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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
Commission file number 0-28092
Medical Information Technology, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Massachusetts
(State or Other Jurisdiction of Incorporation or Organization)
04-2455639
(I.R.S. Employer Identification No.)
Meditech Circle, Westwood, MA
(Address of Principal Executive Offices)
02090
(Zip Code)
781-821-3000
(Registrant's Telephone Number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares of Common Stock, $.50 par value, outstanding at December
31, 2000 was 16,627,566
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Index to Form 10-K
Part I
Item 1 - Business Page 3
Item 2 - Properties Page 5
Item 3 - Legal Proceedings Page 6
Item 4 - Submission of Matters to a Vote of Security Holders Page 6
Part II
Item 5 - Market for Registrant's Common Equity and Related
Stockholder Matters Page 6
Item 6 - Selected Financial Data Page 6
Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations Page 7
Item 8 - Financial Statements and Supplementary Data Page 8
Item 9 - Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure Page 8
Part III
Item 10 - Directors and Executive Officers of the Registrant Page 8
Item 11 - Executive Compensation Page 10
Item 12 - Security Ownership of Certain Beneficial Owners
and Management Page 11
Item 13 - Certain Relationships and Related Transactions Page 11
Part IV
Item 14 - Exhibits, Financial Statement Schedules, and Reports
on Form 8-K Page 12
Signatures Page 12
Page 3
Part I
Item 1 - Business
COMPANY OVERVIEW
Medical Information Technology, Inc. (MEDITECH) was founded in 1969 to develop
and market information system software for the hospital industry. During 2000
combined product and service revenue was $211 million. By the year's end
MEDITECH had more than 1,700 employees, over 1,600 active hospital customers
throughout the U.S., Canada and the U.K., as well as a backlog of hospitals
waiting implementation.
HOSPITAL SOFTWARE
Initially MEDITECH developed a software product to automate one of the main
hospital departments, the clinical laboratory that performs various diagnostic
tests on blood and urine specimens. Within a few years, this product became
standardized, thereby requiring minimal adaptation to meet the individual needs
of a typical customer. MEDITECH extended the concept and developed additional
software products for the rest of a hospital's clinical departments.
Eventually, it moved into the financial area by developing a hospital billing
and accounts receivable product as well as various general accounting products.
Although the individual products could be operated in a stand alone fashion, a
hospital achieved maximum effectiveness when they were used in an integrated
mode, sharing access to the common clinical and financial records of the
hospital. This concept ultimately led to MEDITECH developing the so-called
hospital information system, a cohesive set of software products designed from
the onset to work in conjunction with the overall operation of the hospital and
to minimize the need for specialized interfaces.
COMPUTER HARDWARE
Software requires extensive computer and communication equipment to function.
In spite of this, MEDITECH continues to be a pure software company, limiting
itself to specifying the aggregate components needed as well as suggesting
typical configurations from certain hardware vendors. The responsibility is
left to the hospital to purchase the requisite hardware and secure a continuing
source of maintenance service for it.
The hardware components traditionally consist of a small set of central medium-
sized computers and a large set of display terminals and printers distributed
throughout the hospital. All of these elements are interconnected by means of
a standard high speed communication network. The computers execute the
software and include large disk subsystems containing the permanent and common
clinical and financial records of the hospital.
Hardware technology evolves rapidly, and the current trend is to replace the
display terminals with desktop and handheld computers, thereby forming a client
server network. In this mode of operation, the central computers become the
file servers while software is executed locally on the client computer which
makes file requests to the servers.
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LICENSED SOFTWARE
MEDITECH requires a customer to sign a standard software license agreement
prior to product delivery, implementation and subsequent service of the
software. This agreement specifies a front end product fee and a front end
implementation fee both of which are payable over the implementation process,
and a monthly service fee after the site goes live. In addition to precluding
ownership and restricting transfer, the license mandates the hospital hold
MEDITECH harmless from any liability arising from incorrect operation of the
software.
MEDITECH bases its product fee on the total number of hospital beds that a
customer operates at all of its sites, and sets its implementation fee on the
total number of sites. Large hospitals pay more than small hospitals, but
incremental fees continue to diminish. The monthly service fees are always
1% of the product fees. A typical 250 bed acute care hospital might incur a
$500,000 product fee, $100,000 implementation fee and a $5,000 monthly service
fee. An order is booked and goes into the backlog when a signed software
license and 10% of both front end fees are received.
