Press Release

EX-99.1 2 dex991.htm PRESS RELEASE Press Release

Exhibit 99.1


US Oncology, Inc.		News Release
16825 Northchase Drive, Suite 1300
Houston, Texas 77060
www.usoncology.com


Contacts:
Bruce Broussard		Steve Sievert
Investor Relations		Public Relations
832.601.6103		832.601.6193
bruce.broussard@usoncology.com		steve.sievert@usoncology.com

US Oncology Reports Financial Results for Second Quarter 2004

HOUSTON, July 23, 2004 – US Oncology, Inc. (Nasdaq: USON) today reported results for the 2004 second quarter.

The Company recorded quarter-over-quarter and year-over-year increases in revenue, net income and earnings per share for the second quarter 2004. The table below provides a review of second quarter results, as well as the results for the six months ended 2004 along with applicable comparisons:


	Q2 2004		Q2 2003		% Change		Q1 2004		% Change
Revenue	$	565.2	$	491.4	15.0	%	$	525.0	7.7	%
Net income	$	24.5	$	17.7	39.0	%	$	20.1	22.0	%
EPS – diluted	$	0.27	$	0.19	42.1	%	$	0.23	17.4	%
EBITDA⁽¹⁾	$	64.2	$	52.4	22.5	%	$	56.1	14.5	%


	Six Months Ended June 30,
	2004		2003		% Change
Revenue	$	1,090.2	$	938.6	16.2	%
Net income	$	44.7	$	33.9	31.7	%
EPS - diluted	$	0.50	$	0.36	38.9	%
EBITDA⁽¹⁾	$	120.2	$	102.5	17.2	%

⁽¹⁾	See Reconciliation of Selected Financial Data for calculations

US Oncology highlights for the second quarter of 2004 are detailed below:

•

US Oncology’s EBITDA⁽¹⁾ for the second quarter was $64.2 million, compared to $56.1 million for the first quarter of 2004 and $52.4 million in the second quarter of 2003.

•

EBITDA⁽¹⁾ for the six months ended June 30, 2004 was $120.2 million, compared to $102.5 million for the six months ended June 30, 2003.

•

The Company’s accounts receivable days outstanding were 44 at the end of the second quarter, compared to 47 at the end of the first quarter 2004 and 43 at the end of the second quarter of 2003.

•

Of US Oncology’s revenue for the six months ended June 30, 2004, 16.3 percent was generated by practices on the net revenue model. Subsequent to June 30, 2004, the Company converted two net revenue practices with a total of 35 doctors to the earnings model. For the six months ended June 30, 2004 these two practices represented 4.6 percent of the Company’s revenue.

•

The Company generated operating cash flow for the six months ended June 30, 2004 of $130.1 million compared to $116.6 million for the six months ended June 30, 2003. The increase in operating cash flow is due to a decrease in accounts receivable days outstanding, and an increase in accounts payable days outstanding resulting from renegotiated payment terms with certain vendors. Also contributing to this increase is a decrease in tax payments made during 2004, in anticipation of the fact that the Company will be entitled to certain tax benefits upon closing of the merger transaction discussed below. As of July 19, 2004, US Oncology had approximately $276.0 million in cash and equivalents.

⁽¹⁾	See Reconciliation of Selected Financial Data for calculations.

Update on Merger Transaction

The Company will hold a special stockholders’ meeting on August 20, 2004, to consider its previously announced merger transaction and related matters. The merger is subject to the approval by holders of a majority of the outstanding shares of US Oncology Common Stock and approval by holders of a majority of the outstanding shares of US Oncology’s Common Stock not held by US Oncology Holdings, Inc., Oiler Acquisition Corp., Welsh Carson, Anderson & Stowe IX, L.P., its co-investors or members of US Oncology’s board or management that are expected to participate in the merger. All stockholders of record as of July 16, 2004, will be entitled to vote at the special meeting. The Company filed its definitive proxy statement with the SEC on July 21, 2004, and mailed the proxy to stockholders on July 22, 2004.

The merger remains subject to a number of other conditions, including consummation of financing transactions necessary to fund the merger consideration. US Oncology Holdings, Inc. intends to complete the financing arrangements on or prior to the date of the special meeting of stockholders.

As previously disclosed, the Company has received tenders of notes and related consents to an indenture amendment from holders of more than a majority of the $175 million outstanding principal amount of its 9 5/8% Senior Subordinated Notes due 2012, which was a condition to the merger. In addition, the Company received early termination of the waiting period under the Hart-Scott-Rodino Act.

