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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 2009
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-20260
IntegraMed America, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 06-1150326
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
Two Manhattanville Road
Purchase, New York 10577
(Address of principal executive offices) (Zip code)
(914) 253-8000 (Registrant's
telephone number, including area code)
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 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 the registrant
was required to submit and post such files). Yes |_| No |_|
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, 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 |_| Accelerated Filer |X|
Non-Accelerated Filer |_| Smaller Reporting Company|_|
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act. Yes |_| No |X|
The aggregate number of shares of the Registrant's Common Stock, $.01 par
value, outstanding on April 28, 2009 was approximately 8,764,000.
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INTEGRAMED AMERICA, INC.
FORM 10-Q
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at March 31, 2009 and
December 31, 2008........................................3
Consolidated Statement of Operations for the three-month
periods ended March 31, 2009 and 2008 ...................4
Consolidated Statements of Shareholders' Equity for the
three-month period ended March 31, 2009 .................5
Consolidated Statements of Cash Flows for the three-month
periods ended March 31, 2009 and 2008 ...................6
Notes to Consolidated Financial Statements ..............7-14
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations....................................15-24
Item 3. Quantitative and Qualitative Disclosures About Market Risk... 24
Item 4. Controls and Procedures.......................................24
PART II - OTHER INFORMATION
Item 1. Legal Proceedings............................................ 25
Item 1A. Risk Factors................................................. 25
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.. 25
Item 3. Defaults Upon Senior Securities.............................. 25
Item 4. Submission of Matters to a Vote of Security Holders.......... 25
Item 5. Other Information............................................ 25
Item 6. Exhibits .................................................... 25
SIGNATURES .................................................... 26
CERTIFICATIONS PURSUANT TO RULE 13A-14(A), AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002......................................EXHIBITS
CERTIFICATIONS PURSUANT TO 18 U.S.C ss.1350, AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002......................................EXHIBITS
2
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
INTEGRAMED AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
(all amounts in thousands, except share amounts)
ASSETS
March 31, December 31,
--------- ------------
2009 2008
--------- -----------
(unaudited)
Current assets:
Cash and cash equivalents ................................................ $ 24,049 $ 28,275
Patient and other receivables, net ....................................... 7,261 6,681
Deferred taxes ........................................................... 4,352 5,744
Other current assets ..................................................... 7,799 6,468
--------- ---------
Total current assets ................................................. 43,461 47,168
Fixed assets, net ........................................................ 17,705 16,618
Intangible assets, Business Service Rights, net .......................... 21,632 21,956
Goodwill ................................................................. 29,478 29,478
Trademarks ............................................................... 4,442 4,442
Other assets ............................................................. 2,897 1,781
--------- ---------
Total assets ......................................................... $ 119,615 $ 121,443
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ......................................................... $ 1,815 $ 2,853
Accrued liabilities ...................................................... 15,161 16,676
Current portion of long-term notes payable and other obligations ......... 11,346 11,351
Due to Fertility Medical Practices ....................................... 7,331 6,354
Attain IVF deferred revenue and other patient deposits ................... 13,867 13,892
--------- ---------
Total current liabilities ............................................ 49,520 51,126
Deferred and other tax liabilities .......................................... 255 696
Long-term notes payable and other obligations ............................... 17,897 18,868
--------- ---------
Total Liabilities .................................................... 67,672 70,690
Commitments and Contingencies
Shareholders' equity:
Common Stock, $.01 par value - 15,000,000 shares authorized on March 31,
2009 and December 31, 2008, respectively, 8,763,883
and 8,668,376 shares issued and outstanding on March 31, 2009
and December 31, 2008, respectively .................................. 88 87
Capital in excess of par ................................................. 55,326 54,943
Other comprehensive loss ................................................. (325) (375)
Treasury stock, at cost - 46,408 and 22,682 shares on March 31, in 2009
and December 31, 2008, respectively .................................... (375) (211)
Accumulated deficit ...................................................... (2,771) (3,691)
--------- ---------
Total shareholders' equity ........................................... 51,943 50,753
--------- ---------
Total liabilities and shareholders' equity ........................... $ 119,615 $ 121,443
========= =========
See accompanying notes to the consolidated financial statements.
3
INTEGRAMED AMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(all amounts in thousands, except per share amounts)
For the
three-month period
ended March 31,
--------------------
2009 2008
------- -------
(unaudited) (unaudited)
(restated)
Revenues, net
Fertility Centers .................................... $ 36,283 $ 32,746
Consumer Services .................................... 5,226 4,023
Vein Clinics ......................................... 10,846 8,842
--------- ---------
Total revenues ................................... 52,355 45,611
--------- ---------
Costs of services and sales:
Fertility Centers .................................... 33,643 30,442
Consumer Services .................................... 3,713 2,958
Vein Clinics ......................................... 10,092 8,520
--------- ---------
Total costs of services and sales ................ 47,448 41,920
--------- ---------
Contribution
Fertility Centers .................................... 2,640 2,304
Consumer Services .................................... 1,513 1,065
Vein Clinics ......................................... 754 322
--------- ---------
Total contribution ............................... 4,907 3,691
--------- ---------
General and administrative expenses ..................... 3,138 2,363
Interest income ......................................... (77) (161)
Interest expense ........................................ 297 440
--------- ---------
Total other expenses ............................. 3,358 2,642
--------- ---------
Income before income taxes .............................. 1,549 1,049
Income tax provision .................................... 629 428
--------- ---------
Net income .............................................. $ 920 $ 621
========= =========
Basic and diluted net earnings per share of Common Stock:
Basic earnings per share ............................. $ 0.10 $ 0.07
Diluted earnings per share ........................... $ 0.10 $ 0.07
Weighted average shares - basic ...................... 8,762 8,563
Weighted average shares - diluted .................... 8,827 8,641
See accompanying notes to the consolidated financial statements.
4
INTEGRAMED AMERICA, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(all amounts in thousands)
(unaudited)
Accumulated
Common Stock Capital in Comprehensive Treasury Stock Accumulated Total
Shares Amount Excess of Par Income Shares Amount Deficit Equity
------ ------ ------------- ------ ------ ------ ------- ------
BALANCE AT DECEMBER 31, 2008 8,668 $87 $54,943 ($375) 23 ($211) ($3,691) $50,753
Stock awards granted 142 1 (1) 23 (164) (164)
Stock award amortization 384 384
Gain on hedging transaction 50 50
Net income for the three months
ended March 31, 2009 920 920
----------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 2009 8,810 $88 $55,326 ($325) 46 ($375) ($2,771) $51,943
========================================================================================
See accompanying notes to the consolidated financial statements.