STAFF ORGANIZATION
MEDITECH is organized into functional units grouped around product development,
sales and marketing, implementation, customer service, accounting and facility
operations. All MEDITECH staff work in five company owned facilities in the
greater Boston area.
From its inception, MEDITECH utilized communication technology which allowed
much of its business activities to be performed by remote access. MEDITECH
staff sitting at their desks may access client hospitals, both personnel and
computers. The need for remote offices is thereby negated. Although most
customer contact is through the phone or e-mail, certain of the sales and
implementation staff travel to customer sites.
PRODUCT DEVELOPMENT
Most of the product development staff is working on the incremental evolution
of the current product line, as well as creating a few more new products each
year. The rest of the staff is developing a set of replacement products
utilizing a new technology. Approximately every seven years, Meditech
introduces the next generation of products based on the new technology and
gradually updates existing customers.
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SALES AND MARKETING
Most of the direct sales staff, organized into regions, concentrate on new
prospects. In addition, some of the sales staff monitor existing customers to
expose them to Meditech's entire product line. Marketing activities and
promotion are low key because hospitals are easily identified, finite in number
and generally send a request for proposal to vendors when they contemplate
the purchase of a hospital information system.
During the sales process, prospects generally visit MEDITECH to talk to product
specialists and to view product demonstrations. Thereafter they are encouraged
to visit various MEDITECH customer sites to observe first hand the software in
actual operation and to discuss issues of concern with hospital personnel.
IMPLEMENTATION PROCESS
To ensure a successful implementation, the staff must properly train a core
group of hospital personnel about the operation of the software and how to use
it in their daily activity. To preclude interruptions from normal hospital
activities, MEDITECH mandates that the hospital personnel come to Boston for
intensive training sessions.
As training proceeds, the implementation staff will customize certain
dictionaries to fit the specific need of the hospital's environment, provide
interfaces to non-MEDITECH systems and to assist the hospital in converting
data from legacy systems. In addition, the licensed software will be
delivered, installed and tested on the customer's hardware. MEDITECH will
utilize remote access communication technology to minimize or eliminate the
need to travel.
CUSTOMER SERVICE
Once a hospital goes live, the responsibility of maintaining the customer is
transferred to the service staff. MEDITECH provides 24 hour a day service
coverage to these customers in order to respond to problem calls. In addition,
the staff updates customers with new releases of the software products as they
become available. To ensure the continuing education of the hospital staff,
MEDITECH runs seminars on the use of its products.
HCA-THE HEALTHCARE COMPANY
HCA-The Healthcare Company owns or operates over 300 hospitals in the U.S.,
Canada, and the U.K. and has been MEDITECH's largest customer for some time
now. All of their hospitals operate with MEDITECH's clinical systems. They
represented 9% of MEDITECH revenues in 1999 and 12% of MEDITECH revenues
in 2000.
ITEM 2 - Properties
As of December 31, 2000 the Company owned five facilities containing about
1.1 million square feet of space, all being well maintained Class A properties
in the greater Boston area. The Company occupies 60% of the space and the
remaining 40% is leased to various tenants. The Company has adequate space
for its reasonable needs over the next few years.
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ITEM 3 - Legal Proceedings
There are no material pending legal proceedings against the Company, nor were
any initiated during the year 2000.
ITEM 4 - Submission of Matters to a Vote of Security Holders
None.
PART II
ITEM 5 - Market for Registrant's Common Equity and Related
Stockholder Matters
No trading market exists for the Company's Common Stock, and accordingly no
high and low bid information or quotations are available with respect to the
Company's Common Stock.
The Company's Common Stock is subject to right of first refusal restrictions
upon sale, assignment, transfer, pledge or other disposition of any of its
shares.
At December 31, 2000 there were 909 holders of record of its Common Stock and
16,627,566 shares outstanding.
The Company has paid quarterly cash dividends continuously since 1980.
Dividends paid per share in the last five years is set forth under Item 6.
