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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/A
Amendment No. 2
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 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
incorporation or organization) (I.R.S. Employer Identification No.)
Two Manhattanville Road
Purchase, New York 10577
(Address of principal executive offices) (Zip Code)
(914) 253-8000
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
------------------- ------------------------------------
Common Stock, $.01 par value NASDAQ Global Market
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act. Yes _____ No __X__
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes _____No __X__
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 if disclosure of delinquent filer pursuant to Item
405 of Regulation S-K (17 CFR 229.405) is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K [X ]
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 ______ (Do not check if a smaller reporting company)
Smaller Reporting Company _____ .
9Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act.
Yes ____ No __X__
Aggregate market value of voting stock (Common Stock, $.01 par value) held
by non-affiliates of the Registrant was approximately $61.9 million on June 30,
2008 based on the closing sales price of the Common Stock on such date.
The aggregate number of shares of the Registrant's Common Stock, $.01 par
value, outstanding was approximately 8,760,300 on March 17, 2009.
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EXPLANATORY NOTE
IntegraMed America, Inc. ("we" or the "Company") is filing this Amendment
No. 2 on Form 10-K/A (the "Amendment") to amend its Annual Report on Form 10-K
for the fiscal year ended December 31, 2008 filed with the Securities and
Exchange Commission on March 31, 2009 (the "Original Filing"), as amended by
Amendment No. 1 to the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission on June 5, 2009. The Amendment amends "Item
1- segment information, and significant service contracts", Item 6- Selected
Finanacial Data", "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Item 8. Financial Statements and
Supplementary Data", "Item 9A. Controls and Procedures" and the Consolidated
Financial Statements and notes thereto, as well as the Report of Independent
Registered Public Accounting Firm. In addition, new certifications are filed as
exhibits to the Amendment. However, the Amendment sets forth the Form 10-K in
its entirety. The Amendment is filed in response to our discovery of an error in
the calculation of revenue recognition for our Attain IVF Refund Program which
is a component of our Consumer Services Division, more fully explained as
follows: Most patients who enroll in the Attain IVF Refund Program are entitled
to a maximum of six treatments (three fresh In Vitro Fertilization cycles and
three frozen embryo transfers). The patient is entitled to a 70% refund in the
event that they drop out or are terminated from the program by us after the
first treatment or are unsuccessful after all treatments. Following a review of
our revenue recognition policy in March 2009, as disclosed in our Current Report
on Form 8-K dated March 28, 2009, we determined to use a proportional method for
revenue recognition for the non-refundable portion of the patient's fee. We
recognize the 30% portion in proportion to the fair value of each treatment the
patient received rather than all at once after the first treatment.
The change in revenue recognition policy required that we apply this new
accounting treatment historically to all patients who had ever enrolled in the
Attain IVF Refund Program.
Our original calculation omitted any adjustment for the revenue to be
recognized for withdrawals prior to the completion of all six cycles, which
requires us to restate our financial results for the years ended December 31,
2006, 2007 and 2008.
The change in the timing related to revenue recognition had the following
effects:
2008 2007 2006
---- ---- ----
Revenue as reported ............................... $ 197,403 $ 151,166 $ 125,818
Net Change in reported revenue .................... 750 656 502
--------- --------- ---------
Revenue as restated ............................... $ 198,153 $ 151,822 $ 126,320
========= ========= =========
Income before income taxes as reported ............ $ 5,715 $ 4,062 $ 3,047
Net change in reported revenue .................... 750 656 502
Net change in reserve for medical costs ........... (13) (12) (9)
--------- --------- ---------
Income before income taxes as restated ............ $ 6,452 $ 4,706 $ 3,540
========= ========= =========
Income tax provision as reported .................. $ 2,227 $ 1,391 $ 263
Net change in income taxes from above adjustments . 310 271 207
--------- --------- ---------
Income tax provision as restated .................. $ 2,537 $ 1,662 $ 470
========= ========= =========
Net income as reported ............................ $ 3,488 $ 2,671 $ 2,784
Summary of above adjustments ...................... 427 373 286
--------- --------- ---------
Net income as restated ............................ $ 3,915 $ 3,044 $ 3,070
========= ========= =========
Diluted earnings per share as reported ............ $ 0.40 $ 0.32 $ 0.34
Change in earnings per share from above adjustments 0.05 0.04 0.03
--------- --------- ---------
Diluted earnings per share as restated ............ $ 0.45 $ 0.36 $ 0.37
========= ========= =========
Current liabilities as reported ................... $ 51,126 $ 44,005 $ 27,856
Cumulative effect of restatement on liabilities ... (1,513) (1,086) (712)
--------- --------- ---------
Current liabilities as restated ................... $ 49,613 $ 42,919 $ 27,144
========= ========= =========
Shareholders' Equity as reported .................. $ 50,753 $ 46,549 $ 39,466
Cumulative effect of restatement on
Shareholders' Equity .......................... 1,511 1,085 712
--------- --------- ---------
Shareholders' Equity as restated .................. $ 52,264 $ 47,634 $ 40,178
========= ========= =========
2
The Amendment does not reflect events occurring after the filing of the
Original Filing and unless otherwise stated herein, the information contained in
the Amendment is current only as of the time of the Original Filing. Except as
described above, no other changes have been made to the Original Filing.
Accordingly, the Amendment should be read in conjunction with the Company's
filings made with the Securities and Exchange Commission subsequent to the
filing of the Original Filing, including the Company's definitive proxy
statement filed on April 15, 2009.
DOCUMENTS INCORPORATED BY REFERENCE
See Part III hereof with respect to incorporation by reference from the
Registrant's definitive proxy statement for the fiscal year ended December 31,
2008 to be filed pursuant to Regulation 14A under the Securities Exchange Act of
1934 and the Exhibit Index hereto.
PART I
ITEM 1. Business
Overview -
IntegraMed America is a specialty healthcare services company that was
incorporated in Delaware on June 4, 1985 and celebrated its sixteenth year as a
publicly traded company in 2008. The Company is the leading operator of
fertility centers and vein clinics in the United States and provides treatment
financing programs for patients of these treatment facilities whose insurance
does not cover the particular procedure. The Company is organized into three
operating divisions and a Corporate office that provides shared support
services.
The Fertility Centers Division provides business and management services to
a network comprised of 11 contracted fertility centers in our Partner program,
located in 13 major markets across the United States. These 11 contracted
centers are among the largest fertility clinics in the United States accounting
for approximately 15% of total U.S. IVF procedures performed. This division does
not provide nor is it responsible to provide direct or indirect medical services
or treatments to patients. The division's business model is designed to offer
contracted products and services to independent medical providers which are
intended to support their fertility center's operations and 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, for leading fertility providers as well as a captive insurance
company (ARTIC - Assisted Reproductive Technology Insurance Company) which
provides malpractice insurance to affiliated fertility practices and their
physicians.
The Consumer Services Division offers services directly to fertility
patients. This division is not in itself a provider of direct or indirect
medical services to patients, however, in its Attain IVF program, it is
responsible for the provision of treatment to patients which it subcontracts to
affiliated fertility clinics. This division maintains a contracted network of 22
independent medical providers 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 Partner fertility centers. These 22 contracted
fertility centers are also among the largest tier of clinics in the U.S.
collectively providing an additional 8% of total U.S. IVF procedures.
In late 2008, the Consumer Services division re-launched its successful
Shared Risk Refund program under the name "Attain IVF". This re-branding was
done to reflect advantages offered by the program beyond its basic risk sharing
features and to position the program in a leadership role among smaller, similar
programs offered by other providers. As described in more detail below, Attain
IVF is an offer of packaged pricing for a set of treatments with a potential for
a refund.
Our Vein Clinics Division, which was formed on August 8, 2007, with the
purchase of Vein Clinics of America, Inc., provides business and management
services to a network of 32 clinics located in 12 states. These clinics provide
specialized treatment for patients suffering from vein diseases and disorders.
This division is not in itself a provider of direct or indirect medical services
or treatments to patients. The division's business model is designed to offer
services and support to contracted medical practices which provide medical
treatment to patients. The Vein Clinics Division provides business and
management services to our network of vein treatment clinics and is not
responsible for the provision of medical care. However, since we are the primary
beneficiary and obligor of their operations, we consolidate the clinics and
include patient revenue and related expenses in our financial statements.
3
The Shared Services group within the corporate office assists the fertility
centers, consumer services and vein clinic divisions with administrative
services such as finance, accounting, human resources, legal 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.
We evaluate whether we should report the results of our clinical operations
in which we have management services contracts in accordance with FASB
Interpretation No. 46 (FIN 46R) "Consolidation of Variable Interest Entities"
("VIE's"). Among other factors, we evaluate whether we are the primary obligor
or beneficiary of the results of operations of the clinics. Since we do not have
a controlling financial interest in any of the fertility medical practices to
which we provide services, we do not consolidate their results. We do have a
controlling financial interest in the operations of each of the vein clinics and
therefore consolidate the results of those clinic operations. Accordingly, we
report the revenue for patient services only from the vein clinic segment
pursuant to the requirements of FIN 46R.
We also maintain a website at www.integramed.com to provide information to
the general public and our shareholders on our products, resources and services,
along with general information on IntegraMed and its management, financial
results and press releases. Copies of our most recent Annual Report on Form
10-K, our Quarterly Reports on Form 10-Q or our other reports filed with the
Securities and Exchange Commission, or SEC, can be obtained, free of charge as
soon as reasonably practicable after such material is electronically filed with,
or furnished to the SEC, from our Investor Relations Department by calling
914-253-8000, by an e-mail request from our Investor Information web page at
www.integramed.com, or through the SEC's website by clicking the direct link
from our website at www.integramed.com or directly from the SEC's website at
www.sec.gov. You may also read and copy any materials we filed with the SEC at
the SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549. You
may call the SEC at 1-800-SEC-0330 for further information about the Public
Reference Room. Our website and the information contained therein or connected
thereto are not intended to be incorporated into this Annual Report on Form
10-K.
Our Industries of Focus --
Reproductive Medicine
Reproductive medicine encompasses the medical discipline that focuses on
male and female reproductive systems and processes. There are many reasons why
couples have difficulty conceiving, and accurate identification of a specific
cause of infertility can be time consuming, expensive and requires access to
specialized diagnostic and treatment services. Reproductive endocrinologists are
specialized physicians who perform these more sophisticated medical and surgical
fertility diagnoses and treatments. Reproductive endocrinologists generally have
completed a minimum of four years of residency training in obstetrics and
gynecology and have at least two years of additional training in an approved
subspecialty fellowship program. The fertility services market is highly
fragmented among providers in each major local market as well as on a national
basis.
Conventional fertility services include diagnostic tests performed on both
the female and male. Depending on the results of the diagnostic tests performed,
treatment options may include, among others, fertility drug therapy, artificial
insemination and fertility surgeries to correct anatomical problems. According
to recent industry estimates, approximately 10% of women of reproductive age, or
more than 6 million women, have an infertility-related medical appointment
annually. Procedures that require gametes (sperm and eggs) to be handled in
vitro (outside the body) are classified as Assisted Reproductive Technology, or
"ART", services. Current types of ART services include in vitro fertilization,
or IVF, frozen embryo transfers, donor egg programs as well as other more
specialized treatments. IVF represents the most frequently employed form of ART
with current techniques used in connection with IVF services including
intracytoplasmic sperm injection, or ICSI, assisted hatching, cryopreservation
of embryos, pre-implantation genetic diagnosis (PGD), and blastocyst culture and
transfer.
According to publications from the Harvard Business School Press, the
annual expenditures relating to fertility services are approximately $3 billion.
4
While demand for advanced reproductive medicine and treatment is highly
correlated with larger demographic trends, we believe the market will continue
to grow in the future for the following reasons:
o The quality of treatment is improving, increasing pregnancy success
rates;
o Improvements in embryo culture media and implantation rates are leading
to the capability of reducing high order multiple pregnancies - one of
the greatest risk factors in this industry;
o With improving pregnancy rates, the cost of treatment is decreasing
thereby making these services more affordable;
o Public policy initiatives including legislative mandates for insurance
coverage are producing a more favorable reimbursement climate; and
o Demand for reproductive medical services is increasing through greater
public awareness and acceptance of these treatments.
While overall market growth has moderated recently, in line with a
demographic trough of couples of family bearing age, we are well positioned to
benefit from an industry in the early stages of consolidation. IntegraMed's
fertility centers have experienced faster growth than their competitors due to
economies of scale and the ability to leverage our infrastructure. Recently,
numerous market conditions in this industry produce business opportunities for
us, including:
o The high level of specialized skills and technology required for
comprehensive patient treatment;
o The capital-intensive nature of acquiring and maintaining
state-of-the-art medical equipment, laboratory and clinical facilities;
o The need to develop and maintain specialized management information
systems to meet the increasing demands of technological advances,
patient monitoring and third-party payers;
o The high cost of treatment with inadequate insurance benefits in most
markets;
o The need for seven-days-a-week service to respond to patient needs and
to optimize the outcomes of patient treatments; and
o Increasing competition among medical providers specializing in
fertility treatment and the resulting need for sophisticated marketing
efforts;
Overview of our Business Strategy for the Fertility Centers Division
(i) We Plan to Enter into Additional Fertility Partner Contracts
The eleven fertility centers participating in our Partner program are
entitled to our full suite of products and services. Recruitment into our
Partner program has traditionally been focused on fertility centers currently
participating as Affiliates in our provider network. As Affiliates, practices
have become familiar with the offerings we provide and our commitment to
customer service; also, we have had a chance to assess a practice's commitment
to growth and utilization of our services. Partner practices are also recruited
from outside the pool of existing Affiliates; to be considered, non-Affiliate
candidates need to meet a stringent set of criteria. As of December 31, 2008, we
had full Partner contracts with eleven leading fertility centers, in thirteen
major markets, which in turn employ and/or contract with individual physicians.
In addition, we also pursue in-market mergers with other providers operating
within markets serviced by our Partner centers.
When establishing a Partner contract, we typically acquire the assets of a
fertility center, enter into a long-term comprehensive business service
agreement with the center and assume most administrative and financial functions
of the center. In addition, we also typically require that the fertility center
enter into long-term employment agreements containing non-compete provisions
with all key physicians and that each physician shareholder of the medical
practice enter into a personal responsibility agreement with us. Typically, the
fertility center contracting with us is a professional corporation in which the
key physicians are the shareholders.
Partner contracts provide that all patient medical care is to be provided
by the physicians and that we are responsible for providing defined business
services to the center. We provide the equipment, facilities and support
necessary to operate the center, and employ substantially all non-physician
personnel. Under the agreements, we may also advance funds to the fertility
center to provide new services, utilize new technologies, fund projects, provide
working capital or fund mergers with other physicians or physician groups.
Partner contracts generally obligate us to pay a fixed sum for the
exclusive right to service the fertility center. These agreements are typically
for terms of 10 to 25 years and may contain early termination clauses coupled
with fertility center obligations upon termination. Generally, no shareholder of
a contracted fertility center may assign his/her interest in the fertility
center without IntegraMed's written consent.
5
Under all eleven current Partner agreements, we receive as compensation for
our services a three-part fee comprised of: (i) a tiered percentage of net
revenues generally between 3% and 6%; (ii) reimbursed costs of services (costs
incurred in providing services to a fertility center and any costs paid on
behalf of the fertility center); and (iii) either a fixed amount or a percentage
of the center's earnings, which currently ranges from 10% to 20%, but may be
subject to limits.
(ii)We Plan to Increase Revenues and Profits at Contracted Partners
Given our fee structure as described above, we have a significant incentive
to assist in the profitable growth of each Partner. To achieve this objective
we:
o Help them formulate and execute longer-term planning activities, such
as investment/development via facility build-out and in-market mergers
with other practices and planning and budgeting support;
o Put in place products and services that help them attract and retain
patients, including the offerings included in our Affiliate program -
e.g., access to the Attain IVF Program, internet marketing, patient
financing, etc., - along with proven field sales programs and
direct-to-consumer advertising capabilities and resources;
o Enable them to enhance their ability to provide superior care via usage
of our ARTworks Clinical application which provides electronic medical
record, workflow management and decision support functionality, along
with clinical risk management auditing services;
o Enhance their operating efficiency through the implementation of an
infrastructure focused on improved accounts receivables management
along with business continuity and other financial, IT, human resource,
legal and procurement support that leverages our economies of scale and
expertise in these areas.
(iii) We Plan to Grow Current Ancillary Services for the Fertility Centers
Thirteen years ago we established the Council of Physicians and Scientists,
or the Council, comprised mostly of representatives from our fertility network,
to bring together leaders in reproductive medicine and embryology with the goal
of promoting a high quality clinical environment throughout the network. The
Council meets regularly and conducts bi-monthly teleconferences on topics
related to improving infertility diagnosis, treatment and success rates.
We assisted in the organization of, and obtained a minority equity interest
in, an offshore captive insurance company designed to moderate the cost of
malpractice insurance to members of our network. The majority of the equity of
the captive insurance company is owned by various physician practices which are
members of our network. On January 1, 2005, this captive insurance company began
providing the majority of the malpractice insurance coverage to physicians
within our reproductive Partner network.
Overview of our Business Strategy for the Consumer Services Division
(i) We Plan to Expand our Network of Affiliated Fertility Centers
Our strategic plan calls for us to expand our provider network to establish
a presence in other major markets across the country. We primarily focus our
network development activities on major metropolitan markets with populations in
excess of 500,000. Because of the relatively low percentage of the population
that seeks fertility treatment, a large population base is required to support a
sophisticated fertility center. Our high quality fertility centers are capable
of drawing consumers from a large geographic catchment area. Expanding our
provider network to the 100 largest metropolitan markets in the United States
will allow us to cover a large percentage of the national population, since
approximately 90% of fertility services performed in the U.S. occur in these top
100 markets.
The entry point for fertility centers participating in our provider network
is usually as an Affiliate center. Included in this level of participation is
access to our Attain IVF Program, patient financing programs and marketing
support activities.
While the primary value proposition of the Affiliate offerings is to help
practices improve their ability to attract and retain patients, the offerings
can also be used to improve operational efficiency and support the provision of
superior care. We provide access to these programs on an exclusive basis in each
defined market area to the Affiliated clinic.
6
(ii) We Plan to Increase Penetration of our Attain IVF Program
Currently, many health plan sponsors provide limited coverage for the
diagnosis and treatment of infertility. Because patients seeking fertility
treatment often have other gynecological symptoms, health plans may cover
diagnostic expenses even when infertility treatment itself is not a covered
benefit. As we continuously seek to increase the number of patients being
treated by our provider clinics, our Attain IVF program, which is offered
directly to consumers, has been designed to offer attractive financial options
to prospective patients.
The division's Attain IVF program serves as a patient recruitment and case
management vehicle where the patient contracts with us to provide the medical
treatment described below. We contract the obligation of patient treatment by
arranging with affiliated fertility clinics for the provision of patient care.
This program is designed to make the treatment process easier for patients by
providing a continuum of care over an extended period, if necessary. The Attain
IVF program achieves this objective by offering the following services:
o Patient recruitment via internet web portals and search engines;
in-clinic educational materials; in-clinic contact with fertility
experts and on-line contact with patient service specialists.
o Educating patients as to the benefits of various treatment options
offered by its network of contracted medical providers which have been
tailored to appeal to patients at various stages of their reproductive
lives and with various medical conditions.
o Explaining the financial costs and patient responsibilities of the
various treatment plans.
o Educating patients as to the various financing options offered by the
program and helping to arrange third-party financing of treatment
cycles when requested.
o Coordinating an initial medical assessment required for entry into the
program.
o Contracting treatment with an Affiliated medical provider for all
treatment cycles used by the patient.
o Provide on-going case management, treatment plan monitoring and
evaluation services.
Patients enrolling in the Attain IVF program can select from various
treatment and financing options which are designed to appeal to patients at
different stages of their reproductive lives and with different financial needs
and resources. The basic Attain IVF business model is designed to offer patients
multiple fertility treatment cycles by contracted fertility centers, for one
fixed price paid up front, with a significant refund if treatment is
unsuccessful (generally defined as not bringing home a baby after the final
treatment is delivered). Under this innovative financial program, we receive
payments directly from consumers who qualify for the program and we are
obligated to provide them a set of treatment cycles. We discharge this
obligation by subcontracting to and paying contracted fertility centers a
defined reimbursement for each treatment performed. The benefit to providers is
increased patient volume and patient retention, and the benefit to consumers is
the opportunity for multiple treatment cycles with a significant financial
refund should the treatments be unsuccessful.
We receive payment directly from consumers who qualify for the program. By
contract 30% of the enrollment fee is non-refundable (for the non-donor option)
and is recognized ratably (on a fair value basis) as revenue over the course of
the patient's treatment cycles. If the patient achieves pregnancy prior to the
completion of the last available cycle, then the remaining unamortized portion
of the non-refundable fee is immediately recognized as income. The remaining 70%
of the revenue is recorded upon the patient becoming pregnant and achieving a
fetal heartbeat (at this point of the pregnancy most patients go on to deliver a
baby). We are able to record this income at the time of pregnancy as we have
substantially completed our fertility obligation to the patient and we can
accurately estimate the amount of expenses or refunds that will become due if
there is a pregnancy loss. We are able to make these estimates for pregnancy
loss based upon reliable Company specific data with respect to the large
homogeneous population we have served for more than seven years. Expenses prior
to pregnancy related to the program are recorded as incurred. All of the amounts
shown on the balance sheet in the accompanying financial statements as "Attain
IVF deferred revenue and Other Patient Deposits" consist of unrecognized program
enrollment/service fees and potentially refundable contract amounts for enrolled
patients who have not had a successful pregnancy outcome and deposits received
from patients who have not yet commenced treatment under the program.
Due to the characteristics of the program, we assume the risk for a
patient's treatment cost in excess of their enrollment fee should initial
treatment cycles be unsuccessful. In order to moderate and manage this risk, we
have developed a sophisticated statistical model and case management program in
which Attain IVF patients are medically pre-approved prior to enrollment in the
program. We also continuously review their clinical criteria as they undergo
treatment. If, while undergoing treatment, a patient's clinical response falls
outside our criteria for participation in the Attain IVF program, we have the
right to remove that individual from the program, with an applicable refund to
the patient. To date, our case management process has been effective in managing
the risks associated with our Attain IVF program within expected limits. A
patient may withdraw from the program at anytime and will be issued a refund.
