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US Oncology Reports Third Quarter 2008 Results
Date:11/6/2008

HOUSTON, Nov. 6 /PRNewswire/ -- US Oncology, Inc. ("US Oncology" or "the Company"), one of the nation's largest cancer care services companies, reported revenue of $821.7 million, EBITDA of $54.5 million, Adjusted EBITDA of $54.8 million, net income of $3.9 million and operating cash flow of $35.1 million for the three months ended September 30, 2008. For the nine months ended September 30, 2008, US Oncology reported revenue of $2.5 billion, EBITDA of $(217.7) million, Adjusted EBITDA of $164.4 million, net loss of $371.0 million and operating cash flow of $77.3 million.

US Oncology Third Quarter Results

-- Adjusted EBITDA for the third quarter of 2008 was $54.8 million,

compared to $50.6 million for the third quarter of 2007 and $57.4

million for the second quarter of 2008. The increase from the third

quarter of 2007 reflects an increase in daily patient visits and

radiation treatments/diagnostic scans at practices affiliated under

comprehensive service agreements ("CSA"), as well as

improvements in pharmaceutical performance and volume related fees,

partially offset by reduced utilization of Erythropoiesis-Stimulating

Agents ("ESAs"). The decrease from the previous quarter is

primarily due to reduced earnings from ESAs (see "Contingencies and

Risks").

-- Cash flow from operations in the third quarter of 2008 was $35.1

million, compared to cash generated by operations of $16.5 million for

the third quarter of 2007 and cash used for operations of $(8.6) million

for the second quarter of 2008. The $18.6 million increase in operating

cash flow from the third quarter of 2007 reflects the addition of

physicians to our network and increasing daily same store visits, as

well as higher receivable collections in the current quarter. The $43.7

million increase from the second quarter of 2008 reflects improved

receivable collections which were partially offset by semiannual

interest payments on the indebtedness of US Oncology in the third

quarter of 2008. Additionally, payments made to distribute

pharmaceutical rebates to physicians were lower in the current period

than in the second quarter of 2008.

-- During the third quarter of 2008, 40 physicians joined the US Oncology

network and 33 physicians separated from the network. Since September

30, 2008, 33 physicians started practicing in the network and, as of

November 5, 2008, an additional 45 physicians had executed agreements to

join US Oncology and are expected start practicing in the network during

the fourth quarter of 2008 and in early 2009. Also, as of November 5,

2008, three integrated cancer centers and two radiation only facilities

were under construction.

-- Development activity occurring subsequent to September 30, 2008 included

agreements signed with 20 urologists. In addition, effective October 1,

2008, a 16 physician practice affiliated under an OPS agreement rejoined

our network of comprehensively managed practices. While this conversion

does not result in an addition of physicians to our network, it

evidences the incremental value delivered through our comprehensive

management arrangements.

Bruce Broussard, president and chief executive officer, stated, "I am pleased with our performance for the first nine months of 2008, where we have increased adjusted EBITDA by $3.6 million compared to the same period in 2007. This growth was achieved despite a $21 million reduction in earnings related to ESAs and challenging national trends for oncology practices. Our ability to achieve year over year growth emphasizes our physician value proposition, the strength of our earnings from integrated service offerings and our disciplined overhead cost management. Our network continues to expand and, during the third quarter of 2008, 40 physicians began practicing as part of practices affiliated with US Oncology, contributing to the gross additions of 184 physicians since September 30, 2007."

"We believe the company is well-positioned for continued growth. Much of the uncertainty related to the utilization of ESAs was removed at the time the FDA released its revised label in August 2008. Supporting affiliated practices' growth strategies through our integrated service model, referral development and increasing productivity with our lean Six Sigma program remains our focus. The success of these programs is demonstrated through 6.6 percent year over year growth in average daily medical oncology visits and 4.0 percent year over year growth in same store daily medical oncology visits."

