##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-Q
 
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2011
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number: 333-71934
 
 (VANGUARD HEALTH SYSTEMS, INC. LOGO)
 VANGUARD HEALTH SYSTEMS, INC.
  Delaware
    
    62-1698183(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 20 Burton Hills Boulevard, Suite 100
Nashville, TN 37215
 (615) 665-6000
 o þ
 *
    
    (Note: The registrant was required to file all reports under Section 13 or 15(d) of the
Securities and Exchange Act of 1934 (the Exchange Act) from April 1, 2010 through June 30, 2010,
but from July 1, 2010 to May 3, 2011 (the Voluntary Period) the registrant was a voluntary filer
not subject to these filing requirements. As of May 4, 2011, the registrant is again required to
file all reports under Section 13 or 15(d) of the Exchange Act. The registrant has filed all
required reports under Section 13 or 15(d) of the Exchange Act during the preceding 12 months, both
which would have been required to be filed if
the registrant had been required to file such reports during the Voluntary Period and commencing
May 4, 2011 to date while registrant is a mandatory filer under the Exchange Act.) o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



VANGUARD HEALTH SYSTEMS, INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
 PagePART I FINANCIAL INFORMATIONItem 1. Financial Statements (unaudited):Condensed Consolidated Balance Sheets as of June 30, 2010
and March 31, 2011
    
    
    3Condensed Consolidated Statements of Operations
for the three and nine months ended March 31, 2010 and 2011
    
    
    4Condensed Consolidated Statements of Equity for the nine months
ended March 31, 2011
    
    
    5Condensed Consolidated Statements of Cash Flows for the
for the nine months ended March 31, 2010 and 2011
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    41Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    60Item 4. Controls and Procedures
    
    
    61PART II OTHER INFORMATIONItem 1A. Risk Factors
    
    
    62Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    87Item 6. Exhibits
    
    
    87Signature
    
    
    88Exhibit Index
    
    
    89Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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##### Table of Contents



PART I
FINANCIAL INFORMATION
 
 Item 1.
    
    Financial Statements.
 VANGUARD HEALTH SYSTEMS, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Unaudited)June 30, 2010
    
    
    March 31, 2011(In millions, except share andper share amounts)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    257.6
    
    
    $
    502.6Restricted cash
    
    
    2.3
    
    
    
    2.3Accounts receivable, net of allowance for doubtful accounts of approximately
$75.6 and $165.0, respectively
    
    
    270.4
    
    
    
    517.0Inventories
    
    
    49.6
    
    
    
    83.8Deferred tax assets
    
    
    21.9
    
    
    
    18.3Prepaid expenses and other current assets
    
    
    119.2
    
    
    
    164.6Total current assets
    
    
    721.0
    
    
    
    1,288.6Property, plant and equipment, net of accumulated depreciation
    
    
    1,203.8
    
    
    
    1,795.9Goodwill
    
    
    649.1
    
    
    
    786.9Intangible assets, net of accumulated amortization
    
    
    66.0
    
    
    
    96.2Deferred tax assets, noncurrent
    
    
    50.0
    
    
    
    48.1Investments in securities
    
    
    19.8
    
    
    
    81.6Other assets
    
    
    19.9
    
    
    
    64.9Total assets
    
    $
    2,729.6
    
    
    $
    4,162.2LIABILITIES AND EQUITY (DEFICIT)Current liabilities:Accounts payable
    
    $
    194.8
    
    
    $
    313.8Accrued salaries and benefits
    
    
    144.9
    
    
    
    243.4Accrued health plan claims and settlements
    
    
    149.8
    
    
    
    168.3Accrued interest
    
    
    41.4
    
    
    
    32.0Other accrued expenses and current liabilities
    
    
    76.9
    
    
    
    161.6Current maturities of long-term debt
    
    
    8.2
    
    
    
    13.0Total current liabilities
    
    
    616.0
    
    
    
    932.1Professional and general liability and workers compensation reserves
    
    
    83.6
    
    
    
    320.3Pension benefit obligation, less current portion
    
    
    
    
    
    
    202.8Other liabilities
    
    
    31.6
    
    
    
    127.5Long-term debt, less current maturities
    
    
    1,743.8
    
    
    
    2,766.1Commitments and contingenciesEquity (deficit):Vanguard Health Systems, Inc. stockholders equity (deficit):Common Stock of $.01 par value; 1,000,000 shares authorized; 749,104 and 750,224
issued and outstanding at June 30, 2010 and March 31, 2011, respectively
    
    
    
    
    
    
    Additional paid-in capital (distributions in excess of paid-in capital)
    
    
    354.9
    
    
    
    (88.5
    )Accumulated other comprehensive income (loss)
    
    
    (2.5
    )
    
    
    0.9Retained deficit
    
    
    (105.9
    )
    
    
    (106.9
    )Total Vanguard Health Systems, Inc. stockholders equity (deficit)
    
    
    246.5
    
    
    
    (194.5
    )Non-controlling interests
    
    
    8.1
    
    
    
    7.9Total equity (deficit)
    
    
    254.6
    
    
    
    (186.6
    )Total liabilities and equity
    
    $
    2,729.6
    
    
    $
    4,162.2
   3




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 Three months ended March 31,
    
    
    Nine months ended March 31,2010
    
    
    2011
    
    
    2010
    
    
    2011(In millions, except share and per share amounts)Patient service revenues
    
    $
    646.7
    
    
    $
    1,305.7
    
    
    $
    1,890.5
    
    
    $
    2,747.8Premium revenues
    
    
    211.4
    
    
    
    213.9
    
    
    
    628.0
    
    
    
    646.3Total revenues
    
    
    858.1
    
    
    
    1,519.6
    
    
    
    2,518.5
    
    
    
    3,394.1Costs and Expenses:Salaries and benefits (includes stock compensation of
of $0.6, $0.7, $3.5 and $3.6, respectively)
    
    
    327.0
    
    
    
    650.9
    
    
    
    962.6
    
    
    
    1,381.2Health plan claims expense
    
    
    168.1
    
    
    
    169.1
    
    
    
    499.9
    
    
    
    508.0Supplies
    
    
    114.0
    
    
    
    207.8
    
    
    
    339.4
    
    
    
    462.3Provision for doubtful accounts
    
    
    40.8
    
    
    
    111.1
    
    
    
    113.0
    
    
    
    214.1Rents and leases
    
    
    10.9
    
    
    
    15.2
    
    
    
    32.8
    
    
    
    37.9Other operating expenses
    
    
    107.4
    
    
    
    237.6
    
    
    
    330.6
    
    
    
    501.5Depreciation and amortization
    
    
    34.3
    
    
    
    55.8
    
    
    
    101.9
    
    
    
    131.6Interest, net
    
    
    29.9
    
    
    
    48.0
    
    
    
    84.7
    
    
    
    117.9Impairment and restructuring charges
    
    
    
    
    
    
    5.1
    
    
    
    43.1
    
    
    
    6.0Debt extinguishment costs
    
    
    73.2
    
    
    
    
    
    
    
    73.2
    
    
    
    Acquisition related expenses
    
    
    
    
    
    
    6.9
    
    
    
    
    
    
    
    11.9Other
    
    
    0.9
    
    
    
    0.9
    
    
    
    3.5
    
    
    
    3.0Income (loss) from continuing operations before
income taxes
    
    
    (48.4
    )
    
    
    11.2
    
    
    
    (66.2
    )
    
    
    18.7Income tax benefit (expense)
    
    
    16.5
    
    
    
    (4.4
    )
    
    
    18.2
    
    
    
    (11.7
    )Income (loss) from continuing operations
    
    
    (31.9
    )
    
    
    6.8
    
    
    
    (48.0
    )
    
    
    7.0Loss from discontinued operations, net of taxes
    
    
    (0.5
    )
    
    
    (3.2
    )
    
    
    (1.9
    )
    
    
    (5.4
    )Net income (loss)
    
    
    (32.4
    )
    
    
    3.6
    
    
    
    (49.9
    )
    
    
    1.6Less: Net income attributable to non-controlling interests
    
    
    (0.4
    )
    
    
    (0.8
    )
    
    
    (2.1
    )
    
    
    (2.6
    )Net income (loss) attributable to Vanguard Health
Systems, Inc. stockholders
    
    $
    (32.8
    )
    
    $
    2.8
    
    
    $
    (52.0
    )
    
    $
    (1.0
    )Amounts attributable to Vanguard Health Systems, Inc.
stockholders:Income (loss) from continuing operations, net of taxes
    
    $
    (32.3
    )
    
    $
    6.0
    
    
    $
    (50.1
    )
    
    $
    4.4Loss from discontinued operations, net of taxes
    
    
    (0.5
    )
    
    
    (3.2
    )
    
    
    (1.9
    )
    
    
    (5.4
    )Net income (loss) attributable to Vanguard Health
Systems, Inc. stockholders
    
    $
    (32.8
    )
    
    $
    2.8
    
    
    $
    (52.0
    )
    
    $
    (1.0
    )Earnings (loss) per share attributable to Vanguard Health
Systems, Inc. stockholdersBasicContinuing operations
    
    $
    (43.10
    )
    
    $
    7.98
    
    
    $
    (66.85
    )
    
    $
    5.77Discontinued operations
    
    
    (0.63
    )
    
    
    (4.28
    )
    
    
    (2.50
    )
    
    
    (7.23
    )$
    (43.74
    )
    
    $
    3.70
    
    
    $
    (69.35
    )
    
    $
    (1.45
    )DilutedContinuing operations
    
    $
    (43.10
    )
    
    $
    6.99
    
    
    $
    (66.85
    )
    
    $
    5.03Discontinued operations
    
    
    (0.63
    )
    
    
    (3.75
    )
    
    
    (2.50
    )
    
    
    (6.30
    )$
    (43.74
    )
    
    $
    3.24
    
    
    $
    (69.35
    )
    
    $
    (1.27
    )Weighted average shares:Basic
    
    
    749,243
    
    
    
    749,664
    
    
    
    749,449
    
    
    
    749,288Diluted
    
    
    749,243
    
    
    
    856,843
    
    
    
    749,449
    
    
    
    859,430
   4




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VANGUARD HEALTH SYSTEMS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (DEFICIT)
 Nine months ended March 31, 2011
 (Unaudited)
 Vanguard Health Systems, Inc. StockholdersAdditionalPaid-In Capital
    
    
    Accumulated(Distributions
    
    
    Other
    
    
    
    
    
    
    Non-
    
    
    TotalCommon Stock
    
    
    in excess of
    
    
    Comprehensive
    
    
    Retained
    
    
    Controlling
    
    
    EquityShares
    
    
    Amount
    
    
    paid-in capital)
    
    
    Income (loss)
    
    
    Deficit
    
    
    Interests
    
    
    (Deficit)(In millions, except share amounts)Balance at June 30, 2010
    
    
    749,104
    
    
    $
    
    
    
    $
    354.9
    
    
    $
    (2.5
    )
    
    $
    (105.9
    )
    
    $
    8.1
    
    
    $
    254.6Stock compensation (non-cash)
    
    
    
    
    
    
    
    
    
    
    3.6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.6Dividend to equity holders
    
    
    
    
    
    
    
    
    
    
    (447.2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (447.2
    )Issuance of common stock
    
    
    1,120
    
    
    
    
    
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.2Distributions paid to
non-controlling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2.8
    )
    
    
    (2.8
    )Comprehensive income:Change in fair value of auction
rate securities (net of tax)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.9
    
    
    
    
    
    
    
    
    
    
    
    1.9Change in fair value of available
for sale investments (net
of tax)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.5
    
    
    
    
    
    
    
    
    
    
    
    1.5Net income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.0
    )
    
    
    2.6
    
    
    
    1.6Total comprehensive
income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.4
    
    
    
    (1.0
    )
    
    
    2.6
    
    
    
    5.0Balance at March 31, 2011
    
    
    750,224
    
    
    $
    
    
    
    $
    (88.5
    )
    
    $
    0.9
    
    
    $
    (106.9
    )
    
    $
    7.9
    
    
    $
    (186.6
    )
   5




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Nine months ended March 31,2010
    
    
    2011(In millions)Operating activities:Net income (loss)
    
    $
    (49.9
    )
    
    $
    1.6Adjustments to reconcile net income (loss) to net cash provided by
operating activities:Loss from discontinued operations
    
    
    1.9
    
    
    
    5.4Depreciation and amortization
    
    
    101.9
    
    
    
    131.6Provision for doubtful accounts
    
    
    113.0
    
    
    
    214.1Amortization of loan costs
    
    
    4.1
    
    
    
    4.3Accretion of principal on notes
    
    
    6.1
    
    
    
    10.6Loss on disposal of assets
    
    
    0.4
    
    
    
    0.9Debt extinguishment costs
    
    
    73.2
    
    
    
    Acquisition related expenses
    
    
    
    
    
    
    11.9Stock compensation
    
    
    3.5
    
    
    
    3.6Deferred income taxes
    
    
    (20.0
    )
    
    
    6.5Impairment loss
    
    
    43.1
    
    
    
    0.9Realized loss on investments
    
    
    
    
    
    
    0.1Changes in operating assets and liabilities, net of the impact
of acquisitions:Accounts receivable
    
    
    (132.5
    )
    
    
    (326.2
    )Inventories
    
    
    (0.9
    )
    
    
    (1.3
    )Prepaid expenses and other current assets
    
    
    (12.8
    )
    
    
    39.2Accounts payable
    
    
    40.2
    
    
    
    32.8Accrued expenses and other liabilities
    
    
    49.3
    
    
    
    79.4Net cash provided by operating activities  continuing operations
    
    
    220.6
    
    
    
    215.4Net cash used in operating activities  discontinued operations
    
    
    (1.9
    )
    
    
    (5.4
    )Net cash provided by operating activities
    
    
    218.7
    
    
    
    210.0Investing activities:Acquisitions and related expenses, net of cash acquired
    
    
    (1.5
    )
    
    
    (463.9
    )Capital expenditures
    
    
    (111.1
    )
    
    
    (139.1
    )Proceeds from asset dispositions
    
    
    1.5
    
    
    
    1.6Net proceeds from sale of investments in securities
    
    
    
    
    
    
    110.9Other
    
    
    (0.3
    )
    
    
    (3.7
    )Net cash used in investing activities
    
    
    (111.4
    )
    
    
    (494.2
    )Financing activities:Payments of long-term debt and capital lease obligations
    
    
    (1,557.4
    )
    
    
    (6.6
    )Proceeds from debt borrowings
    
    
    1,751.3
    
    
    
    1,011.2Payments of refinancing costs and fees
    
    
    (90.1
    )
    
    
    (25.7
    )Dividends to equity holders
    
    
    
    
    
    
    (447.2
    )Repurchases of stock
    
    
    (300.6
    )
    
    
    Payments related to derivative instrument with financing element
    
    
    (6.0
    )
    
    
    Other financing activities
    
    
    (2.4
    )
    
    
    (2.5
    )Net cash provided by (used in) financing activities
    
    
    (205.2
    )
    
    
    529.2Net increase (decrease) in cash and cash equivalents
    
    
    (97.9
    )
    
    
    245.0Cash and cash equivalents, beginning of period
    
    
    308.2
    
    
    
    257.6Cash and cash equivalents, end of period
    
    $
    210.3
    
    
    $
    502.6Supplemental cash flow information:Net cash paid for interest
    
    $
    72.7
    
    
    $
    116.1Net cash paid (received) for income taxes
    
    $
    (13.2
    )
    
    $
    0.5
   6




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 March 31, 2011
 (Unaudited)
 1. BUSINESS AND BASIS OF PRESENTATION
 Business
  Basis of Presentation
   Use of Estimates
  2. BUSINESS COMBINATIONS
 Acquisition of Westlake and West Suburban
   7




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (continued)
   Accounts receivable
    
    $
    14.6Inventories
    
    
    3.7Prepaid expenses and other current assets
    
    
    2.8Property and equipment
    
    
    34.6Other assets
    
    
    1.0Total assets acquired
    
    
    56.7Accounts payable
    
    
    3.6Other current liabilities
    
    
    7.8Total liabilities assumed
    
    
    11.4Net assets acquired
    
    $
    45.3
 Acquisition of Arizona Heart Hospital and Institute
   Acquisition of The Detroit Medical Center
   8




