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):

February 29, 2008

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 February 29, 2008, Magellan Health Services, Inc. (the “Company”) reported operating results for the fourth quarter and fiscal year ended December 31, 2007.

Attached and incorporated herein by reference as Exhibit 99.1 is a copy of the press release dated February 29, 2008.

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 February 29, 2008.

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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: February 29, 2008	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

FOURTH QUARTER AND FISCAL YEAR 2007 FINANCIAL RESULTS

AVON, Conn. — February 29, 2008 — Magellan Health Services, Inc. (Nasdaq:MGLN) today reported operating results for the fourth quarter and fiscal year 2007.

Financial Results

For the fiscal year ended December 31, 2007, the Company reported net revenue of $2.2 billion and net income of $94.2 million, or $2.36 per diluted common share.  For the prior year, net revenue was $1.7 billion and net income was $86.3 million, or $2.23 per diluted common share. For 2007, the Company’s 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) was $223.3 million, compared with $216.3 million in the prior year.

For the fourth quarter of 2007, the Company reported net revenue of $658.0 million, compared with $461.3 million in the prior year fourth quarter. Net income in the quarter was $31.3 million, or $0.78 per diluted common share, compared with $22.5 million, or $0.58 per diluted common share in the fourth quarter of 2006. Segment profit for the fourth quarter was $66.2 million, compared with $62.3 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 $353.6 million. Cash flow from operations for 2007 was $194.6 million compared with $197.0 million for the prior year period.

René Lerer, M.D., president and chief executive officer, said, “I am pleased to be starting my tenure as CEO on the heels of a very good year for the Company overall. Our results reflect particular success in two of our high-growth segments — public sector behavioral health and radiology benefits management. We won and successfully implemented the Maricopa contract, the nation’s largest public sector behavioral contract, and implemented our first two risk contracts for our radiology benefits management business. The simultaneous implementation of these contracts is an accomplishment that speaks to our expertise in managing large-scale transitions and to the dedication of Magellan employees to ensuring clinical and service excellence for all of our stakeholders. I am particularly proud to be leading an organization that exemplifies such a can-do spirit and commitment to quality.”

Commenting on segment performance, Mark S. Demilio, chief financial officer, said, “Our behavioral health line of business again delivered strong financial results, with all three segments performing favorably. Our specialty pharmaceutical management business results for the fourth quarter were in line with our expectations.”

“Results for our radiology benefits management segment for the year also were in line with our expectations.” Demilio continued. “In the fourth quarter, we recorded $1.7 million of unfavorable care development and $1.3 million of unfavorable contractual adjustments in this segment that related to the third quarter. With more claims payment experience since the end of the third quarter, we now believe that care in this segment is running slightly above the middle of our range of estimates rather than at the low end of that range, but we feel confident that we now have seen enough claims completion experience in this new business to properly assess the care costs. We are pleased with the progression of this business and are maintaining our 2008 guidance for this segment.”

Outlook

The Company reiterated that, for fiscal 2008, it expects to generate net revenue in the range of $2.53 billion to $2.66 billion; net income in the range of $77 million to $96 million; and segment profit in the range of $200 million to $220 million. These results are expected to yield earnings per share in the range of $1.88 to $2.34 on a diluted basis.

“In 2008, our focus will be on capitalizing on the positive momentum we generated in 2007 to generate growth in each of our business lines while continuing to execute well on our existing business,” Lerer said. “In the behavioral arena, we look forward in particular to being competitive in the TennCare procurement through our collaboration with Coventry HealthCare and in shifting our primary focus in Maricopa from contract start-up activities to further achieving the goals the State set out for the program. In radiology and specialty pharmacy, our attention is on growth through ramped-up marketing and sales activity. We are actively pursuing new risk radiology contracts and refocusing efforts in specialty pharmacy on our traditional sales generator, the rebate business.”

“As I settle into the role of CEO, I will be working with Mark and the rest of the management team to consider key next steps for the organization as a whole and its strategy. As I said earlier this week, my transition to CEO is a natural point at which to step back and assess where the Company has been and where it is going in its development. I am backed by a strong management team and thousands of committed employees who are driven to provide value to our customers and high quality service to our members and providers. This team is well-positioned to deliver continued success as we enter 2008.”

