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================================================================================

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                ------------------------------------------------

                            Washington, D.C.  20549
                            -----------------------

                                   FORM 10-K
(Mark One)
[X]    Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
       Act of 1934

       For the fiscal year ended December 31, 2000

                                      OR

[_]    Transition report pursuant to Section 13 or 15(d) of the Securities
       Exchange Act of 1934

                        Commission file number 0-26190

                               US ONCOLOGY, INC.

            (Exact name of registrant as specified in its charter)
            ------------------------------------------------------
                 Delaware                             84-1213501
     (STATE OR OTHER JURISDICTION OF               (I.R.S. EMPLOYER
     INCORPORATION OR ORGANIZATION)                IDENTIFICATION NO.)

16825 Northchase Drive, Suite 1300, Houston, Texas      77060
    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)          (ZIP CODE)

      Registrant's telephone number, including area code:  (832) 601-8766

          Securities registered pursuant to Section 12(b) of the Act:

                                     None

          Securities registered pursuant to Section 12(g) of the Act:

                         Common Stock ($.01 par value)
                               (TITLE OF CLASS)

                   Series A Preferred Stock Purchase Rights
                               (TITLE OF CLASS)

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

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  [X]

     The aggregate market value of the voting stock held by non-affiliates of
the Registrant as of March 16, 2001 was $ 801,514,881 (based upon the closing
sales price of the Common Stock on The Nasdaq Stock Market on March 16, 2001 of
$9.00 per share).  For purposes of this calculation, shares held by non-
affiliates exclude only those shares beneficially owned by executive officers,
directors and stockholders beneficially owning 10% or more of the outstanding
Common Stock.

     There were 94,208,297 shares of the Registrant's Common Stock outstanding
on March 16, 2001.  In addition, as of March 16, 2001, the Registrant had agreed
to deliver  approximately 10,166,393 shares of its Common Stock on certain
future dates for no additional consideration.

                      DOCUMENTS INCORPORATED BY REFERENCE

            Portions of the Registrant's Proxy Statement issued in
           connection with the Registrant's 2001 Annual Meeting of
       Stockholders are incorporated by reference into Part III hereof.

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PART I

Item 1.  Business

     US Oncology, Inc. (together with its subsidiaries, "US Oncology" or the
"Company") provides comprehensive services, with the mission of expanding access
and quality of cancer care in local communities and advancing the delivery of
care.  The Company offers the following services:

     .    Develop, construct and manage free standing cancer centers that
          provide treatment areas and equipment for medical oncology, radiation
          therapy and diagnostic radiology

     .    Expand diagnostic capabilities of practices through installation and
          management of Positron Emission Tomography (PET) technology

     .    Coordinate and manage cancer drug research trials for pharmaceutical
          and biotechnology companies

     .    Purchase and manage the inventory for cancer related drugs for
          affiliated practices

     .    Provide management and capital resources to affiliated practices,
          including data management, accounting, compliance and other
          administrative services

     The Company provides these services to oncology practices comprising over
450 sites, with over 7,500 employees and over 850 physicians.  The Company is
not a provider of medical services.  The affiliated practices offer
comprehensive and coordinated medical services to cancer patients, integrating
the specialties of medical and gynecologic oncology, hematology, radiation
oncology, diagnostic radiology and blood and marrow stem cell transplantation.

     On June 15, 1999, a wholly owned subsidiary of the Company merged with
Physician Reliance Network, Inc. ("PRN"), a cancer management company.  As a
result of the merger, PRN became a wholly owned subsidiary of US Oncology, and
each holder of PRN common stock received 0.94 shares of the Company's common
stock for each PRN share held.  This transaction, which is referred to as the
"AOR/PRN merger", was accounted for under the pooling of interests method of
accounting and treated as a tax-free exchange.  The Company's financial
statements included in this report have been retroactively restated to combine
the accounts of US Oncology (formerly known as American Oncology Resources, Inc.
("AOR")) and PRN for all periods presented using their historical bases.

     The Company was incorporated in October 1992 under the laws of the State of
Delaware.  The Company's principal executive offices are located at 16825
Northchase Drive, Suite 1300, Houston, Texas, and its telephone number is (832)
601-8766.

Affiliation Structure

     The Company's structure enables its practices to retain their autonomy
through ownership of and participation in their local professional corporation
or other entity, thereby maintaining local authority and control over medical
practice decisions.  The Company believes that this local governance structure
is critical to its success.

     In connection with affiliating with a practice, the Company enters into a
service agreement with the practice and purchases the practice's nonmedical
assets.  In consideration of these arrangements, the Company typically delivers
cash and subordinated promissory notes and agrees to deliver shares of its
Common Stock at specified future dates (typically on the second through fifth
anniversaries of the closing date).  In addition, in most of the Company's
practices, each affiliated physician enters into an employment or noncompetition
agreement with the practice.  The Company does not provide medical care to
patients or employ any of the clinical staff of its practices who provide
medical care.  However, under the terms of the service agreements with the
practices, the Company is responsible for the compensation and benefits of the
practices' non-physician medical personnel, and the financial statements of the
Company reflect the costs of such compensation and benefits.

     The service agreements with the practices generally have contractual terms
of 40 years.  These agreements cannot be terminated by the practices or the
Company without cause.  As consideration for the Company's services, each
agreement provides for payment to the Company of a service fee and reimbursement
of all practice costs.  Some of the service agreements, known as the "earnings
model" agreements, provide that this fee is a percentage of the practice's
earnings before

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income taxes. In others, known as "net revenue model" agreements, the fee
consists of a fixed fee, a percentage fee (in most states) of the practice's net
revenues and, if certain financial and performance criteria are met, a
performance fee. Where the Company's service agreement follows the net revenue
model, the practice is entitled to retain a fixed portion of net revenue before
the service fee (other than practice operating costs) is paid to the Company.
The Company is currently in the process of trying to convert net revenue model
agreements to the earnings model.

Company Strategy and Initiatives

     The provision of cancer care is a significant and growing market.  The
Company expects that as the U.S. population grows and ages, and further progress
is made towards earlier diagnosis of and more effective treatment for cancer,
the market will continue to grow.  The Company believes that the coordinated
delivery of comprehensive cancer care in an outpatient setting offers high
quality care that is more cost-effective than other approaches and is
increasingly preferred by patients, payors and physicians. US Oncology's network
of more than 7,500 employees and 850 physicians provides advanced, coordinated
cancer treatment at more than 450 sites throughout the country, including 72
integrated cancer centers. The practices in this network care for more than
500,000 cancer patients a year, more than any other non-governmental medical
organization in the world. As the world's largest community-based healthcare
network devoted exclusively to cancer treatment and research, US Oncology is
uniquely poised to meet the needs of the cancer patient community, while at the
same time improving its and its affiliated practices' financial and strategic
position.

     US Oncology believes that it adds significant value to the financial
results and operating activities of its affiliated practices that is not
available to oncology practices outside the US Oncology network.  By providing
(a) capital investment and management expertise to develop integrated,
outpatient cancer treatment centers, (b) the purchasing power of a group
purchasing organization for pharmaceuticals and other supplies and (c)
comprehensive management of the practices' day-to-day operations and strategic
planning, US Oncology is able to deliver tangible economic and operational
benefit to the practices while providing the tools to its practices to offer
comprehensive and coordinated care to their patients.  The size and scope of our
network affords demonstrable benefits to our practices and their patients,
including the sharing of clinical outcomes data, coordinated public policy
initiatives, access to the latest clinical research trials and access to the
latest in diagnostic and treatment technology, all close to patients' homes.

     An example of the strength of the US Oncology network is the continuing
growth of the pre-distribution operating income of the practices. Pre-
distribution operating income is the income of our practices, before income
taxes, depreciation and amortization, and before amounts retained by practices.
Pre-distribution income increased by 17% during 2000 and by 22% during the
fourth quarter of 2000. This success, however, also demonstrates one of the
Company's challenges, because during the same period the Company's operating
income, excluding one-time charges, did not grow, meaning that the practices,
and not the Company, were the beneficiaries of this increase in operating
income. Although pre-distribution operating income of the affiliated practices
continues to grow, the cost of cancer care, particularly drug costs, has
continued to rise, and the lack of earnings growth for the Company is a result
of its disproportionately bearing the economic impact of these cost increases in
markets under net revenue model agreements. Furthermore, in addition to having a
negative impact on the Company's financial performance and not fully aligning
Company and practice incentives regarding costs, this anomaly in the net revenue
model has prevented the Company from fully investing in, and realizing the
growth potential of, markets operating under the net revenue model. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

     The Company has commenced a network-wide initiative to convert its net
revenue model service agreements to the earnings model, and the Company has
commenced negotiations to terminate certain agreements that it does not believe
will attain satisfactory performance under either model.  The Company has, as of
March 16, 2001, successfully converted three service agreements under the net
revenue model and is encouraged by the prospects of converting other service
agreements.

Competition

     The business of providing health care services is highly competitive.  The
Company's profitability depends on the continued success of its affiliated
practices.  These practices face competition from several sources, including
sole practitioners, single- and multi-specialty practices, hospitals and managed
care organizations.

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Regulation

     General.  The health care industry is highly regulated, and there can be no
assurance that the regulatory environment in which the Company and its practices
operate will not change significantly and adversely in the future.  In general,
regulation and scrutiny of health care providers and related companies are
increasing.

     There are currently several federal and state initiatives relating to the
provision of health care services, the legal structure under which those
services are provided, access to health care, disclosure of health care
information, costs of health care and the manner in which health care providers
are reimbursed for their services.  It is not possible to predict whether any
such initiatives will be enacted or, if enacted, what their form, effective
dates or impact on the Company will be.

     The Company's affiliated practices are intensely regulated at the federal,
state and local levels.  Although these regulations often do not directly apply
to the Company, to the extent a practice is found to have violated any of these
regulations and, as a result, suffers a decrease in its revenues or an increase
in costs, the Company's results of operations might be materially and adversely
affected.

     Licensing and Certificate of Need Requirements.  Every state imposes
licensing requirements on clinical staff, individual physicians and on
facilities operated by healthcare providers.  Many states require regulatory
approval, including certificates of need, before (1) establishing certain types
of health care facilities, (2) offering certain services or (3) expending
amounts in excess of statutory thresholds for health care equipment, facilities
or programs.

     Privacy Regulations.  The Department of Health and Human Services published
new privacy regulations on December 28, 2000 under the Health Insurance
Portability and Accountability Act of 1996 ("HIPAA").  Currently, the privacy
regulations are subject to further comment or revision by the new executive
administration.  When final, the privacy regulations may impact the operations
of the Company with respect to the transfer of data between the Company and the
affiliated practices.  Already adopted in final form, and also a part of HIPAA,
are security and electronic signature standards that regulate how the Company
maintains personally identifiable health information in its databases.  The
Company believes it is taking appropriate measures to comply with these
requirements, which will require significant expenditures by the Company.

     Fee-Splitting; Corporate Practice of Medicine.  The laws of many states
prohibit physicians from splitting professional fees with non-physicians and
prohibit non-physician entities, such as the Company, from practicing medicine
and from employing physicians to practice medicine.  The laws in most states
regarding the corporate practice of medicine have been subjected to limited
judicial and regulatory interpretation.  The Company believes its current and
planned activities do not constitute fee-splitting or the practice of medicine
as contemplated by these laws.  However, there can be no assurance that future
interpretations of such laws will not require structural and organizational
modification of the Company's existing relationships with the practices.  In
addition, statutes in some states in which the Company does not currently
operate could require the Company to modify its affiliation structure.

     Medicare/Medicaid Fraud and Abuse Provisions.  Federal law prohibits the
offer, payment, solicitation or receipt of any form of remuneration in return
for the referral of Medicare or state health program patients or patient care
opportunities, or in return for the purchase, lease or order of any item or
service that is covered by Medicare or a state health program.  Pursuant to this
law, the federal government has pursued a policy of increased scrutiny of
transactions among health care providers in an effort to reduce potential fraud
and abuse relating to government health care costs.

     The Medicare and Medicaid anti-kickback amendments (the "Anti-Kickback
Amendments") provide criminal penalties for individuals or entities
participating in the Medicare or Medicaid programs who knowingly and willfully
offer, pay, solicit or receive remuneration in order to induce referrals for
items or services reimbursed under such programs.  In addition to federal
criminal penalties, the Social Security Act provides for civil monetary
penalties and exclusion of violators from participation in the Medicare or
Medicaid programs.

     A violation of the Anti-Kickback Amendments requires the existence of all
of these elements:  (i) the offer, payment, solicitation or receipt of
remuneration; (ii) the intent to induce referrals; (iii) the ability of the
parties to make or influence referrals of patients; (iv) the provision of
services that are reimbursable under any governmental health programs; and (v)
patient coverage under any governmental program.  The Company believes that all
compensation it receives is for its comprehensive services.  The Company also
believes that it is not in a position to make or influence referrals of patients
or services reimbursed under any governmental health programs to its practices.
Consequently, the Company does not believe

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<PAGE>

that the service fees payable to it should be viewed as remuneration for
referring or influencing referrals of patients or services covered by such
programs as prohibited by the Anti-Kickback Amendments. To the Company's
knowledge, there have been no case law decisions regarding service agreements
similar to the Company's that would indicate that such agreements violate the
Anti-Kickback Amendments. Further, the Company believes that since it is not a
provider of medical services, and is not in a position to refer patients to any
particular medical practice, the remuneration it receives for providing services
does not violate the Anti-Kickback Amendments. Because of the breadth of the
Anti-Kickback Amendments and the government's active enforcement thereof, there
can be no assurance, however, that future interpretations of such laws will not
require modification of the Company's existing relationships with practices.

     Prohibitions of Certain Referrals.  The Omnibus Budget Reconciliation Act
of 1993 ("OBRA") includes a provision that significantly expands the scope of
the Ethics in Patient Referral Act, also known as the "Stark Bill."  The Stark
Bill originally prohibited a physician from referring a Medicare or Medicaid
patient to any entity for the provision of clinical laboratory services if the
physician or a family member of the physician had an ownership interest in or
compensation relationship with the entity.  The revisions to the Stark Bill
prohibit a referral to an entity in which the physician or a family member has
an ownership interest or compensation relationship if the referral is for any of
a list of "designated health services."  The Stark Bill and its current and
future regulations apply directly to physicians, not to the Company.  There can
be no assurance, however, that interpretations of such laws will not indirectly
affect the Company's existing relationships with affiliated practices.

     Antitrust.  The Company and its affiliated practices are subject to a range
of antitrust laws that prohibit anti-competitive conduct, including price
fixing, concerted refusals to deal and division of markets.  The Company
believes it is in compliance with these laws, but there can be no assurance that
a review of the Company or its practices would not result in a determination
that could adversely affect the operations of the Company and its affiliated
practices.

     Reimbursement Requirements.  In order to participate in the Medicare and
Medicaid programs, the Company's affiliated practices must comply with stringent
reimbursement regulations, including those that require many health care
services to be conducted "incident to" a physician's supervision.  Satisfaction
of all reimbursement requirements is required under the Company's compliance
program.  The practices' failure to comply with these requirements could
negatively affect the Company's results of operations.

     Enforcement Environment.  In recent years, federal and state governments
have launched several initiatives aimed at uncovering practices that violate the
federal civil and criminal laws regarding false claims and fraudulent billing
and coding practices.  Such laws require practices to adhere to complex
reimbursement requirements regarding proper billing and coding in order to be
compensated for medical services by governmental payors.  The Company's
compliance program requires adherence to applicable law and promotes
reimbursement education and training; however, because the Company performs
services for its practices, it is likely that governmental investigations or
lawsuits regarding practices' compliance with reimbursement requirements would
also encompass the activities of the Company.  A determination that billing and
coding practices of the affiliated practices are false or fraudulent could have
a material adverse effect on the Company.

     The Federal False Claims Act is a frequently employed vehicle for
identifying and enforcing billing, reimbursement and other regulatory
violations.  In addition to the government bringing claims under the Federal
False Claims Act, qui tam, or "whistleblower", actions may be brought by private
individuals on behalf of the government.  A violation under the False Claims Act
occurs each time a claim is submitted to the government or each time a false
record is used to get a claim approved, when the claim is false or fraudulent
and the defendant acted knowingly.  Under the False Claims Act, defendants face
exclusion from the Medicare/Medicaid programs and monetary damages of $5,500 to
$11,000 for each false claim, as well as treble damages.

     Compliance.  The Company has a comprehensive compliance program designed to
assist the Company, its employees and its practices in complying with applicable
law.  The Company regularly monitors developments in health care law and
modifies its agreements and operations from time to time as the business and
regulatory environment changes.  While the Company believes it will be able to
structure all of its agreements and operations in accordance with applicable
law, there can be no assurance that its arrangements will not be successfully
challenged.

Employees

     As of December 31, 2000, the Company directly employed 3,202 people.  In
addition, as of December 31, 2000, the affiliated practices employed 4,514
people (excluding the affiliated physicians).  Under the terms of the service
agreements

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with the affiliated practices, the Company is responsible for the practice
compensation and benefits of the practices' non-physician medical personnel. No
employee of the Company or of any affiliated practice is a member of a labor
union or subject to a collective bargaining agreement. The Company considers its
relations with its employees to be good.

Service Marks

     The Company has registered the service mark "US Oncology" with the United
States Patent and Trademark Office.

ITEM 2.  PROPERTIES

     The Company leases its corporate headquarters in Houston, Texas.  The
Company or the practices own, lease or sublease the facilities where the
clinical staffs provide medical services.  In connection with the development of
integrated cancer centers, the Company has acquired land valued at approximately
$19.7 million.  The Company anticipates that, as its practices grow, expanded
facilities will be required.

     In addition to conventional medical office space, the Company has developed
comprehensive cancer centers that are generally free-standing facilities in
which a full range of outpatient cancer treatment services is offered in one
facility.  At December 31, 2000, the Company operated 72 integrated cancer
centers and had seven cancer centers under development.  Of the 72 cancer
centers operated by the Company, 48 are leased by the Company and 24 are owned,
ranging in size from 4,700 Sq. Ft. to 112,400 Sq. Ft.

ITEM 3.  LEGAL PROCEEDINGS

     The provision of medical services by the Company's affiliated practices
entails an inherent risk of professional liability claims.  The Company does not
control the practice of medicine by the clinical staff or the compliance with
regulatory and other requirements directly applicable to practices.  Because the
practices purchase and resell pharmaceutical products, they face the risk of
product liability claims.  The Company maintains insurance coverage that it
believes to be adequate both as to risks and amounts.  In addition, pursuant to
the services agreements with the affiliated practices, the practices and the
Company are required to maintain comprehensive liability insurance.  Successful
malpractice, regulatory or product liability claims asserted against the Company
or one of the practices could, however, have a material adverse effect on the
Company.

     The Company has previously disclosed that it and a formerly affiliated
practice are the subject of allegations that the practice's billing practices
may violate the Federal False Claims Act.  These allegations are contained in
two qui tam complaints, commonly referred to as "whistle-blower" lawsuits, filed
under seal prior to the AOR/PRN merger.  The U.S. Department of Justice has
determined that it will not intervene in one of those qui tam suits.  In that
suit, the individual who filed the complaint may choose to continue to pursue
litigation in the absence of government intervention, but has not yet indicated
an intent to do so.  The Department continues to investigate the other suit, but
has not made a decision regarding intervention.  The Company understands that
the Department is interested in resolving the suit in the near future, but there
can be no assurance that a settlement will be reached.

     The Company has become aware that it and certain of its subsidiaries and
affiliated practices are the subject of additional qui tam lawsuits that remain
under seal, meaning that they were filed on a confidential basis with a United
States federal court and are not publicly available or disclosable.
Furthermore, the Company may from time to time in the future become aware of
additional qui tam lawsuits.  To date, the United States has not intervened in
any such suit against the Company.  Because the complaints are under seal, and
because the Department of Justice and the Company are in the process of
investigating the claims, the Company is unable to assess at this time the
materiality of these lawsuits.  Because qui tam actions are filed under seal,
there is a possibility that the Company could be the subject of other qui tam
actions of which it is unaware.  The Company intends to continue to investigate
and vigorously defend itself against any and all such claims, and the Company
continues to believe that it conducts its operations in compliance with law.

     Qui tam suits are brought by private individuals, and there is no minimum
evidentiary or legal threshold for bringing such a suit.  However, the
Department of Justice is legally required to investigate all such claims.  The
subject matter of many such claims may relate both to alleged actions of the
Company and alleged actions of an affiliated practice.  Because the affiliated
practices are separate legal entities not controlled by the Company, such claims
necessarily involve a more complicated, higher cost defense, and may adversely
impact the relationship between the Company and the practices.  If the
individuals who file complaints and/or the United States were to prevail in
these claims against the Company, and the magnitude of the alleged wrongdoing
were determined to be significant, the resulting judgment could have a material
adverse

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effect on the Company. In addition, addressing complaints and government
investigations requires the Company to devote significant financial and other
resources to the process, regardless of the ultimate outcome of the claims.

     The Company and its affiliated physicians are defendants in a number of
lawsuits involving employment and other disputes and breach of contract claims.
Although the Company believes the allegations are customary for the Company's
size and scope of operations, adverse judgments, individually or in the
aggregate, could have a material adverse effect on the Company.

FORWARD-LOOKING STATEMENTS AND RISK FACTORS

     The following are or may contain forward-looking statements within the
meaning of the U.S. federal securities laws:  (i) certain statements, including
possible or assumed future results of operations of US Oncology, contained in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," (ii) any statements contained herein regarding the prospects for
the Company's business or any of its services; (iii) any statements preceded by,
followed by or that include the words "believes", "expects", "anticipates",
"intends", "estimates", "plans" or similar expressions; and (iv) other
statements contained herein regarding matters that are not historical facts.

     US Oncology's business and results of operations are subject to risks and
uncertainties, many of which are beyond the Company's ability to control or
predict.  Because of these risks and uncertainties, actual results may differ
materially from those expressed or implied by forward-looking statements, and US
Oncology stockholders are cautioned not to place undue reliance on such
statements, which speak only as of the date thereof.

     Factors that could cause actual results to differ materially include, but
are not limited to, government regulation and enforcement, reimbursement for
health care services, particularly including reimbursement for pharmaceuticals,
integration of formerly separate operations in connection with the AOR/PRN
merger, changes in cancer therapy or the manner in which cancer care is
delivered, drug utilization, success in conversion of net revenue model service
agreements to earnings model agreements and the operations of affiliated
practices.  Below is a more detailed discussion of certain of these risks and
uncertainties.

