News Column

21ST CENTURY ONCOLOGY HOLDINGS, INC. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

August 28, 2014

The following discussion and analysis should be read in conjunction with the unaudited interim condensed consolidated financial statements and related notes included elsewhere in this Form 10-Q. This section of this Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties, such as statements about our plans, objectives, expectations and intentions. These statements may be identified by the use of forward-looking terminology such as "anticipate", "believe", "continue", "could", "estimate", "intend", "may", "might", "plan", "potential", "predict", "should", or "will" or the negative thereof or other variations thereon or comparable terminology. We have based these forward-looking statements on our current expectations, assumptions, estimates and projections. While we believe these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond our control. These and other important factors, including those discussed in this Quarterly Report on Form 10-Q in the section titled "Risk Factors" and in the sections titled "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business" in the Company's Annual Report on Form 10-K for the year ended December 31, 2013 (the "Form 10-K") may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements, which apply on and as of the date of this Form 10-Q. References in this Quarterly Report on Form 10-Q to "we", "us", "our" and "the Company and Parent" are references to 21st Century Oncology Holdings, Inc. and its subsidiaries, consolidated professional corporations and associations and unconsolidated affiliates, unless the context requires otherwise. References in this Quarterly Report on Form 10-Q to "our treatment centers" refer to owned, managed and hospital based treatment centers. Overview



We are the leading global, physician-led provider of integrated cancer care ("ICC") services. Our physicians provide comprehensive, academic quality, cost-effective coordinated care for cancer patients in personal and convenient community settings (our "ICC model"). We believe we offer a powerful value proposition to patients, hospital systems, payers and risk-taking physician groups by delivering high quality care and good clinical outcomes at lower overall costs through outpatient settings, clinical excellence, physician coordination and scaled efficiency.

We operate the largest integrated network of cancer treatment centers and affiliated physicians in the world which, as of June 30, 2014, was comprised of approximately 782 community-based physicians in the fields of radiation oncology, medical oncology, breast, gynecological and general surgery, urology and primary care. Our physicians provide medical services at approximately 389 locations, including our 180 radiation therapy centers. Of the 180 treatment centers, 35 treatment centers were internally developed, 137 were acquired (including two which were transitioned from professional and other arrangements to freestanding), and 8 are operated under professional and other services arrangements. 48 radiation therapy centers operate in partnership with health systems and other clinics and community-based sites. Our 145 cancer treatment centers in the United States are operated predominantly under the 21st Century Oncology brand and are strategically clustered in 31 local markets in 16 states, including Alabama, Arizona, California, Florida, Indiana, Kentucky, Maryland, Massachusetts, Michigan, Nevada, New Jersey, New York, North Carolina, South Carolina, Rhode Island, and West Virginia. Our 35 international treatment centers in Latin America are operated under the 21st Century Oncology brand or a local brand and, in many cases, are operated with local minority partners, including hospitals. We hold market leading positions in the majority of our local markets and continue to expand our affiliation with physician specialties in closely related areas including gynecological, breast and surgical oncology, medical oncology and urology in a number of our local markets to strengthen our clinical working relationships and to evolve from a freestanding radiation oncology centric model to an ICC model.



We use a number of metrics to assist management in evaluating financial condition and operating performance, and the most important follow:

the number of Relative Value Units ("RVUs") (a standard measure of value used in the U.S. Medicare reimbursement formula for physician services) delivered per day in our freestanding centers; the percentage change in RVUs per day in our freestanding centers; the number of treatments delivered per day in our freestanding centers; the average revenue per treatment in our freestanding centers; the number and type of radiation oncology cases completed; the number of treatments per radiation oncology case completed; the revenue per radiation oncology case;



the ratio of funded debt to pro-forma adjusted earnings before interest, taxes, depreciation and amortization (leverage ratio); and

facility gross profit. Revenue Drivers Our revenue growth is primarily driven by expanding the number of our centers, optimizing the utilization of advanced technologies at our existing centers and benefiting from demographic and population trends in most of our local markets and by providing value added services to other healthcare and provider organizations. New centers are added or acquired based on capacity, demographics and competitive considerations. 37 --------------------------------------------------------------------------------



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The average revenue per treatment is sensitive to the mix of services used in treating a patient's tumor. The reimbursement rates set by Medicare and commercial payers tend to be higher for more advanced treatment technologies, reflecting their higher complexity. A key part of our business strategy is to make advanced technologies available once supporting economics exist. For example, we have been utilizing IGRT and Gamma Function, a proprietary capability to enable measurement of the actual amount of radiation delivered during a treatment and to provide immediate feedback for adaption of future treatments as well as for quality assurance, where appropriate, now that reimbursement codes are in place for these services. Operating Costs The principal costs of operating a treatment center are (1) the salary and benefits of the physician and technical staff, and (2) equipment and facility costs. The capacity of each physician and technical position is limited to a number of delivered treatments, while equipment and facility costs for a treatment center are generally fixed. These capacity factors cause profitability to be very sensitive to treatment volume. Profitability will tend to increase as resources from fixed costs including equipment and facility costs are utilized. Sources of Revenue By Payer We receive payments for our services rendered to patients from the government Medicare and Medicaid programs, commercial insurers, managed care organizations and our patients directly. Generally, our revenue is determined by a number of factors, including the payer mix, the number and nature of procedures performed and the rate of payment for the procedures. The following table sets forth the percentage of our U.S. domestic net patient service revenue we earned based upon the patients' primary insurance by category of payer in our last fiscal year and the six months ended June 30, 2014 and 2013. Year Ended Six Months Ended December 31, June 30, U.S. Domestic 2013 2014 2013 Payer Medicare 41.9 % 40.6 % 42.9 % Commercial 54.3 56.0 53.7 Medicaid 2.7 2.5 2.6 Self pay 1.1 0.9 0.8 Total U.S. domestic net patient service revenue 100.0 % 100.0 % 100.0 % Medicare and MedicaidMedicare is a major funding source for the services we provide and government reimbursement developments can have a material effect on operating performance. These developments include the reimbursement amount for each Current Procedural Terminology ("CPT") service that we provide and the specific CPT services covered by Medicare. CMS, the government agency responsible for administering the Medicare program, administers an annual process for considering changes in reimbursement rates and covered services. We have played, and will continue to play, a role in that process both directly and through the radiation oncology professional societies. Since cancer disproportionately affects elderly people, a significant portion of our U.S. net patient service revenue is derived from the Medicare program, as well as related co-payments. Medicare reimbursement rates are determined by CMS and are lower than our normal charges. Medicaid reimbursement rates are typically lower than Medicare rates; Medicaid payments represent approximately 2.5% of our U.S. net patient service revenue for the six months ended June 30, 2014. In the final Medicare 2013 Physician Fee Schedule, CMS reduced payments for radiation oncology by 7%. This reduction related to (1) the fourth year of the four-year transition to the utilization of new Physician Practice Information Survey ("PPIS") data, (2) a change in equipment interest rate assumptions, (3) budget neutrality effects of a proposal to create a new discharge care management code, (4) input changes for certain radiation therapy procedures, and (5) certain other revised radiation oncology codes. The largest of these changes (accounting for 4% of the gross reduction) reflected the transition of the final 25% of PPIS data used in the PERVU methodology. The change in the CMS interest rate policy (accounting for 3% of the gross reduction) reduced interest rate assumptions in the CMS database from 11% to a sliding scale of 5.5% to 8%. CMS also finalized its proposal to create a HCPCS G-code to describe transition care management from a hospital or other institutional stay to a primary physician in the community (accounting for 1% of the gross reduction). While this policy benefited primary care, non-primary care physicians are negatively impacted due to the budget-neutrality of the Medicare 2013 Physician Fee Schedule. The rule also made adjustments (accounting for 1% of the gross reduction) due to the use of new time of care assumptions for IMRT and SBRT. Although the proposed reductions in time of care assumptions alone would have resulted in a gross 7% reduction to radiation oncology, CMS in its final rule included updated cost data submitted by the radiation oncology community for code inputs which reversed the vast majority of the reduction resulting from the new time of care assumptions. Total gross reductions in the final rule were offset by a 2% increase due to certain other revised radiation oncology codes, which resulted in a total net reduction to radiation oncology of 7%. In the proposed Medicare 2014 Physician Fee Schedule, CMS proposed to reduce payments for radiation oncology by 5% overall. This reduction related to a cap on certain radiation oncology services at the hospital outpatient department and ambulatory surgical center's ("OPD/ASC") rate [-4%]; reductions to certain radiation oncology codes due to Medicare Economic Index ("MEI") revisions [-2%]; and offsetting minor increases due to other aspects of the fee schedule [+1%]. Because the cap and MEI policies only applied to freestanding settings, the cut to freestanding centers would likely have been closer to 8%, while hospital-based radiation oncologists would have received an increase in payment under the proposal. In the final Medicare 2014 Physician Fee Schedule, CMS did not finalize its proposal to cap certain radiation oncology services at the OPD/ASC rate. Although CMS did finalize its proposal to revise the MEI [-2% impact], CMS also 38

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incorporated updated relative value units ("RVUs") for new and existing codes [+3% impact] resulting in a net impact of +1% for radiation oncology overall. Because the MEI policy only applies to freestanding settings, the impact to freestanding centers is approximately flat, while hospital-based radiation oncologists would receive an increase in payment under the final rule. In the proposed Medicare 2015 Physician Fee Schedule, CMS proposed to reduce payments for radiation oncology by 4% overall. This reduction relates primarily to a proposal to remove the radiation treatment vault as a direct cost input for radiation treatment delivery codes. Because the proposal only applies to freestanding settings, the cut to freestanding centers would likely be closer to 5%, while hospital based radiation oncologists would receive an increase in payment under the proposal. Medicare reimbursement rates for all procedures under Medicare ultimately are determined by a formula which takes into account a conversion factor ("CF") which is updated on an annual basis based on the SGR. For the last several years, the SGR policy has threatened significant cuts to the CF, although Congress has consistently delayed those cuts. On December 26, 2013, the President signed into law the Pathway for SGR Reform Act of 2013, which prevented the scheduled SGR payment reduction for physicians from taking effect on January 1, 2014. Instead, the Pathway for SGR Reform Act provided for a 0.5 percent update (to $35.8228) for such services through March 31, 2014. On April 1, 2014, the President signed H.R. 4302, the Protecting Access to Medicare Act of 2014 which extended the $35.8228 conversion factor through 2014 and also provided for a zero percent update through March 31, 2015. If future SGR reductions are not suspended, and if a permanent "doc fix" is not signed into law, the currently scheduled SGR reimbursement decrease (estimated at more than 20%) will take effect on April 1, 2015. Due to budget neutrality requirements from certain policies in the proposed Medicare 2015 Physician Fee Schedule, the 2015 conversion factor would be slightly adjusted to $35.7977, assuming no SGR cuts and if the rule is finalized as proposed. In addition, under the Budget Control Act of 2011, Medicare providers are cut under a sequestration process by 2% each year relative to baseline spending through 2021 This policy was subsequently extended through 2024. In the Protecting Access to Medicare Act, the sequestration policy was frontloaded for the year 2024 such that Medicare providers would be cut 4% in the first half of 2024 and 0% in the second half of 2024. Commercial Commercial sources include private health insurance as well as related payments for co-insurance and co-payments. We enter into contracts with private health insurance and other health benefit groups by granting discounts to such organizations in return for the patient volume they provide. Most of our commercial revenue is from managed care business and is attributable to contracts where a set fee is negotiated relative to services provided by our treatment centers. We do not have any contracts that individually represent over 10% of our total U.S. net patient service revenue. We receive our managed care contracted revenue under two primary arrangements. Approximately 98% of our managed care business is attributable to contracts where a fee schedule is negotiated for services provided at our treatment centers. For the six months ended June 30, 2014 approximately 2% of our U.S. net patient service revenue is attributable to contracts where we bear utilization risk. Although the terms and conditions of our managed care contracts vary considerably, they are typically for a one-year term and provide for automatic renewals. If payments by managed care organizations and other private third-party payers decrease, then our total revenues and net income would decrease. Self-Pay Self-pay consists of payments for treatments by patients not otherwise covered by third-party payers, such as government or commercial sources. Because the incidence of cancer is much higher in those over the age of 65, most of our patients have access to Medicare or other insurance and therefore the self-pay portion of our business is less than it would be in other circumstances. However, we are seeing a general increase in the patient responsibility portion of our claims and revenue. We grant a discount on gross charges to self-pay patients not covered under other third party payer arrangements. The discount amounts are excluded from patient service revenue. To the extent that we realize additional losses resulting from nonpayment of the discounted charges, such additional losses are included in the provision for doubtful accounts. Other Material Factors



Other material factors that we believe will also impact our future financial performance include:

our substantial indebtedness; patient volume and census;



continued advances in technology and the related capital requirements;

continued affiliation with physician specialties other than radiation oncology;



our ability to develop and conduct business with hospitals and other large healthcare organizations in a manner that adequately and attractively compensates us for our services;

accounting for business combinations requiring that all acquisition-related costs be expensed as incurred;

our ability to achieve identified cost savings and operational efficiencies;

increased costs associated with development and optimization of our internal infrastructure; and

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healthcare reform. Results of Operations The following table summarizes key operating statistics of our results of operations for our domestic U.S. operations for the three and six months ended June 30, 2014 and 2013: Three Months Ended Six Months Ended June 30, June 30, Domestic U.S. 2014 2013 % Change 2014 2013 % Change Number of treatment days 64 64 0.0 % 127 127 0.0 % Total RVU's - freestanding centers 4,071,139 2,828,004 44.0 % 7,864,948 5,546,897 41.8 % RVU's per day - freestanding centers 63,612 44,188 44.0 % 61,929 43,676 41.8 % Percentage change in RVU's per day - freestanding centers - same market basis (1.3 )% (4.7 )% (0.3 )% (6.1 )% Total treatments - freestanding centers 203,311 132,139 53.9 % 395,304 257,809 53.3 % Treatments per day - freestanding centers 3,177 2,065 53.9 % 3,113 2,030 53.3 % Percentage change in revenue per treatment freestanding centers - same market basis 6.5 % (7.6 )% 4.9 % (6.6 )% Percentage change in treatments per day freestanding centers - same market basis 2.2 % 3.2 % 2.8 % 1.6 % Percentage change in freestanding revenues same market basis 8.9 % (4.7 )% 7.8 % (5.8 )% Radiation oncology cases completed: 3-D cases 2,002 1,850 3,837 3,605 IMRT cases 3,294 3,007 6,214 5,805 Other cases 583 523 1,106 1,050 Total radiation oncology cases completed 5,879 5,380 9.3 % 11,157 10,460 6.7 % Treatments per radiation oncology case completed 24.1 24.2 23.9 24.2 Revenue per radiation oncology case $ 19,386$ 19,288$ 19,234$ 19,218 Number of employed, contracted and affiliated physicians: Radiation oncologists 177 114 Urologists 164 122 Surgeons 48 36 Medical oncologists 41 23 Gynecologic oncologists 8 5 Other physicians 25 8 Affiliated physicians 319 269 Total physicians 782 577 35.5 % Treatment centers - freestanding (global) 168 126 33.3 % Treatment centers - hospital / other groups (global) 12 5 140.0 % Total treatment centers 180 131 37.4 % Days sales outstanding at quarter end 40 35 40

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Table of Contents Three Months Ended Six Months Ended June 30, June 30, Domestic U.S. 2014 2013 2014 2013 Net patient service revenue - professional services only (in thousands) $ 82,060$ 52,574$ 152,918



$ 105,479

Net patient service revenue - excluding physician practice expense (in thousands) $ 268,095$ 175,848$ 503,642$ 347,820



The following table summarizes key operating statistics of our results of operations for our international operations, which are operated through Medical Developers, LLC ("MDLLC") and its subsidiaries for the three and six months ended June 30, 2014 and 2013:

Three Months Ended June Six Months Ended 30, June 30, International 2014 2013 % Change 2014 2013 % Change Number of new cases 2-D cases 807 947 1,573 1,937 3-D cases 3,050 2,539 5,919 4,784 IMRT / IGRT cases 743 434 1,389 806 Total 4,600 3,920 17.3 % 8,881 7,527 18.0 %

Revenue per radiation oncology case $ 5,283$ 5,730$ 5,120$ 5,732 International



Comparison of the Three Months Ended June 30, 2014 and 2013

MDLLC's total revenues increased $1.8 million, or 8.2%, from $22.5 million to $24.3 million for the three months ended June 30, 2014 as compared to the three months ended June 30, 2013. Total revenue was positively impacted by $0.6 million of revenue from the acquisition of a center in Guatemala City, Guatemala in January 2014, growth in cases and an improvement in treatment mix offset by the impact of a significant depreciation in the Argentine Peso as compared to the same period in 2013. Case growth increased by 680 or 17.3% during the quarter. The trend toward more clinically-advanced treatments, which require more time to complete, continued during the quarter with an increase in the number of higher-revenue IMRT/IGRT treatments and 3D treatments versus 2D treatments as compared to the same period in 2013. Facility gross profit increased $1.3 million, or 11.3% from $12.1 million to $13.4 million for the three months ended June 30, 2014 as compared to the three months ended June 30, 2013. Facility-level gross profit as a percentage of total revenues increased to 55.3% from 53.7%. Lower physician compensation, salaries and benefits, and repairs and maintenance costs as a percentage of revenues offset increases in medical supplies, facility rent, incremental depreciation expense relating to our continued growth and investment in Latin America, and expenses related to two centers which are anticipated to open later in 2014.



