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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

For the quarterly period ended June 30, 2016.

Commission file number: 333-170812

21ST CENTURY ONCOLOGY HOLDINGS, INC.

(Exact Name of Registrant as Specified in Its Charter)

(239) 931-7254

(Registrant’s Telephone Number, Including Area Code)

N/A

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

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

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

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

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

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

* The registrant is a voluntary filer and is not required to file the reports required by Sections 13 or 15(d) of the Securities Exchange Act of 1934.

As of September 20, 2016, we had outstanding 1,059 shares of Common Stock, par value $0.01 per share, which are 100% owned by 21st Century Oncology Investments, LLC.

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21ST CENTURY ONCOLOGY HOLDINGS, INC.

Form 10-Q

INDEX

Explanatory Note

As described in additional detail in Note 2 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, filed with the Securities and Exchange Commission (the “SEC”) on August 23, 2016 (the “Form 10-K”), on March 24, 2016, the Board of Directors (the “Board”) of 21st Century Oncology Holdings, Inc. (the “Company”), upon the recommendation of the Audit Committee of the Board and management, determined that the following financial statements previously filed by the Company with the SEC should no longer be relied upon: (1) the audited consolidated financial statements as of and for the years ended December 31, 2012, 2013 and 2014 and the independent registered public accounting firm’s reports thereon and (2) the unaudited condensed consolidated financial statements as of and for each of the interim periods within the years ended December 31, 2012, 2013 and 2014 and for the interim periods ended March 31, June 30 and September 30, 2015. Similarly, related press releases, earnings releases, management’s reports on the effectiveness of internal control over financial reporting as of December 31, 2012, 2013 and 2014 and investor communications describing the Company’s financial statements for these periods should no longer be relied upon.

The Company determined that the financial statements referred to above required restatement in order to give effect primarily to revenue recognition related matters,  accounts receivable reconciliation issues and income and non-income tax matters with respect to its operations in Latin America as well as to give effect to refunds and expected payment adjustments that the Company has recorded in connection with electronic health records incentive payments received  under the Health Information Technology for Economic and Clinical Health Act (HITECH) as a result of meaningful use attestations submitted on behalf of certain Company employed physicians for program years 2012, 2013 and 2014.

Due to the length of time which the Company needed to restate its historical financial statements, we were unable to file the Form 10-K until August 23, 2016 and we were unable to file this Quarterly Report on Form 10-Q until September 20, 2016, the date hereof.  We filed with the SEC restated financial information for the affected periods on August 23, 2016.

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PART I

FINANCIAL INFORMATION

Item 1.    Financial Statements

21ST CENTURY ONCOLOGY HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(a)         Derived from audited financial statements. See note 3 for discussion of accounting principles adopted during the period.

See accompanying notes.

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21ST CENTURY ONCOLOGY HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(unaudited)

See accompanying notes.

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21ST CENTURY ONCOLOGY HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

continued

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21ST CENTURY ONCOLOGY HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(unaudited)

See accompanying notes.

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21ST CENTURY ONCOLOGY HOLDINGS, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

June 30, 2016

1.              Organization

21st Century Oncology Holdings, Inc., through its wholly-owned subsidiaries (collectively, the “Company”), is a leading global, physician-led provider of integrated cancer care (“ICC”) services. The Company’s physicians provide comprehensive, academic quality, cost-effective coordinated care for cancer patients in personal and convenient community settings (its “ICC model”). The Company provides its physicians with the advanced medical technology necessary to achieve optimal outcomes. The Company’s provision of care includes a full spectrum of cancer care services enabled by employing and affiliating with physicians in their related specialties. This innovative approach to cancer care allows the Company to collaborate across its physician base, integrate services and payments for related medical needs and disseminate best practices.