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (continued)
   Cash
    
    $
    6.4Accounts receivable
    
    
    117.7Inventories
    
    
    26.7Prepaid expenses and other current assets
    
    
    94.7Property and equipment
    
    
    527.2Goodwill
    
    
    131.5Other intangible assets
    
    
    10.7Investments in securities
    
    
    166.4Other assets
    
    
    33.0Total assets acquired
    
    
    1,114.3Accounts payable
    
    
    80.9Other current liabilities
    
    
    160.5Pension benefit obligation
    
    
    228.0Other non-current liabilities
    
    
    281.6Total liabilities assumed
    
    
    751.0Net assets acquired
    
    $
    363.3
  Pro Forma Information
  Nine months ended March 31,2010
    
    
    2011Total revenues
    
    $
    4,187.0
    
    
    $
    4,453.3Income (loss) from continuing operations,
before income taxes
    
    $
    (133.0
    )
    
    $
    49.0
  9




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (continued)
  3. FAIR VALUE MEASUREMENTS
  Quoted Prices
    
    
    Significantin Active
    
    
    Other
    
    
    SignificantMarkets for
    
    
    Observable
    
    
    UnobservableIdentical Assets
    
    
    Inputs
    
    
    InputsMarch 31, 2011
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Cash and cash equivalents
    
    $
    13.5
    
    
    $
    0.4
    
    
    $
    13.1
    
    
    $
    Auction rate securities
    
    
    14.3
    
    
    
    
    
    
    
    
    
    
    
    14.3United States government obligations
    
    
    1.0
    
    
    
    
    
    
    
    1.0
    
    
    
    Asset and mortgage-backed securities
    
    
    4.6
    
    
    
    
    
    
    
    4.6
    
    
    
    Corporate bonds
    
    
    26.5
    
    
    
    
    
    
    
    26.5
    
    
    
    Common stock  domestic
    
    
    21.1
    
    
    
    9.1
    
    
    
    12.0
    
    
    
    Common stock  international
    
    
    0.3
    
    
    
    0.1
    
    
    
    0.2
    
    
    
    Preferred stock  international
    
    
    0.3
    
    
    
    0.3
    
    
    
    
    
    
    
    Investments in securities
    
    $
    81.6
    
    
    $
    9.9
    
    
    $
    57.4
    
    
    $
    14.3
 Quoted Prices
    
    
    Significantin Active
    
    
    Other
    
    
    SignificantMarkets for
    
    
    Observable
    
    
    UnobservableIdentical Assets
    
    
    Inputs
    
    
    InputsJune 30, 2010
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Auction rate securities
    
    $
    19.8
    
    
    $
    
    
    
    $
    
    
    
    $
    19.8
  Increase inBalance at
    
    
    
    
    
    
    Realized loss
    
    
    Fair Value,
    
    
    Balance atJune 30, 2010
    
    
    Redemptions
    
    
    on redemptions
    
    
    pre tax
    
    
    March 31, 2011Auction rate
securities
    
    $
    19.8
    
    
    $
    (8.4
    )
    
    $
    (0.1
    )
    
    $
    3.0
    
    
    $
    14.3
  10




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 Increase inBalance at
    
    
    
    
    
    
    Realized loss
    
    
    Fair Value,
    
    
    Balance atJune 30, 2009
    
    
    Redemptions
    
    
    on redemptions
    
    
    pre tax
    
    
    June 30, 2010Auction rate
securities
    
    $
    21.6
    
    
    $
    (1.8
    )
    
    $
    
    
    
    $
    
    
    
    $
    19.8
 Investments in securities
      Cash and Cash Equivalents and Restricted Cash
   11




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 Accounts Receivable and Accounts Payable
  Long-Term Debt
  4. STOCK BASED COMPENSATION
       12




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 5. IMPAIRMENT AND RESTRUCTURING CHARGES
   6. GOODWILL AND INTANGIBLE ASSETS
  Gross Carrying Amount
    
    
    Accumulated AmortizationClass of Intangible Asset
    
    June 30, 2010
    
    
    March 31, 2011
    
    
    June 30, 2010
    
    
    March 31, 2011Amortized intangible assets:Deferred loan costs
    
    $
    39.1
    
    
    $
    64.8
    
    
    $
    1.9
    
    
    $
    6.2Contracts
    
    
    31.4
    
    
    
    31.4
    
    
    
    18.0
    
    
    
    20.4Physician income and
other guarantees
    
    
    31.1
    
    
    
    34.2
    
    
    
    25.0
    
    
    
    28.1Other
    
    
    8.8
    
    
    
    10.0
    
    
    
    2.7
    
    
    
    3.4Subtotal
    
    
    110.4
    
    
    
    140.4
    
    
    
    47.6
    
    
    
    58.1Indefinite-lived intangible assets:License and accreditation
    
    
    3.2
    
    
    
    13.9
    
    
    
    
    
    
    
    Total
    
    $
    113.6
    
    
    $
    154.3
    
    
    $
    47.6
    
    
    $
    58.1
    7. FINANCING ARRANGEMENTS
  June 30, 2010
    
    
    March 31, 201110.375% Senior Discount Notes due 2016
    
    $
    
    
    
    $
    453.28.0% Senior Unsecured Notes due 2018
    
    
    937.0
    
    
    
    1,155.67.750% Senior Notes due 2019
    
    
    
    
    
    
    350.0Term loans payable under credit facility due 2016
    
    
    815.0
    
    
    
    808.9Capital leases and other long term debt
    
    
    
    
    
    
    11.41,752.0
    
    
    
    2,779.1Less: current maturities
    
    
    (8.2
    )
    
    
    (13.0
    )$
    1,743.8
    
    
    $
    2,766.1
  13




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 8.0% Senior Unsecured Notes
 pari passu
     7.750% Senior Notes
    14




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (continued)
  10.375% Senior Discount Notes
    Credit Facility Debt
      15




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (continued)
  Future Maturities
  8. DMC PENSION PLAN
    December 31,2010Reconciliation of funded status:Projected benefit obligation and accumulated benefit obligation
    
    $
    974.8Fair value of plan assets
    
    
    746.8Funded status
    
    $
    228.0
  Funded status at January 1, 2011
    
    $
    228.0Employer contributions during the three months ended March 31, 2011
    
    
    (2.4
    )Net pension benefit expense
    
    
    (1.1
    )Accrued retirement liability at March 31, 2011
    
    $
    224.5
  16




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 Amounts recognized in the accompanying condensed consolidated balance sheet at March 31, 2011 include the following
with respect to the DMC Pension Plan:Other accrued expenses and current liabilities
    
    $
    21.7Pension benefit obligation, less current portion
    
    
    202.8$
    224.5Assumptions used to determine the plan benefit obligation:Discount rate
    
    
    5.35
    %Compensation increase rate
    
    
    Frozen at 2003 levelMeasurement date
    
    
    December 31, 2010
  Interest cost on projected benefit obligation
    
    $
    12.7Expected return on assets
    
    
    (13.8
    )Total net pension plan expense (credit)
    
    $
    (1.1
    )Assumptions used to determine the net periodic pension plan expense
for the three months ended March 31, 2011 were as follows:Discount rate
    
    
    5.35
    %Expected long-term rate of return on plan assets
    
    
    7.50
    %
   December 31,2010Target
    
    
    ActualAsset category:Cash and cash equivalents
    
    
    0
    %
    
    
    3
    %Equity securities
    
    
    56
    %
    
    
    64
    %Debt securities
    
    
    25
    %
    
    
    15
    %Alternatives and other
    
    
    19
    %
    
    
    18
    %
   17




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (continued)
   Quoted Prices
    
    
    Significantin Active
    
    
    Other
    
    
    SignificantMarkets for
    
    
    Observable
    
    
    UnobservableDecember 31,
    
    
    Identical Assets
    
    
    Inputs
    
    
    Inputs2010
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Cash and cash equivalents
    
    $
    20.8
    
    
    $
    19.0
    
    
    $
    1.8
    
    
    $
    United States government obligations
    
    
    14.1
    
    
    
    
    
    
    
    14.1
    
    
    
    Foreign obligations
    
    
    0.1
    
    
    
    
    
    
    
    0.1
    
    
    
    Asset and mortgage-backed securities
    
    
    26.2
    
    
    
    
    
    
    
    26.2
    
    
    
    Corporate bonds
    
    
    68.0
    
    
    
    
    
    
    
    68.0
    
    
    
    Equity securities
    
    
    483.2
    
    
    
    132.8
    
    
    
    350.4
    
    
    
    Alternative investments
    
    
    134.4
    
    
    
    
    
    
    
    
    
    
    
    134.4$
    746.8
    
    
    $
    151.8
    
    
    $
    460.6
    
    
    $
    134.4
  Fiscal years ending June 30,Total
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    2014
    
    
    2015
    
    
    2016Expected employer contributions
    
    $
    143.1
    
    
    $
    6.2
    
    
    $
    25.3
    
    
    $
    40.6
    
    
    $
    26.6
    
    
    $
    23.9
    
    
    $
    20.5Expected benefit payments
    
    $
    273.6
    
    
    $
    11.0
    
    
    $
    47.0
    
    
    $
    49.8
    
    
    $
    52.6
    
    
    $
    55.3
    
    
    $
    57.9
   18




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 9. COMPREHENSIVE INCOME
  Three months ended March 31,
    
    
    Nine months ended March 31,2010
    
    
    2011
    
    
    2010
    
    
    2011Net income (loss) attributable to Vanguard Health
Systems, Inc. stockholders
    
    $
    (32.8
    )
    
    $
    2.8
    
    
    $
    (52.0
    )
    
    $
    (1.0
    )Change in fair value of interest rate swap
    
    
    0.9
    
    
    
    
    
    
    
    5.2
    
    
    
    Change in unrealized position of investments in securities
    
    
    
    
    
    
    2.3
    
    
    
    
    
    
    
    5.3Change in income tax expense
    
    
    (1.0
    )
    
    
    (0.7
    )
    
    
    (2.6
    )
    
    
    (1.9
    )Termination of interest rate swap
    
    
    1.7
    
    
    
    
    
    
    
    1.7Net income attributable to non-controlling interests
    
    
    0.4
    
    
    
    0.8
    
    
    
    2.1
    
    
    
    2.6Comprehensive income (loss)
    
    $
    (30.8
    )
    
    $
    5.2
    
    
    $
    (45.6
    )
    
    $
    5.0
  June 30, 2010
    
    
    March 31, 2011Unrealized holding loss on investments in auction rate securities
    
    $
    (4.1
    )
    
    $
    (1.0
    )Unrealized holding gain on investments in other securities
    
    
    
    
    
    
    2.3Income tax benefit (expense)
    
    
    1.6
    
    
    
    (0.4
    )Accumulated other comprehensive income (loss)
    
    $
    (2.5
    )
    
    $
    0.9
 10. EARNINGS PER SHARE
   Three months ended March 31,
    
    
    Nine months ended March 31,2010
    
    
    2011
    
    
    2010
    
    
    2011Numerator for basic and diluted earnings (loss per share):Income (loss) from continuing operations
    
    $
    (32.3
    )
    
    $
    6.0
    
    
    $
    (50.1
    )
    
    $
    4.4Loss from discontinued operations
    
    
    (0.5
    )
    
    
    (3.2
    )
    
    
    (1.9
    )
    
    
    (5.4
    )Net income (loss) attributable to Vanguard Health
Systems, Inc. stockholders
    
    $
    (32.8
    )
    
    $
    2.8
    
    
    $
    (52.0
    )
    
    $
    (1.0
    )Denominator:Weighted average common shares outstanding
    
    
    749,243
    
    
    
    749,664
    
    
    
    749,449
    
    
    
    749,288Dilutive securities:Effect of dilutive stock options
    
    
    
    
    
    
    49,862
    
    
    
    
    
    
    
    52,833Effect of dilutive warrants for equity incentive units
    
    
    
    
    
    
    56,790
    
    
    
    
    
    
    
    56,790Effect of dilutive restricted stock units
    
    
    
    
    
    
    527
    
    
    
    
    
    
    
    519Shares used for diluted earnings per share
    
    
    749,243
    
    
    
    856,843
    
    
    
    749,449
    
    
    
    859,430
  19




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 Three months ended March 31,
    
    
    Nine months ended March 31,2010
    
    
    2011
    
    
    2010
    
    
    2011Basic net earnings (loss) per share:Basic earnings (loss) from continuing operations
    
    $
    (43.10
    )
    
    $
    7.98
    
    
    $
    (66.85
    )
    
    $
    5.77Basic loss from discontinued operations
    
    
    (0.63
    )
    
    
    (4.28
    )
    
    
    (2.50
    )
    
    
    (7.23
    )$
    (43.74
    )
    
    $
    3.70
    
    
    $
    (69.35
    )
    
    $
    (1.45
    )Diluted net earnings (loss) per share:Diluted earnings (loss) from continuing operations
    
    $
    (43.10
    )
    
    $
    6.99
    
    
    $
    (66.85
    )
    
    $
    5.03Diluted loss from discontinued operations
    
    
    (0.63
    )
    
    
    (3.75
    )
    
    
    (2.50
    )
    
    
    (6.30
    )$
    (43.74
    )
    
    $
    3.24
    
    
    $
    (69.35
    )
    
    $
    (1.27
    )
 11. INCOME TAXES
  Nine months ended March 31,2010
    
    
    2011Current:Federal
    
    $
    0.4
    
    
    $
    2.4State
    
    
    1.4
    
    
    
    2.8Total current
    
    
    1.8
    
    
    
    5.2Deferred:Federal
    
    
    (20.5
    )
    
    
    3.4State
    
    
    (2.9
    )
    
    
    (0.6
    )Total deferred
    
    
    (23.4
    )
    
    
    2.8Change in valuation allowance
    
    
    3.4
    
    
    
    3.7Total income tax expense (benefit)
    
    $
    (18.2
    )
    
    $
    11.7
    
    
    Cumulative losses in recent years;
 
    
    Income/losses expected in future years;
 
    
    Unsettled circumstances that, if unfavorably resolved, would adversely affect
future operations and profit levels:
 
    
    The availability, or lack thereof, of taxable income in prior carryback periods
that would limit realization of tax benefits;
 
    
    The carryforward period associated with the deferred tax assets and
liabilities; and
 
    
    Prudent and feasible tax planning strategies.
  20




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 
   12. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
 Business Combinations Disclosure
of Supplementary Pro Forma Information for Business Combinations
 IntangiblesGoodwill and Other When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or
Negative Carrying Amounts
 Financial Services Insurance Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts
 Health Care Entities Measuring
Charity Care for Disclosure
  21




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 Health Care Entities Presentation of Insurance Claims and Related Insurance Recoveries
 13. SEGMENT INFORMATION
   22




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 Three months ended March 31, 2010Acute Care
    
    
    HealthServices
    
    
    Plans
    
    
    Eliminations
    
    
    ConsolidatedPatient service revenues (1)
    
    $
    646.7
    
    
    $
    
    
    
    $
    
    
    
    $
    646.7Premium revenues
    
    
    
    
    
    
    211.4
    
    
    
    
    
    
    
    211.4Intersegment revenues
    
    
    10.7
    
    
    
    
    
    
    
    (10.7
    )
    
    
    Total revenues
    
    
    657.4
    
    
    
    211.4
    
    
    
    (10.7
    )
    
    
    858.1Salaries and benefits
(excludes stock compensation)
    
    
    318.0
    
    
    
    8.4
    
    
    
    
    
    
    
    326.4Health plan claims expense (1)
    
    
    
    
    
    
    168.1
    
    
    
    
    
    
    
    168.1Supplies
    
    
    114.0
    
    
    
    
    
    
    
    
    
    
    
    114.0Provision for doubtful accounts
    
    
    40.8
    
    
    
    
    
    
    
    
    
    
    
    40.8Other operating expenses-external
    
    
    109.0
    
    
    
    9.3
    
    
    
    
    
    
    
    118.3Operating expenses-intersegment
    
    
    
    
    
    
    10.7
    
    
    
    (10.7
    )
    
    
    Total operating expenses
    
    
    581.8
    
    
    