ITEM 6 - Selected Financial Data
For the Five Years Ended December 31, 2000 (in thousands where applicable)
1996 1997 1998 1999 2000
Full Year Operations:
Total revenue $167,884 $193,805 $203,813 $225,630 $210,638
Operating income 69,550 78,286 79,583 91,553 79,193
Net profit 44,350 50,284 53,281 59,956 55,146
Average shares 15,863 16,029 16,203 16,392 16,566
Earnings per share $2.80 $3.14 $3.29 $3.66 $3.33
Year End Financial Position:
Total assets 218,339 263,108 266,600 288,278 $306,093
Total liabilities 55,871 73,577 49,328 41,583 32,315
Shareholders' equity 162,468 189,531 217,272 246,695 273,778
Shares outstanding 15,938 16,087 16,266 16,457 16,628
Book value per share $10.19 $11.78 $13.36 $14.99 $16.47
Other Data:
Working capital $60,373 $44,911 $59,032 $92,130 $121,950
Cash flow from operations 56,413 62,195 59,788 74,158 59,333
Depreciation 6,155 9,084 10,078 7,900 7,987
Cash dividends per share $1.40 $1.68 $1.88 $2.00 $2.32
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ITEM 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
Comparison of Fiscal Years ended December 31, 1999 and 2000:
Total revenue decreased 7% from $225.6 million in 1999 to $210.6 million in
2000 due to a $24.6 million reduction in products provided to customers,
partially offset by a $9.6 million increase in services provided to customers.
The decrease in product revenues is deemed to be an indirect result of the Y2K.
Customers made purchases earlier than their usual 7-10 year cycle to insure
that their software systems would be Y2K compliant. Consequently, all such
software deliveries were required to be delivered and fully tested prior to
December 31, 1999. New orders for products to be delivered had not returned to
normal, pre-Y2K, levels during 2000.
Operating expenses decreased 2% from $134.1 million in 1999 to $131.4 million
in 2000 due primarily to a reduction in staff size and a decrease in associated
costs. The 2% decrease in operating expenses was disproportionate to the 7%
decrease in revenues. As a result, 2000's operating income decreased 13% from
$91.6 million in 1999 to $79.2 million in 2000.
Other income, net of other expense, increased from $8.6 million in 1999 to
$11.5 million in 2000 due primarily to increased dividend and interest income
earnings.
The Company's effective tax rate decreased from 40% in 1999 to 39% in 2000.
Comparison of Fiscal Years ended December 31, 1998 and 1999:
Total revenue increased 11% from $203.8 million in 1998 to $225.6 million in
1999 as a result of increased products and services provided to both existing
and new customers. Operating expenses increased 8% from $124.2 million in 1998
to $134.1 million in 1999 due primarily to higher staffing costs associated
with producing increased revenues. Operating expenses did not grow at the same
pace as revenues due to a disproportionate decrease in depreciation expense in
1999. Additional depreciation expenses of $3.4 million were absorbed In 1997
and 1998 as a result of one-time adjustments made to unify the varying
depreciation methods in use for book versus tax calculation purposes. As a
result, 1999's depreciation expense dropped by $2.0 million and 1999 operating
income increased 15% from $79.6 million in 1998 to $91.5 million in 1999.
Other income, net of other expense, increased from $8.5 million in 1998 to $8.6
million in 1999. Two significant component changes offset each other during
the year. Interest expense decreased $1.6 million year to year as outstanding
bank debt was paid-down but 1998's results included a gain of $1.4 million
from the redemption and sale of marketable securities while there were no such
gains in 1999.
The Company's effective tax rate remained unchanged at 40% in 1999.
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ITEM 8 - Financial Statements and Supplementary Data
The Financial Statements are included as part of Exhibit 13 (Annual Report to
Shareholders)
OPERATING RESULTS BY QUARTER:
For the Two Years Ended December 31, 1999 (in thousands where applicable)
1st Q 2nd Q 3rd Q 4th Q
1999
Total revenue $54,456 $57,366 $56,472 $57,334
Operating income 21,709 23,496 23,020 23,328
Net profit 13,915 15,354 15,272 15,415
Earnings per share $.85 $.94 $.93 $.94
2000
Total revenue $54,653 $53,844 $49,050 $53,091
Operating income 21,201 20,724 17,224 20,044
Net profit 14,266 14,095 12,128 14,657
Earnings per share $.86 $.85 $.73 $.88
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
The positions held by each Director and Officer of the Company are shown below.
