UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2010

LOGO

Commission file numbers: 333-144492 and 0-26190

US Oncology Holdings, Inc.

US Oncology, Inc.

(Exact name of registrants as specified in their charter)


Delaware		90-0222104

Delaware		84-1213501
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

10101 Woodloch Forest, The Woodlands, Texas		77380
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (281) 863-1000

Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes No ü

Indicate by check mark whether the registrants have submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No

Indicate by check mark whether the registrants are large accelerated filers, accelerated filers, non-accelerated filers, or smaller reporting companies. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	x (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrants are shell companies (as defined in rule 12b-2 of the Exchange Act). Yes No ü

As of November 4, 2010, 424,069,205 and 100 shares of US Oncology Holdings, Inc. and US Oncology, Inc. common stock were outstanding, respectively.

This Form 10-Q is a combined quarterly report being filed separately by two registrants: US Oncology Holdings, Inc. and US Oncology, Inc. Unless the context indicates otherwise, any reference in this report to “Holdings” refers to US Oncology Holdings, Inc. and any reference to “US Oncology” refers to US Oncology, Inc., the wholly-owned operating subsidiary of Holdings. References to the “Company”, “we”, “us”, and “our” refer collectively to US Oncology Holdings, Inc. and US Oncology, Inc.

US ONCOLOGY HOLDINGS, INC.

US ONCOLOGY, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2010


TABLE OF CONTENTS		PAGE NO.

PART I. FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements (unaudited):
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)	4
	Condensed Consolidated Statements of Equity (Deficit)	6
	Condensed Consolidated Statements of Cash Flows	7
	Notes to Condensed Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	38

Item 4.	Controls and Procedures	68

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	69

Item 1A.	Risk Factors	69

Item 4.	Reserved	70

Item 6.	Exhibits	70

SIGNATURES		72

This Form 10-Q is being filed by each of the registrants, US Oncology Holdings, Inc. and US Oncology, Inc. Each Registrant hereto is filing on its own behalf the information as required by Form 10-Q which is contained in this quarterly report.

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PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited, in thousands, except share information)


	US Oncology Holdings, Inc.				US Oncology, Inc.
	September 30, 2010		December 31, 2009		September 30, 2010		December 31, 2009
ASSETS
Current assets:
Cash and equivalents	$	159,469	$	161,811	$	158,919	$	161,589
Accounts receivable		360,462		349,659		360,462		349,659
Other receivables		28,891		30,928		28,891		30,928
Prepaid expenses and other current assets		21,746		20,818		21,724		20,818
Inventories		102,114		152,642		102,114		152,642
Deferred income taxes		11,571		12,136		5,437		6,002
Due from affiliates		66,419		48,052		49,314		30,699

Total current assets		750,672		776,046		726,861		752,337
Property and equipment, net		389,192		404,928		389,192		404,928
Service agreements, net		233,149		251,397		233,149		251,397
Goodwill		378,917		377,270		378,917		377,270
Other assets		75,010		78,586		71,491		73,259

Total assets	$	1,826,940	$	1,888,227	$	1,799,610	$	1,859,191


LIABILITIES AND EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term indebtedness	$	11,342	$	10,579	$	11,342	$	10,579
Accounts payable		285,824		279,948		285,642		279,788
Due to affiliates		96,697		110,888		96,697		110,888
Accrued compensation cost		51,829		50,775		51,829		50,775
Accrued interest payable		15,463		40,373		15,463		40,373
Income taxes payable		3,059		4,702		2,349		3,114
Other accrued liabilities		47,735		51,450		30,029		33,691

Total current liabilities		511,949		548,715		493,351		529,208

Deferred revenue		3,849		4,636		3,849		4,636
Deferred income taxes		12,256		12,711		34,630		36,658
Long-term indebtedness		1,594,223		1,568,242		1,067,479		1,074,288
Other long-term liabilities		37,995		44,796		25,481		15,739

Total liabilities		2,160,272		2,179,100		1,624,790		1,660,529

Commitments and contingencies (Note 10)

Equity (deficit):
Common stock, $0.001 par value, 500,000,000 shares authorized, 424,069,205 and 422,951,505 shares issued and outstanding in 2010 and 2009, respectively		424		423		-		-
Common stock, $0.01 par value, 100 shares authorized, issued and outstanding		-		-		1		1
Additional paid-in capital		110,546		108,723		534,103		551,986
Accumulated deficit		(459,205)		(415,624)		(374,187)		(368,930)

Total Company stockholders’ (deficit) equity		(348,235)		(306,478)		159,917		183,057
Noncontrolling interests		14,903		15,605		14,903		15,605

Total equity (deficit)		(333,332)		(290,873)		174,820		198,662

Total liabilities and equity (deficit)	$	1,826,940	$	1,888,227	$	1,799,610	$	1,859,191

The accompanying notes are an integral part of these statements.

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(unaudited, in thousands)


	US Oncology Holdings, Inc.				US Oncology, Inc.
	Three Months Ended September 30,				Three Months Ended September 30,
	2010		2009		2010		2009

Product revenue	$	647,509	$	608,035	$	647,509	$	608,035
Service revenue		293,179		293,419		293,179		293,419

Total revenue		940,688		901,454		940,688		901,454

Cost of products		642,966		596,208		642,966		596,208

Cost of services:
Operating compensation and benefits		140,561		140,321		140,561		140,321
Other operating costs		83,130		84,824		83,130		84,824
Depreciation and amortization		17,408		19,090		17,408		19,090

Total cost of services		241,099		244,235		241,099		244,235

Total cost of products and services		884,065		840,443		884,065		840,443
General and administrative expense		19,033		18,913		18,992		18,792
Impairment and restructuring charges		3,252		4,117		3,252		4,117
Depreciation and amortization		8,025		7,700		8,025		7,700

		914,375		871,173		914,334		871,052

Income from operations		26,313		30,281		26,354		30,402

Other income (expense):
Interest expense, net		(36,730)		(37,627)		(28,109)		(28,016)
Loss on early extinguishment of debt		-		(3,672)		-		(3,672)
Loss on interest rate swap		(3,605)		(7,596)		-		-
Other income (expense), net		(1,215)		-		(1,215)		-

Loss before income taxes		(15,237)		(18,614)		(2,970)		(1,286)
Income tax benefit (provision)		(12)		(764)		595		1,332

Net income (loss)		(15,249)		(19,378)		(2,375)		46
Less: Net income attributable to noncontrolling interests		(848)		(912)		(848)		(912)

Net loss attributable to the Company	$	(16,097)	$	(20,290)	$	(3,223)	$	(866)

The accompanying notes are an integral part of these statements.

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(unaudited, in thousands)


	US Oncology Holdings, Inc.				US Oncology, Inc.
	Nine Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009

Product revenue	$	1,857,286	$	1,765,687	$	1,857,286	$	1,765,687
Service revenue		882,223		859,975		882,223		859,975

Total revenue		2,739,509		2,625,662		2,739,509		2,625,662

Cost of products		1,839,400		1,730,012		1,839,400		1,730,012

Cost of services:
Operating compensation and benefits		423,400		416,107		423,400		416,107
Other operating costs		252,473		248,168		252,473		248,168
Depreciation and amortization		52,336		54,590		52,336		54,590

Total cost of services		728,209		718,865		728,209		718,865

Total cost of products and services		2,567,609		2,448,877		2,567,609		2,448,877
General and administrative expense		59,056		53,374		58,863		53,179
Impairment and restructuring charges		7,333		5,907		7,333		5,907
Depreciation and amortization		23,250		22,470		23,250		22,470

		2,657,248		2,530,628		2,657,055		2,530,433

Income from operations		82,261		95,034		82,454		95,229

Other income (expense):
Interest expense, net		(108,776)		(102,820)		(83,226)		(73,122)
Loss on early extinguishment of debt		-		(26,025)		-		(26,025)
Loss on interest rate swap		(11,591)		(10,012)		-		-
Other income (expense), net		(1,372)		37		(1,372)		37

Loss before income taxes		(39,478)		(43,786)		(2,144)		(3,881)
Income tax benefit (provision)		(1,309)		3,260		(319)		(948)

Net loss		(40,787)		(40,526)		(2,463)		(4,829)
Less: Net income attributable to noncontrolling interests		(2,794)		(2,615)		(2,794)		(2,615)

Net loss attributable to the Company	$	(43,581)	$	(43,141)	$	(5,257)	$	(7,444)

The accompanying notes are an integral part of these statements.

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US ONCOLOGY HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENT OF EQUITY (DEFICIT)

(unaudited, in thousands)


	US Oncology Holdings, Inc. Shareholders
	Shares Issued		Par Value		Additional Paid-In Capital		Accumulated Deficit		Noncontrolling Interests		Total
Balance at December 31, 2009		422,951	$	423	$	108,723	$	(415,624)	$	15,605	$	(290,873)

Share-based compensation		-		-		1,789		-		-		1,789
Exercise of options to purchase common stock		26		-		34		-		-		34
Restricted stock award issuances		1,470		1		-		-		-		1
Forfeiture of restricted stock awards		(378)		-		-		-		-		-
Distributions to noncontrolling interests		-		-		-		-		(3,496)		(3,496)
Net income (loss)		-		-		-		(43,581)		2,794		(40,787)

Balance at September 30, 2010		424,069	$	424	$	110,546	$	(459,205)	$	14,903	$	(333,332)

US ONCOLOGY, INC. CONDENSED CONSOLIDATED STATEMENT OF EQUITY (unaudited, in thousands, except share information)
	US Oncology, Inc. Shareholder
	Shares Issued		Par Value		Additional Paid-In Capital		Accumulated Deficit		Noncontrolling Interests		Total
Balance at December 31, 2009		100	$	1	$	551,986	$	(368,930)	$	15,605	$	198,662

Share-based compensation		-		-		1,789		-		-		1,789
Dividend paid		-		-		(19,672)		-		-		(19,672)
Distributions to noncontrolling interests		-		-		-		-		(3,496)		(3,496)
Net income (loss)		-		-		-		(5,257)		2,794		(2,463)


Balance at September 30, 2010		100	$	1	$	534,103	$	(374,187)	$	14,903	$	174,820

The accompanying notes are an integral part of these statements.

-6-

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)


	US Oncology Holdings, Inc.				US Oncology, Inc.
	Nine Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009
Cash flows from operating activities:
Net loss	$	(40,787)	$	(40,526)	$	(2,463)	$	(4,829)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization, including amortization of deferred financing costs		82,119		83,891		80,323		82,101
Impairment and restructuring charges		7,333		5,907		7,333		5,907
Deferred income taxes		110		(6,034)		(1,463)		339
Non-cash compensation expense		1,789		1,571		1,789		1,571
Gain on sale of assets		(1,021)		-		(1,021)		-
Equity losses (earnings) of joint ventures		591		(2,429)		591		(2,429)
Loss on interest rate swap		11,591		10,012		-		-
Non-cash interest under PIK election		24,938		27,373		-		-
Loss on early extinguishment of debt		-		26,025		-		26,025
(Increase) Decrease in:
Accounts and other receivables		(11,971)		(8,528)		(11,971)		(8,528)
Prepaid expenses and other current assets		3,623		(3,703)		3,630		(3,703)
Inventories		48,120		10,391		48,120		10,391
Other assets		-		26		-		26
Increase (Decrease) in:
Accounts payable		5,146		29,816		5,152		29,830
Due from/to affiliates		(32,173)		5,338		(32,421)		13,330
Income taxes receivable/payable		(1,618)		9,549		(765)		(826)
Other accrued liabilities		(43,838)		(23,338)		(23,504)		(13,174)

Net cash provided by operating activities		53,952		125,341		73,330		136,031

Continued on following page

The accompanying notes are an integral part of these statements.