7
Vein Disease
Phlebology is the medical specialty concerned with the treatment of vein
diseases. Common venous diseases and their symptoms can take many forms
including;
o Varicose veins - which are caused when small valves designed to
allow blood to flow in only one direction fail or leak. This
causes blood to flow backwards under the force of gravity and pool
inside the vein;
o Spider veins - which are very small varicose veins. They are thin,
threadlike veins that lie close to the skin's surface and are
commonly red or purple in appearance. Spider veins can be
hormonally induced and are often associated with pregnancy and
menstruation;
o Venous Leg Ulcer - non-healing open wounds that are caused by
venous pump failure. It usually occurs near the inside of the
ankle, but can be found anywhere below the knee. It can occur with
or without visible varicose veins;
o Klippel-Trenaunay Syndrome (KT) - which is a rare, congenital
disorder in which patients usually have one hypertrophied leg, a
port wine stain, and large varicose veins on the lateral aspect of
the leg;
o Restless Leg Syndrome (RLS) - which may occur when valves fail,
causing blood to reflux, or flow backwards, causing it to pool and
stagnate in the veins, leading to aching, throbbing, cramping and
fatigue in the legs.
Although there are both surgical as well as non-surgical treatment
protocols for vein disease, we specialize in non-surgical care. Conventional
vein care treatment under both protocols usually begins with an ultrasound
assisted mapping to determine the extent of the disease, generally followed by a
surgical or non-surgical treatment protocol. Historically the most common
surgical treatment has been a procedure referred to as vein stripping, which is
the surgical removal of surface veins, generally done as an outpatient procedure
performed while the patient is under general anesthesia. More recent
non-surgical treatments include Endovenous Laser Treatment (ELT) and
Sclerotherapy. ELT is a quick, minimally invasive laser treatment which involves
no hospitalization or complicated surgery. With ELT, a small optical fiber is
inserted through a needle into the varicose vein under ultrasound guidance. The
laser is activated and, as the optic fiber is removed from the vein, it heats
and closes the vein. Once the vein is closed, the blood that was circulating
through the vein is naturally rerouted to other healthy veins. Over time, the
varicose vein is absorbed by the body. Sclerotherapy (from the Greek "skleros"
meaning hard) involves injecting abnormal veins with a solution called a
sclerosant. This seals the vein off from the rest of the vein network in the
leg, allowing the body to naturally redirect the blood flow to healthy veins. A
typical sclerotherapy treatment may last for 15 to 20 minutes and will consist
of multiple microinjections.
Various demographic trends are contributing to the growth in demand for
vein care, and we believe the market will continue to grow in the future as
awareness of non-surgical treatment protocols grows among people with vein
disease and additional third party payers recognize the medical necessity of
treating vein disease. Our vein clinics specialize in the non-surgical treatment
of vein diseases and are the largest single network of vein care providers in
the country, allowing operational efficiencies by leveraging resources,
knowledge and infrastructure and providing a strong base for new clinic
expansion.
Numerous market conditions in this industry produce business opportunities
for us, including:
o The level of specialized skills required for comprehensive patient
treatment;
o Favorable sociological trends including a growing demographic wave from
an aging population;
o The need to develop and maintain specialized management information
systems to meet the increasing demands of patient billing and
third-party payers;
o The current fragmented nature of the market, which is comprised of
numerous smaller, independent providers, allowing the opportunity for
market consolidation;
o New laser and medical technology
8
An Overview of Our Business Strategy for the Vein Clinics Division
Our business strategy is to develop a national network of high quality
managed vein clinics. Currently, our vein clinics division is the largest
managed network of vein disease treatment centers in the United States with 33
clinics as of February 2009. The primary elements of our business strategy for
this division include:
o Developing and maintaining an infrastructure that supports sustained
growth;
o Scheduled openings of new vein clinics in targeted markets;
o Attracting and retaining consumers in need of vein treatment;
o Increasing revenues and profitability at existing clinics.
(i) Develop and Maintain an Infrastructure that Supports Sustained Growth
During 2008, we opened five new vein centers for a total of 32 clinics as
of the end of that year. In January 2009, we opened one new center in
Cincinnati, and anticipate opening at least four additional centers during the
balance of 2009. Since our acquisition of Vein Clinics of America (VCA) in
August 2007, we have made significant investments in this division's
infrastructure which have been designed to support and sustain this level of
growth in future years. These investments include:
o Physician Recruiting and Training - The business model for VCA depends
on being able to identify, recruit and train new physicians to staff
new clinics. We have invested in additional professional personnel as
well as other recruiting and training assets to support scaled growth
in the future.
o Regional Management - We have established a regional management
infrastructure to manage the day to day operations of the expanding VCA
clinical network and anticipate continued investment in regional
management talent as our clinic base expands.
o Revenue Cycle Management - Over the past several years the market for
vein care has undergone a shift from private out of pocket payment by
patients to an environment where most treatment is covered by
insurance. This shift has caused us to make heavy investments in
physician credentialing, working capital, improved billing and
collections personnel, systems and procedures. These investments will
continue as the business grows.
o New Clinic Development - With our planned roll-out of new clinic
openings, we are making investments in personnel and procedures for
identifying opportunities and opening new clinics in existing and new
markets.
o Marketing and Sales - Historically, due to the overwhelming self pay
environment for vein care, most marketing has been based on a consumer
advertising model. With the shift to third party reimbursement, as
noted above, we are shifting our marketing focus to rely more heavily
on physician referral relationships. This shift will require
investments in physician marketing assets and personnel.
o Quality Assurance and Risk Management - As our vein clinic network
grows in size, we will need to continue to invest in standardized
approaches to quality assurance and risk management.
(ii) Open New Vein Clinics in Targeted Markets
We expect to make use of the enhanced infrastructure described above by
opening new clinics at a more rapid and sustained pace. Demographic analysis and
past experience suggests that the vein clinics business can support one clinic
per million population in major metropolitan markets. The new clinic development
plan includes:
o Developing new clinics in markets where we already have existing
clinics that have not been fully penetrated to take advantage of
existing investments in regional management, managed care contracts,
personnel and marketing capabilities.
o Identifying attractive new markets in states that already have a VCA
clinic location to take advantage of regional management, personnel and
other infrastructure assets.
o Identifying attractive markets in new states contiguous to existing
markets to leverage off existing regional and clinical management.
9
(iii) Attract and retain consumers in need of vein treatment
Non-surgical varicose vein treatment, which VCA pioneered, is still a
relatively new approach to treatment. As such, success in this business requires
us to be able to attract and retain patients to existing and new vein clinic
locations. We continue to invest in consumer advertising, internet advertising
and physician referral development.
(iv) Increase Revenues and Profitability at Existing Clinics
The Vein Clinics Division long term success will be dependent on ensuring
that established clinics increase revenues and profitability. The regional
management team is focused on this goal through scheduling efficiencies, patient
conversion, yield management and productivity improvements.
Shared Services
We provide the following support for our operating divisions-
(i) Administrative Services
Our administrative services include: (i) accounting and financial services,
such as billing and collections, accounts payable, payroll, and financial
reporting and planning; (ii) recruiting, hiring, training and supervising all
non-medical personnel; and (iii) purchasing of supplies, pharmaceuticals,
equipment, legal services and insurance.
(ii) Access to Capital
We provide our Fertility Partners and vein clinics with a significant
competitive advantage through immediate access to capital for funding accounts
receivable, expansion and growth. We are also able to offer physician providers
in our network rapid access to the latest technologies and facilities in order
for them to provide a full spectrum of services and compete effectively for
patients in the marketplace. For example, we have built new clinical facilities
housing state of the art fertility laboratories for several Partners, which
enable them to expand their offerings to include a number of services, which
they had previously outsourced and have acquired state of the art ultrasound and
laser technology for our vein clinics.
(iii) Traditional Marketing and Sales
Our marketing department specializes in the development of sophisticated
marketing and sales programs that give contracted clinics access to
business-building techniques designed to facilitate growth and development. In
today's highly competitive health care environment, marketing and sales are
essential for growth and success. While these marketing and sales efforts are
often too expensive for many individual physician practices, affiliation with us
provides access to significantly greater marketing and sales capabilities than
would otherwise be available. Our marketing services focus on revenue and
referral enhancement, relationships with local physicians, media and public
relations.
(iv) Internet Marketing and Website support
We operate industry leading web portals which (i) allow visitors access to
educational material concerning infertility and vein care issues; (ii) provide
links to our fertility Partner and Affiliate practices; (iii) provide links to
our vein care centers; (iv) allow prospective patients to request fertility and
vein care appointments or follow-up contact, and (v) allow prospective patients
to request information on our Attain IVF program and apply for treatment
financing.
(v) Integrated Information System
Using our established base of treatment providers, we are continuously
developing nationwide, integrated information systems to collect and analyze
clinical, patient, financial and marketing data. Our goal is to use this data to
control treatment expenses, measure patient outcomes, improve patient care,
develop and manage utilization rates and maximize reimbursements.
Employees
As of February 12, 2009, we have 1,202 employees. Of these, 969 are
employed by our Fertility Centers division, 13 by our Consumer Services
division, 185 by our Vein Clinics division and 35 are employed at our corporate
10
headquarters, including 6 who are executive management. Of these employees, 131
persons at our divisions are employed on a part-time basis and 103 are employed
on a per diem basis. We are not a party to any collective bargaining agreement
and we believe that our employee relationships are good.
Segment Information
We follow the requirements contained in Statement of Financial Accounting
Standards (SFAS) No.131, "Disclosures about Segments of an Enterprise and
Related Information", with respect to identifying and reporting business
segments. This statement requires that segment reporting reflect our
organizational structure, major revenue sources, line's of responsibility and
senior management's perspective of the organization. With the acquisition of
Vein Clinics of America (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 within Cost of Services specifically associated with it. Such
overhead costs were previously reported as General and Administrative costs.
Such costs were reclassified in all periods presented to better reflect the
operating results of our segments (000's omitted):
Fertility Consumer Vein
Centers Services Clinics(1) Corp G&A Consolidated
--------- ---------- --------- -------- ------------
For the Year ended December 31, 2008, Restated
Revenues ................................ $ 138,440 $ 19,763 $ 39,950 $ -- $ 198,153
Cost of Services ........................ 128,224 14,344 37,299 -- 179,867
--------- --------- --------- --------- ---------
Contribution ............................ 10,216 5,419 2,651 -- 18,286
Operating Margin ........................ 7.4% 27.4% 6.6% -- 9.2%
General and administrative .............. 0 0 0 10,654 10,654
Interest (income) expense, net .......... (181) 0 8 1,353 1,180
--------- --------- --------- --------- ---------
Income (loss) before income taxes ....... $ 10,397 $ 5,419 $ 2,643 $ (12,007) $ 6,452
========= ========= ========= ========= =========
Depreciation expense included above ..... $ 4,327 $ 3 $ 761 $ 898 $ 5,989
Capital expenditures, net ............... $ 4,053 $ -- $ 1,057 $ 585 $ 5,695
Total assets ............................ $ 36,885 $ 331 $ 46,750 $ 37,475 $ 121,441
For the Year ended December 31, 2007, restated
Revenues ................................ $ 121,078 $ 16,460 $ 14,284 $ -- $ 151,822
Cost of Services ........................ 111,059 12,336 13,304 -- 136,699
--------- --------- --------- --------- ---------
Contribution ............................ 10,019 4,124 980 -- 15,123
Operating Margin ........................ 8.3% 25.1% 6.9% -- 10.0%
General and administrative .............. -- -- -- 10,537 10,537
Interest (income) expense, net .......... (203) -- 2 81 (120)
--------- --------- --------- --------- ---------
Income (loss) before income taxes ....... $ 10,222 $ 4,124 $ 978 $ (10,618) $ 4,706
========= ========= ========= ========= =========
Depreciation expense included above ..... $ 4,003 $ 3 $ 255 $ 846 $ 5,107
Capital expenditures, net ............... $ 4,654 $ -- $ 906 $ 662 $ 6,222
Total assets ............................ $ 42,586 $ 888 $ 44,786 $ 25,911 $ 114,171
For the Year ended December 31, 2006, restated
Revenues ................................ $ 112,767 $ 13,553 $ -- $ -- $ 126,320
Cost of Services ........................ 104,357 9,421 -- -- 113,778
--------- --------- --------- --------- ---------
Contribution ............................ 8,410 4,132 -- -- 12,542
Operating Margin ........................ 7.5% 30.5% -- -- 9.9%
General and administrative .............. -- -- -- 9,380 9,380
Interest (income) expense, net .......... (279) -- -- (99) (378)
--------- --------- --------- --------- ---------
Income (loss) before income taxes ....... $ 8,689 $ 4,132 $ -- $ (9,281) $ 3,540
========= ========= ========= ========= =========
Depreciation expense included above ..... $ 3,594 $ 2 $ -- $ 614 $ 4,210
Capital expenditures, net ............... $ 2,158 $ -- $ -- $ 1,075 $ 3,233
Total assets ............................ $ 41,458 $ 995 $ -- $ 33,870 $ 76,323
(1) Acquired August 8, 2007.
11
Significant Service Contracts --
For the years ended December 31, 2008, 2007, and 2006, the following
contracted fertility centers each individually provided greater than 10% of our
revenues, net and/or contribution as follows:
Percent of Company Percent of
Revenues, net Contribution
--------------------------- ---------------------------
2008 2007 2006 2008 2007 2006
------- ------ ------ ------- ------ ------
R.S.C. of New England.......... 7.2 8.9 10.7 8.7 10.5 11.7
Fertility Centers of Illinois.. 16.3 19.2 22.3 15.2 17.6 19.2
Shady Grove Fertility Center... 18.0 21.3 22.9 17.2 21.4 20.5
Under all of our fertility Partner agreements, we receive as compensation
for our services a three-part fee comprised of: (i) a tiered percentage of the
fertility centers net revenues, (ii) reimbursed costs of services (costs
incurred in servicing a fertility center and any costs paid on behalf of the
fertility center) and (iii) either a fixed percentage, or a fixed dollar amount
of the fertility centers earnings after services fees, which may be subject to
further limits.
The third tier of our fee structure with these significant contracts
contains provisions as follows:
o R.S.C. of New England - a fixed annual percentage of the center's
earnings.
o Fertility Centers of Illinois - a fixed percentage of the center's
earnings subject to a fixed dollar amount ($1,865,000) as an upper
boundary and a fixed dollar amount ($932,000) as a lower boundary
subject to a fixed percentage of the center's earnings limitation.
o Shady Grove Fertility Center - a fixed dollar amount of the center's
earnings subject to a fixed percentage of the center's earnings
limitation ($1,071,000 is the upper boundary and $540,000 is the lower
boundary of the calculation).
A complete listing of our fertility Partner contracts and vein clinic
locations is presented below.
Fertility Partner contracts:
---------------------------
Year Remaining
Contract Contract No. of No. of
No. Name State Acquired Years MD's PhD's
--- ---- ----- -------- ----- ---- -----
1. Arizona Reproductive Medicine Specialists, Ltd. AZ July 2008 25 4 1
2. Southeastern Fertility Centers, P.A. SC April 2008 24 2 1
3. Center for Reproductive Medicine, P.A. FL August 2007 23 5 1
4. Reproductive Partners Medical Group, Inc. CA January 2005 21 9 0
5. Seattle Reproductive Medicine, Inc., P.S. WA January 2004 10 7 1
6. Reproductive Endocrine Associates of Charlotte, P.C. NC September 2003 10 6 0
7. Northwest Center for Infertility & Reproductive FL April 2002 8 6 1
Endocrinology
8. Shady Grove Fertility Reproductive Science Center, MD, VA & DC March 1998 14 21 2
P.C.
9. Fertility Centers of Illinois, S.C. IL August 1997 13 11 2
10. Bay Area Fertility & Gynecology Medical Group, Inc. CA January 1997 13 5 1
11. MPD Medical Associates (MA), P.C. MA, NH & RI July 1988 3 7 1
12
Vein Clinic locations:
---------------------
No. Location Date Clinic Opened No. Location Date Clinic Opened
--- -------- ------------------ --- -------- ------------------
1. Pittsburgh, PA December 2008 17. Knoxville, TN March 2001
2. Skokie, IL December 2008 18. Raleigh, NC March 2000
3. Marietta, GA June 2008 19. Greensboro, NC January 2000
4. Alexandria, VA April 2008 20. Madison, WI March 1999
5. Milwaukee, WI March 2008 21. Rockville, MD November 1998
6. Boca Raton, FL February 2008 22. Charlotte, NC February 1998
7. Sterling, VA December 2007 23 Orland Park, IL November 1996
8. Ft. Lauderdale, FL July 2007 24. Gurnee, IL September 1995
9. St. Louis, MO January 2007 25. Fairfax, VA March 1992
10, Merrillville, IN August 2006 26. Overland Park, KS April 1991
11. Kansas City, MO June 2006 27. Owings Mills, MD July 1990
12. West Palm Beach, FL December 2005 28. Buffalo Grove, IL August 1989
13. Alpharetta, GA October 2005 29 Atlanta, GA June 1988
14. Naperville, IL September 2004 30. Oak Brook, IL Pre-1985
15. Lawrenceville, GA September 2001 31. Chicago, IL Pre-1985
16. Indianapolis, IN April 2001 32. Schaumburg, IL Pre-1985
ITEM 1A. Risk Factors
Risk Factors
The following risk factors, while not intended to be all inclusive, could
individually or in combination have a material adverse effect on our business,
financial condition, results of operation and market price of our common stock.
Competition - Our business segments operate in highly competitive areas
which are subject to continual change. New health care providers entering the
market may reduce our market share, patient volume and growth rates.
Additionally, increased competitive pressures may require us to commit more
resources to our marketing efforts, thereby increasing our cost structure and
impacting our profitability. There can be no assurance that we will be able to
compete effectively with our current competitors. Nor can there be assurance
that additional competitors will not enter the market, or that such competition
will not make it more difficult for us to enter into additional contracts with
fertility clinics or open profitable vein care clinics.
Alternative treatments - In addition to the services provided by our
clinics, alternative treatments are available to patients with infertility and
vein care issues. To the extent that these treatments are successful, or
perceived as viable alternatives by prospective patients, our ability to attract
and retain patients may be impacted.
Management turnover - The success of our business strategy depends upon the
continued contribution of key members of our management team. The loss of key
members of this team may adversely affect our ability to implement that
strategy.
Cost containment measures and general healthcare reform - Cost containment
measures instituted by healthcare insurers and any general healthcare reform
could affect our ability to receive revenue from the use of our services. We
cannot predict the effect of future legislation or regulation concerning the
healthcare industry and third-party coverage on our business. In addition,
fundamental reforms in the healthcare industry continue to be considered,
however we cannot predict if any such reforms will be adopted and what impact
these proposals might have on the demand for our services.
Contract termination - One or more of our fertility Partner practices may
terminate their membership in our fertility network. Such an occurrence could
significantly reduce our revenues without a corresponding reduction in our cost
structure.
Physician resignation - The departure of one or more key medical providers
may negatively impact the ability of a clinic to generate sufficient revenues
and remain profitable.
Third-party payers - A significant portion of our fertility partner and
vein clinic revenue depends upon reimbursements to the underlying physician
practices from third-party payers. These third parties include government
13
authorities, private health insurers and other organizations, such as health
maintenance organizations. Third parties are systematically challenging prices
charged for medical treatment. They may deny reimbursement if they determine
that a prescribed treatment is not used in accordance with cost-effective
treatment methods as determined by the payer, or is experimental, unnecessary or
inappropriate. Further, although third parties may approve reimbursement, such
approvals may be under terms and conditions that discourage use of our services,
even if our services are safer or more effective than the alternatives.
Disruption of these relationships, whether in the form of changes to
reimbursement contracts, loss of reimbursement contracts, solvency issues on the
part of the payers, or in the case of our vein clinics, changes in Medicare
reimbursement, may lower our revenues and therefore affect our cash flows and
financial position.
Reliance on third party vendors - Our fertility and vein care clinics rely
on a limited number of third-party vendors that produce medications and supplies
vital to patient treatment. Should any of these vendors experience a supply
shortage, it may have an adverse impact on our operations. To date, no shortage
or disruption has been experienced.
State and Federal laws - Our business practices may be found to be in
violation of State or Federal laws. These include, but are not limited to,
Federal and State Anti-Kickback Laws, Federal and State Self-Referral Laws,
Federal Stark Law, False Claim Laws, Federal and State Controlled Substances
laws, HIPAA (Health Insurance Portability and Accountability Act) regulations,
Medicare regulations and Anti-Trust Laws. Remedial efforts could result in a
discontinuance of portions of our business or burdensome compliance efforts. The
laws and regulations in this area are extremely complex and subject to
interpretation. Many aspects of our business have not been the subject of
federal or state regulatory review. Accordingly, there is no assurance that our
operations have been in compliance at all times with all such laws and
regulations. In addition, there is no assurance that a court or regulatory
authority will not determine that our past, current or future operations violate
applicable laws or regulations. If our operations were determined to violate
laws or regulations, it could have a material adverse effect on our business,
financial condition and operating results. In addition, state corporate practice
of medicine laws vary from state to state. There can be no assurance that these
laws will be interpreted in a manner consistent with our practices or that other
laws or regulations will not be enacted in the future that could have a material
adverse effect on our business, financial condition and operating results.
Corporate practice of medicine laws - Our operations may also be subject to
state laws relating to the corporate practice of medicine. State laws may be
interpreted to prohibit corporations other than medical professional
corporations or associations from practicing medicine or exercising control over
physicians, and may prohibit physicians from practicing medicine in partnership
with, or as employees of, any person not licensed to practice medicine. State
laws may also contain fee-splitting prohibitions or may prevent corporations
from acquiring the goodwill of a medical practice. We believe that our
operations are in material compliance with all applicable state laws relating to
the corporate practice of medicine. We perform only non-medical administrative
services, and in some circumstances, clinical laboratory services. In each of
our clinical locations, a medical practice is the sole employer of the
physicians, and the director of the medical practice retains the full authority
to direct the medical, professional and ethical aspects of patient care.