     The cautionary statements contained or referred to herein should be
considered in connection with any written or oral forward-looking statements
that may be issued by US Oncology or persons acting on its behalf.  US Oncology
does not undertake any obligation to release any revisions to or to update
publicly any forward-looking statements to reflect events or circumstances after
date thereof or to reflect the occurrence of unanticipated events.

     In general, because the Company's revenues depend upon the revenues of its
affiliated practices, any of the risks below that harm the economic performance
of the practices will, in turn, harm the Company.

There is a continued risk of declining reimbursement for pharmaceuticals used by
oncologists as a result of altered reimbursement methodology

     There is a continued risk of declining reimbursement for pharmaceuticals
used by our practices.  Currently, Medicare and most Medicaid programs reimburse
providers for oncology drugs based on the Average Wholesale Price (AWP) of the
drugs.  AWP is determined by third-party information services using data
furnished by pharmaceutical companies.  In May 2000, the U.S. Department of
Health and Human Services announced its intention to publish instructions to the
Health Care Financing Administration (HCFA), the agency that administers the
Medicare program, that would require a new source for AWP for calculating the
amount that health care providers would receive from Medicare for certain
pharmaceuticals used in cancer treatment.  This proposed change would have
resulted in substantially lowered reimbursement from federal government
programs for chemotherapy agents and other pharmaceutical agents used by
oncologists, without any adjustment in reimbursement for services and other
costs related to chemotherapy infusion that are currently undercompensated,
resulting in oncologists' incurring losses for the administration of many
chemotherapy treatments.  In September 2000, HCFA stated that reimbursement
levels for pharmaceuticals used to treat cancer would not be reduced at that
time.  At the same time, however, HCFA announced its belief that there is still
a need to modify its reimbursement scheme for pharmaceuticals.  As a result of
congressional action, the General Accounting Office (GAO) and HCFA are engaged
in a comprehensive study to develop a more accurate reimbursement methodology
for outpatient cancer therapy services. It is not possible to assess the likely
outcome of any change in reimbursement for oncology services, particularly
reimbursement of pharmaceuticals, whether through HCFA initiatives or through
the calculation of AWP from information supplied by pharmaceutical

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companies. However, it is possible that changes in reimbursement that are
ultimately adopted or implemented could have a material adverse effect on our
operation and financial condition.

Continued review of pharmaceutical companies and their pricing and marketing
practices could result in lowered reimbursement for pharmaceuticals

     Continued review of pharmaceutical companies by government payors could
result in lowered reimbursement for pharmaceuticals, which would harm us.  As
indicated above, the federal government is reconsidering the manner in which
health care providers, including oncologists, are reimbursed for the
pharmaceutical agents they use to treat patients.  In addition, the Company is
aware of various investigations and qui tam lawsuits filed against manufacturers
of oncology drugs.  These investigations relate to the manner in which those
companies report data used in determining AWP and to marketing and other
practices.  As a result of these investigations, a number of pharmaceutical
manufacturers have entered into or are discussing settlements with the
government that could result in lower reimbursement, which could have an adverse
economic impact on us.  Furthermore, possibly in response to such scrutiny, some
pharmaceutical manufacturers could alter AWP and pricing to reduce the margin
between reported AWP and sales price of some oncology drugs.  Such a change
could have an adverse economic impact on us.  Finally, as a group purchasing
organization that is a significant purchaser of pharmaceutical agents paid for
by government programs, we or our network of affiliated practices could become
involved in these investigations, or may become a target of such pharmaceutical-
related scrutiny.  Any of these factors could have a material adverse effect on
us.

Our service fee arrangements with many of our affiliated practices subject us to
disproportionate economic risk

     Our service fee arrangements with many of our practices subject us to
disproportionate economic risk.  Each service agreement provides for payment to
the Company of a service fee plus reimbursement of all practice costs.
Currently, the economic arrangements in our service agreements with affiliated
practices fall into two principal categories.  Some of our agreements, known as
the "earnings model" agreements, provide that the service fee is a percentage of
the practice's earnings before income taxes.  In others, known as "net revenue
model" agreements, the fee consists of a fixed fee, a percentage fee (in most
states) of the practice's net revenues and, if certain financial and performance
criteria are met, a performance fee.  Where the service agreement follows the
net revenue model, the practice is entitled to retain a fixed portion of net
revenue before any service fee (other than practice operating costs) is paid to
us.  Under these net revenue agreements, therefore, we bear disproportionately
the economic impact of increasing or declining margins.  Our costs of operations
have increased, primarily due to an increase of expensive, single-source drugs
and compensation and benefits, which has resulted in a disproportionate decline
in our operating margin, even as practice profitability continues to grow.
Because of this, we are seeking to change our arrangements with practices from
the net revenue model to the earnings model.  Although we have reached agreement
with some of the affiliated practices to convert in the first quarter of 2001
and are encouraged by the prospects of converting other practices, there can be
no assurance that we will be successful in implementing such conversions.  In
the event we are not successful, continuing to provide services under the net
revenue model agreements could have a material adverse effect on us.  In
addition, the conversion process itself is distracting us from executing on many
of our other strategic initiatives.

Loss of revenues or a decrease in income of our affiliated practices would
adversely affect our results of operations

     Our revenue depends on revenue generated by affiliated practices.  Loss of
revenue by the practices could seriously harm us.  It is possible that our
affiliated practices will not be able to maintain successful medical practices.
In addition, the service fees payable to us depend upon the profitability of the
practices.  (Even under those service agreements where the service fee is based
on the revenues of the practices, and not on their net income, those agreements
contain a priority of payments that provides that we will be paid last.)  Any
failure by the practices to effectively contain costs will adversely impact our
results of operations.  Because we do not control the manner in which our
practices conduct their medical practice (including drug utilization), our
ability to control costs related to the provision of medical care is limited.
Because of the long-term nature of our service agreements, we have limited
ability to discontinue or alter our service arrangements with practices, even
where continuing to manage such practices under existing arrangements is
economically detrimental to us.

The current regulatory environment in the health care industry continues to
negatively impact us

     The current regulatory environment in the health care industry continues to
negatively impact us.  Because of the complexity and uncertainty of the
regulations that govern companies and individuals in the health care sector, we
expend significant resources in our comprehensive compliance program.  In
addition, the government has significant power to investigate all business
activities of health care companies, including lawful ones, and exerts
considerable leverage in such investigations as a result of the significant
penalties that may apply in the event of any violations of health care law.

                                       7
<PAGE>

Furthermore, government programs are generally administered by multiple agencies
and entities that may themselves have differing interpretations of health care
regulations, and enforcement authorities have taken the position that complying
with specific instructions of such entities may not, by itself, be determinative
of the lawfulness of a transaction.  Because of these factors and the high cost
of defending or addressing any investigation or allegation regarding health care
law violations, we must from time to time forego business opportunities that we
believe are lawful, if there is any possibility that such activities could be
perceived or later interpreted as inappropriate or unlawful or could invite
additional, costly government investigation.

We face the risk of qui tam litigation relating to regulations governing billing
for medical services

     We are currently aware of various qui tam lawsuits in which we and/or our
subsidiaries and affiliated practices are named as defendants.  Because qui tam
lawsuits are filed under seal, we could be named in other such suits of which we
are not aware.  In addition, as the federal government intensifies its focus on
billing, reimbursement and other health care regulatory areas, private
individuals are also bringing more qui tam lawsuits, because of the potential of
financial rewards for such individuals.  For the past several years, the number
of qui tam suits filed against health care companies and the aggregate amount of
recoveries under such suits have increased significantly.  This trend increases
the risk that we may become subject to additional qui tam lawsuits.

     Although we believe that our operations comply with law, and intend to
vigorously defend the Company against allegations of wrongdoing, the costs of
addressing such suits, as well as the amount of any recovery in the event of a
finding of wrongdoing on our part, could be significant.  The existence of qui
tam litigation involving us may also strain our relationships with our
affiliated physicians, particularly those physicians or practices named in such
suits.  Furthermore, the existence of qui tam lawsuits involving us and the
uncertainty such suits create adversely affect our ability to raise capital and
may have an adverse effect on our stock price.

We and our practices may become subject to other harmful lawsuits

     Successful malpractice or products liability claims asserted against the
practices or us could seriously harm us. We and our practices face the risk of
malpractice and other lawsuits related to the provision of health care services
by the practices to the public.  In addition, managed care providers and other
health care companies are increasingly subject to liability claims arising from
physician compensation arrangements and other activities designed to control
costs by reducing services.  A successful claim on this basis against us or a
practice could harm us.  Lawsuits, if successful, could result in damage awards
in excess of the limits of our insurance coverage.  Insurance against losses
related to claims of this type is expensive and the cost varies widely from
state to state.  In addition, our practices prescribe and dispense
pharmaceuticals and, therefore, could be subject to product liability claims.
We and our practices maintain liability insurance in amounts and coverages we
consider appropriate.

If our practices terminate their service agreements, we could be seriously
harmed

     Our practices may attempt to terminate their agreements with us. If any of
our larger practices were to succeed in such a termination, we could be
seriously harmed.  We are also aware that some practices affiliated with other
health care companies have attempted to end or restructure their affiliations
even though they do not have a contractual right to do so, by arguing that their
affiliations violate some aspect of health care law.  For example, some
physicians have claimed that the fee arrangements violate federal or state
prohibitions on splitting fees with physicians.  If some of our affiliated
physicians or practices were able to successfully make such arguments and
terminate their affiliation with us, there could be a materially adverse effect
on us.

If a significant number of physicians leave our practices, we could be seriously
harmed

     Our practices usually enter into employment or noncompetition agreements
with their physicians that provide some assurance to both the practice and to us
with respect to continuing revenues.  We and our practices try to maintain such
contracts.  However, if a significant number of physicians terminate their
relationships with our practices, we could be seriously harmed.

Our practices may be unable to enforce noncompetition provisions with departed
physicians

     Most of the employment agreements between the practices and their
physicians include a clause that prevents the physician from competing with the
practice for a period after termination of employment.  We cannot predict
whether a court

                                       8
<PAGE>

will enforce the noncompetition covenants of the practices. If practices are
unable to enforce the noncompetition provisions of their employment agreements,
we could be seriously harmed.

We may be unable to satisfy our additional financing needs

     We may be unable to satisfy our additional financing needs.  Our expansion,
cancer center development and management plans require substantial capital
resources.  Operations of the practices require recurring capital expenditures
for renovation, expansion and the purchase of costly medical equipment and
technology.  It is likely that our capital needs in the next several years will
exceed the capital generated from our operations.  Thus, we may wish to incur
additional debt or issue additional debt or equity securities from time to time,
including in connection with practice affiliations.  Capital available for
health care companies, whether raised through the issuance of debt or equity
securities, has recently been quite limited and may continue to be difficult to
be so.  As a result, we may be unable to obtain sufficient financing on terms
satisfactory to us or at all.

Loss of revenue by our practices caused by the cost containment efforts of
third-party payors, including the government, could seriously harm us

     Loss of revenue by our affiliated practices caused by the cost containment
efforts of third-party payors could seriously harm us.  Practices typically bill
various third-party payors, such as governmental programs like Medicare and
Medicaid, private insurance plans and managed care plans, for the health care
services provided to their patients.  These third-party payors negotiate the
prices charged for medical services and supplies in order to lower the cost of
health care services and products paid for by them, thus increasing their own
profits.  Third-party payors also try to influence legislation to lower costs.
Third-party payors can also deny reimbursement for medical services and supplies
by stating that they believe a treatment was not appropriate, and these
reimbursement denials are difficult to appeal or reverse.  Our practices also
derive a significant portion of their revenues from governmental programs.
Reimbursement by governmental programs generally is not subject to negotiation
and is established by governmental regulation.  Such reimbursement may be set at
levels that are not profitable to us.

We may not be able to successfully affiliate with new practices or expand and
integrate the operations of practices

     We have grown by continuing to affiliate with new practices and expand the
operations of existing practices.  We intend to continue to pursue this growth
strategy. However, identifying appropriate practices and negotiating
affiliations with them can be costly.  We may not be able to affiliate with
additional practices on desirable terms.  We may also encounter difficulties
integrating and expanding the operations of practices.  Our failure to
successfully integrate newly affiliated practices could harm us.

Our development of new cancer centers could be delayed or result in serious
liabilities, and the centers may not be profitable

     Another of our growth strategies is to develop integrated cancer centers
(including implementing PET).  The development of integrated cancer centers is
subject to a number of risks, including obtaining regulatory approval, delays
that often accompany construction of facilities and environmental liabilities
that arise from operating cancer centers.  Any failure or delay in successfully
building and operating integrated cancer centers or in avoiding liabilities from
operations could seriously harm us.  In addition, in order for cancer centers to
be operated profitably, our practices must consolidate their operations within
the facilities.  If our practices elect not to close other offices to
consolidate operations within a cancer center, our real estate and occupancy
costs would increase, which would harm our operations.

Our business, and the business of our practices, could be harmed by competition
with other businesses

     Our business, and the business of our practices, could be harmed by
competition with other businesses.  The business of providing health care
related services and facilities is highly competitive.  Our revenues depend on
the continued success of our practices.  The practices face competition from
several sources, including sole practitioners, single- and multi-specialty
practices, hospitals and managed care organizations.

                                       9
<PAGE>

Our success depends on our key personnel, and we may not be able to hire enough
qualified personnel to meet our hiring needs

     We will be harmed if we cannot hire and retain suitable executives and
other personnel.  We believe that our success will depend on continued
employment of our management team and other key personnel.  If one or more
members of our management team become unable or unwilling to continue in their
present positions, we could be harmed.

Our stock price may fluctuate significantly, which may make it difficult to
resell your shares when you want to at prices you find attractive

     The market price of US Oncology common stock has been highly volatile. This
volatility may adversely affect the price of our common stock in the future. You
may not be able to resell your shares of common stock following periods of
volatility because of the market's adverse reaction to this volatility.  We
anticipate that this volatility, which frequently affects the stock of health
care service companies, will continue.  Factors that could cause such volatility
include:

     .    Our quarterly operating results,

     .    Deviations in results of operations from estimates of securities
          analysts (which estimates we neither endorse nor accept the
          responsibility for),

     .    General economic conditions or economic conditions specific to the
          health care services industry,

     .    Regulatory or reimbursement changes and

     .    Other developments affecting us, our competitors, vendors such as
          pharmaceutical companies or others in the health care industry.

     On occasion the equity markets have experienced significant price and
volume fluctuations.  These fluctuations have affected the market price for many
companies' securities even though the fluctuations are often unrelated to the
companies' operating performance.

We have not paid dividends and do not expect to in the future, which means that
the value of our shares cannot be realized except through sale

     We have never declared or paid cash dividends.  We currently expect to
retain earnings for our business and do not anticipate paying dividends on our
common stock at any time in the foreseeable future.  Because we do not
anticipate paying dividends, it is likely that the only opportunity to realize
the value of our common stock will be through a sale of those shares.  The
decision whether to pay dividends on common stock will be made by the board of
directors from time to time in the exercise of its business judgment.  We are
currently precluded from paying dividends by the terms of our credit facilities.

Our shareholder rights plan and anti-takeover provisions of the certificate of
incorporation, bylaws and Delaware law could adversely impact a potential
acquisition by third parties

     Our shareholder rights plan and anti-takeover provisions of the certificate
of incorporation, bylaws and Delaware law could adversely impact a potential
acquisition by a third party.  We have a staggered board of directors, with
three classes each serving a staggered three-year term.  This classification has
the effect of generally requiring at least two annual stockholder meetings,
instead of one, to replace a majority of the members of the board of directors.
Our certificate of incorporation also provides that stockholders may act only at
a duly called meeting and that stockholders' meetings may not be called by
stockholders.  Furthermore, our certificate of incorporation permits the board
of directors, without stockholder approval, to issue additional shares of common
stock or to establish one or more classes or series of preferred stock with
characteristics determined by the board.  We have also adopted a shareholder
rights plan, which would significantly inhibit the ability of another entity to
acquire control of the Company through a tender offer or otherwise without the
approval of our board of directors.  These provisions could discourage potential
acquisition proposals and could delay or prevent a change in control of the
Company.  These provisions are intended to increase the likelihood of continuity
and stability in our board of directors and in the policies formulated by it and
to discourage certain types of transactions that may involve an actual or
threatened change of control of the Company, reduce our vulnerability to an
unsolicited acquisition proposal and discourage certain tactics that may be used
in proxy fights.  However, these provisions could have the effect of
discouraging others from making tender offers for our shares, and, as a
consequence, they inhibit fluctuations in the market price of our shares that
could result from

                                       10
<PAGE>

actual or rumored takeover attempts. In addition, these provisions could limit
the price that certain investors might be willing to pay in the future for
shares of common stock. Such provisions also may have the effect of preventing
changes in our management.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matters were submitted to a vote of security holders during the fourth
quarter of 2000.

PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters

     The Company's Common Stock is traded on The Nasdaq Stock Market under the
symbol "USON".  The high and low closing sale prices of the Common Stock, as
reported by The Nasdaq Stock Market, were as follows for the quarterly periods
indicated.


Year Ended December 31, 1999                     High                Low
                                                ------              -----

Fiscal Quarter Ended March 31, 1999             $15.06              $7.56
Fiscal Quarter Ended June 30, 1999              $12.63              $6.56
Fiscal Quarter Ended September 30, 1999         $12.75              $9.06
Fiscal Quarter Ended December 31, 1999          $ 9.44              $3.94

Year Ended December 31, 2000

Fiscal Quarter Ended March 31, 2000             $ 6.81              $3.81
Fiscal Quarter Ended June 30, 2000              $ 5.47              $3.25
Fiscal Quarter Ended September 30, 2000         $ 5.59              $3.88
Fiscal Quarter Ended December 31, 2000          $ 7.00              $4.14


     As of March 16, 2001, there were approximately 16,650 holders of the Common
Stock.  The Company has not declared or paid any cash dividends on its Common
Stock.  The payment of cash dividends in the future will depend on the Company's
earnings, financial condition, capital needs and other factors deemed pertinent
by the Company's board of directors, including the limitations, if any, on the
payment of dividends under state law and then-existing credit agreements.  It is
the present policy of the Company's board of directors to retain earnings to
finance the operations and expansion of the Company's business.  The Company's
credit facilities currently prohibit the payment of cash dividends.  See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."

                                       11
<PAGE>

RECENT SALES OF UNREGISTERED SECURITIES

     In connection with each affiliation transaction between the Company and a
practice, the Company purchases the nonmedical assets of, and enters into a
long-term service agreement with, that practice.  In consideration for that
arrangement, the Company typically pays cash, issues subordinated promissory
notes (in general, payable on each of the second through seventh anniversaries
of the closing date at an annual interest rate of seven percent) and
unconditionally agrees to deliver shares of Common Stock at specified future
dates (in general, on each of the second through fifth anniversaries of the
closing date).

     The following table describes private placements by the Company in
connection with affiliation transactions of its securities during 2000.  Each
sale was a private placement made in connection with a transaction, described in
general in the preceding paragraph, to affiliated physicians, the overwhelming
majority of whom are accredited investors.  No underwriter was involved in any
such sale, and no commission or similar fee was paid with respect thereto.  Each
sale was not registered under the Securities Act of 1933 in reliance on Section
4(2) of such Act and Rule 506 enacted thereunder.

<TABLE>
<CAPTION>

Month                                              Number of Shares of          Aggregate Principal
Date of Transaction     Number of Physicians         Common Stock/1/               Amount of Notes
-------------------     --------------------       -------------------          --------------------
                                                                                   (in dollars)
<S>                     <C>                        <C>                          <C>
    1/00                       3                        170,721                         855,000
    1/00                       3                        331,165                       1,273,500
    4/00                       1                         55,285                         554,600
    4/00                       1                         10,816                         201,200
    4/00                       5                        401,784                       3,380,000
    5/00                       2                        362,370                         900,000
    5/00                       1                        104,536                         720,000
    5/00                       2                        129,510                         624,000
    6/00                       1                         29,396                         327,000
    7/00                       1                              -                         167,500
    10/00                      1                         18,990                         188,000
    11/00                      1                              -                         220,000
    12/00                      1                         79,635                       1,742,760
    12/00                      2                         27,270                         300,800
</TABLE>

____________________

/1/  In connection with each affiliation transaction, the Company
     unconditionally agrees to deliver shares of Common Stock at specified
     future dates (typically on each of the second through fifth anniversaries
     of the closing date).

                                       12
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

     The selected consolidated financial information of the Company set forth
below is qualified by reference to, and should be read in conjunction with,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and notes thereto included
elsewhere in this report.

