UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended September 30, 2013.

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from                          to                         .

Commission file number: 333-170812

RADIATION THERAPY SERVICES HOLDINGS, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	26-1747745
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
2270 Colonial Boulevard, Fort Myers, Florida	33907
(Address of Principal Executive Offices)	(Zip Code)

(239) 931-7275

(Registrant’s Telephone Number, Including Area Code)

N/A

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. xYes o No

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Non-accelerated filer x Accelerated filer o Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No

As of November 1, 2013, we had outstanding 1,028 shares of Common Stock, par value $0.01 per share, which are 100% owned by Radiation Therapy Investments, LLC.

RADIATION THERAPY SERVICES HOLDINGS, INC.

Form 10-Q

INDEX

PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets — September 30, 2013 (unaudited) and December 31, 2012	3
	Condensed Consolidated Statements of Operations and Comprehensive Loss — Three and Nine Months Ended September 30, 2013 and 2012 (unaudited)	4
	Condensed Consolidated Statements of Cash Flows — Nine Months Ended September 30, 2013 and 2012 (unaudited)	5
	Notes to Interim Condensed Consolidated Financial Statements (unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	63
Item 4	Controls and Procedures	65
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	66
Item 1A.	Risk Factors	66
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	71
Item 3.	Defaults Upon Senior Securities	71
Item 4.	Mine Safety Disclosures	71
Item 5.	Other Information	71
Item 6.	Exhibits	72

2

PART I
FINANCIAL INFORMATION

Item 1.   Financial Statements

RADIATION THERAPY SERVICES HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

	September 30,			December 31,
	2013			2012
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents ($5,830 and $3,320 related to VIEs)	$	32,469		$	15,410
Restricted cash	5,002			—
Accounts receivable, net ($12,879 and $10,155 related to VIEs)	97,337			86,869
Prepaid expenses ($621 and $473 related to VIEs)	7,898			6,043
Inventories ($686 and $411 related to VIEs)	4,647			3,897
Deferred income taxes ($6 and $0 related to VIEs)	981			540
Other ($56 and $6 related to VIEs)	8,445			7,429
Total current assets	156,779			120,188
Equity investments in joint ventures	684			575
Property and equipment, net ($17,944 and $20,271 related to VIEs)	217,575			221,050
Real estate subject to finance obligation	20,704			16,204
Goodwill ($23,933 and $18,929 related to VIEs)	503,908			485,859
Intangible assets, net ($3,350 and $1,296 related to VIEs)	30,816			35,044
Other assets ($6,040 and $8,050 related to VIEs)	38,097			43,381
Total assets	$	968,563		$	922,301
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable ($1,274 and $2,381 related to VIEs)	$	38,030		$	27,538
Accrued expenses ($3,135 and $3,622 related to VIEs)	63,974			46,401
Income taxes payable ($119 and $95 related to VIEs)	2,769			2,951
Current portion of long-term debt ($13 and $0 related to VIEs)	12,333			11,065
Current portion of finance obligation	298			287
Other current liabilities ($13 and $0 related to VIEs)	5,014			7,684
Total current liabilities	122,418			95,926
Long-term debt, less current portion ($29 and $0 related to VIEs)	837,810			751,303
Finance obligation, less current portion	22,089			16,905
Other long-term liabilities ($2,271 and $2,233 related to VIEs)	25,007			22,130
Deferred income taxes	5,055			6,202
Total liabilities	1,012,379			892,466
Noncontrolling interests - redeemable	15,933			11,368
Commitments and contingencies
Equity:
Common stock, $0.01 par value, 1,028 shares authorized, issued and outstanding	—			—
Additional paid-in capital	650,680			651,907
Retained deficit	(703,312		)	(638,023		)
Accumulated other comprehensive loss, net of tax	(20,432		)	(11,464		)
Total Radiation Therapy Services Holdings, Inc. shareholder’s (deficit) equity	(73,064		)	2,420
Noncontrolling interests - nonredeemable	13,315			16,047
Total (deficit) equity	(59,749		)	18,467
Total liabilities and equity	$	968,563		$	922,301

See accompanying notes.

3

RADIATION THERAPY SERVICES HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands)

(unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2013			2012			2013			2012
Revenues:
Net patient service revenue	$	178,655		$	165,385		$	526,475		$	519,432
Other revenue	2,385			2,131			6,651			5,783
Total revenues	181,040			167,516			533,126			525,215
Expenses:
Salaries and benefits	98,032			87,190			293,972			276,199
Medical supplies	15,917			15,686			46,166			47,785
Facility rent expenses	11,427			10,119			32,285			29,634
Other operating expenses	11,882			10,001			33,155			28,663
General and administrative expenses	24,936			19,076			68,832			60,059
Depreciation and amortization	16,059			16,697			46,550			48,140
Provision for doubtful accounts	3,767			5,425			8,857			15,286
Interest expense, net	21,952			20,027			62,369			57,182
Gain on the sale of an interest in a joint venture	—			—			(1,460		)	—
Early extinguishment of debt	—			—			—			4,473
Fair value adjustment of earn-out liability	—			1,261			—			1,261
Impairment loss	—			69,946			—			69,946
Loss on foreign currency transactions	364			140			1,166			234
Loss on foreign currency derivative contracts	67			786			309			1,006
Total expenses	204,403			256,354			592,201			639,868
Loss before income taxes	(23,363		)	(88,838		)	(59,075		)	(114,653		)
Income tax expense	1,699			1,705			4,849			3,254
Net loss	(25,062		)	(90,543		)	(63,924		)	(117,907		)
Net income attributable to noncontrolling interests — redeemable and non-redeemable	(347		)	(842		)	(1,365		)	(3,231		)
Net loss attributable to Radiation Therapy Services Holdings, Inc. shareholder	(25,409		)	(91,385		)	(65,289		)	(121,138		)
Other comprehensive loss:
Unrealized loss on derivative interest rate swap agreements	—			—			—			(333		)
Unrealized loss on foreign currency translation	(4,228		)	(2,109		)	(9,817		)	(5,129		)
Other comprehensive loss	(4,228		)	(2,109		)	(9,817		)	(5,462		)
Comprehensive loss	(29,290		)	(92,652		)	(73,741		)	(123,369		)
Comprehensive income attributable to noncontrolling interests-redeemable and non-redeemable:	(25		)	(717		)	(516		)	(2,797		)
Comprehensive loss attributable to Radiation Therapy Services Holdings, Inc. shareholder	$	(29,315	)	$	(93,369	)	$	(74,257	)	$	(126,166	)

See accompanying notes.

4

RADIATION THERAPY SERVICES HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands - unaudited)

	Nine Months Ended September 30,
	2013			2012
Cash flows from operating activities
Net loss	$	(63,924	)	$	(117,907	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation	40,062			39,310
Amortization	6,488			8,830
Deferred rent expense	636			895
Deferred income taxes	(1,989		)	(1,095		)
Stock-based compensation	481			3,221
Provision for doubtful accounts	8,857			15,286
Loss on the sale / disposal of property and equipment	212			8
Gain on the sale of an interest in a joint venture	(1,460		)	—
Amortization of termination of interest rate swap	—			958
Write-off of loan costs	—			525
Early extinguishment of debt	—			4,473
Termination of derivative interest rate swap agreements	—			(972		)
Impairment loss	—			69,946
Loss on foreign currency transactions	137			17
Loss on foreign currency derivative contracts	309			1,006
Amortization of debt discount	703			608
Amortization of loan costs	4,128			4,065
Equity interest in net loss of joint ventures	425			681
Distribution received from unconsolidated joint ventures	—			9
Changes in operating assets and liabilities:
Accounts receivable and other current assets	(25,578		)	(18,852		)
Income taxes payable	343			(2,541		)
Inventories	(591		)	(156		)
Prepaid expenses	194			632
Accounts payable and other current liabilities	12,591			(4,069		)
Accrued deferred compensation	1,019			1,009
Accrued expenses / other current liabilities	19,519			17,229
Net cash provided by operating activities	2,562			23,116
Cash flows from investing activities
Purchases of property and equipment	(25,109		)	(24,179		)
Acquisition of medical practices	(24,250		)	(24,057		)
Purchase of noncontrolling interest - non-redeemable	(1,509		)	—
Restricted cash associated with initial deposit in the potential acquisition of medical practices	(5,002		)	—
Proceeds from the sale of property and equipment	64			2,988
Loans to employees	(559		)	(81		)
Contribution of capital to joint venture entities	(542		)	(497		)
Proceeds from the sale of equity interest in a joint venture	1,460			—
Payment of foreign currency derivative contracts	(171		)	(543		)
Premiums on life insurance policies	(901		)	(963		)
Change in other assets and other liabilities	(53		)	115
Net cash used in investing activities	(56,572		)	(47,217		)
Cash flows from financing activities
Proceeds from issuance of debt (net of original issue discount of $2.3 million and $1.7 million, respectively)	207,650			435,663
Principal repayments of debt	(133,917		)	(376,087		)
Repayments of finance obligation	(142		)	(81		)
Proceeds from noncontrolling interest holders — redeemable and non-redeemable	765			—
Cash distributions to noncontrolling interest holders — redeemable and non-redeemable	(1,896		)	(3,196		)
Payments of loan costs	(1,359		)	(14,437		)
Net cash provided by financing activities	71,101			41,862
Effect of exchange rate changes on cash and cash equivalents	(32		)	(4		)
Net increase in cash and cash equivalents	17,059			17,757
Cash and cash equivalents, beginning of period	15,410			10,177
Cash and cash equivalents, end of period	$	32,469		$	27,934

continued

5

RADIATION THERAPY SERVICES HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(in thousands)

(unaudited)

	Nine Months Ended September 30,
	2013		2012
Supplemental disclosure of non-cash transactions
Finance obligation related to real estate projects	$	5,337	$	2,068
Capital lease obligations related to the purchase of equipment	$	79	$	5,618
Noncash dividend declared to noncontrolling interest	$	140	$	231
Noncash deconsolidation of noncontrolling interest	$	9	$	—
Property and equipment related to the North Broward Hospital District license agreement	$	—	$	4,260
Capital lease obligations related to the acquisition of medical practices	$	8,748	$	5,746
Seller financing promissory note related to the acquisition of medical practices	$	2,097	$	—
Seller liability payable related to the acquisition of a medical practice	$	400	$	—
Noncash contribution of capital by noncontrolling interest holders	$	4,235	$	—
Termination of prepaid services by noncontrolling interest holder	$	2,551	$	—
Issuance of notes payable relating to the earn-out liability in the acquisition of Medical Developers	$	2,679	$	—
Issuance of equity LLC units relating to the earn-out liability in the acquisition of Medical Developers	$	705	$	—

See accompanying notes.

6

RADIATION THERAPY SERVICES HOLDINGS, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

1.Organization

Radiation Therapy Services Holdings, Inc. (“Parent”), through its wholly-owned subsidiaries (the “Subsidiaries” and, collectively with the Subsidiaries, the “Company”) develops and operates radiation therapy centers that provide radiation treatment to cancer patients in Alabama, Arizona, California, Florida, Kentucky, Maryland, Massachusetts, Michigan, Nevada, New Jersey, New York, North Carolina, Rhode Island, South Carolina and West Virginia.  The Company also develops and operates radiation therapy centers in Latin America, Central America and the Caribbean. The international centers are located in Argentina, Mexico, Costa Rica, Dominican Republic, Guatemala, and El Salvador. The Company also has affiliations with physicians specializing in other areas including urology and medical, gynecological, and surgical oncology in a number of markets to strengthen the Company’s clinical working relationships and to evolve from a freestanding radiation oncology centric model to an Integrated Cancer Care (“ICC”) model.

2.    Basis of presentation

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for annual financial statements.  All adjustments necessary for a fair presentation have been included. All such adjustments are considered to be of a normal and recurring nature. Interim results for the nine months ended September 30, 2013 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2013.

These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated audited financial statements and the notes thereto included in the Company’s Form 10-K for the year ended December 31, 2012.

The Company’s results of operations historically have fluctuated on a quarterly basis and can be expected to continue to fluctuate. Many of the patients of the Company’s Florida treatment centers are part-time residents 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.

The accompanying interim condensed consolidated financial statements include the accounts of the Company and all subsidiaries and entities controlled by the Company through the Company’s direct or indirect ownership of a majority interest and/or exclusive rights granted to the Company as the management company of such entities or by contract. All significant intercompany accounts and transactions have been eliminated.

The Company has evaluated certain radiation oncology practices in order to determine if they are variable interest entities (“VIEs”). This evaluation resulted in the Company determining that certain of its radiation oncology practices were potential VIEs. For each of these practices, the Company has evaluated (1) the sufficiency of the fair value of the entity’s 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 entity’s significant activities, (b) the obligation to absorb the expected losses of the entity and that 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 entity’s 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. The Accounting Standards Codification (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 the Company’s radiation oncology practices are VIEs and the Company has a variable interest in each of these practices through its administrative services agreements. Other of the Company’s radiation oncology practices (primarily consisting of partnerships) are VIEs and the Company has a variable interest in each of these practices because the total equity investment at risk is not sufficient to permit the legal entity to finance its activities without the additional subordinated financial support provided by its members.

In accordance with ASC 810, the Company consolidates certain radiation oncology practices where the Company provides administrative services pursuant to long-term management agreements. The noncontrolling interests in these entities represent the interests of the physician owners of the oncology practices in the equity and results of operations of these consolidated entities. The Company, through its variable interests in these practices, has the power to direct the activities of these practices that most significantly impact the entity’s economic performance and the Company would absorb a majority of the expected losses of these practices should they occur. Based on these determinations, the Company has consolidated these radiation oncology practices in its consolidated financial statements for all periods presented.

7

The Company could be obligated, under the terms of the operating agreements governing certain of its joint ventures, upon the occurrence of various fundamental regulatory changes and or upon the occurrence of certain events outside of the Company’s control to purchase some or all of the noncontrolling interests related to the Company’s consolidated subsidiaries. These repurchase requirements would be triggered by, among other things, regulatory changes prohibiting the existing ownership structure. While the Company is not aware of events that would make the occurrence of such a change probable, regulatory changes are outside the control of the Company. Accordingly, the noncontrolling interests subject to these repurchase provisions have been classified outside of equity on the Company’s condensed consolidated balance sheets.

As of September 30, 2013 and December 31, 2012, the combined total assets included in the Company’s condensed consolidated balance sheet relating to the VIEs were approximately $71.3 million and $62.9 million, respectively.

As of September 30, 2013, the Company was the primary beneficiary of, and therefore consolidated, 23 VIEs, which operate 43 centers. Any significant amounts of assets and liabilities related to the consolidated VIEs are identified parenthetically on the accompanying condensed consolidated balance sheets. The assets are owned by, and the liabilities are obligations of the VIEs, not the Company. Only the VIE’s assets can be used to settle the liabilities of the VIE. The assets are used pursuant to operating agreements established by each VIE. The VIEs are not guarantors of the Company’s debts. In the states of California, Massachusetts, Michigan, Nevada, New York and North Carolina, the Company’s treatment centers are operated as physician office practices. The Company typically provides technical services to these treatment centers in addition to administrative services. For the nine months ended September 30, 2013 and 2012 approximately 18.6% and 19.3% of the Company’s net patient service revenue, respectively, was generated by professional corporations for which it has administrative management agreements.

As of September 30, 2013, the Company also held equity interests in four VIEs for which the Company is not the primary beneficiary. Those VIEs consist of partnerships that primarily provide radiation oncology services.  The Company is not the primary beneficiary of these VIEs as it does not retain the power and rights in the operations of the entities. The Company’s investments in the unconsolidated VIEs are approximately $0.7 million and $0.6 million at September 30, 2013 and December 31, 2012, respectively, with ownership interests ranging between 28.5% and 45.0% general partner or equivalent interest. Accordingly, substantially all of these equity investment balances are attributed to the Company’s noncontrolling interests in the unconsolidated partnerships. The Company’s maximum risk of loss related to the investments in these VIEs is limited to the equity interest.

The cost of revenues for the three months ended September 30, 2013 and 2012 are approximately $130.3 million and $118.8 million, respectively. The cost of revenues for the nine months ended September 30, 2013 and 2012 are approximately $381.7 million and $361.2 million, respectively.  The cost of revenues includes costs related to expenses incurred for the delivery of patient care.  These costs include salaries and benefits of physician, physicists, dosimetrists radiation technicians etc., medical supplies, facility rent expenses, other operating expenses, depreciation and amortization.

New Pronouncements

In July 2013, the FASB issued ASU 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 is effective for the Company on January 1, 2014. The Company is currently assessing the impact of this guidance on its consolidated financial statements.

3.    Stock-based compensation

2008 Equity-based incentive plans

Radiation Therapy Investments, LLC (“RT Investments”) adopted an equity-based incentive plan in February 2008 (“2008 Plan”), and authorized for issuance under the plan approximately 1,494,111 units of limited liability company interests consisting of 526,262 Class B Units and 967,849 Class C Units. The units are limited liability company interests and were available for issuance to the Company’s employees.  Effective as of June 11, 2012, RT Investments entered into the Third Amended and Restated Limited Liability Company Agreement (the “Amended LLC Agreement”).  The Amended LLC Agreement established new classes of equity units in RT Investments in the form of Class Management Equity Plan (“MEP”) Units, Class Executive Management Equity Plan (“EMEP”) Units, Class L Units and Class G Units for issuance to employees, officers, directors and other service providers, establishes new distribution entitlements related thereto, and modifies the distribution entitlements for holders of preferred units and Class A Units of RT Investments.  The Amended LLC Agreement also provides that any forfeited or repurchased Class EMEP Units may be reallocated by Dr.Daniel Dosoretz, in his sole discretion, for so long as he is Chief Executive Officer of the Company.  The Amended LLC Agreement provided for the cancellation of RT Investments’ existing Class B and Class C incentive equity units.

8

2012 Equity-based incentive plans

Effective as of June 11, 2012, RT Investments entered into the Amended LLC Agreement.  The Amended LLC Agreement established new classes of equity units (such new units, the “2012 Plan”) in RT Investments in the form of Class MEP Units, Class EMEP Units, Class L Units and Class G Units for issuance to employees, officers, directors and other service providers, establishes new distribution entitlements related thereto, and modifies the distribution entitlements for holders of Preferred units and Class A Units of RT Investments.  In addition to the Preferred Units and Class A Units of RT Investments, the Amended LLC Agreement authorized for issuance under the 2012 Plan 1,100,200 units of limited liability company interests consisting of 1,000,000 Class MEP Units, 100,000 Class EMEP Units, 100 Class L Units, and 100 Class G Units. As of September 30, 2013, there were 125,543 Class MEP Units, 24,072 Class EMEP Units and 100 Class G Units available for future issuance under the 2012 Plan.

Generally, for Class MEP units awarded, 66.6% vest upon issuance, while the remaining 33.4% vest on the 18 month anniversary of the issuance date. There are no performance conditions for the MEP units to vest. For newly hired individuals after January 1, 2012, vesting occurs at 33.3% in years one and two, and 33.4% in year three of the individual’s hire date. In the event of a sale or public offering of the Company prior to termination of employment, all unvested Class MEP units would vest upon consummation of the transaction. The MEP units are eligible to receive distributions only upon a return of all capital invested in RT Investments, plus the amounts to which the Class EMEP Units, are entitled to receive under the Amended LLC Agreements; which effectively creates a market condition that is reflected in the value of the Class MEP units.

Vesting of the Class EMEP units is dependent upon achievement of an implied equity value target. The right to receive proceeds from vested units is dependent upon the occurrence of a qualified sale or liquidation event. Specifically, the percentage of EMEP units that vest is based on the implied value of the Company’s equity, to be measured quarterly beginning December 31, 2012. 25% of the awards will be eligible for vesting if the “implied equity value” exceeds a predetermined threshold, with 50% incremental vesting eligibility if the implied value exceeds several higher thresholds for at least two consecutive quarters. The implied equity value per the Amended LLC Agreement is a multiple of EBITDA (earnings before interest, taxes, depreciation and amortization) as defined in the Amended LLC Agreement. As with the MEP units, the values of the EMEP units are subject to a market condition in the form of the return on investment target for Vestar’s interest.

Grant of Class L Units

Dr. Dosoretz, CEO of the Company received Class L Unit awards in addition to Class MEP and Class EMEP Units. The Class L Units rank lower than the Class MEP and EMEP Units in the waterfall distribution, and will not receive distributions until and unless the performance conditions that result in vesting of the EMEP units occurs. The terms of the Class L unit award to Dr. Dosoretz do not have any service or performance conditions. The Class L units vest upon issuance, and the fair value of the units awarded was recognized upon issuance.  The Company recorded approximately $1.0 million of stock-based compensation for the issuance of the Class L Units to the CEO in June 2012.

For purposes of determining the compensation expense associated with the 2012 equity-based incentive plan grants, management valued 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 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 (“IPO”) of the Company’s stock to be one of the exit scenarios for the current shareholders, although sale or merger/acquisition are possible future exit options as well. For the scenarios the enterprise value at exit was estimated based on a multiple of the Company’s earnings before interest, taxes, depreciation and amortization (“EBITDA”) for the fiscal year preceding the exit date. The enterprise value for the Staying Private Scenario 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 for potential exit at the exit date 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

9

historical data published by Morningstar, Inc.  For each PWERM scenario, the per unit values were adjusted for lack of marketability discount to conclude on unit value on a minority, non-marketable basis.