Earnings Results Conference Call

Management will discuss the Company’s financial results during a conference call beginning at 8:30 a.m. Eastern time today, February 29, 2008.  To participate in the conference call, interested parties should call 1-888-390-4698 and reference the passcode Fourth Quarter Earnings 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 benefits and specialty pharmaceuticals for government agencies, health plans and corporations.

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Cautionary Statement:  Certain of the statements made in this press release including, without limitation, statements regarding the Company’s outlook for 2008 net revenue, net income, segment profit and earnings per share, the TennCare contract procurement, the public sector behavioral business in Maricopa County, Arizona, growth in the radiology benefits management and specialty pharmacy segments, 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, 2007, 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, 2007.

# # #

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MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

	Three Months Ended December 31,						Year Ended December 31,
	2006			2007 (1)			2006			2007 (1)
	(unaudited)			(unaudited)
Net revenue	$	461,254		$	658,005		$	1,690,270		$	2,155,953
Cost and expenses:
Cost of care	276,634			452,058			1,081,080			1,409,103
Cost of goods sold	26,597			41,533			41,809			149,585
Direct service costs and other operating expenses (2)	108,651			105,521			385,478			404,003
Equity in earnings of unconsolidated subsidiaries	—			—			(390		)	—
Depreciation and amortization	13,776			15,974			48,862			57,524
Interest expense	1,795			1,359			7,292			6,386
Interest income	(4,210		)	(6,696		)	(17,628		)	(23,836		)
Gain on sale of assets	—			—			(5,148		)	—
	423,243			609,749			1,541,355			2,002,765
Income from continuing operations before income taxes and minority interest	38,011			48,256			148,915			153,188
Provision for income taxes	15,526			16,739			62,695			58,669
Income from continuing operations before minority interest	22,485			31,517			86,220			94,519
Minority interest, net	(2		)	216			(42		)	361
Net income	22,487			31,301			86,262			94,158
Other comprehensive income (loss)	47			(9		)	609			31
Comprehensive income	$	22,534		$	31,292		$	86,871		$	94,189
Weighted average number of common shares outstanding — basic	37,144			39,485			36,986			38,942
Weighted average number of common shares outstanding — diluted	38,762			40,380			38,621			39,837
Net income per common share — basic	$	0.61		$	0.79		$	2.33		$	2.42
Net income per common share — diluted	$	0.58		$	0.78		$	2.23		$	2.36

(1)	For a more detailed discussion of Magellan’s results for the year ended December 31, 2007, refer to the Company’s Annual Report on Form 10-K which will be filed with the SEC on February 29, 2008, and the live broadcast or taped replay of the Company’s earnings conference  call on February 29, 2008, which will be available at www.MagellanHealth.com.
(2)	Includes stock compensation expense of $12,958 and $7,332 for the three months ended December 31, 2006 and 2007, respectively, and $33,991 and $29,994 for the years ended December 31, 2006 and 2007, respectively.

MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Year Ended December 31,
	2006			2007
Cash flows from operating activities:
Net income	$	86,262		$	94,158
Adjustments to reconcile net income to net cash provided by operating activities
Gain on sale of assets	(5,148		)	—
Depreciation and amortization	48,862			57,524
Equity in earnings of unconsolidated subsidiaries	(390		)	—
Non-cash interest expense	1,389			2,681
Non-cash stock compensation expense	33,991			29,994
Non-cash income tax expense	57,487			38,677
Cash flows from changes in assets and liabilities, net of effects from acquisitions of businesses
Restricted cash	8,941			(111,731		)
Accounts receivable, net	128			2,707
Other assets	(4,365		)	(5,233		)
Accounts payable and accrued liabilities	(8,062		)	15,056
Medical claims payable and other medical liabilities	(23,155		)	69,824
Other	1,024			906
Net cash provided by operating activities	196,964			194,563
Cash flows from investing activities:
Capital expenditures	(25,477		)	(47,553		)
Acquisitions and investments in businesses, net of cash acquired	(283,005		)	(17,790		)
Proceeds from sale of assets	22,200			—
Purchase of investments	(69,807		)	(133,643		)
Maturity of investments	254,397			134,367
Proceeds from note receivable	3,000			—
Net cash used in investing activities	(98,692		)	(64,619		)
Cash flows from financing activities:
Payments on long-term debt and capital lease obligations	(25,202		)	(27,855		)
Proceeds from exercise of stock options and warrants	9,628			32,403
Tax benefit from exercise of stock options	—			14,357
Other	—			(214		)
Net cash (used in) provided by financing activities	(15,574		)	18,691
Net increase in cash and cash equivalents	82,698			148,635
Cash and cash equivalents at beginning of period	81,039			163,737
Cash and cash equivalents at end of period	$	163,737		$	312,372

MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except membership amounts in millions)

	Three Months Ended December 31,								Year Ended December 31,
	2006				2007				2006				2007
	(unaudited)				(unaudited)
Net revenue
— Health Plan	$		174,374		$		162,444		$		656,022		$		658,384
— Employer	31,430				31,829				128,746				126,149
— Public Sector	210,106				345,136				808,657				1,020,839
— Radiology Benefits Management	10,811				68,995				41,617				170,240
— Specialty Pharmaceutical Management	34,533				49,601				55,228				180,341
Total revenue	461,254				658,005				1,690,270				2,155,953
Cost of care
— Health Plan	91,544				86,588				363,121				365,144
— Employer	7,003				6,799				28,945				27,181
— Public Sector	178,087				304,143				689,014				902,594
— Radiology Benefits Management	—				54,528				—				114,184
Total cost of care	276,634				452,058				1,081,080				1,409,103
Cost of goods sold — Specialty Pharmaceutical Management	26,597				41,533				41,809				149,585
Direct service costs
— Health Plan	27,812				24,040				105,981				99,516
— Employer	16,844				16,716				67,723				64,284
— Public Sector	10,052				16,907				36,321				51,922
— Radiology Benefits Management	13,376				12,521				40,136				48,841
— Specialty Pharmaceutical Management	4,806				5,796				7,437				21,529
Total direct services costs	72,890				75,980				257,598				286,092
Other operating expenses — Corporate & Other	35,761				29,541				127,880				117,911
Equity in earnings of unconsolidated subsidiaries— Health Plan	—				—				(390			)	—
Stock compensation expense (1)
— Health Plan	(356			)	(485			)	(1,313			)	(1,837			)
— Employer	(36			)	(97			)	(282			)	(440			)
— Public Sector	(44			)	(402			)	(647			)	(1,172			)
— Radiology Benefits Management	(2,852			)	(38			)	(3,739			)	(1,708			)
— Specialty Pharmaceutical Management	(2,269			)	(2,286			)	(3,577			)	(8,769			)
— Corporate & Other	(7,401			)	(4,024			)	(24,433			)	(16,068			)
Total stock compensation expense	(12,958			)	(7,332			)	(33,991			)	(29,994			)
Segment profit (loss)
— Health Plan	55,374				52,301				188,623				195,561
— Employer	7,619				8,411				32,360				35,124
— Public Sector	22,011				24,488				83,969				67,495
— Radiology Benefits Management	287				1,984				5,220				8,923
— Specialty Pharmaceutical Management	5,399				4,558				9,559				17,996
— Corporate & Other	(28,360			)	(25,517			)	(103,447			)	(101,843			)
Total segment profit	$		62,330		$		66,225		$		216,284		$		223,256
Reconciliation of segment profit to income from continuing operations before income taxes and minority interest:
Segment profit	$		62,330		$		66,225		$		216,284		$		223,256
Stock compensation expense	(12,958			)	(7,332			)	(33,991			)	(29,994			)
Depreciation and amortization	(13,776			)	(15,974			)	(48,862			)	(57,524			)
Interest expense	(1,795			)	(1,359			)	(7,292			)	(6,386			)
Interest income	4,210				6,696				17,628				23,836
Gain on sale of assets	—				—				5,148				—
Income from continuing operations before income taxes and minority interest	$	38,011			$	48,256			$	148,915			$	153,188
Membership
— Health Plan													26.5
— Employer													14.2
— Public Sector													2.3
— Radiology Benefits Management													21.3
Total membership													64.3

(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.