SOURCE: Vanguard Health Systems, Inc.

Vanguard Health Systems, Inc.

February 07, 2011 16:12 ET

Vanguard Reports Second Quarter Results

NASHVILLE, TN--(Marketwire - February 7, 2011) - Vanguard Health Systems, Inc. (Vanguard) today announced results for the second quarter ended December 31, 2010.

Total revenues for the quarter ended December 31, 2010 were $960.6 million, an increase of $120.1 million or 14.3% from the prior year quarter. Patient service revenues increased $120.6 million from the prior year quarter. Health plan premium revenues decreased $0.5 million or 0.2% from the prior year quarter. Patient service revenues were positively impacted by Vanguard's August 1, 2010 acquisition of West Suburban Medical Center and Westlake Hospital and its acquisition of Arizona Heart Hospital on October 1, 2010. Same hospital patient service revenues increased $25.2 million or 4.0% during the quarter ended December 31, 2010 compared to the prior year quarter.

Vanguard reported a loss from continuing operations of $1.9 million for the quarter ended December 31, 2010 compared to $19.1 million during the prior year quarter. During the quarter ended December 31, 2010, Vanguard's net loss attributable to Vanguard Health Systems, Inc. stockholders was $5.0 million compared to $20.7 million during the prior year quarter. The prior year quarter amount included a $43.1 million impairment loss compared to $0.9 million impairment loss during the current year quarter. The provision for doubtful accounts as a percentage of patient service revenues increased to 6.8% during the quarter ended December 31, 2010 compared to 5.6% during the prior year quarter. Total uncompensated care as a percentage of acute care services segment revenues (prior to charity and uninsured revenue deductions) was 16.5% during the quarter ended December 31, 2010 compared to 15.1% during the prior year quarter.

Adjusted EBITDA for the quarter ended December 31, 2010 was $86.4 million, a 2.5% increase compared to the prior year quarter. A reconciliation of Adjusted EBITDA to net loss attributable to Vanguard Health Systems, Inc. stockholders as determined in accordance with generally accepted accounting principles for the quarters ended December 31, 2009 and 2010 is included in the attached supplemental financial information.

The consolidated operating results for the quarter ended December 31, 2010 reflect an 11.3% increase in discharges and a 14.6% increase in adjusted discharges compared to the prior year quarter. On a same hospital basis, discharges decreased 0.4% and adjusted discharges increased 2.8% during the current year quarter compared to the prior year quarter. For the quarter ended December 31, 2010, same hospital emergency room visits increased 2.7%, while same hospital inpatient surgeries and outpatient surgeries decreased 8.1% and 6.4%, respectively, compared to the prior year quarter. We continue to be impacted by weak consumer demand for elective surgeries and also have experienced continuing declines in deliveries quarter over quarter. On a same hospital basis, patient revenues per adjusted discharge increased 1.1% during the current year quarter compared to the prior year quarter.

Total revenues for the six months ended December 31, 2010 were $1,874.5 million, an increase of $214.1 million or 12.9% from the prior year period. Patient service revenues increased $198.3 million from the prior year period. Health plan premium revenues increased $15.8 million or 3.8% from the prior year period. Our Phoenix Health Plan had higher enrollment for the six months ended December 31, 2010 compared to the prior year period. Patient service revenues were positively impacted by the previously mentioned acquisitions during the six months ended December 31, 2010. Same hospital patient service revenues increased $57.0 million or 4.6% during the six months ended December 31, 2010 compared to the prior year period primarily due to a 2.5% increase in same hospital adjusted discharges and a 2.1% increase in same hospital patient revenue per adjusted discharge.

Vanguard reported income from continuing operations of $0.2 million for the six months ended December 31, 2010 compared to a $16.1 million loss from continuing operations during the prior year period. During the six months ended December 31, 2010, Vanguard's net loss attributable to Vanguard Health Systems, Inc. stockholders was $3.8 million compared to $19.2 million during the prior year period. The provision for doubtful accounts as a percentage of patient service revenues increased to 7.1% during the six months ended December 31, 2010 compared to 5.8% during the prior year period. Total uncompensated care as a percentage of acute care services segment revenues (prior to charity and uninsured revenue deductions) was 17.0% during the six months ended December 31, 2010 compared to 16.0% during the prior year period.

Adjusted EBITDA for the six months ended December 31, 2010 was $164.1 million, a 7.1% increase compared to the prior year period. A reconciliation of Adjusted EBITDA to net loss attributable to Vanguard Health Systems, Inc. stockholders as determined in accordance with generally accepted accounting principles for the six months ended December 31, 2009 and 2010 is included in the attached supplemental financial information.

The consolidated operating results for the six months ended December 31, 2010 reflect an 9.4% increase in discharges and a 12.0% increase in adjusted discharges compared to the prior year period. On a same hospital basis, discharges were flat and adjusted discharges increased 2.5% during the current year period compared to the prior year period. For the six months ended December 31, 2010, same hospital emergency room visits increased 3.3%, while same hospital inpatient surgeries and outpatient surgeries decreased 6.0% and 5.7%, respectively, compared to the prior year period.

Cash flows from operating activities were $127.1 million for the six months ended December 31, 2010, a decrease of $22.5 million from the prior year period. This decrease was primarily due to a $40.6 million increase in net cash paid for interest and income taxes during the current year period compared to the prior year period. Cash interest payments were higher as a result of Vanguard's comprehensive refinancing completed in January 2010 and the additional senior notes issued in July 2010.

As previously announced, effective January 1, 2011, Vanguard acquired Detroit Medical Center (DMC), which owns and operates eight hospitals in and around Detroit, Michigan with 1,734 licensed beds. Under the purchase agreement, Vanguard acquired all of DMC's assets (other than donor restricted and certain other assets) and assumed all of its liabilities (other than its outstanding bonds and certain other liabilities). The cash purchase price was $368.1 million and was funded with cash on hand.

