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

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10Q

 

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

For the quarterly period ended June 30, 2009

 

OR

 

oTRANSITION 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 incorporation or organization)

(IRS employer identification no.)

 

 


 

Two Manhattanville Road

 

 

 

Purchase, NY

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 (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 o

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 o No. o

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  o

Accelerated Filer  x

 

 

Non-Accelerated filer  o

Smaller Reporting Company  o

 

 


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

The aggregate number of shares of the Registrant’s Common Stock, $.01 par value, outstanding on July 23, 2009 was approximately 8,775,000.

 

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

 


INTEGRAMED AMERICA, INC.

FORM 10-Q

 

TABLE OF CONTENTS

 

 

 

 

Page

PART I.

 

FINANCIAL INFORMATION

 

 

 

 

 

Item 1

 

Financial Statements

 

 

 

 

 

 

 

 

 

 

 

Consolidated Balance Sheets at June 30, 2009 and December 31, 2008

3

 

 

 

 

 

 

Consolidated Statements of Operations for the three- and six-month periods ended June 30, 2009 and 2008

4

 

 

 

 

 

 

Consolidated Statements of Shareholders’ Equity for the six-month period ended June 30, 2009

5

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the six-month periods ended June 30, 2009 and 2008

6

 

 

 

 

 

 

Notes to Consolidated Financial Statements

7-15

 

 

 

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

16-25

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

25

 

 

 

 

Item 4.

 

Controls and Procedures

25

 

 

 

 

PART II.

 

OTHER INFORMATION

 

 

 

 

 

Item 1

 

Legal Proceedings

26

 

 

 

 

Item 1A.

 

Risk Factors

26

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

26

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

26

 

 

 

 

Item 4.

 

Submission of Matters to a Vote of Security Holders

26

 

 

 

 

Item 5.

 

Other Information

26

 

 

 

 

Item 6.

 

Exhibits

26

 

 

 

 

SIGNATURES

27

 

 

 

 

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. § 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

EXHIBITS


 

 

2

 


INTEGRAMED AMERCIA, INC.

CONSOLIDATED BALANCE SHEETS

(All amounts in thousands, except share amounts)

 

 

 

June 30,

 

December 31,

 

 

 

 

2009

 

 

2008

 

 

 

 

(unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

 

Current Asset

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

31,454

 

$

28,275

 

Patient and other receivables, net

 

 

7,646

 

 

6,681

 

Deferred taxes

 

 

4,352

 

 

5,744

 

Other current assets

 

 

6,463

 

 

6,468

 

Total current assets

 

 

49,915

 

 

47,168

 

 

 

 

 

 

 

 

 

Fixed assets, net

 

 

17,328

 

 

16,618

 

Intangible assets, Business Service Rights, net

 

 

21,308

 

 

21,956

 

Goodwill

 

 

29,478

 

 

29,478

 

Trademarks

 

 

4,442

 

 

4,442

 

Other assets

 

 

3,274

 

 

1,781

 

Total assets

 

$

125,745

 

$

121,443

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Accounts payable

 

$

1,864

 

$

2,853

 

Accrued liabilities

 

 

17,407

 

 

16,676

 

Current portion of long-term notes payable and other obligations

 

 

11,329

 

 

11,351

 

Due to Fertility Medical Practices

 

 

10,141

 

 

6,354

 

Attain IVF deferred revenue and other patient deposits

 

 

14,432

 

 

13,892

 

Total current liabilities

 

 

55,173

 

 

51,126

 

 

 

 

 

 

 

 

 

Deferred and other tax liabilities

 

 

271

 

 

696

 

Long-term notes payable and other obligations

 

 

16,836

 

 

18,868

 

Total liabilities

 

 

72,280

 

 

70,690

 

 

 

 

 

 

 

 

 

Commitments and Contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

Common Stock, $.01 par value – 15,000,000 shares authorized on June 30, 2009 and December 31, 2008, respectively, 8,774,994 and 8,668,376 shares issued and outstanding on June 30, 2009 and December 31, 2008, respectively

 

 

88

 

 

87

 

Capital in excess of par

 

 

55,702

 

 

54,943

 

Accumulated other comprehensive loss

 

 

(293

)

 

(375

)

Treasury stock, at cost – 46,408 and 22,682 shares on June 30, 2009 and December 31, 2008, respectively

 

 

(375

)

 

(211

)

Accumulated deficit

 

 

(1,657

)

 

(3,691

)

Total shareholders’ equity

 

 

53,465

 

 

50,753

 

Total liabilities and shareholders’ equity

 

$

125,745

 

$

121,443

 

 

See accompanying notes to consolidated financial statements.

