Attached files

file filename
EXCEL - IDEA: XBRL DOCUMENT - Medical Information Technology, Inc.Financial_Report.xls
EX-31 - RULE 13A-14(A) CERTIFICATIONS - Medical Information Technology, Inc.ex31.htm
EX-32 - SECTION 1350 CERTIFICATIONS - Medical Information Technology, Inc.ex32.htm
UNITED STATES
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 QUARTER ENDED JUNE 30, 2013

0-28092
(Commission file number)

Medical Information Technology, Inc.
(Exact Name of Registrant as Specified in Its Charter)

Massachusetts
(State of Incorporation)

04-2455639
(IRS Employer Identification Number)

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X] Smaller reporting company [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]

No public trading market exists for the registrant's common stock. There were 37,115,854 shares of Common Stock, $1.00 par value, outstanding at June 30, 2013.

Page 1 of 11

Index to Form 10-QPage


Part I - Financial Information 
   Item 1 - Consolidated Financial Statements (Unaudited) 
      Consolidated Balance Sheet - December 31, 2012 and June 30, 20133
      Consolidated Income Statement - Three and Six Months Ended on 
         June 30, 2012 and 20134
      Consolidated Cash Flow Statement - Six Months Ended on  
         June 30, 2012 and 20135
      Notes to Consolidated Financial Statements6
   Item 2 - Management's Discussion and Analysis of Operating Results and 
      Financial Condition9
   Item 3 - Quantitative and Qualitative Disclosures About Market Risk10
   Item 4 - Controls and Procedures10
Part II - Other Information 
   Item 1 - Legal Proceedings10
   Item 1A - Risk Factors11
   Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds11
   Item 3 - Defaults Upon Senior Securities11
   Item 4 - Mine Safety Disclosures11
   Item 5 - Other Information11
   Item 6 - Exhibits11
Signatures11

Page 2 of 11

Part I - Financial Information

Item 1 - Consolidated Financial Statements (Unaudited)

Consolidated Balance Sheet
December 31, 2012 and June 30, 2013

 Dec 31, 2012Jun 30, 2013
 

Cash and equivalents$55,248,919$37,856,649
Marketable securities329,655,272382,963,031
Accounts receivable, net of reserve53,006,94853,316,008
Deferred taxes9,457,643 
 

  Current assets447,368,782474,135,688
 

Computer equipment14,245,35812,561,836
Furniture and fixtures64,611,73164,300,809
Buildings189,997,036192,247,731
Land40,329,56540,313,565
Accumulated depreciation(125,994,543)(126,781,695)
 

  Fixed assets183,189,147182,642,246
 

Other assets16,630,09615,584,512
 

  Total assets$647,188,025$672,362,446
 

   
Accounts payable$136,846$836,945
Taxes payable4,863,9151,972,391
Accrued expenses55,098,83238,824,207
Deferred revenue31,512,69033,714,219
Deferred taxes 5,926,031
 

  Current Liabilities91,612,28381,273,793
   
Tax reserves17,779,17517,806,675
 

  Total liabilities109,391,45899,080,468
 

Common stock, $1.00 par value,  
  authorized 40,000,000 shares,  
  issued and outstanding 36,935,201  
  in 2012 and 37,115,854 in 201336,935,20137,115,854
Additional paid-in capital111,659,227119,607,959
Retained income333,185,351341,320,666
Unrealized security gains, net of tax56,016,78875,237,499
 

  Shareholder equity537,796,567573,281,978
 

  Total liabilities and shareholder equity$647,188,025$672,362,446
 


Page 3 of 11

Consolidated Income Statement
Three and Six Months Ended on June 30, 2012 and 2013

 3 monthsended on6 monthsended on
 Jun 30, 2012Jun 30, 2013Jun 30, 2012Jun 30, 2013
 



Product revenue$79,070,317$68,999,904$156,872,615$147,059,441
Service revenue69,934,43375,033,890137,998,302148,157,410
 



