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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 June 30, 2005
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 an accelerated filer
(as defined in Exchange Act Rule 12 b-2).
Yes [ ] No [X]
The aggregate number of shares of the Registrant's Common Stock, $.01
par value, outstanding on July 20, 2005 was 4,957,351.
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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 June 30, 2005
and December 31, 2004................................... 3
Consolidated Statements of Income for the three-month
and six-month periods ended June 30, 2005 and 2004 ..... 4
Consolidated Statements of Shareholders' Equity for the
six-month period ended June 30, 2005 and twelve-month
period ended December 31, 2004 ......................... 5
Consolidated Statements of Cash Flows for the six-month
periods ended June 30, 2005 and 2004 ................... 6
Notes to Consolidated Financial Statements ............. 7-10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................. 11-18
Item 3. Quantitative and Qualitative Disclosures About Market Risk... 19
Item 4. Controls and Procedures...................................... 19
PART II - OTHER INFORMATION
Item 1. Legal Proceedings............................................ 20
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases
of Equity Securities..................................... 20
Item 3. Defaults upon Senior Securities............................. 20
Item 4. Submission of Matters to a Vote of Security Holders......... 20
Item 5. Other Information........................................... 21
Item 6. Exhibits ................................................... 21
SIGNATURES ................................................................ 22
CERTIFICATIONS PURSUANT TO 18 U.S.C. ss.1350, 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 per share amounts)
ASSETS
June, 30, December 31,
--------- ------------
2005 2004
--------- ------------
(unaudited)
Current assets:
Cash and cash equivalents ....................................................... $ 9,057 $ 11,300
Due from Medical Practices, net ................................................. 10,260 8,130
Pharmaceutical sales accounts receivable, net ................................... 1,276 1,259
Deferred income taxes, net ...................................................... 1,903 1,950
Prepaids and other current assets ............................................... 3,731 2,043
-------- --------
Total current assets ........................................................ 26,227 24,682
Long-term assets:
Fixed assets, net ............................................................... 15,938 14,868
Intangible assets, net .......................................................... 23,141 20,519
Deferred income taxes,net ....................................................... 1,072 1,366
Other assets .................................................................... 583 410
-------- --------
Total assets ................................................................ $ 66,961 $ 61,845
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................................ $ 928 $ 519
Accrued liabilities ............................................................. 6,677 7,451
Current portion of long-term notes payable and other obligations ................ 3,219 2,218
Patient deposits ................................................................ 18,208 14,193
-------- --------
Total current liabilities ................................................... 29,032 24,381
-------- --------
Long-term notes payable and other obligations ..................................... 2,411 3,021
-------- --------
Commitments and contingencies
Stockholders' Equity:
Common Stock, $.01 par value - 15,000,000 and 15,000,000 shares authorized in
2005 and 2004 respectively; and 4,892,667 and 4,741,466 shares issued in
2005 and 2004, respectively ................................................. 49 47
Capital in excess of par value .................................................. 49,236 48,467
Deferred compensation ........................................................... (605) (293)
Treasury stock, at cost - 67,905 and 52,711 shares in 2005 and 2004, respectively (502) (337)
Accumulated deficit ............................................................. (12,660) (13,441)
-------- --------
Total stockholders' equity .................................................. 35,518 34,443
-------- --------
Total liabilities and stockholders' equity .................................. $ 66,961 $ 61,845
======== ========
See accompanying notes to the consolidated financial statements.
3
INTEGRAMED AMERICA, INC.
CONSOLIDATED STATEMENTS OF INCOME
(all amounts in thousands, except per share amounts)
For the For the
three-month period six-month period
ended June 30, ended June 30,
------------------ ----------------
2005 2004 2005 2004
------- ------ ------ ------
(unaudited) (unaudited)
Revenues, net:
FertilityPartners , net of Service Rights amortization
of $353 and $707 in 2005, respectively, and $321
and $642 in 2004, respectively ........................ $ 25,580 $ 21,475 $ 51,036 $ 42,073
Pharmaceutical ............................................ 4,444 3,903 9,183 7,669
FertilityDirect ........................................... 2,193 1,515 3,981 2,545
-------- -------- -------- --------
Total ................................................. 32,217 26,893 64,200 52,287
Cost of services and sales:
FertilityPartners, including depreciation of $891 and
$1,744 in 2005, respectively, and $684 and $1,294 in
2004, respectively ................................... 23,053 19,298 46,021 37,847
Pharmaceutical ............................................ 4,259 3,749 8,810 7,373
FertilityDirect ........................................... 1,310 1,075 2,421 1,821
-------- -------- -------- --------
Total ................................................. 28,622 24,122 57,252 47,041
-------- -------- -------- --------
Contribution:
FertilityPartners ......................................... 2,527 2,177 5,031 4,226
Pharmaceutical ............................................ 185 154 373 296
FertilityDirect ........................................... 883 440 1,544 724
-------- -------- -------- --------
Total ................................................. 3,595 2,771 6,948 5,246
-------- -------- -------- --------
Other expenses (income):
General and administrative expenses, including depreciation
of $109 and $201 in 2005, respectively, and $79 and
$166 in 2004, respectively ............................ 2,865 2,230 5,699 4,372
Interest income ........................................... (115) (62) (215) (120)
Interest expense .......................................... 70 72 167 152
-------- -------- -------- --------
Total ................................................. 2,820 2,240 5,651 4,404
-------- -------- -------- --------
Income before income taxes ................................... 775 531 1,297 842
Income tax provision ......................................... 308 211 516 335
-------- -------- -------- --------
Net income ................................................... $ 467 $ 320 $ 781 $ 507
======== ======== ======== ========
Basic earnings per share ..................................... $ 0.10 $ 0.07 $ 0.16 $ 0.11
======== ======== ======== ========
Diluted earnings per share ................................... $ 0.09 $ 0.06 $ 0.15 $ 0.10
======== ======== ======== ========
Weighted average shares - basic .............................. 4,800 4,748 4,780 4,693
======== ======== ======== ========
Weighted average shares - diluted ............................ 5,069 5,019 5,048 4,967
======== ======== ======== ========
See accompanying notes to the consolidated financial statements.