 

3

 


INTEGRAMED AMERICA, INC

CONSOLIDATED STATEMENT OF OPERATIONS

(all amounts in thousands, except per share amounts)

(unaudited)

 

 

 

For the

Three-month period

Ended June 30,

 

For the

Six-month period

Ended June 30,

 

 

 

2009

 

2008

 

2009

 

2008

 

Revenues, net

 

 

 

 

 

 

 

 

 

 

 

 

 

Fertility Centers

 

$

37,290

 

$

35,051

 

$

73,574

 

$

67,797

 

Consumer Services

 

 

5,004

 

 

4,612

 

 

10,229

 

 

8,635

 

Vein Clinics

 

 

13,821

 

 

10,062

 

 

24,667

 

 

18,904

 

Total revenues

 

 

56,115

 

 

49,725

 

 

108,470

 

 

95,336

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs of services and sales

 

 

 

 

 

 

 

 

 

 

 

 

 

Fertility Centers

 

 

34,233

 

 

32,481

 

 

67,875

 

 

62,923

 

Consumer Services

 

 

3,843

 

 

3,357

 

 

7,556

 

 

6,315

 

Vein Clinics

 

 

12,539

 

 

9,349

 

 

22,631

 

 

17,869

 

Total costs of services and sales

 

 

50,615

 

 

45,187

 

 

98,062

 

 

87,107

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contribution

 

 

 

 

 

 

 

 

 

 

 

 

 

Fertility Centers

 

 

3,057

 

 

2,570

 

 

5,699

 

 

4,874

 

Consumer Services

 

 

1,161

 

 

1,255

 

 

2,673

 

 

2,320

 

Vein Clinics

 

 

1,282

 

 

713

 

 

2,036

 

 

1,035

 

Total contribution

 

 

5,500

 

 

4,538

 

 

10,408

 

 

8,229

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative expenses

 

 

3,431

 

 

2,735

 

 

6,569

 

 

5,098

 

Interest income

 

 

(67

)

 

(112

)

 

(143

)

 

(273

)

Interest expense

 

 

269

 

 

409

 

 

566

 

 

849

 

Total other expenses

 

 

3,633

 

 

3,032

 

 

6,992

 

 

5,674

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

1,867

 

 

1,506

 

 

3,416

 

 

2,555

 

Income tax provision

 

 

753

 

 

602

 

 

1,382

 

 

1,030

 

Net income

 

$

1,114

 

$

904

 

$

2,034

 

$

1,525

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted net earnings per share of Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.13

 

$

0.11

 

$

0.23

 

$

0.18

 

Diluted earnings per share

 

$

0.13

 

$

0.10

 

$

0.23

 

$

0.18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares – basic

 

 

8,772

 

 

8,600

 

 

8,767

 

 

8,570

 

Weighted average shares - diluted

 

 

8,831

 

 

8,684

 

 

8,829

 

 

8,652

 

 

See accompanying notes to consolidated financial statements.

 

4

 


INTEGRAMED AMERICA, INC.

CONOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(all amounts in thousands)

(unaudited)

 

 

 

 

Common Stock

 

 

 

 

 

Treasury Shares

 

 

 

 

 

 

 

Shares

 

Amount

 

Capital in

Excess of Par

 

Accumulated Comprehensive Income

 

Shares

 

Amount

 

Accumulated Deficit

 

Total Equity

 

Balance at December 31, 2008

 

8,668

 

$

87

 

$

54,943

 

$

(375

)

 

23

 

$

(211

)

$

(3,691

)

$

50,753

 

Stock awards granted, net

 

142

 

 

1

 

 

(1

)

 

 

 

233

 

 

(164

)

 

 

 

(164

)

Restricted stock award and stock option expense amortization

 

 

 

 

 

740

 

 

 

 

 

 

 

 

 

 

740

 

Stock options exercised

 

11

 

 

 

 

20

 

 

 

 

 

 

 

 

 

 

20

 

Gain on hedging transaction

 

 

 

 

 

 

 

82

 

 

 

 

 

 

 

 

82

 

Net income for the six months ended

June 30, 2009

 

 

 

 

 

 

 

 

 

 

 

 

 

2,034

 

 

2,034

 

 

Balance at June 30, 2009

 

8,821

 

$

88

 

$

55,702

 

$

(293

 

)

 

46

 

$

(375

 

)

$

(1,657

 

)

$

53,465

 

 

See accompanying notes to consolidated financial statements.