As of June 30, 2016, the Company deployed approximately 969 community-based physicians in the fields of radiation oncology, medical oncology, breast, gynecological and general surgery, urology and primary care in the United States. The Company’s physicians provide medical services at 380 locations, including our 183 radiation therapy centers, of which 59 operate in partnership with health systems. The Company’s cancer treatment centers in the United States are operated predominantly under the 21st Century Oncology brand and are strategically clustered in 17 states: Alabama, Arizona, California, Florida, Indiana, Kentucky, Maryland, Massachusetts, Michigan, Nevada, New Jersey, New York, North Carolina, Rhode Island, South Carolina, Washington and West Virginia, as well as countries in Latin America, Central America and the Caribbean. The Company’s 36 international radiation therapy centers, located in Argentina, Mexico, Colombia, Costa Rica, the Dominican Republic, Guatemala and El Salvador operate under the 21st Century Oncology brand or a local brand and, in many cases, are operated with local minority partners, including hospitals.

The Company is also engaged in providing capital equipment and business management services to oncology physician groups (“Groups”) that treat patients at cancer centers (“Centers”). The Company provides management services to six Groups in California and one Group in Indiana. The Company owns the Centers’ assets and provides services to the Groups through exclusive, long-term management services agreements. The Company provides the Groups with oncology business management expertise and new technologies including radiation oncology equipment and related treatment software. Business services that the Company provides to the Groups include non-physician clinical and administrative staff, operations management, purchasing, managed care contract negotiation assistance, reimbursement, billing and collecting, information technology, human resource and payroll, compliance, accounting and treasury. Under the terms of the management services agreements, the Company is reimbursed for certain operating expenses of each Center and earns a monthly management fee from each Group.  The management fees are primarily based on a predetermined percentage of each Group’s earnings before interest, income taxes, depreciation and amortization (“EBITDA”) associated with the provision of radiation therapy. The Company’s management fees range from 50% to 60% of each Group’s EBITDA, with one Group in California whose fee ranges from 20% to 30% of cash collections.

2.              Leverage and Liquidity

The Company is highly leveraged. As of June 30, 2016, the Company had approximately $1.1 billion of long-term debt outstanding.  The Company has experienced and continues to experience losses from its operations. The Company reported net losses of approximately $126.8 million, $14.4 million and $78.6 million for the year ended December 31, 2015 and six month periods ended June 30, 2016 and 2015, respectively. At June 30, 2016, the Company had $52.2 million of unrestricted cash and was fully drawn under its revolver (“2015 Revolving Credit Facility”).

The Company’s high level of debt could have material adverse effects on its business and financial condition. Specifically, the Company’s high level of debt could have important consequences, including the following:

·                                          making it more difficult for the Company to satisfy its obligations with respect to debt;

·                                          limiting the Company’s ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions or other general corporate requirements;

·                                          requiring a substantial portion of the Company’s cash flows to be dedicated to debt service payments instead of other purposes;

·                                          increasing the Company’s vulnerability to general adverse economic and industry conditions;

·                                          limiting the Company’s flexibility in planning for and reacting to changes in the industry in which the Company competes;

·                                          placing the Company at a disadvantage compared to other, less leveraged competitors; and

·                                          increasing the Company’s cost of borrowing.

            Further, subject to certain qualifications, the credit agreement governing the Company’s term loan facility (the “2015 Term Facility” and together with the 2015 Revolving Credit Facility, the “2015 Credit Facilities”) and the indenture governing our notes (the “Senior Notes Indenture”), each as currently in effect, require us to receive, subject to certain important qualifications set forth therein, (1) no later than September 10, 2016, net cash proceeds from the issuance or sale of the Company’s capital stock or from other equity investments in an aggregate amount of at least $25.0 million (the “First Capital Event”), (2) no later than November 30, 2016, additional net cash proceeds from the issuance or sale of the Company’s capital stock or from other equity investments and/or sales of assets (which sale transactions must be deleveraging transactions on a pro forma basis) in an aggregate amount of at least $25.0 million (or a lesser amount such that when combined with the proceeds from the First Capital Event, the total amount is not less than $50.0 million) (the “Second Capital Event”) and (3) no later than March 31, 2017, additional net cash proceeds from the issuance or sale of the Company’s capital stock or from other equity investments and/or sales of assets (which sale transactions must be deleveraging transactions on a pro forma basis) in an aggregate amount of at least the lesser of (A) $75.0 million (or a lesser amount such that when combined with the proceeds from the First Capital Event and the Second Capital Event, the total amount is not less than $125.0 million), and (B) an amount such that, after giving effect to such issuance or sale of capital stock or other equity investments and/or sales of assets, the Company’s cash and cash equivalents plus unused revolving loan commitments equals at least $120.0 million and the Company’s consolidated

