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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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 goranization)
One Manhattanville Road
Purchase, New York 10577
(Address of principal executive offices) (Zip Code)
(914) 253-8000
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
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
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Indicate by check mark if disclosure of delinquent filer pursuant to Item
405 of Regulation S-K (17 CRF ss. 229.405) is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this form 10-K
or any amendment to this Form 10-K [X]
Aggregate market value of voting stock (Common Stock, $.01 par value) held
by non-affiliates of the Registrant was approximately $15.9 million on March 13,
2002 based on the closing sales price of the Common Stock on such date.
The aggregate number of shares of the Registrant's Common Stock, $.01 par
value, outstanding was approximately 3,057,876 on March, 19, 2002.
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DOCUMENTS INCORPORATED BY REFERENCE
See Part III hereof with respect to incorporation by reference from the
Registrant's definitive proxy statement for the fiscal year ended December 31,
2001 to be filed pursuant to Regulation 14A under the Securities Exchange Act of
1934 and the Exhibit Index hereto.
PART I
ITEM 1. Business
Company Overview
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 thirteen fertility centers in
major markets across the United States, pharmaceutical products and services, a
financing subsidiary, the Council of Physicians and Scientists, and a leading
fertility portal (www.integramed.com). Eight fertility centers have access to
the Company's FertilityDirect(TM) Program (as discussed under "Selling
Additional FertilityDirect Contracts" on page 4). 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 including: (i) administrative services, including accounting
and finance, human resource functions, and purchasing of supplies and equipment;
(ii) access to capital and servicing and financing patient accounts receivable;
(iii) marketing and sales; (iv) integrated information systems; and (v)
assistance in identifying best clinical practices (collectively, "Business
Services").
Industry -- Reproductive Medicine
Reproductive medicine encompasses the medical discipline that focuses on
male and female reproductive systems and processes. There are many reasons why
couples have difficulty conceiving, and accurate identification of a specific
cause of infertility can be time consuming, expensive and requires access to
specialized diagnostic and treatment services. Most gynecologists do not have
access to these resources and therefore often bypass detailed diagnostic
testing. Instead, they often provide initial medical treatment of infertility,
without extensive diagnosis, by prescribing a drug called clomiphene citrate,
which helps to correct ovulatory problems. This treatment is fairly inexpensive
and frequently resolves the problem. It is generally recommended that women
receive this drug for three to six ovulatory cycles. If pregnancy has not
occurred, referral should be made to a fertility specialist who can offer more
advanced treatments. Fertility specialists are gynecologists who perform more
sophisticated medical and surgical fertility diagnosis and treatments.
Reproductive endocrinology refers to the diagnosis and treatment of all hormonal
problems that lead to abnormal reproductive function or have an effect on the
reproductive organs. Reproductive endocrinologists are physicians who have
completed four years of residency training in obstetrics and gynecology and have
at least two years of additional training in an approved subspecialty fellowship
program.
Conventional fertility services include diagnostic tests performed on the
female, such as endometrial biopsy, laparoscopy/hysteroscopy examinations and
hormone screens, and diagnostic tests performed on the male, such as semen
analysis and tests for sperm antibodies. Depending on the results of the
diagnostic tests performed, conventional treatment options may include, among
others, fertility drug therapy, artificial insemination and fertility surgeries.
Procedures that require gametes to be handled in vitro are classified as
assisted reproductive technology ("ART") services. Current types of ART services
include in vitro fertilization, gamete intrafallopian transfer, zygote
intrafallopian transfer, tubal embryo transfer, frozen embryo transfer and donor
egg programs. Current ART techniques used in connection with ART services
include intracytoplasmic sperm injection, assisted hatching, cryopreservation of
embryos and blastocyst culture and transfer.
There are approximately 43,000 obstetricians/gynecologists in the United
States of which approximately 1,000 concentrate on providing fertility services
as reproductive endocrinologists. In addition, there are approximately 390
centers across the country that provide ART services. These centers are
predominantly staffed by reproductive endocrinologists. Approximately one-third
of the ART centers are hospital-based and two-thirds are physician-office based.
As ART has become more sophisticated, more predictable and less experimental,
there has been a clear shift of services out of hospitals and into physician
offices. The fertility services industry is, therefore, highly fragmented with a
large number of providers operating in small practice settings.
-2-
According to The American Society for Reproductive Medicine, it is
estimated that in 1996 approximately 10% of women between the ages of 15 and 44,
or 6.1 million women, had impaired fertility. According to the 1999-2000 Dorland
Biomedical Healthcare Marketplace Guide, the annual expenditures relating to
fertility services are approximately $2 billion. The Company believes that
multiple factors over the past several decades have affected fertility levels. A
demographic shift in the United States toward the deferral of marriage and first
birth has increased the age at which women are first having children. This, in
turn, makes conception more difficult and increases the risks associated with
pregnancy, thereby increasing the demand for ART services. In addition,
technological advances in the diagnosis and treatment of infertility have
enhanced treatment outcomes and the prognoses for many couples.
According to William M. Mercer/Foster-Higgins' National Survey of
Employer-sponsored Health Plans/1995, approximately one quarter of all health
plan sponsors with at least 10 employees provide some coverage for treatment of
infertility. Because patients seeking fertility treatment often have other
gynecological symptoms, health plans may cover diagnostic and therapeutic
expenses even when infertility is not a covered benefit. Currently, there are
several states that mandate offering benefits of varying degrees for fertility
services, including ART services. In some states, the mandate is limited to an
obligation on the part of the payor to offer the benefit to employers. In
Massachusetts, Rhode Island, Maryland, Arkansas, Illinois, Hawaii and New Jersey
the mandate requires coverage of conventional fertility services as well as ART
services. In addition to payor driven initiatives to broaden coverage, several
legislative initiatives are emerging as a driving force behind making fertility
services more readily available. Legislation requiring all health plans to
provide coverage for diagnosis and treatment of infertility has been introduced
in several states. In fact, the legislative mandate for insurance coverage in
New Jersey was just enacted in 2002. Finally, the 1998 Supreme Court Ruling that
reproduction is a major life activity covered under the Americans with
Disability Act (the "ADA") led to an Equal Employment Opportunity Commission
administrative ruling that a New York company discriminated against one of its
employees by not providing insurance coverage for fertility services.
ART services are the most rapidly growing segment of the fertility market.
According to the Society of Assisted Reproductive Technology ("SART"),
approximately 10,000 ART procedures were performed in 1987. In 1999, the most
recent year for which data are available, approximately 69,000 ART procedures
were performed. There is reason to believe that the market will continue to grow
in the future for the following reasons: (i) the quality of ART treatments is
improving, making outcomes much more acceptable; (ii) improvements in embryo
culture media and implantation rates are leading to the capability of reducing
high order multiple pregnancies - one of the greatest risk factors of ART
services; (iii) with improving pregnancy rates, the cost of treatment is
decreasing thereby making high technology services more affordable; (iv) new ART
services that improve embryo quality and the likelihood of pregnancy, such as
blastocyst culture and transfer, continue to emerge fueling an expansion of the
industry; (v) the improving relationship between cost and quality is causing
physicians to substitute more effective ART treatments for less effective
conventional fertility services; (vi) public policy initiatives including
legislative mandates for insurance coverage and the definition of reproduction
as a major life activity covered by the ADA are producing a more favorable
reimbursement climate; and (vii) demand for ART services is increasing through
greater public awareness and acceptance of ART services.
The market conditions producing business opportunities for the Company
include: (i) the high level of specialized skills and technology required for
comprehensive patient treatment; (ii) the capital-intensive nature of acquiring
and maintaining state-of-the-art medical equipment, laboratory and clinical
facilities; (iii) the need to develop and maintain specialized management
information systems to meet the increasing demands of technological advances,
patient monitoring and third-party payors; (iv) the need for seven-days-a-week
service to respond to patient needs and to optimize the outcomes of patient
treatments; (v) the high cost of treatment with inadequate insurance benefits in
most markets, (vi) the high cost of pharmaceutical products requiring patient
education and support and (vii) the rapid nature of new pharmaceutical and
treatment developments requiring clinical trials to document efficacy.
Company Strategy
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 new
major markets; (ii) selling Shared Risk Refund treatment packages (as defined
below) to patients of contracted fertility centers and managing the risk
associated with the program; (iii) selling additional Business Services
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
fertility-specific information on treatment processes.
-3-
Selling Additional FertilityDirect Contracts
The FertilityDirect program provides contracted fertility centers with
exclusive market access to the Company's products and services that support
patient recruitment. Included in this program are (i) Shared Risk Refund
packages (as described below); (ii) treatment financing; and (iii) Internet
marketing. The Company licenses these programs exclusively to one leading
fertility center in each major market targeted.
The Company will seek to expand the IntegraMed Network to cover additional
major market areas across the country. The Company will primarily focus the
IntegraMed Network development activities on major markets with populations in
excess of one million people. The demographics of consumers who access fertility
services are consistent with the demographics of most major metropolitan
markets. In addition, the incidence of infertility requires a large population
base to support a sophisticated fertility center. We believe high quality
fertility centers are capable of drawing consumers from approximately a one
hundred mile radius or more if alternatives are unavailable. It is our belief
that these market dynamics would allow the Company to cover a large percentage
of the national population by expanding the IntegraMed Network to the fifty
largest metropolitan markets across the country.