 

 

5

 


INTEGRAMED AMERICA, INC.

STATEMENT OF CASH FLOWS

(all amounts in thousands)

 

 

 

For the Six-month period

ended June 30,

 

 

 

 

2009

 

 

 

2008

 

 

 

 

 

(unaudited)

 

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

2,034

 

 

$

1,525

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

3,598

 

 

 

3,623

 

Deferred income tax provision

 

 

(590

)

 

 

(284

)

Deferred stock-based compensation

 

 

740

 

 

 

378

 

 

 

 

 

 

 

 

 

 

Changes in assets and liabilities —

 

 

 

 

 

 

 

 

Decrease (increase) in assets

 

 

 

 

 

 

 

 

Patient and other accounts receivable

 

 

(965

)

 

 

(885

)

Other current assets

 

 

5

 

 

 

351

 

Other assets

 

 

13

 

 

 

(180

)

(Decrease) increase in liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

 

(989

)

 

 

960

 

Accrued liabilities

 

 

567

 

 

 

(195

)

Due to fertility medical practices

 

 

3,787

 

 

 

(1,718

)

Attain IVF deferred revenue and other patient deposits

 

 

540

 

 

 

1,078

 

Net cash provided by operating activities

 

 

8,740

 

 

 

4,653

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of business service rights

 

 

 

 

 

(950

)

Cash paid to purchase VCA, net of cash acquired

 

 

 

 

 

(119

)

Purchase of other intangibles

 

 

 

 

 

(94

)

Purchase of fixed assets and leasehold     improvements, net

 

 

(3,660

)

 

 

(3,608

)

Net cash used in investing activities

 

 

(3,660

)

 

 

(4,771

)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Debt repayments, net

 

 

(1,921

)

 

 

(1,436

)

Common Stock transactions, net

 

 

20

 

 

 

85

 

Net cash used by financing activities

 

 

(1,901

)

 

 

(1,351

)

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

 

3,179

 

 

 

(1,469

)

Cash and cash equivalents at beginning of period

 

 

28,275

 

 

 

23,740

 

Cash and cash equivalents at end of period

 

$

31,454

 

 

$

22,271

 

 

 

 

 

 

 

 

 

 

Supplemental Information:

 

 

 

 

 

 

 

 

Interest paid

 

$

520

 

 

$

472

 

Income taxes paid

 

$

3,593

 

 

$

736

 

 

See accompanying notes to 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 June 30, 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 management to re-evaluate the Company’s revenue recognition policies. As a result, the Company restated its financial statements for the years ended December 31, 2006 and 2007 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 and six months ended June 30, 2008 is presented below (000’s, except per share amounts):

 

7

 


INTEGRAMED AMERICA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

Restated

2008

 

 

Originally Reported 2008

 

 

Differences

 

 

Restated

2008

 

 

Originally Reported 2008

 

 

Differences

 

Revenues, Net

 

$

49,725

 

$

49,820

 

$

(95

)

$

95,336

 

$

95,473

 

$

(137

)

Cost of services and sales

 

 

45,187

 

 

45,173

 

 

(14

)

 

87,107

 

 

87,079

 

 

(28

)

Contribution

 

 

4,538

 

 

4,647

 

 

(109

)

 

8,229

 

 

8,394

 

 

(165

)

General and administrative expenses

 

 

2,735

 

 

2,735

 

 

 

 

5,098

 

 

5,098

 

 

 

 

Total other expense, net

 

 

297

 

 

297

 

 

 

 

576

 

 

576

 

 

 

Income before tax

 

 

1,506

 

 

1,615

 

 

(109

)

 

2,555

 

 

2,720

 

 

(165

)

Income tax provision

 

 

602

 

 

644

 

 

(42

)

 

1,030

 

 

1,094

 

 

(64

)

Net income

 

$

904

 

$

971

 

 

(67

)

$

1,525

 

$

1,626

 

 

(101

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

 

0.11

 

 

0.11

 

 

 

 

0.18

 

 

0.19

 

 

(0.01

)

Diluted earnings per share

 

 

0.10

 

 

0.11

 

 

(0.01

)

 

0.18

 

 

0.19

 

 

(0.01

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares – basic

 

 

8,600

 

 

8,600

 

 

 

 

8,570

 

 

8,570

 

 

 

Weighted average shares – diluted

 

 

8,684

 

 

8,684

 

 

 

 

8,652

 

 

8,652

 

 

 

 

 