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leverage ratio is not greater than 6.4 to 1.00 (the “Third Capital Event” and together with the First Capital Event and the Second Capital Event, the “Capital Events” and each, a “Capital Event”). At least $50 million of the proceeds from the First Capital Event, Second Capital Event and Third Capital Event must be from the issuance or sale of 21C’s capital stock or from other equity investments. The Company is also required to comply with a minimum liquidity covenant in an amount not less than $40.0 million after the completion of the First Capital Event, to be tested monthly prior to the completion of the Third Capital Event and quarterly thereafter. Its failure to satisfy such requirements could result in an event of default under our 2015 Credit Facilities or Senior Notes Indenture, which could result in the debt thereunder being accelerated. While the Company is pursuing a variety of initiatives to satisfy the requirements of the 2015 Credit Facilities and Senior Notes Indenture, it does not have commitments to obtain the required equity or dispose of assets in place, and it may not be able to maintain the required levels of liquidity.  Consequently there is substantial doubt about the Company’s ability to continue as a going concern.

On September 9, 2016, the Company satisfied the First Capital Event.

In the event the Company is unable to meet the other requirements (as described above), it will need to identify alternative options, such as a debt refinancing, a sale of the Company or other strategic transaction, or a transformative transaction, such as a possible restructuring or reorganization of the Company’s operations. In addition, the perception that the Company may not be able to continue as a going concern may negatively and materially impact its existing and future business relationships, and others may choose not to engage in business with the Company at all due to concerns about its ability to meet its contractual obligations.

3.   Basis of presentation

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for annual financial statements.  All adjustments necessary for a fair presentation have been included. All such adjustments are considered to be of a normal and recurring nature. Interim results for the three and six months ended June 30, 2016 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2016.

These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated audited financial statements and the notes thereto included in the Company’s Form 10-K for the year ended December 31, 2015.

Out of period adjustments:

During the quarter ended March 31, 2016, the Company determined that foreign currency translation adjustments have not been applied to goodwill relative to an acquisition in Argentina in 2011. The cumulative difference between the unrealized loss on foreign currency translation that should have been recognized and that actually was recognized was not material to the Company’s results of operations or financial position as of or for any of the periods presented. The Company recorded an adjustment to correct the unrealized loss on foreign currency translation and accumulated other comprehensive loss, net of tax, along with the associated goodwill for approximately $0.9 million in the condensed consolidated statement of operations and comprehensive loss for the six months ended June 30, 2016 and the condensed consolidated balance sheet as of June 30, 2016. There was no impact to the condensed consolidated statement of cash flows for the six months ended June 30, 2016.

Seasonality:

The Company’s results of operations historically have fluctuated on a quarterly basis and can be expected to continue to fluctuate. Many of the patients of the Company’s Florida treatment centers are part-time residents during the winter months. Hence, these treatment centers have historically experienced higher utilization rates during the winter months than during the remainder of the year. In addition, volume is typically lower in the summer months due to traditional vacation periods. As of June 30, 2016, 60 of the Company’s 147 U.S. domestic radiation treatment centers are located in Florida.

