Magellan Health Services Reports Second Quarter 2008 Financial Results

Board of Directors Authorizes $200 Million Share Repurchase

Company Expects Full-Year Results in Upper Half of Earnings
Guidance Range
AVON, Conn.--(Business Wire)--
Magellan Health Services, Inc. (Nasdaq:MGLN) today reported net
income of $21.9 million, or $.54 per diluted common share, and segment
profit of $55.4 million for the second quarter of fiscal year 2008.
The Company also announced that its Board of Directors has authorized
a share repurchase program, to be completed over the next 18 months,
under which the Company may purchase up to $200 million of its
outstanding common stock. In addition, on the basis of its second
quarter performance, the Company now expects that it will end the year
in the upper half of its previous guidance range of earnings per
diluted common share of $1.73 to $2.17, excluding the impact of any
share repurchases that may occur this year, and segment profit of $205
million to $225 million.

Financial Results

For the quarter ended June 30, 2008, the Company reported net
revenue of $656.9 million and net income of $21.9 million, or $.54 per
diluted common share. For the prior year quarter, net revenue was
$452.9 million and net income was $16.8 million or $.42 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 $55.4 million, compared
with $46.6 million in the prior year quarter. The Company ended the
quarter with unrestricted cash and investments of $379.7 million.

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

Rene Lerer, M.D., president and chief executive officer, said,
"Generating growth and executing well across all our business lines in
serving customers, consumers and providers continues to be our focus.
I am very pleased that our second quarter results demonstrate our
continuing success in that regard. Our radiology and specialty
pharmacy segments - NIA and ICORE, respectively - have continued to
build on their strong first quarter performance. Our behavioral health
business turned in a solid quarter, with improved performance in our
public sector segment. With the strong performance of all of our
segments in the first two quarters, we are now expecting our earnings
to be in the upper half of our previously announced guidance range."

Mark S. Demilio, chief financial officer, said, "With regard to
care trends, in the commercial and public sector behavioral segments,
cost of care continues to trend in the range of our expectations. In
radiology, we continue to experience the favorable care development we
began to see last quarter. Based on this development we believe our
radiology costs are trending this year at the bottom of or slightly
below our previously expected range of 12 percent to 15 percent. We
believe this favorable trend is due to the impact of care management
in the initial period of our risk contracts and the underlying trend
of managed radiology costs in a mature market continues to trend in
the 12 percent to 15 percent range. Our strong earnings performance
continues to drive robust cash flow results for the year and we
maintain our previous estimate for unrestricted cash and investments
at year end of approximately $470 million to $525 million, excluding
any impact from share repurchases. This strong cash position affords
the Company a great deal of flexibility to execute on its strategic
initiatives to grow, while at the same time effecting the share
repurchase program authorized by our Board."

Share Repurchase

Under the share repurchase program authorized by Magellan's Board,
the Company may purchase up to $200 million of its outstanding common
stock through January 31, 2010.

Stock repurchases under the program may be executed through open
market repurchases, privately negotiated transactions, accelerated
share repurchases or other means. The transactions will be made from
time to time and in such amounts and via such methods as management
deems appropriate and will be funded with cash on hand. The number of
shares to be repurchased and the timing of repurchases will be based
on several factors, including the price of the Company's common stock,
general business and market conditions, and other investment
opportunities. The stock repurchase program may be limited or
terminated at any time without prior notice.

Lerer said, "Our decision to move forward with a share repurchase
program is the result of the ongoing review of the Company's capital
deployment alternatives and a very detailed review of the Company's
strategic direction by management and the Board. As we have said many
times, carefully considered acquisitions remain a key element of our
strategy to diversify and fortify our platform for growth, and
availability of cash for such acquisitions continues to be our
priority. However, we believe that, in the current environment, given
our excellent cash balance and our strong operational and cash flow
projections, allocating capital both to a share repurchase program and
to acquisition opportunities is appropriate and maximizes shareholder
value. The program authorized by the Board offers maximum flexibility
to execute the repurchase through a variety of methods and
appropriately balances our desire to efficiently return capital to our
shareholders, while retaining the ability to pursue strategic
acquisitions and other initiatives."