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 June 30, 2009 and 2008 is as follows (000's omitted, except for per share amounts):

 

 

 

For the three-month period

Ended June 30,

 

For the six-month period

Ended June 30,

 

 

 

2009

 

2008

 

2009

 

2008

 

Numerator

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

$

1,114

 

$

904

 

$

2,034

 

$

1,525

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding (basic)

 

 

8,772

 

 

8,600

 

 

8,767

 

 

8,570

 

Effect of dilutive options and warrants

 

 

59

 

 

84

 

 

62

 

 

82

 

Weighted average shares and dilutive potential Common shares (diluted)

 

 

8,831

 

 

8,684

 

 

8,829

 

 

8,652

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.13

 

$

0.11

 

$

0.23

 

$

0.18

 

Diluted earnings per share

 

$

0.13

 

$

0.10

 

$

0.23

 

$

0.18

 

 

 

8

 


INTEGRAMED AMERICA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

For the three and six month periods ended June 30, 2009, there were 125,389 and 121,054, 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.

For the three and six month periods ended June 30, 2008, there were 118,525 and 123,252, 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.

 

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 and six months ended June 30 2009 and 2008 are presented below (000’s omitted):

 

 

 

 

Fertility Centers

 

 

Consumer Services

 

 

Vein

Clinics

 

 

Corp G&A

 

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended June 30, 2009

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Revenues, net

 

$

37,290

 

$

5,004

 

$

13,821

 

$

 

$

56,115

 

Cost of Services and Sales

 

 

34,233

 

 

3,843

 

 

12,539

 

 

 

 

50,615

 

Contribution

 

 

3,057

 

 

1,161

 

 

1,282

 

 

 

 

5,500

 

Operating margin

 

 

8.2%

 

 

23.2%

 

 

9.3%

 

 

0.0%

 

 

9.8%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and Administrative

 

 

 

 

 

 

 

 

3,431

 

 

3,431

 

Interest, net

 

 

 

 

 

 

 

 

202

 

 

202

 

Income before income taxes

 

$

3,057

 

$

1,161

 

$

1,282

 

$

(3,633

)

$

1,867

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation expense included above

 

$

1,032

 

$

 

$

214

 

$

225

 

$

1,471

 

Capital Expenditures

 

$

497

 

$

 

$

220

 

$

376

 

$

1,093

 

Total Assets

 

$

36,916

 

$

192

 

$

48,841

 

$

39,796

 

$

125,745

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the six months ended June 30, 2009

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Revenues, net

 

$

73,574

 

$

10,229

 

$

24,667

 

$

 

$

108,470

 

Cost of Services and Sales

 

 

67,875

 

 

7,556

 

 

22,631

 

 

 

 

98,062

 

Contribution

 

 

5,699

 

 

2,673

 

 

2,036

 

 

 

 

10,408

 

Operating margin

 

 

7.7%

 

 

26.1%

 

 

8.3%

 

 

0.0%

 

 

9.6%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and Administrative

 

 

 

 

 

 

 

 

6,569

 

 

6,569

 

Interest, net

 

 

 

 

 

 

 

 

423

 

 

423

 

Income before income taxes

 

$

5,699

 

$

2,673

 

$

2,036

 

$

(6,992

)

$

3,416

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation expense included above

 

$

2,089

 

$

1

 

$

419

 

$

441

 

$

2,950

 

Capital Expenditures

 

$

2,717

 

$

 

$

383

 

$

560

 

$

3,660

 

Total Assets

 

$

36,916

 

$

192

 

$

48,841

 

$

39,796

 

$

125,745

 

 

 

9

 


INTEGRAMED AMERICA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

 

 

 

 

Fertility Centers

 

 

Consumer Services

 

 

Vein

Clinics

 

 

Corp G&A

 

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended June 30, 2008

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Revenues, net

 

$

35,051

 

$

4,612

 

$

10,062

 

$

 

$

49,725

 

Cost of Services and Sales

 

 

32,481

 

 

3,357

 

 

9,349

 

 

 

 

45,187

 

Contribution

 

 

2,570

 

 

1,255

 

 

713

 

 

 

 

4,538

 

Operating margin

 

 

7.3

%

 

27.2

%

 

7.1

%

 

0.0

%

 

9.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and Administrative

 

 

 

 

 

 

 

 

2,735

 

 

2,735

 

Interest, net

 

 

(43

)

 

 

 

3

 

 

337

 

 

297

 

Income before income taxes

 

$

2,613

 

$

1,255

 

$

710

 

$

(3,072

)