    196.5
    
    
    
    (10.7
    )
    
    
    767.6Segment EBITDA (2)
    
    
    75.6
    
    
    
    14.9
    
    
    
    
    
    
    
    90.5Less:Interest, net
    
    
    30.1
    
    
    
    (0.2
    )
    
    
    
    
    
    
    29.9Depreciation and amortization
    
    
    33.2
    
    
    
    1.1
    
    
    
    
    
    
    
    34.3Equity method income
    
    
    (0.3
    )
    
    
    
    
    
    
    
    
    
    
    (0.3
    )Stock compensation
    
    
    0.6
    
    
    
    
    
    
    
    
    
    
    
    0.6Debt extinguishment costs
    
    
    73.2
    
    
    
    
    
    
    
    
    
    
    
    73.2Monitoring fees and expenses
    
    
    1.2
    
    
    
    
    
    
    
    
    
    
    
    1.2Income (loss) from continuing
operations before income taxes
    
    $
    (62.4
    )
    
    $
    14.0
    
    
    $
    
    
    
    $
    (48.4
    )Capital expenditures
    
    $
    42.6
    
    
    $
    0.1
    
    
    $
    
    
    
    $
    42.7
 
 (1)
    
    Vanguard eliminates in consolidation those patient service revenues earned
by its healthcare facilities attributable to services provided to members 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 and unrealized 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 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 and 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.  23




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 Three months ended March 31, 2011Acute Care
    
    
    HealthServices
    
    
    Plans
    
    
    Eliminations
    
    
    ConsolidatedPatient service revenues (1)
    
    $
    1,305.7
    
    
    $
    
    
    
    $
    
    
    
    $
    1,305.7Premium revenues
    
    
    
    
    
    
    213.9
    
    
    
    
    
    
    
    213.9Intersegment revenues
    
    
    11.4
    
    
    
    
    
    
    
    (11.4
    )
    
    
    Total revenues
    
    
    1,317.1
    
    
    
    213.9
    
    
    
    (11.4
    )
    
    
    1,519.6Salaries and benefits
(excludes stock compensation)
    
    
    641.6
    
    
    
    8.6
    
    
    
    
    
    
    
    650.2Health plan claims expense (1)
    
    
    
    
    
    
    169.1
    
    
    
    
    
    
    
    169.1Supplies
    
    
    207.8
    
    
    
    
    
    
    
    
    
    
    
    207.8Provision for doubtful accounts
    
    
    111.1
    
    
    
    
    
    
    
    
    
    
    
    111.1Other operating expenses-external
    
    
    242.6
    
    
    
    10.2
    
    
    
    
    
    
    
    252.8Operating expenses-intersegment
    
    
    
    
    
    
    11.4
    
    
    
    (11.4
    )
    
    
    Total operating expenses
    
    
    1,203.1
    
    
    
    199.3
    
    
    
    (11.4
    )
    
    
    1,391.0Segment EBITDA (2)
    
    
    114.0
    
    
    
    14.6
    
    
    
    
    
    
    
    128.6Less:Interest, net
    
    
    47.8
    
    
    
    0.2
    
    
    
    
    
    
    
    48.0Depreciation and amortization
    
    
    54.7
    
    
    
    1.1
    
    
    
    
    
    
    
    55.8Stock compensation
    
    
    0.7
    
    
    
    
    
    
    
    
    
    
    
    0.7Loss on disposal of assets
    
    
    0.8
    
    
    
    
    
    
    
    
    
    
    
    0.8Monitoring fees and expenses
    
    
    1.2
    
    
    
    
    
    
    
    
    
    
    
    1.2Acquisition related expenses
    
    
    6.9
    
    
    
    
    
    
    
    
    
    
    
    6.9Impairment and restructuring charges
    
    
    5.1
    
    
    
    
    
    
    
    
    
    
    
    5.1Pension credits
    
    
    (1.1
    )
    
    
    
    
    
    
    
    
    
    
    (1.1
    )Income (loss) from continuing
operations before income taxes
    
    $
    (2.1
    )
    
    $
    13.3
    
    
    $
    
    
    
    $
    11.2Capital expenditures
    
    $
    59.7
    
    
    $
    
    
    
    $
    
    
    
    $
    59.7
 
 (1)
    
    Vanguard eliminates in consolidation those patient service revenues earned
by its healthcare facilities attributable to services provided to members 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 and unrealized 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 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 and 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.  24




---



##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 Nine months ended March 31, 2010Acute Care
    
    
    HealthServices
    
    
    Plans
    
    
    Eliminations
    
    
    ConsolidatedPatient service revenues (1)
    
    $
    1,890.5
    
    
    $
    
    
    
    $
    
    
    
    $
    1,890.5Premium revenues
    
    
    
    
    
    
    628.0
    
    
    
    
    
    
    
    628.0Intersegment revenues
    
    
    31.7
    
    
    
    
    
    
    
    (31.7
    )
    
    
    Total revenues
    
    
    1,922.2
    
    
    
    628.0
    
    
    
    (31.7
    )
    
    
    2,518.5Salaries and benefits
(excludes stock compensation)
    
    
    933.9
    
    
    
    25.2
    
    
    
    
    
    
    
    959.1Health plan claims expense (1)
    
    
    
    
    
    
    499.9
    
    
    
    
    
    
    
    499.9Supplies
    
    
    339.3
    
    
    
    0.1
    
    
    
    
    
    
    
    339.4Provision for doubtful accounts
    
    
    113.0
    
    
    
    
    
    
    
    
    
    
    
    113.0Other operating expenses-external
    
    
    336.2
    
    
    
    27.2
    
    
    
    
    
    
    
    363.4Operating expenses-intersegment
    
    
    
    
    
    
    31.7
    
    
    
    (31.7
    )
    
    
    Total operating expenses
    
    
    1,722.4
    
    
    
    584.1
    
    
    
    (31.7
    )
    
    
    2,274.8Segment EBITDA (2)
    
    
    199.8
    
    
    
    43.9
    
    
    
    
    
    
    
    243.7Less:Interest, net
    
    
    85.3
    
    
    
    (0.6
    )
    
    
    
    
    
    
    84.7Depreciation and amortization
    
    
    98.6
    
    
    
    3.3
    
    
    
    
    
    
    
    101.9Equity method income
    
    
    (0.8
    )
    
    
    
    
    
    
    
    
    
    
    (0.8
    )Stock compensation
    
    
    3.5
    
    
    
    
    
    
    
    
    
    
    
    3.5Impairment and restructuring charges
    
    
    43.1
    
    
    
    
    
    
    
    
    
    
    
    43.1Debt extinguishment costs
    
    
    73.2
    
    
    
    
    
    
    
    
    
    
    
    73.2Loss on disposal of assets
    
    
    0.4
    
    
    
    
    
    
    
    
    
    
    
    0.4Monitoring fees and expenses
    
    
    3.9
    
    
    
    
    
    
    
    
    
    
    
    3.9Income (loss) from continuing
operations before income taxes
    
    $
    (107.4
    )
    
    $
    41.2
    
    
    $
    
    
    
    $
    (66.2
    )Segment assets
    
    $
    2,474.2
    
    
    $
    153.5
    
    
    $
    
    
    
    $
    2,627.7Capital expenditures
    
    $
    110.5
    
    
    $
    0.6
    
    
    $
    
    
    
    $
    111.1
 
 (1)
    
    Vanguard eliminates in consolidation those patient service revenues earned
by its healthcare facilities attributable to services provided to members 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 and unrealized 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 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 and 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.  25




---



##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 Nine months ended March 31, 2011Acute Care
    
    
    HealthServices
    
    
    Plans
    
    
    Eliminations
    
    
    ConsolidatedPatient service revenues (1)
    
    $
    2,747.8
    
    
    $
    
    
    
    $
    
    
    
    $
    2,747.8Premium revenues
    
    
    
    
    
    
    646.3
    
    
    
    
    
    
    
    646.3Intersegment revenues
    
    
    33.2
    
    
    
    
    
    
    
    (33.2
    )
    
    
    Total revenues
    
    
    2,781.0
    
    
    
    646.3
    
    
    
    (33.2
    )
    
    
    3,394.1Salaries and benefits
(excludes stock compensation)
    
    
    1,352.5
    
    
    
    25.1
    
    
    
    
    
    
    
    1,377.6Health plan claims expense (1)
    
    
    
    
    
    
    508.0
    
    
    
    
    
    
    
    508.0Supplies
    
    
    462.2
    
    
    
    0.1
    
    
    
    
    
    
    
    462.3Provision for doubtful accounts
    
    
    214.1
    
    
    
    
    
    
    
    
    
    
    
    214.1Other operating expenses-external
    
    
    508.5
    
    
    
    30.9
    
    
    
    
    
    
    
    539.4Operating expenses-intersegment
    
    
    
    
    
    
    33.2
    
    
    
    (33.2
    )
    
    
    Total operating expenses
    
    
    2,537.3
    
    
    
    597.3
    
    
    
    (33.2
    )
    
    
    3,101.4Segment EBITDA (2)
    
    
    243.7
    
    
    
    49.0
    
    
    
    
    
    
    
    292.7Less:Interest, net
    
    
    118.9
    
    
    
    (1.0
    )
    
    
    
    
    
    
    117.9Depreciation and amortization
    
    
    128.3
    
    
    
    3.3
    
    
    
    
    
    
    
    131.6Equity method income
    
    
    (0.6
    )
    
    
    
    
    
    
    
    
    
    
    (0.6
    )Stock compensation
    
    
    3.6
    
    
    
    
    
    
    
    
    
    
    
    3.6Loss on disposal of assets
    
    
    0.9
    
    
    
    
    
    
    
    
    
    
    
    0.9Monitoring fees and expenses
    
    
    3.7
    
    
    
    
    
    
    
    
    
    
    
    3.7Realized gain on investments
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    0.1Acquisition related expenses
    
    
    11.9
    
    
    
    
    
    
    
    
    
    
    
    11.9Impairment and restructuring charges
    
    
    6.0
    
    
    
    
    
    
    
    
    
    
    
    6.0Pension credits
    
    
    (1.1
    )
    
    
    
    
    
    
    
    
    
    
    (1.1
    )Income (loss) from continuing
operations before income taxes
    
    $
    (28.0
    )
    
    $
    46.7
    
    
    $
    
    
    
    $
    18.7Segment assets
    
    $
    4,001.6
    
    
    $
    160.6
    
    
    $
    
    
    
    $
    4,162.2Capital expenditures
    
    $
    139.0
    
    
    $
    0.1
    
    
    $
    
    
    
    $
    139.1
 
 (1)
    
    Vanguard eliminates in consolidation those patient service revenues earned
by its healthcare facilities attributable to services provided to members 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 and unrealized gains or losses on
investments, monitoring fees and expenses, acquisition related expenses, debt
extinguishment costs, impairment losses and pension expense. 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 and 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.  26




---



##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 14. CONTINGENCIES AND HEALTHCARE REGULATION
 Contingencies
  Capital Expenditure Commitments
  Professional and General Liability Insurance
  Patient Service Revenues
   27




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 Governmental Regulation
  Reimbursement
   Acquisitions
   28




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 Guarantee
  15. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND
NON-GUARANTOR SUBSIDIARIES
   29




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 VANGUARD HEALTH SYSTEMS, INC.
Condensed Consolidating Balance Sheets
June 30, 2010
 Issuers of
    
    
    Issuers ofSenior
    
    
    Senior
    
    
    
    
    
    
    CombinedNotes and
    
    
    Discount
    
    
    Guarantor
    
    
    Non-
    
    
    
    
    
    
    TotalParent
    
    
    Term Debt
    
    
    Notes
    
    
    Subsidiaries
    
    
    Guarantors
    
    
    Eliminations
    
    
    Consolidated(In millions)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    198.6
    
    
    $
    59.0
    
    
    $
    
    
    
    $
    257.6Restricted cash
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.6
    
    
    
    1.7
    
    
    
    
    
    
    
    2.3Accounts receivable, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    249.4
    
    
    
    21.0
    
    
    
    
    
    
    
    270.4Inventories
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46.0
    
    
    
    3.6
    
    
    
    
    
    
    
    49.6Prepaid expenses and other
current assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    62.5
    
    
    
    85.9
    
    
    
    (7.3
    )
    
    
    141.1Total current assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    557.1
    
    
    
    171.2
    
    
    
    (7.3
    )
    
    
    721.0Property, plant and equipment, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,147.3
    
    
    
    56.5
    
    
    
    
    
    
    
    1,203.8Goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    564.3
    
    
    
    84.8
    
    
    
    
    
    
    
    649.1Intangible assets, net
    
    
    
    
    
    
    37.2
    
    
    
    
    
    
    
    14.8
    
    
    
    14.0
    
    
    
    
    
    
    
    66.0Investments in consolidated
subsidiaries
    
    
    608.8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (608.8
    )
    
    
    Investments in securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19.8
    
    
    
    
    
    
    
    19.8Other assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    69.7
    
    
    
    0.2
    
    
    
    
    
    
    
    69.9Total assets
    
    $
    608.8
    
    
    $
    37.2
    
    
    $
    
    
    
    $
    2,353.2
    
    
    $
    346.5
    
    
    $
    (616.1
    )
    
    $
    2,729.6LIABILITIES AND EQUITY (DEFICIT)Current liabilities:Accounts payable
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    158.2
    
    
    $
    36.6
    
    
    $
    
    
    
    $
    194.8Accrued expenses and other current
liabilities
    
    
    
    
    
    
    41.4
    
    
    
    
    
    
    
    212.9
    
    
    
    158.7
    
    
    
    
    
    
    
    413.0Current maturities of long-term debt
    
    
    
    
    
    
    8.2
    
    
    
    
    
    
    
    (0.2
    )
    
    
    0.2
    
    
    
    
    
    
    
    8.2Total current liabilities
    
    
    
    
    
    
    49.6
    
    
    
    
    
    
    
    370.9
    
    
    
    195.5
    
    
    
    
    
    
    
    616.0Other liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    70.3
    
    
    
    52.2
    
    
    
    (7.3
    )
    
    
    115.2Long-term debt, less current maturities
    
    
    
    
    
    
    1,743.8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,743.8Intercompany
    
    
    354.2
    
    
    
    (1,052.4
    )
    
    
    
    
    
    
    1,177.0
    
    
    
    (182.0
    )
    
    
    (296.8
    )
    
    
    Total equity (deficit)
    
    
    254.6
    
    
    
    (703.8
    )
    
    
    
    
    
    
    735.0
    
    
    
    280.8
    
    
    
    (312.0
    )
    
    
    254.6Total liabilities and equity
    
    $
    608.8
    
    
    $
    37.2
    
    
    $
    
    
    
    $
    2,353.2
    
    
    $
    346.5
    
    
    $
    (616.1
    )
    
    $
    2,729.6
  30




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 VANGUARD HEALTH SYSTEMS, INC.
Condensed Consolidating Balance Sheets
March 31, 2011
 Issuers of
    
    
    Issuers ofSenior
    
    
    Senior
    
    
    
    
    
    
    CombinedNotes and
    
    
    Discount
    
    
    Guarantor
    
    
    Non-
    
    
    
    
    
    
    TotalParent
    
    
    Term Debt
    
    
    Notes
    
    
    Subsidiaries
    
    
    Guarantors
    
    
    Eliminations
    
    
    Consolidated(In millions)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    446.9
    
    
    $
    55.7
    
    
    $
    
    
    
    $
    502.6Restricted cash
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.7
    
    
    
    1.6
    
    
    
    
    
    
    
    2.3Accounts receivable, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    480.4
    
    
    
    36.6
    
    
    
    
    
    
    
    517.0Inventories
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    80.1
    
    
    
    3.7
    
    
    
    
    
    
    
    83.8Prepaid expenses and other
current assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    177.7
    
    
    
    7.3
    
    
    
    (2.1
    )
    
    
    182.9Total current assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,185.8
    
    
    
    104.9
    
    
    
    (2.1
    )
    
    
    1,288.6Property, plant and equipment, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,741.9
    
    
    
    54.0
    
    
    
    
    
    
    
    1,795.9Goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    702.2
    
    
    
