Edgar Filing: INTEGRAMED AMERICA INC

form10qqtr32010.htm

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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 September 30, 2010

[ ] 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 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 ¨

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 October 27, 2010 was approximately 11,724,300.

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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 September 30, 2010 and December 31, 2009	3

	Consolidated Statements of Operations for the three and nine-month periods ended September 30, 2010 and 2009	4

	Consolidated Statements of Shareholders’ Equity for the nine-month period ended September 30, 2010	5

	Consolidated Statements of Cash Flows for the three and nine-month periods ended September 30, 2010 and 2009	6

	Notes to Consolidated Financial Statements	7-17


Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18-28

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28

Item 4.	Controls and Procedures	29

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	30

Item 1A.	Risk Factors	30

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30

Item 3.	Defaults Upon Senior Securities	30

Item 4.	(Removed and Reserved)	30

Item 5.	Other Information	30
Item 6.	Exhibits	30

SIGNATURES		31

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

INTEGRAMED AMERICA, INC.

CONSOLIDATED BALANCE SHEETS

(All amounts in thousands, except share amounts)

	September 30,		December 31,
		2010		2009
		(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	52,173	$	28,865
Patient and other receivables, net		7,404		6,964
Deferred taxes		2,969		2,883
Other current assets		9,590		7,653
Total current assets		72,136		46,365

Fixed assets, net		17,122		16,705
Intangible assets, Business Service Rights, net		23,239		24,210
Goodwill		30,334		30,334
Trade names and trademarks		4,442		4,442
Other assets		1,825		2,253
Total assets	$	149,098	$	124,309

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,839	$	2,846
Accrued liabilities		17,353		15,119
Current portion of long-term notes payable and other obligations		3,791		11,317
Due to Fertility Medical Practices		12,442		6,424
Attain IVF deferred revenue and other patient deposits		16,585		13,362
Total current liabilities		53,010		49,068

Deferred and other tax liabilities		2,177		2,199
Long-term notes payable and other obligations		11,858		14,849
Total liabilities		67,045		66,116

Commitments and Contingencies

Shareholders’ equity:
Common Stock, $.01 par value – 20,000,000 shares authorized at September 30, 2010 and 15,000,000 at December 31, 2009, 11,731,183 and 8,831,558 shares issued at September 30, 2010 and December 31, 2009, respectively		117		88
Capital in excess of par		75,933		56,354
Other comprehensive loss		(82)		(188	)
Treasury stock, at cost – 6,848 and 46,408 shares at September 30, 2010 and December 31, 2009, respectively		(64)		(375	)
Retained earnings		6,149		2,314
Total shareholders’ equity		82,053		58,193
Total liabilities and shareholders’ equity	$	149,098	$	124,309

See accompanying notes to consolidated financial statements.

INTEGRAMED AMERICA, INC

CONSOLIDATED STATEMENTS OF OPERATIONS

(all amounts in thousands, except per share amounts)

(unaudited)

	For the Three-month period Ended September 30,						For the Nine-month period Ended September 30,
	2010			2009			2010			2009
Revenues, net
Attain Fertility Centers	$	45,899		$	40,977		$	135,523		$	124,780
Vein Clinics		14,658			12,621			43,826			37,288
Total revenues		60,557			53,598			179,349			162,068

Costs of services and sales
Attain Fertility Centers		41,263			36,930			122,053			112,361
Vein Clinics		14,546			11,626			40,891			34,257
Total costs of services and sales		55,809			48,556			162,944			146,618

Contribution
Attain Fertility Centers		4,636			4,047			13,470			12,419
Vein Clinics		112			995			2,935			3,031
Total contribution		4,748			5,042			16,405			15,450

General and administrative expenses		2,961			2,764			9,403			9,333
Interest income		(33	)		(44	)		(103	)		(187	)
Interest expense		192			303			685			869
Total other expenses		3,120			3,023			9,985			10,015

Income before income taxes		1,628			2,019			6,420			5,435
Income tax provision		529			791			2,585			2,173
Net income	$	1,099		$	1,228		$	3,835		$	3,262

Basic and diluted net earnings per share of Common Stock
Basic earnings per share	$	0.09		$	0.14		$	0.34		$	0.37
Diluted earnings per share	$	0.09		$	0.14		$	0.34		$	0.37

Weighted average shares – basic		11,718			8,776			11,264			8,770
Weighted average shares - diluted		11,771			8,839			11,314			8,833

See accompanying notes to consolidated financial statements.

INTEGRAMED AMERICA, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(all amounts in thousands)

(unaudited)

	Common Stock												Treasury Shares
	Shares			Amount			Capital in Excess of Par			Accumulated Comprehensive Income (loss)			Shares			Amount			Retained Earnings		Total Equity
Balance at December 31, 2009		8,832		$	88		$	56,354		$	(188	)		(46	)	$	(375	)	$	2,314	$	58,193
Stock awards granted, net		168			2			2			—			(45	)		(346	)		—		(342	)
Restricted stock award and stock option expense amortization		—			—			1,068			—			—			—			—		1,068
Stock options exercised and related tax benefits		15			—			132			—			—			—			—		132
Unrealized gain on hedging transaction, net		—			—			—			106			—			—			—		106
Secondary Offering		2,800			28			19,034			—			—			—			—		19,062
Retire Treasury Stock		(84	)		(1	)		(657	)		—			84			657			—		(1	)
Net income for the nine months ended September 30, 2010		—			—			—			—			—			—			3,835		3,835
Balance at September 30, 2010		11,731		$	117		$	75,933		$	(82	)		(7	)	$	(64	)	$	6,149	$	82,053

See accompanying notes to consolidated financial statements.