$

1,506

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation expense included above

 

$

1,114

 

$

 

$

190

 

$

200

 

$

1,504

 

Capital Expenditures

 

$

2,053

 

$

 

$

150

 

$

174

 

$

2,377

 

Total Assets

 

$

43,101

 

$

2,101

 

$

45,658

 

$

23,705

 

$

114,565

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the six months ended June 30, 2008

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Revenues, net

 

$

67,797

 

$

8,635

 

$

18,904

 

$

 

$

95,336

 

Cost of Services and Sales

 

 

62,923

 

 

6,315

 

 

17,869

 

 

 

 

87,107

 

Contribution

 

 

4,874

 

 

2,320

 

 

1,035

 

 

 

 

8,229

 

Operating margin

 

 

7.2

%

 

26.9

%

 

5.5

%

 

0.0

%

 

8.6%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and Administrative

 

 

 

 

 

 

 

 

5,098

 

 

5,098

 

Interest, net

 

 

(109

)

 

 

 

2

 

 

683

 

 

576

 

Income before income taxes

 

$

4,983

 

$

2,320

 

$

1,033

 

$

(5,781

)

$

2,555

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation expense included above

 

$

2,191

 

$

1

 

$

373

 

$

410

 

$

2,975

 

Capital Expenditures

 

$

2,718

 

$

 

$

597

 

$

293

 

$

3,608

 

Total Assets

 

$

43,101

 

$

2,101

 

$

45,658

 

$

23,705

 

$

114,565

 

 

NOTE 5 – CASH AND CASH EQUIVALENTS:

Cash and cash equivalents consist of cash, short term marketable securities and accrued interest on these 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 June 30, 2009 and December 31, 2008 is as follows (000’s omitted):

 

 

 

June 30,

 

December 31,

 

 

 

2009

 

2008

 

 

 

 

(unaudited)

 

 

 

Cash

 

$

16,934

 

$

26,865

 

Short term investments

 

 

14,450

 

 

1,400

 

Accrued interest income

 

 

70

 

 

10

 

Total cash and cash equivalents

 

$

31,454

 

$

28,275

 

 

 

10

 


INTEGRAMED AMERICA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

 

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 payor category and uncollectible reserves are based on both historical trends and specific identification of specific accounts.

For the periods ended June 30, 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 June 30, 2009 and December 31, 2008 is as follows (000’s omitted):

 

 

 

June 30,

 

December 31,

 

 

 

2009

 

2008

 

 

 

(unaudited)

 

 

 

Vein Clinic patient and insurance receivables

 

$

14,049

 

$

12,865

 

Reserve for insurance contractual allowance

 

 

(3,704

)

 

(3,866

)

Reserve for uncollectible accounts

 

 

(2,891

)

 

(2,648

)

Subtotal Vein Clinic receivables, net

 

 

7,454

 

 

6,351

 

Other receivables

 

 

192

 

 

330

 

Total Patient and other receivables, net

 

$

7,646

 

$

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 Business Service Rights, which totaled approximately $6.1 million as of June 30, 2009, are not amortized because these funds will be returned to us upon contract termination.

Goodwill consists of amounts paid related to the acquisition of Vein Clinics of America, Inc. in excess of the fair value of net assets and liabilities acquired. We do not amortize our goodwill.

Trademarks are comprised of valuations assigned to assets associated with the Vein Clinics of America, Inc. 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.

 

11

 


INTEGRAMED AMERICA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

As of June 30, 2009 and December 31, 2008, Due to Fertility Medical Practices was comprised of the following balances (000’s omitted):

 

 

 

June 30,

 

December 31,

 

 

 

2009

 

2008

 

 

 

(unaudited)

 

 

 

Advances to Medical Practices

 

$

(16,285

)

$

(17,121

)

Undistributed Physician Earnings

 

 

4,690

 

 

3,205

 

Physician Practice Patient Deposits

 

 

21,736

 

 

20,270

 

Due to Fertility Medical practices, net

 

$

10,141

 

$

6,354

 

 

 

NOTE 9 ( NOTES PAYABLE AND OTHER OBLIGATIONS:

Notes payable and other obligations as of June 30, 2009 and December 31, 2008 consisted of the following (000’s omitted):

 

 

 

June 30,

 

December 31,

 

 

 

2009

 

2008

 

 

 

(unaudited)

 

 

 

Term Loan

 

$

19,928

 

$

21,809

 

Revolving Line of Credit

 

 

7,500

 

 

7,500

 

Derivative Fair valuation adjustment

 

 

477

 

 

609

 

Obligations under capital lease

 

 

260

 

 

301

 

 

 

 

 

 

 

 

 

Total notes payable and other obligations

 

$

28,165

 

$

30,219

 

Less — current portion

 

 

(11,329

)

 

(11,351

)

 

 

 

 

 

 

 

 

Long-term notes payable and other obligations

 

$

16,836

 

$

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 June 30, 2009 and December 31, 2008, we were in full compliance with all applicable debt covenants

 

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 June 30, 2009, there were 464,933 shares available for granting under these Plans.