4
INTEGRAMED AMERICA, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(all amounts in thousands)
Total
Common Stock Capital in Accumulated Treasury Stock Deferred Shareholders'
Shares Amount Excess of Par Deficit Shares Amount Compensation Equity
------ ------ ------------- ------- ------ ------ ------------ ------
BALANCE AT DECEMBER 31, 2004 4,741 47 $48,467 $(13,441) 53 $(337) $(293) $34,443
Options and warrants exercised 99 1 332 -- 11 (124) -- 209
Stock grants issued, net 52 1 437 -- 4 (41) (438) (41)
Stock grant amortization -- -- -- -- -- -- 126 126
Net income for the six months ended
June 30, 2005 -- -- -- 781 -- -- -- 781
----- -- ------- -------- -- ----- ----- -------
BALANCE AT JUNE 30, 2005 4,892 $ 49 $49,236 $(12,660) 68 $(502) $(605) $35,518
===== ======= ======= ======== == ===== ===== =======
See accompanying notes to the consolidated financial statements.
5
INTEGRAMED AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(all amounts in thousands)
For the
six-month period
ended June 30,
----------------
2005 2004
------ ------
(unaudited)
Cash flows from operating activities:
Net income ....................................................... $ 781 $ 507
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization .................................. 2,652 2,102
Deferred income taxes .......................................... 341 285
Deferred compensation .......................................... 126 10
Change in assets and liabilities -- Decrease (increase) in assets:
Due from Medical Practices .................................. (2,130) (1,101)
Pharmaceutical sales accounts receivable .................... (17) (48)
Prepaids and other current assets ........................... (1,688) 745
Other assets ................................................ (173) (38)
Increase (decrease) in liabilities:
Accounts payable ........................................... 409 (942)
Accrued liabilities ........................................ (815) 2,003
Patient deposits ........................................... 4,015 3,152
-------- --------
Net cash provided by operating activities ........................... 3,501 6,675
-------- --------
Cash flows used in investing activities:
Payment for Exclusive Service Rights ........................... (3,329) (1,204)
Purchase of fixed assets and leasehold improvements ............ (3,015) (2,950)
-------- --------
Net cash used in investing activities ............................... (6,344) (4,154)
-------- --------
Cash flows used in financing activities:
Proceeds from revolving debt agreement ......................... 1,000 --
Principal repayments on debt ................................... (575) (639)
Principal repayments under capital lease obligations ........... (34) (26)
Proceeds from exercise of common stock warrants and options .... 209 487
Repurchase of common stock ..................................... -- (445)
-------- --------
Net cash provided by (used in) financing activities ................. 600 (623)
-------- --------
Net change in cash and cash equivalents ............................. (2,243) 1,898
Cash and cash equivalents at beginning of period .................... 11,300 6,885
-------- --------
Cash and cash equivalents at end of period .......................... $ 9,057 $ 8,783
======== ========
Supplemental Information:
Interest paid .................................................. 167 152
Income taxes paid .............................................. 965 66
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 June 30, 2005, 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, 2005. These financial statements should be read
in conjunction with the audited financial statements and notes thereto included
in IntegraMed America's (the "Company") Annual Report on Form 10-K for the year
ended December 31, 2004.
NOTE 2 -- COMMON SHARES OUTSTANDING:
All common share numbers reported herein reflect the 30% Stock Split
effected in the form of a Dividend declared by the Board of Directors on May 23,
2005 and issued to shareholders on June 22, 2005.
NOTE 3 -- EARNINGS PER SHARE:
The reconciliation of the numerators and denominators of the basic and
diluted EPS computations for the three month and six-month periods ended June
30, 2005 and 2004 is as follows (000's omitted, except for per share amounts):
For the For the
three-month period six-month period
ended June 30, ended June 30,
------------------ -----------------
2005 2004 2005 2004
--------- ------- ------- -------
Numerator
Net Income ................................... $ 467 $ 320 $ 781 $ 507
====== ====== ====== ======
Denominator
Weighted average shares outstanding (basic) .. 4,800 4,748 4,780 4,693
Effect of dilutive options and warrants ...... 269 271 268 274
------ ------ ------ ------
Weighted average shares and dilutive potential
Common shares (diluted) ...................... 5,069 5,019 5,048 4,967
Basic EPS .................................... $ 0.10 $ 0.07 $ 0.16 $ 0.11
====== ====== ====== ======
Diluted EPS .................................. $ 0.09 $ 0.06 $ 0.15 $ 0.10
====== ====== ====== ======
For the three and six-month period ended June 30, 2005, there were no
outstanding options or warrants to purchase shares of Common Stock which were
excluded from the computation of the diluted earnings per share amount as the
exercise prices of all outstanding options and warrants were less than the
average market price of the shares of Common Stock.