Liability insurance - Providing health care services entails a substantial
risk of medical malpractice and similar claims. While we do not engage in the
practice of medicine, or assume responsibility for compliance with regulatory
requirements directly applicable to physicians, we do require our affiliated
medical practices to maintain medical malpractice insurance. However, in the
event that services provided at one of our centers results in injury or other
adverse effects, we are likely to be named as a party in any legal proceeding.
Although we currently maintain liability insurance that we believe is adequate,
successful malpractice claims could exceed the limits of our insurance and could
have a material adverse effect on our business. Moreover, there is no assurance
that we will be able to obtain such insurance on commercially reasonable terms
in the future or that such insurance will provide adequate coverage against
potential claims. In addition, a malpractice claim asserted against us could be
costly to defend, could consume management resources and could adversely affect
our reputation and business, regardless of the merit or eventual outcome of such
claim. In addition, in connection with our acquisition of the assets of
fertility centers, we may also assume some of the center's liabilities.
Therefore, an entity may assert claims against us for events related to the
fertility center prior to its becoming a Partner practice. We maintain insurance
coverage related to these risks that we believe is adequate as to the risks and
amounts, although there is no assurance that any successful claims will not
exceed applicable policy limits. A portion of our insurance coverage is provided
by a captive insurance company, therefore the availability of coverage, should
it be needed, is subject to a host of risks.
Intellectual property risks - Trade secrets and other proprietary
information which are not protected by patents are critical to our business. We
attempt to protect our trade secrets by entering into confidentiality agreements
14
with employees, third parties and consultants. However, these agreements can be
breached. Even if we prove the breach, there may not be adequate remedy
available to us.
Technology risks - The treatment of infertility and varicose veins are
technologically intensive areas of medicine. There is no guarantee that our
investments in medical technology will remain at the level of sophistication
necessary for our clinics to remain competitive in the marketplace.
Impairment risks - We have recorded intangible assets related to our
Business Service agreements and Vein Clinic acquisition. The value of these
intangible assets is supported by the operating results of the underlying
business unit. To the extent the operating results of the business unit(s) may
become permanently impaired we may need to write-down the value of these assets
against earnings in the period of impairment.
Tax positions - Our tax positions and tax returns are subject to routine
review by Federal and State authorities. While we believe that our tax positions
are in compliance with all applicable Federal and State tax laws, there can be
no assurance that these laws will be interpreted in a manner consistent with our
positions.
Financial results - Our quarterly results and stock price may fluctuate
over time based on our business risk factors, seasonal influences, market
expectations or other factors over which we have limited control. Other
environmental financial factors over which we have limited or no control but
which may impact our operations include the stability of the underlying
financial system, health of the credit markets and government fiscal and
monetary policies. In addition changes to financial variables over which we do
exercise some control, such as dividend policy, stock dilution, banking and
credit facilities, etc., may be perceived differently by different stakeholders,
and thereby influence our stock price.
Compliance with debt covenants - Our term loan agreement with the bank
requires that we maintain certain leverage and fixed charge ratios and minimum
levels of EBITDA. The agreement also contains customary covenants related to
dividends, acquisitions and additional indebtedness. There is no guarantee that
we will continue to achieve compliance with these requirements.
Macroeconomic Events - Recent worldwide events in the financial and credit
markets have reduced the availability of liquidity and credit to fund the
operation and expansion of many business operations. This shortage of liquidity
and credit, combined with recent substantial losses in worldwide equity markets,
could lead to a material adverse effect on our business, financial condition and
results of operations. Our ability to access the capital markets may be severely
restricted at a time when we may have need, to access those markets, which could
have a negative impact on our growth plans, our flexibility to react to changing
economic and business conditions, and our ability to refinance existing debt.
The financial and credit crisis could also have an impact on the lenders under
our credit facilities, causing them to fail to meet their obligations to us. In
addition, our levels of elective procedures and our ability to collect accounts
receivable, due to the effects of higher unemployment and reductions in
commercial managed care enrollment, may be materially impacted if the current
economic environment continues.
Failure to successfully integrate acquisitions - The integration of an
acquired company is an intricate and complicated task. Merging two cultures and
sets of operating procedures to achieve the synergies envisioned at the outset
of the transaction requires significant manpower and resources. There is no
guarantee that we will be able to achieve the accretive earning potential of any
acquisition.
ITEM 1B. Unresolved Staff Comments
We believe that we have complied with all the requests of the SEC staff in
this filing, but have not yet received the "no further comment" communications.
ITEM 2. Properties
Our headquarters and executive offices are located in Purchase, New York,
where we occupy approximately 18,500 square feet under a lease expiring in 2012.
Future lease payments will approximate $51,100 per month.
We also lease or sublease locations for our fertility centers and vein
clinics. Costs associated with the fertility agreements are reimbursed to us as
part of our fee agreement with the applicable clinic whereas costs associated
with vein clinic locations are not reimbursed.
We believe that our executive offices and the space occupied by our clinics
are adequate for our operations.
15
ITEM 3. Legal Proceedings
From time to time, we are party to legal proceedings in the ordinary course
of business. None of these proceedings is expected to have a material adverse
effect on our financial position, results of operations or cash flow.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
PART II
ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
Our common stock is traded on the NASDAQ National Market under the symbol
"INMD" The following table sets forth the high and low closing sales price for
our common stock, as reported on the NASDAQ National Market.
Common Stock
------------------
High Low
------------------
2007
----
First Quarter............ 12.53 10.42
Second Quarter........... 13.18 10.53
Third Quarter............ 12.69 9.68
Fourth Quarter........... 15.05 10.68
2008
----
First Quarter............ 12.00 8.30
Second Quarter........... 10.32 6.79
Third Quarter............ 8.20 5.77
Fourth Quarter........... 7.08 4.30
On March 20, 2009, there were approximately 115 holders of record of the
Common Stock and approximately 1,600 beneficial owners of shares registered in
nominee or street name.
Dividend Policy
We have not paid cash dividends on our common stock during the last two
fiscal years, and we currently anticipate retaining all available funds for use
in the operation and expansion of the business. Therefore, we do not anticipate
paying any cash dividends on our common stock in the foreseeable future.
Selected Equity Transactions
We have three stock option plans which have been approved by our
shareholders. The following table sets forth certain information relative to
these stock option plans.
Number of securities
remaining available for
Number of Securities future issuance under
to be issued upon Weighted-average equity compensation plans
exercise of exercise price of (excluding securities
Plan Category outstanding options outstanding options reflected in column (a)
------------- ------------------- ------------------- -----------------------
(a) (b) (c)
Equity compensation
plans approved by
security holders........ 227,016 $5.78 214,869
Equity compensation
plans not approved
by security holders..... -- -- --
------- ----- -------
Total................ 227,016 $5.78 214,869
======= ===== =======
During 2008, 2007 and 2006, we issued approximately 99,000, 78,000 and
106,000 shares, respectively, of restricted common stock as deferred
compensation to several of our officers and directors with an aggregate value of
16
$899,000 $956,000 and $887,000 respectively. These shares were valued at their
fair value on the date of grant, and are amortized to expense over their vesting
period, which approximates the service period.
During 2008, we also issued approximately 128,000 incentive stock options
to certain members of our management team. These options have a ten year life,
vest over four years and had a fair value at date of grant of approximately
$741,000.
During 2007 and 2006, we issued 1,628,907 and 1,291,368 shares
respectively, of Common Stock as a stock split effected in the form of a stock
dividend to our then current stockholders. The additional shares represent
splits at 25% for each year. The issuance of these shares had no direct
financial impact on our results of operations or financial position and did not
alter the market capitalization of our common shares outstanding. All earnings
per share amounts were restated to reflect the splits.
In 2007, the Company issued an aggregate of 336,700 shares of unregistered
restricted shares of Common Stock in reliance of Section 4(2) of the Securities
Act of 1933 to Kush K. Agarwal and Brian D. McDonagh in connection with the
Company's acquisition of Vein Clinics of America, Inc. on August 8, 2007. These
shares had a market value of $4 million on the date of issuance.
17
Performance Graph
The following graph compares the cumulative 5-year total return provided
to shareholders on IntegraMed America, Inc.'s common stock relative to the
cumulative total returns of the NASDAQ Composite index and the NASDAQ Health
Services index. An investment of $100 (with reinvestment of all dividends) is
assumed to have been made in our common stock and in each of the indexes on
12/31/2003 and its relative performance is tracked through 12/31/2008.
[GRAPHIC OMITTED]
-------------------------------------------------------------------------------
12/03 12/04 12/05 12/06 12/07 12/08
-------------------------------------------------------------------------------
IntegraMed America, Inc. 100.00 187.52 275.83 391.93 374.35 219.73
NASDAQ Composite 100.00 110.08 112.88 126.51 138.13 80.47
NASDAQ Health Services 100.00 127.29 135.26 141.82 142.06 100.14
The stock price performance included in this graph is not necessarily
indicative of future stock price performance.
18
ITEM 6. Selected Financial Data -
The following selected financial data (for the years ended December 31,
2008, 2007, 2006, 2005 and 2004) are derived from our consolidated financial
statements and should be read in conjunction with the financial statements,
related notes, and other financial information included elsewhere in this Annual
Report on Form 10-K. Financial information for our Vein Care division is
included only for the period subsequent to its August 8, 2007 acquisition.
Earnings per share and average share values for the years 2006, 2005, and 2004
have been restated to reflect the 25% stock split effected in the form of a
stock dividend declared in March 2007, the 25% stock split effected in the form
of a stock dividend declared in May 2006, and the 30% stock split effected in
the form of a stock dividend declared in May 2005. These results reflect the
impact of the restatement of the timing of the revenue recognition of our Attain
IVF program, as described in Note 2 to the consolidated financial statements and
accordingly the data for 2004, 2005, 2006 and 2007 have been restated.
Statement of Operations Data:
December 31,
------------------------------------------------------------------
2008 2007 2006 2005 2004
-------- -------- --------- --------- -------
(in thousands, except per share amounts)
Revenues, net ................................ $ 198,153 $ 151,822 $ 126,320 $ 128,961 $ 107,303
Costs of services incurred ................... 179,867 136,699 113,778 114,164 95,881
---------- ---------- ---------- ---------- ----------
Contribution ................................. 18,286 15,123 12,542 14,797 11,422
General and administrative expenses .......... 10,654 10,537 9,380 12,205 9,789
Total other (income) expense, net ............ 1,180 (120) (378) (192) 36
---------- ---------- ---------- ----------
Income before taxes .......................... 6,452 4,706 3,540 2,784 1,597
Provision for income taxes ................... 2,537 1,662 470 1,053 641
---------- ---------- ---------- ---------- ----------
Net income ................................... 3,915 3,044 3,070 1,731 956
Net income applicable to Common
Stock ..................................... $ 3,915 $ 3,044 $ 3,070 $ 1,731 $ 956
========== ========== ========== ========== ==========
Basic EPS.................................... $ 0.45 $ 0.37 $ 0.38 $ 0.21 $ 0.12
========== ========== ========== ========== ==========
Diluted EPS.................................. $ 0.45 $ 0.36 $ 0.37 $ 0.21 $ 0.12
========== ========== ========== ========== ==========
Weighted average shares - basic .............. 8,618 8,310 8,090 8,090 8,090
========== ========== ========== ========== ==========
Weighted average shares - diluted ........... 8,691 8,410 8,194 8,194 8,194
========== ========== ========== ========== ==========
Balance Sheet Data:
December 31,
-------------------------------------------------------------
2008 2007 2006 2005 2004
------ -------- --------- -------- -------
(in thousands)
Working capital (1).......................... $(2,445) $(3,434) $11,685 $6,148 $ 1,157
Total assets ................................ 121,441 114,171 76,323 67,190 54,119
Total indebtedness........................... 30,219 25,460 8,774 10,147 5,239
Accumulated deficit.......................... (2,178) (6,094) (9,139) (12,209) (13,940)
Shareholders' equity......................... 52,266 47,635 40,178 36,298 33,933
(1) Represents current assets less current liabilities.
19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forward Looking Statements
This Form 10-K 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, 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 is a specialty healthcare services company offering products and
services to patients and providers in the fertility and vein segments of the
healthcare industry. We deliver these products and services through three main
operating divisions.
Our Fertility Centers division is a provider network comprised of eleven
contracted fertility centers, referred to as our Partner Program, located in
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, for fertility providers as well as ARTIC, a captive insurance
company which provides malpractice insurance to member physicians.
The Consumer Services division offers products directly to fertility
patients. The division's Attain IVF program and financing products are designed
to make the treatment process easier and more affordable for patients. The
division maintains a contracted network of 22 independent fertility clinics
under its Affiliated program which are designed to distribute the division's
products and services to a wider group of patients than those serviced by our
Partner locations.
Our Vein Clinics division began operations on August 8, 2007, with the
purchase of Vein Clinics of America, Inc. The Vein Clinics division currently
operates a network of 32 clinics (33 as of January 2009) located in 12 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 the number and value of Consumer Service packages purchased
by Affiliates in our network;
o Entering into additional Partner contracts with Affiliated and
non-Affiliated fertility centers;
o Opening new vein treatment clinics;
o Increasing revenues and profits at contracted fertility centers and
consolidated vein clinics;
o Increasing sales of Attain IVF and treatment financing products to
fertility patients; and
o Leveraging corporate general and administrative costs over a larger
base of operations.
The business strategy of our Fertility Centers segment is to leverage our
deep expertise and commitment to improved fertility center performance by
providing the best value-specific offerings designed to manage and grow the
center within the context of a long-term relationship. The business strategy of
our Consumer Segment is to provide products and services that make obtaining
high quality fertility treatment easier and more affordable for patients. The
20
business strategy of the Vein Clinic segment is to provide technologically
advanced care for vein disease to an underserved population through the opening
of additional clinics, growing each of the clinics and achieving higher
productivity and profitability at each clinic.
Major events impacting financial condition and results of operations
2008
----
On October 28, 2009, the management of the Company concluded and
subsequently reported to the Audit Committee of the Company's Board of Directors
that the Company's audited financial statements for the years ended December 31,
2006, 2007 and 2008 should no longer be relied upon and will be restated due to
an understatement in revenue recognized in connection with its Attain IVF
program within its Consumer Services Division. See Note 2 to the consolidated
financial statements for additional information.
From June 2008 through March 2009, the annual 2007 and the 2008 periodic
interim reports of IntegraMed America, Inc. and Subsidiaries were the subject of
a standard comment and review process by the Staff of the Division of
Corporation Finance of the Securities and Exchange Commission ("SEC"). The
application of generally accepted accounting principles to the Company's Attain
IVF program's multiple element revenue arrangements is complex and management's
interpretation of the applicable authoritative literature related to the timing
of the recognition of the fair value of revenue for the non-refundable portion
of the Attain IVF program fees differed from that of the SEC which caused us to
re-evaluate the Company's revenue recognition policies. As a result, the Company
restated its prior financial statements with respect to the timing of revenue
recognition for its Attain IVF program (formerly Shared Risk Refund program)
within its Consumer Services Division. Our previous revenue recognition policy
had generally recognized the non-refundable patient fees (generally 30% of the
contract amount) as revenue upon the completion of the first treatment cycle. We
now recognize the non-refundable fees based on the relationship of the fair
value of each treatment to the total fair value of the treatment package
available to each patient. We also recognize a "warranty reserve" representing
the estimated cost of services to be provided in the event a qualified patient
miscarries. This restatement does not impact the cash flows from operations of
this program or the ultimate profits to be recognized, only the timing of the
revenue recognition for a portion of the fees that we collect from our
customers. See Note 2 to the consolidated financial statements.
On December 17, 2008, we announced the opening of a new Vein Clinic
location in Skokie, Illinois. This clinic represents IntegraMed's ninth vein
care clinic in the greater Chicago metropolitan area and will benefit from the
significant operational and marketing leverage we have developed in that market.
On December 8, 2008, we announced the opening of a new Vein Clinic location
in Monroeville, Pennsylvania. This clinic is IntegraMed's first vein clinic in
Pennsylvania and is designed to provide state of the art vein care to patients
in the greater Pittsburgh area.
On July 9, 2008, we entered into a Business Services Agreement to provide
discrete business services to Arizona Reproductive Medicine Specialists, based
in Phoenix, Arizona. Under the terms of this 25 year agreement, our service fees
are initially comprised of a fixed percentage of the fertility practice's net
revenue. We also have the exclusive option at any point during the life of the
contract to expand our service offerings into a complete range of business,
marketing and financial services at which time our fees will also include a
fixed percentage of the fertility practice's earnings.
On June 23, 2008, we announced that we entered into a new Affiliate
services contract with the University of North Carolina ("UNC") School of
Medicine's Department of Obstetrics and Gynecology in Chapel Hill, North
Carolina. As an Affiliate, UNC School of Medicine's Department of Obstetrics and
Gynecology receives distribution rights to IntegraMed's consumer products and
services. In addition, UNC School of Medicine's Department of Obstetrics and
Gynecology has the right to receive other products and services uniquely
designed to support the business needs of successful, high-growth fertility
centers.
On June 5, 2008, we announced the opening of a new Vein Clinic location in
Marietta, Georgia. This clinic is IntegraMed's fourth vein clinic in Georgia and
this newly completed, state-of-the-art clinic, outfitted with the latest in
laser and other vein treatment technologies is positioned to deliver the highest
level of patient care available in the area.
21
On April 29, 2008, we announced the opening of a new Vein Clinic treatment
center in Alexandria, Virginia. This addition to our Vein Clinics Division will
provide focused vein care treatment solutions to the Washington, D.C.
metropolitan area.
On April 24, 2008, we entered into a Business Services Agreement to supply
a complete range of business, marketing and facility services to the
Southeastern Fertility Centers, P.A., located in Mount Pleasant, South Carolina.
Under the terms of this 25-year agreement, our service fees are comprised of
reimbursed costs of services, a tiered percentage of revenues, and an additional
fixed percentage of the practice's earnings. We also committed up to $0.6
million to fund any necessary capital needs of the practice.
On April 1, 2008, we entered into an Affiliate services contract with OU
Physicians Reproductive Health in Oklahoma City, Oklahoma. As a result of this
agreement, OU Physicians Reproductive Health provides another opportunity for
our Consumer Services Division to distribute their product offerings in support
of this successful fertility center.
2007
----
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 is 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 the Center for Reproductive Medicine's earnings. We also
committed up to $1.0 million to fund any necessary capital needs of the
practice.
On August 8, 2007, we acquired all of the outstanding stock of 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 VCA
transaction). Interest on the new term loan is at our option, at the prime rate
or at LIBOR plus 2% to 2.75% depending upon the level of the ratio of
consolidated debt to earnings before interest, taxes depreciation and
amortization ("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 September 30, 2008, no amounts were drawn on
the revolver.
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 this 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 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.
2006
----
On May 22, 2006, we declared a 25% stock split effected in the form of a
stock dividend for all holders of record as of June 7, 2006. As a result of this
dividend, 1,291,368 new shares of common stock were issued on the payment date
of June 21, 2006. 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.
22
During October 2006, we provided notification that our financial
statements for 2005 and the first two quarters of 2006 could not be relied on,
and were restated due to an accounting error. The restatements consisted of
non-cash adjustments to deferred tax and intangible balances and did not result
in any changes to net income or earnings per share for any period. All periods
affected by this error have been restated throughout this document.
In December 2006, we determined that we no longer needed a valuation
allowance related to deferred tax assets generated by net operating loss
carry-forwards of prior years. As a result, we recorded a tax benefit of
$821,000 which reduced our overall tax provision and increased net income by the
same amount while adding $0.10 to earnings per share.
Significant Accounting Policies
Our accounting policies are described in Note 2 of the consolidated
financial statements.
Results of Operations
As discussed above, the Company herein is restating its prior financial
statements with respect to revenue recognition for its Attain IVF program
(formerly Shared Risk Refund program) within its Consumer Services Division. All
of the financial data discussed herein, has been restated for this issue.
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 years ended December 31, 2008, 2007 and 2006 (for comparability
purposes, the tax benefit for 2006 is omitted):
2008 2007 2006
---- ---- ----
Revenues, net:
Fertility Centers ...................... 69.9% 79.8% 89.3%
Consumer Services ...................... 10.0% 10.8% 10.7%
Vein Clinics ........................... 20.1% 9.4% 0.0%
----- ----- -----
Total revenues ...................... 100.0% 100.0% 100.0%
Costs of services incurred:
Fertility Centers ...................... 64.7% 73.2% 82.7%
Consumer Services ...................... 7.3% 8.1% 7.4%
Vein Clinics ........................... 18.8% 8.7% 0.0%
----- ----- -----
Total costs of service .............. 90.8% 90.0% 90.1%
Contribution:
Fertility Centers ...................... 5.2% 6.6% 6.6%
Consumer Services ...................... 2.7% 2.7% 3.3%
Vein Clinics ........................... 1.3% 0.7% 0.0%
----- ----- -----
Total contribution ................... 9.2% 10.0% 9.9%
General and administrative expenses ...... 5.4% 6.9% 7.4%
Interest income .......................... (.2)% (.8)% (.9)%
Interest expense ......................... .8% .8% .6%
----- ----- -----
Total other expenses .............. 6.0% 6.9% 7.1%
Income from operations before income taxes 3.2% 3.1% 2.8%
Income tax provision ..................... 1.2% 1.1% 0.4%
----- ----- -----
Net income ............................... 2.0% 2.0% 2.4%
===== ===== =====
Revenues
--------
For the year ended December 31, 2008, total revenues of $198.2 million
increased approximately $46.3 million, or 30.5% from the same period in 2007. We
experienced year-over-year organic revenue increases in both of our fertility
business segments. Our Fertility Centers revenue increased as a result of growth
within our existing medical practices, as well as the addition of two new
Partner arrangements and the full year of results of a Partner added in the
third quarter of 2007. Expansion continued in our Consumer Services segment,
driven by the continued expansion of its Attain IVF program. In addition to our
23
fertility segments, our performance for the twelve months ended December 31,
2008, included full year results from our Vein Clinics division which was
purchased on August 8, 2007.
For the year ended December 31, 2007, total revenues of $151.8 million
increased approximately $25.5 million, or 20.2% from the same period in 2006.
