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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2008
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-20260
IntegraMed America, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 06-1150326
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
Two Manhattanville Road
Purchase, New York 10577
(Address of principal executive offices) (Zip code)
(914) 253-8000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer or a smaller reporting company.
See the definitions of "large accelerated filer," "accelerated filer" and
"smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer |_| Accelerated Filer |X|
Non-Accelerated Filer |_| Smaller Reporting Company|_|
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act. Yes |_| No |X|
The aggregate number of shares of the Registrant's Common Stock, $.01 par
value, outstanding on April 21, 2008 was 8,569,192.
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INTEGRAMED AMERICA, INC.
FORM 10-Q
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets at March 31, 2008 and
December 31, 2007........................... 3
Consolidated Statements of Operations for the three-month
period ended March 31, 2008 and 2007 ......................4
Consolidated Statements of Shareholders' Equity for the
three-month period ended March 31, 2008 ...................5
Consolidated Statements of Cash Flows for the three-month
period ended March 31, 2008 and 2007 ......................6
Notes to Consolidated Financial Statements ................ 7-13
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 14-21
Item 3. Quantitative and Qualitative Disclosures About Market Risk...... 22
Item 4. Controls and Procedures......................................... 22
PART II - OTHER INFORMATION
Item 1. Legal Proceedings............................................... 23
Item 1A. Risk Factors.................................................... 23
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds..... 23
Item 3. Defaults Upon Senior Securities................................. 23
Item 4. Submission of Matters to a Vote of Security Holders............. 23
Item 5. Other Information............................................... 23
Item 6. Exhibits ....................................................... 23
SIGNATURES ..................................................... 24
CERTIFICATIONS PURSUANT TO RULE 13A-14(A), AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002.......................................EXHIBITS
CERTIFICATIONS PURSUANT TO 18 U.S.C ss.1350, AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002.......................................EXHIBITS
2
PART I -- FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
INTEGRAMED AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
(all dollars in thousands, except share amounts)
ASSETS
March 31, December 31,
---------- -----------
2008 2007
---------- -----------
(unaudited)
Current assets:
Cash and cash equivalents ............................................... $ 15,439 $ 23,740
Patient and other receivables, net ...................................... 6,194 5,511
Deferred taxes .......................................................... 4,069 4,460
Other current assets .................................................... 6,086 4,669
--------- ---------
Total current assets ................................................ 31,788 38,380
Fixed assets, net ....................................................... 16,672 16,912
Intangible assets, Business Service Rights, net ......................... 21,981 22,305
Goodwill ................................................................ 29,400 29,359
Trademarks .............................................................. 4,567 4,492
Other assets ............................................................ 1,699 1,619
--------- ---------
Total assets ........................................................ $ 106,107 $ 113,067
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................................ $ 1,803 $ 1,895
Accrued liabilities ..................................................... 13,409 16,679
Current portion of long-term notes payable and other obligations ........ 3,689 3,661
Due to Fertility Medical Practices ...................................... 5,329 9,043
Shared Risk Revenue Patient Deposits .................................... 9,815 9,668
--------- ---------
Total current liabilities ........................................... 34,045 40,946
Deferred and other tax liabilities ......................................... 1,570 1,819
Long-term notes payable and other obligations .............................. 21,053 21,799
--------- ---------
Total Liabilities ................................................... 56,668 64,564
Commitments and Contingencies
Shareholders' equity:
Common Stock, $.01 par value - 15,000,000 shares authorized in 2008 and
2007, respectively, 8,569,192 and 8,572,258 shares
issued and outstanding in 2008 and 2007, respectively ............... 86 86
Capital in excess of par ................................................ 54,223 53,890
Other comprehensive income .............................................. (275) (82)
Treasury stock, at cost - 1,958 and 14,175 shares in 2008 and 2007,
respectively .......................................................... (24) (165)
Accumulated deficit ..................................................... (4,571) (5,226)
--------- ---------
Total shareholders' equity .......................................... 49,439 48,503
--------- ---------
Total liabilities and shareholders' equity .......................... $ 106,107 $ 113,067
========= =========
See accompanying notes to the consolidated financial statements.
3
INTEGRAMED AMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(all amounts in thousands, except per share amounts)
For the
three-month period
ended March 31,
-------------------
2008 2007
------ ------
(unaudited)
Revenues, net
Fertility Centers .................................... $ 32,746 $ 29,092
Consumer Services .................................... 4,065 3,292
Vein Clinics ......................................... 8,842 --
-------- --------
Total revenues ................................... 45,653 32,384
-------- --------
Costs of services and sales:
Fertility Centers .................................... 30,442 26,822
Consumer Services .................................... 2,944 2,467
Vein Clinics ......................................... 8,520 --
-------- --------
Total costs of services and sales ................ 41,906 29,289
-------- --------
Contribution
Fertility Centers .................................... 2,304 2,270
Consumer Services .................................... 1,121 825
Vein Clinics ......................................... 322 --
-------- --------
Total contribution ............................... 3,747 3,095
-------- --------
General and administrative expenses ..................... 2,363 2,396
Interest income ......................................... (161) (335)
Interest expense ........................................ 440 119
-------- --------
Total other expenses ............................. 2,642 2,180
-------- --------
Income before income taxes .............................. 1,105 915
Income tax provision .................................... 450 300
-------- --------
Net income .............................................. $ 655 $ 615
======== ========
Basic and diluted net earnings per share of Common Stock:
Basic earnings per share ............................. $ 0.08 $ 0.08
Diluted earnings per share ........................... $ 0.08 $ 0.07
Weighted average shares - basic ...................... 8,563 8,136
Weighted average shares - diluted .................... 8,641 8,241
See accompanying notes to the consolidated financial statements.