-7-

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - continued

(unaudited, in thousands)


	US Oncology Holdings, Inc.				US Oncology, Inc.
	Nine Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009
Cash flows from investing activities:
Acquisition of property and equipment		(45,887)		(66,696)		(45,887)		(66,696)
Proceeds from contract separations		5,208		132		5,208		132
Payments in affiliation transactions		(2,214)		(4,525)		(2,214)		(4,525)
Payments for acquisition of business		(4,367)		-		(4,367)		-
Distributions from unconsolidated subsidiaries		3,017		3,509		3,017		3,509
Investments in unconsolidated subsidiaries		(1,288)		(7,790)		(1,288)		(7,790)


Net cash used in investing activities		(45,531)		(75,370)		(45,531)		(75,370)

Cash flows from financing activities:
Proceeds from Senior Secured Notes		-		758,926		-		758,926
Repayment of term loan		-		(436,666)		-		(436,666)
Repayment of Senior Notes		-		(311,578)		-		(311,578)
Repayment of other indebtedness		(7,156)		(9,405)		(7,156)		(9,405)
Debt financing costs		(145)		(21,188)		(145)		(21,188)
Net distributions to parent		-		-		(19,672)		(11,064)
Distributions to noncontrolling interests		(3,496)		(1,627)		(3,496)		(1,627)
Proceeds from exercise of stock options		34		-		-		-


Net cash used in financing activities		(10,763)		(21,538)		(30,469)		(32,602)

Increase (decrease) in cash and cash equivalents		(2,342)		28,433		(2,670)		28,059
Cash and cash equivalents:
Beginning of period		161,811		104,477		161,589		104,476


End of period	$	159,469	$	132,910	$	158,919	$	132,535


Interest paid	$	102,985	$	79,792	$	102,962	$	79,767
Income taxes and related interest paid (refunded)		1,694		(6,739)		1,694		1,476
Non-cash investing and financing transactions:
Notes issued for interest paid-in-kind		32,790		37,203		-		-
Accretion of dividends on preferred stock		-		19,339		-		-

The accompanying notes are an integral part of these statements.

-8-

US ONCOLOGY HOLDINGS, INC. AND US ONCOLOGY, INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 1 – Basis of Presentation

US Oncology Holdings, Inc. (“Holdings”) was formed in March, 2004 when a wholly owned subsidiary of Holdings agreed to merge with and into US Oncology, Inc. (“US Oncology”), with US Oncology continuing as the surviving corporation (the “Merger”). The Merger was consummated on August 20, 2004. Currently, Holdings’ principal asset is 100% of the shares of common stock of US Oncology. Holdings and US Oncology and their subsidiaries are collectively referred to as the “Company.”

The consolidated financial statements of Holdings include the accounts of its wholly-owned subsidiary, US Oncology. Holdings conducts substantially all of its business through US Oncology and its subsidiaries which provide extensive services and support to its affiliated cancer care sites nationwide to help them expand their offering of the most advanced cancer care treatments, build integrated community-based cancer care centers, improve their therapeutic drug management programs, and participate in cancer-related clinical research studies. US Oncology is affiliated with 1,392 physicians operating in 517 locations, including 99 radiation oncology facilities in 39 states. US Oncology also provides a broad range of services to pharmaceutical manufacturers, including product distribution and informational services such as data reporting and analysis.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial reporting and in accordance with instructions for Form 10-Q and Rule 10.01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the unaudited condensed consolidated financial statements contained in this report reflect all adjustments that are normal and recurring in nature and considered necessary to be a fair statement of the financial position and the results of operations for the interim periods presented. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. The results of operations for the interim period are not necessarily indicative of the results expected for the full year. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as well as disclosures of contingent assets and liabilities. Because of inherent uncertainties in this process, actual future results could differ from those expected at the reporting date. These unaudited, condensed consolidated financial statements, footnote disclosures and other information should be read in conjunction with the financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on March 4, 2010.

NOTE 2 – Revenues

The Company derives revenues primarily from (i) comprehensive management fees earned under our comprehensive strategic alliances model where we act as exclusive manager and administrator of affiliated practices; (ii) targeted physician services fees earned for specific practice management services performed; (iii) fees paid by pharmaceutical companies for services as a group purchasing organization, informational data services and other manufacturer services and (iv) clinical research services performed under agreements with pharmaceutical manufacturers and other trial sponsors.

Governmental programs, such as Medicare and Medicaid, are collectively the affiliated practices’ largest payers. For the three months ended September 30, 2010 and 2009, the affiliated practices under comprehensive service agreements derived 41.2% and 39.6%, respectively, of their net patient revenue from services provided under the Medicare program (of which 7.6% and 7.2%, respectively, relate to Medicare managed care) and 4.2% and 3.8%, respectively, from services provided under state Medicaid programs. For the nine months ended September 30, 2010 and 2009, the affiliated practices under comprehensive service agreements derived 40.7% and 39.6%, respectively, of their net patient revenue from services provided under the Medicare program (of which 7.3% and 6.8%, respectively, relate to Medicare managed care) and 4.1% and 3.7%, respectively, from services provided under state Medicaid programs. Capitation revenues were less than 1% of total net patient revenue in all periods. Additional payers, depending on the quarter, may individually represent more or less than 10% of the aggregate net revenues of affiliated practices under comprehensive service agreements. During the three months and nine months ended September 30, 2010 and 2009, there were no payers representing 10% or more of such affiliated practices’ aggregate net revenues. Changes in the payer reimbursement rates, or in an affiliated practices’ payer mix could materially and adversely affect the Company’s revenues.

Erythropoiesis-stimulating agents (“ESAs”) are drugs used for the treatment of anemia, a condition that occurs when the level of healthy red blood cells in the body becomes too low, thus inhibiting the blood’s ability to carry oxygen. Many cancer patients suffer from anemia either as a result of their disease or as a result of the treatments they receive for their cancer. ESAs have historically been used by oncologists to treat anemia. ESAs are administered to increase levels of healthy red blood cells as an alternative to blood transfusions.

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US ONCOLOGY HOLDINGS, INC. AND US ONCOLOGY, INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued

(unaudited)

On July 30, 2007, the Centers for Medicare and Medicaid Services (“CMS”) issued a National Coverage Determination (“NCD”) establishing criteria for reimbursement by Medicare for ESA usage which led to a significant decline in utilization of these drugs by oncologists, including those affiliated with the Company. In addition, the Oncologic Drugs Advisory Committee (“ODAC”) met on March 13, 2008, to further consider the use of ESAs in oncology. Based upon the ODAC findings, on July 30, 2008, the U.S. Food and Drug Administration (“FDA”) published a final new label for the ESA drugs Aranesp and Procrit. Unlike the NCD from CMS, which governs reimbursement (rather than prescribing) for Medicare beneficiaries only, the label indication directs appropriate physician prescribing and applies to all patients and payers.

The FDA also mandated implementation of a Risk Evaluation and Mitigation Strategy (“REMS”) for ESAs. A proposed REMS for ESAs was filed by ESA manufacturers with the FDA in August, 2008 and became effective on March 24, 2010. The REMS is focused on ESA prescribing guidelines and includes additional patient consent/education requirements, medical guides and physician registration requirements. The REMS also outlines additional procedural steps that will be necessary for qualified physicians to order and prescribe ESAs for their patients.

The decline in ESA usage has had a significant adverse affect on the Company’s results of operations, particularly on its medical oncology services and pharmaceutical services segments. Prescribing patterns may continue to change now that the REMS has been in effect for several months, a possible impact of which could be further significant reductions in ESA utilization. During the current periods, however, operating income attributable to ESAs administered by our network of affiliated physicians remained relatively stable at $5.3 million and $5.6 million during the three months ended September 30, 2010 and 2009, respectively, and $14.6 million and $16.3 million during the nine months ended September 30, 2010 and 2009, respectively. The operating income reflects results from the medical oncology services segment which relate primarily to the administration of ESAs by practices receiving comprehensive management services and from the pharmaceutical services segment which includes purchases by physicians affiliated under the targeted physician services model, as well as distribution and group purchasing fees received from manufacturers for pharmaceuticals purchased by physicians affiliated under both of these arrangements.

Decreasing financial performance of affiliated practices as a result of further declining ESA usage, if any, also affects their relationship with the Company and, in some instances, has led to increased pressure to amend the terms of their management services agreements. In addition, reduced utilization of ESAs may adversely impact the Company’s ability to continue to receive favorable pricing from ESA manufacturers. Decreased financial performance may also adversely impact the Company’s ability to obtain acceptable credit terms from pharmaceutical manufacturers, including pharmaceutical manufacturers of products other than ESAs.

The Company expects continued payer scrutiny of the side effects of supportive care products and other drugs that represent significant costs to payers. Such scrutiny by payers or additional scientific data could lead to future restrictions on usage or reimbursement for other pharmaceuticals as a result of payer or FDA action or reductions in usage as a result of the independent determination of oncologists practicing in the network. Any such reduction could have an adverse effect on the business. In the Company’s evidence-based medicine initiative, affiliated physicians continually review emerging scientific information to develop clinical pathways for use in oncology and remain engaged with payers in determining optimal usage for all pharmaceuticals.

Medicare reimbursement for physician services is based on a fee schedule, which establishes payment for a given service, in relation to actual resources used in providing the service, through the application of relative value units (“RVUs”). The resources used are converted into a dollar amount of reimbursement through a conversion factor, which is updated annually by CMS, based on a formula.

In late 2009, 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 reductions in reimbursement rates. Most recently, The Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010 (H.R. 3962), which was signed into law on June 25, 2010, delays the payment reduction until November 30, 2010 and includes a 2.2% increase in the conversion factor for services provided from June 1, 2010 through November 30, 2010. H.R. 3962 also included rate change adjustments related to the Geographic Practice Cost Index retroactive to services provided beginning January 1, 2010.

-10-

US ONCOLOGY HOLDINGS, INC. AND US ONCOLOGY, INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued

(unaudited)

The Company’s most significant, and only service agreement to provide more than 10% of total revenues, is with Texas Oncology, P.A. which accounted for approximately 25% of revenue for the nine month periods ended September 30, 2010, and 2009. Set forth below is selected, unaudited financial information for Texas Oncology (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009

Revenue of Texas Oncology, P.A.	$	233,542	$	223,876	$	681,194	$	655,792
Less: Reimbursement of expenses		221,484		210,436		643,123		618,564

Earnings component of management fee	$	12,058	$	13,440	$	38,071	$	37,228

NOTE 3 – Fair Value Measurements

Under the provisions of ASC820 “Fair Value Measurements and Disclosures” (Fair Value Measurements and Disclosure Topics), assets and liabilities measured at fair value are to be categorized into one of three different levels depending on the observability of the inputs employed in the measurement. Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Level 2 inputs are observable inputs other than quoted prices included within Level 1 for the asset or liability, either directly or indirectly through market-corroborated inputs. Level 3 inputs are unobservable inputs for the asset or liability reflecting our assumptions about pricing by market participants. The Company classifies assets and liabilities in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s methodology for categorizing assets and liabilities that are measured at fair value pursuant to this hierarchy gives the highest priority to unadjusted quoted prices in active markets and the lowest level to unobservable inputs.