<TABLE>
<CAPTION>
                                                                             YEAR ENDED DECEMBER 31,
                                                        -----------------------------------------------------------------
                                                            2000            1999          1998         1997        1996
                                                        ----------      ----------      --------     --------    --------
                                                                       (in thousands, except per share data)
<S>                                                     <C>             <C>             <C>          <C>         <C>
STATEMENT OF OPERATIONS DATA:
Revenue...........................................      $1,324,154      $1,092,941      $836,596     $625,413    $432,749
Operating expenses:
  Pharmaceuticals and supplies....................         651,214         521,087       357,766      250,425     155,743
  Field compensation and benefits.................         277,962         215,402       172,298      143,210     104,174
  Other field costs...............................         161,510         134,635       107,671       87,232      57,414
  General and administrative......................          54,723          39,490        38,325       31,809      22,508
  Bad debt expense................................          10,198                                     37,841
  Impairment, restructuring and other costs.......         201,846          29,014
  Depreciation and amortization...................          75,148          65,072        48,463       35,194      25,237
                                                          ________         _______       _______     ________     _______
Income (loss) from operations.....................        (108,447)         88,241       112,073       39,702      67,673
Interest income (expense), net....................         (26,809)        (22,288)      (15,908)     (12,474)     (5,184)
Gain on investment in common stock
  (unrealized in 1999)............................          27,566          14,431
                                                        ----------      ----------      --------     --------    --------
Income (loss) before income taxes.................        (107,690)         80,384        96,165       27,228      62,489
Income tax provision (benefit)....................         (35,047)         32,229        36,184       11,593      24,343
                                                        ----------      ----------      --------     --------    --------
Net income (loss).................................      $  (72,643)     $   48,155      $ 59,981     $ 15,635    $ 38,146
                                                        ==========      ==========      ========     ========    ========

Net income (loss) per share - basic...............          $(0.72)           $.48          $.61         $.17        $.43
Shares used in per share computation - basic......         100,589         100,183        97,647       93,168      88,072

Net income (loss) per share - diluted.............          $(0.72)           $.47          $.60         $.16        $.41
Shares used in per share computations - diluted...         100,589         101,635        99,995       97,198      92,136
</TABLE>

<TABLE>
<CAPTION>
                                                                         YEAR ENDED DECEMBER 31,
                                                        ----------------------------------------------------------
                                                           2000         1999         1998       1997       1996
                                                        ----------   ----------   ----------   --------   --------
                                                                               (in thousands)
<S>                                                     <C>          <C>          <C>          <C>        <C>
 BALANCE SHEET DATA:
     Working capital..............................      $  189,012   $  280,793   $  178,262   $121,221   $121,741
     Service agreements, net......................         398,397      537,130      467,214    431,068    326,417
     Total assets.................................       1,191,062    1,298,477    1,033,528    883,430    694,741
     Long-term debt, excluding current maturities.         300,213      360,191      234,474    189,377     96,368
     Stockholders' equity.........................         620,322      707,164      629,798    554,298    516,630
</TABLE>

                                       13
<PAGE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

INTRODUCTION

     US Oncology, Inc. (together with its subsidiaries, "US Oncology" or the
"Company") provides comprehensive services, with the mission of expanding access
and quality of cancer care in local communities and advancing the delivery of
care.  The Company offers the following services:

     .    Develop, construct and manage free standing cancer centers that
          provide treatment areas and equipment for medical oncology, radiation
          therapy and diagnostic radiology

     .    Expand diagnostic capabilities of practices through installation and
          management of Positron Emission Tomography (PET) technology

     .    Coordinate and manage cancer drug research trials for pharmaceutical
          and biotechnology companies

     .    Purchase and manage the inventory for cancer related drugs for
          affiliated practices

     .    Provide management and capital resources to affiliated practices,
          including data management, accounting, compliance and other
          administrative services

     The Company provides these services to oncology practices comprising over
450 sites, with over 7,500 employees and over 850 physicians.  The Company is
not a provider of medical services.  The affiliated practices offer
comprehensive and coordinated medical services to cancer patients, integrating
the specialties of medical and gynecologic oncology, hematology, radiation
oncology, diagnostic radiology and blood and marrow stem cell transplantation.
The Company believes that its strategy of providing comprehensive development,
financial and management services to its affiliated practices enables them to
provide the highest quality, most cost-effective care in local communities,
resulting in economic and operational benefits to the practices.

     The Company's revenue consists primarily of service fees paid by practices.
The Company and its practices have entered into long-term agreements under which
the Company provides its comprehensive services to practices, and the practices
pay a fee and reimburse the Company for all practice costs.  Under some
agreements, the fees are based on practice earnings before income taxes
(earnings model).  In others, the fee consists of a fixed fee, a percentage fee
(in most states) of the practice's net revenues and, if certain performance
criteria are met, a performance fee (net revenue model).  Where the Company's
service agreement follows the net revenue model, the practice is entitled to
retain a fixed portion of net revenue before any service fee (other than
practice operating costs) is paid to the Company.

     In the fourth quarter of 2000, the Company implemented a strategy to focus
on developing and managing integrated cancer centers and PET centers, and
leveraging its existing clinical research platform.  To obtain the benefits from
these opportunities, the Company developed the following objectives:

     .    Convert practices from net revenue model to earnings model

     .    Sever relationships with affiliated practices and businesses not
          consistent with the Company's strategy

     .    Eliminate non-core corporate expenses and capital projects

     The Company believes that the earnings model properly aligns practice
priorities with proper cost control, with the Company and the practice sharing
proportionately in practice profitability.  The Company is currently in the
process of trying to reach agreement with those practices whose fees are
calculated on the net revenue model to convert to the earnings model.  As of
March 16, 2001, three practices accounting for 7.4% of the Company's revenue in
2000 had converted from the net revenue model to the earnings model.

                                       14
<PAGE>

RESULTS OF OPERATIONS

     The Company is affiliated with the following number of physicians by
specialty:

                                                            DECEMBER 31,
                                                     ------------------------
                                                     2000       1999     1998
                                                     ----       ----     ----
   Medical oncology...............................    657        625      557
   Radiation oncology.............................    122         97       87
   Other..........................................     90         84       75
                                                     ----       ----     ----
                                                      869        806      719
                                                     ====       ====     ====

   States                                              26         26       25


     The following table sets forth the sources of the growth in the number of
physicians affiliated with the Company:

<TABLE>
<CAPTION>
                                                                  Year Ended December 31,
                                                     -------------------------------------------------
<S>                                                        <C>               <C>             <C>
                                                            2000             1999            1998
                                                            ----             ----            ----
Affiliated physicians, beginning of period........           806              719             630
Physician practice affiliations...................            30               41              40
Recruited physicians..............................            72               61              70
Retiring/other....................................           (39)             (15)            (21)
                                                            ----             ----            ----
Affiliated physicians, end of period..............           869              806             719
                                                            ====             ====            ====
</TABLE>

     The following table sets forth the number of cancer centers and positron
emission tomography (PET) machines managed by the Company and the number of the
network's clinical research accruals:

<TABLE>
<CAPTION>
                                                                      December 31,
                                                     ----------------------------------------------
<S>                                                        <C>             <C>            <C>
                                                            2000            1999           1998
                                                           -----           -----          -----
Cancer centers....................................            72              60             45
PETs..............................................             4               1              1
Research accruals.................................         3,436           3,062          3,083
</TABLE>

     The following table sets forth the percentages of revenue represented by
certain items reflected in the Company's Statement of Operations and
Comprehensive Income.  This information should be read in conjunction with the
Company's consolidated financial statements and notes thereto.

<TABLE>
<CAPTION>
                                                                           YEAR ENDED DECEMBER 31,
                                                               -------------------------------------------
<S>                                                                 <C>            <C>           <C>
                                                                     2000          1999           1998
                                                                    -----         -----          -----
Revenue                                                             100.0%        100.0%         100.0%
Operating expenses:
 Pharmaceuticals and supplies..............................          49.2          47.7           42.8
 Field compensation and benefits...........................          21.0          19.7           20.6
 Other field costs.........................................          12.2          12.3           12.9
 General and administrative................................           4.1           3.6            4.5
 Bad debt expense..........................................           0.8            --             --
 Impairment, restructuring and other costs.................          15.2           2.7             --
 Depreciation and amortization.............................           5.7           6.0            5.8
Net interest expense.......................................           2.0           2.0            1.9
Other income...............................................          (2.1)         (1.3)            --
                                                                    -----         -----          -----
Income (loss) before income taxes..........................          (8.1)          7.3           11.5
Income taxes provision (benefit)...........................          (2.6)          2.9            4.3
                                                                    -----         -----          -----
Net income (loss)..........................................          (5.5)%         4.4%           7.2%
                                                                     =====        =====          =====
</TABLE>

                                       15
<PAGE>

2000 COMPARED TO 1999

     The Company's revenue increased to $1.324 billion, an increase of 21.2%,
while the operating margin declined from 16.7% to 13.5%, excluding non-recurring
charges.  Revenue growth is attributed to an increase in the practices' net
revenue, partially offset by amounts retained by the practices.  The factors
that contributed to the decrease in operating margins were (i) the continued
increase in utilization of more expensive single source drugs, (ii) increase in
personnel costs and (iii) practices under the net revenue model not bearing
their proportionate share of increased operating costs.

     During the year 2000, the Company recorded the following one-time charges:

     .    $170.1 million related to the impairment of certain service agreements
          and other assets, which is primarily the impairment of service
          agreements for which management determined that the carrying value was
          in excess of future cash flow (on an undiscounted basis) for such
          service agreements;

     .    $16.1 million of restructuring charges, including those related to
          site closures and consolidation of services;

     .    $10.2 million of additional bad debt expense relating to receivable
          collectibility estimates as a result of problems stemming from system
          integrations;

     .    $9.8 million related primarily to write-offs of amounts due from
          physicians and additional bank and noteholder financing fees;

     .    $3.4 million in connection with qui tam lawsuits, primarily legal,
          audit and related expenses, and in asset write-downs relating to
          affiliation terminations; and

     .    $2.5 million related to the cashless exercise of 1.6 million stock
          options by the Company's Chairman and Chief Executive Officer, due to
          the termination of the stock option plan under which these options
          were granted.

Of these charges, $208.7 million were taken in the fourth quarter.  All are
discussed in more detail below.

     Revenue.  Revenue increased from $1.093 billion for 1999 to $1.324 billion
for 2000, an increase of $231.2 million, or 21.1%. The increase in revenue is
attributable to the growth in practices' net patient revenue offset by amounts
retained by the practices.  The following presents the manner in which the
Company's revenue is determined (in thousands):


                                                  Year Ended December 31,
                                                  ------------------------
                                                      2000         1999
                                                  ----------    ----------
Net patient revenue.........................      $1,718,620    $1,407,494
Amounts retained by practices...............         394,466       314,553
                                                  ----------    ----------
Revenue.....................................      $1,324,154    $1,092,941
                                                  ==========    ==========

     Net patient revenue for services to patients by the practices is recorded
when services are rendered based on established or negotiated charges reduced by
contractual adjustments and allowances for doubtful accounts.  Differences
between estimated contractual adjustments and final settlements are reported in
the period when final settlements are determined.  Net patient revenue of the
practices is reduced by amounts retained by the practices under the Company's
service agreements to arrive at the Company's revenue.

     Net patient revenue growth was attributable to increases in:  (i) medical
oncology services, (ii) anticancer pharmaceuticals and (iii) radiation and
diagnostic revenue.  The increase in medical oncology services was attributable
to an increase in medical oncology visits of existing practices, combined with a
net growth in network size of 63 physicians during 2000.  The increase in
anticancer pharmaceuticals revenue was attributable to the growth in medical
oncology services, coupled with a continued increase in utilization of more
expensive, lower margin drugs, principally single-source drugs.  The increase in
radiation and diagnostic revenue was attributable to the opening of twelve
additional cancer centers during 2000 and growth in revenue of 60 cancer centers
opened prior to 2000.

                                       16
<PAGE>

     Amounts retained by practices increased from $314.6 million for 1999 to
$394.5 million for 2000, an increase of $79.9 million, or 25.4%. Such increase
in amounts retained by practices is directly attributable to the growth in net
patient revenue, combined with the increase in profitability of practices.

     The following is the Company's revenue attributed to the two principal
service fee models--the earnings model and the net revenue model (in thousands):

<TABLE>
<CAPTION>
                                                                         YEAR ENDED DECEMBER 31,
                                                   ----------------------------------------------------------------------
                                                                   2000                                1999
                                                                ----------                           ----------
                                                        REVENUE               %               REVENUE             %
                                                  -------------------   -------------    -----------------   ------------
<S>                                               <C>                   <C>              <C>                 <C>
Net revenue model..............................            $  745,843            56.3%          $  602,610           55.1%
Earnings model.................................               551,532            41.7%             459,975           42.1%
Other..........................................                26,779             2.0%              30,056            2.8%
                                                           ----------            ----           ----------           ----
                                                           $1,324,154             100%          $1,092,941            100%
                                                           ==========            ====           ==========           ====
</TABLE>

     56.3% of revenue for 2000 was derived from net revenue model service
agreements, and 41.7% was derived from earnings model service agreements, as
compared to 55.1% and 42.1%, respectively, in 1999.  Amounts retained by
practices increased from 22.3% of net patient revenue for 1999 to 23.0% for
2000, mainly attributable to practices' compensation under the net revenue model
not being proportionately impacted by increasing operating costs.  Due to this
trend, the Company announced in November 2000 its initiative to convert all net
revenue model agreements to earnings model agreements.  The Company believes the
earnings model properly aligns practice priorities with proper cost control,
with the Company and the practice sharing proportionately in revenue, operating
costs and profitability.  As of March 16, 2001, three practices accounting for
7.4% of the Company's revenue in 2000 had converted from the net revenue model
to the earnings model.  The Company is encouraged by the prospects of converting
other practices.

     Medicare and Medicaid are the practices' largest payors.  During 2000,
approximately 37% of the practices' net patient revenue was derived from
Medicare and Medicaid payments and 35% was so derived in 1999 and 1998.  This
percentage varies among practices.  No other single payor accounted for more
than 10% of the Company's revenues in 2000, 1999 or 1998.

     Pharmaceuticals and Supplies.  Pharmaceuticals and supplies expense, which
includes drugs, medications and other supplies used by the practices, increased
from $521.1 million in 1999 to $651.2 million in 2000, an increase of $130.1
million, or 25.0%.  As a percentage of revenue, pharmaceuticals and supplies
increased from 47.7% in 1999 to 49.2% in 2000.  This increase was primarily due
to:  (i) a shift in the revenue mix to a higher percentage of revenue from
drugs, (ii) increases in acquisition prices of drugs, (iii) a shift to lower
margin drugs and (iv) with respect to practices operating under the net revenue
model, the Company's disproportionately bearing the impact of increasing
operating costs.  Management expects that third-party payors, particularly
government payors, will continue to negotiate or mandate the reimbursement rate
for pharmaceuticals and supplies, with the goal of lowering reimbursement rates,
and that such lower reimbursement rates as well as shifts in revenue mix may
continue to adversely impact the Company's margins with respect to such items.
In response to this decline in margin relating to certain pharmaceutical agents,
the Company has adopted several strategies.  Most importantly, the successful
conversion of net revenue model practices to the earnings model will help reduce
the impact of the increasing cost of pharmaceuticals and supplies.  In addition,
the Company has numerous efforts underway to reduce the cost of pharmaceuticals
by negotiating discounts for volume purchases and by streamlining processes for
efficient ordering and inventory control.  The Company also continues to expand
its business into areas that are less affected by lower pharmaceutical margins,
such as radiation oncology and diagnostic radiology.

     Field Compensation and Benefits.  Field compensation and benefits, which
includes salaries and wages of the operating units' employees, increased from
$215.4 million in 1999 to $278.0 million in 2000, an increase of $62.6 million
or 29.1%.  As a percentage of revenue, field compensation and benefits increased
from 19.7% in 1999 to 21.0% in 2000.  The increase is attributed to increasing
complexity of the Company's business operations and increases in employee
compensation rates to be more competitive with market rates.

     Other Field Costs.  Other field costs, which consist of rent, utilities,
repairs and maintenance, insurance and other direct field costs, increased from
$134.6 million in 1999 to $161.5 million in 2000, an increase of $26.9 million
or 20.0%.  This increase in other field costs is due to increased facilities and
activity levels.  As a percentage of revenue, other field costs decreased from
12.3% in 1999 to 12.2% in 2000 due to economies of scale.

                                       17
<PAGE>

     General and Administrative.  General and administrative expenses increased
from $39.5 million in 1999 to $54.7 million in 2000, an increase of $15.2
million, or 38.6%.  As a percentage of revenue, general and administrative costs
increased from 3.6% in 1999 to 4.1% for 2000.  This increase was primarily
attributable to additional resources necessary to integrate operations from the
AOR/PRN merger, to expand information systems and to develop and analyze new
business opportunities.  The Company restructured general and administrative
departments in March 2001, including eliminating approximately 45 positions,
closing offices and abandoning information system initiatives.  The Company
believes the restructuring will reduce general and administrative costs, as a
percentage of revenue, prospectively.

     Bad Debt Expense. In late 1999, the Company installed a patient billing
system in thirteen practices with approximately $336 million in annual net
patient revenues. During 2000, the Company experienced limitations in this
system that caused significant delays and errors in patient billing and
collection processes. Although the vendor assisted in correcting some
deficiencies in the billing system, collecting some patient accounts became
infeasible. In the fourth quarter of 2000, the Company determined that the
system problems required a $10.2 million charge for bad debt expense. Because of
the numerous distractions borne by the practices in the system conversion, the
Company elected not to include this amount in the computation of practice
results. The Company is discussing with the system vendor a settlement for
damages incurred as a result of the system implementation.

     Impairment, Restructuring and Other Costs.  During the second, third and
fourth quarters of 2000, the Company recognized impairment, restructuring and
other costs of approximately $201.8 million, and during 1999, the Company
recognized merger and integration costs of $29.0 million.  The charges are
summarized in the following table and discussed in more detail below (in
thousands):


                                           YEAR ENDED DECEMBER 31,
                                          -------------------------
                                            2000               1999
                                          --------           -------
Impairment charges                        $170,130              -
2000 restructuring charges                  16,122              -
Other charges                               15,594           $29,014
                                          --------           -------
 Total                                    $201,846           $29,014
                                          ========           =======


                               Impairment Charges
                               ------------------

     In the fourth quarter of 2000, the Company recorded a pre-tax, non-cash
charge of $170.130 million related to the impairment of certain service
agreements and other assets, as follows (in thousands):

     Impairment of service agreements                $138,128
     Impairment of other assets and estimated
       loss related to termination of
       service agreements                              32,002
                                                     --------
               Total                                 $170,130
                                                     ========

     FAS 121 requires that companies periodically assess their long lived assets
for potential impairment.  In accordance with this requirement, from time to
time the Company evaluates its intangible assets for impairment.  For each of
the Company's service agreements, this analysis involves comparing the aggregate
expected future cash flows under the agreement to its carrying value as an
intangible asset on the Company's balance sheet.

     In 1999, the Company noted a significant increase in operating costs, most
notably the cost of pharmaceuticals, which increased by 5% as a percentage of
revenue from 1998 to 1999.  The Company believed that some of this increase was
attributable either to inefficiencies arising directly from the merger and the
integration of the formerly separate companies or from delays in implementation
of cost containment strategies during the first half of 1999, pending
consummation of the merger.  In addition, the Company continued to believe that
it had developed effective strategies to diversify revenues away from medical
oncology and to curtail the increase in drug prices and otherwise contain costs.
As the remaining lives of its service agreements were substantially longer than
their estimated recovery periods, and because the Company believed that it would
be able to reverse or slow many of the negative cost trends, the Company did not
believe any impairment provisions were necessary at that time.

                                       18
<PAGE>

     During 2000, the Company continued to experience adverse trends in
operating margins.  Although the Company's strategies to lower pharmaceutical
costs slowed the rate of increase, pharmaceutical costs continued to rise,
reducing operating margins during 2000.  Single source drug use continued to
grow, and treatment protocols involving a greater number of different expensive
drugs for each patient were also becoming more common.  Based upon the
significant increase in the number of oncological pharmaceuticals (which would
upon approval be new single source drugs) in development, the Company believed
the trend towards increased use of lower margin pharmaceuticals would continue.
The Company also experienced increased pressure on reimbursement from payors,
including significant initiatives with respect to government programs, to reduce
oncology reimbursements, particularly for pharmaceuticals.  Moreover, the
Company became increasingly aware of growing complexity in the administrative
aspects of the practices and rising personnel costs in the health care sector,
neither of which were being effectively slowed or stopped by anticipated
economies of scale and other efficiencies arising from the merger.  Even though
the practices' profitability continued to increase significantly during this
period, because practices that operate under the net revenue model do not share
in increasing operating costs, the Company shared disproportionately in the
decline in operating margins.  Based upon these trends the Company's management
determined during the latter part of 2000 that the cost of operating in the
oncology sector was continuing to increase and that this trend was likely to
continue, regardless of Company action, in the next several years.  For this
reason, the Company determined that rising costs, and the Company's
disproportionately sharing in these costs under the net revenue model, would be
an integral part of its forecast of future cash flows in an impairment analysis
with respect to its service agreements.

     In its impairment analysis for the fourth quarter of 2000, the Company
incorporated additional assumptions regarding rising cost trends.  With respect
to service agreements under the net revenue model, the Company has greater
exposure in an environment of rising costs because practices retain a portion of
revenues before any fees are paid.  Therefore, the Company's impairment review
focused primarily on net revenue model service agreements.  Using current
assumptions, many of the Company's net revenue model service agreements would
contribute decreasing cash flows in the immediate future and then begin
contributing negative cash flows.  Although management commenced during the
fourth quarter of 2000 an initiative to convert net revenue model agreements to
earnings model agreements, there can be no assurance as to the number of
conversions that will be achieved.  Substantial differences between the
estimates used in the impairment analysis and actual trends occurring in the
future could result in future additional impairment charges, or in certain
practices experiencing better than expected future cash flows, than those
currently forecast.  The charge for impairment of service agreements related to
thirteen practices with total net book value of $145 million as of December 31,
2000 prior to the impairment charge.

     In addition, the Company is negotiating with seven practices to terminate
their service agreements, and it has recognized a charge of approximately $32.0
million for the difference between the carrying value of the assets related to
those practices and the consideration expected to be received from the practices
upon termination.  Service fees from these practices are less than 6% of the
Company's service fee revenues for 2000.

                             Restructuring Charges
                             ---------------------

     In the fourth quarter of 2000, the Company comprehensively analyzed its
operations and cost structure, with a view to repositioning the Company to
effectively execute its strategic and operational initiatives.  This analysis
focused on non-core assets and activities of the Company to determine whether
they were still consistent with the Company's strategic direction.  As a result
of this analysis, during the fourth quarter, the Company recorded the following
charges (in thousands):

<TABLE>
<CAPTION>
                                     Restructuring                                   Asset                Accrual
                                    Expense in 2000          Expenditures          Write-downs       at December 31, 2000
                                    ---------------          ------------          -----------       --------------------
<S>                                 <C>                      <C>                   <C>               <C>
Abandonment of IT systems                $ 6,557                    --             $ 6,557
Impairment of home health
    business                               6,463                    --               6,463
Severance of employment                      466                  $ 36                  --                  $  430
    agreement
Site closures                              2,636                   562                 655                   1,419
                                         -------                  ----             -------                  ------
Total                                    $16,122                  $598             $13,675                  $1,849
                                         =======                  ====             =======                  ======
</TABLE>

     As indicated above, during the fourth quarter of 2000, the Company decided
to abandon its efforts to pursue some of its information systems initiatives,
including the clinical information systems and e-commerce initiatives, and
recognized a charge of $6.557 million.  In one market where the Company has
agreed to manage the oncology operations of a hospital system, the Company
decided to abandon and sell a home health business that is no longer consistent
with the Company's strategy in that market.  As a result, the Company recorded a
charge of $6.463 million during the fourth quarter of 2000.  As

                                       19
<PAGE>

part of the restructuring, the Company terminated the duties of an executive,
with contractual severance payments totaling approximately $430,000 over the
next two years. The Company also determined that it will close several sites,
abandoning leased and owned facilities, and recognized a charge of $2.636
million for remaining lease obligations and the difference in the net book value
of the owned real estate and its expected fair value.