    84.7
    
    
    
    
    
    
    
    786.9Intangible assets, net
    
    
    
    
    
    
    38.9
    
    
    
    19.7
    
    
    
    26.0
    
    
    
    11.6
    
    
    
    
    
    
    
    96.2Investments in consolidated
subsidiaries
    
    
    608.8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (608.8
    )
    
    
    Investments in securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    67.3
    
    
    
    14.3
    
    
    
    
    
    
    
    81.6Other assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    112.9
    
    
    
    0.1
    
    
    
    
    
    
    
    113.0Total assets
    
    $
    608.8
    
    
    $
    38.9
    
    
    $
    19.7
    
    
    $
    3,836.1
    
    
    $
    269.6
    
    
    $
    (610.9
    )
    
    $
    4,162.2LIABILITIES AND EQUITYCurrent liabilities:Accounts payable
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    289.3
    
    
    $
    24.5
    
    
    $
    
    
    
    $
    313.8Accrued expenses and other current
liabilities
    
    
    
    
    
    
    27.1
    
    
    
    5.0
    
    
    
    394.4
    
    
    
    178.8
    
    
    
    
    
    
    
    605.3Current maturities of long-term debt
    
    
    
    
    
    
    8.2
    
    
    
    
    
    
    
    4.8
    
    
    
    
    
    
    
    
    
    
    
    13.0Total current liabilities
    
    
    
    
    
    
    35.3
    
    
    
    5.0
    
    
    
    688.5
    
    
    
    203.3
    
    
    
    
    
    
    
    932.1Other liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    609.1
    
    
    
    43.6
    
    
    
    (2.1
    )
    
    
    650.6Long-term debt, less current maturities
    
    
    
    
    
    
    2,306.4
    
    
    
    453.2
    
    
    
    6.5
    
    
    
    
    
    
    
    
    
    
    
    2,766.1Intercompany
    
    
    795.4
    
    
    
    (1,490.0
    )
    
    
    (424.7
    )
    
    
    1,705.2
    
    
    
    (281.4
    )
    
    
    (304.5
    )
    
    
    Total equity (deficit)
    
    
    (186.6
    )
    
    
    (812.8
    )
    
    
    (13.8
    )
    
    
    826.8
    
    
    
    304.1
    
    
    
    (304.3
    )
    
    
    (186.6
    )Total liabilities and equity
    
    $
    608.8
    
    
    $
    38.9
    
    
    $
    19.7
    
    
    $
    3,836.1
    
    
    $
    269.6
    
    
    $
    (610.9
    )
    
    $
    4,162.2
  31




---



##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 VANGUARD HEALTH SYSTEMS, INC.
Condensed Consolidating Statements of Operations
For the three months ended March 31, 2010
 Issuers of
    
    
    Issuers ofSenior
    
    
    Senior
    
    
    
    
    
    
    CombinedNotes and
    
    
    Discount
    
    
    Guarantor
    
    
    Non-
    
    
    
    
    
    
    TotalParent
    
    
    Term Debt
    
    
    Notes
    
    
    Subsidiaries
    
    
    Guarantors
    
    
    Eliminations
    
    
    Consolidated(In millions)Patient service revenues
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    619.8
    
    
    $
    45.2
    
    
    $
    (18.3
    )
    
    $
    646.7Premium revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14.6
    
    
    
    204.3
    
    
    
    (7.5
    )
    
    
    211.4Total revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    634.4
    
    
    
    249.5
    
    
    
    (25.8
    )
    
    
    858.1Salaries and benefits
    
    
    0.6
    
    
    
    
    
    
    
    
    
    
    
    302.3
    
    
    
    24.1
    
    
    
    
    
    
    
    327.0Health plan claims expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18.8
    
    
    
    167.6
    
    
    
    (18.3
    )
    
    
    168.1Supplies
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    105.5
    
    
    
    8.5
    
    
    
    
    
    
    
    114.0Provision for doubtful accounts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39.2
    
    
    
    1.6
    
    
    
    
    
    
    
    40.8Other operating expenses
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    91.8
    
    
    
    23.0
    
    
    
    (7.5
    )
    
    
    107.4Rents and leases
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9.0
    
    
    
    1.9
    
    
    
    
    
    
    
    10.9Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31.4
    
    
    
    2.9
    
    
    
    
    
    
    
    34.3Interest, net
    
    
    
    
    
    
    28.5
    
    
    
    2.2
    
    
    
    (1.7
    )
    
    
    0.9
    
    
    
    
    
    
    
    29.9Management fees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4.2
    )
    
    
    4.2
    
    
    
    
    
    
    
    Debt extinguishment costs
    
    
    
    
    
    
    67.5
    
    
    
    5.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    73.2Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.9
    
    
    
    
    
    
    
    
    
    
    
    0.9Total costs and expenses
    
    
    0.7
    
    
    
    96.0
    
    
    
    7.9
    
    
    
    593.0
    
    
    
    234.7
    
    
    
    (25.8
    )
    
    
    906.5Income (loss) from continuing operations
before income taxes
    
    
    (0.7
    )
    
    
    (96.0
    )
    
    
    (7.9
    )
    
    
    41.4
    
    
    
    14.8
    
    
    
    
    
    
    
    (48.4
    )Income tax benefit (expense)
    
    
    16.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5.2
    )
    
    
    5.2
    
    
    
    16.5Equity in earnings of subsidiaries
    
    
    (48.6
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48.6
    
    
    
    Income (loss) from continuing operations
    
    
    (32.8
    )
    
    
    (96.0
    )
    
    
    (7.9
    )
    
    
    41.4
    
    
    
    9.6
    
    
    
    53.8
    
    
    
    (31.9
    )Loss from discontinued
operations, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.5
    )
    
    
    
    
    
    
    
    
    
    
    (0.5
    )Net income (loss)
    
    
    (32.8
    )
    
    
    (96.0
    )
    
    
    (7.9
    )
    
    
    40.9
    
    
    
    9.6
    
    
    
    53.8
    
    
    
    (32.4
    )Less: Net income attributable to non-
controlling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.4
    )
    
    
    
    
    
    
    
    
    
    
    (0.4
    )Net income (loss) attributable to Vanguard
Health Systems, Inc. stockholders
    
    $
    (32.8
    )
    
    $
    (96.0
    )
    
    $
    (7.9
    )
    
    $
    40.5
    
    
    $
    9.6
    
    
    $
    53.8
    
    
    $
    (32.8
    )
  32




---



##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 VANGUARD HEALTH SYSTEMS, INC.
Condensed Consolidating Statements of Operations
For the three months ended March 31, 2011
 Issuers of
    
    
    Issuers ofSenior
    
    
    Senior
    
    
    
    
    
    
    CombinedNotes and
    
    
    Discount
    
    
    Guarantor
    
    
    Non-
    
    
    
    
    
    
    TotalParent
    
    
    Term Debt
    
    
    Notes
    
    
    Subsidiaries
    
    
    Guarantors
    
    
    Eliminations
    
    
    Consolidated(In millions)Patient service revenues
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    1,267.3
    
    
    $
    47.4
    
    
    $
    (9.0
    )
    
    $
    1,305.7Premium revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13.6
    
    
    
    201.1
    
    
    
    (0.8
    )
    
    
    213.9Total revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,280.9
    
    
    
    248.5
    
    
    
    (9.8
    )
    
    
    1,519.6Salaries and benefits
    
    
    0.7
    
    
    
    
    
    
    
    
    
    
    
    624.4
    
    
    
    25.8
    
    
    
    
    
    
    
    650.9Health plan claims expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8.6
    
    
    
    169.5
    
    
    
    (9.0
    )
    
    
    169.1Supplies
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    199.3
    
    
    
    8.5
    
    
    
    
    
    
    
    207.8Provision for doubtful accounts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    108.7
    
    
    
    2.4
    
    
    
    
    
    
    
    111.1Other operating expenses
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    219.3
    
    
    
    19.0
    
    
    
    (0.8
    )
    
    
    237.6Rents and leases
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13.5
    
    
    
    1.7
    
    
    
    
    
    
    
    15.2Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    52.9
    
    
    
    2.9
    
    
    
    
    
    
    
    55.8Interest, net
    
    
    
    
    
    
    36.4
    
    
    
    13.8
    
    
    
    (3.1
    )
    
    
    0.9
    
    
    
    
    
    
    
    48.0Impairment and restructuring charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.1
    
    
    
    
    
    
    
    
    
    
    
    5.1Management fees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4.1
    )
    
    
    4.1
    
    
    
    
    
    
    
    Acquisition related expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6.9
    
    
    
    
    
    
    
    
    
    
    
    6.9Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.8
    
    
    
    0.1
    
    
    
    
    
    
    
    0.9Total costs and expenses
    
    
    0.8
    
    
    
    36.4
    
    
    
    13.8
    
    
    
    1,232.3
    
    
    
    234.9
    
    
    
    (9.8
    )
    
    
    1,508.4Income (loss) from continuing operations
before income taxes
    
    
    (0.8
    )
    
    
    (36.4
    )
    
    
    (13.8
    )
    
    
    48.6
    
    
    
    13.6
    
    
    
    
    
    
    
    11.2Income tax benefit (expense)
    
    
    (4.4
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5.2
    )
    
    
    5.2
    
    
    
    (4.4
    )Equity in earnings of subsidiaries
    
    
    8.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8.0
    )
    
    
    Income (loss) from continuing operations
    
    
    2.8
    
    
    
    (36.4
    )
    
    
    (13.8
    )
    
    
    48.6
    
    
    
    8.4
    
    
    
    (2.8
    )
    
    
    6.8Loss from discontinued
operations, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3.2
    )
    
    
    
    
    
    
    
    
    
    
    (3.2
    )Net income (loss)
    
    
    2.8
    
    
    
    (36.4
    )
    
    
    (13.8
    )
    
    
    45.4
    
    
    
    8.4
    
    
    
    (2.8
    )
    
    
    3.6Less: Net income attributable to non-
controlling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.8
    )
    
    
    
    
    
    
    
    
    
    
    (0.8
    )Net income (loss) attributable to Vanguard
Health Systems, Inc. stockholders
    
    $
    2.8
    
    
    $
    (36.4
    )
    
    $
    (13.8
    )
    
    $
    44.6
    
    
    $
    8.4
    
    
    $
    (2.8
    )
    
    $
    2.8
  33




---



##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 VANGUARD HEALTH SYSTEMS, INC.
Condensed Consolidating Statements of Operations
For the nine months ended March 31, 2010
 Issuers of
    
    
    Issuers ofSenior
    
    
    Senior
    
    
    
    
    
    
    CombinedNotes and
    
    
    Discount
    
    
    Guarantor
    
    
    Non-
    
    
    
    
    
    
    TotalParent
    
    
    Term Debt
    
    
    Notes
    
    
    Subsidiaries
    
    
    Guarantors
    
    
    Eliminations
    
    
    Consolidated(In millions)Patient service revenues
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    1,786.4
    
    
    $
    135.8
    
    
    $
    (31.7
    )
    
    $
    1,890.5Premium revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    45.2
    
    
    
    605.8
    
    
    
    (23.0
    )
    
    
    628.0Total revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,831.6
    
    
    
    741.6
    
    
    
    (54.7
    )
    
    
    2,518.5Salaries and benefits
    
    
    3.5
    
    
    
    
    
    
    
    
    
    
    
    886.7
    
    
    
    72.4
    
    
    
    
    
    
    
    962.6Health plan claims expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35.1
    
    
    
    496.5
    
    
    
    (31.7
    )
    
    
    499.9Supplies
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    313.7
    
    
    
    25.7
    
    
    
    
    
    
    
    339.4Provision for doubtful accounts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    107.3
    
    
    
    5.7
    
    
    
    
    
    
    
    113.0Other operating expenses
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    286.9
    
    
    
    66.5
    
    
    
    (23.0
    )
    
    
    330.6Rents and leases
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27.2
    
    
    
    5.6
    
    
    
    
    
    
    
    32.8Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    92.3
    
    
    
    9.6
    
    
    
    
    
    
    
    101.9Interest, net
    
    
    
    
    
    
    73.1
    
    
    
    14.3
    
    
    
    (5.2
    )
    
    
    2.5
    
    
    
    
    
    
    
    84.7Management fees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12.7
    )
    
    
    12.7
    
    
    
    
    
    
    
    Impairment and restructuring charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43.1
    
    
    
    
    
    
    
    
    
    
    
    43.1Debt extinguishment costs
    
    
    
    
    
    
    67.5
    
    
    
    5.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    73.2Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.5
    
    
    
    
    
    
    
    
    
    
    
    3.5Total costs and expenses
    
    
    3.7
    
    
    
    140.6
    
    
    
    20.0
    
    
    
    1,777.9
    
    
    
    697.2
    
    
    
    (54.7
    )
    
    
    2,584.7Income (loss) from continuing operations
before income taxes
    
    
    (3.7
    )
    
    
    (140.6
    )
    
    
    (20.0
    )
    
    
    53.7
    
    
    
    44.4
    
    
    
    
    
    
    
    (66.2
    )Income tax benefit (expense)
    
    
    18.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15.6
    )
    
    
    15.6
    
    
    
    18.2Equity in earnings of subsidiaries
    
    
    (66.5
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    66.5
    
    
    
    Income (loss) from continuing operations
    
    
    (52.0
    )
    
    
    (140.6
    )
    
    
    (20.0
    )
    
    
    53.7
    
    
    
    28.8
    
    
    
    82.1
    
    
    
    (48.0
    )Loss from discontinued
operations, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.9
    )
    
    
    
    
    
    
    
    
    
    
    (1.9
    )Net income (loss)
    
    
    (52.0
    )
    
    
    (140.6
    )
    
    
    (20.0
    )
    
    
    51.8
    
    
    
    28.8
    
    
    
    82.1
    
    
    
    (49.9
    )Less: Net income attributable to non-
controlling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2.1
    )
    
    
    
    
    
    
    
    
    
    
    (2.1
    )Net income (loss) attributable to Vanguard
Health Systems, Inc. stockholders
    
    $
    (52.0
    )
    
    $
    (140.6
    )
    
    $
    (20.0
    )
    
    $
    49.7
    
    
    $
    28.8
    
    
    $
    82.1
    
    
    $
    (52.0
    )
  34




---



##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 VANGUARD HEALTH SYSTEMS, INC.
Condensed Consolidating Statements of Operations
For the nine months ended March 31, 2011
 Issuers of
    
    
    Issuers ofSenior
    
    
    Senior
    
    
    
    
    
    
    CombinedNotes and
    
    
    Discount
    
    
    Guarantor
    
    
    Non-
    
    
    
    
    
    
    TotalParent
    
    
    Term Debt
    
    
    Notes
    
    
    Subsidiaries
    
    
    Guarantors
    
    
    Eliminations
    
    
    Consolidated(In millions)Patient service revenues
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    2,629.4
    
    
    $
    142.4
    
    
    $
    (24.0
    )
    
    $
    2,747.8Premium revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41.8
    
    
    
    606.0
    
    
    
    (1.5
    )
    
    
    646.3Total revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,671.2
    
    
    
    748.4
    
    
    
    (25.5
    )
    
    
    3,394.1Salaries and benefits
    
    
    3.6
    
    
    
    
    
    
    
    
    
    
    
    1,300.9
    
    
    
    76.7
    
    
    
    
    
    
    
    1,381.2Health plan claims expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23.9
    
    
    
    508.1
    
    
    
    (24.0
    )
    
    
    508.0Supplies
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    437.6
    
    
    
    24.7
    
    
    
    
    
    
    
    462.3Provision for doubtful accounts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    207.3
    
    
    
    6.8
    
    
    
    
    
    
    
    214.1Other operating expenses
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    445.9
    
    
    
    56.9
    
    
    
    (1.5
    )
    
    
    501.5Rents and leases
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32.5
    
    
    
    5.4
    
    
    
    
    
    
    
    37.9Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    123.0
    
    
    
    8.6
    
    
    
    
    
    
    
    131.6Interest, net
    
    
    
    
    
    
    109.0
    
    
    
    13.8
    
    
    
    (7.8
    )
    
    
    2.9
    
    
    
    
    
    
    