Comparison of the Six Months Ended June 30, 2014 and 2013

MDLLC's total revenues increased $2.4 million, or 5.4%, from $43.1 million to $45.5 million for the six months ended June 30, 2014 as compared to the six months ended June 30, 2013. Total revenue was positively impacted by $1.1 million of revenue from the acquisition of a center in Guatemala City, Guatemala in January 2014, growth in cases and an improvement in treatment mix offset by the impact of a significant depreciation in the Argentine Peso as compared to the same period in 2013. Case growth increased by 1,354 or 18.0% during the six month period. The trend toward more clinically-advanced treatments, which require more time to complete, continued during the six month period with an increase in the number of higher-revenue IMRT/IGRT treatments and 3D treatments versus 2D treatments as compared to the same period in 2013. Facility gross profit increased $1.0 million, or 4.0% from $23.9 million to $24.9 million for the six months ended June 30, 2014 as compared to the six months ended June 30, 2013. Facility-level gross profit as a percentage of total revenues decreased to 54.7% from 55.4%. Increases in medical supplies, facility rent, incremental depreciation expense relating to our continued growth and investment in Latin America, expenses related to two centers which are anticipated to open later in 2014, as well as local inflation was offset by a decrease in salaries and benefits and physician compensation. 41 --------------------------------------------------------------------------------



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The following table presents summaries of our results of operations for the three months ended June 30, 2014 and 2013.

Three Months Ended Three Months Ended (in thousands): June 30, 2014 June 30, 2013 Revenues: Net patient service revenue $ 245,950 92.5 % $ 175,847 98.7 % Management fees 16,856 6.3 - - Other revenue 3,092 1.2 2,262 1.3 Total revenues 265,898 100.0 178,109 100.0 Expenses: Salaries and benefits 135,803 51.1 99,687 56.0 Medical supplies 24,502 9.2 14,407 8.1 Facility rent expenses 17,167 6.5 10,675 6.0 Other operating expenses 16,096 6.1 10,997 6.2 General and administrative expenses 34,060 12.8 23,161 13.0 Depreciation and amortization 22,162 8.3 15,320 8.6 Provision for doubtful accounts 3,428 1.3 2,015 1.1 Interest expense, net 29,899 11.2 20,473 11.5 Impairment loss 182,000 68.4 - - Equity initial public offering expenses 4,163 1.6 - - Fair value adjustment of earn-out liability 204 0.1 - - Gain on the sale of an interest in a joint venture - - (1,460 ) (0.8 ) Loss on foreign currency transactions 79 - 758 0.4 Loss (gain) on foreign currency derivative contracts - - 190 0.1 Total expenses 469,563 176.6 196,223 110.2 Loss before income taxes (203,665 ) (76.6 ) (18,114 ) (10.2 ) Income tax expense 934 0.4 1,371 0.8 Net loss (204,599 ) (77.0 ) (19,485 ) (11.0 ) Net income attributable to noncontrolling interests - redeemable and non-redeemable (2,925 ) (1.0 ) (654 ) (0.4 ) Net loss attributable to 21st Century Oncology Holdings, Inc. shareholder $ (207,524 ) (78.0 )% $ (20,139 ) (11.4 )%



Comparison of the Three Months Ended June 30, 2014 and 2013

Revenues Net patient service revenue. For the three months ended June 30, 2014 and 2013, net patient service revenue comprised 92.5% and 98.7%, respectively, of our total revenues. In our net patient service revenue for the three months ended June 30, 2014 and 2013, revenue from the professional-only component of radiation therapy where we do not bill globally and revenue from the practices of medical specialties other than radiation oncology, comprised approximately 30.9% and 29.5%, respectively, of our total revenues. Management fees. Certain of the Company's physician groups receive payments for their services and treatments rendered to patients covered by Medicare, Medicaid, third-party payors and self-pay. Management fees are recorded at the amount earned by the Company under the management services agreements. Services rendered by the respective physician groups are billed by the Company, as the exclusive billing agent of the physician groups, to patients, third-party payors, and others. The Company's management fees are dependent on the EBITDA (or in one case, revenue) of each treatment center. For the three months ended June 30, 2014, management fees comprised 6.3% of our total revenues. These management fees are as a result of the OnCure transaction, which closed on October 25, 2013. Other revenue. For the three months ended June 30, 2014 and 2013, other revenue comprised approximately 1.2% and 1.3%, respectively, of our total revenues. Other revenue is primarily derived from management services provided to hospital radiation therapy departments, technical services provided to hospital radiation therapy departments, billing services provided to non-affiliated physicians, gain and losses from sale/disposal of medical equipment, equity interest in net earnings/losses of unconsolidated joint ventures and income for equipment leased by joint venture entities. Total revenues. Total revenues increased by $87.8 million, or 49.3%, from $178.1 million for the three months ended June 30, 2013 to $265.9 million for the three months ended June 30, 2014. Total revenue was positively impacted by $81.7 million due to our expansion into new practices and treatments centers in existing local markets and new local markets during 2013 and 2014 through the acquisition of several urology, medical oncology and surgery practices in Arizona, Florida, Nevada, New Jersey, New York, North Carolina and Rhode Island and the acquisition of physician radiation practices in Argentina, Arizona, California, Guatemala, Florida, Indiana, North Carolina, Mexico and the opening of two de novo centers as follows: 42 --------------------------------------------------------------------------------

Table of Contents Date Sites Location Market Type May 2013 3 Cape Coral / Ft. Myers Lee County - Florida Acquisition / Bonita Springs - Florida May 2013 2 Naples - Florida Collier County - Acquisition Florida June 2013 1 Casa Grande - Arizona Central Arizona Joint Venture Acquisition July 2013 1 Latin America International (Mexico) Acquisition September 2013 1 Latin America International De Novo (Hospital (Argentina) Campus) October 2013 30 California / Indiana / California / Indiana / Acquisition - Florida Florida OnCure Freestanding October 2013 3 Indiana Indiana Acquisition - OnCure professional / other October 2013 1 Roanoke Rapids, North Eastern North Carolina Acquisition Carolina January 2014 1 Guatemala International Acquisition (Guatemala) February 2014 17 Miami/Dade/Palm Beach/ Miami/Dade/Palm Beach/ Acquisition - SFRO Broward counties - Broward counties - Freestanding Florida Florida February 2014 4 Miami/Dade/Palm Beach Miami/Dade/Palm Beach Acquisition - SFRO counties - Florida counties - Florida professional / other February 2014 1 Westchester/Bronx/Long Westchester/Bronx/Long De Novo Island - New York Island - New York March 2014 1 Latin America International Acquisition (Argentina)



Revenue from CMS for the 2014 PQRI program increased approximately $0.1 million and revenues in our existing local markets and practices increased by approximately $6.0 million.

Expenses Salaries and benefits. Salaries and benefits increased by $36.1 million, or 36.2%, from $99.7 million for the three months ended June 30, 2013 to $135.8 million for the three months ended June 30, 2014. Salaries and benefits as a percentage of total revenues decreased from 56.0% for the three months ended June 30, 2013 to 51.1% for the three months ended June 30, 2014. Additional staffing of personnel and physicians due to our development and expansion in several urology, medical oncology and surgery practices in Arizona, Florida, Nevada, New Jersey, New York, North Carolina and Rhode Island and the acquisitions of treatment centers in existing local markets during the latter part of 2013 and 2014 contributed $37.7 million to our salaries and benefits. In December 2013, we implemented a new equity-incentive plan, which decreased stock compensation by approximately $0.1 million in 2014. For existing practices and centers within our local markets, salaries and benefits decreased $1.5 million due to decreases in our compensation arrangements with certain radiation oncologists. Medical supplies. Medical supplies increased by $10.1 million, or 70.1%, from $14.4 million for the three months ended June 30, 2013 to $24.5 million for the three months ended June 30, 2014. Medical supplies as a percentage of total revenues increased from 8.1% for the three months ended June 30, 2013 to 9.2% for the three months ended June 30, 2014. Medical supplies consist of patient positioning devices, radioactive seed supplies, supplies used for other brachytherapy services, pharmaceuticals used in the delivery of radiation therapy treatments and chemotherapy-related drugs and other medical supplies. Approximately $7.7 million of the increase was related to our development and expansion in several urology, medical oncology and surgery practices in Arizona, Florida, Nevada, New Jersey, New York, North Carolina and Rhode Island and the acquisitions of treatment centers in existing local markets during the latter part of 2013 and 2014. In our remaining practices and centers in existing local markets, medical supplies increased by approximately $2.4 million. These pharmaceuticals and chemotherapy medical supplies are principally reimbursable by third-party payers. Facility rent expenses. Facility rent expenses increased by $6.5 million, or 60.8%, from $10.7 million for the three months ended June 30, 2013 to $17.2 million for the three months ended June 30, 2014. Facility rent expenses as a percentage of total revenues increased from 6.0% for the three months ended June 30, 2013 to 6.5% for the three months ended June 30, 2014. Facility rent expenses consist of rent expense associated with our treatment center locations. Approximately $6.3 million of the increase was related to our development and expansion in several urology, medical oncology and surgery practices in Arizona, Florida, Nevada, New Jersey, New York, North Carolina and Rhode Island and the acquisitions of treatment centers in existing local markets during the latter part of 2013 and 2014. Facility rent expense in our remaining practices and centers in existing local markets increased by approximately $0.2 million. Other operating expenses. Other operating expenses increased by $5.1 million or 46.4%, from $11.0 million for the three months ended June 30, 2013 to $16.1 million for the three months ended June 30, 2014. Other operating expense as a percentage of total revenues decreased from 6.2% for the three months ended June 30, 2013 to 6.1% for the three months ended June 30, 2014. Other operating expenses consist of repairs and maintenance of equipment, equipment rental and contract labor. Approximately $5.1 million of the increase was related to our development and expansion in several urology, medical oncology and surgery practices in Arizona, Florida, Nevada, New Jersey, New York, North Carolina and Rhode Island and the acquisitions of treatment centers in existing local markets during the latter part of 2013 and 2014. Approximately $0.2 million increase relates to equipment rental expense relating to medical equipment refinancing, offset by a decrease of approximately $0.2 million in our remaining practices and centers in existing local markets. 43 --------------------------------------------------------------------------------



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General and administrative expenses. General and administrative expenses increased by $10.9 million or 47.1%, from $23.2 million for the three months ended June 30, 2013 to $34.1 million for the three months ended June 30, 2014. General and administrative expenses principally consist of professional service fees, consulting, office supplies and expenses, insurance, marketing and travel costs. General and administrative expenses as a percentage of total revenues decreased from 13.0% for the three months ended June 30, 2013 to 12.8% for the three months ended June 30, 2014. The net increase of $10.9 million in general and administrative expenses was due to an increase of approximately $5.5 million relating to our development and expansion in several urology, medical oncology and surgery practices in Arizona, Florida, Nevada, New Jersey, New York, North Carolina and Rhode Island and the acquisitions of treatment centers in existing local markets during the latter part of 2013 and 2014. In addition, there was an increase of approximately $1.7 million in litigation settlements with certain physicians and legal and consulting costs associated with the Medicare diagnostic matter, $0.5 million related to expenses for consulting services for the CMS 2014 fee schedule, $1.5 million in diligence costs relating to acquisitions and potential acquisitions of physician practices, $0.1 million relating to our rebranding initiatives, and an increase of approximately $1.6 million in our remaining practices and treatments centers in our existing local markets. Depreciation and amortization. Depreciation and amortization expense increased by $6.8 million or 44.7%, from $15.3 million for the three months ended June 30, 2013 to $22.2 million for the three months ended June 30, 2014. Depreciation and amortization expense as a percentage of total revenues decreased from 8.6% for the three months ended June 30, 2013 to 8.3% for the three months ended June 30, 2014. The change in depreciation and amortization was due to an increase of approximately $7.2 million relating to our development and expansion in several urology, medical oncology and surgery practices in Arizona, Florida, Nevada, New Jersey, New York, North Carolina and Rhode Island and the acquisitions of treatment centers in existing local markets during the latter part of 2013 and 2014. An increase in capital expenditures related to our investment in advanced radiation treatment technologies and software maintenance in certain local markets increased our depreciation and amortization by approximately $0.6 million offset by a decrease of approximately $1.0 million in amortization of certain non-compete agreements. Provision for doubtful accounts. The provision for doubtful accounts increased by $1.4 million, or 70.1%, from $2.0 million for the three months ended June 30, 2013 to $3.4 million for the three months ended June 30, 2014. The provision for doubtful accounts as a percentage of total revenues increased from 1.1% for the three months ended June 30, 2013 to 1.3% for the three months ended June 30, 2014. As a result of our recent acquisitions, we continue to make progress in improving the overall collection process, including centralization of the prior authorization process, with standardization process supporting peer to peer justification of medical necessity, improvements in payment posting timeliness, electronic submission of documentation to Medicare carriers, Medicaid eligibility retro scrubbing of self pay patients, automated insurance rebilling, focused escalation process for claims in Medical Review with insurers, collector productivity and quality tracking and monitoring, and improved processes at the treatment centers to collect co-pay amounts at the time of service. Interest expense, net. Interest expense, increased by $9.4 million, or 46.0%, from $20.5 million for the three months ended June 30, 2013 to $29.9 million for the three months ended June 30, 2014. The increase is primarily attributable to additional debt obligations predominately relating to our senior credit facility. As of June 30, 2014, we had approximately $90.0 million outstanding in our Term Facility and $79.5 million outstanding in our Revolver Credit Facility. The increase is also attributable to recent acquisitions. Pursuant to the SFRO acquisition we entered into the SFRO Credit Agreement which provides for a $60 million Term B Loan, $7.9 million Term A Loan, and assumed capital lease obligations. The OnCure transaction included the issuance of $82.5 million in senior secured notes which accrue interest at a rate of 11.75% per annum and additional capital lease financing. Impairment loss. As we began to experience some liquidity issues after terminating our previously planned initial public offering, we began to have discussions with an ad hoc group of holders of our outstanding notes. On July 29, 2014, we entered into a Recapitalization Support Agreement with Vestar Capital Partners, Inc., our equity sponsor ("Vestar") and the holders or managers of 72% of the aggregate principal amount of the indebtedness we incurred under that certain Indenture, dated as of April 20, 2010, among us, the guarantors party thereto and Wells Fargo Bank, National Association (the "Consenting Subordinated Noteholders"). The Recapitalization Support Agreement sets forth the terms through which we expect to either (a) obtain additional liquidity through an equity contribution or subordinated debt incurred in a minimum amount of $150 million on or before October 1, 2014 (the "Capital Contribution") or (b) consummate a Recapitalization consistent with the material terms and conditions described in the Recapitalization Term Sheet attached to the Recapitalization Support Agreement. Pursuant to the Recapitalization Support Agreement, if we and Vestar fail to obtain a signed letter of intent for a Capital Contribution reasonably acceptable to the Required Consenting Subordinated Noteholders (as defined in the Recapitalization Support Agreement) on or before August 31, 2014, we must refrain from pursuing the Capital Contribution and must pursue the Recapitalization. Absent obtaining the Capital Contribution and upon the effectiveness of the Recapitalization, the Subordinated Noteholder Claims (as defined in the Recapitalization Support Agreement) would be exchanged for 95% of the new equity interests in the reorganized Company, subject to dilution pursuant to a management incentive plan and new warrants as set forth in the Recapitalization Term Sheet, with existing equity holders receiving 5% of the new equity interests. We performed an interim impairment test for goodwill and indefinite-lived intangible assets. We completed the first step of the impairment test as of June 30, 2014 and determined that the carrying amount of one of the reporting units exceeds its estimated implied fair value, thereby requiring performance of the second step of the impairment test to calculate the amount of the impairment. We, with the assistance of an independent valuation firm, have begun the second step of the impairment test and expect the resulting valuation report to be completed on or before September 30, 2014. However, because an impairment loss is probable and can be reasonably estimated, we have, in accordance with ASC 350, recorded a preliminary estimated non-cash impairment charge of approximately $182.0 million in the condensed consolidated statements of operations and comprehensive loss during the quarter ended June 30, 2014. Equity initial public offering expenses. In May, 2014, we determined due to market conditions to postpone the initial public offering of our equity securities. As a result of the postponement and entering into the Recapitalization Support Agreement with Consenting Subordinated Noteholders, we wrote-off approximately $4.2 million in expenses associated with the initial public offering. Gain on the sale of an interest in a joint venture. In June 2013, we sold our 45% interest in an unconsolidated joint venture which operated a radiation treatment center in Providence, Rhode Island in partnership with a hospital to provide stereotactic radio-surgery through the use of a cyberknife for approximately $1.5 million, and recorded a respective gain on the sale. 44 --------------------------------------------------------------------------------