Our Fertility Centers revenue increased 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 2007. Expansion continued in our
Consumer Services segment, driven by the growth of its Attain IVF program. In
addition to growth within these two segments, on August 8, 2007, we acquired
Vein Clinics of America, Inc. This leading provider of vein disease treatment
became our third operating segment and contributed $14.3 million to our 2007
revenues.
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.
Fertility Center revenues in the year ended December 31, 2008, increased by
$17.4 million or 14.3% from the same period in 2007. This compares to an
increase of $8.3 million, or 7.4% for the year ended December 31, 2007 versus
2006. During both years, growth was largely attributable to same center
year-over-year growth in our network of underlying medical practices.
Influencing this growth is our focus on increasing patient revenues through
effective multi-faceted marketing programs, as well as our continued focus on
expense management which drives operational efficiency and higher contribution
margins. Revenues for the year ended December 31, 2008, also benefited from (a)
the inclusion of a new fertility Partner in Mount Pleasant, South Carolina which
contributed $3.5 million to our net revenue since its addition in April 2008;
(b) full year results from our Orlando, Florida Partner added in September 2007,
and (c) the full year impact from the expansion of Shady Grove into the
Baltimore, Maryland market in July 2007.
In July 2008, we also entered into a twenty-five year contract with an
established fertility clinic based in Phoenix, Arizona. Under the terms of this
agreement we will phase in the implementation of our full suite of Partner
services over time. Under this arrangement, our fees are currently calculated as
a fixed percentage of the clinics revenues with an option to expand into our
standard three-tiered fee structure, in line with expanded Partner services,
based upon the center meeting certain performance targets.
The table below illustrates the components of the Fertility Centers segment
revenue in relation to the physician practice financials for 2008, 2007 and 2006
(000's omitted):
24
Twelve Months Ending December 31,
-----------------------------------
2008 2007 2006
--------- ------- --------
Physician Financials
(a) Patient revenue ............................. $ 192,380 $ 168,653 $ 152,632
(b) Cost of services ............................ 125,156 109,132 102,625
(c) Base service fee ............................ 8,798 7,791 7,170
--------- --------- ---------
(d) Practice contribution (a-b-c) ............... 58,426 51,730 42,837
(e) Physician compensation ...................... 52,861 46,687 38,576
(f) IntegraMed additional fee ................... 5,565 5,043 4,261
IntegraMed Financials
(g) IntegraMed gross revenue (b+c+f) ............ 139,517 121,975 114,055
(h) Amortization of business service rights ..... (1,300) (1,343) (1,495)
(i) Other revenue ............................... 223 446 207
--------- --------- ---------
(j) IntegraMed fertility services revenue (g+h+i) $ 138,440 $ 121,078 $ 112,767
========= ========= =========
(i) Other revenue includes administrative fees we receive from ARTIC, the
captive insurance company, fees from the Phoenix fertility center noted above as
well as other miscellaneous fees.
The following summarized quarterly data for 2008, 2007 and 2006 is
presented for additional analysis and demonstration of the slight seasonality of
the fertility division. The volumes in the first quarter of each year are
typically lower than the balance of the year as many patients do not wish to
prepare for the IVF procedure in the last month of the year, resulting in fewer
IVF ready patients in January and February. Contributing to the lower volumes
are voluntary laboratory closures at year-end at several of our labs in order to
undergo normal maintenance (in thousands, except New Patient Visits and IVF
Cases Completed).
Revenues, Net (000's) Contribution (000's) New Patient Visits IVF Cases Completed
--------------------- -------------------- ------------------ -------------------
2008 2007 2006 2008 2007 2006 2008 2007 2006 2008 2007 2006
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
First quarter... 32,746 $29,092 $27,497 2,304 $2,315 $2,059 6,765 5,917 5,303 3,141 3,038 2,433
Second quarter . 35,051 29,728 28,648 2,570 2,526 2,031 7,093 5,867 5,452 3,314 3,088 2,630
Third quarter... 36,505 31,046 28,256 2,743 2,714 2,174 7,186 5,930 5,578 3,474 3,069 2,750
Fourth quarter.. 34,138 31,212 28,366 2,599 2,464 2,146 7,173 6,279 5,400 3,219 2,971 2,652
------ ------ ------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Total year .....$138,440 $121,078 $112,767 $10,216 $10,019 $8,410 28,217 23,993 21,733 13,148 12,166 10,465
======== ======== ======== ======= ======= ====== ====== ====== ====== ============= ======
Consumer Services Segment
For the year ended December 31, 2008, revenues of $18.4 million from our
Attain IVF Program represented approximately 93% of our Consumer Services
segment revenues. This compares to revenues of $15.1 million, or slightly over
91% of Consumer Services revenues in 2007. Revenue growth in the Attain IVF
program of $3.3 million, or 21.8%, in 2008 was the result of enrolling more
patients into the program and increasing patient through-put by maintaining,
high pregnancy success rates. Similarly, Attain IVF revenue growth of $3.1
million, or 21.4%, in 2007 versus 2006 was also attributable to expanded
enrollments relative to the earlier year, coupled with high pregnancy rates.
Over the past four years, enrollments in our Attain IVF Program have grown at a
compound annual rate of 32.8%, while pregnancy success rates have either been
maintained or increased. Since our customers in the Attain IVF program prepay
for their suite of services, and a significant portion of the fees received by
us are not recognized until the patient achieves pregnancy, our Attain IVF
deposits and Deferred Revenue balance continues to grow each year as the number
of enrolled patients grow.
The following summarized Consumer Services segment quarterly data for 2008,
2007 and 2006 is presented for additional analysis and demonstration of the
growth of enrollments and pregnancies in our Attain IVF program.
25
Revenues, Net (000's) Contribution (000's) Enrollments Pregnancies
--------------------- -------------------- ----------- -----------
2008 2007 2006 2008 2007 2006 2008 2007 2006 2008 2007 2006
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
First quarter... $4,196 $3,235 $3,036 1,235 $751 $765 212 250 159 167 114 111
Second quarter . 4,807 4,179 3,127 1,446 1,125 1,266 280 241 194 189 167 113
Third quarter... 5,364 4,557 3,512 1,352 1,171 1,081 307 247 227 217 173 134
Fourth quarter.. 5,396 4,489 3,878 1,386 1,077 1,020 250 222 207 205 183 150
----- ----- ----- ----- ----- ----- --- --- --- --- --- ---
Total year ..... $19,763 $16,460 $13,553 $5,419 $4,124 $4,132 1,049 960 787 778 637 508
======= ======= ======= ====== ====== ====== ===== === === === === ===
Revenues from our Affiliate program were $1.2 million for the year 2008,
which is approximately unchanged from the years ended December 31, 2007 and
2006. Although our Affiliate program produces significant revenues on a stand
alone basis, the primary value of the twenty two enrolled clinics as of December
31, 2008, is to serve as a distribution channel for our Attain IVF program and
as an introduction to our services for medical practices which move on to become
full fertility Partners. During 2008, four independent fertility clinics joined
our Affiliate program and two left in Partner related transactions for a net
increase of two clinics. For the year ended December 31, 2007, our Affiliate
program had a net reduction of one clinic as one practice moved up to our
Partner program.
Pharmaceutical revenue of $0.2 million for the year ended December 31,
2008, was approximately equal to the prior period in 2007, and down slightly
from $0.4 million in 2006. Our pharmaceutical revenues are comprised of
marketing support fees we earn based upon underlying product margin as reported
by a third-party pharmaceutical distributor. Over the past several years we have
seen flat or declining revenues due to pharmaceutical cost increases which the
distributor has been unable to pass on to the consumer as a result of
competitive pressures. We view these pricing and margin developments as
longer-term structural elements within the pharmaceutical market do not expect
significant improvement during 2009. As such we are anticipating not renewing
our contract with the third-party distributor when it expires in 2009.
Vein Clinics Segment
Revenues for the year ended December 31, 2008, were approximately $40.0
million versus partial year revenues of $14.3 million in 2007. Revenues for the
year ended December 31, 2007, represent operating results only since this
segment was purchased on August 8, 2007.
Vein clinic revenues are generally from billings to patients or their
insurer for vein disease treatment services, as opposed to the service fees and
reimbursed costs earned by our Fertility Centers segment. For comparable
purposes, revenues reported by VCA on a stand alone basis for the twelve months
ended December 31, 2007 were $34.5 million.
As of December 31, 2008, revenues at established clinics opened one year or
more rose by $2.2 million, or 6.6%, to $35.9 million from $33.7 million for the
full twelve months of 2007. During 2008 we also opened our planned five new
clinics, for a total of 32 as of December 31, 2008, versus three clinics opened
in 2007, as we continued to successfully execute our expansion plans.
We have included the results of VCA in our financial statements since the
date of its acquisition on August 8, 2007. For purposes of additional analysis
and to demonstrate the significant seasonality of this segment, summarized VCA
quarterly data for 2008 and 2007 (revenues and contribution in thousands) appear
below:
Revenues, Net Contribution New Patients Total Procedures
------------- ------------ ------------- ----------------
2008 2007 2008 2007 2008 2007 2008 2007
---- ---- ---- ---- ---- ---- ---- ----
First quarter... $8,842 $7,404 $322 $266 1,208 1,114 15,559 13,778
Second quarter . 10,062 9,155 713 1,158 1,572 1,382 19,116 15,448
Third quarter... 10,360 8,283 892 (1,704) (a) 1,500 1,266 17,739 14,296
Fourth quarter.. 10,686 9,704 724 438 1,187 1,127 18,885 15,814
------- ------- ------ ----- ----- ----- ------ ------
Total year ..... $39,950 $34,546 $2,651 $158 5,467 4,889 71,299 59,336
======= ======= ====== ==== ===== ===== ====== ======
(a) Includes non-recurring expenses of $2,016,000 related to the sale of
the company.
26
VCA operated 32 clinics at the end of 2008, 28 clinics at the end of 2007
and 25 at the end of 2006.
Contribution
------------
For the year ended December 31, 2008, total contribution of $18.3 million
was up approximately $3.2 million, or 20.9% from the same period in 2007.
Increased contribution in our Fertility Centers segment in 2008 was the result
of the increased profitability in our platform of existing clinics as well as
the addition of acquisition related results. The continued growth of our Attain
IVF program and full year results from our Vein Clinics segment were also major
contributors to the improvement.
For the year ended December 31, 2007, contribution growth was $2.6 million,
or 20.6%, versus the comparable period in 2006. The increase in contribution in
2007, versus 2006, was fueled mainly by organic growth in our Fertility Centers
division coupled with partial year results from our Vein Care division acquired
in August 2007. Contribution results for our Consumer Division in 2007 were
essentially even with 2006, as growth in our Attain IVF program was offset by
declining fees from pharmaceutical sales.
A segment-by-segment discussion is presented below.
Fertility Centers Segment
Fertility Center contribution of $10.2 million for the year ended
December 31, 2008, increased approximately $0.2 million, or 2.0%, from prior
year levels. Although this segment experienced revenue growth of 14.3% in 2008,
versus the prior year, margin growth was tempered by additional division level
infrastructure investments. These investments, which totaled $1.2 million during
2008, were designed to support continuing growth and new acquisitions within
this segment. Excluding this additional infrastructure, contribution from
operations grew $1.4 million, or 11.5%, for the twelve months ended December 31,
2008, versus the year earlier period. Approximately $0.8 million of the increase
in contribution came from our new fertility Partners with the remaining centers
generating contribution growth of $0.6 million versus the prior year.
Fertility Center contribution for the year 2007 increased approximately
$1.6 million, or 19.1% from the same period in the prior year. This increase was
primarily attributable to the continued revenue and margin growth of our
existing Fertility Centers, and entry into new fertility markets in Baltimore,
Maryland and Orlando, Florida. Contribution growth rates for our existing
Partners averaged 14.9% in 2007, versus the prior year. The new markets entered
into during the second half of 2007 generated contribution of more than
$400,000.
Consumer Services Segment
Contribution from our Consumer Services segment grew by $1.3 million to
$5.4 million for the twelve months ended December 31, 2008 versus a contribution
of approximately $4.1 million in the year earlier period. This growth was driven
by our Attain IVF Program in which the two key profitability metrics (i.e., the
number of patients receiving treatment and pregnancy success rates) showed
year-over-year improvement in 2008 versus 2007.
Contribution from both our Affiliate and Pharmaceutical programs in 2008,
were on par with results in 2007. Although our Affiliate program grew by a net
of two fertility practices during 2008, the underlying value of this program is
to serve as a distribution channel for our Attain IVF and patient financing
products as well as a source of future Partner programs. Also, as noted
previously, the market for pharmaceutical products in which we participate has
been subject to external pricing pressures which have restricted revenues and
profitability.
For the year ended December 31, 2007, contribution of $4.1 million from our
Consumer Services segment was equal to the $4.1 million earned in the prior
year. While enrollments in our Attain IVF program grew in 2007 versus 2006,
pregnancy rates during 2007 were at the low end of our expected range and
impacted the amount of revenue recognized as we record the bulk of our revenue
at the time of pregnancy.
Contribution from our Pharmaceutical line, down $0.4 million, or 71.3% was
due to a previously mentioned unfavorable pricing and reimbursement environment.
27
Vein Clinics Segment
For the year ended December 31, 2008, contribution from our Vein Clinics
Division of $2.7 million was up $1.7 million from reported 2007 results. Year
versus year comparisons for this segment are not directly comparable as 2007
results only include contribution generated since this segment was acquired in
August 2007. During the fourth quarter of 2008, this segment generated
contribution of $724,000, as compared to $438,000 in the fourth quarter of 2007.
This improved performance is attributed to (a) enhanced efficiency and retention
at the clinic operational level; (b) improvements in revenue cycle management;
(c) the opening of five additional clinics in 2008 versus 2007, net of
associated start-up costs and (d) savings from integrating VCA's administrative
functions with the Corporate Shared Services group.
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 divisional operations. These costs
totaled $10.7 million for the year 2008, $10.5 million in 2007 and $9.4 million
in 2006. We measure our success by relating G&A costs to operating contribution.
For twelve months ended December 31, 2008, G&A expenses were 58.3% of
contribution which compares favorably to ratios of 69.7% for the same period in
2007 and 74.8% in 2006. We continue to actively manage G&A expenses in an effort
to leverage our Support Services group and extract economies of scale from
within the organization.
Interest
--------
Net interest expense for the year ended December 31, 2008 totaled $1.2
million, compared to net interest income of $0.1 million for the year 2007, and
net interest income of $0.4 million in 2006. The change in net interest
income/expense for the three years ended December 31, 2008, is primarily the
result of utilizing cash on hand and additional borrowings as the principal
means of financing our acquisition of VCA in August 2007. This acquisition used
approximately $14 million of cash from our balance sheet in addition to $17
million of new borrowings.
Coupled with this cash outlay is a reduction in the general level of
interest rates as well as a slow-down in various credit markets which has
resulted in restrictions on the interest income we are able to earn on our cash
balances. Subject to interest rate fluctuations, we anticipate interest expense
to decrease gradually in the coming quarters as scheduled debt repayments reduce
our outstanding principle balances.
Interest income of $0.4 million for the year ended December 31, 2008 was
below that of the prior year by $0.9 million, or a reduction of 69.5%, primarily
as a result of lower market interest rates and conditions in the credit markets
which limited investment opportunities. Interest expense of $1.6 million for the
year ended December 31, 2008, exceeded that of the prior year by $0.4 million,
or 37.5% primarily due to interest charges on new borrowings done in August
2008, associated with the VCA acquisition.
For the year ended December 31, 2007, interest income increased $0.2
million, or 17.1%, from the same period in 2006, as a result of earnings on idle
cash balances during the first seven months of 2007. Interest expense of $1.1
million for the year ended December 31, 2007, increased by $0.4 million from the
same period in 2006, as a result of mid-year borrowings associated with the VCA
acquisition.
Income tax provision
--------------------
Our provision for income tax was approximately $2.5 million, $1.7 million
and $0.5 million for the three years ended December 31, 2008, 2007 and 2006
respectively, or 39.3%, 35.3% and 13.3% of pre-tax income, respectively. Our
effective tax rates for all years reflect provisions for both federal and state
income taxes. The low effective tax rate of 13.3% for the year ended December
31, 2006 was mainly due to an $821,000 tax benefit related to the elimination of
the valuation allowance on deferred tax assets. The lower effective tax rate of
35.3% for the year ended December 31, 2007 was mainly due to benefits received
from tax-exempt interest income. We expect the effective tax rate to approximate
39% in 2009.
Effective January 1, 2007, we adopted Financial Accounting Standards Board
(FASB) Interpretation No. 48 (FIN No. 48), "Accounting for Uncertainty in Income
28
Taxes," which clarifies the accounting and disclosure for uncertainty in income
taxes. The adoption of this interpretation did not have a material impact on our
financial statements.
We file income tax returns in the U.S. federal jurisdiction and various
states. For federal income tax purposes, our 2007 and 2008 tax years remain open
for examination by the tax authorities under the normal three year statute of
limitations. A federal income tax examination for tax years through 2006 was
completed during 2008 resulting in no adjustment to our income tax liability.
For state tax purposes, our 2004 through 2008 tax years remain open for
examination by the tax authorities under a four year statute of limitations.
Off-balance Sheet Arrangements
------------------------------
FASB Interpretation No. 46 (FIN 46R) "Consolidation of Variable Interest
Entities" ("VIE's") addresses how a business enterprise should evaluate whether
it has a controlling financial interest in an entity through means other than
voting rights and accordingly should consolidate the entity. As of December 31,
2008, through the acquisition of the Vein Clinics of America, Inc, we have
interests in the individual vein clinics, where we are the primary beneficiary
and obligor of their financial results (our contract provides for us to receive
any excess or deficit profits from the vein clinics). As such we have
consolidated these vein clinic operations in our financial statements in
accordance with the provisions of FIN 46R. Since we do not have any financial
interest in the individual fertility clinics and we are not the primary
beneficiary or obligor of their financial results (our contracts provide for the
physician owners of the clinics to receive any excess or deficit profits), we do
not consolidate the results of the fertility clinics in our accounts. Also,
since we do not have any interest in the captive insurance provider where we are
not the primary beneficiary, we do not consolidate the results of the captive
insurance company in our accounts.
Liquidity and Capital Resources
-------------------------------
As of December 31, 2008, we had approximately $28.3 million in cash and
cash equivalents on hand as compared to $23.7 million at December 31, 2007. We
had a working capital deficit of approximately $2.4 million, at December 31,
2008, an improvement from the deficit of $3.4 million as of December 31, 2007.
Attain IVF deferred revenue and Other 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 revenues and expected to be
recognized as income within twelve to eighteen months. These deposits totaled
approximately $11.2 million and $10.6 million as of December 31, 2008 and 2007,
respectively. These deposits are a significant source of cash flow and represent
interest-free financing for us.
As of December 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 $5.7 million in 2009. These expenditures are primarily related to
medical equipment, information system infrastructure and leasehold improvements.
We believe that our current working capital level, specifically cash and
cash equivalents, is 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 5-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. In order to mitigate the interest rate risk
associated with this term loan, we also entered into an interest rate swap
agreement on 50% of the principal amount. This swap transaction acts an
effective hedge fixing the interest rate on half of our term loan at 5.39% plus
the applicable margin for the life of the loan. Other features of this credit
facility include a $10 million three-year revolving line of credit. As of
December 31, 2008, there was a balance of $7.5 million outstanding under this
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 is
29
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 December
31, 2008, interest on the term loan was payable at a rate of approximately
2.71%. 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 December
31, 2008 under the revolving line of credit the full amount of $10.0 million was
available, of which $7.5 million was outstanding.
Our Bank of America credit facility is collateralized by substantially all
of our assets. As of December 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 December 31, 2008, and the effect such obligations are expected
to have on our liquidity and cash flows in future periods.
Payments Due by Period (000's omitted)
Total Less than 1 year 1 - 3 years 4 - 5 years After 5 years
----- ---------------- ----------- ----------- -------------
Notes Payable................. $ 22,418 $3,768 $18,650 $ -- $ --
Line of Credit Outstanding...... 7,500 7,500 -- -- --
Capital lease obligations..... 301 83 218 -- --
Interest on debt.............. 2,972 1,067 1,905
Operating leases.............. 60,353 4,708 17,793 15,425 22,427
Fertility Partners capital and
other obligations......... 5,747 5,747 -- -- --
Total contractual cash
obligations............... $99,291 $22,873 $38,566 $15,425 $22,427
======= ======= ======= ======= =======
Amount of Commitment Expiration Per Period
Total Less than 1 year 1 - 3 years 4 - 5 years After 5 years
----- ---------------- ----------- ----------- -------------
Unused lines of credit........ $ 2,500 $ -- $2,500 $ -- $ --
======== ====== ====== ======== ========
We also have commitments to provide working capital financing to member
clinics in our Fertility Centers division. A significant portion of this
commitment relates 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 on their behalf as well
as undistributed physician earnings. 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
30
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.
Recently Issued Accounting Pronouncements
Please see Note 3 of the consolidated financial statements for a
discussion on recently issued accounting pronouncements.
ITEM 7A. 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 $25,000,000 variable interest rate term loan maturing in 2012. As a
result of this derivative transaction we have partially shielded ourselves from
interest rate risks associated with that portion of this loan as the hedge
instrument essentially converts that portion of the loan to a fixed rate
instrument, currently at 5.3% plus the applicable margin. We are currently
subject to interest rate risks associated with the remaining 50% of our term
loan as well as our short term investments and certain advances to our fertility
Partner clinics, all of which are tied to either short term interest rates,
LIBOR or the prime rate. As of December 31, 2008, a one percent change in
interest rates would impact our pre-tax income by approximately $100,000
annually.
ITEM 8. Financial Statements and Supplementary Data
See Index to Financial Statements on page F-1.
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
ITEM 9A. Controls and Procedures Evaluation of Disclosure Controls
and Procedures
Disclosure controls and procedures are defined by the Securities and
Exchange Commission as those controls and other procedures that are designed to
ensure that information required to be disclosed in the Company's filings under
the Securities Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission's
rules and forms. At the time that our Annual Report on Form 10-K for the fiscal
year ended December 31, 2008 was filed with the Securities and Exchange
Commission on March 31, 2009 and again when Amendment No. 1 to our Annual Report
on Form 10-K was filed on June 5, 2009, the Company's Chief Executive Officer
and Chief Financial Officer evaluated the Company's disclosure controls and
procedures and concluded that our disclosure controls and procedures were
effective as of December 31, 2008. Based on the material weakness in our
internal control over financial reporting described below, the Company's Chief
Executive Officer and Chief Financial Officer have now determined that such
disclosure controls and procedures were ineffective. In response to this
material weakness, management performed additional analysis and other procedures
to ensure that information required to be disclosed in this Amendment No. 2 to
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2008 is properly disclosed.