Broussard continued, "Further, we continue to generate positive cash flow while maintaining over $100 million in cash on hand with access to an additional $133.7 under our revolving credit facility. This liquidity will allow us to continue to invest in our affiliated practices and the strategies that have supported our growth during a time when our competition is experiencing declining performance and financial instability. For example, we recently launched Innovent, an offering to payers focused on delivering high quality care in a cost-effective manner that incorporates evidence-based clinical pathways, care monitoring and end-of-life planning. We are also expanding our research platform to include radiation trials in collaboration with a premier organization."

"We are proud of our role as a leading cancer care services organization and of our financial performance. We remain committed to our long-term vision of continuing to expand our diversified service offerings and advancing the delivery of high quality, accessible cancer care."

Results of Operations

The Company operates and manages its business through four operating segments. The table below compares the results of the third quarter of 2008 to the results of the corresponding period of the prior year and the preceding quarter (in millions).

Q3 Q3 % Q2 %

2008 2007 Change 2008 Change

---- ---- ------ ---- ------

Revenue

Medical

oncology

services $557.4 $514.1 8.4 $559.3 (0.3)

Cancer

center

services 92.0 89.1 3.3 92.2 (0.2)

Pharmaceutical

services 634.0 568.2 11.6 637.3 (0.5)

Research and

other 14.5 11.9 21.8 14.6 (0.7)

Eliminations(1) (476.2) (439.5) (8.4) (474.2) (0.4)

------- ------- -------

Total $821.7 $743.8 10.5 $829.2 (0.9)

====== ====== ======

Operating income

(loss)

Medical

oncology

services $16.9 $15.6 8.3 $20.7 (18.4)

Cancer center

services 21.6 22.9 (5.7) 22.2 (2.7)

Pharmaceutical

services 24.5 21.6 13.4 25.0 (2.0)

Research and

other (1.3) (0.8) nm (4) (0.9) nm (4)

Corporate

costs(2) (33.1) (32.0) (3.4) (36.0) 8.1

Impairment and

restructuring

charges(3) (0.3) (1.0) nm (4) (0.5) nm (4)

----- ----- -----

Total $28.3 $26.3 7.6 $30.5 (7.2)

===== ===== =====

EBITDA

Medical

oncology

services $16.9 $15.6 8.3 $20.7 (18.4)

Cancer center

services 31.1 33.0 (5.8) 31.8 (2.2)

Pharmaceutical

services 25.5 22.9 11.4 26.3 (3.0)

Research and

other (1.3) (0.7) nm (4) (0.7) nm (4)

Corporate

costs(2) (17.4) (20.2) 13.9 (20.7) 15.9

Impairment and

restructuring

charges(3) (0.3) (1.0) nm (4) (0.5) nm (4)

----- ----- -----

Total $54.5 $49.6 9.9 $56.9 (4.2)

===== ===== =====

Adjusted

EBITDA(3) $54.8 $50.6 8.3 $57.4 (4.5)

Net income $3.9 $2.4 62.5 $3.2 21.9

Operating cash

flow $35.1 $16.5 nm (4) $(8.6) nm (4)

(1) Eliminations represent the sale of pharmaceuticals from our

distribution center (pharmaceutical services segment) to our

practices affiliated under comprehensive service agreements

(medical oncology segment).

(2) Corporate costs relate primarily to general and administrative

expenses in support of our network.

(3) Impairment and restructuring charges and other expense are excluded

from Adjusted EBITDA.

(4) Not meaningful.

Medical Oncology Services

In the third quarter of 2008, medical oncology services revenue was $557.4 million, an increase of $43.3 million, or 8.4 percent, from the third quarter of 2007. Comparing the same periods, EBITDA was $16.9 million, an increase of $1.3 million, or 8.3 percent. These increases reflect higher same-store daily visits, growth in our network of affiliated medical oncologists and an additional operating day in the third quarter of 2008. Partially offsetting these increases was a reduction in the utilization of ESAs and reduced management fees due to contractual amendments in 2007.