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Fair value adjustment of earn-out liability. On October 25, 2013, we completed the acquisition of OnCure. The transaction was funded through a combination of cash on hand, borrowings from our senior secured credit facility and the issuance of $82.5 million in senior secured notes of OnCure, which accrue interest at a rate of 11.75% per annum and mature January 15, 2017, of which $7.5 million included in other long-term liabilities in the consolidated balance sheets, is subject to escrow arrangements and will be released to holders upon satisfaction of certain conditions (the "earn out payment"). The Company recorded an estimated earn out payment at the time of the closing of the transaction. The earn out payment is contingent upon certain acquired centers attaining earnings before interest, taxes, depreciation and amortization targets, is due on December 31, 2015, and is payable through the issuance of the 11.75% senior secured notes. At June 30, 2014, we estimated the fair value of the contingent earn out liability and increased the liability due to the seller by approximately $0.2 million. We recorded the $0.2 million to expense in the fair value adjustment caption in the consolidated statements of operations and comprehensive loss. Income taxes. Our effective tax rate was (0.5)% for the three months ended June 30, 2014 and (7.6)% for the three months ended June 30, 2013. The change in the effective rate for the second quarter of 2014 compared to the same period of the year prior is primarily the result of recording of an impairment against goodwill of the domestic operations, the release of previously recorded reserves related to the settlement of the 2007 and 2008 US federal tax audit in addition to the relative mix of earnings and tax rates across jurisdictions and the application of ASC 740-270 to exclude certain jurisdictions for which we are unable to benefit from losses. As a result, on an absolute dollar basis, the expense for income taxes changed by $0.5 million from the income tax expense of $1.4 million for the three months ended June 30, 2013 to an income tax expense of $0.9 million for the three months ended June 30, 2014. Our future effective tax rates could be affected by changes in the relative mix of taxable income and taxable loss jurisdictions, changes in the valuation of deferred tax assets or liabilities, or changes in tax laws or interpretations thereof. We monitor the assumptions used in estimating the annual effective tax rate and make adjustments, if required, throughout the year. If actual results differ from the assumptions used in estimating our annual effective tax rates, future income tax expense (benefit) could be materially affected. In addition, we are periodically under audit by federal, state, or local authorities in the areas of income taxes and other taxes. These audits include questioning the timing and amount of deductions and compliance with federal, state, and local tax laws. We regularly assess the likelihood of adverse outcomes from these audits to determine the adequacy of our provision for income taxes. To the extent we prevail in matters for which accruals have been established or are required to pay amounts in excess of such accruals, the effective tax rate could be materially affected. Net loss. Net loss increased by $185.1 million, from $19.5 million in net loss for the three months ended June 30, 2013 to $204.6 million net loss for the three months ended June 30, 2014. Net loss represents 11.0% of total revenues for the three months ended June 30, 2013 and 77.0% of total revenues for the three months ended June 30, 2014. 45 --------------------------------------------------------------------------------



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The following table presents summaries of our results of operations for the six months ended June 30, 2013 and 2012.

Six Months Ended Six Months Ended (in thousands): June 30, 2014 June 30, 2013 Revenues: Net patient service revenue $ 459,858 92.1 % $ 347,820 98.8 % Management fees 33,453 6.7 - - Other revenue 5,984 1.2 4,266 1.2 Total revenues 499,295 100.0 352,086 100.0 Expenses: Salaries and benefits 261,712 52.4 195,940 55.7 Medical supplies 46,236 9.3 30,249 8.6 Facility rent expenses 32,662 6.5 20,858 5.9 Other operating expenses 30,477 6.1 21,273 6.0 General and administrative expenses 64,174 12.9 43,896 12.5 Depreciation and amortization 42,884 8.6 30,491 8.7 Provision for doubtful accounts 7,724 1.5 5,090 1.4 Interest expense, net 57,426 11.5 40,417 11.5 Impairment loss 182,000 36.5 - - Equity initial public offering expenses 4,163 0.8 - - Loss on sale leaseback transaction 135 - - - Fair value adjustment of earn-out liability 403 0.1 - - Gain on the sale of an interest in a joint venture - - (1,460 ) (0.4 ) Loss on foreign currency transactions 107 - 802 0.2 Loss (gain) on foreign currency derivative contracts (4 ) - 242 0.1 Total expenses 730,099 146.2 387,798 110.2 Loss before income taxes (230,804 ) (46.2 ) (35,712 ) (10.2 ) Income tax expense 3,040 0.6 3,150 0.9 Net loss (233,844 ) (46.8 ) (38,862 ) (11.1 ) Net income attributable to noncontrolling interests - redeemable and non-redeemable (3,861 ) (0.8 ) (1,018 ) (0.3 ) Net loss attributable to 21st Century Oncology Holdings, Inc. shareholder $ (237,705 ) (47.6 )% $ (39,880 ) (11.4 )%



Comparison of the Six Months Ended June 30, 2014 and 2013

Revenues Net patient service revenue. For the six months ended June 30, 2014 and 2013, net patient service revenue comprised 92.1% and 98.8%, respectively, of our total revenues. In our net patient service revenue for the six months ended June 30, 2014 and 2013, revenue from the professional-only component of radiation therapy where we do not bill globally and revenue from the practices of medical specialties other than radiation oncology, comprised approximately 30.6% and 30.0%, respectively, of our total revenues. Management fees. Certain of the Company's physician groups receive payments for their services and treatments rendered to patients covered by Medicare, Medicaid, third-party payors and self-pay. Management fees are recorded at the amount earned by the Company under the management services agreements. Services rendered by the respective physician groups are billed by the Company, as the exclusive billing agent of the physician groups, to patients, third-party payors, and others. The Company's management fees are dependent on the EBITDA (or in one case, revenue) of each treatment center. For the six months ended June 30, 2014, management fees comprised 6.7% of our total revenues. These management fees are as a result of the OnCure transaction, which closed on October 25, 2013. Other revenue. For the six months ended June 30, 2014 and 2013, other revenue comprised approximately 1.2%, of our total revenues. Other revenue is primarily derived from management services provided to hospital radiation therapy departments, technical services provided to hospital radiation therapy departments, billing services provided to non-affiliated physicians, gain and losses from sale/disposal of medical equipment, equity interest in net earnings/losses of unconsolidated joint ventures and income for equipment leased by joint venture entities. Total revenues. Total revenues increased by $147.2 million, or 41.8%, from $352.1 million for the six months ended June 30, 2013 to $499.3 million for the six months ended June 30, 2014. Total revenue was positively impacted by $140.5 million due to our expansion into new practices and treatments centers in existing local markets and new local markets during 2013 and 2014 through the acquisition of several urology, medical oncology and surgery practices in Arizona, Florida, Nevada, New Jersey, New York, North Carolina and Rhode Island and the acquisition of physician radiation practices in Argentina, Arizona, California, Guatemala, Florida, Indiana, North Carolina, Mexico and the opening of two de novo centers as follows: 46 --------------------------------------------------------------------------------

Table of Contents Date Sites Location Market Type May 2013 3 Cape Coral / Ft. Myers Lee County - Florida Acquisition / Bonita Springs - Florida May 2013 2 Naples - Florida Collier County - Acquisition Florida June 2013 1 Casa Grande - Arizona Central Arizona Joint Venture Acquisition July 2013 1 Latin America International (Mexico) Acquisition September 2013 1 Latin America International De Novo (Hospital (Argentina) Campus) October 2013 30 California / Indiana / California / Indiana / Acquisition - OnCure Florida Florida Freestanding October 2013 3 Indiana Indiana Acquisition - OnCure professional / other October 2013 1 Roanoke Rapids, North Eastern North Carolina Acquisition Carolina January 2014 1 Guatemala International Acquisition (Guatemala) February 2014 17 Miami/Dade/Palm Beach/ Miami/Dade/Palm Beach/ Acquisition - SFRO Broward counties - Broward counties - Freestanding Florida Florida February 2014 4 Miami/Dade/Palm Beach Miami/Dade/Palm Beach Acquisition - SFRO counties - Florida counties - Florida professional / other February 2014 1 Westchester/Bronx/Long Westchester/Bronx/Long De Novo Island - New York Island - New York March 2014 1 Latin America International Acquisition (Argentina)



Revenue from CMS for the 2014 PQRI program increased approximately $0.2 million and revenues in our existing local markets and practices increased by approximately $6.5 million.

Expenses Salaries and benefits. Salaries and benefits increased by $65.8 million, or 33.6%, from $195.9 million for the six months ended June 30, 2013 to $261.7 million for the six months ended June 30, 2014. Salaries and benefits as a percentage of total revenues decreased from 55.7% for the six months ended June 30, 2013 to 52.4% for the six months ended June 30, 2014. Additional staffing of personnel and physicians due to our development and expansion in several urology, medical oncology and surgery practices in Arizona, Florida, Nevada, New Jersey, New York, North Carolina and Rhode Island and the acquisitions of treatment centers in existing local markets during the latter part of 2013 and 2014 contributed $63.8 million to our salaries and benefits. In December 2013, we implemented a new equity-incentive plan, which decreased stock compensation by approximately $0.2 million in 2014. For existing practices and centers within our local markets, salaries and benefits increased $2.2 million due to increased salaries related to our physician liaison program and the expansion of our senior management team offset by decreases in our compensation arrangements with certain radiation oncologists. Medical supplies. Medical supplies increased by $16.0 million, or 52.9%, from $30.2 million for the six months ended June 30, 2013 to $46.2 million for the six months ended June 30, 2014. Medical supplies as a percentage of total revenues increased from 8.6% for the six months ended June 30, 2013 to 9.3% for the six months ended June 30, 2014. Medical supplies consist of patient positioning devices, radioactive seed supplies, supplies used for other brachytherapy services, pharmaceuticals used in the delivery of radiation therapy treatments and chemotherapy-related drugs and other medical supplies. Approximately $13.1 million of the increase was related to our development and expansion in several urology, medical oncology and surgery practices in Arizona, Florida, Nevada, New Jersey, New York, North Carolina and Rhode Island and the acquisitions of treatment centers in existing local markets during the latter part of 2013 and 2014. In our remaining practices and centers in existing local markets, medical supplies increased by approximately $2.9 million. These pharmaceuticals and chemotherapy medical supplies are principally reimbursable by third-party payers. Facility rent expenses. Facility rent expenses increased by $11.8 million, or 56.6%, from $20.9 million for the six months ended June 30, 2013 to $32.7 million for the six months ended June 30, 2014. Facility rent expenses as a percentage of total revenues increased from 5.9% for the six months ended June 30, 2013 to 6.5% for the six months ended June 30, 2014. Facility rent expenses consist of rent expense associated with our treatment center locations. Approximately $11.5 million of the increase was related to our development and expansion in several urology, medical oncology and surgery practices in Arizona, Florida, Nevada, New Jersey, New York, North Carolina and Rhode Island and the acquisitions of treatment centers in existing local markets during the latter part of 2013 and 2014. Facility rent expense in our remaining practices and centers in existing local markets increased by approximately $0.3 million. Other operating expenses. Other operating expenses increased by $9.2 million or 43.3%, from $21.3 million for the six months ended June 30, 2013 to $30.5 million for the six months ended June 30, 2014. Other operating expense as a percentage of total revenues increased from 6.0% for the six months ended June 30, 2013 to 6.1% for the six months ended June 30, 2014. Other operating expenses consist of repairs and maintenance of equipment, equipment rental and contract labor. Approximately $9.1 million of the increase was related to our development and expansion in several urology, medical oncology and surgery practices in Arizona, Florida, Nevada, New Jersey, New York, North Carolina and Rhode Island and the acquisitions of treatment centers in existing local markets during the latter part of 2013 and 2014. Approximately $0.3 million increase relates to equipment rental expense relating to medical equipment refinancing, offset by a decrease of approximately $0.2 million in our remaining practices and centers in existing local markets. 47 --------------------------------------------------------------------------------