On January 26, 2011, Vanguard or its wholly-owned subsidiaries issued an aggregate principal amount of $350.0 million 7.750% senior notes due 2019 and $749.2 million ($444.7 million of gross cash proceeds) 10.375% senior discount notes due 2016, each in a private placement. Vanguard will pay cash interest on the senior notes on February 1 and August 1 of each year, beginning on August 1, 2011. No cash interest will accrue on the senior discount notes, but they will accrete at a rate of 10.375% per annum, compounded semi-annually on February 1 and August 1 of each year, such that the initial accreted value of $595.08 of $1,000 stated principal amount will equal the principal amount at maturity on February 1, 2016. Vanguard used the proceeds from the senior discount notes offering to pay a dividend to its equity holders and will use the proceeds from the senior notes offering for general corporate purposes, including acquisitions.

Vanguard will host a conference call for investors at 11:00 am EST on February 8, 2011. All interested investors are invited to access a live audio broadcast of the call, via webcast. The live webcast can be accessed on the home page of Vanguard's Web site at www.vanguardhealth.com by clicking on "Second Quarter Webcast" or at http://visualwebcaster.com/event.asp?id=75754. If you are unable to participate during the live webcast, the call will be available on a replay basis on Vanguard's Web site www.vanguardhealth.com. To access the replay, click on the Latest News link on the Investor Relations page of www.vanguardhealth.com. The replay will be available via this link for one year.

Vanguard owns and operates 26 acute care and specialty hospitals and complementary facilities and services in Chicago, Illinois; Phoenix, Arizona; San Antonio, Texas; Detroit, Michigan and Massachusetts. Vanguard's strategy is to develop locally branded, comprehensive healthcare delivery networks in urban markets. Vanguard will pursue acquisitions where there are opportunities to partner with leading delivery systems in new urban markets or to increase its presence in existing markets. Upon acquiring a facility or network of facilities, Vanguard implements strategic and operational improvement initiatives including expanding services, strengthening relationships with physicians and managed care organizations, recruiting new physicians and upgrading information systems and other capital equipment. These strategies improve quality and network coverage in a cost effective and accessible manner for the communities Vanguard serves.

This press release contains "forward-looking statements" within the meaning of the federal securities laws which are intended to be covered by the safe harbors created thereby. Forward-looking statements are those statements that are based upon management's current plans and expectations as opposed to historical and current facts and are often identified in this release by use of words including but not limited to "may," "believe," "will," "project," "expect," "estimate," "anticipate," and "plan." These statements are based upon estimates and assumptions made by Vanguard's management that, although believed to be reasonable, are subject to numerous factors, risks and uncertainties that could cause actual outcomes and results to be materially different from those projected. These factors, risks and uncertainties include, among others, Vanguard's high degree of leverage and interest rate risk; Vanguard's ability to incur substantially more debt; operating and financial restrictions in Vanguard's debt agreements; Vanguard's ability to generate cash necessary to service Vanguard's debt; weakened economic conditions and volatile capital markets; post-payment claims reviews by governmental agencies; Vanguard's ability to successfully implement Vanguard's business strategies; Vanguard's ability to successfully integrate the acquisition of substantially all of the assets of The Detroit Medical Center, Westlake Hospital and West Suburban Medical Center and future acquisitions; conflicts of interest that may arise as a result of Vanguard's control by a small number of stockholders; the highly competitive nature of the healthcare industry; governmental regulation of the industry, including Medicare and Medicaid reimbursement levels; pressures to contain costs by managed care organizations and other insurers and Vanguard's ability to negotiate acceptable terms with these third party payers; Vanguard's ability to attract and retain qualified management and healthcare professionals, including physicians and nurses; potential federal or state reform of healthcare, implementation of existing reform legislation and potential modifications to such legislation; future governmental investigations; Vanguard's ability to adequately enhance its facilities with technologically advanced equipment; the availability of capital to fund Vanguard's corporate growth strategy; potential lawsuits or other claims asserted against Vanguard; Vanguard's ability to maintain or increase patient membership and control costs of its managed healthcare plans; changes in general economic conditions; Vanguard's exposure to the increased amounts of and collection risks associated with uninsured accounts and the co-pay and deductible portions of insured accounts; dependence on Vanguard's senior management team and local management personnel; volatility of professional and general liability insurance for Vanguard and the physicians who practice at its hospitals and increases in the quantity and severity of professional liability claims; Vanguard's ability to maintain and increase patient volumes and control the costs of providing services, including salaries and benefits, supplies and bad debts; increased costs from further government regulation of healthcare and Vanguard's failure to comply, or allegations of Vanguard's failure to comply, with applicable laws and regulations; the geographic concentration of Vanguard's operations; technological and pharmaceutical improvements that increase the cost of providing, or reduce the demand for, healthcare services and shift demand for inpatient services to outpatient settings; a failure of Vanguard's information systems would adversely impact its ability to manage its operations; costs and compliance risks associated with Section 404 of the Sarbanes-Oxley Act of 2002; material non-cash charges to earnings from impairment of goodwill associated with declines in the fair market values of Vanguard's reporting units; volatility of materials and labor costs for potential construction projects that may be necessary for future growth; and those factors, risks and uncertainties detailed in Vanguard's filings from time to time with the Securities and Exchange Commission, including, among others, Vanguard's Annual Reports on Form 10-K, its Quarterly Reports on Form 10-Q and its Current Report on Form 8-K dated January 19, 2011.

Although Vanguard believes that the assumptions underlying the forward-looking statements contained in this press release are reasonable, any of these assumptions could prove to be inaccurate, and, therefore, there can be no assurance that the forward-looking statements included in this press release will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, you should not regard the inclusion of such information as a representation by Vanguard that its objectives and plans anticipated by the forward-looking statements will occur or be achieved, or if any of them do, what impact they will have on Vanguard's results of operations and financial condition. Vanguard undertakes no obligation to publicly release any revisions to any forward-looking statements contained herein to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events.