INTEGRAMED AMERICA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(all amounts in thousands)

(unaudited)

	For the Three-month period Ended September 30,						For the Nine-month period Ended September 30,
	2010			2009			2010			2009
Cash flows from operating activities:
Net income	$	1,099		$	1,228		$	3,835		$	3,262
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		1,695			1,784			5,079			5,382
Stock-based compensation		339			298			1,071			1,038
Changes in assets and liabilities —
Decrease (increase) in assets
Patient and other accounts receivable		835			56			(440	)		(909	)
Other current assets		(1,374	)		395			(1,937	)		400
Other assets		203			(408	)		435			(985	)
(Decrease) increase in liabilities
Accounts payable		630			185			(7	)		(804	)
Accrued liabilities		(1,029	)		274			1,887			841
Due to fertility medical practices		531			410			6,018			4,197
Deferred revenue and other patient deposits		837			1,219			3,223			1,759
Net cash provided by operating activities		3,766			5,441			19,164			14,181

Cash flows from investing activities:
Purchase of fixed assets, net		(1,372	)		(806	)		(4,525	)		(4,466	)
Net cash used in investing activities		(1,372	)		(806	)		(4,525	)		(4,466	)

Cash flows from financing activities:
Debt repayments		(789	)		(914	)		(10,423	)		(2,835	)
Common Stock transactions, net		79			11			19,092			31
Net cash provided by (used in) financing activities		(710	)		(903	)		8,669			(2,804	)

Net increase in cash and cash equivalents		1,684			3,732			23,308			6,911
Cash and cash equivalents at beginning of period		50,489			31,454			28,865			28,275
Cash and cash equivalents at end of period	$	52,173		$	35,186		$	52,173		$	35,186

Supplemental Information:
Interest paid		244			292			780			812
Income taxes paid		1,127			65			2,172			3,658

See accompanying notes to consolidated financial statements.

INTEGRAMED AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 1 — INTERIM RESULTS:

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to the Securities and Exchange Commission (SEC) rules related to Form 10-Q and, accordingly, do not include all of the information and footnotes required by generally accepted accounting principles for complete consolidated financial statements. In the opinion of management, the accompanying unaudited interim consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the consolidated financial position at September 30, 2010, and the consolidated 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, 2010. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in IntegraMed America’s Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2009.

NOTE 2 — EARNINGS PER SHARE:

The reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for the three and nine month periods ended September 30, 2010 and 2009 is as follows (000's omitted, except for per share amounts):

	For the three-month period Ended September 30,				For the nine-month period Ended September 30,
	2010		2009		2010		2009
Numerator
Net Income	$	1,099	$	1,228	$	3,835	$	3,262

Denominator
Weighted average shares outstanding (basic)		11,718		8,776		11,264		8,770
Effect of dilutive options and warrants		53		63		50		63
Weighted average shares and dilutive potential Common shares (diluted)		11,771		8,839		11,314		8,833

Basic earnings per share	$	0.09	$	0.14	$	0.34	$	0.37
Diluted earnings per share	$	0.09	$	0.14	$	0.34	$	0.37

For the three and nine month periods ended September 30, 2010, there were 18,321 and 131,458, 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 both the three and nine month periods ended September 30, 2009, there were 127,845 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.

As of September 30, 2010, there were 11,731,183 shares of common stock issued of which 11,724,335 were outstanding and 6,848 held as treasury shares. As of December 31, 2009, there were 8,831,558 shares of common stock issued of which 8,785,150 were outstanding and 46,408 held as treasury shares.

INTEGRAMED AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 3 ¾ SEGMENT INFORMATION:

We currently report two major operating segments and a corporate office that provides shared services. These two operating segments reflect our organizational structure, lines of responsibility and management’s perspective of the organization. Each segment includes an element of overhead and administrative costs specifically associated with its operations, with the corporate shared services group responsible for support functions generic to both segments.

In the second quarter of 2010, management made a determination to combine the Fertility Centers Segment with the Consumer Services Segment into a new division, Attain Fertility Centers, under a new division president. Prior to that time, we had been reporting under three segements: Fertility Centers, Consumer Services, and Vein Clinics. This change was made to more closely align the business objective and operations of the two activities and will be operated and managed as a single segment on an ongoing basis.