Compared to the second quarter of 2008, medical oncology services revenue decreased $1.9 million, or 0.3 percent, and EBITDA decreased $3.8 million, or 18.4 percent. These reductions reflect lower utilization of ESAs.

Cancer Center Services

Cancer center services revenue in the third quarter of 2008 was $92.0 million, an increase of $2.9 million, or 3.3 percent, over the third quarter of 2007 which reflects increasing radiation treatment and diagnostic scan volumes. We continue to experience a positive shift toward advanced targeted radiation therapies which are reimbursed at higher rates than conventional radiation therapies but generally have lower treatment volumes. EBITDA in the third quarter of 2008 was $31.1 million, a decrease of $1.9 million, or 5.8 percent, from the third quarter of 2007 as the revenue increase was offset by management fee reductions under contractual amendments in 2007.

Third quarter cancer center services revenue decreased $0.2 million, or 0.2 percent, and EBITDA decreased $0.7 million, or 2.2 percent from the second quarter of 2008 reflecting a slight decline in radiation treatments/diagnostic scans.

Pharmaceutical Services

Pharmaceutical services revenue in the third quarter of 2008 was $634.0 million, an increase of $65.8 million, or 11.6 percent, over the third quarter of 2007. The revenue increase is primarily due to the net addition of 63 physicians affiliated through comprehensive service and OPS agreements since the close of the third quarter of 2007 as well as increased revenue from our oral oncology specialty pharmacy. The impact from the addition of physicians was partially offset by lower utilization of ESAs. Pharmaceutical services EBITDA was $25.5 million for the third quarter of 2008, an increase of $2.6 million over the third quarter of 2007 reflecting the increase in revenue, as well as incremental earnings from our data analytics and reimbursement support services.

Pharmaceutical services revenue in the third quarter of 2008 decreased $3.3 million, or 0.5 percent, and EBITDA decreased $0.8 million, or 3.0 percent, from the preceding quarter. These decreases reflect lower pharmaceutical volumes.

Corporate Costs

Corporate costs, which represent general and administrative expenses, excluding stock-based compensation, were $17.4 million in the third quarter of 2008, compared to $20.2 million in the third quarter of 2007 and $20.7 million in the second quarter of 2008. The decrease from the third quarter of 2007 of $2.8 million and from the second quarter of 2008 of $3.3 million is due to the continued management of controllable costs, particularly in areas such as personnel expenses, meeting expenses, and professional fees.

Net Income

Net income for the third quarter of 2008 was $3.9 million which represents an increase of $1.5 million from net income of $2.4 million reported in the third quarter of 2007, which includes a $2.0 million increase in operating income related to the results discussed previously, along with a reduction in interest expense from the third quarter of 2007 due to lower LIBOR rates. Compared to the prior quarter, net income increased $0.7 million as a $2.2 million decrease in operating income was more than offset by reduced income taxes reflecting lower pre-tax income and a change to the Company's estimate of amounts due under the recently enacted Texas margin tax.

Cash Flow

The Company generated $77.3 million in cash from operations during the first nine months of 2008 compared to $123.4 million for the same prior year period. The decrease in operating cash flow is primarily due to higher payments for pharmaceuticals due to both increasing volumes and purchases made under new generic drug inventory management programs as well as higher payments to affiliated physicians, which were partially offset by increasing receivable collections.

Cash from operations in the third quarter of 2008 was $35.1 million, compared to cash generated by operations of $16.5 million for the third quarter of 2007 and cash used for operations of $(8.6) million for the second quarter of 2008. The $18.6 million increase in operating cash flow from the third quarter of 2007 reflects growing network volumes and higher receivable collections in the current quarter. The $43.7 million increase from the second quarter of 2008 reflects improved receivable collections which were partially offset by semiannual interest payments on the indebtedness of US Oncology in the third quarter of 2008. Additionally, payments made to distribute pharmaceutical rebates to physicians were lower in the current period than in the second quarter of 2008.