The estimated fair value of the units, less an assumed forfeiture rate of 3.9%, is recognized as an expense in the Company’s consolidated financial statements over the requisite service period and in accordance with the vesting conditions 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 met or probable of being met. There was no stock-based compensation cost recorded in the period ended September 30, 2013 for the Class EMEP Units. The assumed forfeiture rate is based on an average historical forfeiture rate.

The Company recorded approximately $0.1 million and $0.2 million of stock-based compensation for the three months ended September 30, 2013 and 2012, respectively, and $0.5 million and $3.2 million of stock-based compensation for the nine months ended September 30, 2013 and 2012, respectively, which is included in salaries and benefits in the condensed consolidated statements of operations and comprehensive loss.

The summary of activity under the 2012 Plan is presented below:

2012 Plan	Class MEP Units Outstanding		Weighted- Average Grant Date Fair Value		Class EMEP Units Outstanding		Weighted- Average Grant Date Fair Value
Nonvested balance at end of period December 31, 2012	349,356		$	3.32	90,743		$	38.94
Units granted	4,545		0.93		—		—
Units forfeited	(45,546	)	3.32		(14,815	)	38.94
Units vested	(22,460	)	3.00		—		—
Nonvested balance at end of period September 30, 2013	285,895		$	3.31	75,928		$	38.94

As of September 30, 2013, there was approximately $0.3 million, and $2.8 million of total unrecognized compensation expense related to the MEP Units, and EMEP Units, respectively. These costs are expected to be recognized over a weighted-average period of 0.56 years for MEP Units. The Class EMEP Units will be recognized upon an implied equity value threshold during the contractual life of the Class EMEP Units, which is not probable of achievement at September 30, 2013.

Grant of Preferred and Class A Units

In addition to the 2012 equity-based incentive plans, the Company’s CFO and COO also received Preferred and Class A Unit awards in June 2012, entitling them to participate in distributions in accordance with the waterfall distribution of the Amended LLC Agreement. The CFO was granted 296 units and 5,625 units, of Preferred and Class A units, respectively. The COO was granted 500 units and 25,000 units, of Preferred and Class A units, respectively.

For the CFO, 33.3% of the Preferred and Class A awards vest on January 1, 2013, with the remaining 66.7% vesting in equal amounts on January 1, 2014 and January 1, 2015. For the COO, 33.3% of the Preferred and Class A awards vest upon issuance, with the remaining 66.7% vesting in equal amounts on February 7, 2013 and February 7, 2014. As this creates a service condition, the Company recognizes compensation expense in accordance with the vesting conditions of the award over the remaining service period. Any unvested shares would vest automatically upon the occurrence of a sale or liquidation event, provided the executives remain employed by the Company at the time of the event. Vested shares are subject to forfeiture only in the event of termination for cause, or engaging in prohibited activities. On May 10, 2013, the COO resigned from the Company and forfeited his unvested units in the Preferred and Class A Units of 167 units and 8,333 units, respectively.

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4.    Comprehensive loss

Comprehensive loss consists of two components, net loss and other comprehensive loss. Other comprehensive loss refers to revenue, expenses, gains, and losses that under accounting principles generally accepted in the United States are recorded as an element of equity but are excluded from net loss. The Company’s other comprehensive loss is composed of unrealized gains and losses on interest rate swap agreements accounted for as cash flow hedges and the Company’s foreign currency translation of its operations in Latin America, Central America and the Caribbean. The impact of the unrealized loss increased accumulated other comprehensive loss on a consolidated basis by approximately $9.0 million and $4.1 million for the nine months ended September 30, 2013 and 2012, respectively. There were no reclassifications from other comprehensive income into earnings for the periods presented.

The components of accumulated other comprehensive loss were as follows (in thousands):

	Foreign Currency
	Translation Adjustments
	Radiation Therapy Services			Noncontrolling			Other
Quarter to date	Holdings, Inc. Shareholder			Interests			Comprehensive Loss
(in thousands):
As of June 30, 2013	$	(16,526	)	$	(1,854	)	$	(5,589	)
Other Comprehensive loss	(3,906		)	(322		)	(4,228		)
As of September 30, 2013	$	(20,432	)	$	(2,176	)	$	(9,817	)

	Foreign Currency
	Translation Adjustments
	Radiation Therapy Services			Noncontrolling			Other
Year to date	Holdings, Inc. Shareholder			Interests			Comprehensive Loss
(in thousands):
As of December 31, 2012	$	(11,464	)	$	(1,327	)
Other Comprehensive loss	(8,968		)	(849		)	$	(9,817	)
As of September 30, 2013	$	(20,432	)	$	(2,176	)	$	(9,817	)

5.    Reconciliation of total equity

The condensed consolidated financial statements include the accounts of the Company and its majority owned subsidiaries in which it has a controlling financial interest.  Noncontrolling interests-nonredeemable principally represent minority shareholders’ proportionate share of the equity of certain consolidated majority owned entities of the Company. The Company has certain arrangements whereby the noncontrolling interest may be redeemed upon the occurrence of certain events outside of the Company’s control. These noncontrolling interests have been classified outside of permanent equity on the Company’s consolidated balance sheets. The noncontrolling interests are not redeemable at September 30, 2013 and December 31, 2012 and the contingent events upon which the noncontrolling interest may be redeemed are not probable of occurrence at September 30, 2013. Accordingly, the noncontrolling interests are measured at their carrying value at September 30, 2013 and December 31, 2012.

The following table presents changes in total equity for the respective periods (in thousands):

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	Radiation Therapy Services Holdings, Inc. Shareholder’s Equity			Noncontrolling interests - nonredeemable			Total Equity			Noncontrolling interests - redeemable
Balance, December 31, 2012	$	2,420		$	16,047		$	18,467		$	11,368
Net (loss) income	(65,289		)	1,681			(63,608		)	(316		)
Other comprehensive loss from foreign currency translation	(8,968		)	(827		)	(9,795		)	(22		)
Proceeds from noncontrolling interest holders	—			—			—			765
Deconsolidation of noncontrolling interest	(9		)	9			—			—
Noncash contribution of capital by noncontrolling interest holders	—			—			—			4,235
Issuance of equity LLC units relating to earn-out liability	705			—			705			—
Purchase of noncontrolling interest - non-redeemable	(2,404		)	895			(1,509		)	—
Termination of prepaid services by noncontrolling interest holder	—			(2,551		)	(2,551		)	—
Stock-based compensation	481			—			481			—
Distributions	—			(1,939		)	(1,939		)	(97		)
Balance, September 30, 2013	$	(73,064	)	$	13,315		$	(59,749	)	$	15,933
Balance, December 31, 2011	$	159,873		$	17,421		$	177,294		$	12,728
Net (loss) income	(121,138		)	2,413			(118,725		)	818
Other comprehensive loss from unrealized gain on interest rate swap agreements	(333		)	—			(333		)	—
Other comprehensive loss from foreign currency translation	(4,695		)	(295		)	(4,990		)	(139		)
Amortization of other comprehensive income for termination of interest rate swap agreement, net of tax	958			—			958			—
Stock-based compensation	3,221			—			3,221			—
Distributions	—			(2,837		)	(2,837		)	(590		)
Balance, September 30, 2012	$	37,886		$	16,702		$	54,588		$	12,817

Redeemable equity securities with redemption features that are not solely within the Company’s control are classified outside of permanent equity. Those securities are initially recorded at their estimated fair value on the date of issuance. Securities that are currently redeemable or redeemable after the passage of time are adjusted to their redemption value as changes occur. In the unlikely event that a redeemable equity security will require redemption, any subsequent adjustments to the initially recorded amount will be recognized in the period that a redemption becomes probable. Contingent redemption events vary by joint venture and generally include either the holder’s discretion or circumstances jeopardizing: the joint ventures’ ability to provide services, the joint ventures’ participation in Medicare, Medicaid, or other third party reimbursement programs, the tax-exempt status of minority shareholders, and violation of federal statutes, regulations, ordinances, or guidelines. Amounts required to redeem noncontrolling interests are based on either fair value or a multiple of trailing financial performance. These amounts are not limited.

6.    Derivative Agreements

The Company recognizes all derivatives in the condensed consolidated balance sheets at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship based on its effectiveness in hedging against the exposure. Derivatives that do not meet hedge accounting requirements must be adjusted to fair value through operating results. If the derivative meets hedge accounting requirements, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against the change in fair value of assets, liabilities, or firm commitments through operating results or recognized in other comprehensive loss until the hedged item is recognized in operating results. The ineffective portion of a derivative’s change in fair value is immediately recognized in earnings.

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Interest rate swap agreements

The Company periodically enters into interest rate swap agreements to reduce the impact of changes in interest rates on its floating rate senior secured credit facility. The interest rate swap agreements are contracts to exchange floating rate interest payments for fixed interest payments over the life of the agreements without the exchange of the underlying notional amounts. The notional amounts of interest rate swap agreements are used to measure interest to be paid or received and do not represent the amount of exposure to credit loss. The differential paid or received on interest rate swap agreements is recognized in interest expense in the condensed consolidated statements of operations and comprehensive loss. The related accrued payable is included in other long term liabilities.

In December 2011, the Company terminated an interest rate swap agreement that was scheduled to expire on March 30, 2012 and paid approximately $1.9 million representing the fair value of the interest rate hedge at time of termination.  No ineffectiveness was recorded as a result of the termination of the interest rate swap agreement.  The amount of accumulated other comprehensive loss related to the terminated interest rate swap agreement of approximately $84,000, net of tax was amortized through interest expense through the original term of the interest rate swap agreement on March 30, 2012.

In July 2011, the Company entered into two interest rate swap agreements whereby the Company fixed the interest rate on the notional amounts totaling approximately $116.0 million of the Company’s senior secured term credit facility, effective as of March 30, 2012. The rate and maturity of the interest rate swap agreements were 0.923% plus a margin, which was 475 basis points, and was scheduled to expire on December 31, 2013. In May 2012, the Company terminated the interest rate swap agreements and paid approximately $1.0 million representing the fair value of the interest rate hedges at time of termination.  No ineffectiveness was recorded as a result of the termination of the interest rate swap agreement.  The amount of accumulated other comprehensive loss related to the terminated interest rate swap agreements of approximately $1.0 million, net of tax, is reflected as interest expense in the condensed consolidated statements of operations and comprehensive loss.

The swaps were derivatives and were accounted for under ASC 815, “Derivatives and Hedging” (“ASC 815”). The fair value of the swap agreements, representing the estimated amount that the Company would pay to a third party assuming the Company’s obligations under the interest rate swap agreements terminated at the balance sheet date. The estimated fair value of our interest rate swaps was determined using the income approach that considers various inputs and assumptions, including LIBOR swap rates, cash flow activity, yield curves and other relevant economic measures, all of which are observable market inputs that are classified under Level 2 of the fair value hierarchy. The fair value also incorporates valuation adjustments for credit risk.

Since the Company has the ability to elect different interest rates on the debt at each reset date, and the senior secured credit facility contains certain prepayment provisions, the hedging relationships do not qualify for use of the shortcut method under ASC 815. Therefore, the effectiveness of the hedge relationship is assessed on a quarterly basis during the life of the hedge through regression analysis. The entire change in fair market value is recorded in equity, net of tax, as other comprehensive loss.

Foreign currency derivative contracts

Foreign currency risk is the risk that fluctuations in foreign exchange rates could impact the Company’s results from operations.  The Company is exposed to a significant amount of foreign exchange risk, primarily between the U.S. dollar and the Argentine Peso.  This exposure relates to the provision of radiation oncology services to patients at the Company’s Latin American operations and purchases of goods and services in foreign currencies.   The Company enters into foreign exchange option contracts to convert a significant portion of the Company’s forecasted foreign currency denominated net income into U.S. dollars to limit the adverse impact of a potential weakening Argentine Peso against the U.S. dollar. Because the Company’s Argentine forecasted foreign currency denominated net income is expected to increase commensurate with inflationary expectations, any adverse impact on net income from a weakening Argentine Peso against the U.S. dollar is limited to the cost of the option contracts, which was approximately $0.3 million in aggregate at inception of the contracts. Under the Company’s foreign currency management program, the Company expects to monitor foreign exchange rates and periodically enter into forward contracts and other derivative instruments. Currently, the Company is targeting to cover approximately 70% of its forecasted Latin American operating income over the next twelve months through the use of forward contracts and other derivatives with the actual percentage determined by management based on the changing exchange rate environment. The Company does not use derivative financial instruments for speculative purposes.

These programs reduce, but do not entirely eliminate, the impact of currency exchange movements.  The Company’s current practice is to use currency derivatives without hedge accounting designation. The maturity of these instruments generally occurs within twelve months. Gains or losses resulting from the fair valuing of these instruments are reported in (gain) loss on foreign currency derivative contracts on the condensed consolidated statements of operations and comprehensive loss.  For the nine months ended September 30, 2013 and 2012, the Company incurred a loss of

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approximately $0.3 million and $1.0 million, respectively relating to the change in fair market value of its foreign currency derivatives.  The fair value of the foreign currency derivative is recorded in other current assets in the accompanying condensed consolidated balance sheet.  At September 30, 2013 and December 31, 2012, the fair value of the foreign currency derivative was approximately $0.2 million and $0.3 million, respectively.

The following represents the current foreign currency derivative agreements as of September 30, 2013 (in thousands):

Foreign Currency Derivative Agreements (in thousands):	Notional Amount		Maturity Date	Premium Amount		Fair Value
Foreign currency derivative Argentine Peso to U.S. dollar	$	1,250	December 31, 2013	$	127	$	83
Foreign currency derivative Argentine Peso to U.S. dollar	1,250		March 31, 2014	171		98
	$	2,500		$	298	$	181

7.    Fair value of financial instruments

ASC 820 requires disclosure about how fair value is determined for assets and liabilities and establishes a hierarchy for which these assets and liabilities must be grouped, based on significant levels of inputs. The three-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies, is as follows:

Level 1 — Quoted prices for identical assets and liabilities in active markets.

Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3 — Unobservable inputs for the asset or liability.

In accordance with ASC 820, the fair value of the Term Loan portion of the senior secured credit facility (“Term Facility”), the 87/8% Senior Secured Second Lien Notes due 2017, and the 97/8% Senior Subordinated Notes due 2017 was based on prices quoted from third-party financial institutions (Level 2). At September 30, 2013, the fair values are as follows (in thousands):

	Fair Value		Carrying Value
$90.0 million senior secured credit facility - (Term Facility)	$	87,975	$	87,810
$350.0 million Senior Secured Second Lien Notes due January 15, 2017	$	347,375	$	348,839
$380.1 million Senior Subordinated Notes due April 15, 2017	$	274,587	$	377,478

At December 31, 2012, the fair values are as follows (in thousands):

	Fair Value		Carrying Value
$350.0 million Senior Secured Second Lien Notes due January 15, 2017	$	344,750	$	348,577
$376.3 million Senior Subordinated Notes due April 15, 2017	$	265,256	$	374,461

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As of September 30, 2013 and December 31, 2012, the Company held certain items that are required to be measured at fair value on a recurring basis including interest rate swap agreements and foreign currency derivative contracts. Cash and cash equivalents are reflected in the financial statements at their carrying value, which approximate their fair value due to their short maturity.  The carrying values of the Company’s long-term debt other than Senior Subordinated Notes and Senior Secured Second Lien Notes approximates fair value due to the length of time to maturity and/or the existence of interest rates that approximate prevailing market rates.  There have been no transfers between levels of valuation hierarchies for the nine months ended September 30, 2013 and 2012.

The following items are measured at fair value on a recurring basis subject to the disclosure requirements of ASC 820, as of September 30, 2013 and December 31, 2012:

			Fair Value Measurements at Reporting Date Using
(in thousands):	September 30, 2013		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Other current assets
Foreign currency derivative contracts	$	181	$	—	$	181	$	—

			Fair Value Measurements at Reporting Date Using
(in thousands):	December 31, 2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Other current assets
Foreign currency derivative contracts	$	319	$	—	$	319	$	—

The estimated fair value of the Company’s interest rate swaps were determined using the income approach that considers various inputs and assumptions, including LIBOR swap rates, cash flow activity, yield curves and other relevant economic measures, all of which are observable market inputs that are classified under Level 2 of the fair value hierarchy. The fair value also incorporates valuation adjustments for credit risk.

The estimated fair value of the Company’s foreign currency derivative agreements considered various inputs and assumptions, including the applicable spot rate, forward rates, maturity, implied volatility and other relevant economic measures, all of which are observable market inputs that are classified under Level 2 of the fair value hierarchy.  The valuation technique used is an income approach with the best market estimate of what will be realized on a discounted cash flow basis.

8.  Impairment of goodwill and long-lived assets

On July 8, 2013, the Centers for Medicare and Medicaid Services (“CMS”), the government agency responsible for administering the Medicare program released its 2014 preliminary physician fee schedule.  The preliminary physician fee schedule proposes a 5% rate reduction on Medicare payments to freestanding radiation oncology providers. CMS provides a 60 day comment period and the final rule is expected in late November.  If the final rule maintains the current proposed rate reductions, the Company may record an impairment charge for goodwill and indefinite-lived intangibles assets. The Company expects the final ruling to be released in late November, 2013. As a result the Company’s operating results could be materially impacted if the proposed rate decrease is implemented.

2012

On November 1, 2012, CMS released its final rule on the 2013 physician fee schedule which provided for a 7% rate reduction on Medicare payments to freestanding radiation oncology providers effective January 1, 2013. The Company completed an interim impairment test for goodwill and indefinite-lived intangible assets based on the Company’s estimate of the proposed CMS cuts at September 30, 2012. In performing this test, the Company assessed the implied fair value of its goodwill. It was determined that the implied fair value of goodwill was less than the carrying amount, and as a result the Company recorded an impairment charge for the quarter ended September 30, 2012. The

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implied fair value of goodwill was determined in the same manner as the amount of goodwill that would be recognized in a hypothetical business combination. The estimated fair value of the reporting unit was 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 Company’s reporting units, the Company’s management determined that the carrying value of goodwill in certain U.S. Domestic markets, including Mid East United States (Northwest Florida, North Carolina, Southeast Alabama, South Carolina), Central Southeast United States (Delmarva Peninsula, Central Maryland, Central Kentucky, South New Jersey), California, South West United States (central Arizona and Las Vegas, Nevada), and Southwest Florida regions exceeded their fair value.  Accordingly, the Company recorded noncash impairment charges in the U.S. Domestic reporting segment totaling $69.8 million in the consolidated statement of operations and comprehensive loss during the quarter ended September 30, 2012. In addition, during the third quarter of 2012, an impairment loss of approximately $0.1 million, reported in impairment loss on the condensed consolidated statements of operations and comprehensive loss, was recognized related to the impairment of certain leasehold improvements of a planned radiation treatment facility office closing in Monroe, Michigan in the Northeast U.S. region.

Impairment charges relating to goodwill during the third quarter of 2012 are summarized as follows:

(in thousands):	Mid East U.S.		Central South East U.S.		California		South West U.S.		Southwest Florida		Total
Goodwill	$	1,493	$	34,355	$	3,782	$	9,838	$	20,299	$	69,767

During the fourth quarter of 2012, the Company completed its annual impairment test for goodwill and indefinite-lived intangible assets.  In performing this test, the Company assessed the implied fair value of our goodwill and intangible assets. As a result, the Company recorded an impairment loss of approximately $11.1 million during the fourth quarter of 2012 primarily relating to goodwill impairment in certain of our reporting units, including Central South East United States (Delmarva Peninsula, Central Maryland, Central Kentucky, and South New Jersey), and Southwest Florida of approximately $10.8 million. In addition, during the fourth quarter of 2012, an impairment loss of approximately $0.1 million was recognized 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.

Impairment charges relating to goodwill during the fourth quarter of 2012 are summarized as follows:

(in thousands):	Central South East U.S.		Southwest Florida		Total
Goodwill	$	4,717	$	6,107	$	10,824

The estimated fair value measurements for all periods presented were developed using significant unobservable inputs (Level 3).  For goodwill, the primary valuation technique used was an income methodology based on management’s 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, management used 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.  For trade name intangible assets, management used the income-based relief-from-royalty valuation method in which fair value is the discounted value of forecasted royalty revenues arising from a trade name using a royalty rate that an independent party would pay for use of that trade name.  Assumptions used by management were similar to those that management believes would be used by market participants performing valuations of these regional divisions.   Management’s assumptions were based on analysis of current and expected future economic conditions and the strategic plan for each reporting unit.

9.  Income tax accounting

The Company provides for federal, state and non-US income taxes currently payable, as well as for those deferred due to timing differences between reporting income and expenses for financial statement purposes versus tax purposes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in income tax rates is recognized as income or expense in the period that includes the enactment date.

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ASC 740, Income Taxes (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.

The Company is subject to taxation in the United States, approximately 22 state jurisdictions, the Netherlands, and throughout Latin America, namely, Argentina, Bolivia, Costa Rica, Dominican Republic, El Salvador, Guatemala and Mexico. However, the principal jurisdictions for which the Company is subject to tax are the United States, Florida and Argentina.

The Company’s effective rate was (8.2)% and (2.8)%  for the nine months ended September 30, 2013 and 2012, respectively. The change in the effective rate for the third quarter of 2013 compared to the same period of the year prior is primarily the result of the relative mix of earnings and tax rates across jurisdictions, the application of ASC 740-270 to exclude certain jurisdictions for which the Company is unable to benefit from losses and the income tax benefit associated with the termination of the interest rate swap in the first quarter of 2012. The Company’s relative mix of earnings for the third quarter of 2012 was impacted by the recording of a noncash impairment charge in the U.S. Domestic reporting segment of $69.8 million. These items also caused the effective tax rate to differ from the U.S. statutory rate of 35%.  The Company’s tax expense in the third quarter of fiscal 2013 is primarily due to the non-US tax expense associated with foreign subsidiaries.