The following table sets forth information about the weighted-average fair value of options granted in 2008, and the fair value assumptions used. No options have been granted during 2009 to date:

 

12

 


INTEGRAMED AMERICA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

 

 

For the three-month period

Ended June 30,

 

For the six-month period

Ended June 30,

 

 

 

2009

 

2008

 

2009

 

2008

 

Fair value of options granted

 

 

N/A

 

$

8.06

 

 

N/A

 

$

8.45

 

Dividend yield

 

 

N/A

 

 

0.0

%

 

N/A

 

 

0.0

%

Expected volatility

 

 

N/A

 

 

51.7

%

 

N/A

 

 

51.8

%

Risk free interest rate

 

 

N/A

 

 

4.0

%

 

N/A

 

 

4.0

%

Expected term in years

 

 

N/A

 

 

6.31

 

 

N/A

 

 

6.30

 

 

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 two quarters of 2009 under these plans is summarized below:

 

 

 

Number of shares of Common Stock underlying options

 

Weighted Average Exercise Price

 

Options outstanding at December 31, 2008

 

 

227,016

 

$

5.78

 

Granted

 

 

 

 

 

Exercised

 

 

11,175

 

$

1.84

 

Canceled

 

 

 

 

 

 

 

 

 

 

 

 

 

Options outstanding at June 30, 2009

 

 

215,841

 

$

5.98

 

 

 

 

 

 

 

 

 

Options exercisable at:

 

 

 

 

 

 

 

December 31, 2008

 

 

99,171

 

$

2.34

 

June 30, 2009

 

 

92,944

 

$

2.87

 

 

The aggregate intrinsic value (difference between exercise price and current value of our common stock) of options outstanding and exercisable as of June 30, 2009 and December 31, 2008 was approximately $408,000 and $333,000, respectively.

We recorded a charge to earnings to recognize compensation expense related to outstanding stock options of $46,000 and $95,000 for the three and six months ended June 30, 2009, respectively, and $4,000 and $6,000 for the three and six months ended June 30, 2008, respectively. As of June 30, 2009, we had approximately $542,000 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 $308,000 and $645,000 for the three and six month periods ended June 30, 2009, respectively, and $216,000 and $367,000 for the three and six months ended June 30, 2008, respectively. As of June 30, 2009, we had approximately $1,653,000 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.

 

13

 


INTEGRAMED AMERICA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

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 and six months ended June 30, 2009 included additional pre-tax financing costs of $68,000 and $163,000, respectively. We also expect to record additional pre-tax financing costs of approximately $300,000 related to this swap agreement over the coming twelve months, 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 $32,000 and $82,000 for the three and six months ended June 30, 2009, respectively. Recording the fair value of this hedge has also generated a non-recognized tax-effected loss of approximately $293,000 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 June 30, 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

Ended June 30,

 

For the six-month period

Ended June 30,

 

 

 

2009

 

2008

 

2009

 

2008

 

Net income as reported

 

$

1,114

 

$

904

 

$

2,034

 

$

1,525

 

Net income (loss) on derivative transactions

 

 

32

 

 

54

 

 

82

 

 

(139

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income

 

$

1,146

 

$

958

 

$

2,116

 

$

1,386

 

 

NOTE 12— LITIGATION:

From time to time, we are party to legal proceedings in the ordinary course of business. As of June 30, 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:

In April 2009, the FASB issued FASB Staff Position FAS 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business combination That Arise from Contingencies”. FSP 141(R)-1 requires that assets acquired and liabilities assumed in a business combination that arise from pre-acquisition contingencies, be recognized at fair value at the acquisition date, if fair value can be determined during the measurement period. If the acquisition date fair value cannot be determined, the guidance in FASB Statement No. 5, Accounting for Contingencies (FASB ASC 450), and FASB Interpretation (FIN) No. 14, Reasonable Estimation of the Amount of a Loss (FASB ASC 450-20), should be applied. The FSP also eliminates the requirement to disclose an estimate of the range of outcomes of recognized contingencies at the acquisition date and requires that contingent consideration arrangements of an acquiree assumed by the acquirer in a business combination be treated as contingent consideration of the acquirer and should be initially and subsequently measured at fair value in accordance with Statement 141 (R). The FSP is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Adoption of the FSP did not have a material impact on our financial statements.