    117.9Impairment and restructuring charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6.0
    
    
    
    
    
    
    
    
    
    
    
    6.0Management fees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12.3
    )
    
    
    12.3
    
    
    
    
    
    
    
    Acquisition related expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11.9
    
    
    
    
    
    
    
    
    
    
    
    11.9Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.9
    
    
    
    0.1
    
    
    
    
    
    
    
    3.0Total costs and expenses
    
    
    3.8
    
    
    
    109.0
    
    
    
    13.8
    
    
    
    2,571.8
    
    
    
    702.5
    
    
    
    (25.5
    )
    
    
    3,375.4Income (loss) from continuing operations
before income taxes
    
    
    (3.8
    )
    
    
    (109.0
    )
    
    
    (13.8
    )
    
    
    99.4
    
    
    
    45.9
    
    
    
    
    
    
    
    18.7Income tax benefit (expense)
    
    
    (11.7
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16.6
    )
    
    
    16.6
    
    
    
    (11.7
    )Equity in earnings of subsidiaries
    
    
    14.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14.5
    )
    
    
    Income (loss) from continuing operations
    
    
    (1.0
    )
    
    
    (109.0
    )
    
    
    (13.8
    )
    
    
    99.4
    
    
    
    29.3
    
    
    
    2.1
    
    
    
    7.0Loss from discontinued
operations, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3.6
    )
    
    
    (1.8
    )
    
    
    
    
    
    
    (5.4
    )Net income (loss)
    
    
    (1.0
    )
    
    
    (109.0
    )
    
    
    (13.8
    )
    
    
    95.8
    
    
    
    27.5
    
    
    
    2.1
    
    
    
    1.6Less: Net income attributable to non-
controlling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2.6
    )
    
    
    
    
    
    
    
    
    
    
    (2.6
    )Net income (loss) attributable to Vanguard
Health Systems, Inc. stockholders
    
    $
    (1.0
    )
    
    $
    (109.0
    )
    
    $
    (13.8
    )
    
    $
    93.2
    
    
    $
    27.5
    
    
    $
    2.1
    
    
    $
    (1.0
    )
  35




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 VANGUARD HEALTH SYSTEMS, INC.
Condensed Consolidating Statements of Cash Flows
For the nine months ended March 31, 2010
 Issuers of
    
    
    Issuers ofSenior
    
    
    Senior
    
    
    
    
    
    
    CombinedNotes and
    
    
    Discount
    
    
    Guarantor
    
    
    Non-
    
    
    
    
    
    
    TotalParent
    
    
    Term Debt
    
    
    Notes
    
    
    Subsidiaries
    
    
    Guarantors
    
    
    Eliminations
    
    
    Consolidated(In millions)Operating activities:Net income (loss)
    
    $
    (52.0
    )
    
    $
    (140.6
    )
    
    $
    (20.0
    )
    
    $
    51.8
    
    
    $
    28.8
    
    
    $
    82.1
    
    
    $
    (49.9
    )Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activitiesLoss (income) from discontinued
operations, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.9
    
    
    
    
    
    
    
    
    
    
    
    1.9Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    92.3
    
    
    
    9.6
    
    
    
    
    
    
    
    101.9Provision for doubtful accounts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    107.3
    
    
    
    5.7
    
    
    
    
    
    
    
    113.0Deferred income taxes
    
    
    (20.0
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20.0
    )Amortization of loan costs
    
    
    
    
    
    
    3.8
    
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.1Accretion of principal on senior discount
notes
    
    
    
    
    
    
    0.3
    
    
    
    5.8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6.1Debt extinguishment costs
    
    
    
    
    
    
    67.5
    
    
    
    5.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    73.2Loss on disposal of fixed assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.5
    
    
    
    
    
    
    
    
    
    
    
    0.5Stock compensation
    
    
    3.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.5Impairment loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43.1
    
    
    
    
    
    
    
    
    
    
    
    43.1Changes in operating assets and liabilities,
net of effects of acquisitions:Equity in earnings of subsidiaries
    
    
    66.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (66.5
    )
    
    
    Accounts receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (124.2
    )
    
    
    (8.3
    )
    
    
    
    
    
    
    (132.5
    )Inventories
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.0
    )
    
    
    0.1
    
    
    
    
    
    
    
    (0.9
    )Prepaid expenses and other current
assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22.1
    )
    
    
    9.3
    
    
    
    
    
    
    
    (12.8
    )Accounts payable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32.4
    
    
    
    7.8
    
    
    
    
    
    
    
    40.2Accrued expenses and other liabilities
    
    
    2.0
    
    
    
    (2.1
    )
    
    
    
    
    
    
    70.2
    
    
    
    (5.3
    )
    
    
    (15.6
    )
    
    
    49.2Net cash provided by (used in) operating
activities  continuing operations
    
    
    
    
    
    
    (71.1
    )
    
    
    (8.2
    )
    
    
    252.2
    
    
    
    47.7
    
    
    
    
    
    
    
    220.6Net cash used in operating
activities  discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.9
    )
    
    
    
    
    
    
    
    
    
    
    (1.9
    )Net cash provided by (used in)
operating activities
    
    
    
    
    
    
    (71.1
    )
    
    
    (8.2
    )
    
    
    250.3
    
    
    
    47.7
    
    
    
    
    
    
    
    218.7
  36




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 VANGUARD HEALTH SYSTEMS, INC.
Condensed Consolidating Statements of Cash Flows
For the nine months ended March 31, 2010
(Continued)
 Issuers of
    
    
    Issuers ofSenior
    
    
    Senior
    
    
    
    
    
    
    CombinedNotes and
    
    
    Discount
    
    
    Guarantor
    
    
    Non-
    
    
    
    
    
    
    TotalParent
    
    
    Term Debt
    
    
    Notes
    
    
    Subsidiaries
    
    
    Guarantors
    
    
    Eliminations
    
    
    Consolidated(In millions)Investing activities:Capital expenditures
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (107.4
    )
    
    $
    (3.7
    )
    
    $
    
    
    
    $
    (111.1
    )Acquisitions and related expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.5
    )
    
    
    
    
    
    
    
    
    
    
    (1.5
    )Proceeds from asset dispositions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.5
    
    
    
    
    
    
    
    
    
    
    
    1.5Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.3
    )
    
    
    
    
    
    
    
    
    
    
    (0.3
    )Net cash used in investing activities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (107.7
    )
    
    
    (3.7
    )
    
    
    
    
    
    
    (111.4
    )Financing activities:Payments of long-term debt
    
    
    
    
    
    
    (1,341.4
    )
    
    
    (216.0
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,557.4
    )Proceeds from debt borrowings
    
    
    
    
    
    
    1,751.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,751.3Payments of refinancing costs and fees
    
    
    
    
    
    
    (76.8
    )
    
    
    (13.3
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (90.1
    )Repurchases of stock
    
    
    (300.6
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (300.6
    )Financing portion of hedge interest
payments
    
    
    (6.0
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6.0
    )Cash provided by (used in) intercompany
activity
    
    
    306.6
    
    
    
    (262.0
    )
    
    
    237.5
    
    
    
    (154.8
    )
    
    
    (123.6
    )
    
    
    (3.7
    )
    
    
    Distributions paid to non-controlling
interests and other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6.1
    )
    
    
    3.7
    
    
    
    (2.4
    )Net cash provided by (used in) financing
activities
    
    
    
    
    
    
    71.1
    
    
    
    8.2
    
    
    
    (154.8
    )
    
    
    (129.7
    )
    
    
    
    
    
    
    (205.2
    )Net increase (decrease) in cash and cash
equivalents
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12.2
    )
    
    
    (85.7
    )
    
    
    
    
    
    
    (97.9
    )Cash and cash equivalents, beginning of
period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    168.3
    
    
    
    139.9
    
    
    
    
    
    
    
    308.2Cash and cash equivalents, end of period
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    156.1
    
    
    $
    54.2
    
    
    $
    
    
    
    $
    210.3
  37




---



##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 VANGUARD HEALTH SYSTEMS, INC.
Condensed Consolidating Statements of Cash Flows
For the nine months ended March 31, 2011
 Issuers of
    
    
    Issuers ofSenior
    
    
    Senior
    
    
    
    
    
    
    CombinedNotes and
    
    
    Discount
    
    
    Guarantor
    
    
    Non-
    
    
    
    
    
    
    TotalParent
    
    
    Term Debt
    
    
    Notes
    
    
    Subsidiaries
    
    
    Guarantors
    
    
    Eliminations
    
    
    Consolidated(In millions)Operating activities:Net income (loss)
    
    $
    (1.0
    )
    
    $
    (109.0
    )
    
    $
    (13.8
    )
    
    $
    95.8
    
    
    $
    27.5
    
    
    $
    2.1
    
    
    $
    1.6Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities:Loss from discontinued
operations, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.6
    
    
    
    1.8
    
    
    
    
    
    
    
    5.4Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    123.0
    
    
    
    8.6
    
    
    
    
    
    
    
    131.6Provision for doubtful accounts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    207.3
    
    
    
    6.8
    
    
    
    
    
    
    
    214.1Deferred income taxes
    
    
    6.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6.5Amortization of loan costs
    
    
    
    
    
    
    4.0
    
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.3Accretion of principal on senior discount
notes
    
    
    
    
    
    
    2.1
    
    
    
    8.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10.6Loss on disposal of assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.9
    
    
    
    
    
    
    
    
    
    
    
    0.9Stock compensation
    
    
    3.6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.6Impairment loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.9
    
    
    
    
    
    
    
    
    
    
    
    0.9Acquisition related expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11.9
    
    
    
    
    
    
    
    
    
    
    
    11.9Realized loss on investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    0.1Changes in operating assets and liabilities,
net of effects of acquisitions:Equity in earnings of subsidiaries
    
    
    (14.5
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14.5
    
    
    
    Accounts receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (303.8
    )
    
    
    (22.4
    )
    
    
    
    
    
    
    (326.2
    )Inventories
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.2
    )
    
    
    (0.1
    )
    
    
    
    
    
    
    (1.3
    )Prepaid expenses and other current
assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (36.6
    )
    
    
    75.8
    
    
    
    
    
    
    
    39.2Accounts payable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    45.0
    
    
    
    (12.2
    )
    
    
    
    
    
    
    32.8Accrued expenses and other liabilities
    
    
    5.4
    
    
    
    (14.3
    )
    
    
    5.0
    
    
    
    91.8
    
    
    
    11.5
    
    
    
    (20.0
    )
    
    
    79.4Net cash provided by (used in) operating
activities  continuing operations
    
    
    
    
    
    
    (117.2
    )
    
    
    
    
    
    
    238.6
    
    
    
    97.4
    
    
    
    (3.4
    )
    
    
    215.4Net cash used in operating
activities  discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3.6
    )
    
    
    (1.8
    )
    
    
    
    
    
    
    (5.4
    )Net cash provided by (used in)
operating activities
    
    
    
    
    
    
    (117.2
    )
    
    
    
    
    
    
    235.0
    
    
    
    95.6
    
    
    
    (3.4
    )
    
    
    210.0
  38




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##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 VANGUARD HEALTH SYSTEMS, INC.
Condensed Consolidating Statements of Cash Flows
For the nine months ended March 31, 2011
(Continued)
 Issuers of
    
    
    Issuers ofSenior
    
    
    Senior
    
    
    
    
    
    
    CombinedNotes and
    
    
    Discount
    
    
    Guarantor
    
    
    Non-
    
    
    
    
    
    
    TotalParent
    
    
    Term Debt
    
    
    Notes
    
    
    Subsidiaries
    
    
    Guarantors
    
    
    Eliminations
    
    
    Consolidated(In millions)Investing activities:Acquisitions and related expenses
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (463.9
    )
    
    $
    
    
    
    $
    
    
    
    $
    (463.9
    )Capital expenditures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (135.5
    )
    
    
    (3.6
    )
    
    
    
    
    
    
    (139.1
    )Proceeds from asset dispositions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.6
    
    
    
    
    
    
    
    
    
    
    
    1.6Net proceeds from sale of investments in
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    102.5
    
    
    
    8.4
    
    
    
    
    
    
    
    110.9Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3.7
    )
    
    
    
    
    
    
    
    
    
    
    (3.7
    )Net cash provided by (used in)
investing activities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (499.0
    )
    
    
    4.8
    
    
    
    
    
    
    
    (494.2
    )Financing activities:Payments of long-term debt and
capital lease obligations
    
    
    
    
    
    
    (6.1
    )
    
    
    
    
    
    
    (0.5
    )
    
    
    
    
    
    
    
    
    
    
    (6.6
    )Proceeds from debt borrowings
    
    
    
    
    
    
    566.6
    
    
    
    444.6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,011.2Payments of refinancing costs and fees
    
    
    
    
    
    
    (5.5
    )
    
    
    (20.2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25.7
    )Dividends to equity holders
    
    
    (447.2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (447.2
    )Distributions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7.1
    )
    
    
    4.4
    
    
    
    (2.7
    )Other financing activities
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.2Cash provided by (used in) intercompany
activity
    
    
    447.0
    
    
    
    (437.8
    )
    
    
    (424.4
    )
    
    
    512.8
    
    
    
    (96.6
    )
    
    
    (1.0
    )
    
    
    Net cash provided by (used in) financing
activities
    
    
    
    
    
    
    117.2
    
    
    
    
    
    
    
    512.3
    
    
    
    (103.7
    )
    
    
    3.4
    
    
    
    529.2Net increase (decrease) in cash and cash
equivalents
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    248.3
    
    
    
    (3.3
    )
    
    
    
    
    
    
    245.0Cash and cash equivalents, beginning of
period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    198.6
    
    
    
    59.0
    
    
    
    
    
    
    
    257.6Cash and cash equivalents, end of period
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    446.9
    
    
    $
    55.7
    
    
    $
    
    
    
    $
    502.6
  39




---



##### Table of Contents



VANGUARD HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 16. SUBSEQUENT EVENTS
 Registration Statement Filing
  Warrant Shares Replacement
   40




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 Forward-Looking Statements
   
    
    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
 
    
    Post-payment claims reviews by governmental agencies could result in additional costs to
us
 
    
    Our ability to successfully implement our business strategies
 
    
    Our ability to successfully integrate The Detroit Medical Center (DMC) acquired
effective January 1, 2011, two hospitals in metropolitan Chicago, Illinois acquired on
August 1, 2010 and future acquisitions
 
    
    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 industry, including Medicare and Medicaid reimbursement
levels
 
    
    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
 
    
    Potential federal or state reform of healthcare, implementation of existing reform
legislation and potential modifications to such legislation
 
    
    Future governmental investigations
 
    
    Our ability to adequately enhance our facilities with technologically advanced equipment
 
    
    The availability of capital to fund our corporate growth strategy
 
    
    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
 
    
    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 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 our failure to
comply, or allegations of our failure to comply, with applicable laws and regulations
  41




---



##### Table of Contents




    
    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
   42




---



##### Table of Contents



Executive Overview
    The Acquisitions
 The Detroit Medical Center
   The Resurrection Facilities
   43




---



##### Table of Contents



Arizona Heart Hospital and Arizona Heart Institute
  Operating Environment
  Payer Mix Shifts
  Health Reform Law
  Physician Alignment
   44




---



##### Table of Contents



Cost pressures
 nd
 Implementation of our Clinical Quality Initiatives
  Sources of Revenues
   
    
    the federal government, primarily under the Medicare program;
 
    
    state Medicaid programs;
 
    
    health maintenance organizations, preferred provider organizations, managed Medicare
providers, managed Medicaid providers and other private insurers; and
 
    
    individual patients
  45




---



##### Table of Contents



Three months ended March 31,
    
    
    Nine months ended March 31,2010
    
    
    2011
    
    
    2010
    
    
    2011Medicare
    
    
    26.2
    %
    
    
    25.5
    %
    
    
    25.6
    %
    
    
    25.6
    %Medicaid
    
    
    7.5
    %
    
    
    15.2
    %
    
    
    7.3
    %
    
    
    11.4
    %Managed Medicare
    
    
    14.9
    %
    
    
    9.9
    %
    
    
    14.9
    %
    
    
    12.3
    %Managed Medicaid
    
    
    9.2
    %
    
    
    9.4
    %
    
    
    9.6
    %
    
    
    9.2
    %Managed care
    
    
    34.6
    %
    
    
    30.3
    %
    
    
    34.8
    %
    
    
    32.2
    %Self pay
    
    
    6.5
    %
    
    
    9.0
    %
    
    
    6.7
    %
    
    
    8.4
    %Other
    
    
    1.1
    %
    
    
    0.7
    %
    
    
    1.1
    %
    
    
    0.9
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
  Volumes by Payer
  Three months ended March 31,
    