Liabilities consist of the Company’s interest rate swap only, which is valued using models based on readily observable market parameters for all substantial terms of the derivative contract and, therefore, are classified as Level 2. Under the interest rate swap, the Company pays a fixed rate of 4.97% and receives a floating rate based on the six-month LIBOR on a notional amount of $425.0 million. The floating rate is set at the start of each semi-annual interest period with the final interest settlement date on March 15, 2012. The fair value of the interest rate swap is estimated based upon the expected future cash settlements, as reported by the counterparty, using observable market information. The most significant factors in estimating the value of the interest rate swap is the assumption made regarding the future interest rates that will be used to establish the variable rate payments to be received by the Company and the discount rate used to determine the present value of those estimated future payments. The Company considers both counterparty credit risk and its own credit risk when estimating the fair market value of the interest rate swap. Because of negative differential between the current (and projected) LIBOR rate and the fixed interest rate paid by the Company, which results in a net liability position, as well as the counterparty’s credit rating, counterparty credit risk is assessed to be minimal and did not impact the fair value of the interest rate swap. The Company also assesses its own credit risk in the valuation of its obligation under the interest rate swap using Company-specific market information. The most significant market information considered was the credit spread between the “Holdings Notes” (exchange notes registered with the SEC in 2007), an instrument with a similar credit profile and term as the interest rate swap, and the like term treasury spread (as an estimate of a risk free rate). An increase in future LIBOR rates of 1.00 percent would increase (in the Company’s favor) the fair value of the interest rate swap by $3.7 million and a decrease in future interest rates of 1.00 percent would negatively impact its fair value by $2.6 million. As of September 30, 2010, $101.7 million of the Company’s indebtedness remains exposed to changes in variable interest rates. As such, movements that favorably impact the fair market value of the interest rate swap will increase the interest expense associated with our indebtedness that remains subject to variable interest rate risk.

-11-

US ONCOLOGY HOLDINGS, INC. AND US ONCOLOGY, INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued

(unaudited)

The following table summarizes the assets and liabilities measured at fair value on a recurring basis as of September 30, 2010 (in thousands):


			Quoted Prices in
			Active Markets for		Significant Other		Significant
	Fair Value as of		Identical Assets		Observable Inputs		Unobservable Inputs
	September 30, 2010		(Level 1)		(Level 2)		(Level 3)

Assets	$	-	$	-	$	-	$	-

Liabilities
Other accrued liabilities		17,703		-		17,703		-
Other long-term liabilities		7,720		-		7,720		-

Total	$	25,423	$	-	$	25,423	$	-

Non-designated Derivative Instrument

The Company’s interest rate swap agreement described above was initially designated as a cash flow hedge against the variability of cash future interest payments on the Holdings Notes (see Note 6 – Indebtedness). The Company no longer believes that payment of cash interest on the entire principal of the outstanding Holdings Notes remains probable and has discontinued cash flow hedge accounting for the interest rate swap. Subsequent to discontinuation of hedge accounting, the Company has recognized all unrealized losses in earnings, rather than deferring such amounts in accumulated other comprehensive income. Holdings recognized unrealized losses during the three and nine months ended September 30, 2010 and 2009 as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009

Loss on interest rate swap	$	(3,605)	$	(7,596)	$	(11,591)	$	(10,012)

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 in a portion of interest accruing on the Holdings Notes.

NOTE 4 – Intangible Assets and Goodwill

Changes in intangible assets relating to service agreements, customer relationships, trademarks and goodwill during the nine months ended September 30, 2010 consisted of the following (in thousands):


	Service		Customer						Accumulated
	Agreements,		Relationships,		Patents &				Impairment
	net		net		Trademarks		Goodwill		Loss		Goodwill, net

Balance at December 31, 2009	$	251,397	$	3,244	$	-	$	757,270	$	(380,000)	$	377,270
Additions		2,214		2,180		925		1,647		-		1,647
Impairment charges		(2,523)		-		-		-		-		-
Amortization expense and other		(17,939)		(506)		(77)		-		-		-

Balance at September 30, 2010	$	233,149	$	4,918	$	848	$	758,917	$	(380,000)	$	378,917


Average of straight-line based amortization period remaining in years as of September 30, 2010		12		7		4		N/A

Customer relationships, net, are classified as Other Assets in the accompanying Condensed Consolidated Balance Sheets. Accumulated amortization relating to service agreements was $80.1 million and $73.4 million at September 30, 2010 and December 31, 2009, respectively. The amortization expense of amortizable intangible assets for the nine months ended September 30, 2010 was $15.8 million, and the estimated annual amortization expense for the five succeeding years is approximately $20 million per year.

-12-

US ONCOLOGY HOLDINGS, INC. AND US ONCOLOGY, INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued

(unaudited)

During the nine months ended September 30, 2010, the Company recorded additions to certain intangible assets related to the acquisition of CURE Media Group for cash consideration of $4.4 million. Additions to customer relationships of $2.2 million, trademarks of $0.5 million and goodwill of $1.6 million, as noted in the table above, all relate to this acquisition. Goodwill related to our acquisition of the CURE Media Group is included in the pharmaceutical services segment. In addition, the Company recorded additions to patents and trademarks related to the acquisition of NexCura of $0.5 million. As determinations and appraisals of the fair value of assets acquired and liabilities assumed in the acquisitions are finalized, values may be adjusted if they vary from our original estimates. During the nine months ended September 30, 2010, the Company impaired service agreement intangible assets with a carrying value of $2.5 million (see Note 5 – “Impairment and Restructuring Charges”).

The carrying value of goodwill and the carrying value of service agreements are subject to impairment tests under generally accepted accounting principles. There were no impairments of goodwill identified during the nine months ended September 30, 2010. However, future adverse changes in actual or anticipated operating results, as well as unfavorable changes in economic factors and market multiples used to estimate the fair value of the Company, could result in future non-cash impairment charges.

NOTE 5 – Impairment and Restructuring Charges

Impairment and restructuring charges recognized during the three months and nine months ended September 30, 2010 and 2009 consisted of the following (in thousands):


	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
Severance costs		$	3,059		$	4,117		$	4,524		$	5,731
Service agreements, net			-			-			2,523			150
Other, net			193			-			286			26

Total		$	3,252		$	4,117		$	7,333		$	5,907

The Company recorded severance charges related to employee separations of corporate personnel of $3.1 million and $4.1 million during the three months ended September 30, 2010 and 2009, respectively, and $4.5 million and $5.7 million during the nine months ended September 30, 2010 and 2009, respectively. The Company’s severance-related liabilities of $5.4 million as of September 30, 2010, will be paid through the fourth quarter of 2011.

In addition, the nine months ended September 30, 2010 and 2009 include impairment charges related to service agreement intangibles of $2.5 million and $0.2 million, respectively, related to practices which either converted from a comprehensive strategic alliance model to a targeted physician services relationship or separated from the network.

-13-

US ONCOLOGY HOLDINGS, INC. AND US ONCOLOGY, INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued

(unaudited)

NOTE 6 – Indebtedness

As of September 30, 2010 and December 31, 2009, long-term indebtedness consisted of the following (in thousands):


	September 30,		December 31,
	2010		2009

US Oncology, Inc.
9.125% Senior Secured Notes, due 2017 ^(a)		760,790		759,680
10.75% Senior Subordinated Notes, due 2014		275,000		275,000
9.625% Senior Subordinated Notes, due 2012		3,000		3,000
Subordinated notes		20,189		25,945
Mortgage, capital lease obligations and other		19,842		21,242

		1,078,821		1,084,867
Less current maturities		(11,342)		(10,579)

		1,067,479		1,074,288


US Oncology Holdings, Inc.
Senior Floating Rate PIK Toggle Notes, due 2012		526,744		493,954

	$	1,594,223	$	1,568,242


(a) Includes $14.2 million unamortized original issue discount balance.

Future principal obligations under US Oncology’s and Holdings’ long-term indebtedness as of September 30, 2010, are as follows (in thousands):


	Twelve months ending September 30,
	2011			2012			2013			2014			2015			Thereafter
US Oncology payments due		$	11,342		$	8,301		$	8,333		$	277,049		$	5,826		$	782,180
Holdings payments due			-			526,744			-			-			-			-

		$	11,342		$	535,045		$	8,333		$	277,049		$	5,826		$	782,180

Financial Covenants

The Senior Secured Revolving Credit Facility, the Senior Secured Notes due 2017 and the Senior Subordinated Notes due 2014 contain affirmative and negative covenants including the maintenance of certain financial ratios, restrictions on sales, leases or other dispositions of property, restrictions on other indebtedness, prohibitions on the payment of dividends and other customary restrictions. Events of default under the Senior Secured Notes and the unsecured notes include cross-defaults to all material indebtedness, including each of those financings as well as hedging obligations under the interest rate swap. Substantially all of our assets, including certain real property, are pledged as security on a second lien basis under the Senior Secured Notes.

At September 30, 2010, we were in compliance with the financial covenants of our indebtedness. The senior secured revolving credit facility contains the most restrictive financial maintenance covenants related to our indebtedness and requires US Oncology to comply, on a quarterly basis, with certain financial covenants, including a maximum leverage ratio test, which becomes more restrictive over time. At September 30, 2010, the terms of the senior secured revolving credit facility required that we maintain a maximum leverage ratio of 7.00:1. As of September 30, 2010, the maximum leverage ratio, as calculated under the terms of the senior secured revolving credit facility, was 4.92:1. The ratio becomes more restrictive (generally semiannually beginning in 2011) and, at maturity in 2012, the maximum leverage ratio may not be more than 6.00:1. Our ability to access the senior secured revolving credit facility may be limited if we are not able to maintain compliance with these covenants through the facility’s maturity in August 2012.

-14-

US ONCOLOGY HOLDINGS, INC. AND US ONCOLOGY, INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued

(unaudited)

Senior Secured Revolving Credit Facility

On August 26, 2009, the Company entered into a $120.0 million Senior Secured Revolving Credit Facility, including a letter of credit sub-facility and a swingline loan sub-facility, which matures on August 31, 2012. The Senior Secured Revolving Credit Facility is guaranteed on a senior secured basis by the wholly-owned domestic subsidiaries and is secured on a first lien priority basis (subject to certain exceptions and permitted liens) by substantially all the tangible and intangible assets and properties of the Company and such guarantors. At September 30, 2010, availability had been reduced by outstanding letters of credit amounting to $30.4 million and $89.6 million was available for borrowing. At September 30, 2010, no amounts had been borrowed under the Senior Secured Revolving Credit Facility.

Senior Floating Rate PIK Toggle Notes

On March 15, 2007, Holdings, whose principal asset is its investment in US Oncology, issued $425.0 million of senior floating rate PIK toggle notes, due March 15, 2012 (the “Holdings Notes”). These notes are senior unsecured obligations of Holdings. Holdings may elect to pay interest on the Holdings Notes entirely in cash, by increasing the principal amount of the Holdings Notes (“PIK interest”), or by paying 50% in cash and 50% by increasing the principal amount of the Holdings Notes. Cash interest accrues on the Holdings Notes at a rate per annum equal to 6-month LIBOR plus the applicable spread. PIK interest accrues on the Holdings Notes at a rate per annum equal to the cash interest rate plus 0.75%. The Company must make an election regarding whether interest will be paid in cash or in kind prior to the start of the applicable interest period. The applicable spread is 5.50% and reflects the final scheduled spread increase of 0.50% which was effective on March 15, 2010. The impact of scheduled spread increases is recognized as interest expense on a straight line basis to reflect a constant spread over the term of the Holdings Notes. During the nine months ended September 30, 2010 and 2009, the Company elected to PIK interest on the Holdings Notes and total interest expense was $25.6 million and $29.7 million, respectively, which includes cash or PIK interest, as well as interest related to spread increases and the amortization of debt issuance costs.

Holdings may redeem all or any of the Holdings Notes at a price of 100% of the principal amount if redeemed on or after September 15, 2010 through final maturity on March 15, 2012.