For the three and six-month period ended June 30, 2004, there were no
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 all outstanding options were less than the average market price of the shares
of Common Stock.
7
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(unaudited)
For the three and six-month period ended June 30, 2004, the effect of the
assumed exercise of warrants to purchase 114,400 shares of Common Stock at an
exercise price of $6.92 per share was excluded in computing the diluted per
share amount because the exercise price of the warrants was greater than the
average market price of the shares of Common Stock, thereby causing these
warrants to be antidilutive.
NOTE 4 -- SEGMENT INFORMATION:
The Company is principally engaged in providing products and services to
the fertility market. For disclosure purposes, the Company recognizes Business
Services offered to its network of FertilityPartners and its pharmaceutical
distribution operations as separate reporting segments. The Business Services
segment includes revenues and costs categorized as FertilityPartners Service
Fees and FertilityDirect Revenues, as follows (000's omitted):
Business Pharmaceutical
Corporate Services Distribution Consolidated
--------- -------- ------------ ------------
For the three months ended June 30, 2005
Revenues...................................... $ -- $27,773 $4,444 $32,217
Cost of services and sales.................... -- 24,363 4,259 28,622
-------- ------ ----- -------
Contribution.................................. -- 3,410 185 3,595
General and administrative costs.............. 2,865
Interest, net................................. (45)
-------
Income before income taxes.................... $ 775
=======
Depreciation expense included above........... 1,000
Capital expenditures.......................... 299 638 -- 937
Total assets.................................. 11,813 53,355 1,793 66,961
For the six months ended June 30, 2005
Revenues...................................... $ -- $55,017 $9,183 $64,200
Cost of services and sales.................... -- 48,442 8,810 57,252
-------- ------ ----- -------
Contribution.................................. -- 6,575 373 6,948
General and administrative costs.............. 5,699
Interest, net................................. (48)
-------
Income before income taxes.................... $ 1,297
=======
Depreciation expense included above........... 1,945
Capital expenditures.......................... 563 2,452 -- 3,015
Total assets.................................. 11,813 53,355 1,793 66,961
For the three months ended June 30, 2004
Revenues...................................... $ -- $22,990 $3,903 $26,893
Cost of services.............................. -- 20,373 3,749 24,122
------- ------ ------ ------
Contribution.................................. -- 2,617 154 2,771
General and administrative costs.............. 2,230
Interest, net................................. 10
-------
Income before income taxes.................... $ 531
=======
Depreciation expense included above........... 763
Capital expenditures.......................... 108 1,028 -- 1,136
Total assets.................................. 10,225 45,142 4,137 59,504
8
Business Pharmaceutical
Corporate Services Distribution Consolidated
--------- -------- ------------ ------------
For the six months ended June 30, 2004
Revenues...................................... $ -- $44,618 $7,669 $52,287
Cost of services and sales.................... -- 39,668 7,373 47,041
------- ------ ----- ------
Contribution.................................. -- 4,950 296 5,246
General and administrative costs.............. 4,372
Interest, net................................. 32
-------
Income before income taxes.................... $ 842
=======
Depreciation expense included above........... 1,460
Capital expenditures.......................... 142 2,808 -- 2,950
Total assets.................................. 10,225 45,142 4,137 59,504
NOTE 5 -- STOCK-BASED EMPLOYEE COMPENSATION:
As of June 30, 2005, the Company had two stock-based employee compensation
plans, which are described more fully in Note 12 of the Company's financial
statements in its most recent Annual Report on Form 10-K. Prior to fiscal 2003,
the Company accounted for those plans under the recognition and measurement
principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and
related Interpretations. Under this standard, no stock option-based employee
compensation cost is reflected in net income, as all options granted under the
plans had an exercise price equal to the market value of the underlying Common
Stock on the date of grant. Effective July 1, 2003, the Company adopted the fair
value recognition provisions of FAS No. 148. Under the Prospective transition
method selected by the Company, fair value accounting is applied to all new
stock grants and modifications to old grants since January 1, 2003. Disclosure
of pro-forma net income and EPS is continued for any pre-adoption grants. No
options have been granted subsequent to the adoption of FAS No. 148.
The following table illustrates the effect on net income and earnings per
share as if the fair value based method had been applied to all outstanding and
unvested awards in each period. (000's omitted, except per share amounts).
For the For the
three-month period six-month period
Ended June 30, ended June 30,
------------------ -----------------
2005 2004 2005 2004
------ ------ ------ ------
Net Income, as reported................................ $467 $320 $781 $507
Add: Stock-based employee compensation expense
included in reported net income, net of related tax
effects................................................ 27 37 49 68
Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects............. (70) (98) (135) (190)
Pro forma net income................................... 424 259 695 385
Earnings per share:
Basic-as reported................................. $0.10 $0.07 $0.16 $0.11
Basic-pro forma................................... $0.09 $0.05 $0.15 $0.08
Diluted-as reported............................... $0.09 $0.06 $0.15 $0.10
Diluted-pro forma................................. $0.08 $0.05 $0.14 $0.08
9
NOTE 6 -- LITIGATION
There are minor legal proceedings to which the Company is a party. In the
Company's opinion, the claims asserted and the outcome of such proceedings will
not have a material adverse effect on the financial position, results of
operations or the cash flow of the Company.