Variable interest entities:

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

The Company has evaluated certain radiation oncology practices in order to determine if they are variable interest entities (“VIEs”). This evaluation resulted in the Company determining that certain of its radiation oncology practices were potential VIEs. For each of these practices, the Company has evaluated (1) the sufficiency of the fair value of the entity’s equity investments at risk to absorb losses, (2) that, as a group, the holders of the equity investments at risk have (a) the direct or indirect ability through voting rights to make decisions about the entity’s significant activities, (b) the obligation to absorb the expected losses of the entity and that their obligations are not protected directly or indirectly, and (c) the right to receive the expected residual return of the entity, and (3) substantially all of the entity’s activities do not involve or are not conducted on behalf of an investor that has disproportionately fewer voting rights in terms of its obligation to absorb the expected losses or its right to receive expected residual returns of the entity, or both. The Accounting Standards Codification (“ASC”), 810 Consolidation (“ASC 810”), requires a company to consolidate VIEs if the company is the primary beneficiary of the activities of those entities. Certain of the Company’s radiation oncology practices are VIEs and the Company has a variable interest in each of these practices through its administrative services agreements. Other of the Company’s radiation oncology practices (primarily consisting of partnerships) are VIEs and the Company has a variable interest in each of these practices because the total equity investment at risk is not sufficient to permit the legal entity to finance its activities without the additional subordinated financial support provided by its members.

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

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

As of June 30, 2016 and December 31, 2015, the combined total assets included in the Company’s condensed consolidated balance sheet relating to the VIEs were approximately $117.0 million and $113.9 million, respectively.

As of June 30, 2016, the Company was the primary beneficiary of, and therefore consolidated, 28 VIEs, which operate 48 radiation therapy centers. Any significant amounts of assets and liabilities related to the consolidated VIEs are identified parenthetically on the accompanying condensed consolidated balance sheets. The assets are owned by, and the liabilities are obligations of, the VIEs, not the Company. Only the assets of the VIEs can be used to settle the liabilities of the VIEs. The assets are used pursuant to operating agreements established by each VIE. The VIEs are not guarantors of the Company’s debts. In the states of California, Massachusetts, Michigan, Nevada, New York, North Carolina and Washington, the Company’s treatment centers are operated as physician office practices. The Company typically provides technical services to these treatment centers in addition to administrative services. For the six months ended June 30, 2016 and 2015 approximately 13.0% and 13.6% of the Company’s net patient service revenue, respectively, was generated by professional corporations for which it has administrative management agreements.

As of June 30, 2016, the Company also held equity interests in five VIEs for which the Company is not the primary beneficiary. Those VIEs consist of partnerships that primarily provide radiation oncology services.  The Company is not the primary beneficiary of these VIEs as it does not retain the power and rights in the operations of the entities. The Company’s investments in the unconsolidated VIEs are approximately $15.3 million and $1.2 million at June 30, 2016 and December 31, 2015, respectively, with ownership interests ranging between 33.3% and 50.0% general partner or equivalent interest. Accordingly, substantially all of these equity investment balances are attributed to the Company’s noncontrolling interests in the unconsolidated partnerships. The Company’s maximum risk of loss related to the investments in these VIEs is limited to the equity interest.

Cost of revenues:

The cost of revenues for the three months ended June 30, 2016 and 2015 are approximately $191.7 million and $200.6 million, respectively. The cost of revenues for the six months ended June 30, 2016 and 2015 are approximately $389.1 million and $401.9 million, respectively. The cost of revenues includes expenses incurred for the delivery of patient care. These expenses include salaries and benefits of physicians, physicists, dosimetrists, radiation technicians etc., medical supplies, facility rent expenses, other operating expenses, depreciation and amortization.

Recent pronouncements:

In February 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis. The new guidance intends to reduce the number of consolidation models as well as place more emphasis on risk of loss when determining a controlling financial interest. The Company adopted this ASU prospectively on January 1, 2016. The adoption of this ASU did not have a significant impact on the Company’s consolidated financial position or results of operations.