The Company has also entered into a settlement agreement with the plaintiffs in the previously disclosed lawsuits relating to the merger and naming the Company and each of its directors as defendants. The proposed settlement provides for the settlement or dismissal with prejudice of all of the lawsuits. The proposed settlement of the Delaware lawsuit is subject to final approval by the Delaware Court of Chancery, so any settlement may not be final at the time of the special meeting. If the proposed settlement is ultimately not approved by the Delaware Court of Chancery, the litigation could proceed and the plaintiffs could seek the relief sought in their respective complaints.

If the Company’s stockholders approve the merger at the special meeting and the other conditions to the merger have been satisfied at that time, the Company would expect to close the merger promptly after the meeting.

Financial Exhibits

Exhibits, including key operating statistics, financial statements and a reconciliation of selected financial data are included in this news release.

Additional Information and Where to Find It

US Oncology has filed with the SEC and mailed to stockholders a definitive proxy statement dated July 20, 2004, for the Special Meeting of Stockholders to be held to vote on the proposed merger with an affiliate of Welsh Carson. US Oncology, Welsh Carson, certain co-investors of Welsh Carson and certain members of US Oncology’s board and management also filed with the SEC a Schedule 13e-3 and may file other relevant documents with the SEC concerning the proposed merger. Stockholders are urged to read the definitive proxy statement and Schedule 13e-3 and any other relevant documents filed with the SEC because they contain important information about the proposed merger and the interests of the participants in the solicitation of proxies. You can obtain the documents free of charge at the SEC’s website at http://www.sec.gov. In addition, you may obtain copies of documents filed with the SEC by US Oncology free of charge by requesting them in writing from US Oncology at 16825 Northchase Drive, Suite 1300, Houston, Texas 77060, Attention: Investor Relations, by telephone at (832) 601-8766 or by e-mail to steve.sievert@usoncology.com.

Participants in the Solicitation

US Oncology, Welsh Carson and their directors, officers and employees may be deemed to be participants in the solicitation of proxies from the US Oncology stockholders. Information concerning persons who may be deemed participants in the solicitation of US Oncology stockholders is set forth in US Oncology’s proxy statement for its 2003 annual meeting of stockholders, the Schedule 13D, as amended, filed with the SEC by Welsh Carson, certain co-investors of Welsh Carson and certain members of US Oncology’s board and management the definitive proxy statement for the special meeting of stockholders filed with the SEC on July 21, 2004, and the Schedule 13e-3, as amended, previously filed with the SEC.

About US Oncology, Inc.

US Oncology, headquartered in Houston, Texas, is America’s premier cancer care services company. The Company provides comprehensive services to a network of affiliated practices comprising more than 900 affiliated physicians in over 490 sites, including 81 integrated cancer centers, in 32 states.

US Oncology’s mission is to enhance access to high-quality cancer care in America. The Company’s strategies to accomplish this mission include: (a) helping practices lower their pharmaceutical and administration costs, (b) providing the capital and expertise to expand and diversify into radiation oncology and diagnostic radiology, (c) providing sophisticated management services to enhance profitability, and (d) providing access to and managing clinical

research trials. In addition, the Company assists practices in negotiations with private payors, in implementing programs to enhance efficiencies with respect to drugs and in expanding service offerings such as positron emission tomography and intensity modulated radiation therapy.

This news release contains forward-looking statements, including statements that include the words “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “projects,” or similar expressions and statements regarding our prospects. All statements other than statements of historical fact included in this news release are forward-looking statements. Although the Company believes that the expectations reflected in such statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Such expectations are subject to risks and uncertainties, including the possibility that the merger may not occur due to the failure of the parties to satisfy the conditions in the merger agreement, such as the inability of US Oncology Holdings, Inc. to obtain financing, the failure of US Oncology to obtain stockholder approval or the occurrence of events that would have a material adverse effect on US Oncology as described in the merger agreement. Additional risks and uncertainties relating to the Company’s operations include recent legislation relating to prescription drug reimbursement under Medicare, including the way in which such legislation is implemented with respect to modifications in practice expense reimbursement, calculation of average sales price, implementation of third-party vendor programs and other matters, the impact of the recent legislation on other aspects of our business (such as private payor reimbursement, the Company’s ability to obtain favorable pharmaceutical pricing, the ability of practices to continue offering chemotherapy services to Medicare patients or maintaining existing practice sites, physician response to the legislation, including with respect to retirement or choice of practice setting, development activities, and the possibility of additional impairments of assets, including management services agreements), reimbursement for pharmaceutical products generally, our ability to maintain good relationships with existing practices, expansion into new markets and development of existing markets, our ability to complete cancer centers and PET facilities currently in development, our ability to recover the costs of our investments in cancer centers, our ability to complete negotiations and enter into agreements with practices currently negotiating with us, reimbursement for health-care services, continued efforts by payors to lower their costs, government regulation and enforcement, continued relationships with pharmaceutical companies and other vendors, changes in cancer therapy or the manner in which care is delivered, drug utilization, increases in the cost of providing cancer treatment services and the operations of the Company’s affiliated physician practices. Please refer to the Company’s filings with the SEC, including its Annual Report on Form 10-K for 2003, as amended, and subsequent filings, for a more extensive discussion of factors that could cause actual results to differ materially from the Company’s expectations.