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General and administrative expenses. General and administrative expenses increased by $20.3 million or 46.2%, from $43.9 million for the six months ended June 30, 2013 to $64.2 million for the six months ended June 30, 2014. General and administrative expenses principally consist of professional service fees, consulting, office supplies and expenses, insurance, marketing and travel costs. General and administrative expenses as a percentage of total revenues increased from 12.5% for the six months ended June 30, 2013 to 12.9% for the six months ended June 30, 2014. The net increase of $20.3 million in general and administrative expenses was due to an increase of approximately $10.1 million relating to our development and expansion in several urology, medical oncology and surgery practices in Arizona, Florida, Nevada, New Jersey, New York, North Carolina and Rhode Island and the acquisitions of treatment centers in existing local markets during the latter part of 2013 and 2014. In addition there was an increase of approximately $1.8 million in litigation settlements with certain physicians and legal and consulting costs associated with the Medicare diagnostic matter, $0.9 million related to expenses for consulting services for the CMS 2014 fee schedule, $4.8 million in diligence costs relating to acquisitions and potential acquisitions of physician practices, $0.3 million relating to our rebranding initiatives, and an increase of approximately $2.4 million in our remaining practices and treatments centers in our existing local markets. Depreciation and amortization. Depreciation and amortization expense increased by $12.4 million or 40.6%, from $30.5 million for the six months ended June 30, 2013 to $42.9 million for the six months ended June 30, 2014. Depreciation and amortization expense as a percentage of total revenues decreased from 8.7% for the six months ended June 30, 2013 to 8.6% for the six months ended June 30, 2014. The change in depreciation and amortization was due to an increase of approximately $12.9 million relating to our development and expansion in several urology, medical oncology and surgery practices in Arizona, Florida, Nevada, New Jersey, New York, North Carolina and Rhode Island and the acquisitions of treatment centers in existing local markets during the latter part of 2013 and 2014. An increase in capital expenditures related to our investment in advanced radiation treatment technologies and software maintenance in certain local markets increased our depreciation and amortization by approximately $0.8 million offset by a decrease of approximately $1.3 million in amortization of certain non-compete agreements. Provision for doubtful accounts. The provision for doubtful accounts increased by $2.6 million, or 51.7%, from $5.1 million for the six months ended June 30, 2013 to $7.7 million for the six months ended June 30, 2014. The provision for doubtful accounts as a percentage of total revenues increased from 1.4% for the six months ended June 30, 2013 to 1.5% for the six months ended June 30, 2014. As a result of our recent acquisitions, we continue to make progress in improving the overall collection process, including centralization of the prior authorization process, with standardization process supporting peer to peer justification of medical necessity, improvements in payment posting timeliness, electronic submission of documentation to Medicare carriers, Medicaid eligibility retro scrubbing of self pay patients, automated insurance rebilling, focused escalation process for claims in Medical Review with insurers, collector productivity and quality tracking and monitoring, and improved processes at the treatment centers to collect co-pay amounts at the time of service. Interest expense, net. Interest expense, increased by $17.0 million, or 42.1%, from $40.4 million for the six months ended June 30, 2013 to $57.4 million for the six months ended June 30, 2014. The increase is primarily attributable to additional debt obligations predominately relating to our senior credit facility. As of June 30, 2014, we had approximately $90.0 million outstanding in our Term Facility and $79.5 million outstanding in our Revolver Credit Facility. The increase is also attributable to recent acquisitions. Pursuant to the SFRO acquisition we entered into the SFRO Credit Agreement which provides for a $60 million Term B Loan, $7.9 million Term A Loan, and assumed capital lease obligations. The OnCure transaction included the issuance of $82.5 million in senior secured notes which accrue interest at a rate of 11.75% per annum and additional capital lease financing. Impairment loss. As we began to experience some liquidity issues after terminating our previously planned initial public offering, we began to have discussions with an ad hoc group of holders of our outstanding notes. On July 29, 2014, we entered into a Recapitalization Support Agreement with Vestar and the holders or managers of 72% of the aggregate principal amount of the indebtedness we incurred under that certain Indenture, dated as of April 20, 2010, among us, the guarantors party thereto and Wells Fargo Bank, National Association (the "Consenting Subordinated Noteholders"). The Recapitalization Support Agreement sets forth the terms through which we expect to either (a) obtain additional liquidity through an equity contribution or subordinated debt incurred in a minimum amount of $150 million on or before October 1, 2014 (the "Capital Contribution") or (b) consummate a Recapitalization consistent with the material terms and conditions described in the Recapitalization Term Sheet attached to the Recapitalization Support Agreement. Pursuant to the Recapitalization Support Agreement, if we and Vestar fail to obtain a signed letter of intent for a Capital Contribution reasonably acceptable to the Required Consenting Subordinated Noteholders (as defined in the Recapitalization Support Agreement) on or before August 31, 2014, we must refrain from pursuing the Capital Contribution and must pursue the Recapitalization. Absent obtaining the Capital Contribution and upon the effectiveness of the Recapitalization, the Subordinated Noteholder Claims (as defined in the Recapitalization Support Agreement) would be exchanged for 95% of the new equity interests in the reorganized Company, subject to dilution pursuant to a management incentive plan and new warrants as set forth in the Recapitalization Term Sheet, with existing equity holders receiving 5% of the new equity interests. We performed an interim impairment test for goodwill and indefinite-lived intangible assets. We completed the first step of the impairment test as of June 30, 2014 and determined that the carrying amount of one of the reporting units exceeds its estimated implied fair value, thereby requiring performance of the second step of the impairment test to calculate the amount of the impairment. We, with the assistance of an independent valuation firm, have begun the second step of the impairment test and expect the resulting valuation report to be completed on or before September 30, 2014. However, because an impairment loss is probable and can be reasonably estimated, we have, in accordance with ASC 350, recorded a preliminary estimated non-cash impairment charge of approximately $182.0 million in the condensed consolidated statements of operations and comprehensive loss during the quarter ended June 30, 2014. Equity initial public offering expenses. In May, 2014, we determined due to market conditions to postpone the initial public offering of our equity securities. As a result of the postponement and entering into the Recapitalization Support Agreement with Consenting Subordinated Noteholders, we wrote-off approximately $4.2 million in expenses associated with the initial public offering. Loss on sale leaseback transaction. In March 2014, the Company entered into a sale leaseback transaction with a financial institution. The sale leaseback transaction related to medical equipment. Proceeds from the sale were approximately $5.7 million. The Company recorded a loss on the sale leaseback transaction of approximately $0.1 million. 48 --------------------------------------------------------------------------------



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Gain on the sale of an interest in a joint venture. In June 2013, we sold our 45% interest in an unconsolidated joint venture which operated a radiation treatment center in Providence, Rhode Island in partnership with a hospital to provide stereotactic radio-surgery through the use of a cyberknife for approximately $1.5 million, and recorded a respective gain on the sale. Fair value adjustment of earn-out liability. On October 25, 2013, we completed the acquisition of OnCure. The transaction was funded through a combination of cash on hand, borrowings from our senior secured credit facility and the issuance of $82.5 million in senior secured notes of OnCure, which accrue interest at a rate of 11.75% per annum and mature January 15, 2017, of which $7.5 million included in other long-term liabilities in the consolidated balance sheets, is subject to escrow arrangements and will be released to holders upon satisfaction of certain conditions (the "earn out payment"). The Company recorded an estimated earn out payment at the time of the closing of the transaction. The earn out payment is contingent upon certain acquired centers attaining earnings before interest, taxes, depreciation and amortization targets, is due on December 31, 2015, and is payable through the issuance of the 11.75% senior secured notes. At June 30, 2014, we estimated the fair value of the contingent earn out liability and increased the liability due to the seller by approximately $0.4 million. We recorded the $0.4 million to expense in the fair value adjustment caption in the consolidated statements of operations and comprehensive loss. Income taxes. Our effective tax rate was (1.3)% for the six months ended June 30, 2014 and (8.8)% for the six months ended June 30, 2013. The change in the effective rate for the six months ended June 30, 2014 compared to the same period of the year prior is primarily the result of recording of an impairment against goodwill of the domestic operations, the release of previously recorded reserves related to the settlement of the 2007 and 2008 US federal tax audit in addition to the relative mix of earnings and tax rates across jurisdictions and the application of ASC 740-270 to exclude certain jurisdictions for which we are unable to benefit from losses. As a result, on an absolute dollar basis, the expense for income taxes changed by $0.2 million from the income tax expense of $3.2 million for the six months ended June 30, 2013 to an income tax expense of $3.0 million for the six months ended June 30, 2014. Our future effective tax rates could be affected by changes in the relative mix of taxable income and taxable loss jurisdictions, changes in the valuation of deferred tax assets or liabilities, or changes in tax laws or interpretations thereof. We monitor the assumptions used in estimating the annual effective tax rate and make adjustments, if required, throughout the year. If actual results differ from the assumptions used in estimating our annual effective tax rates, future income tax expense (benefit) could be materially affected. In addition, we are periodically under audit by federal, state, or local authorities in the areas of income taxes and other taxes. These audits include questioning the timing and amount of deductions and compliance with federal, state, and local tax laws. We regularly assess the likelihood of adverse outcomes from these audits to determine the adequacy of our provision for income taxes. To the extent we prevail in matters for which accruals have been established or are required to pay amounts in excess of such accruals, the effective tax rate could be materially affected. Net loss. Net loss increased by $194.9 million, from $38.9 million in net loss for the six months ended June 30, 2013 to $233.8 million net loss for the six months ended June 30, 2014. Net loss represents 11.1% of total revenues for the six months ended June 30, 2013 and 46.8% of total revenues for the six months ended June 30, 2014. 49

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Table of Contents Seasonality and Quarterly Fluctuations Our results of operations historically have fluctuated on a quarterly basis and can be expected to continue to fluctuate. Many of the patients of our Florida treatment centers are part-time residents in Florida during the winter months. Hence, these treatment centers have historically experienced higher utilization rates during the winter months than during the remainder of the year. In addition, volume is typically lower in the summer months due to traditional vacation periods. 60 of our 180 radiation treatment centers are located in Florida.



Liquidity and Capital Resources

We are highly leveraged. As of June 30, 2014, we had $1.1 billion of long-term debt outstanding. Over the next year, the interest and principal payments due under our various debt agreements are approximately $98.3 million and $30.9 million, respectively. As of August 25, 2014, excluding SFRO Holdings, LLC, we had unrestricted cash of approximately $31.5 million. We had to draw on our revolving credit facility in order to make the April 15, 2014 interest payment of approximately $18.8 million. In addition, we routinely extend vendor payments beyond stated terms during the periods preceding semi-annual interest payments in order to conserve cash and liquidity. Working capital was $9.1 million at December 31, 2013 and declined to a working capital deficit of $(20.2) million at June 30, 2014. On May 15 and July 15, 2014 we paid interest payments of approximately $15.5 million and $7.1 million, respectively from our unrestricted cash balance. We have experienced and continue to experience losses from operations. We reported a net loss of approximately $78.2 million, $151.1 million, and $349.9 million for the years ended December 31, 2013, 2012, and 2011, respectively, and $233.8 million and $38.9 million for the six month periods ended June 30, 2014 and 2013, respectively. These continuing losses, coupled with recent costs and expenses associated with our attempted initial public offering and recapitalization efforts have worsened our liquidity position.



Our high level of debt could have adverse effects on our business and financial condition. Specifically, our high level of debt could have important consequences, including the following:

making it more difficult for us to satisfy our obligations with respect to debt; limiting our ability to obtain additional financing to fund



future working capital, capital expenditures, acquisitions or other general corporate requirements;

requiring a substantial portion of our cash flows to be



dedicated to debt service payments instead of other purposes;

increasing our vulnerability to general adverse economic



and

industry conditions;

limiting our flexibility in planning for and reacting to



changes in the industry in which we compete;

placing us at a disadvantage compared to other, less leveraged competitors; and increasing our cost of borrowing. Our ability to make scheduled payments on and to refinance our indebtedness depends on, and is subject to, our financial and operating performance, which in turn is affected by general and regional economic, financial, competitive, business and other factors beyond our control, including the availability of financing in the international banking and capital markets. Our ability to continue as a going concern is dependent on obtaining additional capital, restructuring its indebtedness, and, ultimately, achieving profitable operations. Our current projections indicate that we will not be able to make our interest payments on our $380.1 million Senior Subordinated Notes in October 2014, which will cause a potential default on our other indebtedness. Consequently, there is substantial doubt about our ability to continue as a going concern. We have several initiatives designed to increase revenue and profitability through strategic acquisitions, improvements in commercial payer contracting, development and expansion of our ICC model, and realignment of physician compensation arrangements. In addition, we are actively exploring alternatives to obtain additional liquidity or recapitalize ourselves, as described further below. Our principal capital requirements are for working capital, acquisitions, medical equipment replacement and expansion and de novo treatment center development. Working capital and medical equipment are funded through cash from operations, supplemented, as needed, by five-year fixed rate lease lines of credit. Borrowings under these lease lines of credit are recorded on our balance sheets. The construction of de novo treatment centers is funded directly by third parties and then leased to us. We finance our operations, capital expenditures and acquisitions through a combination of borrowings and cash generated from operations.



Recapitalization Support Agreement

As we began to experience some liquidity issues after terminating our previously planned initial public offering, we began to have discussions with an ad hoc group of holders of our outstanding notes. On July 29, 2014, we, and each of their direct and indirect wholly-owned subsidiaries entered into a Recapitalization Support Agreement (the "Recapitalization Support Agreement") with Vestar and the holders or managers of 72% of the aggregate principal amount of the indebtedness we incurred under that certain Indenture (as amended from time to time, the "Subordinated Notes Indenture" and the notes thereunder, the "Subordinated Notes"), dated as of April 20, 2010, among us, the guarantors party thereto and Wells Fargo Bank, National Association (the "Consenting Subordinated Noteholders"). The Recapitalization Support Agreement sets forth the terms through which we expect to either (a) obtain additional liquidity through an equity contribution or subordinated debt incurred in a minimum amount of $150 million on or before October 1, 2014 (the "Capital Contribution") or (b) consummate a recapitalization (the "Recapitalization") consistent with the material terms and conditions described in the term sheet (the "Recapitalization Term Sheet") attached to the Recapitalization Support 50 --------------------------------------------------------------------------------



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Agreement. Pursuant to the Recapitalization Support Agreement, if the Company and Vestar fail to obtain a signed letter of intent for a Capital Contribution reasonably acceptable to the Required Consenting Subordinated Noteholders (as defined in the Recapitalization Support Agreement) on or before August 31, 2014, the Company must refrain from pursuing the Capital Contribution and must pursue the Recapitalization. Absent the Company obtaining the Capital Contribution and upon the effectiveness of the Recapitalization, the Subordinated Noteholder Claims in the amount of $380.1 million (as defined in the Recapitalization Support Agreement) would be exchanged for 95% of the new equity interests in the reorganized Company, subject to dilution pursuant to a management incentive plan and new warrants as set forth in the Recapitalization Term Sheet, with existing equity holders receiving 5% of the new equity interests. Pursuant to the Recapitalization, existing equity holders of the Company will also receive warrants providing the right to acquire 10% of the equity in the reorganized Company at an exercise price corresponding to the principal amount of the Subordinated Notes outstanding plus accrued and unpaid interest as of the effective date of the Recapitalization. Further adjustments to the Recapitalization may be required to reflect any additional debt-to-equity conversion, new equity investments or senior debt that may be raised in connection with the consummation of the Recapitalization and the parties will work in good faith to further adjust the terms set forth in the Term Sheet to reflect the change in the value of each party's recovery resulting from such required changes. The Recapitalization Support Agreement may be terminated upon the occurrence of certain events, including: (a) certain breaches by the Company, Vestar, or the Consenting Subordinated Noteholders under the Recapitalization Support Agreement; (b) the failure to meet certain milestones related to implementing the Recapitalization and (c) a determination by the Company's board of directors that continued performance under the Recapitalization Support Agreement would be inconsistent with the exercise of its fiduciary duties under applicable law. We expect to incur significant transaction expenses in connection with the Recapitalization Support Agreement which may be partially offset by reductions in executive salaries,



Cash Flows From Operating Activities

Net cash provided by operating activities for the six month periods ended June 30, 2013 and 2014 was $3.6 million and $9.9 million, respectively.