     In the first quarter of 2001, the Company announced plans to further reduce
overhead costs through consolidating certain departments, closing certain
administrative offices and closing additional facilities.  The Company
anticipates recording a pre-tax charge of approximately $4 million to $6 million
in the first quarter of 2001 related to severance payments for reduction in
workforce, stay bonuses and closure of facilities.

                                 Other Charges
                                 -------------

     During 1999 and 2000, the Company recorded other charges as follows (in
thousands):

<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31,
                                                             ------------------------------
<S>                                                          <C>                 <C>
                                                                2000                 1999
                                                              -------              -------
Merger, restructuring and integration costs                         -              $29,014
Cashless stock option exercise costs                          $ 2,462                    -
Investigation and contract separation costs                     3,372                    -
Practice receivable write-off                                   5,110                    -
Credit Facility and note amendment fees                         2,375                    -
Management recruiting and relocation costs                      1,275                    -
Vacation pay accrual-change in policy                           1,000                    -
                                                              -------              -------
 Total                                                        $15,594              $29,014
                                                              =======              =======
</TABLE>

     In the fourth quarter of 2000, the Company recognized a pre-tax $2.462
million non-cash charge related to the cashless exercise of 1.6 million stock
options by the Company's Chairman and Chief Executive Officer (the "optionee"),
due to the termination of the stock option plan under which the options were
granted, in accordance with Financial Accounting Standards Board (FASB)
Interpretation No. 44.  To consummate the exercise, the optionee surrendered
approximately 1.3 million shares having an average strike price of $3.44 to
satisfy exercise price and tax liability with respect to all options.  As a
result of this transaction, the optionee received approximately 300,000 shares
of Common Stock. The Company also expects to realize an offsetting $1 million
reduction in its federal income tax obligations as a result of this transaction.

     During the third quarter and second quarter of 2000, the Company incurred
costs of $206,000 and $1.7 million, respectively, in connection with the qui tam
lawsuits described in Part I, Item 3, of this report, consisting primarily of
auditing and legal fees and related expenses. In addition, the Company incurred
$1.5 million of costs in the second quarter of 2000 consisting of intangible
asset and receivable write-downs as a result of terminating its affiliation with
a sole practitioner and with the practice named in the qui tam lawsuits .

     The Company also recognized the following charges in 2000:  (i) $5.11
million of receivables from affiliated practices that are not considered to be
recoverable; (ii) $2.375 million for bank and noteholder fees associated with
amending the Credit Facilities to accommodate debt covenant compliance related
to one-time charges; (iii) $1.275 million related to expenses to recruit and
relocate certain members of the management team; and (iv) $1.0 million for a
change in the Company vacation policy.

     In connection with the AOR/PRN merger, the Company incurred total costs of
$29.0 million to consummate the merger, restructure operating activities and
integrate the two organizations.  These costs were expensed during 1999.  Costs
directly related to the consummation of the AOR/PRN merger totaled $14.6
million.  Restructuring costs relating to severance and relocation of employees
and asset impairments totaled $7.2 million.  Incremental costs incurred to
assist in integrating the AOR's and PRN's operations totaled $7.2 million.

     The Company has recognized a deferred income tax benefit for substantially
all of these charges in 2000 as many of the items will be deductible for income
tax purposes in future periods.  An income tax benefit has also been recognized
for the 1999 charges, with the exception of certain non-deductible merger costs.

     Interest.  Net interest expense increased from $22.3 million in 1999 to
$26.8 million in 2000, an increase of $4.5 million or 20.3%, due to increased
interest rates in 2000 on the Company's variable rate indebtedness.

                                       20
<PAGE>

     Other Income.  Other income of $27.6 million in 2000 represents the
recognition of the remaining gain on shares of common stock of ILEX Oncology,
Inc. owned by the Company.  A previous gain of  $14.4 million was recognized
during the fourth quarter of 1999 as a result of the Company's reclassification
of the ILEX stock as a trading security.  The stock was sold by the Company
during the first quarter of 2000.

     Income Taxes.  In 2000, the Company recognized a tax benefit of $35.0
million resulting in an effective tax rate of (32.5%), down from 40.1% in 1999.
The decrease in the effective rate was due to certain non-deductible merger
related costs in 1999 and no state tax benefit being recognized in 2000 for
intangible write-offs in certain states.

     Net Income/Loss.  Net income (loss) decreased from $48.2 million of net
income in 1999 to a net loss of $72.6 million in 2000, a decrease of $120.8
million.  Excluding charges for impairments, restructurings and other costs,
costs related to bad debt expense and the gain on investment in common stock for
both years, net income for 1999 would have been $59.4 million or $0.58 per
share, in 1999 as compared to $47.6 million or $0.47 per share in 2000, a
decrease of $11.4 million.  The charges were attributable to the factors
described in the preceding paragraphs.

1999 COMPARED TO 1998

     The Company experienced a decrease in operating margins from 1998 to 1999,
with operating margins, as a percentage of revenue, declining from 19.2% to
16.8%.  A number of factors contributed to the decrease in operating margins,
including (i) increases in the acquisition cost of pharmaceuticals, (ii) shifts
in the mix of pharmaceuticals to lower margin products, (iii) increases in
practice personnel costs due to numerous network-wide initiatives (such as
information system conversions) and (iv) higher occupancy costs due to expansion
into new cancer centers and additional sites of service.

     Revenue.  Revenue increased from $836.6 million in 1998 to $1.093 billion
in 1999, an increase of $256.3 million or 30.6%.  Revenue for markets under
management in 1998 and 1999 increased $204.5 million or 25.7% over the same
period from the prior year, as calculated by comparing 1998 revenue and 1999
revenue for all practices within a metropolitan service area in which the
Company had operations in both periods.  This growth was the result of increased
use of anticancer pharmaceuticals, expansion of services, increases in patient
volume, recruitment of or affiliation with additional physicians and, to a
lesser extent, increases in charges for certain physician services.  The
remaining $51.8 million increase in total revenues was attributable to
affiliations with oncology practices in new markets.

     Pharmaceuticals and Supplies.  Pharmaceuticals and supplies increased from
$357.8 million for 1998 to $521.1 million for 1999, an increase of $163.3
million, or 45.6%.  This increase was principally attributable to the same
factors that caused revenue to increase.  As a percentage of revenue,
pharmaceutical and supply costs increased from 42.8% for 1998 to 47.7% for 1999.
This increase was primarily due to a shift in the revenue mix to a higher
percentage of drug revenue relative to total revenue.  In addition, the
affiliated practices experienced an increase in the use of lower margin drugs,
as well as increases in the acquisition cost of pharmaceuticals.

     Field Compensation and Benefits.  Field compensation and benefits increased
from $172.3 million in 1998 to $215.4 million in 1999, an increase of $43.1
million or 25.0%.  This increase was principally attributable to the same
factors that caused revenue to increase.  As a percentage of revenue, practice
compensation and benefits decreased from 20.6% for 1998 to 19.7% for 1999.

     Other Field Costs.  Other field costs increased from $107.7 million in 1998
to $134.6 million in 1999, an increase of $26.9 million or 25.0%.  This increase
was principally attributable to the same factors that caused revenue to increase
as well as new cancer center development.  As a percentage of revenue, other
practice costs decreased from 12.9% for 1998 to 12.3% for 1999.

     General and Administrative.  General corporate expenses increased from
$38.3 million in 1998 to $39.5 million in 1999, an increase of $1.2 million or
3.1%.  As a percentage of revenue, general and administrative expenses decreased
from 4.5% for 1998 to 3.6% for 1999, primarily as a result of economies of scale
attributable to the AOR/PRN merger and the limited increase in general and
administrative costs needed to support pharmaceutical revenue growth.

     Merger, Restructuring and Integration. In connection with the AOR/PRN
merger, the Company incurred total costs of $29.0 million to consummate the
merger, restructure operating activities and integrate the two organizations.
These costs were expensed during 1999.  Costs directly related to the
consummation of the AOR/PRN merger totaled $14.6 million.

                                       21
<PAGE>

Restructuring costs relating to severance and relocation of employees and asset
impairments totaled $7.2 million. Incremental costs incurred to assist in
integrating the AOR's and PRN's operations totaled $7.2 million.

     Depreciation and Amortization. Depreciation and amortization expenses
increased from $48.5 million in 1998 to $65.1 million in 1999, an increase of
$16.6 million or 34.2%. As a percentage of revenue, depreciation and
amortization expenses increased from 5.8% for 1998 to 6.0% for 1999. This
increase was primarily attributable to decreasing the amortization period for
services agreements from 40 years to 25 years effective July 1, 1998, as well as
amortization relating to new practice affiliations and investments in new cancer
centers and management information systems during 1999.

     Interest.  Net interest expense increased from $15.9 million in 1998 to
$22.3 million in 1999, an increase of $6.4 million or 40.3%.  The increase was
the result of higher levels of debt, principally incurred to finance
transactions with 20 oncology practices during 1999, as well as construction of
20 cancer centers.  As a percentage of revenue, net interest expense was 1.9%
and 2.0% in 1998 and 1999, respectively.  Indebtedness to physicians increased
from approximately $81.5 million at December 31, 1998 to approximately $98.9
million at December 31, 1999.

     Other Income.  Other income increased from zero in 1998 to $14.4 million in
1999.  Other income in 1999 represents the recognition of an unrealized gain on
the shares of common stock of ILEX Oncology, Inc. owned by the Company.  The
gain was recognized as a result of the Company's reclassification of the ILEX
stock as a trading security.  The stock was sold during the first quarter of
2000.

     Income Taxes.  Income tax expense decreased from the prior year as a result
of the Company's decreased profitability.  For 1999, the Company recognized a
tax provision of $32.2 million resulting in an effective rate of 40.1% as
compared to 37.6% for 1998.  The increase in the effective tax rate was due to
certain nondeductible professional fees and other costs in connection with the
completion of the AOR/PRN merger.

     Net Income.  Net income decreased from $60.0 million in 1998 to $48.2
million in 1999, a decrease of $11.8 million or 19.7%.  As a percentage of
revenue, net income declined from 7.2% to 4.4%, principally as a result of
AOR/PRN merger, restructuring and integration costs incurred in 1999 of $29.0
million.

LIQUIDITY AND CAPITAL RESOURCES

     As of December 31, 2000, the Company had net working capital of $189.0
million, including cash and cash equivalents of $3.4 million.  The Company had
current liabilities of $269.0 million, including $23.9 million in current
maturities of long-term debt, and $300.2 million of long-term indebtedness.
During 2000, the Company generated $117.3 million in net operating cash flow,
invested $28.3 million and used cash in financing activities in the amount of
$97.0 million.

Cash from Operating Activities

     Cash from operating activities increased from $31.5 million in 1999 to
$117.3 million.  The increase was attributed to accounts receivable days
decreasing from 80 to 67 due to implementing better policies for billing and
collection.  In addition, accounts payable days and accrued liabilities days
outstanding increased from 60 in 1999 to 69 in 2000, reflecting an improved cash
management program.

Cash from Investing Activities

     During 2000, the Company expended $67.0 million in capital expenditures and
financed an additional $15.3 million through various leasing facilities.  The
Company expended $47.6 million on the development and construction of cancer
centers, of which $13.9 million was financed through the Company's leasing
facility during 2000.  In addition, the Company spent $1.4 million on
installation of PET centers, which was financed through an equipment operating
lease facility.  Maintenance capital expenditures were $33.3 million in 2000 and
$28.0 in 1999.  In addition, in connection with affiliating with certain
practices, the Company paid total consideration of $33.5 million in 2000 and
$95.4 million in 1999, which included cash consideration and transaction costs
of $16.1 million and $43.5 million, respectively.

     In March 2000, the Company sold its equity investment in ILEX Oncology,
Inc. in a private sale transaction and realized proceeds of $54.8 million, or
$38.8 million net of tax.  These proceeds were used to reduce outstanding
borrowings under the Credit Facility.

                                       22
<PAGE>

Cash from Financing Activities

     In March 2000, the board of directors of the Company authorized the
repurchase of up to 10,000,000 shares of the Company's Common Stock in public or
private transactions. The Company subsequently acquired 6,402,000 shares
(including 1,344,000 shares received in connection with the cashless exercise of
stock options by the Company's chief executive officer) of Common Stock at an
average price of $4.73 per share. During 2000, the Company issued 1,864,000
shares from Treasury Stock to affiliated physicians in satisfaction of the
Company's obligation in connection with medical practice transactions.

     The Company has satisfied its development and transaction needs through
debt and equity financings and borrowings under a $175 million syndicated
revolving credit facility ("Credit Facility") with First Union National Bank
("First Union"), as a lender and as an agent for various other lenders, which
matures in 2004.  The Company also uses a $75 million leasing facility in
connection with developing its integrated cancer centers.  Availability of new
borrowings under the leasing facility terminates in June 2001.  The Company
repaid $49 million, net of borrowings, of Credit Facilities during the year as a
result of increased cash flow from operations and the sale of ILEX stock.  In
addition, the Company repaid $25.0 million of other indebtedness, of which $20.9
million was attributed to payment on subordinated notes related to previous
affiliation transactions.

     In November 1999, the Company sold an aggregate of $100 million of Senior
Secured Notes to a group of institutional investors, the proceeds of which were
used to repay amounts outstanding under the Credit Facility.  The Senior Secured
Notes rank equally in right of payment with the Credit Facility.  The notes bear
interest at 8.42% per annum with a final maturity in 2006 and an average life of
five years.

     The Company is currently in compliance with the Credit Facility, Leasing
Facility and Senior Secured Note covenants, with additional capacity under the
Credit Facility of $50.0 million and Leasing Facility unused capacity of
approximately $13.2 million at December 31, 2000.  The Company has relied
primarily on profitability from its operations to fund working capital.

     Borrowings under the Credit Facility bear interest at a rate equal to a
rate based on prime rate or the London Interbank Offered Rate, based on a
defined formula.  The Credit Facility, Leasing Facility and Senior Secured Notes
contain affirmative and negative covenants, including the maintenance of certain
financial ratios, restrictions on sales, leases or other dispositions of
property, restrictions on other indebtedness and prohibitions on the payment of
dividends.  The Company's service agreements, the capital stock of the Company's
subsidiaries and the Company's accounts receivable are pledged as security under
the Credit Facility, Leasing Facility and Senior Secured Notes and Amendments.

     The Company currently expects that its principal use of funds in the near
future will be in connection with the purchase of medical equipment, investment
in information systems and the acquisition or lease of real estate for the
development of integrated cancer centers and PET centers, with less emphasis
than in past years on transactions with medical oncology practices.  It is
likely that the Company's capital needs in the next several years will exceed
the cash generated from operations.  Thus, the Company may incur additional debt
or issue additional debt or equity securities from time to time. Capital
available for health care companies, whether raised through the issuance of debt
or equity securities, is quite limited.  As a result, the Company may be unable
to obtain sufficient financing on terms satisfactory to management or at all.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCUSSION ABOUT MARKET RISKS

     In the normal course of business, the financial position of the Company is
routinely subjected to a variety of risks.  Among these risks is the market risk
associated with interest rate movements on outstanding debt.  The Company
regularly assesses these risks and has established policies and business
practices to protect against the adverse effects of these and other potential
exposures.

     The Company's borrowings under the Credit Facility contain an element of
market risk from changes in interest rates.  Historically, the Company has
managed this risk, in part, through the use of interest rate swaps; however, no
such agreements have been entered into in 2000.  The Company does not enter into
interest rate swaps or hold other derivative financial instruments for
speculative purposes.  The Company was not obligated under any interest rate
swap agreements during 2000.

     For purposes of specific risk analysis, the Company uses sensitivity
analysis to determine the impact that market risk exposures may have on the
Company.  The financial instruments included in the sensitivity analysis consist
of all of the Company's cash and equivalents, long-term and short-term debt and
all derivative financial instruments.

                                       23
<PAGE>

     To perform sensitivity analysis, the Company assesses the risk of loss in
fair values from the impact of hypothetical changes in interest rates on market
sensitive instruments.  The market values for interest rate risk are computed
based on the present value of future cash flows as impacted by the changes in
the rates attributable to the market risk being measured.  The discount rates
used for the present value computations were selected based on market interest
rates in effect at December 31, 2000.  The market values that result from these
computations are compared with the market values of these financial instruments
at December  31, 2000.  The differences in this comparison are the hypothetical
gains or losses associated with each type of risk.  A one percent increase or
decrease in the levels of interest rates on variable rate debt with all other
variables held constant would not result in a material change to the Company's
results of operations or financial position or the fair value of its financial
instruments.

SUMMARY OF OPERATIONS BY QUARTER

     The following table represents unaudited quarterly results for 2000 and
1999.  The Company believes that all necessary adjustments have been included in
the amounts stated below to present fairly the quarterly results when read in
conjunction with the Consolidated Financial Statements and that all adjustments
are of a normal recurring nature.  Results of operations for any particular
quarter are not necessarily indicative of operations for a full year or
predictive of future periods.

<TABLE>
<CAPTION>

                                                      2000 QUARTER  ENDED                            1999 QUARTER ENDED
                                                      -------------------                            --------------------
                                           Dec 31      SEP 30     JUN 30     MAR 31        DEC 31     SEP 30     JUN 30      MAR 31
                                         ----------   --------   --------   --------      --------   --------   ---------   --------
<S>                                      <C>          <C>        <C>        <C>           <C>        <C>        <C>         <C>
Net revenue...........................   $ 355,836    $337,310   $326,506   $304,502      $299,526   $277,789   $266,412    $249,214
Income (loss) from operations.........    (183,168)     26,126     22,078     26,517        20,836     26,991      9,338      31,076
Other income..........................                                        27,566        14,431
Net income (loss).....................    (123,342)     11,608      9,976     29,115        17,871     14,983     (1,214)     16,515
Net income (loss) per share-basic.....       (1.25)        .12        .10        .29           .18        .15       (.01)        .17
Net income (loss) per share-diluted...       (1.25)        .12        .10        .29           .18        .15       (.01)        .16
</TABLE>

                                       24
<PAGE>

                               US ONCOLOGY, INC.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

   Consolidated Financial Statements as of December 31, 2000 and 1999 and for
each of the three years ended December 31, 2000:

<TABLE>
<CAPTION>
                                                                          Page
                                                                          ----
<S>                                                                       <C>
     Report of Independent Accountants...................................  26
     Consolidated Balance Sheet..........................................  28
     Consolidated Statement of Operations and Comprehensive Income.......  29
     Consolidated Statement of Stockholders' Equity......................  30
     Consolidated Statement of Cash Flows................................  31
     Notes to Consolidated Financial Statements..........................  32
</TABLE>

Financial statement schedules have been omitted because they are not applicable
or the required information is shown in the consolidated financial statements or
notes thereto.

                                       25
<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Stockholders and Board of Directors of  US Oncology, Inc.

     We have audited the consolidated balance sheet of US Oncology, Inc. and its
subsidiaries as of December 31, 2000 and 1999 and the related consolidated
statements of operations and comprehensive income, of stockholders' equity and
of cash flows for each of the three years in the period ended December 31, 2000.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.  We did not audit the financial statements of Physician Reliance
Network, Inc., which statements reflect total revenues of 47 percent for the
year ended December 31, 1998, of the related consolidated totals.  Those
statements were audited by other auditors whose report has been furnished to us,
and our opinion, insofar as it relates to the amounts included for Physician
Reliance Network, Inc., is based solely on the report of the other auditors.

     We conducted our audit in accordance with auditing standards generally
accepted in the United States.  Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement.  An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation.  We believe that our audits and the report of
the other auditors provide a reasonable basis for our opinion.

     In our opinion, based on our audits and the report of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of US Oncology, Inc. and
its subsidiaries at December 31, 2000, and 1999 and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2000 in conformity with accounting principles generally
accepted in the United States.

PRICEWATERHOUSECOOPERS LLP
Houston, Texas
March 23, 2001

                                       26
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To the Stockholders of
Physician Reliance Network, Inc.:

We have audited the consolidated statements of income stockholders' equity and
cash flows of Physician Reliance Network, Inc. (a Texas corporation) and
subsidiaries for the year ended December 31, 1998.  These consolidated financial
statements are included in the restated 1998 consolidated financial statements
of US Oncology, Inc. and are not separately presented in the 2000 Form 10-K of
US Oncology, Inc.  These financial statements are the responsibility of the
Company's management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audit in accordance with auditing standards generally accepted
in the United States.  Those standards require that we plan and  perform  the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement.  An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.  An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.  We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Physician
Reliance Network, Inc. and subsidiaries for the year ended December 31, 1998, in
conformity with accounting principles generally accepted in the United States.


                                         ARTHUR ANDERSEN LLP
Dallas, Texas
February 19, 1999

                                       27
<PAGE>

                               US ONCOLOGY, INC.

                           CONSOLIDATED BALANCE SHEET
                     (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                                                   December 31,
                                                                                              ------------------------
                                                                                                  2000        1999
                                                                                              ----------   ----------
<S>                                                                                           <C>           <C>
                                     ASSETS
Current assets:
   Cash and equivalents...................................................................    $    3,389    $   11,381
   Investment in common stock.............................................................                      27,258
   Accounts receivable....................................................................       337,360       331,361
   Prepaids and other current assets......................................................        44,904        42,655
   Due from affiliates....................................................................        72,380        63,586
                                                                                              ----------    ----------
      Total current assets................................................................       458,033       476,241

Property and equipment, net...............................................................       270,299       254,289
Service agreements, net of accumulated amortization of $231,233 and
   $59,845................................................................................       398,397       537,130
Other assets..............................................................................        25,929        30,817
Deferred income taxes.....................................................................        38,404
                                                                                              ----------    ---------
                                                                                              $1,191,062    $1,298,477
                                                                                              ==========    ==========
                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
       Current maturities of long-term indebtedness........................................   $   23,910    $   26,693
       Accounts payable....................................................................      153,980       107,937
       Due to affiliates...................................................................        8,044         2,584
       Accrued compensation costs..........................................................        8,643         6,252
       Income taxes payable................................................................        9,154         9,322
       Other accrued liabilities...........................................................       65,290        42,660
                                                                                              ----------    ----------
            Total current liabilities......................................................      269,021       195,448
Deferred income taxes......................................................................                     33,224
Long-term indebtedness.....................................................................      300,213       360,191
                                                                                              ----------    ----------
            Total liabilities..............................................................      569,234       588,863

Minority interest..........................................................................        1,506         2,450

Stockholders' equity:
       Preferred Stock, $.01 par value, 1,500 shares authorized, none issued and
          outstanding
       Series A Preferred Stock, $.01 par value, 500 shares authorized and reserved,
          none issued and outstanding
       Common Stock, $.01 par value, 250,000 shares authorized, 93,837 and 87,253 shares
          issued, 89,299 and 87,253 shares outstanding.....................................          939           873
       Additional paid-in capital..........................................................      457,348       428,533
       Common Stock to be issued, approximately 10,370 and 13,982 shares...................       69,666        91,330
       Treasury Stock, 4,538 and 0 shares..................................................      (21,416)
       Accumulated other comprehensive income..............................................
       Retained earnings...................................................................      113,785       186,428
                                                                                              ----------    ----------
            Total stockholders' equity.....................................................      620,322       707,164
Commitments and contingencies..............................................................
                                                                                              ----------    ----------
                                                                                              $1,191,062    $1,298,477
                                                                                              ==========    ==========

</TABLE>



        The accompanying notes are an integral part of this statement.