Performance by segment, for the three and nine month periods ended September 30, 2010 and 2009 are presented below (000’s omitted):

	Attain Fertility Centers			Vein Clinics			Corp G&A			Consolidated

For the three months ended September 30, 2010
Total Revenues, net	$	45,899		$	14,658		$	0		$	60,557
Cost of Services and Sales		41,263			14,546			0			55,809
Contribution		4,636			112			0			4,748
Operating margin		10.1	%		0.8	%		0.0	%		7.8	%

General and Administrative		0			0			2,961			2,961
Interest (income) expense		(33	)		0			192			159
Income before income taxes	$	4,669		$	112		$	(3,153	)	$	1,628

Depreciation expense included above	$	933		$	287		$	151		$	1,371
Capital Expenditures	$	385		$	820		$	167		$	1,372
Total Assets	$	40,395		$	52,402		$	56,301		$	149,098

For the nine months ended September 30, 2010
Total Revenues, net	$	135,523		$	43,826		$	0		$	179,349
Cost of Services and Sales		122,053			40,891			0			162,944
Contribution		13,470			2,935			0			16,405
Operating margin		9.9	%		6.7	%		0.0	%		9.1	%

General and Administrative		0			0			9,403			9,403
Interest (income) expense		(103	)		0			685			582
Income before income taxes	$	13,573		$	2,935		$	(10,088	)	$	6,420

Depreciation expense included above	$	2,833		$	785		$	490		$	4,108
Capital Expenditures	$	2,105		$	2,001		$	419		$	4,525
Total Assets	$	40,395		$	52,402		$	56,301		$	149,098

INTEGRAMED AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

	Attain Fertility Centers			Vein Clinics			Corp G&A			Consolidated

For the three months ended September 30, 2009
Total Revenues, net	$	40,977		$	12,621		$	0		$	53,598
Cost of Services and Sales		36,930			11,626			0			48,556
Contribution		4,047			995			0			5,042
Operating margin		9.9	%		7.9	%		0.0	%		9.4	%

General and Administrative								2,764			2,764
Interest (income) expense		(44	)					303			259
Income before income taxes	$	4,091		$	995		$	(3,067	)	$	2,019

Depreciation expense included above	$	1,018		$	221		$	222		$	1,461
Capital Expenditures	$	364		$	324		$	121		$	809
Total Assets	$	35,897		$	49,556		$	43,003		$	128,456

For the nine months ended September 30, 2009
Total Revenues, net	$	124,780		$	37,288		$	0		$	162,068
Cost of Services and Sales		112,361			34,257			0			146,618
Contribution		12,419			3,031			0			15,450
Operating margin		10.0	%		8.1	%		0.0	%		9.5	%

General and Administrative								9,333			9,333
Interest (income) expense		(187	)					869			682
Income before income taxes	$	12,606		$	3,031		$	(10,202	)	$	5,435

Depreciation expense included above	$	3,108		$	640		$	663		$	4,411
Capital Expenditures	$	3,084		$	705		$	679		$	4,468
Total Assets	$	35,897		$	49,556		$	43,003		$	128,456

NOTE 4 – COST OF SERVICE:

Our cost of service and sales are comprised of all costs necessary to operate Partner fertility centers and vein care clinics as well as payments to contracted physicians for medical services associated with our Attain IVF programs. A tabular break-down of these costs are presented below, (000’s):

INTEGRAMED AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

	Attain Fertility Centers		Vein Clinics		Total Cost of Services

For the three months ended September 30, 2010
Employee Salaries & Benefits	$	23,118	$	6,827	$	29,945
Professional Service Fees		1,753		—		1,753
Clinical Supplies & Donor Fee		3,881		1,439		5,320
Office Expenses		1,485		768		2,253
Occupancy Costs		3,339		653		3,992
Depreciation/Lease Expense		1,254		288		1,542
Marketing and Promotion		830		2,302		3,132
Outside Services		941		—		941
Insurance/Taxes		1,087		135		1,222
Bad Debt		335		335		670
Other		1,612		191		1,803
Subtotal	$	39,635	$	12,938	$	52,573
Division Overhead		1,628		1,608		3,236
Total Cost of Services and Sales	$	41,263	$	14,546	$	55,809

	Attain Fertility Centers		Vein Clinics		Total Cost of Services

For the three months ended September 30, 2009
Employee Salaries & Benefits	$	17,002	$	5,935	$	22,937
Professional Service Fees		5,214		—		5,214
Clinical Supplies & Donor Fee		3,136		1,301		4,437
Office Expenses		940		409		1,349
Occupancy Costs		3,060		464		3,524
Depreciation/Lease Expense		1,608		193		1,801
Marketing and Promotion		1,001		1,699		2,700
Outside Services		851		—		851
Insurance/Taxes		1,041		197		1,238
Bad Debt		767		213		980
Other		1,145		116		1,261
Subtotal	$	35,765	$	10,527	$	46,292
Division Overhead		1,165		1,099		2,264
Total Cost of Services and Sales	$	36,930	$	11,626	$	48,556

INTEGRAMED AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

	Attain Fertility Centers		Vein Clinics		Total Cost of Services

For the nine months ended September 30, 2010
Employee Salaries & Benefits	$	53,691	$	20,261	$	73,952
Professional Service Fees		19,701		—		19,701
Clinical Supplies & Donor Fee		11,063		4,288		15,351
Office Expenses		2,801		1,821		4,622
Occupancy Costs		9,462		1,759		11,221
Depreciation/Lease Expense		4,439		620		5,059
Marketing and Promotion		2,763		5,591		8,354
Outside Services		2,802		—		2,802
Insurance/Taxes		3,269		375		3,644
Bad Debt		1,487		1,244		2,731
Other		5,922		193		6,115
Subtotal	$	117,400	$	36,152	$	153,552
Division Overhead		4,653		4,739		9,392
Total Cost of Services and Sales	$	122,053	$	40,891	$	162,944