The Company’s 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.  The Company monitors 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 the Company’s annual effective tax rates, future income tax expense (benefit) could be materially affected.

The Company has not provided U.S. federal and state deferred taxes on the cumulative earnings of non-US affiliates and associated companies that have been reinvested indefinitely. The aggregate undistributed earnings of the Company’s foreign subsidiaries for which no deferred tax liability has been recorded in approximately $8.7 million. It is not practicable to determine the U.S. income tax liability that would be payable if such earnings were not reinvested indefinitely.

The Company is routinely under audit by federal, state, or local authorities in the areas of income taxes and other taxes. These audits may include questioning the timing and amount of deductions and compliance with federal, state, and local tax laws. The Company regularly assesses the likelihood of adverse outcomes from these audits to determine the adequacy of the Company’s provision for income taxes.  To the extent the Company prevails 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.  In accordance with the statute of limitations for federal tax returns, the Company’s federal tax returns for the years 2006 through 2012 are subject to examination. The Company closed a Federal income tax audit for the tax year 2009 during the third quarter of 2013. The Company closed the New York State audit for tax years 2006 through 2008 during the first quarter of 2013.

10.  Acquisitions and other arrangements

On August 29, 2011, the Company acquired the assets of a radiation treatment center and other physician practices located in Redding, California, for approximately $9.6 million. The acquisition of the Redding facility further expands the Company’s presence into the Northern California market.  The allocation of the purchase price is to tangible assets of $3.3 million, intangible assets including $0.3 million trade name and non-compete agreements of $0.3 million, amortized over 5 years, and goodwill of $5.7 million, which is deductible for tax purposes.

On November 4, 2011, the Company purchased an 80% interest in an operating entity, which operates 1 radiation treatment center in Argentina; an 80% interest in another operating entity, which operates 3 radiation treatment centers in Argentina; and a 96% interest in an operating entity, which operates 1 radiation treatment center in Argentina. The combined purchase price of the ownership interests totals approximately $7.4 million, comprised of $2.1 million in cash, seller financing totaling approximately $4.0 million payable over 24 monthly installments, commencing January 2012, and a purchase option totaling approximately $1.3 million. The acquisition of these operating treatment centers expands the Company’s presence in its international markets. The allocation of the purchase price is to tangible assets of $3.7 million (including cash of $0.6 million), intangible assets including $0.2 million trade name and non-compete agreements of $0.2 million, amortized over 5 years, goodwill of $8.1 million, which is deductible for U.S. tax purposes but non-deductible for foreign tax purposes, liabilities of $3.4 million, and noncontrolling interests redeemable of $1.4 million. In November 

17

2012, the Company exercised its purchase option to purchase the remaining interest for approximately $1.4 million and recorded the adjustment of $0.2 million to the purchase option as an expense in the fair value adjustment of the noncontrolling interests-redeemable in the condensed consolidated statements of operations and comprehensive loss.  The Company finalized its purchase price adjustment, with the exercise of its purchase option with a reduction in noncontrolling interest-redeemable and goodwill of $1.4 million.

On December 22, 2011, the Company acquired the interest in an operating entity which operates two radiation treatment centers located in North Carolina, for approximately $6.3 million. On April 16, 2012 the Company acquired certain additional assets utilized in one of the radiation oncology centers for approximately $0.4 million. The acquisition of the two radiation treatment centers further expands the Company’s presence into the eastern North Carolina market.  The allocation of the purchase price is to tangible assets of $1.2 million, goodwill of $6.4 million, which is deductible for tax purposes, other current liabilities of approximately $0.1 million and an earn-out provision of approximately $0.8 million contingent upon maintaining a certain level of patient volume.

During 2011, the Company acquired the assets of several physician practices in Florida and the non-professional practice assets of several North Carolina physician practices for approximately $0.4 million. The physician practices provide synergistic clinical services and an integrated cancer care service to its patients in the respective markets in which the Company provides radiation therapy treatment services.  The allocation of the purchase price is to tangible assets of $0.4 million.

On February 6, 2012, the Company 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 the Company’s presence in the Western North Carolina market and builds on the Company’s integrated cancer care model. The allocation of the purchase price is to tangible assets of $0.8 million, and goodwill of $0.1 million, which is all deductible for tax purposes.

In September 2011, the Company entered into a professional services agreement with the North Broward Hospital District in Broward County, Florida to provide professional services at the two radiation oncology departments at Broward General Medical Center and North Broward Medical Center.  In March 2012, the Company amended the license agreement to license the space and equipment and assume responsibility for the operation of those radiation therapy departments, as part of the Company’s value added services offering.  The license agreement runs for an initial term of ten years, with three separate five year renewal options.  The Company recorded approximately $4.3 million of tangible assets relating to the use of medical equipment pursuant to the license agreement.

On March 30, 2012, the Company 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 allocation of the purchase price is to tangible assets of $7.8 million, intangible assets including non-compete agreements of $6.1 million amortized over 5 years, goodwill of $13.7 million, which is all deductible for tax purposes, and assumed capital lease obligations of approximately $5.7 million.

During the three months and nine months ended September 30, 2012, the Company recorded $5.2 million and $10.5 million, respectively of net patient service revenue and reported net income of $0.4 million and $1.0 million in connection with the Sarasota/Manatee acquisition.

The following unaudited pro forma financial information is presented as if the purchase of the Sarasota/Manatee practices had occurred at the beginning of the period presented. The pro forma financial information is not necessarily indicative of what the Company’s results of operations actually would have been had the Company completed the acquisition at the dates indicated. In addition, the unaudited pro forma financial information does not purport to project the future operating results of the combined company:

	Nine months ended
	September 30,
(in thousands):	2012
Pro forma total revenues	$	531,111
Pro forma net loss attributable to Radiation Therapy Services Holdings, Inc. shareholder	(120,625		)

The operations of the foregoing acquisition has been included in the accompanying condensed consolidated statements of comprehensive loss from the date of acquisition.

On December 28, 2012, the Company purchased the remaining 50% interest it did not already own in an unconsolidated joint venture which operates a freestanding radiation treatment center in West Palm Beach, Florida for approximately $1.1 million. The allocation of the purchase price is to tangible assets of $0.3 million, intangible assets including non-compete agreements of $0.2 million amortized over 2 years, goodwill of $0.8 million and current liabilities of approximately $0.2 million.

During 2012, the Company acquired the assets of several physician practices in Arizona, California and Florida for approximately $1.7 million. The physician practices provide synergistic clinical services and an integrated cancer care service to its patients in the respective markets in which the Company provides radiation therapy treatment services.  The allocation of the purchase price to tangible assets is $1.7 million.

On May 25, 2013, the Company 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 the Company’s presence into the Southwest Florida market and builds on its integrated cancer care model. The provisional allocation of the purchase price, subject to working capital adjustments and finalization of intangible asset values, is to tangible assets of $10.4 million, intangible assets including non-compete agreements of $1.9 million amortized over five years, and goodwill of $16.2 million, which is all deductible for tax purposes. Pro forma results and other expanded disclosures prescribed by ASC 805, Business Combinations, have not been presented as this acquisition is not deemed material.

In June 2013, the Company sold its 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.

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In June 2013, the Company contributed its Casa Grande, Arizona radiation physician practice, ICC practice and approximately $5.0 million to purchase a 55.0% interest in a joint venture which included an additional radiation physician practice and an expansion of an integrated cancer care model that includes medical oncology, urology and dermatology. The provisional allocation of the purchase price, subject to working capital adjustments and finalization of intangible asset values, is to tangible assets of $2.0 million, intangible assets including a tradename of approximately $1.8 million, non-compete agreements of $0.4 million amortized over 7 years, goodwill of $5.0 million and noncontrolling interest-redeemable of approximately $4.2 million. For purposes of valuing the noncontrolling interest-redeemable, the Company considered a number of factors such as the joint venture’s performance projections, cost of capital, and consideration ascribed to applicable discounts for lack of control and marketability.

In July 2013, the Company purchased a legal entity, which operates a radiation treatment center in Tijuana Mexico for approximately $1.6 million. The acquisition of this operating treatment center expands the Company’s  presence in the international markets.

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

During 2013, the Company acquired the assets of several physician practices in Arizona, North Carolina, and New Jersey for approximately $0.1 million. The physician practices provide synergistic clinical services and an integrated cancer care service to its patients in the respective markets in which the Company provides radiation therapy treatment services.  The allocation of the purchase price is to tangible assets of $0.1 million.

In June 2013, the Company entered into a “stalking horse” investment agreement to acquire OnCure Holdings, Inc. (together with its subsidiaries, “OnCure”) upon effectiveness of its plan of reorganization under Chapter 11 of the U.S. Bankruptcy Code for approximately $125.0 million, including $42.5 million in cash (plus covering certain expenses and subject to working capital adjustments) and up to $82.5 million in assumed debt ($7.5 million of assumed debt will be released assuming certain OnCure centers achieve a minimum level of EBITDA).  The Company funded an initial deposit of approximately $5.0 million into an escrow account and is reflected as restricted cash on the Company’s balance sheet as of September 30, 2013.

On October 25, 2013, the Company completed the acquisition of OnCure. The transaction was funded through a combination of cash on hand, borrowings from the Company’s 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 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.

The Company believes that the acquisition of OnCure offers the potential for substantial strategic and financial benefits. The transaction will enhance the Company’s scale, increasing the number of radiation centers by over 25%.  It will provide opportunity for the Company to leverage its infrastructure and footprint to achieve significant operating synergies. In addition, it will broaden and deepen the Company’s ability to offer advanced cancer care to patients throughout the U.S. and offers significant expansion opportunity for integrated cancer care model across the combined Company’s portfolio.

The Company will account for the acquisition of OnCure under ASC 805, Business Combinations. Oncure’s results of operations will be included in the consolidated financial statements for periods ending after October 25, 2013, the acquisition date. Given the date of the acquisition, the Company has not completed the valuation of assets acquired and liabilities assumed which is in process. The Company anticipates providing a preliminary purchase price allocation, qualitative description of factors that make up goodwill to be recognized, and supplemental pro forma financial information for the fourth quarter ended December 31, 2013.

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11. Accrued Expenses

Accrued expenses consist of the following (in thousands):

(in thousands):	September 30, 2013		December 31, 2012
Accrued payroll and payroll related deductions and taxes	$	13,666	$	17,812
Accrued compensation arrangements	15,175		11,409
Accrued interest	28,879		12,196
Accrued other	6,254		4,984
Total accrued expenses	$	63,974	$	46,401

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12. Long-term debt

The Company’s long-term debt consists of the following (in thousands):

	September 30, 2013			December 31, 2012
$140.0 million revolving credit facility with interest rates at LIBOR or prime plus applicable margin, secured on a first priority basis by a perfected security interest in substantially all of the Company’s assets. Interest rates are at LIBOR plus applicable margin due at various maturity dates through October 15, 2016	—			7,500
$90.0 million senior secured credit facility - (Term Facility) with interest rates at LIBOR (with a minimum rate of 1.0%) or prime (with a minimum rate of 2.0%) plus applicable margin (6.5% for LIBOR Loans and 5.50% for Base Rate Loans) , secured on a first priority basis by a perfected security interest in substantially all of the Company’s assets. Interest rates are at LIBOR plus applicable margin due at various maturity dates through October 15, 2016	87,810			—
$100.0 million senior secured credit facility - (Revolver Credit Facility) with interest rates at LIBOR or prime plus applicable margin, secured on a first priority basis by a perfected security interest in substantially all of the Company’s assets. Interest rates are at LIBOR plus applicable margin due at various maturity dates through October 15, 2016	—			—
$350.0 million Senior Secured Second Lien Notes due January 15, 2017; semi-annual cash interest payments due on May 15 and November 15, fixed interest rate of 87/8%	348,839			348,577
$380.1 million Senior Subordinated Notes due April 15, 2017; semi-annual cash interest payments due on April 15 and October 15, fixed interest rate of 97/8%	377,478			374,461
Various other notes payable with average interest rate of 18.4% due through September 2016	4,129			3,753
Seller financing promissory notes with average interest rate of 6.21% due through December 2013	500			2,093
Seller financing promissory notes with average interest rate of 6.0% due through May 2018	2,140			—
Capital leases payable with various monthly payments plus interest at rates ranging from 1.0% to 8.5%, due at various maturity dates through March 2022	29,247			25,984
	850,143			762,368
Less current portion	(12,333		)	(11,065		)
	$	837,810		$	751,303

Senior Subordinated Notes

On April 20, 2010, the Company issued $310.0 million in aggregate principal amount of 97/8% Senior Subordinated Notes due 2017 and repaid the existing $175.0 million in aggregate principal amount 13.5% senior subordinated notes due 2015, including accrued and unpaid interest and a call premium of approximately $5.3 million. The remaining proceeds were used to pay down $74.8 million of the Term Loan B and $10.0 million of the Revolver. 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 consummated on May 3, 2010. The Company incurred

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approximately $11.9 million in transaction fees and expenses, including legal, accounting and other fees and expenses associated with the offering, and the initial purchasers’ discount of $1.9 million.

In March 2011, Radiation Therapy Services, Inc. (“RTS”), a wholly owned subsidiary of the Company, issued to DDJ Capital Management, LLC, $50 million in aggregate principal amount of 97/8% Senior Subordinated Notes due 2017. The proceeds of $48.5 million were used (i) to fund the Company’s acquisition of all of the outstanding membership units of Medical Developers LLC (“MDLLC”) and substantially all of the interests of MDLLC’s affiliated companies (the “MDLLC Acquisition”), not then controlled by the Company and (ii) to fund transaction costs associated with the MDLLC Acquisition. On August 22, 2013, RTS issued $3.8 million of   97/8% Senior Subordinated Notes due 2017 to Alejandro Dosoretz pursuant to the terms of an Earnout Agreement relating to the MDLLC Acquisition.

Senior Secured Second Lien Notes

On May 10, 2012, the Company 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”), among RTS, the guarantors signatory thereto and Wilmington Trust, National Association. The Secured Notes are senior secured second lien obligations of RTS and are guaranteed on a senior secured second lien basis by RTS, and each of RTS’ domestic subsidiaries to the extent such guarantor is a guarantor of RTS’ obligations under the Revolving Credit Facility (as defined below).

Interest is payable on the Secured Notes on each May 15 and November 15, commencing November 15, 2012. RTS may redeem some or all of the Secured Notes at any time prior to May 15, 2014 at a price equal to 100% of the principal amount of the Secured Notes redeemed plus accrued and unpaid interest, if any, and an applicable make-whole premium. On or after May 15, 2014, RTS may redeem some or all of the Secured Notes at redemption prices set forth in the Secured Notes Indenture. In addition, at any time prior to May 15, 2014, RTS may redeem up to 35% of the aggregate principal amount of the Secured Notes, at a specified redemption price with the net cash proceeds of certain equity offerings.

The Indenture contains covenants that, among other things, restrict the ability of the Company, RTS 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 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 RTS sells assets or experiences certain changes of control, it must offer to purchase the Notes.

RTS used the proceeds to repay its existing senior secured revolving credit facility of approximately $63.0 million and the Term Loan B portion of approximately $265.4 million, of its 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. RTS incurred approximately $14.4 million in transaction fees and expenses, including legal, accounting and other fees and expenses associated with the offering, and the initial purchasers’ discount of $1.7 million.

Amended and Restated Credit Agreement

On May 10, 2012, RTS entered into the Credit Agreement (the “Credit Agreement”) among RTS, 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, RTS entered into an Amendment Agreement (the “Amendment Agreement”) to the credit agreement among RTS, the Company, 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

22

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 eurocurrency 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 ½ 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.

RTS 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 RTS 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 RTS’ subsidiaries to make distributions, advances and asset transfers.  In addition, as of the last business day of each month, RTS 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 RTS under the Credit Facilities are guaranteed by the Company and certain direct and indirect wholly-owned domestic subsidiaries of RTS.

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 RTS’ and each guarantor’s tangible and intangible assets (subject to certain exceptions).

The Revolving Credit Facility requires that the Company comply with certain financial covenants, including:

	Requirement at September 30, 2013		Level at September 30, 2013
Minimum permitted unrestricted cash and cash equivalents plus availability under the Revolving Credit Facility	>$	15.0 million	$	124.2 million

The Revolving Credit Facility also requires that the Company comply with various other covenants, including, but not limited to, restrictions on new indebtedness, asset sales, capital expenditures, acquisitions and dividends, with which the Company was in compliance as of September 30, 2013.

13. Segment and geographic information

The Company operates in one line of business, which is operating physician group practices. As of March 1, 2011, due to the acquisition of MDLLC and Clinica de Radioterapia La Asuncion S.A., the Company’s operations were reorganized into two geographically organized groups: the U.S. Domestic includes eight operating segments and International is an operating segment which are aggregated into one U.S. Domestic and one International reporting segment. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. Transactions between reporting segments are properly eliminated. The Company assesses performance of and makes decisions on how to allocate resources to its operating segments based on multiple factors including current and projected facility gross profit and market opportunities.

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Financial information by geographic segment is as follows (in thousands):

	Three Months ended September 30,				Nine Months ended September 30,
	2013		2012		2013		2012
Total revenues:
U.S Domestic	$	156,459	$	146,881	$	465,402	$	464,164
International	24,581		20,635		67,724		61,051
Total	$	181,040	$	167,516	$	533,126	$	525,215
Facility gross profit:
U.S. Domestic	$	37,424	$	37,754	$	114,183	$	130,842
International	13,350		11,005		37,242		33,218
Total	$	50,774	$	48,759	$	151,425	$	164,060
Depreciation and amortization:
U.S. Domestic	$	14,977	$	15,714	$	43,316	$	45,224
International	1,082		983		3,234		2,916
Total	$	16,059	$	16,697	$	46,550	$	48,140

	September 30, 2013		December 31, 2012
Total assets:
U.S. Domestic	$	827,986	$	780,691
International	140,577		141,610
Total	$	968,563	$	922,301
Property and equipment:
U.S. Domestic	$	200,351	$	204,012
International	17,224		17,038
Total	$	217,575	$	221,050
Capital expenditures: *
U.S. Domestic	$	22,136	$	32,660
International	3,052		5,297
Total	$	25,188	$	37,957

* includes capital lease obligations related to capital expenditures

Acquisition-related goodwill and intangible assets:
U.S. Domestic	$	455,130	$	435,331
International	79,594		85,572
Total	$	534,724	$	520,903

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The reconciliation of the Company’s reportable segment profit and loss is as follows (in thousands):

	Three Months ended September 30,						Nine Months ended September 30,
	2013			2012			2013			2012
Facility gross profit	$	50,774		$	48,759		$	151,425		$	164,060
Less:
General and administrative expenses	24,936			19,076			68,832			60,059
General and administrative salaries	20,240			16,999			61,976			57,811
General and administrative depreciation and amortization	2,811			3,937			8,451			11,455
Provision for doubtful accounts	3,767			5,425			8,857			15,286
Interest expense, net	21,952			20,027			62,369			57,182
Gain on the sale of an interest in a joint venture	—			—			(1,460		)	—
Early extinguishment of debt	—			—			—			4,473
Fair value adjustment of earn-out liability	—			1,261			—			1,261
Impairment loss	—			69,946			—			69,946
Foreign currency transaction loss	364			140			1,166			234
Loss on foreign currency derivative contracts	67			786			309			1,006
Loss before income taxes	$	(23,363	)	$	(88,838	)	$	(59,075	)	$	(114,653	)

14. Supplemental Consolidating Financial Information

RTS’ payment obligations under the senior secured credit facility, senior secured second lien notes, and senior subordinated notes are guaranteed by Radiation Therapy Services Holdings, Inc. (“Parent”), which owns 100% of RTS and certain domestic subsidiaries of RTS, all of which are, directly or indirectly, 100% owned by RTS (the “Subsidiary Guarantors” and, collectively with Parent, the “Guarantors”).  Such guarantees are full, unconditional and joint and several.  The consolidated joint ventures, foreign subsidiaries and professional corporations of the Company are non-guarantors.  The following supplemental financial information sets forth, on an unconsolidated basis, balance sheets, statements of operations and comprehensive income (loss), and statements of cash flows information for Parent, RTS, the Subsidiary Guarantors and the non-guarantor subsidiaries.  The supplemental financial information reflects the investment of Parent and RTS and subsidiary guarantors using the equity method of accounting.