Because Holdings’ principal asset is its investment in US Oncology, US Oncology provides funds to service Holdings’ indebtedness through payment of dividends to Holdings. US Oncology’s senior notes and senior subordinated notes limit its ability to make restricted payments from US Oncology, including dividends paid by US Oncology to Holdings. As of September 30, 2010, US Oncology has the ability to make approximately $6.3 million in restricted payments, which amount increases based on capital contributions to US Oncology, Inc. and by 50% of US Oncology’s net income and is reduced by i) the amount of any restricted payments made and ii) net losses of US Oncology, excluding certain non-cash charges such as the $26.0 million loss on early extinguishment of debt in 2009. Delaware law also requires that US Oncology be solvent both at the time, and immediately following, a dividend payment to Holdings. Because Holdings relies on dividends from US Oncology to fund cash interest payments on the Holdings Notes, in the event that such restrictions prevent US Oncology from paying such a dividend, Holdings would be unable to pay interest on the notes in cash and would instead be required to pay PIK interest.

In connection with issuing the Holdings Notes, Holdings entered into an interest rate swap agreement, with a notional amount of $425.0 million, fixing the LIBOR base rate at 4.97% through maturity in 2012 (see Note 3). Unlike interest on the Holdings Notes, which may be settled in cash or through the issuance of additional notes, payments due to the swap counterparty must be made in cash. As a result of the current and projected low interest rate environment, and the related expectation that Holdings will continue to be net payer on the interest rate swap, the Company believes that cash payments for the interest rate swap obligations will reduce the availability under the restricted payments provisions in US Oncology’s indebtedness to a level that additional payments for cash interest for the Holdings Notes may not be prudent and therefore, no longer remain probable. The Company’s semiannual payment obligations on the interest rate swap increase by $2.1 million for each 1.00% that the fixed interest rate of 4.97% paid to the counterparty exceeds the variable interest rate received from the counterparty. Similarly, the Company’s semiannual payment obligations on the interest rate swap decrease by $2.1 million when the difference between the fixed interest rate paid to the counterparty and the variable interest rate received from the counterparty reduces by 1.00%. In the event amounts available under the restricted payments provision are insufficient for the Company to service interest on the Holdings Notes, including any obligation related to the interest rate swap, the Company may be required to arrange additional financing or a capital infusion and use such proceeds to satisfy these obligations. There can be no assurance that additional financing or a capital infusion, if available, will be made on terms that are acceptable to the Company. The Company issued $17.1 million in notes to settle the interest due in September 2010. In addition, the Company

-15-

US ONCOLOGY HOLDINGS, INC. AND US ONCOLOGY, INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued

(unaudited)

was required to pay $9.9 million to settle the obligation under its interest rate swap agreement for the interest period ending September 15, 2010. During the nine months ended September 30, 2010, US Oncology paid dividends in the amount of $19.7 million to Holdings to finance obligations related to the Holdings Notes and interest rate swap. For the interest period due in March 2011, the Company expects to issue $17.6 million in notes to settle the interest and to pay $9.6 million to settle the swap obligation.

The Company’s swap obligation due March 15, 2011 of $9.6 million is greater than the restricted payment availability of $6.3 million at September 30, 2010. The amount available for the restricted payment on March 15, 2011 will be based on financial results through December 31, 2010 and, if earnings through that date do not increase availability to a sufficient amount, US Oncology will be required to obtain a capital contribution to fund its obligation related to the swap.

Holdings issued the Holdings Notes pursuant to an Indenture dated March 13, 2007 between Holdings and a Trustee. Among other provisions, the Indenture contains certain covenants that limit the ability of Holdings and certain restricted subsidiaries, including US Oncology, to incur additional debt, pay dividends on, redeem or repurchase capital stock, issue capital stock of restricted subsidiaries, make certain investments, enter into certain types of transactions with affiliates, engage in unrelated businesses, create liens securing the debt of Holdings and sell certain assets or merge with or into other companies.

The fair value of the Company’s long term indebtedness is estimated based on quoted market prices or prices quoted from third party financial institutions. The carrying amount and fair value of the indebtedness, including the current portion, are as follows (in thousands):


	As of September 30, 2010				As of December 31, 2009
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
9.125% Senior Secured Notes, due 2017^(a)	$	775,000	$	815,688	$	775,000	$	804,063
10.75% Senior Subordinated Notes, due 2014		275,000		283,250		275,000		287,375
Holdings Senior Floating Rate PIK Toggle Notes, due 2012		526,744	$	495,139		493,954		456,907

(a) Does not include $14.2 million unamortized original issue discount balance.

On November 1, 2010, the Company entered into an Agreement and Plan of Merger with McKesson Corporation pursuant to which substantially all of the Company’s indebtedness would be retired. See Note 13 – Subsequent Event.

NOTE 7 – Stock-Based Compensation

The Company has two stock-based compensation plans as well as a long-term cash incentive plan. The following disclosures relate to stock incentive plans involving shares of or options to purchase Holdings common stock. Activity related to Holdings’ stock-based compensation is also included in the financial statements of US Oncology, as the participants in such plans are employees of US Oncology.

Compensation expense is recognized in the Company’s financial statements over the requisite service period, net of estimated forfeitures, and based on the fair value as of the grant date.

US Oncology Holdings, Inc. Amended and Restated 2004 Equity Incentive Plan

The Holdings’ Board of Directors adopted the US Oncology Holdings, Inc. 2004 Equity Incentive Plan (the “Equity Incentive Plan”) effective in August, 2004 and twice amended the plan effective January 1, 2008 and October 1, 2009. The purpose of the plan is to attract and retain the best available personnel and to provide additional incentives to employees and consultants to promote the success of the business. Based on the individual vesting criteria for each award, the Company recorded compensation expense of $0.5 million and $1.8 million during the three and nine months ended September 30, 2010, respectively, and $0.7 million and $1.6 million during the three and nine months ended September 30, 2009, respectively, related to restricted stock and stock option awards made under the Equity Incentive Plan. At September 30, 2010, 485,020 shares of either restricted stock or stock options and 12,401,181 shares of stock options were available for future awards.

-16-

US ONCOLOGY HOLDINGS, INC. AND US ONCOLOGY, INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued

(unaudited)

The Company granted awards of 1,245,000 and 1,370,000 restricted shares with an aggregate fair value at the time of grant of approximately $0.6 million during both the three and nine month periods ended September 30, 2010, and 500,000 and 750,000 restricted shares with an aggregate fair value at the time of grant of approximately $0.2 million and $0.3 million during the three and nine months ended September 30, 2009. Restricted shares vest over a three to five year period from the date of grant. During the three and nine months ended September 30, 2010 there were 257,801 and 377,801 restricted shares forfeited by holders, respectively, and during the nine months ended September 30, 2009, 597,600 restricted shares were forfeited by holders. No restricted shares were forfeited by holders during the three months ended September 30, 2009.

The following summarizes activity for restricted shares awarded under the Equity Incentive Plan for the nine months ended September 30, 2010:


	Unvested Restricted Shares

Restricted shares outstanding, December 31, 2009		10,869,851
Granted		1,370,000
Forfeited		(377,801)
Vested		(2,569,697)

Restricted shares outstanding, September 30, 2010		9,292,353

The following summarizes activity for options awarded under the Equity Incentive Plan for the nine months ended September 30, 2010:


	Stock Options
	Shares Represented by Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term

Balance, December 31, 2009		13,319,050		$1.50
Granted		650,000		1.50
Exercised		(25,500)		1.33
Forfeited		(665,500)		1.46

Balance, September 30, 2010		13,278,050		1.50		8.9


Options exercisable, September 30, 2010		334,650		1.46		5.1

At September 30, 2010, 13,278,050 options to purchase Holdings common stock were outstanding. During the nine months ended September 30, 2010, there were 650,000 options granted to purchase common shares. No options were granted during the nine months ended September 30, 2009. Compensation expense related to options granted has been recorded based on the fair value as of the grant date and vesting provisions.

Holdings’ Amended and Restated Director Stock Option and Restricted Stock Award Plan

The Holdings’ Board of Directors adopted the US Oncology Holdings 2004 Director Stock Option Plan (the “Director Stock Option Plan”), which became effective in October 2004 upon stockholder approval. Effective October 1, 2009, Holdings amended and restated its Director Stock Option Plan in order to: (a) allow directors to be granted shares of restricted stock; (b) provide grants to directors; and (c) increase the number of shares of common stock of Holdings available for awards under the plan from 500,000 to 1,000,000; in each case, as more fully set forth in the Amended and Restated Director Stock Option and Restricted Stock Award Plan (the “Amended Director Plan”).

-17-

US ONCOLOGY HOLDINGS, INC. AND US ONCOLOGY, INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued

(unaudited)

Under the Amended Director Plan, each eligible director at the effective date of the Amended Director Plan is granted 15,000 shares of restricted common stock unless such director was first elected to the Board during or after 2009, in which case such director is granted 25,000 shares of restricted common stock at the later of the effective date of the Amended Director Plan or the date of his or her election to the Board. In addition, each such director is granted 1,000 shares of restricted common stock for each board committee on which such director served. On the date of the 2010 annual meeting of stockholders and for each annual meeting of stockholders thereafter, each eligible director will be granted 10,000 shares of restricted common stock. At the first board meeting following the 2010 annual meeting of stockholders and each annual meeting of stockholders thereafter, each eligible director will be granted 1,000 shares of restricted common stock for each board committee such director served. All grants of restricted common stock are contingent upon execution of a restricted stock agreement.

Through September 30, 2010, options to purchase 191,000 shares of common stock, net of forfeitures, have been granted to directors under the Director Stock Option Plan as amended, with exercise prices ranging from $0.23 to $2.72. At September 30, 2010, 108,000 options to purchase Holdings common stock were outstanding. The options vest six months after the date of grant. During the nine months ended September 30, 2010, there were no exercises of options issued under the Amended Director Plan. The Company granted 100,000 shares of restricted common stock during nine months ended September 30, 2010. Through September 30, 2010, 236,000 shares of restricted common stock have been granted to directors under the Amended Director Plan. At September 30, 2010, 236,000 shares of restricted common stock were outstanding. At September 30, 2010, 573,000 shares were available for future awards under the Amended Director Plan.

NOTE 8 – Income Taxes

The effective tax rate for the three months and nine months ended September 30, 2010 and 2009 was as follows (dollars in thousands):


	US Oncology Holdings, Inc.				US Oncology, Inc.
	Three Months Ended September 30,				Three Months Ended September 30,
	2010		2009		2010		2009

Loss before income taxes	$	(15,237)	$	(18,614)	$	(2,970)	$	(1,286)
Less: Income before income taxes attributable to noncontrolling interests		(848)		(912)		(848)		(912)

Loss before income taxes attributable to the Company	$	(16,085)	$	(19,526)	$	(3,818)	$	(2,198)

Income tax benefit (provision) attributable to the Company	$	(12)	$	(764)	$	595	$	1,332


Effective tax rate attributable to the Company		(0.1)%		(3.9)%		15.6%		60.6%


	US Oncology Holdings, Inc.				US Oncology, Inc.
	Nine Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009

Loss before income taxes	$	(39,478)	$	(43,786)	$	(2,144)	$	(3,881)
Less: Income before income taxes attributable to noncontrolling interests		(2,794)		(2,615)		(2,794)		(2,615)

Loss before income taxes attributable to the Company	$	(42,272)	$	(46,401)	$	(4,938)	$	(6,496)

Income tax benefit (provision) attributable to the Company	$	(1,309)	$	3,260	$	(319)	$	(948)


Effective tax rate attributable to the Company		(3.1)%		7.0%		(6.5)%		(14.6)%

-18-

US ONCOLOGY HOLDINGS, INC. AND US ONCOLOGY, INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued

(unaudited)

The difference between the effective tax rate for Holdings and US Oncology relates to the incremental expenses associated with Holdings’ separate capitalization and general and administrative expenses incurred by Holdings. These differences increase Holdings’ taxable loss and, consequently, alter the impact of non-deductible costs and certain state income taxes assessed on a different basis than federal income taxes on its effective tax rate. Additionally, Holdings has recorded a valuation allowance to reduce its deferred tax assets to their estimated realizable value.