	Attain Fertility Centers		Vein Clinics		Total Cost of Services

For the nine months ended September 30, 2009
Employee Salaries & Benefits	$	51,490	$	17,290	$	68,780
Professional Service Fees		16,046		—		16,046
Clinical Supplies & Donor Fee		9,799		3,506		13,305
Office Expenses		2,908		1,345		4,253
Occupancy Costs		9,222		1,383		10,605
Depreciation/Lease Expense		4,908		559		5,467
Marketing and Promotion		2,872		4,360		7,232
Outside Services		2,696		—		2,696
Insurance/Taxes		3,224		601		3,825
Bad Debt		2,725		1,160		3,885
Other		2,623		140		2,763
Subtotal	$	108,513	$	30,344	$	138,857
Division Overhead		3,848		3,913		7,761
Total Cost of Services and Sales	$	112,361	$	34,257	$	146,618

INTEGRAMED AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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 either held in our Corporate bank accounts with Bank of America to earn interest or credits to offset account fees, or 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 principal amounts. The composition of our cash and cash equivalents as of September 30, 2010 and December 31, 2009 is as follows (000’s omitted):

	September 30,		December 31,
	2010		2009
	(unaudited)
Cash	$	34,059		$	15,770
Short term investments		18,114			13,081
Accrued interest income					14
Total cash and cash equivalents	$	52,173		$	28,865

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.

The composition of our patient and other receivables as of September 30, 2010 and December 31, 2009 is as follows (000’s omitted):

	September 30,				December 31,
	2010				2009
	(unaudited)
Vein Clinic patient and insurance receivables		$	9,795			$	9,773
Reserve for uncollectible accounts			(2,439	)			(2,913	)
Subtotal Vein Clinic receivables, net		$	7,356			$	6,860
Other receivables			48				104
Total Patient and other receivables, net		$	7,404			$	6,964

NOTE 7 – OTHER CURRENT ASSETS:

Other Current Assets totaled $9.6 million and $7.7 million as of September 30, 2010 and December 31, 2009, respectively. The largest component of Other Current Assets are Prepaid Marketing balances totaling $3.5 million as of September 30, 2010, and $2.7 million as of December 31, 2009; these amounts include amounts related to marketing expenditures which have been paid prior to use and the unamortized portion of Direct Response Advertising Costs.

INTEGRAMED AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Direct Response Advertising Costs of $3.0 million and $1.3 million as of September 30, 2010 and December 31, 2009, respectively, these costs consist of capitalized advertising costs which have met the criteria outlined in ASU 340, including; probable future benefit, the ability to uniquely track individual responses to specific advertisements, and no material selling or marketing expenses are expected to occur after the advertisement. These capitalized Direct Response Advertising costs are amortized and recognized as an expense over a seven or six month useful life (depending on the segment that the advertising relates to). These amounts (which relate primarily to specific broadcast and internet based advertisements) are capitalized and begin to amortize at the time of use, based on the broadcast date or month of usage and are amortized over the expected period that revenue will be generated as a result of these costs.

The remainder of our Other Current Assets (those items that do not relate to Prepaid Marketing) total $6.1 million and $5.0 million as of September 30, 2010 and December 31, 2009, respectively. These balances consist primarily of prepaid rent, insurance premiums and clinical supplies.

NOTE 8 – INTANGIBLE ASSETS:

Business Service Rights consist of fees and expenses paid in conjunction with full service practice management contracts associated with fertility centers within our Attain Fertility Centers Division. These contracts typically have ten to 25 year initial lives with the associated service fees on some contracts totaling approximately $9.6 million as of September 30, 2010, that are refundable to us upon contract termination and therefore are not amortized. We amortize our non-refundable Business Service Rights, amounting to $13.6 million at September 30, 2010, over the life of their applicable contract.

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 9 – DUE TO FERTILITY MEDICAL PRACTICES:

Due to Fertility Medical Practices is comprised of the net amounts owed by us to medical practices contracted for the full array of practice management services. We do not consolidate the results of the Fertility Medical Practices into our accounts (as discussed in Note 2 of the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2009). 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 and selected other transactions, 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 September 30, 2010 and December 31, 2009, Due to Fertility Medical Practices was comprised of the following balances (000’s omitted):

	September 30,				December 31,
	2010				2009
	(unaudited)
Advances to Medical Practices		$	(15,835	)		$	(14,653	)
Undistributed Physician Earnings			4,110				2,270
Physician Practice Patient Deposits			24,167				18,807
Due to Fertility Medical Practices, net		$	12,442			$	6,424

INTEGRAMED AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 10 – NOTES PAYABLE AND OTHER OBLIGATIONS:

Notes payable and other obligations as of September 30, 2010 and December 31, 2009 consisted of the following (000’s omitted):

	September 30,			December 31,
	2010			2009
	(unaudited)
Term Loans	$	15,368		$	18,142
Revolving Line of Credit		-			7,500
Derivative Fair valuation adjustment		129			306
Obligations under capital leases		152			218

Total notes payable and other obligations	$	15,649		$	26,166
Less — current portion		(3,791	)		(11,317	)

Long-term notes payable and other obligations	$	11,858		$	14,849

All of our term loans are financed through a syndicated arrangement with a number of banks, where Bank of America is the administrative agent bank, and are collateralized by substantially all of our assets. As of September 30, 2010 and December 31, 2009, we were in full compliance with all applicable debt covenants. The most significant of the covenants relate to the ratio of funded debt to adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) and maintenance of minimum liquidity of $10 million.

