Vanguard Health Systems Reports First Quarter Fiscal 2012 Results

Outlook for Fiscal Year 2012 Issued

Marketwired

NASHVILLE, TN--(Marketwire -10/31/11)- Vanguard Health Systems, Inc. (NYSE: VHS - News) today announced financial and operating results for the first fiscal quarter ended September 30, 2011 and issued its outlook for fiscal year 2012.

First Quarter Fiscal 2012 Key Metrics (all percentage changes compare Q1 FY2012 to Q1 FY2011):

Consolidated:

  • Total revenues increased 67.4 percent
  • Net loss attributable to Vanguard Health Systems, Inc. stockholders was $19.2 million, or $0.26 per share, which included a pre-tax charge of $38.9 million, or $0.34 per share net of taxes, related to the redemption of substantially all of our outstanding 10.375% senior discount notes due 2016 with the proceeds from the initial public offering and the exercise of the underwriters' over-allotment option, and a pre-tax charge of $12.2 million, or $0.10 per share net of taxes, related to expenses incurred to complete our acquisition of Valley Baptist Health System effective September 1, 2011
  • Adjusted EBITDA increased 58.0 percent to $122.8 million

Same Hospital:

  • Total revenues (including health plan revenues) were flat with net patient service revenues up 1.7 percent and health plan premium revenues down 4.4 percent
  • Adjusted discharges increased 2.2 percent
  • Discharges declined 1.0 percent

Discussion of Results

The increase in consolidated total revenues during the first quarter of 2012 was primarily attributable to the acquisition of The Detroit Medical Center in January 2011. The increase in same hospital net patient service revenues during the current year quarter was primarily comprised of a 2.2 percent increase in adjusted discharges and a 0.6 percent decrease in net patient revenue per adjusted discharge. As previously disclosed, we elected to early adopt accounting guidance that results in the classification of the provision for doubtful accounts as a revenue deduction instead of an operating expense, and such guidance has been applied to both the current year and prior year financial statements. Revenues from our health plan operating segment decreased 4.4 percent during the current year quarter as a result of capitation rate decreases at Phoenix Health Plan ("PHP") implemented by the Arizona Health Care Cost Containment System since the first quarter of fiscal 2011 and a change in PHP's enrollee population mix during the current year quarter compared to the prior year quarter.

Net loss attributable to Vanguard Health Systems, Inc. stockholders was $19.2 million, or $0.26 per share, during the first quarter of fiscal 2012 compared to net income attributable to Vanguard Health Systems, Inc. stockholders of $1.2 million, or $0.02 per diluted share, during the prior year quarter. This change was primarily attributable to the debt extinguishment costs related to the senior discount notes redemption and acquisition related expenses discussed above. Adjusted EBITDA increased 58.0 percent to $122.8 million during the current year quarter. A reconciliation of Adjusted EBITDA, a non-GAAP financial measure, to net income (loss) attributable to Vanguard Health Systems, Inc. stockholders for the fiscal quarters ended September 30, 2010 and 2011 is included in this release.

Due to the significant acquisitions we completed during fiscal 2011 and during the first quarter of fiscal 2012, most cost and expense line items are not comparable between the quarters. Same hospital uncompensated care as a percentage of net patient revenues (prior to the uncompensated care deductions) increased from 16.0 percent to 20.5 percent during the first quarter of fiscal 2012 as a result of an increase in uninsured discharges as a percentage of total discharges and price increases implemented since the first quarter of fiscal 2011.

Cash flows from operating activities decreased $188.0 million during the first quarter of fiscal 2012 compared to the prior year quarter, primarily due to working capital increases of $227.7 million, including a $23.2 million increase in interest and income tax payments, the payment of fiscal 2011 incentive compensation and adverse changes to net accounts receivable days and net accounts payable days. Capital expenditures increased 42.2 percent to $63.4 million during the current year quarter. As of September 30, 2011, our cash balance was $154.7 million, our outstanding debt was $2,346.2 million and we had $220.6 million of borrowing capacity under our revolving credit facility.