5
INTEGRAMED AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(all amounts in thousands)
For the
three-month period
ended March 31,
--------------------
2009 2008
---------- -------
(unaudited) (unaudited)
(restated)
Cash flows from operating activities:
Net income ...................................................................... $ 920 $ 621
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization ................................................. 1,803 1,795
Deferred income tax provision ................................................. (343) (249)
Deferred stock-based compensation ............................................. 384 161
Changes in assets and liabilities --
Decrease (increase) in assets
Patient and other accounts receivable ...................................... (580) (683)
Other current assets ....................................................... (1,331) (1,048)
Other assets ............................................................... 165 (388)
(Decrease) increase in liabilities
Accounts payable ........................................................... (1,038) (92)
Accrued liabilities ........................................................ (1,515) (3,256)
Due to medical practices ................................................... 977 (3,714)
Attain IVF deferred revenue and other patient deposits ..................... (25) 189
-------- --------
Net cash used by operating activities ............................................... (583) (6,664)
Cash flows from investing activities:
Cash paid to purchase VCA, net of cash acquired ................................. -- (41)
Purchase of other intangibles ................................................... -- (75)
Purchase of fixed assets and leasehold improvements, net ........................ (2,566) (1,231)
-------- --------
Net cash used in investing activities ............................................... (2,566) (1,347)
Cash flows from financing activities:
Debt repayments ................................................................. (913) (911)
Common Stock transactions, net .................................................. (164) 621
-------- --------
Net cash used by financing activities ............................................... (1,077) (290)
-------- --------
Net increase (decrease) in cash and cash equivalents ................................ (4,226) (8,301)
Cash and cash equivalents at beginning of period .................................... 28,275 23,740
-------- --------
Cash and cash equivalents at end of period .......................................... $ 24,049 $ 15,439
======== ========
Supplemental Information:
Interest paid .................................................................. $ 297 $ 366
Income taxes paid .............................................................. $ 2,663 $ 612
See accompanying notes to the consolidated financial statements.
6
INTEGRAMED AMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 -- INTERIM RESULTS:
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-Q and, accordingly, do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, the accompanying unaudited interim financial statements contain all
adjustments (consisting only of normal recurring accruals) necessary to present
fairly the financial position at March 31, 2009, and the results of operations
and cash flows for the interim periods presented. Operating results for the
interim period are not necessarily indicative of results that may be expected
for the year ending December 31, 2009. These financial statements should be read
in conjunction with the audited financial statements and notes thereto included
in IntegraMed America's Annual Report on Form 10-K for the year ended December
31, 2008.
NOTE 2 -- RESTATEMENT OF REVENUE RECOGNITION FOR ATTAIN IVF PROGRAM:
From June 2008 through March 2009, the annual 2007 and the 2008 periodic interim
reports of IntegraMed America, Inc. and Subsidiaries were the subject of a
standard comment and review process by the Staff of the Division of Corporation
Finance of the Securities and Exchange Commission ("SEC"). The application of
generally accepted accounting principles to the Company's Attain IVF program's
multiple element revenue arrangements is complex and management's interpretation
of the applicable authoritative literature related to the timing of the
recognition of the fair value of revenue for the non-refundable portion of the
Attain IVF program fees differed from that of the SEC which caused us to
re-evaluate the Company's revenue recognition policies. As a result, the Company
restated its prior financial statements with respect to the timing of revenue
recognition for its Attain IVF program (formerly Shared Risk Refund program)
within its Consumer Services Division.
The Attain IVF program is a fertility treatment package which contains a fixed
number of treatment cycles for one fixed price with the potential for a
significant refund if treatment is unsuccessful. Our previous revenue
recognition policy had recognized the non-refundable patient fees (generally 30%
of the contract amount) as revenue upon the completion of the first treatment
cycle. We now recognize the non-refundable fees based on the relationship of the
fair value of each treatment to the total fair value of the treatment package
available to each patient. Our policy of recognizing the refundable portion of
the fee at the time of a clinical pregnancy is unchanged as is our policy of
maintaining a reserve for refunds to patients who withdraw from the program
after this refundable portion of their fee has been recognized as revenue. In
conjunction with the modification of our revenue recognition policy regarding
the non-refundable portion of program fees, we have also introduced and
established a "warranty reserve" representing the estimated cost of subsequent
treatment cycles due to the patient in the event of a miscarriage associated
with a pregnancy on an earlier treatment cycle.
The impact of this change in accounting method on a growing revenue stream such
as our Attain IVF program is to effectively defer net revenues into subsequent
accounting periods while recognizing some medical treatment (warranty) costs
sooner than they would have otherwise been recognized. This restatement does not
impact the cash flows from operations of this program or the ultimate profits to
be recognized, only the timing of the revenue recognition of the non-refundable
portion of the fees and the cost of subsequent medical treatment. The cumulative
effect of this change in method as of December 31, 2008, was to defer
approximately $3.8 million of Attain IVF pre-tax earnings into subsequent
accounting periods. We anticipate that these deferred earnings will be
recognized in the Statement of Operations within the subsequent 18 months. The
impact of this policy revision has been deemed to have an immaterial impact on
our balance sheet and statement of cash flows. All financial statements,
disclosures, tables and analysis have been updated to reflect this restatement.
The change in our statement of operations resulting from this change in
accounting method for the three months ended March 31, 2008 is presented below
(000's, except per share amounts):
7
INTEGRAMED AMERICA, INC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Three Months Ended March 31,
Originally
Restated Reported
2008 2008 Difference
------- ------ ----------
Revenues, net ..................... $45,611 $45,653 $ (42)
Cost of services and sales ........ 41,920 41,906 (14)
------- ------- -------
Contribution ...................... 3,691 3,747 (56)
General and administrative expenses 2,363 2,363 --
Total other expense, net .......... 279 279 --
------- ------- -------
Income before tax ................. 1,049 1,105 (56)
Income tax provision .............. 428 450 22
------- ------- -------
Net income ........................ $ 621 $ 655 $ (34)
======= ======= =======
Basic earnings per share....... $ 0.07 $ 0.08 $ (0.01)
Diluted earnings per share..... $ 0.07 $ 0.08 $ (0.01)
Weighted average shares - basic.. 8,563 8,563 --
======= =======
Weighted average shares - diluted 8,641 8,641 --
======= =======
For a complete description of our revenue recognition policy please refer to
Note 3 - "Summary of Significant Accounting Policies" contained in our Annual
Report on Form 10-K for the year ended December 31, 2008.
NOTE 3 -- EARNINGS PER SHARE:
The reconciliation of the numerators and denominators of the basic and diluted
earnings per share computations for the three month periods ended March 31, 2009
and 2008 is as follows (000's omitted, except for per share amounts):
For the
three-month period
ended March 31,
-------------------
2009 2008
------ -------
(restated)
Numerator
Net Income ................................... $ 920 $ 621
Denominator
Weighted average shares outstanding (basic) .. 8,762 8,563
Effect of dilutive options and warrants ...... 65 78
------- -------
Weighted average shares and dilutive potential
Common shares (diluted) ................. 8,827 8,641
======= =======
Basic earnings per share ..................... $ 0.10 $ 0.07
======= =======
Diluted earnings per share ................... $ 0.10 $ 0.07
======= =======
For the three-month periods ended March 31, 2009 and 2008, there were 127,845
and 15,845, respectively, outstanding options to purchase shares of Common Stock
which were excluded from the computation of the diluted earnings per share
amount as the exercise prices of these outstanding options were greater than the
average market price of the shares of Common Stock.