                      VANGUARD HEALTH SYSTEMS, INC.
        Condensed Consolidated Statements of Operations (Unaudited)
                              (In millions)


                                            Quarter ended December 31,
                                        ----------------------------------
                                              2009              2010
                                        ----------------  ----------------
Patient service revenues                $ 628.2    74.7%  $ 748.8    78.0%
Premium revenues                          212.3    25.3     211.8    22.0
                                        -------  ------   -------  ------
   Total revenues                         840.5   100.0     960.6   100.0
Costs and expenses:
   Salaries and benefits (includes
    stock compensation of $1.0 and
    $1.7, respectively)                 $ 322.9    38.4     375.5    39.1
   Health plan claims expense             170.8    20.3     164.8    17.2
   Supplies                               114.6    13.6     133.5    13.9
   Provision for doubtful accounts         35.0     4.2      51.2     5.3
   Purchased services                      43.8     5.2      62.5     6.5
   Non-income taxes                        10.7     1.3      17.0     1.8
   Rents and leases                        11.0     1.3      11.7     1.2
   Other operating expenses                48.4     5.8      59.7     6.2
   Depreciation and amortization           34.0     4.0      38.6     4.0
   Interest, net                           27.6     3.3      35.1     3.7
   Impairment loss                         43.1     5.1       0.9     0.1
   Other                                    1.5     0.2       2.3     0.2
                                        -------  ------   -------  ------
      Total costs and expenses            863.4   102.7     952.8    99.2
                                        -------  ------   -------  ------
Income (loss) from continuing operations
 before income taxes                      (22.9)   (2.7)      7.8     0.8
Income tax benefit (expense)                3.8     0.5      (9.7)   (1.0)
                                        -------  ------   -------  ------
Loss from continuing operations           (19.1)   (2.3)     (1.9)   (0.2)
Loss from discontinued operations, net
 of taxes                                  (0.8)   (0.1)     (2.3)   (0.2)
                                        -------  ------   -------  ------
Net loss                                  (19.9)   (2.4)     (4.2)   (0.4)
Less: Net income attributable to
 non-controlling interests                 (0.8)   (0.1)     (0.8)   (0.1)
                                        -------  ------   -------  ------
Net loss attributable to Vanguard
 Health Systems, Inc. stockholders      $ (20.7)   (2.5)% $  (5.0)   (0.5)%
                                        =======  ======   =======  ======




                      VANGUARD HEALTH SYSTEMS, INC.
        Condensed Consolidated Statements of Operations (Unaudited)
                              (In millions)

                                          Six months ended December 31,
                                      ------------------------------------
                                            2009               2010
                                      -----------------  -----------------
Patient service revenues              $ 1,243.8   74.9%  $ 1,442.1   76.9%
Premium revenues                          416.6   25.1       432.4   23.1
                                      ---------  -----   ---------  -----

   Total revenues                       1,660.4  100.0     1,874.5  100.0
Costs and expenses:
   Salaries and benefits (includes
    stock compensation of $2.9 and
    $2.9, respectively)               $   635.6   38.3       730.3   39.0
   Health plan claims expense             331.8   20.0       338.9   18.1
   Supplies                               225.4   13.6       254.5   13.6
   Provision for doubtful accounts         72.2    4.3       103.0    5.5
   Purchased services                      90.5    5.5       113.5    6.1
   Non-income taxes                        24.9    1.5        33.2    1.8
   Rents and leases                        21.9    1.3        22.7    1.2
   Other operating expenses               107.8    6.5       117.2    6.3
   Depreciation and amortization           67.6    4.1        75.8    4.0
   Interest, net                           54.8    3.3        69.9    3.7
   Impairment loss                         43.1    2.6         0.9      -
   Other                                    2.6    0.2         7.1    0.4
                                      ---------  -----   ---------  -----

      Total costs and expenses          1,678.2  101.1     1,867.0   99.6
                                      ---------  -----   ---------  -----
Income (loss) from continuing
 operations before income taxes           (17.8)  (1.1)        7.5    0.4
Income tax benefit (expense)                1.7    0.1        (7.3)  (0.4)
                                      ---------  -----   ---------  -----
Income (loss) from continuing
 operations                               (16.1)  (1.0)        0.2      -
Loss from discontinued operations,
 net of taxes                              (1.4)  (0.1)       (2.2)  (0.1)
                                      ---------  -----   ---------  -----
Net loss                                  (17.5)  (1.1)       (2.0)  (0.1)
Less: Net income attributable to
 non-controlling interests                 (1.7)  (0.1)       (1.8)  (0.1)
                                      ---------  -----   ---------  -----
Net loss attributable to Vanguard
 Health Systems, Inc. stockholders    $   (19.2)  (1.2)% $    (3.8)  (0.2)%
                                      =========  =====   =========  =====




                      Vanguard Health Systems, Inc.
              Supplemental Financial Information (Unaudited)
  Reconciliation of Adjusted EBITDA to Net Loss Attributable to Vanguard
                    Health Systems, Inc. Stockholders
                              (In millions)


                                          Quarter ended   Six months ended
                                          December 31,      December 31,
                                        ----------------  ----------------
                                          2009     2010     2009     2010
                                        -------  -------  -------  -------
Net loss attributable to Vanguard
 Health Systems, Inc. stockholders      $ (20.7) $  (5.0) $ (19.2) $  (3.8)
Interest, net                              27.6     35.1     54.8     69.9
Income tax expense (benefit)               (3.8)     9.7     (1.7)     7.3
Depreciation and amortization              34.0     38.6     67.6     75.8
Non-controlling interests                   0.8      0.8      1.7      1.8
Loss on disposal of assets                  0.4      0.1      0.4      0.1
Equity method income                       (0.3)    (0.3)    (0.5)    (0.6)
Stock compensation                          1.0      1.7      2.9      2.9
Monitoring fees and expenses                1.4      1.1      2.7      2.5
Realized and unrealized losses on
 investments                                  -      0.1        -      0.1
Acquisition related expenses                  -      1.3        -      5.0
Impairment loss                            43.1      0.9     43.1      0.9
Discontinued operations, net of taxes       0.8      2.3      1.4      2.2
                                        -------  -------  -------  -------
    Adjusted EBITDA (1)                 $  84.3  $  86.4  $ 153.2  $ 164.1
                                        =======  =======  =======  =======

(1) Adjusted EBITDA is defined as income (loss) before interest expense
    (net of interest income), income taxes, depreciation and amortization,
    non-controlling interests, gain or loss on disposal of assets, equity
    method income, stock compensation, monitoring fees and expenses,
    realized and unrealized gains or losses on investments, acquisition
    related expenses, debt extinguishment costs, impairment losses, pension
    expense and discontinued operations, net of taxes. Adjusted EBITDA is
    not intended as a substitute for net income (loss) attributable to
    Vanguard Health Systems, Inc. stockholders, operating cash flows or
    other cash flow data determined in accordance with accounting
    principles generally accepted in the United States. Due to varying
    methods of calculation, Adjusted EBITDA as presented may not be
    comparable to similarly titled measures of other companies.