    
    Nine months ended March 31,2010
    
    
    2011
    
    
    2010
    
    
    2011Medicare
    
    
    11,953
    
    
    
    28.3
    %
    
    
    19,591
    
    
    
    29.2
    %
    
    
    34,653
    
    
    
    27.5
    %
    
    
    45,223
    
    
    
    28.5
    %Medicaid
    
    
    3,693
    
    
    
    8.7
    %
    
    
    6,783
    
    
    
    10.1
    %
    
    
    10,957
    
    
    
    8.7
    %
    
    
    16,354
    
    
    
    10.3
    %Managed Medicare
    
    
    7,067
    
    
    
    16.7
    %
    
    
    9,091
    
    
    
    13.6
    %
    
    
    20,522
    
    
    
    16.3
    %
    
    
    23,538
    
    
    
    14.8
    %Managed Medicaid
    
    
    6,364
    
    
    
    15.1
    %
    
    
    12,051
    
    
    
    18.0
    %
    
    
    19,317
    
    
    
    15.3
    %
    
    
    25,499
    
    
    
    16.1
    %Managed care
    
    
    11,087
    
    
    
    26.2
    %
    
    
    15,234
    
    
    
    22.7
    %
    
    
    34,015
    
    
    
    26.9
    %
    
    
    38,499
    
    
    
    24.2
    %Self pay
    
    
    1,963
    
    
    
    4.6
    %
    
    
    3,887
    
    
    
    5.8
    %
    
    
    6,226
    
    
    
    4.9
    %
    
    
    8,915
    
    
    
    5.6
    %Other
    
    
    166
    
    
    
    0.4
    %
    
    
    353
    
    
    
    0.5
    %
    
    
    521
    
    
    
    0.4
    %
    
    
    742
    
    
    
    0.5
    %Total
    
    
    42,293
    
    
    
    100.0
    %
    
    
    66,990
    
    
    
    100.0
    %
    
    
    126,211
    
    
    
    100.0
    %
    
    
    158,770
    
    
    
    100.0
    %
 Payer Reimbursement Trends
   46




---



##### Table of Contents



Accounts Receivable Collection Risks Leading to Increased Bad Debts
  June 30, 2010
    
    0-90 days
    
    
    91-180 days
    
    
    Over 180 days
    
    
    TotalMedicare
    
    
    17.7
    %
    
    
    0.4
    %
    
    
    0.3
    %
    
    
    18.4
    %Medicaid
    
    
    5.6
    %
    
    
    0.6
    %
    
    
    0.9
    %
    
    
    7.1
    %Managed Medicare
    
    
    11.3
    %
    
    
    0.7
    %
    
    
    0.6
    %
    
    
    12.6
    %Managed Medicaid
    
    
    7.4
    %
    
    
    0.4
    %
    
    
    0.3
    %
    
    
    8.1
    %Managed care
    
    
    27.1
    %
    
    
    1.9
    %
    
    
    1.1
    %
    
    
    30.1
    %Self pay(1)
    
    
    10.2
    %
    
    
    3.1
    %
    
    
    0.7
    %
    
    
    14.0
    %Self pay after primary(2)
    
    
    2.5
    %
    
    
    3.3
    %
    
    
    0.8
    %
    
    
    6.6
    %Other
    
    
    2.1
    %
    
    
    0.6
    %
    
    
    0.4
    %
    
    
    3.1
    %Total
    
    
    83.9
    %
    
    
    11.0
    %
    
    
    5.1
    %
    
    
    100.0
    %
 March 31, 2011
    
    0-90 days
    
    
    91-180 days
    
    
    Over 180 days
    
    
    TotalMedicare
    
    
    17.0
    %
    
    
    1.0
    %
    
    
    0.7
    %
    
    
    18.7
    %Medicaid
    
    
    7.0
    %
    
    
    1.5
    %
    
    
    1.3
    %
    
    
    9.8
    %Managed Medicare
    
    
    7.9
    %
    
    
    0.5
    %
    
    
    0.3
    %
    
    
    8.7
    %Managed Medicaid
    
    
    13.3
    %
    
    
    1.1
    %
    
    
    1.1
    %
    
    
    15.5
    %Managed care
    
    
    22.0
    %
    
    
    2.0
    %
    
    
    1.4
    %
    
    
    25.4
    %Self pay(1)
    
    
    10.8
    %
    
    
    2.6
    %
    
    
    1.1
    %
    
    
    14.5
    %Self pay after primary(2)
    
    
    1.8
    %
    
    
    1.7
    %
    
    
    0.7
    %
    
    
    4.2
    %Other
    
    
    1.9
    %
    
    
    0.6
    %
    
    
    0.7
    %
    
    
    3.2
    %Total
    
    
    81.7
    %
    
    
    11.0
    %
    
    
    7.3
    %
    
    
    100.0
    %
 
 (1)
    
    Includes uninsured patient accounts only.(2)
    
    Includes patient co-insurance and deductible amounts after payment has been received from the primary payer.   Governmental and Managed Care Payer Reimbursement
   47




---



##### Table of Contents



Premium Revenues
   Critical Accounting Policies
  
    
    Revenues and revenue deductions
 
    
    Allowance for doubtful accounts and provision for doubtful accounts
 
  48




---



##### Table of Contents




    
    Insurance reserves
 
    
    Health plan claims reserves and settlements
 
    
    Income taxes
 
    
    Long-lived assets and goodwill
  DMC Pension Plan
      
    
    Discount rate  A 50 basis point increase in discount rate would
increase our pension plan expense by $1.5 million and would decrease
the pension benefit obligation by approximately $56.3 million.
 
    
    Expected return on assets  A 50 basis point increase in the expected
return on assets would decrease our pension plan expense by
approximately $3.7 million.
   49




---



##### Table of Contents



Selected Operating Statistics
  Three months ended March 31,
    
    
    Nine months ended March 31,CONSOLIDATED:
    
    2010
    
    
    2011
    
    
    2010
    
    
    2011Number of hospitals at end of period
    
    
    15
    
    
    
    26
    
    
    
    15
    
    
    
    26Licensed beds at end of period
    
    
    4,135
    
    
    
    6,280
    
    
    
    4,135
    
    
    
    6,280Discharges (a)
    
    
    42,293
    
    
    
    66,990
    
    
    
    126,211
    
    
    
    158,770Adjusted discharges (a)
    
    
    73,419
    
    
    
    119,573
    
    
    
    220,063
    
    
    
    283,739Adjusted discharges  hospitals (a)
    
    
    69,646
    
    
    
    111,692
    
    
    
    208,763
    
    
    
    267,584Average length of stay (a)
    
    
    4.27
    
    
    
    4.60
    
    
    
    4.19
    
    
    
    4.35Patient days (a)
    
    
    180,672
    
    
    
    308,183
    
    
    
    528,877
    
    
    
    690,560Adjusted patient days (a)
    
    
    313,638
    
    
    
    550,086
    
    
    
    922,157
    
    
    
    1,234,103Adjusted patient days  hospitals (a)
    
    
    297,522
    
    
    
    513,833
    
    
    
    874,803
    
    
    
    1,163,840Patient revenue per adjusted discharge (a)
    
    $
    8,624
    
    
    $
    10,507
    
    
    $
    8,410
    
    
    $
    9,392Patient revenue per adjusted discharge 
hospitals (a)
    
    $
    8,737
    
    
    $
    10,733
    
    
    $
    8,502
    
    
    $
    9,172Inpatient surgeries (a)
    
    
    9,188
    
    
    
    15,181
    
    
    
    28,076
    
    
    
    34,764Outpatient surgeries (a)
    
    
    18,425
    
    
    
    28,932
    
    
    
    56,885
    
    
    
    67,823Emergency room visits (a)
    
    
    154,987
    
    
    
    291,722
    
    
    
    465,714
    
    
    
    643,085Occupancy rate (a)
    
    
    48.5
    %
    
    
    54.5
    %
    
    
    46.7
    %
    
    
    40.1
    %Member lives (a)
    
    
    240,300
    
    
    
    242,300
    
    
    
    240,300
    
    
    
    242,300Health plan claims expense percentage (a)
    
    
    79.5
    %
    
    
    79.1
    %
    
    
    79.6
    %
    
    
    78.6
    %
 Three months ended March 31,
    
    
    Nine months ended March 31,SAME HOSPITAL (b):
    
    2010
    
    
    2011
    
    
    2010
    
    
    2011Number of hospitals at end of period
    
    
    15
    
    
    
    15
    
    
    
    15
    
    
    
    15Licensed beds at end of period
    
    
    4,135
    
    
    
    4,029
    
    
    
    4,135
    
    
    
    4,029Patient service revenues (in millions)
    
    $
    646.7
    
    
    $
    691.1
    
    
    $
    1,890.5
    
    
    $
    1,991.9Discharges
    
    
    42,293
    
    
    
    42,979
    
    
    
    126,211
    
    
    
    126,848Adjusted discharges
    
    
    73,419
    
    
    
    76,335
    
    
    
    220,063
    
    
    
    226,648Adjusted discharges  hospitals
    
    
    69,646
    
    
    
    72,092
    
    
    
    208,763
    
    
    
    214,432Average length of stay
    
    
    4.27
    
    
    
    4.27
    
    
    
    4.19
    
    
    
    4.18Patient days
    
    
    180,672
    
    
    
    183,721
    
    
    
    528,877
    
    
    
    530,194Adjusted patient days
    
    
    313,638
    
    
    
    326,309
    
    
    
    922,157
    
    
    
    947,336Adjusted patient days  hospitals
    
    
    297,522
    
    
    
    308,168
    
    
    
    874,803
    
    
    
    896,272Patient revenue per adjusted discharge
    
    $
    8,624
    
    
    $
    8,863
    
    
    $
    8,410
    
    
    $
    8,605Patient revenue per adjusted discharge  hospitals
    
    $
    8,737
    
    
    $
    8,813
    
    
    $
    8,502
    
    
    $
    8,642Inpatient surgeries
    
    
    9,188
    
    
    
    9,034
    
    
    
    28,076
    
    
    
    26,780Outpatient surgeries
    
    
    18,425
    
    
    
    17,675
    
    
    
    56,885
    
    
    
    53,928Emergency room visits
    
    
    154,987
    
    
    
    175,274
    
    
    
    465,714
    
    
    
    496,209Occupancy rate
    
    
    48.5
    %
    
    
    50.7
    %
    
    
    46.7
    %
    
    
    48.0
    %
 
 (a)
    
    The definitions for the statistics included above are set forth in
Part 2, Item 7, Managements Discussion and Analysis of Financial
Condition and Results of Operations, Selected Operating Statistics
in our June 30, 2010 10-K.(b)
    
    Same hospital results exclude those facilities that we did not own for
the respective full three-month comparative periods or the full
nine-month comparative periods of both years.  50




---



##### Table of Contents



Results of Operations
  Three months ended March 31,2010
    
    
    2011Patient service revenues
    
    $
    646.7
    
    
    
    75.4
    %
    
    $
    1,305.7
    
    
    
    85.9
    %Premium revenues
    
    
    211.4
    
    
    
    24.6
    %
    
    
    213.9
    
    
    
    14.1
    %Total revenues
    
    
    858.1
    
    
    
    100.0
    %
    
    
    1,519.6
    
    
    
    100.0
    %Costs and expenses:Salaries and benefits (includes stock
compensation of $0.6 and $0.7,
respectively)
    
    
    327.0
    
    
    
    38.1
    %
    
    
    650.9
    
    
    
    42.8
    %Health plan claims expense
    
    
    168.1
    
    
    
    19.6
    %
    
    
    169.1
    
    
    
    11.1
    %Supplies
    
    
    114.0
    
    
    
    13.3
    %
    
    
    207.8
    
    
    
    13.7
    %Provision for doubtful accounts
    
    
    40.8
    
    
    
    4.8
    %
    
    
    111.1
    
    
    
    7.3
    %Other operating expenses
    
    
    118.3
    
    
    
    13.8
    %
    
    
    252.8
    
    
    
    16.6
    %Depreciation and amortization
    
    
    34.3
    
    
    
    4.0
    %
    
    
    55.8
    
    
    
    3.7
    %Interest, net
    
    
    29.9
    
    
    
    3.5
    %
    
    
    48.0
    
    
    
    3.2
    %Debt extinguishment costs
    
    
    73.2
    
    
    
    8.5
    %
    
    
    
    
    
    
    0.0
    %Impairment and restructuring charges
    
    
    
    
    
    
    0.0
    %
    
    
    5.1
    
    
    
    0.3
    %Acquisition related expenses
    
    
    
    
    
    
    0.0
    %
    
    
    6.9
    
    
    
    0.3
    %Other
    
    
    0.9
    
    
    
    0.1
    %
    
    
    0.9
    
    
    
    0.1
    %Income (loss) from continuing operations
before income taxes
    
    
    (48.4
    )
    
    
    (5.6
    )%
    
    
    11.2
    
    
    
    0.7
    %Income tax benefit (expense)
    
    
    16.5
    
    
    
    1.9
    %
    
    
    (4.4
    )
    
    
    (0.3
    )%Income (loss) from continuing operations
    
    
    (31.9
    )
    
    
    (3.7
    )%
    
    
    6.8
    
    
    
    0.4
    %Loss from discontinued operations
net of taxes
    
    
    (0.5
    )
    
    
    (0.1
    )%
    
    
    (3.2
    )
    
    
    (0.2
    )%Net income (loss)
    
    
    (32.4
    )
    
    
    (3.8
    )%
    
    
    3.6
    
    
    
    0.2
    %Less: Net income attributable to
non-controlling interests
    
    
    (0.4
    )
    
    
    (0.0
    )%
    
    
    (0.8
    )
    
    
    (0.0
    )%Net income (loss) attributable to Vanguard
Health Systems, Inc. stockholders
    
    $
    (32.8
    )
    
    
    (3.8
    )%
    
    $
    2.8
    
    
    
    0.2
    %
  51




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Nine months ended March 31,2010
    
    
    2011Patient service revenues
    
    $
    1,890.5
    
    
    
    75.1
    %
    
    $
    2,747.8
    
    
    
    81.0
    %Premium revenues
    
    
    628.0
    
    
    
    24.9
    %
    
    
    646.3
    
    
    
    19.0
    %Total revenues
    
    
    2,518.5
    
    
    
    100.0
    %
    
    
    3,394.1
    
    
    
    100.0
    %Costs and expenses:Salaries and benefits (includes stock
compensation of $3.5 and $3.6,
respectively)
    
    
    962.6
    
    
    
    38.2
    %
    
    
    1,381.2
    
    
    
    40.7
    %Health plan claims expense
    
    
    499.9
    
    
    
    19.8
    %
    
    
    508.0
    
    
    
    15.0
    %Supplies
    
    
    339.4
    
    
    
    13.5
    %
    
    
    462.3
    
    
    
    13.6
    %Provision for doubtful accounts
    
    
    113.0
    
    
    
    4.5
    %
    
    
    214.1
    
    
    
    6.3
    %Other operating expenses
    
    
    363.4
    
    
    
    14.4
    %
    
    
    539.4
    
    
    
    15.9
    %Depreciation and amortization
    
    
    101.9
    
    
    
    4.0
    %
    
    
    131.6
    
    
    
    3.9
    %Interest, net
    
    
    84.7
    
    
    
    3.4
    %
    
    
    117.9
    
    
    
    3.5
    %Debt extinguishment costs
    
    
    73.2
    
    
    
    2.9
    %
    
    
    
    
    
    
    0.0
    %Impairment and restructuring charges
    
    
    43.1
    
    
    
    1.7
    %
    
    
    6.0
    
    
    