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CONSOLIDATING BALANCE SHEETS (UNAUDITED)

as of September 30, 2013

(in thousands)

	Parent			RTS			Subsidiary Guarantors		Subsidiary Non- Guarantors		Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	145		$	110		$	21,754	$	10,460	$	—		$	32,469
Restricted cash	—			5,002			—		—		—			5,002
Accounts receivable, net	—			—			50,920		46,417		—			97,337
Intercompany receivables	2,153			—			77,943		—		(80,096		)	—
Prepaid expenses	—			102			7,076		720		—			7,898
Inventories	—			—			3,829		818		—			4,647
Deferred income taxes	(68		)	(2,699		)	3,020		728		—			981
Other	—			180			8,200		65		—			8,445
Total current assets	2,230			2,695			172,742		59,208		(80,096		)	156,779
Equity investments in joint ventures	(76,723		)	788,085			101,426		51		(812,155		)	684
Property and equipment, net	—			—			181,593		35,982		—			217,575
Real estate subject to finance obligation	—			—			20,704		—		—			20,704
Goodwill	—			—			430,162		73,746		—			503,908
Intangible assets, net	—			—			12,035		18,781		—			30,816
Other assets	—			19,363			12,642		6,092		—			38,097
Intercompany note receivable	—			3,850			643		—		(4,493		)	—
Total assets	$	(74,493	)	$	813,993		$	931,947	$	193,860	$	(896,744	)	$	968,563
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	—		$	446		$	30,626	$	6,958	$	—		$	38,030
Intercompany payables	—			58,709			—		21,387		(80,096		)	—
Accrued expenses	—			28,732			27,204		8,038		—			63,974
Income taxes payable	(1,273		)	1,586			874		1,582		—			2,769
Current portion of long-term debt	—			—			8,853		3,480		—			12,333
Current portion of finance obligation	—			—			298		—		—			298
Other current liabilities	—			—			3,863		1,151		—			5,014
Total current liabilities	(1,273		)	89,473			71,718		42,596		(80,096		)	122,418
Long-term debt, less current portion	—			814,127			22,491		1,192		—			837,810
Finance obligation, less current portion	—			—			22,089		—		—			22,089
Other long-term liabilities	—			—			18,450		6,557		—			25,007
Deferred income taxes	(156		)	(12,884		)	15,958		2,137		—			5,055
Intercompany note payable	—			—			—		4,493		(4,493		)	—
Total liabilities	(1,429		)	890,716			150,706		56,975		(84,589		)	1,012,379
Noncontrolling interests—redeemable	—			—			—		—		15,933			15,933
Total Radiation Therapy Services Holdings, Inc. shareholder’s (deficit) equity	(73,064		)	(76,723		)	781,241		136,885		(841,403		)	(73,064		)
Noncontrolling interests—nonredeemable	—			—			—		—		13,315			13,315
Total (deficit) equity	(73,064		)	(76,723		)	781,241		136,885		(828,088		)	(59,749		)
Total liabilities and (deficit) equity	$	(74,493	)	$	813,993		$	931,947	$	193,860	$	(896,744	)	$	968,563

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CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

Three Months Ended September 30, 2013

(in thousands)

	Parent			RTS			Subsidiary Guarantors			Subsidiary Non- Guarantors			Eliminations			Consolidated
Revenues:
Net patient service revenue	$	—		$	—		$	112,729		$	65,926		$	—		$	178,655
Other revenue	—			—			2,302			176			—			2,478
(Loss) income from equity investment	(29,180		)	(8,402		)	(3,438		)	4			40,923			(93		)
Intercompany revenue	—			252			18,972			—			(19,224		)	—
Total revenues	(29,180		)	(8,150		)	130,565			66,106			21,699			181,040
Expenses:
Salaries and benefits	135			—			72,027			25,870			—			98,032
Medical supplies	—			—			12,562			3,355			—			15,917
Facility rent expenses	—			—			9,408			2,019			—			11,427
Other operating expenses	—			—			7,959			3,923			—			11,882
General and administrative expenses	—			309			19,823			4,804			—			24,936
Depreciation and amortization	—			—			13,901			2,158			—			16,059
Provision for doubtful accounts	—			—			2,410			1,357			—			3,767
Interest expense, net	—			20,538			845			569			—			21,952
Loss on foreign currency transactions	—			—			—			364			—			364
Loss on foreign currency derivative contracts	—			67			—			—			—			67
Intercompany expenses	—			—			—			19,224			(19,224		)	—
Total expenses	135			20,914			138,935			63,643			(19,224		)	204,403
(Loss) income before income taxes	(29,315		)	(29,064		)	(8,370		)	2,463			40,923			(23,363		)
Income tax expense	—			116			—			1,583			—			1,699
Net (loss) income	(29,315		)	(29,180		)	(8,370		)	880			40,923			(25,062		)
Net income attributable to noncontrolling interests—redeemable and non-redeemable	—			—			—			—			(347		)	(347		)
Net (loss) income attributable to Radiation Therapy Services Holdings, Inc. shareholder	(29,315		)	(29,180		)	(8,370		)	880			40,576			(25,409		)
Unrealized comprehensive loss:	—			—			—			(4,228		)	—			(4,228		)
Comprehensive loss	(29,315		)	(29,180		)	(8,370		)	(3,348		)	40,923			(29,290		)
Comprehensive income attributable to noncontrolling interests-redeemable and non-redeemable:	—			—			—			—			(25		)	(25		)
Comprehensive loss attributable to Radiation Therapy Services Holdings, Inc. shareholder	$	(29,315	)	$	(29,180	)	$	(8,370	)	$	(3,348	)	$	40,898		$	(29,315	)

27

CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

Nine Months Ended September 30, 2013

(in thousands)

	Parent			RTS			Subsidiary Guarantors			Subsidiary Non- Guarantors			Eliminations			Consolidated
Revenues:
Net patient service revenue	$	—		$	—		$	340,692		$	185,783		$	—		$	526,475
Other revenue	—			—			6,828			248			—			7,076
(Loss) income from equity investment	(73,776		)	(13,636		)	(6,577		)	11			93,553			(425		)
Intercompany revenue	—			627			57,587			—			(58,214		)	—
Total revenues	(73,776		)	(13,009		)	398,530			186,042			35,339			533,126
Expenses:
Salaries and benefits	481			—			222,099			71,392			—			293,972
Medical supplies	—			—			38,308			7,858			—			46,166
Facility rent expenses	—			—			27,011			5,274			—			32,285
Other operating expenses	—			—			22,528			10,627			—			33,155
General and administrative expenses	—			948			55,329			12,555			—			68,832
Depreciation and amortization	—			—			40,385			6,165			—			46,550
Provision for doubtful accounts	—			—			5,403			3,454			—			8,857
Interest expense, net	—			59,356			2,302			711			—			62,369
Gain on the sale of an interest in a joint venture	—			—			(1,460		)	—			—			(1,460		)
Loss on foreign currency transactions	—			—			—			1,166			—			1,166
Loss on foreign currency derivative contracts	—			309			—			—			—			309
Intercompany expenses	—			—			—			58,214			(58,214		)	—
Total expenses	481			60,613			411,905			177,416			(58,214		)	592,201
(Loss) income before income taxes	(74,257		)	(73,622		)	(13,375		)	8,626			93,553			(59,075		)
Income tax expense	—			154			—			4,695			—			4,849
Net (loss) income	(74,257		)	(73,776		)	(13,375		)	3,931			93,553			(63,924		)
Net income attributable to noncontrolling interests—redeemable and non-redeemable	—			—			—			—			(1,365		)	(1,365		)
Net (loss) income attributable to Radiation Therapy Services Holdings, Inc. shareholder	(74,257		)	(73,776		)	(13,375		)	3,931			92,188			(65,289		)
Unrealized comprehensive loss:	—			—			—			(9,817		)	—			(9,817		)
Comprehensive loss	(74,257		)	(73,776		)	(13,375		)	(5,886		)	93,553			(73,741		)
Comprehensive income attributable to noncontrolling interests-redeemable and non-redeemable:	—			—			—			—			(516		)	(516		)
Comprehensive loss attributable to Radiation Therapy Services Holdings, Inc. shareholder	$	(74,257	)	$	(73,776	)	$	(13,375	)	$	(5,886	)	$	93,037		$	(74,257	)

28

CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)

Nine Months Ended September 30, 2013

(in thousands)

	Parent			RTS			Subsidiary Guarantors			Subsidiary Non- Guarantors			Eliminations			Consolidated
Cash flows from operating activities
Net (loss) income	$	(74,257	)	$	(73,776	)	$	(13,375	)	$	3,931		$	93,553		$	(63,924	)
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
Depreciation	—			—			34,971			5,091			—			40,062
Amortization	—			—			5,414			1,074			—			6,488
Deferred rent expense	—			—			491			145			—			636
Deferred income taxes	—			(316		)	230			(1,903		)	—			(1,989		)
Stock-based compensation	481			—			—			—			—			481
Provision for doubtful accounts	—			—			5,403			3,454			—			8,857
Loss on the sale of property and equipment	—			—			153			59			—			212
Gain on the sale of an interest in a joint venture	—			—			(1,460		)	—			—			(1,460		)
Loss on foreign currency transactions	—			—			—			137			—			137
Loss on foreign currency derivative contracts	—			309			—			—			—			309
Amortization of debt discount	—			660			43			—			—			703
Amortization of loan costs	—			4,128			—			—			—			4,128
Equity interest in net loss (earnings) of joint ventures	73,776			13,636			6,577			(11		)	(93,553		)	425
Changes in operating assets and liabilities:
Accounts receivable and other current assets	—			—			(10,000		)	(15,578		)	—			(25,578		)
Income taxes payable	—			39			(388		)	692			—			343
Inventories	—			—			(552		)	(39		)	—			(591		)
Prepaid expenses	—			(12		)	75			131			—			194
Intercompany payable / receivable	(23		)	(31,486		)	24,439			7,070			—			—
Accounts payable and other current liabilities	—			74			9,936			2,581			—			12,591
Accrued deferred compensation	—			—			830			189			—			1,019
Accrued expenses / other current liabilities	—			16,653			1,873			993			—			19,519
Net cash (used in) provided by operating activities	(23		)	(70,091		)	64,660			8,016			—			2,562
Cash flows from investing activities
Purchases of property and equipment	—			—			(20,990		)	(4,119		)	—			(25,109		)
Acquisition of medical practices	—			—			(23,050		)	(1,200		)	—			(24,250		)
Purchase of noncontrolling interest - non-redeemable	—			(1,509		)	—			—			—			(1,509		)
Restricted cash associated with initial deposit in the potential acquisition of medical practices	—			(5,002		)	—			—			—			(5,002		)
Proceeds from the sale of property and equipment	—			—			64			—			—			64
Loans to employees	—			—			(558		)	(1		)	—			(559		)
Intercompany notes to / from affiliates	—			(2,100		)	(411		)	2,511			—			—
Contribution of capital to joint venture entities	—			(542		)	(935		)	—			935			(542		)
Distributions received from joint venture entities	—			559			1,468			—			(2,027		)	—
Proceeds from the sale of equity interest in a joint venture	—			—			1,460			—			—			1,460
Payment of foreign currency derivative contracts	—			(171		)	—			—			—			(171		)
Premiums on life insurance policies	—			—			(712		)	(189		)	—			(901		)
Change in other assets and other liabilities	—			(49		)	(8		)	4			—			(53		)
Net cash used in by investing activities	—			(8,814		)	(43,672		)	(2,994		)	(1,092		)	(56,572		)
Cash flows from financing activities
Proceeds from issuance of debt	—			204,750			—			2,900			—			207,650
Principal repayments of debt	—			(124,500		)	(5,637		)	(3,780		)	—			(133,917		)
Repayments of finance obligation	—			—			(142		)	—			—			(142		)
Proceeds from equity contribution	—			—			—			1,700			(1,700		)	—
Proceeds from noncontrolling interest holders — redeemable and non-redeemable	—			—			—			—			765			765
Cash distributions to noncontrolling interest holders—redeemable and non-redeemable	—			—			—			—			(1,896		)	(1,896		)
Cash distributions to shareholders	—			—			—			(3,923		)	3,923			—
Payments of loan costs	—			(1,359		)	—			—			—			(1,359		)
Net cash (used in) provided by financing activities	—			78,891			(5,779		)	(3,103		)	1,092			71,101
Effect of exchange rate changes on cash and cash equivalents	—			—			—			(32		)	—			(32		)
Net (decrease) increase in cash and cash equivalents	(23		)	(14		)	15,209			1,887			—			17,059
Cash and cash equivalents, beginning of period	168			124			6,545			8,573			—			15,410
Cash and cash equivalents, end of period	$	145		$	110		$	21,754		$	10,460		$	—		$	32,469

29

CONSOLIDATING BALANCE SHEETS

as of December 31, 2012

(in thousands)

	Parent			RTS			Subsidiary Guarantors		Subsidiary Non- Guarantors		Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	168		$	124		$	6,545	$	8,573	$	—		$	15,410
Accounts receivable, net	—			—			47,231		39,638		—			86,869
Intercompany receivables	1,425			—			101,763		—		(103,188		)	—
Prepaid expenses	—			90			5,320		633		—			6,043
Inventories	—			—			3,241		656		—			3,897
Deferred income taxes	(68		)	(2,697		)	3,017		288		—			540
Other	—			319			7,065		45		—			7,429
Total current assets	1,525			(2,164		)	174,182		49,833		(103,188		)	120,188
Equity investments in joint ventures	(534		)	802,705			102,230		49		(903,875		)	575
Property and equipment, net	—			—			186,084		34,966		—			221,050
Real estate subject to finance obligation	—			—			16,204		—		—			16,204
Goodwill	—			—			413,984		71,875		—			485,859
Intangible assets, net	—			—			15,555		19,489		—			35,044
Other assets	—			22,082			13,236		8,063		—			43,381
Intercompany note receivable	—			1,750			232		—		(1,982		)	—
Total assets	$	991		$	824,373		$	921,707	$	184,275	$	(1,009,045	)	$	922,301
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	—		$	372		$	20,690	$	6,476	$	—		$	27,538
Intercompany payables	—			92,937			—		10,251		(103,188		)	—
Accrued expenses	—			12,079			26,017		8,305		—			46,401
Income taxes payable	(1,273		)	1,547			1,262		1,415		—			2,951
Current portion of long-term debt	—			—			6,424		4,641		—			11,065
Current portion of finance obligation	—			—			287		—		—			287
Other current liabilities	—			—			3,940		3,744		—			7,684
Total current liabilities	(1,273		)	106,935			58,620		34,832		(103,188		)	95,926
Long-term debt, less current portion	—			730,538			19,561		1,204		—			751,303
Finance obligation, less current portion	—			—			16,905		—		—			16,905
Other long-term liabilities	—			—			16,272		5,858		—			22,130
Deferred income taxes	(156		)	(12,566		)	15,726		3,198		—			6,202
Intercompany note payable	—			—			—		1,982		(1,982		)	—
Total liabilities	(1,429		)	824,907			127,084		47,074		(105,170		)	892,466
Noncontrolling interests—redeemable	—			—			—		—		11,368			11,368
Total Radiation Therapy Services Holdings, Inc. shareholder’s equity (deficit)	2,420			(534		)	794,623		137,201		(931,290		)	2,420
Noncontrolling interests—nonredeemable	—			—			—		—		16,047			16,047
Total equity	2,420			(534		)	794,623		137,201		(915,243		)	18,467
Total liabilities and equity	$	991		$	824,373		$	921,707	$	184,275	$	(1,009,045	)	$	922,301

30

CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

Three Months Ended September 30, 2012

(in thousands)

	Parent			RTS			Subsidiary Guarantors			Subsidiary Non- Guarantors			Eliminations			Consolidated
Revenues:
Net patient service revenue	$	—		$	—		$	104,893		$	60,492		$	—		$	165,385
Other revenue	—			—			2,255			18			—			2,273
(Loss) income from equity investment	(93,159		)	(71,935		)	(2,207		)	8			167,151			(142		)
Intercompany revenue	—			101			18,428			—			(18,529		)	—
Total revenues	(93,159		)	(71,834		)	123,369			60,518			148,622			167,516
Expenses:
Salaries and benefits	209			—			64,391			22,590			—			87,190
Medical supplies	—			—			11,890			3,796			—			15,686
Facility rent expenses	—			—			8,486			1,633			—			10,119
Other operating expenses	—			—			6,301			3,700			—			10,001
General and administrative expenses	2			337			15,560			3,177			—			19,076
Depreciation and amortization	—			928			13,769			2,000			—			16,697
Provision for doubtful accounts	—			—			4,257			1,168			—			5,425
Interest expense, net	(1		)	19,217			678			133			—			20,027
Fair value adjustment of earn-out liability	—			—			—			1,261			—			1,261
Impairment loss	—			—			69,946			—			—			69,946
Foreign currency transaction loss	—			—			—			140			—			140
Loss on foreign currency derivative contracts	—			786			—			—			—			786
Intercompany expenses	—			—			—			18,529			(18,529		)	—
Total expenses	210			21,268			195,278			58,127			(18,529		)	256,354
(Loss) income before income taxes	(93,369		)	(93,102		)	(71,909		)	2,391			167,151			(88,838		)
Income tax (benefit) expense	—			57			39			1,616			(7		)	1,705
Net (loss) income	(93,369		)	(93,159		)	(71,948		)	775			167,158			(90,543		)
Net income attributable to noncontrolling interests—redeemable and non-redeemable	—			—			—			—			(842		)	(842		)
Net (loss) income attributable to Radiation Therapy Services Holdings, Inc. shareholder	(93,369		)	(93,159		)	(71,948		)	775			166,316			(91,385		)
Unrealized comprehensive loss:	—			—			—			(2,109		)	—			(2,109		)
Comprehensive (loss) income	(93,369		)	(93,159		)	(71,948		)	(1,334		)	167,158			(92,652		)
Comprehensive income attributable to noncontrolling interests-redeemable and non-redeemable:	—			—			—			—			(717		)	(717		)
Comprehensive (loss) income attributable to Radiation Therapy Services Holdings, Inc. shareholder	$	(93,369	)	$	(93,159	)	$	(71,948	)	$	(1,334	)	$	166,441		$	(93,369	)

31

CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

Nine Months Ended September 30, 2012

(in thousands)

	Parent			RTS			Subsidiary Guarantors			Subsidiary Non- Guarantors			Eliminations			Consolidated
Revenues:
Net patient service revenue	$	—		$	—		$	338,726		$	180,706		$	—		$	519,432
Other revenue	—			—			6,248			216			—			6,464
(Loss) income from equity investment	(124,935		)	(59,773		)	(825		)	18			184,834			(681		)
Intercompany revenue	—			580			55,704			—			(56,284		)	—
Total revenues	(124,935		)	(59,193		)	399,853			180,940			128,550			525,215
Expenses:
Salaries and benefits	3,221			—			207,049			65,929			—			276,199
Medical supplies	—			—			37,814			9,971			—			47,785
Facility rent expenses	—			—			24,973			4,661			—			29,634
Other operating expenses	—			—			19,032			9,631			—			28,663
General and administrative expenses	2			1,031			48,653			10,373			—			60,059
Depreciation and amortization	—			2,783			39,515			5,842			—			48,140
Provision for doubtful accounts	—			—			11,182			4,104			—			15,286
Interest expense, net	4			54,815			2,027			336			—			57,182
Early extinguishment of debt	—			4,473			—			—			—			4,473
Fair value adjustment of earn-out liability	—			—			—			1,261			—			1,261
Impairment loss	—			—			69,946			—			—			69,946
Foreign currency transaction loss	—			—			—			234			—			234
Loss on foreign currency derivative contracts	—			1,006			—			—			—			1,006
Intercompany expenses	—			—			—			56,284			(56,284		)	—
Total expenses	3,227			64,108			460,191			168,626			(56,284		)	639,868
(Loss) income before income taxes	(128,162		)	(123,301		)	(60,338		)	12,314			184,834			(114,653		)
Income tax (benefit) expense	(1,996		)	1,301			(285		)	4,254			(20		)	3,254
Net (loss) income	(126,166		)	(124,602		)	(60,053		)	8,060			184,854			(117,907		)
Net income attributable to noncontrolling interests—redeemable and non-redeemable	—			—			—			—			(3,231		)	(3,231		)
Net (loss) income attributable to Radiation Therapy Services Holdings, Inc. shareholder	(126,166		)	(124,602		)	(60,053		)	8,060			181,623			(121,138		)
Unrealized comprehensive loss:	—			(333		)	—			(5,129		)	—			(5,462		)
Comprehensive (loss) income	(126,166		)	(124,935		)	(60,053		)	2,931			184,854			(123,369		)
Comprehensive income attributable to noncontrolling interests-redeemable and non-redeemable:	—			—			—			—			(2,797		)	(2,797		)
Comprehensive (loss) income attributable to Radiation Therapy Services Holdings, Inc. shareholder	$	(126,166	)	$	(124,935	)	$	(60,053	)	$	2,931		$	182,057		$	(126,166	)

32

CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)

Nine Months Ended September 30, 2012

(in thousands)