4
INTEGRAMED AMERICA, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(all amounts in thousands)
(unaudited)
Accumulated
Common Stock Capital in Comprehensive Treasury Stock Accumulated Total
Shares Amount Excess of Par Income Shares Amount Deficit Equity
------ ------ ------------- ------------- ------ ------ ----------- ------
BALANCE AT DECEMBER 31, 2007 8,572 $86 $53,890 $(82) 14 $(165) $(5,226) $48,503
Stock award amortization - - 161 - - - - 161
Exercise of common stock options 11 1 337 - (2) (24) - 314
Gain (loss) on hedging transaction - - - (193) - - - (193)
Treasury stock transactions, net (14) (1) (165) - (14) 165 - (1)
Net income for the three months
ended March 31, 2008 - $ - $ - $ - - $ - $ 655 $ 655
------ --- ------- ------ -- ---- ------- -------
BALANCE AT MARCH 31, 2008 8,569 $86 $54,223 $(275) (2) $(24) $(4,571) $49,439
====== === ======= ===== == ==== ======= =======
See accompanying notes to the consolidated financial statements.
5
INTEGRAMED AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(all amounts in thousands)
For the
three-month period
ended March 31,
-------------------
2008 2007
--------- -------
(unaudited)
Cash flows from operating activities:
Net income ...................................................................... $ 655 $ 615
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization ................................................. 1,795 1,508
Deferred income tax provision ................................................. (249) (20)
Deferred stock-based compensation ............................................. 161 110
Changes in assets and liabilities --
Decrease (increase) in assets
Patient and other accounts receivable ...................................... (683) (118)
Prepaids and other current assets .......................................... (1,026) (142)
Other assets ............................................................... (388) 62
(Decrease) increase in liabilities
Accounts payable ........................................................... (92) (710)
Accrued liabilities ........................................................ (3,270) (1,479)
Due to medical practices ................................................... (3,714) 921
Shared Risk and Vein Clinics patient deposits .............................. 147 1,546
-------- --------
Net cash (used in) provided by operating activities ................................. (6,664) 2,293
Cash flows from investing activities:
Cash paid to purchase VCA, net of cash acquired ................................. (41) --
Purchase of other intangibles ................................................... (75) --
Purchase of fixed assets and leasehold improvements, net ........................ (1,231) (1,150)
-------- --------
Net cash used in investing activities ............................................... (1,347) (1,150)
Cash flows from financing activities:
Debt repayments ................................................................. (911) (375)
Common Stock transactions, net .................................................. 621 44
-------- --------
Net cash used in financing activities ............................................... (290) (331)
-------- --------
Net increase (decrease) in cash ..................................................... (8,301) 812
Cash and cash equivalents at beginning of period .................................... 23,740 32,184
-------- --------
Cash and cash equivalents at end of period .......................................... $ 15,439 $ 32,996
======== ========
Supplemental Information:
Interest paid .................................................................. $ 366 $ 119
Income taxes paid .............................................................. $ 612 $ 325
See accompanying notes to the consolidated financial statements.
6
INTEGRAMED AMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 -- INTERIM RESULTS:
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-Q and, accordingly, do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, the accompanying unaudited interim financial statements contain all
adjustments (consisting only of normal recurring accruals) necessary to present
fairly the financial position at March 31, 2008, 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, 2008. 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, 2007.
NOTE 2 -- BASIS OF PRESENTATION
With the acquisition of Vein Clinics of America, Inc. (VCA), in the third
quarter of 2007, we reorganized our service offerings into three major product
lines: Fertility Centers, Consumer Services and Vein Clinics. Each of these
operating segments includes an element of overhead with their Cost of Services
which is specifically associated with that segment's operation. Their overhead
costs had previously been reported as General and Administrative costs. The
result of this change is to reduce overall contribution margins and unallocated
General and Administrative costs, as reported in previous periods. We believe
this presentation provides a clearer view of each division's performance and
operating efficiency. All periods disclosed in this filing have been restated to
reflect this new presentation.
The following pro forma data reflects the consolidated revenue and earnings of
IntegraMed America, and Subsidiaries had the VCA acquisition date been January
1, 2007 (000's omitted, except per share amounts):
Basic
Earnings
Revenue Net Income per share
------- ---------- ---------
Supplemental pro forma for the three-month
period ended March 31, 2007.......................$39,784 $795 $0.09
NOTE 3 -- COMMON SHARES OUTSTANDING:
All common share numbers reported herein reflect the 25% stock split effected in
the form of a stock dividend declared by the Board of Directors on March 19,
2007 and paid on May 4, 2007.
NOTE 4 -- EARNINGS PER SHARE:
The reconciliation of the numerators and denominators of the basic and diluted
earnings per share computations for the three month period ended March 31, 2008
and 2007 is as follows (000's omitted, except for per share amounts):
7
INTEGRAMED AMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
For the
three-month period
ended March 31,
--------------------
2008 2007
------ --------
Numerator
Net Income............................................ $ 655 $ 615
Denominator
Weighted average shares outstanding (basic)........... 8,563 8,136
Effect of dilutive options and warrants............... 78 105
-------- -------
Weighted average shares and dilutive potential
Common shares (diluted).......................... 8,641 8,241
====== ======
Basic earnings per share.............................. $ 0.08 $ 0.08
======= =======
Diluted earnings per share............................ $ 0.08 $ 0.07
======= =======
For the three-month periods ended March 31, 2008 and 2007, there were 15,845 and
0, 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 5 -- SEGMENT INFORMATION:
We currently report three major operating divisions and a Corporate office that
provides shared services.
Our Fertility Centers Division is comprised of a provider network of nine (as of
March, 2008) contracted fertility centers located in major markets across the
United States. We offer products and services to these providers designed to
support the fertility centers' growth. This division also supports a Council of
Physicians and Scientists, as well as ARTIC, a captive insurance company which
provides malpractice insurance to member physicians.
Our Consumer Services Division offers products directly to fertility patients.
The division's Shared Risk(R) Refund and financing programs are designed to make
the treatment process easier and more affordable for patients. As of March 31,
2008, the division maintained a contracted network of 21 independent fertility
clinics under its Affiliate program which is designed to distribute the
division's products and services to a wider group of patients than just those
serviced by our Fertility Center locations. The division also offers fertility
medications directly to patients via a competitively priced mail-order pharmacy.
