================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001
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
Commission File No. 1-11440
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)
One Manhattanville Road 10577
Purchase, New York
(Address of principal executive offices) (Zip code)
(914) 253-8000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
The aggregate number of shares of the Registrant's Common Stock, $.01
par value, outstanding on November 7, 2001 was 3,047,876.
================================================================================
INTEGRAMED AMERICA, INC.
FORM 10-Q
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at September 30, 2001 (unaudited)
and December 31, 2000.............................................3
Consolidated Statements of Operations for the three and
nine-month periods ended September 30, 2001 and 2000 (unaudited)..4
Consolidated Statements of Cash Flows for the nine-month periods
ended September 30, 2001 and 2000 (unaudited).....................5
Notes to Consolidated Financial Statements (unaudited)............6-8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations..........................................9-13
Item 3. Quantitative and Qualitative Disclosures About Market Risk..........13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings...................................................14
Item 2. Changes in Securities...............................................14
Item 3. Defaults upon Senior Securities.....................................14
Item 4. Submission of Matters to a Vote of Security Holders.................14
Item 5. Other Information...................................................14
Item 6. Exhibits and Reports on Form 8-K....................................14
SIGNATURES .........................................................15
-2-
PART I -- FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
INTEGRAMED AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
(all dollars in thousands, except per share amounts)
ASSETS
September 30, December 31,
------------- ------------
2001 2000
------------- ------------
(unaudited)
Current assets:
Cash and cash equivalents ................................................................ $ 7,537 $ 5,306
Patient accounts receivable, less allowance for doubtful accounts of $1,931 and $1,457
in 2001 and 2000, respectively ......................................................... 10,927 10,991
Business Service fees receivable ......................................................... -- 237
Prepaids and other current assets ........................................................ 1,039 1,283
-------- --------
Total current assets ................................................................. 19,503 17,817
Fixed assets, net ........................................................................ 5,627 5,337
Intangible assets, net ................................................................... 17,347 17,774
Other assets ............................................................................. 425 367
-------- --------
Total assets ......................................................................... $ 42,902 $ 41,295
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ......................................................................... $ 1,995 $ 1,700
Accrued liabilities ...................................................................... 5,124 5,059
Due to Medical Practices ................................................................. 2,996 2,450
Current portion of long-term notes payable and other obligations ......................... 1,143 1,135
Patient deposits ......................................................................... 5,008 2,530
-------- --------
Total current liabilities ............................................................ 16,266 12,874
-------- --------
Long-term notes payable and other obligations .............................................. 1,576 2,434
-------- --------
Shareholders' equity:
Preferred Stock, $1.00 par value - 3,165,644 shares authorized in 2001 and
2000, 2,500,000 undesignated; 665,644 shares designated as Series A
Cumulative Convertible of which 165,644 shares were issued and outstanding
in 2001 and
2000, respectively ..................................................................... 166 166
Common Stock, $.01 par value - 50,000,000 shares authorized in 2001 and 2000;
and 5,473,571 and 5,413,571 shares issued in 2001 and 2000, respectively ............... 55 54
Capital in excess of par ................................................................. 54,290 54,149
Accumulated deficit ...................................................................... (22,079) (23,313)
Restricted Stock Grants ................................................................... (274) --
Treasury Stock, at cost - 2,480,085 and 1,600,013 shares in 2001 and 2000, respectively .. (7,098) (5,069)
-------- --------
Total shareholders' equity ........................................................... 25,060 25,987
-------- --------
Total liabilities and shareholders' equity ........................................... $ 42,902 $ 41,295
======== ========
See accompanying notes to the consolidated financial statements.