	Parent			RTS			Subsidiary Guarantors			Subsidiary Non- Guarantors			Eliminations			Consolidated
Cash flows from operating activities
Net (loss) income	$	(126,166	)	$	(124,602	)	$	(60,053	)	$	8,060		$	184,854		$	(117,907	)
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
Depreciation	—			—			34,599			4,711			—			39,310
Amortization	—			2,783			4,916			1,131			—			8,830
Deferred rent expense	—			—			714			181			—			895
Deferred income taxes	—			(106		)	114			(1,083		)	(20		)	(1,095		)
Stock-based compensation	3,221			—			—			—			—			3,221
Provision for doubtful accounts	—			—			11,182			4,104			—			15,286
Loss on the sale of property and equipment	—			—			8			—			—			8
Amortization of termination of interest rate swap	—			958			—			—			—			958
Write-off of loan costs	—			525			—			—			—			525
Early extinguishment of debt	—			4,473			—			—			—			4,473
Termination of derivative interest rate swap agreements	—			(972		)	—			—			—			(972		)
Impairment loss	—			—			69,946			—			—			69,946
Loss on foreign currency transactions	—			—			—			17			—			17
Loss on foreign currency derivative contracts	—			1,006			—			—			—			1,006
Amortization of debt discount	—			608			—			—			—			608
Amortization of loan costs	—			4,065			—			—			—			4,065
Equity interest in net loss (earnings) of joint ventures	124,935			59,773			825			(18		)	(184,834		)	681
Distribution received from unconsolidated joint ventures	—			—			9			—			—			9
Changes in operating assets and liabilities:																—
Accounts receivable and other current assets	4			—			(10,478		)	(8,378		)	—			(18,852		)
Income taxes payable	—			1,422			(3,661		)	(302		)	—			(2,541		)
Inventories	—			—			60			(216		)	—			(156		)
Prepaid expenses	—			(41		)	402			271			—			632
Intercompany payable / receivable	(2,135		)	(30,259		)	28,720			3,674			—			—
Accounts payable and other current liabilities	—			(393		)	(5,084		)	1,408			—			(4,069		)
Accrued deferred compensation	—			—			876			133			—			1,009
Accrued expenses / other current liabilities	—			21,803			(6,574		)	2,000			—			17,229
Net cash (used in) provided by operating activities	(141		)	(58,957		)	66,521			15,693			—			23,116
Cash flows from investing activities
Purchases of property and equipment	—			—			(18,784		)	(5,395		)	—			(24,179		)
Acquisition of medical practices	—			—			(24,007		)	(50		)	—			(24,057		)
Proceeds from the sale of property and equipment	—			—			2,988			—			—			2,988
Loans to employees	—			—			(81		)	—			—			(81		)
Intercompany notes to / from affiliates	—			—			—			—			—			—
Contribution of capital to joint venture entities	—			(272		)	(225		)	—			—			(497		)
Distributions received from joint venture entities	—			1,274			4,328			—			(5,602		)	—
Payment of foreign currency derivative contracts	—			(543		)	—			—			—			(543		)
Premiums on life insurance policies	—			—			—			(963		)	—			(963		)
Change in other assets and other liabilities	—			12			67			36			—			115
Net cash (used in) provided by investing activities	—			471			(35,714		)	(6,372		)	(5,602		)	(47,217		)
Cash flows from financing activities
Proceeds from issuance of debt	—			433,345			267			2,051			—			435,663
Principal repayments of debt	—			(360,360		)	(13,480		)	(2,247		)	—			(376,087		)
Repayments of finance obligation	—			—			(81		)	—			—			(81		)
Cash distributions to noncontrolling interest holders—redeemable and non-redeemable	—			—			—			—			(3,196		)	(3,196		)
Payment of loan costs	—			(14,437		)	—			—			—			(14,437		)
Cash distributions to shareholders	—			—			—			(8,798		)	8,798			—
Net cash provided by (used in) financing activities	—			58,548			(13,294		)	(8,994		)	5,602			41,862
Effect of exchange rate changes on cash and cash equivalents	—			—			—			(4		)	—			(4		)
Net (decrease) increase in cash and cash equivalents	(141		)	62			17,513			323			—			17,757
Cash and cash equivalents, beginning of period	184			39			733			9,221			—			10,177
Cash and cash equivalents, end of period	$	43		$	101		$	18,246		$	9,544		$	—		$	27,934

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

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, 2012 (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 Radiation Therapy Services 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 own, operate and manage treatment centers focused principally on providing comprehensive radiation treatment alternatives ranging from conventional external beam radiation to Intensity Modulated Radiation Therapy (“IMRT”), as well as newer, more technologically-advanced procedures along with other services. We believe we are the largest company in the United States focused principally on providing radiation therapy and the most advanced organization in terms of integrating oncology related physicians. We opened our first radiation treatment center in 1983 and, as of September 30, 2013 we provided radiation therapy services in 132 treatment centers. Most of our treatment centers are strategically clustered into 28 local markets in 15 states, including Alabama, Arizona, California, Florida, Kentucky, Maryland, Massachusetts, Michigan, Nevada, New Jersey, New York, North Carolina, South Carolina, Rhode Island, and West Virginia and 33 treatment centers are operated in Latin America, Central America, Mexico and the Caribbean. Of these 132 treatment centers, 39 treatment centers were internally developed, 86 were acquired, two were transitioned from hospital-based treatment centers to freestanding treatment centers and five involve hospital-based treatment centers and other groups. We have continued to expand our affiliation with physician specialties in closely related areas including gynecological, breast and surgical oncology, medical oncology and urology in a limited number of our local markets to strengthen our clinical working relationships and to evolve from a freestanding radiation oncology centric model to an Integrated Cancer Care (“ICC”) model.

On October 19, 2007, our wholly owned subsidiary, RTS entered into an Agreement and Plan of Merger (the “Merger Agreement”) with RT Investments, Parent and RTS MergerCo, Inc., a wholly-owned subsidiary of Parent, pursuant to which RTS MergerCo, Inc. was merged with and into RTS with RTS as the surviving corporation and as a wholly-owned subsidiary of Parent (the “Merger”). Upon completion of the Merger, each share of RTS’ common stock outstanding immediately prior to the effective time of the Merger (other than certain shares held by members of RT Investments’ management team and certain employees) was converted into $32.50 in cash without interest. The Merger was consummated on February 21, 2008 (the “Closing”). Immediately following the Closing, Parent became the owner of all of the outstanding common stock of RTS, which in turn, became a wholly-owned indirect subsidiary of RT Investments, and Vestar Capital Partners, Inc. and its affiliates became the beneficial owners of approximately 57% of the outstanding Class A voting equity units of RT Investments and its co-investors became the beneficial owners of approximately 26% of the outstanding Class A voting equity units of RT Investments. In addition, at the Closing, the management investors, including current and former directors and executive officers, either exchanged certain shares of RTS’ common stock or invested cash in RTS, in each case, in exchange for Class A voting equity units and non-voting preferred equity units of RT Investments. At the Closing, these management investors as a group became the beneficial owners of approximately 17% of the outstanding Class A voting equity units of RT Investments. In connection with the Closing, Vestar, its affiliates and these management investors invested approximately $627.3 million in equity units of RT Investments. RT Investments also adopted a management incentive equity plan pursuant to which certain employees are eligible to receive incentive unit awards (EMEP and MEP non-voting equity units) from an equity pool representing up to 12% of the common equity value of RT Investments, which as of September 30, 2013 was 9.2%. At September 30, 2013, Vestar and its affiliates controlled approximately 80% of the Class A voting equity units of RT Investments through its ability to directly or indirectly control its co-investors.

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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 (RVU) (a standard measure of value used in the United States 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 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.

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 Image Guided Radiation Therapy (“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 nine months ended September 30, 2013 and 2012.

	Year Ended December 31,		Nine Months Ended September 30,
U.S. Domestic	2012		2013		2012
Payer
Medicare	42.6	%	42.0	%	42.8	%
Commercial	53.6		54.4		53.3
Medicaid	2.7		2.6		2.8
Self pay	1.1		1.0		1.1
Total U.S. domestic net patient service revenue	100.0	%	100.0	%	100.0	%

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Medicare and Medicaid

Medicare 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. The Centers for Medicare and Medicaid Services (“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. domestic 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 2.6% of our U.S. domestic net patient service revenue for the nine months ended September 30, 2013.

In the final Medicare 2013 Physician Fee Schedule, CMS reduced payments for radiation oncology by 7 percent.  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 percent of the gross reduction) reflected the transition of the final 25 percent of PPIS data used in the PERVU methodology.  The change in the CMS interest rate policy (accounting for 3 percent of the gross reduction) reduced interest rate assumptions in the CMS database from 11 percent to a sliding scale of 5.5 percent to 8 percent.  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 percent of the gross reduction).  While this policy benefited primary care, non-primary care physicians are impacted due to the budget-neutrality of the PFS.  The rule also made adjustments (accounting for 1 percent of the gross reduction) due to the use of new time of care assumptions for intensity-modulated radiation therapy (IMRT) and stereotactic body radiation therapy (SBRT).  Although the proposed reductions in time of care assumptions alone would have resulted in a gross 7 percent 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 percent increase due to certain other revised radiation oncology codes, which resulted in a total net reduction to radiation oncology of 7 percent.

In the proposed Medicare 2014 Physician Fee Schedule, CMS proposes to reduce payments for radiation oncology by 5 percent overall.  This reduction relates to (1) 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 apply to freestanding settings, the cut to freestanding centers would likely be closer to 8%, while hospital-based radiation oncologists receive an increase in payment under the proposal.  CMS notes in the proposed rule, due to budget neutrality requirements relating to the MEI policy, the 2014 conversion factor is estimated to be $35.665 (assuming no SGR cuts), rather than the current 2013 conversion factor of $34.023.

Medicare reimbursement rates for all procedures under Medicare also are determined by a formula which takes into account a conversion factor (“CF”) which is updated on an annual basis based on the sustainable growth rate (“SGR”).  The CF was scheduled to decrease 24.9% as of January 1, 2011, but Congress delayed the scheduled cut until the end of 2011. The final Medicare 2012 Physician Fee Schedule, released by CMS on November 1, 2011, would have resulted in a reimbursement decrease of 27.4% as of January 1, 2012. However, Congress again delayed the implementation of this payment cut, first through February 29, 2012 under the Temporary Payroll Tax Cut Continuation Act of 2011, then through the end of 2012 under the Middle Class Tax Relief and Job Creation Act of 2012, and again through the end of 2013 under the American Taxpayer Relief Act. If future reductions are not suspended, and if a permanent “doc fix” is not signed into law, the currently scheduled SGR reimbursement decrease (estimated at approximately 21%) will take effect on January 1, 2014.

In addition, the Joint Select Committee on Deficit Reduction (“JSC”) was created under the Budget Control Act of 2011 and signed into law on August 2, 2011. Under the law, unless the JSC could achieve $1.2 trillion in savings, an across-the-board sequestration would occur on January 2, 2013, and each subsequent year through 2021, to achieve $1.2 trillion in savings. On November 21, 2011, the JSC released a statement indicating the committee would be unable to reach agreement, thereby clearing the way for the sequestration process. Unless Congress acts to reverse the cuts, Medicare providers will be cut under the sequestration process by two percent each year relative to baseline spending through 2021. On January 2, 2013, the President signed the American Taxpayer Relief Act, which extended the sequestration order required under the Budget Control Act until March 1, 2013. On March 1, 2013, President Obama issued the required

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sequestration order and, pursuant to 2 U.S.C. 906, the two percent Medicare sequester began to take effect for services provided on or after April 1, 2013.

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. domestic net patient service revenue. We receive our managed care contracted revenue under two primary arrangements. Approximately 97% of our managed care business is attributable to contracts where a fee schedule is negotiated for services provided at our treatment centers. For the nine months ended September 30, 2013 approximately 3% of our U.S. domestic 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:

·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

·Healthcare reform.

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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 nine months ended September 30, 2013 and 2012:

	Three Months Ended September 30,								Nine Months Ended September 30,
Domestic U.S.	2013			2012			% Change		2013			2012			% Change
Number of treatment days	64			63			1.6	%	191			191			0.0	%
Total RVU’s — freestanding centers	2,767,016			2,775,821			(0.3	)%	8,313,913			8,677,857			(4.2	)%
RVU’s per day — freestanding centers	43,235			44,061			(1.9	)%	43,528			45,434			(4.2	)%
Percentage change in RVU’s per day — freestanding centers — same market basis	(1.9		)%	(5.0		)%			(4.8		)%	(5.1		)%
Total treatments — freestanding centers	128,765			119,167			8.1	%	386,574			372,488			3.8	%
Treatments per day — freestanding centers	2,012			1,892			6.4	%	2,024			1,950			3.8	%
Percentage change in revenue per treatment — freestanding centers — same market basis	(4.2		)%	(3.0		)%			(5.9		)%	(3.1		)%
Percentage change in treatments per day — freestanding centers — same market basis	6.4		%	3.6		%			3.2		%	3.3		%
Number of regions at period end (global)	9			9
Number of local markets at period end	28			28
Treatment centers - freestanding (global)	127			121			5.0	%
Treatment centers — hospital / other groups (global)	5			5			0.0	%
	132			126			4.8	%
Days sales outstanding at quarter end	35			39
Percentage change in freestanding revenues — same market basis	3.5		%	(1.1		)%			(2.9		)%	(0.5		)%
Net patient service revenue — professional services only (in thousands)	$	54,338		$	48,239				$	159,816		$	150,066

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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 nine months ended September 30, 2013 and 2012:

	Three Months Ended September 30,				Nine Months Ended September 30,
International	2013	2012	% Change		2013	2012	% Change
Number of new cases
2-D cases	931	1,153			2,868	3,603
3-D cases	2,855	2,262			7,639	6,589
IMRT / IGRT cases	590	346			1,396	1,125
Total	4,376	3,761	16.4	%	11,903	11,317	5.2	%

International

Comparison of the Three Months Ended September 30, 2013 and 2012

MDLLC’s total revenues increased $4.0 million, or 19.1%, from $20.6 million to $24.6 million for the three months ended September 30, 2013 as compared to the three months ended September 30, 2012.  Total revenue was positively impacted by $0.1 million of revenue from the start-up of a new center in Argentina in August 2012, growth in treatments and an improvement in treatment mix from our November, 2011 acquisition in Argentina, growth in treatments and overall service mix improvements at our operations in Argentina, El Salvador, and our hospital-based center in the Dominican Republic, and improved capitated pricing in Argentina, offset by the impact of a greater depreciation in the Argentine Peso as compared to the same period in 2012.  Case growth increased by 615 or 16.4% 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 2012.

Facility gross profit increased $2.4 million, or 21.3% from $11.0 million to $13.4 million for the three months ended September 30, 2013 as compared to the three months ended September 30, 2012.  Facility-level gross profit as a percentage of total revenues increased to 54.3% from 53.3%. Margin growth resulted from increased  IMRT and 3-D cases, and additional capitated IMRT cases in Argentina, offset by higher depreciation and amortization relating to our continued growth and investment in Latin America as well as higher local inflation in Argentina as compared to the same period in 2012.

Comparison of the Nine Months Ended September 30, 2013 and 2012

MDLLC’s total revenues increased $6.6 million, or 10.9%, from $61.1 million to $67.7 million for the nine months ended September 30, 2013 as compared to the nine months ended September 30, 2012.  Total revenue was positively impacted by $0.5 million of revenue from the start-up of a new Center in Argentina in August 2012, growth in treatments and an improvement in treatment mix from our November, 2011 acquisition in Argentina, growth in treatments and overall service mix improvements at our Argentina, El Salvador, and our hospital-based center in the Dominican Republic, and improved capitated pricing in Argentina, offset by the impact of a greater depreciation in the Argentine Peso versus the same period in 2012.  Case growth increased by 586 or 5.2% during the period.  The trend toward more clinically-advanced treatments which require more time to complete continued during the period with an increase in the number of higher-revenue IMRT/IGRT treatments and 3D treatments vs. 2D treatments as compared to the same period in 2012.

Facility gross profit increased $4.0 million, or 12.1% from $33.2 million to $37.2 million for the nine months ended September 30, 2013 as compared to the nine months ended September 30, 2012.  Facility-level gross profit as a percentage of total revenues increased to 55.0% from 54.4%. Margin growth resulted from growth in IMRT and 3-D cases, and improved pricing for capitated cases in Argentina, offset by higher depreciation and amortization relating to our continued growth and investment in Latin America, local inflation in Argentina, and higher facility rent expense and repairs maintenance and other expense.

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

	Three Months Ended					Three Months Ended
	September 30, 2013					September 30, 2012
Revenues:
Net patient service revenue	$	178,655		98.7	%	$	165,385		98.7	%
Other revenue	2,385			1.3		2,131			1.3
Total revenues	181,040			100.0		167,516			100.0
Expenses:
Salaries and benefits	98,032			54.1		87,190			52.0
Medical supplies	15,917			8.8		15,686			9.4
Facility rent expenses	11,427			6.3		10,119			6.0
Other operating expenses	11,882			6.6		10,001			6.0
General and administrative expenses	24,936			13.8		19,076			11.4
Depreciation and amortization	16,059			8.9		16,697			10.0
Provision for doubtful accounts	3,767			2.1		5,425			3.2
Interest expense, net	21,952			12.1		20,027			12.0
Fair value adjustment of earn-out liability	—			0.0		1,261			0.8
Impairment loss	—			0.0		69,946			41.8
Loss on foreign currency transactions	364			0.2		140			0.1
Loss on foreign currency derivative contracts	67			0.0		786			0.5
Total expenses	204,403			112.9		256,354			153.2
Loss before income taxes	(23,363		)	(12.9	)	(88,838		)	(53.2	)
Income tax expense	1,699			0.9		1,705			1.0
Net loss	(25,062		)	(13.8	)	(90,543		)	(54.2	)
Net income attributable to noncontrolling interests – redeemable and non-redeemable	(347		)	(0.2	)	(842		)	(0.5	)
Net loss attributable to Radiation Therapy Services Holdings, Inc. shareholder	$	(25,409	)	(14.0	)%	$	(91,385	)	(54.7	)%

Comparison of the Three Months Ended September 30, 2013 and 2012

Revenues

Net patient service revenue. For the three months ended September 30, 2013 and 2012, net patient service revenue comprised 98.7%, of our total revenues.  In our net patient service revenue for the three months ended September 30, 2013 and 2012, 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 30.0% and 28.8%, respectively, of our total revenues.

Other revenue. For the three months ended September 30, 2013 and 2012, other revenue comprised approximately 1.3%, 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.

Total revenues. Total revenues increased by $13.5 million, or 8.1%, from $167.5 million for the three months ended September 30, 2012 to $181.0 million for the three months ended September 30, 2013. Total revenue was positively impacted by $13.2 million due to our expansion into new practices and treatments centers in existing local markets and new local markets during 2012 and 2013 through the acquisition of several urology, medical oncology and surgery practices in Arizona, California, Florida, Nevada, New Jersey, New York, North Carolina and the acquisition of physician radiation practices in Arizona, Florida and Mexico, and the opening of two de novo centers as follows:

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Date	Sites	Location	Market	Type
August 2012	1	Latin America	International (Argentina)	De Novo
May 2013	3	Cape Coral / Ft. Myers / Bonita Springs — Florida	Lee County — Florida	Acquisition
May 2013	2	Naples — Florida	Collier County — Florida	Acquisition
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 (Argentina)	De Novo (Hospital Campus)

Revenues in our existing local markets and practices increased by approximately $0.7 million offset by a decrease in revenue from CMS for the 2013 PQRI program of approximately $0.4 million.

Expenses

Salaries and benefits. Salaries and benefits increased by $10.8 million, or 12.4%, from $87.2 million for the three months ended September 30, 2012 to $98.0 million for the three months ended September 30, 2013. Salaries and benefits as a percentage of total revenues increased from 52.0% for the three months ended September 30, 2012 to 54.1% for the three months ended September 30, 2013.  Additional staffing of personnel and physicians due to our development and expansion of several urology, medical oncology and surgery practices in Arizona, California, Florida, Nevada, New Jersey, New York, and North Carolina, as well as the acquisitions of treatment centers in existing local markets during the latter part of 2012 and 2013 contributed $6.6 million to our salaries and benefits. For existing practices and centers within our local markets, salaries and benefits increased $4.2 million due 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 $0.2 million, or 1.5%, from $15.7 million for the three months ended September 30, 2012 to $15.9 million for the three months ended September 30, 2013. Medical supplies as a percentage of total revenues decreased from 9.4% for the three months ended September 30, 2012 to 8.8% for the three months ended September 30, 2013. 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 $2.2 million of the increase was related to our development and expansion of several urology, medical oncology and surgery practices in Arizona, California, Florida, Nevada, New Jersey, New York, and North Carolina, as well as the acquisitions of treatment centers in existing local markets during the latter part of 2012 and 2013. In our remaining practices and centers in existing local markets, medical supplies decreased by approximately $2.0 million as certain chemotherapy drugs were increasingly administered through hospital settings under physician practice arrangements. These pharmaceuticals and chemotherapy medical supplies are principally reimbursable by third-party payers.

Facility rent expenses. Facility rent expenses increased by $1.3 million, or 12.9%, from $10.1 million for the three months ended September 30, 2012 to $11.4 million for the three months ended September 30, 2013. Facility rent expenses as a percentage of total revenues increased from 6.0% for the three months ended September 30, 2012 to 6.3% for the three months ended September 30, 2013. Facility rent expenses consist of rent expense associated with our treatment center locations.  Approximately $1.5 million of the increase was related to our development and expansion of several urology, medical oncology and surgery practices in Arizona, California, Florida, Nevada, New Jersey, New York, and North Carolina, as well as the acquisitions of treatment centers in existing local markets during the latter part of 2012 and 2013. Facility rent expense in our remaining practices and centers in existing local markets decreased by approximately $0.2 million.

Other operating expenses. Other operating expenses increased by $1.9 million or 18.8%, from $10.0 million for the three months ended September 30, 2012 to $11.9 million for the three months ended September 30, 2013.  Other operating expense as a percentage of total revenues increased from 6.0% for the three months ended September 30, 2012 to 6.6% for the three months ended September 30, 2013.  Other operating expenses consist of repairs and maintenance of equipment, equipment rental and contract labor.  Approximately $1.4 million of the increase was related to our development and

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expansion of several urology, medical oncology and surgery practices in Arizona, California, Florida, Nevada, New Jersey, New York, and North Carolina, as well as the acquisitions of treatment centers in existing local markets during the latter part of 2012 and 2013. Approximately $0.6 million relates to equipment rental expense relating to the equipment refinancing closed in September 2012. In our remaining practices and centers in existing local markets other operating expenses decreased approximately $0.1 million.