The difference between our effective income tax rate and the amount that would be determined by applying the statutory U.S. income tax rate before income taxes is as follows (dollars in thousands):


	US Oncology Holdings, Inc.						US Oncology, Inc.
	Three Months Ended September 30,						Three Months Ended September 30,
	2010			2009			2010			2009

U.S. statutory income tax rate	$	5,630	35.0%	$	6,834	35.0%	$	1,336	35.0%	$	768	35.0%
Non-deductible expenses		(292)	(1.8)		346	1.8		(292)	(7.6)		112	5.1
State income taxes, net of federal benefit ⁽¹⁾		60	0.4		98	0.5		(350)	(9.2)		902	41.0
Reserve for uncertain tax positions		45	0.3		(57)	(0.3)		-	-		(57)	(2.6)
Valuation allowance		(5,917)	(36.8)		(7,320)	(37.5)		-	-		-
Other		462	2.8		(665)	(3.4)		(99)	(2.6)		(393)	(17.9)

Effective tax benefit (provision) ⁽²⁾	$	(12)	(0.1)%	$	(764)	(3.9)%	$	595	15.6%	$	1,332	60.6%


	US Oncology Holdings, Inc.						US Oncology, Inc.
	Nine Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009

U.S. statutory income tax rate	$	14,795	35.0%	$	16,240	35.0%	$	1,728	35.0%	$	2,273	35.0%
Non-deductible expenses		(766)	(1.8)		(837)	(1.8)		(766)	(15.5)		(837)	(12.9)
State income taxes, net of
federal benefit ⁽¹⁾		129	0.3		(626)	(1.3)		(1,048)	(21.2)		(1,372)	(21.1)
Reserve for uncertain tax positions		595	1.4		(619)	(1.3)		(170)	(3.4)		(619)	(9.5)
Valuation allowance		(15,366)	(36.4)		(9,834)	(21.2)		-	-		-	-
Other		(696)	(1.6)		(1,064)	(2.4)		(63)	(1.4)		(393)	(6.1)

Effective tax benefit (provision) ⁽²⁾	$	(1,309)	(3.1)%	$	3,260	7.0%	$	(319)	(6.5)%	$	(948)	(14.6)%

⁽¹⁾

The Texas state margin tax became effective January 1, 2007. Under the Texas margin tax, a Company’s tax obligation is computed based on its receipts less, in the case of the Company, the cost of pharmaceuticals. As such, significant costs incurred that would be deducted to compute federal income tax of an entity may not be considered in assessing an obligation for margin tax.

⁽²⁾

For the nine months ended September 30, 2010, the annual effective tax rate for US Oncology, Inc. for the year ended December 31, 2010 could not be reasonably estimated because the Company expects its pretax income for the year to be near breakeven.

At September 30, 2010, the Company had a gross federal net operating loss carryforward benefit of approximately $162.0 million that will begin to expire in 2027. In assessing the realizability of deferred tax assets, management evaluates a variety of factors in considering whether it is more likely than not that some portion or all of the deferred tax assets will ultimately be realized. Management considers earnings expectations, the existence of taxable temporary differences, tax planning strategies, and the periods in which estimated losses can be utilized. Based upon this analysis, management has concluded that it is not more likely than not that Holdings will realize all of the benefits of its deferred tax assets and accordingly has recorded a valuation allowance of $31.8 million against its deferred tax assets as of September 30, 2010.

As of September 30, 2010, the Company had an accrual of $1.4 million for uncertain tax positions which are generally expected to settle within the next twelve months. During the nine months ended September 30, 2010, the Company reduced its federal uncertain tax position by $1.5 million as a result of a settlement with the Internal Revenue Service. Of this amount,

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued

(unaudited)

$0.7 million is reflected as an income tax benefit in the condensed consolidated statements of operations and comprehensive income (loss), $0.5 million as a reduction in Holding’s net operating loss carryforward in the condensed consolidated balance sheets, and $0.3 million was paid for excise taxes in August 2010.

On November 1, 2010, the Company entered into an Agreement and Plan of Merger with McKesson Corporation to purchase all of the outstanding common shares of US Oncology Holdings, Inc. which, if consummated, would represent a change of control which may subject the future utilization of the Company’s net operating loss carryforwards to an annual limitation pursuant to Internal Revenue Code Section 382. See Note 13 – Subsequent Event.

NOTE 9 – Segment Financial Information

The Company’s reportable segments are based on internal management reporting that disaggregates the business by service line. The Company’s reportable segments are medical oncology services, cancer center services, pharmaceutical services, and research/other services (primarily consisting of cancer research services). The Company provides comprehensive practice management services for the non-clinical aspects of practice management to affiliated practices in its medical oncology and cancer center services segments. In addition to managing their non-clinical operations, the medical oncology segment provides oncology pharmaceutical services to practices affiliated through comprehensive strategic alliances. The cancer center services segment develops and manages comprehensive, community-based cancer centers, which integrate various aspects of outpatient cancer care, from laboratory and radiology diagnostic capabilities to radiation therapy for practices affiliated by comprehensive strategic alliance. The pharmaceutical services segment distributes oncology pharmaceuticals to affiliated practices, including practices affiliated under the targeted physician services model, and provides informational and other services to pharmaceutical manufacturers. The research/other services segment contracts with pharmaceutical and biotechnology firms to provide a comprehensive range of services relating to clinical trials.

Balance sheet information by reportable segment is not reported, since the Company does not prepare such information internally.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued

(unaudited)

The tables below present segment results for the three months and nine months ended September 30, 2010 and 2009 (in thousands). Income (loss) from operations of Holdings is identical to those of US Oncology with the exception of nominal administrative expenses:



	Three Months Ended September 30, 2010

	Medical Oncology Services		Cancer Center Services		Pharmaceutical Services		Research/ Other		Corporate Costs		Eliminations ⁽¹⁾		Total

US Oncology, Inc.
Product revenue	$	453,472	$	-	$	688,786	$	-	$	-	$	(494,749)	$	647,509
Service revenue		162,176		95,038		16,055		19,910		-		-		293,179

Total revenue		615,648		95,038		704,841		19,910		-		(494,749)		940,688
Operating expenses		(597,642)		(63,102)		(682,475)		(18,187)		(18,992)		494,749		(885,649)
Impairment and restructuring charges		(4)		-		-		-		(3,248)		-		(3,252)
Depreciation and amortization		-		(8,527)		(788)		(53)		(16,065)		-		(25,433)

Income (loss) from operations	$	18,002	$	23,409	$	21,578	$	1,670	$	(38,305)	$	-	$	26,354


US Oncology Holdings, Inc.
Operating expenses	$	-	$	-	$	-	$	-	$	(41)	$	-	$	(41)

Income (loss) from operations	$	18,002	$	23,409	$	21,578	$	1,670	$	(38,346)	$	-	$	26,313

Goodwill	$	28,913	$	191,424	$	158,580	$	-	$	-	$	-	$	378,917




	Three Months Ended September 30, 2009

	Medical Oncology Services		Cancer Center Services		Pharmaceutical Services		Research/ Other		Corporate Costs		Eliminations ⁽¹⁾		Total

US Oncology, Inc.
Product revenue	$	450,202	$	-	$	628,737	$	-	$	-	$	(470,904)	$	608,035
Service revenue		160,147		99,457		16,728		17,087		-		-		293,419

Total revenue		610,349		99,457		645,465		17,087		-		(470,904)		901,454
Operating expenses		(591,204)		(64,044)		(620,111)		(16,996)		(18,694)		470,904		(840,145)
Impairment and restructuring charges		1		-		-		-		(4,118)		-		(4,117)
Depreciation and amortization		-		(10,695)		(392)		(64)		(15,639)		-		(26,790)

Income (loss) from operations	$	19,146	$	24,718	$	24,962	$	27	$	(38,451)	$	-	$	30,402


US Oncology Holdings, Inc.
Operating expenses	$	-	$	-	$	-	$	-	$	(121)	$	-	$	(121)

Income (loss) from operations	$	19,146	$	24,718	$	24,962	$	27	$	(38,572)	$	-	$	30,281

Goodwill	$	28,913	$	191,424	$	156,933	$	-	$	-	$	-	$	377,270

⁽¹⁾	Eliminations represent the sale of pharmaceuticals from the distribution center (pharmaceutical services segment) to the practices affiliated under comprehensive service agreements (medical oncology segment).

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued

(unaudited)



	Nine Months Ended September 30, 2009

	Medical Oncology Services		Cancer Center Services		Pharmaceutical Services		Research/ Other		Corporate Costs		Eliminations ⁽¹⁾		Total

US Oncology, Inc.
Product revenue	$	1,340,137	$	-	$	1,931,492	$	-	$	-	$	(1,414,343)	$	1,857,286
Service revenue		484,389		292,788		46,953		58,093		-		-		882,223

Total revenue		1,824,526		292,788		1,978,445		58,093		-		(1,414,343)		2,739,509
Operating expenses		(1,769,125)		(193,319)		(1,911,734)		(55,438)		(58,863)		1,414,343		(2,574,136)
Impairment and restructuring charges		(2,619)		-		-		-		(4,714)		-		(7,333)
Depreciation and amortization		-		(27,487)		(2,062)		(173)		(45,864)		-		(75,586)

Income (loss) from operations	$	52,782	$	71,982	$	64,649	$	2,482	$	(109,441)	$	-	$	82,454


US Oncology Holdings, Inc.
Operating expenses	$	-	$	-	$	-	$	-	$	(193)	$	-	$	(193)

Income (loss) from operations	$	52,782	$	71,982	$	64,649	$	2,482	$	(109,634)	$	-	$	82,261

Goodwill	$	28,913	$	191,424	$	158,580	$	-	$	-	$	-	$	378,917




	Nine Months Ended September 30, 2009

	Medical Oncology Services		Cancer Center Services		Pharmaceutical Services		Research/ Other		Corporate Costs		Eliminations ⁽¹⁾		Total

US Oncology, Inc.
Product revenue	$	1,329,256	$	-	$	1,799,532	$	-	$	-	$	(1,363,101)	$	1,765,687
Service revenue		468,581		288,917		47,697		54,780		-		-		859,975

Total revenue		1,797,837		288,917		1,847,229		54,780		-		(1,363,101)		2,625,662
Operating expenses		(1,744,915)		(187,648)		(1,774,123)		(50,865)		(53,016)		1,363,101		(2,447,466)
Impairment and restructuring charges		(176)		-		-		-		(5,731)		-		(5,907)
Depreciation and amortization		-		(29,711)		(1,566)		(210)		(45,573)		-		(77,060)

Income (loss) from operations	$	52,746	$	71,558	$	71,540	$	3,705	$	(104,320)	$	-	$	95,229


US Oncology Holdings, Inc.
Operating expenses	$	-	$	-	$	-	$	-	$	(195)	$	-	$	(195)

Income (loss) from operations	$	52,746	$	71,558	$	71,540	$	3,705	$	(104,515)	$	-	$	95,034

Goodwill	$	28,913	$	191,424	$	156,933	$	-	$	-	$	-	$	377,270

⁽¹⁾

Eliminations represent the sale of pharmaceuticals from the distribution center (pharmaceutical services segment) to the practices affiliated under comprehensive service agreements (medical oncology segment).

Revenue related to the Research/Other segment for the nine months ended September 30, 2010 includes an out of period adjustment to correct accounting errors of approximately $1.0 million related to services rendered during the year ended December 31, 2009, which were billed to sponsors during the three months ended June 30, 2010 for currently ongoing trials. As a result, the Company increased revenue recognized by $1.0 million in its Condensed Consolidated Statement of Operations and Comprehensive Income (Loss) through September 30, 2010.