                      VANGUARD HEALTH SYSTEMS, INC.
                  Condensed Consolidated Balance Sheets
                              (In millions)

                                                              (Unaudited)
                                                  June 30,    December 31,
                       ASSETS                       2010          2010
                                                ------------  ------------
Current assets:
  Cash and cash equivalents                     $      257.6  $       58.3
  Restricted cash                                        2.3           3.0
  Accounts receivable, net of allowance for
   doubtful accounts of approximately $75.6
   and $87.2, respectively                             270.4         321.5
  Inventories                                           49.6          56.6
  Deferred tax assets                                   21.9          18.1
  Prepaid expenses and other current assets            119.2          83.5
                                                ------------  ------------
        Total current assets                           721.0         541.0
Property, plant and equipment, net of
 accumulated depreciation                            1,203.8       1,264.5
Goodwill                                               649.1         650.2
Intangible assets, net of accumulated
 amortization                                           66.0          67.7
Deferred tax assets, noncurrent                         50.0          48.2
Investments in auction rate securities                  19.8          15.7
Deposit for acquisition                                    -         368.1
Other assets                                            19.9          19.9
                                                ------------  ------------
        Total assets                            $    2,729.6  $    2,975.3
                                                ============  ============

           LIABILITIES AND  EQUITY
Current liabilities:
  Accounts payable                              $      194.8  $      187.3
  Accrued salaries and benefits                        144.9         148.7
  Accrued health plan claims and settlements           149.8         157.3
  Accrued interest                                      41.4          40.5
  Other accrued expenses and current
   liabilities                                          76.9          89.4
  Current maturities of long-term debt and
   capital leases                                        8.2           8.3
                                                ------------  ------------
        Total current liabilities                      616.0         631.5
Professional and general liability and workers
 compensation reserves                                  83.6          93.8
Other liabilities                                       31.6          35.4
Long-term debt and capital leases, less current
 maturities                                          1,743.8       1,959.2
Commitments and contingencies
Equity:
  Vanguard Health Systems, Inc. stockholders'
   equity:
      Common stock                                         -             -
      Additional paid-in capital                       354.9         357.8
      Accumulated other comprehensive loss              (2.5)         (0.6)
      Retained deficit                                (105.9)       (109.7)
                                                ------------  ------------
        Total Vanguard Health Systems, Inc.
         stockholders' equity                          246.5         247.5
  Non-controlling interests                              8.1           7.9
                                                ------------  ------------
        Total equity                                   254.6         255.4
                                                ------------  ------------
        Total liabilities and equity            $    2,729.6  $    2,975.3
                                                ============  ============




                      VANGUARD HEALTH SYSTEMS, INC.
        Condensed Consolidated Statements of Cash Flows (Unaudited)
                              (In millions)

                                                     Six months ended
                                                       December 31,
                                                --------------------------
Operating activities:                               2009          2010
                                                ------------  ------------
Net loss                                        $      (17.5) $       (2.0)
Adjustments to reconcile net loss to net cash
 provided by operating activities:
  Loss from discontinued operations                      1.4           2.2
  Depreciation and amortization                         67.6          75.8
  Provision for doubtful accounts                       72.2         103.0
  Amortization of loan costs and accretion of
   principal on notes                                    8.7           3.9
  Loss on disposal of assets                             0.4           0.1
  Stock compensation                                     2.9           2.9
  Deferred income taxes                                 (7.7)          5.7
  Acquisition related expenses                             -           5.0
  Impairment loss                                       43.1           0.9
  Realized loss on investments                             -           0.1
  Changes in operating assets and liabilities,
   net of the impact of acquisitions:
    Accounts receivable                                (85.5)       (139.5)
    Inventories                                         (1.8)         (1.0)
    Prepaid expenses and other current assets            5.2          32.9
    Accounts payable                                    20.6         (11.2)
    Accrued expenses and other liabilities              41.4          50.5
                                                ------------  ------------
Net cash provided by operating activities -
 continuing operations                                 151.0         129.3
Net cash used in operating activities -
 discontinued operations                                (1.4)         (2.2)
                                                ------------  ------------
Net cash provided by operating activities              149.6         127.1

Investing activities:
Acquisitions and related expenses                       (1.5)       (457.9)
Capital expenditures                                   (68.4)        (79.4)
Proceeds from asset dispositions                         1.4           0.1
Increase in restricted cash                            (20.0)            -
Other                                                   (0.3)          5.9
                                                ------------  ------------
Net cash used in investing activities -
 continuing operations                                 (88.8)       (531.3)
                                                ------------  ------------
Net cash used in investing activities                  (88.8)       (531.3)

Financing activities:
Payments of long-term debt and capital leases           (3.8)         (4.1)
Proceeds from debt borrowings                              -         216.6
Payments related to derivative instrument with
 financing element                                      (5.4)            -
Payments of refinancing costs and fees                     -          (5.6)
Distributions paid to non-controlling interests
 and other                                              (1.8)         (2.0)
                                                ------------  ------------
Net cash provided by (used in) financing
 activities                                            (11.0)        204.9
                                                ------------  ------------
Net increase (decrease) in cash and cash
 equivalents                                            49.8        (199.3)
Cash and cash equivalents, beginning of year           308.2         257.6
                                                ------------  ------------
Cash and cash equivalents, end of year          $      358.0  $       58.3
                                                ============  ============

Net cash paid for interest                      $       41.9  $       69.6
                                                ============  ============
Net cash received for income taxes              $      (13.2) $       (0.3)
                                                ============  ============




                      VANGUARD HEALTH SYSTEMS, INC.
                      Segment Information (Unaudited)
                              (In millions)