Net cash provided by operating activities increased by $6.3 million from $3.6 million for the six month period ended June 30, 2013 to $9.9 million for the six month period ended June 30, 2014 predominately due to management of our vendor payables and increased cash flow related to our OnCure and SFRO transactions. As of June 30, 2014, we had approximately $90.0 million outstanding in our Term Facility and $79.5 million outstanding in our Revolver Credit Facility. In June 2014, we recorded an impairment loss of approximately $182.0 million as a result of the recapitalization support agreement we entered into with certain subordinated noteholders. Cash at June 30, 2014 held by our foreign subsidiaries was $3.1 million. We consider these cash flows to be permanently invested in our foreign subsidiaries and therefore do not anticipate repatriating any excess cash flows to the U.S. We believe that the magnitude of our growth opportunities outside of the U.S. will cause us to continuously reinvest foreign earnings. We do not require access to the earnings and cash flow of our international subsidiaries to fund our U.S. operations.



Cash Flows From Investing Activities

Net cash used in investing activities for the six month periods ended June 30, 2013 and 2014 was $45.6 million and $86.8 million, respectively.

Net cash used in investing activities increased by $41.2 million from $45.6 million for the six month period ended June 30, 2013 to $86.8 million for the six month period ended June 30, 2014. In 2014, net cash used in investing activities was impacted by approximately $40.8 million in the acquisition of medical practices. On January 13, 2014, CarePoint purchased the membership interest in Quantum Care, LLC for approximately $1.9 million. On January 15, 2014, we purchased 69% interest in a legal entity that operates a radiation oncology facility in Guatemala City, Guatemala for approximately $0.9 million plus the assumption of approximately $3.1 million in debt. On February 10, 2014, we purchased a 65% equity interest in South Florida Radiation Oncology ("SFRO") for approximately $60 million, subject to working capital and other customary adjustments. The transaction was primarily funded with the proceeds of a new $60 million term loan facility that accrues interest at the Eurodollar Rate plus a margin of 10.50% per annum and matures on January 15, 2017 and $7.9 million of term loans to refinance existing SFRO debt. In addition we reflected approximately $11.7 million in restricted cash relating to the SFRO existing debt and an indemnity escrow for the determination of the final purchase price. On March 26, 2014 we purchased 75% interest in a legal entity that operates a radiation oncology facility in Villa Maria, Argentina for approximately $0.5 million. During 2014, we acquired the assets of several physician practices in Florida for approximately $0.3 million. During 2014, we purchased approximately $33.1 million in property and equipment. We have one of the most technically-advanced radiation equipment platforms in the industry. A significant portion of this spend is for growth related projects. This includes the upgrade of technology and equipment at the legacy OnCure centers to expand capacity as well as add SRS capacity, and Medical Developers' growth. In 2013, net cash used in investing activities was impacted by approximately $0.1 million in cash paid for the assets of several physician practices in Arizona and North Carolina, and approximately $17.7 million in cash paid for the assets of five radiation oncology practices and a urology group located in Lee and Collier Counties in Southwest Florida in May 2013. In June 2013, we contributed our Casa Grande, Arizona radiation physician practice and approximately $5.0 million to purchase a 55.0% interest in a joint venture In June 2013, we funded an initial deposit of approximately $5.0 million into an escrow account for the initial deposit for the purchase of medical practices and is reflected as restricted cash on our balance sheet. In 2013, net cash used in investing activities was impacted by approximately $0.5 million in contribution of capital to an unconsolidated joint venture. In June 2013, we sold our 45% interest in an unconsolidated joint venture which operated a radiation treatment center in Providence, Rhode Island for approximately $1.5 million. During 2013, we entered into foreign exchange option contracts expiring on June 2014 to convert a significant portion of our forecasted foreign currency denominated net income into U.S. dollars to limit the adverse impact of a weakening Argentine Peso against the U.S. dollar. The cost of the option contracts, were approximately $0.2 million. 51

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Cash Flows From Financing Activities

Net cash provided by financing activities for the six month period ended June 30, 2013 and 2014 was $38.4 million and $85.2 million, respectively.

In January 2014, we sold a 20% share of our Southern New England Regional Cancer Care joint venture each to Care New England Health System ("CNE") and Roger Williams Medical Center. Also during the quarter CNE acquired a 20% interest in our Roger Williams Medical Center joint venture. We received payments of approximately $1.3 million from the issuance of noncontrolling interests in these joint ventures. On February 10, 2014, 21C East Florida and South Florida Radiation Oncology Coconut Creek, LLC ("Coconut Creek"), a subsidiary of SFRO, as borrowers (the "Borrowers"), the several lenders and other financial institutions or entities from time to time parties thereto and Cortland Capital Market Services LLC as administrative agent and collateral agent entered into a new credit agreement (the "SFRO Credit Agreement"). The SFRO Credit Agreement provides for a $60 million Term B Loan in favor of 21C East Florida ("Term B Loan") and $7.9 million Term A Loan in favor of Coconut Creek issued for purposes of refinancing existing SFRO debt ("Term A Loan" and together with the Term B Loan, the "SFRO Term Loans"). The SFRO Term Loans each have a maturity date of January 15, 2017. We incurred approximately $1.0 million in deferred financing costs relating to the SFRO debt. On October 25, 2013, we completed the acquisition of OnCure. The transaction included the issuance of $82.5 million in senior secured notes of OnCure, which accrue interest at a rate of 11.75% per annum and mature January 15, 2017, of which $7.5 million is subject to escrow arrangements and will be released to holders upon satisfaction of certain conditions. Interest is payable on the Secured Notes on each January 15 and July 15, commencing July 15, 2014. On August 28, 2013, we entered into an Amendment Agreement (the "Amendment Agreement") to the credit agreement among us, 21st Century Oncology, Inc. ("21C"), a wholly owned subsidiary of Parent, the institutions from time to time party thereto as lenders, the Administrative Agent named therein and the other agents and arrangers named therein, dated as of May 10, 2012 (the "Original Credit Agreement" and, as amended and restated by the Amendment Agreement, the "Credit Agreement"). Pursuant to the terms of the Amendment Agreement, the amendments to the Original Credit Agreement became effective on August 29, 2013. The Credit Agreement provides for credit facilities consisting of (i) a $90 million term loan facility (the "Term Facility") and (ii) a revolving credit facility provided for up to $100 million of revolving extensions of credit outstanding at any time (including revolving loans, swingline loans and letters of credit) (the "Revolving Credit Facility" and together with the Term Facility, the "Credit Facilities"). The Term Facility and the Revolving Credit Facility each have a maturity date of October 15, 2016. As a result of the Amendment Agreement, the proceeds of $87.75 million (net of original issue discount of $2.25 million) from the term loan facility was used to pay down approximately $62.5 million in revolver loans and accrued interest and fees of approximately $0.4 million. We incurred approximately $1.4 million in transaction fees and expenses, including legal, accounting and other fees and expenses in connection with the amendment agreement. For the six months ended June 30, 2014, we paid approximately $2.6 million in costs associated with the initial public offering costs we incurred of approximately $4.2 million. We had partnership distributions from non-controlling interests of approximately $0.7 million and $1.0 million in 2013 and 2014, respectively. Senior Subordinated Notes On April 20, 2010, we consummated a debt offering in an aggregate principal amount of $310.0 million of 97/8% senior subordinated notes due 2017, and repaid our existing $175.0 million in aggregate principal amount 13.5% senior subordinated notes due 2015, including accrued and unpaid interest of approximately $6.4 million and the call premium of approximately $5.3 million. The remaining proceeds from the Offering were used to pay down $74.8 million of the Term Loan B and $10.0 million of our revolving credit facility. A portion of the proceeds was placed in a restricted account pending application to finance certain acquisitions, including the acquisitions of a radiation treatment center and physician practices in South Carolina, which were consummated on May 3, 2010. We incurred approximately $11.9 million in transaction fees and expenses, including legal, accounting and other fees and expenses in connection with the Offering, including the initial purchasers' discount of $1.9 million. On March 1, 2011, we issued $50 million of 97/8% Senior Subordinated Notes due 2017 pursuant to a Commitment Letter from DDJ Capital Management, LLC. The proceeds of $48.5 million were used (i) to fund the MDLLC Acquisition and (ii) to fund transaction costs associated with the MDLLC Acquisition. We incurred approximately $1.6 million in transaction fees and expenses, including legal, accounting and other fees and expenses in connection with the new notes, and an initial purchasers' discount of $0.6 million.



Senior Secured Second Lien Notes

On May 10, 2012, we issued $350.0 million in aggregate principal amount of 8 7/8% Senior Secured Second Lien Notes due 2017 (the "Secured Notes").

The Secured Notes were issued pursuant to an indenture, dated May 10, 2012 (the "Secured Notes Indenture"), the Company, the guarantors signatory thereto and Wilmington Trust, National Association. The Secured Notes are senior secured second lien obligations of the Company and are guaranteed on a senior secured second lien basis by the Company, and each of our domestic subsidiaries to the extent such guarantor is a guarantor of the Company's obligations under the Revolving Credit Facility (as defined below). The Secured Notes Indenture contains covenants that, among other things, restrict the ability for us, and certain of our subsidiaries to incur, assume or guarantee additional indebtedness; pay dividends or redeem or repurchase capital stock; make other restricted payments; incur liens; redeem debt that is junior in right of payment to the Secured Notes; sell or otherwise dispose of assets, including capital stock of 52

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subsidiaries; enter into mergers or consolidations; and enter into transactions with affiliates. These covenants are subject to a number of important exceptions and qualifications. In addition, in certain circumstances, if the Company sells assets or experiences certain changes of control, it must offer to purchase the Secured Notes. We used the proceeds to repay our existing senior secured revolving credit facility and the Term Loan B portion of our senior secured credit facilities, which were prepaid in their entirety, cancelled and replaced with the new Revolving Credit Facility described below, and to pay related fees and expenses. Any remaining net proceeds were used for general corporate purposes. Senior Secured Notes On October 25, 2013, we completed the acquisition of OnCure. The transaction included the issuance of $82.5 million in senior secured notes of OnCure (the "OnCure Notes"), which accrue interest at a rate of 11.75% per annum and mature January 15, 2017, of which $7.5 million is subject to escrow arrangements and will be released to holders upon satisfaction of certain conditions. The OnCure Notes were issued pursuant to an Amended and Restated Indenture (the "OnCure Indenture") of OnCure, with OnCure, as issuer, the subsidiaries of OnCure named therein, as guarantors, the Company, 21C and the subsidiaries of the Company and 21C named therein, as guarantors and Wilmington Trust, National Association, as trustee and collateral agent. The OnCure Notes are senior secured obligations of OnCure and certain of its subsidiaries that guarantee the OnCure Notes and senior unsecured obligations of the Company and its subsidiaries that guarantee the OnCure Notes. The OnCure Indenture contains covenants that, among other things, restrict the ability of OnCure, certain of its subsidiaries, the Company, 21C and certain of its subsidiaries to: incur, assume or guarantee additional indebtedness; pay dividends or redeem or repurchase capital stock; make other restricted payments; incur liens; redeem debt that is junior in right of payment to the OnCure Notes; sell or otherwise dispose of assets, including capital stock of subsidiaries; enter into mergers or consolidations; and enter into transactions with affiliates. These covenants are subject to a number of important exceptions and qualifications. In addition, in certain circumstances, if OnCure or the Company sell assets or experience certain changes of control, they must offer to purchase the OnCure Notes.



Senior Secured Credit Facility

On May 10, 2012, we also entered into the Credit Agreement (the "Credit Agreement") among 21C, as borrower, the Company, Wells Fargo Bank, National Association, as administrative agent (in such capacity, the "Administrative Agent"), collateral agent, issuing bank and as swingline lender, the other agents party thereto and the lenders party thereto. On August 28, 2013, we entered into the Amendment Agreement to the credit agreement among the Company, 21C, the institutions from time to time party thereto as lenders, the Administrative Agent named therein and the other agents and arrangers named therein, dated as of May 10, 2012 (the "Original Credit Agreement" and, as amended and restated by the Amendment Agreement, the "Credit Agreement"). Pursuant to the terms of the Amendment Agreement the amendments to the Original Credit Agreement became effective on August 29, 2013. The Credit Agreement provides for credit facilities consisting of (i) a $90 million term loan facility (the "Term Facility") and (ii) a revolving credit facility provided for up to $100 million of revolving extensions of credit outstanding at any time (including revolving loans, swingline loans and letters of credit) (the "Revolving Credit Facility" and together with the Term Facility, the "Credit Facilities"). The Term Facility and the Revolving Credit Facility each have a maturity date of October 15, 2016.



Loans under the Revolving Credit Facility and the Term Facility are subject to the following interest rates:

(a) for loans which are Eurodollar loans, for any interest period, at a rate per annum equal to (i) a floating index rate per annum equal to (A) the rate per annum determined on the basis of the rate for deposits in dollars for a period equal to such interest period commencing on the first day of such interest period appearing on Reuters Screen LIBOR01 Page as of 11:00 A.M., London time, two business days prior to the beginning of such interest period divided by (B) 1.0 minus the then stated maximum rate of all reserve requirements applicable to any member bank of the Federal Reserve System in respect of liability funding or liabilities as defined in Regulation D (or any successor category of liabilities under Regulation D) (provided that solely with respect to loans under the Term Facility, such floating index rate shall not be less than 1.00% per annum), plus (ii) an applicable margin (A) based upon a total leverage pricing grid for loans under the Revolving Credit Facility or (B) equal to 6.50% per annum for loans under the Term Facility; and (b) for loans which are base rate loans, at a rate per annum equal to (i) a floating index rate per annum equal to the greatest of (A) the Administrative Agent's prime lending rate at such time, (B) the overnight federal funds rate at such time plus of 1%, and (C) the Eurodollar Rate for a Eurodollar loan with a one-month interest period commencing on such day plus 1.00% (provided that solely with respect to loans under the Term Facility, such floating index rate shall not be less than 2.00% per annum), plus (ii) an applicable margin (A) based upon a total leverage pricing grid for loans under the Revolving Credit Facility or (B) equal to 5.50% per annum for loans under the Term Facility. We will pay certain recurring fees with respect to the Credit Facilities, including (i) fees on the unused commitments of the lenders under the Revolving Credit Facility, (ii) letter of credit fees on the aggregate face amounts of outstanding letters of credit and (iii) administration fees. The Credit Agreement contains customary representations and warranties, subject to limitations and exceptions, and customary covenants restricting the ability (subject to various exceptions) of 21C and certain of its subsidiaries to: incur additional indebtedness (including guarantee obligations); incur liens; engage in mergers or other fundamental changes; sell certain property or assets; pay dividends of other distributions; consummate acquisitions; make investments, loans and advances; prepay certain indebtedness, change the nature of their business; engage in certain transactions with affiliates; and incur restrictions on the ability of 21C's subsidiaries to make distributions, advances and asset transfers. In addition, as of the last business day of each month, 21C will be required to maintain a certain minimum amount of unrestricted cash and cash equivalents plus availability under the Revolving Credit Facility of not less than $15.0 million. The Credit Agreement contains customary events of default, including with respect to nonpayment of principal, interest, fees or other amounts; material inaccuracy of a representation or warranty when made; failure to perform or observe covenants; cross default to other material indebtedness; bankruptcy and insolvency events; inability to pay debts; monetary judgment defaults; actual or asserted invalidity or impairment of any definitive loan documentation and a change of control.