As of November 5, 2008, the Company had approximately $100 million of cash and investments, and availability under the revolving credit facility of $133.7 million.

Contingencies and Risks

On July 30, 2008, the United States Food and Drug Administration ("FDA") published a final new label for Erythropoiesis-Stimulating Agents ("ESAs") drugs Aranesp and Procrit. This action was taken contemporaneously to the previous national coverage decision ("NCD") by the Centers for Medicare and Medicaid Services ("CMS") establishing criteria for reimbursement by Medicare for the ESA usage issued on July 30, 2007. Unlike the NCD from CMS, the label indication directs appropriate physician prescribing and applies to all patients and payers. As anticipated, a Risk Evaluation and Mitigation Strategy ("REMS") proposal by manufacturers was filed with the FDA in late August, 2008. The REMS will focus on future ESA prescribing and is projected to require additional patient consent/education requirements, medical guides and physician registration procedures. The length of time required for the FDA to approve the REMS and for the manufacturers to implement the new program is uncertain, however we believe it may take at least 6-12 months. Once implemented, the REMS will outline additional, if any, procedural steps that will be required for qualified physicians to order and prescribe ESAs for their patients.

The label was effective as of August 14, 2008, and primarily changed the labeled use of ESAs in the following areas:

-- ESAs are "not indicated" for patients receiving chemotherapy

when the anticipated outcome is cure.

-- ESA therapy should not be initiated when hemoglobin levels are >/= 10

grams per deciliter ("g/dL").

-- References in the labeling to an upper limit of 12 g/dL have been

removed.

The FDA did not adopt an Oncology Drug Advisory Committee recommendation to limit ESA in head/neck and breast cancers, or any other tumor type which significantly reduced the impact of a possible decrease in utilization.

Based on preliminary analyses, we estimate the potential impact on the Company's EBITDA to be approximately $3.5 million annually. It is not possible to estimate the impact of the REMS (on EBITDA) as it relates to prescribing patterns, until the REMS is in effect (expected to be sometime in 2009). We believe a possible impact of the REMS could be further reductions in ESA utilization.

During the third quarter of 2008, $6.9 million of the Company's Adjusted EBITDA was attributable to utilization of ESAs by our network physicians. For the third quarter of 2007 and second quarter of 2008, EBITDA from ESA utilization by our network physicians was $12.4 million and $8.9 million, respectively.

As previously disclosed, during the fourth quarter of 2005, we received a subpoena from the United States Department of Justice's Civil Litigation Division ("DOJ") requesting a broad range of information about us and our business, generally in relation to our contracts and relationships with pharmaceutical manufacturers. Also, as previously disclosed, the Company is currently involved in litigation with a formerly affiliated practice in Oklahoma. There have been no material developments in either of these matters during the third or fourth quarter of 2008.

Results of US Oncology Holdings, Inc.

The results of US Oncology exclude those of its parent company, US Oncology Holdings, Inc. ("Holdings"). US Oncology conducts all substantive operations and, with the exception of nominal administrative expenses and items related to capitalization, the results of Holdings are substantially identical to those of US Oncology. Holdings reported EBITDA of $54.4 million, Adjusted EBITDA of $54.7 million, net loss of $5.8 million and operating cash flow of $22.1 million for the quarter ended September 30, 2008. For the nine months ended September 30, 2008, Holdings reported EBITDA of $(217.9) million, Adjusted EBITDA of $164.1 million, net loss of $396.0 million and operating cash flow of $64.3 million. The operating results of US Oncology and Holdings are reconciled below (in millions).