Our Vein Clinics Division, formed on August 8, 2007, with the purchase of Vein
Clinics of America, Inc., provides business and management services to a network
of 29 (as of March, 2008) clinics located in 11 states which specialize in the
treatment of vein disease and disorders.
We also maintain a Shared Services group within the Corporate office. In
addition to their corporate responsibilities, this group assists the Fertility
centers, Consumer Services and Vein Clinics Divisions with administrative
services such as finance, accounting, human resources and purchasing support;
access to capital for financing clinic operations and expansion; traditional
marketing and sales support; internet marketing and website support and
integrated information systems.
8
INTEGRAMED AMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Performance by segment, for the three-month periods ended March 31, 2008 and
2007 are presented below.
Fertility Consumer Vein
Centers Services Care Corp G&A Consolidated
--------- -------- ----- -------- ------------
For the three months ended March 31, 2008
Revenues...................................... $32,746 $4,065 $8,842 $ - $45,653
Cost of Services.............................. 30,442 2,944 8,520 - 41,906
------- ------ ------ -------
Contribution.................................. 2,304 1,121 322 - 3,747
Operating margin.............................. 7.0% 27.6% 3.6% 0.0% 8.2%
General and Administrative.................... - - - 2,363 2,363
Interest, net................................. (66) - (1) 346 279
------- ------ ------- ------- --------
Income before income taxes.................... $ 2,370 $1,121 $ 323 $(2,709) $ 1,105
======= ====== ======= ======= ========
Depreciation expense included above........... $ 1,051 $ 1 $ 183 $ 236 $ 1,471
Capital Expenditures.......................... $ 665 $ - $ 448 $ 119 $ 1,232
Total Assets.................................. $41,459 $ 794 $45,172 $18,682 $106,107
For the three months ended March 31, 2007
Revenues........................................... $29,092 $3,292 $ - $ - $ 32,384
Cost of Services.............................. 26,822 2,467 - - 29,289
------- ------ ------ -------
Contribution.................................. 2,270 825 - - 3,095
Operating margin.............................. 7.8% 25.1% 0.0% 0.0% 9.6%
General and Administrative.................... - - - 2,396 2,396
Interest, net................................. (63) - - (153) (216)
------- ------ ------ -------
Income before income taxes.................... $ 2,333 $ 825 $ - $ (2,243) $ 915
======= ======= ====== ======== =========
Depreciation expense included above........... $ 931 $ 1 $ - $ 202 $ 1,134
Capital Expenditures.......................... $ 968 $ - $ - $ 182 $ 1,150
Total Assets.................................. $40,645 $1,373 $ - $34,156 $76,174
NOTE 6- INTANGIBLE ASSETS:
Business Service Rights consist of fees and expenses paid in conjunction with
service contracts associated with our Fertility Centers Partner program. These
service contracts typically have ten to twenty five year initial lives with the
associated service fees on some contracts refundable upon contract termination.
We amortize our non-refundable Business Service Rights over the life of their
applicable contract. Refundable Service Rights, which totaled approximately $5.2
million as of March 31, 2008, 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 in excess of the fair value of net assets and liabilities acquired.
Contingent consideration payments, if any, related to earn out provisions of
this acquisition are not included in the value presented as they are not
estimable at this time. Such payments, if any, will be paid 50% in cash and 50%
in stock and will result in an adjustment to goodwill. Currently, no contingent
earn out provisions have been met and no payments are due.
9
INTEGRAMED AMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Trademarks are comprised of valuations assigned to assets associated with the
Vein Clinics acquisition as well as costs associated with our trademark and
service mark rights.
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 7 - DUE TO MEDICAL PRACTICES:
Due to Fertility Medical Practices is comprised of the net amounts owed by us to
medical practices contracted as Fertility Centers. We do not consolidate the
results of the Fertility Centers into our accounts. This balance is comprised of
amounts due to us by the medical practices for funds, which we advanced for use
in financing their accounts receivable, less balances owed to the medical
practices by us for undistributed physician earnings and patient deposits we
hold on behalf of the medical practices.
As of March 31, 2008 and December 31, 2007, Due to Medical Practices was
comprised of the following balances (000's omitted):
2008 2007
--------- ---------
(unaudited)
Advances to Practice....................... $(17,606) $(15,585)
Undistributed Physician Earnings........... 1,217 6,338
Physician Practice Patient Deposits........ 21,718 18,290
--------- ---------
Due to Medical Practices, net.............. $ 5,329 $ 9,043
========= =========
NOTE 8 - 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 16 of the
financial statements in our most recent Annual Report on Form 10-K. Under the
1992 Incentive and Non-Incentive Stock Option Plan (the "1992 Plan"), the 2000
Long-term Compensation Plan (the "2000 Plan") and the 2007 Long-term
Compensation Plan (the "2007 Plan"), 500,000, 700,000 and 500,000 shares
,subject to adjustment, of common stock, respectively, were reserved for
issuance of incentive and non-incentive stock options and stock grants. The 1992
Plan expired in May 2002, and no further awards may be made under that plan.
Under the 2000 and 2007 Plans, stock options and stock grants may be granted to
employees, directors and such other persons as the Board of Directors determines
will contribute to our success. Vesting periods are set by the Board of
Directors and stock options are generally exercisable during a ten-year period
following the date of grant. The Board of Directors has the authority to
accelerate the maturity of any stock option or grant at its discretion, and all
stock options and grants have anti-dilution provisions. Under all of our plans,
options expire three months from the date of the holder's termination of
employment or twelve months in the event of disability or death. As of March 31,
2008, there were 567,968 shares available for granting under these Plans.