US ONCOLOGY, INC.

Exhibit 1

Key Operating Statistics

(in millions)

(unaudited)


	Q2 2004		Q2 2003		% Change		YTD 2004		YTD 2003		% Change
Product revenues	$	355.4	$	298.9	18.9	%	$	687.9	$	562.4	22.3	%
Service revenues		209.8		192.5	9.0	%		402.3		376.2	6.9	%

Total revenues	$	565.2	$	491.4	15.0	%	$	1,090.2	$	938.6	16.2	%

Physician Summary:

PPM physicians		805		776	3.7	%		805		776	3.7	%
Service Line physicians		109		60	81.7	%		109		60	81.7	%

Total physicians		914		836	9.3	%		914		836	9.3	%

Medical Oncology/Hematology:

Medical oncologists/hematologist		756		686	10.2	%		756		686	10.2	%
Medical oncology visits ⁽¹⁾		585,413		609,208	(3.9	)%		1,164,121		1,194,894	(2.6	)%
Other oncologists		36		37	(2.7	)%		36		37	(2.7	)%

Radiation Oncology:

Radiation oncologists		122		113	8.0	%		122		113	8.0	%
Radiation treatments per day		2,597		2,584	0.5	%		2,584		2,606	(0.8	)%
Total cancer centers		81		76	6.6	%		81		76	6.6	%

Imaging/Diagnostics:

PET installations		1		2	(50.0	)%		4		4	0	%
Total PET installations		25		19	31.6	%		25		19	31.6	%
PET scans		7,023		4,752	47.8	%		13,604		8,963	51.8	%

New patients enrolled in research studies		718		951	(24.5	)%		1,461		1,856	(21.3	)%

Days sales outstanding		44		43	2.3	%		44		43	2.3	%

(1)	Visits only include information for practices affiliated under the practice management model and do not include results of service line practices.

US ONCOLOGY, INC.

Exhibit 2

Condensed Consolidated Statement of Operations and Comprehensive Income

(in thousands, except per share data)

(unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
Product revenues	$	355,454		$	298,895		$	687,929		$	562,426
Service revenues		209,789			192,517			402,310			376,196

Total revenues		565,243			491,412			1,090,239			938,622

Cost of product		332,783			277,153			639,549			520,461

Costs of services:
Field compensation and benefits		96,461			88,631			189,154			175,663
Other field costs		55,216			56,872			112,017			108,011
Depreciation and amortization		15,131			12,912			28,957			25,913

Total costs of services		166,808			158,415			330,128			309,587

Total costs of product and services		499,591			435,568			969,677			830,048
General and administrative expense		16,616			16,365			29,300			31,941
Depreciation and amortization		5,205			6,054			10,333			11,866

Income from operations		43,831			33,425			80,929			64,767

Other income (expense):
Interest expense, net		(4,541	)		(4,952	)		(8,923	)		(10,084	)
Other income		622			—			622			—

Income before income taxes		39,912			28,473			72,628			54,683
Income tax provision		(15,366	)		(10,820	)		(27,962	)		(20,780	)

Net income and comprehensive income	$	24,546		$	17,653		$	44,666		$	33,903

Net income per share - basic	$	0.28		$	0.19		$	0.52		$	0.37

Shares used in per share computation – basic		87,192			91,358			86,590			92,165

Net income per share – diluted	$	0.27		$	0.19		$	0.50		$	0.36

Shares used in per share computation – diluted		90,674			93,017			89,975			93,825

US ONCOLOGY, INC.

Exhibit 3

Condensed Consolidated Statement of Cash Flows

(in thousands)

(unaudited)


	Six Months Ended June 30,
	2004			2003
Cash flows from operating activities:
Net income	$	44,666		$	33,903
Non cash adjustments:
Depreciation and amortization		39,290			37,779
Deferred income taxes		4,200			12,222
Undistributed earnings (losses) in joint ventures		32			(900	)
Non cash compensation expense		48			100
Changes in operating assets and liabilities:		41,870			33,468

Net cash provided by operating activities		130,106			116,572

Cash flows from investing activities:
Acquisition of property and equipment		(37,853	)		(39,452	)

Net cash used by investing activities		(37,853	)		(39,452	)

