US Oncology Reports 2009 Fourth Quarter and Year End Operating Results

Thursday, February 25, 2010 General News
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THE WOODLANDS, Texas, Feb. 25 /PRNewswire/ -- US Oncology, Inc. ("US Oncology" or "the Company"),  reported revenue growth

in the fourth quarter of 2009 of 5.1 percent to $886.0 million from $842.7 million in the same period in 2008.  Adjusted EBITDA increased by 10.7 percent in the fourth quarter of 2009 to $61.1 million from $55.2 million in the same period in 2008 (see definition of Adjusted EBITDA in "Discussion of Non-GAAP Information" in this release).

For the 2009 fiscal year, the company reported revenue growth of 6.3 percent to $3.5 billion from $3.3 billion in 2008.  Adjusted EBITDA increased 9.7 percent to $241.0 million in fiscal 2009 from $219.6 million in 2008.

Additional highlights for these periods are as follows:

Fourth Quarter 2009 vs 2008 Highlights

  • Same market revenue growth of 6.1 percent
  • New cancer patients per day increase of 2.5 percent
  • Radiation treatments/diagnostic scans increase of 3.9 percent
  • Total physicians in the network of 1,310 at December 31, 2009, or 8.2 percent growth
  • Accounts receivable days outstanding reduced to 29 days from 33 days

Fiscal 2009 vs 2008 Highlights

  • Same market revenue growth of 6.9 percent
  • New cancer patients per day increase of 4.7 percent
  • Radiation treatments/diagnostic scans increase of 3.2 percent
  • Increase in Healthcare Informatics EBITDA of 25.0 percent

Chairman and Chief Executive Officer Bruce Broussard stated:  "We are pleased with our operating performance this quarter as we balance efforts on operating improvement and long-term strategic positioning. We believe healthcare organizations that have a strong brand of delivering cost-effective care, enhancing the patient experience and continuing to improve resource-productivity will succeed in the evolving healthcare industry. This quarter we demonstrated further progression in that belief.

Innovent Oncology continues to demonstrate the benefits of a physician-led care management program supported by its Level I Pathways evidence-based care guidelines. A recent study conducted by Aetna and US Oncology, as published in the January 2010 issue of the peer-reviewed Journal of Oncology Practice, demonstrated a 35% savings in direct care costs (chemotherapy treatments, supportive care drugs, emergency room visits, and chemotherapy-related hospital admissions) for non-small cell lung cancer patients treated according to Level I Pathways while maintaining the same life expectancy. The study suggests that adherence to Level I Pathways can reduce costs and create greater value for patients, while producing approximately a thirty percent return on investment for employers and managed care companies by dramatically lowering cost of care.

We are also committed to advancing our network's interaction with patients in addition to the care provided through our 496 sites of services. An example of this commitment is our ongoing development of a patient portal that will offer patients access to their medical records, online bill-pay and appointment scheduling; education about their disease and treatments; and social interaction with other patients and caregivers. We recently acquired two patient education organizations, Cure Media Group and NexCura, to accelerate the portal development and broaden our clinical resources.

CURE Media Group's flagship product, CURE magazine, is focused on providing cancer patients with vital information that will help them make key decisions in their treatment and quality of life. Its current circulation of 325,000 is expected to more than double through distribution to patients via the US Oncology network. NexCura's website is an excellent resource for the cancer care community that generates personalized treatment option information based on peer-reviewed clinical research. The site is currently used by more than 150,000 patients and caregivers annually, and is also expected to experience growth through the US Oncology network.

The patient portal is part of our overall strategy to leverage technology to facilitate clinical care, expand knowledge, and improve the productivity of our practice resources. Another example is The Oncology Portal, which launched in August 2009, and is gaining acceptance in the physician community, with over 800 physicians actively utilizing this community-based tool. Additionally, we are extracting information from our Electronic Health Record (EHR), iKnowMed, and from the Innovent Oncology Web Portal to help physicians identify opportunities for Level I Pathways adherence to improve patient care. We are also developing clinically-based algorithms to link Level I Pathways to the management of conditions and complications following chemotherapy treatments. This allows us to improve the quality of care patients receive between chemotherapy treatments while reducing costly emergency room visits and hospitalizations that expose patients to further health risks and in-patient care. In summary, we are deploying technology to better educate physicians, manufacturers, and payers on the plight of cancer patients, to help physicians provide better care, manufacturers develop better therapies and to help payers understand where the variances in care occur.  

The advancements that US Oncology is making in the healthcare field are designed to provide a bottom-up resource to healthcare reform where physicians are appropriately rewarded for providing quality care, where the science of care is advanced to improve patient outcomes, and where payers' dollars are appropriately invested in quality patient care.