Also, during the three months ended June 30, 2010, the Company recorded an adjustment to certain leasehold improvements that had been incorrectly depreciated beyond their historical cost as a result of receiving a partial cost reimbursement related to these assets from the affiliated practice conducting operations in the leased location. To correct this error in accounting, the Company reduced depreciation expense under corporate costs by $1.1 million in its Condensed Consolidated Statement of Operations and Comprehensive Income (Loss) which was offset by an increase in property and equipment, net, in its Condensed Consolidated Balance Sheet as of September 30, 2010.

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US ONCOLOGY HOLDINGS, INC. AND US ONCOLOGY, INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued

(unaudited)

Collectively, these items increased income from operations by approximately $2.1 million in the nine month period ended September 30, 2010. These corrections were recorded in the current nine months ended September 30, 2010 rather than restating previously issued financial statements as management concluded that their impact on prior periods and the estimated results for the year ending December 31, 2010 was not material. Also, these adjustments had no material impact on the Consolidated Statement of Cash Flows for any current or prior periods.

NOTE 10 – Commitments and Contingencies

Leases

The Company leases office space, along with certain comprehensive cancer centers and equipment under noncancelable operating lease agreements. As of September 30, 2010, total future minimum lease payments, including escalation provisions and leases with entities affiliated with practices, are as follows (in thousands):


	Twelve months ending September 30,
	2011		2012		2013		2014		2015		Thereafter
Payments due	$	88,507	$	82,647	$	73,960	$	64,696	$	54,310	$	261,973

Summary

The Company believes the allegations in suits against it are customary for the size and scope of the Company’s operations. However, adverse judgments, individually or in the aggregate, could have a material adverse effect on the Company.

Assessing the Company’s financial and operational exposure on litigation matters requires the application of substantial subjective judgments and estimates based upon facts and circumstances, resulting in estimates that could change as more information becomes available. Following is a summary of litigation matters of which the Company is aware.

U.S. Attorney Subpoena

On July 29, 2009 the Company received a subpoena from the United States 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. The Company believes that the subpoena related to an ongoing investigation being conducted by that office regarding the manufacturer’s sales and marketing practices. The U.S. Attorney did not make any allegation of wrongdoing on the part of the Company. The Company fully cooperated with the request and in October 2010, was notified that the Company’s obligations under the subpoena have been satisfied, and the matter is considered closed at this time. The Company cannot provide assurance that the US Attorney’s Office would not reopen the matter at a future date.

U.S. Department of Justice Subpoena

During the fourth quarter of 2005, the Company received a subpoena from the United States Department of Justice’s Civil Litigation Division (“DOJ”) requesting a broad range of information about the Company and its business, generally in relation to its contracts and relationships with pharmaceutical manufacturers. The Company has cooperated fully with the DOJ in responding to the subpoena. All outstanding document requests from the DOJ were addressed in early 2008, and the Company awaits further direction and feedback from the DOJ. At the present time, the DOJ has not made any allegation of wrongdoing on the part of the Company. However, the Company cannot provide assurance that such an allegation or litigation will not result from this investigation. While the Company believes that it is operating and has operated its business in compliance with the law, including with respect to the matters covered by the subpoena, the Company cannot provide assurance that the DOJ will not make a determination that wrongdoing has occurred. In addition, the Company has devoted significant resources to responding to the DOJ subpoena.

-23-

US ONCOLOGY HOLDINGS, INC. AND US ONCOLOGY, INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued

(unaudited)

Qui Tam Lawsuits

From time to time, the Company has become aware that the Company and certain of its subsidiaries and affiliated practices have been the subjects of qui tam lawsuits (commonly referred to as “whistle-blower” suits). Because qui tam actions are filed under seal, it is possible that the Company is the subject of other qui tam actions of which it is unaware.

In previous qui tam suits which the Company has been made aware of, the DOJ has declined to intervene in such suits and the suits have been dismissed. Qui tam suits are brought by private individuals, and there is no minimum evidentiary or legal threshold for bringing such a suit. The DOJ is legally required to investigate the allegations in these suits. The subject matter of many such claims may relate both to alleged actions of the Company and alleged actions of an affiliated practice. Because the affiliated practices are separate legal entities not controlled by the Company, such claims necessarily involve a more complicated, higher cost defense, and may adversely impact the relationship between the Company and the practices. If the individuals who file complaints and/or the United States were to prevail in these claims against the Company, and the magnitude of the alleged wrongdoing were determined to be significant, the resulting judgment could have a material adverse financial and operational effect on the Company, including potential limitations in future participation in governmental reimbursement programs. In addition, addressing complaints and government investigations requires the Company to devote significant financial and other resources to the process, regardless of the ultimate outcome of the claims.

Other Litigation

The provision of medical services by the Company’s affiliated practices entails an inherent risk of professional liability claims. The Company does not control the practice of medicine by the clinical staff or their compliance with regulatory and other requirements directly applicable to practices. In addition, because the practices purchase and prescribe pharmaceutical products, they face the risk of product liability claims. In addition, because of licensing requirements and affiliated practices’ participation in governmental healthcare programs, the Company and affiliated practices are, from time to time, subject to governmental audits and investigations, as well as internally initiated audits, some of which may result in refunds to governmental programs. Although the Company and its affiliated practices maintain insurance coverage, successful malpractice, regulatory or product liability claims asserted against the Company or one of its affiliated practices, in excess of insurance coverage, could have a material adverse effect on the Company.

The Company and its network physicians are defendants in a number of lawsuits involving employment and other disputes and breach of contract claims. In addition, the Company is involved from time to time in disputes with, and claims by, its affiliated practices against the Company.

The Company is also involved in litigation with a practice in Oklahoma that was affiliated with the Company under the net revenue model until April 2006. While the Company was still affiliated with the practice, the Company initiated arbitration proceedings pursuant to a provision in the service agreement providing for contract reformation in certain events. The practice countered with a lawsuit that alleges, among other things, that the Company has breached the service agreement and that the service agreement is unenforceable as a matter of public policy due to alleged violations of healthcare laws. The practice sought unspecified damages and a termination of the contract. The Company believes that its service agreement is lawful and enforceable and that it is operating in accordance with applicable law. As a result of alleged breaches of the service agreement by the practice, the Company terminated the service agreement in April 2006. In March 2007, the Oklahoma Supreme Court overturned a lower court’s ruling that would have compelled arbitration in this matter and remanded the case back to the lower court to hold hearings to determine whether and to what extent the arbitration provisions of the service agreement will be applicable to the dispute. The Company expects those hearings to occur in early 2011. Because of the need for further proceedings, the Company believes that the Oklahoma Supreme Court ruling will extend the amount of time it will take to resolve this dispute and increase the risk of the litigation to the Company. In any event, as with any complex litigation, the Company anticipates that this dispute may take several years to resolve.

As a result of the ongoing litigation, the Company has been unable to collect on a timely basis a receivable owed to the Company relating to accounts receivable purchased by the Company under the service agreement and amounts for reimbursement of expenses paid by the Company on the practice’s behalf. At September 30, 2010, the total receivable owed to the Company of $22.4 million is reflected on its balance sheet as other assets. Currently, a deposit of approximately $14.9 million is held in an escrowed bank account into which the practice had been making monthly deposits as required. In late 2009, the practice filed a motion to discontinue the monthly deposits and until a ruling is made the requirement has been suspended. These amounts will be released upon resolution of the litigation. In addition, approximately $7.6 million is being

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US ONCOLOGY HOLDINGS, INC. AND US ONCOLOGY, INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued

(unaudited)

held in a bank account that has been frozen pending the outcome of related litigation regarding that account. In addition, the Company has filed a security lien on the receivables of the practice. The Company’s management believes that the amounts held in the bank accounts combined with the receivables of the practice in which the Company has filed a security lien represent adequate collateral to recover the $22.4 million receivable recorded as other noncurrent assets at September 30, 2010. Accordingly, the Company expects to realize the amount that is recorded on its balance sheet as owed by the practice. However, realization is subject to a successful conclusion to the litigation with the practice.

The Company intends to vigorously pursue its claims, including claims for any costs and expenses that it incurs as a result of the termination of the service agreement and to defend against the practice’s allegations that it breached the agreement and that the agreement is unenforceable. However, the Company cannot provide assurance as to what the outcome of the litigation will be, or, even if it prevails in the litigation, whether it will be successful in recovering the full amount, or any, of its costs associated with the litigation and termination of the service agreement. The Company expects to continue to incur expenses in connection with its litigation with the practice.

Certificate of Need Regulatory Action

During the third quarter of 2006, one of the Company’s affiliated practices in North Carolina lost (through state regulatory action) the ability to provide radiation services at its cancer center in Asheville. The practice continued to provide medical oncology services, but was not permitted to use the radiation services area of the center (approximately 18% of the square footage of the cancer center). The practice appealed the regulatory action and the North Carolina Court of Appeals ruled in favor of the practice on procedural grounds and ordered the state agency to hold a new hearing on its regulatory action. In 2008, the practice received a ruling in its appeal, which mandated a rehearing by the state agency. The state agency conducted a rehearing and issued a new ruling upholding the practice’s right to provide radiation services. That decision was appealed, and the appellants also sought a stay of the state’s decision. The request for a stay was denied in July 2008 while the appeal was pending and as a result, the practice resumed diagnostic services in September, 2008 and radiation services in February, 2009. In June 2010, the North Carolina Court of Appeals ruled unanimously in favor of the practice which allows the practice to continue providing diagnostic scans and radiation therapy for patients.

Antitrust Inquiry

The United States Federal Trade Commission (“FTC”) and a state Attorney General have informed one of the Company’s affiliated physician practices that they have opened an investigation to determine whether a recent transaction in which another group of physicians became employees of that affiliated group violated relevant state or federal antitrust laws. In addition, the FTC has requested information from the Company regarding its role in that transaction. The Company is in the process of responding to a request for information on this matter. At present, the Company believes that the scope of the investigation is limited to a single transaction, but the Company cannot provide assurance that the scope will remain limited. The Company believes that it and its affiliated physician practices comply with relevant antitrust laws. However, if this investigation were to result in a claim against the Company or its affiliated physician practice in which the FTC or Attorney General prevails, the resulting judgment could have a material adverse financial and operational effect on the Company or that practice, including the possibility of monetary damages or fines, a requirement that it unwind the transaction at issue or the imposition of restrictions on future operations and development. In addition, addressing government investigations requires the Company to devote significant financial and other resources to the process, regardless of the ultimate outcome of the claims. Furthermore, because of the size and scope of the Company’s network, there is a risk that it could be subjected to greater scrutiny by government regulators with regard to antitrust issues.

Potential Pharmaceutical Label Change

In July, 2010, the ODAC of the FDA voted to recommend removal of certain indications for use in treating breast cancer from the Avastin^® (bevacizumab) label. The FDA has extended its review period of the ODAC recommendation and is expected to make a decision in December, 2010. While the FDA often follows the recommendations of its advisory committees, it is not required to do so. Factors that could significantly affect the financial impact on the Company include future actions of the FDA and, if applicable, ongoing clinical interpretations of the revised label. We are currently evaluating the impact on future earnings if this recommendation is adopted. However, our evaluation remains ongoing and we are unable to estimate the financial impact at this time.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued

(unaudited)

Insurance

The Company and its affiliated practices maintain insurance with respect to medical malpractice and associated vicarious liability risks on a claims-made basis, in amounts believed to be customary and adequate. The Company is not aware of any outstanding claims or unasserted claims that are likely to be asserted against the Company or its affiliated practices, which would have a material impact on its financial position or results of operations.

The Company maintains all other traditional insurance coverages on either a fully insured or high-deductible basis, using loss funds for any estimated losses within the retained deductibles.