NOTE 7 -- RECENT ACCOUNTING STANDARDS
Non-monetary Assets
In December 2004, the FASB issued Statement of Financial Accounting
Standards (SFAS) No. 153, "Exchanges of Non--monetary Assets - an amendment of
APB Opinion No. 29. SFAS 153 is based on the principle that exchanges of
non-monetary assets should be measured based on the fair value of the assets
exchanged. SFAS 153 eliminates the exception for non-monetary exchanges of
similar productive assets and replaces it with a general exception for exchanges
of non-monetary assets that do not have commercial substance. A non-monetary
exchange has commercial substance if the future cash flows of the entity are
expected to change significantly as a result of the exchange. SFAS 153 is
effective for non-monetary asset exchanges in fiscal periods beginning after
June 15, 2005. We do not believe the adoption of SFAS 153 will have a material
impact on our consolidated financial position, results of operations or cash
flows.
Accounting Changes
In May 2005, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 154, "Accounting Changes and Error Corrections" which replaces APB
Opinions No. 20 and SFAS No. 3. SFAS 154 provides guidance on the accounting for
and reporting of accounting changes and error corrections. It establishes
retrospective application, or the latest practicable date, as the required
method for reporting a change in accounting principle and the reporting of a
correction of an error. SFAS 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after December 15, 2005. We
do not believe the adoption of SFAS 154 will have a material impact on our
consolidated financial position, results of operations or cash flows.
10
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
quarterly report and with IntegraMed America Inc.'s Annual Report on Form 10-K
for the year ended December 31, 2004.
Overview
IntegraMed America, Inc. (the "Company") offers products and services to
patients and providers in the fertility industry. The IntegraMed Network is
comprised of twenty-three fertility centers in major markets across the United
States, pharmaceutical products and services subsidiary, a financing subsidiary,
the Council of Physicians and Scientists, and a leading fertility portal
(www.integramed.com). Fifteen affiliate fertility centers purchase discrete
service packages provided by the Company and eight fertility centers have access
to the entire portfolio of products and services under the comprehensive
FertilityPartners(TM) program. All twenty-four centers have access to the
Company's consumer services, principally pharmaceutical products and patient
financing products.
The Company's strategy is to align information, technology and finance for
the benefit of fertility patients, providers, and payers. The primary elements
of the Company's strategy include: (i) expanding the IntegraMed Provider Network
into new major markets; (ii) increasing the number and value of service packages
purchased by members of the IntegraMed Provider Network; (iii) entering into
additional FertilityPartners contracts; (iv) increasing revenues at contracted
FertilityPartners centers; (v) increasing the number of Shared Risk Refund
treatment packages sold to patients of the IntegraMed Provider Network and
managing the risk associated with the Shared Risk Refund program; and (vi)
increasing sales of pharmaceutical products and services.
Major events impacting financial condition and results of operations
During 2003, the Company negotiated revised fee structures on three of its
existing FertilityPartner contracts. In all three of these contracts, the
company began a phased-in fee reduction which commenced in the first quarter of
2004, and is expected to extend through 2006. Beginning in the year 2006, these
revised contracts contain a maximum limit on the amount of fees the Company can
earn, which are based on the earnings of the underlying fertility centers. The
maximum limitation on one contract is below the fees earned by the Company on
this contract in 2004. The company's other FertilityPartner agreements do not
contain fee limitations.
On January 1, 2004, the Company signed a FertilityPartner agreement with
the Seattle, Washington based Seattle Reproductive Medicine, Inc., P.S. ("SRM")
physician practice. Under the terms of this 15-year agreement, the Company's
service fees are comprised of reimbursed costs of services, a tiered percentage
of revenues, and an additional fixed percentage of SRM's earnings. The Company
also committed up to $2 million to fund the construction and equipping of a new
state-of-the-art facility to house the clinical practice and embryology
laboratory for SRM and its patients. Based on the terms of this transaction,
IntegraMed was paid a fixed service fee for approximately eleven months of 2004
until the new facility was fully operational in December 2004. Upon becoming
fully operational, IntegraMed's service fees reverted to the fee structure
described above.
Effective January 1, 2005, the Company signed a FertilityPartner agreement
to supply a complete range of business, marketing and facility services to the
Reproductive Partners Medical Group, Inc., a fertility practice comprised of six
physicians in the Southern California market. Under the terms of this 25-year
agreement, IntegraMed has committed up to $0.5 million to fund any necessary
capital needs of the practice. Based on the terms of the transaction,
IntegraMed's service fees will be comprised of the Company's standard reimbursed
costs of services, a variable percentage of revenues, plus an additional fixed
percentage of the center's earnings.