Cash flows from financing activities:
Repayment of other indebtedness		(10,001	)		(14,728	)
Cash payment in lieu of stock issuance		—			(710	)
Proceeds from exercise of options		18,599			895
Purchase of Treasury Stock		(4,247	)		(40,972	)

Net cash provided (used) by financing activities		4,351			(55,515	)

Increase in cash and equivalents		96,604			21,605
Cash and equivalents:
Beginning of period		124,514			75,029

End of period	$	221,118		$	96,634

Interest paid	$	9,775		$	10,720
Taxes paid	$	575		$	8,755
Non cash transactions:
Delivery of Common Stock in affiliation transactions	$	6,585		$	6,839

US ONCOLOGY, INC.

Exhibit 4

Condensed Consolidated Balance Sheet

(in thousands)

(unaudited)


	June 30, 2004		December 31, 2003
ASSETS

Current assets:
Cash and equivalents	$	221,118	$	124,514
Accounts receivable		316,582		304,507
Other receivables		61,100		47,738
Prepaids and other current assets		17,507		18,451
Inventories		28,768		7,481
Due from affiliates		40,650		43,629

Total current assets		685,725		546,320

Property and equipment, net		362,391		356,125
Service agreements, net		232,541		239,108
Deferred income taxes		6,715		10,915
Other assets		21,820		22,551

Total assets	$	1,309,192	$	1,175,019

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Current maturities of long-term indebtedness	$	74,251	$	79,748
Accounts payable		201,146		160,628
Due to affiliates		88,299		64,052
Accrued compensation costs		20,965		26,316
Income taxes payable		39,911		19,810
Other accrued liabilities		42,027		41,847

Total current liabilities		466,599		392,401

Deferred revenue		7,290		5,349
Long-term indebtedness		183,908		188,412

Total liabilities		657,797		586,162

Minority interest		10,529		10,497
Stockholders’ equity		640,866		578,360

Total liabilities and stockholders’ equity	$	1,309,192	$	1,175,019

US ONCOLOGY, INC.

Exhibit 5

Reconciliation of Selected Financial Data

(in thousands, except per share data)

(unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
Net Income / EPS

Income before income taxes	$	39,912		$	28,473		$	72,628		$	54,683

Tax rate		38.5	%		38.0	%		38.5	%		38.0	%

Net income	$	24,546		$	17,653		$	44,666		$	33,903

Weighted average shares outstanding – diluted		90,674			93,017			89,975			93,825

EPS	$	0.27		$	0.19		$	0.50		$	0.36

EBITDA

Net income	$	24,546		$	17,653		$	44,666		$	33,903
Interest expense, net, and other		3,919			4,952			8,301			10,084
Income tax provision		15,366			10,820			27,962			20,780
Depreciation		16,289			14,744			31,147			29,154
Amortization		4,047			4,222			8,143			8,625

EBITDA	$	64,167		$	52,391		$	120,219		$	102,546

Net Cash provided by Operating Activities

Net income	$	24,546		$	17,653		$	44,666		$	33,903
Interest expense, net, and other		3,919			4,952			8,301			10,084
Income taxes		15,366			10,820			27,962			20,780
Depreciation		16,289			14,744			31,147			29,154
Amortization		4,047			4,222			8,143			8,625

EBITDA		64,167			52,391			120,219			102,546
Changes in assets and liabilities		39,333			71,498			41,870			33,468
Undistributed earnings (losses) in joint ventures		138			(949	)		32			(900	)
Non-cash stock compensation expense		23			27			48			100
Deferred income taxes		2,200			10,500			4,200			12,222
Interest expense, net, and other		(3,919	)		(4,952	)		(8,301	)		(10,084	)
Income tax expense		(15,366	)		(10,820	)		(27,962	)		(20,780	)

Net cash provided by operating activities	$	86,576		$	117,695		$	130,106		$	116,572

Discussion of Non-GAAP Information

In this release, we use the term “EBITDA”. EBITDA is earnings before interest, taxes, depreciation and amortization. We believe EBITDA is useful to investors in evaluating companies, and their liquidity and ability to service their indebtedness. Management uses EBITDA to evaluate the Company’s liquidity and financial condition, both with respect to the business as a whole and individual sites.

EBITDA is not calculated in accordance with generally accepted accounting principles of the United States (“GAAP”). EBITDA is derived from relevant items in our GAAP financials. A reconciliation EBITDA to our income statement is included in this release.

Management believes that EBITDA is useful to investors, since it provides investors with additional information that is not directly available in a GAAP presentation. In all events, EBITDA is not intended to be a substitute for GAAP measures, and investors are advised to review such non-GAAP measures in conjunction with GAAP information provided by us.