In April 2015, the FASB issued ASU 2015-03, Interest — Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The new guidance requires debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The Company adopted ASU 2015-03 on January 1, 2016 with retrospective application to its December 31, 2015 condensed consolidated balance sheet. The effect of the adoption of ASU 2015-03 was to reclassify debt issue costs of approximately $19.8 million as of December 31, 2015 as a deduction from the related debt liabilities. Accordingly, other assets and total assets in the 2015 condensed consolidated balance sheet were reduced by that amount, and long-term debt and total liabilities were reduced by the same amount. There was no effect on net income.

In April 2015, the FASB issued ASU 2015-05, Intangibles — Goodwill and Other — Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. The new guidance establishes guidelines for evaluating whether a cloud computing arrangement involves the sale of a software license and the appropriate accounting. The Company adopted this ASU on January 1, 2016 on a prospective basis. The adoption of this ASU did not have a significant impact on the Company’s consolidated financial position or results of operations.

In August 2015, FASB issued ASU 2015-15, Interest — Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements. The new guidance allows debt issuance costs related to line-of-credit arrangements to be recognized as an asset and amortized ratably over the line-of-credit term. The Company adopted ASU 2015-15 on January 1, 2016 with retrospective application to its December 31, 2015 condensed consolidated balance sheet. The effect of the adoption of ASU 2015-15 was to reclassify debt issue costs of approximately $4.6 million as of December 31, 2015 as a deduction from the related debt liabilities. Accordingly, other assets and total assets in the 2015 condensed consolidated balance sheet were reduced by that amount, and long-term debt and total liabilities were reduced by the same amount. There was no effect on net income.

In March 2016, the FASB issued ASU 2016-09, Compensation — Stock Compensation (Topic 718) - Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 which provides new guidance intended to simplify several aspects of accounting for employee share-based payment transactions including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. ASU 2016-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016 including an option to early adopt. The Company is currently evaluating the potential effects of the adoption to its financial statements.

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During 2016, the FASB issued additional ASUs relating to Revenue from Contracts with Customers (Topic 606). These updates, identified as ASU 2016-08, ASU 2016-10 and ASU 2016-12, identified practical expedients and clarified various aspects of the new revenue recognition standard outlined in ASU 2014-09. The Company has reviewed these updates and does not believe they will materially impact the Company’s future adoption of the standard. The effective date and transition requirements for ASU 2014-09 (and updated in ASU 2015-14) were not changed with these pronouncements

4.  Accumulated other comprehensive loss, net of tax

Comprehensive loss consists of net loss and other comprehensive loss. Other comprehensive loss refers to revenue, expenses, gains and losses that are recorded as an element of equity but are excluded from net loss. The Company’s other comprehensive loss is composed of the Company’s foreign currency translation of its operations in South America, Central America and the Caribbean as well as net periodic benefit cost of pension plans. There were no reclassifications from other comprehensive income into earnings for the periods presented.

The components of accumulated other comprehensive loss, net of tax, were as follows:

5.   Series A preferred stock

On September 26, 2014, the Company entered into a Subscription Agreement (the “Subscription Agreement”) with Canada Pension Plan Investment Board (“CPPIB”). Pursuant to the Subscription Agreement, the Company issued to CPPIB an aggregate of 385,000 newly issued shares of its Series A Preferred Stock, par value $0.001 per share, stated value $1,000 per share, for a purchase price of $325.0 million.