-3-
INTEGRAMED AMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(all amounts in thousands, except per share amounts)
For the For the
three-month period nine-month period
ended September 30, ended September 30,
------------------- -------------------
2001 2000 2001 2000
--------- ------- -------- --------
(unaudited) (unaudited)
Revenues, net ................................................ $ 19,958 $ 14,810 $ 54,736 $ 41,945
Cost of services incurred:
Employee compensation and related expenses ................ 7,775 5,441 21,408 15,908
Direct materials .......................................... 4,582 3,267 12,358 8,428
Occupancy costs ........................................... 1,086 827 2,958 2,487
Depreciation .............................................. 324 307 898 986
Other expenses ............................................ 3,471 2,536 9,440 7,655
-------- -------- -------- --------
Total cost of services incurred ......................... 17,238 12,378 47,062 35,464
-------- -------- -------- --------
Contribution ................................................. 2,720 2,432 7,674 6,481
General and administrative expenses .......................... 1,945 1,642 5,514 4,381
Amortization of intangible assets ............................ 224 216 665 650
Interest income .............................................. (44) (56) (142) (141)
Interest expense ............................................. 61 109 224 328
-------- -------- -------- --------
Total other expenses ...................................... 2,186 1,911 6,261 5,218
Income before income taxes ................................... 534 521 1,413 1,263
Provision for income taxes ................................... 65 81 179 165
-------- -------- -------- --------
Net income ................................................... 469 440 1,234 1,098
Less: Dividends paid and/or accrued on Preferred Stock ....... 33 33 99 99
-------- -------- -------- --------
Net income applicable to Common Stock ........................ $ 436 $ 407 $ 1,135 $ 999
======== ======== ======== ========
Basic earnings per share of Common Stock ..................... $ 0.14 $ 0.10 $ 0.37 $ 0.24
======== ======== ======== ========
Diluted earnings per share of Common Stock ................... $ 0.14 $ 0.10 $ 0.36 $ 0.23
======== ======== ======== ========
Weighted average shares - basic .............................. 3,043 4,059 3,091 4,199
======== ======== ======== ========
Weighted average shares - diluted ............................ 3,177 4,119 3,158 4,261
======== ======== ======== ========
See accompanying notes to the consolidated financial statements.
-4-
INTEGRAMED AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(all amounts in thousands)
For the
nine-month period
ended September 30,
-------------------
2001 2000
------- -------
(unaudited)
Cash flows from operating activities:
Net income ............................................................................ $ 1,234 $ 1,098
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization ......................................................... 2,051 1,985
Change in assets and liabilities -- Decrease (increase) in assets:
Patient accounts receivable ...................................................... 64 15
Business Services fees receivable ................................................ 237 299
Other current assets ............................................................. 296 (54)
Other assets ..................................................................... 77 167
(Decrease) increase in liabilities:
Accounts payable ................................................................ 295 651
Accrued liabilities ............................................................. (399) 427
Due to Medical Practices ........................................................ 546 1,295
Patient deposits ................................................................ 2,478 (124)
------- -------
Net cash provided by operating activities ................................................ 6,879 5,759
------- -------
Cash flows used in investing activities:
Purchase of fixed assets and leasehold improvements ................................. (1,509) (720)
Payment for exclusive business service rights ....................................... (238) (476)
Proceeds from sale of fixed assets and leasehold improvements ....................... -- 10
------- -------
Net cash used in investing activities .................................................... (1,747) (1,186)
------- -------
Cash flows used in financing activities:
Principal repayments on debt ........................................................ (750) (1,462)
Principal repayments under capital lease obligations ................................ (100) (97)
Repurchase of Common Stock .......................................................... (2,028) (2,383)
Proceeds from exercise of Common Stock warrants and options ......................... 76 --
Dividends paid on Convertible Preferred Stock ....................................... (99) (99)
------- -------
Net cash used in financing activities .................................................... (2,901) (4,041)
------- -------
Net increase in cash ..................................................................... 2,231 532
Cash at beginning of period .............................................................. 5,306 3,650
------- -------
Cash at end of period .................................................................... $ 7,537 $ 4,182
======= =======
See accompanying notes to the consolidated financial statements.
-5-
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 -- INTERIM RESULTS:
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to 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 September 30, 2001, and the results of
operations and cash flows for the interim period presented. Operating results
for the interim period are not necessarily indicative of results that may be
expected for the year ending December 31, 2001. These financial statements
should be read in conjunction with the financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended December
31, 2000.
NOTE 2 -- EARNINGS PER SHARE:
The reconciliation of the numerators and denominators of the basic and
diluted EPS from continuing operations computations for the three and nine-month
periods ended September 30, 2001 and 2000 is as follows (000's omitted, except
for per share amounts):
For the For the
three-month period nine-month period
ended September 30, ended September 30,
------------------- --------------------
2001 2000 2001 2000
-------- -------- --------- ---------
(unaudited) (unaudited)
Numerator
Net Income ........................................... $ 469 $ 440 $ 1,234 $ 1,098
Less: Preferred Stock dividends paid ................. (33) (33) (99) (99)
------- ------- ------- -------
Net income available to common stockholders .......... $ 436 $ 407 $ 1,135 $ 999
======= ======= ======= =======
Denominator
Weighted average shares basic ........................ 3,043 4,059 3,091 4,199
Effect of dilutive options and warrants .............. 134 60 67 62
------- ------- ------- -------
Weighted average shares and dilutive potential
common shares .................................... 3,177 4,119 3,158 4,261
======= ======= ======= =======
Basic EPS ............................................ $ 0.14 $ 0.10 $ 0.37 $ 0.24
Diluted EPS .......................................... $ 0.14 $ 0.10 $ 0.36 $ 0.23
For the three and nine-month periods ended September 30, 2001, the effect
of the assumed exercise of options to purchase approximately 216,000 and 465,000
shares of Common Stock, respectively, at per share exercise prices ranging from
$4.63 to $5.38 and from $4.00 to $5.38, respectively, were excluded in computing
the diluted per share amount because the exercise prices of the options were
greater than the average market price of the shares of Common Stock, therefore
causing these options to be antidilutive. For the three and nine-month periods
ended September 30, 2001, the effect of the assumed exercise of warrants to
purchase approximately 25,000 and 62,000 shares of Common Stock, respectively,
at per share exercise prices ranging from $5.13 to $7.24 and $4.12 to $7.24,
respectively, were excluded in computing the diluted per share amount because
the exercise prices of the warrants were greater than the average market price
of the shares of Common Stock, therefore causing these warrants to be
antidilutive.
-6-
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
For the three and nine-month periods ended September 30, 2000, options to
purchase approximately 607,000 and 532,000 shares of Common Stock, respectively,
at per share exercise prices ranging from $2.50 to $5.00 and from $3.36 to
$5.00, respectively, were excluded in computing the diluted earnings per share
amount because the exercise prices of the options were greater than the average
market price of the shares of Common Stock, therefore, causing these options to
be antidilutive. For both the three and nine-month periods ended September 30,
2000, the effect of the assumed exercise of warrants to purchase approximately
103,000 shares of Common Stock at per share exercise prices ranging from $4.12
to $8.54 were excluded in computing the diluted earnings per share amount
because the exercise prices of the warrants were greater than the average market
price of the shares of Common Stock, therefore, causing these warrants to be
antidilutive.
For the three month and nine month periods ended September 30, 2001 and
2000, approximately 133,000 shares of Common Stock from the assumed conversion
of Preferred Stock were excluded in computing the diluted per share amount as
they were antidilutive.
NOTE 3 -- SEGMENT INFORMATION:
The Company is principally engaged in providing products and services to
the fertility market. For disclosure purposes, the Company recognizes Business
Services offered to its network of Reproductive Science Centers and its
pharmaceutical distribution operations as separate reporting segments as follows
(000's omitted):
Business Pharmaceutical
Corporate Services Distribution Consolidated
---------- -------- ------------- ------------
For the three months ended September 30, 2001
Revenues ........................................ $ -- $ 15,833 $ 4,125 $ 19,958
Cost of Services ................................ -- 13,292 3,946 17,238
-------- -------- -------- --------
Contribution .................................... -- 2,541 179 2,720
-------- -------- -------- --------
General and administrative expenses ............. 1,945 -- -- 1,945
Amortization of intangibles ..................... -- 222 2 224
Interest, net ................................... 28 (7) (4) 17
-------- -------- -------- --------
Income (loss) before income taxes ............... (1,973) 2,326 181 534
-------- -------- -------- --------
Depreciation expense included above ............. 107 324 -- 431
Capital expenditures ............................ -- 218 -- 218
For the nine months ended September 30, 2001
Revenues ........................................ $ -- $ 43,547 $ 11,189 $ 54,736
Cost of Services ................................ -- 36,358 10,704 47,062
-------- -------- -------- --------
Contribution .................................... -- 7,189 485 7,674
-------- -------- -------- --------
Other costs ..................................... 5,514 -- -- 5,514
Amortization of intangibles ..................... 2 658 5 665
Interest, net ................................... 114 (24) (8) 82
-------- -------- -------- --------
Income (loss) before income taxes ............... (5,630) 6,555 488 1,413
-------- -------- -------- --------
Depreciation expense included above ............. 321 898 -- 1,219
Capital expenditures ............................ 161 1,348 -- 1,509
-7-
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Business Pharmaceutical
Corporate Services Distribution Consolidated
--------- -------- ------------ ------------
For the three months ended September 30, 2000
Revenues ........................................ $ -- $ 11,873 $ 2,937 $ 14,810
Cost of Services ................................ -- 9,547 2,831 12,378
-------- -------- -------- --------
Contribution .................................... -- 2,326 106 2,432
-------- -------- -------- --------
General and administrative expenses ............. 1,642 -- -- 1,642
Amortization of intangibles ..................... 1 213 2 216
Interest, net ................................... 61 (6) (2) 53
-------- -------- -------- --------
Income (loss) before income taxes ............... (1,704) 2,119 106 521
-------- -------- -------- --------
Depreciation expense included above ............. 111 307 -- 418
Capital expenditures ............................ 4 128 -- 132
For the nine months ended September 30, 2000
Revenues ........................................ $ -- $ 35,135 $ 6,810 $ 41,945
Cost of Services ................................ -- 28,880 6,584 35,464
-------- -------- -------- --------
Contribution .................................... -- 6,255 226 6,481
-------- -------- -------- --------
General and administrative expenses ............. 4,381 -- -- 4,381
Amortization of intangibles ..................... 13 632 5 650
Interest, net ................................... 190 5 (8) 187
-------- -------- -------- --------
Income (loss) before income taxes ............... (4,584) 5,618 229 1,263
-------- -------- -------- --------
Depreciation expense included above ............. 349 986 -- 1,335
Capital expenditures ............................ 55 665 -- 720
NOTE 4 -- NEW ACCOUNTING PRONOUNCEMENTS:
In July 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations ("FAS 141") and
No. 142, Goodwill and Other Intangible Assets ("FAS 142"). FAS141 requires all
business combinations initiated after June 30, 2001 to be accounted for using
the purchase method. Under FAS 142, goodwill and intangible assets with
indefinite lives are no longer amortized but are reviewed annually (or more
frequently if impairment indicators arise) for impairment. Separable intangible
assets that are not deemed to have indefinite lives will continue to be
amortized over their useful lives (but with no maximum life). The amortization
provisions of FAS 142 apply to goodwill and intangible assets acquired after
June 30, 2001. With respect to goodwill and intangible assets acquired prior to
July 1, 2001, the Company is required to adopt FAS 142 effective January 1, 2002
and is currently evaluating the effect that adoption of the provisions of FAS
142 will have on its results of operations and financial position.
-8-
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 the Company's Annual Report on Form 10-K for the year
ended December 31, 2000.
IntegraMed America, Inc. (the "Company") offers products and services to
patients, providers, payors and pharmaceutical manufacturers in the fertility
industry. The IntegraMed Network is comprised of twenty-two fertility centers in
major markets across the United States, a pharmaceutical distribution
subsidiary, a financing subsidiary, the Council of Physicians and Scientists,
and a leading fertility portal (www.integramed.com). Seventeen of these
fertility centers have access to the Company's FertilityDirect Program. Five of
the fertility centers are designated as "Reproductive Science Centers(R)" and as
such, have access to the Company's FertilityDirect Program in addition to being
provided with a full range of services by the Company including: (i)
administrative services, including accounting and finance, human resource
functions, and purchasing of supplies and equipment; (ii) access to capital;
(iii) marketing and sales; (iv) integrated information systems; (v) assistance
in identifying best clinical practices; and (vi) laboratory services
(collectively, "Business Services").
The Company's strategy is to align information, technology and finance for
the benefit of fertility patients, providers, payors and pharmaceutical
manufacturers. The primary elements of the Company's strategy include: (i)
selling additional FertilityDirect contracts to leading fertility centers in
major markets; (ii) selling Shared Risk Refund Treatment Packages to patients of
contracted fertility centers and managing the risk associated with the programs;
(iii) selling additional Reproductive Science Center Business Service contracts;
(iv) increasing revenues at Reproductive Science Centers; (v) increasing sales
of pharmaceutical products and services; (vi) expanding clinical research
opportunities; and (vii) establishing Internet-based access to patient-specific
information on treatment process and outcomes.
In December 2000, the Company's agreement with the medical center based
Reproductive Science Center was terminated early. The Company received $1.44
million in liquidated damages pursuant to an early termination agreement. The
amount received was recorded as deferred revenue at December 31, 2000, as the
Company has certain transition obligations through December 2001, and
accordingly is being amortized ratably into income in 2001. It is anticipated
that the cost of the transition obligations incurred to date, and those expected
to be incurred during the remainder of the transition period, will be
immaterial.
The Company recently renegotiated a lower fee structure for the business
service fees it charges to the Reproductive Science Centers. This lower fee
structure commences January 1, 2002. The Company believes that additional
business service fees based on increased Reproductive Science Center volume will
substantially offset any revenue reduction as a result of the lower fee
structure.
-9-
Results of Operations
The following table shows the percentage of revenues represented by various
expense and other income items reflected in the Company's Consolidated Statement
of Operations.
For the For the
three-month period nine-month period
ended September 30, ended September 30,
------------------- -------------------
2001 2000 2001 2000
--------- -------- -------- --------
(unaudited) (unaudited)
Revenues, net ............................................ 100.0% 100.0% 100.0% 100.0%
Cost of services incurred:
Employee compensation and related expenses .......... 39.0 36.7 39.1 37.9
Direct materials .................................... 23.0 22.1 22.6 20.1
Occupancy costs ..................................... 5.4 5.6 5.4 5.9
Depreciation ........................................ 1.6 2.1 1.6 2.4
Other expenses ...................................... 17.4 17.1 17.2 18.3
----- ----- ----- -----
Total cost of services incurred ..................... 86.4 83.6 85.9 84.6
Contribution ............................................. 13.6 16.4 14.1 15.4
General and administrative expenses ...................... 9.7 11.1 10.1 10.4
Amortization of intangible assets ........................ 1.1 1.5 1.2 1.5
Interest income .......................................... (0.2) (0.4) (0.2) (0.3)
Interest expense ......................................... 0.3 0.7 0.4 0.8
----- ----- ----- -----
Total other expenses ................................ 10.9 12.9 11.5 12.4
----- ----- ----- -----
Income before income taxes ............................... 2.7 3.5 2.6 3.0
Provision for income taxes ............................... 0.3 0.5 0.3 0.4
----- ----- ----- -----
Net income ............................................... 2.4% 3.0% 2.3% 2.6%
===== ===== ===== =====
Three Months Ended September 30, 2001 Compared to Three Months
Ended September 30, 2000
Revenues for the three months ended September 30, 2001 (the third quarter
of 2001) were approximately $20.0 million as compared to approximately $14.8
million for the three months ended September 30, 2000, an increase of 34.8%.
Approximately 73% of the increase in revenues is attributable to same market
growth in reimbursed costs and business service fees in the Reproductive Science
Centers. Approximately 23% of the increase in revenues is attributable to sales
increases in the Company's pharmaceutical distribution division. Approximately
4% of the increase is attributed to new business ventures in the fields of
medical research and the Company's FertilityDirect program.
Total costs of services as a percentage of revenues were 86.4% in the third
quarter of 2001, compared to 83.6% in the third quarter of 2000. Employee
compensation increased as a percentage of revenues due to increased employee
headcount and increases in professional fees associated with increases in
patient volume at the Company's Network locations. Direct materials increased as
a percentage of revenues, primarily due to the cost of products sold at the
pharmaceutical distribution division. Depreciation expense decreased as a
percentage of revenues as the existing asset base is sufficient to service the
growing patient volume.
Contribution was approximately $2.7 million in the third quarter of 2001 as
compared to $2.4 million in the third quarter of 2000, an increase of
approximately 11.8%. This increase is the result of (i) increased volume at
various Reproductive Science Centers, and (ii) improving volume and margins in
the pharmaceutical distribution division. Contribution as a percentage of
revenue declined as a greater share of the revenue was attributed to
pharmaceutical sales which have a lower margin than Business Services and the
impact of certain payor contracts which call for volume discounts per unit of
service as volume increases while costs per unit under related vendor contracts
do not decrease with volume. Steps are being taken to tie revenue volume
discounts to vendor cost contracts.