Selling Shared Risk Refund Treatment Packages and Managing the Associated Risk
The Company will seek to increase the number of contracted fertility
centers that offer the Shared Risk Refund Program to its patients. The Shared
Risk Refund Program was established at Shady Grove Fertility Reproductive
Science Center ("Shady Grove") - the leading fertility center in the
metropolitan Washington, DC area and a member of the IntegraMed Network. Based
on the experience at Shady Grove, the Company developed an actuarial model that
allows pricing a treatment package to consumers. The Shared Risk Refund Program
consists of a package that includes up to three cycles of in vitro fertilization
for one fixed price with a significant refund if the patient does not deliver a
baby. Under this innovative financial program, the Company receives payment
directly from consumers who qualify for the program and pays contracted
fertility centers a defined reimbursement for each treatment cycle performed.
To manage the Company's risk associated with the Shared Risk Refund
Program, the Company has developed a case management program in association with
the Women's Integrated Network, an infertility case management company based in
Harrison, New York. This case management program authorizes patient care and
provides information to be used in recognizing revenue and developing the
related reserves for refunds. Consumers have responded favorably to the Shared
Risk Refund Program. Currently this program represents approximately fifteen
percent of the revenue at Shady Grove.
Selling Additional Business Services Contracts
The Company enters into Business Service Contracts with each of the
Reproductive Science Centers. The Company will seek to increase the number of
Business Services Contracts. The Company will primarily focus its activities on
fertility centers contracted under the Company's FertilityDirect program. The
Company believes that a number of factors will contribute to the successful
conversion of FertilityDirect contracts to Business Services contracts. These
factors include: (i) the high quality reputation of the Company in providing
Business Services in the areas of fertility and ART services; (ii) the Company's
expertise in assisting its Business Services customers in increasing revenues
and maintaining cost efficient operations; (iii) the Company's success in
improving patient outcomes by providing laboratory support services to its
Business Services customers; and (iv) the capital intensive nature of operating
modern, sophisticated fertility centers and the difficulty most physician groups
have in accessing sufficient capital.
Increasing Revenues at Reproductive Science Centers
The Company expects to increase revenues derived under its Business
Services contracts by: (i) Reproductive Science Centers merging with smaller
fertility physician group practices; (ii) making available expanded laboratory
and ART services at the Reproductive Science Centers, thereby increasing
revenues per patient; (iii) making available increased marketing and sales
support to Reproductive Science Centers; and (iv) increasing the opportunity for
participation by the Reproductive Science Centers in clinical trials of new
drugs, medical devices and diagnostic technologies under development.
-4-
Increasing Sales of Pharmaceutical Products and Services
The Company will continue its efforts to expand the pharmaceutical products
and services line by: (i) providing Education Matters(TM) - a comprehensive
patient educational support program to participating Reproductive Science Center
patients; (ii) packaging products in the Cycle Kit(TM)- a unique packaging
system that provides patients with all supplies and instructions for proper
utilization of medication; (iii) minimizing cost to patients and payors by
implementing Cycle Track(TM) - a fertility pharmaceutical case management system
that dispenses only the required amount of medication for patients to complete
their treatment; (iv) implementing an aggressive marketing and sales program in
cooperation with ivpcare, inc. (the supplier of pharmaceuticals to IntegraMed
Pharmaceutical Services, Inc.); and (v) expanding the offering beyond the five
Reproductive Science Centers to the entire IntegraMed Network.
Expanding Clinical Research Opportunities
In 2001, the Company obtained funding from pharmaceutical manufacturers to
establish the IntegraMed Research Institute (the "Research Institute"). The
purpose of the Research Institute is to organize multi-center clinical research
among the Reproductive Science Center network. The Company believes it will
expand its direct participation in clinical research trials by: (i) offering a
more efficient clinical trial network that delivers results to pharmaceutical
companies more quickly; (ii) offering access to a geographically diverse network
of providers and patients; (iii) participating in the design of clinical trials
with manufacturers and increasing value-added services to these sponsors; and
(iv) marketing the availability of the Research Institute and affiliated
Reproductive Science Centers to other manufacturers of pharmaceutical products
and devices.
Developing Internet-Based Access to Personalized Health Information
The Company will continue to develop www.integramed.com as a leading
fertility portal. The web site has provided a direct marketing infrastructure
that allows the Company to offer efficient transaction processing capability for
consumers and affiliated fertility centers. Currently consumers can directly
order an educational video, participate in an on-line tutorial, subscribe to a
bi-weekly newsletter, apply for an appointment, apply for treatment financing
and apply for the Shared Risk Refund Program. All transactions are logged to an
Oracle database housed in the Company's data center. In addition, contracted
fertility centers receive patient inquiries and referrals as appropriate.
The Company also provides contracted fertility centers with access to web
site design, development and management services using an innovative technology
called Dynamic Site Rendering Engine ("DSRE"). DSRE is a powerful database
driven technology that permits contracted fertility centers to maintain web
sites with access to extensive fertility-specific content from IntegraMed and a
simple text editor.
Business Services
The Company provides comprehensive Business Services to support the
Reproductive Science Centers. In particular, the Company provides: (i)
administrative services, including accounting and finance, human resource
functions, and purchasing of supplies and equipment; (ii) access to capital and
servicing and financing patient accounts receivable; (iii) marketing and sales;
(iv) integrated information systems; and (v) assistance in identifying best
clinical practices.
By providing the Reproductive Science Centers with access to centralized,
needed resources, the Company enables physicians at the Reproductive Science
Centers to achieve improved efficiencies and business outcomes.
Administrative Services
The Company provides administrative services to the Reproductive Science
Centers, including: (i) accounting and finance services, such as billing and
collections, accounts payable, payroll, and financial reporting and planning;
(ii) recruiting, hiring, training and supervising all non-medical personnel; and
(iii) purchasing of supplies, pharmaceuticals, equipment, services and
insurance.
-5-
Access to Capital
The Company provides the Reproductive Science Centers with a significant
competitive advantage through immediate access to capital for expansion and
growth. The Company also offers physician providers in its network rapid access
to the latest technologies and facilities in order for them to provide a full
spectrum of services and compete effectively for patients in the marketplace.
For example, the Company has built a new facility inclusive of an embryology
laboratory for certain Reproductive Science Centers, thereby enabling them to
expand their service offerings to include a number of services (including
laboratory and ART services) which had previously been outsourced. The Company
believes that access to these facilities and new technologies has improved the
ability of the Reproductive Science Centers to offer comprehensive high quality
services, expand the revenue base per patient, and compete effectively.
Marketing and Sales
The Company's marketing and sales department specializes in the development
of sophisticated marketing and sales programs giving Reproductive Science
Centers access to business-building techniques to facilitate growth and
development. In today's highly competitive health care environment, marketing
and sales are essential for the growth and success of physician practices.
However, these marketing and sales efforts are often too expensive for many
physician practice groups. Affiliation with the IntegraMed Network provides
physicians access to significantly greater marketing and sales capabilities than
would otherwise be available. The Company's marketing services focus on revenue
and referral enhancement, relationships with local physicians, media and public
relations and managed care contracting.
The Company believes that participation in its network will assist
Reproductive Science Centers in establishing contracts with managed care
organizations. The Company believes that by integrating fertility physicians
with ART facilities, and thereby developing full service Reproductive Science
Centers, practices within the IntegraMed Network will be permitted to compete
more effectively for managed care contracts.
Integrated Information System
The Company is using its established base of Reproductive Science Centers
to continuously develop a nationwide, integrated information system called
ARTWorks(TM) to collect and analyze clinical, patient, financial and marketing
data. The Company believes it is able to use this data to control expenses,
measure patient outcomes, improve patient care, develop and manage utilization
rates and maximize reimbursements. The Company also believes this integrated
information system allows the Reproductive Science Centers to more effectively
compete for and price managed care contracts, in large part because an
information network can provide these managed care organizations with access to
patient outcomes and cost data.
Assistance in Identifying Best Clinical Practices
The Company assists Reproductive Science Centers in identifying best
clinical practices and implementing quality assurance and risk management
programs in order to improve patient care and clinical outcomes. For example,
the Company has instituted a Council of Physicians and Scientists, who review
the principal elements necessary to achieve successful outcomes and assist
practices in optimizing such outcomes. The Company's structured Clinical Quality
Improvement Program under the auspices of the Council of Physicians and
Scientists produces a distinctive competitive advantage in the marketplace for
the Company's network of Reproductive Science Centers.
The Company's five contracted Reproductive Science Centers have access to
the full portfolio of business services bundled under one contract. In addition,
the Company has unbundled marketing and sales, laboratory services and certain
of its information systems services and is selling those services to affiliated
fertility centers.
-6-
The Reproductive Science Centers
The Company has a Business Services contract with each Reproductive Science
Center which in turn employs and/or contracts with the physicians.