Outlook for Fiscal Year 2012

We are issuing the following outlook for our fiscal year ended June 30, 2012 operating results:

 
Projected Adjusted EBITDA                $520 million to $545 million
Projected net income attributable to
 Vanguard Health Systems, Inc.
 stockholders, excluding debt
 extinguishment costs and
 acquisition related expenses            $56.3 million to $69.1 million
Projected diluted earnings per share
 attributable to Vanguard Health
 Systems, Inc. stockholders,
 excluding debt extinguishment costs
 and acquisition related expenses        $0.71 to $0.86 per diluted share

We have included a reconciliation in this release for the high end and low end estimates for each of these projected fiscal year ended June 30, 2012 measures. The outlook projections are based upon management's current expectations and should be read in conjunction with the cautionary statement about forward-looking information below.

Acquisition of Valley Baptist Health System

As previously announced, effective September 1, 2011, we acquired substantially all of the assets of the Valley Baptist Health System including hospitals with a combined 866 licensed beds located in Harlingen, Texas and Brownsville, Texas. We paid approximately $201.4 million in cash at closing to acquire the net assets. In addition to the cash investment, we also assumed certain of the seller's debt and issued a 49% interest in the partnership to the seller. We funded the cash investment with cash on hand. The acquisition includes a working capital settlement provision that we expect to settle later in fiscal 2012.

Earnings Conference Call

We will host a conference call at 11:00 a.m. EDT on November 1, 2011. All interested parties are invited to access a live webcast of the conference call on our website at http://investor.vanguardhealth.com or at www.earnings.com. If you are unable to participate during the live webcast, the webcast will be available on a replay basis at http://investor.vanguardhealth.com for 90 days.

We own and operate 28 acute care and specialty hospitals and complementary facilities and services in Chicago, Illinois; Detroit, Michigan; Phoenix, Arizona; San Antonio, Texas; the Rio Grande Valley in southern Texas; and Massachusetts. Our strategy is to develop locally branded, comprehensive healthcare delivery networks in urban markets.

Cautionary Statement about Preliminary Results and Other Forward-Looking Information

This press release contains "forward-looking statements" within the meaning of the federal securities laws that 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 our 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 expressed in any forward-looking statements.

These factors, risks and uncertainties include, but are not limited to, our high degree of leverage and interest rate risk; our ability to incur substantially more debt; operating and financial restrictions in our debt agreements; our ability to generate cash necessary to service our debt; weakened economic conditions and volatile capital markets; potential liability related to disclosures of relationships between physicians and our hospitals; post-payment claims reviews by governmental agencies that could result in additional costs to us; our ability to grow our business and successfully implement our business strategies; our ability to successfully integrate the acquisition of substantially all of the assets of The Detroit Medical Center, Valley Baptist Health System and future acquisitions or to recognize expected synergies from such acquisitions; potential acquisitions could be costly, unsuccessful or subject us to unexpected liabilities; conflicts of interest that may arise as a result of our control by a small number of stockholders; the highly competitive nature of the healthcare industry; governmental regulation of the healthcare industry, including potential reductions to Medicare and Medicaid reimbursement levels in general and with respect to the impact of the Budget Control Act of 2011 and other future deficit reduction plans; pressures to contain costs by managed care organizations and other insurers and our ability to negotiate acceptable terms with these third party payers; our ability to attract and retain qualified management and healthcare professionals, including physicians and nurses; the currently unknown effect on us of the major federal healthcare reforms enacted by Congress in March 2010 or other potential additional federal or state healthcare reforms; future governmental investigations; our inability to adequately enhance our facilities with technologically advanced equipment could adversely affect our revenues and market position; the availability of capital to fund our corporate growth strategy and improvements to our existing facilities; potential lawsuits or other claims asserted against us; our ability to maintain or increase patient membership and control costs of our managed healthcare plans; changes in general economic conditions nationally and regionally in the markets served by us; our 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 our senior management team and local management personnel; volatility of professional and general liability insurance for us and the physicians who practice at our hospitals and increases in the quantity and severity of professional liability claims; our ability to achieve operating and financial targets and to maintain and increase patient volumes and control the costs of providing services, including salaries and benefits, supplies and other operating expenses; increased compliance costs from further government regulation of healthcare and our failure to comply, or allegations of our failure to comply, with applicable laws and regulations; the geographic concentration of our 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 our information systems would adversely impact our ability to manage our 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 our reporting units; volatility of materials and labor costs for, or state efforts to regulate, potential construction projects that may be necessary for future growth; changes in accounting practices; our ability to demonstrate meaningful use of certified electronic health record technology and to recognize revenues for the related Medicare or Medicaid incentive payments; and those factors, risks and uncertainties detailed in our filings from time to time with the Securities and Exchange Commission, including, among others, our Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q.