8
NOTE 4 -- SEGMENT INFORMATION:
We currently report three major operating segments and a corporate office that
provides shared services. These three operating segments reflect our
organizational structure, lines of responsibility and management's perspective
of the organization. Each segment includes an element of overhead costs
specifically associated with its operations with the corporate shared services
group responsible for support functions generic to all three segments.
Performance by segment, for the three months ended March 31 2009 and 2008 are
presented below (000's omitted):
Fertility Consumer Vein
Centers Services Care Corp G&A Consolidated
--------- -------- ------ -------- ------------
For the three months ended March 31, 2009
Revenues ........................................... $ 36,283 $ 5,226 $ 10,846 $ -- $ 52,355
Cost of Services .............................. 33,643 3,713 10,092 -- 47,448
-------- -------- -------- --------
Contribution .................................. 2,640 1,513 754 -- 4,907
Operating margin .............................. 7.3% 29.0% 7.0% 0.0% 9.4%
General and Administrative .................... -- -- -- 3,138 3,138
Interest, net ................................. (34) -- -- 254 220
-------- -------- -------- -------- --------
Income before income taxes .................... $ 2,674 $ 1,513 $ 754 $ (3,392) $ 1,549
======== ======== ======== ======== ========
Depreciation expense included above ........... $ 1,058 -- $ 205 $ 216 $ 1,479
Capital Expenditures .......................... $ 2,221 -- $ 163 $ 182 $ 2,566
Total Assets .................................. $ 37,877 $ 630 $ 48,873 $ 32,235 $119,615
For the three months ended March 31, 2008 (restated)
Revenues ...................................... $ 32,746 $ 4,023 $ 8,842 $ -- $ 45,611
Cost of Services .............................. 30,442 2,958 8,520 -- 41,920
-------- -------- -------- -------- --------
Contribution .................................. 2,304 1,065 322 -- 3,691
Operating margin .............................. 7.0% 26.5% 3.6% 0.0% 8.1%
General and Administrative .................... -- -- -- 2,363 2,363
Interest, net ................................. (66) -- (1) 346 279
-------- -------- -------- -------- --------
Income before income taxes .................... $ 2,370 $ 1,065 $ 323 $ (2,709) $ 1,049
======== ======== ======== ======== ========
Depreciation expense included above ........... $ 1,051 $ 1 $ 183 $ 236 $ 1,471
Capital Expenditures .......................... $ 665 $ -- $ 448 $ 119 $ 1,232
Total Assets .................................. $ 41,459 $ 794 $ 45,172 $ 19,809 $107,234
9
NOTE 5 - CASH AND CASH EQUIVALENTS:
Cash and cash equivalents consist of cash and short term marketable securities.
To the extent that cash balances exceed short term operating needs, excess cash
is invested in short term interest bearing instruments. It is our policy to
restrict our investments to high-quality securities with fixed maturity dates
and principle amounts. The composition of our cash and cash equivalents as of
March 31, 2009 and December 31, 2008 is as follows (000's omitted):
March 31, December 31,
-------- ------------
2009 2008
---- -----------
(unaudited)
Cash ............................ $14,553 $26,807
Money market funds .............. 58 58
Certificates of deposit ......... 9,435 1,400
Accrued interest income ......... 3 10
------- -------
Total cash and cash equivalents $24,049 $28,275
======= =======
NOTE 6 - PATIENT AND OTHER RECEIVABLES, NET:
Patient and other receivables are principally comprised of gross patient and
insurance receivables from our Vein Clinics segment which represent outstanding
balances due for patient treatments less estimated allowances for insurance
contractual agreements and uncollectible balances. Insurance contractual
allowances are calculated based on recent allowance trends stratified by major
payer category and uncollectible reserves are based on both historical trends
and specific identification of specific accounts. For the periods ended March
31, 2009 and 2008, we believe that our receivable reserves were adequate to
provide for any contractual or collection issues.
The composition of our patient and other receivables as of March 31, 2009 and
December 31, 2008 is as follows (000's omitted):
March 31, December 31,
---------- --------------
2009 2008
---------- -------------
(unaudited
Vein Clinic patient and insurance receivables $ 12,814 $ 12,865
Reserve for insurance contractual allowance . (2,713) (3,866)
Reserve for uncollectible accounts .......... (3,470) (2,648)
-------- --------
Subtotal Vein Clinic receivables, net .. 6,631 6,351
Other receivables ........................... 630 330
-------- --------
Total Patient and other receivables, net .. $ 7,261 $ 6,681
======== ========
NOTE 7- INTANGIBLE ASSETS:
Business Service Rights consist of fees and expenses paid in conjunction with
service contracts associated with our Fertility Centers Partner program. These
service contracts typically have ten to twenty five year initial lives with the
associated service fees on some contracts refundable upon contract termination.
We amortize our non-refundable Business Service Rights over the life of their
applicable contract. Refundable Service Rights, which totaled approximately $6.1
million as of March 31, 2009, are not amortized because these funds will be
returned to us upon contract termination.
10
Goodwill consists of amounts paid related to the acquisition of Vein Clinics of
America in excess of the fair value of net assets and liabilities acquired.
Trademarks are comprised of valuations assigned to assets associated with the
Vein Clinics of America acquisition as well as costs associated with our other
trademark and service mark rights. We do not amortize our trademarks as they
have an indefinite useful life.
We test all our individual intangible assets for impairment on a regular basis.
To date no impairment has been incurred and therefore no impairment charges have
been recognized in our financial statements.
NOTE 8 - DUE TO FERTILITY MEDICAL PRACTICES:
Due to Fertility Medical Practices is comprised of the net amounts owed by us to
medical practices contracted as Fertility Centers. We do not consolidate the
results of the Fertility Centers into our accounts. This balance is comprised of
amounts due to us by the medical practices for funds, which we advanced for use
in financing their accounts receivable, less balances owed to the medical
practices by us for undistributed physician earnings and patient deposits we
hold on behalf of the medical practices.