Current Reproductive Science Centers
The Company currently has contracts with five Reproductive Science Centers
consisting of twenty-one locations in six states and the District of Columbia
and forty-three physicians and Ph.D. scientists, including physicians and Ph.D.
scientists employed and/or contracted by the Medical Practices, as well as
physicians who have arrangements to utilize the Company's facilities. The
following table describes in detail each Reproductive Science Center:
Number of Initial
Number of Physicians and Business Services
Reproductive Science Centers State Locations Ph.D. Scientists Contract Date
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Reproductive Science Center of Boston........ MA & RI 4 10 July 1988
Reproductive Science Associates.............. NY 2 5 June 1990
Reproductive Science Center of the Bay Area
Fertility and Gynecology Medical Group.... CA 3 6 January 1997
Fertility Centers of Illinois................ IL 7 12 August 1997
Shady Grove Fertility Reproductive
Science Centers........................... MD, VA & DC 5 10 March 1998
Establishing Reproductive Science Centers
In establishing a Reproductive Science Center, the Company typically: (i)
acquires certain assets of a Medical Practice; (ii) enters into a long-term
services agreement with the Medical Practice under which the Company provides
comprehensive Business Services to the Medical Practice; and (iii) assumes the
principal administrative and financial functions of the Medical Practice. In
addition, the Company typically requires (a) that the Medical Practice enter
into long-term employment agreements containing non-compete provisions with the
affiliated physicians and (b) that each of the physician shareholders of the
Medical Practice enter into a personal responsibility agreement with the
Company. Typically, the Medical Practice contracting with the Company is a
professional corporation in which certain of, or all of, the physicians are the
shareholders.
Business Services Contracts
Typically, the Business Services Contracts obligate the Company to pay a
fixed sum for the exclusive right to service the Medical Practice, a portion or
all of which is paid at the contract signing with any balance to be paid in
future annual installments. The agreements are typically for terms of ten to 25
years and are generally subject to termination due to insolvency, bankruptcy or
material breach of contract. Generally, no shareholder of the Medical Practice
may assign his interest in the Medical Practice without the Company's prior
written consent.
The Business Services contracts provide that all patient medical care at a
Reproductive Science Center is to be provided by the physicians of the Medical
Practice and that the Company generally is responsible for providing defined
Business Services to the Reproductive Science Center. The Company provides the
equipment, facilities and support necessary to operate the Medical Practice and
employs substantially all such other non-physician personnel as are necessary to
provide technical, consultative and administrative support for the patient
services at the Reproductive Science Center. Under certain agreements, the
Company is committed to provide a clinical laboratory. Under the agreements, the
Company may also advance funds to the Medical Practice to provide new services,
utilize new technologies, fund projects, purchase the net accounts receivable,
provide working capital or fund mergers with other physicians or physician
groups.
-7-
Under four agreements, the Company receives as compensation for its
services a three-part fee comprised of: (i) a fixed or variable percentage of
net revenues generally up to 6%; (ii) reimbursed costs of services (costs
incurred in providing services to a Medical Practice and any costs paid on
behalf of the Medical Practice); and (iii) a fixed percentage of earnings after
the initial service fees which is currently generally equal to up to 20%.
As compensation for providing Business Services under the fifth agreement,
the Company receives a fixed fee, plus reimbursed costs of services.
Prior to December 29, 2000, one of the Company's Reproductive Science
Centers was affiliated with a medical center. Under this agreement, the Company
primarily provided endocrine testing, administrative and finance services for a
fixed percentage of receipts, equal to 15% of net receipts, and reimbursed costs
of services. The agreement was scheduled to expire December 31, 2001, but
pursuant to an early termination agreement effective December 31, 2000, the
medical center paid the Company liquidated damages totaling $1.44 million. Since
the Company had certain obligations under the agreement through December 31,
2001, the payment was recognized as revenue in 2001.
The Company reports all fees as "Revenues, net." Direct costs incurred by
the Company in performing its services and costs incurred on behalf of the
Reproductive Science Centers are recorded in "cost of services incurred". The
physicians receive as compensation all remaining earnings after payment of the
Company's compensation.
Physician Employment Agreements
Employment agreements between the Reproductive Science Centers and
physicians generally provide for an initial term ranging from three to five
years. The term may be automatically renewed at successive intervals unless the
physician or the Medical Practice elects not to renew or such agreement is
otherwise terminated for cause or the death or disability of a physician. The
physicians are paid based upon either the number of procedures performed or
other negotiated formulas agreed upon between the physicians and the
Reproductive Science Centers, and the Reproductive Science Centers provide the
physicians with health, death and disability insurance and other benefits. The
Reproductive Science Centers are obligated to obtain and maintain professional
liability insurance coverage, procured on behalf of the physicians. Pursuant to
the employment agreements, the physicians agree not to compete with the
Reproductive Science Centers with which they have contracted during the term of
the agreement and for a certain period following the termination of such
employment agreement. In addition, the agreements contain customary
confidentiality provisions.
Personal Responsibility Agreements
Commencing with Business Services agreements dated 1997 to the present day,
the Company entered into a Personal Responsibility Agreement with each of the
physician shareholders of the Medical Practice. The Agreement protects the
Company's investments in the event the physician ceases to practice medicine at
the Reproductive Science Center during the first five years of the related
contract (except as a result of death or permanent disability). The Agreement
obligates the physician to repay a ratable portion of the fee paid by the
Company to the physician for the exclusive rights to service the practice. The
Agreement also contains covenants for the physician not to compete with the
Company during the term of his or her employment agreement with the Medical
Practice and for a specified period thereafter.
Affiliate Care/Satellite Service Agreements
Reproductive Science Centers may also have affiliate care agreements and
satellite service agreements with physicians who are not employed by the
Reproductive Science Centers. Under an affiliate care agreement, the Medical
Practice contracts with a physician to provide certain services for the Medical
Practice's patients, such as endocrine/ultrasound monitoring, or ART services.
Pharmaceutical Subsidiary
IntegraMed Pharmaceutical Services, Inc. ("IPSI"), a wholly owned
subsidiary of the Company, contracts for the marketing of fertility-related
pharmaceutical products to the Reproductive Science Centers and certain
affiliates. IPSI contracts with ivpcare, inc., a licensed pharmacy specializing
in dispensing pharmaceutical products, which provides certain business services
to IPSI.
-8-
Financing Subsidiary
IntegraMed Financial Services, Inc. ("IFS"), a wholly owned subsidiary of
the Company, arranges financing to qualified patients of the IntegraMed Network
at rates significantly lower than credit cards and other finance companies. IFS
is administered by PFS Patient Financing, a third party vendor, which provides
administrative management services to IFS. The loans are made to qualified
patients by a third party bank. The patient makes payment directly to the
medical practice. The bank pays a placement fee to the Company. Such revenue is
recorded when the Company receives the cash at the time of closing the
transaction.
Council of Physicians and Scientists
The Company's Council of Physicians and Scientists (the "Council"),
comprised mostly of representatives from the IntegraMed Network, was established
in 1996 to bring together Reproductive Science Center thought leaders in
reproductive medicine and embryology to promote a high quality clinical
environment in all Reproductive Science Centers. The Council meets twice each
year and conducts monthly teleconferences on topics related to improving
infertility treatment and diagnosis. The Council publishes its recommendations
and the Company's staff follows up on implementing Council recommendations. The
Council reviews and recommends to accept or deny additional physicians who want
to join the IntegraMed Provider Network based on objective clinical
credentialing criteria. The Council also conducts an additional level of
clinical review of any fertility center applying to participate in the Company's
Shared Risk Refund Program.
The Council also provides oversight to the Company's Research Institute.
IntegraMed Research Institute is funded by pharmaceutical manufacturers and was
organized to administer multi-center clinical research within the IntegraMed
Network. As part of this oversight function, the Council peer reviews
applications from Reproductive Science Centers for research support by the
Research Institute, oversees compliance with Institutional Review Board
guidelines for clinical research involving human subjects and hosts an annual
meeting of Reproductive Science Center and affiliate physicians and scientists
to review research progress and related subjects.
Reliance on Third-Party Vendors
The Reproductive Science Centers, IntegraMed Pharmaceutical Services, as
well as all other medical providers who deliver services requiring fertility
medication, are dependent on three third-party vendors that produce such
medications (including but not limited to: Lupron, Follistim, Repronex, GonalF
and Pregnyl) that are vital to treating infertility and ART services. Should any
of these vendors experience a supply shortage, it may have an adverse impact on
the operations of the Reproductive Science Centers. To date, the Reproductive
Science Centers have not experienced any such adverse impacts.
Competition
The business of providing health care services is intensely competitive and
providers strive to find the most cost-effective method of providing quality
health care. Although the Company focuses on Reproductive Science Centers that
provide fertility and ART services, it competes for contracts with other health
care services and management companies, as well as hospitals and
hospital-sponsored management services organizations. If federal or state
governments enact laws that attract other health care providers to the managed
care market, the Company may encounter increased competition from other
institutions seeking to increase their presence in the managed care market and
which have substantially greater resources than the Company. There can be no
assurance that the Company will be able to compete effectively with its current
competitors. Nor can there be assurance that additional competitors will not
enter the market, or that such competition will not make it more difficult to
acquire the assets and Business Services rights of Reproductive Science Centers
on terms beneficial to the Company.
The fertility industry is highly competitive and characterized by
technological improvements. New ART services and techniques may be developed
that may render obsolete the ART services and techniques currently employed at
the Reproductive Science Centers. Competition in the areas of fertility and ART
services is largely based on pregnancy and other patient outcomes. Accordingly,
the ability of a Medical Practice to compete is largely dependent on its ability
to achieve adequate pregnancy rates and patient satisfaction levels.