Q3 Q3 Q2

2008 2007 2008

US Oncology Net Income $3.9 $2.4 $3.2

Less: General and administrative

expense (0.1) - -

Other income (expense) (4.2) (0.3) 14.3

Interest expense (10.5) (11.1) (10.0)

Effective tax rate

differential 5.1 4.8 (0.4)

--- --- -----

Holdings Net Income (Loss) $(5.8) $(4.2) $7.1

====== ====== ====

Compared to the third quarter of 2007 and second quarter of 2008, other income (expense), which relates primarily to changes in fair value of the Holdings interest rate swap, decreased by $3.9 million and $18.5 million, respectively. During the third quarter of 2007, the interest rate swap was accounted for as a cash flow hedge and changes in its value were not reported in the operating results of Holdings.

Although cash flow hedge accounting is no longer applied to the interest rate swap, the Company believes the swap, economically, remains a hedge against the variability of interest payments on the portion of Holdings' indebtedness that is serviced with cash interest and on a portion of the interest due on US Oncology's variable rate senior secured credit facility. Because the interest rate swap is not accounted for as a cash flow hedge, changes in the fair value of the instrument are reported currently in earnings. The non-cash impact on the interest rate swap is excluded from Adjusted EBITDA.

As of September 30, 2008, the indebtedness issued by US Oncology Holdings, Inc., amounted to $456.8 million. The Company elected to settle interest on this indebtedness for the semi-annual interest period from September 16, 2008 through March 15, 2009, entirely through the issuance of additional notes.

Based upon continued uncertainty surrounding ESA utilization, including with respect to physician utilization practices and other factors, the Company is not currently in a position to issue revised guidance for 2008.

The Company and Holdings will broadcast their 2008 third quarter financial results by conference call on November 6, 2008 at 10:00 A.M. Central Standard Time. The archived replay of the event will be available through the news center on the Company's website (http://www.usoncology.com).

About US Oncology, Inc.

US Oncology, headquartered in Houston, Texas works closely with physicians, manufacturers and payers to identify and deliver innovative services that enhance patient access to advanced cancer care. US Oncology supports one of the nation's foremost cancer treatment and research networks accelerating the availability and use of evidence-based medicine and shared best practices.

US Oncology's expertise in supporting every aspect of the cancer care delivery system - from drug development to treatment and outcomes measurement, enables the company to help increase the efficiency and safety of cancer care. US Oncology is affiliated with 1,227 physicians operating in 485 locations, including 92 radiation oncology facilities in 39 states. For more information, visit the company's Web site, http://www.usoncology.com.

This news release contains forward-looking statements, including statements that include the words "believes," "expects," "anticipates," "estimates," "intends," "plans," "projects," or similar expressions and statements regarding our prospects. All statements other than statements of historical fact included in this news release are forward-looking statements. Although the Company believes that the expectations reflected in such statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Such expectations are subject to risks and uncertainties, including a general downturn in the U.S. or global economy, the Company's reliance on pharmaceuticals for the majority of its revenues, the Company's ability to maintain favorable pharmaceutical pricing and favorable relationships with pharmaceutical manufacturers and other vendors, concentration of pharmaceutical purchasing and favorable pricing with a limited number of vendors, prescription drug reimbursement, such as reimbursement for ESAs, and other reimbursement under Medicare (including reimbursement for radiation and diagnostic services), reimbursement for medical services by non-governmental payers and cost-containment efforts by such payers, including whether such payers adopt coverage guidelines regarding ESAs or pharmaceutical reimbursement methodologies that are similar to Medicare coverage, other changes in the manner patient care is reimbursed or administered, the Company's ability to service its substantial indebtedness and comply with related covenants in debt agreements, the Company's ability to fund its operations through operating cash flow or utilization of its existing credit facility or its ability to obtain additional financing on acceptable terms, the instability of capital and credit markets, including the potential that certain financial institutions may be unable to honor existing financing commitments, the Company's ability to implement strategic initiatives, the Company's ability to maintain good relationships with existing practices and expand into new markets and development of existing markets, modifications to, and renegotiation of, existing economic arrangements, the Company's ability to complete cancer centers and PET facilities currently in development and its ability to recover investments in cancer centers, government regulation and enforcement, increases in the cost of providing cancer treatment services, the operations of the Company's affiliated physician practices, and potential impairments that could result from declining market valuations. Please refer to the US Oncology Holdings, Inc. filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2007, and subsequent filings, for a more extensive discussion of factors that could cause actual results to differ materially from the Company's expectations.