-10-
General and administrative expenses for the third quarter of 2001 were
approximately $1.9 million as compared to approximately $1.6 million in the
third quarter of 2000, an increase of 18.5%. As a percentage of revenue, general
and administrative costs decreased to 9.7% in the third quarter of 2001 from
11.1% for the same period in 2000 as these costs typically do not vary with
volume. The increase was largely due to increases in compensation, marketing
initiatives related to the Company's Internet strategy as well as increased
consulting fees and higher information systems support costs.
Amortization of intangible assets was $224,000 in the third quarter of 2001
as compared to $216,000 in the third quarter of 2000, a increase of 3.7%. This
increase was attributable to the purchase of additional business service rights
to physician practices affiliated with two of the Company's Network locations.
Interest income for the third quarter of 2001 decreased to $44,000 from
$56,000 for the third quarter of 2000, due to lower effective interest rates.
Interest expense for the third quarter of 2001 decreased to $61,000 from
$109,000 in the third quarter of 2000, due to scheduled debt payments on the
Company's line of credit as well as lower effective interest rates.
The provision for income taxes primarily related to state taxes. The
provision for income taxes decreased to $65,000 in the third quarter of 2001
from $81,000 in the third quarter of 2000 as better approximations of actual tax
liabilities for individual states were available.
Net income was $469,000 in the third quarter of 2001 as compared to
$440,000 in the third quarter of 2000, an increase of 6.6%. The increase was
primarily due to (i) increased volume at the Reproductive Science Centers and
the Company's pharmaceutical distribution division, partially offset by
increases in general and administrative expenses at the Company's headquarters,
and (ii) decreases in interest expense related to the pay-down of debt.
Nine Months Ended September 30, 2001 Compared to Nine Months
Ended September 30, 2000
Revenues for the nine months ended September 30, 2001 were approximately
$54.7 million as compared to approximately $41.9 million for the nine months
ended September 30, 2000, an increase of 30.5%. Approximately 64% of the
increase in revenues is attributable to same market growth in reimbursed costs
and business service fees in the Reproductive Science Centers. Approximately 36%
of the increase in revenues is attributable to sales increases in the Company's
pharmaceutical distribution division and the Company's FertilityDirect division.
Total costs of services as a percentage of revenues were 85.9% for the
first nine months of 2001, compared to 84.6% during the first nine months of
2000. Employee compensation increased as a percentage of revenues due to
professional fees and headcount increases associated with higher patient volume.
Direct materials increased as a percentage of revenues, due to increased patient
volumes at the network sites and higher volume of products sold at the
pharmaceutical distribution division. Depreciation expense decreased as a
percentage of revenues as the existing asset base is sufficient to service the
growing patient volume. Other expenses decreased as a percentage of revenue, due
to the elimination of contract termination costs and the impact of these costs
typically not varying with volume.
Contribution was approximately $7.7 million for the first nine months of
2001 as compared to $6.5 million for the first nine months of 2000, an increase
of approximately 18.4%. This increase is the result of (i) patient volume
increases at various Reproductive Science Centers, (ii) improving margins in the
pharmaceutical distribution division, the result of increased sales to patients
at the various Network Sites, and (iii) elimination of operating losses at the
Kansas City based Reproductive Science Center which was closed during the first
quarter of 2000. Contribution as a percentage of revenue declined slightly as a
greater share of revenue was attributed to pharmaceutical sales which carry a
lower margin than Business Services.
-11-
General and administrative expenses for the first nine months of 2001 were
approximately $5.5 million as compared to approximately $4.4 million for the
first nine months of 2000, an increase of 25.9%. The increase was largely due to
increases in legal fees, management information system expenses, and employee
compensation. As a percentage of revenues, general and administrative expenses
decreased to approximately 10.1% in the first nine months of 2001 from
approximately 10.4% during the same period in 2000.
Amortization of intangible assets was $665,000 during the first nine months
of 2001 as compared to $650,000 for the same period in 2000, an increase of
2.3%. This increase was attributable to the purchase of additional management
rights to physician practices affiliated with two of the Company's Network
locations.