The obligations of 21C under the Credit Facilities are guaranteed by the Company and certain direct and indirect wholly-owned domestic subsidiaries of 21C.

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The Credit Facilities and certain interest rate protection and other hedging arrangements provided by lenders under the Credit Facilities or its affiliates are secured on a first priority basis by security interests in substantially all of 21C's and each guarantor's tangible and intangible assets (subject to certain exceptions). The Revolving Credit Facility requires that we comply with certain financial covenants, including: Requirement at Level at June 30,



2014 June 30, 2014 Minimum permitted unrestricted cash and cash equivalents plus availability under the Revolving Credit Facility >$ 15.0 million$ 35.7 million

The Revolving Credit Facility also requires that we comply with various other covenants, including, but not limited to, restrictions on new indebtedness, asset sales, capital expenditures, acquisitions and dividends, with which we were in compliance as of June 30, 2014. On April 15, 2014, we obtained a waiver of borrowing conditions due to a default of not providing audited financial statements for the year ended December 31, 2013 within 90 days after year end. We paid the administrative agent for the account of the Revolving Lenders a fee equal to 0.125% of such Lender's aggregate Commitments. The Senior Revolving Credit Facility provides for a 30 day cure period for the filing of the audited annual financial statements. The default was cured with the provision of the audited financial statements to the administrative agent on April 30, 2014.



Purchase Money Note Purchase Agreement

On May 19, 2014, we entered into a Purchase Money Note Purchase Agreement (the "Note Purchase Agreement") with Theriac Management Investments, LLC ("Theriac") (a related party real estate entity owned by certain of the Company's directors and officers). Pursuant to the Note Purchase Agreement, Theriac loaned to us, pursuant to an unsecured purchase money note, the principal amount of $7.4 million. The Company and certain of its domestic subsidiaries of the Company will guaranty the obligations under the note. The note will mature on June 15, 2015 and is subject to an interest rate payable in cash of 10.75% per annum or by adding the amount of such interest to the aggregate principal amount of outstanding notes at the interest rate of 12.0% per annum. The proceeds from the issuance of the note will be used to pay for purchases or improvements of property and equipment or to refinance debt incurred to finance such purchases or improvements.



MDLLC Credit and Guaranty Agreement

On July 28, 2014, Medical Developers, LLC (the "Borrower"), a Florida limited liability company and indirect wholly owned subsidiary of the Company, certain of its subsidiaries and affiliates, including the Company, the various lenders parties thereto and Cortland Capital Market Service, LLC as administrative agent and collateral agent ("Cortland") entered into a credit and guaranty agreement (the "MDLLC Credit Agreement"). The MDLLC Credit Agreement provides for Tranche A term loans (the "Tranche A Term Loans") in the aggregate principal amount of $8.5 million and Tranche B term loans (the "Tranche B Term Loans" together with the Tranche A Term Loans, the "Term Loans") in the aggregate principal amount of $9.0 million, for an aggregate principal amount of Term Loans of $17.5 million, in favor of the Borrower. The Tranche A Term Loans are issued for working capital and general corporate purposes in accordance with a budget and the Tranche B Term Loans are issued to fund purchases of assets used or useful in the Borrower' business. The Borrowers each are required to pay certain recurring administration fees with respect to the MDLLC Credit Agreement. The MDLLC Credit Agreement contains customary representations and warranties, subject to limitations and exceptions, and customary covenants restricting the ability (subject to various exceptions) of the Borrowers and certain of their subsidiaries to incur additional indebtedness or any other obligations. The MDLLC Credit Agreement contains customary events of default, including with respect to nonpayment of principal, interest, fees or other amounts; material inaccuracy of a representation or warranty when made; failure to perform or observe covenants; cross default to other indebtedness; bankruptcy and insolvency events; inability to pay debts; monetary judgment defaults; actual or asserted invalidity or impairment of any definitive loan documentation and a change of control.



The Term Loans are subject to interest rates, for any interest period, at a rate equal to 14.0% per annum.

The obligations of the Borrower under the MDLLC Credit Agreement are guaranteed by the Company, 21C and certain direct and indirect wholly owned domestic subsidiaries and are secured by substantially all of the assets of the Borrower, including a pledge of 65% of the voting stock and 100% of the non-voting stock of each of its direct foreign subsidiaries.



Term Loan A and B Facilities

On February 10, 2014, 21C East Florida and South Florida Radiation Oncology Coconut Creek, LLC ("Coconut Creek"), a subsidiary of SFRO, as borrowers (the "Borrowers"), the several lenders and other financial institutions or entities from time to time parties thereto and Cortland entered into a new credit agreement (the "SFRO Credit Agreement"). The SFRO Credit Agreement provides for a $60 million Term B Loan in favor of 21C East Florida ("Term B Loan") and $7.9 million Term A Loan in favor of Coconut Creek issued for purposes of refinancing existing SFRO debt ("Term A Loan" and together with the Term B Loan, the "SFRO Term Loans"). The SFRO Term Loans each have a maturity date of January 15, 2017. 54

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The SFRO Term Loans are subject to the following interest rates:

(a) for Term A Loans, for any interest period, at a rate per annum equal to (i) a floating index rate per annum equal to (A) the rate per annum determined on the basis of the rate for six month dollar deposits appearing on Reuters Screen LIBOR01 Page as of 11:00 A.M., London time, two business days prior to the beginning of such interest period divided by (B) 1.0 minus the then stated maximum rate of all reserve requirements applicable to any member bank of the Federal Reserve System in respect of Eurocurrency funding or liabilities as defined in Regulation D (or any successor category of liabilities under Regulation D) (provided that such floating index rate shall not be less than 1.25% per annum) (the "Eurodollar Rate"), plus (ii) an applicable margin equal to 5.75% per annum (provided that such rate per annum shall be 6.75% if Treasure Coast Medicine, LLC ("Treasure Coast Medicine") has not become a guarantor of the Term A Loan on or before the first interest payment date on or after February 10, 2014 and until the first occurring interest payment date on which Treasure Coast Medicine is a guarantor of the Term A Loan); and (b) for Term B Loans, for any interest period, payable in cash (a "Cash Interest Payment") at a rate per annum equal to (i) the Eurodollar Rate, plus (ii) an applicable margin equal to 10.5% per annum (the "Cash Interest Rate"). Notwithstanding the foregoing, 21C East Florida may elect to have the Term B Loans bear interest for each day during any interest period payable as follows: (i) for the interest periods ending July 15, 2014 and January 15, 2015, at a rate equal to the Eurodollar Rate plus 11.75% per annum (the "PIK Interest Rate"), which interest shall be paid on the applicable interest payment date by adding the amount of such interest to the aggregate principal amount of the outstanding Loan (a "PIK Interest Payment"), (ii) for the interest periods ending July 15, 2015 and January 15, 2016, (A) one-quarter of the daily principal balance of the Term B Loans at the Cash Interest Rate payable as a Cash Interest Payment, plus (B) three-quarters of the daily principal balance of the Term B Loans at the PIK Interest Rate payable as a PIK Interest Payment, or (iii) for the interest periods ending July 15, 2016 and January 15, 2017, (A) one-half at the Cash Interest Rate as a Cash Interest Payment plus (B) one-half of the daily principal balance of the Term B Loans at the PIK Interest Rate payable as a PIK Interest Payment. The SFRO Credit Agreement contains customary events of default, including with respect to nonpayment of principal, interest, fees or other amounts; material inaccuracy of a representation or warranty when made; failure to perform or observe covenants; cross default to other material indebtedness; bankruptcy and insolvency events; inability to pay debts; monetary judgment defaults; actual or asserted invalidity or impairment of any definitive loan documentation and a change of control.



The obligations under the SFRO Credit Agreement of (i) 21C East Florida are secured on a first priority basis by security interests in substantially all of 21C East Florida's tangible and intangible assets (subject to certain exceptions) and (ii) Coconut Creek are secured by certain assets of Coconut Creek.

On July 22, 2014, 21C East Florida and Coconut Creek, each an indirect subsidiary of the Company, the several lenders and other financial institutions or entities from time to time parties thereto and Cortland entered into a first amendment (the "SFRO Amendment") to the credit agreement among 21C East Florida, Coconut Creek, Cortland and the several lenders and other financial institutions or entities from time to time parties thereto, dated as of February 10, 2014 (the "Original SFRO Credit Agreement" and, as amended and restated by the SFRO Amendment, the "SFRO Credit Agreement"). The SFRO Amendment provides for an incremental $10.35 million term loan (the "Term A-1 Loan") in favor of Coconut Creek issued for purposes of (i) refinancing approximately $5.64 million in existing capitalized lease obligations owing to First Financial Corporate Leasing, including a prepayment premium, (ii) repaying the approximately $2.55 million intercompany loan made by 21C to pay the capitalized lease obligations owing to First Financial Corporate Leasing and (iii) pay fees, costs and expenses of the transactions related to the SFRO Amendment. In addition, the SFRO Amendment provides for the waiver of certain existing events of default under the Original SFRO Credit Agreement. The Term A-1 Loan is subject to interest rates, for any interest period, at a rate per annum equal to a floating index rate per annum equal to LIBOR (provided that such rate shall not be less than 1.25% per annum), plus an applicable margin equal to 9.75% per annum. The obligations of Coconut Creek under the SFRO Amendment are guaranteed (the "SFRO Guarantee") by SFRO Holdings, LLC, a Florida limited liability company of which Coconut Creek is a wholly owned subsidiary and certain of SFRO Holdings, LLC's direct and indirect wholly owned subsidiaries. The obligations of Coconut Creek under the SFRO Amendment are secured by certain assets of Coconut Creek. We believe we are not currently able to borrow under our credit facilities. Due to our current liquidity position, we expect that our cash flows from operations, together with our currently available liquidity will be insufficient to fund our currently anticipated operating requirements, including interest payments. For this reason, we are currently seeking sources of external financing and have entered into the Recapitalization Support Agreement, which may lead to a restructuring of certain of our debt obligations. No assurances can be given that we will be able to raise external financing or execute a recapitalization on terms favorable to us or at all. Our ability to meet our funding needs could be adversely affected if we experience a decline in our results of operations, or if we violate the covenants and other restrictions to which we are subject under our debt or other agreements. Finance Obligation We lease certain of our treatment centers (each, a "facility" and, collectively, the "facilities") and other properties from partnerships that are majority-owned by related parties (each, a "related party lessor" and, collectively, the "related party lessors"). See "Certain Relationships and Related Party Transactions." The related party lessors construct the facilities in accordance with our plans and specifications and subsequently lease these facilities to us. Due to the related party relationship, we are considered the owner of these facilities during the construction period pursuant to the provisions of Accounting Standards Codification ("ASC") 840-40, "Sale-Leaseback Transactions" ("ASC 840-40"). In accordance with ASC 840-40, we record a construction in progress asset for these facilities with a corresponding finance obligation during the construction period. These related parties guarantee the debt of the related party lessors, which is considered to be "continuing involvement" pursuant to ASC 840-40. Accordingly, these leases did not qualify as a normal sale-leaseback at the time that construction was completed and these facilities were leased to us. As a result, the costs to construct the facilities and the related finance obligation are recorded on our consolidated balance sheets after construction was completed. The construction costs are included in "Real Estate Subject to Finance Obligation" in the consolidated balance sheets and the accompanying notes, included in this Annual Report on Form 10-K. The finance obligation is amortized over the lease during the construction period term based on the payments designated in the lease agreements. 55 --------------------------------------------------------------------------------

Table of Contents Billing and Collections Our billing system in the U.S. utilizes a fee schedule for billing patients, third-party payers and government sponsored programs, including Medicare and Medicaid. Fees billed to government sponsored programs, including Medicare and Medicaid, and fees billed to contracted payers and self pay patients (not covered under other third party payer arrangements) are automatically adjusted to the allowable payment amount at time of billing. In 2009, we updated our billing system to include fee schedules on approximately 98% of all payers and developed a blended rate allowable amount on the remaining payers. As a result of this change in 2009, fees billed to all payers are automatically adjusted to the allowable payment at time of billing. Insurance information is requested from all patients either at the time the first appointment is scheduled or at the time of service. A copy of the insurance card is scanned into our system at the time of service so that it is readily available to staff during the collection process. Patient demographic information is collected for both our clinical and billing systems. It is our policy to collect co-payments from the patient at the time of service. Insurance benefit information is obtained and the patient is informed of their deductible and co-payment responsibility prior to the commencement of treatment. Charges are posted to the billing system by coders in our offices or in our central billing office. After charges are posted, edits are performed, any necessary corrections are made and billing forms are generated, then sent electronically to our clearinghouse whenever electronic submission is possible. Any bills not able to be processed through the clearinghouse are printed and mailed from our print mail service. Statements are automatically generated from our billing system and mailed to the patient on a regular basis for any amounts still outstanding from the patient. Daily, weekly and monthly accounts receivable analysis reports are utilized by staff and management to prioritize accounts for collection purposes, as well as to identify trends and issues. Strategies to respond proactively to these issues are developed at weekly and monthly team meetings. Our write-off process requires manual review and our process for collecting accounts receivable is dependent on the type of payer as set forth below.



Medicare, Medicaid and Commercial Payer Balances

Our central billing office staff expedites the payment process from insurance companies and other payers via electronic inquiries, phone calls and automated letters to ensure timely payment. Our billing system generates standard aging reports by date of billing in increments of 30 day intervals. The collection team utilizes these reports to assess and determine the payers requiring additional focus and collection efforts. Our accounts receivable exposure on Medicare, Medicaid and commercial payer balances are largely limited to denials and other unusual adjustments. Our exposure to bad debt on balances relating to these types of payers over the years has been insignificant. In the event of denial of payment, we follow the payer's standard appeals process, both to secure payment and to lobby the payers, as appropriate, to modify their medical policies to expand coverage for the newer and more advanced treatment services that we provide which, in many cases, is the payer's reason for denial of payment. If all reasonable collection efforts with these payers have been exhausted by our central billing office staff, the account receivable is written-off. Self-Pay Balances We administer self-pay account balances through our central billing office and our policy is to first attempt to collect these balances although after initial attempts we often send outstanding self-pay patient claims to collection agencies at designated points in the collection process. In some cases monthly payment arrangements are made with patients for the account balance remaining after insurance payments have been applied. These accounts are reviewed monthly to ensure payments continue to be made in a timely manner. Once it has been determined by our staff that the patient is not responding to our collection attempts, a final notice is mailed. This generally occurs more than 120 days after the date of the original bill. If there is no response to our final notice, after 30 days the account is assigned to a collection agency and, as appropriate, recorded as a bad debt and written off. We also have payment arrangements with patients for the self-pay portion due in which monthly payments are made by the patient on a predetermined schedule. Balances under $50 are written off but not sent to the collection agency. All accounts are specifically identified for write-offs and accounts are written off prior to being submitted to the collection agency. 56 --------------------------------------------------------------------------------

Table of Contents Acquisitions and Developments



The following table summarizes our growth in treatment centers and the local markets in which we operate for the periods indicated:

Six Months Ended Year Ended December 31, June 30, 2012 2013 2014 Treatment centers at beginning of period 127 126 163 Internally developed / reopened 2 3 1 Transitioned to freestanding 2 - - Internally (consolidated / closed / sold) (3 ) (7 ) (8 ) Acquired 2 38 20 Hospital-based / other groups (2 ) 3 4 Hospital-based (ended / transitioned) (2 ) - - Treatment centers at period end 126 163 180 On February 6, 2012, we acquired the assets of a radiation oncology practice and a medical oncology group located in Asheville, North Carolina for approximately $0.9 million. The acquisition of the radiation oncology practice and the medical oncology group, further expands our presence in the Western North Carolina market and builds on the our ICC model. In March 2012, we entered into a license agreement with the North Broward Hospital District to license the space and equipment and assume responsibility for the operation of the two radiation therapy departments at Broward General Medical Center and North Broward Medical Center as part of our value added services offering. The license agreement runs for an initial term of ten years, with three separate five year renewal options. We recorded approximately $4.3 million of tangible assets relating to the use of medical equipment pursuant to the license agreement. On March 30, 2012, we acquired the assets of a radiation oncology practice for $26.0 million and two urology groups located in Sarasota/Manatee counties in Southwest Florida for approximately $1.6 million, for a total purchase price of approximately $27.6 million, comprised of $21.9 million in cash and assumed capital lease obligation of approximately $5.7 million. The acquisition of the radiation oncology practice and the two urology groups, further expands our presence in the Sarasota/Manatee counties and builds on our ICC model.