                                 Quarter ended December 31, 2009
                       ---------------------------------------------------
                        Acute
                        Care    % of     Health    % of   Elimin-  Consol-
                      Services Revenues  Plans   Revenues ations   idated
                       -------  ------   ------  -------  -------  -------
Patient service
 revenues(1)           $ 638.6   100.0 % $    -        -% $ (10.4) $ 628.2
Premium revenues             -       -    212.3    100.0        -    212.3
                       -------  ------   ------  -------  -------  -------
    Total revenues       638.6   100.0    212.3    100.0    (10.4)   840.5

Salaries and benefits
 (excludes stock
 compensation)           313.6    49.1      8.3      3.9        -    321.9
Health plan claims
 expense(1)                  -       -    181.2     85.4    (10.4)   170.8
Supplies                 114.5    17.9      0.1        -        -    114.6
Provision for doubtful
 accounts                 35.0     5.5        -        -        -     35.0
Other operating
 expenses                105.9    16.6      8.0      3.8        -    113.9
                       -------  ------   ------  -------  -------  -------
   Total operating
    expenses             569.0    89.1    197.6     93.1    (10.4)   756.2
                       -------  ------   ------  -------  -------  -------
   Segment EBITDA(2)      69.6    10.9     14.7      6.9        -     84.3
Less:
  Interest, net           27.7     4.3     (0.1)    (0.0)       -     27.6
  Depreciation and
   amortization           32.8     5.1      1.2      0.6        -     34.0
  Equity method income    (0.3)   (0.0)       -        -        -     (0.3)
  Stock compensation       1.0     0.2        -        -        -      1.0
  Loss on disposal of
   assets                  0.4     0.1        -        -        -      0.4
  Monitoring fees and
   expenses                1.4     0.2        -        -        -      1.4
Impairment loss           43.1     6.7        -        -        -     43.1
                       -------  ------   ------  -------  -------  -------
Income (loss) from
 continuing operations
 before income taxes   $ (36.5)   (5.7)% $ 13.6      6.4% $     -  $ (22.9)
                       =======  ======   ======  =======  =======  =======

(1) Vanguard eliminates in consolidation those patient service revenues
    earned by its healthcare facilities attributable to services provided
    to enrollees in its owned health plans and eliminates the corresponding
    medical claims expenses incurred by the health plans for those
    services.

(2) Segment EBITDA is defined as income (loss) from continuing operations
    before income taxes less interest expense (net of interest income),
    depreciation and amortization, equity method income, stock
    compensation, gain or loss on disposal of assets, realized or
    unrealized gains or losses on investments, monitoring fees and
    expenses, acquisition related expenses, debt extinguishment costs,
    pension expense and impairment losses. Management uses Segment EBITDA
    to measure performance for Vanguard's segments and to develop
    strategic objectives and operating plans for those segments. Segment
    EBITDA eliminates the uneven effect of non-cash depreciation of
    tangible assets and amortization of intangible assets, much of which
    results from acquisitions accounted for under the purchase method of
    accounting. Segment EBITDA also eliminates the effects of changes in
    interest rates which management believes relate to general trends in
    global capital markets, but are not necessarily indicative of the
    operating performance of Vanguard's segments. Management believes
    that Segment EBITDA provides useful information about the financial
    performance of Vanguard's segments to investors, lenders, financial
    analysts and rating agencies. Additionally, management believes that
    investors and lenders view Segment EBITDA as an important factor in 
    making investment decisions assessing the value of Vanguard. Segment
    EBITDA is not a substitute for net income (loss), operating cash
    flows or other cash flow statement data determined in accordance with
    accounting principles generally accepted in the United States.
    Segment EBITDA, as presented, may not be comparable to similar measures
    of other companies.




                      VANGUARD HEALTH SYSTEMS, INC.
              Segment Information (Unaudited) - (continued)
                              (In millions)

                                 Quarter ended December 31, 2010
                        ---------------------------------------------------
                        Acute
                        Care    % of     Health    % of   Elimin-  Consol-
                      Services Revenues  Plans   Revenues ations   idated
                       -------  ------   ------  -------  -------  -------
Patient service
 revenues(1)           $ 759.8   100.0 % $    -        -% $ (11.0) $ 748.8
Premium revenues             -       -    211.8    100.0        -    211.8
                       -------  ------   ------  -------  -------  -------
    Total revenues       759.8   100.0    211.8    100.0    (11.0)   960.6

Salaries and benefits
 (excludes stock
 compensation)           365.5    48.1      8.3      3.9        -    373.8
Health plan claims
 expense(1)                  -       -    175.8     83.0    (11.0)   164.8
Supplies                 133.4    17.6      0.1        -        -    133.5
Provision for doubtful
 accounts                 51.2     6.7        -        -        -     51.2
Other operating
 expenses                140.7    18.5     10.2      4.8        -    150.9
                       -------  ------   ------  -------  -------  -------
   Total operating
    expenses             690.8    90.9    194.4     91.8    (11.0)   874.2
                       -------  ------   ------  -------  -------  -------
   Segment EBITDA(2)      69.0     9.1     17.4      8.2        -     86.4
Less:
  Interest, net           36.0     4.7     (0.9)    (0.4)       -     35.1
  Depreciation and
   amortization           37.5     4.9      1.1      0.5        -     38.6
  Equity method income    (0.3)   (0.0)       -        -        -     (0.3)
  Stock compensation       1.7     0.2        -        -        -      1.7
  Loss on disposal of
   assets                  0.1       -        -        -        -      0.1
  Monitoring fees and
   expenses                1.1     0.1        -        -        -      1.1
  Realized loss on
   investments             0.1       -        -        -        -      0.1
  Acquisition related
   expenses                1.3     0.2        -        -        -      1.3
  Impairment loss          0.9     0.1        -        -        -      0.9
                       -------  ------   ------  -------  -------  -------
Income (loss) from
 continuing operations
 before income taxes   $  (9.4)   (1.2)% $ 17.2      8.1% $     -  $   7.8
                       =======  ======   ======  =======  =======  =======

(1) Vanguard eliminates in consolidation those patient service revenues
    earned by its healthcare facilities attributable to services provided
    to enrollees in its owned health plans and eliminates the corresponding
    medical claims expenses incurred by the health plans for those
    services.