We continue to be recognized in the community and throughout the industry for our innovations in healthcare. Earlier this month, the state of Texas, in partnership with the Pro Football Hall of Fame Texas vs. the Nation Challenge, selected US Oncology as one of four companies honored by Governor Rick Perry in the Governor's Inaugural Business Hall of Fame. The companies were chosen for their leadership within their respective industries. US Oncology was honored along with Bell Helicopter, Texas Instruments and Baker Hughes, which accepted the award on behalf of energy pioneer Howard Hughes Senior. In addition, our distribution center, oral oncology pharmacy and pharmacy research distribution center were honored for the fifth consecutive time by the Safety Council of Texas for a perfect safety record.

During 2010, we will continue our execution of same-market growth, while placing a strategic emphasis on expanding the network through our Targeted Physician Services offering. This new approach allows practices ease of entry into the US Oncology network while receiving services customized to their needs. Network members are physicians that are like-minded around the concept of driving quality and efficiency of care, and are receiving services contracted through either our Targeted Physician Services or our Comprehensive Strategic Alliance offering. To compliment this strategy, we are investing in our company and our brand by expanding our physician sales force, launching a new national marketing campaign, and enhancing our technology platform. We expect these investments to slow the growth of our EBITDA in the short-term, particularly in 2010.  However, we believe the growth of the network combined with investments in technology, information and our brand will accelerate the development of a successful long-term business model focused on high quality, cost-effective cancer care," said Broussard.

Medical Oncology Services

Medical oncology services revenue increased by $21.2 million, or 3.6 percent, to $603.1 million in the fourth quarter of 2009 as compared to the same period in 2008.  The growth reflects higher medical oncology visits due primarily to increased same market physician productivity and additional medical oncologists affiliated through Comprehensive Strategic Alliance (CSA) arrangements.  Adjusted EBITDA increased to $18.4 million from $16.9 million, or 8.9 percent, primarily due to earnings associated with revenue growth and an increase in drug margins in the current period from the conversion of a particular chemotherapy drug to generic status.  

For 2009, revenue in the medical oncology services segment increased by $149.5 million, or 6.6 percent, to $2.4 billion as compared to 2008.  The revenue growth is primarily due to higher average daily visits reflecting both physician additions and increased same market productivity.  For 2009, medical oncology services Adjusted EBITDA decreased to $71.3 million, by $1.9 million, or 2.6 percent as compared to 2008.  Partially offsetting the revenue increase associated with higher patient volumes, and contributing to the Adjusted EBITDA decline were higher management fee rebates earned under our incentive programs for efficient capital use by affiliated practices ($4.5 million), the impact of declining ESA drug utilization ($2.9 million) and higher personnel and operating expenses associated with patient visit growth ($9.5 million).

We continue to experience a shift of certain branded single source drugs to generic status.  For each generic drug introduced to the market, earnings temporarily increase because drug costs decline significantly, while reimbursement remains at the branded price for a period of months.  However, after reimbursement adjusts, earnings with respect to a generic drug are typically significantly lower than the earnings from a branded pharmaceutical.  Although use of generic drugs ultimately results in lower earnings, we support the conversion to generic products because of our dedication to cost-effective care.

Cancer Center Services

Cancer center services revenue increased by $5.9 million, or 6.4 percent, to $98.6 million in the fourth quarter of 2009 as compared to the same period in 2008.  Adjusted EBITDA increased by $2.2 million, or 6.9 percent, to $34.1 million in the fourth quarter of 2009 as compared to the same period in 2008.  These increases reflect a growing network of radiation oncologists and increased same market productivity which have resulted in higher radiation treatment and diagnostic scan volumes. In the fourth quarter of 2009, our network operated 127 linear accelerators, 39 PET systems and 67 CT systems, which represents an increase of 8 units, 2 units and 5 units, respectively, over the fourth quarter of 2008.  The revenue and Adjusted EBITDA increases also reflect a continued shift toward advanced targeted radiation therapies which are reimbursed at higher rates.  

During 2009, cancer center services revenue increased by $20.4 million, or 5.6 percent, to $387.5 million and Adjusted EBITDA increased by $9.5 million, or 7.5 percent, to $135.4 million as compared to 2008.  Similar to the quarterly comparison above, these increases reflect an increase in radiation treatments and diagnostic scans resulting from the increase in physicians, same market productivity and a shift towards more technologically advanced radiation therapies.

