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MGLN News Magellan Health Services Reports Fourth Quarter and Fiscal Year 2006 Financial Results

AVON, Conn.--(BUSINESS WIRE)--Magellan Health Services, Inc. (Nasdaq:MGLN) today reported operating results for the fourth quarter and fiscal year 2006.

Financial Results

For the fiscal year ended December 31, 2006, the Company reported net revenue of $1.7 billion and net income of $86.3 million, or $2.23 per diluted common share. For the prior year, net revenue was $1.8 billion and net income was $130.6 million, or $3.46 per diluted common share. Net income for the prior year, as well as the fourth quarter of 2005, was favorably impacted by the sale of certain assets to Aetna, Inc., which generated an after-tax gain of $34.7 million. For 2006, the Company’s segment profit (which represents profit from continuing operations before stock compensation expense, depreciation and amortization, interest expense, interest income, gain on sale of assets, special charges or benefits, income taxes and minority interest) was $216.3 million, compared with $246.0 million in the prior year.

For the fourth quarter of 2006, the Company reported net revenue of $461.3 million, compared with $436.4 million in the prior year fourth quarter. Net income in the quarter was $22.5 million, or $0.58 per diluted common share, compared with $52.2 million, or $1.38 per diluted common share in the fourth quarter of 2005. Segment profit for the fourth quarter was $62.3 million, compared with $56.9 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 $188.8 million. Cash flow from operations for 2006 was $197.0 million compared with $188.0 million for the prior year period.

Steven J. Shulman, chairman and chief executive officer, said, “This past year was marked by continued robust financial performance overall coupled with significant advances in the Company’s strategic development as a specialty managed health care organization. With our expansion into the radiology management and specialty pharmaceuticals arenas, we are demonstrating that we can bring to bear resources and skills to complement the specialized knowledge and innovative clinical approaches of the companies we acquired during 2006.”

Mark S. Demilio, chief financial officer, noted, “The fourth quarter benefited from one-time favorable contractual settlements of $5.1 million and out-of-period favorable care development of $1.7 million in our health plan segment. These items contributed to the Company’s exceeding the upper end of our previously announced 2006 segment profit guidance by $6 million and net income guidance by $2 million or $0.05 per diluted common share. The Company was also successful in 2006 in executing on our stated strategy of using our strong cash position to further our long-term objective of driving greater value for our customers and their stakeholders, and managing a greater portion of the health care dollar. Our strong balance sheet, rigorous financial management, and underwriting acumen are key to our customers’ confidence in our ability to manage the most dynamic areas of health care. Our solid financial foundation also affords us the resources to invest in enhancements to our existing product lines and to fund business development efforts across our product lines.”

Commenting on segment performance, Shulman said, “Our behavioral health business, particularly in the public sector segment, performed better than expected, and results for our specialty pharmaceutical segment were on target. With regard to radiology management, while results to date have lagged our expectations somewhat, we have implemented significant enhancements to operations and organizational infrastructure and achieved a major milestone with the development of a risk-based radiology management offering. I am confident that our persistent focus on further improvement in this segment will yield positive results.

Earnings Results Conference Call

A conference call will be held to discuss the Company’s financial results at 9:30 a.m. Eastern time today, February 28, 2007. To participate in the conference 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 Magellan's investor relations page at www.MagellanHealth.com.

A taped replay of the conference call will be available for one week following the call. The call-in numbers for the replay are 1-800-294-0344 and 1-402-220-9747 (from outside the U.S.).

About Magellan: Headquartered in Avon, Conn., Magellan Health Services, Inc. (Nasdaq:MGLN) is a leading specialty health care management organization, managing behavioral health, radiology and specialty pharmaceuticals for government agencies, health plans and corporations.

Cautionary Statement: Certain of the statements made in this press release including, without limitation, statements regarding improvement in the radiology benefit management segment 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; 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, 2006, to be filed with the Securities and Exchange Commission today 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, 2006.