(2) Segment EBITDA is defined as income (loss) from continuing operations
    before income taxes less interest expense (net of interest income),
    depreciation and amortization, equity method income, stock
    compensation, gain or loss on disposal of assets, realized or
    unrealized gains or losses on investments, monitoring fees and
    expenses, acquisition related expenses, debt extinguishment costs,
    pension expense and impairment losses. Management uses Segment EBITDA
    to measure performance for Vanguard's segments and to develop
    strategic objectives and operating plans for those segments. Segment
    EBITDA eliminates the uneven effect of non-cash depreciation of
    tangible assets and amortization of intangible assets, much of which
    results from acquisitions accounted for under the purchase method of
    accounting. Segment EBITDA also eliminates the effects of changes in
    interest rates which management believes relate to general trends in
    global capital markets, but are not necessarily indicative of the
    operating performance of Vanguard's segments. Management believes that
    Segment EBITDA provides useful information about the financial
    performance of Vanguard's segments to investors, lenders, financial
    analysts and rating agencies. Additionally, management believes that
    investors and lenders view Segment EBITDA as an important factor in
    making investment decisions assessing the value of Vanguard. Segment
    EBITDA is not a substitute for net income (loss), operating cash flows
    or other cash flow statement data determined in accordance with
    accounting principles generally accepted in the United States. Segment
    EBITDA, as presented, may not be comparable to similar measures of
    other companies.



                      VANGUARD HEALTH SYSTEMS, INC.
              Segment Information (Unaudited) - (continued)
                              (In millions)

                            Six Months Ended December 31, 2009
                  --------------------------------------------------------
                    Acute
                    Care      % of     Health   % of     Elimin-   Consol-
                  Services Revenues    Plans  Revenues   ations    idated
                  --------  -------   ------  --------  --------  --------
Patient service
 revenues(1)      $1,264.8    100.0%  $    -         -% $  (21.0) $1,243.8
Premium revenues         -        -    416.6     100.0         -     416.6
                  --------  -------   ------  --------  --------  --------
 Total revenues    1,264.8    100.0    416.6     100.0     (21.0)  1,660.4

Salaries and
 benefits
 (excludes stock
 compensation)       615.9     48.7     16.8       4.0         -     632.7
Health plan
 claims expense(1)       -        -    352.8      84.7     (21.0)    331.8
Supplies             225.3     17.8      0.1         -         -     225.4
Provision for
 doubtful
 accounts             72.2      5.7        -         -         -      72.2
Other operating
 expenses            227.3     18.0     17.8       4.3         -     245.1
                  --------  -------   ------  --------  --------  --------
 Total operating
  expenses         1,140.7     90.2    387.5      93.0     (21.0)  1,507.2
                  --------  -------   ------  --------  --------  --------
 Segment EBITDA(2)   124.1      9.8     29.1       7.0         -     153.2
Less:
 Interest, net        55.1      4.4     (0.3)     (0.1)        -      54.8
 Depreciation and
  amortization        65.4      5.2      2.2       0.5         -      67.6
 Equity method
  income              (0.5)    (0.0)       -         -         -      (0.5)
 Stock compensation    2.9      0.2        -         -         -       2.9
 Loss on disposal
  of assets            0.4        -        -         -         -       0.4
 Monitoring fees
  and expenses         2.7      0.2        -         -         -       2.7
 Impairment loss      43.1      3.4        -         -         -      43.1
                  --------  -------   ------  --------  --------  --------
Income (loss)
 from continuing
 operations before
 income taxes     $  (45.0)    (3.6)% $ 27.2       6.5% $      -  $  (17.8)
                  ========  =======   ======  ========  ========  ========

(1) Vanguard eliminates in consolidation those patient service revenues
    earned by its healthcare facilities attributable to services provided
    to enrollees in its owned health plans and eliminates the
    corresponding medical claims expenses incurred by the health plans
    for those services.

(2) Segment EBITDA is defined as income (loss) from continuing operations
    before income taxes less interest expense (net of interest income),
    depreciation and amortization, equity method income, stock
    compensation, gain or loss on disposal of assets, realized or
    unrealized gains or losses on investments, monitoring fees and
    expenses, acquisition related expenses, debt extinguishment costs,
    pension expense and impairment losses. Management uses Segment EBITDA
    to measure performance for Vanguard's segments and to develop strategic
    objectives and operating plans for those segments. Segment EBITDA
    eliminates the uneven effect of non-cash depreciation of tangible
    assets and amortization of intangible assets, much of which results
    from acquisitions accounted for under the purchase method of
    accounting. Segment EBITDA also eliminates the effects of changes in
    interest rates which management believes relate to general trends in
    global capital markets, but are not necessarily indicative of the
    operating performance of Vanguard's segments. Management believes that
    Segment EBITDA provides useful information about the financial
    performance of Vanguard's segments to investors, lenders, financial
    analysts and rating agencies. Additionally, management believes that
    investors and lenders view Segment EBITDA as an important factor in
    making investment decisions assessing the value of Vanguard. Segment
    EBITDA is not a substitute for net income (loss), operating cash flows
    or other cash flow statement data determined in accordance with
    accounting principles generally accepted in the United States. Segment
    EBITDA, as presented, may not be comparable to similar measures of
    other companies.



                      VANGUARD HEALTH SYSTEMS, INC.
              Segment Information (Unaudited) - (continued)
                              (In millions)

                             Six Months Ended December 31, 2010
                    ------------------------------------------------------
                      Acute
                      Care     % of     Health   % of    Elimin-   Consol-
                    Services Revenues   Plans  Revenues  ations    idated
                    --------  -------   ------  ------  --------  --------
Patient service
 revenues(1)        $1,463.9    100.0%  $    -       -% $  (21.8) $1,442.1
Premium revenues           -        -    432.4   100.0         -     432.4
                    --------  -------   ------  ------  --------  --------
 Total revenues      1,463.9    100.0    432.4   100.0     (21.8)  1,874.5