Pharmaceutical Services

Pharmaceutical services revenue in the fourth quarter of 2009 increased by $35.3 million, or 5.8 percent, to $640.2 million as compared to the same period in 2008.  The revenue increase is primarily due to growth in the number of affiliated medical oncologists and a 29.3 percent increase in the average number of physicians under Targeted Physician Services ("TPS") arrangements.  Pharmaceutical services Adjusted EBITDA was $28.0 million for the fourth quarter of 2009 and $25.1 million as compared to the same period in 2008.  The Adjusted EBITDA growth of $2.9 million, or 11.6 percent, reflects increases associated with our growing oncologist network and performance fees and prompt pay discounts earned on bulk purchases of pharmaceuticals recently converted to generic status.  Additionally, the performance of our Healthcare Informatics business, a key strategic offering to pharmaceutical manufacturers, contributed $1.3 million to the earnings growth over the fourth quarter of 2009.

During 2009, pharmaceutical services revenue remained consistent at $2.5 billion as the revenue associated with the growth in the affiliated physician network and same market patient visits was offset by reduced ESA utilization, slightly lower distribution center volumes as we reduced inventory levels at affiliated practice sites and the transition of certain branded pharmaceuticals to generic availability at a lower price.  Adjusted EBITDA increased $1.1 million, or 1.1 percent, over the prior year.  The growth is primarily due to increased same market patient visits, and higher earnings from our Healthcare Informatics and patient assistance services programs.  These increases were partially offset by the impact of lower ESA utilization and start up costs related to investments in our physician and patient web portals.

Research and Other Services

Research and other services revenue in the fourth quarter of 2009 was $15.1 million, a decrease of $1.7 million, or 10.1 percent, compared to the same period in 2008.  The revenue decrease is primarily due to fewer patient enrollments in research studies.  In the fourth quarter of 2009, Adjusted EBITDA from research and other services was a loss of $1.6 million, an increased loss of $0.1 million from the fourth quarter of 2008 primarily due to the discontinuation of Oncology Reimbursement Solutions ("ORS"), our billing and collection service offering.

During 2009, research and other services revenue increased $11.1 million, or 18.8 percent, which reflects an increase in blood and marrow transplant cases at some of our CSA physicians' practices.  Adjusted EBITDA increased $7.2 million as compared to 2008.  The increase is primarily due to cost savings realized as part of new incentive programs.  The new incentives reflect our strategy to expand our research network, launch a contract research organization, and create aligned incentives with participating physicians which encourage long-term research programs.  The new incentives focus on long-term growth, and as a result, accruals for amounts due to researchers for activities during 2009 were lower than in the prior year.  These increases were partially offset by higher investments for new service offerings, such as Innovent, as compared to 2008.

Corporate Costs

Corporate costs, which represent general and administrative expenses excluding stock-based compensation, were $17.8 million in the fourth quarter of 2009 versus $17.2 million in the fourth quarter of 2008 as consulting fees for a project to accelerate our growth strategies were partially offset by cost management efforts implemented earlier in 2009. 

During 2009, corporate costs were $69.3 million, a decrease of $5.5 million from 2008.  The reduction reflects cost management efforts implemented during the first half of 2009 which were partially offset by consulting costs incurred in the second half of 2009 related to our growth strategies.  

Net Income (Loss) Attributable to the Company

Net income attributable to the Company for the fourth quarter of 2009 was $3.9 million compared to $0.5 million in the same period in 2008.  The increase is primarily due to the growth in Adjusted EBITDA from each of our primary operating segments which was partially offset by higher interest expense in 2009.    

For 2009, net loss attributable to the Company was $3.6 million, a decrease of $366.9 million compared to the prior year net loss of $370.5 million which included a $380.0 million non-cash impairment charge related to goodwill in the medical oncology services segment.  Excluding impairment and restructuring charges, the increased Adjusted EBITDA was offset by higher interest expense and the losses on debt extinguishment related to the refinancing of our senior notes and credit facility completed in 2009.

Impairment and Restructuring Charges

Impairment and restructuring charges are summarized in the table below (in millions):

                                    Q4     Q4              
                                   2009   2008    2009   2008
                                   ----   ----    ----   ----
      Severance costs              $0.4   $2.0    $6.1   $3.9
      Future lease obligations      1.2    1.0     1.2    1.0
      Goodwill                        -      -       -  380.0
      Property and equipment, net   1.0      -     1.0      -
      Other                           -   (0.1)    0.2      -
                                    ---   ----     ---    ---
                                   $2.6   $2.9    $8.5 $384.9
                                   ====   ====    ==== ======

During the fourth quarter of 2009, the Company determined that it would cease operations of ORS, its centralized billing and collection service and recognized restructuring charges of $2.3 million related to employee severance payments, vacating leased office space and impairment of certain fixed assets. During the fourth quarter of 2008 the Company recognized restructuring charges of $2.9 million related to employee severance and a settlement to terminate the lease on our former corporate headquarters.  