Interest expense for the first nine months of 2001 decreased to $224,000
from $328,000 for the first nine months of 2000, due to scheduled payments of
debt on the Company's line of credit as well as lower effective interest rates.
The provision for income taxes primarily related to state taxes. The
provision for income taxes increased to $179,000 during the first nine months of
2001 from $165,000 in the same period in 2000 in line with increased taxable
income.
Net income was $1.2 million for the first nine months of 2001 as compared
to $1.1 million for the same period in 2000, an increase of 12.4%. The increase
was primarily due to (i) increased volume at the Reproductive Science Centers
and the Company's pharmaceutical distribution division, partially offset by
increases in general and administrative expenses at the Company's headquarters,
(ii) decreases in interest expense related to the pay-down of debt, and (iii)
the elimination of operational expenses related to the wind down of the Kansas
City Reproductive Science Center operations.
Liquidity and Capital Resources
Historically, the Company has financed its operations primarily through
operating cash flow, sales of equity securities and bank financings. As of
September 30, 2001, the Company had working capital of approximately $3.2
million and cash and cash equivalents of approximately $7.5 million, compared to
working capital of approximately $4.9 million and cash and cash equivalents of
$5.3 million at December 31, 2000. The net decrease in working capital at
September 30, 2001 was principally due to (i) the repurchase of 880,072 shares
of the Company's Common Stock for an aggregate purchase price of $2.0 million,
(ii) repayments of debt of $0.75 million, (iii) the acquisition of fixed assets
of $1.5 million and (iv) an increase in patient deposits of $2.5 million.
The Company expects its cash flows from operating activities and bank
financing capacity to be sufficient to fund its needs for asset acquisition,
debt repayments and new service initiatives for the next year.
Forward Looking Statements
This Form 10-Q and discussions and/or announcements made by or on behalf of
the Company, contain certain forward-looking statements regarding events and/or
anticipated results within the meaning of the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995, the attainment of which
involve various risks and uncertainties. Forward-looking statements may be
identified by the use of forward-looking terminology such as, may, will, expect,
believe, estimate, anticipate, continue, or similar terms, variations of those
terms or the negative of those terms. The Company's actual results may differ
materially from those described in these forward-looking statements due to the
following factors: the Company's ability to acquire additional business service
agreements, including the Company's ability to raise additional debt and/or
-12-
equity capital to finance future growth, the loss of significant business
service agreement(s), the profitability or lack thereof at Reproductive Science
Centers serviced by the Company, increases in overhead due to expansion, the
exclusion of infertility and ART services from insurance coverage, government
laws and regulations regarding health care, changes in managed care contracting,
the timely development of and acceptance of new infertility, ART and/or genetic
technologies and techniques.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
-13-
Part II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
See Index to Exhibits on Page 16.
-14-
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: November 14, 2001 By: /s/ John W. Hlywak, Jr.
---------------------------
John W. Hlywak, Jr.
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
-15-
Exhibit
Number Exhibit
------- -------
10.61(d) -- Amendment No. 4 to Management Agreement between IntegraMed
America, Inc. and Bay Area Fertility and Gynecology Medical
Group, P.C.
10.61(e) -- Amendment No. 5 to Management Agreement between IntegraMed
America, Inc. and Bay Area Fertility and Gynecology Medical
Group, P.C.
10.95(c) -- Amendment No. 8 to Management Agreement between IntegraMed
America, Inc. and Fertility Centers of Illinois, S.C.
10.105(e) -- Amendment No. 5 to Management Agreement between IntegraMed
America, Inc. and Shady Grove Reproductive Science Center,
P.C.
10.105(f) -- Amendment No. 6 to Management Agreement between IntegraMed
America, Inc. and Shady Grove Reproductive Science Center,
P.C.
10.113(g) -- Amended and Restated Loan Agreement dated as of September 28,
2001 between IntegraMed America, Inc. and Fleet National Bank.
99.6 -- Registrant's Press Release dated November 1, 2001 (1)
--------------------------------------------------
(1) Filed as exhibit with identical exhibit number to Registrant's Report
on From 8-K dated November 1, 2001
-16-