-9-
Effects of Third-Party Payor Contracts
Traditionally, ART services have been paid for directly by patients and
conventional fertility services have been largely covered by indemnity insurance
or managed care payors. Currently, there are several states that mandate
offering certain benefits of varying degrees for fertility and ART services. In
some cases, the mandate is limited to an obligation on the part of the payor to
offer the benefit to employers. In Massachusetts, Rhode Island, Maryland,
Arkansas, Illinois, Hawaii and New Jersey, the mandate requires coverage of
conventional fertility services as well as certain ART services.
Government Regulation
As a participant in the health care industry, the Company's operations and
its relationships with the Reproductive Science Centers and the IntegraMed
Network are subject to extensive and increasing regulation by various
governmental entities at the federal, state and local levels. These include, but
are not limited to, Federal and State Anti-Kickback Laws, Federal and State
Self-Referral Laws, False Claim Laws, Federal and State Controlled Substances
laws and regulations and Anti-Trust Laws. The Company believes its operations
and those of the Reproductive Science Centers are in material compliance with
applicable health care laws. Nevertheless, the laws and regulations in this area
are extremely complex and subject to changing interpretation and many aspects of
the Company's business and business opportunities have not been the subject of
federal or state regulatory review or interpretation. Accordingly, there is no
assurance that the Company's operations have been in compliance at all times
with all such laws and regulations. In addition, there is no assurance that a
court or regulatory authority will not determine that the Company's past,
current or future operations violate applicable laws or regulations. If the
Company's interpretation of the relevant laws and regulations is inaccurate,
there could be a material adverse effect on the Company's business, financial
condition and operating results. There can be no assurance that such laws will
be interpreted in a manner consistent with the Company's practices. There can be
no assurance that a review of the Company or the Reproductive Science Centers by
courts or regulatory authorities will not result in a determination that would
require the Company or the Reproductive Science Centers to change their
practices. There also can be no assurance that the health care regulatory
environment will not change so as to restrict the Company's or the Reproductive
Science Centers existing operations or their expansions. Any significant
restructuring or restriction could have a material adverse effect on the
Company's business, financial condition and operating results.
Corporate Medical Practice Laws. The Company's operations may be subject to
state laws relating to corporations practicing medicine. State laws may prohibit
corporations other than medical professional corporations or associations from
practicing medicine or exercising control over physicians, and may prohibit
physicians from practicing medicine in partnership with, or as employees of, any
person not licensed to practice medicine. Furthermore, operations in New York,
California, Maryland and Illinois may be subject to fee-splitting prohibitions.
State law may also prohibit a corporation other than professional corporations
or associations (or, in some states, limited liability companies) from acquiring
the goodwill of a medical practice. The Company believes its operations are in
material compliance with applicable state laws relating to the corporate
practice of medicine. The Company performs only non-medical administrative
services, and in certain circumstances, clinical laboratory services. The
Company does not represent to the public that it offers medical services. In
each state, the Medical Practice is the sole employer of the physicians, and the
Medical Practice retains the full authority to direct the medical, professional
and ethical aspects of its medical practice. However, although the Company
believes its operations are in material compliance with applicable state
corporate practice of medicine laws, the laws and their interpretations vary
from state to state, and are enforced by regulatory authorities who have broad
discretionary authority. There can be no assurance that these laws will be
interpreted in a manner consistent with the Company's practices or that other
laws or regulations will not be enacted in the future that could have a material
adverse effect on the Company's business, financial condition and operating
results.
-10-
Health Insurance Portability and Accountability Act. Recently, the
healthcare industry began to focus on the impact that the Health Insurance
Portability and Accountability Act ("HIPAA") regulations and implementation
might have on their operations and information systems. HIPAA was designed to
reduce the amount of administrative waste in healthcare today and to further
protect the privacy of any patient's medical information. HIPAA regulations
(those proposed and those already final) identify certain standards for both
manual processes and automated processes and systems handling patient medical
information. HIPAA regulations related to standard data formats and data sets
for electronic transaction processing became final in 2000, with required
implementation deadlines by October 2003. Additional HIPAA regulations for
security have been proposed, but are not yet final. The HIPAA regulations
related to privacy of medical information are final and scheduled to be
implemented by October 2003. The HIPPA regulations may impose the need for
additional required enhancements of the Company's internal systems. While the
Company will incur costs to become compliant with the HIPAA regulations for
electronic transaction processing, management believes they will not have a
significant overall impact on the Company's results of operations. Management is
currently assessing the overall impact of the privacy standards and will
evaluate the overall impact of the security standards once finalized.
Liability and Insurance
Providing health care services entails a substantial risk of potential
medical malpractice and similar claims. The Company does not itself engage in
the practice of medicine or assume responsibility for compliance with regulatory
requirements directly applicable to physicians, and therefore requires
associated Reproductive Science Centers to maintain medical malpractice
insurance. In general, the Company has established a program that provides the
Reproductive Science Centers with such required insurance. However, in the event
that services provided at the Reproductive Science Centers or any affiliated
Medical Practice are alleged to have resulted in injury or other adverse
effects, the Company is likely to be named as a party in a legal proceeding.
Although the Company currently maintains liability insurance that it
believes is adequate in risk and amount, successful malpractice claims could
exceed the limits of the Company's insurance and could have a material adverse
effect on the Company's business. Moreover, there is no assurance that the
Company will be able to obtain such insurance on commercially reasonable terms
in the future or that any such insurance will provide adequate coverage against
potential claims. In addition, a malpractice claim asserted against the Company
could be costly to defend, could consume management resources and could
adversely affect the Company's reputation and business, regardless of the merit
or eventual outcome of such claim. In addition, in connection with the asset
acquisition of certain Reproductive Science Centers, the Company may assume some
of the Medical Practice's stated liabilities. Therefore, an entity may assert
claims against the Company for events related to the Medical Practice prior to
its acquisition. The Company maintains insurance coverage related to those risks
that it believes is adequate as to the risks and amounts, although there is no
assurance that any successful claims will not exceed applicable policy limits.
There are inherent risks specific to the provision of ART services. For
example, the long-term effects of the administration of fertility medication,
integral to most fertility and ART services, on women and their children are of
concern to certain physicians and others who fear the medication may prove to be
carcinogenic or cause other medical problems. Currently, fertility medication is
critical to most ART services and a ban by the United States Food and Drug
Administration or any limitation on its use would have a material adverse effect
on the Company. Furthermore, ART services increase the likelihood of multiple
births, which are often premature and may result in increased costs and
complications.
Employees
As of March 19, 2002, the Company had 574 employees. Of these, 542 are
employed at the Reproductive Science Centers and 32 are employed at the
Company's headquarters, including 6 who are executive management. Of the
Company's employees, 275 persons at the Reproductive Science Centers and 3 at
the Company's headquarters are employed on a part-time basis. The Company is not
party to any collective bargaining agreement and believes its employee
relationships are good.
-11-
ITEM 2. Properties
The Company's headquarters and executive offices are in Purchase, New York,
where it occupies approximately 8,000 square feet under a lease expiring April
14, 2005 at a monthly rental ranging from $15,714 to $20,000.
The Company leases, subleases, and/or occupies, pursuant to its Business
Services agreements, each Reproductive Science Center location from third-party
landlords. Costs associated with these agreements are included in "Cost of
services rendered" and are reimbursed to the Company as part of its fee;
reimbursed costs are included in "Revenues, net".
The Company believes its executive offices and the space occupied by the
Reproductive Science Centers are adequate.
ITEM 3. Legal Proceedings
In April 1999, Integra, Inc. filed with the United States Patent and
Trademark Office ("USP&T") before the Trademark Trial and Appeal Board an
opposition to the granting of the Company's trademark "INTEGRAMED AMERICA",
claiming that the USP&T should deny registration of the Company's trademark.
Integra, Inc. allegedly distributes outcome based managed care products,
manuals, brochures, patient information and data forms for use in connection
with managed behavioral healthcare consulting and research services under the
mark "INTEGRA". Since the time of filing the opposition, Integra, Inc. has
withdrawn its opposition and the matter has been terminated.
There are other minor legal proceedings to which the Company is a party. In
the Company's opinion, the claims asserted and the outcome of such proceedings
will not have a material adverse effect on the financial position, results of
operations or the cash flows of the Company.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
-12-
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's Common Stock has been traded on The NASDAQ National Market
under the symbol "INMD" since the Company's formal name change in June 1996 and
prior to the name change under the symbol "IVFA" since May 21, 1993. Prior
thereto, the Company's Common Stock had been trading on the NASDAQ Small Cap
Market since October 8, 1992. The following table sets forth the high and low
closing sales price for the Common Stock, as reported on The NASDAQ National
Market.
Common Stock
----------------------
High Low
----------------------
2000
First Quarter................. $3.88 $2.75
Second Quarter................ 3.75 2.88
Third Quarter................. 3.81 2.13
Fourth Quarter................ 2.34 1.75
2001
First Quarter................. 3.00 1.88
Second Quarter................ 6.00 2.50
Third Quarter................. 7.30 2.60
Fourth Quarter................ 6.75 3.23
On March 19, 2002, there were approximately 231 holders of record of the
Common Stock and approximately 995 beneficial owners of shares registered in
nominee or street name.