  Total revenue149,004,750144,033,794294,870,917295,216,851
 



Operations, development70,393,81674,125,498139,003,547147,735,104
Selling, G & A30,699,43529,522,98261,174,37261,486,130
 



  Operating expense101,093,251103,648,480200,177,919209,221,234
 



  Operating income47,911,49940,385,31494,692,99885,995,617
 



Other income7,045,2974,356,94111,367,4918,572,222
Other expense1,547,6081,357,7473,042,0762,797,233
 



  Pretax income53,409,18843,384,508103,018,41391,770,606
 



State income tax3,580,0002,820,0007,050,0006,369,000
Federal income tax16,032,00012,370,00031,328,00021,728,000
 



  Income tax19,612,00015,190,00038,378,00028,097,000
 



  Net income$33,797,188$28,194,508$64,640,413$63,673,606
     
Change in net unrealized security gains3,041,133(514,818)19,601,95519,220,711
 



  Comprehensive income$36,838,321$27,679,690$84,242,368$82,894,317
 




Page 4 of 11

Consolidated Cash Flow Statement
Six Months Ended on June 30, 2012 and 2013

 6 monthsended on
 Jun 30, 2012Jun 30, 2013
 

Net income$64,640,413$63,673,606
Depreciation expense6,009,3726,210,620
Reversal of prior write-down(1,114,263) 
Gain on sale of marketable security(2,932,056)(5,810)
Gain on sale of fixed assets (44,000)
Deferred taxes on unrealized security gain(2,933,260)(13,998,556)
Change in accounts receivable, net of reserve12,140,038(309,060)
Change in accounts payable137,576700,099
Change in taxes payable1,322,082(2,891,524)
Change in accrued expenses(12,946,322)(16,274,625)
Change in deferred revenue3,116,1012,201,529
Change in deferred taxes557,37615,383,674
Change in tax reserves347,21827,500
 

  Net cash from operations68,344,27554,673,453
 

Purchases of marketable securities(51,685,575)(20,937,683)
Sales of marketable securities19,719,148855,001
Purchases of fixed assets(4,161,713)(5,679,719)
Sales of fixed assets 60,000
Change in other assets1,039,8841,045,584
 

  Net cash used in investing(35,088,256)(24,656,817)
 

Sales of common stock10,485,6798,129,385
Dividends paid(52,795,118)(55,538,291)
 

  Net cash used in financing(42,309,439)(47,408,906)
 

Net change in cash and equivalents(9,053,420)(17,392,270)
Cash and equivalents at beginning59,847,02055,248,919
   
  Cash and equivalents at end$50,793,600$37,856,649
 


Page 5 of 11

Notes To Consolidated Financial Statements

Note 1. Significant Accounting Policies

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, 2012 included in MEDITECH's Form 10-K filed on January 31, 2013. The unaudited financial statements presented herein have not been audited by our Independent Registered Public Accounting Firm in accordance with the standards of the Public Company Accounting Oversight Board (United States), but in the opinion of management such financial statements include all normal recurring adjustments necessary to present fairly MEDITECH's financial position, operating results and cash flow.

Note 2. Available For Sale Securities

MEDITECH follows the provisions of ASC 320-10, Investments - Debt and Equity Securities, which requires marketable securities be classified as trading, available-for-sale or held-to-maturity. MEDITECH classifies its marketable securities as available-for-sale and records them at fair value with any unrealized gains or losses, net of tax, reported as a component of shareholder equity. The fair value was determined based on quoted prices in active markets. ASC 320-10 requires that for each individual security classified as available-for-sale, a company shall determine whether a decline in fair value below the cost basis is temporary in nature. If the decline in fair value is not judged as such, the cost basis of the individual security shall be reduced to fair value and the amount of the write-down shall be reflected in earnings.