Discussion of Non-GAAP Information

In this release, the Company uses the term "EBITDA" and "Adjusted EBITDA". EBITDA is earnings before interest, taxes, depreciation and amortization (including amortization of stock compensation), minority interest expense and other income (expense). EBITDA is not calculated in accordance with accounting principles generally accepted in the United States of America ("GAAP"). Adjusted EBITDA is EBITDA before loss on early extinguishment of debt and impairment and restructuring charges. These measures are derived from relevant items in the Company's GAAP financial statements. A reconciliation of Adjusted EBITDA to operating cash flow is included in this release.

The Company believes EBITDA is useful to investors in evaluating the value of companies in general, and in evaluating the liquidity of companies with debt service obligations and their ability to service their indebtedness. Management uses EBITDA as a key indicator to evaluate liquidity and financial condition, both with respect to the business as a whole and with respect to individual sites in the US Oncology network. Adjusted EBITDA is useful to investors as it eliminates certain amounts that are unusual in nature and not currently expected to be part of the Company's ongoing operational performance. The Company's senior secured credit facility also requires that it comply on a quarterly basis with certain financial covenants that include Adjusted EBITDA as a financial measure. Management believes that EBITDA and Adjusted EBITDA are useful to investors, since they provide investors with additional information that is not directly available in a GAAP presentation.

As a non-GAAP measure, EBITDA and Adjusted EBITDA should not be viewed as alternatives to the Company's GAAP financial statements, but should be read as a supplement to, and in conjunction with, the Company's GAAP financial statements.

US ONCOLOGY, INC.

KEY OPERATING STATISTICS

(unaudited)

Q3 Q3 % Q2 %

2008 2007 Change 2008 Change

---- ---- ------ ---- ------

Physician Summary:

------------------

CSA Affiliations

Medical

oncologists 754 714 5.6 % 739 2.0 %

Radiation

oncologists 159 149 6.7 154 3.2

Other

physicians 62 52 19.2 58 6.9

-- -- --

Total CSA

physicians 975 915 6.6 951 2.5

--- --- ---

OPS physicians 252 249 1.2 269 (6.3)

--- --- ---

Total

physicians 1,227 1,164 5.4 1,220 0.6

===== ===== =====

Average Daily Operating Statistics:

-------------------------------------

Medical

oncology

visits (1) 10,712 10,045 6.6 10,840 (1.2)

Radiation

treatments/

diagnostic

scans(2)(4) 3,687 3,622 1.8 3,721 (0.9)

Average Daily Same Store Statistics:

--------------------------------------

Medical

oncology

visits (1) 10,180 9,790 4.0 10,297 (1.1)

Radiation

treatments/

diagnostic

scans (2)(4) 3,436 3,461 (0.7) 3,475 (1.1)

Other Statistics:

------------------

Radiation

oncology

facilities(3)(4) 92 91 1.1 92 -

Linear

accelerators 118 115 2.6 118 -

PET systems 36 36 - 35 2.9

New patients

enrolled in

research

studies during

the period 718 769 (6.6) 919 (21.9)

Accounts

receivable

days outstanding 33 36 (8.3) 34 (2.9)

Notes to Key Operating Statistics:

----------------------------------

(1) Medical oncology visits include information for

practices affiliated under comprehensive service

agreements only, and do not include the results of OPS

practices.