On August 22, 2012, we opened a de novo radiation treatment center in Argentina. The development of this radiation treatment center further expands our presence in the Latin America market.

In December 2012, we purchased the remaining 50% interest in an unconsolidated joint venture which operates a freestanding radiation treatment center in West Palm Beach, Florida for approximately $1.1 million.



During 2012, we acquired the assets of several ICC physician practices in Arizona, California and Florida for approximately $1.7 million. The physician practices provide synergistic clinical services and an ICC service to our patients in the respective markets in which we provide radiation therapy treatment services.

On May 25, 2013, we acquired the assets of 5 radiation oncology practices and a urology group located in Lee/Collier counties in Southwest Florida for approximately $28.5 million, comprised of $17.7 million in cash, seller financing note of approximately $2.1 million and assumed capital lease obligations of approximately $8.7 million. The acquisition of the 5 radiation treatment centers and the urology group further expands our presence into the Southwest Florida market and builds on our ICC model. In June 2013, we sold our 45% interest in an unconsolidated joint venture which operated a radiation treatment center in Providence, Rhode Island in partnership with a hospital to provide stereotactic radio-surgery through the use of a cyberknife for approximately $1.5 million.



In June 2013, we contributed our Casa Grande, Arizona radiation physician practice, ICC practice and approximately $5.2 million to purchase a 55.0% interest in a joint venture which included an additional radiation physician practice and an expansion of an ICC model that includes medical oncology, urology and dermatology.

In July 2013, we purchased a company, which operates a radiation treatment center in Tijuana, Mexico for approximately $1.6 million. The acquisition of this operating treatment center expands our presence in the international markets.

In July 2013, we purchased the remaining 38.0% interest in a joint venture radiation facility, located in Woonsocket, Rhode Island from our hospital partner for approximately $1.5 million.

In July 2013, we signed a contract to extend our relationship with Northern Westchester Hospital in Westchester County, NY for an additional 8 years. We will continue to provide advanced technical and administrative services to the hospital, continuing our longstanding partnership to serve patients in the region. 57

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In September 2013, we signed a value added services agreement with Mercy Medical Center in Redding, CA, part of Dignity Health, to provide oncology services. This agreement adds to our presence in the strategic market of California, where we recently expanded operations through the acquisition of OnCure.



In September 2013, we were awarded a hospital contract to provide radiation oncology treatment services at the Naval Hospital in Argentina.

On October 25, 2013, we completed the acquisition of OnCure for approximately $125.0 million (excluding capital leases, working capital and other adjustments) . The transaction was funded through a combination of cash on hand, borrowings from our senior secured credit facility and the assumption of $82.5 million in senior secured notes of OnCure, which accrue interest at a rate of 11.75% per annum and mature on January 15, 2017, of which $7.5 million is subject to escrow arrangements and will be released to holders upon satisfaction of certain conditions. OnCure operates radiation oncology treatment centers for cancer patients. It contracts with radiation oncology physician groups and their radiation oncologists through long-term management services agreements to offer cancer patients a comprehensive range of radiation oncology treatment options, including most traditional and next generation services. OnCure provides services to a network of 11 physician groups that treat cancer patients at its 33 radiation oncology treatment centers, making it one of the largest strategically located networks of radiation oncology service providers. OnCure has treatment centers located in California, Florida and Indiana, where it provides the physician groups with the use of the facilities and with certain clinical services of treatment center staff, and administers the non-medical business functions of the treatment centers, such as technical staff recruiting, marketing, managed care contracting, receivables management and compliance, purchasing, information systems, accounting, human resource management and physician succession planning. On October 30, 2013, we acquired the assets of a radiation oncology practice located in Roanoke Rapids, North Carolina for approximately $2.2 million. We plan to refurbish the facility and upgrade to the latest advanced technologies. The acquisition of the radiation oncology practice further expands our presence in the eastern North Carolina market. The allocation of the purchase price is to tangible assets of $0.3 million, a certificate of need of approximately $0.3 million, and goodwill of $1.6 million. During 2013, we acquired the assets of several physician practices in Arizona, Florida, North Carolina, New Jersey, and Rhode Island for approximately $0.8 million. The physician practices provide synergistic clinical services and an ICC service to our patients in the respective markets in which we provide radiation therapy treatment services. In January 2014, we sold a 20% share of our Southern New England Regional Cancer Care joint venture each to Care New England Health System ("CNE") and Roger Williams Medical Center. Also during the quarter CNE acquired a 20% interest in our Roger Williams Medical Center joint venture. The incorporation of CNE reflects the addition of another important long-term partnership with a leading health system. On January 13, 2014, CarePoint purchased the membership interest in Quantum Care, LLC for approximately $1.9 million. CarePoint offers a comprehensive suite of cancer management solutions to insurers, providers, employers and other entities that are financially responsible for the health of defined populations. With proven capabilities to manage medical, radiation and surgical oncology care across the entire continuum of settings, CarePoint represents a unique offering in the health services marketplace. Advanced technology and third-party administrator services, cost management solutions and a focused oncology-specific clinical model enable CarePoint to improve quality and reduce total oncology cost of care for its clients. CarePoint tailors its solutions to the needs of each customer and provides assistance through full-risk transfer, "a la carte" administrative services only packages or hybrid models. On January 15, 2014, we purchased a 69% interest in a legal entity that operates a radiation oncology facility in Guatemala City, Guatemala for approximately $0.9 million plus the assumption of approximately $3.1 million in debt. The facility is strategically located in Guatemala City's medical corridor and, when combined with our existing center, we believe will significantly enhance our level of services. In January 2014, we entered a strategic partnership with ProHealth Care Associates, LLP and opened a new de novo state-of-the-art radiation therapy center in Riverhead, New York. ProHealth is the largest physician group practice in the metropolitan New York area with over 500 physicians in over 150 offices treating over 750,000 covered lives. On February 10, 2014, we purchased a 65% equity interest in South Florida Radiation Oncology ("SFRO") for approximately $60 million, subject to working capital and other customary adjustments. The transaction was primarily funded with the proceeds of a new $60 million term loan facility that accrues interest at the Eurodollar Rate plus a margin of 10.50% per annum and matures on January 15, 2017 and $7.9 million of term loans to refinance existing SFRO debt.



SFRO operates 21 radiation treatment centers throughout south Florida. SFRO increases the number of treatment centers by approximately 10% and is expected to add approximately 591 average treatments per day.

On March 26, 2014 we purchased a 75% interest in a legal entity that operates a radiation oncology facility in Villa Maria, Argentina for approximately $0.5 million. The purchase of this radiation oncology facility further expands our presence in the Latin America market.



On April 21, 2014, we acquired the assets of a radiation oncology practice located in Boca Raton, Florida for approximately $0.4 million plus the assumption of approximately $2.7 million in debt. The acquisition of the radiation oncology practice further expands our presence in the Broward County market.

During 2014, we acquired the assets of several physician practices in Florida for approximately $0.3 million. The physician practices provide synergistic clinical services and an ICC service to its patients in the respective markets in which we provide radiation therapy treatment services. The operations of the foregoing acquisitions have been included in the accompanying condensed consolidated statements of operations and comprehensive loss from the respective dates of each acquisition. When we acquire a treatment center, the purchase price is allocated to the assets acquired and liabilities assumed based upon their respective fair values.



In January 2012, we ceased provision of professional services at our Lee County - Florida hospital based treatment center.

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In February 2012, we closed a radiation treatment facility in Owings Mills, Maryland.

In March 2012, we terminated our arrangement to provide professional services at a hospital in Seaford, Delaware.

In July 2012, we closed a radiation treatment facility in Monroe, Michigan, and we constructed a replacement de novo radiation treatment center in Troy, Michigan which opened for operation in February 2013.

In October 2012, we sold our membership interest in an unconsolidated joint venture in Mohali, India to our former partner in the joint venture for a nominal amount.

In November 2012, we reopened our East Naples, Florida radiation treatment center to support the influx of patients in our southwest Florida local market.

In February 2013, we completed a replacement de novo radiation treatment facility in Troy, Michigan. This facility replaces an existing radiation treatment facility we closed in July 2012 in Monroe, Michigan.

In May and July 2013, we closed two radiation treatment facilities in Lee County - Florida, as a result of the purchase of the 5 radiation oncology practices in Lee/Collier counties in Southwest Florida. During the fourth quarter of 2013, we closed three radiation treatment facilities in Lee/Collier Counties - Florida, as a result of the purchase of the 5 radiation oncology practices in Lee/Collier counties in Southwest Florida and one radiation treatment facility in central Arizona. During the first quarter of 2014, we closed two radiation treatment facilities, one located in Lee County - Florida and another facility located in Charlotte County - Florida, as a result of the purchase on the OnCure transaction. During the second quarter of 2014, we closed six radiation treatment facilities, three located in Broward and Palm Beach Counties, two located in Sarasota/Manatee Counties, and one in Southern California, all as a result of the purchase of the OnCure and SFRO transactions. As of June 30, 2014, we have four additional de novo radiation treatment centers in development located in Bolivia, Dominican Republic, North Carolina and South Carolina. The internal development of radiation treatment centers is subject to a number of risks including but not limited to risks related to negotiating and finalizing agreements, construction delays, unexpected costs, obtaining required regulatory permits, licenses and approvals and the availability of qualified healthcare and administrative professionals and personnel. As such, we cannot assure you that we will be able to successfully develop radiation treatment centers in accordance with our current plans and any failure or material delay in successfully completing planned internally developed treatment centers could harm our business and impair our future growth. We have been selected by a consortium of leading New York academic medical centers (including Memorial Sloan-Kettering Cancer Center, Beth Israel Medical Center/Continuum Health System, NYU Langone Medical Center, Mt. Sinai Medical Center, and Montefiore Medical Center) to serve as the developer and manager of a proton beam therapy center to be constructed in Manhattan. The project is in the final stages of certificate of need approval. In June 2014 we provided notice to the consortium that we may not be able to provide the full commitment of approximately $10.0 million to this project. As result, we may be required to transfer and sell our 33.6% ownership interest to the consortium or to a third party and transfer the general manager role and the management services fee of 5% of collected revenues to the consortium. We have accounted for our interest in the center as an equity method investment. The center is expected to commence operations in late-2016. Critical Accounting Policies Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. We continuously evaluate our critical accounting policies and estimates. We base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions. We believe the following critical accounting policies are important to the portrayal of our financial condition and results of operations and require our management's subjective or complex judgment because of the sensitivity of the methods, assumptions and estimates used in the preparation of our consolidated financial statements. Variable Interest Entities We evaluate certain of our radiation oncology practices in order to determine if they are variable interest entities ("VIE"). This evaluation resulted in determining that certain of our radiation oncology practices were potential variable interests. For each of these practices, we have determined (1) the sufficiency of the fair value of the entities' equity investments at risk to absorb losses, (2) that, as a group, the holders of the equity investments at risk have (a) the direct or indirect ability through voting rights to make decisions about the entities' significant activities, (b) the obligation to absorb the expected losses of the entity and their obligations are not protected directly or indirectly, and (c) the right to receive the expected residual return of the entity, and (3) substantially all of the entities' activities do not involve or are not conducted on behalf of an investor that has disproportionately fewer voting rights in terms of its obligation to absorb the expected losses or its right to receive expected residual returns of the entity, or both. ASC 810, "Consolidation" ("ASC 810"), requires a company to consolidate VIEs if the company is the primary beneficiary of the activities of those entities. Certain of our radiation oncology practices are variable interest entities and we have a variable interest in certain of these practices through our administrative services agreements. Pursuant to ASC 810, through our variable interests in these practices, we have the power to direct the activities of these practices that most significantly impact the entity's economic performance and we would absorb a majority of the expected losses of these practices should they occur. Based on these determinations, we have included these radiation oncology practices in our consolidated financial statements for all periods presented. All significant intercompany accounts and transactions have been eliminated. 59 --------------------------------------------------------------------------------



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We adopted updated accounting guidance beginning with the first quarter of 2010, by providing an ongoing qualitative rather than quantitative assessment of our ability to direct the activities of a variable interest entity that most significantly impact the entity's economic performance and our rights or obligations to receive benefits or absorb losses, in order to determine whether those entities will be required to be consolidated in our consolidated financial statements. The adoption of the new guidance had no material impact to our financial position and results of operations.



Net Patient Service Revenue and Allowances for Contractual Discounts

We have agreements with third-party payers that provide us payments at amounts different from our established rates. Net patient service revenue is reported at the estimated net realizable amounts due from patients, third-party payers and others for services rendered. Net patient service revenue is recognized as services are provided. Medicare and other governmental programs reimburse physicians based on fee schedules, which are determined by the related government agency. We also have agreements with managed care organizations to provide physician services based on negotiated fee schedules. Accordingly, the revenues reported in our consolidated financial statements are recorded at the amount that is expected to be received. We derive a significant portion of our revenues from Medicare, Medicaid and other payers that receive discounts from our standard charges. We must estimate the total amount of these discounts to prepare our consolidated financial statements. The Medicare and Medicaid regulations and various managed care contracts under which these discounts must be calculated are complex and subject to interpretation and adjustment. We estimate the allowance for contractual discounts on a payer class basis given our interpretation of the applicable regulations or contract terms. These interpretations sometimes result in payments that differ from our estimates. Additionally, updated regulations and contract renegotiations occur frequently necessitating regular review and assessment of the estimation process. Changes in estimates related to the allowance for contractual discounts affect revenues reported in our consolidated statements of operations and comprehensive loss. If our overall estimated allowance for contractual discounts on our revenues for the year ended December 31, 2013 were changed by 1%, our after-tax loss from continuing operations would change by approximately $0.1 million. This is only one example of reasonably possible sensitivity scenarios. A significant increase in our estimate of contractual discounts for all payers would lower our earnings. This would adversely affect our results of operations, financial condition, liquidity and future access to capital. During the six months ended June 30, 2014 and 2013, approximately 43% and 46%, respectively, of our U.S. domestic net patient service revenue related to services rendered under the Medicare and Medicaid programs. In the ordinary course of business, we are potentially subject to a review by regulatory agencies concerning the accuracy of billings and sufficiency of supporting documentation of procedures performed. Laws and regulations governing the Medicare and Medicaid programs are extremely complex and subject to interpretation. As a result, there is at least a reasonable possibility that estimates will change by a material amount in the near term.