Management's Annual Report on Internal Control Over Financial Reporting
Management of the Company is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in Rule 13a-15(f)
or 15d-15(f) promulgated under the Securities Exchange Act of 1934, as amended.
The Company's internal control over financial reporting includes those policies
and procedures that (i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Company; (ii) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company; and (iii) provide
reasonable assurance regarding the prevention or timely detection of
unauthorized acquisition, use, or disposition of the Company's assets that could
have a material effect on the Company's financial statements.
31
Internal control over financial reporting is designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements prepared for external purposes in accordance with
generally accepted accounting principles. Because of its inherent limitations,
internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate. A material weakness is a significant deficiency, or
combination of significant deficiencies, that results in more than a remote
likelihood that a material misstatement of the annual or interim financial
statements will not be prevented or detected.
At the time that our Annual Report on Form 10-K for the fiscal year ended
December 31, 2008 was filed with the Securities and Exchange Commission on March
31, 2009 and again when Amendment No. 1 to our Annual Report on Form 10-K was
filed on June 5, 2009, management assessed the effectiveness of the Company's
internal control over financial reporting as of December 31, 2008. In making
these assessments, management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission ("COSO") in "Internal
Control--Integrated Framework. A material weakness is a significant deficiency,
or combination of significant deficiencies, that results in more than a remote
likelihood that a material mistatement of the annual or interim financial
statements will not be prevented or detected. "Based on our assessments we had
concluded that, as of December 31,2008, the Company's internal control over
financial reporting was effective based on those criteria.
In connection with the restatement discussed in Note 2 to the condensed
consolidated financial statements contained in this Amendment No. 2, our
management reevaluated the effectiveness of our internal control over financial
reporting as of December 31, 2008 and identified the following material
weakness: there was a deficiency in the design of our internal controls related
to accounting for our Attain IVF program. As a result, the Company's audited
financial statements for the years ended December 31, 2006, 2007 and 2008
understated revenue recognized in connection with its Attain IVF program within
its Consumer Services Division. As more fully explained in Note 2 to the
condensed consolidated financial statements contained in this Amendment No. 2,
revenues, contribution, income before tax, income tax provision and net income
were misstated in the Company's audited financial statements for the years ended
December 31, 2006, 2007 and 2008, as well as the interim periods within those
financial statements, as a result of this deficiency.
The material weakness referred to above was identified in connection with
the preparation of our Form 10-Q for the quarter ended September 30, 2009.
Although we were required to restate the 2008 and prior financial statements
based upon such error, as of the date of this report, we have remediated the
material weakness referred to above, as the Company developed, programmed and
tested a new database properly reflect the revenue to be recognized in our
Attain IVF program and we have also instituted additional procedures.
The Company's independent registered certified public accounting firm,
Amper, Politziner & Mattia LLP, has audited our internal control over financial
reporting as of December 31, 2008 as stated in their report which appears on
page F-2 of this Amendment No. 2 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 2008.
Other than the changes referred to above, there were no changes made in our
internal control over financial reporting during the period covered by this
report that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting. Such report also
concluded that internal control over financial reporting was ineffective, as
described below.
We had developed a model to recognize revenue for our Attain IVF
non-refundable fees based upon a number of assumptions above the average
enrollment fee, the average number of treatments, the value of those treatments,
the sequence of the different types of treatment, the mix of patients and
treatment types, etc. Our calculation omitted any adjustment for the revenue to
be recognized for patient withdrawals prior to the completion of all six cycles,
therefore, for patients who fit into this category, our model did not result in
the recognition of the remaining deferred revenue at the time of withdrawal.
This error represents a material weakness in that the model was not properly
designed and our review procedures and controls did not detect the error.
ITEM 9B. Other Information
None.
32
PART III
ITEM 10. Directors, Executive Officers and Corporate Governance
Our Board of Directors has adopted a Code of Business Conduct that is
applicable to all of our directors, officers and employees, a copy of which has
previously been filed with the SEC. Any material changes made to our Code of
Business Conduct or any waivers granted to any of our directors and executive
officers will be publicly disclosed by filing a current report on Form 8-K. A
copy of our Code of Business Conduct as well as charters for our Audit
Committee, Compensation Committee and Nominating and Corporate Governance
Committee, which comply with the corporate governance rules of NASDAQ, are
available on our website at www.integramed.com. In addition, copies of such
documents are also available to our shareholders upon request by contacting our
Investor Relations Department at 914-253-8000 or through an e-mail request from
our website at www.integramed.com.
The other information required by this Item is incorporated by reference to
the applicable information in the definitive proxy statement for our 2009 annual
meeting of shareholders, which is to be filed with the SEC within 120 days after
our fiscal year end, including the information set forth under the captions
"Election of Directors for a Term of One Year", "Section 16 (a) Beneficial
Ownership Reporting Compliance" and "Committees of the Board".
ITEM 11. Executive Compensation
The information required by this Item is incorporated by reference to the
applicable information in the definitive proxy statement for our 2009 annual
meeting of shareholders, which is to be filed with the SEC within 120 days after
our fiscal year end, including the information set forth under the captions
"Executive Compensation", "Director Compensation" and "Compensation Committee
Interlocks and Insider Participation".
ITEM 12. Security Ownership of Certain Beneficial Owners and Management,
and Related Stockholder Matters
The information required by this Item is incorporated by reference to the
applicable information in the definitive proxy statement for our 2009 annual
meeting of shareholders, which is to be filed with the SEC within 120 days after
our fiscal year end, including the information set forth under the caption
"Security Ownership".
ITEM 13. Certain Relationships, Related Transactions and Director Independence
The information required by this Item is incorporated by reference to the
applicable information in the definitive proxy statement for our 2009 annual
meeting of shareholders, which is to be filed with the SEC within 120 days after
our fiscal year end, including the information set forth under the caption
"Certain Relationships and Related Transactions".
ITEM 14. Principal Accountant Fees and Services
The information required by this Item is incorporated by reference to the
applicable information in the definitive proxy statement for our 2009 annual
meeting of shareholders, which is to be filed with the SEC within 120 days after
our fiscal year end, including the information set forth under the caption
"Independent Public Registered Accounting Firm".
PART IV
ITEM 15. Exhibits and Financial Statement Schedule
(a) (1) Financial Statements.
(2) The exhibits that are listed on the Index to Exhibits
herein which are filed herewith as 10.9 (b); 10.26 (a);
10.27 (a); 10.29 (c); 10.35; 21; 31.1; 31.2; 32.1; and
32.2.
(b) Exhibits. The list of exhibits required to be filed with this
Annual Report on Form 10-K/A is set forth in the Index to Exhibits
herein.
33
FINANCIAL STATEMENTS
Item 8 and 15 (a)(1)
Contents
Page
----
INTEGRAMED AMERICA, INC.
Report of Independent Registered Public Accounting Firm ........ F-2-3
Consolidated Balance Sheets as of December 31, 2008 and 2007.... F-4
Consolidated Statements of Operations for the years ended
December 31, 2008, 2007 and 2006............................. F-5
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 2008, 2007 and 2006................. F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 2008, 2007 and 2006............................. F-7
Notes to Consolidated Financial Statements...................... F-8
FINANCIAL STATEMENT SCHEDULE
Report of Independent Registered Public Accounting Firms
on Financial Statement Schedule II........................... S-1
Valuation and Qualifying Accounts............................... S-2
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Shareholders of
We have audited the accompanying consolidated balance sheets of
IntegraMed America, Inc. as of December 31, 2008 and 2007 and the
related consolidated statements of operations, shareholders' equity and
cash flows for each of the years in the three-year period ended
December 31, 2008. We also have audited IntegraMed America, Inc.`s
internal control over financial reporting as of December 31, 2008,
based on criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). IntegraMed America, Inc.'s management is responsible
for these financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting, included in
the accompanying consolidated financial statements. Our responsibility
is to express an opinion on these financial statements and an opinion
on the company's internal control over financial reporting based on our
audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of
material misstatement and whether effective internal control over
financial reporting was maintained in all material respects. Our audits
of the financial statements included examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered
necessary in the circumstances. We believe that our audits provide a
reasonable basis for our opinions.
A company's internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles. A company's internal control over financial reporting
includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of
the company's assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
A material weakness is a control deficiency, or combination of
control deficiencies, that results in more than a remote likelihood
that a material misstatement of the annual or interim financial
statements will not be prevented or detected. Management has identified
and included in its assessment of internal controls over financial
reporting the following material weakness as of December 31, 2008. The
Company's systems did not properly recognize as revenue a portion of
nonrefundable fees on patients who withdrew from the IVF Attain
program. This material weakness resulted in restatement of the
Company's previously issued financial statements for the years ended
2001 through 2008.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of IntegraMed
America, Inc. as of December 31, 2008 and 2007, and the results of its
operations and its cash flows for each of the years in the three-year
period ended December 31, 2008 in conformity with accounting principles
generally accepted in the United States of America. Also in our
opinion, management's assessment that IntegraMed America, Inc. did not
maintain effective internal control over financial reporting as of
F-2
December 31, 2008 is fairly stated based on criteria established in
Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). Also, in
our opinion, as a result of the material weakness identified in the
previous paragraph, IntegraMed America, Inc. has not maintained
effective internal control over financial reporting as of December 31,
2008 based on criteria established in Internal Control-Integrated
Framework issued by COSO.
As discussed in Note 2 and Note 3 to the consolidated financial
statements, the Company restated its consolidated financial statements
as of December 31, 2007 and 2006 as a result of a change in its revenue
recognition policy for its Attain IVF Program, net of the related
income tax effect.
As discussed in Note 15 to the consolidated financial statements,
effective January 1, 2007, the Company adopted the provisions of
Financial Interpretation (FIN) No. 48 "Accounting for Uncertainty in
Income Taxes- an interpretation of Statement of Financial Accounting
Standards No. 109."
/s/Amper, Politziner & Mattia, LLP
Edison, New Jersey
March 30, 2009
F-3
PART I -- FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
INTEGRAMED AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
(all dollars in thousands, except share amounts)
December 31, December 31,
------------ ------------
2008 2007
------------ -------------
(restated) (restated)
ASSETS
Current assets:
Cash and cash equivalents ....................................................... $ 28,275 $ 23,740
Patient and other receivables, net .............................................. 6,681 5,511
Deferred taxes .................................................................. 5,744 5,565
Other current assets ............................................................ 6,466 4,668
--------- ---------
Total current assets ........................................................ 47,166 39,484
Fixed assets, net ............................................................... 16,618 16,912
Intangible assets, Business Service Rights, net ................................. 21,956 22,305
Goodwill ........................................................................ 29,478 29,359
Trademarks ...................................................................... 4,442 4,492
Other assets .................................................................... 1,781 1,619
--------- ---------
Total assets ................................................................ $ 121,441 $ 114,171
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................................ $ 2,853 $ 1,895
Accrued liabilities ............................................................. 17,818 17,760
Current portion of long-term notes payable and other obligations ................ 11,351 3,661
Due to Fertility Medical Practices .............................................. 6,354 9,043
Attain IVF deferred revenue and other Patient Deposits .......................... 11,237 10,560
--------- ---------
Total current liabilities ................................................... 49,613 42,919
Long-term notes payable and other obligations ...................................... 18,868 21,799
Deferred and other tax liabilities ................................................. 696 1,819
--------- ---------
Total Liabilities ........................................................... 69,177 66,537
Commitments and Contingencies
Shareholders' equity:
Common Stock, $.01 par value - 15,000,000 shares authorized in 2008 and
2007, respectively, 8,668,376 and 8,572,258 shares issued and
outstanding in 2008 and 2007, respectively .................................. 87 86
Capital in excess of par ........................................................ 54,943 53,890
Other comprehensive loss ........................................................ (375) (82)
Treasury stock, at cost - 22,682 and 14,175 shares in 2008 and 2007, respectively (211) (165)
Accumulated deficit ............................................................. (2,180) (6,095)
--------- ---------
Total shareholders' equity ......................................................... 52,264 47,634
--------- ---------
Total liabilities and shareholders' equity .................................. $ 121,441 $ 114,171
========= =========
See accompanying notes to the consolidated financial statements.
F-4
INTEGRAMED AMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(all amounts in thousands, except per share amounts)
For the Year ended
----------------------------------
2008 2007 2006
--------- ---------- ---------
(restated) (restated) (restated)
Revenues, net
Fertility Centers .................... $ 138,440 $ 121,078 $ 112,767
Consumer Services .................... 19,763 16,460 13,553
Vein Clinics ......................... 39,950 14,284 --
---------- ---------- ----------
Total revenues ................... 198,153 151,822 126,320
---------- ---------- ----------
Costs of services and sales:
Fertility Centers .................... 128,224 111,059 104,357
Consumer Services .................... 14,344 12,336 9,421
Vein Clinics ......................... 37,299 13,304 --
---------- ---------- ----------
Total costs of services and sales 179,867 136,699 113,778
---------- ---------- ----------
Contribution
Fertility Centers .................... 10,216 10,019 8,410
Consumer Services .................... 5,419 4,124 4,132
Vein Clinics ......................... 2,651 980 --
---------- ---------- ----------
Total contribution ............... 18,286 15,123 12,542
General and administrative expenses ..... 10,654 10,537 9,380
Interest income ......................... (383) (1,256) (1,073)
Interest expense ........................ 1,563 1,136 695
---------- ---------- ----------
Total other expenses ............. 11,834 10,417 9,002
---------- ---------- ----------
Income before income taxes .............. 6,452 4,706 3,540
Income tax provision .................... 2,537 1,662 1,291
Income tax benefit ...................... -- -- (821)
---------- ---------- ----------
Net income .............................. $ 3,915 $ 3,044 $ 3,070
========== ========== ==========
Basic and diluted net earnings per share:
Basic earnings per share ............. $ 0.45 $ 0.37 $ 0.38
Diluted earnings per share ........... $ 0.45 $ 0.36 $ 0.37
Weighted average shares - basic ...... 8,618 8,310 8,090
========== ========== ==========
Weighted average shares - diluted .... 8,691 8,410 8,194
========== ========== ==========
See accompanying notes to the consolidated financial statements.
F-5
INTEGRAMED AMERICA, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(all amounts in thousands)
(Restated)
Accumulated
Common Stock Capital in Comprehensive Treasury Stock Accumulated Total
Shares Amount Excess of Par Income Shares Amount Deficit Equity
------ ------ ------------- ------ ------ ------ ------- ------
BALANCE AT DECEMBER 31, 2005 8,008 80 49,364 -- 133 (937) (12,209) 36,298
Stock grants issued, net 85 1 58 -- -- -- -- 59
Stock grant compensation expense
amortization -- -- 405 -- -- -- -- 405
Exercise of common stock options
and related tax benefits 187 1 498 -- -- -- -- 499
Amortization of common stock option
compensation expense -- -- 87 -- -- -- -- 87
Unrealized loss on hedging transaction -- -- -- (9) -- -- -- (9)
Retirement of Treasury stock, net
of shares issued upon exercise
of options or issuance of stock
grants (153) (1) (1,167) -- (133) 937 -- (231)
Net income for the year ended
12/31/06 -- -- -- -- -- -- 3,070 3,070
----- ----- ------- ----- ----- ----- ------ ------
BALANCE AT DECEMBER 31, 2006 8,127 81 49,245 (9) -- -- (9,139) 40,178
Stock grants issued, net 78 -- -- -- 19 (228) -- (228)
Stock grant compensation expense
amortization -- -- 558 -- -- -- -- 558
Exercise of common stock options
and related tax benefits 35 1 154 -- -- -- -- 155
Treasury stock transactions, net (5) -- (63) -- (5) 63 -- --
Issuance of common stock upon
acquitision of Vein Clinics
of America, Inc. 337 4 3,996 -- -- -- -- 4,000
Unrealized loss on hedging
transaction -- -- -- (73) -- -- -- (73)
Net income for the year ended
12/31/07 -- -- -- -- -- -- 3,044 3,044
---- ---- ---- --- ---- ---- ------- -----
BALANCE AT DECEMBER 31, 2007 8,572 86 53,890 (82) 14 (165) (6,095) 47,634
Stock grants issued, net 99 1 (1) -- -- -- -- --
Stock grant compensation expense
amortization -- -- 858 -- -- -- -- 858
Exercise of common stock options
and related tax benefits 11 1 360 -- 2 (23) -- 338
Treasury stock transactions, net (14) (1) (164) -- 7 (23) -- (188)
Unrealized loss on hedging transaction -- -- -- (293) -- -- -- (293)
Net income for the year ended 12/31/08 -- -- -- -- -- -- 3,915 3,915
---- ---- ---- --- ---- ---- ----- -----
BALANCE AT DECEMBER 31, 2008 8,668 $87 $54,943 ($375) 23 ($211) ($2,180) $52,264
===== === ======= ===== == ===== ======= =======
See accompanying notes to the consolidated financial statements
F-6
INTEGRAMED AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(all amounts in thousands)
For the
Twelve-month period
Ended December 31,
---------------------------------
2008 2007 2006
--------- --------- ---------
(restated) (restated) (restated)
Cash flows from operating activities:
Net income ................................................................. $ 3,915 $ 3,044 $ 3,070
Adjustments to reconcile net income to net cash provided
operating activities:
Depreciation and amortization ........................................ 7,288 6,450 5,705
Deferred income tax provision ........................................ (1,068) 469 (799)
Deferred or stock-based compensation ................................. 858 558 492
Changes in assets and liabilities --
Decrease (increase) in assets, net of assets acquired from VCA
Patient and other accounts receivables ............................... (1,170) (378) 45
Prepaids and other current assets .................................... (643) (1,040) (403)
Other assets ......................................................... (162) (122) (99)
(Decrease) increase in liabilities, net of liabilities acquired from VCA
Accounts payable ..................................................... 958 (271) 590
Accrued liabilities .................................................. (1,097) 285 4,106
Due to medical practices ............................................. (2,689) 4,744 (650)
Attain IVF deferred revenue and other patient deposits ............... 677 2,217 1,906
-------- -------- --------
Net cash provided by operating activities .................................. 6,867 15,956 13,963
Cash flows from investing activities:
Purchase of business service rights ........................................ (950) (2,653) --
Cash paid to purchase VCA, net of cash acquired ............................ (119) (25,409) --
Purchase of other intangibles .............................................. 50 (40) (12)
Purchase of fixed assets and leasehold improvements, net ................... (5,695) (6,222) (3,233)
-------- -------- --------
Net cash used in investing activities ...................................... (6,714) (34,324) (3,245)
Cash flows from financing activities:
Proceeds from issuance of debt ......................................... 7,880 25,000 --
Debt repayments ........................................................ (3,648) (15,163) (1,382)
Common Stock transactions .............................................. 150 87 327
-------- -------- --------
Net cash provided by (used in) financing activities ........................ 4,382 9,924 (1,055)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents ....................... 4,535 (8,444) 9,663
Cash and cash equivalents at beginning of period ........................... 23,740 32,184 22,521
-------- -------- --------
Cash and cash equivalents at end of period ................................. 28,275 23,740 32,184
======== ======== ========
Supplemental Information:
Interest paid ......................................................... 1,632 1,024 695
Income taxes paid ..................................................... 1,526 1,130 327
See accompanying notes to the consolidated financial statements.
F-7
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- THE COMPANY:
IntegraMed America, Inc. is a specialty healthcare services company
offering products and services to patients and providers in the fertility and
vein care segments of the health industry.
As of December 31, 2008, our fertility line of business encompassed two of
our reporting segments and was comprised of 33 contracted fertility centers in
major markets across the United States, with products and services designed to
support fertility center growth, assist patients with treatment financing, an
Attain IVF (formerly Shared Risk Refund) program and captive insurance
offerings. We offer a comprehensive array of defined business services to 11 of
these contracted fertility centers under our Partner program, and a more
discrete menu of services to 22 other fertility centers under our Affiliate
program. All 33 centers have access to our consumer services offerings which are
comprised of our Attain IVF program and patient financing products.
In late 2008, our Consumer Services division re-launched its successful
Shared Risk Refund program under the name "Attain IVF". This re-branding was
done to reflect advantages offered by the program beyond its basic risk sharing
features and to position the program in a leadership role among smaller, similar
programs offered by other providers. We have also modified our revenue
recognition model for this program as described in Note 2 and Note 3. All
amounts presented for 2007 and 2006 have been restated to reflect this change in
revenue recognition.
Our vein clinic division, which began operations in August, 2007, is
currently comprised of 33 (32 as of December 31, 2008) vein clinics in major
markets, which primarily provide advanced treatment for vein diseases. We offer
a comprehensive array of defined business services to these clinics which are
designed to support their operations and growth.
NOTE 2 -- RESTATEMENT OF PREVIOUSLY ISSUED CONSOLIDATED FINANCIAL STATEMENTS:
Restatement No. 2 - The Correction Of An Error
On October 28, 2009, the management of IntegraMed America, Inc. (the
"Company") concluded and subsequently reported to the Audit Committee of the
Company's Board of Directors (the "Audit Committee") that the Company's audited
financial statements for the years ended December 31, 2006, 2007 and 2008
(collectively, the "Relevant Periods") should no longer be relied upon and will
be restated due to an understatement in revenue recognized in connection with
its Attain IVF Refund Program within its Consumer Services Division.
As previously reported on a Current Report on Form 8-K filed on March 31,
2009, the Company restated certain financial statements after determining that
they could not be relied upon. Specifically, the Company restated its prior
financial statements with respect to the timing of revenue and profit
recognition of $3,477,000 of the revenue related to its Attain IVF Refund
Program (formerly "Shared Risk Refund Program") within its Consumer Services
Division for the years 2001 through 2008. That restatement did not impact the
cash flows from operations of this program or the ultimate profits to be
recognized, only the timing of the revenue and profit recognition.