During 2009, the Company recorded an impairment and restructuring charge of $8.5 million which, in addition to the items previously discussed, also included severance related to certain corporate personnel. During 2008, the Company recognized $384.9 million in impairment and restructuring charges which relate primarily to a $380.0 million impairment charge of goodwill in the medical oncology services segment in the first quarter due to the Company's continued diversification, resulting in reduced dependencies on the medical oncology services segment as a source of earnings, and the impact of reduced utilization of ESAs.

Cash Flow and Working Capital Management

Cash from operations in the fourth quarter of 2009 was $36.6 million compared to $64.2 million generated from operations for the same period in 2008.  The $27.6 million decrease reflects higher payments for pharmaceuticals particularly related to quarterly bulk purchases under inventory management programs for certain generic manufacturers, as well as lower rebate collections associated with the conversion of rebates to discounts by certain manufacturers.  These decreases were partially offset by improved receivable collections.

For 2009, cash from operations increased to $172.6 million from $141.5 million reflecting earnings growth and focused working capital management that improved accounts receivable days outstanding, reduced inventory levels at our affiliated practice locations and extended certain vendor payment cycles.  These increases were partially offset by lower rebate collections due to conversion of rebates to discounts by certain manufacturers in 2009.

As of February 24, 2010, the Company had liquidity of approximately $212.9 million, including cash and investments of approximately $123.3 million and availability under its revolving credit facility of $89.6 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.  A proposed Risk Evaluation and Mitigation Strategy ("REMS") for ESAs was filed by ESA manufacturers with the FDA in August, 2008 and approved on February 16, 2010 to become effective on March 24, 2010.  The REMS is focused on ESA prescribing guidelines and requires additional patient consent/education requirements, medical guides and physician registration over a one year period beginning on March 24, 2010.  The REMS also outlines additional procedural steps that will be required for qualified physicians to order and prescribe ESAs for their patients.

We believe it is not possible to estimate the full impact of the REMS (on EBITDA) as it relates to prescribing patterns, until the REMS is in effect.  We believe a possible impact of the REMS could be further significant reductions in ESA utilization.

In late 2009, The Centers for Medicare and Medicaid Services (CMS) announced payment rates for services to be furnished under the 2010 physician fee schedule.  Under the provisions, the current Sustainable Growth Rate ("SGR") formula for setting aggregate Physician Fee Schedule spending would reduce payment for physician services by 21.3%.  Historically, Congress has intervened and through the budgetary process provided funding to prevent significant cuts in reimbursement rates.  In December 2009, President Obama signed the Department of Defense Appropriations Act, 2010 (H.R. 3326) into law which delayed the payment reduction until March 1, 2010.  We expect additional legislation from Congress will be enacted and currently estimate the impact to 2010 EBITDA of changes to CMS policies and payment rates will be approximately $1 million to $2 million reduction to oncology services paid under the CMS Physician Fee Schedule.  If Congress fails to act and avert the scheduled 21.3% scheduled fee reduction, EBITDA could be reduced by approximately $10 million to $13 million.  However, we continue to expect that the Congress, in the long run, will act to avert the SGR cut with a flat or marginally higher conversion factor.

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.  In addition, as previously disclosed, the Company and an affiliated practice have received a request for information from the Federal Trade Commission and a state Attorney General relating to an antitrust investigation of a recent transaction in which a group of physicians joined the affiliated practice.  Also, as previously disclosed, on July 29, 2009 the Company received a subpoena from the U.S. Attorney's Office, Eastern District of New York, seeking documents relating to its contracts and relationships with a pharmaceutical manufacturer and its business and activities relating to that manufacturer's products.  There were no material developments in these matters during the fourth quarter of 2009 or through the date of this release.

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 Adjusted EBITDA of $61.0 million, net loss of $8.4 million and operating cash flow of $36.5 million for the fourth quarter and Adjusted EBITDA of $240.7 million, net loss of $51.6 million and operating cash flow of $161.8 million for the fiscal year ended December 31, 2009.  The operating results of US Oncology and Holdings are reconciled below (in millions).

                                             Q4      Q4                   
                                            2009    2008    2009     2008 
                                            ----    ----    ----     ---- 
      Net Income (Loss) attributable to                                   
       US Oncology                          $3.9    $0.5   $(3.6) $(370.5)
      Less: General and administrative                                     
             expense                        (0.1)   (0.1)   (0.3)    (0.4)
            Interest expense                (8.6)  (11.2)  (38.3)   (43.7)
            Unrealized loss on swap         (3.1)  (15.3)  (13.1)   (21.2)
            Effective tax rate differential (0.5)    9.6     3.7     23.3 
                                            ----     ---     ---     ---- 
      Net Loss attributable to Holdings    $(8.4) $(16.5) $(51.6) $(412.5)
                                           =====  ======  ======  ======= 

Changes in the fair value of the interest rate swap are reported currently in earnings.  Although the interest rate swap is not accounted for as a cash flow hedge, the Company believes the swap, economically, remains a hedge against the variability of a portion of interest accruing on Holdings' indebtedness.