As set forth in the Certificate of Designations of Series A Convertible Preferred Stock (the “Certificate of Designations”), holders of Series A Preferred Stock are entitled to receive, as and if declared by the Board of Directors of the Company, dividends at an applicable rate per annum. During the first three years after issuance, any dividends, when and if declared, shall be paid by the Company in the form of additional shares of Series A Preferred Stock.  During the first twelve months after issuance, the applicable dividend rate on the Series A Preferred Stock shall be 9.875%, thereafter increasing on a periodic basis.  After the third anniversary of issuance, and only if the Company’s outstanding 9.875% senior subordinated notes due 2017 are repaid in full, dividends shall be paid in cash upon the election of a majority of the holders of Series A Preferred Stock (the “Majority Preferred Holders”) or upon certain other events of defaults as defined by the Certificate of Designations.

The Series A Preferred Stock is mandatorily convertible into common stock, par value $0.01 per share (the “Common Stock”) of the Company upon the occurrence of a qualifying initial public offering of the Company or a qualifying merger. The Series A Preferred Stock also becomes convertible on the tenth anniversary of issuance at the option of either the Company or CPPIB. If, upon conversion, the Series A Preferred Stock converted to Common Stock represents greater than 29% of the Company’s outstanding Common Stock (“Excess Common Stock”), CPPIB has the option to convert amounts in excess of 29% to newly issued preferred stock (the “Excess Preferred Stock”).

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Holders of Series A Preferred Stock also have, among other rights, the right to require the Company to repurchase their shares upon the occurrence of certain events of default and certain change of control transactions, at the prices set forth in the Certificate of Designations.  In addition, the Certificate of Designations also provides for certain consent rights of the Majority Preferred Holders in connection with specified corporate events of 21CI or its subsidiaries, including, among other things, with respect to certain equity issuances and certain acquisitions, financing transactions and asset sale transactions.  Upon certain events of default and the obtaining of applicable anti-trust regulatory approvals, holders of Series A Preferred Stock are also entitled to vote together with holders of Common Stock, on an as-converted basis. In addition, the Series A Preferred Stock is senior in preference to the Company’s Common Stock with respect to dividend rights, rights upon liquidation, winding up or dissolution.

Pursuant to the terms of the Subscription Agreement, immediately following the occurrence of a qualifying initial public offering of the Company, a qualifying merger, or on September 26, 2024 at the option of CPPIB or the Company, the Company will execute and deliver to CPPIB a Warrant Agreement (the “Warrant Agreement”) and issue to CPPIB warrants to purchase shares of Common Stock having a then-current value of $30 million, at a purchase price of $0.01 per share.  The warrants expire on the tenth anniversary of the date of issuance.

The Company evaluated the contingent events that could trigger the conversion of the Series A Preferred Stock to Common Stock and issuance of warrants and determined that the contingent conversion features qualify as an embedded derivative and, that the contingently exercisable warrants are a freestanding financial instrument, each requiring bifurcation and classification as a liability, measured at fair value.

The Company estimated the fair value of the embedded derivatives and warrants using significant unobservable inputs (Level 3). The primary valuation technique used was comparing the present value of discounted cash flows, assuming no triggering events occur with the present value of discounted cash flows assuming a triggering event does occur. The assumptions incorporated management’s estimates of timing and probability of each triggering event, with those cash flows discounted using rates commensurate with the risks of those cash flows. As a result of the capital event requirements discussed in Note 2, the Company reevaluated the timing and probability assumptions of each triggering event during the quarter ended June 30, 2016. Based on the assumptions, the Company determined the fair value of the embedded derivative to be approximately $33.3 million which is reflected in other noncurrent assets and the fair value of the warrants to be approximately $22.2 million which is reflected in other noncurrent liabilities, both as of June 30, 2016.

The Company is accreting the components of the difference between issuance date fair value and redemption value over the period which each component of that discount relates, generally using the effective interest method, which is reflective of the economics of the instrument.

If the Series A Preferred Stock were redeemable as of the balance sheet date, the Series A Preferred Stock would be redeemable at its stated value of $385.0 million plus accrued dividends.  Accrued dividends as of June 30, 2016 and December 31, 2015 were $82.9 million and $53.6 million, respectively.