(2) Represents technology-based treatments, including IMRT

treatments and diagnostic scans, provided through our

integrated cancer centers and radiation-only facilities

at CSA practices.

(3) The second and third quarters of 2008 include 80

integrated cancer centers and 12 radiation-only

facilities, while the third quarter of 2007 includes 80

integrated cancer centers and 11 radiation-only

facilities.

(4) Radiation treatments/diagnostic scans and facilities do

not include cancer centers operated by unconsolidated

joint ventures in which the Company or an affiliated

practice has a financial interest.

US ONCOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(in thousands)

(unaudited)

Three Months

Three Months Ended Ended

September 30, June 30,

2008 2007 2008

Product revenue $556,359 $488,017 $557,050

Service revenue 265,377 255,797 272,125

------- ------- -------

Total revenue 821,736 743,814 829,175

Cost of products 537,029 478,628 541,585

Cost of services:

Operating compensation and

benefits 131,158 121,289 130,086

Other operating costs 81,310 73,177 79,438

Depreciation and amortization 17,898 19,215 18,753

------ ------ ------

Total cost of services 230,366 213,681 228,277

Total cost of products and

services 767,395 692,309 769,862

General and administrative

expenses 18,078 20,177 21,240

Impairment and restructuring

charges 271 960 464

Depreciation and amortization 7,684 4,024 7,130

----- ----- -----

793,428 717,470 798,696

Income from operations 28,308 26,344 30,479

Other income (expense):

Interest expense, net (22,679) (23,349) (22,435)

Minority interest expense (715) (539) (1,017)

----- ----- -------

Income before income taxes 4,914 2,456 7,027

Income tax benefit (provision) (1,039) (55) (3,788)

------- ---- -------

Net income $3,875 $2,401 $3,239

====== ====== ======

US ONCOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(in thousands)

(unaudited)

Nine Months Ended

September 30,

2008 2007

Product revenue $1,656,670 $1,460,192

Service revenue 804,848 769,016

------- -------

Total revenue 2,461,518 2,229,208

Cost of products 1,610,641 1,428,257

Cost of services:

Operating compensation and benefits 391,432 357,077

Other operating costs 237,544 219,922

Depreciation and amortization 55,252 54,590

------ ------

Total cost of services 684,228 631,589

Total cost of products and services 2,294,869 2,059,846

General and administrative expenses 59,306 63,637

Impairment and restructuring charges 382,041 8,355

Depreciation and amortization 21,967 11,285

------ ------

2,758,183 2,143,123

Income (loss) from operations (296,665) 86,085

Other income (expense):

Interest expense, net (69,313) (71,194)

Minority interest expense (2,447) (1,876)

Other income (expense) 1,370 -

----- ------

Income (loss) before income taxes (367,055) 13,015

Income tax provision (3,905) (6,131)

------- -------

Net income (loss) $(370,960) $6,884

========== ======

US ONCOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(in thousands)

(unaudited)

Nine Months Ended

September 30,

2008 2007

Cash flows from operating

activities:

Net cash provided by operating

activities $77,315 $123,382

--------- ---------

Cash flows from investing

activities:

Net proceeds from sale of assets 3,747 750

Acquisition of property and

equipment (60,037) (70,274)

Investment in unconsolidated

subsidiaries (3,486) (4,918)

Net payments in affiliation

transactions (41,216) (134)

Distributions from minority

interests 1,493 -

----- -----

Net cash used in investing

activities (99,499) (74,576)

-------- --------

Cash flows from financing activities:

Repayment of advance to parent - (150,000)

Net borrowings under revolving

facility 20,000 -

Proceeds from other indebtedness 4,000 1,323

Net distributions to parent (13,004) (75,501)

Repayment of term loan (34,937) (6,255)

Repayment of other indebtedness (1,293) (2,137)

Debt financing costs (103) (83)

Distributions to minority interests (2,626) (1,304)

Contributions from minority

interests 466 -

Contributions of proceeds from

exercise of stock options 25 535

----- -----

Net cash used in financing

activities (27,472) (233,422)

-------- ---------

Decrease in cash and equivalents (49,656) (184,616)

Cash and equivalents:

Beginning of period 149,256 281,766

------- -------

End of period $99,600 $97,150

======= =======

US ONCOLOGY, INC.