In May, 2010, we entered into a syndicated amended and restated financing arrangement with Bank of America, TD Bank and Webster Bank and secured a $35 million three-year revolving credit facility (amounts available to be borrowed are based on eligible patient receivables) and a $25 million three-year term loan (of which approximately $16 million was outstanding at closing).

NOTE 11 – 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 consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2009. 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 September 30, 2010, there were 215,469 shares available for granting under these Plans.

The following table sets forth information about the weighted-average fair value of the 81,117 options granted in 2010, and the fair value assumptions used. No options were granted in 2009.

INTEGRAMED AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

	For the three-month period Ended September 30,			For the nine-month period Ended September 30,
	2010		2009	2010		2009
Fair value of options granted	$	4.96	N/A	$	5.11	N/A
Dividend yield		0%	N/A		0%	N/A
Expected volatility		48.4%	N/A		57.4%	N/A
Risk free interest rate		2.5%	N/A		3.9%	N/A
Expected term in years		5.0	N/A		5.0	N/A

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 award activity for the first nine months of 2010 under these plans is summarized below:

	Number of shares of Common Stock underlying options	Weighted Average Exercise Price
Options outstanding at December 31, 2009	205,685	$	5.78
Granted – stock options	81,117	$	7.97
Granted – stock awards	168,347	$	7.96
Exercised – stock options	15,439	$	1.91
Exercised – stock awards	168,347	$	7.96
Canceled	—

Options outstanding at September 30, 2010	271,363	$	6.97

Options exercisable at:
December 31, 2009	119,771	$	4.64
September 30, 2010	128,301	$	5.68

The aggregate intrinsic value (difference between exercise price and current value of our common stock) of options outstanding and exercisable as of September 30, 2010 and December 31, 2009 was approximately $361,000 and $354,000, respectively.

We recorded a charge to earnings to recognize compensation expense related to outstanding stock options of $69,000 and $207,000 for the three and nine month periods ended September 30, 2010, and $47,000 and $142,000 for the three and nine month periods ended September 30, 2009. As of September 30, 2010, 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 stock grants to officers and members of the Board of Directors. Stock granted to Board members vests immediately and stock granted to officers, which is restricted and 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 $270,000 and $864,000 for the three and nine month periods ended September 30, 2010, and $251,000 and $896,000 for the three and nine month periods ended September 30, 2009. As of September 30, 2010, we had approximately $1.7 million of unrecognized compensation costs related to stock grants which will be recognized over their vesting period, which approximates the service period.

INTEGRAMED AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 12 – INTEREST RATE HEDGING TRANSACTION:

IntegraMed is exposed to the risk that its 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.

After the expiration of an existing interest rate swap agreement in the third quarter of 2010, IntegraMed entered into another interest rate swap agreement which was designed to help manage the interest rate risk associated with its financial structure.

As a result of both swap agreements, our net income for the three and nine months ended September 30, 2010 includes additional financing costs of approximately $49,000 and $256,000 respectively. We also expect to record additional financing costs not to exceed $50,000 related to the swap agreement over its remaining life given current interest rate forecasts. In addition to the costs included in our reported net income, this hedge has also generated a non-recognized after-tax loss of approximately $82,000 as of September 30, 2010 which is reported as part of our comprehensive income. As of September 30, 2010, we had no other hedge or derivative transactions.

The following table summarizes total comprehensive income for the applicable periods (000’s omitted):

	For the three-month period Ended September 30,					For the nine-month period Ended September 30,
	2010			2009		2010		2009
Net income as reported	$	1,099		$	1,228	$	3,835	$	3,262
Unrealized gain (loss) on hedging transaction, net		(23	)		71		106		153

Total comprehensive income	$	1,076		$	1,299	$	3,941	$	3,415

NOTE 13 – LITIGATION AND COMPLIANCE WITH HEALTHCARE REGULATIONS:

From time to time, we are party to legal proceedings in the ordinary course of business and are required to maintain compliance with extensive healthcare regulations. As of September 30, 2010, none of these proceedings or potential issues associated with healthcare regulation compliance are expected to have a material adverse effect on our consolidated financial position, results of operations or cash flows.

NOTE 14 – RECENT ISSUED ACCOUNTING GUIDANCE:

Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements (ASU No. 2010-06)

In January 2010, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2010-06, “Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements,” which amends Subtopic 820-10. ASU 2010-06 enhances disclosure requirements related to fair value measurements. Certain provisions of ASU 2010-06 are effective for annual and interim periods beginning after December 15, 2009 and others for fiscal years beginning after December 15, 2010. The Company has adopted the relevant provisions of ASU 2010-06 and has incorporated new disclosures regarding fair value measurements. The adoption of this standard did not have a material impact on our consolidated financial statements.