As of March 31, 2009 and December 31, 2008, Due to Fertility Medical Practices
was comprised of the following balances (000's omitted):
March 31, December 31,
--------- -----------
2009 2008
--------- -----------
(unaudited)
Advances to Practice....................... $(17,074) $(17,121)
Undistributed Physician Earnings........... 2,932 3,205
Physician Practice Patient Deposits........ 21,473 20,270
--------- ---------
Due to Fertility Medical Practices, net.... $ 7,331 $ 6,354
========= =========
NOTE 9 -- NOTES PAYABLE AND OTHER OBLIGATIONS:
Notes payable and other obligations as of March 31, 2009 and December 31, 2008
consisted of the following (000's omitted):
March 31, December 31,
--------- ------------
2009 2008
--------- ------------
(unaudited)
Term Loan ................................... $ 20,915 $ 21,809
Revolving Line of Credit .................... 7,500 7,500
Derivative Fair valuation adjustment ........ 547 609
Obligations under capital lease ............. 281 301
-------- --------
Total notes payable and other obligations ... $ 29,243 $ 30,219
Less -- Current portion ..................... (11,346) (11,351)
-------- --------
Long-term notes payable and other obligations $ 17,897 $ 18,868
======== ========
Our term loan and revolving line of credit are financed by Bank of America and
are collateralized by substantially all of our assets. As of March 31, 2009 and
2008, we were in full compliance with all applicable debt covenants
11
NOTE 10 - STOCK-BASED EMPLOYEE COMPENSATION:
We currently have three stock option plans which have been previously approved
by the stockholders. All three plans are described more fully in Note 19 of the
financial statements in our most recent Annual Report on Form 10-K. Under these
plans, stock options and stock grants may be granted to employees, directors and
such other persons as the Board of Directors determines will contribute to our
success. Vesting periods are set by the Board of Directors and stock options are
generally exercisable during a ten-year period following the date of grant. The
Board of Directors has the authority to accelerate the maturity of any stock
option or grant at its discretion, and all stock options and grants have
anti-dilution provisions. Under all of our plans, options expire three months
from the date of the holder's termination of employment or twelve months in the
event of disability or death. As of March 31, 2009, there were 214,869 shares
available for granting under these Plans.
The following table sets forth information about the weighted-average fair value
of options granted in the first quarter of 2008, and the assumptions used for
each grant. No options have been granted during 2009:
For the
three-month period
ended March 31,
-------------------
2009 2008
------- ---------
Fair value of options granted................. - $11.20
Dividend yield................................ - 0.0%
Expected volatility........................... - 52.8%
Risk free interest rate....................... - 4.2%
Expected term in years........................ - 6.25
We recognize compensation cost for stock option plans over the vesting period
which approximates the service period, based on the fair value of the option as
of the date of the grant.
Stock option activity for the first quarter of 2009 under these plans is
summarized below:
Number of
shares of
Common Stock
underlying Weighted Average
options exercise price
------------- ----------------
Options outstanding at December 31, 2008.. 227,016 $5.78
Granted................................... -- --
Exercised................................. -- --
Canceled.................................. -- --
-------- -----
Options outstanding at March 31, 2009..... 227,016 $5.78
Options exercisable at:
December 31, 2008.................... 99,171 $2.34
March 31, 2009....................... 103,129 $2.68
The aggregate intrinsic value (difference between exercise price and current
value of our common stock) of options outstanding and exercisable as of March
31, 2009 and December 31, 2008 was approximately $425,000 and $333,000,
respectively.
For the three month periods ended March 31, 2009 and 2008, we recorded a charge
to earnings to recognize compensation expense of $48,000 and $4,000,
respectively, related to the value of outstanding stock options. As of March 31,
12
2009, we had approximately $589,000 of unrecognized compensation costs related
to stock options which will be recognized over their remaining vesting period,
which approximates the service period.
We also issue restricted stock grants to officers and members of the Board of
Directors. Stock granted to Board members vests immediately and stock granted to
officers generally vests over a period of three to five years. Our General and
Administrative expense includes compensation costs recognized in connection with
these restricted stock grants of $337,000 and $157,000 for the three-month
periods ended March 31, 2009 and 2008, respectively. As of March 31, 2009, we
had approximately $1,962,000 of unrecognized compensation costs related to stock
grants which will be recognized over their vesting period, which approximates
the service period.
NOTE 11 -- INTEREST RATE HEDGING TRANSACTION:
In the normal course of business we are exposed to the risk that our earnings
and cash flows could be adversely impacted by market driven fluctuations in the
level of interest rates. It is our policy to manage these risks by using a mix
of fixed and floating rate debt and derivative instruments.
In conjunction with our term loan agreement, executed during the third quarter
of 2007, we entered into an interest rate swap agreement on a portion of that
loan. This swap agreement is designed to hedge risks associated with a portion
of our principle floating rate debt.
As a result of this agreement, our net income for the three months ended March
31, 2009 and 2008, included additional financing costs of approximately $68,000
and $44,000, respectively. We also expect to record additional financing costs
of approximately $280,000 related to this swap agreement over the remainder of
2009, given current interest rate forecasts (these financing costs are expected
to be offset by lower interest rates on the portion of the underlying term loan
not covered by the interest rate swap).
In addition to the costs included in our reported net income, recording this
hedge at fair value also generated a non-recognized tax effected gain of
approximately $50,000 during the three months ended March 31, 2009, and a
non-recognized tax-effected net loss of approximately $325,000 since its
inception which is reported as part of our comprehensive income. The fair value
of this hedge was calculated in accordance with SFAS No. 157 - Fair Value
Measurements, utilizing Level 2 inputs of quoted prices for similar liabilities
in active markets.
We deem this hedge to be highly effective as it shares the same termination date
and amortization schedule as the underlying debt subject to the hedge and the
change in fair value inversely mimics the appropriate portion of the hedged
item. As of March 31, 2009, we had no other hedge or derivative transactions.
The following table summarizes total comprehensive income (loss) for the
applicable periods (000's omitted):
For the
three-month period
March 31,
--------------------
2009 2008
----- --------
(restated)
Net income as reported............................... $920 $ 621
Net earnings (loss) on derivative transactions....... 50 (193)
------ -----
Total comprehensive income........................... $970 $ 428
==== =====
13
NOTE 12-- LITIGATION:
From time to time, we are party to legal proceedings in the ordinary course of
business. As of March 31, 2009, none of these proceedings is expected to have a
material adverse effect on our financial position, results of operations or cash
flows.
NOTE 13 -- RECENT ACCOUNTING STANDARDS:
FAS 157-2: In February 2008, the FASB issued FASB Staff Position (FSP) 157-2,
Effective Date of FASB Statement No. 157. This FSP delays the effective date of
FASB Statement No. 157, Fair Value Measurements, for non-financial assets and
non-financial liabilities, except for items that are recognized or disclosed at
fair value in the financial statements on a recurring basis (at lease annually).
Statement 157 was issued on September 15, 2006, and, as issued, is effective for
financial statements issued for fiscal years beginning after November 15, 2007,
and interim periods within those fiscal years. This delay is intended to allow
the Board additional time to consider the effects of various implementation
issues that have arisen, or may arise, from the application of Statement No.
157. FSP 157-2 defers the effective date for Statement 157 to fiscal years
beginning after November 15, 2008, and interim periods within those fiscal
years. The adoption of FAS 157-2 will not have a material impact on our
consolidated financial statements.
EITF 07-05: In June 2008, the FASB ratified EITF (Emerging Issues Task Force)
07-05, Determining Whether an Instrument (or Embedded Feature) Is Indexed to an
Entity's Own Stock. The objective of this issue is to provide guidance for
determining whether an equity-linked financial instrument (or embedded feature)
is indexed to an entity's own stock. This issue applies to any freestanding
financial instrument or embedded feature that has all the characteristics of a
derivative instrument or an instrument which may be potentially settled in an
entity's own stock regardless of whether the instrument possesses derivative
characteristics. This issue provides a two-step approach to assist in making
these determinations and is effective for financial statements issued for fiscal
years beginning after December 15, 2008. The adoption of EITF 07-05 will not
have a material impact on our consolidated financial statements.