There are no family relationships among the following persons.
Name of Director or Officer Age Position with the Company
A. Neil Pappalardo 58 Chief Executive Officer, Chairman and
Director
Lawrence A. Polimeno 59 Chief Operating Officer, President and
Director
Roland L. Driscoll 71 Director
Jerome H. Grossman 61 Director
Edward B. Roberts 65 Director
Morton E. Ruderman 64 Director
L.P. Dan Valente 70 Director
Howard Messing 48 Executive Vice President
Barbara A. Manzolillo 48 Chief Financial Officer, Treasurer and
Assistant Clerk
Roberta E. Grigg 57 Senior Vice President
Edward G. Pisinski 57 Senior Vice President
Christopher J. Anschuetz 48 Vice President
Robert S. Gale 54 Vice President
Steven B. Koretz 48 Vice President
Stuart N. Lefthes 47 Vice President
Joanne Wood 47 Vice President
Jane E. Currier 48 Chief Corporate Counsel and Clerk
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All Directors are elected each year at the annual meeting of shareholders. All
Officers are elected at the first meeting of the Board following the annual
meeting of shareholders and hold office for one year. The Board of Directors
has an Audit Committee, an Executive Compensation Committee, and a Charitable
Contribution Committee.
The following is a description of the business experience during the past five
years of each Director and Officer.
A. Neil Pappalardo, founder of the Company, is the Chief Executive Officer and
Chairman, and has been a Director since 1969.
Lawrence A. Polimeno, the President and Chief Operating Officer, has been a
Director since 1985, and has been with the Company since 1969.
Roland L. Driscoll, retired Chief Financial Officer of the Company, has been
a Director since 1985.
Jerome H. Grossman, Chief Executive Officer of Lion Gate Management Corp., has
been a Director since 1970.
Edward B. Roberts, Professor at the Sloan School, Massachusetts Institute of
Technology, has been a Director since 1969.
Morton E. Ruderman, Chief Executive Officer of CRES Development, has been a
Director since 1969.
L.P. Dan Valente, Chief Executive Officer of Palomar Medical Technologies,
Inc., has been a Director since 1972.
Howard Messing has been the Executive Vice President since 1995, was a Vice
President prior to that, and has been with the Company since 1974.
Barbara A. Manzolillo has been the Chief Financial Officer since 1996, was
the Treasurer prior to that, and has been with the Company since 1975.
Roberta E. Grigg has been a Senior Vice President since 1997, was a Vice
President prior to that, and has been with the Company since 1975.
Edward G. Pisinski has been a Senior Vice President since 1997, was a Vice
President prior to that, and has been with the Company since 1973.
Christopher J. Anschuetz has been a Vice President since 1995, was a Senior
Manager prior to that, and has been with the Company since 1975.
Robert S. Gale has been a Vice President since 1995, was a Senior Manager
prior to that, and has been with the Company since 1976.
Steven B. Koretz has been a Vice President since 1997, was a Senior Manager
prior to that, and has been with the company since 1982.
Stuart N. Lefthes has been a Vice President since 1997, was a Senior Manager
prior to that, and has been with the company since 1983.
Joanne Wood has been a Vice President since 1995, was a Senior Manager prior
to that, and has been with the Company since 1983.
Jane E. Currier has been the Chief Corporate Counsel and the Clerk since
1986, and has been with the Company since 1983.
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There were no failures to file or late filings under Section 16(a)
ITEM 11 - Executive Compensation
The following table sets forth the compensation received by the Company's Chief
Executive Officer and the four most highly compensated other Officers for the
three fiscal years ended December 31, 1998, 1999 and 2000.
