ---------- ----------
Total equity in
loss (earnings) of
unconsolidated
subsidiaries 284 361 (5,277) (4,350)
----------- ----------- ---------- ----------
Segment profit (loss)
- Health Plan
Solutions 65,549 59,892 255,971 247,808
- Employer
Solutions 8,969 8,408 32,214 32,282
- Public Sector
Solutions 11,766 18,376 44,947 71,070
- Corporate &
Other (26,684) (29,786) (99,918) (105,192)
----------- ----------- ---------- ----------
Total segment
profit $ 59,600 $ 56,890 $ 233,214 $ 245,968
=========== =========== ========== ==========
Reconciliation of
segment profit to
income from continuing
operations before
income taxes and
minority interest:
Segment profit $ 59,600 $ 56,890 $ 233,214 $ 245,968
Depreciation and
amortization (11,011) (12,136) (42,489) (49,088)
Gain on disposition of
Aetna Assets - 56,367 - 56,367
Interest expense (9,625) (18,044) (37,124) (44,005)
Interest income 2,534 5,537 6,127 17,464
Stock compensation
expense (7,254) (3,783) (23,152) (15,807)
Special (charges)
benefits (734) - (5,038) 556
----------- ----------- ---------- ----------
Income from
continuing
operations before
income taxes and
minority interest $ 33,510 $ 84,831 $ 131,538 $ 211,455
=========== =========== ========== ==========
Membership
- Health Plan
Solutions (1) 37.9
- Employer
Solutions 13.6
- Public Sector
Solutions 1.9
----------
Total membership 53.4
==========
(1) Includes approximately 12.1 million covered lives related to
contracts terminating effective December 31, 2005.
MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
SUMMARY OF FISCAL 2004 RESTATEMENT OF CONSOLIDATED STATEMENTS OF
OPERATIONS
(In thousands, except per share amounts)
Three Months Ended December 31, 2004
------------------------------------
As Reported Adjustments Restated
(unaudited) (unaudited) (unaudited)
Net revenue $ 445,168 $ - $ 445,168
Cost and expenses:
Cost of care 291,799 - 291,799
Direct service costs and other
operating expenses 93,485 - 93,485
Equity in loss (earnings) of
unconsolidated subsidiaries 284 - 284
------------ ----------- -----------
385,568 - 385,568
------------ ----------- -----------
Segment profit 59,600 - 59,600
------------ ----------- -----------
Depreciation and amortization 11,011 - 11,011
Interest expense 9,625 - 9,625
Interest income (2,534) - (2,534)
Stock compensation expense 7,254 - 7,254
Special charges 734 - 734
------------ ----------- -----------
Income from continuing operations
before income taxes and
minority interest 33,510 - 33,510
Provision for income taxes 17,608 4,649 22,257
------------ ----------- -----------
Income from continuing operations
before minority interest 15,902 (4,649) 11,253
Minority interest, net (193) (4) (197)
------------ ----------- -----------
Income from continuing operations 16,095 (4,645) 11,450
------------ ----------- -----------
Discontinued operations:
Income (loss) from discontinued
operations 4,359 (5,893) (1,534)
------------ ----------- -----------
Net income 20,454 (10,538) 9,916
Other comprehensive loss (506) - (506)
------------ ----------- -----------
Comprehensive income $ 19,948 $ (10,538) $ 9,410
============ =========== ===========
Weighted average number of common
shares outstanding -- basic 35,371 35,371
============ ===========
Weighted average number of common
shares outstanding -- diluted 36,734 36,734
============ ===========
Income per common share available
to common stockholders -- basic:
Income from continuing
operations $ 0.46 $ (0.13) $ 0.33
============ =========== ===========
Income (loss) from discontinued
operations $ 0.12 $ (0.16) $ (0.04)
============ =========== ===========
Net income $ 0.58 $ (0.29) $ 0.29
============ =========== ===========
Income per common share available
to common stockholders --
diluted:
Income from continuing
operations $ 0.44 $ (0.13) $ 0.31
============ =========== ===========
Income (loss) from discontinued
operations $ 0.12 $ (0.16) $ (0.04)
============ =========== ===========
Net income $ 0.56 $ (0.29) $ 0.27
============ =========== ===========
Fiscal Year Ended December 31, 2004
------------------------------------
As Reported Adjustments Restated
Net revenue $ 1,795,402 $ - $1,795,402
Cost and expenses:
Cost of care 1,190,594 - 1,190,594
Direct service costs and other
operating expenses 376,871 - 376,871
Equity in loss (earnings) of
unconsolidated subsidiaries (5,277) - (5,277)
------------ ----------- -----------
1,562,188 - 1,562,188
------------ ----------- -----------
Segment profit 233,214 - 233,214
------------ ----------- -----------
Depreciation and amortization 42,489 - 42,489
Interest expense 37,124 - 37,124
Interest income (6,127) - (6,127)
Stock compensation expense 23,152 - 23,152
Special charges 5,038 - 5,038
------------ ----------- -----------
Income from continuing operations
before income taxes and
minority interest 131,538 - 131,538
Provision for income taxes 46,584 18,251 64,835
------------ ----------- -----------
Income from continuing operations
before minority interest 84,954 (18,251) 66,703
Minority interest, net 333 14 347
------------ ----------- -----------
Income from continuing operations 84,621 (18,265) 66,356
------------ ----------- -----------
Discontinued operations:
Income (loss) from discontinued
operations 3,751 (5,792) (2,041)
------------ ----------- -----------
Net income 88,372 (24,057) 64,315
Other comprehensive loss (506) - (506)
------------ ----------- -----------
Comprehensive income $ 87,866 $ (24,057) $ 63,809
============ =========== ===========
Weighted average number of common
shares outstanding -- basic 35,367 35,367
============ ===========
Weighted average number of common
shares outstanding -- diluted 36,361 36,361
============ ===========
Income per common share available
to common stockholders -- basic:
Income from continuing
operations $ 2.39 $ (0.51) $ 1.88
============ =========== ===========
Income (loss) from discontinued
operations $ 0.11 $ (0.17) $ (0.06)
============ =========== ===========
Net income $ 2.50 $ (0.68) $ 1.82
============ =========== ===========
Income per common share available
to common stockholders --
diluted:
Income from continuing
operations $ 2.33 $ (0.50) $ 1.83
============ =========== ===========
Income (loss) from discontinued
operations $ 0.10 $ (0.16) $ (0.06)
============ =========== ===========
Net income $ 2.43 $ (0.66) $ 1.77
============ =========== ===========
SOURCE: Magellan Health Services, Inc.
Magellan Health Services, Inc. Investor Contact: Melissa Rose, 877-645-6464 or Media Contact: Erin Somers, 410-953-2405