14
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion and analysis should be read in conjunction with the
consolidated financial statements and notes thereto included in this report and
with IntegraMed America Inc.'s Annual Report on Form 10-K for the year ended
December 31, 2008.
Forward Looking Statements
This Form 10-Q and discussions and/or announcements made by or on behalf of us,
contain certain forward-looking statements regarding events and/or anticipated
results within the meaning of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the attainment of which involves
various risks and uncertainties. Forward-looking statements may be identified by
the use of forward-looking terminology such as, "may", "will", "expect",
"believe", "estimate", "anticipate", "continue", or similar terms, variations of
those terms or the negative of those terms. Our actual results may differ
materially from those described in these forward-looking statements due to the
following factors: our ability to acquire additional fertility Partner
agreements or open additional vein clinics, our ability to raise additional debt
and/or equity capital to finance future growth, the loss of significant Partner
agreement(s), the profitability or lack thereof at fertility centers or vein
clinics serviced by us, increases in overhead due to expansion, the exclusion of
fertility services or vein care from insurance coverage, government laws and
regulation regarding health care, changes in managed care contracting, and the
timely development of and acceptance of new fertility or vein treatment
technologies and techniques. We are under no obligation (and expressly disclaim
any such obligation) to update or alter any forward-looking statements whether
as a result of new information, future events or otherwise.
Business Overview
IntegraMed America is a specialty healthcare services company offering products
and services to patients and providers in the fertility and vein segments of the
healthcare industry. We deliver these products and services through three main
operating divisions.
Our Fertility Centers Division is a provider network comprised of eleven
contracted fertility centers, referred to as our Partner Program, located in
thirteen major markets across the United States. IntegraMed offers products and
services to these providers designed to support the fertility center's growth.
All fertility Partners also have full access to our Consumer Services offerings
(described below). The division also supports a Council of Physicians and
Scientists and a captive insurance company which provides malpractice insurance
to member physicians.
Our Consumer Services Division offers products directly to fertility patients.
The division's Attain IVF program and financing products are designed to make
the treatment process easier and more affordable for patients. The division
maintains a contracted network of 22 independent fertility clinics under its
Affiliate program which are designed to distribute the division's products and
services to a wider group of patients than those serviced by our Fertility
Center locations
Our Vein Clinics Division provides business and management services to a network
of 33 clinics located in 13 states which specialize in the treatment of vein
disease and disorders.
The primary elements of our business strategy include:
o Expanding our network of fertility and vein clinics into new major
markets;
o Increasing sales of Attain IVF and our treatment financing products to
fertility patients;
o Increasing revenues and profits at contracted fertility centers and
consolidated vein clinics; and
o Leveraging corporate general and administrative costs over a larger base
of operations.
The business strategy of our Fertility Centers Division is to leverage our deep
expertise and commitment to improved fertility center performance by providing
the best value-specific offerings designed to manage and grow the center within
the context of a long-term relationship. The business strategy of our Consumer
15
Services Division is to provide products and services that make obtaining high
quality fertility treatment easier and more affordable for patients. The
business strategy of the Vein Clinics Division is to provide technologically
advanced care for varicose veins and other vein diseases to an underserved
population through the opening of additional clinics, and growing and increasing
productivity and profitability at each clinic.
Major Events Impacting Financial Condition and Results of Operations
2009
----
On January 20, 2009, we announced the opening of a new Vein Clinic treatment
center in Cincinnati, OH. This represents the 33rd clinic in our Vein Clinics
Division and our first entry into the State of Ohio and the Cincinnati market.
Subsequent Event
On April 20, 2009, we announced the opening of a new Vein Clinic treatment
center in Cleveland, OH. This represents the 34th clinic in our Vein Clinics
Division, our entry into the Cleveland market and expansion of our presence in
the State of Ohio.
2008
----
From June 2008 through March 2009, the annual 2007 and the 2008 periodic interim
reports of IntegraMed America, Inc. and Subsidiaries were the subject of a
standard comment and review process by the Staff of the Division of Corporation
Finance of the Securities and Exchange Commission ("SEC"). The application of
generally accepted accounting principles to the Company's Attain IVF program's
multiple element revenue arrangements is complex and management's interpretation
of the applicable authoritative literature related to the timing of the
recognition of the fair value of revenue for the non-refundable portion of the
Attain IVF program fees differed from that of the SEC which caused us to
re-evaluate the Company's revenue recognition policies. As a result, the Company
restated its prior financial statements with respect to the timing of revenue
recognition for its Attain IVF program (formerly Shared Risk Refund program)
within its Consumer Services Division. Our previous revenue recognition policy
had generally recognized the non-refundable patient fees (generally 30% of the
contract amount) as revenue upon the completion of the first treatment cycle. We
now recognize the non-refundable fees based on the relationship of the fair
value of each treatment to the total fair value of the treatment package
available to each patient. We also recognize a "warranty reserve" representing
the estimated cost of services to be provided in the event a qualified patient
miscarries. This restatement does not impact the cash flows from operations of
this program or the ultimate profits to be recognized, only the timing of the
revenue recognition for a portion of the fees that we collect from our
customers. All financial statements, disclosures, tables and analysis have been
updated to reflect this restatement. See Note 2 to the consolidated financial
statements for additional information.
16
Results of Operations
The following table shows the percentage of net revenue represented by various
expenses and other income items reflected in our statements of operations for
the three-month periods ended March 31, 2009 and 2008:
For the
Three-month period
Ended March 31,
--------------------
2009 2008
--------- --------
(unaudited)
Revenues, net
Fertility Centers .............. 69.3% 71.8%
Consumer Services .............. 10.0% 8.8%
Vein Clinics ................... 20.7% 19.4%
----- -----
Total Revenues ............ 100.0% 100.0%
----- -----
Cost of services and sales
Fertility Centers .............. 64.3% 66.7%
Consumer Services .............. 7.1% 6.5%
Vein Clinics ................... 19.3% 18.7%
----- -----
Total cost of services and sales 90.7% 91.9%
----- -----
Contribution
Fertility Centers .............. 5.0% 5.1%
Consumer Services .............. 2.9% 2.3%
Vein Clinics ................... 1.4% 0.7%
----- -----
Total contribution ........ 9.3% 8.1%
----- -----
General and administrative expenses 6.0% 5.2%
Interest income .................... (0.1)% (0.4)%
Interest expense ................... 0.6% 1.0%
----- -----
Total other expenses ...... 6.4% 5.8%
----- -----
Income before income taxes ......... 3.0% 2.3%
Income tax provision ............... 1.2% 0.9%
----- -----
Net income ......................... 1.8% 1.4%
===== =====
Three Months Ended March 31, 2009 Compared to the Three Months Ended
March 31, 2008
---------------------------------------------------------------------
Revenues
For the three months ended March 31, 2009, total revenues of $52.4 million
increased approximately $6.7 million, or 14.8%, from the same period in 2008.
