8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934

Date of report (Date of earliest event reported):
April 27, 2007

MAGELLAN HEALTH SERVICES, INC.
(Exact Name of Registrant as Specified in Charter)

DELAWARE	1-6639	58-1076937
(State or Other Jurisdiction	(Commission File	(IRS Employer
of Incorporation)	Number)	Identification No.)
55 NOD ROAD
AVON, CONNECTICUT		06001
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s telephone number, including area code: (860) 507-1900

N/A
(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02. Results of Operations and Financial Condition

On April 27, 2007, Magellan Health Services, Inc. (the “Company”) reported operating results for the first quarter ended March 31, 2007.  In addition, the Company confirmed that it expects to generate segment profit in the range of $190 million to $210 million in 2007.

Attached and incorporated herein by reference as Exhibit 99.1 is a copy of the press release dated April 27, 2007.

Item 9.01. Financial Statements, Pro Forma Financial Information and Exhibits

(a)  Financial Statements of business acquired:              Not applicable.

(b)  Pro forma financial information:                  Not applicable.

(d)           Exhibits:

Exhibit Number	Description
99.1	Registrant’s press release dated April 27, 2007.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

MAGELLAN HEALTH SERVICES, INC.

Date: April 27, 2007	By:	/s/ Mark S. Demilio
		Name: Mark S. Demilio
		Title:	Executive Vice President and Chief Financial Officer

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EX-99.1

Exhibit 99.1

For Immediate Release

Investor Contact:	Melissa Rose
	877-645-6464
Media Contact:	Erin Somers
	410-953-2405

MAGELLAN HEALTH SERVICES REPORTS

FIRST QUARTER 2007 FINANCIAL RESULTS

Company Confirms Overall 2007 Segment Profit Guidance of $190 Million to $210 Million

AVON, Conn. – April 27, 2007 – Magellan Health Services, Inc. (Nasdaq:MGLN) today reported operating results for the first quarter of fiscal year 2007.  In addition, the Company confirmed that it expects to generate segment profit in the range of $190 million to $210 million in 2007.

Financial Results

For the quarter ended March 31, 2007, the Company reported net revenue of $487.0 million and net income of $21.0 million, or $.53 per diluted common share.  For the prior year quarter, net revenue was $400.6 million.  Net income for the prior year quarter was $22.3 million, or $.59 per diluted common share.  Segment profit (which represents income 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) for the current year quarter was $53.0 million, compared with $49.2 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 $222.9 million. Cash flow from operations for the three months ended March 31, 2007 was $46.1 million compared with $19.9 million for the comparable period in the prior year.

Steven J. Shulman, chairman and chief executive officer, said, “In addition to generating robust financial results for the first quarter, we have made significant progress toward our strategic goals through the sale of a second risk radiology management contract. Our financial strength is an important factor in our customers’ confidence in us as a strategic partner.  Our focus on ensuring that we serve our customers, members and providers effectively and efficiently and our responsible management of the financial aspects of our business are hallmarks of our approach and key to our success in serving all of our stakeholders.”

Mark S. Demilio, chief financial officer, said, “We are reaffirming our overall segment profit guidance for 2007 of $190 million to $210 million. This reaffirmation takes into consideration adjustments in the quarter for favorable prior period care development of $4.3 million as well as the adverse impact to our prior guidance for 2007 of approximately $10 million that we previously disclosed with respect to the implementation of the new

-more-

risk radiology contracts with CIGNA and Empire. Overall we are very pleased with our financial position.  The Company’s balance sheet grows stronger each quarter, enabling us to continue to consider acquisitions and other initiatives to enhance shareholder value.”

Earnings Results Conference Call

A conference call will be held to discuss the Company’s financial results at 10:00 a.m. Eastern time on Friday, April 27.  To participate in the conference 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 for one week following the call. The call-in numbers for the replay are 800-925-2994 and 402-220-4141 (from outside the U.S.).

Those who plan to access the Webcast are encouraged to read Magellan’s Annual Report on Form 10-K for the year ended December 31, 2006, filed with the Securities and Exchange Commission on February 28, 2007, for material information regarding Magellan’s operational and financial results, including the section entitled “Risk Factors.”

About Magellan:  Headquartered in Avon, Conn., Magellan Health Services, Inc. (Nasdaq:MGLN) is a leading specialty health care management organization.  Its customers include health plans, corporations and government agencies.

Cautionary Statement:  This release contains forward-looking statements within the meaning of the Securities Exchange Act of 1934 and the Securities Act of 1933, as amended, that involve a number of risks and uncertainties. All statements, other than statements of historical information provided herein, may be deemed to be forward-looking statements including without limitation statements regarding estimates of segment profit. These statements are based on management’s analysis, judgment, belief and expectation only as of the date hereof, and are subject to uncertainty and changes in circumstances. Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects,” “may,” “should,” “could,” “estimate,” “intend” and other similar expressions are intended to identify forward-looking statements. Actual results could differ materially due to, among other things, the possible election of certain of the Company’s customers to manage the healthcare services of their members directly; changes in rates paid to and/or by the Company by customers and/or providers; higher utilization of health care services by the Company’s risk members; delays, higher costs or inability to implement new business or other Company initiatives; the impact of changes in the contracting model for Medicaid contracts; termination or non-renewal of customer contracts; the impact of new or amended laws or regulations; governmental inquiries;  litigation; competition;  operational issues; health care reform; and general business conditions. Additional factors that could cause actual results to differ materially from those reflected in the forward-looking statements include, but are not limited to, the risks discussed in the “Risk Factors” section included within the Company’s most recent Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q filed with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date of this release. Segment profit information referred to herein may be considered a non-GAAP financial measure.  Further information regarding this

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measure, including the reasons management considers this information useful to investors, is included in the Company’s most recent Annual Report on Form 10-K and subsequent reports on Form 10-Q filed with the SEC.