Although we believe 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 us that our 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 our results of operations and financial condition. Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statements contained herein whether as a result of new information, future events or otherwise.

We use our company web site to provide important information to investors about the company, including the posting of important announcements regarding financial performance and corporate developments.

 

                        VANGUARD HEALTH SYSTEMS, INC.
         Condensed Consolidated Statements of Operations (Unaudited)
             (In millions, except share and per share amounts)


                                        Quarter ended September 30,
                                 -----------------------------------------
                                         2010                  2011
                                 -------------------   -------------------

Patient service revenues         $   693.3      80.4%  $ 1,358.7      94.1%
Less: Provision for doubtful
 accounts                            (51.8)     (6.0)     (126.2)     (8.7)
                                 ---------  --------   ---------  --------
Patient services revenues, net       641.5      74.4     1,232.5      85.4
Premium revenues                     220.6      25.6       211.0      14.6
                                 ---------  --------   ---------  --------
  Total revenues                     862.1     100.0     1,443.5     100.0
Costs and expenses:
  Salaries and benefits
   (includes stock compensation
   of $1.2 and $0.7,
   respectively)                     354.8      41.2       665.0      46.1
  Health plan claims expense         174.1      20.2       164.7      11.4
  Supplies                           121.0      14.0       213.6      14.8
  Purchased services                  51.0       5.9       127.0       8.8
  Non-income taxes                    16.2       1.9        34.5       2.4
  Rents and leases                    11.0       1.3        18.0       1.3
  Other operating expenses            57.5       6.7        98.6       6.8
  Depreciation and amortization       37.2       4.3        62.6       4.3
  Interest, net                       34.8       4.0        45.8       3.2
  Acquisition related expenses         3.7       0.4        12.2       0.8
  Debt extinguishment costs              -         -        38.9       2.7
  Other                                1.1       0.1        (2.4)     (0.2)
                                 ---------  --------   ---------  --------
    Total costs and expenses         862.4     100.0     1,478.5     102.4
                                 ---------  --------   ---------  --------
Loss from continuing operations
 before income taxes                  (0.3)     (0.0)      (35.0)     (2.4)
Income tax benefit                     2.4       0.2        13.6       0.9
                                 ---------  --------   ---------  --------
Income (loss) from continuing
 operations                            2.1       0.2       (21.4)     (1.5)
Income (loss) from discontinued
 operations, net of taxes              0.1         -        (0.1)        -
                                 ---------  --------   ---------  --------
Net income (loss)                      2.2       0.2       (21.5)     (1.5)
Net loss (income) attributable
 to non-controlling interests         (1.0)     (0.1)        2.3       0.2
                                 ---------  --------   ---------  --------
Net income (loss) attributable
 to Vanguard Health Systems,
 Inc. stockholders               $     1.2       0.1%  $   (19.2)     (1.3)%
                                 =========  ========   =========  ========

Per share data:
  Basic:
    Continuing operations        $    0.03             $   (0.26)
    Discontinued operations              -                     -
                                 ---------             ---------
    Net income (loss)
     attributable to Vanguard
     Health Systems, Inc.
     stockholders                $    0.03             $   (0.26)
                                 =========             =========
  Diluted:
    Continuing operations        $    0.02             $   (0.26)
    Discontinued operations              -                     -
                                 ---------             ---------
    Net income (loss)
     attributable to Vanguard
     Health Systems, Inc.
     stockholders                $    0.02             $   (0.26)
                                 =========             =========
Weighted average shares
 outstanding (in thousands):
  Basic                             44,635                74,854
                                 =========             =========
  Diluted                           48,603                74,854
                                 =========             =========



 

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


                                               Quarter ended September 30,
                                             ------------------------------
                                                  2010            2011
                                             --------------  --------------