INTEGRAMED AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Emerging Issues Task Force (EITF) 08-1 – Replacement for Issue 00-21 (ASC 605-25)

Issue 08-1 will change the accounting for revenue recognition for arrangements with multiple deliverables. Issue 08-1 will enable entities to separately account for individual deliverables for many more revenue arrangements. By removing the criterion that entities must use objective and reliable evidence of fair value in separately accounting for deliverables, the EITF expects the recognition of revenue to more closely align with the economics of certain revenue arrangements. Issue 08-1 applies to all deliverables in contractual arrangements in all industries in which a vendor will perform multiple revenue-generating activities, except when some or all deliverables in a multiple deliverable arrangement are within the scope of other, more specific sections of the Codification and other sections of ASC 605 on revenue recognition. Specifically, Issue 08-1 addresses the unit of accounting for arrangements involving multiple deliverables. It also addresses how arrangement consideration should be allocated to the separate units of accounting, when applicable. Issue 08-1 requires a vendor to evaluate all deliverables in an arrangement to determine whether they represent separate units of accounting. This evaluation must be performed at the inception of an arrangement and as each item in the arrangement is delivered. It is our opinion that the adoption of this guidance will not have a material impact on our consolidated financial statements. Issue 08-1 must be applied prospectively to revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010.

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, 2009. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and timing of events could differ materially from those anticipated in the forward-looking statements as a result of many factors, including those discussed under the caption “Risk Factors” appearing under Item 1-A included in our Form 10-K for the year ended December 31, 2009.

Overview

We manage highly specialized outpatient centers in emerging, technology-based, niche medical markets. The company currently operates in two healthcare sectors, fertility care and vein treatment. The company supports its operations with an established and extensive infrastructure of clinical and business resources. Each of our operating divisions is presented as a separate segment for financial reporting purposes.

The Attain Fertility Centers Division is comprised of 42 contracted fertility centers, located in major markets across the United States. Each contracted center is composed of a multi-physician practice with most offering multiple clinical locations in their service area. This Division provides an array of services to contracted fertility centers ranging from consumer marketing services to complete practice management services. The strategy of the Attain Fertility Centers Division is to support the long term growth of contracted centers by attracting and retaining new patients, expanding market share, and for our partner practices (those that we provide the full range of management service), we enable superior clinical and patient care, and increase the operational efficiency of the fertility center. The Attain Fertility Centers Division drives growth at our contracted fertility centers through a number of business development and marketing initiatives, these include our suite of Attain™ IVF programs. The Attain™ IVF programs consist of product offerings which allow a patient to pay one fee for multiple treatment cycles and under certain programs, patients are eligible for a refund if they do not take home a baby.

Our Vein Clinics Division began operations on August 8, 2007, with the purchase of Vein Clinics of America, Inc. (“VCA”), a company that had been in business since 1981. The Vein Clinics Division currently manages a network of 37 clinics located in 14 states, which specialize in the treatment of vein disease and other vein disorders.

The primary elements of our business strategy include:


•	Drive growth at our contracted fertility centers by providing additional management; services.

•	Expand the relationships to additional fertility centers through the sale of consumer product offerings;

•	Developing de novo vein clinics;

•	Increasing the total number of patients treated;

•	Increasing the penetration of our Attain IVF programs; and

•	Continuing to improve operating efficiencies.

Major Events Impacting Financial Condition and Results of Operations

2010

On November 3, 2010, we announced the planned opening of 5 new clinics in our Vein Clinics Division (these are in addition to our previously announced 10 new clinics in 2010 and the beginning of 2011). We estimate startup costs related to these five additional clinics are estimated to be between $1.75-$2.25 million and will impact 2011 reported results principally during Q2 and Q3.

On October 12, 2010, our Attain Fertility Centers Division announced the addition of New Hope Center for Reproductive Medicine in Virginia Beach, VA to its network who purchased consumer marketing services and will begin offering the Attain® IVF programs.

On September 30, 2010, we issued a press release covering our earnings expectations for the third and fourth quarter of 2010. Within this press release, we highlighted the start up costs related to the expansion efforts of our Vein Clinics Division and other earnings pressures that we are experiencing in the second half of 2010 (including physician departures in both divisions and a flood at one of our larger partner practices).

On September 1, 2010, our Attain Fertility Centers Division announced the addition of the Stanford Fertility and Reproductive Medicine Center (SFRMC) to its network who purchased consumer marketing services and will begin offering the Attain™ IVF programs.

On July 23, 2010, our Attain Fertility Centers Division announced the addition of Houston Fertility Institute to its network who purchased consumer marketing services and will begin offering the Attain IVF programs.

On July 7, 2010, we announced the combination of our Fertility Centers Division and Consumer Services Division into the Attain Fertility Centers Division, effective with the reporting of our second quarter 2010 results. At the same time, we announced the appointment of Mr. Andrew Mintz to lead the new Division.

On June 7, 2010, our Vein Clinics Division announced the planned opening of 10 new clinics across seven states. These new clinics will begin operations primarily in the second half of 2010 and the first quarter of 2011.