                                       28
<PAGE>

                               US ONCOLOGY, INC.

                      CONSOLIDATED STATEMENT OF OPERATIONS
                            AND COMPREHENSIVE INCOME
                     (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                  Year Ended December 31,
                                           -------------------------------------
                                               2000          1999         1998
                                           ----------    ----------     --------
<S>                                        <C>           <C>           <C>
Revenue.................................   $1,324,154    $1,092,941     $836,596
Operating expenses:
  Pharmaceuticals and supplies..........      651,214       521,087      357,766
  Field compensation and benefits.......      277,962       215,402      172,298
  Other field costs.....................      161,510       134,635      107,671
  General and administrative............       54,723        39,490       38,325
  Bad debt expense......................       10,198
  Impairment, restructuring and other
   costs................................      201,846        29,014
  Depreciation and amortization.........       75,148        65,072       48,463
                                           ----------    ----------     --------
                                            1,432,601     1,004,700      724,523
                                           ----------    ----------     --------
Income (loss) from operations...........     (108,447)       88,241      112,073
Other income (expense):
  Interest, net.........................      (26,809)      (22,288)     (15,908)
  Gain on investment in common stock
   (unrealized in 1999).................       27,566        14,431
Income (loss) before income taxes.......     (107,690)       80,384       96,165
Income tax provision (benefit)..........      (35,047)       32,229       36,184
                                           ----------    ----------     --------

Net income (loss).......................      (72,643)       48,155       59,981

Other comprehensive income (loss), net
  of tax................................                       (269)         965
                                           ----------    ----------     --------
Comprehensive income (loss).............   $  (72,643)   $   47,886     $ 60,946
                                           ==========    ==========     ========


Net income (loss) per share - basic.....       $(0.72)        $0.48        $0.61
                                           ==========    ==========     ========

Shares used in per share calculations -
 basic..................................      100,589       100,183       97,647
                                           ==========    ==========     ========
Net income (loss) per share - diluted...       $(0.72)        $0.47        $0.60
                                           ==========    ==========     ========

Shares used in per share calculations -
 diluted................................      100,589       101,635       99,995
                                           ==========    ==========     ========
</TABLE>



        The accompanying notes are an integral part of this statement.

                                       29
<PAGE>

                               US ONCOLOGY, INC.

                CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                (in thousands)
<TABLE>
<CAPTION>
                                                                                                Accumulated
                                    Common Stock       Additional     Common       Treasury        Other
                                 -------------------     Paid-In     Stock to       Stock      Comprehensive    Retained
                                 Shares    Par Value     Capital     Be Issued       Cost          Income       Earnings    Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                              <C>      <C>         <C>           <C>          <C>          <C>              <C>         <C>
Balance at January 1, 1998....   75,781        $758     $378,953     $ 94,642                       $  (696)   $ 80,641    $554,298

Affiliation transactions
 value of shares to be issued.                                          8,732                                                 8,732
Purchase of Treasury Stock....                                                    $(12,431)                                 (12,431)
Delivery from Treasury of
 Common Stock to be issued....                            (4,147)      (2,488)       8,735                       (2,100)

Issuance of Common Stock......    4,480          44       21,898      (11,744)                                               10,198
Exercise of options to
 purchase Common Stock........      944          10        2,515                                                              2,525
Tax benefit from exercise of
 non-qualified stock options..                             5,530                                                              5,530

Valuation adjustment -
 Investment in common stock...                                                                          965                     965
Net income....................                                                                                   59,981      59,981
                               --------    --------     --------     --------     --------          -------    --------    --------
Balance at December 31, 1998..   81,205         812      404,749       89,142       (3,696)             269     138,522     629,798

Affiliation transactions
 value of shares to be issued.                                         24,637                                                24,637
Delivery from Treasury of
 Common Stock to be issued....                            (1,810)      (1,637)       3,696                         (249)
Issuance of Common Stock......    5,696          57       20,755      (20,812)
Exercise of options to
 purchase Common Stock........      352           4        4,665                                                              4,669

Tax benefit from exercise of
 non-qualified stock options..                               174                                                                174
Valuation adjustment -
 Investment in common stock...                                                                         (269)                   (269)
Net income....................                                                                                   48,155      48,155
                               --------    --------     --------     --------     --------          -------    --------    --------
Balance at December 31, 1999..   87,253         873      428,533       91,330                                   186,428     707,164
Affiliation transactions
 value of shares to be issued.                                          6,103                                                 6,103
Purchase of Treasury Stock....                                                     (24,906)                                 (24,906)
Delivery from Treasury of
 Common Stock to be issued....                             4,530      (13,692)       9,162
Issuance of Common Stock......    4,413          44       14,031      (14,075)
Exercise of options to
 purchase Common Stock........    2,171          22        9,999                    (5,672)                                   4,349
Tax benefit from exercise of
 non-qualified stock options..                               255                                                                255
Net income (loss).............                                                                                  (72,643)    (72,643)
                               --------    --------     --------     --------     --------          -------    --------    --------
Balance at December 31, 2000..   93,837        $939     $457,348     $ 69,666     $(21,416)         $          $113,785    $620,322
                               ========    ========     ========     ========     ========          =======    ========    ========
</TABLE>



        The accompanying notes are an integral part of this statement.

                                       30
<PAGE>

                               US ONCOLOGY, INC.

                     CONSOLIDATED STATEMENT OF CASH FLOWS
                                (in thousands)

<TABLE>
<CAPTION>
                                                 Year Ended December 31,
                                        -------------------------------------
<S>                                        <C>          <C>          <C>
                                                2000         1999        1998
                                           ---------    ---------    --------

Cash flows from operating activities:

  Net income (loss).....................   $ (72,643)   $  48,155    $ 59,981
  Noncash adjustments:
     Depreciation and amortization......      75,148       65,072      48,463
     Gain on investment in common stock
      (unrealized in 1999)..............     (27,566)     (14,431)
     Impairment, restructuring and
      other costs.......................     165,800       16,887
     Deferred income taxes..............     (71,628)       9,687       5,805
     Bad debt expense...................      10,198
     Earnings on joint ventures.........        (944)        (634)       (540)
     Revenue from investment in common
      stock.............................                   (6,019)     (3,523)
  Cash provided (used) by changes in:
     Accounts receivable................     (15,754)     (80,940)    (61,539)
     Prepaids and other current assets..      (8,907)     (33,906)    (12,113)
     Accounts payable...................      45,109       23,032      15,420
     Due from/to affiliates.............      (4,374)     (18,682)      2,660
     Income taxes receivable/payable....        (168)       5,591      17,866
     Other accrued liabilities..........      23,054       17,728       7,219
                                           ---------    ---------    --------
       Net cash provided by operating
        activities......................     117,325       31,540      79,699
                                           ---------    ---------    --------
Cash flows from investing activities:
  Acquisition of property and equipment.     (67,000)     (74,320)    (58,646)
  Net payments in affiliation
   transactions.........................     (16,124)     (43,513)    (32,229)
  Merger transaction costs..............                  (14,587)
  Investments...........................                   (3,000)     (1,944)
  Proceeds from sale of investment in
   common stock.........................      54,824
  Other.................................                    1,905      (1,409)
                                           ---------    ---------    --------
        Net cash used by investing
        activities......................     (28,300)    (133,515)    (94,228)
                                           ---------    ---------    --------
Cash flows from financing activities:
  Proceeds from Credit Facility.........      66,000      154,000      66,000
  Proceeds from Senior Secured Notes....                  100,000
  Repayment of Credit Facility..........    (115,000)    (136,000)     (8,000)
  Repayment of other indebtedness.......     (24,998)     (20,394)    (29,344)
  Debt financing costs..................       1,887       (2,610)
  Proceeds from exercise of stock
   options..............................                    4,669       2,525
  Issuance of Common Stock..............                                1,698
  Purchase of Treasury Stock............     (24,906)                 (12,431)
                                           ---------    ---------    --------

       Net cash provided (used) by
        financing activities............     (97,017)      99,665      20,448
                                           ---------    ---------    --------
Increase (decrease) in cash and
 equivalents............................      (7,992)      (2,310)      5,919
Cash and equivalents:
  Beginning of period...................      11,381       13,691       7,772
                                           ---------    ---------    --------

  End of period.........................   $   3,389    $  11,381    $ 13,691
                                           =========    =========    ========

Interest paid...........................   $  26,705    $  24,192    $ 14,022
Taxes paid..............................      36,377       17,331      15,540

Noncash investing and financing
 transactions:
  Value of Common Stock to be issued in
   affiliation transactions.............       6,103       24,637       8,732
  Delivery of Common Stock in
   affiliation transactions.............      27,767       24,508      20,479
  Debt issued in affiliation
   transactions.........................      11,251       27,292      13,500
  Debt assumed in affiliation
   transactions.........................                       86         277
  Debt issued in investment transaction.                    5,000
  Conversion of subordinated notes
   payable to Common Stock..............                                8,500
  Assets acquired under capital lease...       1,100                    2,268
  Tax benefit from exercise of
   non-qualified stock options..........         255          174       5,530
</TABLE>
        The accompanying notes are an integral part of this statement.

                                       31
<PAGE>

                               US ONCOLOGY, INC.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (dollars and shares in thousands except per share data)

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     US Oncology, Inc. (together with its subsidiaries, "US Oncology" or the
"Company") provides comprehensive services, with the mission of expanding access
and quality of cancer care in local communities and advancing the delivery of
care.  The Company offers the following services:

     .    Develop, construct and manage free standing cancer centers that
          provide treatment areas and equipment for medical oncology, radiation
          therapy and diagnostic radiology

     .    Expand diagnostic capabilities of practices through installation and
          management of Positron Emission Tomography (PET) technology

     .    Coordinate and manage cancer drug research trials for pharmaceutical
          and biotechnology companies

     .    Purchase and manage the inventory for cancer related drugs for
          affiliated practices

     .    Provide management and capital resources to affiliated practices,
          including data management, accounting, compliance and other
          administrative services

     The Company provides these services to oncology practices comprising over
450 sites, with over 7,500 employees and over 850 physicians. The Company is not
a provider of medical services. The affiliated practices offer comprehensive and
coordinated medical services to cancer patients, integrating the specialties of
medical and gynecologic oncology, hematology, radiation oncology, diagnostic
radiology and blood and marrow stem cell transplantation.

     The consolidated financial statements of the Company have been prepared to
give retroactive effect to the merger with Physician Reliance Network, Inc.
(PRN) on June 15, 1999 (the "AOR/PRN merger").  This transaction was accounted
for as a pooling of interests, and, accordingly, the historical financial
statements give effect to the combination of the historical balances and amounts
of AOR and PRN for all periods presented.  As a result of the AOR/PRN merger,
PRN became a wholly owned subsidiary of the Company, and each holder of PRN
stock received 0.94 shares of the Company's Common Stock for each PRN share
held.

     The following is a summary of the Company's significant accounting
policies:

Principles of consolidation

     The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries.  All intercompany transactions and balances
have been eliminated.  Certain amounts, including amounts attributable to PRN
prior to the AOR/PRN merger, have been reclassified to conform with the current
period financial statement presentation.  The Company has determined that none
of the existing service agreements meets EITF 97-2 requirements for
consolidation.

Use of estimates

     The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses, as well as disclosures of contingent assets and
liabilities.  Because of inherent uncertainties in this process, actual future
results could differ from those expected at the reporting date.

Service fee revenue

     Approximately 56% of the Company's 2000 service fee revenue has been
derived from service agreements that provide for payment to the Company of a
service fee, which typically includes all practice costs (other than amounts
retained by the physicians), a fixed fee, a percentage fee (in most states) and,
if certain financial and performance criteria are satisfied,

                                       32
<PAGE>

                               US ONCOLOGY, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (dollars and shares in thousands except per share data)

a performance fee (the Net Revenue Model). The amount of the fixed fee is
related to the size of the affiliation transaction and, as a result, varies
significantly among the service agreements. The percentage fee, where permitted
by applicable law, is generally seven percent of the affiliated practice net
revenue.  Performance fees are paid after payment of all practice expenses,
amounts retained by practices and the other service fees and, where permitted by
state law, are approximately 50% of the residual profitability of the practice.
Service fees are not subject to adjustment, with the exception that the fixed
fee may be adjusted from time to time after the fifth year of the service
agreement to reflect inflationary trends.  These management service agreements
permit the affiliated practice to retain a specified amount (typically 23% of
the practice's net revenues) for physician salaries, and payment of such
salaries is given priority over payment of the service fee.  The affiliated
practice is also entitled to retain all profits of the practice after payment of
the service fee to the Company.

     Approximately 41% of the Company's 2000 service fee revenue has been
derived from service agreements that provide for payment to the Company of a
service fee that includes an amount equal to the direct expenses associated with
operating the practice and an amount which is calculated based on the service
agreement for each of the practices (the Earnings Model).  The direct expenses
include rent, depreciation, amortization, provision for uncollectible accounts,
pharmaceutical expenses, medical supply expenses, salaries and benefits of non-
physician employees who support the practices and interest.  The direct expenses
do not include salaries and benefits of physicians.  The non-expense related
portion of the service fee is a percentage, ranging from 25% to 35%, of the
earnings before interest and taxes of the affiliated practice.  The earnings of
an affiliated practice is determined by subtracting the direct expenses from the
professional revenues and research revenues earned by the affiliated practice.

     The remaining service agreements provide for a fee that is a percentage of
revenue or of earnings of the affiliated practice or is a predetermined, fixed
amount. Each affiliated practice is responsible for paying the salaries and
benefits of its physician employees from the amount retained by the affiliated
practice after payment of the Company's service fee.

     The Company recognizes the service fees as revenue when the fees are earned
and are deemed realizable based upon the contractually-agreed amount of such
fees, after taking into consideration the payment priority of amounts retained
by practices.

     The Company announced in November 2000 its strategic initiative to
negotiate amendments to service agreements with practices under the net revenue
model to convert those economic arrangements to the earnings model.  Management
believes the earnings model properly aligns practice priorities with proper cost
control, with the Company and the practice sharing proportionately in revenue,
operating costs and cost structure changes.  As of March 16, 2001, three
practices accounting for 7.4% of the Company's service fee revenue in 2000 had
converted from the net revenue model to the earnings model.

Cash equivalents and investments

     The Company considers all highly liquid debt securities with original
maturities of three months or less to be cash equivalents.

Accounts Receivable

     To the extent permitted by applicable law, the Company purchases the
accounts receivable generated by affiliated practices from patient services
rendered pursuant to the service agreements.  The accounts receivable are
purchased at their net collectible value, after adjustment for contractual
allowances and allowances for doubtful accounts.  The Company is reimbursed by
the practices for purchased receivables that are deemed uncollectible following
the Company's purchase.  Thus, the Company does not have an allowance for
doubtful accounts.  If any purchased accounts receivable are subsequently deemed
uncollectible, then the practice responsible for the receivables would reduce
its revenue during the period in which the

                                       33
<PAGE>

                               US ONCOLOGY, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (dollars and shares in thousands except per share data)

uncollectible amount is determined.  Because the Company's service fee is based
in part on the practice revenue, the reduction in revenue caused by the
uncollectible accounts receivable would reduce the Company's future service fee.
The impact of such adjustments is typically not significant. However, laws and
regulations governing Medicare and Medicaid programs are complex and subject to
interpretation, which along with other third party payor actions, could impact
the collection of accounts receivable in the future.

     In late 1999, the Company installed a patient billing system in thirteen
practices with approximately $336,000 in annual net patient revenues. During
2000, the Company experienced limitations in this system that caused significant
delays and errors in patient billing and collection processes. Although the
vendor assisted in correcting some deficiencies in the billing system,
collecting some patient accounts became infeasible. In the fourth quarter of
2000, the Company determined that the system problems required a $10,200 charge
for bad debt expense. Because of the numerous distractions borne by the
practices in the system conversion, the Company elected not to include this
amount in the computation of practice results. The Company is discussing with
the system vendor a settlement for damages incurred as a result of the system
implementation.

Due from and to affiliates

     The Company has advanced to certain of its practices, primarily Texas
Oncology, P.A., amounts needed for working capital purposes -- primarily to
assist with the development of new markets, to support the addition of
physicians, and to support the development of new services. Certain advances
bear interest at a market rate negotiated by the Company and the affiliated
practices, which approximates the prime lending rate (8.5% at December 31,
2000). These advances are unsecured and are repaid in accordance with the terms
of the instrument evidencing the advance. Amounts payable to related parties
represent current payments to affiliated practices for services rendered under
service agreements.

Prepaids and other current assets

     Prepaids and other current assets consist of prepayments, insurance and
other receivables.

Property and equipment

     Property and equipment is stated at cost.  Depreciation of property and
equipment is provided using the straight-line method over the estimated useful
lives of three to ten years for computers and software, equipment, and furniture
and fixtures,  the lesser of ten years or the remaining lease term for leasehold
improvements and twenty-five years for buildings.  Interest costs incurred
during the construction of major capital additions, primarily cancer centers,
are capitalized.

Service agreements

     Service agreements consist of the costs of purchasing the rights to manage
practices.  Under the initial 40-year terms of the agreements, the affiliated
practices have agreed to provide medical services on an exclusive basis only
through facilities managed by the Company.  The agreements are noncancelable
except for performance defaults. The Company amortized these costs over the 40-
year term of the related management service agreement until July 1, 1998, when
the Company changed its amortization period to 25 years on a prospective basis.
The changes had an immaterial impact on the Company's results of operations.

     Under the service agreements, the Company is the exclusive provider of
certain services to its affiliated practices, providing facilities, management
information systems, clinical research services, personnel management and
strategic, financial and administrative services.  Specifically, the Company,
among other things, (i) develops, constructs and manages free standing cancer
centers which provide for treatment areas and equipment for medical oncology,
radiation therapy and diagnostic radiology, (ii) expands diagnostic capabilities
of practices through installation and management of PET technology,

                                       34
<PAGE>

                               US ONCOLOGY, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (dollars and shares in thousands except per share data)



(iii) coordinates and manages cancer drug research for pharmaceutical and
biotechnology companies, (iv) purchases and manages the inventory for cancer
related drugs for affiliated practices, and (v) provides management and capital
resources to affiliated practices including data management, accounting,
compliance and other administrative services.

     Each service agreement provides for the formation of a policy board.  The
policy board meets periodically, approves those items having a significant
impact on the affiliated practice and develops the practice's strategic
initiatives.  The two most significant items reviewed and approved by the policy
board are the annual budget for the practice and the addition of facilities,
services or physicians.  Each management services agreement provides a mechanism
to adjust the Company's service fee if a change in law modifies the underlying
financial arrangement between the Company and the affiliated practice.

     The carrying value of the service agreements is reviewed for impairment
when events or changes in circumstances indicate their recorded cost may not be
recoverable.  If the review indicates that the undiscounted cash flows from
operations of the related service agreement over the remaining contractual
period is expected to be less than the recorded amount of the service agreement
intangible asset, the Company's carrying value of the service agreement
intangible asset will be reduced to its estimated fair value using expected cash
flows on a discounted basis (Note 11).

Other assets

     Other assets consist of costs associated with obtaining debt financing, the
excess of purchase price over the fair value of net assets acquired, and
investments in joint ventures. The debt financing costs are capitalized and
amortized over the terms of the related debt agreements using the straight line
method, which approximates the interest method. The amounts recorded for excess
of purchase price over the fair value of net assets acquired are being amortized
on a straight-line basis over 20 years.  At December 31, 2000 and 1999,
accumulated amortization equaled $9,295 and $2,415, respectively (Note 11). The
investments in joint ventures for which the Company does not have control are
accounted for under the equity method of accounting.  For 2000, 1999 and 1998,
operational activity relating to the joint ventures was not material to the
operations of the Company.

Income taxes

     Deferred tax assets and liabilities are determined based on the temporary
differences between the financial statement carrying amounts and the tax bases
of assets and liabilities using the enacted tax rates in effect in the years in
which the differences are expected to reverse.  In estimating future tax
consequences, all expected future events are considered other than enactments of
changes in the tax law or rates.

Fair value of financial instruments

     The Company's receivables, payables, prepaids and accrued liabilities are
current and on normal terms and, accordingly, are believed by management to
approximate fair value.  Management also believes that subordinated notes issued
to affiliated physicians approximate fair value when current interest rates for
similar debt securities are applied.  Management estimates the fair value of its
bank indebtedness approximates its book value.

Earnings per share

     The Company computes earnings per share in accordance with the provisions
of Financial Accounting Standards Board (FASB) Statement No. 128, "Earnings Per
Share," which requires the Company to disclose "basic" and "diluted" earnings
per share (EPS).  The computation of basic earnings per share is based on a
weighted average number of Common Stock and Common Stock to be issued shares
outstanding during these periods.  The Company includes Common Stock to be
issued in both basic and diluted EPS as there are no foreseeable circumstances
which would relieve the Company of its obligation to issue these shares.  The
computation of diluted earnings per share is based on the weighted average
number of Common Stock and Common Stock to be issued shares outstanding during
the periods as well as dilutive potential Common Stock calculated under the
treasury stock method.