As of December 31, 2009, the indebtedness issued by US Oncology Holdings, Inc., amounted to $494.0 million.  In September 2009, the Company elected to settle interest due on March 15, 2010 through the issuance of additional notes.

Equity Restructuring

On October 1, 2009, we completed a conversion of US Oncology Holdings, Inc. outstanding Series A and Series A-1 preferred shares into an additional number of common shares based upon the preferred share liquidation value and a stated conversion price of $1.50 per common share.  We also amended our management and board of directors equity incentive plans to allow for additional authorized shares and awarded a portion of the incrementally authorized shares.  As a result of these transactions, the Series A and Series A-1 preferred shares are no longer outstanding and the number of outstanding common shares increased from 148.4 million shares to 422.5 million shares.  In addition, the carrying value of the Series A and Series A-1 preferred shares, in the aggregate amount of $405.3 million as of the conversion date, was eliminated and the stockholders' equity (deficit) of US Oncology Holdings, Inc. was increased by the same amount.

The Company and Holdings will broadcast their 2009 fourth quarter and year end financial results by conference call and simultaneous webcast to be hosted by management on February 25, 2010 at 11:00 AM EST following distribution of the earnings release. Additional information will be available on the company's website,, in the News Room on the day of the earnings announcement.

US/Canada Dial-in #: (877) 615–1716

Conference ID #: 53443773

Web Cast Link: This link gives participants access to the live and/or archived event. This URL can be distributed for posting on various websites, or for inclusion in email notifications.

The archived replay of the event will be available through the News Room on the Company's website (

About US Oncology

US Oncology, Inc., is the leading oncology services company uniting the nation's largest cancer treatment and research network to expand patient access to high-quality, cost-effective cancer care and advance the science of cancer care. Headquartered in The Woodlands, Texas, US Oncology provides a broad range of solutions to community oncologists, patients, payers, and the medical industry across all phases of the cancer care research and delivery system, and deploys innovation, technology, research and the use of evidence-based medicine and shared best practices to improve patient outcomes and offer a better patient experience. For more information, visit

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 the impact of a recession in the U.S. or global economy, the possibility of healthcare reform in the United States and its impact on cancer care specifically, 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, continued migration to generic alternatives for branded pharmaceuticals, the impact of increasing unemployment (which may result in a larger population of uninsured and under insured patients), the decisions of employers to increase the financial responsibility of individuals under health insurance programs afforded to their employees, 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 credit facility or its ability to obtain additional financing on acceptable terms, the instability of capital and credit markets, 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, investigation 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 or poor operating performance. Please refer to the US Oncology, Inc. filings with the Securities and Exchange Commission, including its Registration Statement on Form S-4 filed on October 15, 2009, as subsequently amended on December 23, 2009, and subsequent filings with the SEC 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), noncontrolling 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 impairment and restructuring charges, loss on early extinguishment of debt and other non-cash 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.

Results of Operations

The Company operates and manages its business through four operating segments.  The table below compares the results of the fourth quarter of 2009 to the results of the corresponding period of the prior year and the preceding quarter (dollars in millions).