On May 21, 2010, we entered into a new credit facility with Bank of America, TD Bank and Webster Bank. The credit facilities are comprised of a $35 million revolving line of credit, and a $25 million term loan (of which approximately $16 million was outstanding at the time of closing).

On February 18, 2010, we completed a public offering of 2,800,000 shares of common stock at a price to the public of $7.50 per share, which raised approximately $19.1 million of net proceeds, after deducting underwriting discounts, commissions and offering expenses. The stated use of proceeds for this new capital was to assist with the addition of new partner fertility centers, accelerate the pace of new vein clinic openings in 2010, and for general working capital and other corporate purposes.

On February 4, 2010, we announced the addition of Tennessee Reproductive Medicine to the Consumer Services Division our network who purchased consumer marketing services and began offering the Attain IVF programs.

On January 12, 2010, we announced plans to open a new vein clinic in Chevy Chase, Maryland in early May 2010. This was the 35th clinic in our Vein Clinics Division and our seventh clinic in the greater Baltimore/Washington D.C. region.

On January 8, 2010, we announced plans to open a new vein clinic in Columbia, Maryland in mid-2010. This was the 34th clinic in our Vein Clinics Division and added interventional radiology treatments to the full range of vein treatments provided at our existing vein clinics, enabling patients to undergo a host of additional procedures. Interventional radiology involves minimally invasive procedures performed using image guidance. Adding interventional radiology allows this vein clinic to offer patients more high value and complex vascular procedures including uterine fibroid embolization, fallopian tube recanalization as well as procedures for varicoceles and pelvic congestion, among others.

2009

On December 1, 2009, we acquired the rights to supply a complete range of business, marketing, and facility services to three new Partner fertility centers in the western United States; the Idaho Center for Reproductive Medicine, the Nevada Center for Reproductive Medicine and the Utah Fertility Center, based in Boise, Idaho, Reno, Nevada and Provo, Utah, respectively. The Idaho and Nevada fertility centers are established centers and the Utah center began seeing patients in early 2010. Under the terms of these 25-year agreements, our service fees are comprised of a fixed percentage of revenues, reimbursed costs of services, and an additional fixed percentage of each center’s earnings. We also committed up to $1.0 million to fund any necessary capital needs of the practices.

On October 28, 2009, the management of the Company concluded and subsequently reported to the Audit Committee of the Company’s Board of Directors that the Company’s audited financial statements for the years ended December 31, 2006, 2007 and 2008 should not be relied upon. Such financials were subsequently restated due to an understatement in revenue recognized in connection with its Attain IVF program within its Consumer Services Division. See Note 2 to the December 31, 2009 consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2009 for additional information.

On April 20, 2009, we announced the opening of a new vein clinic in Cleveland, Ohio. This represented our entry into the Cleveland market and the 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, based in Phoenix, Arizona, 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 in Cincinnati, Ohio. This represented our first entry into the State of Ohio and the Cincinnati market.

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 and nine month periods ended September 30, 2010 and 2009:

	For the three-month period Ended September 30,					For the nine-month period Ended September 30,
	2010			2009		2010		2009
Revenues, Net
Attain Fertility Centers		75.8	%	76.5	%	75.6	%	77.0	%
Vein Clinics		24.2	%	23.5	%	24.4	%	23.0	%
Total revenues		100.0	%	100.0	%	100.0	%	100.0	%

Cost of services and sales
Attain Fertility Centers		68.1	%	68.9	%	68.1	%	69.3	%
Vein Clinics		24.0	%	21.7	%	22.8	%	21.1	%
Total cost of services and sales		92.2	%	90.6	%	90.9	%	90.5	%

Contribution
Attain Fertility Centers		7.7	%	7.6	%	7.5	%	7.7	%
Vein Clinics		0.2	%	1.9	%	1.6	%	1.9	%
Total contributions		7.8	%	9.4	%	9.1	%	9.5	%

General and administrative expenses		4.9	%	5.2	%	5.2	%	5.8	%
Interest income		(0.1)	%	(0.1)	%	(0.1)	%	(0.1)	%
Interest expense		0.3	%	0.6	%	0.4	%	0.5	%
Total other expenses		5.2	%	5.6	%	5.5	%	6.2	%

Income before income taxes		2.7	%	3.8	%	3.6	%	3.4	%
Income tax provision		0.9	%	1.5	%	1.4	%	1.3	%
Net income		1.8	%	2.3	%	2.2	%	2.0	%

Three and Nine Months Ended September 30, 2010 Compared to the Three and Nine Months Ended September 30, 2009

Revenues

For the three months ended September 30, 2010, total revenues were $60.6 million, an increase of approximately $7.0 million, or 13.0%, from the same period in 2009. Revenue at our Attain Fertility Centers Division was up approximately $4.9 million, or 12.0%, based on a 58.1% increase in our AttainIVF Programs as well as the addition of three new contract fertility clinics as of December 1, 2009. Vein Clinics revenue growth of $2.0 million was 16.1% above the same period in 2009, primarily driven by organic revenue growth at existing clinics and two new clinics which were added during the second quarter of 2010.