                                       35
<PAGE>

                               US ONCOLOGY, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (dollars and shares in thousands except per share data)

The following table summarizes the determination of shares used in per share
calculations:


                                              Year Ended December 31,
                                        -------------------------------
                                            2000       1999      1998
                                          --------    -------    ------
Basic
  Outstanding at end of period:
     Common Stock.......................    93,837     87,253    80,830
     Common Stock to be issued..........    10,370     13,982    16,947
                                           -------    -------    ------
                                           104,207    101,235    97,777
  Effect of weighting...................    (3,618)    (1,052)     (130)
                                           -------    -------    ------
     Shares used in per share
      calculation.......................   100,589    100,183    97,647
                                           =======    =======    ======
Diluted
  Outstanding at end of period:
     Common Stock.......................    93,837     87,253    80,830
     Common Stock to be issued..........    10,370     13,982    16,947
                                           -------    -------    ------
                                           104,207    101,235    97,777
  Effect of weighting and assumed share
   equivalents for grants of
   stock options........................    (3,618)       400     2,218
                                           -------    -------    ------
     Shares used in per share
      calculation.......................   100,589    101,635    99,995
                                           =======    =======    ======

  Anti-dilutive stock options not
   included above.......................    12,245      6,903     1,698


Operating segments

     During 1998, the Company adopted FASB Statement No. 131, "Disclosures About
Segments of an Enterprise and Related Information" (FAS 131), which requires
reporting of summarized financial results for the operating segments as well as
establishes standards for related disclosures about products and services,
geographic areas and major customers.  The Company's business is providing
comprehensive services, facilities and equipment, administrative and technical
support and ancillary services necessary for physicians to establish and
maintain a fully integrated network of outpatient cancer care located throughout
the country and the Company believes it operates in a single segment, providing
comprehensive cancer management services.  The Company, therefore, has reported
a single segment herein.

Comprehensive income

     During 1998, the Company adopted FASB Statement No. 130, "Comprehensive
Income", which establishes standards for reporting and displaying comprehensive
income and its components.  In addition to net income, comprehensive income is
comprised of "other comprehensive income" which includes all charges and credits
to equity that are not the result of transactions with owners of the Company's
Common Stock. The required disclosure is included in the accompanying
consolidated statements of operations.  Accumulated other comprehensive income
consists of the unrealized gain or loss (net of tax) relating to investments in
common stock available for sale.

                                       36
<PAGE>

                               US ONCOLOGY, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (dollars and shares in thousands except per share data)

Reclassifications

     Certain previously reported financial information has been reclassified to
conform to the 2000 presentation.  Such reclassifications did not materially
affect the Company's financial condition, net income (loss) or cash flows.

New Accounting Pronouncements

     In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin Number 101 (SAB 101) addressing revenue recognition matters.
The SEC issued interpretative guidance on SAB 101 in November 2000 and mandated
the implementation of SAB 101's provisions effective January 1, 2000.  The
provisions of SAB 101 generally require that revenue cannot be recognized until
(i) persuasive evidence of an agreement exists, (ii) delivery of goods or
performance of services has occurred, (iii) the revenue amount is fixed and
determinable and (iv) collectibility is reasonably assured.  The Company has
analyzed the provisions and interpretative guidance of SAB 101 and has
determined that the implementation of SAB has no effect on its past or current
revenue recognition practices, as these conditions have been used as criteria
governing the Company's revenue recognition.

     In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (FAS 133), and in June 2000, issued
Statement of Financial Accounting Standards No. 138 (FAS 138), an amendment of
FAS 133.  These statements are effective for all fiscal quarters of fiscal years
beginning after June 15, 2000.  The statements require the recognition of
derivative financial instruments on the balance sheet as assets or liabilities,
at fair value.  Gains or losses resulting from changes in the value of
derivatives are accounted for depending on the intended use of the derivative
and whether it qualifies for hedge accounting.  The Company has historically not
engaged in significant derivative instrument activity.  Adoption of FAS 133 is
not expected to have a material effect on the Company's financial position or
operating results.

     In September 2000, FASB issued Statement of Financial Accounting Standards
No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of  Liabilities."  The statement is effective for fiscal years
ending after December 15, 2000.  The statement replaces FASB Statement No. 125
and revises the standards for accounting and disclosure for securitizations and
other transfers of financial assets and collateral.  The statement carries over
most of FASB Statement No. 125's provisions without reconsideration and, as
such, the Company believes that the implementation of this standard will not
have a material effect on its consolidated financial position or results of
operations.

     The FASB has issued an Exposure Draft on Accounting for Business
Combinations which would prospectively eliminate the pooling of interests method
of accounting and the amortization of goodwill.  This Exposure Draft is expected
to be approved in June 2001 and its proposed changes would begin immediately
thereafter.  The Company has $11,000 of goodwill included in its balance sheet
at December 31, 2000.  Goodwill amortization for the years ended December 31,
2000, 1999 and 1998 was $668, $653 and $364 and is currently expected to
approximate $340 for the year ended December 31, 2001 before the provisions of
the Exposure Draft are applied.  Approval of the Exposure Draft in its current
form would not result in the elimination of amortization for the Company's
service agreement intangible assets because under the scope of the Exposure
Draft only goodwill, and not other identifiable intangible assets, resulting
from acquisitions under the purchase method of accounting is subject to being no
longer amortized.

                                       37
<PAGE>

                               US ONCOLOGY, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (dollars and shares in thousands except per share data)


NOTE 2 - REVENUE

     Net patient revenue for services to patients by the practices affiliated
with the Company is recorded when services are rendered based on established or
negotiated charges reduced by contractual adjustments and allowances for
doubtful accounts.  Differences between estimated contractual adjustments and
final settlements are reported in the period when final settlements are
determined.  Net patient revenue of the practices is reduced by amounts retained
by the practices under the Company's service agreements to arrive at the
Company's service fee revenue.  The Company has amended three of its service
agreements to convert them from the revenue model to the earnings model
subsequent to December 31, 2000 (Note 1).

The following presents the amounts included in the determination of the
Company's revenues:

                                                Year Ended December 31,
                                           ------------------------------------
                                              2000         1999         1998
                                           ----------   ----------   ----------

  Net patient revenue...................   $1,718,620   $1,407,494   $1,099,711
  Amounts retained by affiliated
   practices............................      394,466      314,553      263,115
                                           ----------   ----------   ----------
  Revenue...............................   $1,324,154   $1,092,941   $  836,596
                                           ==========   ==========   ==========

     For the years ended December 31, 2000, 1999 and 1998, the affiliated
practices derived approximately 37%, 35% and 35%, respectively, of their net
patient revenue from services provided under the Medicare and state Medicaid
programs.  Capitation revenues were less than 1% of total net patient revenue in
2000, 1999 and 1998.  Changes in the payor reimbursement rates, particularly
Medicare and Medicaid due to its concentration, or affiliated practices' payor
mix can materially and adversely affect the Company's revenues.

     The Company's accounts receivable are a function of net patient revenue of
the affiliated practices rather than the Company's revenue.  Receivables from
the Medicare and state Medicaid programs are considered to have minimal credit
risk, and no other payor comprised more than 10% of accounts receivable at
December 31, 2000.

                                       38
<PAGE>

                               US ONCOLOGY, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (dollars and shares in thousands except per share data)

     The Company's most significant and only service agreement to provide more
than 10% of revenues is with Texas Oncology, P.A. (TOPA).  TOPA accounted for
approximately 24%, 25%, and 32% of the Company's total revenues for the years
ended December 31, 2000, 1999, and 1998, respectively. Set forth below is
selected, unaudited financial and statistical information concerning TOPA.

                                       39
<PAGE>

                                              Year Ended December 31,
                                        ----------------------------------
                                          2000         1999         1998
                                        --------     --------     --------

  Net patient revenues...............   $401,503     $341,939     $338,113
                                        --------     --------     --------
  Service fees paid to the Company
     Reimbursement of expense........    273,861      232,255      218,083
     Earnings component..............     44,667       37,726       42,010
                                        --------     --------     --------

  Total service fee..................    318,528      269,981      260,093
                                        --------     --------     --------

  Amounts retained by TOPA...........   $ 82,975     $ 71,958     $ 78,020
                                        ========     ========     ========


  Physicians employed by TOPA........        185          195          197

  Cancer centers utilized by TOPA....         32           29           24

     The Company's operating margin for the TOPA service agreement was 14.0%,
14.0%, and 16.1% for the years ended December 31, 2000, 1999 and 1998,
respectively. Operating margin is computed by dividing the earnings component of
the service fee by the total service fee. The decrease in operating margin in
2000 and 1999 is due to the utilization of more expensive pharmaceutical agents
that have lower margins than those previously used.  The Company believes that
these trends will continue in the future.

NOTE 3 - AFFILIATION TRANSACTIONS

     The consideration paid for the practices to enter into long-term service
agreements and for the nonmedical assets of the practices, primarily receivables
and fixed assets, has been accounted for as asset purchases.  Total
consideration includes the assumption by the Company of specified liabilities,
the estimated value of nonforfeitable commitments by the Company to issue Common
Stock at specified future dates for no additional consideration, short-term and
subordinated notes, cash payments and related transaction costs as follows:

                                            Year Ended December 31,
                                         ----------------------------
                                          2000       1999      1998
                                         -------   --------   -------

  Cash and transaction costs..........   $16,124   $ 43,513   $32,229
  Short-term and subordinated notes...    11,251     27,292    13,500
  Common Stock to be issued...........     6,103     24,637     8,732
  Liabilities assumed.................       903      4,882     2,687
                                         -------   --------   -------
  Total costs.........................   $34,381   $100,324   $57,148
                                         =======   ========   =======

  Number of practice affiliations.....        14         20        21

                                       40
<PAGE>

                               US ONCOLOGY, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (DOLLARS AND SHARES IN THOUSANDS EXCEPT PER SHARE DATA)

     During 2000, the Company affiliated with 14 oncology practices for total
consideration of $33,478, including 1,721 shares of Common Stock to be issued
with a value of $6,103.  No 2000 affiliations were individually material.

     During 1999, the Company affiliated with 20 oncology practices on the
effective dates indicated as follows:  January 1, Oncology & Hematology of
Southwest Virginia of Roanoke, Virginia, total consideration of $27,156
including 820 shares of common stock to be issued with a value of $9,840;
January 1, Hematology Associates Ltd. of Phoenix, Arizona, total consideration
of $10,772 including 284 shares of common stock to be issued with a value of
$3,415; June 4, Birmingham Hematology Oncology Associates, P.C. of Birmingham,
Alabama, total consideration of $12,625 including 402 shares of common stock to
be issued with a value of $3,505; 17 other practices, total consideration of
$44,889 including 1,126 shares of common stock to be issued with a value of
$7,877.

     During 1998, the Company affiliated with 21 oncology practices on the
effective dates indicated as follows:  January 1, Northwest Medical Specialists,
P.C., of Niles, Illinois, total consideration of $12,250 including 231 shares of
Common Stock to be issued with a value of $3,062; March 26, Landry & Moss,
M.D.'s, P.A. of Bradenton, Florida, total consideration of $3,645 including 61
shares of Common Stock to be issued with a value of $604; March 31, Dayton
Oncology/Hematology Consultants, P.A. of Dayton, Ohio, total consideration of
$5,560 including 116 shares of Common Stock to be issued with a value of $1,048;
May 1, Colorado Radiation Oncology, P.C. of Denver, Colorado, total
consideration of $3,321 including 112 shares of Common Stock to be issued with a
value of $1,095; August 15, Spector, Zimbler, & DeLeo, M.D.'s of Berkshire,
Massachusetts, total consideration of $2,539 including 41 shares of Common Stock
to be issued with a value of $436; September 1, Arnold Wax, M.D., LTD of Las
Vegas, Nevada, total consideration of $4,426 including 88 shares of Common Stock
to be issued with a value of $587; and in July through December of 1998, eleven
smaller transactions with practices in Tucson, Arizona; Oklahoma City, Oklahoma;
Kansas City, Missouri; Dunedin, Florida; Norfolk, Virginia; Owings Mills,
Maryland; Highland, Illinois; Clear Lake, Texas, and Denver, Colorado; for total
consideration of $25,407 including 370 shares of Common Stock to be issued with
a value of $1,900.

NOTE 4 - RESEARCH CONTRACTS

     On June 30, 1997, one of the Company's subsidiaries, PRN Research, Inc.,
entered into a comprehensive clinical development alliance with ILEX Oncology,
Inc. ("ILEX"), a drug development company focused exclusively on cancer.  As
part of the agreement, ILEX issued to the Company 314 shares, 314 shares, and
312 shares of ILEX common stock in 1999, 1998, and 1997, respectively.  The
Company has recognized $2,867 and $3,523, as revenue in 1999 and 1998,
respectively, representing the fair value of the ILEX stock received on June 30
of each year, recognized over the following year as the Company was obligated to
perform clinical research activities during that period.  Effective June 30,
1999, the Company amended its agreement with ILEX.  Under the amended agreement,
ILEX accelerated the issuance of 315 shares of its common stock valued at $3,152
and the parties agreed to terminate the Company's obligations to provide
research services to ILEX under the agreement.  ILEX's obligation to issue
additional shares to the Company contingent upon volume of activity was
cancelled at this time.

     Through the third quarter of 1999, the Company recognized subsequent
changes in the value of ILEX stock received as a component of other
comprehensive income in shareholders' equity in accordance with its intentions
and classification of the investment as "available for sale" under the guidance
of FASB 115.  The valuation allowance was shown as a component of stockholders'
equity, net of applicable income taxes.  During the fourth quarter of 1999, the
Company changed its intentions and reclassified the investment as a trading
security.  In connection with this decision, the Company has recognized an
unrealized gain of $14,431 in the accompanying consolidated statement of
operations and comprehensive income to reflect the fair value of the investment
at December 31, 1999.  The Company sold the investment in a private sale
transaction in March 2000 and realized net proceeds of $54,798, which resulted
in the recognition of an additional gain of $27,540 in the consolidated
statement of operations and comprehensive income for the period ended December
31, 2000.

                                       41
<PAGE>

                               US ONCOLOGY, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (dollars and shares in thousands except per share data)

NOTE 5 - PROPERTY AND EQUIPMENT

     Property and equipment consist of the following:

                                                December 31,
                                        -------------------------
                                              2000         1999
                                           ---------    ---------

 Land...................................   $  19,706    $  18,080
 Furniture and equipment................     280,843      222,771
 Buildings and leasehold improvements...     136,229      125,715
 Construction in progress...............      14,373       15,105
                                           ---------    ---------
                                             451,151      381,671
 Less - accumulated depreciation and
  amortization..........................    (180,852)    (127,382)
                                           ---------    ---------
                                           $ 270,299    $ 254,289
                                           =========    =========
NOTE 6 - INDEBTEDNESS

     The Company's long-term indebtedness consists of the following:

                                               December 31,
                                          ----------------------
                                             2000       1999
                                           --------   --------

  Credit Facility.......................   $125,000   $174,000
  Senior secured notes..................    100,000    100,000
  Notes payable.........................      5,868     13,031
  Subordinated notes....................     90,578     97,997
  Convertible notes.....................                   900
  Capital lease obligations and other...      2,677        956
                                           --------   --------
                                            324,123    386,884
  Less - current maturities.............     23,910     26,693
                                           --------   --------
                                           $300,213   $360,191
                                           ========   ========

Credit Facility

     The Company has a loan agreement and revolving credit/term facility (Credit
Facility) that was amended effective as of June 15, 1999 in connection with the
AOR/PRN merger to improve certain terms, covenants and capacity.  Under the
terms of the agreement, the amounts available for borrowing until June 15, 2000
were $275,000 through 2004.  The borrowing limit was $150,000 prior to the
amendment.  The Credit Facility previously included a $100,000 component that
was renewable at the option of the lenders under that agreement at one year
intervals from the original date of the agreement.  On June 15, 2000, the
Company elected not to renew the $100,000 component of the Credit Facility,
leaving availability of $175,000.  The maximum borrowings outstanding  under the
Credit Facility during 2000 were $179,000.  Proceeds of loans may be used to
finance development of cancer centers and installations of PET, to finance
practice affiliations, to provide working capital or for other general corporate
uses.  The Company has classified the entire balance outstanding under the
Credit Facility as long-term due to its ability and intent to maintain the
borrowings past 2000.

     Borrowings under the Credit Facility are secured by capital stock of the
Company's subsidiaries and accounts receivable and management service
agreements.  At the Company's option, funds may be borrowed at the Base interest
rate or the London Interbank Offered Rate (LIBOR) up to LIBOR plus an amount
determined under a defined formula.  The Base rate is selected by First Union
National Bank (First Union) and is defined as its prime rate or Federal Funds
Rate plus  1/2%.  Interest on amounts outstanding under Base rate loans is due
quarterly while interest on LIBOR related loans is due at the end of each
applicable interest period or quarterly, if earlier.  As of December 31, 2000
and 1999, the weighted average interest rate on all outstanding draws was 8.9%,
and 7.5%, respectively.

                                       42
<PAGE>

                               US ONCOLOGY, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (dollars and shares in thousands except per share data)

     The Company is subject to restrictive covenants under the Credit Facility,
including the maintenance of certain financial ratios.  The agreement also
limits certain activities such as incurrence of additional indebtedness, sales
of assets, investments, capital expenditures, mergers and consolidations and the
payment of dividends.  Under certain circumstances, additional medical practice
transactions may require First Union and the lenders' consent.

     As a result of the Company's net loss in 2000, the Company would have been
in violation of certain financial covenants of the Credit Facility agreements,
including the current period debt to cash flow (as defined) covenant.  The
Company secured an amendment to these covenants and paid amendment fees totaling
$1,875, which has been included in the statement of operations and comprehensive
income for the year ended December 31, 2000 in impairment, restructuring and
other charges, since the amendments were necessitated by those charges.

Senior secured notes

     In November 1999, the Company issued $100,000 in senior secured notes to a
group of institutional investors.  The notes bear interest at 8.42%, mature in
installments from 2002 through 2006 and rank equal in right of payment with all
current and future senior indebtedness of the Company.  The senior secured notes
contain restrictive financial and operational covenants and are secured by the
same collateral as the Credit Facility.

     As a result of the Company's net loss in 2000, the Company would have been
in violation of certain financial covenants of its Senior Secured Note
agreements, including the current period debt to cash flow (as defined)
covenant.  The Company secured amendments to these covenants and paid amendment
fees totaling $500, which has been included in the statement of operations and
comprehensive income for the year ended December 31, 2000 in impairment,
restructuring and other charges, since the amendments were necessitated by those
charges.

Notes payable

     The notes payable bear interest, which is payable annually, at rates
ranging from 5.3% to 10% and mature between 2001 to 2005.  The notes are payable
to physicians with whom the Company entered into long-term service agreements
and relate to affiliation transactions.  The notes payable are unsecured.

Subordinated notes

     The subordinated notes are issued in substantially the same form in
different series and are payable to the physicians with whom the Company entered
into service agreements.  Substantially all of the notes outstanding at December
31, 2000 and 1999 bear interest at 7%, are due in installments through 2007 and
are subordinated to senior bank and certain other debt.  If the Company fails to
make payments under any of the notes, the respective practice can terminate the
related service agreement.

Convertible notes

     In April 1997, the Company issued $8,500 of convertible promissory notes as
partial consideration for practices to enter into a service agreement.  The
notes bear interest at the prime rate plus 1%.  During 1998 these promissory
notes were converted into approximately 1,500 shares of the Company's Common
Stock.  In July 1997, the Company issued $900 of convertible promissory notes as
partial consideration for a practice to enter into a service agreement.  The
notes bear interest at 6% and are convertible at the option of the holder of the
notes into 66 shares of the Company's Common Stock in 2002.  During 2000, these
remaining promissory notes were forfeited by the physicians relating to the
Company's termination of a service agreement.

                                       43
<PAGE>

                               US ONCOLOGY, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (dollars and shares in thousands except per share data)

Capital lease obligations and other indebtedness

     Leases for medical and office equipment are capitalized using effective
interest rates between 6.5% and 11.5% with original lease terms between two and
seven years.  At December 31, 2000 and 1999, the gross amount of assets recorded
under the capital leases was $6,400 and $5,300, respectively, and the related
accumulated amortization was $4,200 and $3,000, respectively.  Amortization
expense is included with depreciation in the accompanying consolidated statement
of operations and comprehensive income.  Total future capital lease payments are
$530.  Other indebtedness consists principally of installment notes and bank
debt, with varying interest rates, assumed in affiliation transactions.

Maturities

     Future principal maturities of long-term indebtedness, including capital
lease obligations, are approximately $23,900 in 2001, $45,400 in 2002, $39,000
in 2003, $158,600 in 2004, $28,500 in 2005 and $28,700 thereafter.



NOTE 7 - INCOME TAXES

     The Company's income tax provision (benefit) consists of the following:

                           Year Ended December 31,
                   -----------------------------------
                     2000          1999         1998
                   --------       -------      -------
  Federal:
     Current....   $ 33,638       $21,661      $27,767
     Deferred...    (72,037)        8,171        5,195
  State:
     Current....      2,943         1,129        2,612
     Deferred...        409         1,268          610
                   --------       -------      -------
                   $(35,047)      $32,229      $36,184
                   ========       =======      =======

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

                                                 Year Ended December 31,
                                           ----------------------------------
                                            2000          1999          1998
                                           ------        ------        ------

  Provision for income taxes at U.S.
   statutory rates......................    (35.0)%        35.0%         35.0%
  State income taxes, net of federal
   benefit..............................      2.2           2.5           3.0
  Non-deductible portion of merger
   related costs........................                    2.1
  Other.................................      0.3           0.5          (0.4)
                                           ------          ----          ----
                                            (32.5)%        40.1%         37.6%
                                           ======          ====          ====

                                       44
<PAGE>

                               US ONCOLOGY, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (dollars and shares in thousands except per share data)

     Deferred income taxes are comprised of the following:

                                               December 31,
                                        -----------------------
                                          2000           1999
                                        ---------      --------
Deferred tax assets:
 Deferred revenue.......................               $    598
 Accrued expenses.......................   $ 12,078       1,098
 Service Agreements and other
  intangibles...........................     34,831
 Allowance for bad debts................      3,569
 Other..................................      2,860         167
                                           --------    --------
                                           $ 53,338       1,863
                                           --------    --------
Deferred tax liabilities:
 Service agreements.....................                (17,319)
 Depreciation...........................    (14,673)    (11,853)
 Prepaid expenses.......................       (261)       (265)
 Unrealized gain on investment..........                 (5,650)
                                           --------    --------
                                            (14,934)    (35,087)
                                           --------    --------
 Net deferred tax asset (liability).....   $ 38,404    $(33,224)
                                           ========    ========

     At December 31, 2000 and 1999, net deferred tax liability and income taxes
payable includes a tax liability of $15,612 and $11,900, respectively. The
liability has been established related to the Company's tax position and the
possible disallowance of certain deductions taken in connection with the
Company's service agreements. The impact of disallowance would be immaterial to
the Company's financial condition and results of operations.


