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 JUNE 30, 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
June 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 June 30, 2003 Page 3
Statement of Income for the Three Months and Six Months
ended June 30, 2002 and 2003 Page 4
Statement of Shareholder Equity for the Six Months
ended June 30, 2002 and 2003 Page 5
Statement of Cash Flow for the Six Months
ended June 30, 2002 and 2003 Page 5
Notes To Financial Statements (Unaudited) Page 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Operating Results Page 7
Item 4 - Controls and Procedures Page 8
Part II - Other Information
Item 1 - Legal Proceedings Page 8
Item 6 - Exhibits and Reports on Form 8-K Page 8
Signatures Page 8
Page 3
Part I - Financial Information
Item 1 - Financial Statements (Unaudited)
Balance Sheet (000 omitted)
Dec 31, 2002 Jun 30, 2003
Cash and equivalents 16,907 20,014
Marketable securities 154,339 185,331
Accounts receivable less reserve 28,380 26,883
------- -------
Current assets 199,626 232,228
Computer equipment 9,929 8,329
Furniture and fixtures 32,820 29,204
Buildings 139,670 139,670
Land 26,604 26,604
Accumulated depreciation (63,030) (60,744)
------- -------
Fixed assets 145,993 143,063
Investments 9,190 9,070
------- -------
Total assets 354,809 384,361
======= =======
Accounts payable 90 3,070
Accrued taxes 2,148 665
Accrued expenses 21,826 15,688
Customer deposits 9,949 10,478
------- -------
Current liabilities 34,013 29,901
Deferred taxes 2,800 11,075
------- -------
Total liabilities 36,813 40,976
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 12,554
Retained income 274,310 281,991
------- -------
Shareholder equity 317,996 343,385
------- -------
Total liabilities and
shareholder equity 354,809 384,361
======= =======
Page 4
Statement of Income (000 omitted)
3 Months Ended June 30 6 Months Ended June 30
2002 2003 2002 2003
Product revenue 37,825 38,011 72,637 76,451
Service revenue 27,278 29,500 53,596 58,341
------- ------- ------- -------
Total revenue 65,103 67,511 126,233 134,792
Operating, development 27,236 28,825 53,132 57,366
Selling, G & A 13,298 13,677 25,699 27,298
------- ------- ------- -------
Operating expense 40,534 42,502 78,831 84,664
------- ------- ------- -------
Operating income 24,569 25,009 47,402 50,128
Other income 4,981 4,827 9,956 9,288
Other expense 1,568 1,672 3,224 3,464
------- ------- ------- -------
Pretax Income 27,982 28,164 54,134 55,952
State income tax 2,572 2,514 5,008 4,964
Federal income tax 8,495 8,439 16,485 16,780
------- ------- ------- -------
Income tax 11,067 10,953 21,493 21,744
------- ------- ------- -------
Net income 16,915 17,211 32,641 34,208
======= ======= ======= =======
Page 5
Statement of Shareholder Equity (000 omitted)
6 Months Ended June 30
2002 2003
Shareholder equity at beginning 295,526 317,996
Sales of common stock 4,216 5,805
Unrealized gain (loss) on securities (3,596) 11,903
Net income 32,641 34,208
Dividends paid (22,907) (26,527)
------- -------
Shareholder equity at end 305,880 343,385
Statement of Cash Flow (000 omitted)
6 Months Ended June 30
2002 2003
Net income 32,641 34,208
Change in accounts receivable 577 1,497
Change in accumulated depreciation 4,443 4,304
Change in accounts payable 2,397 2,981
Change in accrued taxes (1,215) (1,483)
Change in accrued expenses (3,318) (6,139)
Change in customer deposits 1,226 529
Gain on sales of marketable securities -- (233)
Net effect of non-cash adjustments 705 1,340
------- -------
Net cash from operations 37,456 37,004
Purchases of marketable securities (24,649) (29,172)
Sales of marketable securities -- 17,251
Purchases of equipment, furniture
and fixtures (1,640) (1,374)
Proceeds from mortgage note receivable -- 120
------- -------
Net cash used in investing (26,289) (13,175)
Sales of common stock 4,216 5,805
Dividends paid (22,907) (26,527)
------- -------
Net cash used in financing (18,691) (20,722)
------- -------
Net change in cash and equivalents (7,524) 3,107
Cash and equivalents at beginning 18,161 16,907
------- -------
Cash and equivalents at end 10,637 20,014
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 Calculations (in thousands where applicable)
3 Months Ended June 30 6 Months Ended June 30
2002 2003 2002 2003
Net income 16,915 17,211 32,641 34,208
Average number of shares 33,797 34,141 33,723 34,053
Earnings per share $0.50 $0.50 $0.97 $1.00
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
$3,596 thousand for the six months ended June 30, 2002 and an unrealized
holding gain of $11,903 thousand for the six months ended June 30, 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 six
months of 2003, 88% of our operating revenue was derived from the United States,
9% 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), Income Statement Characterization of Reimbursements Received
for "Out-of-Pocket" Expenses Incurred, which requires reimbursements received
for out-of-pocket expenses to be characterized as revenue with offsetting
expenses in the income statement. For the first six months of 2002 $2,764
thousand in reimbursed expenses are included as revenue in the accompanying
statement of income. For the first six months of 2003 $2,621 thousand in
reimbursed expenses are included as revenue in the accompanying statement of
income.