                        Q4      Q4      %                                %    
                       2009    2008   Change        2009      2008     Change 
                       ----    ----   ------        ----      ----     ------ 
    Medical oncology                                                          
     services        $603.1  $581.9     3.6      $2,400.9  $2,251.4     6.6   
    Cancer center                                                             
     services          98.6    92.7     6.4         387.5     367.1     5.6   
     services         640.2   604.9     5.8       2,487.4   2,486.7     0.0   
    Research and                                                              
     other             15.1    16.8   (10.1)         70.0      58.9    18.8   
    Eliminations (1) (471.0) (453.6)   (3.8)     (1,834.1) (1,859.9)    1.4   
                     ------  ------              --------  --------           
                     $886.0  $842.7     5.1      $3,511.7  $3,304.2     6.3   
                     ======  ======              ========  ========           
    Operating income 
     (loss) (2)                                               
    Medical oncology                                                          
     services         $18.4   $16.9     8.9         $71.3     $73.2    (2.6)  
    Cancer center                                                             
     services          24.9    22.4    11.2          96.5      88.0     9.7   
     services          27.5    24.7    11.3          99.0      95.3     3.9   
    Research and                                                              
     other             (1.5)   (1.9)   21.1           2.2      (4.8)    nm (5)
     costs (3)        (35.4)  (32.9)   (7.6)       (133.9)   (137.1)    2.3   
    Impairment and                                                            
     charges (4)       (2.6)   (2.9)    nm (5)       (8.5)   (384.9)    nm (5)
                       ----    ----                  ----    ------           
    Total             $31.3   $26.3    19.0        $126.6   $(270.3)    nm (5)
                      =====   =====                ======   =======           
    Adjusted EBITDA
     and EBITDA                                                
    Medical oncology                                                  
     services         $18.4   $16.9     8.9         $71.3     $73.2    (2.6)  
    Cancer center                                                             
     services          34.1    31.9     6.9         135.4     125.9     7.5   
     services          28.0    25.1    11.6         101.1     100.0     1.1   
    Research and                                                              
     other             (1.6)   (1.5)   (6.7)          2.5      (4.7)    nm (5)
     costs (3)        (17.8)  (17.2)   (3.5)        (69.3)    (74.8)    7.4   
                      -----   -----                 -----     -----           
     EBITDA (4)       $61.1   $55.2    10.7        $241.0    $219.6     9.7   
    Gain (loss) on                                                            
     of debt (4)        0.9       -    nm (5)      (25.1)        -     nm (5)
    Impairment and                                                            
     charges (4)       (2.6)   (2.9)    nm (5)       (8.5)   (384.9)    nm (5)
    Other non-cash                                                            
     charges (4)       (0.2)      -     nm (5)       (0.4)        -     nm (5)
                       ----     ---                  ----       ---           
    EBITDA (2)        $59.2   $52.3    13.2        $207.0   $(165.3)    nm (5)
                      =====   =====                ======   =======           
    Net income (loss)  
     attributable to                                                          
     US Oncology, Inc. $3.9    $0.5     nm (5)      $(3.6)  $(370.5)    nm (5)
    Operating cash                                                            
     flow             $36.6   $64.2   (43.0)       $172.6    $141.5    22.0   
    (1)  Eliminations represent the sale of pharmaceuticals from our 
         distribution center (pharmaceutical services segment) to our 
         practices affiliated under comprehensive strategic alliances (medical
         oncology segment).
    (2)  Operating income (loss) differs from segment EBITDA by the amount of 
         depreciation and amortization attributed to the segment results.
    (3)  Corporate costs relate primarily to general and administrative 
         expenses in support of our network. 
    (4)  Loss on early extinguishment of debt and impairment and restructuring
         charges and other non-cash charges are excluded from Adjusted EBITDA.
    (5)  Not meaningful
                             US ONCOLOGY, INC.                        
                         KEY OPERATING STATISTICS                     
                              Q4     Q4    %                     %   
                             2009   2008 Change    2009   2008 Change 
                             ----   ---- ------    ----   ---- ------ 
    Physician Network Summary:                                        
    Medical oncologists       762    757    0.7     762    757    0.7 
    Radiation oncologists     163    160    1.9     163    160    1.9 
    Other oncologists          85     62   37.1      85     62   37.1 
                              ---    ---            ---    ---        
    Total CSA physicians    1,010    979    3.2   1,010    979    3.2 
                            -----    ---          -----    ---        
    TPS physicians            300    232   29.3     300    232   29.3 
                              ---    ---            ---    ---        
    Total physicians        1,310  1,211    8.2   1,310  1,211    8.2 
                            =====  =====          =====  =====        
    Total physicians                                                  
     signed but not                                                   
     started at the                                                   
     end of the period         46     65  (29.2)     46     65  (29.2)
                              ===    ===            ===    ===        
    Daily Patient Volumes: (1)                                        
    Total patient visits   12,167 11,753    3.5  11,913 11,408    4.4 
    Total new patients      1,238  1,167    6.1   1,235  1,140    8.3 
    New cancer patients       669    653    2.5     670    640    4.7 
    Radiation treatments/                                             
     diagnostic scans 
     (2)(4)                 3,981  3,833    3.9   3,851  3,731    3.2 
    Other Statistics:                                                 
    Radiation oncology                                                
     facilities (3)(4)        100     94    6.4     100     94    6.4 
    Linear accelerators       127    119    6.7     127    119    6.7 
    PET systems                39     37    5.4      39     37    5.4 
    CT systems                 67     62    8.1      67     62    8.1 
    New patients enrolled                                             
     in research studies                                              
     during the period        691    814  (15.1)  3,004  3,447  (12.9)
    Accounts receivable                                               
     days outstanding          29     33  (12.1)     29     33  (12.1)
    Notes to Key Operating Statistics:
    (1)  Patient volumes include information for practices affiliated under 
         comprehensive strategic alliances only, and do not include the 
         results of TPS 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)  2009 includes 83 integrated cancer centers and 17 radiation-only 