CONDENSED CONSOLIDATED BALANCE SHEET

(in thousands)

(unaudited)

September 30, December 31,

2008 2007

ASSETS

Current assets:

Cash and equivalents $99,600 $149,256

Accounts receivable 341,575 318,976

Other receivables 92,875 120,285

Prepaid expenses and

other current assets 19,915 22,801

Inventories 113,925 82,822

Deferred income taxes 5,494 4,260

Due from affiliates 66,195 60,295

------ ------

Total current assets 739,579 758,695

Property and equipment,

net 398,027 399,621

Service agreements, net 274,582 223,850

Goodwill 377,270 757,270

Other assets 66,188 69,214

------ ------

Total assets $1,855,646 $2,208,650

========== ==========

LIABILITIES AND STOCKHOLDER'S EQUITY

Current liabilities:

Current maturities of

long-term indebtedness $31,078 $38,613

Accounts payable 259,706 241,093

Due to affiliates 165,251 177,265

Accrued compensation cost 40,671 30,045

Accrued interest payable 11,373 24,949

Other accrued liabilities 51,923 44,498

------ ------

Total current liabilities 560,002 556,463

Deferred revenue 7,092 8,380

Deferred income taxes 30,319 33,532

Long-term indebtedness 1,060,118 1,031,569

Other long-term

liabilities 12,415 11,166

------ ------

Total liabilities 1,669,946 1,641,110

Minority interests 13,547 13,217

Stockholder's equity:

Common stock, $0.01 par

value, 100 shares

authorized,

issued and outstanding 1 1

Additional

paid-in-capital 537,976 549,186

Retained earnings (deficit) (365,824) 5,136

--------- -----

Stockholder's equity 172,153 554,323

------- -------

$1,855,646 $2,208,650

========== ==========

US ONCOLOGY, INC.

RECONCILIATION OF NET INCOME (LOSS) TO EBITDA AND ADJUSTED EBITDA

(in thousands)

(unaudited)

Three Months Ended Nine Months Ended

September September June September September

30, 30, 30, 30, 30,

2008 2007 2008 2008 2007

Net income

(loss) $3,875 $2,401 $3,239 $(370,960) $6,884

Add back:

Interest

expense, net 22,679 23,349 22,435 69,313 71,194

Income tax

provision 1,039 55 3,788 3,905 6,131

Depreciation

and amortization 25,581 23,239 25,883 77,218 65,875

Amortization

of stock

compensation 649 16 565 1,769 477

Minority

interest expense 715 539 1,017 2,447 1,876

Other (income)

expense - - - (1,370) -

------ ------ ------ ------- ------

EBITDA 54,538 49,599 56,927 (217,678) 152,437

Plus:

Impairment and

restructuring

charges 271 960 464 382,041 8,355

----- ----- ----- ------- -----

Adjusted

EBITDA 54,809 50,559 57,391 164,363 160,792

Changes in assets

and liabilities 6,430 (10,335) (39,851) (9,383) 41,010

Deferred income

tax provision

(benefit) (2,431) (325) 44 (4,447) (1,095)

Interest

expense, net (22,679) (23,349) (22,435) (69,313) (71,194)

Income tax

provision (1,039) (55) (3,788) (3,905) (6,131)

------- ----- ------- ------- -------

Net cash provided

by (used in)

operating

activities $35,090 $16,495 $(8,639) $77,315 $123,382

======== ======== ======== ======== =========


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SOURCE US Oncology, Inc.
Copyright©2008 PR Newswire.
All rights reserved


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