All three of our operating divisions reported increased revenue versus the year
ago period. Our Fertility Centers revenue increased approximately $3.5 million,
or 10.8%, as a result of growth within existing underlying medical practices and
the addition of one new Partner arrangement in April 2008. Our Consumer Services
segment experienced increased revenues of $1.2 million, or 29.9% primarily
driven by growth in its Attain IVF program. Revenue in our Vein Clinics segment
increased $2.0 million, or 22.7%, due to higher patient flow and the opening of
five new clinics within the prior twelve months.
A segment-by-segment discussion is presented below.
Fertility Centers Segment
In providing clinical care to patients, each of our Partner practices generates
patient revenue which we do not report in our financial statements. Although we
do not consolidate the physician fertility practice financials with our own,
these financials do directly affect our revenues.
17
The components of our revenue from each of the Partner practices are:
o A Base Service fee calculated as a percentage of patient revenue as
reported by the Partner practice (this percentage varies from 6% down to
3% depending on the level of patient revenues);
o Cost of Services equal to reimbursement for the expenses which we advanced
to the Partner practice during the month (representing substantially all
of the expenses incurred by the Partner practice);
o Our Additional fees which represent our share of the net income of the
Partner practice (which varies from 10% to 20% or a fixed amount depending
on the Partner practice).
In addition to these revenues generated from our Fertility Centers, we often
receive miscellaneous other revenues related to providing services to medical
practices. From the total of our revenues, we subtract the annual amortization
of our Business Service Rights, which are the rights to provide Business
Services to each of the Partner practices.
During the first quarter of 2009, Fertility Center revenues increased by $3.5
million or 10.8% from the same period in 2008. This increase was primarily
driven by a 7.6% rise in same-center fertility revenue as well as the addition
of one new Partner contract in April 2008, which was responsible for $1.2
million of our revenue growth.
The table below illustrates the components of Fertility Centers revenue in
relation to the physician practice financials for the first three months of 2009
compared to 2008:
For the
Three months
Ended March 31,
---------------------
2009 2008
-------- --------
(unaudited)
Providers Providers
Physician Financials
(a) Patient revenue............................... $48,405 $43,749
(b) Cost of services.............................. 32,829 29,764
(c) Base service fee.............................. 2,278 2,036
------- -------
(d) Practice contribution (a-b-c)................. 13,298 11,949
(e) Physician compensation........................ 11,885 10,697
(f) IntegraMed additional fee..................... 1,474 1,251
IntegraMed Financials
(g) IntegraMed gross revenue (b+c+f).............. 36,581 33,051
(h) Amortization of business service rights....... (324) (324)
(i) Other revenue................................. 26 19
------- --------
(j) IntegraMed fertility services revenue (g+h+i). $36,283 $ 32,746
======= ========
New Patients Visits, which are an indicator of initial patient interest in
fertility treatment, rose 12% in the first quarter of 2009 versus the year
earlier period. Likewise, IVF Cycle volume, which is an indicator of billable
charges, rose 13% during the same period. These key Fertility Center metrics are
presented below:
--------------------------------------------------------
Q1 2009 Q1 2008 Change % Change
--------------------------------------------------------
Revenues: $36.283M $32.746M $3.537M 11%
-----------------------------------------------------------------------------
Operating Income: $2.640M $2.304M $0.336M 15%
-----------------------------------------------------------------------------
New Patient Visits: 7,554 6,765 789 12%
-----------------------------------------------------------------------------
IVF Cycles: 3,533 3,141 392 13%
-----------------------------------------------------------------------------
18
Consumer Services Segment
-------------------------
During the first quarter of 2009, Consumer Services revenues increased by $1.2
million or 29.9% from the same period in 2008. Revenues from our Attain IVF
program accounted for approximately 93.8% of our Consumer Services Segment
revenues during the first quarter of 2009, up from 92.1% for the same period in
2008. Patients enrolled in the Attain IVF program pay us an upfront fee
(deposit) in return for up to six treatment cycles. Any non-refundable portion
of these fees are recognized as revenue based on the relative fair value of each
treatment cycle completed relative to the total fair value of the contracted
treatment package available to the patient. The refundable portion of the
program enrollment fee is recognized as revenue when the patient becomes
pregnant.
At the time of pregnancy we also establish a reserve for future medical costs
should the patient miscarry and require additional contracted treatment cycles
as well as a reserve for potential refunds should a patient elect to discontinue
participation in the program prior to full treatment. The two main factors that
impact Attain IVF financial performance are:
o The number of patients enrolled and receiving treatment
o Clinical pregnancy rates
Applications for entrance into our Attain IVF Program rose 14% and actual
program enrollments increased 19% in the first quarter of 2009 versus the first
quarter of 2008. These key quarter-to-quarter metrics for our Consumer Services
division are presented below:
---------------------------------------------------------
Q1 2009 Q1 2008 Change % Change
---------------------------------------------------------
Revenues: $5.226M $4.023M $1.203M 30%
-----------------------------------------------------------------------------
Operating Income: $1.513M $1.065M $0.448M 42%
-----------------------------------------------------------------------------
Applications: 549 481 68 14%
-----------------------------------------------------------------------------
Enrollments: 253 212 41 19%
-----------------------------------------------------------------------------
Our Affiliate program generated revenues of $315,000 during the first quarter of
2009, up 11% from revenues of $283,000 during the same period in the prior year.
This increase in revenue is primarily attributable to recently implemented
pricing adjustments for the program's services. As of March 31, 2009, this
network was comprised of 22 independent fertility clinics, the same as in the
year earlier period, which serve as a distribution channel for our Consumer
Services products as well as a recruitment program for future Partner clinics.
Vein Clinics Segment
--------------------
Revenues for our Vein Clinics segment grew 22.7% to $10.8 million in the first
quarter of 2009 compared to revenues of $8.8 million in the year-ago quarter.
To date in 2009, we have opened new Vein Clinics locations in Cincinnati and
Cleveland, marking our entry into the state of Ohio and these two new markets.
These additional clinics bring the total number of vein clinics to 34, or 5
additional operating clinics opened since the first quarter of 2008. These five
new clinics accounted for $0.9 million of our $2.0 million revenue growth, with
revenue from existing clinics open for longer than one year increasing $1.1
million for a same-clinic growth rate of 7.8% over the same period in the prior
year. We continue to target the opening of three or four additional new vein
clinics in locations across the country during the remainder of 2009, however
this pace could be affected by recent challenges in physician recruitment. To
address this issue we are assembling a physician recruitment task force to
19
develop a strategy and plan to raise the profile of the vein care career
opportunity to high-quality physicians across the country.