General and administrative expenses. General and administrative expenses increased by $5.8 million or 30.7%, from $19.1 million for the three months ended September 30, 2012 to $24.9 million for the three months ended September 30, 2013. 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 11.4% for the three months ended September 30, 2012 to 13.8% for the three months ended September 30, 2013.  The net increase of $5.8 million in general and administrative expenses was due to an increase of approximately $1.5 million relating to our development and expansion of several urology, medical oncology and surgery practices in Arizona, California, Florida, Nevada, New Jersey, New York, and North Carolina, as well as the acquisitions of treatment centers in existing local markets during the latter part of 2012 and 2013. In addition there was an increase of approximately $0.5 million related to expenses for consulting services for the CMS 2013/2014 fee schedule, $2.8 million in diligence costs relating to acquisitions and potential acquisitions of physician practices, $0.2 million relating to our rebranding initiatives and approximately $1.4 million in our remaining practices and treatments centers in our existing local markets offset by a decrease of approximately $0.6 million in litigation settlements with certain physicians.

Depreciation and amortization. Depreciation and amortization decreased by $0.6 million or 3.8%, from $16.7 million for the three months ended September 30, 2012 to $16.1 million for the three months ended September 30, 2013. Depreciation and amortization expense as a percentage of total revenues decreased from 10.0% for the three months ended September 30, 2012 to 8.9% for the three months ended September 30, 2013.  The change in depreciation and amortization was due to an increase of approximately $1.0 million relating to our development and expansion of several urology, medical oncology and surgery practices in Arizona, California, Florida, Nevada, New Jersey, New York, and North Carolina, as well as the acquisitions of treatment centers in existing local markets during the latter part of 2012 and 2013 offset by a decrease in our existing local markets by approximately $0.3 million, a decrease of approximately $0.9 million in amortization of our trade name and a decrease of approximately $0.4 million predominately due to the refinancing of certain medical equipment leases with a financial institution in September 2012 classified as prepaid rent.

Provision for doubtful accounts. The provision for doubtful accounts decreased by $1.6 million, or 30.6%, from $5.4 million for the three months ended September 30, 2012 to $3.8 million for the three months ended September 30, 2013.  The provision for doubtful accounts as a percentage of total revenues decreased from 3.2% for the three months ended September 30, 2012 to 2.1% for the three months ended September 30, 2013. We continued to reduce our provision for doubtful accounts as we made progress in improving the overall collection process, including centralization of the prior authorization process, with a 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 processes 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. These actions have resulted in improved collections and lower bad debt expense as a percentage of total revenues.

Interest expense, net. Interest expense, increased by $2.0 million, or 9.6%, from $20.0 million for the three months ended September 30, 2012 to $22.0 million for the three months ended September 30, 2013. The increase is primarily attributable to the senior secured second lien notes issued in May 2012 of approximately $350.0 million, the refinancing of our senior secured credit facility in August 2013 and additional capital lease financing.

Fair value adjustment of earn-out liability. On March 1, 2011, we purchased the remaining 67% interest in MDLLC from Bernardo Dosoretz as well as interests in the subsidiaries of MDLLC from Alejandro Dosoretz and Bernardo Dosoretz, resulting in an ownership interest of approximately 91% in the underlying radiation oncology practices located in South America, Central America, Mexico and the Caribbean. We also purchased an additional 61% interest in Clinica de Radioterapia La Asuncion S.A. from Bernardo Dosoretz, resulting in an ownership interest of 80%. We recorded an estimated contingent earn out payment totaling $2.3 million at the time of the closing of these acquisitions. The earn out payment was contingent upon certain acquired centers attaining earnings before interest, taxes, depreciation and amortization targets, is due 18 months subsequent to the transaction closing, and is payable through Company financing and issuance of equity units.  At September 30, 2012, we estimated the fair value of the contingent earn out liability and increased the liability due to the seller to approximately $3.6 million.  We made the earn-out payment in the quarter ended September 30, 2013and recorded the $1.3 million to expense in the fair value adjustment caption in the condensed consolidated statements of comprehensive loss.

Impairment loss. During the third quarter of 2012, we completed an interim impairment test for goodwill and indefinite-lived intangible assets as a result of our review of growth expectations and the release 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

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payments to freestanding radiation oncology providers.  In performing this test, we assessed the implied fair value of our goodwill and intangible assets. As a result, we recorded an impairment loss of approximately $69.9 million in 2012 primarily relating to goodwill impairment in certain of our reporting units, including Mid East United States (Northwest Florida, North Carolina, Southeast Alabama, South Carolina), Central South East United States (Delmarva Peninsula, Central Maryland, Central Kentucky, South New Jersey), California, South West United States (central Arizona and Las Vegas, Nevada), and Southwest Florida of approximately $69.8 million. In addition, during the third quarter of 2012, an impairment loss of approximately $0.1 million, was recognized related to the impairment of certain leasehold improvements of a planned radiation treatment facility office relocation in Monroe, Michigan in the Northeast U.S. region.

Loss on foreign currency derivative contracts.  We are exposed to a significant amount of foreign exchange risk, primarily between the U.S. dollar and the Argentine Peso.  This exposure relates to the provision of radiation oncology services to patients at our Latin American operations and purchases of goods and services in foreign currencies.   We maintain foreign currency derivative contracts which mature on a quarterly basis. For the three months ended September 30, 2013 and 2012, the expiration of the September 30, 2013 foreign currency derivative contract and the mark to market valuation of the remaining contracts resulted in a loss of approximately $0.1 million and $0.8 million, respectively.

Income taxes.  Our effective tax rate was (7.3)% for the three months ended September 30, 2013 and (1.9)% for the three months ended September 30, 2012. The change in the effective rate for the third quarter of 2013 compared to the same period of the year prior is primarily the result of 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.  Our relative mix of earnings for the three months ended September 30, 2012 was impacted by the recording of a noncash impairment charge relating to goodwill in the U.S. domestic reporting segment of $69.8 million. As a result, on an absolute dollar basis, the expense for income taxes was $1.7 million for the three months ended September 30, 2012 and 2013.

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 decreased by $65.4 million, from $90.5 million in net loss for the three months ended September 30, 2012 to $25.1 million net loss for the three months ended September 30, 2013.  Net loss represents 54.2% of total revenues for the three months ended September 30, 2012 and 13.8% of total revenues for the three months ended September 30, 2013.

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

	Nine Months Ended					Nine Months Ended
	September 30, 2013					September 30, 2012
Revenues:
Net patient service revenue	$	526,475		98.8	%	$	519,432		98.9	%
Other revenue	6,651			1.2		5,783			1.1
Total revenues	533,126			100		525,215			100
Expenses:
Salaries and benefits	293,972			55.1		276,199			52.6
Medical supplies	46,166			8.7		47,785			9.1
Facility rent expenses	32,285			6.1		29,634			5.6
Other operating expenses	33,155			6.2		28,663			5.5
General and administrative expenses	68,832			12.9		60,059			11.4
Depreciation and amortization	46,550			8.7		48,140			9.2
Provision for doubtful accounts	8,857			1.7		15,286			2.9
Interest expense, net	62,369			11.7		57,182			10.9
Gain on the sale of an interest in a joint venture	(1,460		)	(0.3	)	—			0.0
Early extinguishment of debt	—			0.0		4,473			0.9
Fair value adjustment of earn-out liability	—			0.0		1,261			0.2
Impairment loss	—			0.0		69,946			13.3
Loss on foreign currency transactions	1,166			0.2		234			0.0
Loss on foreign currency derivative contracts	309			0.1		1,006			0.2
Total expenses	592,201			111.1		639,868			121.8
Loss before income taxes	(59,075		)	(11.1	)	(114,653		)	(21.8	)
Income tax expense	4,849			0.9		3,254			0.6
Net loss	(63,924		)	(12.0	)	(117,907		)	(22.4	)
Net income attributable to noncontrolling interests — redeemable and non-redeemable	(1,365		)	(0.3	)	(3,231		)	(0.6	)
Net loss attributable to Radiation Therapy Services Holdings, Inc. shareholder	$	(65,289	)	(12.3	)%	$	(121,138	)	(23.0	)%

Comparison of the Nine Months Ended September 30, 2013 and 2012

Revenues

Net patient service revenue. For the nine months ended September 30, 2013 and 2012, net patient service revenue comprised 98.8% and 98.9%, respectively, of our total revenues.  In our net patient service revenue for the nine months ended September 30, 2013 and 2012, 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 30.0% and 28.6%, respectively, of our total revenues.

Other revenue. For the nine months ended September 30, 2013 and 2012, other revenue comprised approximately 1.2% and 1.1%, 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.

Total revenues. Total revenues increased by $7.9 million, or 1.5%, from $525.2 million for the nine months ended September 30, 2012 to $533.1 million for the nine months ended September 30, 2013. Total revenue was positively impacted by $31.6 million due to our expansion into new practices and treatments centers in existing local markets and new local markets during 2012 and 2013 through the acquisition of several urology, medical oncology and surgery practices in Arizona, California, Florida, Nevada, New Jersey, New York, North Carolina and the acquisition of physician radiation practices in Arizona, Florida, North Carolina, Mexico and the opening of two de novo centers and two hospital professional services arrangements transitioned to freestanding as follows:

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Date	Sites	Location	Market	Type
February 2012	1	Asheville, North Carolina	Western North Carolina	Acquisition
March 2012	2	Broward County — Florida	Broward County — Florida	Transition from Hospital-based to freestanding
March 2012	1	Lakewood Ranch — Florida	Sarasota/Manatee Counties — Florida	Acquisition
August 2012	1	Latin America	International (Argentina)	De Novo
May 2013	3	Cape Coral / Ft. Myers / Bonita Springs — Florida	Lee County — Florida	Acquisition
May 2013	2	Naples — Florida	Collier County — Florida	Acquisition
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 (Argentina)	De Novo (Hospital Campus)

Revenue from CMS for the 2013 PQRI program decreased approximately $1.5 million and revenues in our existing local markets and practices decreased by approximately $22.2 million.  The decrease in revenue in our existing local markets is predominately due to the reductions in RVUs for many of our treatment codes effective with the 2013 physician fee schedule, one less treatment day and treatment declines for 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. The decrease was partially offset by increased managed care pricing and organic growth.

Expenses

Salaries and benefits. Salaries and benefits increased by $17.8 million, or 6.4%, from $276.2 million for the nine months ended September 30, 2012 to $294.0 million for the nine months ended September 30, 2013. Salaries and benefits as a percentage of total revenues increased from 52.6% for the nine months ended September 30, 2012 to 55.1% for the nine months ended September 30, 2013.  Additional staffing of personnel and physicians due to our development and expansion of several urology, medical oncology and surgery practices in Arizona, California, Florida, Nevada, New Jersey, New York, and North Carolina, as well as the acquisitions of treatment centers in existing local markets during the latter part of 2012 and 2013 contributed $17.4 million to our salaries and benefits. In June 2012, we implemented a new equity-incentive plan, which provided stock compensation of $3.2 million for the nine months ended September 30, 2012 as compared to $0.5 million for the nine months ended September 30, 2013.  For existing practices and centers within our local markets, salaries and benefits increased $3.1 million due 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 decreased by $1.6 million, or 3.4%, from $47.8 million for the nine months ended September 30, 2012 to $46.2 million for the nine months ended September 30, 2013. Medical supplies as a percentage of total revenues decreased from 9.1% for the nine months ended September 30, 2012 to 8.7% for the nine months ended September 30, 2013. 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 $1.8 million of the increase was related to our development and expansion of several urology, medical oncology and surgery practices in Arizona, California, Florida, Nevada, New Jersey, New York, and North Carolina, as well as the acquisitions of treatment centers in existing local markets during the latter part of 2012 and 2013. In our remaining practices and centers in existing local markets, medical supplies decreased by approximately $3.4 million as certain chemotherapy drugs are administered through hospital settings under physician practice arrangements. These pharmaceuticals and chemotherapy medical supplies are principally reimbursable by third-party payers.

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Facility rent expenses. Facility rent expenses increased by $2.7 million, or 8.9%, from $29.6 million for the nine months ended September 30, 2012 to $32.3 million for the nine months ended September 30, 2013. Facility rent expenses as a percentage of total revenues increased from 5.6% for the nine months ended September 30, 2012 to 6.1% for the nine months ended September 30, 2013. Facility rent expenses consist of rent expense associated with our treatment center locations.  Approximately $3.0 million of the increase was related to our development and expansion of several urology, medical oncology and surgery practices in Arizona, California, Florida, Nevada, New Jersey, New York, and North Carolina, as well as the acquisitions of treatment centers in existing local markets during the latter part of 2012 and 2013. In March 2012 we paid approximately $0.4 million to terminate a lease for our Beverly Hills, California office we closed in March 2011. Facility rent expense in our remaining practices and centers in existing local markets increased by approximately $0.1 million.

Other operating expenses. Other operating expenses increased by $4.5 million or 15.7%, from $28.7 million for the nine months ended September 30, 2012 to $33.2 million for the nine months ended September 30, 2013.  Other operating expense as a percentage of total revenues increased from 5.5% for the nine months ended September 30, 2012 to 6.2% for the nine months ended September 30, 2013.  Other operating expenses consist of repairs and maintenance of equipment, equipment rental and contract labor.  Approximately $2.3 million of the increase was related to our development and expansion of several urology, medical oncology and surgery practices in Arizona, California, Florida, Nevada, New Jersey, New York, and North Carolina, as well as the acquisitions of treatment centers in existing local markets during the latter part of 2012 and 2013. Approximately $1.8 million relates to equipment rental expense relating to the equipment refinancing closed in September 2012. In our remaining practices and centers in existing local markets other operating expenses increased approximately $0.4 million.

General and administrative expenses. General and administrative expenses increased by $8.7 million or 14.6%, from $60.1 million for the nine months ended September 30, 2012 to $68.8 million for the nine months ended September 30, 2013. 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 11.4% for the nine months ended September 30, 2012 to 12.9% for the nine months ended September 30, 2013.  The net increase of $8.7 million in general and administrative expenses was due in part to an increase of approximately $2.7 million relating to our development and expansion of several urology, medical oncology and surgery practices in Arizona, California, Florida, Nevada, New Jersey, New York, and North Carolina, as well as the acquisitions of treatment centers in existing local markets during the latter part of 2012 and 2013. In addition there was an increase of approximately  $1.2 million related to expenses for consulting services for the CMS 2013/2014 fee schedule, $4.9 million in diligence costs relating to acquisitions and potential acquisitions of physician practices, $0.1 million in our remaining practices and treatments centers in our existing local markets offset by a decrease of approximately $0.2 million in litigation settlements with certain physicians.

Depreciation and amortization. Depreciation and amortization decreased by $1.6 million or 3.3%, from $48.1 million for the nine months ended September 30, 2012 to $46.5 million for the nine months ended September 30, 2013. Depreciation and amortization expense as a percentage of total revenues decreased from 9.2% for the nine months ended September 30, 2012 to 8.7% for the nine months ended September 30, 2013.  The change in depreciation and amortization was due to an increase of approximately $2.4 million relating to our development and expansion of several urology, medical oncology and surgery practices in Arizona, California, Florida, Nevada, New Jersey, New York, and North Carolina, as well as the acquisitions of treatment centers in existing local markets during the latter part of 2012 and 2013. An increase in capital expenditures related to our investment in advanced radiation treatment technologies in certain local markets increased our depreciation and amortization by approximately $0.2 million offset by a decrease of approximately $2.8 million in amortization of our trade name and a decrease of approximately $1.4 million predominately due to the refinancing of certain medical equipment leases with a financial institution in September 2012 classified as prepaid rent.

Provision for doubtful accounts. The provision for doubtful accounts decreased by $6.4 million, or 42.1%, from $15.3 million for the nine months ended September 30, 2012 to $8.9 million for the nine months ended September 30, 2013.  The provision for doubtful accounts as a percentage of total revenues decreased from 2.9% for the nine months ended September 30, 2012 to 1.7% for the nine months ended September 30, 2013. We continued to reduce our provision for doubtful accounts as we made progress in improving the overall collection process, including centralization of the prior authorization process, with a 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 processes 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. These actions have resulted in improved collections and lower bad debt expense as a percentage of total revenues.

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Interest expense, net. Interest expense, increased by $5.2 million, or 9.1%, from $57.2 million for the nine months ended September 30, 2012 to $62.4 million for the nine months ended September 30, 2013. The increase is primarily attributable to an increase of approximately $8.5 million of interest as a result of the senior secured second lien notes issued in May 2012 of approximately $350.0 million, the refinancing of our senior secured credit facility in August 2013 and additional capital lease financing, offset by a decrease in our interest rate swap expense of approximately $2.8 million and the write-off of loan costs of approximately $0.5 million in May 2012.

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.

Early extinguishment of debt.  We incurred approximately $4.5 million from the early extinguishment of debt as a result of the prepayment of the $265.4 million senior secured credit facility - Term Loan B and prepayment of $63.0 million senior secured credit facility - Revolving credit portion, which included the write-offs of $3.7 million in deferred financing costs and $0.8 million in original issue discount costs.

Fair value adjustment of earn-out liability. On March 1, 2011, we purchased the remaining 67% interest in MDLLC from Bernardo Dosoretz as well as interests in the subsidiaries of MDLLC from Alejandro Dosoretz and Bernardo Dosoretz, resulting in an ownership interest of approximately 91% in the underlying radiation oncology practices located in South America, Central America, Mexico and the Caribbean. We also purchased an additional 61% interest in Clinica de Radioterapia La Asuncion S.A. from Bernardo Dosoretz, resulting in an ownership interest of 80%. We recorded an estimated contingent earn out payment totaling $2.3 million at the time of the closing of these acquisitions. The earn out payment was contingent upon certain acquired centers attaining earnings before interest, taxes, depreciation and amortization targets, is due 18 months subsequent to the transaction closing, and was payable through Company financing and issuance of equity units.  At September 30, 2012, we estimated the fair value of the contingent earn out liability and increased the liability due to the seller to approximately $3.6 million.  We made the earn-out payment in the quarter ended September 30, 2013 and recorded the $1.3 million to expense in the fair value adjustment caption in the condensed consolidated statements of comprehensive loss.

Impairment loss.  During the third quarter of 2012, we completed an interim impairment test for goodwill and indefinite-lived intangible assets as a result of our review of growth expectations and the release 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.  In performing this test, we assessed the implied fair value of our goodwill and intangible assets. As a result, we recorded an impairment loss of approximately $69.9 million in 2012 primarily relating to goodwill impairment in certain of our reporting units, including Mid East United States (Northwest Florida, North Carolina, Southeast Alabama, South Carolina), Central South East United States (Delmarva Peninsula, Central Maryland, Central Kentucky, South New Jersey), California, South West United States (central Arizona and Las Vegas, Nevada), and Southwest Florida of approximately $69.8 million. In addition, during the third quarter of 2012, an impairment loss of approximately $0.1 million, was recognized related to the impairment of certain leasehold improvements of a planned radiation treatment facility office relocation in Monroe, Michigan in the Northeast U.S. region.

Loss on foreign currency derivative contracts.  We are exposed to a significant amount of foreign exchange risk, primarily between the U.S. dollar and the Argentine Peso.  This exposure relates to the provision of radiation oncology services to patients at our Latin American operations and purchases of goods and services in foreign currencies.   We maintain foreign currency derivative contracts which mature on a quarterly basis. For the nine months ended September 30, 2013 and 2012, the expiration of the September 30, 2013 foreign currency derivative contract and the mark to market valuation of the remaining contracts resulted in a loss of approximately $0.3 million and $1.0 million, respectively.

Income taxes.  Our effective tax rate was (8.2)% for the nine months ended September 30, 2013 and (2.8)% for the nine months ended September 30, 2012. The change in the effective rate for the nine months ended September 30, 2013 compared to the same period of the year prior is primarily the result of the relative mix of earnings and tax rates across jurisdictions, the application of ASC 740-270 to exclude certain jurisdictions for which we are unable to benefit from losses and the income tax benefit associated with the termination of the interest rate swap in the first quarter of 2012.  Our relative mix of earnings for the nine months ended September 30, 2012 was impacted by the recording of a noncash impairment charge relating to goodwill in the U.S. domestic reporting segment of $69.8 million. As a result, on an absolute dollar basis, the expense for income taxes changed by $1.5 million from the income tax expense of $3.3 million for the nine months ended September 30, 2012 to an income tax expense of $4.8 million for the nine months ended September 30, 2013.

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.

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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 decreased by $54.0 million, from $117.9 million in net loss for the nine months ended September 30, 2012 to $63.9 million net loss for the nine months ended September 30, 2013.  Net loss represents 22.4% of total revenues for the nine months ended September 30, 2012 and 12.0% of total revenues for the nine months ended September 30, 2013.

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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.  34 of our 132 radiation treatment centers are located in Florida.

Liquidity and Capital Resources

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.

Cash Flows From Operating Activities

Net cash provided by operating activities for the nine month periods ended September 30, 2012 and 2013 was $23.1 million and $2.6 million, respectively.

Net cash provided by operating activities decreased by $20.5 million from $23.1 million in the nine month period ended September 30, 2012 to $2.6 million for the nine month period ended September 30, 2013 predominately due to a decrease in cash flow due to the reductions in RVUs for many of our treatment codes effective with the 2013 physician fee schedule and increased interest costs. On May 10, 2012, we issued $350.0 million in aggregate principal amount of 8 7/8% Senior Secured Second Lien Notes due 2017. 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, and to pay related fees and expenses. We continue to see improvements in our cash collections from our accounts receivable with our days sales outstanding improving from 39 days to 35 days.

Cash at September 30, 2013 held by our foreign subsidiaries was $4.6 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 anticipate we can adequately fund our domestic operations from cash flows generated solely from our U.S. business. 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 nine month periods ended September 30, 2012 and 2013 was $47.2 million and $56.6 million, respectively.