The following table sets forth information about the weighted-average fair value
of options granted in the first quarter of 2008, and 2007 and the assumptions
used for each grant:
For the
three-month period
ended March 31,
---------------------
2008 2007
--------- --------
Fair value of options granted.................. $11.20 N/A
Dividend yield................................. 0.0% N/A
Expected volatility........................... 52.8% N/A
Risk free interest rate........................ 4.2% N/A
Expected term in years......................... 6.25 N/A
10
INTEGRAMED AMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
We recognize compensation cost for stock option plans over the vesting period
based on the difference, if any, between the quoted market price of the stock
and the amount an employee must pay to acquire the stock.
Stock option activity under these plans is summarized below:
Number of
shares of
Common Stock
underlying Weighted Average
options exercise price
------------- ----------------
Options outstanding at December 31, 2007... 102,219 $2.33
Granted.................................... 15,845 $11.20
Exercised.................................. (3,048) $2.03
Canceled................................... -- $0.00
-------
Options outstanding at March 31, 2008...... 115,016 $3.56
Options exercisable at:
December 31, 2007..................... 102,219 $2.33
March 31, 2008........................ 99,171 $2.34
The intrinsic value (difference between exercise price and current value of our
common stock) of exercisable options at December 31, 2007 and March 31, 2008 was
$973,000 and $739,000, respectively.
For the three month periods ended March 31, 2008 and 2007, we recorded a charge
to earnings to recognize compensation expense of $4,000 and $0, respectively,
related to the value of outstanding stock options. As of March 31, 2008, we had
approximately $95,000 of unrecognized compensation costs related to stock
options which will be recognized over their vesting 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 $157,000 and $111,000 for the three-month
periods ended March 31, 2008 and 2007, respectively. As of March 31, 2008, we
had approximately $924,000 of unrecognized compensation costs related to stock
grants which will be recognized over their vesting period.
NOTE 9 -- INTEREST RATE HEDGING TRANSACTION:
In the normal course of business we are exposed to the risk that our earnings
and cash flows could be adversely impacted by market driven fluctuations in the
level of interest rates. It is our policy to manage these risks by using a mix
of fixed and floating rate debt and derivative instruments.
In conjunction with our term loan agreement, executed during the third quarter
of 2007, we entered into an interest rate swap agreement on a portion of that
loan. This swap agreement is designed to hedge risks associated with a portion
of our principle floating rate debt.
As a result of this agreement, our net income for the three months ended March
31, 2008, included additional financing costs of approximately $44,000, and we
expect to record additional financing costs of approximately $120,000 to
$150,000 related to the swap agreement over the remainder of 2008, given current
interest rate forecasts (these financing costs are expected to be offset by
lower interest rates on that portion of the underlying term loan not
participating in the swap). In addition to the costs included in our reported
11
INTEGRAMED AMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
net income, this hedge also generated a non-recognized loss of approximately
$275,000 as of March 31, 2008 which is reported as part of our comprehensive
income.
The interest rate swap agreement is designed to hedge approximately 50% of our
outstanding term loan. We deem this hedge to be highly effective as it shares
the same termination date and amortization schedule as the underlying debt
subject to the hedge and the change in fair value inversely mimics the
appropriate portion of the hedged item. As of March 31, 2008, we had no other
hedge or derivative transactions.
The following table summarizes total comprehensive income (loss) for the
applicable periods (000's omitted):
For the
three-month period
March 31,
-------------------
2008 2007
------ -----
Net income as reported.............................. $ 655 $ 615
Net loss on derivative transactions................. (193) (11)
----- -----
Total comprehensive income.......................... $ 462 $ 604
===== =====
NOTE 10-- LITIGATION:
From time to time, we are party to legal proceedings in the ordinary course of
business. As of March 31, 2008, none of these proceedings is expected to have a
material adverse effect on our financial position, results of operations or cash
flows.
NOTE 11 -- RECENT ACCOUNTING STANDARDS:
SFAS No. 141R, Business Combinations
The objective of this revised Statement is to improve the relevance,
representational faithfulness, and comparability of the information that a
reporting entity provides in its financial reports about a business combination
and its effects. To accomplish that, this Statement establishes principles and
requirements for how the acquirer:
a. Recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, and any non-controlling
interest in the acquiree
b. Recognizes and measures the goodwill acquired in the business
combination or a gain from a bargain purchase
c. Determines what information to disclose to enable users of the
financial statements to evaluate the nature and financial effects of
the business combination.
This statement is effective for fiscal years beginning on or after December 15,
2008. We are currently evaluating the impact that SFAS No. 141R could have on
our consolidated financial statements.
SFAS No. 160, Non-controlling Interests in Consolidated Financial Statements
In December 2007, the FASB issued Statement No. 160, Non-controlling Interests
in Consolidated Financial Statements -- an amendment of ARB No. 51 ("SFAS No.
160"). SFAS No. 160 requires a company to clearly identify and present ownership
interests in subsidiaries held by parties other than the company in the
consolidated financial statements within the equity section but separate from
the company's equity. It also requires the amount of consolidated net income
attributable to the parent and to the non-controlling interest be clearly
identified and presented on the face of the consolidated statement of income;
12
INTEGRAMED AMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
changes in ownership interest be accounted for similarly, as equity
transactions; and when a subsidiary is deconsolidated, any retained
non-controlling equity investment in the former subsidiary and the gain or loss
on the deconsolidation of the subsidiary be measured at fair value. This
statement is effective for fiscal years after December 15, 2008. We are
currently evaluating the impact that SFAS No. 160 will have on our consolidated
financial statements.
SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities
In March 2008, the FASB issued Statement No. 161, Disclosures about Derivative
Instruments and Hedging Activities--an amendment of FASB Statement No. 133. SFAS
No. 161 changes the disclosure requirements for derivative instruments and
hedging activities. Entities are required to provide enhanced disclosures about
(a) how and why an entity uses derivative instruments, (b) how derivative
instruments and related hedged items are accounted for under Statement 133 and
its related interpretations, and (c) how derivative instruments and related
hedged items affect an entity's financial position, financial performance, and
cash flows. This statement is effective for fiscal years after November 15,
2008. We are currently evaluating the impact that SFAS No. 161 will have on our
consolidated financial statements.