Guarantees

Beginning January 1, 1997, the Company guaranteed that amounts retained by the Company’s affiliated practice in Minnesota will amount to a minimum of $5.2 million annually under the terms of the related service agreement, provided that certain targets are met. The Company has not been required to make any payments associated with this guarantee.

From time to time, the Company may agree to provide financial support to affiliated practices encountering adverse conditions by temporarily guaranteeing a minimum level of earnings to be retained by such practices. This support is intended to allow a practice to manage through those challenges, improve financial performance and establish a base for future growth. Typically such arrangements are structured as loans to be repaid by the practice at some future date however, there can be no assurance that all amounts under such arrangements will be repaid. Amounts paid under such arrangements have not been material to the Company’s financial position for the periods presented herein.

Holdings Long-Term Cash Incentive Plan

In addition to stock-based incentive plans, Holdings has adopted the US Oncology Holdings, Inc. 2004 Long-Term Cash Incentive Plan (the “Cash Incentive Plan”). Effective January 1, 2008, the 2004 Cash Incentive Plan was cancelled and the 2008 Long-Term Cash Incentive Plan (“2008 Cash Incentive Plan”) was adopted. Under the 2008 Cash Incentive Plan, which is administered by the Compensation Committee of the Board of Directors of Holdings, certain members of management will receive a portion of the enterprise value created as determined by the plan provided that the maximum value that can be paid to management under the plan is limited to $100 million. The value of the awards under the 2008 Cash Incentive Plan is based upon financial performance of the Company for the period beginning January 1, 2008 and ending on the earlier of the occurrence of a payment event or December 31, 2012, and will only be paid in the event of an initial public offering or a change of control, provided that all shares of preferred stock, together with accrued dividends, have been redeemed or exchanged for common stock. No events occurred during the nine months ended September 30, 2010 that would require a payment under the 2008 Cash Incentive Plan.

If any of the payment events described above occur, the Company may incur an additional obligation and compensation expense as a result of such an event. As of September 30, 2010, $12.3 million was available for payment under the 2008 Cash Incentive Plan. Because payments of awards under the Plan are based upon occurrence of a specific event, obligations arising under the 2008 Cash Incentive Plan will be recognized in the period when a payment event, as discussed above, occurs.

On November 1, 2010, the Company entered into an Agreement and Plan of Merger with McKesson Corporation which, if consummated, would represent a payment event under the 2008 Cash Incentive Plan. See Note 13 – Subsequent Event.

NOTE 11 – Recent Accounting Pronouncements

From time to time, the Financial Accounting Standards Board (“FASB”), the SEC and other regulatory bodies seek to change accounting rules, including rules applicable to the Company’s business and financial statements. The Company cannot assure that future changes in accounting rules would not require it to make retrospective application to its financial statements.

In October, 2009, the FASB issued Accounting Standard Update No. 2009-13 to Revenue Recognition (ASC Topic 605) Multiple-Deliverable Revenue Arrangements. This update provides amendments to the criteria in Subtopic 605-25 for separating consideration in multiple-deliverable arrangements. As a result of those amendments, multiple-deliverable arrangements will be separated in more circumstances than under existing U.S. GAAP. The update also addresses how to measure and allocate arrangement consideration to one or more units of accounting. The amendments in this update will be effective for the Company prospectively for revenue arrangements entered into or materially modified on or after January 1, 2011. Early adoption is permitted. The Company is currently evaluating the impact of this update on its consolidated financial statements.

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US ONCOLOGY HOLDINGS, INC. AND US ONCOLOGY, INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued

(unaudited)

In June 2009, the FASB issued consolidation guidance for variable interest entities (“VIE”) which was subsequently codified under Accounting Standards Update No. 2009-17, Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities. The new consolidation model is a more qualitative assessment of power and economics that considers which entity has the power to direct the activities that “most significantly impact” the VIE’s economic performance and has the obligation to absorb losses or the right to receive benefits that could be potentially significant to the VIE. The Company’s adoption of this guidance effective January 1, 2010 did not change its conclusions with regard to variable interest entities and was adopted without material impact on its consolidated financial statements.

In April 2010, the FASB issued Accounting Standard Update No. 2010-17 to Revenue Recognition—Milestone Method (ASC Topic 605): Milestone Method of Revenue Recognition (ASU No. 2010-17). This ASU codifies the consensus reached in EITF Issue No. 08-9, “Milestone Method of Revenue Recognition.” The amendments to the Codification provide guidance on defining a milestone and determining when it may be appropriate to apply the milestone method of revenue recognition for research or development transactions. The amendments in this update will be effective for the Company prospectively for milestones achieved on or after January 1, 2011. Early adoption is permitted, however, if the Company elects early adoption and the period of adoption is not the beginning of the fiscal year, ASU 2010-17 is to be applied retrospectively from the beginning of the year of adoption. Companies are also permitted to elect to adopt the amendments in this ASU retrospectively for all prior periods. The Company is currently evaluating the impact of this update on its consolidated financial statements.

In July, 2010, the FASB issued Accounting Standard Update No. 2010-20 to Receivables (ASC Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. This update enhances disclosures about the credit quality of financing receivables by requiring a greater level of disaggregated information about the credit quality of a Company’s financing receivables as well as expanded disclosures of credit quality indicators, past due information and modifications of its financing receivables. The amendments in this update will be effective for the Company prospectively for the annual reporting period ended December 31, 2011. Companies are encouraged, but not required, to provide comparative disclosures for earlier reporting periods. The Company is currently evaluating the impact of this update on its consolidated financial statements.

In August 2010, the FASB issued Accounting Standard Update No. 2010-23 to Health Care Entities (Topic 954): Measuring Charity Care for Disclosure (a consensus of the FASB Emerging Issues Task Force) (ASU No. 2010-23). The purpose of the update is to remove inconsistencies related to values assigned to charity care for disclosure purposes. The guidance requires that the measurement of charity care for disclosure purposes be based on the direct and indirect costs of providing the charity care. The amendments in this update are effective for disclosures provided on or after January 1, 2011. Early adoption is permitted and companies are also permitted to elect to adopt the amendments in this ASU retrospectively for all prior periods. Although the Company partners with physician practices, the Company does not engage in the practice of medicine. As such, the provisions of the update are not applicable to the Company and will not have an impact on its consolidated financial statements.

In August 2010, the FASB issued Accounting Standard Update No. 2010-24 to Health Care Entities (Topic 954): Presentation of Insurance Claims and Related Insurance Recoveries (a consensus of the FASB Emerging Issues Task Force) (ASU No. 2010-24). This update clarifies that a health care entity should not net insurance recoveries against a related claim liability and that the amount of the claim liability should be determined without consideration of insurance recoveries. The amendments in this update are effective prospectively for presentation of insurance claims and recoveries on or after January 1, 2011. Early adoption is permitted and companies are also permitted to elect to adopt the amendments in this ASU retrospectively for all prior periods. The Company does purchase insurance coverage for vicarious medical malpractice in the event that the Company is named as a defendant in claims against affiliated practices. However, since the Company does not engage in the practice of medicine, legal costs incurred in such matters are related to the process of removing the Company from those claims. The provisions of the update are not applicable to the Company and will not have an impact on its consolidated financial statements.

-27-

US ONCOLOGY HOLDINGS, INC. AND US ONCOLOGY, INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued

(unaudited)

NOTE 12 – Financial Information for Subsidiary Guarantors and Non-Subsidiary Guarantors

The 9.125% Senior Secured Notes (the “Senior Secured Notes”), the 9% Senior Secured Notes (the “Senior Notes”) which were redeemed with proceeds from the Senior Secured Notes and the 10.75% Senior Subordinated Notes (the “Senior Subordinated Notes”) issued by US Oncology, Inc. are guaranteed fully and unconditionally, and on a joint and several basis, by all of US Oncology’s wholly-owned subsidiaries. Certain of US Oncology’s subsidiaries, primarily joint ventures, do not guarantee the Senior Secured Notes, the Senior Notes and the Senior Subordinated Notes.

Presented on the following pages are condensed consolidating financial statements for US Oncology, Inc. (the issuer of the Senior Secured Notes, the Senior Notes and the Senior Subordinated Notes), the subsidiary guarantors and the non-guarantor subsidiaries as of September 30, 2010 and December 31, 2009 and for the three and nine months ended September 30, 2010 and 2009. The equity method has been used with respect to US Oncology’s investments in its subsidiaries.

As of September 30, 2010, the non-guarantor subsidiaries include Cancer Treatment Associates of Northeast Missouri, Ltd., Colorado Cancer Centers, L.L.C., Southeast Texas Cancer Centers, L.P., East Indy CC, L.L.C., KCCC JV, L.L.C., AOR Real Estate of Greenville, L.P., The Carroll County Cancer Center, Ltd, CCCN NW Building JV, L.L.C., Oregon Cancer Center, Ltd., and WFCC Radiation Management Co., L.L.C.

-28-

US ONCOLOGY HOLDINGS, INC. AND US ONCOLOGY, INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued

(unaudited)

US Oncology, Inc.

Condensed Consolidating Balance Sheet

As of September 30, 2010

(unaudited, in thousands, except share information)


	US Oncology, Inc. (Parent Company Only)		Subsidiary Guarantors		Non-guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Current assets:
Cash and equivalents	$	-	$	158,628	$	291	$	-		$	158,919
Accounts receivable		-		353,612		6,850		-			360,462
Other receivables		-		28,891		-		-			28,891
Prepaid expenses and other current assets		371		20,451		902		-			21,724
Inventories		-		102,114		-		-			102,114
Deferred income taxes		5,437		-		-		-			5,437
Due from affiliates		411,912		-		-		(362,598)	^(a)		49,314
Investment in subsidiaries		583,945		-		-		(583,945)	^(b)		-

Total current assets		1,001,665		663,696		8,043		(946,543)			726,861
Property and equipment, net		-		345,488		43,704		-			389,192
Service agreements, net		-		230,700		2,449		-			233,149
Goodwill		-		373,324		5,593		-			378,917
Other assets		22,344		47,515		1,632		-			71,491

	$	1,024,009	$	1,660,723	$	61,421	$	(946,543)		$	1,799,610

LIABILITIES AND EQUITY
Current liabilities:
Current maturities of long-term indebtedness	$	9,503	$	351	$	1,488	$	-		$	11,342
Accounts payable		-		285,095		547		-			285,642
Intercompany accounts		(247,467)		256,421		(8,954)		-			-
Due to affiliates		-		449,584		9,711		(362,598)	^(a)		96,697
Accrued compensation cost		-		51,394		435		-			51,829
Accrued interest payable		15,463		-		-		-			15,463
Income taxes payable		2,349		-		-		-			2,349
Other accrued liabilities		138		29,623		268		-			30,029

Total current liabilities		(220,014)		1,072,468		3,495		(362,598)			493,351
Deferred revenue		-		3,849		-		-			3,849
Deferred income taxes		34,630		-		-		-			34,630
Long-term indebtedness		1,049,476		2,028		15,975		-			1,067,479
Other long-term liabilities		-		20,969		4,512		-			25,481

Total liabilities		864,092		1,099,314		23,982		(362,598)			1,624,790

Commitments and contingencies Equity
Common stock, $0.01 par value, 100 shares authorized, issued and outstanding		1		-		-		-			1
Additional paid-in capital		534,103		-		-		-			534,103
Accumulated deficit		(374,187)		-		-		-			(374,187)

Total Company stockholder’s equity		159,917		-		-		-			159,917

Noncontrolling interests		-		-		14,903					14,903
Subsidiary equity		-		561,409		22,536		(583,945)	^(b)		-

Total equity		159,917		561,409		37,439		(583,945)			174,820

	$	1,024,009	$	1,660,723	$	61,421	$	(946,543)		$	1,799,610

^{(a) Elimination of intercompany balances}

^{(b) Elimination of investment in subsidiaries}

-29-

US ONCOLOGY HOLDINGS, INC. AND US ONCOLOGY, INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued

(unaudited)

US Oncology, Inc.