         facilities and 2008 includes 80 integrated cancer centers and 14 
         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.
                                    (in thousands)
                                                   Three Months Ended
                                                       December 31,
                                                   2009            2008
                                                   ----            ----
    Product revenue                             $598,137        $568,034
    Service revenue                              287,881         274,625
                                                 -------         -------
      Total revenue                              886,018         842,659
    Cost of products                             582,431         553,302
    Cost of services:
      Operating compensation and benefits        142,074         132,507
      Other operating costs                       82,624          84,403
      Depreciation and amortization               17,722          17,538
                                                  ------          ------
    Total cost of services                       242,420         234,448
    Total cost of products and services          824,851         787,750
    General and administrative expenses           18,755          17,577
    Impairment and restructuring charges           2,597           2,888
    Depreciation and amortization                  8,426           8,050
                                                   -----           -----
                                                 854,629         816,265
    Income from operations                        31,389          26,394
    Other income (expense):
      Interest expense, net                      (28,127)        (23,444)
      Gain on early extinguishment of debt           944               -
      Other income                                 1,278             843
                                                   -----             ---
    Income before income taxes                     5,484           3,793
    Income tax provision                            (645)         (2,445)
                                                    ----          ------
    Net income                                     4,839           1,348
    Less:  Net income attributable to
     noncontrolling interests                       (971)           (877)
                                                    ----            ----
    Net income attributable to Company            $3,868            $471
                                                  ======            ====
                           US ONCOLOGY, INC.                      
                            (in thousands)                        
                                                 Year Ended       
                                                December 31,      
                                               2009        2008 
                                               ----        ---- 
    Product revenue                        $2,363,824  $2,224,704 
    Service revenue                         1,147,856   1,079,473 
                                            ---------   --------- 
      Total revenue                         3,511,680   3,304,177 
    Cost of products                        2,312,443   2,163,943 
    Cost of services:                                             
      Operating compensation and benefits     558,181     523,939 
      Other operating costs                   330,792     321,947 
      Depreciation and amortization            72,312      72,790 
                                               ------      ------ 
    Total cost of services                    961,285     918,676 
    Total cost of products and services     3,273,728   3,082,619 
    General and administrative expenses        71,934      76,883 
    Impairment and restructuring charges        8,504     384,929 
    Depreciation and amortization              30,896      30,017 
                                               ------      ------ 
                                            3,385,062   3,574,448 
    Income (loss) from operations             126,618    (270,271)
    Other income (expense):                                       
      Interest expense, net                  (101,249)    (92,757)
      Loss on early extinguishment of debt    (25,081)          - 
      Other income                              1,315       2,213 
                                                -----       ----- 
    Income (loss) before income taxes           1,603    (360,815)
    Income tax provision                       (1,593)     (6,351)
                                               ------      ------ 
    Net income (loss)                              10    (367,166)
      Less:  Net income attributable to                           
        noncontrolling interests               (3,586)     (3,324)
                                               ------      ------ 
    Net loss attributable to Company          $(3,576)  $(370,490)
                                              =======   ========= 
                         US ONCOLOGY, INC.                          
                          (in thousands)                            
                                                Year Ended           
                                               December 31,          
                                              2009      2008       
                                              ----      ----       
    Cash flows from operating activities:                           
    Net cash provided by operating                                  
     activities                            $172,593  $141,487       
                                           --------  --------       
    Cash flows from investing activities:                           
      Acquisition of property and                                   
       equipment                            (78,261)  (88,743)      
      Net proceeds from sale of assets            -     5,347       
      Net payments in affiliation                                   
       transactions                          (4,493)  (52,467)      
      Investment in unconsolidated                                  
       subsidiaries                          (8,447)   (3,257)      
      Investment in subsidiary                 (382)        -       
      Net payments for acquisition of                               
       business                                (467)        -       
      Distributions from unconsolidated                             
       subsidiaries                          11,032     2,116       
                                             ------     -----       
    Net cash used in investing activities   (81,018) (137,004)      
                                            -------  --------       
    Cash flows from financing activities:                           
      Proceeds from senior secured notes    758,926         -       
      Proceeds from other indebtedness            -     4,000       
      Net distributions to parent           (11,064)  (13,004)      
      Repayment of term loan               (436,666)  (34,937)      
      Repayment of senior notes            (311,578)        -       
      Repayment of other indebtedness       (10,847)   (2,235)      
      Debt financing costs                  (21,680)     (143)      
      Distributions to noncontrolling                               
       interests                             (2,773)   (3,545)      
      Contributions from noncontrolling                             
       interests                              1,220       576       
      Contributions of proceeds from                                
       exercise of stock options                  -        25       