SUMMARY COMPENSATION TABLE
Name and Position Year Salary Bonus Other
A. Neil Pappalardo 2000 $360,000 $722,475 0
Chairman and Chief 1999 360,000 800,455 0
Executive Officer 1998 360,000 725,345 0
Lawrence A. Polimeno 2000 $240,000 $622,475 $5,017
President and Chief 1999 240,000 675,455 5,811
Operating Officer 1998 240,000 625,345 5,816
Howard Messing 2000 $216,000 $372,475 $5,017
Executive Vice President 1999 216,000 425,455 5,811
1998 180,000 375,345 5,816
Edward G. Pisinski 2000 $192,000 $272,475 $5,017
Senior Vice President 1999 192,000 325,455 5,811
Sales and Marketing 1998 156,000 300,345 5,816
Barbara A. Manzolillo 2000 $180,000 $222,475 $5,017
Chief Financial Officer 1999 180,000 275,455 5,811
and Treasurer 1998 144,000 225,345 5,816
Compensation of Executive Officers: There are no employment contracts or
agreements in effect for any officer of the Company. The Board of Directors
annually sets the total amount to be allocated in the General Bonus Program
instituted for the recognition of services rendered by all officers and
employees. In addition, the Board of Directors annually sets the total amount
to be allocated in the Officer Bonus Program instituted for the recognition
of services rendered exclusively by the officers. Finally, the Executive
Compensation Committee, composed of Mr. Roberts and Mr. Ruderman, sets Mr.
Pappalardo's annual salary and the criteria for his individual bonus.
Pension Plan: The Company maintains a qualified defined contribution plan for
all employees known as the Medical Information Technology, Inc. Profit Sharing
Plan. All employees of the Company who have completed one year of service
participate in the Plan. The Board of Directors sets the annual contribution
which is allocated in proportion to total compensation (capped at $100,000) of
all eligible members for the Plan year. No allocation is allowable under this
Plan to owners of 10% or more of the Company's common stock. Contributions by
members are not permitted. Benefits under the plan become fully vested after
five years of continuous service with the Company. Members who have at least
20 years of service or who have incurred financial hardship may make in service
withdrawals. Lump sum cash payment is made upon retirement, death, disability
or termination of employment.
Compensation of Directors: The members of the Board of Directors who are not
Officers of the Company currently receive a fee of $7,000 for each fully
attended quarterly meeting, with such fee being deemed to also cover any
incidental expenses or directorial conference or committee time expended by
such directors in behalf of the Company during the year.
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ITEM 12 - Security Ownership of Certain Beneficial Owners
and Management
The following table provides information as of December 31, 2000 with respect
to the shares of Common Stock beneficially owned by each person known by the
Company to own more than 5% of the Company's outstanding Common Stock, each
Director of the Company, each Executive Officer named in the Summary
Compensation Table and by all Directors and Officers of the Company as a
group. The number of shares beneficially owned is determined according to
rules of the Securities and Exchange Commission. Under such rules, a person's
beneficial ownership includes any shares as to which such person has sole or
shared voting power or investment power.
Number of Shares Percentage
of Common Stock of Shares of
Name Beneficially Owned Common Stock
A. Neil Pappalardo 4,370,000 26.28%
Morton E. Ruderman 2,207,919 13.28%
Curtis W. Marble 1,865,052 11.22%
Meditech Profit Sharing Trust 1,670,323 10.05%
Jerome H. Grossman 600,675 3.61%
Lawrence A. Polimeno 556,063 3.34%
Edward B. Roberts 354,438 2.13%
Roland L. Driscoll 264,000 1.59%
Edward G. Pisinski 147,500 0.89%
Howard Messing 135,000 0.81%
Barbara A. Manzolillo 92,000 0.55%
L. P. Dan Valente 42,500 0.26%
17 Directors and Officers as a Group 9,031,295 54.32%
The address of all Officers and Directors is in care of the Company, MEDITECH
Circle, Westwood, MA 02090.
ITEM 13 - Certain Relationships and Related Transactions
None.
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PART IV
ITEM 14 - Exhibits, Financial Statement Schedules, and Reports
on Form 8-K
Exhibit 3i (Articles of Incorporation) and Exhibit 3ii (By-Laws) are
incorporated by reference from the registration statement on Form 10 effective
April 27, 1996 and from exhibit under Item 6 on Form 10-Q for the quarter ended
June 10, 1997 (Amendment to By-Laws), File # 0-28092.
Exhibit 13 (Annual Report to Shareholders) and Exhibit 27 (Financial Data
Schedule) are appended to this document.
There were no reports filed on Form 8-K during the quarter ended December 31,
2000.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Medical Information Technology, Inc.
(Registrant)
March 31, 2001
(Date)
Barbara A. Manzolillo, Chief Financial Officer and Treasurer
(Signature)