13
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, 2007.
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 nine (as of
March, 2008) contracted fertility centers, located in 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 Shared Risk Refund and financing programs are designed to make
the treatment process easier and more affordable for patients. The division
maintains a contracted network of 21 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. The division also offers fertility medications directly to
patients through a competitively priced mail-order pharmacy.
Our Vein Clinics Division was formed on August 8, 2007, with the purchase of
Vein Clinics of America, Inc. The Vein Clinics Division provides business and
management services to a network of 29 (as of March, 2008) clinics located in 11
states which specialize in the treatment of vein disease and disorders.
The primary elements of our business strategy include:
o Expanding our network of fertility and vein clinics into new major markets;
o Increasing sales of Shared Risk Refund and treatment financing products to
fertility patients;
o Increasing revenues and profits at contracted fertility centers and
consolidated vein clinics; and
o Leveraging corporate general and administrative costs over a larger base of
operations.
The business strategy of our Fertility Centers Division is to leverage our deep
expertise and commitment to improved fertility center performance by providing
the best value-specific offerings designed to manage and grow the center within
14
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 provide technologically
advanced care for varicose vein disease to an underserved population through the
opening of additional clinics, and growing and increasing productivity and
profitability at each clinic.
Major Events Impacting Financial Condition and Results of Operations
2008
Subsequent Events
On April 1, 2008, we entered into an Affiliate services contract with OU
Physicians Reproductive Health in Oklahoma City, OK. 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.
On April 24, 2008, we entered in to 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 29, 2008, we announced the opening of a new Vein Clinic treatment
center in Alexandria, VA. This represents the 30th clinic in our Vein Clinics
division and will provide focused vein care treatment solutions to the
metropolitan area.
2007
On March 19, 2007, we declared a 25% stock split effected in the form of a stock
dividend for all holders of record as of April 13, 2007. As a result of this
dividend, 1,628,907 new shares of common stock were issued on the payment date
of May 4, 2007. No fractional shares were issued as all fractional amounts were
rounded up to the next whole share. All weighted average shares outstanding and
earnings per share calculations in this filing have been restated to reflect
this stock split.
Effective July 1, 2007, we expanded the Shady Grove Fertility Center Partner
Service arrangement with the addition of the Fertility Center of the Greater
Baltimore Medical Center ("Center") in Baltimore, Maryland where we will provide
a full range of business, marketing and facility services. Under the terms of
the agreement, we purchased the assets of the Center from Greater Baltimore
Medical Center and have committed additional resources to support further growth
and development of the Center. Under the terms of this agreement, we will be
paid service fees comprised of reimbursed costs of services and a fixed
percentage of revenues, plus an additional fixed amount of the Center's
earnings.
On August 8, 2007, we acquired all of the outstanding stock of Vein Clinics of
America, Inc.(VCA) for a total cost of approximately $29 million in cash and
common stock. The results of VCA are included in our financial statements from
the date of the acquisition.
Also on August 8, 2007 we entered into an amended loan agreement with Bank of
America. The new term loan is in the amount of $25 million (the proceeds of
which were applied to repay our original term loan and finance in part the Vein
Clinics of America, Inc. transaction). Interest on the new term loan is at LIBOR
plus 2% to 2.75% depending upon the level of the ratio of consolidated debt to
EBITDA. The loan agreement also contains provisions for a revolving line of
credit in the amount of $10 million. Interest on the revolver is at LIBOR plus
1.5% to 2.5% depending on the level of the ratio of consolidated debt to EBITDA.
As of March 31, 2008, no amounts were drawn on the revolver.
15
On August 29, 2007, we entered in to a Business Services Agreement to supply a
complete range of business, marketing and facility services to the Center for
Reproductive Medicine in Orlando, Florida. The Center for Reproductive Medicine
a fertility practice comprised of four physicians. 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
CRM's earnings. We also committed up to $1.0 million to fund any necessary
capital needs of the practice.
Results of Operations
The following table shows the percentage of net revenue represented by various
expenses and other income items reflected in our statement of operations for the
three-month periods ended March 31, 2008 and 2007:
For the
Three-month period
Ended March 31,
--------------------------
2008 2007
--------- --------
(unaudited)
Revenues, net
Fertility Centers................... 71.7% 89.8%
Consumer Services................... 8.9% 10.2%
Vein Care Services.................. 19.4% 0.0%
Total Revenues................. 100.0% 100.0%
Cost of services and sales
Fertility Centers................... 66.7% 82.8%
Consumer Services................... 6.4% 7.6%
Vein Care Services.................. 18.7% 0.0%
Total cost of services and sales.... 91.8% 90.4%
Contribution
Fertility Centers................... 5.0% 7.0%
Consumer Services................... 2.5% 2.6%
Vein Care Services.................. 0.7% 0.0%
Total contribution............. 8.2% 9.6%
General and administrative expenses..... 5.2% 7.4%
Interest income......................... (0.4)% (1.0)%
Interest expense........................ 1.0% 0.4%
Total other expenses........... 5.8% 6.8%
Income before income taxes.............. 2.4% 2.8%
Income tax (benefit) provision.......... 1.0% 0.9%
Net income ......................... 1.4% 1.9%
Three Months Ended March 31, 2008 Compared to the Three Months
Ended March 31, 2007
Revenues
For the three months ended March 31, 2008, total revenues of $45.7 million
increased approximately $13.3 million, or 41%, from the same period in 2007.
Approximately $8.8 million of our increased revenues came from our Vein Clinics
division, which was acquired in the third quarter of 2007, with the remaining
increase attributable to our existing Fertility Centers and Consumer Services
divisions. Our Fertility Centers revenue increased approximately $3.7 million as
a result of growth within the underlying medical practices, the addition of one
new Partner arrangement and the expansion of the Shady Grove contract in
mid-2007. Our Consumer Services segment experienced increased revenues of $0.8
million, primarily driven by growth in its Shared Risk Refund program.