Salaries and
 benefits
 (excludes stock
 compensation)         710.9     48.6     16.5     3.8         -     727.4
Health plan claims
 expense(1)                -        -    360.7    83.4     (21.8)    338.9
Supplies               254.4     17.4      0.1       -         -     254.5
Provision for
 doubtful
 accounts              103.0      7.0        -       -         -     103.0
Other operating
 expenses              265.9     18.2     20.7     4.8         -     286.6
                    --------  -------   ------  ------  --------  --------
 Total operating
  expenses           1,334.2     91.1    398.0    92.0     (21.8)  1,710.4
                    --------  -------   ------  ------  --------  --------
 Segment EBITDA(2)     129.7      8.9     34.4     8.0         -     164.1
Less:
 Interest, net          71.1      4.9     (1.2)   (0.3)        -      69.9
 Depreciation and
  amortization          73.6      5.0      2.2     0.5         -      75.8
 Equity method
  income                (0.6)    (0.0)       -       -         -      (0.6)
 Stock compensation      2.9      0.2        -       -         -       2.9
 Loss on disposal of
  assets                 0.1        -        -       -         -       0.1
 Monitoring fees and
  expenses               2.5      0.2        -       -         -       2.5
 Realized loss on
  investments            0.1        -        -       -         -       0.1
 Acquisition related
  expenses               5.0      0.3        -       -         -       5.0
 Impairment loss         0.9      0.1        -       -         -       0.9
                    --------  -------   ------  ------  --------  --------
Income (loss) from
 continuing
 operations before
 income taxes       $  (25.9)    (1.8)% $ 33.4     7.7% $      -  $    7.5
                    ========  =======   ======  ======  ========  ========


(1) Vanguard eliminates in consolidation those patient service revenues
    earned by its healthcare facilities attributable to services provided
    to enrollees in its owned health plans and eliminates the corresponding
    medical claims expenses incurred by the health plans for those
    services.

(2) Segment EBITDA is defined as income (loss) from continuing operations
    before income taxes less interest expense (net of interest income),
    depreciation and amortization, equity method income, stock
    compensation, gain or loss on disposal of assets, realized or
    unrealized gains or losses on investments, monitoring fees and
    expenses, acquisition related expenses, debt extinguishment costs,
    pension expense and impairment losses. Management uses Segment EBITDA
    to measure performance for Vanguard's segments and to develop strategic
    objectives and operating plans for those segments. Segment EBITDA
    eliminates the uneven effect of non-cash depreciation of tangible
    assets and amortization of intangible assets, much of which results
    from acquisitions accounted for under the purchase method of
    accounting. Segment EBITDA also eliminates the effects of changes in
    interest rates which management believes relate to general trends in
    global capital markets, but are not necessarily indicative of the
    operating performance of Vanguard's segments. Management believes that
    Segment EBITDA provides useful information about the financial
    performance of Vanguard's segments to investors, lenders, financial
    analysts and rating agencies. Additionally, management believes that
    investors and lenders view Segment EBITDA as an important factor in
    making investment decisions assessing the value of Vanguard. Segment
    EBITDA is not a substitute for net income (loss), operating cash flows
    or other cash flow statement data determined in accordance with
    accounting principles generally accepted in the United States. Segment
    EBITDA, as presented, may not be comparable to similar measures of
    other companies.



                      VANGUARD HEALTH SYSTEMS, INC.
                      Selected Operating Statistics
                                (Unaudited)


                                                  Quarter ended
CONSOLIDATED:                                      December 31,
                                                -----------------
                                                  2009     2010   % Change
                                                -------  --------  -------
Number of hospitals at end of period                 15        18
Licensed beds at end of period                    4,135     4,534
Discharges                                       42,037    46,803     11.3%
Adjusted discharges                              72,725    83,330     14.6
Adjusted discharges - hospitals                  69,022    78,948     14.4
Average length of stay                             4.19      4.19        -
Patient days                                    176,233   195,929     11.2
Adjusted patient days                           304,887   348,841     14.4
Adjusted patient days - hospitals               289,364   330,497     14.2
Patient revenue per adjusted discharge          $ 8,458  $  8,765      3.6
Patient revenue per adjusted discharge -
 hospitals                                      $ 8,533  $  8,836      3.6
Inpatient surgeries                               9,380     9,826      4.8
Outpatient surgeries                             19,143    19,488      1.8
Emergency room visits                           155,818   178,198     14.4%

Charity care and uninsured discounts as a
 percent of acute care segment revenues
 (prior to these discounts)                        10.2%     10.5%

Provision for doubtful accounts as a percent of
 acute care services segment revenues (prior to
 charity and uninsured discounts)                   4.9%      6.0%

Net patient revenue payer mix:
 Medicare                                          26.2%     25.8%
 Medicaid                                           6.7       8.5
 Managed Medicare                                  15.1      14.3
 Managed Medicaid                                   9.2       8.5
 Managed care                                      35.0      33.8
 Commercial                                         1.1       1.1
 Self pay                                           6.7       8.0
                                                -------  --------
  Total                                           100.0%    100.0%
                                                =======  ========

Discharges by payer:
 Medicare                                          27.6%     28.2%
 Medicaid                                           8.7      10.6
 Managed Medicare                                  16.1      16.2
 Managed Medicaid                                  15.6      14.4
 Managed care                                      26.8      24.8
 Commercial                                         0.4       0.5
 Self pay                                           4.8       5.3
                                                -------  --------
  Total                                           100.0%    100.0%
                                                =======  ========




                      VANGUARD HEALTH SYSTEMS, INC.
                      Selected Operating Statistics
                          (Unaudited) (continued)


                                                Six Months Ended
CONSOLIDATED:                                     December 31,
                                                -----------------
                                                  2009     2010   % Change
                                                -------  --------  -------
Number of hospitals at end of period                 15        18
Licensed beds at end of period                    4,135     4,534
Discharges                                       83,918    91,780      9.4%
Adjusted discharges                             146,651   164,176     12.0
Adjusted discharges - hospitals                 139,123   155,618     11.9
Average length of stay                             4.15      4.17      0.5
Patient days                                    348,205   382,377      9.8
Adjusted patient days                           608,506   683,996     12.4
Adjusted patient days - hospitals               577,270   648,343     12.3
Patient revenue per adjusted discharge          $ 8,302  $  8,580      3.3
Patient revenue per adjusted discharge -
 hospitals                                      $ 8,384  $  8,638      3.0
Inpatient surgeries                              18,888    19,583      3.7
Outpatient surgeries                             38,460    38,891      1.1
Emergency room visits                           310,727   351,363     13.1%