For the nine months ended September 30, 2010, total revenues were $179.3 million, an increase of approximately $17.3 million, or 10.7%, from the same period in 2009. Revenue for the first nine months of 2010 at our Attain Fertility Centers Division was up approximately $10.7 million, or 8.6%, based on a 39.3% increase in our Attain™ IVF Programs, the addition of the previously mentioned three new contract fertility clinics as of December 1, 2009 and the expansion of our service offerings to a Phoenix, AZ, based contracted clinic beginning April 1, 2009. Vein Clinics revenue growth of $6.5 million was 17.5% above the same period in 2009, primarily driven by same store growth at existing clinics plus the opening of two new clinics since September 30, 2009.

A segment-by-segment discussion is presented below.

Attain Fertility Centers Segment

Our Attain Fertility Centers Division is the combination of our previously established Fertility Centers Division and Consumer Services Division; as such the Segment currently has two main revenue streams, those revenues generated from providing complete practice management services at the associated fertility centers and those that are generated as a result of utilization of the Attain IVF programs.

During the third quarter of 2010, the Attain Fertility Centers Division had revenues of $45.9 million, $38.2 million of which were derived from fertility clinics purchasing the full array of practice management services, while the remaining $7.7 million was generated through our Attain IVF programs and other associated revenue streams.

For the first nine months of 2010, the Attain Fertility Centers Division had total revenues of $135.5 million, as compared to $124.8 million during the first nine months of 2009. The 2010 revenue was comprised of $114.8 million produced by our fertility practices purchasing the full array of practice management services, $19.8 million produced by the Attain™ IVF products and $0.9 million from other associated activities. Key quarter-to-quarter operational metrics for our Attain Fertility Centers Division are presented below:

		Q3 2010		Q3 2009	Change			% Change			YTD 2010		YTD 2009		Change			% Change
Revenues (000’s)	$	45,899	$	40,977	$	4,922			12.0	%	$	135,523	$	124,780	$	10,743			8.6	%
Operating Income (000’s)	$	4,636	$	4,047	$	589			14.6	%	$	13,470	$	12,419	$	1,051			8.5	%
Partner Centers Statistics
New Patient Visits		6,933		7,069		(136	)		(1.9	%)		20,949		21,135		(186	)		(0.9	%)
IVF Cycles		3,578		3,488		90			2.6	%		10,470		10,672		(202	)		(1.9	%)
IUI Cycles		6,103		6,065		38			0.6	%		17,930		17,821		109			0.6	%
Attain Statistics
Applications		713		552		161			29.2	%		2,237		1,620		617			38.1	%
Enrollments		448		288		160			55.6	%		1,242		780		462			59.2	%
Pregnancies		711		420		291			69.3	%		755		585		170			29.1	%

In providing clinical care to patients, each of our partner fertility centers generates patient revenue which we do not report in our financial statements. Although we do not consolidate the fertility medical practices financials with our own, these financials do directly affect our revenues.

The components of our revenue from our fertility centers purchasing the full array of practice management services are typically:

·	A base service fee calculated as a percentage of patient revenue as reported by the center (this percentage varies from 6% down to 3% depending on the agreement and the level of patient revenues);

·	Cost of services equal to reimbursement for the expenses which we advanced to the center during the month (representing substantially all of the expenses incurred by the practice, except physician compensation); and

·	Our additional fees which represent our share of the net income of the center (which varies from 10% to 20% or a fixed amount depending on the underlying center, subject to limits in some circumstances).

However, our revenues from our Fertility Centers of Illinois, S.C. (“FCI”) fertility center are not based on this three-part structure. Rather, effective as of November 1, 2009, our revenues from FCI are generally equal to the operating expenses associated with managing FCI’s medical practice plus 9.5% of such expenses. Our revenues from FCI prior to November 1, 2009, were, pursuant to our current Partner agreement with FCI, set at a fixed annual amount paid monthly.

In addition to these revenues generated from our fertility medical practices, 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 centers.

During the quarter ended September 30, 2010, revenues from our partner practices increased by $2.2 million, or 6.1%, from the same period in 2009. This increase in revenue was substantially driven by revenues from the three new partner agreements signed in the fourth quarter of 2009. Revenue from same center clinics, those open 18 months or more, grew by $920,000, impacted in part by the previously disclosed termination of a large payer contract in the first quarter of 2009. The table below illustrates the components of Attain Fertility Centers Division revenues and the relationship of clinical patient billings to fertility centers purchasing the full array of practice management services revenue for the first three and nine months of 2010 compared to 2009 (in thousands):

	For the three-month period Ended September 30,				For the nine-month period Ended September 30,
	2010		2009		2010		2009
	(unaudited)				(unaudited)
Physician Financials
(a) Patient revenue	$	54,102	$	49,478	$	160,993	$	149,365
(b) Cost of services		34,334		32,319		103,221		98,603
(c) Base service fee		2,730		2,319		8,176		7,005
(d) Practice contribution (a-b-c)		17,038		14,840		49,596		43,757
(e) Additional service fee		1,416		1,617		4,278		4,814
(f) Contribution retained by the Physician Partners (d-e)		15,622		13,223		45,318		38,943

IntegraMed Fertility Center Financials
(g) IntegraMed gross revenue from Partner clinics (b+c+e)		38,480		36,255		115,675		110,422
(h) Amortization of business service rights