New Consultations, which are an indication of patient interest in vein care
treatment, rose 59% in the first three months of 2009 relative to the year
earlier period. First Leg Starts, which signifies the beginning of a billable
treatment cycle rose 30% in the first quarter of 2009 versus the first quarter
of 2008. These key quarter-to-quarter operational metrics for our Vein Clinics
division are presented below:
----------------------------------------------------------
Q1 2009 Q1 2008 Change % Change
----------------------------------------------------------
Revenues: $10.846M $8.842M $2.004M 23%
------------------------------------------------------------------------------
Operating Income: $0.754M $0.322M $0.432M 134%
------------------------------------------------------------------------------
New Consultations: 3,121 1,961 1,160 59%
------------------------------------------------------------------------------
First Leg Starts: 1,574 1,208 366 30%
------------------------------------------------------------------------------
Contribution
------------
Contribution for the first quarter of 2009 was $4.9 million, up $1.2 million or
32.9% from the year earlier period. A segment-by-segment discussion is presented
below.
Fertility Centers Segment
-------------------------
Fertility Center contribution of $2.6 million in the first quarter of 2009 was
up $0.3 million, or 14.6%, from the first quarter of 2008. This increase is
comprised of additional contribution of $0.4 million derived from services
offered to our Partner clinics less $0.1 million of related additional
divisional level overhead. Our new Partner contract, acquired in April 2008, was
responsible for $0.1 million of this increase in contribution. First quarter
margins also improved in 2009, rising to 7.3% versus 7.0% for the first quarter
of 2008, an indication of improved operational efficiency.
Consumer Services Segment
-------------------------
Contribution from our Consumer Services segment grew by $448,000 or 42% in the
first quarter of 2009, compared to the same period in the prior year. This
growth was driven by our previously noted19% increase in enrollments into our
Attain IVF program as well as a 5.8% increase in pregnancy success during the
first three months of 2009 versus the year earlier period. First quarter 2009
pregnancy success rates are at the high end of the expected range while the
prior year success rates were at a slightly lower more normalized point.
Vein Clinics Segment
--------------------
For the first quarter of 2009, contribution from our Vein Clinics division of
$754,000 was $432,000, or 134%, above the first quarter of 2008. This increase
in contribution was the result of a 30% increase in patient treatment starts
derived from our enhanced and refocused direct-to-consumer marketing outreach
programs as well as the addition of five new clinics that have opened since the
first quarter of 2008.
Contribution margins in our Vein Clinics segment rose to 7.0% for the three
months ended March 31, 2009, versus 3.6% in the year earlier period. This
increase in margins are a direct result of our increased patient flow coupled
with cost containment measures at the clinical and division level.
General and Administrative Expenses
-----------------------------------
General and Administrative (G&A) expenses are comprised of salaries and
benefits, administrative, regulatory compliance, and operational support costs
defined as our Shared Services group, which are not specifically related to
individual clinical operations or other product offerings. These costs totaled
$3.1 million in the first quarter of 2009, or 64% of operating contribution
relative to costs of $2.4 million during the first quarter of 2008, which also
20
equaled 64% of contribution in the year earlier period. We continue to actively
manage G&A expenses in order to obtain maximum leverage relative to total
contribution.
Interest
--------
Net interest expense in the first quarter of 2009 totaled $220,000, compared to
net interest expense of $279,000, during the same period in the prior year. The
$59,000 reduction in net interest expense was primarily the result scheduled
debt repayments which have reduced our average borrowing levels during the prior
four quarters. Excluding any new financing arrangements, we expect to continue
to reduce our interest expense in subsequent quarters as we make scheduled debt
payments.
Income Tax Provision
--------------------
Our provision for income tax was approximately $0.6 million for the three months
ended March 31, 2009, or 40.6% of pre-tax income. This is compared to
approximately $0.4 million, or 40.8%, of pre-tax income during the same period
last year. Our effective tax rates for 2009 and 2008 reflect provisions for both
current and deferred federal and state income taxes. The effective income tax
rate for the three months ended March 31, 2009 and 2008 includes additional
interest for tax exposure items.
Effective January 1, 2007, we adopted Financial Accounting Standards Board
(FASB) Interpretation No. 48 (FIN No. 48), "Accounting for Uncertainty in Income
Taxes," which clarifies the accounting and disclosure for uncertainty in income
taxes. The adoption of this interpretation did not have a material impact on our
financial statements. As of March 31, 2009, the total gross unrecognized tax
benefits were approximately $255,000, and the total unrecognized tax benefits
(net of federal effect) were approximately $179,000, all of which would impact
our effective tax rate if recognized. Interest on unrecognized tax benefits as
of March 31, 2009 was approximately $33,000. We do not anticipate that any of
our net unrecognized tax benefits will become recognized over the next year due
to expirations in the statute of limitations.
We file income tax returns in the U.S. federal jurisdiction and various states.
For federal income tax purposes, our 2007 and 2008 tax years remain open for
examination by the tax authorities due to the recent completion of an IRS
examination. For state tax purposes, our 2004 through 2008 tax years remain open
for examination by the tax authorities under a four year statute of limitations.
Off-balance Sheet Arrangements
FASB Interpretation No. 46 (FIN 46R) "Consolidation of Variable Interest
Entities" ("VIE's") addresses how a business enterprise should evaluate whether
it has a controlling financial interest in an entity through means other than
voting rights and accordingly should consolidate the entity. As of March 31,
2009, through the acquisition of the Vein Clinics of America, Inc, we have
interests in the individual vein clinics, where we are the primary beneficiary
and obligor of their financial results (our contract provides for us to receive
any excess or deficit profits from the vein clinics). As such we have
consolidated these vein clinic operations in our financial statements in
accordance with the provisions of FIN 46R. Since we do not have any financial
interest in the individual fertility clinics and we are not the primary
beneficiary or obligor of their financial results (our contracts provide for the
physician owners of the clinics to receive any excess or deficit profits), we do
not consolidate the results of the fertility clinics in our accounts. Also,
since we do not have any interest in the captive insurance provider where we are
not the primary beneficiary, we do not consolidate the results of the captive
insurance company in our accounts.
Liquidity and Capital Resources
As of March 31, 2009, we had approximately $24.0 million in cash and cash
equivalents on hand as compared to $28.3 million at December 31, 2008. We had a
working capital deficit of approximately $6.1 million, at March 31, 2009, versus
a deficit of $4.0 million as of December 31, 2008. This decrease in working
21
capital from December 31, 2008 levels was primarily due to fixed asset purchases
of $2.6 million and scheduled debt payments of $0.9 million in the first quarter
of 2009.
Attain IVF patient deposits, which are reflected as a current liability,
represent funds received from patients in advance of treatment cycles and are an
indication of future Consumer Services Division revenues. These deposits totaled
approximately $12.5 million and $13.9 million as of March 31, 2009 and December
31, 2008, respectively. The decrease in deposits is a direct result of increased
patient treatments, and increased revenue realization, during the first quarter
of 2009 compared to the same period in the prior year. These deposits are a
significant source of cash flow and represent interest-free financing for us.
As of March 31, 2009, we did not have any significant contractual commitments
for the acquisition of fixed assets or construction of leasehold improvements.
However, we anticipate upcoming capital expenditures of approximately $3.1
million for the remainder of 2009. These expenditures are primarily related to
medical equipment, information system infrastructure and leasehold improvements.