Net cash used in investing activities increased by $9.4 million from $47.2 million for the nine month period ended September 30, 2012 to $56.6 million for the nine month period ended September 30, 2013.  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, New Jersey 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. In July 2013, we purchased the remaining 38.0% interest in a joint venture radiation facility, located in Woonsocket, Rhode Island from a hospital partner for approximately $1.5 million. In July 2013 we purchased a company, which operates a radiation treatment center in Tijuana, Mexico for approximately $1.6 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.

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In 2012, net cash used in investing activities was impacted by approximately $0.9 million in cash paid for the assets of a radiation oncology practice and a medical oncology group located in Asheville, North Carolina in February 2012 and approximately $21.9 million in cash paid for the assets of a radiation oncology practice and two urology groups located in Sarasota/Manatee counties in Southwest Florida in March 2012 and the purchase of affiliated integrated cancer care physician practices of approximately $0.9 million. During 2012, we entered into foreign exchange option contracts expiring on September 2013 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 $0.5 million.

Cash Flows From Financing Activities

Net cash provided by financing activities for the nine month period ended September 30, 2012 and 2013 was $41.9 million and $71.1 million, respectively.

Net proceeds from revolving credit facility during 2012 was predominately used for the purchase of the assets of a radiation oncology practice and two urology groups located in Sarasota/Manatee counties in Southwest Florida in March 2012.  Net proceeds from revolving credit facility during 2013 was predominately used to fund our acquisitions of medical practices in 2013 and for the 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.

On May 10, 2012, we completed an offering of $350.0 million in aggregate principal amount of  87/8% Senior Secured Second Lien Notes due 2017, with an original issue discount of $1.7 million.  The proceeds of $348.3 million was used to prepay and cancel $265.4 million in senior secured credit facility - Term Loan B, prepayment of $63.0 million in senior secured credit facility - revolving credit portion and payment of accrued interest and fees of approximately $0.8 million.  In addition, we paid approximately $14.4 million of loan costs relating to transaction fees and expenses incurred in connection with the issuance of the 87/8% Senior Secured Second Lien Notes and a new revolving credit facility. The remaining net proceeds were used for general corporate purposes.

On August 28, 2013, we entered into an Amendment Agreement (the “Amendment Agreement”) to the credit agreement among us, the Company, 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.

We had partnership distributions from non-controlling interests of approximately $3.2 million and $1.9 million in 2012 and 2013, 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

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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. On August 22, 2013, we issued $3.8 million of   97/8% Senior Subordinated Notes due 2017 to Alejandro Dosoretz pursuant to the terms of an Earnout Agreement relating to the MDLLC Acquisition.

In August 2011, we entered into a lease line of credit with a financial institution for the purpose of obtaining financing for medical equipment purchases in the commitment amount of $12.5 million.  The commitment, subject to various restrictions, is scheduled to be available through November 2011.  We had utilized approximately $8.7 million under the lease line of credit.

Senior Secured Second Lien Notes

On May 10, 2012, we issued $350.0 million in aggregate principal amount of 87/8% 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).

Interest is payable on the Secured Notes on each May 15 and November 15, commencing November 15, 2012. We may redeem some or all of the Secured Notes at any time prior to May 15, 2014 at a price equal to 100% of the principal amount of the Secured Notes redeemed plus accrued and unpaid interest, if any, and an applicable make-whole premium. On or after May 15, 2014, we may redeem some or all of the Secured Notes at redemption prices set forth in the Secured Notes Indenture. In addition, at any time prior to May 15, 2014, we may redeem up to 35% of the aggregate principal amount of the Secured Notes, at a specified redemption price with the net cash proceeds of certain equity offerings.

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 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 will be used for general corporate purposes.

Credit Agreement

On May 10, 2012, we entered into the Credit Agreement (the “Credit Agreement”) among 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 an Amendment Agreement (the “Amendment Agreement”) to the credit agreement among 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

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respect of eurocurrency 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 ½ 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) for us and certain of our 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 our subsidiaries to make distributions, advances and asset transfers.  In addition, as of the last business day of each month, we 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 under the Credit Facilities are guaranteed by us and certain of our direct and indirect wholly-owned domestic subsidiaries.

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 the Company’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 September 30, 2013		Level at September 30, 2013
Minimum permitted unrestricted cash and cash equivalents plus availability under the Revolving Credit Facility	>$	15.0 million	$	124.2 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 September 30, 2013.

We believe available borrowings under our credit facilities, together with our cash flows from operations, will be sufficient to fund our currently anticipated operating requirements. To the extent available borrowings and cash flows from operations are insufficient to fund future requirements, negotiate additional credit facilities with other lenders or institutions or seek additional capital through private placements or public offerings of equity or debt securities. No assurances can be given that we will be able to extend or increase our senior secured credit facilities, secure additional bank borrowings or lease line of credit or complete additional debt or equity financings 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 senior secured credit facilities.

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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.

As of March 31, 2010, the related party lessors completed the refinancing of certain of their respective mortgages to remove the personal guarantees of the debt related thereto. As a result, we derecognized approximately $64.8 million in real estate subject to finance obligation, $67.7 million in finance obligation and recorded approximately $2.9 million of deferred gains that will be amortized as a reduction of rent expense over 15 years. In addition, we entered into a new master lease arrangement with the landlord on 28 properties. The initial term of the master lease is 15 years with four 5 year renewal options. Annual payments, including executory costs, total approximately $13.4 million pursuant to the master lease. The lease payments are scheduled to increase annually based on increases in the consumer price index. During 2011 the related party lessors completed construction of 2 properties. Upon completion we entered into a new master lease arrangement with the related party lessors for these 2 properties as well as an existing property. The initial term of the new master lease arrangement is 15 years with four 5 year renewal options.  Annual payments, including executory costs, total approximately $0.7 million pursuant to the master lease. The lease payments are scheduled to increase annually based on increases in the consumer price index. The amount of finance obligations related to properties that have not been derecognized as well as two properties under development as of September 30, 2013 and December 31, 2012 was $22.4 million and $17.2 million, respectively.

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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 85% 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 debts 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.

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Acquisitions and Developments

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

	Year Ended December 31,				Nine Months Ended September 30,
	2011		2012		2013
Treatment centers at beginning of period	95		127		126
Internally developed / reopened	1		2		2
Transitioned to freestanding	—		2		—
Internally (consolidated / closed / sold)	(5	)	(3	)	(3	)
Acquired	33		2		7
Hospital-based / other groups	3		(2	)	—
Hospital-based (ended / transitioned)	—		(2	)	—
Treatment centers at period end	127		126		132
Number of regions at period end	9		9		9
Number of local markets at period end	28		28		28

On March 1, 2011, we purchased the remaining 67% interest in MDLLC from Bernardo Dosoretz as well as interests in the subsidiaries of MDLLC from Alejandro Dosoretz and Bernardo Dosoretz, resulting in an ownership interest of approximately 91% in the underlying radiation oncology practices located in South America, Central America, Mexico and the Caribbean. The Company also purchased an additional 61% interest in Clinica de Radioterapia La Asuncion S.A. from Bernardo Dosoretz, resulting in an ownership interest of 80%. The Company consummated these acquisitions for a combined purchase price of approximately $82.7 million, comprised of $47.5 million in cash, 25 common units of Parent immediately exchanged for 13,660 units of RT Investments’ non-voting preferred equity units and 258,955 units of RT Investments’ class A equity units totaling approximately $16.25 million, and issuance of a 97/8% note payable, due 2017 totaling approximately $16.05 million to the seller and an estimated contingent earn out payment totaling $2.3 million, and issuance of real estate located in Costa Rica totaling $0.6 million. The earn out payment is contingent upon certain acquired centers attaining earnings before interest, taxes, depreciation and amortization targets, is due 18 months subsequent to the transaction closing, and is payable through Company financing and issuance of equity units.

In June 2011, we entered into an outpatient radiation therapy management services agreement with a medical group to manage its radiation oncology treatment site in London, Kentucky.

In July 2011, we entered into a revised facility management services agreement with an existing provider in Michigan. The provider will become a subsidiary of a larger medical practice group, in which we will continue the management of the radiation oncology practices in Michigan. This arrangement became effective during the fourth quarter of 2011.

In August 2011, we completed a replacement de novo radiation treatment facility in Alabama. This facility replaces an existing radiation treatment facility in which we are now providing consult services.

On August 29, 2011, we acquired the assets of a radiation treatment center located in Redding, California, for approximately $9.6 million. The acquisition of the Redding facility further expands our presence into the Northern California market.

In September 2011, we entered into a professional services agreement with a hospital district in Broward County, Florida to provide professional services at two sites within the hospital district. 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 November 4, 2011, we purchased an 80% interest in an operating entity, which operates 1 radiation treatment center in Argentina; an 80% interest in another operating entity, which operates 3 radiation treatment centers in Argentina; and a 96% interest in an operating entity, which operates 1 radiation treatment center in Argentina. The combined purchase

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price of the ownership interests totals approximately $7.4 million, comprised of $2.1 million in cash, seller financing totaling approximately $4.0 million payable over 24 monthly installments, commencing January 2012, and a purchase option totaling approximately $1.3 million. The acquisition of these operating treatment centers expands our presence in the international markets. In November 2012, we exercised our purchase option to purchase the remaining interest for approximately $1.4 million.

On December 22, 2011, we acquired the interest in an operating entity which operates two radiation treatment centers in located in North Carolina, for approximately $6.3 million, including an earn-out provision of approximately $0.4 million contingent upon maintaining a certain level of patient volume. On April 16, 2012 we acquired certain additional assets utilized in one of the radiation oncology centers for approximately $0.4 million including an earn-out provision of approximately $0.4 million contingent upon maintaining a certain level of patient volume. The acquisition of the two radiation treatment centers further expands our presence into the eastern North Carolina market.

During 2011, we acquired the assets of several physician practices in Florida and the non-professional practice assets of several North Carolina physician practices for approximately $0.4 million. The physician practices provide synergistic clinical services to our patients in the respective markets in which we provide radiation therapy treatment services.

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 integrated cancer care 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 integrated cancer care 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 integrated cancer care physician practices in Arizona, California and Florida for approximately $1.7 million. The physician practices provide synergistic clinical services and an integrated cancer care 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 integrated cancer care 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 $5.0 million to purchase a 55.0% interest in a joint venture which included an additional radiation physician practice and an expansion of an integrated cancer care 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.

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During 2013, we acquired the assets of several physician practices in Arizona, North Carolina, and New Jersey for approximately $0.1 million. The physician practices provide synergistic clinical services and an integrated cancer care service to our 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 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.

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.

During the first quarter of 2011, we closed two treatment facilities in California, one in Beverly Hills and the other facility in Corona. In addition we are no longer treating at our Gilbert Arizona facility and we are using the center for our other specialty practices for office visits and consults.

In July 2011, we closed a radiation treatment facility in Las Vegas, Nevada.

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

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.

In June 2013, we entered into a “stalking horse” investment agreement to acquire OnCure Holdings, Inc. (together with its subsidiaries, “OnCure”) upon effectiveness of its plan of reorganization under Chapter 11 of the U.S. Bankruptcy Code for approximately $125.0 million, including $42.5 million in cash (plus covering certain expenses and subject to working capital adjustments) and up to $82.5 million in assumed debt ($7.5 million of assumed debt will be released assuming certain OnCure centers achieve a minimum level of EBITDA). We funded an initial deposit of approximately $5.0 million into an escrow account and is reflected as restricted cash on our balance sheet.

         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 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

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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.

We believe that the acquisition of OnCure offers the potential for substantial strategic and financial benefits. The transaction will enhance our scale, increasing the number of radiation centers by over 25%.  It will provide opportunity for us to leverage our infrastructure and footprint to achieve significant operating synergies.  In addition, it will broaden and deepen our ability to offer advanced cancer care to patients throughout the U.S. and offers significant expansion opportunity for integrated cancer care model across the combined portfolio.

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.

As of September 30, 2013, we have four additional de novo radiation treatment centers located in New York, Bolivia, Dominican Republic and North 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. We expect to invest approximately $10,000,000 in the project and will have an approximate 28.5% ownership interest. On October 3, 2013, NYU Langone Medical Center sent a 60 day notice of withdrawal from the consortium. Unless this notice is rescinded, this will result in an increase in our equity interest by approximately 3%, with an increased capital investment of approximately $2.0 million. We will also receive a management fee of 5% of collected revenues. In connection with our role as manager, 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

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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.

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) income.  If our overall estimated allowance for contractual discounts on our revenues for the year ended December 31, 2012 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 nine months ended September 30, 2013 and 2012, approximately 45% 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, 2012, our after-tax loss from continuing operations would change by approximately $0.5 million and our net accounts receivable would change by approximately $0.9 million at December 31, 2012. 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.

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Goodwill and Other Intangible Assets

On July 8, 2013, the Centers for Medicare and Medicaid Services (“CMS”), the government agency responsible for administering the Medicare program released its 2014 preliminary physician fee schedule.  The preliminary physician fee schedule proposes a 5% rate reduction on Medicare payments to freestanding radiation oncology providers. CMS provides a 60 day comment period and the final rule is expected in late November.  If the final rule maintains the current proposed rate reductions, we may record an impairment charge for goodwill and indefinite-lived intangibles assets. We expect the final ruling to be released in late November, 2013. As a result our operating results could be materially impacted if the proposed rate decrease is implemented.

Goodwill represents the excess purchase price over the estimated fair value of net assets acquired by the Company 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. 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. During the third quarter of 2011 we recognized goodwill impairment of approximately $226.5 million and trade name impairment of approximately $8.4 million as a result of our review of growth expectations and the release of the final rule issued on the physician fee schedule for 2012 by CMS on November 1, 2011, which included certain rate reductions on Medicare payments to freestanding radiation oncology providers.  During the fourth quarter of 2011 we incurred an impairment loss of approximately $121.6 million. Approximately $49.8 million of the $121.6 million related to the trade name impairment as a result of our rebranding initiative.  The remaining $71.8 million of impairment related to goodwill in certain of our reporting units.

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. Intangible assets impairment loss was recognized for the year ended December 31, 2011 of approximately $58.2 million relating to our trade name and rebranding initiatives. No intangible asset impairment loss was recognized for the years ended December 31, 2012 and 2010.

During the second quarter of 2011, certain of our regions’ patient volume have stabilized in their respective markets. Although we have had a stabilization of patient volume, we reviewed our anticipated growth expectations in certain of our reporting units and are considering adjusting our expectations for the remainder of the year. If our previously projected cash flows for these reporting units are not achieved, it may be necessary to revise these estimated cash flows and obtain a valuation analysis and appraisal that will enable us to determine if all or a portion of the recorded goodwill or any portion of other long-lived assets are impaired.

During the third quarter of 2011, we completed an interim impairment test for goodwill and indefinite-lived intangible assets. In performing this test, we assessed the implied fair value of our goodwill and intangible assets. We determined that the carrying value of goodwill and trade name in certain U.S. Domestic markets, including North East United States (New York, Rhode Island, Massachusetts and southeast Michigan), California, South West United States

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(central Arizona and Las Vegas, Nevada), the Florida east coast, Northwest Florida and Southwest Florida regions exceeded their fair value. Accordingly, we recorded noncash impairment charges in the U.S. Domestic reporting segment totaling $234.9 million relating to goodwill and trade name in the consolidated statements of operations for the quarter ended September 30, 2011.

During the fourth quarter of 2011, we decided to rebrand our current trade name of 21st Century Oncology.  As a result of the rebranding initiative and concurrent with our annual impairment test for goodwill and indefinite-lived intangible assets, we incurred an impairment loss of approximately $121.6 million. Approximately $49.8 million of the $121.6 million related to the trade name impairment as a result of our rebranding initiative.  The remaining $71.8 million of impairment relating to goodwill in certain of our reporting units, including North East United States, (New York, Rhode Island, Massachusetts and southeast Michigan), and California, Southwest U.S. (Arizona and Nevada). The remaining domestic U.S. trade name of approximately $4.6 million will be amortized over its remaining useful life through December 31, 2012.  We incurred approximately $0.9 million in amortization expense during the fourth quarter.  In addition, we impaired certain deposits on equipment of approximately $0.7 million and $0.8 million in leasehold improvements relating to a planned radiation treatment facility office closing in Baltimore, Maryland.

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 equity grants, we 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 Company then uses the option pricing method to determine the fair value of equity units at the time of grant using the following assumptions: a term of five years, which is based on the expected term in which the units will be realized; a risk-free interest rate of 1.96% and 0.53% for grants issued in 2010 and 2011, respectively, which is the five-year U.S. federal treasury bond rate consistent with the term assumption; and expected volatility of 50% and 55% for grants issued in 2010 and 2011, respectively, which is based on the historical data of equity instruments of comparable companies.

For purposes of determining the compensation expense associated with the 2012 equity-based incentive plan grants, management valued 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 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.

For 2010 and 2011, the estimated fair value of the units, less an assumed forfeiture rate of 2.7%, is recognized in expense in the Company’s financial statements on a straight-line basis over the requisite service periods of the awards for Class B Units. For Class B Units, the requisite service period is 48 months, and for Class C Units, the requisite service period is 34 months only if probable of being met. The assumed forfeiture rate is based on an average historical forfeiture rate.

For 2012, 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 assumed forfeiture rate is based on an average historical forfeiture rate.

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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, 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.  The valuation allowance increased approximately $36.8 million from $45.5 million in 2011. The valuation allowance remained unchanged at September 30, 2013.

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 22 state jurisdictions, the Netherlands, and throughout Latin America, namely, Argentina, Bolivia, 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 2012, we closed a US Federal income tax examination for tax years 2007 through 2008.  All issues proposed have been agreed to with the exception of interest and penalties for which an accrual of $2.2 million is recorded. 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 FASB issued ASU 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 is effective for us on January 1, 2014. We are currently assessing the impact of this guidance on our financial statements.

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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.

Item 3.     Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Sensitivity

We are exposed to various market risks as a part of our operations, and we anticipate that this exposure will increase as a result of our planned growth. In an effort to mitigate losses associated with these risks, we may at times enter into derivative financial instruments. These derivative financial instruments may take the form of forward sales contracts, option contracts, and interest rate swaps. We have not and do not intend to engage in the practice of trading derivative securities for profit. Because our borrowings under our senior secured credit facilities will bear interest at variable rates, we are sensitive to changes in prevailing interest rates. We currently manage part of our interest rate risk under an interest rate swap agreement.

Interest Rate Swap

We are exposed to changes in interest rates as a result of our outstanding variable rate debt. To reduce the interest rate exposure, we entered into an interest rate swap agreement whereby we fixed the interest rate on the notional amount of approximately $290.6 million of our senior secured term loan facility, effective as of June 30, 2008. The rate and maturity of the interest rate swap is 3.67% plus a margin, which was 425 basis points, and expired on March 31, 2012. The amount of our senior secured term loan facility subject to the interest rate swap agreement will reduce from $290.6 million to $116.0 million by the end of the term. In December 2011, we terminated the interest rate swap agreement and paid approximately $1.9 million representing the fair value of the interest rate hedge at time of termination.  At December 31, 2011 no amount of the floating rate senior debt was subject to an interest rate swap.

In July 2011, we entered into two interest rate swap agreements whereby we fixed the interest rate on the notional amounts totaling approximately $116.0 million of our senior secured term loan facility, effective as of March 30, 2012. The rate and maturity of the interest rate swap agreements are 0.923% plus a margin, which was 475 basis points, and was scheduled to expire on December 31, 2013. In May 2012, the Company terminated the interest rate swap agreements and paid approximately $1.0 million representing the fair value of the interest rate hedges at time of termination.  No ineffectiveness was recorded as a result of the termination of the interest rate swap agreement.  The amount of accumulated other comprehensive loss related to the terminated interest rate swap agreements of approximately $1.0 million, net of tax is reflected as interest expense in the condensed consolidated statements of operations and comprehensive loss.

The swaps were derivatives and were accounted for under ASC 815, “Derivatives and Hedging” (“ASC 815”). The fair value of the swap agreements, representing the estimated amount that we would pay to a third party assuming our obligations under the interest rate swap agreements terminated at December 31, 2012 and December 31, 2011, was approximately $-0- million and $0.7 million, respectively. The estimated fair value of our interest rate swaps were determined using the income approach that considers various inputs and assumptions, including LIBOR swap rates, cash flow activity, yield curves and other relevant economic measures, all of which are observable market inputs that are classified under Level 2 of the fair value hierarchy. The fair value also incorporates valuation adjustments for credit risk.

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Since we have the ability to elect different interest rates on the debt at each reset date, and our senior secured credit facility contains certain prepayment provisions, the hedging relationship does not qualify for use of the shortcut method under ASC 815. Therefore, the effectiveness of the hedge relationships are assessed on a quarterly basis during the life of the hedge through regression analysis. The entire change in fair market value is recorded in equity, net of tax, as other comprehensive income (loss).

Interest Rates

Outstanding balances under our senior secured credit facility bear interest based on either LIBOR plus an initial spread, or an alternate base rate plus an initial spread, at our option. Accordingly, an adverse change in interest rates would cause an increase in the amount of interest paid. As of September 30, 2013, we have interest rate exposure on $-0- million of our senior secured credit facility. A 100 basis point change in interest rates on our senior secured credit facility would result in an increase of $-0- million in the amount of annualized interest paid and annualized interest expense recognized in our condensed consolidated financial statements.