16
A segment-by-segment discussion is presented below.
Fertility Centers Segment
In providing clinical care to patients, each of our Partner practices generates
patient revenue which we do not report in our financial statements. Although we
do not consolidate the physician fertility practice financials with our own,
these financials do directly affect our revenues.
The components of our revenue from each of the Partner practices are:
o A Base Service fee calculated as a percentage of patient revenue as
reported by the Partner practice (this percentage varies from 6% down
to 3% depending on the level of patient revenues);
o Cost of Services equal to reimbursement for the expenses which we
advanced to the Partner practice during the month (representing
substantially all of the expenses incurred by the practice);
o Our Additional fees which represent our share of the net income of
the Partner practice (which varies from 10% to 20% or a fixed amount
depending on the Partner practice).
In addition to these revenues generated from our Fertility Centers, we often
receive miscellaneous other revenues related to providing services to medical
practices. From the total of our revenues, we subtract the annual amortization
of our Business Service Rights, which are the rights to provide Business
Services to each of the Partner practices.
During the first quarter of 2008, Fertility Center revenues increased by $3.7
million or 12.6% from the same period in 2007. Our new fertility Partner
contract, acquired in the third quarter of 2007, was responsible for $1.3
million of the increase. The remaining growth among our existing centers is
mainly attributed to increased patient revenues driven by effective marketing
programs, and higher contribution margins resulting from an increased focus on
expense management and operational efficiencies.
The table below illustrates the components of Fertility Centers revenue in
relation to the physician practice financials for the first three months of 2008
compared to 2007:
For the
Three months
Ended March 31,
-------------------
2008 2007
------ ------
(unaudited)
Providers Providers
Physician Financials
(a) Patient revenue ............................... $ 43,749 $ 38,862
(b) Cost of services .............................. 29,764 26,385
(c) Base service fee .............................. 2,036 1,829
-------- --------
(d) Practice contribution (a-b-c) ................. 11,949 10,648
(e) Physician compensation ........................ 10,697 9,472
(f) IntegraMed additional fee ..................... 1,251 1,176
IntegraMed Financials
(g) IntegraMed gross revenue (b+c+f) .............. 33,051 29,390
(h) Amortization of business service rights ....... (324) (372)
(i) Other revenue ................................. 19 74
-------- --------
(k) IntegraMed fertility services revenue (g+h+i+j) $ 32,746 $ 29,092
======== ========
Consumer Services Segment
Revenues from our Shared Risk Refund program accounted for over 92% of our
Consumer Services Segment revenues during the first quarter of 2008, up from 88%
for the same period in 2007. Patients enrolled in the Shared Risk Refund program
pay us an upfront fee (deposit) in return for up to six treatment cycles. The
17
non-refundable portion of the fee is recognized as revenue at the completion of
the first treatment. The remainder is recognized at the time of a treatment
outcome (clinical pregnancy) or issued as a refund if all treatment options
fail. The two main factors that impact Shared Risk revenue (and contribution)
are:
o The number of patients enrolled and receiving treatment
o Pregnancy success rates
On a quarter versus quarter basis the Shared Risk Refund program continued to
experience significant growth. Revenue of $3.7 million in the first three months
of 2008 was up $0.8 million, or 27.6% from the same period in the prior year.
This growth is primarily due to improvement in success rates.
Our Affiliate program generated revenues of $283,000 during the first quarter of
2008, versus $317,000 in the same period in the prior year. As of March 31,
2008, this network was comprised of 21 independent fertility clinics compared to
22 clinics on March 31, 2007. One clinic left the Affiliate program and
transitioned into a Partner clinic in our Fertility Centers Division during the
third quarter of 2007. We have an on-going program designed to attract
independent unaffiliated fertility centers to join our network.
Pharmaceutical revenue was $34,000 for the three months ended March 31, 2008,
compared to $57,000 during the same period in the prior year. This segment of
our Consumer offerings continues to experience decreasing margins due to
pharmaceutical cost increases which are not able to be passed on to the
consumer.
Vein Clinics Segment
Revenues for the three months ended March 31, 2008 were $8.8 million. This
compares to revenues of $7.4 million generated in the first three months of 2007
by VCA on a stand alone basis, prior to our acquisition of this business
segment. Revenues in this segment are generally from billings to patients or
their insurer for vein disease treatment services.
Contribution
Our 2008 first quarter contribution of $3.7 million increased 19% from the first
quarter of 2007. A segment-by-segment discussion is presented below.
Fertility Centers Segment
Fertility Center contribution of $2.3 million in the first quarter of 2008 was
essentially even with that of the prior year. First quarter margins in 2008 of
7.0% were down from 7.8% in 2007. Although revenue for the first quarter of 2008
increased by $3.7 million or 12.6% from the same period in 2007, and our Partner
locations experienced a 13.5% increase in new patient volume during this period,
margin growth has been tempered by additional division level infrastructure
investments which were previously disclosed and are designed to support new
acquisitions, such as the one in the third quarter of 2007 and the one recently
announced in Charleston, S.C.
Consumer Services Segment
Contribution from our Consumer Services segment grew by $296,000 or 35.9% in the
first quarter of 2008, compared to the same period in the prior year. This
growth was driven by our Shared Risk Refund program in which applications for
enrollment increased by 11.3% from the same period in the prior year and
pregnancy success rates rose to 47% in the first three months of 2008 versus the
35% in 2007. Current success rates of 47% represent the high end of the expected
success range while the prior year success rates were at the lower end of the
range.
During the first quarter of 2008 we also contracted with two new fertility
centers to be participating providers in our Affiliate program which should
translate into increased Shared Risk volume in the coming months.