11
Effective January 1, 2005, the Company became a minority equity investor in
the Assisted Reproductive Technology Insurance Company ("ARTIC"). ARTIC is
incorporated as an off-shore captive insurance company designed to offer
malpractice insurance to physicians within the IntegraMed network. IntegraMed's
equity investment of $50,000 represents a 10% ownership stake, accounted for on
the cost basis, with the remaining equity owned by participating physician
groups. IntegraMed has agreed to provide certain administrative and insurance
related services to ARTIC for a predetermined fee.
On May 24, 2005, the Company declared a 30% stock split effected in the
form of a stock dividend for all holders of record as of June 8, 2005. As a
result of this dividend, 1,129,141 new shares of the company's common stock were
issued on the payment date of June 22, 2005. 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 have been
restated to reflect the stock split.
During the second quarter of 2005 the Company and Theralogix, a developer
of evidence-based nutritional supplements, announced the launch of Fertility
Sciences, LLC, a new venture committed to developing nutritional supplements to
help enhance fertility. Fertility Science's mission is to facilitate the
responsible use of evidence-based, complementary therapies in reproductive
practice. The company distributes a limited number of evidence-based nutritional
supplements, which are formulated and endorsed by leading fertility specialists,
and certified for purity and content accuracy. The company's first product
offering, ConceptionXR for Men, targets male factor infertility. The supplement
is intended to benefit fertility providers and patients by providing a product
whose formula is vetted by highly-credentialed scientists and whose
manufacturing, bottling and labeling is overseen by NSF International, a global
leader in independent third-party certification.
12
Results of Operations
The following table shows the percentage of net revenues represented by
various expense and other income items reflected in our Consolidated Statement
of Operations.
For the For the
three-month period six-month period
ended June 30, ended June 30,
---------------------- ----------------------
2005 2004 2005 2004
--------- --------- -------- ---------
(unaudited)
Revenues, net
FertilityPartners ............... 79.4% 79.9% 79.5% 80.5%
Pharmaceutical................... 13.8% 14.5% 14.3% 14.7%
FertilityDirect ................. 6.8% 5.6% 6.2% 4.8%
Total ........................... 100.0% 100.0% 100.0% 100.0%
Costs of services incurred:
FertilityPartners ............... 71.6% 71.8% 71.7% 72.4%
Pharmaceutical .................. 13.2% 13.9% 13.7% 14.1%
FertilityDirect ................. 4.0% 4.0% 3.8% 3.5%
Total ........................... 88.8% 89.7% 89.2% 90.0%
Contribution
FertilityPartners ............... 7.8% 8.1% 7.8% 8.1%
Pharmaceutical................... 0.6% 0.6% 0.6% 0.6%
FertilityDirect ................. 2.8% 1.6% 2.4% 1.3%
Total ........................... 11.2% 10.3% 10.8% 10.0%
General and administrative expenses... 9.0% 8.3% 9.0% 8.4%
Interest income....................... (0.4)% (0.2)% (0.3)% (0.2)%
Interest expense...................... 0.2% 0.2% 0.3% 0.2%
Total other expenses............. 8.8% 8.3% 9.0% 8.4%
Income before income taxes............ 2.4% 2.0% 2.0% 1.6%
Provision for income taxes............ 1.0% 0.8% 0.8% 0.6%
Net income............................ 1.4% 1.2% 1.2% 1.0%
Three Months Ended June 30, 2005 Compared to Three Months Ended June 30, 2004
Revenues for the three months ended June 30, 2005 increased approximately
$5.3 million, or 19.8%, from the same period in 2004. The main growth factors
contributing to this increase were:
(i) Revenues at our six FertilityPartner centers opened prior to
2004, increased by $0.9 million, or 4.2%. This increase resulted
from growth in patient volume and clinical billings at the
FertilityPartner level, and is attributable to our continuing
consumer marketing efforts. Revenue from our two recent
FertilityPartner centers, located in the Seattle, Washington and
Southern California markets, who joined our network in January
2004 and January 2005 respectively, totaled $3.4 million in the
second quarter of 2005, representing an increase of $3.2 million
from the same period in 2004. The Seattle FertilityPartner
location spent much of the second quarter of 2004 undergoing
significant start up operations and did not begin fully
servicing patients until the fourth quarter of 2004. The
Southern California FertilityPartner location was fully
accretive to revenue and earnings during the second quarter of
2005.
13
(ii) Revenue at our pharmaceutical unit increased by $541,000, or
13.9% during the second quarter of 2005 from the same period in
2004. Revenues at this unit have continued to build since
product mix and reimbursement changes were introduced in the
first quarter of 2004. We are currently seeking to increase our
pharmaceutical sales penetration within both the
FertilityPartner and affiliated clinics participating in our
network.
(iii) FertilityDirect revenues, which are comprised primarily of our
direct to consumer Shared Risk Refund program, membership fees
from affiliated clinics, and administrative fees earned from
ARTIC, increased by $678,000, or 44.8% from prior year levels.
We plan to continue aggressive promotion of our FertilityDirect
programs through several marketing channels and anticipate that
both of these programs will continue to show strong growth in
future quarters.
