| Vanguard Reports Third Quarter Results NASHVILLE, Tenn. – May 9, 2005 -- Vanguard Health Systems, Inc. (the “Company” or “Vanguard”) today announced results for the third quarter ended March 31, 2005. Total revenues for the quarter ended March 31, 2005 were $643.0 million, an increase of $181.3 million or 39.3% from the prior year quarter. Patient service revenues and health plan premium revenues increased $174.3 million and $7.0 million, respectively, from the prior year quarter. $121.5 million of the quarter over quarter increase in total revenues related to the Company’s acquisition of three acute care hospitals and related businesses in Massachusetts on December 31, 2004, as described below. For the quarter ended March 31, 2005, the Company reported income before income taxes of $33.2 million compared to income before income taxes of $21.7 million for the prior year quarter. The increase resulted from improved operating results including the Massachusetts acquisition offset by a $14.3 million increase in interest expense resulting from additional debt incurred to fund the Blackstone transaction on September 23, 2004 and $150.0 million of acquisition delayed draw term facility borrowings on December 31, 2004 and February 18, 2005, as described below. Net income was $19.6 million for the quarter ended March 31, 2005, compared to $13.8 million for the prior year quarter. Adjusted EBITDA was $73.5 million for the quarter ended March 31, 2005, an increase of $26.1 million or 55.1% from the prior year quarter. A reconciliation of Adjusted EBITDA to net income as determined in accordance with generally accepted accounting principles for the quarters ended March 31, 2004 and 2005 is included in the attached supplemental financial information. The consolidated operating results for the quarter ended March 31, 2005 reflect a 27.7% increase in discharges and a 37.0% increase in hospital adjusted discharges compared to the prior year quarter. These volume improvements resulted from the Company’s acquisition of the Massachusetts hospitals on December 31, 2004 and its service expansion strategies and physician initiatives. On a same hospital basis, quarter over quarter discharges and hospital adjusted discharges increased 5.2% and 7.3%, respectively. Total revenues for the nine months ended March 31, 2005 were $1,636.5 million, an increase of $322.9 million or 24.6% from the prior year period. Patient service revenues and health plan premium revenues increased $289.7 million and $33.2 million, respectively, from the prior year period. The Company’s acquisition of the Massachusetts hospitals accounted for $121.5 million of the period over period increase. On a same hospital basis, revenues increased $201.4 million or 15.3% during the current year period compared to the prior year period. For the nine months ended March 31, 2005, the Company reported a loss before income taxes of $120.7 million compared to income before income taxes of $48.3 million for the prior year period. The current year loss before income taxes resulted from costs directly attributable to the Blackstone transaction including stock compensation of $96.7 million, debt extinguishment costs of $62.2 million and merger expenses of $23.2 million. The net loss for the nine months ended March 31, 2005 was $85.9 million compared to net income of $29.9 million during the prior year period. The Company’s current year net loss resulted from the after tax effect of the Blackstone-related costs. Adjusted EBITDA was $179.7 million for the nine months ended March 31, 2005, an increase of $57.9 million or 47.5% from the prior year period. A reconciliation of Adjusted EBITDA to net income (loss) as determined in accordance with generally accepted accounting principles for the nine-month periods ended March 31, 2004 and 2005 is included in the attached supplemental financial information. The consolidated operating results for the nine months ended March 31, 2005 reflect a 13.1% increase in discharges and a 17.1% increase in hospital adjusted discharges compared to the prior year period. These volume improvements resulted from the Company’s acquisition of the Massachusetts hospitals on December 31, 2004, and its service expansion strategies and physician initiatives. On a same hospital basis, period over period discharges and hospital adjusted discharges increased 5.4% and 7.0%, respectively. As previously announced, on December 31, 2004, certain subsidiaries of the Company acquired three acute care hospitals with a total of 768 beds and related healthcare businesses located in or around the cities of Worcester, Framingham and Natick in Massachusetts from subsidiaries of Tenet Healthcare Corporation. The Company’s subsidiaries paid approximately $87.4 million at closing to purchase the property, plant and equipment and certain other assets and assumed certain liabilities of the hospitals and related healthcare businesses including transaction closing costs. The Company’s subsidiaries funded the purchase price by borrowing $60.0 million of the $150.0 million acquisition delayed draw term facility under the Company’s new senior secured credit facilities and by utilizing $27.4 million of cash on hand. The new secured credit facilities were entered into during September 2004 in connection with the purchase of a majority of the equity interests in the Company by affiliates of the Blackstone Group. The Company invested an additional $37.4 million during the current year quarter to build from operations net working capital for the purchased facilities. On February 18, 2005, the Company borrowed the remaining $90.0 million available under the acquisition delayed draw term facility to fund the working capital buildup and capital expenditures. Cash flows from operating activities were $141.5 million for the nine months ended March 31, 2005, an increase of $82.1 million from the prior year period. The significant increase was primarily due to improved operational performance during the current year period. Cash used in investing activities increased to $281.2 million during the nine months ended March 31, 2005, from $108.9 million during the prior year period as a result of $51.2 million paid for Blackstone-related acquisition costs, $87.4 million paid to acquire the Massachusetts hospitals and increased capital expenditures associated with the significant expansion projects underway in San Antonio and Phoenix. Cash flows from financing activities were significantly affected by the equity and debt transactions associated with the Blackstone transaction and the $150.0 million borrowed under the acquisition delayed draw term loan facility. “We continue to benefit from our market-focused expansion and quality of care initiatives as reflected in our third quarter operating results,” commented Charles N. Martin, Jr., Chairman and Chief Executive Officer. “Our success is the result of the tireless efforts of our employees and physician associates to improve the quality of life in the communities we serve. We hope to maintain this momentum as we broaden our service capabilities, invest in new and more efficient technologies and clinical information systems and integrate the operations of our recently acquired Massachusetts facilities with Vanguard’s strategic goals and objectives.” The Company will host a conference call for investors at 11:00 am EDT on May 10, 2005. 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 the Company’s Web site at www.vanguardhealth.com by clicking on Third Quarter Webcast or at http://www.visualwebcaster.com/event.asp?id=28552. If you are unable to participate during the live webcast, the call will be available on a replay basis on the Company’s Web site www.vanguardhealth.com. To access the replay, click on Third Quarter Webcast on the Company’s home page or later on the Latest News link on the Investor Relations page of www.vanguardhealth.com. Vanguard Health Systems, Inc. owns and operates 19 acute care hospitals and complementary facilities and services in Chicago, Illinois; Phoenix, Arizona; Orange County, California; San Antonio, Texas and Massachusetts. The Company’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. 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 we serve. 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. These forward-looking statements include all statements that are not historical statements of fact and those statements regarding the Company’s intent, belief or expectations. Do not rely on any forward-looking statements as such statements are subject to numerous factors, risks and uncertainties that could cause the Company’s actual outcomes, results, performance or achievements to be materially different from those projected. These factors, risks and uncertainties include, among others, the Company’s high degree of leverage; the Company’s ability to incur substantially more debt; operating and financial restrictions in the Company’s debt agreements; the Company’s ability to successfully implement its business strategies; the Company’s ability to successfully integrate its recent and any future acquisitions; the highly competitive nature of the healthcare business; governmental regulation of the industry including Medicare and Medicaid reimbursement levels; changes in Federal, state or local regulation affecting the healthcare industry; the possible enactment of Federal or state healthcare reform; the ability to attract and retain qualified management and personnel, including physicians and nurses; claims and legal actions relating to professional liabilities or other matters; changes in accounting practices; changes in general economic conditions; the Company’s exposure to the increased amounts of and collection risks associated with uninsured accounts and the co-pay and deductible portions of insured accounts; the impact of changes to the Company’s charity care and self-pay discounting policies; the ability to enter into managed care provider and other payer arrangements on acceptable terms; the efforts of insurers, managed care payers, employers and others to contain healthcare costs; the availability and terms of capital to fund the expansion of the Company’s business; the timeliness of reimbursement payments received under government programs; the potential adverse impact of known and unknown government investigations; and those factors, risks and uncertainties detailed in the Company’s filings from time to time with the Securities and Exchange Commission, including, among others, the Company’s annual reports on Form 10-K, its quarterly reports on Form 10-Q and its registration statement on Form S-4 (Registration No. 333-120436) first filed with the Securities and Exchange Commission on November 12, 2004. Although the Company 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 the Company 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 the Company’s results of operations and financial condition. The Company’s forward-looking statements speak only as of the date made. Other than as required by law, the Company undertakes no obligation to publicly update or revise any forward-looking statements contained herein, whether as a result of new information, future events or otherwise. |