In April 2009, the FASB also issued FASB Staff Position FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying

 

14

 


INTEGRAMED AMERICA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

Transactions That Are Not Orderly”. The FSP provides additional guidance for estimating fair value in accordance with Statement 157, when the volume and level of activity for the asset or liability have significantly decreased. The FSP also includes guidance on identifying circumstances that indicate a transaction is not orderly. The FSP is effective for interim and annual reporting periods after June 15, 2009. Adoption of the FSP did not have a material impact on our financial statements.

In April 2009, the FASB issued FASB Staff Position No. SFAS 107-1 and APB No. 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (“FSP FAS 107-1 and APB 28-1”), which requires quarterly disclosure of information about the fair value of financial instruments within the scope of FASB Statement No. 107, “Disclosures about Fair Value of Financial Instruments.” FSP FAS 107-1 and APB 28-1 has an effective date requiring adoption by the third quarter of 2009 with early adoption permitted. The adoption of FAS 107-1 and APB 28-1 will not have a material impact on our consolidated financial statements.

 

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS 165”), which sets forth general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. SFAS 165 will become effective in the third quarter of 2009. The adoption of SFAS 165 will not have a material impact on our consolidated financial statements. In accordance with SFAS No. 165, the Company evaluated all events and transactions that occurred after June 30, 2009 up through August 7, 2009, the date the Company issued these consolidated financial statements. During this period, the Company did not have any material recognizable subsequent events.

 

In June 2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial Assets – an amendment of FASB Statement No. 140”. The Statement amends FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (FASB ASC 860) and will significantly change how entities account for transfers of financial assets. Statement 166 eliminates the qualifying special purpose entity (QSPE) concept. All QSEP’s will be subject to the consolidation considerations of Statement 167. The new standard also includes a number of changes and clarifications that restrict the ability of companies to derecognize financial assets. A transfer of financial assets that does not meet the criteria for derecognition is treated as a secured financing rather than a sale. In addition, the new standard requires disclosures aimed at improving the transparency of any continuing involvement with transfers of financial assets, the nature of any restrictions on the transferor’s assets that relate to a transferred financial asset, and how a transfer of financial assets affects the company’s balance sheet, earnings, and cash flows. Statement 166 applies to all transfers of financial assets occurring in the first fiscal year beginning after November 15, 2009 and in interim periods in those years. Adoption of Statement 166 will not have a material impact on our financial statements.

 

In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)” (“SFAS 167”), which amends FASB Interpretation No. 46(revised December 2003) to address the elimination of the concept of a qualifying special purpose entity. SFAS 167 also replaces the quantitative-based risks and rewards calculation for determining which enterprise has a controlling financial interest in a variable interest entity with an approach focused on identifying which enterprise has the power to direct the activities of a variable interest entity and the obligation to absorb losses of the entity or the right to receive benefits from the entity. Additionally, SFAS 167 provides more timely and useful information about an enterprise’s involvement with a variable interest entity. SFAS 167 will become effective in the first quarter of 2010. The adoption of SFAS 167 will not have a material impact on our consolidated financial statements.

 

In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162” (“SFAS 168”), which establishes the FASB Accounting Standards Codification as the source of authoritative accounting principles recognized by the FASB to be applied in the preparation of financial statements in conformity with generally accepted accounting principles. SFAS 168 explicitly recognizes rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under federal securities laws as authoritative GAAP for SEC registrants. SFAS 168 will become effective in the fourth quarter of 2009 and will not have a material impact on our consolidated financial statements.

 

15

 


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 34 clinics located in 13 states which specialize in the treatment of vein disease and disorders.

The primary elements of our business strategy include:

 

Expanding our network of fertility and vein clinics into new major markets;

 

Increasing sales of Attain IVF and our treatment financing products to fertility patients;

 

  

Increasing revenues and profits at contracted fertility centers and consolidated vein clinics; and

 

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 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 

 

16

 


provide technologically advanced care for varicose veins and other vein diseases to an underserved population through the opening of additional clinics, and growing patient volume and increasing productivity and profitability at established clinics.

 

Major Events Impacting Financial Condition and Results of Operations

 

2009

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.