Subsequent to the original restatement, the Company developed, programmed
and tested a new patient management and revenue recognition system for the
Attain IVF Refund Program. The new system recently reached sufficient operating
proficiency to allow input of the patient information related to the Attain IVF
Refund Program. As a result, the Company identified that the increase in the
deferred revenue amount of $3,477,000, related to the years 2001 through 2008,
that had been previously restated should have been only $822,000. The Company
determined that while the previous system properly accounted for the recognition
of the proportional fair value revenue related to the non-refundable portion of
the patient fee (which was the subject of a comment and review process by the
Staff of the Division of Corporation Finance of the Securities and Exchange
Commission), it assumed all patients would either achieve pregnancy or utilize
all services available to them under the program. It is a fact that most of the
patients that seek a refund, do so prior to utilizing all services available
under the program. As a result, our revenue recognition model failed to
recognize as revenue the remaining deferred revenue portion of the
non-refundable fee on that class of patients.
F-8
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The change in our Statement of Operations and Consolidated Balance Sheet
for the twelve months ended December 31, 2008, 2007 and 2006 is presented below
(000's, except per share amounts):
Twelve Months Ending
December 31,
-----------------------------------
2008 2007 2006
--------- --------- --------
Revenue recognized from prior period .................. $ 750 $ 1,406 $ 1,908
Revenue deferred to future period ..................... 0 (750) (1,406)
--------- --------- ---------
Net change in period revenue .......................... $ 750 $ 656 $ 502
========= ========= =========
Revenue as reported ................................... $ 197,403 $ 151,166 $ 125,818
Net change in reported revenue ........................ 750 656 502
--------- --------- ---------
Revenue as restated ................................... $ 198,153 $ 151,822 $ 126,320
========= ========= =========
Income before income taxes as reported ................ $ 5,715 $ 4,062 $ 3,047
Net change in reported revenue ........................ 750 656 502
Net change in reserve for medical costs ............... (13) (12) (9)
--------- --------- ---------
Income before income taxes as restated ................ $ 6,452 $ 4,706 $ 3,540
========= ========= =========
Income tax provision as reported ...................... $ 2,227 $ 1,391 $ 263
Net change in income taxes from above adjustments ..... 310 271 207
--------- --------- ---------
Income tax provision as restated ...................... $ 2,537 $ 1,662 $ 470
========= ========= =========
Net Income as reported ................................ $ 3,488 $ 2,671 $ 2,784
Summary of above adjustments .......................... 427 373 286
--------- --------- ---------
Net income as restated ................................ $ 3,915 $ 3,044 $ 3,070
========= ========= =========
Diluted earnings per share as reported ................ $ 0.40 $ 0.32 $ 0.34
Change in earnings per share from above adjustments ... $ 0.05 $ 0.04 $ 0.03
--------- --------- ---------
Diluted earnings per share as restated ................ $ 0.45 $ 0.36 $ 0.37
========= ========= =========
Current liabilities as reported ....................... $ 51,126 $ 44,005 $ 27,856
Cumulative effect of restatement on current liabilities (1,513) (1,086) (712)
--------- --------- ---------
Current liabilities as restated ....................... $ 49,613 $ 42,919 $ 27,144
========= ========= =========
Shareholders Equity as reported ....................... $ 50,753 $ 46,549 $ 39,466
Cumulative effect of restatement on Shareholders Equity 1,511 1,085 712
--------- --------- ---------
Shareholders Equity as restated ....................... $ 52,264 $ 47,634 $ 40,178
========= ========= =========
F-9
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
There was no change to cash flow as a result of this restatement.
For a complete description of our revenue recognition policy please refer
to Note 3 - "Summary of Significant Accounting Policies".
Restatement No. 1 - Change in Revenue Recognition Policy for the Attain IVF
Program
The accompanying 2007 and 2006 consolidated financial statements have been
restated to reflect a change in the revenue recognition policy for our Attain
IVF program. The 2008 data is restated as to the interim period and the full
year of 2008 is shown as a comparison of the the previous and new revenue
recognition methods. Our previous revenue recognition policy had generally
recognized the non-refundable patient fees (generally 30% of the contract
amount) as revenue upon the completion of the first treatment cycle and we now
recognize the non-refundable fees based on the relationship of the relative fair
value of each treatment to the total fair value of the treatment package
available to each patient. We also recognize a "warranty reserve" representing
the estimated cost of services to be provided in the event a qualified patient
miscarries. This restatement does not impact the cash flows from the operations
of this program or the ultimate profits to be recognized, only the timing of the
revenue recognition for a portion of the fees that we collect from our
customers.
The cumulative effect of this change in policy as of December 31, 2008, is
to defer approximately $3.5 million of revenue into 2009 which would have been
recognized in 2008. Similarly we recognized a substantial amount of revenue in
2008 which had been deferred from 2007. The change in revenue on our financial
statements for the years ended December 31, 2008, 2007 and 2006 is illustrated
below (000's):
Cumulative impact of both restatements
For the twelve months ended
December 31,
--------------------------------------
2008 2007 2006
------ ------ -----
Revenue recognized from prior year 750 1,406 1,908
Revenue deferred to future year .. -- (750) (1,406)
------ ------ ------
Net change in annual revenue 750 656 502
====== ====== ======
Our new revenue recognition policy, as more fully described in Note 3 -
"Summary of Significant Accounting Policies", changes the timing of the revenue
recognition for the non-refundable fees, and aligns it more closely to the
underlying treatment cycles delivered to the patient.
The change in the timing related to revenue recognition had the following
effects:
2008 2007 2006
---- ---- ----
Revenue as reported ............................... $ 197,403 $ 151,166 $ 125,818
Net Change in reported revenue .................... 750 656 502
--------- --------- ---------
Revenue as restated ............................... $ 198,153 $ 151,822 $ 126,320
========= ========= =========
Income before income taxes as reported ............ $ 5,715 $ 4,062 $ 3,047
Net change in reported revenue .................... 750 656 502
Net change in reserve for medical costs ........... (13) (11) (9)
--------- --------- ---------
Income before income taxes as restated ............ $ 6,452 $ 4,707 $ 3,540
========= ========= =========
Income tax provision as reported .................. $ 2,227 $ 1,391 $ 263
Net change in income taxes from above adjustments . 310 271 207
--------- --------- ---------
Income tax provision as restated .................. $ 2,537 $ 1,662 $ 470
========= ========= =========
Net income as reported ............................ $ 3,488 $ 2,671 $ 2,784
Summary of above adjustments ...................... 427 373 286
--------- --------- ---------
Net income as restated ............................ $ 3,915 $ 3,044 $ 3,070
========= ========= =========
Diluted earnings per share as reported ............ $ 0.40 $ 0.32 $ 0.34
Change in earnings per share from above adjustments 0.05 0.04 0.03
--------- --------- ---------
Diluted earnings per share as restated ............ $ 0.45 $ 0.36 $ 0.37
========= ========= =========
F-10
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Current liabilities as reported ................... $ 51,126 $ 44,005 $ 27,856
Cumulative effect of restatement on liabilities ... (1,513) (1,086) (712)
--------- --------- ---------
Current liabilities as restated ................... $ 49,613 $ 42,919 $ 27,144
========= ========= =========
Shareholders' Equity as reported .................. $ 50,753 $ 46,549 $ 39,466
Cumulative effect of restatement on
Shareholders' Equity .......................... 1,511 1,085 712
--------- --------- ---------
Shareholders' Equity as restated .................. $ 52,264 $ 47,634 $ 40,178
========= ========= =========
NOTE 3 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of consolidation --
The consolidated financial statements comprise the accounts of IntegraMed
America, Inc. and its wholly owned subsidiaries. With the acquisition of Vein
Clinics of America (VCA) in the third quarter of 2007, we reorganized our
service offerings into three major product lines, Fertility Centers, Consumer
Services and Vein Clinics. In our Fertility Centers Segment, we derive our
revenues from business service contracts with independent fertility centers. Our
Consumer Services Segment derives its revenues from fees assessed to patients
enrolling in our Attain IVF Program, fees assessed to affiliated fertility
clinics, and fees derived from fertility patient financing products. Our Vein
Clinics Segment derives revenues from billings to patients and third party
payers for treatment services rendered based upon the amount billed to the
patient or their payer less any expected contractual allowances resulting from
specified rates contained within payer contracts.
We evaluate whether we should report the results of the clinical operations
in which we have management service contracts in accordance with FASB
Interpretation No. 46 (FIN 46R) "Consolidation of Variable Interest Entities"
("VIE's"). Since we do not have a controlling financial interest in any of the
fertility medical practices to which we provide services, and we are not the
primary beneficiary or obligor of their financial results (our contracts provide
for the physician owners of the clinics to receive any excess or deficit of
profits) we do not consolidate their results. This is further supported by the
facts that the physician owners of the clinics have the voting rights with
respect to the entity and sufficient equity interests to fund their entity. We
do have effective voting control and a controlling financial interest in the
operations of each of the vein clinics, where we are the primary beneficiary and
obligor of their financial results (our contracts provide for us to receive any
excess or deficit of profits) and therefore consolidate the results of those
clinic operations. Accordingly, we report the revenue for patient services only
from the vein clinic segment and those fertility patients who enroll in the
Attain IVF Program (included in our consumer services segment).
Reclassifications-
With the addition of VCA, we have realigned the way we operate our business
into three segments. As a result, we have reclassified certain costs for all
years presented within the three divisions to reflect this change in our
operating structure and to provide a clearer view of each division's operating
performance and efficiency. The result of this change is to reduce overall
contribution margins and unallocated General and Administrative costs, as
reported in previous periods.
Stock split effected in the form of a stock dividend --
In May 2007 and June 2006, we effected a 25% stock split in the form of a
stock dividend. Where applicable, we have restated our capital accounts, shares
outstanding, weighted average shares and earnings per share calculations for all
years in these financial statements and related footnotes to reflect these
transactions.
F-11
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenue Recognition --
Fertility Centers - Partner service fees
Under all of our fertility Partner agreements, we receive as compensation
for our services a three-part fee comprised of: (i) a tiered percentage of the
fertility centers net revenues, (ii) reimbursed costs of services (costs
incurred in servicing a fertility center and any costs paid on behalf of the
fertility center) and (iii) either a fixed percentage ranging from 10% to 20%,
or a fixed dollar amount (limited to $1,071,000 and $1,865,000 for the year
ended December 31, 2008 at our two largest fertility centers) of the fertility
centers earnings after services fees, which may be subject to further limits.
All revenues from Partner contracts are recorded in the period services are
rendered. Direct costs incurred by us in performing our services and costs
incurred on behalf of the medical practices are reported as costs of services.
Revenue and costs are recognized in the same period in which the related
services have been performed.
Consumer Services - Affiliate Service Fee
Under our Affiliate agreements, we receive as compensation for our services
a fixed fee dependent upon the level of service provided. All revenues and costs
from Affiliate contracts are recorded in the period services are rendered.
Consumer Services - Attain IVF Program
The Attain IVF program consists of a fertility treatment package that
includes a fixed number of treatment cycles for one fixed price with a
significant refund if treatment is unsuccessful. We receive payment directly
from consumers who qualify for the program and the patient contracts with us to
provide the medical treatment. We discharge the obligation of patient treatment
by arranging with affiliated fertility clinics for the provision of patient
care. We pay contracted fertility centers a defined reimbursement for each
treatment cycle performed. Since the Company is the primary obligor in the
arrangement, has latitude in establishing the price, performs a portion of the
contracted service, has discretion in supplier selection, the amount earned by
the Company per transaction is not fixed and the patient looks to the Company as
the contracting party, these arrangements qualify for gross accounting under
EITF 99-19. We have revised our revenue recognition policy and have restated all
periods presented to reflect the revised revenue recognition policy described
below.
By contract, a portion of the enrollment fee (generally 30%) is
non-refundable and is recognized as revenue based on the relative fair value of
each treatment cycle completed relative to the total fair value of the
contracted treatment package available to the patient, following the guidance of
Emerging Issues Task Force statement 00-21. The remaining revenue, which
consists of the 70% refundable portion as well as any part of the 30%
non-refundable portion not yet recognized as revenue, is recorded upon the
patient becoming pregnant and achieving a fetal heartbeat (most of the patients
that are pregnant at this point go on to deliver a baby). We are able to record
income at the time of pregnancy as we have substantially completed our
obligation to the patient, discharged the patient from the care of the fertility
specialists, and we can accurately estimate the amount of expenses and refunds
that will become due if there is a pregnancy loss. We are able to make these
estimates for pregnancy loss based upon reliable Company specific data with
respect to the large homogeneous population we have served for more than seven
years. Expenses prior to pregnancy related to the program and principally paid
to the affiliated fertility clinic are recorded as incurred.
Accordingly, at each balance sheet date, we have established a liability
for patients in the Attain IVF program for the following:
1. Deposits for customers who have not yet begun treatment and for whom no
revenue has been recognized (we expect such amounts to be recognized as income
or refunded within twelve to eighteen months)
2. Refund reserve for those patients who became pregnant, but may not deliver
a baby (See Note 11)
3. Medical costs associated with additional treatments to a patient who became
pregnant, did not deliver a baby and still has additional treatments available
under their treatment package. (See Note 11)
F-12
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The table below presents the balances of each of these liabilities as of
the respective dates (000's):
December 31,
---------------------
2008 2007
---- ----
Deposits or refundable fees................ $9,981 $9,349
Refund reserve for pregnant patients....... 397 326
Medical cost reserve....................... 331 272
Due to the characteristics of the program, we assume the risk for a
patient's treatment cost in excess of their enrollment fee should initial
treatment cycles be unsuccessful. In order to moderate and manage this risk, we
have developed a sophisticated statistical model and case management program in
which Attain IVF patients are medically pre-approved prior to enrollment in the
program. We also continuously review their clinical criteria as they undergo
treatment. If, while undergoing treatment, a patient's clinical response falls
outside our criteria for participation in the Attain IVF program, we have the
right to remove that individual from the program, with an applicable refund to
the patient. To date, our case management process has been effective in managing
the risks associated with our Attain IVF program within expected limits. A
patient may withdraw from the program at anytime and will be issued a refund.
The Attain IVF Program is available to the self-pay patient. Approximately
12.9%, 11.6% and 9.6% of the self-pay patients served by our network chose to
enroll in the Attain IVF Program in 2008, 2007 and 2006, respectively.
Consumer Services - Pharmaceutical Sales
Marketing fees associated with third-party pharmaceutical sales are
recorded upon shipment to customers. Our revenues for the periods presented are
comprised of these marketing fees and not from the sales of actual
pharmaceuticals.
Consumer Services - Patient Financing
A fertility treatment cycle can be an expensive process for which many
patients do not have full medical insurance coverage. As a service to these
patients, we can arrange financing to qualified patients of our network at rates
significantly lower than credit cards and other finance companies. Our financing
operations are administered by a third-party vendor and loans are made to
qualified patients by an independent bank or finance organization. We are not at
risk for loan losses and receive a placement fee from the lender involved. Since
many financing transactions are closely associated with our Attain IVF program,
financing revenues, which we receive and record at the time the loans are
closed, are reported as part of that program.
Vein Clinics - Patient Revenues and Accounts Receivable and Allowance for
Uncollectible Accounts
Our relationship with the individual medical practices comprising our vein
care division meets the test for consolidation under FIN 46R "Consolidation of
Variable Interest Entities". Among these tests is the fact that we hold a
controlling financial interest in the medical practices, we are the primary
beneficiary of the results of the practices and we are obligated to absorb any
losses of the practices. As a result of these relationships, we consolidate the
medical practice's patient revenues in our financial statements. These revenues
are derived from the treatment of individual patients and revenue is recognized
when the services are performed, net of estimated contractual allowances.
The medical practices have agreements with third-party payers that provide
for payments at amounts different from established rates. Payment arrangements
include prospectively determined rates for reimbursed cost and discounted
charges. Revenue is reported at the estimated net realizable amounts from
patients and third-party payers.
A summary of the payment arrangements with major third-party payers
follows:
o Medicare: All outpatient services related to Medicare beneficiaries are
paid based on a fixed physician fee schedule per service which is
updated annually.
F-13
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
o Other: Estimates for contractual allowances under managed care health
plans are based primarily on the payment terms of contractual
arrangements, such as predetermined rates per diagnosis, per diem rates
or discounted fee for service rates.
Approximately 17%, of gross patient revenues of the Vein Clinics Division
for the year ended December 31, 2008, related to services rendered to patients
covered by the Medicare program.
Laws and regulations governing the Medicare program are complex and subject
to interpretation. Management believes that it is in compliance with all
applicable laws and regulations and is not aware of any pending or threatened
investigations involving allegations of potential wrongdoing. While no such
regulatory inquiries have been made, compliance with such laws and regulations
can be subject to future government review and interpretation.
Our accounts receivable are primarily comprised of patient and third-party
receivables arising from services provided by our vein care division.
Receivables due from third-party payers are carried at an estimated collectible
value determined by the original charge for the service provided, less an
estimate for contractual allowances or discounts provided to the third-party
payers. Receivables due directly from patients are carried at the original
charge for the service provided less an estimated allowance for uncollectible
amounts. Contractual allowance and uncollectible reserve amounts are determined
based on historical collection performance data and are reviewed and adjusted
monthly as necessary.
Vein Clinics - Deferred Compensation Arrangements
The Professional Corporations providing medical services at the clinics
have entered into employment agreements with physicians at clinic sites
providing for multi-year bonus compensation to be accumulated over a physician's
first five years of employment. Accumulated balances are paid out during the
years following this period, or after specific performance targets have been
met. These obligations are funded in physician designated investment accounts on
a quarterly basis. At December 31, 2008, these balances totaled approximately
$938,000.
Intangible and Long-Lived Assets -
Our intangible assets are comprised of Business Service Rights associated
with our fertility Partner contracts, Goodwill associated with our acquisition
of Vein Clinics of America, Inc., and Trademarks, also principally associated
with our Vein Clinic acquisition.
Business service rights represent payments we made for the right to service
certain fertility centers. We amortize our non-refundable Business Service
Rights on a straight-line basis over the life of the underlying contract,
usually ten to twenty five years. Our refundable Business Service Rights are not
amortized as they are contractually reimbursable from the medical practice upon
termination of the underlying contract. Our Goodwill and Trademark assets
associated with the Vein Clinics of America, Inc. acquisition are deemed to have
indefinite lives and are therefore not amortized.
We test all of our intangible and long-lived assets for impairment on a
regular basis in accordance with FAS 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets". If we record an impairment loss, it may have a
material adverse effect on our results of operations for the year in which the
impairment is recorded. As of December 31, 2008, none of our long lived assets
were deemed to be impaired.
F-14
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Use of Estimates -
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates. The use of estimates and assumptions in the preparation of the
accompanying consolidated financial statements is primarily related to the
determination of net accounts receivable and reserves for estimated refunds due
to pregnancy losses in our Attain IVF Program.
Due to Medical Practices --
Due to Medical Practices represents the net amounts owed by us by
contracted medical practices in our Partner Program. 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.
Cash and cash equivalents --
Cash and cash equivalents primarily include all highly liquid debt
instruments with original maturities of three months or less, recorded at cost,
which approximates market.
Concentrations of credit risk --
Financial instruments, which potentially expose us to concentrations of
credit risk, consist primarily of trade receivables from patients and
third-party payers which totaled approximately $13.2 million and $12.2 million
as of December 31, 2008 and 2007 respectively. Our related reserves for
uncollectible accounts and contractual allowances totaled $6.5 million and $6.7
million as of December 31, 2008 and 2007 respectively.
Income taxes --
We account for income taxes utilizing the asset and liability approach in
accordance with Financial Accounting Standards No. 109, "Accounting For Income
Taxes" (FAS 109). Deferred tax assets and liabilities are recognized on
differences between the book and tax basis of assets and liabilities using
presently enacted tax rates. The income tax provision is the sum of the amount
of income tax paid or payable for the year as determined by applying the
provisions of enacted tax laws to the taxable income for that year and the net
change during the year in our deferred tax assets and liabilities. (See Note
16).
Earnings per share --
We determine earnings per share in accordance with Financial Accounting
Standards No. 128) "Earnings Per Share" (FAS 128) Basic earnings per share is
calculated by dividing net income by the weighted average number of common
shares outstanding during the reporting period. Diluted earnings per share is
calculated by dividing net income by the weighted average number of common
shares, and potential common shares, outstanding during the reporting period.
(See Note 17)
Fair value of financial instruments --
The fair value of a financial instrument, such as a notes payable,
represents the amount at which the instrument could be exchanged in a current
transaction between willing parties, other than in a forced sale or liquidation.
Significant differences can arise between the fair value and carrying amounts of
financial instruments that are recorded at historical cost amounts. We believe
that the carrying amounts of cash and cash equivalents, our accounts receivable
and accounts payable approximate fair value due to their short-term nature.
As of December 31, 2008 and 2007, the carrying amount of our long-term
liabilities approximates the fair value of such instruments based upon our best
estimate of interest rates that would be available to us for similar debt
obligations with similar maturities.
New accounting pronouncements --
Recently Issued Accounting Pronouncements
FAS 157-3: In October 2008, The FASB issued FASB Staff Position (FSP) FAS
157-3, Determining the Fair Value of a Financial Asset When the Market for That
Asset Is Not Active. The FSP clarifies the application of FASB Statement No.
157, Fair Value Measurements, in a market that is not active and provides an
example to illustrate key considerations in determining the fair value of a
financial asset when the market for that financial asset is not active. The FSP
F-15
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
is effective for prior periods for which financial statements have not been
issued. We currently believe that FAS 157-3 will not have a material impact on
our consolidated financial statements.
FAS 142-3: In April 2008, the FASB issued FASB Staff Position (FSP) FAS
142-3, Determination of the Useful Life of Intangible Assets. This FSP amends
the factors that should be considered in developing renewal or extension
assumptions used to determine the useful life of a recognized intangible asset
under FASB Statement No. 142, Goodwill and Other Intangible Assets. The intent
of this FSP is to improve the consistency between the useful life of a
recognized intangible asset under Statement 142 and the period of expected cash
flows used to measure the fair value of the asset under FASB Statement No. 141R,
and other U.S. generally accepted accounting principles. This FSP is effective
for financial statements issued for fiscal years beginning after December 15,
2008, and interim periods within those fiscal years. We currently believe that
FAS 142-3 will have no material impact on our consolidated financial statements.