The Company has not paid dividends on its Common Stock during the last two
fiscal years. The Company currently anticipates that it will retain all
available funds for use in the operation and expansion of its business, and
therefore, does not anticipate paying any cash dividends on its Common Stock for
the foreseeable future.
Dividends on the Series A Cumulative Convertible Preferred Stock are
payable at the rate of $0.20 per share quarterly on the fifteenth day of
February, May, August and November. In May 1995, as a result of the Company's
Board of Directors suspending four quarterly dividend payments, holders of the
Convertible Preferred Stock became entitled to one vote per share of Convertible
Preferred Stock on all matters submitted to a vote of stockholders, including
election of directors; once in effect, such voting rights are not terminated by
the payment of all accrued dividends. Currently, there are no Convertible
Preferred Stock dividends in arrears.
Unregistered shares of Common Stock and warrants were issued during 1999,
2000 and 2001 as described in the following paragraphs in reliance of Section
4(2) of the Securities Act of 1933.
On January 5, 1999 the Company issued an aggregate of 6,467 shares of
unregistered Common Stock to Shady Grove Fertility Centers, Inc. in connection
with a Business Services agreement entered into on March 12, 1998. Said shares
had a market value of $175,900 at the time of issuance.
In January 1999, the Company issued unregistered warrants to acquire 5,000
shares of Common Stock at $5.125 per share to Robert Stillman, M.D. in
connection with the Second Closing Date of the Shady Grove acquisition. On July
15, 1999 the Company issued unregistered warrants to VSII Shareholders Trust II
to acquire an aggregate of 19,907 shares of Common Stock at an exercise price of
$7.24 per share in connection with certain investment banking services rendered
to the Company.
In July 2001 and 2000, the Company issued an aggregate of 33,265 and 44,610
shares of restricted stock grants, respectively, to several members of the
Company's Board of Directors and several officers of the Company. Said shares
had a market value of $164,329 and $142,306 at the time of issuance.
-13-
ITEM 6. Selected Financial Data
The following selected financial data are derived from the Company's
consolidated financial statements and should be read in conjunction with the
financial statements, related notes, and other financial information included
elsewhere in this Annual Report on Form 10-K.
Statement of Operations Data (1):
December 31,
-----------------------------------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
(in thousands, except per share amounts)
Revenues, net ................................... $ 74,843 $ 57,864 $ 45,955 $ 38,590 $ 20,559
Costs of services incurred ...................... 64,013 48,805 36,556 29,778 14,940
-------- -------- -------- -------- --------
Contribution .................................... 10,830 9,059 9,399 8,812 5,619
General and administrative expenses ............. 7,827 5,880 6,084 5,316 4,192
Total other expenses, net(2) .................... (1,047) 1,075 2,757 1,303 528
Restructuring and other charges (3) ............. -- -- -- 2,084 --
-------- -------- -------- -------- --------
Income from continuing operations ............... 1,956 2,104 558 109 899
Loss from operation and disposal of
AWM Division (4) ............................. -- -- -- 4,501 421
-------- -------- -------- -------- --------
Income (loss) before taxes ...................... 1,956 2,104 558 (4,392) 478
Provision (benefit) for income taxes ............ (4,557) 187 240 340 104
-------- -------- -------- -------- --------
Net income (loss) ............................... 6,513 1,917 318 (4,732) 374
Less: Dividends paid and/or accrued on
Preferred Stock .............................. 133 133 133 133 133
-------- -------- -------- -------- --------
Net income (loss) applicable to Common
Stock ........................................ $ 6,380 $ 1,784 $ 185 $ (4,865) $ 241
======== ======== ======== ======== ========
Basic earnings per share
Continuing operations ........................ $ 2.07 $ 0.43 $ 0.04 $ (0.07) $ 0.21
Discontinued operations .................... -- -- -- (0.87) (0.13)
-------- -------- -------- -------- --------
Basic EPS .................................... $ 2.07 $ 0.43 $ 0.04 $ (0.94) $ 0.08
======== ======== ======== ======== ========
Diluted earnings per share
Continuing operations ........................ $ 2.01 $ 0.43 $ 0.04 $ (0.07) $ 0.21
Discontinued operations .................... -- -- -- (0.87) (0.13)
-------- -------- -------- -------- --------
Diluted EPS ..................................... $ 2.01 $ 0.43 $ 0.04 $ (0.94) $ 0.08
======== ======== ======== ======== ========
Weighted average shares - basic ................. 3,081 4,110 4,874 5,202 3,101
======== ======== ======== ======== ========
Weighted average shares - diluted .............. 3,175 4,172 4,951 5,202 3,154
======== ======== ======== ======== ========
-14-
Balance Sheet Data:
December 31,
-------------------------------------------------------------
2001 2000 1999 1998 1997
------ -------- --------- -------- -------
(in thousands)
Working capital ............................. $ 4,208 $ 4,943 $ 5,705 $ 7,661 $ 4,082
Total assets ................................ 44,621 38,845 39,047 41,816 34,356
Total indebtedness........................... 2,691 3,569 5,410 7,381 2,928
Accumulated deficit.......................... (16,800) (23,313) (25,230) (25,548) (20,816)
Shareholders' equity......................... 30,615 25,987 26,639 27,383 25,993
(1) Earnings (loss) per share and weighted average share amounts for each year
reflect the Company's 1-for-4 reverse stock split effective November 17,
1998.
(2) Refer to Note 10 - Income Taxes on the Company's consolidated financial
statements.
(3) The Company recorded approximately $2.1 million in restructuring and other
charges in the year ended December 31, 1998. Such charges included
approximately $1.4 million associated with its termination of its agreement
with the Reproductive Science Center of Greater Philadelphia, a single
physician Reproductive Science Center, effective July 1, 1998, which
primarily consisted of exclusive Business Services right impairment and
other asset write-offs. Such charges also included approximately $700,000
for exclusive Business Services right impairment losses related to two
other single physician Reproductive Science Centers. The latter impairment
losses were recorded based upon the Company's determination that the
intangible asset balance was larger than the respective Medical Practice's
estimated future cash flow.
(4) The AWM Division operations were sold effective September 1, 1998. In June
1998, the Company committed itself to a formal plan to dispose of the AWM
Division operations. On September 1, 1998 the Company disposed of the AWM
Division operations through a sale of certain of its fixed assets to a
third party and the third party's assumption of the employees, building
lease, research contracts, and medical records. During the year ended
December 31, 1998, the Company reported a loss from the disposal of the AWM
Division of approximately $3.6 million, which principally represented
approximately $3.3 million related to the write-off of goodwill and
$243,000 for estimated operating losses during the phase-out period. During
the eight-month period ended August 31, 1998, the AWM Division recorded
revenues of approximately $1.0 million.
-15-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is a discussion of the financial condition and results of
operations of the Company for the three years ended December 31, 2001. It should
be read in conjunction with the Company's Consolidated Financial Statements, the
related notes thereto and other financial and operating information included in
this Form 10-K.
Overview
The Company offers products and services to patients, providers, payors and
pharmaceutical manufacturers in the fertility industry. The IntegraMed Network
is comprised of thirteen fertility centers in major markets across the United
States, a pharmaceutical subsidiary, a financing subsidiary, the Council of
Physicians and Scientists, a research institute and a leading fertility portal
(www.integramed.com). Eight 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 including: (i) administrative services, including accounting and
finance, human resource functions, and purchasing of supplies and equipment;
(ii) access to capital and servicing and financing patient accounts receivable;
(iii) marketing and sales; (iv) integrated information systems; and (v)
assistance in identifying best clinical practices (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 September 1998, the Company obtained from Fleet Bank, N.A. a $13.0
million credit facility to fund acquisitions to provide working capital and to
refinance its existing bank debt. In September 2001, the Company elected not to
renew credit facilities related to potential acquisitions, as management
believes that internal sources of funds will be sufficient to finance any future
acquisitions. The Company renewed the working capital and term loan components
of this facility, which totaled approximately $9.8 million.
During 1999, the Company accelerated amortization of the Right to Manage
fees for the Kansas City and Dallas Reproductive Science Centers.
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. These
funds were recorded as revenue by the Company during 2001 as compensation for
certain performance obligations contained in the termination agreement.
During 2001 the Company negotiated revised fee structures on all five of
its major Reproductive Science Center Business Services Contracts. On four of
these contracts in which Service Fees are comprised of (a) a fixed percentage of
revenue, (b) a fixed percentage of medical practice earnings and (c) reimbursed
cost of services, the Company negotiated lower fixed percentages on the revenue
and medical practice earnings components. These lower fees are to be phased in
over an approximately five-year period. The company believes that this revised
fee structure will be more than offset by growth in the underlying Medical
Practices, and will in turn result in growth in the Company's aggregate
revenues. On the remaining Reproductive Science Center contract, the Company
negotiated higher Service Fees, which are assessed at a fixed amount each month
independent of the Medical Practice's underlying revenue or earnings.