Additionally, if settled under a repurchase event (which occurs upon a change of control or a default event, as defined in the related agreements), redemption occurs at a premium over the stated value of either 109% or 105% of the stated value, depending on the timing of the repurchase event.

Changes to the Series A Preferred Stock are as follows:

On September 9, 2016, the Company issued to CPPIB, in a private placement, an additional 25,000 shares of its Series A Preferred Stock for a purchase price of $25.0 million. See Note 17 Subsequent Events.

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6. Reconciliation of total equity and noncontrolling interests

The consolidated financial statements include the accounts of the Company and its majority owned subsidiaries in which it has a controlling financial interest. Noncontrolling interests-nonredeemable principally represent minority shareholders’ proportionate share of the equity of certain consolidated majority owned entities of the Company.

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

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

7. Derivative agreements

Series A Preferred Stock embedded derivative and other financial instruments

The Company’s Series A Preferred Stock contains provisions for contingent events that could trigger the conversion of the Series A Preferred Stock to common stock and require the issuance of warrants to CPPIB. The Company determined that the contingent conversion features qualify as an embedded derivative, and, that the contingently exercisable warrants are a freestanding financial instrument, each requiring bifurcation and classification as a liability, measured at fair value. The Company evaluates the fair value of the embedded derivatives and warrants and adjusts changes in fair value through the fair value measurements caption in the consolidated statements of operations and comprehensive loss.

SFRO seller financing note embedded derivative

On July 2, 2015, the Company purchased the noncontrolling interest of South Florida Radiation Oncology (“SFRO”) as further described in Note 10. The Company structured a portion of the purchase price with seller financing paid in kind (“PIK”) notes (“SFRO PIK Notes”) that, in the event the sellers achieve certain milestones, require payment acceleration of principal amounts as well as premium payments. The Company determined that the contingent conversion features of the SFRO PIK Notes qualify as embedded derivatives, requiring bifurcation and classification as debt, measured at fair value. The Company evaluates the fair value of those embedded derivatives and adjusts changes in fair value through the fair value measurements caption in the condensed consolidated statements of operations and comprehensive loss.

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8. Fair value of financial instruments

The Company applies fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. Certain assets and liabilities are subject to fair value adjustments only in certain circumstances and measured at fair value on a non-recurring basis.

The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities which are required to be recorded at fair value, the Company considers the principal or most advantageous market in which the Company would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as risks inherent in valuation techniques, transfer restrictions and credit risk. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

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

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

Level 3 – Unobservable inputs for the asset or liability.

Cash and cash equivalents are reflected in the consolidated financial statements at their carrying value, which approximate their fair value due to their short maturity.

As of June 30, 2016 and December 31, 2015, the Company held certain items that are required to be measured at fair value on a recurring basis, including the embedded derivative features and warrants of its Series A Preferred Stock and SFRO PIK Notes. The primary valuation technique used was comparing the present value of discounted cash flows, assuming no triggering events occur, with the present value of discounted cash flows assuming a triggering event does occur. The assumptions incorporated management’s estimates of timing and probability of each triggering event, with those cash flows discounted using rates commensurate with the risks of those cash flows. Changes in fair value based on variations in assumptions generally cannot be extrapolated because the relationship between the directional change of each input is not usually linear.

Earn-out liabilities are generally contingent upon the acquiree achieving certain EBITDA targets. The Company values earn-out liabilities by estimating the timing and amount of potential payments. The estimated payments are discounted to present value and probability weightings are assigned, if applicable.

The following tables provide information about long-term debt not carried at fair value in accordance with ASC 820. The fair values were based on prices quoted from third-party financial institutions (Level 2). The fair values are as follows:

The carrying values of the Company’s other long-term debt instruments approximate fair value due to the length of time to maturity and/or the existence of interest rates that approximate prevailing market rates.

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The following items are measured at fair value on a recurring basis subject to the disclosure requirements of ASC 820, as of June 30, 2016 and December 31, 2015: