UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
Amendment No. 1
[X] QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 2006
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-20260
IntegraMed America, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 06-1150326
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
Two Manhattanville Road
Purchase, New York 10577
(Address of principal executive offices) (Zip code)
(914) 253-8000 (Registrant's
telephone number, including area code)
Indicate by check mark 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 [ ].
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one): Large Accelerated Filer Accelerated Filer Non-Accelerated Filer X .
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act. Yes_____ No __X__
The aggregate number of shares of the Registrant's Common Stock, $.01
par value, outstanding on July 24, 2006 was 6,462,776.
================================================================================
INTEGRAMED AMERICA, INC.
FORM 10-Q/A
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION
Explanatory Note .......................................................3
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets at June 30, 2006
and December 31, 2005...................................... 4
Consolidated Statements of Income for the three-month and
six-month periods ended June 30, 2006 and 2005 ............ 5
Consolidated Statements of Shareholders' Equity for the
six-month period ended June 30, 2006 ....................... 6
Consolidated Statements of Cash Flows for the six-month periods
ended June 30, 2006 and 2005 .............................. 7
Notes to Consolidated Financial Statements ................ 8-12
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 13-20
Item 3. Quantitative and Qualitative Disclosures About Market Risk....... 20
Item 4. Controls and Procedures...................................... 20-21
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 22
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.... 22
Item 3. Defaults upon Senior Securities................................ 22
Item 4. Submission of Matters to a Vote of Security Holders............ 22
Item 5. Other Information.............................................. 22
Item 6. Exhibits ...................................................... 22
SIGNATURES ................................................... 23
CERTIFICATIONS PURSUANT TO 18 U.S.C. ss.1350, AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002...................................... EXHIBITS
CERTIFICATIONS PURSUANT TO 18 U.S.C ss.1350, AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002...................................... EXHIBITS
2
Explanatory Note
During October 2006, we provided notification that our financial statements for
2005 and the first two quarters of 2006 could not be relied upon, and will be
restated due to an accounting error. The restatements will not result in any
changes to net income or earnings per share for any period, but will, as of June
30, 2006, have the effect of increasing Intangible assets by $1,913,000,
decreasing deferred tax assets by $416,000 and increasing deferred tax
liabilities by $1,497,000, all non-cash items.
Except as discussed above, and except as required to reflect the effects of the
restatement in this Form 10-Q/A, we have not modified or updated disclosures
presented in the original quarterly report on Form 10-Q. Accordingly, this Form
10-Q/A does not reflect events occurring after the filing of our original Form
10-Q or modify or update those disclosures affected by subsequent events, except
as specifically referenced herein. Information not affected by the restatement
is unchanged and reflects the disclosures made at the time of the original
filing of the Form 10-Q. Accordingly, this Form 10-Q/A should be read in
conjunction with our periodic filings made with the SEC subsequent to the date
of the original filing, including any amendments to those filings, as well as
any Current Reports filed on Form 8-K subsequent to the date of the original
filing. The following items have been amended as a result of the restatement:
Part 1 - Item 1 - Financial Statements
Part 1 - Item 2 - Management's Discussion and Analysis
Part 1 - Item 4 - Controls and Procedures
In addition, in accordance with applicable SEC rules, this amended Quarterly
Report on Form 10-Q/A includes updated certifications from our Chief Executive
Officer (CEO) and Chief Financial Officer (CFO).
Please refer to Note 2 to the accompanying Consolidated Financial Statements for
additional information on the restatement.
3
PART I -- FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
INTEGRAMED AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
(all dollars in thousands, except share amounts)
ASSETS
June 30, December 31,
----------- ------------
2006 2005
----------- ------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents ....................................................... $ 25,948 $ 22,521
Pharmaceutical and other receivables, net ....................................... 468 490
Deferred income taxes, net ...................................................... 979 999
Prepaids and other current assets ............................................... 3,551 2,768
-------- --------
Total current assets ........................................................ 30,946 26,778
Fixed assets, net ............................................................... 14,213 14,877
Exclusive Service Rights and other intangibles, net ............................. 23,640 24,388
Other assets .................................................................... 674 590
-------- --------
Total assets ................................................................ $ 69,473 $ 66,633
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................................ $ 765 $ 917
Accrued liabilities ............................................................. 9,224 8,023
Current portion of long-term notes payable and other obligations ................ 1,509 1,500
Due to medical practices ........................................................ 4,576 4,949
Shared Risk Refund program patient deposits ..................................... 5,719 4,739
-------- --------
Total current liabilities ................................................... 21,793 20,128
Deferred tax lability .............................................................. 1,497 1,058
Long-term notes payable and other obligations ...................................... 7,932 8,647
-------- --------
Total Liabilities .................................................................. 31,222 29,833
Commitments and Contingencies
Shareholders' equity:
Common Stock, $.01 par value - 15,000,000 shares authorized; 6,462,776 and
6,378,284 shares issued and
outstanding in 2006 and 2005, respectively .................................... 65 64
Capital in excess of par ........................................................ 49,930 49,734
Accumulated other comprehensive income .......................................... (44) --
Deferred Compensation ........................................................... (958) (354)
Treasury stock, at cost - 4,570 and 132,210 shares in 2006 and 2005, respectively (44) (937)
Accumulated deficit ............................................................. (10,698) (11,707)
-------- --------
Total shareholders' equity .................................................. 38,251 36,800
-------- --------
Total liabilities and shareholders' equity .................................. $ 69,473 $ 66,633
======== ========
See accompanying notes to the consolidated financial statements.
4
INTEGRAMED AMERICA, INC.
CONSOLIDATED STATEMENTS OF INCOME
(all amounts in thousands, except per share amounts)
For the For the
three-month period six-month period
ended June 30, ended June 30,
------------------ ------------------
2006 2005 2006 2005
------ ------ ------- -----
(unaudited) (unaudited)
Revenues, net
Provider Services .................... $ 28,956 $ 25,831 $ 56,732 $ 51,545
Consumer Services .................... 2,853 6,366 5,511 12,615
-------- -------- -------- --------
Total revenues ................... 31,809 32,197 62,243 64,160
-------- -------- -------- --------
Costs of revenues:
Provider Services costs .............. 26,249 23,046 51,281 46,065
Consumer Services costs .............. 1,804 5,576 3,444 11,187
-------- -------- -------- --------
Total costs of revenues .......... 28,053 28,622 54,725 57,252
-------- -------- -------- --------
Contribution
Provider Services contribution ....... 2,707 2,785 5,451 5,480
Consumer Services contribution ....... 1,049 790 2,067 1,428
-------- -------- -------- --------
Total contribution ............... 3,756 3,575 7,518 6,908
General and administrative expenses ..... 2,952 2,865 6,004 5,699
Interest income ......................... (260) (115) (481) (215)
Interest expense ........................ 199 70 358 167
-------- -------- -------- --------
Total other expenses ............. 2,891 2,820 5,881 5,651
-------- -------- -------- --------
Income before income taxes .............. 865 755 1,637 1,257
Income tax provision .................... 332 288 628 476
-------- -------- -------- --------
Net income .............................. $ 533 $ 467 $ 1,009 $ 781
======== ======== ======== ========
Basic and diluted net earnings per share:
Basic earnings per share ............. $ 0.08 $ 0.08 $ 0.16 $ 0.13
======== ======== ======== ========
Diluted earnings per share ........... $ 0.08 $ 0.07 $ 0.15 $ 0.12
======== ======== ======== ========
Weighted average shares - basic ...... 6,443 6,000 6,469 5,975
Weighted average shares - diluted .... 6,555 6,336 6,581 6,310
See accompanying notes to the consolidated financial statements.
5
INTEGRAMED AMERICA, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(all amounts in thousands)
(unaudited)
Accumulated Other
Common Stock Capital in Comprehensive Deferred Treasury Stock Accumulated Total
Shares Amount Excess of Par Income Compensation Shares Amount Deficit Equity
------ ------ ------------- ------ ------------ ------ ------ ------- ------
BALANCE AT DECEMBER 31, 2005 6,378 $64 $49,734 $ -- $(354) 132 $ (937) $(11,707) $36,800
Net income for the six months ended
June 30, 2006................. -- -- -- -- -- -- -- 1,009 1,009
Stock grants issued, net......... 82 1 804 -- (805) 4 (44) -- (44)
Stock grant amortization......... -- -- -- -- 201 -- -- -- 201
Exercise of common stock options. 147 1 362 -- -- 12 (121) -- 242
Amortization of common stock options -- -- 87 -- -- -- -- -- 87
Gain (loss) on hedging transaction -- -- -- (44) -- -- -- -- (44)
Cancellation and retirement of
treasury stock................ (144) (1) (1,057) -- -- (144) 1,058 -- --
----- --- ------- ---- ----- ---- ----- -------- --------
BALANCE AT June 30, 2006......... 6,463 $65 $49,930 $(44) $(958) 4 $ (44) $(10,698) $38,251
===== === ======= ==== ===== ==== ====== ======== =======
See accompanying notes to the consolidated financial statements.
6
INTEGRAMED AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(all amounts in thousands)
For the
six-month period
ended June 30,
-----------------
2006 2005
------ ------
(unaudited)
Cash flows from operating activities:
Net income ..................................................... $ 1,009 $ 781
Adjustments to reconcile net income to
Net cash provided by (used in) operating activities:
Depreciation and amortization ................................ 2,861 2,692
Deferred income tax provision ................................ 500 341
Stock-based compensation ..................................... 201 126
Changes in assets and liabilities Decrease (increase) in assets:
Pharmaceutical and other accounts receivable .............. 22 4
Prepaids and other current assets ......................... (783) (1,688)
Other assets .............................................. (84) (173)
Increase (decrease) in liabilities:
Accounts payable .......................................... (152) 409
Accrued liabilities ....................................... 1,247 (855)
Due to medical practices .................................. (373) 42
Shared Risk Refund program patient deposits ............... 980 1,822
-------- --------
Net cash provided by operating activities .......................... 5,428 3,501
Cash flows from investing activities:
Payment for exclusive FertilityPartners service rights ......... -- (3,329)
Purchase of fixed assets and leasehold improvements ............ (1,449) (3,015)
-------- --------
Net cash used in investing activities .............................. (1,449) (6,344)
Cash flows from financing activities:
Issuance debt .................................................. -- 1,000
Principal repayments on debt ................................... (714) (575)
Principal repayments under capital lease obligations ........... (36) (34)
Proceeds from exercise of stock options and other .............. 198 209
-------- --------
Net cash provided by (used in) financing activities ................ (552) 600
Net increase (decrease) in cash and cash equivalents ............... 3,427 (2,243)
Cash and cash equivalents at beginning of period ................... 22,521 11,300
-------- --------
Cash and cash equivalents at end of period ......................... $ 25,948 $ 9,057
======== ========
Supplemental Information:
Interest paid ................................................. $ 348 $ 167
Income taxes paid ............................................. $ 247 $ 965
See accompanying notes to the consolidated financial statements.
7
INTEGRAMED AMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 -- INTERIM RESULTS:
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and, accordingly, do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, the accompanying unaudited interim financial statements contain all
adjustments (consisting only of normal recurring accruals) necessary to present
fairly the financial position at June 30, 2006, and the results of operations
and cash flows for the interim periods presented. Operating results for the
interim period are not necessarily indicative of results that may be expected
for the year ending December 31, 2006. These financial statements should be read
in conjunction with the audited financial statements and notes thereto included
in IntegraMed America's Annual Report on Form 10-K for the year ended December
31, 2005.
Certain amounts from our June 30, 2005 presentations have been reclassified to
conform with our current 2006 presentation.
NOTE 2 -- RESTATEMENT:
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 would be
restated due to an accounting error. The restatements will not result in any
changes to net income or earnings per share for any period.
The restatement was required in order to correct an error regarding the
deferred income tax accounting of acquiring the stock of Reproductive Partners,
Inc. in January 2005 in accordance with Financial Accounting Standards Board
Emerging Issues Taskforce Issue No. 98-11 "Accounting for Acquired Temporary
Differences in Certain Purchase Transactions That Are Not Accounted for as
Business Combinations". The following table illustrates the impact of the
correction:
Six Months Ended Six Months Ended
June 30, 2006 June 30, 2005
------------------------- ------------------------
As Previously As Previously
Reported Restated Reported Restated
-------------- --------- ------------- ---------
Statement of Operations Summary:
Revenues............................... 62,284 62,243 64,200 64,160
Income before taxes.................... 1,678 1,637 1,297 1,257
Income tax provision................... 669 628 516 476
Net income............................. 1,009 1,009 781 781
Earnings Per Share..................... 0.15 0.15 0.12 0.12
Balance Sheet Summary:
March 31, 2006
Total Assets........................... 67,976 69,473 56,767 57,609
Total Liabilities...................... 29,725 31,222 21,249 22,091
Total Stockholders Equity.............. 38,251 38,251 35,518 35,518
The information related to December 31, 2005 and June 30, 2005 contained in this
document has been restated to reflect the correction of the error described
above.
8
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(unaudited)
NOTE 3 -- COMMON SHARES OUTSTANDING:
All common share numbers reported herein reflect the 30% Stock Split
effected in the form of a stock dividend declared by the Board of Directors on
May 23, 2005 and paid to shareholders on June 22, 2005; and the 25% stock split
effected in the form of a stock dividend declared by the Board of Directors on
May 22, 2006 and paid on June 21, 2006.
NOTE 4 -- EARNINGS PER SHARE:
The reconciliation of the numerators and denominators of the basic and
diluted EPS computations for the three and six-month periods ended June 30, 2006
and 2005 is as follows (000's omitted, except for per share amounts):
For the For the
three-month period six-month period
ended June 30, ended June 30,
------------------ -----------------
2006 2005 2006 2005
------- ------- ------ -------
Numerator
Net Income ................................... $ 533 $ 467 $1,009 $ 781
Denominator
Weighted average shares outstanding (basic) .. 6,443 6,000 6,469 5,975
Effect of dilutive options and warrants ...... 112 336 112 335
------ ------ ------ ------
Weighted average shares and dilutive potential
Common shares (diluted) ................. 6,555 6,336 6,581 6,310
Basic EPS .................................... $ 0.08 $ 0.08 $ 0.16 $ 0.13
====== ====== ====== ======
Diluted EPS .................................. $ 0.08 $ 0.07 $ 0.15 $ 0.12
====== ====== ====== ======
For the three and six-month periods ended June 30, 2006 and 2005, there
were no outstanding options or warrants to purchase shares of Common Stock which
were excluded from the computation of the diluted earnings per share amount as
the exercise prices of all outstanding options and warrants was less than the
average market price of the shares of Common Stock.
NOTE 5 -- SEGMENT INFORMATION:
We currently report two major lines of business, our Provider Services,
which is comprised of our FertilityPartners and Affiliate segments, and our
Consumer Services, which is comprised of our Shared Risk and Pharmaceutical
segments. Performance by segment, for the three month and six month periods
ended June 30, 2006 and June 30, 2005, is presented below.
9
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(unaudited)
Providers Consumers
---------------------- ---------------------
Fertility Shared
Corporate Partners Affiliates Risk Pharmaceutical Consolidated
--------- -------- ---------- ---- -------------- ------------
For the three months ended June 30, 2006
Revenues ............................ $ -- $ 28,648 $ 308 $ 2,751 $ 102 $ 31,809
Cost of Services .................... -- 26,249 -- 1,876 (72) 28,053
-------- -------- -------- -------- -------- --------
Contribution ........................ -- 2,399 308 875 174 3,756
Operating Margin .................... -- 8.4% 100.0% 31.8% 170.6% 11.8%
General and administrative .......... 2,952 -- -- -- -- 2,952
Interest, net ....................... (61) -- -- -- -- (61)
-------- -------- -------- -------- -------- --------
Income before income taxes .......... (2,891) 2,399 308 875 174 865
Depreciation expense included above . $ 149 $ 917 $ -- $ -- $ -- $ 1,066
Capital expenditures ................ $ 254 $ 512 $ -- $ -- $ -- $ 766
Total assets ........................ $ 27,535 $ 40,426 $ 318 $ 221 $ 973 $ 69,473
For the six months ended June 30, 2006
Revenues ............................ $ -- $ 56,145 $ 587 $ 5,256 $ 255 $ 62,243
Cost of Services .................... -- 51,280 1 3,516 (72) 54,725
-------- -------- -------- -------- -------- --------
Contribution ........................ -- 4,865 586 1,740 327 7,518
Operating Margin .................... -- 8.7% 99.8% 33.1% 128.2% 12.1%
General and administrative .......... 6,004 -- -- -- -- 6,004
Interest, net ....................... (123) -- -- -- -- (123)
-------- -------- -------- -------- -------- --------
Income before income taxes .......... (5,881) 4,865 586 1,740 327 1,637
Depreciation expense included above . $ 288 $ 1,825 $ -- $ -- $ -- $ 2,113
Capital expenditures ................ $ 428 $ 1,021 $ -- $ -- $ -- $ 1,449
Total assets ........................ $ 27,535 $ 40,426 $ 318 $ 221 $ 973 $ 69,473
For the three months ended June 30, 2005
Revenues ............................ $ -- $ 25,611 $ 220 $ 1,941 $ 4,425 $ 32,197
Cost of Services .................... -- 23,053 (7) 1,317 4,259 28,622
-------- -------- -------- -------- -------- --------
Contribution ........................ -- 2,558 227 624 166 3,575
Operating Margin .................... -- 10.0% 103.2% 32.1% 3.8% 11.1%
General and administrative .......... 2,865 -- -- -- -- 2,865
Interest, net ....................... (45) -- -- -- -- (45)
-------- -------- -------- -------- -------- --------
Income before income taxes .......... (2,820) 2,558 227 624 166 755
Depreciation expense included above . $ 109 $ 891 $ -- $ -- $ -- $ 1,000
Capital expenditures ................ $ 299 $ 638 $ -- $ -- $ -- $ 937
Total assets ........................ $ 12,583 $ 42,850 $ 66 $ 317 $ 1,793 $ 57,609
For the six months ended June 30, 2005
Revenues ............................ $ -- $ 51,078 $ 467 $ 3,451 $ 9,164 $ 64,160
Cost of Services .................... -- 46,020 45 2,377 8,810 57,252
-------- -------- -------- -------- -------- --------
Contribution ........................ -- 5,058 422 1,074 354 6,908
Operating Margin .................... -- 10.0% 90.4% 31.1% 3.9% 10.8%
General and administrative .......... 5,699 -- -- -- -- 5,699
Interest, net ....................... (48) -- -- -- -- (48)
-------- -------- -------- -------- -------- --------
Income before income taxes .......... (5,651) 5,058 422 1,074 354 1,257
Depreciation expense included above . $ 201 $ 1,744 $-- $ -- $ -- $ 1,945
Capital expenditures ................ $ 563 $ 2,452 $-- $ -- $ -- $ 3,015
Total assets ........................ $ 12,583 $ 42,850 $ 66 $ 317 $ 1,793 $ 57,609
As of December 31, 2005
Total assets ........................ $ 22,992 $ 41,207 $ 46 $ 241 $ 2,147 $ 66,633
10
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(unaudited)
NOTE 6 - DUE TO MEDICAL PRACTICES:
Due to Medical Practices is comprised of the net amounts owed by us to
medical practices contracted as FertilityPartners. This balance is comprised of
amounts due to us by the medical practices for funds, which we advanced for use
in financing their accounts receivable, less balances owed to the medical
practices by us for undistributed physician earnings and patient deposits we
hold on behalf of the medical practices.
As of June 30, 2006 and December 31, 2005, Due to Medical Practices was
comprised of the following balances:
2006 2005
--------- ---------
Advances to FertilityPartners............... $(13,367) $(12,727)
Undistributed Physician Earnings............ 3,080 3,721
Physician Practice Patient Deposits......... 14,863 13,955
--------- ---------
Due to Medical Practices, net............... $ 4,576 $ 4,949
========= =========
NOTE 7 -- STOCK-BASED EMPLOYEE COMPENSATION:
As of June 30, 2006, we had two stock-based employee compensation plans,
which are described more fully in Note 13 of the financial statements in our
most recent Annual Report on Form 10-K.
In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share
Based Payment" ("SFAS No. 123(R)"). SFAS No. 123(R) supersedes APB Opinion No.
25, "Accounting for Stock Issued to Employees". In 2005, we used APB Opinion No.
25 to account for the value of stock options granted to employees. Effective
January 1, 2006, we adopted SFAS No. 123(R). For the three months and six months
ended June 30, 2006, we recorded a charge to earnings to recognize compensation
expense of $27,000 and $87,000, respectively, related to the value of
outstanding stock options issued in prior years which vested in 2006. As of June
30, 2006, we had no unrecognized compensation costs related to stock options
which had been previously granted under our plans as all options are currently
vested.
We also issue restricted stock grants to officers and members of the Board
of Directors. Stock granted to Board members vests immediately and stock granted
to officers vests over a period of three years. Our General and Administrative
expense includes compensation costs recognized in connection with these
restricted stock grants of $105,000 and $201,000 for the three and six month
periods ended June 30, 2006, and $60,000 and $126,000 for the three and six
month periods ended June 30, 2005.
NOTE 8 -- HEDGING TRANSACTION:
In the normal course of business we are exposed to the risk that our
earnings and cash flows could be adversely impacted by market driven
fluctuations in the level of interest rates. It is our policy to manage these
risks by using a mix of fixed and floating rate debt and derivative instruments.
During the second quarter of 2006, we entered into an interest rate swap
agreement designed to hedge the risks associated with our floating rate debt. As
a result of this agreement, our net income includes financing costs associated
with this transaction of approximately $10,000 in the second quarter of 2006,
and we expect to record additional financing costs of $8,000 over the coming
twelve months, given current interest rate forecasts. In addition to the costs
included in our reported net income, this hedge also generated a non-recognized
loss of approximately $44,000 which is reported as part of our comprehensive
income.
We deem this hedge to be highly effective as it shares the same valuation,
termination date and amortization schedule as the underlying debt subject to the
hedge. In addition the swap transaction was structured such that the change in
11
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(unaudited)
fair value of the swap inversely mimics the hedged item. As of June 30, 2006, we
had no other hedge or derivative transactions.
The following table summarizes total comprehensive income for the applicable
periods (000's omitted):
For the For the
Three-month period six-month period
June 30, June 30,
------------------ -----------------
2005 2005 2006 2005
------- ------- -------- ------
Net income as reported ................... $ 533 $ 467 $ 1,099 $ 781
Net gain (loss) on derivative transactions (44) -- (44) --
------- ------- ------- -------
Total comprehensive income ............... $ 489 $ 467 $ 965 $ 781
======= ======= ======= =======
NOTE 9 -- LITIGATION:
From time to time, we are party to legal proceedings in the ordinary course
of business. As of June 30, 2006, none of these proceedings is expected to have
a material adverse effect on our financial position, results of operations or
cash flow.
NOTE 10 -- RECENT ACCOUNTING STANDARDS:
In July 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" (FIN No.
48). FIN No. 48 addresses the accounting for uncertainties in income taxes
recognized in financial statements in accordance with FASB Statement No. 109,
"Accounting for Income Taxes." This interpretation establishes a recognition
threshold and measurement attributes for the financial statement recognition and
measurement of tax positions taken or expected to be taken in a tax return. We
do not expect the adoption of this standard to have a material effect on our
financial statements.
In February 2006, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Standard "(SFAS") No. 155, "Accounting for Certain Hybrid
Instruments", which is an amendment of SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 155 allows financial instruments
that have embedded derivatives to be accounted for as a whole (eliminating the
need to bifurcate the derivative from its host) if the holder elects to account
for the whole instrument on a fair value basis. The Statement also establishes a
requirement to evaluate interests in securitized financial assets to identify
interests that are freestanding derivatives or that are hybrid financial
instruments that contain an embedded derivative requiring bifurcation and
clarifies that concentrations of credit risk in the form of subordination are
not embedded derivatives. SFAS No. 155 is effective for all financial
instruments acquired or issued after the beginning of fiscal 2008. We do not
expect the adoption of this standard to have a material effect on our financial
statements.
12
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion and analysis should be read in conjunction with
the consolidated financial statements and notes thereto included in this
quarterly report and with IntegraMed America Inc.'s Annual Report on Form 10-K
for the year ended December 31, 2005.
Overview
IntegraMed America, Inc. offers products and services to patients and
providers in the fertility industry. We have developed a network comprised of
thirty contracted fertility centers in major markets across the United States,
products and services designed to support fertility center growth, products and
services in the pharmaceutical and patient financing areas, and captive
insurance offerings. Twenty two affiliate fertility centers subscribe to
discrete service packages provided by us and have the right to distribute our
consumer products, and eight fertility centers have access to our entire
portfolio of products and services under our comprehensive FertilityPartners(TM)
program. All thirty centers have access to our consumer services, principally
Shared Risk Refund and pharmaceutical offerings, as well as patient financing
products.
The business strategy of our Provider Services 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 care easier and more affordable. The primary elements of our
strategy include: (i) expanding our network of fertility centers into new major
markets; (ii) increasing the number and value of service packages purchased by
Affiliates in our network; (iii) entering into additional FertilityPartners
contracts with Affiliated and non-Affiliated fertility centers; (iv) increasing
revenues and profits at contracted fertility centers; and, (v) increasing sales
of Shared Risk Refund, pharmaceutical and treatment financing products to
fertility patients.
Major events impacting financial condition and results of operations
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.
In December 2005, we amended our existing credit agreement with Bank of
America. The amended agreement is comprised of a renewal and increase in our
three-year revolving credit line to $10 million, and a new $10 million five-year
term loan, of which approximately $3.2 million was used to retire the
outstanding balance on our previous term loan.
Through September 30, 2005, we marketed pharmaceutical products directly to
patients throughout our network and we had contracted with ivpcare, inc. to
provide certain business services related to the distribution of and accounting
for these sales. Effective October 1, 2005, this agreement was superseded by a
new agreement between us and ivpcare, inc. Under the terms of the new agreement,
we are no longer a direct distributor of pharmaceutical products to patients, as
this function is being performed directly by ivpcare. Our responsibilities are
limited to marketing the products for which we are compensated. This
compensation approximates our previous contribution from those pharmaceutical
sales, and is shown on a "net" rather than "gross" basis. As a result, as of
October 1, 2005, we no longer record pharmaceutical sales, the related cost of
sales and other costs related to pharmaceutical distribution. As expected, this
contract change has measurably reduced our pharmaceutical revenues and cost of
sales; however contribution from these operations and income before income
taxes, as well as net income, has been unaffected by the change.
On May 23, 2005, we declared a 30% stock split effected in the form of a
stock dividend for all holders of record as of June 8, 2005. As a result of this
dividend, 1,129,141 new shares of common stock were issued on the payment date
of June 22, 2005. No fractional shares were issued as all fractional amounts
were rounded up to the next whole share. All weighted average shares outstanding
and earnings per share calculations in this filing reflect this stock split.
13
Effective January 1, 2005, we signed a FertilityPartners agreement to
supply a complete range of business, marketing and facility services to the
Reproductive Partners Medical Group, Inc. or RPMG, a fertility practice
comprised of six physicians in the Southern California market. 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
RPMG's earnings. We also committed up to $0.5 million to fund any necessary
capital needs of the practice.
Effective January 1, 2005, the Company became a minority equity investor in
the Assisted Reproductive Technology Insurance Company, LTD, ("ARTIC"). ARTIC is
incorporated as an off-shore captive insurance company designed to offer
malpractice insurance to physicians and related facilities within the IntegraMed
network. IntegraMed's equity investment of $50,000 represents a 10% ownership
stake, which is accounted for on the cost basis. The remaining equity of ARTIC
is owned by participating physician groups. To date, earnings on our equity
investment have been immaterial, however IntegraMed is paid a predetermined fee
to provide certain administrative and risk management related services to ARTIC.
Results of Operations
The following table shows the percentage of net revenue represented by
various expenses and other income items reflected in our statement of operations
for the three and six-month periods ended June 30, 2006 and 2005:
For the For the
three-month period six-month period
ended June 30, ended June 30,
---------------------- --------------------
2006 2005 2006 2005
-------- --------- -------- -------
Revenues, net:
Provider services........................... 91.0% 80.2% 91.1% 80.3%
Consumer services........................... 9.0% 19.8% 8.9% 19.7%
Total revenues............................ 100.0% 100.0% 100.0% 100.0%
Costs of services incurred:
Provider services........................... 82.5% 71.6% 82.4% 71.8%
Consumer services........................... 5.7% 17.3% 5.5% 17.4%
Total costs of service.................... 88.2% 88.9% 87.9% 89.2%
Contribution:
Provider services........................... 8.5% 8.6% 8.8% 8.6%
Consumer services........................... 3.3% 2.5% 3.3% 2.2%
Total contribution........................ 11.8% 11.1% 12.1% 10.8%
General and administrative expenses........... 9.3% 9.0% 9.6% 8.9%
Interest income............................... (0.8)% (0.4)% (0.8)% (0.3)%
Interest expense.............................. 0.6% 0.2% 0.6% 0.3%
Total other expenses................... 9.1% 8.8% 9.4% 8.9%
Income from operations before income taxes.... 2.7% 2.3% 2.7% 1.9%
Income tax provision.......................... 1.0% 0.9% 1.1% 0.7%
Net income ................................... 1.7% 1.4% 1.6% 1.2%
Three Months Ended June 30, 2006 Compared to Three Months Ended June 30, 2005
Our reported revenues decreased by $0.4 million, or 1.2%, to $31.8
million for the three months ended June 30, 2006, compared to $32.2 million for
the same period in 2005. The second quarter of 2005 included pharmaceutical
14
revenue of $4.3 million, which due to the contract change discussed above, must
be excluded from 2005 revenues to make them comparable with 2006. Other
significant factors affecting our reported revenues were as follows:
(i) Provider Services -
Revenues from our Provider Services unit, comprised primarily of
our FertilityPartner locations, Affiliate members and ARTIC
services, increased by $3.1 million, or 12.1% from the same
quarter in the prior year. Approximately $3.0 million of this
increase resulted from organic growth within our eight
FertilityPartner centers and is attributable to our comprehensive
consumer oriented marketing campaigns.
Revenues from our Affiliate clinics increased approximately $0.1
million in the second quarter of 2006 relative to the second
quarter of 2005, reflecting our growing network of affiliated
fertility clinics, which increased from fifteen clinics as of June
30, 2005 to twenty two clinics as of June 30, 2006.
(ii) Consumer Services -
Our Shared Risk Refund program continued to see significant
double-digit year-to-year growth with second quarter 2006 revenues
of $2.8 million, an increase of $0.9 million, or 42%, above 2005
revenues of $1.9 million for the same period. This product
offering continues to show strong growth with the second quarter
of 2006 having the highest patient enrollment rate of any quarter
in the program's history.
Pharmaceutical revenue was $0.1 million for quarter ended June 30,
2006, compared to $4.4 million for the same quarter in 2005. This
reduction in revenue is primarily the result of a change in
contract terms with our strategic partner in the pharmaceutical
business, which became effective on October 1, 2005. Under the new
contract terms, we no longer record the sales of pharmaceutical
products as revenue and the cost of these products as costs of
sales, but rather report net marketing fees associated with those
sales. While these new terms have an effect on our reported
revenues, and associated cost of sales, they will not have any
impact on our net profit from those sales. As a result, reported
revenues for 2005 should be reduced by $4.3 million to be
comparable with 2006 revenues.
Contribution for the quarter ended June 30, 2006 of $3.8 million increased
approximately $0.2 million, or 5%, from the same quarter in 2005. As a
percentage of revenue, our contribution margin for the quarter increased to
11.8% in 2006 relative to 11.1% in 2005, due primarily to the current
presentation of "net pharmaceutical revenue" as discussed above, as well as the
continued growth of our Shared Risk Refund program. The following factors had a
significant impact on contribution:
(i) Provider Services -
Contribution from our FertilityPartners segment of $2.4 million
for the second quarter of 2006 was slightly below prior year
contribution of $2.6 million. Despite revenue growth of 11.9%,
previously negotiated fee reductions at three FertilityPartners
clinics prevented contribution growth. The year 2006 represents
the final year of our multi-year fee realignment program. With the
fee structures we currently have in place, we expect that
continued revenue growth in future years will directly translate
into growth in contribution.
Our Affiliate clinics generated contribution of $0.3 million in
2006, an increase of $0.1 million from their contribution in 2005.
This increase is primarily the result of additional Affiliate
clinics participating in our network since the second quarter of
2005.
(ii) Consumer Services -
Contribution from our Shared Risk Refund program rose by 40%, to
$0.9 million for the quarter ended June 30, 2006, from $0.6
million in the same quarter of 2005. This growth is attributable
to increased patient enrollment and continued favorable pregnancy
outcomes, especially during early treatment cycles.
15
Pharmaceutical contribution of $0.2 million in 2006 was consistent
with the contribution level in 2005. As previously stated, the
change in contract terms with our strategic partner in the
pharmaceutical business was designed to have no effect on our
contribution from those underlying sales.
General and Administrative expenses are comprised of salaries, benefits,
corporate regulatory, operational, administrative and support costs which are
not specifically related to individual clinical operations or other product
offerings. These costs were $3.0 million for the second quarter of 2006,
compared to $2.9 million for the same period in 2005. The increase of $0.1
million is attributable to higher employee compensation, recruitment and health
benefit related costs.
Interest income increased to $260,000 for the quarter ended June 30, 2006,
from $115,000 in 2005. This increase is primarily attributed to interest
earnings on higher cash balances. Interest expense increased to $199,000 for the
second quarter of 2006, from $70,000 in 2005, primarily as a result of interest
charges on our higher debt levels associated with our December 2005 amended
credit agreement with Bank of America.
Our provision for income tax was approximately $0.3 million in 2006, or
38.4% of pre-tax income, compared to $0.3 million, or 38.1% of 2005 pre-tax
income. Our effective tax rates for both 2006 and 2005 reflect provisions for
both current and deferred federal and state income taxes.
Six Months Ended June 30, 2006 Compared to Six Months Ended June 30, 2005
Our reported revenues for the first six months of 2006 were $62.2 million, a
decrease of $1.9 million, or 3%, from revenues of $64.2 million in 2005. Our
2005 results include pharmaceutical revenue of $8.8 million, which due to the
previously discussed contract change, must be excluded from 2005 revenues to
make them comparable with 2006 results. Other significant factors affecting our
reported revenues were as follows:
(iii) Provider Services -
Revenues from our Provider Services unit, comprised of our
FertilityPartner clinics, Affiliate clinics and ARTIC insurance
services, increased by $5.2 million, or 10% from the same period
in the prior year. Approximately $5.1 million of this increase
resulted from same store growth within our FertilityPartner
centers with all clinics reporting higher revenue. Underlying
these increases is our multi-level marketing effort with
initiatives on physician referrals, field sales, internet
advertising and public relations. Each of our FertilityPartner
locations maintains a staff of full-time, professionally trained
team members focused on patient recruitment and retention.
Revenues from our Affiliate clinics increased approximately $0.1
million in six months ended June 30, 2006 compared to the same
period in 2005, reflecting our growing network of affiliated
fertility clinics.
(iv) Consumer Services -
Our Shared Risk Refund program continued to see significant growth
with revenues of $5.3 million for the first six months of 2006, up
$1.8 million or 52.3%, over the first six months revenue of $3.5
million in 2005. Consumer interest in this program remains strong,
with patient enrollments during the first half of 2006 increasing
over their 2005 rates.
Pharmaceutical revenue was $0.3 million for the six months ended
June 30, 2006, compared to $9.2 million for the same period in
2005. Approximately $8.8 million of this reduction in revenue is
the result of the previously discussed change in contract terms
with our strategic partner in the pharmaceutical business, which
became effective on October 1, 2005.
Contribution for the six months ended June 30, 2006 of $7.5 million
represents an increase of $0.6 million, or 8.8%, from the same period in 2005.
As a percentage of revenue, our contribution margin for the first six months of
2006 increased to 12.1% versus 10.8% in 2005. This increased margin percentage
is primarily due to the current presentation of "net pharmaceutical revenue" as
discussed above. The following factors had a significant impact on contribution:
16
(iii) Provider Services -
Contribution from our FertilityPartners segment of $4.9 million,
or 8.7% of related revenues, for the first half of 2006 was
slightly below prior year contribution of $5.1 million, or 9.9% of
revenues. Contribution amounts were primarily affected by
previously negotiated fee reductions at several FertilityPartners
clinics. The year 2006 represents the final year of our multi-year
fee realignment program. With the fee structures we currently have
in place, we expect that continued organic revenue growth in
future years will directly translate into growth in contribution
dollars and margin percentage.
Our Affiliate clinics generated contribution of $0.5 million in
2006, an increase of $0.1 million from their contribution in 2005.
This increase is primarily the result of network expansion by
obtaining additional Affiliate clinic contracts. As of June 30,
2006, we had twenty two Affiliate clinics under contract, versus
fifteen as of June 30, 2005.
(iv) Consumer Services -
Contribution from our Shared Risk Refund program rose by 61.8%, to
$1.7 million for the first six months of 2006, from $1.1 million
in the first six months of 2005. This growth is attributable to
higher patient throughput and continued favorable pregnancy rates
on treatment cycles.
Pharmaceutical contribution of $0.3 million in 2006 was
essentially even with contribution in 2005. Our pharmaceutical
contribution is directly dependent upon fees we receive related to
the volume of pharmaceutical products sold by ivpcare, inc., our
pharmaceutical business partner. In an effort to increase these
fees, we are continuing our efforts to promote pharmaceutical
sales volume throughout our network.
General and Administrative expenses totaled $6.0 million, or 79.9% of
contribution, for the first six months of 2006, compared to $5.7 million, or
82.5% of contribution, for the comparable period in 2005. These costs are
comprised of operational, administrative, regulatory and other support costs
which are not specifically related to our product offerings. The $0.3 million
increase in costs in 2006 is mainly related to the amortization of stock grants,
expensing stock options, employee recruitment and health insurance cost
increases in 2006 relative to 2005.
Interest income increased to $481,000 for the six month period ended June
30, 2006, from $215,000 in the same period of 2005. This increase is primarily
related to interest earnings on higher cash balances as well as higher market
interest rates relative to 2005. Interest expense increased to $358,000 for the
second half of 2006, from $167,000 in 2005, primarily as a result of interest
charges on our higher debt levels associated with our December 2005 financing
with Bank of America.
Our provision for income tax was $0.6 million in 2006, or 38.4% of pre-tax
income, compared to $0.5 million, or 37.9% of 2005 pre-tax income. Our effective
tax rates for both 2006 and 2005 reflect provisions for both current and
deferred federal and state income taxes.
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 part of our
ongoing business, we do not participate in transactions that generate
relationships with unconsolidated entities or financial partnerships, such as
entities often referred to as structured finance or VIE's, which would have been
established for the purpose of facilitating off-balance sheet arrangements or
other contractually narrow or limited purposes. As of June 30, 2006, we do not
have an interest in any VIE's where we are the primary beneficiary, therefore
the adoption of FIN 46 had no impact on our financial statements.
17
Liquidity and Capital Resources
As of June 30, 2006, we had approximately $25.9 million in cash and cash
equivalents on hand as compared to $22.5 million at December 31, 2005.
Additionally, we had working capital of approximately $9.2 million, at June 30,
2006, an increase of $2.5 million from working capital of $6.7 million as of
December 31, 2005. Our increased working capital is largely attributed to cash
flows generated from operating activities.
Shared Risk Refund patient deposits, which are reflected as a current
liability, represent funds received from patients in advance of treatment cycles
and are an indication of future Shared Risk revenues. These deposits totaled
approximately $5.7 million and $4.7 million as of June 30, 2006 and December 31,
2005, respectively. These deposits are a significant source of recurring cash
flow and represent interest-free financing for us.
As of June 30, 2006, 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 $1.6 million for the remainder of 2006. These expenditures are
primarily related to medical equipment and information system acquisitions and
leasehold improvements. We believe that working capital, specifically cash and
cash equivalents, remain at adequate levels to fund our operations and our
commitments for fixed asset acquisitions. We also believe that the cash flows
from our operations plus our available credit facility will be sufficient to
provide for our future liquidity needs over the next twelve months.
In December 2005, we amended our existing credit facility with Bank of
America. The amended facility is comprised of a $10.0 million three-year
revolving line of credit and a $10.0 million 5-year term loan. As of June 30,
2006, approximately $9.3 million of the term loan was outstanding with a
remaining term of 4.5 years, with no balance outstanding under the 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 1.75% to 2.50% 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 monthly and interest on LIBOR-based loans is payable on the last day of
each applicable interest period. As of June 30, 2006, interest on the term loan
was payable at a rate of approximately 5.09% plus the applicable margin. 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 June 30, 2006, under the revolving line of credit the full
amount of $10.0 million was available to us, of which none was outstanding. The
Bank of America credit facility is collateralized by all of our assets. As of
June 30, 2006, we were in full compliance with all applicable debt covenants.
In order to mitigate the interest rate risk associated with our term loan,
we entered into an interest rate swap agreement with Bank of America in April
2006. The effect of this swap transaction was to effectively fix the interest
rate on our term loan at 5.42% plus the applicable margin for the life of the
loan.
We are also continuously reviewing our credit agreements and may renew,
revise or enter into new agreements from time to time as deemed necessary.
18
Significant Contractual Obligations and Other Commercial Commitments
The following summarizes our contractual obligations and other commercial
commitments at June 30, 2006, and the effect such obligations are expected to
have on our liquidity and cash flows in future periods.
Payments Due by Period
----------------------
Total Less than 1 year 1 - 3 years 4 - 5 years After 5 years
-------------- ---------------- ---------------- ----------- -------------
Notes Payable................. $ 9,286,000 $ 1,428,000 $ 2,858,000 $5,000,000 $ --
Capital lease obligations..... 111,000 73,000 38,000 -- --
Derivative valuation.......... 44,000 7,000 37,000
Operating leases.............. 47,583,000 6,466,000 13,718,000 7,115,000 20,284,000
FertilityPartners capital and
other obligations......... -- -- -- -- --
Total contractual cash
obligations............... $57,024,000 $ 7,974,000 $16,651,000 $12,115,000 $20,284,000
Amount of Commitment and Expiration Per Period
----------------------------------------------
Total Less than 1 year 1 - 3 years 4 - 5 years After 5 years
-------- ---------------- ---------------- ------------- -------------
Lines of credit............... $10,000,000 $ -- $10,000,000 $ -- $ --
We also have commitments to provide working capital financing to our
FertilityPartners locations. A significant portion of this commitment relates to
our transactions with the medical practices themselves. Our responsibilities to
the 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 on or before
the 20th business day of each month. The medical practice's repayment hierarchy
consists of the following:
(i) We provide a cash credit to the practice for billings to patients and
insurance companies;
(ii) We reduce the cash credit for clinic expenses that we have incurred on
behalf of the practice;
(iii) We reduce the cash credit for the base portion of our Service Fee which
relates to the FertilityPartners revenues;
(iv) We reduce the cash credit for the variable portion of our Service Fee which
relates to the FertilityPartners earnings; and
(v) We disburse to the medical practice the remaining cash amount which
represents the physicians undistributed earnings.
We are also responsible for the collection of the FertilityPartners
accounts receivables, which we finance with full recourse. We continuously fund
these needs from our cash flow from operations, the collection of prior months'
receivables and deposits from patients in advance of treatment. If delays in
repayment are incurred, which have not as yet been encountered, we could draw on
our existing working capital line of credit. We also make payments on behalf of
the FertilityPartners for which we are reimbursed in the short-term. Other than
these payments, as a general course, we do not make other advances to the
medical practice. We have no other funding commitments to the FertilityPartners.
New Accounting Pronouncements
In July 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" (FIN No.
48). FIN No. 48 addresses the accounting for uncertainties in income taxes
recognized in financial statements in accordance with FASB Statement No. 109,
"Accounting for Income Taxes." This interpretation establishes a recognition
19
threshold and measurement attributes for the financial statement recognition and
measurement of tax positions taken or expected to be taken in a tax return. We
do not expect the adoption of this standard to have a material effect on our
financial statements.
In February 2006, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Standard "(SFAS") No. 155, "Accounting for Certain Hybrid
Instruments", which is an amendment of SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 155 allows financial instruments
that have embedded derivatives to be accounted for as a whole (eliminating the
need to bifurcate the derivative from its host) if the holder elects to account
for the whole instrument on a fair value basis. The Statement also establishes a
requirement to evaluate interests in securitized financial assets to identify
interests that are freestanding derivatives or that are hybrid financial
instruments that contain an embedded derivative requiring bifurcation and
clarifies that concentrations of credit risk in the form of subordination are
not embedded derivatives. SFAS No. 155 is effective for all financial
instruments acquired or issued after the beginning of fiscal 2008. We do not
expect the adoption of this standard to have a material effect on our financial
statements.
Forward Looking Statements
This Form 10-Q and discussions and/or announcements made by or on behalf of
us, contain certain forward-looking statements regarding events and/or
anticipated results within the meaning of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995, the attainment of which
involves various risks and uncertainties. Forward-looking statements may be
identified by the use of forward-looking terminology such as, "may", "will",
"expect", "believe", "estimate", "anticipate", "continue", or similar terms,
variations of those terms or the negative of those terms. Our actual results may
differ materially from those described in these forward-looking statements due
to the following factors: our ability to acquire additional FertilityPartners
agreements, our ability to raise additional debt and/or equity capital to
finance future growth, the loss of significant FertilityPartners agreement(s),
the profitability or lack thereof at fertility centers serviced by us, increases
in overhead due to expansion, the exclusion of fertility and ART services from
insurance coverage, government laws and regulation regarding health care,
changes in managed care contracting, the timely development of and acceptance of
new fertility, and ART and/or genetic technologies and techniques. We are under
no obligation to (and expressly disclaim any such obligation) update or alter
any forward-looking statements whether as a result of new information, future
events or otherwise.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
In the normal course of business our interest income and expense items are
sensitive to changes in the general level of interest rates. During the second
quarter of 2006 we entered into a derivative transaction designed to hedge our
variable rate term loan. As a result of this derivative transaction we have
successfully shielded ourselves from interest rate risks associated with our
term loan. We are currently subject to interest rate risks associated with our
short term investments and certain advances to our FertilityPartner clinics,
both of which are tied to either short term interest rates or the prime rate. As
of June 30, 2006, a one percent change in interest rates would impact our
pre-tax income by approximately $200,000 annually.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
Under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, we evaluated
the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15 under the Exchange Act) as of June 30,
2006 (the "Evaluation Date"). Based upon that evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that, as of the Evaluation Date,
our disclosure controls and procedures were effective in timely alerting them to
the material information relating to us required to be included in our periodic
SEC filings.
20
Section 404 of the Sarbanes-Oxley Act requires us to provide an assessment
of the effectiveness of our internal control over financial reporting as of the
end of fiscal year 2007. We are in the process of performing the system and
process documentation, evaluation and testing necessary to make its assessment.
We have not completed this process or its assessment. In the process of
evaluation and testing, we may identify deficiencies that will require
remediation.
(b) Changes in internal controls.
As of the end of the period covered by our restated Form 10-K, we
identified and disclosed two material weaknesses in our internal control over
financial reporting. A weakness at a FertilityPartner location was comprised of
a lack of sufficient oversight over, and the proper segregation of, duties with
respect to the processes of initiating, authorizing, recording and processing
certain period end closing transactions, as well as the design effectiveness of
related fraud detection controls. To remediate this material weakness, we have
made certain personnel changes, changes in assigned roles and responsibilities,
and changes in procedures and processes for certain transactions. The other
weakness relates to not properly accounting for the deferred income tax aspects
of acquiring the stock of Reproductive Partners, Inc., in January 2005. To
remediate this weakness we have taken steps to supplement our existing staff
with external expertise in tax accounting and disclosure.
Other than these changes, there were no significant changes made in our
internal controls during the period covered by this report or, to our knowledge,
in other factors that could significantly affect these controls subsequent to
the date of their evaluation.
21
Part II - OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we are party to legal proceedings in the
ordinary course of business. As of June 30, 2006, none of
these proceedings is expected to have a material adverse
effect on our financial position, results of operations or
cash flow.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to Vote of Security Holders.
At an Annual Stockholders Meeting held on May 23, 2006, the
following matters were acted upon by the Stockholders with
the indicated votes thereon:
Proposal 1 -- Election of Directors
Director Votes For Votes Withheld
-------- --------- --------------
Gerardo Canet 4,349,267 119,405
Jay Higham 4,381,902 86,770
Sarason D. Liebler 4,327,177 141,495
Wayne R. Moon 4,253,688 214,984
Lawrence J. Stuesser 4,253,696 214,976
Elizabeth E. Tallett 4,208,930 259,742
Yvonne Thornton, M.D. 4,428,607 40,065
Item 5. Other Information.
None.
Item 6. Exhibits.
See Index to Exhibits on Page 24.
22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTEGRAMED AMERICA, INC.
(Registrant)
Date: December 27, 2006 By:/s/: John W. Hlywak, Jr.
-------------------
John W. Hlywak, Jr.
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
23
INDEX TO EXHIBITS
Exhibit
Number Exhibit
------ -------
31.1 -- CEO Certification Pursuant to 18 U.S.C. ss. 1350 as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
dated December 27, 2006.
31.2 -- CFO Certification Pursuant to 18 U.S.C. ss. 1350 as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
dated December 27, 2006.
32.1 -- CEO Certification Pursuant to 18 U.S.C. ss. 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
dated December 27, 2006.
32.2 -- CFO Certification Pursuant to 18 U.S.C. ss. 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
dated December 27, 2006.
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