Net income (loss) attributable to Vanguard
 Health Systems, Inc. stockholders           $          1.2  $        (19.2)
Interest, net                                          34.8            45.8
Income tax benefit                                     (2.4)          (13.6)
Depreciation and amortization                          37.2            62.6
Non-controlling interests                               1.0            (2.3)
Gain on disposal of assets                                -            (1.2)
Equity method income                                   (0.3)           (0.1)
Stock compensation                                      1.2             0.7
Monitoring fees and expenses                            1.4               -
Acquisition related expenses                            3.7            12.2
Debt extinguishment costs                                 -            38.9
Impairment and restructuring charges                      -            (0.1)
Pension credits                                           -            (1.0)
Discontinued operations, net of taxes                  (0.1)            0.1
                                             --------------  --------------
  Adjusted EBITDA (1)                        $         77.7  $        122.8
                                             ==============  ==============

______________
(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 gains or losses on investments, acquisition related expenses,
    debt extinguishment costs, impairment and restructuring charges,
    pension expense (credits) 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.
         Supplemental Financial Information (Unaudited) (Continued)
      Reconciliation of Certain Projected Fiscal Year 2012 Information
              (In millions, except share and per share amounts)


                                                       Low           High
                                                  ------------   -----------
Net income attributable to Vanguard Health
 Systems, Inc. stockholders                       $       24.0  $       37.8
Interest, net                                            169.0         169.0
Income tax expense                                        14.1          24.2
Depreciation and amortization                            259.0         260.0
Acquisition related expenses                              12.3          12.3
Debt extinguishment costs                                 38.9          38.9
Other                                                      2.7           2.8
                                                  ------------  ------------
  Adjusted EBITDA (1)                             $      520.0  $      545.0
                                                  ============  ============

                                                       Low           High
                                                  ------------   -----------
Net income attributable to Vanguard Health
 Systems, Inc. stockholders                       $       24.0  $       37.8
Debt extinguishment costs, net of taxes                   24.5          23.8
Acquisition related expenses, net of taxes                 7.8           7.5
                                                  ------------  ------------
Net income attributable to Vanguard Health
 Systems, Inc. stockholders, excluding debt
 extinguishment costs and acquisition related
 expenses                                         $       56.3  $       69.1
                                                  ============   ===========

Net income attributable to Vanguard Health
 Systems, Inc. stockholders, excluding debt
 extinguishment costs and acquisition related
 expenses                                         $       56.3  $       69.1
Diluted weighted average shares outstanding (in
 thousands)                                             79,000        80,000
                                                  ------------  ------------
Diluted earnings per share attributable to
 Vanguard Health Systems Inc. stockholders,
 excluding debt extinguishment costs and
 acquisition related expenses                     $       0.71  $       0.86
                                                  ============  ============

______________
 (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 gains or losses on investments, acquisition related expenses,
     debt extinguishment costs, impairment and restructuring charges,
     pension expense (credits) 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)

                                                Recasted       (Unaudited)
                                                 June 30,     September 30,
                   ASSETS                          2011            2011
                                             --------------  --------------
Current assets:
  Cash and cash equivalents                  $        936.6  $        154.7
  Restricted cash                                       2.3             2.4
  Accounts receivable, net of allowance for
   doubtful accounts of approximately $205.0
   and $251.2 at June 30, 2011 and September
   30, 2011, respectively                             484.4           563.6
  Inventories                                          83.9            91.9
  Deferred tax assets                                  91.1            86.5
  Prepaid expenses and other current assets           157.9           240.4
                                             --------------  --------------
    Total current assets                            1,756.2         1,139.5
Property, plant and equipment, net of
 accumulated depreciation                           1,830.5         2,020.6
Goodwill                                              755.6           756.1
Intangible assets, net of accumulated
 amortization                                          94.0            83.8
Deferred tax assets, noncurrent                        27.5            47.9
Investments in securities                              63.3            58.4
Other assets                                           65.8            72.5
                                             --------------  --------------
    Total assets                             $      4,592.9  $      4,178.8
                                             ==============  ==============

           LIABILITIES AND EQUITY
Current liabilities:
  Accounts payable                           $        314.3  $        313.7
  Accrued salaries and benefits                       248.9           218.7
  Accrued health plan claims and settlements          114.9           119.5
  Accrued interest                                     62.3            31.1
  Other accrued expenses and current
   liabilities                                        218.3           177.0
  Current maturities of long-term debt                461.8            13.9
                                             --------------  --------------
    Total current liabilities                       1,420.5           873.9
Professional and general liability and
 workers compensation reserves                        289.7           299.7
Pension benefit obligation                            188.0           176.7
Other liabilities                                     125.8           160.4
Long-term debt, less current maturities             2,325.8         2,332.3
Commitments and contingencies
Redeemable non-controlling interests                      -            51.4
Equity:
  Vanguard Health Systems, Inc.
   stockholders' equity:
    Common stock                                        0.7             0.8
    Additional paid-in capital                        330.5           396.3
    Accumulated other comprehensive income             20.6            18.8
    Retained deficit                                 (116.8)         (136.0)
                                             --------------  --------------
      Total Vanguard Health Systems, Inc.
       stockholders' equity                           235.0           279.9
  Non-controlling interests                             8.1             4.5
                                             --------------  --------------
      Total equity                                    243.1           284.4
                                             --------------  --------------
      Total liabilities and equity           $      4,592.9  $      4,178.8
                                             ==============  ==============



 

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

                                               Quarter ended September 30,
                                             ------------------------------
                                                   2010            2011
                                             --------------  --------------
Operating activities:
Net income (loss)                            $          2.2  $        (21.5)
Adjustments to reconcile net income (loss)
 to net cash provided by (used in) operating
 activities:
  Loss (income) from discontinued operations           (0.1)            0.1
  Depreciation and amortization                        37.2            62.6
  Amortization of loan costs and accretion
   of principal on notes                                1.9             5.7
  Stock compensation                                    1.2             0.7
  Gain on disposal of assets                              -            (1.2)
  Deferred income taxes                                (3.1)          (14.5)
  Acquisition related expenses                          3.7            12.2
  Debt extinguishment costs                               -            38.9
  Impairment and restructuring charges                    -            (0.1)
  Changes in working capital, net of the
   impact of acquisitions                              57.1          (170.6)
                                             --------------  --------------
Net cash provided by (used in) operating
 activities - continuing operations                   100.1           (87.7)
Net cash provided by (used in) operating
 activities - discontinued operations                   0.1            (0.1)
                                             --------------  --------------
Net cash provided by (used in) operating
 activities                                           100.2           (87.8)

Investing activities:
Acquisitions and related expenses                     (49.5)         (210.1)
Capital expenditures                                  (44.6)          (63.4)
Proceeds from asset dispositions                          -             2.2
Proceeds from sales of investments                        -            22.7
Purchases of investments                                  -           (21.0)
Other                                                   0.1               -
                                             --------------  --------------
Net cash used in investing activities                 (94.0)         (269.6)

Financing activities:
Payments of long-term debt and capital
 leases                                                (2.0)         (456.5)
Proceeds from the issuance of stock                       -            67.5
Proceeds from the issuance of debt                    216.6               -
Payments of refinancing costs and fees                 (5.5)              -
Payments of tender premiums and note
 redemption costs                                         -           (27.6)
Payments of IPO related costs                             -            (6.9)
Distributions paid to non-controlling
 interests and other                                   (1.1)           (1.0)
                                             --------------  --------------
Net cash provided by (used in) financing
 activities                                           208.0          (424.5)
                                             --------------  --------------
Net increase (decrease) in cash and cash
 equivalents                                          214.2          (781.9)
Cash and cash equivalents, beginning of year          257.6           936.6
                                             --------------  --------------
Cash and cash equivalents, end of year       $        471.8  $        154.7
                                             ==============  ==============

Net cash paid for interest                   $         48.4  $         70.8
                                             ==============  ==============
Net cash paid (received) for income taxes    $         (0.5) $          0.3
                                             ==============  ==============



 

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

                              Quarter ended September 30, 2010
               ------------------------------------------------------------
                 Acute
                  Care      % of      Health       % of    Elimina  Consoli
                Services  Revenues     Plans     Revenues   tions    dated
               --------- ---------   --------   ---------  -------  -------
Patient service
 revenues(1)   $   704.1     107.9%  $      -           -% $ (10.8) $ 693.3
Less: Provision
 for doubtful
 accounts          (51.8)     (7.9)         -           -        -    (51.8)
               ---------- --------   --------   ---------  -------  -------
Patient service
 revenues, net     652.3     100.0          -           -    (10.8)   641.5
Premium
 revenues              -         -      220.6       100.0        -    220.6
               ---------- --------   --------   ---------  -------  -------
  Total
   revenues        652.3     100.0      220.6       100.0    (10.8)   862.1

Salaries and
 benefits
 (excludes
 stock
 compensation)     345.4      53.0        8.2         3.7        -    353.6
Health plan
 claims
 expense(1)            -         -      184.9        83.8    (10.8)   174.1
Supplies           121.0      18.5          -           -        -    121.0
Other operating
 expenses          125.2      19.2       10.5         4.8        -    135.7
               ---------- --------   ---------- ---------  -------  -------
  Total
   operating
   expenses        591.6      90.7      203.6        92.3    (10.8)   784.4
               ---------- --------   ---------- ---------  -------  -------
  Segment
   EBITDA(2)        60.7       9.3       17.0         7.7        -     77.7
Less:
  Interest, net     35.1       5.4       (0.3)       (0.1)       -     34.8
  Depreciation
   and
   amortization     36.1       5.5        1.1         0.5        -     37.2
  Equity method
   income           (0.3)     (0.0)         -           -        -     (0.3)
  Stock
   compensation      1.2       0.2          -           -        -      1.2
  Monitoring
   fees and
   expenses          1.4       0.2          -           -        -      1.4
  Acquisition
   related
   expenses          3.7       0.5          -           -        -      3.7
               --------- ---------   --------   ---------  -------  -------
Income (loss)
 from
 continuing
 operations
 before income
 taxes         $   (16.5)     (2.5)% $   16.2         7.3% $     -  $  (0.3)
               ========= =========   ========   =========  =======  =======

______________
 (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 gains or
     losses on investments, monitoring fees and expenses, acquisition
     related expenses, debt extinguishment costs, impairment and
     restructuring charges and pension expense (credits). Management uses
     Segment EBITDA to measure performance for Our segments and 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 Our segments. Management believes that Segment
     EBITDA provides useful information about the financial performance of
     Our 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 concerning 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 September 30, 2011
                -----------------------------------------------------------
                  Acute
                  Care      % of      Health     % of    Eliminat  Consolid
                Services  Revenues     Plans   Revenues    ions      ated
                --------  --------   --------  --------  --------  --------
Patient service
 revenues(1)    $1,367.3     110.2%  $      -         -% $   (8.6) $1,358.7
Less: Provision
 for doubtful
 accounts         (126.2)    (10.2)         -         -         -    (126.2)
                --------  --------   --------  --------  --------  --------
Patient service
 revenues, net   1,241.1     100.0          -         -      (8.6)  1,232.5
Premium
 revenues              -         -      211.0     100.0         -     211.0
                --------  --------   --------  --------  --------  --------
  Total
   revenues      1,241.1     100.0      211.0     100.0      (8.6)  1,443.5

Salaries and
 benefits
 (excludes
 stock
 compensation)     655.2      52.8        9.1       4.3         -     664.3
Health plan
 claims
 expense(1)            -         -      173.3      82.1      (8.6)    164.7
Supplies           213.6      17.2          -         -         -     213.6
Other operating
 expenses          267.4      21.5       10.7       5.1         -     278.1
                --------  --------   --------  --------  --------  --------
  Total
   operating
   expenses      1,136.2      91.5      193.1      91.5      (8.6)  1,320.7
                --------  --------   --------  --------  --------  --------
  Segment
   EBITDA(2)       104.9       8.5       17.9       8.5         -     122.8
Less:
  Interest, net     46.1       3.7       (0.3)     (0.1)        -      45.8
  Depreciation
   and
   amortization     61.4       5.0        1.2       0.6         -      62.6
  Gain on
   disposal of
   assets           (1.2)     (0.1)         -         -         -      (1.2)
  Equity method
   income           (0.1)     (0.0)         -         -         -      (0.1)
  Stock
   compensation      0.7       0.1          -         -         -       0.7
  Acquisition
   related
   expenses         12.2       1.0          -         -         -      12.2
  Debt
   extinguishment
   costs            38.9       3.1          -         -         -      38.9
  Impairment
   and
   restructuring
   charges          (0.1)     (0.0)         -         -         -      (0.1)
  Pension
   credits          (1.0)     (0.1)         -         -         -      (1.0)
                 -------  --------    -------  --------   -------   -------
Income (loss)
 from
 continuing
 operations
 before income
 taxes          $  (52.0)     (4.2)% $   17.0       8.0% $      -  $  (35.0)
                ========  ========   ========  ========  ========  ========