FAS 161: 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"). 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 FASB Statement No. 133 and its related interpretations,
and (c) how derivative instruments and related hedge items affect an entity's
financial position, financial performance, and cash flows. This statement is
effective for fiscal years after November 15, 2008. We currently believe that
SFAS No. 161 will have no material impact on our consolidated financial
statements.
FAS 160: 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; 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 currently
believe that SFAS No. 160 will have no material impact on our consolidated
financial statements.
FAS 141R: In December 2007, the Financial Accounting Standards Board
("FASB") issued Statement No. 141 (Revised 2007), Business Combinations ("SFAS
No. 141R"). The objective of SFAS No. 141R 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, SFAS No. 141R 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 currently believe that SFAS No. 141R will not have a material
impact on our consolidated financial statements.
FAS 157: In September 2006, the FASB issued SFAS No. 157, "Fair Value
Measurements". This statement defines fair value, establishes a framework for
measuring fair value, and expands disclosures about fair value measurements. The
Statement is effective for financial statements issued for fiscal years
beginning after November 15, 2007 and became effective for us on January 1,
2008.
F-16
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair value is defined as the price at which an asset could be exchanged in
a current transaction between knowledgeable, willing parties. A liability's fair
value is defined as the amount that would be paid to transfer the liability to a
new obligor, not the amount that would be paid to settle the liability with the
creditor. The FASB establishes a three-level hierarchy for fair value
measurements based upon the transparency of inputs to the valuation as of the
measurement date and expands disclosures about financial instruments measured at
fair value. Assets and liabilities recorded at fair value are categorized based
upon the level of judgment associated with the inputs used to measure their fair
value. Hierarchical levels defined by SFAS 157 and directly related to the
amount of subjectivity associated with the inputs to fair valuation of these
assets and liabilities are as follows:
Level 1: Inputs are unadjusted, quoted prices in active markets
for identical assets or liabilities at the measurement date. The
types of assets and liabilities carried at this level are
equities listed in active markets, investments in publicly
traded mutual funds with quoted market prices and listed
derivatives.
Level 2: Inputs (other than quoted prices included in Level 1)
are either directly or indirectly observable for the asset or
liability through correlation with market data of the
instrument's anticipated life. Fair value assets and liabilities
that are generally included in this category are municipal bonds
and certain derivatives.
Level 3: Financial assets and financial liabilities whose values
are based on prices or valuation techniques that require inputs
that are both unobservable and significant to the overall fair
value measurement. Consideration is given to the risk inherent
in the valuation method and the risk inherent in the inputs to
the model. Generally, assets and liabilities carried at fair
value and included in this category are certain derivatives.
The adoption of this statement did not have a material impact on our
consolidated financial statements.
NOTE 4 -- SIGNIFICANT SERVICE CONTRACTS:
For the years ended December 31, 2008, 2007, and 2006, the following
contracted fertility centers each individually provided greater than 10% of our
revenues, net and/or contribution as follows:
Percent of Company Percent of
Revenues, net Contribution
--------------------------- ---------------------------
2008 2007 2006 2008 2007 2006
------- ------ ------ ------- ------ ------
R.S.C. of New England.......... 7.2 8.9 10.7 8.7 10.5 11.7
Fertility Centers of Illinois.. 16.3 19.2 22.3 15.2 17.6 19.2
Shady Grove Fertility Center... 18.0 21.3 22.9 17.2 21.4 20.5
Under all of our fertility Partner agreements, we receive as compensation
for our services a three-part fee comprised of: (i) a tiered percentage of the
fertility centers net revenues, (ii) reimbursed costs of services (costs
incurred in servicing a fertility center and any costs paid on behalf of the
fertility center) and (iii) a either a fixed percentage, or a fixed dollar
amount of the fertility centers earnings after services fees, which may be
subject to further limits.
The third tier of our fee structure with these significant contracts
contains provisions as follows:
o R.S.C. of New England - a fixed annual percentage of the center's
earnings.
o Fertility Centers of Illinois - a fixed percentage of the center's
earnings subject to a fixed dollar amount as an upper boundary
($1,865,000) and a fixed dollar amount as a lower boundary ($932,000)
subject to a fixed percentage of the center's earnings limitation.
o Shady Grove Fertility Center - a fixed dollar amount of the center's
earnings subject to a fixed percentage of the center's earnings
limitation ($1,071,000 is the upper boundary and $540,000 is the lower
boundary of this calculation).
F-17
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 -- SEGMENT INFORMATION:
We follow the requirements contained in Statement of Financial Accounting
Standards (SFAS) No.131, "Disclosures about Segments of an Enterprise and
Related Information", with respect to identifying and reporting business
segments. This statement requires that segment reporting reflect our
organizational structure, major revenue sources, lines of responsibility and
senior management's perspective of an organization. With the acquisition of Vein
Clinics of America (VCA) during the third quarter of 2007, we reorganized our
service offerings into three major product lines: Fertility Centers, Consumer
Services and Vein Clinics. Each of the operating segments includes an element of
overhead specifically associated with it. Such overhead costs were previously
reported as General and Administrative costs, and have been reclassified in all
periods presented to better reflect the operating results of our business
segments.
Performance by segment, for the three years ended December 31 2008, 2007
(restated) and 2006 (restated) are presented below (000's omitted):
Fertility Consumer Vein
Centers Services Clinics(1) Corp G&A Consolidated
------- -------- ---------- -------- ------------
For the Year ended December 31, 2008
Revenues .......................... $ 138,440 $ 19,763 $ 39,950 $ -- $ 198,153
Cost of Services .................. 128,224 14,344 37,299 -- 179,867
--------- --------- --------- --------- ---------
Contribution ...................... 10,216 5,419 2,651 -- 18,286
Operating Margin .................. 7.4% 27.4% 6.6% -- 9.2%
General and administrative ........ 0 0 0 10,654 10,654
Interest (income) expense, net .... (181) 0 8 1,353 1,180
--------- --------- --------- --------- ---------
Income (loss) before income taxes . $ 10,397 $ 5,419 $ 2,643 $ (12,007) $ 6,452
========= ========= ========= ========= =========
Depreciation expense included above $ 4,327 $ 3 $ 761 $ 898 $ 5,989
Capital expenditures, net ......... $ 4,053 $ -- $ 1,057 $ 585 $ 5,695
Total assets ...................... $ 36,885 $ 331 $ 46,750 $ 37,475 $ 121,441
For the Year ended December 31, 2007
Revenues .......................... $ 121,078 $ 16,460 $ 14,284 $ -- $ 151,822
Cost of Services .................. 111,059 12,336 13,304 -- 136,699
--------- --------- --------- --------- ---------
Contribution ...................... 10,019 4,124 980 -- 15,123
Operating Margin .................. 8.3% 25.1% 6.9% -- 10.0%
General and administrative ........ -- -- -- 10,536 10,536
Interest (income) expense, net .... (203) -- 2 81 (120)
--------- --------- --------- --------- ---------
Income (loss) before income taxes . $ 10,222 $ 4,124 $ 978 $ (10,618) $ 4,706
========= ========= ========= ========= =========
Depreciation expense included above $ 4,003 $ 3 $ 255 $ 846 $ 5,107
Capital expenditures, net ......... $ 4,654 $ -- $ 906 $ 662 $ 6,222
Total assets ...................... $ 42,586 $ 888 $ 44,786 $ 25,911 $ 114,171
For the Year ended December 31, 2006
Revenues .......................... $ 112,767 $ 13,553 $ -- $ -- $ 126,320
Cost of Services .................. 104,357 9,421 -- -- 113,778
--------- --------- --------- --------- ---------
Contribution ...................... 8,410 4,132 -- -- 12,542
Operating Margin .................. 7.5% 30.5% -- -- 9.9%
General and administrative ........ -- -- -- 9,380 9,380
Interest (income) expense, net .... (279) -- -- (99) (378)
--------- --------- --------- --------- ---------
Income (loss) before income taxes . $ 8,689 $ 4,132 $ -- $ (9,281) $ 3,540
========= ========= ========= ========= =========
Depreciation expense included above $ 3,594 $ 2 $ -- $ 614 $ 4,210
Capital expenditures, net ......... $ 2,158 $ -- $ -- $ 1,075 $ 3,233
Total assets ...................... $ 41,458 $ 995 $ -- $ 33,870 $ 76,323
(1) Acquired August 8, 2007.
F-18
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - CASH AND CASH EQUIVALENTS:
Cash and short term investments consist of cash and short term marketable
securities. To the extent that cash balances exceed short term operating needs,
excess cash is invested in short term interest bearing instruments. It is our
policy to restrict our investments to high-quality securities with fixed
maturity dates and principle amounts. The composition of our cash and short term
investments is as follows (000's omitted):
December 31,
--------------
2008 2007
---- ----
Cash ............................ $26,807 $22,156
Money market funds .............. 58 118
Certificates of deposit ......... 1,400 1,400
Accrued interest income ......... 10 66
------- -------
Total cash and cash equivalents $28,275 $23,740
======= =======
NOTE 7 - PATIENT AND OTHER RECEIVABLES, NET:
Patient and other receivables are principally comprised of gross patient
and insurance receivables from our Vein Clinics segment which represent
outstanding balances due for patient treatments less estimated allowances for
insurance contractual agreements and uncollectible balances. Insurance
contractual allowances are calculated based on recent allowance trends
stratified by major payer category and uncollectible reserves are based on both
historical trends and specific identification of specific accounts. For the
periods ended December 31, 2008 and 2007, we believe that our receivable
reserves were adequate to provide for any contractual or collection issues.
The composition of our patient and other receivables is as follows (000's
omitted):
December 31,
--------------------
2008 2007
-------- ---------
Vein Clinic patient and insurance receivables $ 12,865 $ 11,966
Reserve for insurance contractual allowance . (3,866) (3,339)
Reserve for uncollectible accounts .......... (2,648) (3,386)
-------- --------
Subtotal Vein Clinic receivables, net .. 6,351 5,241
Other receivables ........................... 330 270
-------- --------
Total Patient and other receivables, net .. $ 6,681 $ 5,511
======== ========
NOTE 8 -- FIXED ASSETS, NET:
Fixed assets, net at December 31, 2008 and 2007 consisted of the following
(000's omitted):
2008 2007
------ -------
Furniture, office and computer equipment ........ $ 18,311 $ 17,158
Medical equipment ............................... 7,396 6,259
Leasehold improvements .......................... 21,059 19,091
Construction in progress ........................ 63 148
Assets under capital leases ..................... 427 427
-------- --------
Total ......................................... 47,256 43,083
Less -- Accumulated depreciation and amortization (30,638) (26,171)
-------- --------
$ 16,618 $ 16,912
F-19
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Our fixed assets are depreciated on a straight line basis. We generally
assign useful lives of five years to assets classified as furniture, fixtures,
office and medical equipment. Assets classified as computer hardware and
software are generally assigned a three year useful life and leasehold
improvements are depreciated over the lesser of their useful life, or the term
of the lease.
Depreciation expense on fixed assets for the years ended December 31, 2008
and 2007 was $5,989,000, and $5,107,000, respectively. Assets under capital
lease are comprised of various medical equipment. Accumulated amortization
related specifically to capital leases at December 31, 2008 and 2007 was
$126,000 and $59,000, respectively.
NOTE 9 -- BUSINESS SERVICE RIGHTS, NET:
Business Service Rights, net at December 31, 2008 and 2007 consisted of the
following (000's omitted):
2008 2007
------- --------
Business Service rights, net......... $34,205 $33,255
Less accumulated amortization........ (12,249) (10,950)
------- -------
Total............................ $21,956 $22,305
======= =======
Business Service Rights are negotiated one-time payments we generally make
to physician practices joining our fertility Partner program. These payments are
made to secure the right to provide business services to the practices for
contracted terms generally ranging from ten to twenty five years. Depending upon
the negotiated terms, these payments may be refundable at the termination of the
contract or non-refundable. We amortize our non-refundable Business Service
Rights over the life of the applicable contract. Refundable Business Service
Rights, which totaled approximately $6.1 million as of December 31, 2008, are
not amortized because these amounts will be repaid to us upon termination of the
contract.
For the twelve months ended December 31, 2008 and 2007, amortization
expense related to our Business Service Rights totaled approximately $1.3
million and $1.3 million, respectively.
Amortization expense of our Business Service Rights in future years are as
follows (000's omitted):
2009........................................... $1,300
2010........................................... 1,300
2011........................................... 1,300
2012........................................... 1,300
2013........................................... 1,300
Thereafter..................................... 9,356
------
Total payments................................. $15,856
=======
We test our Business Service Rights for impairment on a regular basis in
accordance with FAS 144 "Accounting for the Impairment and Disposal of
Long-Lived Assets". To date, no impairment charges have been recognized.
NOTE 10 - GOODWILL:
On August 8, 2007, IntegraMed acquired 100 percent of the outstanding
common shares of Vein Clinics of America, Inc. (VCA). With this acquisition
IntegraMed became the country's leading provider of services to the vein disease
segment in the health care market. At the date of acquisition, Vein Clinics
operated 27 clinics in 11 states. This acquisition also provided the opportunity
for operational efficiencies in the form of cost reductions through economies of
scale and resource sharing for both organizations. Purchase accounting
principles in accordance with FAS 141- "Business Combinations" were applied and
accordingly, only the results of VCA operations subsequent to its acquisition
are included in the accompanying financial statements.
F-20
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The goodwill of $29.5 million arising from this acquisition consists
largely of the market potential expected from the operations and enhanced
resources of VCA. All of this goodwill was assigned to VCA's vein care
operations, with none of the goodwill expected to be deductible for income tax
purposes.
The following pro forma data reflects the consolidated revenue and earnings
of IntegraMed America, Inc, and Subsidiaries had the VCA acquisition date been
January 1, 2006 (000's omitted):
Basic
Earnings
Revenue Net Income per share
------- ---------- ---------
Supplemental pro forma for 01/01/2007 to 12/31/2007 $171,925 $3,464 $0.41
Supplemental pro forma for 01/01/2006 to 12/31/2006 $154,801 $3,556 $0.43
We test our goodwill for impairment in accordance with the provisions of
SFAS No. 142, "Goodwill and Other Intangible Assets." This test consists of a
two-step process. The first step is to identify potential impairment by
comparing the fair value of the underlying asset with its carrying amount. If
the fair value, which is based on future cash flows, exceeds the carrying
amount, the intangible asset is not considered impaired. If the carrying amount
exceeds the fair value, the second step must be performed to measure the amount
of the impairment loss, if any. The second step compares the implied fair value
of the intangible with the carrying amount of that intangible. If the implied
fair value is less than the carrying amount, an impairment loss would be
recognized in an amount equal to the excess of the carrying amount of the
intangible over its implied fair value. To date we have not recorded any
impairment losses.
NOTE 11 -- TRADEMARKS:
Trademarks and other intangibles, net at December 31, 2008 and 2007
consisted of the following trademark items (000's omitted)
2008 2007
------- -------
IntegraMed America, Inc............... $42 $92
Vein Clinics of America, Inc.......... 4,400 4,400
----- -----
Total............................. $4,442 $4,492
====== ======
We do not amortize our trademarks as they have an indefinite useful life.
We do test our trademarks for impairment on a regular basis in accordance with
FAS 144 "Accounting for the Impairment and Disposal of Long-Lived Assets". To
date, no impairment charges have been recognized.
NOTE 12 -- ACCRUED LIABILITIES:
Accrued liabilities at December 31, 2008 and 2007 (restated) consisted of
the following (000's omitted):
2008 2007
---- ----
Accrued payroll ................................. $ 1,665 $ 4,286
Accrued employee incentives and benefits ........ 3,072 3,062
Accrued vacation ................................ 151 300
Accrued physician incentives (VCA) .............. 2,754 2,542
New physician recruitment ....................... 113 103
Accrued costs on behalf of medical practices .... 1,894 1,884
Accrued rent .................................... 1,166 892
Accrued professional fees ....................... 250 390
Accrued insurance ............................... 1,246 196
Reserves for estimated Attain IVF patient refunds 397 326
Reserve for Attain IVF post-pregnancy expenses .. 331 272
Accrued federal and state taxes ................. 2,899 1,006
Other accrued taxes ............................. 300 350
Other (1) ....................................... 1,580 2,151
------- -------
Total accrued liabilities ....................... $17,818 $17,760
======= =======
F-21
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Individually represents less than 5% of total accrued liabilities.
NOTE 13 - DUE TO FERTILITY MEDICAL PRACTICES:
Due to Medical Practices is comprised of the net amounts owed by us to
fertility medical practices contracted as Partners. 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.
While we are responsible for the management and collection of the Partner's
accounts receivable, as part of the business services we provide, the credit and
collection risk for these receivables remains with the medical practice. We
finance the receivables with full recourse. Amounts financed relating to
uncollectible accounts are recovered from the medical practice in the month
uncollectible reserves are established or accounts are written-off.
As of December 31, 2008 and December 31, 2007, Due to Medical Practices was
comprised of the following balances (000's omitted):
2008 2007
---- ----
Advances to Partners for receivable financing $(17,121) $(15,585)
Undistributed Physician Earnings ............ 3,205 6,338
Physician practice patient Deposits ......... 20,270 18,290
-------- --------
Due to Medical Practices, net ............... $ 6,354 $ 9,043
======== ========
Our responsibilities to the these medical practices are to provide
financing for their accounts receivable and to hold patient deposits on their
behalf as well as undistributed physician earnings.
We are also responsible for the collection of the Partner accounts
receivables, which we finance with full recourse. We have no other funding
commitments to the Partner.
NOTE 14 -- NOTES PAYABLE AND OTHER OBLIGATIONS:
Notes payable and other obligations at December 31, 2008 and 2007 consisted
of the following (000's omitted):
2008 2007
--------- --------
Note payable to bank ........................ $ 29,309 $ 25,000
Derivative Fair valuation adjustment ........ 609 82
Obligations under capital lease ............. 301 378
-------- --------
Total notes payable and other obligations ... $ 30,219 $ 25,460
Less -- Current portion ..................... (11,351) (3,661)
-------- --------
Long-term notes payable and other obligations $ 18,868 $ 21,799
======== ========
Note payable to Bank --
In August 2007, as part of our acquisition of Vein Clinics of America, we
secured a new $25 million 5-year term loan. Our previous term loan of $7.7
F-22
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 three-year revolving line of credit. Availability of borrowings under
the working capital revolver is based on eligible accounts receivable, as
defined in the credit agreement. As of December 31, 2008 under the revolving
line of credit the full amount of $10.0 million was available, of which $7.5
million was outstanding.
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 is
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 December
31, 2008, interest on the term loan was payable at a rate of approximately
2.71%. Unused amounts under the working capital revolver bear a commitment fee
of 0.25% and are payable quarterly.
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, or $12.5 million. 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. See Note 13.
Our Bank of America credit facility is collateralized by substantially all
of our assets. As of December 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.
Debt Maturities --
At December 31, 2008, aggregate note payments, including capital lease
obligation payments, in future years were as follows (000's omitted):
2009....................... $11,351
2010....................... 3,861
2011....................... 3,868
2012....................... 11,139
------
Total payments............. $30,219
=======
Leases --
Our capital lease obligation relates to medical equipment acquired for
certain vein care clinics.
We maintain operating leases for our corporate headquarters and for medical
office space for our Partner and our vein clinic centers. We also have operating
leases covering certain medical equipment. Aggregate rental expense under
operating leases was approximately $11.5 million, $10.7 million, and $9.3
million, for the years ended December 31, 2008, 2007 and 2006, respectively.
F-23
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2008, the minimum lease payments for assets under capital
and non-cancelable operating leases in future years were as follows (000's
omitted):
Capital Operating
------- ---------
2009 .................................. $ 102 $ 9,416
2010 .................................. 102 8,825
2011 .................................. 102 8,520
2012 .................................. 33 7,701
2013 .................................. -- 6,927
Thereafter ............................ -- 18,964
------- -------
Total minimum lease payments .......... $ 339 $60,353
=======
Less -- Amount representing interest .. 38
-------
Present value of minimum lease payments $ 301
=======
NOTE 15 - OTHER COMPREHENSIVE LOSS:
IntegraMed is exposed to the risk that its earnings and cash flows could be
adversely impacted by market driven fluctuations in the level of interest rates.
It is our policy to manage these risks by using a mix of fixed and floating rate
debt and derivative instruments.
During the third quarter of 2007, we entered into a revised financing
agreement with Bank of America. This agreement contained an interest rate swap
provision designed to hedge risks associated with $12.5 million of our then
$25.0 million term loan. As a result of this agreement, our net income for the
three and twelve months ended December 31, 2008 includes additional financing
costs of approximately $72,000 and $260,000 respectively, and we expect to
record additional financing costs of approximately $350,000 related to the swap
agreement over the coming twelve months given current interest rate forecasts
(these financing costs are expected to be offset by lower interest expense on
the portion of the term loan that was not hedged over this same time frame).
In addition to the costs included in our reported net income, recording
this hedge at fair value also generated a non-recognized tax-effected loss of
approximately $293,000 for the twelve months ending December 31, 2008 and a
tax-effected loss totaling $375,000 for the three years ended December 31, 2008,
which is reported as part of our Other Comprehensive Income.
The fair value of this hedge was calculated in accordance with SFAS No. 157
- Fair Value Measurements, utilizing Level 2 inputs of quoted prices for similar
liabilities in active markets, specifically 3 month Eurodollar LIBOR rates.