    0.2
    %Acquisition related expenses
    
    
    
    
    
    
    0.0
    %
    
    
    11.9
    
    
    
    0.4
    %Other
    
    
    3.5
    
    
    
    0.1
    %
    
    
    3.0
    
    
    
    0.1
    %Income (loss) from continuing operations
before income taxes
    
    
    (66.2
    )
    
    
    (2.6
    )%
    
    
    18.7
    
    
    
    0.6
    %Income tax benefit (expense)
    
    
    18.2
    
    
    
    0.7
    %
    
    
    (11.7
    )
    
    
    (0.3
    )%Income (loss) from continuing operations
    
    
    (48.0
    )
    
    
    (1.9
    )%
    
    
    7.0
    
    
    
    0.2
    %Loss from discontinued operations
net of taxes
    
    
    (1.9
    )
    
    
    (0.1
    )%
    
    
    (5.4
    )
    
    
    (0.2
    )%Net income (loss) attributable to Vanguard
    
    
    (49.9
    )
    
    
    (2.0
    )%
    
    
    1.6
    
    
    
    0.0
    %Less: Net income attributable to
non-controlling interests
    
    
    (2.1
    )
    
    
    (0.1
    )%
    
    
    (2.6
    )
    
    
    (0.1
    )%Net income (loss) attributable to Vanguard
Health Systems, Inc. stockholders
    
    $
    (52.0
    )
    
    
    (2.1
    )%
    
    $
    (1.0
    )
    
    
    (0.0
    )%
  52




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Three months ended March 31, 2011 compared to three months ended March 31, 2010
 Revenues
   Costs and expenses
 
    
    Salaries and benefits. Salaries and benefits as a percentage of
total revenues increased to 42.8% during the current year
quarter compared to 38.1% for the prior year quarter. On a same
hospital basis, salaries and benefits as a percentage of total
revenues was 37.8% during the current quarter. We continue to
employ more physicians to support the communities our hospitals
serve and have made significant investments in clinical quality
initiatives that required additional human resources during the
three months ended March 31, 2011 compared to the prior year
quarter. As of March 31, 2011, we had approximately 38,500
full-time and part-time employees compared to approximately
19,800 as of March 31, 2010. On a same hospital basis, the
number of full-time and part-time employees increased
approximately 2.1% when compared to the prior year. In our same
store hospitals we have been successful in limiting contract
labor utilization as a result of our investments in clinical
quality and nurse leadership initiatives. Our contract labor
expense as a percentage of patient service revenues increased to
1.3% for the three months ended March 31, 2011 compared to 1.2%
for the prior year quarter primarily due to our recent
acquisition of DMC.
  53




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
    
    Health plan claims. Health plan claims expense as a percentage
of premium revenues was 79.1% for the three months ended March
31, 2011 compared to 79.5% for the prior year quarter. As
enrollment increases, this ratio becomes especially sensitive to
the mix of members, including covered groups based upon age and
gender and county of residence. We may experience negative
trending in this ratio if our membership mix becomes more acute
or AHCCCS implements further limits on profitability for certain
member groups during the remaining term of the AHCCCS contract.
Revenues and expenses between the health plans and our hospitals
and related outpatient service providers of approximately $11.4
million, or 6.3% of gross health plan claims expense, were
eliminated in consolidation during the current year quarter.
 
    
    Supplies. Supplies as a percentage of acute care services
segment revenues decreased to 15.8% during the current year
quarter compared to 17.3% during the prior year quarter. This
decrease was positively impacted by the lower surgery volumes
experienced during the current year quarter compared to the
prior year quarter on a same hospital basis. We also continued
our focus on supply chain efficiencies including reduction in
physician commodity variation and improved pharmacy formulary
management during the current year quarter. Our ability to
reduce this ratio in future years may be limited because our
growth strategies include expansion of higher acuity services
and due to inflationary pressures on medical supplies and
pharmaceuticals.
 
    
    Provision for doubtful accounts. The provision for doubtful
accounts as a percentage of acute care services segment revenues
increased to 8.4% during the current year quarter from 6.2%
during the prior year quarter. On a combined basis, the
provision for doubtful accounts, charity care deductions and
uninsured discounts as a percentage of acute care services
segment revenues (prior to these revenue deductions) was 15.1%
and 15.5% for the three months ended March 31, 2010 and 2011,
respectively. The quarter over quarter increases in these ratios
resulted from increases in self pay discharges as a percentage
of total discharges and price increases in certain markets
implemented during the current year quarter compared to the
prior year quarter.
 Other operating expenses
 Other
 Income taxes
 Net income (loss) attributable to Vanguard Health Systems, Inc. stockholders
 Nine months ended March 31, 2011 compared to nine months ended March 31, 2010
 Revenues
  54




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Costs and expenses
 
    
    Salaries and benefits. Salaries and benefits as a percentage of
total revenues increased to 40.7% during the current year period compared to 38.2%
for the prior year period. We continue to
employ more physicians to support the communities our hospitals
serve and have made significant investments in clinical quality
initiatives that required additional human resources during the
nine months ended March 31, 2011 compared to the prior year. In
our same store hospitals we have been successful in limiting
contract labor utilization as a result of our investments in
clinical quality and nurse leadership initiatives. Our contract
labor expense as a percentage of patient service revenues
decreased to 1.0% for the nine months ended March 31, 2011
compared to 1.3% for the prior year period.
    
    Health plan claims. Health plan claims expense as a percentage
of premium revenues was 78.6% for the nine months ended March
31, 2011 compared to 79.6% for the prior year period. Revenues
and expenses between the health plans and our hospitals and
related outpatient service providers of approximately $33.2
million, or 6.1% of gross health plan claims expense, were
eliminated in consolidation during the current year period.
    
    Supplies. Supplies as a percentage of acute care services
segment revenues decreased to 16.6% during the current year
period compared to 17.7% during the prior year period. This decrease was
positively impacted by the lower surgery volumes experienced
during the current year.
    
    Provision for doubtful accounts. The provision for doubtful
accounts as a percentage of acute care services segment revenues
increased to 7.7% during the current year period from 5.9% during the
prior year period. On a combined basis, the provision for doubtful
accounts, charity care deductions and uninsured discounts as a
percentage of acute care services segment revenues (prior to
these revenue deductions) was 15.7% and 16.3% for the nine
months ended March 31, 2010 and 2011, respectively. The period
over period increases in these ratios resulted from increases in
self pay discharges as a percentage of total discharges and
price increases implemented during the current year period compared to
the prior year period.
 Other operating expenses
 Other
 Income taxes
  55




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Net loss attributable to Vanguard Health Systems, Inc. stockholders
 Liquidity and Capital Resources
 Operating Activities
  Investing Activities
  Financing Activities
     56




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Debt Covenants
  Debt
    
    
    ActualCovenant Ratio
    
    
    RatioInterest coverage ratio requirement
    
    
    2.00
    x
    
    
    3.64
    xTotal leverage ratio limit
    
    
    6.25
    x
    
    
    3.47
    x
  Capital Resources
    57




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
    
    Completed acquisition of DMCEffective January 1, 2011, we purchased the DMC system,
which owns and operates eight hospitals in and around Detroit, Michigan with 1,734 licensed
beds for a cash purchase price of $363.3 million. We also assumed a frozen defined
benefit pension liability (estimated at approximately $228.0 million as of December 31,
2010 that we expect to fund over 15 years based upon actuarial assumptions and estimates,
as adjusted periodically by actuaries) as part of the acquisition. Additionally, we
committed to make $350.0 million in routine capital expenditures and $500.0 in capital
expenditures related to a specific project list agreed to by DMC and us as part of the
acquisition. Notwithstanding these $350.0 million and $500.0 million capital commitments,
if in the future we should pay any amounts to any governmental agency (each a Special
Payment), and the Special Payment arises out of a violation or alleged violation by DMC
prior to the closing of the DMC acquisition of certain stipulated healthcare laws, then, if
and to the extent that the Special Payment, individually or together with all previous
Special Payments exceeds $25.0 million (the Special Payment Threshold), we shall have the
right to apply the amount of the Special Payment, but only to the extent the Special
Payment Threshold has been exceeded (the Excess Payment), as follows: (i) the first $10.0
million of such Excess Payment in any particular year shall be applied against our
obligation to make routine capital expenditures during such year and (ii) any remaining
portion of the Excess Payment in any particular year which has not been so applied as
described above shall be applied against our $500.0 million capital commitment related to
specific projects. To collateralize this commitment, concurrent with the closing of the
transaction, we placed into escrow for the benefit of DMC a warrant certificate
representing warrants in respect of 400,000 shares of our common stock (the Warrant
Shares). The number of Warrant Shares outstanding is reduced proportionately as we expend
capital or escrow cash related to our capital commitments. We are in the process of
replacing the Warrant Shares with a contingent note payable to the legacy DMC entity to
collateralize these commitments, as permitted by our purchase agreement relating to DMC.
  58




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Obligations and Commitments
  Payments due by periodWithin
    
    
    During
    
    
    During
    
    
    After1 year
    
    
    Years 2-3
    
    
    Years 4-5
    
    
    5 Years
    
    
    Total(In millions)Contractual Cash Obligations:Long-term debt (1)
    
    $
    199.5
    
    
    $
    393.5
    
    
    $
    1,145.9
    
    
    $
    2,567.5
    
    
    $
    4,306.4Operating leases (2)
    
    
    42.4
    
    
    
    64.1
    
    
    
    42.8
    
    
    
    47.2
    
    
    
    196.5Purchase obligations (2)
    
    
    83.6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    83.6Defined benefit pension plan funding (3)
    
    
    25.3
    
    
    
    67.2
    
    
    
    44.4
    
    
    
    9.5
    
    
    
    146.4Health plan claims and settlements payable (4)
    
    
    32.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32.0Estimated self-insurance liabilities (5)
    
    
    75.1
    
    
    
    138.1
    
    
    
    90.2
    
    
    
    92.0
    
    
    
    395.4Subtotal
    
    $
    457.9
    
    
    $
    662.9
    
    
    $
    1,323.3
    
    
    $
    2,716.2
    
    
    $
    5,160.3Payments due by periodWithin
    
    
    During
    
    
    During
    
    
    After1 year
    
    
    Years 2-3
    
    
    Years 4-5
    
    
    5 Years
    
    
    Total(In millions)Other Commitments:Construction and capital improvements (6)
    
    $
    186.1
    
    
    $
    300.0
    
    
    $
    400.0
    
    
    $
    
    
    
    $
    886.1Guarantees of surety bonds (7)
    
    
    55.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    55.0Letters of credit (8)
    
    
    
    
    
    
    
    
    
    
    36.1
    
    
    
    
    
    
    
    36.1Physician commitments (9)
    
    
    4.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.4Estimated liability for uncertain tax positions (10)
    
    
    12.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12.4Subtotal
    
    $
    257.9
    
    
    $
    300.0
    
    
    $
    436.1
    
    
    $
    
    
    
    $
    994.0Total obligations and commitments
    
    $
    715.8
    
    
    $
    962.9
    
    
    $
    1,759.4
    
    
    $
    2,716.2
    
    
    $
    6,154.3
 
 (1)
    
    Includes both principal and interest payments. The interest portion of our debt
outstanding at March 31, 2011 assumes an average interest rate of 8.0%.(2)
    
    These obligations are not reflected in our condensed consolidated balance sheets.(3)
    
    Represents an estimate of the minimum required funding to the DMC Pension Plan trust.(4)
    
    Represents health claims incurred by members of PHP, AAHP and MHP, including incurred but
not reported claims, and net amounts payable for program settlements to AHCCCS and CMS for
certain programs for which profitability is limited. Accrued health plan claims and
settlements are separately stated on our condensed consolidated balance sheets.(5)
    
    Includes the current and long-term portions of our professional and general liability,
workers compensation and employee health reserves.(6)
    
    Represents our estimate of amounts we are committed to fund in future periods through
executed agreements to complete projects included as property, plant and equipment on our
condensed consolidated balance sheets. The construction and capital improvements
obligations, adjusted to reflect capital commitments under the executed DMC Purchase
Agreement (as previously discussed) include the following as of March 31, 2011: $150.0
million committed within one year; $300.0 million committed within two to three years and
$400.0 million committed within four to five years.(7)
    
    Represents performance bonds we have purchased related to health claims liabilities of PHP.(8)
    
    Amounts relate primarily to instances in which we have letters of credit outstanding with
the third party administrator of our self-insured workers compensation program.(9)
    
    Includes physician guarantee liabilities recognized in our condensed consolidated balance
sheets under the guidance of accounting for guarantees and liabilities for other fixed
expenses under physician relocation agreements not yet paid.(10)
    
    Represents expected future tax liabilities recognized in our condensed consolidated
balance sheets determined under the guidance of accounting for income taxes.  59




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Off-Balance Sheet Arrangements
   
 Item 3. Quantitative and Qualitative Disclosures About Market Risk.
       60




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##### Table of Contents



Item 4. Controls and Procedures.
 Evaluation of Disclosure Control and Procedures
  Changes in Internal Control Over Financial Reporting
   61




---



##### Table of Contents



PART II
OTHER INFORMATION
 
 Item 1A. Risk Factors
  Risks Related to Our Indebtedness
 Our high level of debt and significant leverage may adversely affect our operations and our
ability to grow and otherwise execute our business strategy.
   
    
    our high level of indebtedness could make it more difficult for us to satisfy our
obligations with respect to the 8% Senior Notes, the 7.75% Senior Notes and Senior Discount
Notes, including any repurchase obligations that may arise thereunder;
 
    
    limit our ability to obtain additional financing to fund future capital expenditures,
working capital, acquisitions or other needs;
 
    
    increase our vulnerability to general adverse economic, market and industry conditions
and limit our flexibility in planning for, or reacting to, these conditions;
 
    
    make us vulnerable to increases in interest rates since all of our borrowings under our
2010 Credit Facilities are, and additional borrowings may be, at variable interest rates;
 
    
    our flexibility to adjust to changing market conditions and ability to withstand
competitive pressures could be limited, and we may be more vulnerable to a downturn in
general economic or industry conditions or be unable to carry out capital spending that is
necessary or important to our growth strategy and our efforts to improve operating margins;
 
    
    limit our ability to use operating cash in other areas of our business because we must
use a substantial portion of these funds to make principal and interest payments; and
 
    
    limit our ability to compete with others who are not as highly-leveraged.
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Despite our current leverage, we may still be able to incur substantially more debt. This could
further exacerbate the risks that we and our subsidiaries face.
  An increase in interest rates would increase the cost of servicing our debt and could reduce our
profitability.
  Operating and financial restrictions in our debt agreements limit our operational and financial
flexibility.
  
    
    incur additional indebtedness or issue preferred stock;
 
    
    pay dividends on or make other distributions or repurchase our capital stock or make
other restricted payments;
 
    
    make investments;
 
    
    enter into certain transactions with affiliates;
 
    
    limit dividends or other payments by restricted subsidiaries to the issuers of the notes
or other restricted subsidiaries;
 
    
    create liens without securing the notes;
 
    
    designate our subsidiaries as unrestricted subsidiaries; and
 
    
    sell certain assets or merge with or into other companies or otherwise dispose of all or
substantially all of our assets.
  63




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We may not be able to generate sufficient cash to service all of our indebtedness and may be
forced to take other actions to satisfy our obligations under our indebtedness, which may not be
successful.
   We are controlled by a small number of stockholders and they may have conflicts of interest with
us in the future.
   64




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##### Table of Contents



Risks Related to Our Business and Structure
 The current challenging economic environment, along with difficult and volatile conditions in the
capital and credit markets, could materially adversely affect our financial position, results of
operations or cash flows, and we are unsure whether these conditions will improve in the near
future.
  
    
    Our concentration of operations in a small number of regions, and the impact of economic
downturns in those communities. To the extent the communities in and around San Antonio,
Texas; Phoenix, Arizona; Chicago, Illinois; Detroit, Michigan; or certain communities in
Massachusetts experience a greater degree of economic weakness than average, the adverse
impact on our operations could be magnified.
 