______________
 (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 gains or
     losses on investments, monitoring fees and expenses, acquisition
     related expenses, debt extinguishment costs, impairment and
     restructuring charges and pension expense (credits). Management uses
     Segment EBITDA to measure performance for Our segments and 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 Our segments. Management believes that Segment
     EBITDA provides useful information about the financial performance of
     Our 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 concerning 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:                                September 30,
                                       ------------------------
                                           2010         2011      % Change
                                       -----------  -----------  ----------
Number of hospitals at end of period            17           28
Licensed beds at end of period               4,490        7,064
Discharges                                  44,977       68,161        51.5%
Adjusted discharges                         80,858      125,320        55.0
Average length of stay                        4.15         4.34         4.6
Patient days                               186,448      296,079        58.8
Adjusted patient days                      335,188      544,366        62.4
Net patient revenue per adjusted
 discharge                             $     7,747  $     9,337        20.5
Inpatient surgeries                          9,757       16,077        64.8
Outpatient surgeries                        19,403       29,976        54.5
Emergency room visits                      173,165      292,778        69.1%

Uncompensated care as a percentage of
 net patient revenues
(prior to these uncompensated care
 deductions)                                  16.2%        17.5%

Net patient revenue payer mix (1):
  Medicare                                    27.3%        26.6%
  Medicaid                                     7.8         14.7
  Managed Medicare                            15.8         10.2
  Managed Medicaid                            10.5         10.6
  Managed care                                37.1         35.1
  Commercial                                   1.1          1.4
  Self pay                                     0.4          1.4
                                       -----------  -----------
    Total                                    100.0%       100.0%
                                       ===========  ===========
______________
(1) Net patient revenue payer mix as presented includes the impact of the
 reclassification of the provision for doubtful accounts to a revenue
 deduction instead of an operating expense.

Discharges by payer:
  Medicare                                    27.7%        28.3%
  Medicaid                                    10.2         10.4
  Managed Medicare                            15.2         12.3
  Managed Medicaid                            14.9         17.8
  Managed care                                25.9         23.2
  Commercial                                   0.4          0.5
  Self pay                                     5.7          7.5
                                       -----------  -----------
    Total                                    100.0%       100.0%
                                       ===========  ===========



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

                                             Quarter ended
SAME HOSPITAL:                               September 30,
                                       ------------------------
                                           2010         2011      % Change
                                       -----------  -----------  ----------
Number of hospitals at end of period            15           15
Licensed beds at end of period               4,032        3,947
Total revenues (including health plan
 revenues) (in millions)               $     819.7  $     820.1         0.1%
Net patient service revenues (in
 millions)                             $     599.1  $     609.1         1.7
Discharges                                  42,005       41,565        (1.0)
Adjusted discharges                         75,592       77,232         2.2
Average length of stay                        4.12         4.02        (2.4)
Patient days                               172,976      167,014        (3.4)
Adjusted patient days                      311,288      310,328        (0.3)
Net patient revenue per adjusted
 discharge                             $     7,757  $     7,709        (0.6)
Inpatient surgeries                          9,128        9,015        (1.2)
Outpatient surgeries                        18,343       17,762        (3.2)
Emergency room visits                      160,880      169,992         5.7%

Uncompensated care as a percentage of
 net patient revenues
(prior to these uncompensated care
 deductions)                                  16.0%        20.5%

Net patient revenue payer mix (1):
  Medicare                                    26.2%        25.5%
  Medicaid                                     7.8          7.2
  Managed Medicare                            16.1         16.3
  Managed Medicaid                            10.5          9.6
  Managed care                                38.3         39.9
  Commercial                                   1.0          1.3
  Self pay                                     0.1          0.2
                                       -----------  -----------
    Total                                    100.0%       100.0%
                                       ===========  ===========
______________
(1) Net patient revenue payer mix as presented includes the impact of the
 reclassification of the provision for doubtful accounts to a revenue
 deduction instead of an operating expense.

Discharges by payer:
  Medicare                                    27.3%        26.3%
  Medicaid                                     8.8          8.2
  Managed Medicare                            16.0         17.2
  Managed Medicaid                            15.7         15.4
  Managed care                                26.3         25.9
  Commercial                                   0.4          0.5
  Self pay                                     5.5          6.5
                                       -----------  -----------
    Total                                    100.0%       100.0%
                                       ===========  ===========

Contact:

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

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