Condensed Consolidating Balance Sheet

As of December 31, 2009

(in thousands, except share information)


	US Oncology, Inc. (Parent Company Only)		Subsidiary Guarantors		Non-guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Current assets:
Cash and equivalents	$	-	$	160,487	$	1,102	$	-		$	161,589
Accounts receivable		-		342,633		7,026		-			349,659
Other receivables		-		30,928		-		-			30,928
Prepaid expenses and other current assets		720		19,106		992		-			20,818
Inventories		-		152,642		-		-			152,642
Deferred income taxes		6,002		-		-		-			6,002
Due from affiliates		539,531		-		-		(508,832)	^(a)		30,699
Investment in subsidiaries		505,850		-		-		(505,850)	^(b)		-

Total current assets		1,052,103		705,796		9,120		(1,014,682)			752,337
Property and equipment, net		-		360,521		44,407		-			404,928
Service agreements, net		-		248,577		2,820		-			251,397
Goodwill		-		371,677		5,593		-			377,270
Other assets		25,986		45,631		1,642		-			73,259

	$	1,078,089	$	1,732,202	$	63,582	$	(1,014,682)		$	1,859,191

LIABILITIES AND EQUITY
Current liabilities:
Current maturities of long-term indebtedness	$	8,757	$	516	$	1,306	$	-		$	10,579
Accounts payable		-		278,658		1,130		-			279,788
Intercompany accounts		(248,738)		258,199		(9,461)		-			-
Due to affiliates		-		605,098		14,622		(508,832)	^(a)		110,888
Accrued compensation cost		-		50,322		453		-			50,775
Accrued interest payable		40,373		-		-		-			40,373
Income taxes payable		3,114		-		-		-			3,114
Other accrued liabilities		-		33,437		254		-			33,691

Total current liabilities		(196,494)		1,226,230		8,304		(508,832)			529,208
Deferred revenue		-		4,636		-		-			4,636
Deferred income taxes		36,658		-		-		-			36,658
Long-term indebtedness		1,054,868		2,092		17,328		-			1,074,288
Other long-term liabilities		-		12,369		3,370		-			15,739

Total liabilities		895,032		1,245,327		29,002		(508,832)			1,660,529

Commitments and contingencies Equity:
Common stock, $0.01 par value, 100 shares authorized issued and outstanding		1		-		-		-			1
Additional paid-in capital		551,986		-		-		-			551,986
Accumulated deficit		(368,930)		-		-		-			(368,930)

Total Company stockholder’s equity		183,057		-		-		-			183,057

Noncontrolling interests		-		-		15,605		-			15,605
Subsidiary equity		-		486,875		18,975		(505,850)	^(b)		-

Total equity		183,057		486,875		34,580		(505,850)			198,662

	$	1,078,089	$	1,732,202	$	63,582	$	(1,014,682)		$	1,859,191



(a) Elimination of intercompany balances

(b) Elimination of investment in subsidiaries

-30-

US ONCOLOGY HOLDINGS, INC. AND US ONCOLOGY, INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued

(unaudited)

US Oncology, Inc.

Condensed Consolidating Statement of Operations

For the Three Months Ended September 30, 2010

(unaudited, in thousands)


	US Oncology, Inc. (Parent Company Only)		Subsidiary Guarantors		Non-guarantor Subsidiaries		Eliminations			Consolidated
Product revenue	$	-	$	639,075	$	8,434	$	-		$	647,509
Service revenue		-		287,231		5,948		-			293,179

Total revenue		-		926,306		14,382		-			940,688
Cost of products		-		634,591		8,375		-			642,966
Cost of services:
Operating compensation and benefits		-		137,801		2,760		-			140,561
Other operating costs		-		83,006		124		-			83,130
Depreciation and amortization		-		15,845		1,563		-			17,408

Total cost of services		-		236,652		4,447		-			241,099
Total cost of products and services		-		871,243		12,822		-			884,065
General and administrative expense		90		18,902		-		-			18,992
Impairment and restructuring charges		-		3,252		-		-			3,252
Depreciation and amortization		-		8,025		-		-			8,025

		90		901,422		12,822		-			914,334

Income (loss) from operations		(90)		24,884		1,560		-			26,354
Other income (expense)
Interest expense, net		(27,869)		126		(366)		-			(28,109)
Other income (expense), net		-		(1,215)		-		-			(1,215)

Income (loss) before income taxes		(27,959)		23,795		1,194		-			(2,970)
Income tax benefit		595		-		-		-			595
Equity in subsidiaries		24,989		-		-		(24,989)	^(a)		-

Net income (loss)		(2,375)		23,795		1,194		(24,989)			(2,375)
Less: Net income attributable to noncontrolling interests		(848)		(712)		(136)		848	^(a)		(848)

Net income (loss) attributable to the Company	$	(3,223)	$	23,083	$	1,058	$	(24,141)		$	(3,223)

(a) Elimination of investment in subsidiaries

-31-

US ONCOLOGY HOLDINGS, INC. AND US ONCOLOGY, INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued

(unaudited)

US Oncology, Inc.

Condensed Consolidating Statement of Operations

For the Three Months Ended September 30, 2009

(unaudited, in thousands)


	US Oncology, Inc. (Parent Company Only)		Subsidiary Guarantors		Non-guarantor Subsidiaries		Eliminations			Consolidated
Product revenue	$	-	$	599,055	$	8,980	$	-		$	608,035
Service revenue		-		287,658		5,761		-			293,419

Total revenue		-		886,713		14,741		-			901,454
Cost of products		-		587,402		8,806		-			596,208
Cost of services:
Operating compensation and benefits		-		137,876		2,445		-			140,321
Other operating costs		-		84,543		281		-			84,824
Depreciation and amortization		-		17,916		1,174		-			19,090

Total cost of services		-		240,335		3,900		-			244,235
Total cost of products and services		-		827,737		12,706		-			840,443
General and administrative expense		76		18,716		-		-			18,792
Impairment and restructuring charges		-		4,117		-		-			4,117
Depreciation and amortization		-		7,700		-		-			7,700

		76		858,270		12,706		-			871,052

Income (loss) from operations		(76)		28,443		2,035		-			30,402
Other income (expense)
Interest expense, net		(27,876)		293		(433)		-			(28,016)
Loss on early extinguishment of debt		(3,672)		-		-		-			(3,672)
Other income (expense), net		-		-		-		-			-

Income (loss) before income taxes		(31,624)		28,736		1,602		-			(1,286)
Income tax benefit		1,332		-		-		-			1,332
Equity in subsidiaries		30,338		-		-		(30,338)	^(a)		-

Net income (loss)		46		28,736		1,602		(30,338)			46
Less: Net income attributable to noncontrolling interests		(912)		(609)		(303)		912	^(a)		(912)

Net income (loss) attributable to the Company	$	(866)	$	28,127	$	1,299	$	(29,426)		$	(866)

(a) Elimination of investment in subsidiaries

-32-

US ONCOLOGY HOLDINGS, INC. AND US ONCOLOGY, INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued

(unaudited)

US Oncology, Inc.

Condensed Consolidating Statement of Operations

For the Nine Months Ended September 30, 2010

(unaudited, in thousands)


	US Oncology, Inc. (Parent Company Only)		Subsidiary Guarantors		Non-guarantor Subsidiaries		Eliminations			Consolidated
Product revenue	$	-	$	1,832,385	$	24,901	$	-		$	1,857,286
Service revenue		-		863,817		18,406		-			882,223

Total revenue		-		2,696,202		43,307		-			2,739,509
Cost of products		-		1,814,739		24,661		-			1,839,400
Cost of services:
Operating compensation and benefits		-		415,216		8,184		-			423,400
Other operating costs		-		251,339		1,134		-			252,473
Depreciation and amortization		-		48,415		3,921		-			52,336

Total cost of services		-		714,970		13,239		-			728,209
Total cost of products and services		-		2,529,709		37,900		-			2,567,609
General and administrative expense		410		58,453		-		-			58,863
Impairment and restructuring charges		-		7,333		-		-			7,333
Depreciation and amortization		-		23,250		-		-			23,250

		410		2,618,745		37,900		-			2,657,055

Income (loss) from operations		(410)		77,457		5,407		-			82,454
Other income (expense)
Interest expense, net		(82,623)		549		(1,152)		-			(83,226)
Other expense		-		(1,372)		-		-			(1,372)

Income (loss) before income taxes		(83,033)		76,634		4,255		-			(2,144)
Income tax provision		(319)		-		-		-			(319)
Equity in subsidiaries		80,889		-		-		(80,889)	^(a)		-

Net income (loss)		(2,463)		76,634		4,255		(80,889)			(2,463)
Less: Net income attributable to noncontrolling interests		(2,794)		(2,089)		(705)		2,794	^(a)		(2,794)

Net income (loss) attributable to the Company	$	(5,257)	$	74,545	$	3,550	$	(78,095)		$	(5,257)

(a) Elimination of investment in subsidiaries

-33-

US ONCOLOGY HOLDINGS, INC. AND US ONCOLOGY, INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued

(unaudited)

US Oncology, Inc.

Condensed Consolidating Statement of Operations

For the Nine Months Ended September 30, 2009

(unaudited, in thousands)


	US Oncology, Inc. (Parent Company Only)		Subsidiary Guarantors		Non-guarantor Subsidiaries		Eliminations			Consolidated
Product revenue	$	-	$	1,740,064	$	25,623	$	-		$	1,765,687
Service revenue		-		843,191		16,784		-			859,975

Total revenue		-		2,583,255		42,407		-			2,625,662
Cost of products		-		1,704,906		25,106		-			1,730,012
Cost of services:
Operating compensation and benefits		-		408,745		7,362		-			416,107
Other operating costs		-		247,122		1,046		-			248,168
Depreciation and amortization		-		51,281		3,309		-			54,590

Total cost of services		-		707,148		11,717		-			718,865
Total cost of products and services		-		2,412,054		36,823		-			2,448,877
General and administrative expense		328		52,851		-		-			53,179
Impairment and restructuring charges		-		5,907		-		-			5,907
Depreciation and amortization		-		22,470		-		-			22,470

		328		2,493,282		36,823		-			2,530,433

Income (loss) from operations		(328)		89,973		5,584		-			95,229
Other income (expense)
Interest expense, net		(72,831)		982		(1,273)		-			(73,122)
Loss on early extinguishment of debt		(26,025)		-		-		-			(26,025)
Other income (expense), net		-		37		-		-			37

Income (loss) before income taxes		(99,184)		90,992		4,311		-			(3,881)
Income tax provision		(948)		-		-		-			(948)
Equity in subsidiaries		95,303		-		-		(95,303)	^(a)		-

Net income (loss)		(4,829)		90,992		4,311		(95,303)			(4,829)
Less: Net income attributable to noncontrolling interests		(2,615)		(1,883)		(732)		2,615	^(a)		(2,615)

Net income (loss) attributable to the Company	$	(7,444)	$	89,109	$	3,579	$	(92,688)		$	(7,444)

(a) Elimination of investment in subsidiaries

-34-

US ONCOLOGY HOLDINGS, INC. AND US ONCOLOGY, INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued

(unaudited)

US Oncology, Inc.

Condensed Consolidating Statement of Cash Flows

For the Nine Months Ended September 30, 2010

(unaudited, in thousands)


	US Oncology, Inc. (Parent Company Only)		Subsidiary Guarantors		Non-guarantor Subsidiaries		Consolidated
Cash flows from operating activities:
Net cash provided by operating activities	$	25,573	$	41,016	$	6,741	$	73,330

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US ONCOLOGY INC 10-Q