                                                ---       ---       
    Net cash used in financing activities   (34,462)  (49,263)      
                                            -------   -------       
    Increase (decrease) in cash and                                 
     equivalents                             57,113   (44,780)      
    Cash and equivalents:                                           
      Beginning of period                   104,476   149,256       
                                            -------   -------       
      End of period                        $161,589  $104,476       
                                           ========  ========       
                           US ONCOLOGY, INC.                             
                  CONDENSED CONSOLIDATED BALANCE SHEET                   
                             (in thousands)                              
                                       December 31,      December 31,    
                                          2009              2008       
                                          ----              ----       
    Current assets:                                                      
      Cash and equivalents              $161,589          $104,476       
      Accounts receivable                349,659           364,336       
      Other receivables                   30,928            25,707       
      Prepaid expenses and other                                         
       current assets                     20,818            20,682       
      Inventories                        152,642           130,967       
      Deferred income taxes                6,002             4,373       
      Due from affiliates                 30,699            66,428       
                                          ------            ------       
          Total current assets           752,337           716,969       
    Property and equipment, net          404,928           410,248       
    Service agreements, net              251,397           273,646       
    Goodwill                             377,270           377,270       
    Other assets                          73,259            64,720       
                                          ------            ------       
          Total assets                $1,859,191        $1,842,853       
                                      ==========        ==========       
    LIABILITIES AND EQUITY                                               
    Current liabilities:                                                 
      Current maturities of long-                                        
       term indebtedness                 $10,579           $10,677       
      Accounts payable                   279,788           266,190       
      Due to affiliates                  110,888           136,913       
      Accrued compensation cost           50,775            40,776       
      Accrued interest payable            40,373            26,266       
      Income taxes payable                 3,114             2,727       
      Other accrued liabilities           33,691            34,804       
                                          ------            ------       
          Total current liabilities      529,208           518,353       
    Deferred revenue                       4,636             6,894       
    Deferred income taxes                 36,658            35,139       
    Long-term indebtedness             1,074,288         1,061,133       
    Other long-term liabilities           15,739            12,347       
                                          ------            ------       
          Total liabilities            1,660,529         1,633,866       
      Common stock, $0.01 par value,
       100 shares authorized,              
       issued and outstanding                  1                 1       
      Additional paid-in-capital         551,986           560,768       
      Retained deficit                  (368,930)         (365,354)      
                                        --------          --------       
          Total Company                                                  
           stockholders’ equity          183,057           195,415       
    Noncontrolling interests              15,605            13,572       
                                          ------            ------       
          Total equity                   198,662           208,987       
                                         -------           -------       
          Total liabilities and                                          
           equity                     $1,859,191        $1,842,853       
                                      ==========        ==========       
                                 US ONCOLOGY, INC.                           
                                  (in thousands)                             
                          Three Months Ended             Year Ended        
                      December 31,  December 31,  December 31,  December 31, 
                          2009          2008          2009          2008     
                      ------------  ------------  ------------  ------------ 
    Net income (loss)     $4,839        $1,348           $10     $(367,166)
    Add back:                                                                
       expense, net       28,127        23,444       101,249        92,757 
      Income tax                                                             
       provision             645         2,445         1,593         6,351 
       and amortization   26,148        25,588       103,208       102,807 
      Amortization of 
       stock compensation    711           334         2,282         2,103 
      Other income        (1,278)         (843)       (1,315)       (2,213)
                          ------          ----        ------        ------ 
    EBITDA                59,192        52,316       207,027      (165,361)
      (Gain) loss on                                                         
       early extinguishment                                                  
       of debt              (944)            -        25,081             - 
      Impairment and                                                         
       charges             2,597         2,888         8,504       384,929 
      Other non-cash                                                         
       charges               228             -           391             - 
                             ---           ---           ---           --- 
    Adjusted EBITDA       61,073        55,204       241,003       219,568 
    Changes in                                                               
     assets and                                                              
     liabilities           4,710        28,916        34,542        19,533 
    Deferred income                                                          
     tax provision                                                           
     (benefit)              (449)        5,941          (110)        1,494 
     expense, net        (28,127)      (23,444)     (101,249)      (92,757)
    Income tax                                                               
     provision              (645)       (2,445)       (1,593)       (6,351)
                            ----        ------        ------        ------ 
    Net cash provided 
     by operating                                                            
     activities          $36,562       $64,172      $172,593      $141,487 
                         =======       =======      ========      ======== 

SOURCE US Oncology, Inc.

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