NOTE 8 - 401(K) PLAN

     During 2000, employees of the Company were allowed to participate in the
USON 401(K) plan (the Plan).  Participants of the Plan are eligible to
participate after 6 months of employment and reaching the age of 21.
Participants vest in the employer contribution portion of their account, if any,
at the rate of 20% for each year that they meet the plan's service requirements.

     The Plan allows for a discretionary employer contribution.   For the three
years ended December 31, 2000, no employer contributions were made.

     Prior to the AOR/PRN merger in June of 1999, former employees of PRN
participated in the PRN 401(K) Profit Sharing and Savings Plan (PRN Plan).  The
former PRN plan allowed for an employer match of contributions made by plan
participants. For the year ended December 31, 1999 and 1998, PRN elected to
match 50% of employee contributions, the total match not to exceed 3% of the
participant's salary subject to the salary ceiling rules imposed by the Internal
Revenue Service.  Effective June 15, 1999, the Company elected to cease the
employer match under the PRN plan.  The Company's contribution amounted to
approximately $1,000 and $1,600 for the years ended December 31, 1999 and 1998
respectively.  Effective August 31, 1999, the PRN Plan was frozen with all
future employee contributions being allocated to the USON 401(K) Plan.  The
Company transferred all assets of the PRN Plan to the USON Plan during the first
quarter of 2001.

                                       45
<PAGE>

                               US ONCOLOGY, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (dollars and shares in thousands except per share data)

NOTE 9 - STOCKHOLDERS' EQUITY

     In conjunction with the AOR/PRN merger, the Company's stockholders approved
an increase in the number of shares of common stock authorized to 250,000
shares.

     Effective May 16, 1997, the board of directors of the Company adopted a
shareholders' rights plan and in connection therewith, declared a dividend of
one Series A Preferred Share Purchase Right for each outstanding share of Common
Stock.  For a more detailed description of the shareholders rights plan, refer
to the Company's Form 8-A filed with the Securities and Exchange Commission on
June 2, 1997.

     On August 13, 1996, the board of directors of the Company authorized the
purchase of up to 3,000 shares of the Company's Common Stock in public or
private transactions. In 1998, 1997, and 1996, the Company purchased 1,232; 658,
and 1,110 shares at aggregate costs of $12,400, $6,400 and $9,400, respectively.
Shares repurchased have been used to satisfy commitments for the delivery of the
Company's Common Stock from affiliation transactions. On March 21, 2000, the
Board of Directors of the Company authorized the purchase of up to 10,000 shares
of the Company's Common Stock in public or private transactions. In 2000, the
Company acquired 6,402, including 1,344 shares received in connection with the
cashless exercise of stock options by the Company's chief executive officer (See
Note 11), shares at an aggregate cost of $30,579 and utilized 1,864 shares to
satisfy commitments for delivery of the Company's Common Stock for affiliation
transactions.

     As part of entering into long-term service agreements with practices as
described in Note 3, the Company has made nonforfeitable commitments to issue
shares of Common Stock at specified future dates for no further consideration.
Holders of the rights to receive such shares have no dispositive, voting or cash
dividend rights with respect to such shares until the shares have been
delivered.  Common Stock to be issued is shown as a separate component in
stockholders' equity.  The amounts, upon issuance of the shares, are
reclassified to other equity accounts as appropriate.

     The shares of Common Stock to be issued at specified future dates were
valued at the transaction date at a discount from the quoted market price of a
delivered share after considering all relevant factors, including normal
discounts for marketability due to the time delay in delivery of the shares.
The discount for shares of Common Stock to be issued at specified future dates
is 10% for shares to be delivered prior to the fifth anniversary of the
transaction and is 20% for shares to be delivered thereafter.  The Common Stock
in the transactions is to be delivered under the terms of the respective
agreements for periods up to seven years after the initial transaction date.
The recorded value represents management's best estimate of the fair value of
the shares of Common Stock to be delivered in the future as of the transaction
date.  A portion of the Common Stock to be issued commitment is based upon
obligations to deliver a specified dollar value of Common Stock shares.  The
value of these shares is not discounted and the number of shares to be issued
would change with change in the market value of the Company's Common Stock.

     For transactions completed through December 31, 2000, the scheduled
issuance of the shares of Common Stock that the Company is committed to deliver
over the passage of time are approximately 1,931 in 2001, 2,939 in 2002, 1,805
in 2003, 2,192 in 2004, 1,340 in 2005 and 163 thereafter.

NOTE 10 - STOCK OPTIONS

     The Company's 1993 Key Employee Stock Option Plan, as amended, provides
that employees may be granted options to purchase Common Stock.  Total shares
available for grant are limited to 12% of  the outstanding common shares plus
the shares to be issued to practices at specified future dates.  Individual
option vesting and related terms are determined by the Compensation Committee of
the board of directors.  However, the stock option plan provides that the
options granted may be incentive options at an exercise price no less than fair
value at the grant date or 85% of fair value in the case of nonqualified
options.  Option terms may not exceed ten years.  Individual option grants vest
ratably over time, generally five years.  In connection with the AOR/PRN merger,
all outstanding options of PRN became fully vested and exercisable at the merger
date and were assumed by the Company.  Outstanding PRN options became options to
purchase 0.94 shares of the Company's common stock with an exercise price equal
to the original exercise price divided by 0.94.

                                       46
<PAGE>

                               US ONCOLOGY, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (DOLLARS AND SHARES IN THOUSANDS EXCEPT PER SHARE DATA)


     Under the terms of the Company's Chief Executive Officer Stock Option Plan
and Agreement and the Everson Stock Option Plan and Agreement, two executives
were granted 3,694 non-qualified options to purchase Common Stock with an
exercise price effectively equal to the fair market value at the date of grant.
The options vested on the date of the Company's initial public offering and
expire between 2000 and 2003.  The Company's ability to grant further options
under these plans ceased on the date of the Company's initial public stock
offering.  In December 2000, an officer exercised his remaining 1,640 options
outstanding in a cashless option exercise facilitated by the Company.  This
cashless exercise resulted in the Company recognizing a $2,462 non-cash charge
for compensation expense during the fourth quarter of 2000, reflecting the
difference between the exercise prices of the options and the fair market value
of the related common stock.  The executive received a net of 296 shares of
common stock, and the Company acquired 1,344 shares of treasury stock as a
result of this option exercise.   At December 31, 2000, 220 Common Stock options
with a weighted-average exercise price of $4.77 per share were outstanding and
exercisable under the terms of these plans.

     Effective December 14, 2000, the Company executed a Chief Executive Officer
Stock Option Plan and Agreement and granted 1,000 non-qualified options to
purchase Treasury Stock.  The options were issued with an exercise price of
$4.96 which equaled the fair market value of the Company's Common Stock at the
date of the grant.  The options vest six months from the grant date and have an
option term not to exceed 10 years.  At December 31, 2000, there are no options
available for future grants under this plan.

     The Company's 1993 Non-Employee Director Stock Option Plan provides that up
to 600 options to purchase Common Stock can be granted.  The options vest in 4
months or ratably over 4 years, have a term of 10 years and exercise prices
effectively equal to the fair market value at the date of grant.  As of December
31, 2000, 293 options were outstanding, all of which were vested and
exercisable.

     The Company's 1993 Affiliate Stock Option Plan, as amended, provides that
options to purchase up to 3,000 shares of Common Stock can be granted.  Options
under the plan have a term of 10 years.  All individual option grants vest
ratably over the vesting periods of 3 to 5 years.  Of the outstanding options to
purchase shares of Common Stock granted under this plan, 1,435 were granted to
physician employees of the affiliated practices and 25 were granted to other
employees of the affiliated practices.  In 2000, 1999, and 1998 the fair value
of the options granted to non-employees was $3.44, $5.89 and $8.48 per share,
respectively, as determined using the Black-Scholes Valuation Model.
Compensation expense will be recognized over the respective vesting periods.
Expense of $1,600, $1,300 and $600 was recognized in 2000, 1999 and 1998
respectively.

     All of the Company's Common Stock options vest automatically upon a change
in control of the Company, as defined in such stock option plans.

                                       47
<PAGE>

                               US ONCOLOGY, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (dollars and shares in thousands except per share data)

     The following summarizes the activity for all option plans:

<TABLE>
<CAPTION>
                                                    Shares                   Weighted
                                                  Represented                 Average
                                                   by Options              Exercise Price
                                                 --------------         --------------------

<S>                                               <C>                    <C>
     Balance, January 1, 1998.....                   9,071                       $ 7.54

     Granted                                         2,351                        12.87
     Exercised....................                  (1,264)                        4.08
     Canceled.....................                    (574)                        9.53
                                                    ------

     Balance, December 31, 1998...                   9,584                         9.28

     Granted                                         6,660                         6.63
     Exercised....................                    (358)                        8.77
     Canceled.....................                  (1,278)                        9.73
                                                    ------

     Balance, December 31, 1999                     14,608                         8.16

     Granted                                         3,599                         4.70
     Exercised....................                  (2,171)                        3.50
     Canceled.....................                  (3,791)                        9.49
                                                    ------

     Balance, December 31, 2000                     12,245                         7.58
                                                    ======

</TABLE>
     The following table summarizes information about the Company's stock
options outstanding at December 31, 2000:


<TABLE>
<CAPTION>
                                                 OPTIONS OUTSTANDING                              OPTIONS EXERCISABLE
                            ---------------------------------------------------------     ----------------------------------
   RANGE OF                 NUMBER           WEIGHTED AVERAGE          WEIGHTED              NUMBER               WEIGHTED
AVERAGE EXERCISE         OUTSTANDING           REMAINING                AVERAGE            EXERCISABLE            AVERAGE
    PRICE                AT 12/31/00        CONTRACTUAL LIFE         EXERCISE PRICE        AT 12/31/00         EXERCISE PRICE
----------------         -----------        ----------------         --------------        -----------         --------------
<S>                      <C>                <C>                      <C>                   <C>                 <C>
       $1 to $3                259                6.0                    $ 2.56                   190              $ 3.10
       4 to 9                7,784                8.6                      5.18                 2,104                6.01
       10 to 14              3,338                7.6                     11.32                 1,618               11.17
       15 to 24                864                6.3                     16.25                   536               16.70
                            ------                                                              -----
       1 to 24              12,245                8.1                      7.58                 4,448                8.44
</TABLE>

                                       48
<PAGE>

                               US ONCOLOGY, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (dollars and shares in thousands except per share data)

     The Company has adopted the disclosure-only provisions of FASB Statement
No. 123, "Accounting for Stock-Based Compensation" for stock options granted to
employees and directors.  Accordingly, no compensation cost has been recognized
for fixed options granted to Company employees and directors.  For purposes of
pro forma unaudited disclosures, the estimated fair value of the options is
amortized to expense over the options' vesting period.  The Company's unaudited
pro forma information 2000, 1999 and 1998 are as follows and includes
compensation expense of approximately $10,400, $12,600 and $14,700 respectively:

<TABLE>
<CAPTION>
                                                        Year Ended December 31,
                                                     -----------------------------
                                                       2000       1999      1998
                                                     --------    -------   -------
<S>                                                  <C>         <C>       <C>
Pro forma net income (loss).......................   $(79,660)   $35,555   $45,290
Pro forma net income (loss) per share - basic.....   $  (0.79)   $  0.35   $  0.46
Pro forma net income (loss) per share - diluted...   $  (0.79)   $  0.35   $  0.45
</TABLE>

     Options granted in 2000, 1999 and 1998 had weighted-average fair values of
$3.42, $5.42 and $8.46 per share, respectively.  The fair value of each Common
Stock option grant is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions used for
grants from all plans in 2000, 1999, and 1998:

<TABLE>
<S>                               <C>     <C>     <C>
                                  2000    1999    1998
                                  ----    ----    ----
     Expected life (years)           5       5       5
     Risk-free interest rate...    6.1%    5.0%    4.9%
     Expected volatility.......     80%     77%     76%
     Expected dividend yield...      0%      0%      0%
</TABLE>
NOTE 11 - IMPAIRMENT, RESTRUCTURING, AND OTHER COSTS

     During the second, third and fourth quarters of 2000, the Company
recognized impairment, restructuring and other costs of approximately $201,846,
and during 1999, the Company recognized merger, restructuring and integration
costs of $29,014.  The charges are summarized in the following table and
discussed in more detail below:

<TABLE>
<CAPTION>
                                                                                    YEAR ENDED DECEMBER 31,
                                                                              ---------------------------------
                                                                                2000                     1999
                                                                              --------                  -------
<S>                                                                           <C>                       <C>
Impairment charges                                                            $170,130
2000 restructuring charges                                                    $ 16,122
Other charges                                                                 $ 15,594                  $29,014
                                                                              --------                  -------
                                                                              $201,846                  $29,014
                                                                              ========                  =======
</TABLE>

                                       49
<PAGE>

                               US ONCOLOGY, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (dollars and shares in thousands except per share data)


                               Impairment Charges
                               ------------------

     In the fourth quarter of 2000, the Company recorded a pre-tax non-cash
charge of $170,130 related to the impairment of certain service agreements and
other assets as follows:

<TABLE>
<S>                                                                            <C>
     Impairment of service agreements                                                  $138,128
     Impairment of other assets and estimated loss related to
       termination of service agreements                                                 32,002
                                                                                       --------
                                                                                       $170,130
                                                                                       ========
</TABLE>

     FAS 121 requires that companies periodically assess their long lived assets
for potential impairment.  In accordance with this requirement, from time to
time the Company evaluates its intangible assets for impairment.  For each of
the Company's service agreements, this analysis involves comparing the aggregate
expected future cash flows under the agreement to its carrying value as an
intangible asset on the Company's balance sheet.

     In 1999, the Company noted a significant increase in operating costs, most
notably the cost of pharmaceuticals, which increased by 5% as a percentage of
revenue from 1998 to 1999.   The Company believed that some of this increase was
attributable either to inefficiencies arising directly from the merger and the
integration of the formerly separate companies or from delays in implementation
of cost containment strategies during the first half of 1999, pending
consummation of the merger.  In addition, the Company continued to believe that
it had developed effective strategies to diversify revenues away from a
dependence on drugs and to curtail the increase in drug prices and otherwise
contain costs.  As the remaining lives of its service agreements were
substantially longer than their estimated recovery periods, and because the
Company believed that it would be able to reverse or slow many of the negative
cost trends, the Company did not believe any impairment provisions were
necessary at that time.

     During 2000, the Company continued to experience adverse trends in
operating margins.  Although the Company's strategies to lower pharmaceutical
costs slowed the rate of increase, pharmaceutical costs continued to rise,
reducing operating margins during 2000.  Single source drug use continued to
grow, and treatment protocols involving a greater number of different expensive
drugs for each patient were also becoming more common.  Based upon the
significant increase in the number of oncological pharmaceuticals (which would
upon approval be new single source drugs) in development, the Company believed
the trend towards increased use of lower margin pharmaceuticals would continue.
The Company also experienced increased pressure on reimbursement from payors,
including significant initiatives with respect to government programs, to reduce
oncology reimbursements, particularly for pharmaceuticals.  Moreover, the
Company became increasingly aware of growing complexity in the administrative
aspects of the practices and rising personnel costs in the health care sector,
neither of which were being effectively slowed or stopped by anticipated
economies of scale and other efficiencies arising from the merger.  Even though
the practices' profitability continued to increase significantly during this
period, because practices that operate under the net revenue model do not share
in increasing operating costs, the Company shared disproportionately in the
decline in operating margins.  Based upon these trends the Company's management
determined during the latter part of 2000 that the cost of operating in the
oncology sector was continuing to increase and that this trend was likely to
continue, regardless of Company action, in the next several years.  For this
reason, the Company determined that rising costs, and the Company's
disproportionately sharing in these costs under the net revenue model, would be
an integral part of its forecast of future cash flows in an impairment analysis
with respect to its service agreements.

                                       50
<PAGE>

                               US ONCOLOGY, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (dollars and shares in thousands except per share data)

     In its impairment analysis for the fourth quarter of 2000, the Company
incorporated additional assumptions regarding rising cost trends.  With respect
to service agreements under the net revenue model, the Company has greater
exposure in an environment of rising costs because practices retain a portion of
revenues before any fees are paid.  Therefore, the Company's impairment review
focused primarily on net revenue model service agreements.  Using current
assumptions, many of the Company's net revenue model service agreements would
contribute decreasing positive cash flows in the immediate future and then begin
contributing negative cash flows.  Although management commenced during the
fourth quarter of 2000 an initiative to convert net revenue model agreements to
earnings model agreements, there can be no assurance as to the number of
conversions that will be achieved.  Substantial differences between the
estimates used in the impairment analysis and actual trends occurring in the
future could result in future additional impairment charges, or in certain
practices experiencing better than expected future cash flows, than those
currently forecast.  The charge for impairment of service agreements related to
thirteen practices with total net book value of approximately $145,000 as of
December 31, 2000 prior to the impairment charge.  Certain of the projected cash
flows related to services agreements may result in negative cash flows if cost
increases continue.  No provision has been made for potential losses under these
contacts as such amounts are not yet probable and reasonably estimable.

     Based upon this analysis, in the fourth quarter of 2000, the Company
recorded a non-cash pretax charge to earnings of approximately $138,128 related
to thirteen service agreements, primarily for arrangements under the Net Revenue
Model, for which the projected cash flows, based upon management's analysis and
evaluations of each market, including the continuation of historical trends,
would be insufficient to recover the net book value of the intangible assets.
In projecting the estimated cash flows from the service agreements, the Company
assumed net practice revenues would increase at rates of 5% to 8% annually, and
that practice costs, including pharmaceutical costs, would increase as a
percentage of Company revenues by 1% to 2% annually for the next five years.
Assumptions were also made with respect to the level of minimal capital
expenditures necessary to maintain projected operations and overhead
allocations.

     In addition, the Company is negotiating with seven physician practices to
terminate their service agreements, and it has recognized a charge of
approximately $32,000 for the difference between the carrying value of the
assets related the practices and the consideration expected to be received from
the practices upon termination.  Service fees from those practices are less than
6% of the Company's service fee revenues for 2000.



                                       51
<PAGE>

                               US ONCOLOGY, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (dollars and shares in thousands except per share data)

                             Restructuring Charges
                             ---------------------

     In the fourth quarter of 2000, the Company comprehensively analyzed its
operations and cost structure, with a view to repositioning the Company to
effectively execute its strategic and operational initiatives.  This analysis
focused on non-core assets and activities of the Company to determine whether
they were still consistent with the Company's strategic direction.  The Company
has recognized and accounted for these costs in accordance with the provisions
of Emerging Issues Task Force Consensus No. 94-3 "Accounting for Restructuring
Costs".  As a result of this analysis, during the fourth quarter of 2000, the
Company recorded the following charges:

<TABLE>
<CAPTION>
                                     Restructuring                                     Asset                   Accrual
                                    Expense in 2000          Expenditures           Write-downs          at December 31, 2000
                                -----------------------   -------------------   --------------------   ------------------------
<S>                             <C>                       <C>                   <C>                    <C>
Abandonment of IT systems               $ 6,557                                      $ 6,557
Impairment of home health
    business                              6,463                                        6,463
Severance of employment                     466                  $ 36                                            $  430
    agreement
Site closures                             2,636                   562                    655                      1,419
                                        -------                  ----                -------                     ------
Total                                   $16,122                  $598                $13,675                     $1,849
                                        =======                  ====                =======                     ======
</TABLE>

     As indicated above, during the fourth quarter of 2000, the Company decided
to abandon its efforts to pursue some of its information systems initiatives,
including the clinical information systems and e-commerce initiatives, and
recognized a charge of $6,557.  In one market where the Company agreed to manage
the oncology operations of a hospital system, the Company decided to abandon and
sell a home health business that is no longer consistent with the Company's
strategy in that market.  As a result, the Company recorded a charge of $6,463
during the fourth quarter of 2000.  As part of the restructuring, the Company
terminated the duties of an executive, with contractual severance payments
totaling approximately $430 over the next two years.  The Company also
determined that it will close several sites, abandoning leased and owned
facilities, and recognized a charge of $2,636 for remaining lease obligations
and the difference in the net book value of the owned real estate and its
expected fair value.

     In the first quarter of 2001, the Company announced plans to further reduce
overhead costs through consolidating certain departments, closing certain
administrative offices and closing additional facilities.  The Company
anticipates recording a pre-tax charge of approximately $4,000 to $6,000 in the
first quarter of 2001 related to severance payments for reduction in workforce,
stay bonuses and closure of facilities.

                                 Other Charges
                                 -------------

     During 1999 and 2000, the Company recorded other charges as follows:

<TABLE>
<CAPTION>
                                                           YEAR ENDED DECEMBER 31,
                                                         ----------------------------
                                                           2000                 1999
                                                         -------              -------
<S>                                                      <C>                 <C>
Merger, restructuring and integration costs                                   $29,014
Cashless stock option exercise costs                     $ 2,462
Investigation and contract separation costs                3,372
Practice receivable write-off                              5,110
Credit Facility and note amendment fees                    2,375
Management recruiting and relocation costs                 1,275
Vacation pay accrual-change in policy                      1,000
                                                         -------              -------
 Total                                                   $15,594              $29,014
                                                         =======              =======
</TABLE>

                                       52
<PAGE>

                               US ONCOLOGY, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (DOLLARS AND SHARES IN THOUSANDS EXCEPT PER SHARE DATA)

     In the fourth quarter of 2000, the Company recognized a pre-tax $2,462 non-
cash charge related to the cashless exercise of 1,600 stock options by the
Company's Chairman and Chief Executive Officer (the "optionee"), due to the
termination of the stock option plan under which the options were granted, in
accordance with Financial Accounting Standards Board (FASB) Interpretation No.
44.  To consummate the exercise, the optionee surrendered approximately 1,300
shares having an average strike price of $3.44 to satisfy exercise price and tax
liability with respect to all options.  As a result of this transaction, the
optionee received approximately 300 shares of Common Stock. The Company also
expects to realize an offsetting $1,000 reduction in its federal income tax
obligations as a result of this transaction.

     During the third quarter and second quarter of 2000, the Company incurred
costs of $206 and approximately 1,700 respectively, in connection with the qui
tam lawsuits described in Part I, Item 3, of this report, consisting primarily
of auditing and legal fees and related expenses.  In addition, the Company
incurred approximately $1,500 of costs in the second quarter of 2000 consisting
of intangible asset and receivable write-downs as a result of terminating its
affiliation with a sole practitioner and with the physician practice named in
the qui tam lawsuits.