MEDITECH follows the provisions of ASC 320-10-35 Subsequent Measurement, and evaluates its marketable securities for other-than-temporary impairment using an impairment model consistent with a debt security. The factors considered include the severity and duration of the loss, the intent and ability to hold the securities for an extended period of time until recovery, and whether issuers are current on dividend payments and maintain investment grade ratings. Finally, the effect of fluctuating interest rates, current economic and industry conditions, and the issuers' current financial position are also taken into consideration.

MEDITECH follows the provisions of ASC 820-10, Fair Value Measurements and Disclosures, which provides for expanded disclosure and guidelines to determine fair market value of assets and liabilities. ASC 820-10 applies whenever other standards require or permit assets and liabilities to be measured at fair value, but does not expand the use of fair value in any new circumstances. MEDITECH's marketable securities represent assets measured at fair value on a recurring basis, and are considered Level 1 assets as defined by ASC 820-10.

The following table indicates the cost net of write-downs, unrealized gains, unrealized losses and fair market value of MEDITECH's securities. The unrealized gains and the unrealized losses have been accounted for within comprehensive income. MEDITECH has evaluated the unrealized losses as of June 30, 2013 and has concluded that the unrealized losses are temporary in nature.

 Dec 31, 2012Jun 30, 2013
 

Cost net of write-downs$272,879,085$292,967,578
Unrealized gains58,012,81290,108,253
Unrealized losses(1,236,625)(112,800)
   
 

Fair market value$329,655,272$382,963,031
 


Page 6 of 11

Note 3. Equity Method Investments

MEDITECH follows the provisions of ASC 323-10, Investments - Equity Method and Joint Ventures, and as such, accounts for the equity investment in Meditech South Africa in accordance with the cost method. Meditech South Africa licenses MEDITECH's software technology and re-licenses it to its respective customers. Meditech South Africa serves a market niche which is part of the overall medical market but is outside of the hospital market which MEDITECH serves. Meditech holds a fully collateralized mortgage note for a loan to Meditech South Africa to purchase land and a building used as its corporate headquarters. MEDITECH believes the fair value of this investment and loan balance approximates its June 30, 2013 carrying value.

During the 2nd quarter 2007 MEDITECH acquired Patient Care Technologies, Inc. (PtCT), a company engaged in the development, manufacture, licensing and support of computer software products for the home health care market. MEDITECH accounted for this acquisition under the purchase method of accounting in accordance with ASC 805-10, Business Combinations. PtCT merged with and into MEDITECH effective December 31, 2009.

During the 1st quarter 2011 MEDITECH acquired LSS Data Systems, Inc. (LSS), a company engaged in the development, manufacture, licensing and support of ambulatory information system software for physician practices. MEDITECH accounted for this acquisition under the purchase method of accounting in accordance with ASC 805-10, Business Combinations.

Note 4. Income Tax Accounting

MEDITECH follows the provisions of ASC 740-10, Accounting for Income Taxes. Deferred taxes relate to the earlier recognition of certain revenue and the later recognition of certain expenses for tax purposes. They also relate to the increase in fair market value over the cost basis of marketable securities. Tax reserves relate to the uncertainty of domestic production activities deduction and state nexus. Key judgments are reviewed annually and adjusted to reflect current assessments. The years 2010 through 2012 are subject to examination by the IRS, and various years are subject to examination by state tax authorities.

No research tax credit was taken in 2012. The amount recently reinstated for all of 2012 has been reflected in the 1st quarter of 2013 which has significantly reduced the effective tax rate.

Note 5. Earnings Per Share

MEDITECH follows the provisions of ASC 260-10, Earnings per Share, which requires reporting both basic and diluted earnings per share. MEDITECH has no common share equivalents such as preferred stock, warrants or stock options which would dilute earnings per share. Thus, earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the applicable period. The increase in the average number of shares reflects the annual issuance of shares sold to staff members in February pursuant to the 2004 Stock Purchase Plan and contributed to the MEDITECH Profit Sharing Trust in December.