# # #

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MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES

CONDENSED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per share amounts)

	Three Months Ended March 31,
	2006			2007 (1)
Net revenue	$	400,596		$	487,004
Cost and expenses:
Cost of care	269,835			308,819
Cost of goods sold	—			34,117
Direct service costs and other operating expenses (2)	87,468			97,875
Equity in earnings of unconsolidated subsidiaries	(390		)	—
Depreciation and amortization	10,657			13,652
Interest expense	1,969			1,852
Interest income	(4,217		)	(5,187		)
Gain on sale of assets	(4,745		)	—
	360,577			451,128
Income from continuing operations before income taxes. .	40,019			35,876
Provision for income taxes	17,704			14,907
Net income	22,315			20,969
Other comprehensive income	210			5
Comprehensive income	$	22,525		$	20,974
Weighted average number of common shares outstanding – basic	36,704			38,231
Weighted average number of common shares outstanding – diluted	38,101			39,264
Net income per common share – basic	$	0.61		$	0.55
Net income per common share – diluted	$	0.59		$	0.53

(1)   For a more detailed discussion of Magellan’s results for the quarter ended March 31, 2007, refer to the Company’s Quarterly Report on Form 10-Q which will be filed with the SEC on April 27, 2007, and the live broadcast or taped replay of the Company’s earnings conference call on April 27, 2007, which will be available at www.MagellanHealth.com.

(2)   Includes stock compensation expense of $5,500 and $6,787 for the three months ended March 31, 2006 and 2007, respectively.

MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	Three Months Ended March 31,
	2006			2007
Cash flows from operating activities:
Net income	$	22,315		$	20,969
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on sale of assets	(4,745		)	—
Depreciation and amortization	10,657			13,652
Equity in earnings of unconsolidated subsidiaries	(390		)	—
Non-cash interest expense	347			347
Non-cash stock compensation expense	5,500			6,787
Non-cash income tax expense	15,938			13,973
Cash flows from changes in assets and liabilities, net of effects from acquisitions of businesses:
Restricted cash	(22,044		)	(15,488		)
Accounts receivable, net	1,953			(4,944		)
Other assets	4,984			(100		)
Accounts payable and accrued liabilities	(10,126		)	(10,767		)
Medical claims payable and other medical liabilities	(4,460		)	21,799
Other	(69		)	(107		)
Net cash provided by operating activities	19,860			46,121
Cash flows from investing activities:
Capital expenditures	(4,185		)	(5,416		)
Acquisitions and investments in businesses, net of cash acquired	(120,029		)	(5,271		)
Proceeds from sale of assets	20,475			—
Purchase of investments	(12,568		)	(33,278		)
Maturity of investments	171,672			35,580
Net cash provided by (used in) investing activities	55,365			(8,385		)
Cash flows from financing activities:
Payments on long-term debt and capital lease obligations	(6,385		)	(7,801		)
Proceeds from exercise of stock options and warrants	5,218			15,615
Other	—			(333		)
Net cash (used in) provided by financing activities	(1,167		)	7,481
Net increase in cash and cash equivalents	74,058			45,217
Cash and cash equivalents at beginning of period	81,039			163,737
Cash and cash equivalents at end of period	$	155,097		$	208,954

MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES

CONDENSED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except membership amounts in millions)

	Three Months Ended March 31,
	2006			2007
Net revenue
·  Health Plan	$	157,787		$	178,600
·  Employer	33,180			31,213
·  Public Sector	201,899			224,374
·  Radiology Benefits Management	7,730			10,731
·  Specialty Pharmaceutical Management	—			42,086
Total revenue	400,596			487,004
Cost of care
·  Health Plan	86,276			105,776
·  Employer	8,155			6,823
·  Public Sector	175,404			196,220
Total cost of care	269,835			308,819
Cost of goods sold – Specialty Pharmaceutical Management	—			34,117
Direct service costs
·  Health Plan	26,572			26,616
·  Employer	16,763			15,518
·  Public Sector	8,215			9,959
·  Radiology Benefits Management	6,457			10,961
·  Specialty Pharmaceutical Management	—			4,619
Total direct services costs	58,007			67,673
Other operating expenses – Corporate & Other	29,461			30,202
Equity in earnings of unconsolidated subsidiaries – Health Plan	(390		)	—
Stock compensation expense (1)
·  Health Plan	(238		)	(392		)
·  Employer	(68		)	(116		)
·  Public Sector	(153		)	(211		)
·  Radiology Benefits Management	(207		)	(462		)
·  Specialty Pharmaceutical Management	—			(2,052		)
·  Corporate & Other	(4,834		)	(3,554		)
Total stock compensation expense	(5,500		)	(6,787		)
Segment profit (loss)
·  Health Plan	45,567			46,600
·  Employer	8,330			8,988
·  Public Sector	18,433			18,406
·  Radiology Benefits Management	1,480			232
·  Specialty Pharmaceutical Management	—			5,402
·  Corporate & Other	(24,627		)	(26,648		)
Total segment profit	$	49,183		$	52,980
Reconciliation of segment profit to income from continuing operations before income taxes:
Segment profit	$	49,183		$	52,980
Stock compensation expense	(5,500		)	(6,787		)
Depreciation and amortization	(10,657		)	(13,652		)
Interest expense	(1,969		)	(1,852		)
Interest income	4,217			5,187
Gain on sale of assets	4,745			—
Income from continuing operations before income taxes	$	40,019		$	35,876
Membership
·  Health Plan				28.1
·  Employer				14.2
·  Public Sector				2.1
·  Radiology Benefits Management				16.3
Total membership				60.7

(1)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.