Earnings Results Conference Call

Management will host a conference call at 10:30 a.m. Eastern time
on Thursday, July 31. To participate in the call, interested parties
should call 1-888-566-8408 and reference the passcode Second Quarter
Earnings 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
800-934-9727 and 402-220-0194 (from outside the U.S.).

Those who plan to access the call or Webcast are encouraged to
read Magellan's Annual Report on Form 10-K for the year ended December
31, 2007, filed with the Securities and Exchange Commission on
February 29, 2008, 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, net income, earnings per share,
cash flows and care trends and the Company's allocation of cash to
share repurchases and future acquisition opportunities. 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 health care 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 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 CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share amounts)

Three Months Ended Six Months Ended June
June 30, 30,
------------------ ---------------------
2007 2008 (1) 2007 2008 (1)
-------- -------- --------- ----------

Net revenue $452,868 $656,858 $ 939,872 $1,307,148

Cost and expenses:
Cost of care 279,218 458,090 588,037 912,164
Cost of goods sold 36,594 43,413 70,711 90,237
Direct service costs and
other operating expenses
(2) 98,139 106,483 196,014 216,231
Depreciation and
amortization 13,505 14,523 27,157 28,897
Interest expense 1,604 1,017 3,456 2,232
Interest income (5,519) (3,716) (10,706) (9,209)
-------- -------- --------- ----------
423,541 619,810 874,669 1,240,552
-------- -------- --------- ----------

Income from continuing
operations before income
taxes and minority interest 29,327 37,048 65,203 66,596
Provision for income taxes 12,311 15,101 27,218 27,404
-------- -------- --------- ----------
Income from continuing
operations before minority
interest 17,016 21,947 37,985 39,192
Minority interest, net 192 59 192 60
-------- -------- --------- ----------
Net income 16,824 21,888 37,793 39,132
Other comprehensive loss (13) (262) (8) (276)
-------- -------- --------- ----------
Comprehensive income $ 16,811 $ 21,626 $ 37,785 $ 38,856
======== ======== ========= ==========

Weighted average number of
common shares outstanding --
basic 38,842 39,961 38,538 39,848
======== ======== ========= ==========
Weighted average number of
common shares outstanding --
diluted 39,838 40,307 39,553 40,323
======== ======== ========= ==========

Net income per common share
-- basic $ 0.43 $ 0.55 $ 0.98 $ 0.98
======== ======== ========= ==========

Net income per common share
-- diluted $ 0.42 $ 0.54 $ 0.96 $ 0.97
======== ======== ========= ==========
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(1) For a more detailed discussion of Magellan's results for the
quarter ended June 30, 2008, refer to the Company's Quarterly
Report on Form 10-Q which will be filed with the SEC on July 31,
2008, and the live broadcast or taped replay of the Company's
earnings conference call on July 31, 2008, which will be
available at www.MagellanHealth.com.

(2) Includes stock compensation expense of $7,703 and $6,499 for the
three months ended June 30, 2007 and 2008, respectively, and
$14,490 and $18,517 for the six months ended June 30, 2007 and
2008, respectively.
*T

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

Six Months Ended
June 30,
--------------------
2007 2008
--------- ----------

Cash flows from operating activities:
Net income $ 37,793 $ 39,132

Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 27,157 28,897
Non-cash interest expense 694 1,355
Non-cash stock compensation expense 14,490 18,517
Non-cash income tax expense 25,895 19,367
Cash flows from changes in assets and
liabilities, net of effects from
acquisitions of businesses:
Restricted cash (22,203) 37,500
Accounts receivable, net 3,233 (16,218)
Other assets (3,206) 390
Accounts payable and accrued liabilities (11,210) 11
Medical claims payable and other medical
liabilities 17,404 (4,212)
Other 89 103
--------- ----------
Net cash provided by operating
activities 90,136 124,842
--------- ----------

Cash flows from investing activities:
Capital expenditures (12,675) (16,687)
Acquisitions and investments in businesses, net
of cash acquired (5,277) (425)
Purchase of investments (45,665) (203,745)
Maturity of investments 50,347 54,172
--------- ----------
Net cash used in investing activities (13,270) (166,685)
--------- ----------