 3 monthsended on6 monthsended on
 Jun 30, 2012Jun 30, 2013Jun 30, 2012Jun 30, 2013
 



Net income$33,797,188$28,194,508$64,640,413$63,673,606
Average number of shares36,744,55937,085,74536,744,55937,085,745
Earnings per share$0.92$0.76$1.76$1.72

Page 7 of 11

Note 6. Comprehensive Income Presentation

Effective January 1, 2012 MEDITECH adopted the provisions of ASU 2011-05, Presentation of Comprehensive Income, which establishes standards for reporting comprehensive income and its components in financial statements. Comprehensive income is the total of net income and all other non-owner changes in equity including items such as net unrealized gains or losses on marketable securities classified as available for sale, foreign currency translation adjustments and minimum pension liability adjustments. In MEDITECH's case net income plus the change in net unrealized security gains or losses is shown as comprehensive income in the income statement.

Note 7. Segment Reporting

MEDITECH follows the provisions of ASC 280-10, Segment Reporting. Based on the criteria set forth in ASC 280-10, MEDITECH currently operates in one operating segment, medical software and services. MEDITECH derives substantially all of its operating revenue from the sale and support of one group of similar products and services. All of MEDITECH's assets are located within the United States. The following table indicates the operating revenue percentage based on location of customer.

 3 monthsended on6 monthsended on
 Jun 30, 2012Jun 30, 2013Jun 30, 2012Jun 30, 2013
 



United States91%89%91%89%
Canada8%10%8%10%
All others1%1%1%1%

Note 8. Goodwill and Intangible Assets

Effective December 15, 2011 MEDITECH adopted the provisions of ASC 350-20-35 Intangibles and Goodwill Impairment Evaluation - Qualitative Testing. An entity may first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. An evaluation shall assess relevant events and circumstances and should include, but are not limited to: a significant adverse change in legal factors or in industry/business climate, unanticipated competition, an adverse action or assessment by a regulator, or overall financial performance. If, after assessing the totality of such events and circumstances, an entity determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then the first and second steps of the goodwill impairment test are unnecessary.

Page 8 of 11

Item 2 - Management's Discussion and Analysis of Operating Results and Financial Condition

Operating3 monthsended onPercent
ResultsJun 30, 2012Jun 30, 2013Change




Total revenue$149,004,750$144,033,794(3.3%)
Operating income47,911,49940,385,314(15.7%)
Net income33,797,18828,194,508(16.6%)
Average number of shares36,744,55937,085,7450.9%
Earnings per share$0.92$0.76(17.3%)
Cash dividends per share$0.72$0.754.2%

Total revenue from both existing and new customers decreased by $5.0 million. The decrease was composed of a $10.1 million reduction in product revenue offset by a $5.1 million addition in service revenue.

Operating expense increased by $2.6 million or 2.5% due primarily to additional staff related expenses. The resultant operating income decreased by $7.5 million.

Other income decreased by $2.7 million due primarily to the prior period's investment gain. Other expense decreased $0.2 million. The resultant pretax income decreased by $10.0 million or 18.8%.

MEDITECH's effective tax rate decreased from 36.7% to 35.0% due primarily to the current period's inclusion of research tax credit. Net income decreased by $5.6 million due primarily to lower operating profit partially offset by lower taxes.

Operating6 monthsended onPercent
ResultsJun 30, 2012Jun 30, 2013Change




Total revenue$294,870,917$295,216,8510.1%
Operating income94,692,99885,995,617(9.2%)
Net income64,640,41363,673,606(1.5%)
Average number of shares36,744,55937,085,7450.9%
Earnings per share$1.76$1.72(2.4%)
Cash dividends per share$1.44$1.504.2%

Total revenue from both existing and new customers increased by $0.3 million. The increase was composed of a $9.8 million reduction in product revenue offset by a $10.1 million addition in service revenue.

Operating expense increased by $9.0 million or 4.5% due primarily to additional staff related expenses. The resultant operating income decreased by $8.7 million.