We believe that working capital, specifically cash and cash equivalents, remains
at adequate levels to fund our operations and our commitments for fixed asset
acquisitions. We also believe that the cash flows from our operations plus our
available credit facility will be sufficient to provide for our future liquidity
needs over the next twelve months.
In August, 2007, we entered into a new financing arrangement with Bank of
America and secured a $25 million five-year term loan. After deducting the
outstanding balance of $7.7 million on our previous loan amount, interest and
fees, our net funding from Bank of America was $17.0 million. In order to
mitigate the interest rate risk associated with this term loan, we also entered
into an interest rate swap agreement on 50% of the principal amount. This swap
transaction acts an effective hedge fixing the interest rate on half of our term
loan at 5.39% plus the applicable margin for the life of the loan. Other
features of this credit facility include a $10 million five-year revolving line
of credit.
Each component of our amended credit facility bears interest by reference to
Bank of America's prime rate or LIBOR, at our option, plus a margin, which is
dependent upon a leverage test, ranging from 2.00% to 2.75% in the case of
LIBOR-based loans. Prime-based loans are made at Bank of America's prime rate
and do not contain an additional margin. Interest on the prime-based loans
became payable quarterly beginning November 8, 2007 and interest on LIBOR-based
loans is payable on the last day of each applicable interest period. As of March
31, 2009, interest on the term loan was payable at a rate of 2.75%. Unused
amounts under the working capital revolver bear a commitment fee of 0.25% and
are payable quarterly.
Availability of borrowings under the working capital revolver is based on
eligible accounts receivable, as defined in the credit agreement. As of March
31, 2009 under the revolving line of credit the full amount of $10.0 million was
available, of which $7.5 million was outstanding.
Our Bank of America credit facility is collateralized by substantially all of
our assets. As of March 31, 2009, we were in full compliance with all applicable
debt covenants. We also continuously review our credit agreements and may renew,
revise or enter into new agreements from time to time as deemed necessary.
Significant Contractual Obligations and Other Commercial Commitments
The following summarizes our contractual obligations and other commercial
commitments at March 31, 2009, and the effect such obligations are expected to
have on our liquidity and cash flows in future periods.
22
Payments Due by Period (000's omitted)
Total Less than 1 Year 1-3 Years 4-5 Years After 5 Years
----- ---------------- --------- --------- -------------
Notes payable......................... $21,462 $3,761 $17,701 $ -- $ --
Line of credit outstanding............ 7,500 7,500 -- -- --
Interest on debt...................... 2,687 1,019 1,668 -- --
Capital lease obligations............. 281 85 196 -- --
Operating leases...................... 59,177 3,531 17,793 15,425 22,428
Fertility Partners capital and
Other obligations..................... 3,181 3,181 -- -- --
------- -------- ------- ------- --------
Total contractual cash
obligations...................... $94,288 $19,077 $37,358 $15,425 $22,428
======= ======= ======= ======= =======
Amount of Commitment Expiration Per Period
(000's omitted)
Total Less than 1 year 1-3 Years 4-5 Years After 5 Years
----- ---------------- --------- --------- -------------
Unused lines of credit................ $2,500 $ -- $2,500 $ -- $ --
====== ========= ====== ========= =========
We also have commitments to provide working capital financing to member clinics
in our Fertility Centers Division. A significant portion of these commitments
relate to our transactions with the medical practices themselves. Our
responsibilities to the these medical practices are to provide financing for
their accounts receivable and to hold patient deposits as well as undistributed
physician earnings on their behalf. Disbursements to the medical practices
generally occur monthly. The medical practice's repayment hierarchy consists of
the following:
o We provide a cash credit to the practice for billings to patients and
insurance companies;
o We reduce the cash credit for clinic expenses that we have incurred on
behalf of the practice;
o We reduce the cash credit for the base portion of our Service Fee which
relates to the Partner revenues;
o We reduce the cash credit for the variable portion of our Service Fee
which relates to the Partner earnings;
o We disburse to the medical practice the remaining cash amount which
represents the physician's undistributed earnings.
We are also responsible for the collection of the Partner accounts receivables,
which we finance with full recourse. We continuously fund these needs from our
cash flow from operations, the collection of prior months' receivables and
deposits from patients in advance of treatment. If delays in repayment are
incurred, which have not as yet been encountered, we could draw on our existing
working capital line of credit. We also make payments on behalf of the Partner
for which we are reimbursed in the short-term. Other than these payments, as a
general course, we do not make other advances to the medical practice. We have
no other funding commitments to the Partner clinics.
New Significant Accounting Policies
As disclosed in our Form 10-K for the year ended December 31, 2008, we restated
our accounting policies with respect to revenue recognition for the Attain IVF
program. See Note 2 for additional details. With the exception of this change,
there have been no other changes to any of our accounting policies disclosed in
our most recent Annual Report on Form 10-K.
23
New Accounting Pronouncements
Please see Note 13 of the consolidated financial statements for a discussion on
recently issued accounting pronouncements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
In the normal course of business, our interest income and expense items are
sensitive to changes in the general level of interest rates. During the third
quarter of 2007 we entered into a derivative transaction designed to hedge 50%
of our variable rate term loan. As a result of this derivative transaction we
have successfully shielded ourselves from a portion of the interest rate risks
associated with our term loan. We are currently subject to interest rate risks
associated with our short term investments and certain advances to our Fertility
clinics, both of which are tied to either short term interest rates or the prime
rate. As of March 31, 2009, a one percent change in interest rates would impact
our pre-tax income by approximately $100,000 annually.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures
Under the supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, we evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15 under the Securities Exchange Act of 1934)
as of March 31, 2009 (the "Evaluation Date"). Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that, as of the
Evaluation Date, our disclosure controls and procedures were effective.
(b) Changes in internal controls
There were no changes made in our internal control over financial reporting
during the period covered by this report that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
24
Part II - OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we are party to legal proceedings in the
ordinary course of business. As of March 31, 2009, none of
these proceedings is expected to have a material adverse
effect on our financial position, results of operations or
cash flow.
Item 1A. Risk Factors
There have been no material changes from the risk factors
previously disclosed in our Annual Report on Form 10-K for the
year ended December 31, 2008.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to Vote of Security Holders.
None.
Item 5. Other Information.
Unresolved Staff comments - we believe that we have complied
with all requests of the SEC Staff in this document, but have
not yet received the "no further comment" communications.
Item 6. Exhibits.
See Index to Exhibits on Page 27.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTEGRAMED AMERICA, INC.
(Registrant)
Date: May 8, 2009 By:/s/: John W. Hlywak, Jr.
-------------------
John W. Hlywak, Jr.
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
26
INDEX TO EXHIBITS
Exhibit
Number Exhibit
31.1 -- CEO Certification Pursuant to Rule 13a-14(a) as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
dated May 8, 2009.
31.2 -- CFO Certification Pursuant to Rule 13a-14(a) as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
dated May 8, 2009.
32.1 -- CEO Certification Pursuant to 18 U.S.C. ss. 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
dated May 8, 2009.
32.2 -- CFO Certification Pursuant to 18 U.S.C. ss. 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
dated May 8, 2009.
27