Cash flows from financing activities:
Payments on long-term debt and capital lease
obligations (14,074) (12,668)
Proceeds from exercise of stock options and
warrants 23,762 5,603
Other (333) 2,789
--------- ----------
Net cash provided by (used in) financing
activities 9,355 (4,276)
--------- ----------
Net increase (decrease) in cash and cash
equivalents 86,221 (46,119)
Cash and cash equivalents at beginning of period 163,737 312,372
--------- ----------
Cash and cash equivalents at end of period $ 249,958 $ 266,253
========= ==========
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MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except membership amounts in millions)

Three Months Ended Six Months Ended
June 30, June 30,
------------------- --------------------
2007 2008 2007 2008
--------- --------- --------- ----------
Net revenue
- Commercial $ 189,039 $ 163,949 $ 398,852 $ 323,552
- Public Sector 201,819 362,772 426,193 721,010
- Radiology Benefits
Management 18,461 75,699 29,192 151,198
- Specialty
Pharmaceutical
Management 43,549 54,438 85,635 111,388
--------- --------- --------- ----------
Total revenue 452,868 656,858 939,872 1,307,148
--------- --------- --------- ----------

Cost of care
- Commercial 94,570 85,129 207,169 166,702
- Public Sector 178,343 319,721 374,563 642,895
- Radiology Benefits
Management 6,305 53,240 6,305 102,567
--------- --------- --------- ----------
Total cost of care 279,218 458,090 588,037 912,164
--------- --------- --------- ----------

Cost of goods sold -
Specialty Pharmaceutical
Management 36,594 43,413 70,711 90,237
--------- --------- --------- ----------

Direct service costs
- Commercial 41,602 38,144 83,737 75,569
- Public Sector 10,589 16,845 20,548 33,468
- Radiology Benefits
Management 11,262 14,205 22,222 27,305
- Specialty
Pharmaceutical
Management 5,607 6,130 10,226 12,050
--------- --------- --------- ----------
Total direct services
costs 69,060 75,324 136,733 148,392
--------- --------- --------- ----------

Other operating expenses -
Corporate & Other 29,079 31,159 59,281 67,839
--------- --------- --------- ----------

Stock compensation expense
(1)
- Commercial (653) (249) (1,161) (672)
- Public Sector (246) (194) (457) (368)
- Radiology Benefits
Management (546) (140) (1,008) (645)
- Specialty
Pharmaceutical
Management (2,101) (2,015) (4,153) (4,119)
- Corporate & Other (4,157) (3,901) (7,711) (12,713)
--------- --------- --------- ----------
Total stock compensation
expense (7,703) (6,499) (14,490) (18,517)
--------- --------- --------- ----------

Segment profit (loss)
- Commercial 53,520 40,925 109,107 81,953
- Public Sector 13,133 26,400 31,539 45,015
- Radiology Benefits
Management 1,440 8,394 1,673 21,971
- Specialty
Pharmaceutical
Management 3,449 6,910 8,851 13,220
- Corporate & Other (24,922) (27,258) (51,570) (55,126)
--------- --------- --------- ----------
Total segment profit $ 46,620 $ 55,371 $ 99,600 $ 107,033
========= ========= ========= ==========

Reconciliation of segment
profit to income from
continuing operations before
income taxes and minority
interest:
Segment profit $ 46,620 $ 55,371 $ 99,600 $ 107,033
Stock compensation expense (7,703) (6,499) (14,490) (18,517)
Depreciation and
amortization (13,505) (14,523) (27,157) (28,897)
Interest expense (1,604) (1,017) (3,456) (2,232)
Interest income 5,519 3,716 10,706 9,209
--------- --------- --------- ----------

Income from continuing
operations before income
taxes and minority
interest $ 29,327 $ 37,048 $ 65,203 $ 66,596
========= ========= ========= ==========

Membership
- Commercial 39.4
- Public Sector 2.4
- Radiology Benefits
Management 21.1
----------
Total membership 62.9
==========
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(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.
*T

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

Copyright Business Wire 2008