Contribution of $3.6 million for the second quarter of 2005 was up
$824,000, or 29.7% from the same period in 2004. As a percentage of revenue, the
contribution margin was 11.2% in 2005 versus 10.3% in 2004. The following
factors had a significant effect on second quarter 2005 contribution:
(i) Contribution generated by our FertilityPartners agreements
increased by a net $350,000 in the second quarter of 2005 versus
the same period in 2004. Contribution growth for the second
quarter came from each of our practices except two who had lower
than anticipated results. We have recently begun instituting
regional organizational changes designed to enhance results at
all FertilityPartner locations by providing an infrastructure
for future growth and profitability.
(ii) Pharmaceutical contribution increased by $31,000, or 20.1%, and
margin rates increased to 4.2%, during the second quarter of
2005 from 3.9% in 2004. While we expect continued increases in
pharmaceutical contribution amounts, we also anticipate that
these margins will stabilize in their historic range of 3.5 -
4.0% for the balance of 2005.
(iii) Contribution from our FertilityDirect programs increased by
$443,000, or 100.7% from the same period in the prior year. This
increase was driven by significant growth in Shared Risk Refund
patient volume, continuing monthly membership fees from
affiliated clinics and a contribution of $31,000 from ARTIC
administration fees.
General and Administrative expenses increased by $635,000 in the second
quarter of 2005 versus the same period in 2004. The major factors accounting for
this increase were additional personnel costs designed to support our across the
board revenue increases, as well as compliance costs related to HIPAA,
Sarbanes-Oxley and FDA legislation.
Interest income rose to $115,000 for the quarter ended June 30, 2005, from
$62,000 in 2004. This increase was mainly attributable to finance charges
assessed to various FertilityPartner locations on invested capital in excess of
predefined limits, as well as higher market interest rates on available cash
balances.
Interest expense decreased slightly by $2,000 from the same quarter in the
prior year as a result of lower average debt levels during the quarter
offsetting higher market interest rates.
The provisions for income tax were $308,000, versus $211,000, for the
quarters ended June 30, 2005 and 2004, respectively. The tax provision was 39.7%
for both quarters.
Six months Ended June 30, 2005 Compared to Six months Ended June 30, 2004
Revenues for the six months ended June 30, 2005 increased by a net of
approximately $11.9 million, or 22.8%, from the same period in 2004. The main
factors contributing to this increase were:
(i)
Revenues at our FertilityPartner centers increased by $9.0
million, or 21.3% from the prior year period. Growth at
FertilityPartner locations open prior to January 1, 2004
increased by $2.4 million from the same period in the prior year
and is mainly attributable to continuing investments in sales
and marketing development. Our two FertilityPartners agreements
signed subsequent to January 1, 2004, and located in the
Seattle, Washington and Southern California markets, contributed
14
revenues of $3.1 million and $3.7 million in the first six
months of 2005, respectively, versus $249,000 and $0,
respectively, in the comparable period of 2004. We anticipate
leveraging our marketing investments in order to show increased
revenue growth at our two new FertilityPartner locations in
future periods.
(ii) Revenue at our pharmaceutical unit increased by $1.5 million, or
19.7% from the same period in 2004. This increase reflects
continued penetration levels of pharmaceutical sales to the
growing patient volumes within our network.
(iii) FertilityDirect revenues increased by $1.4 million, or 56.4%
from the same period in 2004. This increase is the direct result
a strong increase in patient demand for our Shared Risk Refund
product, as well as continuing participation in our affiliate
program by non-FertilityPartner clinics.
Contribution for the first six months of 2005 increased by $1.7 million, or
32.4%, to $6.9 million from $5.2 million for the same period in 2004. The main
factors driving this increase by product line were as follows:
(i) Contribution generated by our FertilityPartner agreements
increased by $0.8 million in the first six months of 2005
relative to the same period in 2004. Contribution by
FertilityPartner locations opened prior to January 1, 2004
increased by $0.1 million, with contribution by the two
FertilityPartner locations opened subsequent to January 1, 2004
accounting for $0.7 million of the increase. Contribution
increases at the FertilityPartner locations opened prior to
January 1, 2004 was hampered by below budget results at one
clinic, and previously discussed pricing adjustments on several
FertilityPartner contracts.
(ii) Pharmaceutical contribution increased by $0.1 million, or 26.0%,
over the first six months of 2004. Margin rates increased to
4.1% for the first six months of 2005 versus 3.9% for the
similar period in 2004. As previously stated, we expect margin
rates at our pharmaceutical unit to average in the 3.5 - 4.0%
range for the balance of 2005.
(iii) Contribution from the FertilityDirect program increased by $0.8
million, or 113.3% from the same period in the prior year. This
increase reflects strong volume and margin growth for our Shared
Risk Refund program. ARTIC administration fees totaled $62,000
for the first half of 2005.
General and Administrative costs increased by $1.3 million in the first six
months of 2005 versus the first six months of 2004. As a percentage of revenues
General and Administrative costs were 9.0% in 2005, relative to 8.4% in 2004. As
previously discussed, this increase is driven by personnel investments directly
related to our revenue growth, and compliance costs related to both HIPAA, FDA
and Sarbanes-Oxley requirements.
Interest income increased by $95,000 to $215,000 for the six months ended
June 30, 2005, from $120,000 in the same period in 2004. This increase was
mainly attributable to finance charges assessed to various FertilityPartner
locations on invested capital, and higher interest rates earned on investable
cash balances. Interest expense also increased to $167,000 from $152,000 from
the same period in the prior year primarily as a result of higher market
interest rates on our outstanding debt.