Other income decreased by $2.8 million due primarily to the prior period's investment gain. Other expense decreased $0.2 million. The resultant pretax income decreased by $11.2 million or 10.9%.

MEDITECH's effective tax rate decreased from 37.3% to 30.6% due primarily to the current period's inclusion of 2012's research tax credit. Net income decreased by $1.0 million due primarily to lower operating profit mostly offset by lower taxes.

Page 9 of 11

Financial ConditionDec 31, 2012Jun 30, 2013



Working capital$355,756,499$392,861,895
Total assets647,188,025672,362,446
Total liabilities109,391,45899,080,468
Shareholder equity537,796,567573,281,978
Outstanding number of shares36,935,20137,115,854
Shareholder equity per share$14.56$15.45

Accrued expenses decreased by $16.3 million during the period primarily as a result of the payment of $47.6 million in bonuses applicable to 2012, offset by the accrual of $29.4 million in bonus expenses applicable to 2013.

Deferred taxes changed from an asset to a liability, a difference of $15.4 million, during the period as a result of an increase in fair market value of marketable securities.

At June 30, 2013 MEDITECH's cash, cash equivalents and marketable securities totaled $420.8 million. Marketable securities consisted of preferred and common equities. For the first six months of 2013 cash flow from operations was $54.7 million, cash flow used in investing was $24.7 million and cash flow used in financing was $47.4 million. The payment of $55.5 million in dividends to shareholders was the primary use of cash generated by operating activities during the first six months.

MEDITECH has no long-term debt. Shareholder equity at June 30, 2013 was $573.3 million. Management anticipates 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 operating and capital expense requirements for the foreseeable future.

Item 3 - Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes from the market risk disclosed in MEDITECH's Annual Report on Form 10-K for the year ended December 31, 2012.

Item 4 - Controls and Procedures

An evaluation was conducted under the supervision and with the participation of MEDITECH's management, including the Chief Executive Officer and Chief Financial Officer, on the effectiveness of MEDITECH's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded MEDITECH's disclosure controls and procedures are effective at June 30, 2013 to ensure information requiring disclosure by MEDITECH in reports which it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. There were no changes in MEDITECH's internal control over financial reporting occurring during the fiscal quarter covered by this report which have materially affected or are reasonably likely to materially affect MEDITECH's internal control over financial reporting.

Part II - Other Information

Item 1 - Legal Proceedings

None.

Page 10 of 11

Item 1A - Risk Factors

There have been no material changes from the risk factors disclosed in MEDITECH's Annual Report on Form 10-K for the year ended December 31, 2012.

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds

MEDITECH did not repurchase any of its shares of common stock during the 2nd quarter of 2013. However, during the 2nd quarter the Medical Information Technology, Inc. Profit Sharing Trust purchased MEDITECH's common stock in individual private transactions: 1,510 shares in April at $45 per share, 1,155 shares in May at $45 per share and 3,145 shares in June at $45 per share for a total of $261,450.

Item 3 - Defaults Upon Senior Securities

None.

Item 4 - Mine Safety Disclosures

Not applicable.

Item 5 - Other Information

None

Item 6 - Exhibits

Exhibit 3.1: MEDITECH's Articles of Organization, as amended to date, are incorporated by reference to an exhibit to the quarterly report on Form 10-Q for the quarter ended March 31, 2007.

Exhibit 3.2: MEDITECH's By-Laws, as amended to date, are incorporated by reference to an exhibit to the current report on Form 8-K filed on July 2, 2010.

Exhibit 31: Rule 13a-14(a) Certifications, Exhibit 32: Section 1350 Certifications and Exhibit 101: Interactive Data Files are appended to this report.

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, 2013
(Date)

Howard Messing, Chief Executive Officer and President
(Signature)

Barbara A. Manzolillo, Chief Financial Officer and Treasurer
(Signature)

Page 11 of 11