Foreign currency derivative contracts

Foreign currency risk is the risk that fluctuations in foreign exchange rates could impact our results of operations. We are exposed to a significant amount of foreign exchange risk, primarily between the U.S. dollar and the Argentine Peso. This exposure relates to the provision of radiation oncology services to patients at our Latin American operations and purchases of goods and services in foreign currencies. Since our acquisition of Medical Developers, each quarter we have entered into foreign exchange option contracts that expire in one year. We did not enter into any hedge agreements during the quarters ended June 30, and September 30, 2013 due to a combination of the volatility in the Argentine Peso and the cost and potential benefit of such hedges. Because our Argentine forecasted foreign currency denominated net income is expected to increase commensurate with inflationary expectations, the adverse impact on net income from a weakening Argentine Peso against the U.S. dollar is limited to the amount of the Argentine Peso’s weakening relative to the U.S. Dollar above the local inflation rate less the economic benefit of hedges in place (if any) and less the cost of the option contracts in effect, which was approximately $0.3 million at September 30, 2013. With respect to a strengthening Argentine Peso against the U.S. dollar versus inflationary expectations, the estimated favorable impact on net income for an Argentine Peso that is 5%, 10% and 15% stronger than inflationary expectations, will be $(0.1) million, $0.0 million and $0.1 million to our consolidated results, respectively, which includes the cost of the option contracts in effect. Under our foreign currency management program, we expect to monitor foreign exchange rates and periodically enter into forward contracts and other derivative instruments. We do not use derivative financial instruments for speculative purposes.

These programs reduce, but do not entirely eliminate, the impact of currency exchange movements. Foreign currency forward and option contracts are sensitive to changes in foreign currency exchange rates. Our current practice is to use currency derivatives without hedge accounting designation. The maturity of these instruments generally occurs within twelve months. Gains or losses resulting from the fair valuing of these instruments are reported in loss on foreign currency derivative contracts on the condensed consolidated statements of operations and comprehensive loss. For nine months ended September 30, 2013 and 2012, we incurred a loss of approximately $0.3 million and $1.0 million, respectively, relating to the fair market valuation of our foreign currency derivative program.

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Item 4. Controls and Procedures

We maintain disclosure controls and procedures to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC, and is accumulated and communicated to management, including the President and Chief Executive Officer and the Chief Financial Officer, to allow for timely decisions regarding required disclosure. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures.

As of September 30, 2013, we completed an evaluation under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on our evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were not effective as of the end of the period covered by this quarterly report due to the material weakness that we identified in the fourth quarter 2012 related to the valuation of goodwill. As this control is an annual control that we will perform and test during the fourth quarter 2013 we have not been able to perform and test it as of September 30, 2013.

During the quarter ended September 30, 2013, we implemented certain changes to our internal control over financial reporting to address the material weakness in our internal control over financial reporting that was identified during the year ended December 31, 2012.

The Company has developed a specific action plan to enhance the reliability and effectiveness of our control procedures. We believe that these actions and the resulting improvements in controls address the material weakness relating to the valuation of goodwill that we identified as of December 31, 2012. As part of our 2013 assessment of internal control over financial reporting, we will test and evaluate these additional controls to assess whether they are operating effectively.

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PART II

OTHER INFORMATION

Item 1.     Legal Proceedings.

We are involved in certain legal actions and claims that arise in the ordinary course of our business.  We do not believe that an adverse decision in any of these matters would have a material adverse effect on our consolidated financial position, results of operations or cash flows.

Item 1A. Risk Factors.

You should carefully consider the “Risk Factors” section of the Form 10-K in evaluating us and our business before making an investment decision.  The specific risk factors set forth below were included in our Form 10-K risk factors and have been updated to provide information as of September 30, 2013.  There have been no other material changes from the risk factors previously disclosed in the Form 10-K in response to Item 1A. to Part I of the Form 10-K.  If any of the risks identified herein or in the Form 10-K, or any other risks and uncertainties that we have not yet identified or that we currently believe are not material, actually occur and are material it could harm our business, financial condition and results of operations.

We depend on payments from government Medicare and, to a lesser extent, Medicaid programs for a significant amount of our revenue. Our business could be materially harmed by any changes that result in reimbursement reductions.

Our payer mix is concentrated with Medicare patients due to the high proportion of cancer patients over the age of 65. We estimate that approximately 48%, 48%, 45% and 45% of our U.S. domestic net patient service revenue for the years ended December 31, 2010, 2011, 2012 and for the nine months ended September 30, 2013, respectively, consisted of payments from Medicare and Medicaid. Only a small percentage of that revenue resulted from Medicaid payment. These government programs generally reimburse us on a fee-for-service basis based on predetermined government reimbursement rate schedules. As a result of these reimbursement schedules, we are limited in the amount we can record as revenue for our services from these government programs. The Centers for Medicare & Medicaid Services (“CMS”) can change these schedules and therefore the prices that the agency pays for these services. In addition, if our operating costs increase, we will not be able to recover these costs from government payers. As a result, our financial condition and results of operations may be adversely affected by changes in reimbursement for Medicare reimbursement. Various state Medicaid programs also have recently reduced Medicaid payments to providers based on state budget reductions. Although Medicaid reimbursement encompasses only a small portion of our business, there can be no certainty as to whether Medicaid reimbursement will increase or decrease in the future and what affect, if any, this will have on our business.

In the final Medicare 2013 Physician Fee Schedule, CMS reduced payments for radiation oncology by 7 percent.  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 percent of the gross reduction) reflected the transition of the final 25 percent of PPIS data used in the Practice Expense Relative Value Unit (PERVU) methodology.  The change in the CMS interest rate policy (accounting for 3 percent of the gross reduction) reduced interest rate assumptions in the CMS database from 11 percent to a sliding scale of 5.5 percent to 8 percent.  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 percent of the gross reduction).  While this policy benefited primary care, non-primary care physicians are impacted due to the budget-neutrality of the PFS.  The rule also made adjustments (accounting for 1 percent of the gross reduction) due to the use of new time of care assumptions for intensity-modulated radiation therapy (IMRT) and stereotactic body radiation therapy (SBRT).  Although the proposed reductions in time of care assumptions alone would have resulted in a gross 7 percent 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 percent increase due to certain other revised radiation oncology codes, which resulted in a total net reduction to radiation oncology of 7 percent.

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In the proposed Medicare 2014 Physician Fee Schedule, CMS proposes to reduce payments for radiation oncology by 5 percent overall.  This reduction relates to (1) a cap on certain radiation oncology services at the 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 apply to freestanding settings, the cut to freestanding centers would likely be closer to 8%, while hospital-based radiation oncologists receive an increase in payment under the proposal.  CMS notes in the proposed rule, due to budget neutrality requirements relating to the MEI policy, the 2014 conversion factor is estimated to be $35.665 (assuming no SGR cuts), rather than the current 2013 conversion factor of $34.023.

Medicare reimbursement rates for all procedures under Medicare also are determined by a formula which takes into account a conversion factor (“CF”) which is updated on an annual basis based on the sustainable growth rate (“SGR”).  The CF was scheduled to decrease 24.9% as of January 1, 2011, but Congress delayed the scheduled cut until the end of 2011. The final Medicare 2012 Physician Fee Schedule, released by CMS on November 1, 2011, would have resulted in a reimbursement decrease of 27.4% as of January 1, 2012. However, Congress again delayed the implementation of this payment cut, first through February 29, 2012 under the Temporary Payroll Tax Cut Continuation Act of 2011, then through the end of 2012 under the Middle Class Tax Relief and Job Creation Act of 2012, and again through the end of 2013 under the American Taxpayer Relief Act. If future reductions are not suspended, and if a permanent “doc fix” is not signed into law, the currently scheduled SGR reimbursement decrease (estimated at approximately 21%) will take effect on January 1, 2014.

In addition, the Joint Select Committee on Deficit Reduction (“JSC”) was created under the Budget Control Act of 2011 and signed into law on August 2, 2011. Under the law, unless the JSC could achieve $1.2 trillion in savings, an across-the-board sequestration would occur on January 2, 2013, and each subsequent year through 2021, to achieve $1.2 trillion in savings. On November 21, 2011, the JSC released a statement indicating the committee would be unable to reach agreement, thereby clearing the way for the sequestration process. Unless Congress acts to reverse the cuts, Medicare providers will be cut under the sequestration process by two percent each year relative to baseline spending through 2021. On January 2, 2013, the President signed the American Taxpayer Relief Act, which extended the sequestration order required under the Budget Control Act until March 1, 2013. On March 1, 2013, President Obama issued the required sequestration order and, pursuant to 2 U.S.C. 906, the two percent Medicare sequester began to take effect for services provided on or after April 1, 2013.

Reforms to the United States healthcare system may adversely affect our business.

National healthcare reform remains a focus at the federal level. On March 21, 2010, the House of Representatives passed the Patient Protection and Affordable Care Act, and the corresponding reconciliation bill. President Obama signed the larger comprehensive bill into law on March 23, 2010 and the reconciliation bill on March 30, 2010 (collectively, the “Health Care Reform Act”). The comprehensive $940 billion dollar overhaul could extend coverage to approximately 32 million previously uninsured Americans.

A significant portion of our U.S. domestic patient volume is derived from government healthcare programs, principally Medicare, which are highly regulated and subject to frequent and substantial changes. We anticipate the Health Care Reform Act will significantly affect how the healthcare industry operates in relation to Medicare, Medicaid and the insurance industry. The Health Care Reform Act contains a number of provisions, including those governing fraud and abuse, enrollment in federal healthcare programs, and reimbursement changes, which will impact existing government healthcare programs and will result in the development of new programs, including Medicare payment for performance initiatives and improvements to the physician quality reporting system and feedback program. We can give no assurance that the Health Care Reform Act will not adversely affect our business and financial results, and we cannot predict how future federal or state legislative or administrative changes relating to healthcare reform would affect our business.

On June 28, 2012, the United States Supreme Court upheld the constitutionality of the Health Care Reform Act’s “individual mandate” that will require individuals as of 2014 to either purchase health insurance or pay a penalty. The Supreme Court also held, however, that the federal government cannot force states to expand their Medicaid programs by threatening to cut their existing Medicaid funds. As a result of this decision, states are left with a choice about whether to expand their Medicaid programs to cover low-income, non-disabled adults without children. In addition, certain members of Congress continue to introduce legislation that would repeal or significantly amend the Health Care Reform Act. Because of the continued uncertainty about the implementation of the Health Care Reform Act, we cannot predict the impact of the law or any future reforms on our business.

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Our substantial debt could adversely affect our financial condition.

We have $850.1 million of total debt outstanding. Subject to the limits contained in the indenture governing our notes and our senior secured credit facilities, we may be able to incur additional debt from time to time to finance working capital, capital expenditures, investments or acquisitions, or for other purposes. If we do so, the risks related to our high level of debt could intensify. 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 our 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. We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available to us in an amount sufficient to enable us to service our debt, to refinance our debt or to fund our other liquidity needs. If we are unable to meet our debt obligations or to fund our other liquidity needs, we will need to restructure or refinance all or a portion of our debt, which could cause us to default on our debt obligations and impair our liquidity. Any refinancing of our indebtedness could be at higher interest rates and may require us to comply with more onerous covenants which could further restrict our business operations.

We may encounter numerous business risks in acquiring and developing additional treatment centers, and may have difficulty operating and integrating those treatment centers.

Over the past three years ended December 31, 2012, we have acquired 37 treatment centers and developed 4 treatment centers. When we acquire or develop additional treatment centers, we may:

·be unable to successfully operate the treatment centers;

·have difficulty integrating their operations and personnel;

·be unable to retain radiation oncologists or key management personnel;

·acquire treatment centers with unknown or contingent liabilities, including liabilities for failure to comply with healthcare laws and regulations;

·experience difficulties with transitioning or integrating the information systems of acquired treatment centers;

·be unable to contract with third-party payers or attract patients to our treatment centers; and/or

·experience losses and lower gross revenues and operating margins during the initial periods of operating our newly-developed treatment centers.

Larger acquisitions can substantially increase our potential exposure to business risks. Furthermore, integrating a new treatment center could be expensive and time consuming, and could disrupt our ongoing business and distract our management and other key personnel.

We may continue to explore acquisition opportunities outside of the United States when favorable opportunities are available to us. In addition to the risks set forth herein, foreign acquisitions involve unique risks including the particular economic, political and regulatory risks associated with the specific country, currency risks, the relative uncertainty regarding laws and regulations and the potential difficulty of integrating operations across different cultures and languages.

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We currently plan to continue to acquire and develop new treatment centers in existing and new local markets. We may not be able to structure economically beneficial arrangements in new markets as a result of healthcare laws applicable to such market or otherwise. If these plans change for any reason or the anticipated schedules for opening and costs of development are revised by us, we may be negatively impacted. There can be no assurance that these planned treatment centers will be completed or that, if developed, will achieve sufficient patient volume to generate positive operating margins. If we are unable to timely and efficiently integrate an acquired or newly-developed treatment center, our business could suffer. In addition, we may incur significant transaction fees and expenses even for potential transactions that are not consummated.

We cannot assure you that we will achieve the revenue, and benefits identified in this offering memorandum from completed acquisitions or that we will achieve synergies and cost savings or benefits in connection with future acquisitions. In addition, many of the businesses that we have acquired and will acquire have unaudited financial statements that have been prepared by the management of such companies and have not been independently reviewed and audited. We cannot assure that the financial statements of companies we have acquired or will acquire would not be materially different if such statements were audited. Finally, we cannot assure you that we will continue to acquire businesses at valuations consistent with our prior acquisitions or that we will complete acquisitions at all.

We are exposed to local business risks in different countries, which could have a material adverse effect on our financial condition or results of operations.

We have significant operations in foreign countries. Currently, we operate through 23 legal entities in Argentina, the Dominican Republic, Costa Rica, Guatemala, Mexico and El Salvador, in addition to our operations in the United States. Our offshore operations are subject to risks inherent in doing business in foreign countries, including, but not necessarily limited to:

·new and different legal and regulatory requirements in local jurisdictions, which may conflict with U.S. laws;

·local economic conditions;

·potential staffing difficulties and labor disputes;

·increased costs of transportation or shipping;

·credit risk and financial conditions of government, commercial and patient payers;

·risk of nationalization of private enterprises by foreign governments;

·potential imposition of restrictions on investments;

·potential declines in government and/or private payer reimbursement amounts for our services;

·potentially adverse tax consequences, including imposition or increase of withholding and other taxes on remittances and other payments by subsidiaries;

·foreign currency exchange restrictions and fluctuations; and

·local political and social conditions, including the possibility of hyperinflationary conditions and political instability in certain countries.

We may not be successful in developing and implementing policies and strategies to address the foregoing factors in a timely and effective manner at each location where we do business. Consequently, the occurrence of one or more of the foregoing factors could have a material adverse effect on our international operations or upon our financial condition and results of operations.

Further, our international operations require us to comply with a number of United States and international regulations. For example, we must comply with U.S. economic sanctions and export control laws in connection with exports of products and services, and we must comply with the Foreign Corrupt Practices Act (“FCPA”), which prohibits U.S. companies or their agents and employees from providing anything of value to a foreign official or agent thereof for the purposes of influencing any act or decision of these individuals in their official capacity to help obtain or retain business, direct business to any person or corporate entity or obtain any unfair advantage. Any failure by us to ensure that our employees and agents comply with the FCPA, economic sanctions and export controls, and applicable laws and regulations in foreign jurisdictions could result in substantial penalties or restrictions on our ability to conduct business in certain foreign jurisdictions, and our results of operations and financial condition could be materially and adversely affected.

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In addition, local governments may take actions that are adverse to our interests and our business. For example, in 2012 Argentina’s government nationalized the country’s largest oil and gas company via taking a 51% stake. While no such proposal has been made or threatened with respect to any businesses in the Argentine healthcare sector, we have significant operations in Argentina and any such development could have a material adverse effect on our international operations or upon our financial condition and results of operations.

Our international subsidiaries accounted for $67.7 million and $61.1 million or 12.7% and 11.6%, of our revenues for the nine months ended September 30, 2013 and 2012, respectively.

Our financial results may suffer if we have to write-off goodwill or other intangible assets.

A significant portion of our total assets consist of goodwill and other intangible assets. Goodwill and other intangible assets, net of accumulated amortization, accounted for approximately 55.2% and 56.4% of the total assets on our balance sheet as of September 30, 2013 and December 31, 2012, respectively. We may not realize the value of our goodwill or other intangible assets. We expect to engage in additional transactions that will result in our recognition of additional goodwill or other intangible assets. We evaluate on a regular basis whether events and circumstances have occurred that indicate that all or a portion of the carrying amount of goodwill or other intangible assets may no longer be recoverable, and is therefore impaired. Under current accounting rules, any determination that impairment has occurred would require us to write-off the impaired portion of our goodwill or the unamortized portion of our intangible assets, resulting in a charge to our earnings. Such a write-off could have a material adverse effect on our financial condition and results of operations. For the year ended December 31, 2010, we wrote-off approximately $91.2 million in goodwill as a result of our annual impairment test and an additional $2.5 million as a result of closing certain radiation treatment centers. For the year ended December 31, 2011, we wrote-off approximately $360.6 million in goodwill, trade name, leasehold improvements and other investments as a result of our annual impairment testing of our goodwill and indefinite-lived intangible assets and rebranding initiatives relating to our trade name. For the year ended December 31, 2012, we wrote-off approximately $81.0 million in goodwill and leasehold improvements as a result of our interim impairment testing of our goodwill and indefinite-lived intangible assets.

On July 8, 2013, the Centers for Medicare and Medicaid Services (“CMS”), the government agency responsible for administering the Medicare program released its 2014 preliminary physician fee schedule.  The preliminary physician fee schedule proposes a 5% rate reduction on Medicare payments to freestanding radiation oncology providers. CMS provides a 60 day comment period and the final rule is expected in late November.  If the final rule maintains the current proposed rate reductions, we may record an impairment charge for goodwill and indefinite-lived intangibles assets. We expect the final ruling to be released in late November, 2013. As a result our operating results could be materially impacted if the proposed rate decrease is implemented.

We are addressing a previous material weakness with respect to our internal controls.

In connection with the audit of our consolidated financial statements as of and for the year ended December 31, 2012, we identified a material weakness in internal controls relating to the valuation of goodwill. We have taken steps since then to remediate the internal control weakness.  During 2013, we continued remediation over the valuation of goodwill. As we further optimize and refine our goodwill valuation processes, we will review the related controls and may take additional steps to ensure that they remain effective and are integrated appropriately. While we implement the procedures described above and will continue to take further steps in the near future to strengthen further our internal controls, there can be no assurance that we will not identify control deficiencies in the future or that such deficiencies will not have a material impact on our operating results or financial statements.

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Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3.     Defaults Upon Senior Securities.

None.

Item 4.     Mine Safety Disclosures.

Not applicable.

Item 5.     Other Information.

(a)    None.

(b)None.

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Item 6.      Exhibits.

Exhibit
Number	Description
4.1	Indenture, dated as of October 25, 2013, by and among OnCure Holdings, Inc., its subsidiaries named therein, Radiation Therapy Services Holdings, Inc., Radiation Therapy Services, Inc. and its subsidiaries named therein and Wilmington Trust, National Association, as trustee and collateral agent, incorporated by reference to Exhibit 4.1 to Radiation Therapy Services Holdings, Inc.’s Current Report on Form 8-K filed on October 30, 2013.
4.2	First Supplemental Indenture, dated as of October 30, 2013 by and among OnCure Holdings, Inc., the guarantors named therein, and Wilmington Trust, National Association, as trustee and collateral agent, to the Indenture, dated as May 10, 2012, by and among Radiation Therapy Services, Inc., the guarantors named therein and Wilmington Trust, National Association, as trustee and collateral agent.
4.3	Eighth Supplemental Indenture, dated as of August 22, 2013, among Radiation Therapy Services, Inc., the guarantors named therein and Wells Fargo Bank, National Association, as trustee, to the Indenture, dated as of April 20, 2010, by and among Radiation Therapy Services, Inc., each guarantor named therein and Wells Fargo Bank, National Association, as trustee.
4.4	Ninth Supplemental Indenture, dated as of October 30, 2013, among Radiation Therapy Services, Inc., the guarantors named therein and Wells Fargo Bank, National Association, as trustee, to the Indenture, dated as of April 20, 2010, by and among Radiation Therapy Services, Inc., each guarantor named therein and Wells Fargo Bank, National Association, as trustee.
10.1	Amendment Agreement, dated as of August 28, 2013, among Radiation Therapy Services, Inc., Radiation Therapy Services Holdings, Inc., the subsidiaries identified therein, the lenders signatory thereto and Wells Fargo Bank, National Association as administrative agent and collateral agent, incorporated by reference to Exhibit 10.1 to Radiation Therapy Services Holdings, Inc.’s Current Report on Form 8-K filed on August 29, 2013.
10.2	Supplement No. 1 dated as of October 30, 2013 to the Guaranty and Collateral Agreement, dated as of May 10, 2012.
10.3	Supplement No. 2 dated as of October 30, 2013 to the Guaranty and Collateral Agreement, dated as of May 10, 2012.
31.1	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	The following financial information from Radiation Therapy Services Holdings, Inc. Quarterly Report on Form 10-Q for the period September 30, 2013, formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Balance Sheet at September 30, 2013 and December 31, 2012 (ii) the Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2013 and 2012 (iii) the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2013 and 2012 (iv) Notes to Interim Condensed Consolidated Financial Statements.

+              Management contracts and compensatory plans and arrangements.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	RADIATION THERAPY SERVICES HOLDINGS, INC.
Date:    November 14, 2013
By:	/s/ BRYAN J. CAREY
	Bryan J. Carey
	Chief Financial Officer

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