Critical Accounting Policies
In December 2001, the SEC requested that all registrants list their three
to five most "critical accounting policies" in MD&A. The SEC indicated that a
"critical accounting policy" is one which is both important to the portrayal of
the company's financial condition and results and requires management's most
difficult, subjective or complex judgments, often as a result of the need to
make estimates about the effect of matters that are inherently uncertain. We
believe that the following accounting policies fit this definition:
-16-
Basis of consolidation --
The consolidated financial statements comprise the accounts of IntegraMed
America, Inc. and its wholly owned subsidiaries. All significant intercompany
transactions have been eliminated. The Company principally derives its revenues
from Business Services contracts and the sale of pharmaceutical products. The
Company does not have a controlling financial interest in any of the fertility
centers, including the Reproductive Science Centers, and as such does not
consolidate their results.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions in certain circumstances that affect amounts reported
in the accompanying consolidated financial statements and related footnotes. In
preparing these financial statements, management has made its best estimates and
judgments of certain amounts included in the financial statements, giving due
consideration to materiality. The Company does not believe there is a great
likelihood that materially different amounts would be reported related to the
accounting policies described below. However, application of these accounting
policies involves the exercise of judgment and use of assumptions as to future
uncertainties and, as a result, actual results could differ from these
estimates.
Revenue and cost recognition --
Reproductive Science Center Service fees
As of December 31, 2001, the Company provided comprehensive Business
Services to Medical Practices under five Business Services contracts. Under four
of the current agreements, the Company receives as compensation for its Business
Services a three-part fee comprised of: (i) a percentage of net revenues, (ii)
reimbursed costs of services (costs incurred in servicing a Medical Practice and
any costs paid on behalf of the Medical Practice) and (iii) a fixed or variable
percentage of earnings after Business Services fees or an additional variable
percentage of net revenues. Under the fifth current agreement, as compensation
for its services, the Company receives a fixed fee plus reimbursed costs of
services.
All revenues from Reproductive Science Center Service fees are recorded in
the period services are rendered. Direct costs incurred by the Company in
performing its services and costs incurred on behalf of the Medical Practices
are reported as costs of services. Revenue and costs are recognized in the same
period in which the related services have been performed.
Pharmaceutical Sales
The Company distributes fertility related pharmaceutical products through
IntegraMed Pharmaceutical Services, Inc. ("IPSI"), a wholly owned subsidiary.
The Company has a servicing arrangement with ivpcare to fulfill the purchase and
distribution of pharmaceuticals. IPSI accepts patient orders, verifies patient
insurance coverage where applicable and ships prescription-based pharmaceuticals
directly to patients of the Reproductive Science Centers and other affiliated
fertility clinics. Revenue is derived from the sales of these pharmaceuticals
and is recorded, along with the related costs including the fee due ivpcare,
when shipments are made.
Pharmaceutical sales accounts receivable represent receivables held by
IntegraMed Pharmaceutical Services Inc. for medications sold directly to
patients. Risk of loss in connection with uncollectibility of these accounts
receivable is borne by the Company.
Due from/to Medical Practices --
Due from/to Medical Practices represents the net amounts owed to us by the
Medical Practices for our share of the medical providers earnings, our business
contract services fees and reimbursement of practice expenses, net of the
Company's advances to the Medical Practices for the financing of their patient
accounts receivable. Due from/to Medical Practices excludes amounts owed by the
Company to Medical Practices for acquired exclusive Business Services rights
since the Financial Accounting Standards Board Interpretation 39 conditions for
offset are not met for these obligations. Such acquired rights are reported as
intangible assets.
-17-
Income taxes --
The Company accounts for income taxes utilizing the asset and liability
approach in accordance with Financial Accounting Standards No. 109 "Accounting
For Income Taxes" (FAS 109). The income tax (benefit) provision is determined
under the asset and liability approach. Deferred tax assets and liabilities are
recognized on differences between the book and tax basis of assets and
liabilities using presently enacted tax rates. The income tax (benefit)
provision is the sum of the amount of income tax paid or payable for the year as
determined by applying the provisions of enacted tax laws to the taxable income
for that year and the net change during the year in the Company's deferred tax
assets and liabilities.
Exclusive Business Service Rights --
Exclusive business service rights represent costs incurred by the Company
for the right to service certain Reproductive Science Centers and are valued at
cost less accumulated amortization, which is provided on a straight-line basis
over the length of the contract, usually ten to twenty-five years. The Company
periodically reviews exclusive business service rights to assess recoverability;
any impairment would be recognized in the consolidated statement of operations
if a permanent impairment was determined to have occurred. Recoverability is
determined based on undiscounted expected earnings from the related business
over the remaining amortization period.
Results of Operations
The following table shows the percentage of net revenue represented by
various expenses and other income items reflected in the Company's Consolidated
Statement of Operations for the years ended December 31, 2001, 2000 and 1999:
2001 2000 1999
---- ---- ----
Revenues, net (see Note 2):
Reproductive Science Center service fees ..... 79.2% 83.3% 94.7%
Pharmaceutical Sales ......................... 20.3% 16.7% 5.3%
Other ........................................ 0.5% 0.0% 0.0%
---- ---- ----
Total revenues ............................. 100% 100% 100%
Costs of services incurred:
Reproductive Science Center service fees ..... 65.3% 68.2% 74.5%
Pharmaceutical Sales ......................... 19.4% 16.2% 5.1%
Other ........................................ 0.8% 0.0% 0.0%
---- ---- ----
Total costs of services incurred ........... 85.5% 84.4% 79.6%
Contribution:
Reproductive Science Center service fees ..... 13.9% 15.0% 20.2%
Pharmaceutical Sales ......................... 0.9% 0.6% 0.2%
Other ........................................ (0.3)% 0.0% 0.0%
---- ---- ----
Total contribution ......................... 14.5% 15.6% 20.4%
General and administrative expenses ............ 10.5% 10.2% 13.2%
Amortization of intangible assets .............. 1.2% 1.5% 5.2%
Interest income ................................ (0.2)% (0.4)% (0.1)%
Interest expense ............................... 0.4% 0.7% 0.9%
----- ----- -----
Total other expenses ...................... 11.9% 12.0% 19.2%
Income from operations before income taxes ..... 2.6% 3.6% 1.2%
Income tax (benefit) provision ................. (6.1)% 0.3% 0.5%
Net income (a) ................................. 8.7% 3.3% 0.7%
(a) Excluding the effect of the adjustment related to reducing the valuation
allowance on deferred tax assets, net income, as a percentage of net revenues
would have been 2.3% for the year ended December 31, 2001 (See Note 10 to the
Consolidated Financial Statements).
-18-
Calendar Year 2001 Compared to Calendar Year 2000
Revenues, net for 2001 were approximately $74.8 million as compared to
approximately $57.9 million for 2000, an increase of $17.0 million or 29.3%.
Revenues for the Company's Reproductive Science Centers increased $11.1 million,
or 23.0% during the year 2001. This increase is attributable to in market growth
at all network facilities, including in market mergers at the Company's sites in
the Bay Area and Shady Grove. Same market growth was achieved through new
service offerings, the expansion of ancillary services and increases in patient
volume. Revenues for the Company's pharmaceutical division increased $5.5
million during 2001, or 56.6%. This increase is attributable to expanded
participation within the Company's Reproductive Science Centers. Other revenues
increased $397,000 as a result of the build-up of the FertilityDirect program.
Total costs of services as a percentage of revenue increased by 1.1% to
85.5% in 2001 as compared to 84.4% in 2000. Cost of services for the Company's
Reproductive Science Centers increased $9.4 million, or 23.9% during the year
2001. This increase is in line with revenue growth and program expansion at
several of the Company's network locations. Cost of services for the Company's
pharmaceutical division increased $5.2 million during 2001, or 55.0%. This
increase is in line with the concurrent growth in product sales and shipments.
Cost of services related to other revenues was $643,000, which included start-up
expenses related to the FertilityDirect program.
Contribution increased to $10.8 million in 2001 as compared to $9.1 million
in 2000, or 19.5%. Contribution at the Reproductive Science Centers increased
from $8.7 million in 2000 to $10.3 million in 2001, an increase of 19.3%. This
increase is principally due to increased patient volume. Contribution in
pharmaceutical sales increased to $667,000 in 2001 as compared to $331,000 in
2000. This increase is primarily due to increased margin and volume of shipments
to patients at the various Medical Practices. Other contribution was $(246,000)
as a result of start-up costs incurred for new product lines and marketing
initiatives.
General and administrative expenses for 2001 were approximately $7.8
million as compared to approximately $5.9 million in 2000, an increase of 33.1%.
This increase was primarily due to increases in staffing, compensation, legal
expenses, and expenses related to periodic infrastructure upgrades in management
information systems. As a percentage of revenues, general and administrative
expenses increased to 10.5% in 2001, up from 10.2% in 2000.
Amortization of intangible assets was $945,000 in 2001 as compared to
$865,000 in 2000. The majority of this increase is attributed to the purchase of
additional business service rights in two of the Company's Medical Practices.
Interest income for 2001 decreased to $179,000 from $211,000 for 2000, due
to lower interest rates earned on invested cash balances. Interest expense for
2001 decreased to $281,000 from $421,000 in 2000, primarily due to scheduled
debt payments on the Company's line of credit as well as lower effective
interest rates.
During the fourth quarter of 2001, the Company reduced its deferred tax
asset valuation allowance as the Company has sustained profitability over an
extended period and due to the likelihood of the realization of these tax
assets. Primarily as a result of this reduction in the valuation allowance, a
deferred federal tax benefit of approximately $4.8 million was recorded, which
offset the state tax provision of $.2 million.