6. In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities (FIN 46) to clarify the conditions under which
assets, liabilities and activities of another entity should be consolidated
into the financial statements of a company. FIN 46 requires the consolidation
of a variable interest entity by a company that bears the majority of the risk
of loss from the variable interest entity's activities, is entitled to receive
a majority of the variable interest entity's residual returns, or both. The
provisions of FIN 46 for variable interest entities created before February 1,
2003 are required to be adopted in interim financial statements beginning after
June 15, 2003. The Company is currently evaluating the impact that the adoption
of FIN 46 will have on its financial position and results of operations.
Page 7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Operating Results
Comparison of 2nd Quarter 2002 with 2003 (in thousands where applicable)
3 Months Ended June 30 Change
2002 2003
Total revenue 65,103 67,511 3.7%
Operating income 24,569 25,009 1.8%
Net income 16,915 17,211 1.7%
Average number of shares 33,797 34,141 1.0%
Earnings per share $0.50 $0.50 0.7%
Cash dividends per common share $0.34 $0.39 14.7%
Total revenue increased by $2,408 thousand due to increased products and
services provided to both new and existing customers.
Operating expense increased by $1,968 thousand or 4.9% due primarily to an
increase in staff size and associated costs. The result is a $440 thousand
increase in operating income.
Other income, net of other expenses, decreased by $258 thousand or 7.6%. The
primary factor was a $500 thousand writedown of impaired marketable securities
offset by a $233 thousand gain realized on marketable securities redeemed. The
resultant net income increased by $296 thousand.
Comparison of 1st Half 2002 with 2003 (in thousands where applicable)
6 Months Ended June 30 Change
2002 2003
Total revenue 126,233 134,792 6.8%
Operating income 47,402 50,128 5.8%
Net income 32,641 34,208 4.8%
Average number of shares 33,723 34,053 1.0%
Earnings per share $0.97 $1.00 3.8%
Cash dividends per share $0.68 $0.78 14.7%
Total revenue increased by $8,559 thousand due to increased products and
services provided to both new and existing customers.
Operating expense increased by $5,833 thousand or 7.4% due primarily to an
increase in staff size and associated costs. The result is a $2,726 thousand
increase in operating income.
Other income, net of other expenses, decreased by $908 thousand or 13.5%. The
primary factor was a $1,000 thousand writedown of impaired marketable securities
offset by a $233 thousand gain realized on marketable securities redeemed. The
resultant net income increased by $1,567 thousand.
Liquidity and Capital Resources (in thousands where applicable)
Dec 31, 2002 Jun 30, 2003
Cash and equivalents 16,907 20,014
Total assets 354,809 384,361
Total liabilities 36,813 40,976
Shareholder equity 317,996 343,385
Outstanding number of shares 33,877 34,141
Book value per share $9.39 $10.06
As presented in the Statement of Cash Flow, net cash provided by operating
activities was $37,004 thousand during the first six months of 2003. Net cash
used in investing activities was $13,175 thousand. The payment of $26,527
thousand in dividends to shareholders constituted the most significant use of
cash during the first six months of 2003. The resultant net increase in cash
and cash equivalents was $3,107 thousand for the six months ended June 30, 2003.
At June 30, 2003, the Company's cash, cash equivalents and marketable
securities totaled $205 million. The marketable securities consist of preferred
or common equities and US government securities which can quickly be converted
to cash.
MEDITECH has no long-term debt. Shareholders' equity at June 30, 2003 was
$343 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.
Page 8
Item 4 - Controls and Procedures
Based on their evaluation of the Company's disclosure controls and procedures
as of the end of the fiscal period covered by this Report, the Chief Executive
Officer and Chief Financial Officer have concluded that such controls and
procedures are effective.
There were no changes in the Company's internal control over financial
reporting which have materially affected or are reasonably likely to materially
affect such control.
Part II - Other Information
Item 1 - Legal Proceedings
On April 18, 2003, 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. The complaint is summarized in the 2003
first quarter report on Form 10-Q. On July 11, 2003, the Company filed a motion
to dismiss the complaint.
Item 6 - Exhibits and Reports on Form 8-K
Exhibit 31, Rule 13a-14(a) Certifications, and Exhibit 32, Section 1350
Certifications, are appended to this report. There were no reports filed on
Form 8-K during the quarter ended June 30, 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)
July 31, 2003
(Date)
By: Barbara A. Manzolillo, Chief Financial Officer and Treasurer
(Signature)