Our provisions for income taxes were approximately 39.8% of pre-tax income
for the six months ended June 30, 2005 and 2004.
Off-balance Sheet Arrangements
As part of our ongoing business, we do not participate in transactions that
generate relationships with unconsolidated entities or financial partnerships,
such as entities often referred to as structured finance or special purpose
entities ("SPE's"), which would have been established for the purpose of
facilitating off-balance sheet arrangements or other contractually narrow or
limited purposes. As of June 30, 2005, we were not involved in any
unconsolidated SPE transactions.
15
Liquidity and Capital Resources
Historically, we have financed our operations by the sale of equity
securities, issuance of notes and internally generated resources. In addition,
we also use bank financing for working capital and business development
purposes. While increases in Patient Deposits remain strong, ongoing planned
capital investments required by our expanding FertilityPartners, and the payment
of Service Rights related to our new Southern California FertilityPartner
contract, have resulted in a decrease in working capital during the first six
months of 2005 to a negative $2.8 million as of June 30, 2005, from $0.3 million
as of December 31, 2004. We believe that cash flows from our operations plus our
existing credit facility and term loan will be sufficient to provide for our
future liquidity needs for the next twelve months.
Patient deposits, which represent funds received from patients in advance
of treatment cycles, increased by $4,015,000 since December 31, 2004 to
$18,208,000 as of June 30, 2005. These deposits, which are comprised of both
Shared Risk and non-Shared Risk sources, are prepayments of future revenues from
patients without full insurance coverage. Deposits are a significant source of
recurring cash flow and represent interest free financing for us.
On July 31, 2003, we entered into a credit agreement with Bank of America
(formerly Fleet Bank). This agreement was comprised of a $7.0 million three-year
working capital revolver and a $5.75 million three-year term loan. Each of these
components bear 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 2.25% 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 loan is payable monthly and interest on LIBOR-based
loan is payable on the last day of each applicable interest period. 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. As of June 30,
2005, the term loan had an outstanding balance of $3.45 million and we had
borrowed $2.0 million under the working capital revolver agreement for general
corporate purposes. The remaining working capital revolver balance of $5.0
million is available to us. The Bank of America credit facility is
collateralized by all of our assets. The credit facility is subject to several
covenants, all of which were met as of June 30, 2005.
We continuously review our credit agreements and may renew, revise or enter
into new agreements from time to time as deemed necessary.
16
Significant Contractual Obligations and Other Commercial Commitments:
The following summarizes our contractual obligations and other commercial
commitments at June 30, 2005, and the effect such obligations are expected to
have on our liquidity and cash flows in future periods.
Payments Due by Period
Total Less than 1 year 1 - 3 years 4 - 5 years After 5 years
---------- ---------------- ----------- ------------ -------------
Notes Payable................. $ 5,450,000 $3,150,000 $ 2,300,000 $ -- $ --
Capital lease obligations..... 180,000 69,000 111,000 -- --
Operating leases.............. 33,477,000 5,765,000 14,049,000 5,817,000 7,846,000
FertilityPartners capital
projects.................. 563,000 563,000 -- -- --
----------- ---------- ----------- ---------- -----------
Total contractual
cash obligations.......... $39,670,000 $9,547,000 $16,460,000 $5,817,000 $7,846,000
=========== ========== =========== ========== ==========
Amount of Commitment Expiration Per Period
Total Less than 1 year 1 - 3 years 4 - 5 years After 5 years
---------- ---------------- ------------- ------------- -------------
Lines of credit............... $ 7,000,000 $ -- $ 7,000,000 $ -- $ --
We also have commitments to provide accounts receivable financing under our
FertilityPartners agreements. Our financing of this receivable generally occurs
by the 20th business day of each month. The medical practice's repayment
priority consists of the following:
(i) Reimbursement of expenses that we have incurred on their behalf;
(ii) Payment of the fixed or, if applicable, the variable portion
of the service fee which relates to the FertilityPartners
revenues; and
(iii) Payment of the variable portion of the service fee.
We are responsible for the collection of receivables, which are financed
with full recourse. We have continuously funded these needs from cash flow from
operations and the collection of the prior month's receivables. 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 make payments on behalf of the
FertilityPartners 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. Other than the capital commitments, we have no other funding
commitments to the FertilityPartners.
Recent Accounting Standards
Non-monetary Assets
In December 2004, the FASB issued Statement of Financial Accounting
Standards (SFAS) No. 153, "Exchanges of Non-monetary Assets - an amendment of
APB Opinion No. 29. SFAS 153 is based on the principle that exchanges of
non-monetary assets should be measured based on the fair value of the assets
exchanged. SFAS 153 eliminates the exception for non-monetary exchanges of
similar productive assets and replaces it with a general exception for exchanges
of non-monetary assets that do not have commercial substance. A non-monetary
exchange has commercial substance if the future cash flows of the entity are
expected to change significantly as a result of the exchange. SFAS 153 is
effective for non-monetary asset exchanges in fiscal periods beginning after
June 15, 2005. We do not believe the adoption of SFAS 153 will have a material
impact on our consolidated financial position, results of operations or cash
flows.