Net income was approximately $6.5 million in 2001 compared to $1.9 million
for 2000. The increase was primarily due to (i) the income tax benefit of $4.8
million, (ii) improving volume and margins at both the Reproductive Science
Centers and the Pharmaceutical Distribution division, and (iii) a $108,000
reduction in net interest expense.
Calendar Year 2000 Compared to Calendar Year 1999
Revenues, net for 2000 were approximately $57.9 million as compared to
approximately $46.0 million for 1999, an increase of $11.9 million or 25.9%. The
increase in revenues was approximately 61% attributable to new pharmaceutical
sales started during the second quarter of 1999 and 39% attributable to same
market growth offset by losses of revenue due to terminated or modified Business
Services contracts. Same market growth was principally achieved via new service
offerings, the expansion of ancillary services, and increases in patient volume.
The aggregate increase in revenue was comprised of the following: (i) an
approximate $6.5 million increase in reimbursed costs of services; (ii) an
approximate $663,000 decrease in the Company's Business Services fees derived
from the managed Medical Practices' net revenue and/or earnings, (iii) an
approximate $1.1 million decrease from terminated business service agreements
and (iv) an increase of $7.2 million from pharmaceutical sales.
Total costs of services as a percentage of revenue increased by 4.8% to
84.4% in 2000 as compared to 79.6% in 1999. The primary contributor to this
increase was the $7.0 million increase in the costs of pharmaceutical materials
as the cost of these materials represents a higher proportion of the revenue
dollar than the Business Services costs.
-19-
Contribution decreased to $9.1 million in 2000 as compared to $9.4 million
in 1999 due to the factors attributed to increasing costs of services. The
contribution margin decreased to 15.6% of revenues in 2000 from 20.4% in 1999
primarily due to pharmaceutical sales accounting for a higher percent of
revenues and providing lower margins.
General and administrative expenses for 2000 were approximately $5.9
million as compared to approximately $6.1 million in 1999, a decrease of 3.3%.
This decrease was primarily due to decreases in staffing, legal expenses, and
expenses related to the implementation of information systems.
Amortization of intangible assets was $865,000 in 2000 as compared to $2.4
million in 1999. The majority of this decrease is attributed to a one-time
charge incurred in 1999 of $1.35 million associated with accelerated
amortization of the Right to Manage fees of the Kansas City and Dallas
Reproductive Science Centers.
Interest income for 2000 increased to $211,000 from $65,000 for 1999, due
to a higher invested cash balance. Interest expense for 2000 increased to
$421,000 from $412,000 in 1999, primarily due to capitalized leases and the
rising level of market interest rates.
The provision for income taxes is primarily related to state taxes as the
Company has utilized available net operating loss carryforwards to eliminate any
Federal tax provision. The provision for income taxes decreased 22.1% for the
year ending December 31, 2000 as compared to 1999, due to a change in effective
tax rates as a result of tax planning initiatives.
Income from continuing operations was approximately $1.9 million in 2000 as
compared to $300,000 for 1999. The increase was primarily due to (i) an
approximate $200,000 decrease in general and administrative expenses, offset by
a decrease of $300,000 in contribution, (ii) an approximate $1.6 million
decrease in amortization of intangible assets, and (iii) and a $100,000
reduction in net interest expense.
Liquidity and Capital Resources
Historically, the Company has financed its operations primarily through
sales of equity securities, issuance of notes and internally generated sources.
In addition, the Company has also commenced using bank financing for working
capital and business development purposes. As of December 31, 2001, the Company
had working capital of approximately $4.2 million, compared to $4.9 million in
2000. The net decrease in working capital was primarily due to scheduled debt
repayments of $1.1 million and the repurchase of approximately 880,000 shares of
common stock for an aggregate purchase price of $2.0 million offset by cash
provided by operations.
In September 2001, the Company amended it's existing credit facility with
Fleet Bank, N.A. The amended facility is comprised of a $7.0 million three-year
working capital revolver, and a continuance of the Company's existing $4.0
million 5.5 year term loan, of which approximately $2.8 million remained
outstanding with a remaining term of approximately 2.5 years as of the date of
the amendment. Availability of borrowings under the working capital revolver are
based on eligible accounts receivable as defined. As of December 31, 2001, under
the working capital revolver, there were no amounts outstanding and the full
amount of $7.0 million was available. The Fleet credit facility is
collateralized by all of the Company's assets.
The Company also has commitments to provide accounts receivable financing
to the Reproductive Science Centers in accordance with its Business Services
agreements. The Company's financing of the Medical Practice's Accounts
Receivable occurs monthly on the 15th of the month following generation of the
receivable. The priority of repayment by the Medical Practice is the
reimbursement of expenses incurred by the Company on their behalf, the fixed
portion of the Business Services fee and finally the variable portion of the
Business Services fee. The Company is responsible for the collection of
receivables, which are financed with full recourse. The Company has continuously
funded these needs from cash flow from operations and the collection of the
prior month's receivables. If delays in repayment are incurred, which have not
as yet been encountered, the Company could draw on its existing working capital
line of credit. The Company does not as a general course make advances to the
Medical Practices other than for the payment of expenses on behalf of the
Medical Practice for which the Company is reimbursed in the short-term. The
Company has no other funding commitments to the Medical Practices.
The Company does not currently have any significant commitments for the
acquisition of fixed assets.
-20-
New Accounting Standards
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141 ("SFAS 141"), "Business
Combinations." SFAS 141, which is effective January 1, 2002, requires the
purchase method of accounting for business combinations initiated after June 30,
2001 and eliminates the pooling-of-interests method. The Company does not
believe that the adoption of SFAS 141 will have a significant impact on its
financial statements.
In July 2001, the FASB issued Statement of Financial Accounting Standards
No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets", which is effective
January 1, 2002. SFAS 142 requires, among other things, the discontinuance of
goodwill amortization. In addition, the standard includes provisions for the
reassessment of the useful lives of existing recognized intangibles and
continuance of amortization for intangible assets deemed to have finite lives,
reclassification of certain existing intangibles and the identification of
reporting units for purposes of assessing potential future impairments. The
Company will adopt SFAS 142 effective January 1, 2002 and does not believe the
adoption will have a significant impact on its financial statements. Since the
Company's exclusive business service rights have contractually finite lives,
they will continue to be amortized over the term of the respective agreements,
usually ten to twenty-five years.
In August 2001, the FASB issued Statement of Financial Accounting Standards
No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of Long-Lived
Assets." SFAS 144 supercedes FASB Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long Lived Assets to Be Disposed Of."
SFAS 144 applies to all long-lived assets (including discontinued operations)
and consequently amends Accounting Principles Board Opinion No. 30, "Reporting
Results of Operations -Reporting the Effects of Disposal of a Segment of a
Business." SFAS 144 is effective for the Company's 2002 financial statements.
The Company does not believe that the adoption of SFAS 144 will have a
significant impact on its financial statements.
Forward Looking Statements
This Form 10-K 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 Services agreements, including the Company's ability to
raise additional debt and/or equity capital to finance future growth, the loss
of significant Business Services agreement(s), the profitability or lack thereof
at Reproductive Science Centers serviced by the Company, increases in overhead
due to expansion, the exclusion of fertility and ART services from insurance
coverage, government laws and regulation regarding health care, changes in
managed care contracting, the timely development of and acceptance of new
fertility, and ART and/or genetic technologies and techniques.
-21-
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
ITEM 8. Financial Statements and Supplementary Data
See Index to Financial Statements on page F-1.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
ITEM 10. Directors and Executive Officers of the Registrant
Information with respect to the executive officers and directors of the
Company is incorporated by reference from the Company's Proxy Statement relating
to the Annual Meeting of Shareholders to be held on May 21, 2002.
ITEM 11. Executive Compensation
This information is incorporated by reference from the Company's Proxy
Statement relating to the Annual Meeting of Shareholders to be held on May 21,
2002.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management, and
Related Stockholder Matters
This information is incorporated by reference to the Company's Proxy
Statement relating to the Annual Meeting of Shareholders to be held on May 21,
2002.
ITEM 13. Certain Relationships and Related Transactions
This information is incorporated by reference to the Company's Proxy
Statement relating to the Annual Meeting of Shareholders to be held on May 21,
2002.
PART IV
ITEM 14. Exhibits, Financial Statements, Schedule, and Reports on Form 8-K
(a) (1) Financial Statements.
(3) The exhibits that are listed on the Index to Exhibits
herein which are filed herewith as a management agreement
or compensatory plan or arrangement are: 10.88 (d), 10.98
(c), and 10.114 (a).
(b) Reports on Form 8-K.
For the quarter ended December 31, 2001, Registrant filed
a Form 8-K dated November 1, 2001 and December 3, 2001
reporting Item 9, Regulation FD Disclosure.
(c) Exhibits. The list of exhibits required to be filed with this
Annual Report on Form 10-K is set forth in the Index to Exhibits
herein.
-22-
FINANCIAL STATEMENTS
Item 8 and 14 (a)(1)
Contents
Page
INTEGRAMED AMERICA, INC.