18
Vein Clinics Segment
For the first quarter of 2008, contribution from our Vein Clinics division was
$322,000, or 3.6% of revenues. This compares to contribution of $267,000, or
3.6% of revenues in the prior year. The first quarter is traditionally the
slowest quarter for this business segment. The historic core of this segment's
operations are in the Upper Mid-West, which experienced an unusually severe
winter season this year. In addition to seasonality factors, 2008 contribution
was also impacted by infrastructure additions designed to support our
accelerated new clinic opening plans. This segment opened three clinics in 2007,
has opened one new clinic to date in 2008, and expects to open three additional
clinics before the end of 2008. We plan to open five to six new clinics in 2009.
We have also begun to extract benefits from the integration of VCA's
administrative functions with our Corporate Shared Services group. Efficiencies
in the areas of legal, finance, information technology and human resources are
expected to generate additional cost savings as 2008 progresses.
General and Administrative Expenses
General and Administrative (G&A) expenses are comprised of salaries and
benefits, administrative, regulatory compliance, and operational support costs
defined as our Shared Services group, which are not specifically related to
individual clinical operations or other product offerings. These costs totaled
$2.4 million in the first quarter of 2008, approximately even with the same
period in 2007. G&A expenses were 63.1% of contribution for the first quarter of
2008, down substantially from 77.4% during the same period in 2007. We continue
to actively manage G&A expenses in an effort to drive economies of scale from
growth in total contribution.
Interest
Net interest expense in the first quarter of 2008 totaled $279,000, compared to
net interest income of $216,000, during the same period in the prior year. The
$495,000 change in net interest income/expense is primarily the planned result
of utilizing cash on hand and additional borrowings as the principal means of
financing our acquisition of VCA. If one compares the increased financing costs
to the contribution by our Vein Clinics division during the first quarter of
2008, the acquisition was dilutive, as expected. We expect subsequent quarters
to show accretion in this business segment but still maintain that our Vein
Clinics acquisition will be neutral to slightly accretive over the first
eighteen months since acquisition.
In addition to the impact of financing the VCA transaction, lower market
interest rates, versus a year ago, have reduced the return on our current cash
balances.
Income Tax Provision
Our provision for income tax was approximately $0.5 million for the three months
ended March 31, 2008, or 40.7% of pre-tax income. This is compared to
approximately $0.3 million for the three months ended March 31, 2007, or 32.8%
of pre-tax income. Our effective tax rates for 2008 and 2007 reflect provisions
for both current and deferred federal and state income taxes. The higher
effective tax rate for the three months ended March 31, 2008 is mainly due to a
decrease in tax-exempt interest income projected for the year 2008 compared with
2007.
We file income tax returns in the U.S. federal jurisdiction and various states.
For federal income tax purposes, our 2004 through 2006 tax years remain open for
examination by the tax authorities under the normal three year statute of
limitations. For state tax purposes, our 2003 through 2006 tax years remain open
for examination by the tax authorities under a four year statute of limitations.
Off-balance Sheet Arrangements
FASB Interpretation No. 46 (Revised) "Consolidation of Variable Interest
Entities" (FIN 46R) addresses how a business enterprise should evaluate whether
it has a controlling financial interest in an entity through means other than
voting rights and accordingly should consolidate the entity. As of March 31,
2008, as a result of the acquisition of the Vein Clinics of America, Inc, we
have interests in the individual vein clinics, where we are the primary
beneficiary, therefore the adoption of FIN 46R has required us to consolidate
such vein clinic operations in our financial statements. Since we do not have
19
any interest in the individual fertility clinics where we are not the primary
beneficiary, we do not consolidate the results of the fertility clinics in our
accounts. Also, since we do not have any significant interest in the captive
insurance provider and we are not the primary beneficiary, we do not consolidate
the results of the captive insurance company in our accounts
Liquidity and Capital Resources
As of March 31, 2008, we had approximately $15.4 million in cash and cash
equivalents on hand as compared to $23.7 million at December 31, 2007.
Additionally, we had a working capital deficit of approximately $2.3 million, at
March 31, 2008, an improvement of $0.3 million from the working capital deficit
of $2.6 million as of December 31, 2007. Cash balances decreased from December
31, 2007 levels primarily due to payments of accrued earnings to physicians as
well as payments on other accrued liabilities in the normal course of business.
Shared Risk Refund patient deposits, which are reflected as a current liability,
represent funds received from patients in advance of treatment cycles and are an
indication of future Shared Risk revenues. These deposits totaled approximately
$9.8 million and $9.7 million as of March 31, 2008 and December 31, 2007,
respectively. These deposits are a significant source of cash flow and represent
interest-free financing for us.
As of March 31, 2008, we did not have any significant contractual commitments
for the acquisition of fixed assets or construction of leasehold improvements.
However, we anticipate upcoming capital expenditures of approximately $4.4
million for the remainder of 2008. These expenditures are primarily related to
medical equipment, information system infrastructure and leasehold improvements.
We believe that working capital, specifically cash and cash equivalents, remain
at adequate levels to fund our operations and our commitments for fixed asset
acquisitions. We also believe that the cash flows from our operations plus our
available credit facility will be sufficient to provide for our future liquidity
needs over the next twelve months.
In August, 2007, as part of our acquisition of Vein Clinics of America, we
secured a new $25 million five-year term loan. Our previous term loan of $7.7
million was paid off in its entirety as part of this agreement. After deducting
the previous loan amount, interest and fees, our net funding from Bank of
America was $17.0 million. Other features of this credit facility include a $10
million five-year revolving line of credit.
Each component of our amended credit facility bears interest by reference to
Bank of America's prime rate or LIBOR, at our option, plus a margin, which is
dependent upon a leverage test, ranging from 2.00% to 2.75% in the case of
LIBOR-based loans. Prime-based loans are made at Bank of America's prime rate
and do not contain an additional margin. Interest on the prime-based loans
became payable quarterly beginning November 8, 2007 and interest on LIBOR-based
loans is payable on the last day of each applicable interest period. As of March
31, 2008, interest on the term loan was payable at a rate of 5.62%. Unused
amounts under the working capital revolver bear a commitment fee of 0.25% and
are payable quarterly.