    
    Our revenues may decline if federal or state programs reduce our Medicare or Medicaid
payments or managed care companies (including managed Medicare and managed Medicaid payers)
reduce our reimbursement. Current economic conditions have accelerated and increased the
budget deficits for most states, including those in which we operate. These budgetary
pressures may result in healthcare payment reductions under state Medicaid plans or reduced
benefits to participants in those plans. Also, governmental, managed Medicare or managed
Medicaid payers may defer payments to us to conserve cash. Managed care companies may also
seek to reduce payment rates or limit payment rate increases to hospitals in response to
reductions in enrolled participants.
 
    
    Our hospitals face a growth in uncompensated care as the result of the inability of
uninsured patients to pay for healthcare services and difficulties in collecting patient
portions of insured accounts. Higher unemployment, Medicaid benefit reductions and employer
efforts to reduce employee healthcare costs may increase our exposure to uncollectible
accounts for uninsured patients or those patients with higher co-pay and deductible limits.
 
    
    Under extreme market conditions, there can be no assurance that funds necessary to run
our business will be available to us on favorable terms or at all. Most of our cash and
borrowing capacity under our 2010 Revolving Facility and our 2010 Term Loan Facility will be
held with a limited number of financial institutions, which could increase our liquidity
risk if one or more of those institutions become financially strained or are no longer able
to operate.
  We are unable to predict the impact of the Health Reform Law, which represents significant change
to the healthcare industry.
    65




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##### Table of Contents




    
    how many previously uninsured individuals will obtain coverage as a result of the Health
Reform Law (while the Congressional Budget Office (CBO) estimates 32 million, the Centers
for Medicare & Medicaid Services (CMS) estimates almost 34 million; both agencies made a
number of assumptions to derive that figure, including how many individuals will ignore
substantial subsidies and decide to pay the penalty rather than obtain health insurance and
what percentage of people in the future will meet the new Medicaid income eligibility
requirements);
 
    
    what percentage of the newly insured patients will be covered under the Medicaid program
and what percentage will be covered by private health insurers;
 
    
    the extent to which states will enroll new Medicaid participants in managed care
programs;
 
    
    the pace at which insurance coverage expands, including the pace of different types of
coverage expansion;
 
    
    the change, if any, in the volume of inpatient and outpatient hospital services that are
sought by and provided to previously uninsured individuals;
 
    
    the rate paid to hospitals by private payers for newly covered individuals, including
those covered through the newly created American Health Benefit Exchanges (Exchanges) and
those who might be covered under the Medicaid program under contracts with the state;
 
    
    the rate paid by state governments under the Medicaid program for newly covered
individuals;
 
    
    how the value-based purchasing and other quality programs will be implemented;
 
    
    the percentage of individuals in the Exchanges who select the high deductible plans,
since health insurers offering those kinds of products have traditionally sought to pay
lower rates to hospitals;
 
    
    the extent to which the net effect of the Health Reform Law, including the prohibition on
excluding individuals based on pre-existing conditions, the requirement to keep medical
costs lower than a specified percentage of premium revenue, other health insurance reforms
and the annual fee applied to all health insurers, will put pressure on the profitability of
health insurers, which in turn might cause them to seek to reduce payments to hospitals with
respect to both newly insured individuals and their existing business;
 
    
    the possibility that implementation of provisions expanding health insurance coverage
will be delayed or even blocked due to court challenges or revised or eliminated as a result
of efforts to repeal or amend the new law. Twenty-nine states and various private groups
have challenged the constitutionality of the Health Reform Law in federal courts and lower
courts have issued conflicting rulings on the constitutionality of the Health Reform Law,
including specifically, the requirement that individuals maintain health insurance or pay a
penalty. The Courts of Appeal for the Fourth, Sixth and Eleventh Circuits granted expedited
review of conflicting lower court rulings. All three cases are scheduled to be heard in the
first half of 2011. The Eleventh Circuit will review a Florida district court case in which
the lower court ruled that the unconstitutional sections could not be severed thus rendering
the entire Health Reform Law unconstitutional. On February 17, 2011, government attorneys
filed a motion asking the district court to clarify that, pending appeal, the ruling was not
intended to have an injunctive impact on currently-effective sections of the Health Reform
Law or to halt implementation of those provisions of the Health Reform Law about to take
effect. In response to the governments motion, on March 3, 2011, the Florida district court
stayed its decision pending appeal and the Department of Justice, on April 1, 2011, filed an
appeal seeking expedited review from the Eleventh Circuit. On February 8, 2011, Virginia
Attorney General Kenneth Cuccinelli filed a petition seeking expedited U.S. Supreme Court
review of a Virginia district courts holding that the provision requiring individuals to
maintain health insurance or pay a penalty is unconstitutional, but leaving the remainder of
the Health Reform Law intact. The U.S. Supreme Court announced on April 25, 2011 that it
had turned down the Virginia Attorney Generals request for expedited review at the U.S. Supreme
Court level, so the appeal will remain for review in the U.S. Court of Appeals for the Fourth
Circuit; and
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
    
    on January 19, 2011, the U.S. House of Representatives voted 245-189 to repeal the Health
Reform Law. However, the Senate rejected this proposal on February 2, 2011. Republicans have
indicated, however, that in the event their efforts to repeal the Health Reform Law are
unsuccessful, their intent is to seek to implement incremental revisions to many of the
laws provisions or to defund certain programs.
  
    
    the amount of overall revenues we will generate from Medicare and Medicaid business when
the reductions are implemented;
 
    
    whether reductions required by the Health Reform Law will be changed by statute prior to
becoming effective;
 
    
    the size of the Health Reform Laws annual productivity adjustment to the market basket
beginning in 2012 payment years;
 
    
    the amount of the Medicare DSH reductions that will be made, commencing in federal fiscal
year 2014;
 
    
    the allocation to our hospitals of the Medicaid DSH reductions, commencing in federal
fiscal year 2014;
 
    
    what the losses in revenues will be, if any, from the Health Reform Laws quality
initiatives;
 
    
    how successful ACOs, in which we participate, will be at coordinating care and reducing
costs or whether they will decrease reimbursement;
 
    
    the scope and nature of potential changes to Medicare reimbursement methods, such as an
emphasis on bundling payments or coordination of care programs;
 
    
    whether our revenues from upper payment limit (UPL) programs will be adversely
affected, because there may be fewer indigent, non-Medicaid patients for whom we provides
service pursuant to UPL programs in which we participate; and
 
    
    reductions to Medicare payments CMS may impose for excessive readmissions.
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If we are unable to enter into favorable contracts with managed care plans, our operating revenues
may be reduced.
  Our revenues may decline if federal or state programs reduce our Medicare or Medicaid payments.
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We conduct business in a heavily regulated industry, and changes in regulations or violations of
regulations may result in increased costs or sanctions that could reduce our revenues and
profitability.
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Some of our hospitals may be required to submit to CMS information on their relationships with
physicians and this submission could subject such hospitals and us to liability.
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Providers in the healthcare industry have been the subject of federal and state investigations,
whistleblower lawsuits and class action litigation, and we may become subject to investigations,
whistleblower lawsuits or class action litigation in the future.
  
    
    cost reporting and billing practices;
 
    
    laboratory and home healthcare services;
 
    
    physician ownership of, and joint ventures with, hospitals;
 
    
    physician recruitment activities; and
 
    
    other financial arrangements with referral sources.
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 qui tam
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Competition from other hospitals or healthcare providers (especially specialty hospitals) may
reduce our patient volumes and profitability.
    We may be subject to liabilities from claims brought against our facilities.
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Our hospitals face a growth in uncompensated care as the result of the inability of uninsured
patients to pay for healthcare services and difficulties in collecting patient portions of insured
accounts.
   Our performance depends on our ability to recruit and retain quality physicians.
  
    
    the number and quality of the physicians on the medical staffs of our hospitals;
 
    
    the admitting practices of those physicians; and
 
    
    the maintenance of good relations with those physicians.
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We may be unable to achieve our acquisition and growth strategies and we may have difficulty
acquiring not-for-profit hospitals due to regulatory scrutiny.
    We may not be able to successfully integrate our acquisition of DMC or realize the potential
benefits of the acquisition, which could cause our business to suffer.
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Future acquisitions or joint ventures may use significant resources, may be unsuccessful and could
expose us to unforeseen liabilities.
  
    
    difficulty and expense of integrating acquired personnel into our business;
 
    
    diversion of managements time from existing operations;
 
    
    potential loss of key employees or customers of acquired companies; and
 
    
    assumption of the liabilities and exposure to unforeseen liabilities of acquired
companies, including liabilities for failure to comply with healthcare regulations.
  The cost of our malpractice insurance and the malpractice insurance of physicians who practice at
our facilities remains volatile. Successful malpractice or tort claims asserted against us, our
physicians or our employees could materially adversely affect our financial condition and
profitability.
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Our facilities are concentrated in a small number of regions. If any one of the regions in which
we operate experiences a regulatory change, economic downturn or other material change, our
overall business results may suffer.
   Pro FormaNine Months
    
    
    Nine MonthsEnded
    
    
    EndedYear Ended June 30,
    
    
    March 31,
    
    
    March 31,2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    2011San Antonio
    
    
    32.1
    %
    
    
    29.6
    %
    
    
    26.8
    %
    
    
    22.4
    %
    
    
    17.1
    %PHP and AAHP
    
    
    14.1
    %
    
    
    19.3
    %
    
    
    23.1
    %
    
    
    17.7
    %
    
    
    13.5
    %Massachusetts
    
    
    19.7
    %
    
    
    18.3
    %
    
    
    18.2
    %
    
    
    13.4
    %
    
    
    10.2
    %Metropolitan Phoenix, excluding
PHP and AAHP
    
    
    18.8
    %
    
    
    17.9
    %
    
    
    17.5
    %
    
    
    14.1
    %
    
    
    10.7
    %Metropolitan Chicago (1)
    
    
    14.9
    %
    
    
    14.6
    %
    
    
    14.1
    %
    
    
    16.6
    %
    
    
    12.7
    %Metropolitan Detroit
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    15.6
    %
    
    
    35.6
    %Other
    
    
    0.4
    %
    
    
    0.3
    %
    
    
    0.3
    %
    
    
    0.2
    %
    
    
    0.2
    %100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 
 (1)
    
    Includes MHP.  If we are unable to control our healthcare costs at Phoenix Health Plan and Abrazo Advantage Health
Plan, if the health plans should lose their governmental contracts or if budgetary cuts reduce the
scope of Medicaid or dual-eligibility coverage, our profitability may be adversely affected.
  
    
    our ability to contract with cost-effective healthcare providers;
 
    
    the increased cost of individual healthcare services;
 
    
    the type and number of individual healthcare services delivered; and
 
    
    the occurrence of catastrophes, epidemics or other unforeseen occurrences.
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We are dependent on our senior management team and local management personnel, and the loss of the
services of one or more of our senior management team or key local management personnel could have
a material adverse effect on our business.
  Controls designed to reduce inpatient services may reduce our revenues.
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The industry trend towards value-based purchasing may negatively impact our revenues.
     Our facilities are subject to extensive federal and state laws and regulations relating to the
privacy of individually identifiable information.
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As a result of increased post-payment reviews of claims we submit to Medicare and Medicaid for our
services, we may incur additional costs and may be required to repay amounts already paid to us.
     If we fail to continually enhance our hospitals with the most recent technological advances in
diagnostic and surgical equipment, our ability to maintain and expand our markets will be
adversely affected.
  Our hospitals face competition for staffing especially as a result of the national shortage of
nurses and the increased imposition on us of nurse-staffing ratios, which has in the past and may
in the future increase our labor costs and materially reduce our profitability.
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Our pension plan obligations under one of DMCs pension plans are currently underfunded, and we
may have to make significant cash payments to this plan, which would reduce the cash available for
our businesses.
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Compliance with Section 404 of the Sarbanes-Oxley Act may negatively impact our results of
operations and failure to comply may subject us to regulatory scrutiny and a loss of investors
confidence in our internal control over financial reporting.
  A failure of our information systems would adversely affect our ability to properly manage our
operations.
  
    
    patient accounting, including billing and collection of patient service revenues;
 
    
    financial, accounting, reporting and payroll;
 
    
    coding and compliance;
 
    
    laboratory, radiology and pharmacy systems;
 
    
    remote physician access to patient data;
 
    
    negotiating, pricing and administering managed care contracts; and
 
    
    monitoring quality of care.
  If we fail to effectively and timely implement electronic health record systems, our operations
could be adversely affected.
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Difficulties with current construction projects or new construction projects such as additional
hospitals or major expansion projects may involve significant capital expenditures that could have
an adverse impact on our liquidity.
  
    
    our ability to control construction costs;
 
    
    the failure of general contractors or subcontractors to perform under their contracts;
 
    
    adverse weather conditions;
 
    
    shortages of labor or materials;
 
    
    our ability to obtain necessary licensing and other required governmental authorizations;
and
 
    
    other unforeseen problems and delays.
  If the costs for construction materials and labor continue to rise, such increased costs could
have an adverse impact on the return on investment relating to our expansion projects.
  State efforts to regulate the construction or expansion of hospitals could impair our ability to
operate and expand our operations.
  
    
    the purchase, construction or expansion of healthcare facilities;
 
    
    capital expenditures exceeding a prescribed amount; or
 
    
    changes in services or bed capacity.
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If the fair value of our reporting units declines, a material non-cash charge to earnings from
impairment of our goodwill could result.
  Our hospitals are subject to potential responsibilities and costs under environmental laws that
could lead to material expenditures or liability.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  
 Item 6. Exhibits.
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SIGNATURE
  DATE:      May 10, 2011
    VANGUARD HEALTH SYSTEMS, INC.By:
    /s/ Gary D. WillisGary D. WillisSenior Vice President, Controller and
Chief Accounting Officer
(Authorized Officer and
Chief Accounting Officer)  88




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EXHIBIT INDEX
 Exhibit No.
    
    Description4.1
    
    
    Indenture, dated as of January 26, 2011, relating to the
7.750% Senior Notes due 2019, among Vanguard Health Holding
Company II, LLC, Vanguard Holding Company II, Inc., Vanguard
Health Systems, Inc., the other guarantors named therein and
U.S. Bank National Association, as Trustee, including the form
of 7.750% Senior Notes due 2019 (1)4.2
    
    
    Indenture, dated as of January 26, 2011, relating to the
10.375% Senior Discount Notes due 2016, between Vanguard
Health Systems, Inc. and U.S. Bank National Association, as
Trustee, including the form of 10.375% Senior Discount Notes
due 2016 (1)4.3
    
    
    Registration Rights Agreement, dated as of January 26, 2011,
relating to the 7.750% Senior Notes due 2019, among Vanguard
Health Holding Company II, LLC, Vanguard Holding Company II,
Inc., Vanguard Health Systems, Inc. and the other guarantors
named therein and Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Barclays Capital Inc. on behalf of themselves
and as representatives of the several initial purchasers
listed on Schedule I thereto (1)4.4
    
    
    Registration Rights Agreement, dated as of January 26, 2011
relating to the 10.375% Senior Discount Notes due 2016,
between Vanguard Health Systems, Inc. and Merrill Lynch,
Pierce, Fenner & Smith Incorporated and Barclays Capital Inc.
on behalf of themselves and as representatives of the several
initial purchasers listed on Schedule I thereto (1)10.1
    
    
    Contract Amendment Number 14, executed on February 9, 2011,
but effective as of April 1, 2011, to the Arizona Health Care
Cost Containment System Administration Contract No.
YH09-0001-07 between VHS Phoenix Health Plan, LLC and the
Arizona Health Care Cost Containment System (2)31.1
    
    
    Certification of CEO pursuant to Rule 13a-14(a)/15d-14(a) as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
200231.2
    
    
    Certification of CFO pursuant to Rule 13a-14(a)/15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
200232.1
    
    
    Certification of CEO pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
200232.2
    
    
    Certification of CFO pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
 
 (1)
    
    Incorporated by reference from exhibits to Vanguard Health Systems,
Inc.s Current Report on Form 8-K, dated January 28, 2011, File No.
333-71934.(2)
    
    Incorporated by reference from exhibits to Vanguard Health Systems,
Inc.s Registration Statement on Form S-4 first filed on April 8, 2011
(Registration No. 333-173401).  89