Report of Independent Accountants....................................... F-2
Consolidated Balance Sheets as of December 31, 2001 and 2000............ F-3
Consolidated Statements of Operations for the years ended
December 31, 2001, 2000 and 1999..................................... F-4
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 2001, 2000 and 1999......................... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 2001, 2000 and 1999..................................... F-6
Notes to Consolidated Financial Statements.............................. F-7
F-1
Report of Independent Accountants
To the Board of Directors and Shareholders of
IntegraMed America, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of IntegraMed
America, Inc. and its subsidiaries at December 31, 2001 and 2000, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2001 in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 21, 2002
F-2
INTEGRAMED AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
(all amounts in thousands, except share amounts)
December 31,
------------------
2001 2000
------- --------
ASSETS
Current assets:
Cash and cash equivalents .................................................................. $ 8,505 $ 5,306
Due from Medical Practices, net (see Note 2) ............................................... 4,949 7,346
Pharmaceutical sales accounts receivable ................................................... 1,511 1,195
Business Service fees receivable ........................................................... -- 237
Prepaids and other current assets .......................................................... 1,961 1,283
------- -------
Total current assets ................................................................... 16,926 15,367
Fixed assets, net (see Note 6) ................................................................ 5,263 5,337
Intangible assets, net (see Note 7) ........................................................... 17,378 17,774
Deferred taxes (see Note 10) .................................................................. 4,791 --
Other assets .................................................................................. 263 367
------- -------
Total assets ........................................................................... $44,621 $38,845
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................................................... $ 1,436 $ 1,700
Accrued liabilities (see Note 8) ........................................................... 5,228 5,059
Current portion of long-term notes payable and other obligations (see Note 9) .............. 1,403 1,135
Patient deposits ........................................................................... 4,651 2,530
------- -------
Total current liabilities .............................................................. 12,718 10,424
------- -------
Long-term notes payable and other obligations (see Note 9) .................................... 1,288 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 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; 3,057,877 and 5,413,571 shares issued in 2001 and 2000, respectively ... 31 54
Capital in excess of par ................................................................... 47,218 54,149
Accumulated deficit ........................................................................ (16,800)
Treasury Stock, at cost-- 0 (retired 2,480,085 shares with cost of $7,098) and
1,600,013 shares in 2001 and 2000, respectively .......................................... -- (5,069)
------- -------
Total shareholders' equity ............................................................. 30,615 25,987
------- -------
Total liabilities and shareholders' equity ............................................. $44,621 $38,845
======= =======
See accompanying notes to the consolidated financial statements.
F-3
INTEGRAMED AMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(all amounts in thousands, except per share amounts)
For the years ended December 31,
--------------------------------------
2001 2000 1999
-------- --------- ---------
Revenues, net (see Note 2)
Reproductive Science Center service fees (including termination
payment of $1,440 in 2001) ............................................... $ 59,276 $ 48,175 $ 43,502
Pharmaceutical sales ........................................................ 15,170 9,689 2,453
Other revenues .............................................................. 397 -- --
-------- -------- --------
Total revenues ........................................................... 74,843 57,864 45,955
-------- -------- --------
Costs of services and sales:
Reproductive Science Center costs ........................................... 48,867 39,447 34,207
Pharmaceutical costs ........................................................ 14,503 9,358 2,349
Other costs ................................................................. 643 -- --
-------- -------- --------
Total costs of services and sales ........................................ 64,013 48,805 36,556
-------- -------- --------
Contribution
Reproductive Science Center contribution .................................... 10,409 8,728 9,295
Pharmaceutical contribution ................................................. 667 331 104
Other contribution .......................................................... (246) -- --
-------- -------- --------
Total contribution ....................................................... 10,830 9,059 9,399
-------- -------- --------
General and administrative expenses ............................................ 7,827 5,880 6,084
Amortization of intangible assets .............................................. 945 865 2,410
Interest income ................................................................ (179) (211) (65)
Interest expense ............................................................... 281 421 412
-------- -------- --------
Total other expenses ........................................................ 8,874 6,955 8,841
-------- -------- --------
Income before income taxes ..................................................... 1,956 2,104 558
Income tax (benefit) provision (see Note 10) ................................... (4,557) 187 240
-------- -------- --------
Net income ..................................................................... 6,513 1,917 318
Less: Dividends paid and/or accrued on Preferred Stock ......................... 133 133 133
-------- -------- --------
Net income applicable to Common Stock .......................................... $ 6,380 $ 1,784 $ 185
======== ======== ========
Basic and diluted net earnings per share of Common Stock (see Note 11):
Basic earnings per share .................................................. $ 2.07 $ 0.43 $ 0.04
Diluted earnings per share ................................................ $ 2.01 $ 0.43 $ 0.04
Weighted average shares - basic ................................................ 3,081 4,110 4,874
======== ======== ========
Weighted average shares - diluted .............................................. 3,175 4,172 4,951
======== ======== ========
See accompanying notes to the consolidated financial statements.
F-4
INTEGRAMED AMERICA, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(all amounts in thousands, except share amounts)
Cumulative Convertible
Preferred Stock Common Stock Capital in Accumulated Treasury Stock
Amount Amount Excess of Par Deficit Shares Amount
------ ------ ------------- ------- ------ ------
BALANCE AT DECEMBER 31, 1998 .................. $166 $53 $53,712 $(25,548) 340,500 $(1,000)
Issuance of Common Stock, net of
issuance costs ............................ -- 1 176 -- -- --
Issuance of warrants to purchase
Common Stock .............................. -- -- 385 -- -- --
Dividends paid to preferred
shareholders .............................. -- -- (133) -- -- --
Purchase of Treasury Stock .................... -- -- -- -- 406,363 (1,491)
Net income .................................... -- -- -- 318 -- --
--- --- ------- -------- ------- ------
BALANCE AT DECEMBER 31, 1999 .................. 166 54 54,140 (25,230) 746,863 (2,491)
Issuance of Restricted Stock Grants ........... -- -- 142 -- -- --
Dividends paid to preferred
shareholders .................................. -- -- (133) -- -- --
Purchase of Treasury Stock .................... -- -- -- -- 853,150 (2,578)
Net income .................................... -- -- -- 1,917 -- --
BALANCE AT DECEMBER 31, 2000 .................. $166 $54 $ $54,149 $(23,313) 1,600,013 $(5,069)
Issuance of Restricted Stock Grants ........... -- -- 164 -- -- --
Options Exercised ............................. -- 1 109 -- -- --
Warrants Exercised ............................ -- 1 2 -- -- --
Dividends paid to preferred
shareholders .............................. -- -- (133) -- -- --
Purchase of Treasury Stock ................... -- -- -- -- 880,072 (2,029)
Retirement of Treasury Stock ................. -- (25) (7,073) -- (2,480,085) 7,098
Net income .................................... -- -- -- 6,513 -- --
BALANCE AT DECEMBER 31, 2001 .................. $166 $31 $47,218 $(16,800) -- $ --
==== === ======= ======== ========== =======
See accompanying notes to the consolidated financial statements.
F-5
INTEGRAMED AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(all amounts in thousands)
For the years ended December 31,
--------------------------------
2001 2000 1999
------- ------- -------
Cash flows from operating activities:
Net income ........................................................ $ 6,513 $ 1,917 $ 318
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization ................................... 3,023 2,562 4,183
Deferred income tax benefit ..................................... (4,791) -- --
Changes in assets and liabilities Decrease (increase) in assets:
Due from Medical Practices ...................................... 2,397 151 180
Pharmaceutical sales accounts receivable ........................ (316) -- --
Business Service fees receivable ................................ 237 653 454
Prepaids and other current assets ............................... (608) (121) 299
Other assets .................................................... 239 158 (81)
Increase (decrease) in liabilities:
Accounts payable ................................................ (264) 620 396
Accrued liabilities ............................................. (208) 2,384 (450)
Patient deposits ................................................ 2,121 (440) 127
------- ------- -------
Net cash provided by operating activities ............................. 8,343 7,884 5,426
------- ------- -------
Cash flows from investing activities:
Payment for exclusive Business Services rights .................... (295) (476) (448)
Purchase of fixed assets and leasehold improvements ............... (1,665) (1,352) (2,251)
Proceeds from sale of fixed assets and leasehold
improvements .................................................... -- 10 64
------- ------- -------
Net cash used in investing activities ................................. (2,217) (1,818) (2,635)
------- ------- -------
Cash flows from financing activities:
Proceeds from issuance of Common Stock and Stock Grants ........... 277 142 --
Proceeds from issuance of notes ................................... -- -- 150
Principal repayments on debt ...................................... (1,000) (1,712) (1,815)
Principal repayments under capital lease obligations .............. (135) (129) (93)
Repurchase of Common Stock ........................................ (2,029) (2,578) (1,491)
Dividends paid on Convertible Preferred Stock ..................... (133) (133) (133)
------- ------- -------
Net cash used in financing activities ................................. (2,927) (4,410) (3,382)
------- ------- -------
Net increase (decrease) in cash ....................................... 3,199 1,656 (591)
Cash at beginning of period ........................................... 5,306 3,650 4,241
------- ------- -------
Cash at end of period ................................................. $ 8,505 $ 5,306 $ 3,650
======= ======= =======
See accompanying notes to the consolidated financial statements.
F-6
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- THE COMPANY:
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 thirteen fertility centers in
major markets across the United States, a pharmaceutical subsidiary, a financing
subsidiary, the Council of Physicians and Scientists, and a leading fertility
portal (www.integramed.com). Eight fertility centers have access to the<