17
Accounting Changes
In May 2005, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 154, "Accounting Changes and Error Corrections" which replaces APB
Opinions No. 20 and SFAS No. 3. SFAS 154 provides guidance on the accounting for
and reporting of accounting changes and error corrections. It establishes
retrospective application, or the latest practicable date, as the required
method for reporting a change in accounting principle and the reporting of a
correction of an error. SFAS 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after December 15, 2005. We
do not believe the adoption of SFAS 154 will have a material impact on our
consolidated financial position, results of operations or cash flows.
Forward Looking Statements
This Form 10-Q and discussions and/or announcements made by or on behalf of
the Company, 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. The Company's actual
results may differ materially from those described in these forward-looking
statements due to the following factors: the Company's ability to acquire
additional FertilityPartners agreements, the Company's ability to raise
additional debt and/or equity capital to finance future growth, the loss of
significant FertilityPartners agreement(s), the profitability or lack thereof at
fertility centers serviced by the Company, increases in overhead due to
expansion, the exclusion of fertility and ART services from insurance coverage,
government laws and regulation regarding health care, changes in managed care
contracting, the timely development of and acceptance of new fertility, and ART
and/or genetic technologies and techniques. The Company is under no obligation
to (and expressly disclaims any such obligation) update or alter any
forward-looking statements whether as a result of new information, future events
or otherwise.
18
Item 3. Quantitative and Qualitative Disclosures About Market Risk
For information regarding our exposure to certain market risks, see Item
7A, QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK, in our Annual
Report on Form 10-K for the year ended December 31, 2004. As of June 30, 2005, a
one percent increase in interest rates would have a negligible impact on the
company, reducing pre-tax income by approximately $5,000 and net income by
approximately $3,000.
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 June 30,
2005 (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 in timely alerting them to
the material information relating to us required to be included in our periodic
SEC filings.
(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.
19
Part II - OTHER INFORMATION
Item 1. Legal Proceedings.
There are minor legal proceedings to which the Company is a
party. In the Company's opinion, the claims asserted and
the outcome of such proceedings will not have a material
adverse effect on the financial position, results of
operations or the cash flow of the Company.
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases
of Equity Securities.
In May 2005, the Company obtained 3,800 shares of its
Common Stock that are now held as treasury shares. These
shares represent reimbursement certain officers made to the
Company for withholding taxes paid, on their behalf, by the
Company on stock grants issued during the second quarter of
2005. The Company currently has no plans to dispose of
these shares.
In June 2005, the company obtained 12,793 additional shares
of its Common Stock as a result of a 30% stock split,
effected in the form of a stock dividend, on existing
treasury shares held by the Company. The Company currently
has no plans to dispose of these shares.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to Vote of Security Holders.
At an Annual Stockholders Meeting held on May 24, 2005, the
following matters were acted upon by the Stockholders with
the indicated votes thereon:
Proposal 1 -- Election of Directors
Director For Against
-------- --- -------
Gerardo Canet 3,217,097 182,208
Sarason D. Liebler 3,202,837 196,468
Wayne R. Moon 3,043,119 356,186
Lawrence J. Stuesser 3,042,719 356,586
Elizabeth E. Tallett 3,055,219 344,086
Proposal 2 -- Amendment to the Company's Long-Term
Compensation Plan (the "Plan") increasing the number of
shares authorized for issuance under the Plan
For Against Abstentions Broker Non-Votes
--- ------- ----------- ----------------
1,618,581 396,835 4,616 1,379,273
Proposal 3 -- Amendment to the Plan providing for "cashless
exercises" under the Plan
For Against Abstentions Broker Non-Votes
--- ------- ----------- ----------------
1,776,062 237,787 6,183 1,379,273
In accordance with Delaware Law a majority of votes present in person
or represented by proxy was required to approve the amendments to the 2000
Long-Term Compensation Plan although in the Proxy Statement it was indicated
20
that the affirmative vote of a majority of the shares of the Common Stock
outstanding and entitled to vote was necessary to approve and ratify the
amendments. That statement in the Proxy was contrary to Delaware Law and the
Company was required to use the Delaware Law standard.
Item 5. Other Information.
None.
Item 6. Exhibits.
See Index to Exhibits on Page 23.
21
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: August 12, 2005 By: /s/:John W. Hlywak, Jr.
----------------------------
John W. Hlywak, Jr.
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
22
INDEX TO EXHIBITS
Exhibit
Number Exhibit
------ -------
10.9 (a) -- Letter amendment effective June 9, 2005 to Gerardo Canet
Employment Agreement filed as exhibit with identical exhibit
number to Registrant's Report on Form 8-K dated June 9, 2005
10.29(a) -- IntegraMed America, Inc. Incentive Stock Option Agreement
10.29(b) -- IntegraMed America, Inc. Non-Qualified Stock Option Agreement
31.1 -- CEO Certification Pursuant to 18 U.S.C. ss. 1350 as Adopted
Pursuant to Section 302 of the Sarbanes Oxley Act of 2002 dated
August 12, 2005.
31.2 -- CFO Certification Pursuant to 18 U.S.C. ss. 1350 as Adopted
Pursuant to Section 302 of the Sarbanes Oxley Act of 2002 dated
August 12, 2005.
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
August 12, 2005.
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
August 12, 2005.
23