SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003
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 [ ]
Indicate by check mark whether the registrant is an accelerated filer as defined
in Rule 12b-2 of the Exchange Act. Yes [X] No [ ]
There were 34,141,323 shares of Common Stock, $1.00 par value, outstanding at
April 30, 2003.
Page 2
Index to Form 10-Q
Part I - Financial Information
Item 1 - Financial Statements (Unaudited)
Balance Sheet as of December 31, 2002 and March 31, 2003 Page 3
Statement of Income for the Three Months
ended March 31, 2002 and 2003 Page 4
Statement of Shareholder Equity for the Three Months
ended March 31, 2002 and 2003 Page 5
Statement of Cash Flow for the Three Months
ended March 31, 2002 and 2003 Page 5
Notes To Financial Statements (Unaudited) Page 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations Page 7
Item 4 - Controls and Procedures Page 7
Part II - Other Information
Item 1 - Legal Proceedings Page 8
Item 4 - Submission of Matters to a Vote of Shareholders Page 8
Item 6 - Exhibits and Reports on Form 8-K Page 9
Signatures Page 9
CFO Certifications Page 10
CEO Certifications Page 11
Page 3
Part I - Financial Information
Item 1 - Financial Statements (Unaudited)
Balance Sheet (000 omitted)
Dec 31, 2002 Mar 31, 2003
Cash and equivalents 16,907 23,135
Marketable securities 154,339 161,725
Accounts receivable less reserve 28,380 29,853
------- -------
Current assets 199,626 214,713
Computer equipment 9,929 10,363
Furniture and fixtures 32,820 32,987
Buildings 139,670 139,670
Land 26,604 26,604
Accumulated depreciation (63,030) (65,212)
------- -------
Fixed assets 145,993 144,412
Investments 9,190 9,130
------- -------
Total assets 354,809 368,255
Accounts payable 90 2,444
Accrued taxes 2,148 8,279
Accrued expenses 21,826 9,662
Customer deposits 9,949 9,428
------- -------
Current liabilities 34,013 29,813
Deferred taxes 2,800 6,125
------- -------
Total liabilities 36,813 35,938
Common stock, $1.00 par value,
Authorized 35,000,000 shares
Issued and outstanding 33,877,439
in 2002 and 34,141,323 in 2003 33,877 34,141
Additional paid-in capital 9,157 14,699
Unrealized gain on securities 652 5,383
Retained income 274,310 278,094
------- -------
Shareholder equity 317,996 332,317
------- -------
Total liabilities and
shareholder equity 354,809 368,255
Page 4
Statement Of Income (000 omitted)
3 Months Ended Mar 31
2002 2003
Product revenue 34,812 38,440
Service revenue 26,318 28,841
------- -------
Total revenue 61,130 67,281
Operating, development expenses 25,896 28,541
Selling, G & A expenses 12,401 13,621
------- -------
Operating expense 38,297 42,162
------- -------
Operating income 22,833 25,119
Other income 4,974 4,461
Other expense 1,656 1,792
------- -------
Pretax income 26,151 27,788
State income tax 2,436 2,450
Federal income tax 7,990 8,341
------- -------
Income tax 10,426 10,791
------- -------
Net income 15,725 16,997
Page 5
Statement Of Shareholder Equity (000 omitted)
3 Months Ended Mar 31
2002 2003
Shareholder equity at beginning 295,527 317,996
Sales of common stock 4,216 5,805
Unrealized gain (loss) on securities (700) 4,731
Net income 15,725 16,997
Dividends paid (11,416) (13,212)
------- -------
Shareholder equity at end 303,352 332,317
Statement Of Cash Flow (000 omitted)
3 Months Ended Mar 31
2002 2003
Net income 15,725 16,997
Change in accounts receivable (1,970) (1,473)
Change in accumulated depreciation 2,239 2,182
Change in accounts payable 2,273 2,354
Change in accrued taxes 5,930 6,131
Change in accrued expenses (9,168) (12,164)
Change in customer deposits 637 (521)
Net effect of non-cash adjustments 300 670
------- -------
Net cash from operations 15,966 14,176
Purchase of marketable securities (11,395) --
Purchase of equipment, furniture
and fixtures (630) (601)
Proceeds from mortgage note receivable -- 60
------- -------
Net cash used in investing (12,025) (541)
Sales of common stock 4,216 5,805
Dividends paid (11,416) (13,212)
------- -------
Net cash used in financing (7,200) (7,407)
------- -------
Net change in cash and equivalents (3,259) 6,228
Cash and equivalents at beginning 18,161 16,907
------- -------
Cash and equivalents at end 14,902 23,135
Page 6
Notes To Financial Statements (Unaudited)
1. The unaudited financial statements presented herein have been prepared in
accordance with the instructions to Form 10-Q and do not include all of the
information and note disclosures required by generally accepted accounting
principles. These statements should be read in conjunction with the financial
statements and notes thereto for the year ended December 31, 2002 included in
the Company's Form 10-K filed March 3, 2003. The accompanying financial
statements have not been audited by independent accountants in accordance with
generally accepted auditing standards, but in the opinion of management such
financial statements include all adjustments necessary to summarize fairly the
Company's financial position and results of operations.
2. The Company follows the provisions of Statement of Financial Accounting
Standards No. 128 (SFAS 128), Earnings per Share. SFAS 128 requires reporting
both basic and diluted earnings per share (EPS). The Company has no common share
equivalents such as preferred stock, warrants or stock options which would
dilute EPS. Thus EPS is computed by dividing net income by the weighted average
number of common shares outstanding during the applicable period.
Earnings per Share Calculation (in thousands where applicable)
3 Months Ended Mar 31
2002 2003
Net Income 15,725 16,997
Average number of shares 33,650 33,965
Earnings per share $0.47 $0.50
The average number of shares outstanding during the period reflects the
issuance of 221,883 shares in February 2002 and 263,884 shares in February 2003.
3. The Company follows the provisions of Statement of Financial Accounting
Standards No. 130 (SFAS 130), Reporting Comprehensive Income. SFAS 130
establishes standards for reporting and display of comprehensive income and
its components in financial statements. Comprehensive income is the total of
net income and all other nonowner changes in equity including items such as
unrealized gains/losses on securities classified as available for sale, foreign
currency translation adjustments and minimum pension liability adjustments.
The Company had an unrealized holding loss on marketable securities totaling
$700 thousand for the three months ended March 31, 2002 and an unrealized
holding gain of $4,731 thousand for the three months ended March 31, 2003.
4. The Company follows the provisions of Statement of Financial Accounting
Standards No. 131 (SFAS 131), Disclosure About Segments of an Enterprise and
Related Information. Based on the criteria set forth in SFAS 131 the
Company currently operates in one operating segment, medical software and
services. The Company derives substantially all of its operating revenue from
the sale and support of one group of similar products and services. All of the
Company's assets are located within the United States. During the first three
months of 2003, 87% of our operating revenue was derived from the United States,
10% from Canada and 3% from other countries.
5. The Company follows the provisions of Emerging Issues Task Force's No. 01-14
(EITF 01-14), which requires reimbursements received for out-of-pocket expenses
to be characterized as revenue with offsetting expenses in the income statement.
For the first three months of 2002 $1,075 thousand in reimbursed expenses are
included as revenue in the accompanying statement of income. For the first three
months of 2003 $1,162 thousand in reimbursed expenses are included as revenue
in the accompanying statement of income.
Page 7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
Comparison of 1st Quarter 2002 with 2003 (in thousands where applicable)
3 Months Ended Mar 31
2002 2003 Change
Total Revenue 61,130 67,281 10.1%
Operating income 22,833 25,119 10.0%
Net income 15,725 16,997 8.1%
Average number of shares 33,650 33,965 0.9%
Earnings per share $0.47 $0.50 7.1%
Cash dividends per share $0.34 $0.39 14.7%
Total revenue increased by $6,151 thousand or 10.1% due to increased products
and services provided to both existing and new customers.
Operating Expense increased by $3,865 thousand or 10.1% due primarily to an
increase in staff size and associated costs. The result is a $2,286 thousand or
10.0% increase in operating income.
During the first quarter of 2003, other income, net of other expense, decreased
by $649 thousand. The primary factor was a $500 thousand writedown of impaired
marketable securities. The effective tax rate decreased 1% from 39% to 38% due
primarily to increased tax credits. As a result net income increased by $1,272
thousand or 8.1%.
Liquidity And Capital Resources (in thousands where applicable)
Dec 31, 2002 Mar 31, 2003
Cash and equivalents 16,907 23,135
Total assets 354,809 368,255
Total liabilities 36,813 35,938
Shareholder equity 317,996 332,317
Outstanding number of shares 33,877 34,141
Book value per share $9.39 $9.73
As presented in the Statement of Cash Flow, net cash provided by operating
activities was $14,176 thousand during the first three months of 2003. Net cash
used in investing activities was $541 thousand. The payment of $13,212 thousand
in dividends to shareholders constituted the most significant use of cash. The
resultant net increase in cash and equivalents was $6,228 thousand for the three
months ended March 31, 2003.
At March 31, 2003, the Company's cash, cash equivalents and marketable
securities totaled $185 million. The marketable securities consist primarily
of preferred and common equities which can quickly be converted to cash.
MEDITECH has no long-term debt. Shareholder equity at March 31, 2003 was
$332 million. Additions to fixed assets will continue, including new
facilities and computer systems for product development, sales and marketing,
implementation, service and administrative staff. Management believes existing
cash, cash equivalents and marketable securities together with funds generated
from operations will be sufficient to meet future operating requirements.
Item 4 - Controls and Procedures
Based on their evaluation of the Company's disclosure controls and procedures
as of a date within 90 days of the filing of this Report, the Chief Executive
Officer and Chief Financial Officer have concluded that such controls and
procedures are effective.
There were no significant changes in the Company's internal controls or in
other factors that could significantly affect such controls subsequent to the
date of their evaluation.
Page 8
Part II - Other Information
Item 1 - Legal Proceedings
On April 18, 2003, Jerome H. Grossman, a shareholder and former Director of the
Company, filed a complaint in the Suffolk County, Massachusetts Superior Court
against the Company and five of its six Directors: A. Neil Pappalardo, Edward B.
Roberts, Morton E. Ruderman, Roland L. Driscoll and Lawrence E. Polimeno. The
complaint alleges: (1) the Directors have violated a duty of good faith and
loyalty to Grossman by terminating him as a consultant to the Company in 2001,
by failing to nominate him for re-election as a Director in 2002, and by
enforcing the Company's right of first refusal against him; (2) the Directors
have "rigged" the market for the Company's common stock in favor of buyers and
against sellers by establishing an artificially low price for the stock; (3) the
Directors have established an artificially low price for the stock so Pappalardo
can purchase shares from the Company at a price less than the "fair value" of
those shares; and (4) Pappalardo, as the controlling shareholder of the Company,
has violated a fiduciary duty to shareholders by dominating the Board of
Directors, artificially depressing the price of stock, and personally benefiting
from the depressed price by purchasing tens of thousands of shares of stock from
the Company each year.
Item 4 - Submission of Matters to a Vote of Shareholders
The Annual Meeting of Shareholders of Medical Information Technology, Inc. was
held on Monday, April 28, 2003. The meeting was convened at 9am with the
Chairman, A. Neil Pappalardo, presiding and the Clerk, Barbara A. Manzolillo,
keeping the minutes.
There were outstanding a total of 34,141,323 shares of Common Stock, par value
$1.00 per share. A total of 32,859,589 shares or 96.25% of the outstanding
shares, constituting a quorum, were represented at the meeting by proxy or by
ballot.
The following six directors of the Company were elected to serve until the 2004
Annual Meeting of Shareholders and thereafter until their successors are chosen
and qualified, with votes cast as follows:
A. Neil Pappalardo - 30,950,820 shares in favor and 1,908,769 shares withheld
Lawrence A. Polimeno - 30,949,884 shares in favor and 1,909,705 shares withheld
Roland L. Driscoll - 30,950,820 shares in favor and 1,908,769 shares withheld
Edward B. Roberts - 30,950,820 shares in favor and 1,908,769 shares withheld
Morton E. Ruderman - 30,950,820 shares in favor and 1,908,769 shares withheld
L. P. Dan Valente - 30,950,820 shares in favor and 1,908,769 shares withheld
A proposal to ratify the selection of Ernst & Young LLP as independent auditors
of the Company for the fiscal year ending December 31, 2003 was approved, with
32,836,864 shares in favor, 1,565 shares against and 21,160 shares abstaining.
A shareholder proposal relating to the trading of Company's securities was
rejected, with 2,671,868 shares in favor, 29,714,599 shares against and
473,122 shares abstaining.
A shareholder proposal relating to the Company's evaluation of acquisition
proposals was rejected, with 2,658,151 shares in favor, 29,729,278 shares
against and 472,160 shares abstaining.
Page 9
Item 6 - Exhibits and Reports on Form 8-K
There were no reports filed on Form 8-K during the quarter ended March 31, 2003.
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)
April 30, 2003
(Date)
By: Barbara A. Manzolillo, Chief Financial Officer and Treasurer
(Signature)
Page 10
CERTIFICATION PURSUANT TO RULE 13A-14 OR 15D-14 OF THE SECURITIES EXCHANGE ACT
OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Barbara A. Manzolillo, Chief Financial Officer and Treasurer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Medical Information
Technology, Inc. (the Company);
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant is made known to us by others within
those entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
April 30, 2003
(Date)
Barbara A. Manzolillo, Chief Financial Officer and Treasurer
(Signature)
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Barbara A. Manzolillo, Chief Financial Officer and Treasurer, certify this
quarterly report on Form 10-Q of Medical Information Technology, Inc. for the
period ended March 31, 2003, fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934 and the information
contained in this report fairly presents, in all material respects, the
financial condition and results of operations of the Company.
April 30, 2003
(Date)
Barbara A. Manzolillo, Chief Financial Officer and Treasurer
(Signature)
Page 11
CERTIFICATION PURSUANT TO RULE 13A-14 OR 15D-14 OF THE SECURITIES EXCHANGE ACT
OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, A. Neil Pappalardo, Chief Executive Officer and Chairman, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Medical Information
Technology, Inc. (the Company);
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant is made known to us by others within
those entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
April 30, 2003
(Date)
A. Neil Pappalardo, Chief Executive Officer and Chairman
(Signature)
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, A. Neil Pappalardo, Chief Executive Officer and Chairman, certify this
quarterly report on Form 10-Q of Medical Information Technology, Inc. for the
period ended March 31, 2003, fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934 and the information
contained in this report fairly presents, in all material respects, the
financial condition and results of operations of the Company.
April 30, 2003
(Date)
A. Neil Pappalardo, Chief Executive Officer and Chairman
(Signature)