     The Company also recognized impairment and other charges totalling
approximately $9,800 in 2000.  These charges consist of (i) $5,110 of
receivables from affiliated practices which are not considered to be
recoverable; (ii) $2,375 for bank and noteholder fees associated with amending
the Credit Facilities to accommodate debt covenant compliance; (iii) $1,275
related to expenses to recruit and relocate certain members of the current
management team; and (iv) $1,000 for a change in the Company vacation policy.

     In connection with the AOR/PRN merger, the Company incurred total costs of
$29,014 to consummate the merger, restructure operating activities and integrate
the two organizations.  These costs were expensed during 1999.

     The Company's merger costs totaled $14,587 and include professional fees
and expenses incurred in connection with the due diligence, negotiation and
solicitation of shareholder approval for the transaction, as well as incremental
travel costs and contractual change of control payments of approximately $5,000
to the executive management of PRN.

     In 1999, the Company's management made certain decisions to restructure its
operations to reduce overlapping personnel and duplicative facilities.  The
costs of personnel reductions include severance pay for terminated employees and
payments attributable to stay bonuses paid before December 31, 1999 for
employees providing transition assistance services.  The Company also determined
that certain furniture, fixtures, leasehold improvements, computer equipment and
software was impaired as a result of personnel terminations, facility closings
and decisions to harmonize certain information systems.  The Company has
recognized and accounted for these costs in accordance with the provisions of
Emerging Issues Task Force Consensus No. 94-3 "Accounting for Restructuring
Costs".  The Company's restructuring costs recognized in the year ended December
31, 1999 totaled $7,193 and are summarized as follows:

<TABLE>
<CAPTION>
                                                           PAYMENTS TO                       ACCRUED     PAYMENTS TO      ACCRUED
                                          RESTRUCTURING       SETTLE          ASSET         LIABILITY       SETTLE     LIABILITY AT
                                             EXPENSE       OBLIGATIONS     DISPOSITIONS    AT 12/31/99   OBLIGATIONS     12/31/00
                                          -------------    -----------     ------------    -----------   ------------   ------------
<S>                                      <C>                <C>              <C>              <C>            <C>              <C>
Employee severance and stay bonuses...       $2,097         $(2,097)
Lease terminations....................        2,796            (320)                          $2,476         $(2,476)
Asset impairments.....................        2,300                          $(2,300)
                                             ------          ------           ------          ------         -------    -----------

     Total............................       $7,193         $(2,417)         $(2,300)         $2,476         $(2,476)
                                             ======          ======           ======          ======         =======    ===========
</TABLE>

                                       53
<PAGE>

                               US ONCOLOGY, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (dollars and shares in thousands except per share data)

     The Company also incurred specifically identified costs related to its
efforts to integrate the two companies totaling $7,234 during the year ended
December 31, 1999.  These integration costs include costs for a physician
conference to address combined Company operating strategies, employee
orientation meetings, consulting fees related to integration activities and
adoption of common employee benefit programs.  These costs have been recognized
as incurred and do not include costs related to inefficiencies incurred as the
Company has attempted to integrate the operating activities of AOR and PRN.


     The Company also recognized a deferred income tax benefit for substantially
all of these charges in 2000 as many of the items will be deductible for income
tax purposes in future periods.  An income tax benefit has also been recognized
for the 1999 charges, with the exception of certain non-deductible merger costs.

NOTE 12 - COMMITMENTS AND CONTINGENCIES

     The Company leases office space, integrated cancer centers and certain
equipment under noncancelable operating lease agreements.  Total future minimum
lease payments, including escalation provisions and leases with entities
affiliated with practices, are $45,700 in 2001, $40,800 in 2002, $36,700 in
2003, $28,200 in 2004, $23,500 in 2005, and $68,900 thereafter.  Rental expense
under noncancelable operating leases was approximately $57,676 in 2000, $46,632
in 1999, and $34,863 in 1998.

     The Company enters into commitments with various construction companies and
equipment vendors in connection with the development of cancer centers. As of
December 31, 2000, the Company's commitments were approximately $5,800.

     In December 1997, the Company entered into a $75,000 master operating lease
related to integrated cancer centers.  Under the agreement, the lessor purchases
and has title to the properties, pays for the construction costs and thereafter
leases the facilities under operating leases to the Company.  The initial term
of the lease is for five years and can be renewed in one year increments if
approved by the lessor.  The Company provides the lessor with substantial
residual value guarantees at the end of each facility lease and has purchase
options at original cost on each property.  Advances under the master lease
agreement at December 31, 2000 were $61,800.

     The Company and its affiliated practices maintain insurance with respect to
medical malpractice risks on a claims-made basis in amounts believed to be
customary and adequate.  Management is not aware of any outstanding claims or
unasserted claims probable of assertion against it or its affiliated practices
which would have a material impact on the Company's financial position or
results of operations.

     In March 1996, Methodist Hospitals of Dallas ("Methodist") filed a lawsuit
in the District Court of Dallas County, Texas against the Company and TOPA
asserting various claims, including claims of monopolization, conspiracy to
monopolize, attempted monopolization, unfair competition, and tortious
interference with actual and prospective contractual relationships. In May 1998,
the Company, TOPA, and Methodist settled this lawsuit. Under the terms of the
settlement, Methodist released the Company and TOPA from any liability, and the
lawsuit, including all claims related thereto, was dismissed with prejudice. As
part of the settlement, the PRN and TOPA agreed to limit the expansion of
certain facilities and the number of physicians in Dallas County. The Company
believes that such limitations will not materially adversely affect the
Company's results of operations or growth plans.

     Beginning January 1, 1997, the Company has guaranteed that the amounts
retained by the practice will be at least $5,195 annually under the terms of the
service agreement with the Company's affiliated practice in Minnesota provided
that certain targets are met. Under this agreement, the Company reduced its
service fee in 1998 from that practice by $714, and recorded service fee revenue
from that practice of $21,665.

     The Company has previously disclosed that it and a formerly affiliated
practice are the subject of allegations that their billing practices may violate
the Federal False Claims Act.  These allegations are contained in two qui tam
complaints, commonly referred to as "whistle-blower" lawsuits, filed under seal
prior to the AOR/PRN merger.  The U.S. Department of Justice has determined that
it will not intervene in one of those qui tam suits.  In that suit, the
individual who filed the complaint may choose to continue to pursue litigation
in the absence of government intervention, but has not yet indicated an intent
to do so.  The Department continues to investigate the other suit, but has not
made a decision regarding intervention.  The Company understands that the
Department is interested in resolving the suit in the near future, but there can
be no assurance that a settlement will be reached.

                                       54
<PAGE>

                               US ONCOLOGY, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (dollars and shares in thousands except per share data)

     The Company has become aware that it and certain of its subsidiaries and
affiliated practices are the subject of additional qui tam lawsuits that remain
under seal, meaning that they were filed on a confidential basis with a United
States federal court and are not publicly available or disclosable.
Furthermore, the Company may from time to time in the future become aware of
additional qui tam lawsuits.  To date, the United States has not intervened in
any such suit against the Company.  Because the complaints are under seal, and
because the Department of Justice and the Company are in the process of
investigating the claims, the Company is unable to fully assess at this time the
materiality of these lawsuits.  Because qui tam actions are filed under seal,
there is a possibility that the Company could be the subject of other qui tam
actions of which it is unaware.

NOTE 13 - RELATED PARTIES

     The Company receives a contractual service fee for providing services to
its practices.  The Company also advances to its affiliated practices amounts
needed for the purchase of pharmaceuticals and medical supplies necessary in the
treatment of cancer.  The advances are reflected on the Company's balance sheet
as due from/to affiliated practices and are reimbursed to the Company as part of
the service fee payable under its service agreements with its affiliated
practices.

     The Company leases a portion of its medical office space and equipment from
entities affiliated with certain of the stockholders of practices affiliated
with the Company.  Payments under these leases were $3,200 in 2000, $3,300 in
1999, and $3,700 in 1998, and total future commitments are $12,800 as of
December 31, 2000.

     The subordinated notes are payable to persons or entities that are also
stockholders or holders of rights to receive Common Stock at specified future
dates.  Total interest expense to these parties was $7,271 in 2000, $6,300 in
1999 and $5,800 in 1998.

     A director and a stockholder is of counsel and previously was a partner of
a law firm utilized by the Company.  The Company paid $1,176, $816 and $558 for
legal services provided by the firm in 2000, 1999 and 1998, respectively.

     Three of the Company's existing directors and three directors holding
positions through June 15, 1999 are practicing physicians with practices
affiliated with the Company.  In 2000, the practices in which these directors
participate generated a total net patient revenue of $545,368 of which $112,769
was retained by the practices and $432,599 was included in the Company's
revenue.  In 1999, the practices in which these directors participate generated
total net patient revenues of $516,000 of which $110,300 was retained by the
practices and $405,700 was included in the Company's revenue.  In 1998, the
practices in which these directors participate generated total net patient
revenues of $94,467 of which $21,620 was retained by the practices and $72,847
was included in the Company's revenue.

     The Company and TOPA are parties to a service agreement pursuant to which
the Company provides TOPA with facilities, equipment, non-physician personnel,
and administrative, management, and non-medical advisory services, as well as
services relating to the purchasing and administering of supplies. The service
fee under the TOPA service agreement is equal to 35% of the earnings
(professional and research revenues earned by the affiliated practice less
direct expenses) of that practice before interest and taxes ("Earnings") plus
direct expenses of the related practice locations. Direct expenses include rent,
depreciation, amortization, provision for uncollectible accounts, salaries and
benefits of non-physician employees, medical supply expense and pharmaceuticals.
In 2000, 1999, and 1998, TOPA paid the Company an aggregate of approximately
$319,000 $270,000 and $260,000 respectively, pursuant to the TOPA service
agreement.  Dr. Jones, a director of the Company, and Dr. Bailes, an executive
of the Company, are employed by TOPA. TOPA beneficially owns approximately 4.5%
of the Company's outstanding common stock. At  December 31, 2000 and 1999, TOPA
was indebted to the Company in the aggregate amount of approximately $7,791 and
$10,137 respectively. This indebtedness was incurred when the Company advanced
working capital to TOPA for various uses, including the development of new
markets and physician salaries and bonuses. This indebtedness bears interest at
a rate negotiated by the Company and TOPA that approximates the prime lending
rate (9.5% at December 31, 2000). Effective November 1, 1998, the Company and
TOPA entered into a Second Amended and Restated Service Agreement. The
significant changes in the service agreement effected by the Second Amended and
Restated Service Agreement are (i) TOPA no longer participates in the earnings
of PRN Research,

                                       55
<PAGE>

                               US ONCOLOGY, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (dollars and shares in thousands except per share data)

Inc.; (ii) TOPA no longer participates in the earnings of the Company's imaging
centers; (iii) the term of the service agreement was extended for three years;
and (iv) the provisions of the covenant not to compete that TOPA enters into
with physicians were strengthened. In consideration for entering into the
amended agreement, the Company paid TOPA $1,500 in 1998 and $7,500 in 1999.
Because of the expected economic benefits to be received by the Company, the
Company recorded the payments to TOPA as an increase in the value of the service
agreement with TOPA and an offset of TOPA's indebtedness to the Company.

     The Company leases facilities from affiliates of Baylor University Medical
Center ("BUMC"). Additionally, affiliates of BUMC provide the Company various
services, including telecommunications and maintenance services.  Mr. Powell, a
director of the Company, is Chairman of Baylor Health Care System, of which BUMC
is a component. In 2000, 1999 and 1998, payments by the Company to BUMC totaled
an aggregate of approximately $3,300, $2,400 and $3,900,  respectively, for
these services.

     As part of the consideration for Minnesota Oncology Hematology, P.A.
("MOHPA") entering into its service agreement with the Company, the Company was
required to make quarterly payments of $464 to MOHPA through July 1, 2000.
During 2000 and 1999, the Company paid MOHPA $928 and $1,856 respectively,
pursuant to such quarterly payments. In addition, the Company is required to
issue a prescribed number of shares of the Company's common stock to MOHPA on
July 1 of each year through July 1, 2001. During 2000 and 1999, the Company
issued 176 and 104 shares of Common Stock to MOHPA pursuant to such yearly
issuances.  A shareholder of MOHPA is currently a director of the Company.

     The Company enters into medical director agreements with certain of its
affiliated physicians.  Under a typical medical director agreement, the Company
retains an affiliated physician to advise the Company on a specific initiative
or matter, such as blood and marrow stem cell transplantation or clinical
research, and, in return, the Company pays to the affiliated physician a medical
director fee, typically $100 to $250 annually.  During 2000, 1999 and 1998, the
Company had agreements with four,  seven and six medical directors under which
the Company paid $485, $875 and $567, respectively.

     In December 1999, the Company purchased a home health company for
approximately $8,000 from a group of individuals, including certain physicians
to whom the Company provides services.  The Company has realigned its business
operations in that market and intends to sell the home health business and has
recognized a loss of $6,463 to reflect the net realizable value upon sale.

NOTE 14 - QUARTERLY FINANCIAL DATA

     The following table presents unaudited quarterly information:

<TABLE>
<CAPTION>
                                                      2000 QUARTER  ENDED                                     1999 QUARTER ENDED
                                                      -------------------                                    --------------------
                                           DEC 31      SEP 30     JUN 30     MAR 31     DEC 31     SEP 30     JUN 30      MAR 31
                                         ----------   --------   --------   --------   --------   --------   ---------   --------
<S>                                      <C>          <C>        <C>        <C>        <C>        <C>        <C>         <C>
Net revenue...........................   $ 355,836    $337,310   $326,506   $304,502   $299,526   $277,789   $266,412    $249,214
Income (loss) from operations.........    (183,168)     26,126     22,078     26,517     20,836     26,991      9,338      31,076
Other income..........................                                        27,566     14,431
Net income (loss).....................    (123,342)     11,608      9,976     29,115     17,871     14,983     (1,214)     16,515
Net income (loss) per share-basic.....       (1.25)        .12        .10        .29        .18        .15       (.01)        .17
Net income (loss) per share-diluted...       (1.25)        .12        .10        .29        .18        .15       (.01)        .16
</TABLE>

                                       56
<PAGE>

PART III
ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The Proxy Statement issued in connection with the 2001 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission pursuant to
Rule 14a-6(c), contains under the captions, "Election of Directors" and
"Executive Officers" information required by Item 10 of Form 10-K as to
directors and executive officers of the Company and is incorporated herein by
reference.

ITEM 11.  EXECUTIVE COMPENSATION

     The Proxy Statement issued in connection with the 2001 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission pursuant to
Rule 14a-6(c), contains under the caption, "Compensation of Executive Officers"
information required by Item 11 of Form 10-K as to directors and certain
executive officers of the Company and is incorporated herein by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The Proxy Statement issued in connection with the 2001 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission pursuant to
Rule 14a-6(c), contains under the caption, "Beneficial Ownership of US Oncology,
Inc. Common Stock" information required by Item 12 of Form 10-K as to directors,
certain executive officers and certain beneficial owners of the Company and is
incorporated herein by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The Proxy Statement issued in connection with the 2001 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission pursuant to
Rule 14a-6(c), contains under the caption, "Certain Relationships and Related
Transactions" information required by Item 13 of Form 10-K as to directors,
certain executive officers and certain beneficial owners of the Company and is
incorporated herein by reference.

PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)  The following documents are files as a part of this report:
     1.        Financial Statements:  See Item 8 of this report
     2.        Financial Statement Schedules:  See Item 8 of this report
     3.        Exhibit Index

  Exhibit
    No.                            Description
----------                         -----------

     2.1     Agreement and Plan of Merger by American Oncology Resources, Inc.,
             Diagnostic Acquisition, Inc. and Physician Reliance Network, Inc.
             (filed as Exhibit 2.1 to the Form 8-K filed with the Securities and
             Exchange Commission on December 15, 1998).

     3.1     Amended and Restated Certificate of Incorporation of the Company,
             (filed as Exhibit 3.1 to, and incorporated by reference from, the
             Company's Form 8-K/A filed June 17, 1999).

     3.2     Amended and Restated By-Laws of the Company, with Amendment
             effective March 22, 2001.

     4.1     Rights Agreement between the Company and American Stock Transfer &
             Trust Company (incorporated by reference from Form 8-A filed June
             2, 1997).

     4.2     Form of 8.42% Senior Secured Note due 2006 (Filed as Exhibit 4.2 to
             the Company's 10-K for the year ended December 31, 1999 and
             incorporated herein by reference).

     10.1    Fourth Amended and Restated Loan Agreement dated as of May 11, 1999
             among the Company and First Union National Bank, as agent and the
             various Lenders named therein (filed as Exhibit 10.1 to Form 10-Q
             for the fiscal quarter ended June 30, 1999 and incorporated herein
             by reference).

                                       57
<PAGE>

     10.2    Participation Agreement among US Oncology Synthetic Real Estate,
             Inc., the Company, First Union National Bank and  the other parties
             identified therein (filed as Exhibit 10.2 to Form 10-K for the year
             ended December 31, 1997 and incorporated herein by reference).

     10.3    Credit Agreement among the Company, First Security Bank, First
             Union National Bank and the other parties identified therein (filed
             as Exhibit 10.3 to Form 10-K for the year ended December 31, 1997
             and incorporated herein by reference).

     10.4    Third Amendment to Certain Operative Agreements dated as of May 14,
             1999 by and among the Company, various of its subsidiaries, First
             Security Bank, National association as owner trustee, various
             Lenders and Holders (as defined therein) and First Union National
             Bank as Agent (filed as Exhibit 10.2 to the Company's Quarterly
             Report on Form 10-Q for the quarter ended June 30, 1999 and
             incorporated herein by reference).

     10.5*   Chief Executive Officer Stock Option Plan and Agreement (filed as
             an exhibit to the Registration Statement on Form S-1 (Registration
             No. 33-90634) and incorporated herein by reference).

     10.6*   Everson Stock Option Plan and Agreement (filed as an exhibit to the
             Registration Statement on Form S-1 (Registration No. 33-90634) and
             incorporated herein by reference).

     10.7    1993 Non-Employee Director Stock Option Plan as amended (filed as
             Exhibit 4.4 to the Registration Statement on Form S-8 (Reg. No.
             333-85855) and incorporated herein by reference).

     10.8    Key Employee Stock Option Plan, as amended (filed as Exhibit 4.4 to
             the Registration Statement on Form S-8 (Registration No. 333-85853)
             and incorporated herein by reference).

     10.9    1993 Affiliate Stock Option Plan as amended (filed as Exhibit 4.4
             to the Registration Statement on Form S-8 (Registration No. 333-
             85859) and incorporated herein by reference)

     10.10   Physician Reliance Network, Inc. 1994 Stock Option Plan for outside
             directors (filed as Exhibit 4.3 to registration statement on Form
             S-8 (Registration No. 333-81069) and incorporated herein by
             reference).

     10.11   Physician Reliance Network, Inc. 1993 Stock Option Plan (filed as
             Exhibit 4.3 to Registration Statement on Form S-8 (Registration No.
             333-80977) and incorporated herein by reference).

     10.13*  Form of Executive Employment Agreement. (Filed as Exhibit 10.13 to
             the Company's Form 10-K for the year ended December 31, 1999 and
             incorporated herein by reference.)

     10.14   Form of Note Purchase Agreement, dated November 24, 1999, executed
             by the Company in favor of the various Purchasers (as defined
             therein). (Filed as Exhibit 10.14 to the Company's Form 10-K for
             the year ended December 31, 1999 and incorporated herein by
             reference.)

     10.15   Second Amendment to Fourth Amended and Restated Loan Agreement
             among the Company and First Union National Bank, as agent, and the
             various Lenders identified therein.

     10.16   Fourth Amendment to Certain Operating Agreements by and among the
             Company, various of its subsidiaries, First Security Bank, National
             association as owner trustee, various Lenders and Holders (as
             defined therein) and First Union National Bank as Agent

     10.17   Amendment to Note Purchase Agreements among the Company and the
             various holders identified therein.

     10.18*  US Oncology, Inc. Chief Executive Officer Stock Option Plan and
             Agreement

     21.1    Subsidiaries of the Registrant

     23.1    Consent of PricewaterhouseCoopers LLP

     23.2    Consent of Arthur Andersen LLP
     _____________________
     *Indicates agreement related to executive compensation

(b)  Reports on Form 8-K.

No reports on Form 8-K were filed by the Company during the fourth quarter of
2000.

                                       58
<PAGE>

                                   SIGNATURES

     PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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 THIS ______ DAY OF
MARCH, 2001.

                                    US ONCOLOGY, INC.


                                    By:  /s/ Bruce D. Broussard
                                       -------------------------
                                       Bruce D. Broussard
                                       Chief Financial Officer and Treasurer

     PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.

<TABLE>
<CAPTION>

SIGNATURE                                                TITLE                          DATE
<S>                                        <C>                                  <C>

         /s/ R. Dale Ross                  Chairman of the Board,               March 24, 2001
----------------------------------------   Chief Executive Officer and
         R. Dale Ross                      Director

         /s/ Bruce D. Broussard            Chief Financial Officer              March 24, 2001
----------------------------------------   and Treasurer [Principal Financial and Accounting Officer]
         Bruce D. Broussard

         /s/ Russell L. Carson             Director                             March 24, 2001
----------------------------------------
         Russell L. Carson

         /s/ James E. Dalton               Director                             March 24, 2001
----------------------------------------
         James E. Dalton

         /s/ Richard B. Mayor              Director                             March 24, 2001
----------------------------------------
         Richard B. Mayor

                                           Director
----------------------------------------
         Robert A. Ortenzio

         /s/ Edward E. Rogoff, M.D.        Director                             March 24, 2001
----------------------------------------
         Edward E. Rogoff, M.D.

         /s/ J. Taylor Crandall            Director                             March 24, 2001
----------------------------------------
         J. Taylor Crandall

         /s/ Nancy G. Brinker              Director                             March 24, 2001
----------------------------------------
         Nancy G. Brinker

         /s/ Boone Powell, Jr.             Director                             March 24, 2001
----------------------------------------
         Boone Powell, Jr.

         /s/ Stephen E. Jones, M.D.        Director                             March 24, 2001
----------------------------------------
         Stephen E. Jones, M.D.

         /s/ Burton S. Schwartz, M.D.      Director                             March 24, 2001
----------------------------------------
         Burton S. Schwartz, M.D.

         /s/ Lloyd K. Everson, M.D.        Director                             March 24, 2001
----------------------------------------
         Lloyd K. Everson, M.D.
</TABLE>

                                       59