On April 1, 2009, we elected to exercise the option contained in our Business Service Agreement with Arizona Reproductive Medicine Specialists (ARMS), based in Phoenix, AZ, and expand our service offerings from a limited range of services to those offered to our other fertility Partners.

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.

 

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.

 

On July 10, 2008, we entered into a Business Services Agreement to supply a limited range of business, marketing and facility services to Arizona Reproductive Medicine Specialists (ARMS), based in Phoenix, AZ. Under the terms of this 25-year agreement, we were initially contracted to provide a limited range of business services to ARMS with the option to expand our service offering at any time during the agreement (as described above, the option was exercised on April 1, 2009). Our initial fees were comprised of a fixed percentage of revenues. Following exercise of the option, the agreement provides for our normal three part fee structure.

 

On June 23, 2008, we announced that we entered into a new Affiliate services contract with the University of North Carolina (“UNC”) School of Medicine’s Department of Obstetrics and Gynecology in Chapel Hill, North Carolina. As an Affiliate, UNC School of Medicine’s Department of Obstetrics and Gynecology receives distribution rights to IntegraMed’s consumer products and services. In addition, UNC School of Medicine’s Department of Obstetrics and Gynecology has the right to receive other products and services uniquely designed to support the business needs of successful, high-growth fertility centers.

 

On June 5, 2008, we announced the opening of a new Vein Clinic location in Marietta, Georgia. This clinic is IntegraMed’s fourth vein clinic in Georgia and this newly completed, state-of-the-art clinic, outfitted with the latest in laser and other vein treatment technologies is uniquely positioned to deliver the highest level of patient care available in the area.

 

17

 


On April 29, 2008, we announced the opening of a new Vein Clinic treatment center in Alexandria, Virginia. This addition to our Vein Clinics Division will provide focused vein care treatment solutions to the Washington, D.C. metropolitan area.

 

On April 24, 2008, we entered into a Business Services Agreement to supply a complete range of business, marketing and facility services to the Southeastern Fertility Centers, P.A., located near Charleston, South Carolina. Under the terms of this 25-year agreement, our service fees are comprised of reimbursed costs of services, a tiered percentage of revenues, and an additional fixed percentage of the practice’s earnings. We also committed up to $0.6 million to fund any necessary capital needs of the practice.

 

On April 1, 2008, we entered into an Affiliate services contract with OU Physicians Reproductive Health in Oklahoma City, Oklahoma. As a result of this agreement, OU Physicians Reproductive Health provides another opportunity for our Consumer Services Division to distribute their product offerings in support of this successful fertility center.

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 June 30, 2009 and 2008:

 

 

 

For the three-month period

Ended June 30,

 

For the six-month period

Ended June 30,

 

 

 

2009

 

2008

 

2009

 

2008

 

Revenues, Net

 

 

 

 

 

 

 

 

 

 

 

 

 

Fertility Centers

 

 

66.5

%

 

70.5

%

 

67.8

%

 

71.1

%

Consumer Services

 

 

8.9

%

 

9.3

%

 

9.4

%

 

9.1

%

Vein Clinics

 

 

24.6

%

 

20.2

%

 

22.7

%

 

19.8

%

Total revenues

 

 

100.0

%

 

100.0

%

 

100.0

%

 

100.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of services and sales

 

 

 

 

 

 

 

 

 

 

 

 

 

Fertility Centers

 

 

61.1

%

 

65.3

%

 

62.5

%

 

66.1

%

Consumer Services

 

 

6.8

%

 

6.8

%

 

7.0

%

 

6.6

%

Vein Clinics

 

 

22.3

%

 

18.8

%

 

20.9

%

 

18.7

%

Total cost of services and sales

 

 

90.2

%

 

90.9

%

 

90.4

%

 

91.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contribution

 

 

 

 

 

 

 

 

 

 

 

 

 

Fertility Centers

 

 

5.4

%

 

5.2

%

 

5.4

%

 

5.0

%

Consumer Services

 

 

2.1

%

 

2.5

%

 

2.5

%

 

2.5

%

Vein Clinics

 

 

2.3

%

 

1.4

%

 

1.9

%

 

1.1

%

Total contributions

 

 

9.8

%

 

9.1

%

 

9.6

%

 

8.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative expenses

 

 

6.1

%

 

5.5

%

 

6.0

%

 

5.3

%

Interest income

 

 

(0.1

)

 

(0.2

)%

 

(0.1

)

 

(0.3

)%

Interest expense

 

 

0.5

%

 

0.8

%

 

0.5

%