Accounts Receivable and Allowances for Doubtful Accounts

Accounts receivable are reported net of estimated allowances for doubtful accounts and contractual adjustments. Accounts receivable are uncollateralized and primarily consist of amounts due from third-party payers and patients. To provide for accounts receivable that could become uncollectible in the future, we establish an allowance for doubtful accounts to reduce the carrying amount of such receivables to their estimated net realizable value. The credit risk for other concentrations (other than Medicare) of receivables is limited due to the large number of insurance companies and other payers that provide payments for our services. We do not believe that there are any other significant concentrations of receivables from any particular payer that would subject us to any significant credit risk in the collection of our accounts receivable. The amount of the provision for doubtful accounts is based upon our assessment of historical and expected net collections, business and economic conditions, trends in Federal and state governmental healthcare coverage and other collection indicators. The primary tool used in our assessment is an annual, detailed review of historical collections and write-offs of accounts receivable as they relate to aged accounts receivable balances. The results of our detailed review of historical collections and write-offs, adjusted for changes in trends and conditions, are used to evaluate the allowance amount for the current period. If the actual bad debt allowance percentage applied to the applicable aging categories would change by 1% from our estimated bad debt allowance percentage for the year ended December 31, 2013, our after-tax loss from continuing operations would change by approximately $0.7 million and our net accounts receivable would change by approximately $1.1 million at December 31, 2013. The resulting change in this analytical tool is considered to be a reasonably likely change that would affect our overall assessment of this critical accounting estimate. Accounts receivable are written-off after collection efforts have been followed in accordance with our policies.



Goodwill and Other Intangible Assets

Goodwill represents the excess purchase price over the estimated fair value of net assets acquired by us in business combinations. Goodwill and indefinite life intangible assets are not amortized but are reviewed annually for impairment, or more frequently if impairment indicators arise. As we began to experience some liquidity issues after terminating our previously planned initial public offering, we began to have discussions with an ad hoc group of holders of our outstanding notes. As we began to experience some liquidity issues after terminating our previously planned initial public offering, we began to have discussions with an ad hoc group of holders of our outstanding notes. On July 29, 2014, we entered into a Recapitalization Support Agreement with Vestar and the holders or managers of 72% of the aggregate principal amount of the indebtedness we incurred under that certain Indenture, dated as of April 20, 2010, among us, the guarantors party thereto and Wells Fargo Bank, National Association (the "Consenting Subordinated Noteholders"). The Recapitalization Support Agreement sets forth the terms through which we expect to either (a) obtain additional liquidity through an equity contribution or subordinated debt incurred in a minimum amount of $150 million on or before October 1, 2014 (the "Capital Contribution") or (b) consummate a Recapitalization consistent with the material terms and conditions described in the Recapitalization Term Sheet attached to the Recapitalization Support Agreement. Pursuant to the Recapitalization Support Agreement, if we and Vestar fail to obtain a signed letter of intent for a Capital Contribution reasonably acceptable to the Required Consenting Subordinated Noteholders (as defined in the Recapitalization Support Agreement) on or before August 31, 2014, we must refrain from pursuing the Capital Contribution and must pursue the Recapitalization. Absent obtaining the Capital Contribution and upon the effectiveness of the Recapitalization, the Subordinated Noteholder Claims (as defined in the Recapitalization Support Agreement) would be exchanged for 95% of the new equity interests in the reorganized 60 --------------------------------------------------------------------------------



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Company, subject to dilution pursuant to a management incentive plan and new warrants as set forth in the Recapitalization Term Sheet, with existing equity holders receiving 5% of the new equity interests. We performed an interim impairment test for goodwill and indefinite-lived intangible assets. We completed the first step of the impairment test as of June 30, 2014 and determined that the carrying amount of one of the reporting units exceeds its estimated implied fair value, thereby requiring performance of the second step of the impairment test to calculate the amount of the impairment. We, with the assistance of an independent valuation firm, have begun the second step of the impairment test and expect the resulting valuation report to be completed on or before September 30, 2014. However, because an impairment loss is probable and can be reasonably estimated, we have, in accordance with ASC 350, recorded a preliminary estimated non-cash impairment charge of approximately $182.0 million in the condensed consolidated statements of operations and comprehensive loss during the quarter ended June 30, 2014. During the third quarter of 2012 we recognized goodwill impairment of approximately $69.9 million as a result of the final rule issued on the Physician Fee Schedule for 2013 by CMS on November 1, 2012, which included certain rate reductions on Medicare payments to freestanding radiation oncology providers as well as the changes in treatment patterns and volumes in prostate cancer as a result of the slowing rate of men diagnosed and referred to treatment regimens, as a result of the Preventative Services Task Force report issued in May 2012 recommending against routine PSA screenings for healthy men, as well as suggested changes in treatment pattern for low risk prostate cancer away from definitive treatment. During the fourth quarter of 2012 we incurred an impairment loss of approximately $11.1 million. Approximately $10.8 million relating to goodwill impairment in certain of our reporting units and approximately $0.1 million related to the impairment of certain leasehold improvements in the Delmarva Peninsula local market and approximately $0.2 million related to a consolidated joint venture in the Central Maryland local market. There was no goodwill impairment recorded for the year ended December 31, 2013. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. The estimated fair value of the reporting unit is allocated to all of the assets and liabilities of the reporting unit (including the unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the estimated fair value of the reporting unit was the purchase price paid. Based on (i) assessment of current and expected future economic conditions, (ii) trends, strategies and forecasted cash flows at each reporting unit and (iii) assumptions similar to those that market participants would make in valuing the reporting units. The estimated fair value measurements were developed using significant unobservable inputs (Level 3). For goodwill, the primary valuation technique used was an income methodology based on estimates of forecasted cash flows for each reporting unit, with those cash flows discounted to present value using rates commensurate with the risks of those cash flows. In addition, a market- based valuation method involving analysis of market multiples of revenues and earnings before interest, taxes, depreciation and amortization ("EBITDA") for (i) a group of comparable public companies and (ii) recent transactions, if any, involving comparable companies. Assumptions used are similar to those that would be used by market participants performing valuations of regional divisions. Assumptions were based on analysis of current and expected future economic conditions and the strategic plan for each reporting unit. Intangible assets consist of trade names, non-compete agreements, licenses and hospital contractual relationships. Trade names have an indefinite life and are tested annually for impairment. Non-compete agreements, licenses and hospital contractual relationships are amortized over the life of the agreement (which typically ranges from 2 to 20 years) using the straight-line method. No intangible asset impairment loss was recognized for the years ended December 31, 2012 and 2013.



Impairment of Long-Lived Assets

In accordance with ASC 360, "Accounting for the Impairment or Disposal of Long-Lived Assets", we review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of these assets may not be fully recoverable. Assessment of possible impairment of a particular asset is based on our ability to recover the carrying value of such asset based on our estimate of its undiscounted future cash flows. If these estimated future cash flows are less than the carrying value of such asset, an impairment charge would be recognized for the amount by which the asset's carrying value exceeds its estimated fair value. Stock-Based Compensation All share-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as an expense in the statement of operations and comprehensive loss over the requisite service period. For purposes of determining the compensation expense associated with the 2012 and 2013 equity-based incentive plan grants, we engaged a third party valuation company to value the business enterprise using a variety of widely accepted valuation techniques, which considered a number of factors such as the financial performance of the Company, the values of comparable companies and the lack of marketability of the Company's equity. The third party valuation company then used the probability-weighted expected return method ("PWERM") to determine the fair value of these units at the time of grant. Under the PWERM, the value of the units is estimated based upon an analysis of future values for the enterprise assuming various future outcomes (exits) as well as the rights of each unit class. In developing assumptions for the various exit scenarios, management considered the Company's ability to achieve certain growth and profitability milestone in order to maximize shareholder value at the time of potential exit. Management considers an initial public offering of the Company's stock to be one of the exit scenarios for the current shareholders, as well as a sale or merger/acquisition transaction. For the scenarios the enterprise value at exit was estimated based on a multiple of the Company's EBITDA for the fiscal year preceding the exit date. The enterprise value for the scenario where the Company stays private (and under the majority ownership of Vestar Capital Partners, Inc., our equity sponsor) was estimated based on a discounted cash flow analysis as well as guideline company market approach. The guideline companies were publicly-traded companies that were deemed comparable to the Company. The discount rate analysis also leveraged market data of the same guideline companies. For each PWERM scenario, management estimated probability factors based on the outlook of the Company and the industry as well as prospects and timing for a potential exit based on information known or knowable as of the grant date. The probability-weighted unit values calculated at each potential exit date was present-valued to the grant date to estimate the per-unit value. The discount rate utilized in the present value calculation was the cost of equity calculated using the Capital Asset Pricing Model ("CAPM") and based on the market data of the guideline companies as well as historical data published by Morningstar, Inc. For each PWERM scenario, the per unit values were adjusted for lack of marketability discount to determine unit value on a minority, non-marketable basis. 61 --------------------------------------------------------------------------------



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For 2012 and 2013, the estimated fair value of the units, less an assumed forfeiture rate of 3.9%, is recognized in expense in the Company's consolidated financial statements on a straight-line basis over the requisite service periods of the awards for Class MEP Units. For Class MEP Units, the requisite service period is approximately 18 months, and for Class EMEP Units, the requisite service period is 36 months only if probable of being met. The Class M Units and O Units compensation will be recognized upon the sale of the Company or an initial public offering. Under the terms of the incentive unit grant agreements governing the grants of the Class M Units and Class O Units, in the event of an initial public offering of the Company's common stock, holders have certain rights to receive shares of restricted common stock of the Company in exchange for their Class M Units and Class O Units. The assumed forfeiture rate is based on an average historical forfeiture rate. All outstanding Class EMEP Units and Class L units were canceled without payment to the holder thereof in connect with 21CI's entry into the Fourth Amended LLC Agreement. Grants under 2013 Plan On December 9, 2013, 21CI entered into a Fourth Amended and Restated Limited Liability Company Agreement (the "Fourth Amended LLC Agreement") which replaced the Third Amended LLC Agreement in its entirety. The Fourth Amended LLC Agreement established new classes of incentive equity units (such new units, together with Class MEP Units, as modified under the Fourth Amended LLC Agreement, the "2013 Plan") in 21CI in the form of Class M Units, Class N Units and Class O Units for issuance to employees, officers, directors and other service providers, eliminated 21CI's Class L Units and Class EMEP Units, and modified the distribution entitlements for holders of each existing class of equity units of 21CI. Income Taxes We make estimates in recording our provision for income taxes, including determination of deferred tax assets and deferred tax liabilities and any valuation allowances that might be required against the deferred tax assets. ASC 740, "Income Taxes" ("ASC 740"), requires that a valuation allowance be established when it is more likely than not that all or a portion of a deferred tax asset will not be realized. For the year ended December 31, 2012 and six months ended June 30, 2013, we determined that the valuation allowance was approximately $82.3 million, consisting of $70.3 million against federal deferred tax assets and $12.0 million against state deferred tax assets. This represented an increase of $36.8 million. For the year ended December 31, 2013, we determined that the valuation allowance should be $97.4 million, consisting of $87.5 million against federal deferred tax assets and $9.9 million against state deferred tax assets. This represents an increase of $15.1 million in valuation allowance. For the six months ended June 30, 2014, we determined that the valuation allowance should be $96.8 million consisting of $86.9 against federal deferred assets and $9.9 against state deferred tax assets. This represents a decrease of $0.6 million. ASC 740 clarifies the accounting for uncertainty in income taxes recognized in an entity's financial statements and prescribes a recognition threshold and measurement attributes for financial statement disclosure of tax positions taken or expected to be taken on a tax return. Under ASC 740, the impact of an uncertain tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Additionally, ASC 740 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. We are subject to taxation in the United States, approximately 25 state jurisdictions, the Netherlands, and throughout Latin America, namely, Argentina, Bolivia, Brazil, Costa Rica, Dominican Republic, El Salvador, Guatemala and Mexico. However, the principal jurisdictions for which we are subject to tax are the United States, Florida and Argentina. Our future effective tax rates could be affected by changes in the relative mix of taxable income and taxable loss jurisdictions, changes in the valuation of deferred tax assets or liabilities, or changes in tax laws, interpretations thereof. We monitor the assumptions used in estimating the annual effective tax rate and makes adjustments, if required, throughout the year. If actual results differ from the assumptions used in estimating our annual effective tax rates, future income tax expense (benefit) could be materially affected. In addition, we are routinely under audit by federal, state, or local authorities in the areas of income taxes and other taxes. These audits include questioning the timing and amount of deductions and compliance with federal, state, and local tax laws. We regularly assess the likelihood of adverse outcomes from these audits to determine the adequacy of our provision for income taxes. To the extent we prevail in matters for which accruals have been established or is required to pay amounts in excess of such accruals, the effective tax rate could be materially affected. During the second quarter of 2014, we reached a favorable settlement with the US Internal Revenue Service related to the interest and penalties assessed during the 2007 and 2008 tax audit. As a result, we released $1.3 million of the $2.2 million previously recorded reserves. During the third quarter of 2013, we closed the federal income tax audit related to calendar year 2009 with no material adjustments. We closed the New York State audit for tax years 2006 through 2008 with a favorable result during the first quarter of 2013. New Pronouncements In July 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2013-11, Income Taxes (Topic 740):Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (ASU 2013-11), which amends ASC 740 to clarify balance sheet presentation requirements of unrecognized tax benefits. ASU 2013-11 was effective for us on January 1, 2014. We adopted ASC 740 and reclassified approximately $1.2 million of unrecognized tax benefits from income taxes payable to other long term liabilities. In April 2014, the FASB issued ASU No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. ASU 2014-08 changes the requirements for reporting discontinued operations in FASB Accounting Standards Codification Subtopic 205-20, such that a disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity's operations and financial results. ASU 2014-08 requires an entity to present, for each comparative period, the assets and liabilities of a disposal group that includes a discontinued operation separately in the asset and liability sections, respectively, of the statement of financial position, as well as additional disclosures about discontinued operations. 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2014-08 requires disclosures about a disposal of an individually significant component of an entity that does not qualify for discontinued operations presentation in the financial statements and expands the disclosures about an entity's significant continuing involvement with a discontinued operation. The accounting update is effective for annual periods beginning on or after December 15, 2014. Early adoption is permitted but only for disposals that have not been reported in financial statements previously issued. We are currently evaluating the potential impact of this guidance. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. The core principle of the guidance in ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. We are currently evaluating the potential impact of this guidance, which will be effective beginning January 1, 2017. Reimbursement, Legislative And Regulatory Changes



Legislative and regulatory action has resulted in continuing changes in reimbursement under the Medicare and Medicaid programs that will continue to limit payments we receive under these programs.

Within the statutory framework of the Medicare and Medicaid programs, there are substantial areas subject to legislative and regulatory changes, administrative rulings, interpretations, and discretion which may further affect payments made under those programs, and the federal and state governments may, in the future, reduce the funds available under those programs or require more stringent utilization and quality reviews of our treatment centers or require other changes in our operations. Additionally, there may be a continued rise in managed care programs and future restructuring of the financing and delivery of healthcare in the United States. These events could have an adverse effect on our future financial results. Off-Balance Sheet Arrangements We do not currently have any off-balance sheet arrangements with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we do not engage in trading activities involving non-exchange traded contracts. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships.


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