Availability of borrowings under the working capital revolver is based on
eligible accounts receivable, as defined in the credit agreement. As of March
31, 2008 under the revolving line of credit the full amount of $10.0 million was
available, of which none was outstanding.
In order to mitigate the interest rate risk associated with our new term loan,
we entered into an interest rate swap agreement with Bank of America in August
2007 for 50% of the loan amount. The effect of this swap transaction was to
effectively fix the interest rate on our term loan at 5.39% plus the applicable
margin for the life of the loan.
Our Bank of America credit facility is collateralized by substantially all of
our assets. As of March 31, 2008, we were in full compliance with all applicable
debt covenants. We also continuously review our credit agreements and may renew,
revise or enter into new agreements from time to time as deemed necessary.
Significant Contractual Obligations and Other Commercial Commitments
The following summarizes our contractual obligations and other commercial
commitments at March 31, 2008, and the effect such obligations are expected to
have on our liquidity and cash flows in future periods.
20
Payments Due by Period (000's omitted)
Total Less than 1 Year 1-3 Years 4-5 Years After 5 Years
----- ---------------- --------- --------- -------------
Notes payable......................... $24,107 $3,571 $ 7,143 $13,393 $ -
Capital lease obligations............. 360 79 175 106 -
Operating leases...................... 60,427 9,386 16,535 14,314 20,192
------- ------ ------- ------- -------
Total contractual cash
obligations...................... $84,894 $13,036 $23,853 $27,813 $20,192
======= ======= ======= ======= =======
Total Less than 1 year 1-3 Years 4-5 Years After 5 Years
----- ---------------- --------- --------- -------------
Unused lines of credit................ $10,000 $10,000 $ - $ - $ -
We also have commitments to provide working capital financing to member clinics
in our Fertility Centers division. A significant portion of these commitments
relate to our transactions with the medical practices themselves. Our
responsibilities to the these medical practices are to provide financing for
their accounts receivable and to hold patient deposits as well as undistributed
physician earnings on their behalf. Disbursements to the medical practices
generally occur monthly. The medical practice's repayment hierarchy consists of
the following:
o We provide a cash credit to the practice for billings to patients and
insurance companies;
o We reduce the cash credit for clinic expenses that we have incurred on
behalf of the practice;
o We reduce the cash credit for the base portion of our Service Fee which
relates to the Partner revenues;
o We reduce the cash credit for the variable portion of our Service Fee which
relates to the Partner earnings;
o We disburse to the medical practice the remaining cash amount which
represents the physician's undistributed earnings.
We are also responsible for the collection of the Partner accounts receivables,
which we finance with full recourse. We continuously fund these needs from our
cash flow from operations, the collection of prior months' receivables and
deposits from patients in advance of treatment. If delays in repayment are
incurred, which have not as yet been encountered, we could draw on our existing
working capital line of credit. We also make payments on behalf of the Partner
for which we are reimbursed in the short-term. Other than these payments, as a
general course, we do not make other advances to the medical practice. We have
no other funding commitments to the Partner.
New Significant Accounting Policies
There have been no changes to any of our accounting policies disclosed in our
most recent Annual Report on Form 10-K.
New Accounting Pronouncements
Please see Note 11 of the consolidated financial statements for a discussion on
recently issued accounting pronouncements.
21
Item 3. Quantitative and Qualitative Disclosures About Market Risk
In the normal course of business, our interest income and expense items are
sensitive to changes in the general level of interest rates. During the third
quarter of 2007 we entered into a derivative transaction designed to hedge 50%
of our variable rate term loan. As a result of this derivative transaction we
have successfully shielded ourselves from a portion of the interest rate risks
associated with our term loan. We are currently subject to interest rate risks
associated with our short term investments and certain advances to our Fertility
clinics, both of which are tied to either short term interest rates or the prime
rate. As of March 31, 2008, a one percent change in interest rates would impact
our pre-tax income by approximately $100,000 annually.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures
Under the supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, we evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15 under the Exchange Act) as of March 31,
2008 (the "Evaluation Date"). Based upon that evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that, as of the Evaluation Date,
our disclosure controls and procedures were effective.
As permitted by Section 404 of the Sarbanes-Oxley Act, we have elected to defer
until the end of fiscal year 2008 the assessment of the effectiveness of
internal control over financial reporting for the newly acquired Vein Clinics of
America, Inc, subsidiary. We are in the process of reviewing the internal
control system in place, documenting controls and making enhancements where
needed.
(b) Changes in internal controls
There were no significant changes made in our internal controls during the
period covered by this report or, to our knowledge, in other factors that could
significantly affect these controls subsequent to the date of their evaluation.
22
Part II - OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we are party to legal proceedings in the
ordinary course of business. As of March 31, 2008, none of
these proceedings is expected to have a material adverse
effect on our financial position, results of operations or
cash flow.
Item 1A. Risk Factors
There have been no material changes from the risk factors
previously disclosed in our Form 10K as of December 31, 2007.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits.
See Index to Exhibits on Page 25.
23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTEGRAMED AMERICA, INC.
(Registrant)
Date: May 9, 2008 By:/s/: John W. Hlywak, Jr.
-------------------
John W. Hlywak, Jr.
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
24
INDEX TO EXHIBITS
Exhibit
Number Exhibit
10.34 -- Business Service Agreement between IntegraMed America, Inc.
and Southeastern Fertility Centers, P.A. dated April 24, 2008.
31.1 -- CEO Certification Pursuant to Rule 13a-14(a) as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
dated May 9, 2008.
31.2 -- CFO Certification Pursuant to Rule 13a-14(a) as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
dated May 9, 2008.
32.1 -- CEO Certification Pursuant to 18 U.S.C. ss. 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
dated May 9, 2008.
32.2 -- CFO Certification Pursuant to 18 U.S.C. ss. 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
dated May 9, 2008.
25