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
any change in fair value inversely mimics the appropriate portion of the hedged
item. As of December 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 twelve-month period ending
December 31,
----------------------------------
2008 2007 2006
------- ------- -------
Net income as reported ........................... $ 3,915 $ 3,044 $ 3,070
Net non-recognized loss on derivative transactions (293) (73) (9)
------- ------- -------
Total comprehensive income ....................... $ 3,622 $ 2,971 $ 3,061
======= ======= =======
NOTE 16 -- INCOME TAXES:
The provision for income taxes consisted of the following (000's omitted):
For the years ended December 31,
--------------------------------
2008 2007 2006
---------- ------- --------
Current taxes:
Federal ................................ $ 2,699 $ 1,049 $ 811
State .................................. 644 391 575
------- ------- -------
Total current tax expense (benefit) $ 3,343 $ 1,440 $ 1,386
------- ------- -------
F-24
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred taxes:
Federal ................................ $ (645) $ 178 $ (734)
State .................................. (161) 44 (182)
------- ------- -------
Total deferred tax expense (benefit) $ (806) $ 222 $ (916)
------- ------- -------
Total tax provision ......................... $ 2,537 $ 1,662 $ 470
======= ======= =======
The financial statement income tax provision differed from income taxes
determined by applying the statutory federal income tax rate to the financial
statement income before income taxes for the years ended December 31, 2008, 2007
and 2006 primarily as a result of the following (000's omitted):
For the years ended December31,
---------------------------------
2008 2007 2006
--------- --------- ---------
Provision at U.S. federal statutory rate.................... $ 2,192 $ 1,599 $ 1,202
State income taxes, net of federal tax effect............... 306 135 143
Non-deductible expenses..................................... 27 62 57
Tax-exempt interest income.................................. (14) (199) (129)
Adjustment to deferred tax assets .......................... ? ? (33)
Other ................................................... ? 39 (2)
Change in FIN 48 liability.................................. 26 27 ?
Change in deferred tax asset valuation allowance............ ? ? (768)
------- ------- -------
Income tax expense.......................................... $ 2,537 $ 1,662 $ 470
======= ======= =======
Significant components of the deferred tax assets (liabilities) at December
31, 2008 and 2007 were as follows (000's omitted):
December 31,
------------------
2008 2007
------- -------
Deferred tax assets
Net operating loss carry forwards $ -- $ 109
Temporary book to tax differences 6,055 5,513
------- -------
Total deferred tax assets .... 6,055 5,622
------- -------
Deferred tax liabilities
Depreciation and amortization .... (737) (1,613)
Other ............................ (18) (58)
------- -------
Total deferred tax liabilities (755) (1,671)
------- -------
Deferred tax asset .................... 5,300 3,951
Valuation allowance ................... -- --
------- -------
Net total deferred tax asset .......... $ 5,300 $ 3,951
======= =======
F-25
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The uncertainties that existed prior to December 31, 2006 related to our
ability to generate sufficient taxable income to fully utilize our deferred tax
asset valuation allowance related to our net operating loss (NOL) carry-forward
deductions. The utilization of the NOL was further complicated by a Section 382
of the tax code limitation as a result of a change in control from ten years
earlier. While in one year we could generate significant taxable earnings, our
ability to utilize our NOL was capped by the Section 382 limit leaving NOLs to
be realized by future taxable income. Each year future projected taxable
earnings were evaluated and as it became clear that a certain amount of NOLs
would be utilized we released that part of the allowance. When it became clear
that projections of taxable income would be sufficient to utilize the remaining
NOLs, we released the balance of the valuation allowance. At no time prior to
the final release did we believe the realization of all the remaining NOL was
assured.
We assess the realizability of our deferred tax assets at each interim and
annual balance sheet date based on actual and forecasted operating results in
order to determine the proper amount, if any, required for a valuation
allowance. As a result of this assessment, we believe that it is more likely
than not, given the weight of available evidence, that all of our deferred tax
assets will be realized. We will continue to assess the realizability of our
deferred tax assets at each interim and annual balance sheet date in order to
determine the proper amount, if any, required for a valuation allowance.
Effective January 1, 2007, we adopted Financial Accounting Standards Board
(FASB) Interpretation No. 48 (FIN No. 48), "Accounting for Uncertainty in Income
Taxes," which clarifies the accounting and disclosure for uncertainty in income
taxes. The adoption of this interpretation did not have a material impact on our
financial statements.
We file income tax returns in the U.S. federal jurisdiction and various
states. For federal income tax purposes, our 2007 and 2008 tax years remain open
for examination by the tax authorities under the normal three year statute of
limitations. A federal income tax examination for tax years through 2006 was
completed during 2008 resulting in no adjustment to our income tax liability.
For state tax purposes, our 2004 through 2008 tax years remain open for
examination by the tax authorities under a four year statute of limitations.
A reconciliation of the unrecognized tax benefits for the years
ended December 31, 2008 and 2007 follows:
Unrecognized
Tax Benefits (000s)
2008 2007
---- ----
Balance as of January 1, ............................ $ 149 $ 188
Additions for current year tax positions ... 46 39
Additions for prior year tax positions ..... -- --
Reductions for prior year tax positions .... (31) (3)
Settlements ................................ -- (66)
Reductions related to expirations of statute
of limitations ........................ -- (11)
Additional interest ........................ 11 2
----- -----
Balance as of December 31, .......................... $ 175 $ 149
===== =====
As of December 31, 2008 and 2007, all of the unrecognized tax benefits
could affect our tax provision and effective tax rate.
In accordance with our accounting policy, both before and after adoption of
FIN 48, interest expense and penalties related to income taxes are included in
the income tax expense line of our consolidated statement of operations. For the
years ended December 31, 2008 and 2007, we recognized $11,000 and $2,000,
respectively, for interest expense related to uncertain tax positions. As of
December 31, 2008 and 2007, we had recorded liabilities for interest expense
related to uncertain tax positions in the amounts of $15,000 and $26,000,
respectively. We made no accrual for penalties related to income tax positions.
F-26
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - EARNINGS PER SHARE:
The reconciliation of the numerators and denominators of the basic and
diluted EPS computations for the years ended December 31, 2008, 2007 (restated)
and 2006 (restated) is a follows (000's omitted, except for per share amounts):
For the years ended December 31,
--------------------------------
2008 2007 2006
------- ------- -------
Numerator
Net Income ................................... $ 3,915 $ 3,044 $ 3,070
======= ======= =======
Denominator
Weighted average shares outstanding .......... 8,618 8,310 8,090
Effect of dilutive options and warrants ...... 73 100 104
------- ------- -------
Weighted average shares and dilutive potential
Common shares .............................. 8,691 8,410 8,194
======= ======= =======
Basic earnings per common share .............. $ 0.45 $ 0.37 $ 0.38
======= ======= =======
Diluted earnings per common share ............ $ 0.45 $ 0.36 $ 0.37
======= ======= =======
For the year ended December 31, 2008, options to purchase approximately
124,000 shares of common stock were excluded from the computation of diluted
earnings per share as the exercise price of the options was above the average
market price of the shares of common stock. For the years ended December 31,
2007 and 2006, 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 price of all outstanding options was less than the
average market price of the shares of common stock.
For the years ended December 31, 2008, 2007 and 2006, there were no
outstanding warrants to purchase shares of common stock which were excluded from
the computation of the diluted earnings per share amount as the exercise price
of any outstanding warrants were less than the average market price of the
shares of common stock.
NOTE 18 -- SHAREHOLDERS' EQUITY:
During 2008, 2007 and 2006, we issued approximately 99,000, 78,000 and
106,000 shares, respectively, of restricted common stock as deferred
compensation to several officers and directors with an aggregate value of
$899,000, $956,000 and $887,000 respectively. These shares were valued at their
fair value on the date of grant, and are amortized to expense over their vesting
period which generally is a three year period.
During 2008, we issued incentive stock options to purchase approximately
128,000 shares of common stock to several officers of the company with an
aggregate fair value of approximately $741,000 on the date of issue. These
options have a term of ten years and vest ratably over a four year period.
During 2006, we received approximately 19,000 shares of our common stock in
consideration for the exercise of common stock options on behalf of various
officers and individuals. These shares were received in lieu of cash for the
exercise price of the options pursuant to terms allowed under our stock option
plans. As of the dates the underlying options were exercised, these shares were
valued at approximately $187,000 and were accounted for as Treasury Stock.
Our Board of Directors has authorized the retirement of common stock held
as Treasury Shares on a periodic basis. As such we retired approximately 14,000,
5,000 and 191,000 shares of Treasury Stock during the years ended December 31,
2008, 2007 and 2006 respectively. As of December 31, 2008 there were
approximately 22,000 shares of common stock held as Treasury shares.
F-27
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In May 2007 and June 2006 we effected a 25% stock split in the form of a
stock dividend. Where applicable we have restated our capital accounts, shares
outstanding, weighted average shares and earnings per share calculations for all
years in these financial statements and related footnotes to reflect these
transactions.
NOTE 19 -- STOCK-BASED EMPLOYEE COMPENSATION:
We account for our stock based employee compensation plans under the
Statement of Financial Accounting Standard ("SFAS") No. 123 (revised 2004),
"Share-Based Payment" ("SFAS No. 123R"). SFAS No. 123R addresses the accounting
for share based payment transactions in which an enterprise receives employee
services in exchange for equity instruments of the enterprise or liabilities
that are based on the fair value of the enterprise's equity instruments or that
may be settled by the issuance of such equity instruments. SFAS 123R requires
that such transactions be accounted for using a fair value based method.
In considering the fair value of the underlying stock when we grant options
or issue restricted stock, we consider several factors including the fair values
established by market transactions. Stock-based compensation includes
significant estimates and judgments of when stock options might be exercised,
forfeiture rates and stock price volatility. The timing of option exercises is
out of our control and depends upon a number of factors including our market
value and the financial objectives of the option holders. These estimates can
have a material impact on our stock compensation expense but will have no impact
on our cash flows.
We currently have three stock option plans which have been previously
approved by the stockholders. 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 although some
options are still outstanding, no further awards may be made under that plan.
Under the 2000 and 2007 Plans, stock options and stock grants may be awarded 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 award, with stock grants generally vesting in three to
five years. 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 December 31, 2008, there were 356,784
shares available for granting under these plans. We recognize compensation cost
for stock option plans over the vesting period based on the fair value of the
option as of the date of the grant.
The following table sets forth information about the weighted-average fair
value of options granted during the periods below, and the assumptions used for
each grant:
For the twelve-month period ending
December 31,
-----------------------------------
2008 2007 2006
-------- ----------- ---------
Fair Value of Options........... $8.45 N/A N/A
Dividend yield.................. 0.0% N/A N/A
Expected volatility............. 51.8% N/A N/A
Risk free interest rate......... 4.0% N/A N/A
Expected term in years.......... 6.3 N/A N/A
Our dividend yield assumptions on the underlying common stock upon which
the options were granted anticipate that all earnings will be retained for
F-28
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
use in the operation and expansion of the company and no dividends will be
paid to shareholders. Our expected volatility is based on historic trading
patterns of our common stock. The risk free interest rate is based on the
yield of short term U.S. Treasury securities in effect at the time of the
grant. The expected term of the options reflects our historic exercise and
forfeiture experience with similar option grants.
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, 2005.... 391,178 $2.22
Granted..................................... -- $0.00
Exercised................................... (240,721) $2.12
Canceled.................................... (4,063) $2.94
-------
Options outstanding at December 31, 2006.... 146,394 $2.35
Granted..................................... -- $0.00
Exercised................................... (42,146) $2.38
Canceled.................................... (2,029) $2.94
-------
Options outstanding at December 31, 2007.... 102,219 $2.33
Granted..................................... 127,844 $8.45
Exercised................................... (3,047) $2.68
-------
Options outstanding at December 31, 2008.... 227,016 $5.78
Options exercisable at:
December 31, 2006...................... 146,394 $2.35
December 31, 2007...................... 102,219 $2.33
December 31, 2008...................... 99,171 $2.34
As of December 31, 2008, stock options outstanding and exercisable by price
range were as follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
Outstanding Weighted-Average Exercisable
Range of as of Remaining Weighted-Average as of Weighted-Average
Exercise Prices 12/31/2008 Contractual Life Exercise Price 12/31/2008 Exercise Price
--------------- ---------- ---------------- -------------- ---------- --------------
$0.00 - $2.55 69,906 1.9 $2.09 69,906 $2.09
$2.56 - $5.00 29,265 3.3 $2.95 29,265 $2.95
$5.01 - $20.00 127,845 9.5 $8.45 -- --
------- --- ----- ------ -----
227,016 6.3 $5.78 99,171 $2.34
======= ======
The total intrinsic value of options exercised during the years ended
December 31, 2008, 2007 and 2006 was approximately $57,000,
$100,000 and $499,000 respectively. The aggregate intrinsic value of options
outstanding and exercisable as of December 31, 2008, 2007 and 2006 was
approximately $333,000, $238,000, and $344,000, respectively.
During the years ended December 31, 2008, 2007 and 2006, we issued
restricted stock grants to selected officers and members of the Board of
Directors. These stock grants vest over a three, five or ten year period for
officers, with grants to directors vesting immediately. These grants are valued
at the closing market price on the date granted with the associated compensation
expense is recognized ratably over the applicable period.
F-29
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Compensation expense recognized in connection with stock options for the
years ended December 31, 2008, 2007 and 2006 was $105,000, $0 and $0
respectively. Compensation expense recognized in connection with stock grants
for the years ended December 31, 2008, 2007 and 2006 was $753,000, $558,000 and
$405,000 respectively. As of December 31, 2008, remaining unamortized stock
compensation expense for both stock options and stock grants was approximately
$2.0 million and will be recognized as follows (000's):
Stock Stock
Options Grants
------- ------
2009...................................... $246 $556
2010...................................... 246 396
2011...................................... 145 179
2012...................................... 0 71
2013...................................... 0 40
Thereafter................................ 0 79
---- ------
Unamortized stock compensation costs...... $637 $1,321
==== ======
NOTE 20 -- QUARTERLY FINANCIAL DATA (UNAUDITED):
Summarized quarterly financial data 2008 (restated), 2007 (restated) and
2006 (restated) appear below (in thousands, except per share data):
Diluted Net
Revenues, Net Contribution Net Income Income Per Share (1)
--------------------- --------------------- ---------------------- --------------------
2008 2007 2006 2008 2007 2006 2008 2007 2006 2008 2007 2006
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
First quarter... $45,784 $32,327 $30,533 $3,861 $3,066 $2,824 $720 $555 $520 $0.08 $0.07 $0.06
Second quarter . 49,920 33,907 31,775 4,729 3,651 3,297 1,015 728 490 0.12 0.09 0.06
Third quarter... 52,229 40,183 31,768 4,987 4,427 3,255 1,099 933 507 0.13 0.10 0.06
Fourth quarter.. 50,220 45,405 32,244 4,709 3,979 3,166 1,081 828 1,553 0.12 0.10 0.19
------ ------ ------ ----- ----- ----- ----- --- ----- ---- ---- ----
Total year ..... $198,153$151,822 $126,320 $18,286 $15,123 $12,542 $3,915 $3,044 $3,070 $0.45 $0.36 $0.37
================ ======== ======= ======= ======= ====== ====== ====== ===== ===== =====
(1) The sum of the quarterly earnings per share may not equal the full year
earnings per share as the computations of the weighted average shares
outstanding for each quarter and the full year are made independently.
NOTE 21 -- COMMITMENTS AND CONTINGENCIES:
Capital Leases --
Refer to Note 12 for a summary of capital lease commitments.
Reliance on Third Party Vendors --
Our fertility and vein clinics are dependent on a limited number of primary
third-party vendors that produce supplies and medications vital to treating
infertility and vein disease. Should any of these vendors experience a supply
shortage, it may have an adverse impact on the operations of our clinical
locations and network members. To date, no shortage or disruption has been
experienced.
Employment Agreements
We have an employment agreement with our President and Chief Executive
Officer. Pursuant to that agreement, we may terminate the President and Chief
Executive Officer's employment without cause on thirty days notice, in which
event severance pay equal to twelve months' base salary plus an annual bonus,
calculated without regard to the condition precedents established under the
bonus plan, will be payable in a lump sum.
F-30
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The employment agreement further provides that in the event that within one
year after a "Change of Control" (as defined therein) of the Company occurs, and
the President and Chief Executive Officer's employment is terminated, the
President and Chief Executive Officer will be paid a lump sum amount equal to
their base salary for a 24-month period following termination, plus twice the
full amount of their annual bonus based on their then current salary, without
regard to the condition precedents established for the bonus payment. Based on
this change of control provision, if there had been a change of control of the
Company in 2008 and the President and Chief Executive Officer's employment had
terminated effective December 31, 2008, either for "Good Reason" or without
cause, then the President and Chief Executive Officer would be entitled to
termination pay equal to $660,000 representing his then annualized base salary
for 24-months, plus $429,000 representing twice the amount to which he was
eligible under our Executive Incentive Compensation Plan for 2008.
We have also entered into indemnification and change in control severance
agreements with certain of our management employees, which include, among other
terms, noncompetitive provisions and salary and benefits continuation. Our
minimum aggregate commitment under these agreements at December 31, 2008 was
approximately $3.2 million.
Commitments to Partners --
In accordance with the majority of our Partner agreements, we are obligated
to: (i) on an ongoing basis, advance funds to the fertility centers to fund
operations and provide services; and (ii) on a monthly basis, transfer to the
fertility centers funds equal to the net accounts receivable generated that
month to finance those receivables less any amounts owed to us for services fees
and/or advances.
Litigation --
From time to time, we are party to legal proceedings in the ordinary course
of business. None of these proceedings is expected to have a material adverse
effect on our financial position, results of operations or cash flow.
Insurance --
As of December 31, 2008 and December 31, 2007, we and our affiliated
fertility and vein care centers were insured with respect to medical malpractice
risks on a claims made basis. We believe, either through this captive insurance
company, or on the open market, we will be able to obtain renewal coverage for
both our fertility and vein care physicians in the future. We are not aware of
any claims against us or our affiliated medical practices, which would expose
us, or our affiliated medical practices to liabilities in excess of insured
amounts.
As of December 31, 2008 and 2007, we also carried policies to insure
against liability, theft, property loss, business interruption and a variety of
other business risks. We also maintain an appropriate insurance reserve to cover
estimated deductible amounts should a claim be filed under our policies.
NOTE 22 -- RELATED PARTY TRANSACTIONS:
In accordance with our Partner agreement with Shady Grove, Michael J. Levy,
M.D., an employed shareholder physician of the P.C., became a member of our
Board of Directors in March 1998. In 2004, Dr. Levy became an advisory director
and was no longer a voting member of the Board of Directors. The medical
practice at Shady Grove paid us service fees of $3,145,000 $2,916,000 and
$2,572,000 in 2008, 2007 and 2006, respectively.
In accordance with our Partner agreement with FCI (the Illinois practice),
Aaron Lifchez, M.D., an employed shareholder physician of FCI, became a member
of our Board of Directors in August 1997. In 2004, Dr. Lifchez became an
advisory director and was no longer a voting member of the Board of Directors.
F-31
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The medical practice FCI paid us service fees of $2,787,000, $2,649,000 and
$2,413,000 in 2008, 2007 and 2006, respectively.
The Company has a Consulting Agreement with its Chairman of the Board. The
agreement provided for compensation of $125,000 for the twelve months ending
December 31, 2008. This consulting agreement expired on December 31, 2008 and
was replaced with a new one-year agreement providing for $36,000 in
compensation.
NOTE 23 -- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION AND
NON-CASH TRANSACTIONS:
Equity transactions related to common stock, principally arising from stock
grants, option exercises and related tax benefits disclosed on our Consolidated
Statements of Cash Flows are comprised of the following (000's omitted):
For the
Twelve Months ended
-------------------------
2008 2007 2006
---- ---- ----
Common stock options and grants............ 30 35 499
Tax benefit related to stock transactions.. 332 67 59
Treasury Stock, net and other.............. (211) (67) (231)
--- -- ---
151 35 327
=== == ===
F-32
<
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Shareholders
of IntegraMed America, Inc.:
Our audits of the consolidated financial statements referred to in our report
dated March 30, 2009 appearing in the 2008 Annual Report to Shareholders of
IntegraMed America, Inc. (which report and consolidated financial statement are
incorporated by reference in this Annual Report on Form 10-K) also included an
audit of the financial statement schedule listed in Item 8 and 15 (a) (1) of
this Form 10-K. In our opinion, this financial statement schedule presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
/s/Amper, Politziner & Mattia, LLP.
Edison, New Jersey
March 30, 2009
S-1
SCHEDULE II
INTEGRAMED AMERICA, INC.
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 2008, 2007, 2006
Balance at
Beginning End of
of Period Additions Deductions Period
--------- --------- ---------- ------
Year Ended December 31, 2008
Allowance for doubtful accounts receivable.... $3,386 $3,613 $4,351 $2,648
Reserve for Attain IVF refunds................ 326 427 356 397
Reserve for attain IVF medical costs.......... 272 355 296 331
Year Ended December 31, 2007
Allowance for doubtful accounts receivable.... $13 $3,524 (1) $151 $3,386
Reserve for Attain IVF refunds................ 257 355 286 326
Reserve for Attain IVF medical costs.......... 215 296 239 272
Year Ended December 31, 2006
Allowance for doubtful accounts receivable.... $116 $(72) (2) $31 $13
Reserve fir Attain IVF refunds................ 184 292 219 257
Reserve for Attain IVF medical costs.......... 154 245 184 215
Deferred Tax Valuation Allowance.............. 768 -- 768 --
(1) Includes $3,224 acquired in connection with the Vein Clinics of America,
Inc. transaction.
(2) Represents the reversal of unused reserves for uncollectible accounts
receivable associated with our discontinuation of pharmaceutical product sales
in 2005, and transition to a marketing fee arrangement with our third-party
pharmaceutical distributor.
S-2
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: December 14, 2009
By/s/JOHN W. HLYWAK, JR.
----------------------
John W. Hlywak, Jr.
Executive Vice President
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ JAY HIGHAM
-------------------------------
Jay Higham President and Chief
Executive Officer
and Director
(Principal Executive
Officer) December 14, 2009
/s/ JOHN W. HLYWAK, JR
-------------------------------
John W. Hlywak, Jr. Executive Vice President
and Chief Financial
Officer
(Principal Financial
and Accounting Officer) December 14, 2009
/s/ KUSH K. AGARWAL
-------------------------------
Kush K. Agarwal Director December 14, 2009
/s/ GERARDO CANET
Gerardo Canet Director December 14, 2009
/s/ WAYNE R. MOON
-------------------------------
Wayne R. Moon Director December 14, 2009
/s/ LAWRENCE J. STUESSER
-------------------------------
Lawrence J. Stuesser Director December 14, 2009
/s/ ELIZABETH E. TALLETT
-------------------------------
Elizabeth E. Tallett Director December 14, 2009
/s/ YVONNE S. THORNTON, M.D.
-------------------------------
Yvonne S. Thornton, M.D. Director December 14, 2009