Charity care and uninsured discounts as a
 percent of acute care segment revenues (prior
 to these discounts)                               10.9%     10.7%

Provision for doubtful accounts as a percent of
 acute care services segment revenues (prior to
 charity and uninsured discounts)                   5.1%      6.3%

Net patient revenue payer mix:
 Medicare                                          25.3%     25.6%
 Medicaid                                           7.2       8.0
 Managed Medicare                                  14.9      14.5
 Managed Medicaid                                   9.8       9.0
 Managed care                                      34.9      33.9
 Commercial                                         1.1       1.1
 Self pay                                           6.8       7.9
                                                -------  --------
  Total                                           100.0%    100.0%
                                                =======  ========

Discharges by payer:
 Medicare                                          27.1%     27.9%
 Medicaid                                           8.7      10.4
 Managed Medicare                                  16.0      15.7
 Managed Medicaid                                  15.4      14.7
 Managed care                                      27.3      25.3
 Commercial                                         0.4       0.5
 Self pay                                           5.1       5.5
                                                -------  --------
  Total                                           100.0%    100.0%
                                                =======  ========




                      VANGUARD HEALTH SYSTEMS, INC.
                      Selected Operating Statistics
                          (Unaudited) (continued)


                                                  Quarter ended
SAME HOSPITAL (1):                                 December 31,
                                                -----------------
                                                  2009     2010   % Change
                                                -------  --------  -------
Number of hospitals at end of period                 15        15
Licensed beds at end of period                    4,135     4,017
Patient service revenues (in millions)          $ 628.2  $  653.4      4.0%
Discharges                                       42,037    41,864     (0.4)
Adjusted discharges                              72,725    74,754      2.8
Adjusted discharges - hospitals                  69,022    70,808      2.6
Average length of stay                             4.19      4.14     (1.2)
Patient days                                    176,233   173,497     (1.6)
Adjusted patient days                           304,887   309,803      1.6
Adjusted patient days - hospitals               289,364   293,449      1.4
Patient revenue per adjusted discharge          $ 8,458  $  8,552      1.1
Patient revenue per adjusted discharge -
 hospitals                                      $ 8,533  $  8,656      1.4
Inpatient surgeries                               9,380     8,618     (8.1)
Outpatient surgeries                             19,143    17,910     (6.4)
Emergency room visits                           155,818   160,055      2.7%

Charity care and uninsured discounts as a
 percent of acute care services segment revenues
 (prior to these discounts)                        10.2%     10.8%

Provision for doubtful accounts as a percent of
 acute care services segment revenues (prior to
 charity and uninsured discounts)                   4.9%      6.1%

Net patient revenue payer mix:
 Medicare                                          26.2%     25.6%
 Medicaid                                           6.7       7.1
 Managed Medicare                                  15.1      15.2
 Managed Medicaid                                   9.2       9.2
 Managed care                                      35.0      34.7
 Commercial                                         1.1       1.1
 Self pay                                           6.7       7.1
                                                -------  --------
  Total                                           100.0%    100.0%
                                                =======  ========

Discharges by payer:
 Medicare                                          27.6%     27.6%
 Medicaid                                           8.7       8.6
 Managed Medicare                                  16.1      17.5
 Managed Medicaid                                  15.6      15.5
 Managed care                                      26.8      25.6
 Commercial                                         0.4       0.5
 Self pay                                           4.8       4.7
                                                -------  --------
  Total                                           100.0%    100.0%
                                                =======  ========

(1) Same hospital results exclude those facilities that were not
    part of Vanguard for the full quarters of both years.




                      VANGUARD HEALTH SYSTEMS, INC.
                      Selected Operating Statistics
                          (Unaudited) (continued)


                                                 Six Months Ended
SAME HOSPITAL (1):                                 December 31,
                                                ------------------
                                                  2009     2010    % Change
                                                --------  --------  ------
Number of hospitals at end of period                  15        15
Licensed beds at end of period                     4,135     4,017
Patient service revenues (in millions)          $1,243.8  $1,300.8     4.6%
Discharges                                        83,918    83,869    (0.1)
Adjusted discharges                              146,651   150,342     2.5
Adjusted discharges - hospitals                  139,123   142,376     2.3
Average length of stay                              4.15      4.13    (0.5)
Patient days                                     348,205   346,473    (0.5)
Adjusted patient days                            608,506   621,081     2.1
Adjusted patient days - hospitals                577,270   588,173     1.9
Patient revenue per adjusted discharge          $  8,302  $  8,473     2.1
Patient revenue per adjusted discharge -
 hospitals                                      $  8,384  $  8,554     2.0
Inpatient surgeries                               18,888    17,746    (6.0)
Outpatient surgeries                              38,460    36,253    (5.7)
Emergency room visits                            310,727   320,935     3.3%

Charity care and uninsured discounts as a
 percent of acute care services segment revenues
 (prior to these discounts)                         10.9%     10.8%

Provision for doubtful accounts as a percent of
 acute care services segment revenues (prior to
 charity and uninsured discounts)                    5.1%      6.1%

Net patient revenue payer mix:
 Medicare                                           25.3%     25.1%
 Medicaid                                            7.2       7.2
 Managed Medicare                                   14.9      15.1
 Managed Medicaid                                    9.8       9.5
 Managed care                                       34.9      35.0
 Commercial                                          1.1       1.0
 Self pay                                            6.8       7.1
                                                --------  --------
  Total                                            100.0%    100.0%
                                                ========  ========

Discharges by payer:
 Medicare                                           27.1%     27.4%
 Medicaid                                            8.7       8.7
 Managed Medicare                                   16.0      16.8
 Managed Medicaid                                   15.4      15.6
 Managed care                                       27.3      26.0
 Commercial                                          0.4       0.4
 Self pay                                            5.1       5.1
                                                --------  --------
  Total                                            100.0%    100.0%
                                                ========  ========

(1) Same hospital results exclude those facilities that were not part of
    Vanguard for the full six-month periods of both years.

Contact Information

  • Contact:
    Vanguard Health Systems, Inc.
    Gary Willis
    Senior Vice President and Chief Accounting Officer
    (615) 665-6098