Item 1 - Business
COMPANY OVERVIEW
Medical Information Technology, Inc. (MEDITECH) was founded in 1969 to develop, manufacture, license and support computer software products for the hospital market. For 2010 combined product and service revenue was $459.1M, operating income was $154.8M and net income was $108.8M. Product bookings were $300.3M and the resultant year-end product backlog was $324.7M. By year-end MEDITECH had 3,295 staff members, and over 2,400 active hospital sites throughout the United States, Canada and the United Kingdom.
HOSPITAL SOFTWARE
Initially MEDITECH developed a software product to automate one of the main departments in a hospital, the clinical laboratory which performs various diagnostic tests on blood or 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. Recently MEDITECH now offers home health care software products to hospitals.
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 outset to work in conjunction with the overall operation of the hospital and to minimize the need for specialized interfaces.
COMPUTER HARDWARE
Sophisticated software, such as MEDITECH's, 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 has been 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 hospital 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 customer hold MEDITECH harmless from any liability arising from incorrect operation of the software.
MEDITECH bases its product fee on a customer's net patient revenue across all of its sites, and sets its implementation fee on the total number of sites. As a result larger hospitals pay more than smaller hospitals. The monthly service fees are 1% of the product fees. A typical 150 bed acute care hospital which licenses most of our software might incur a $3,000,000 product fee, a $750,000 implementation fee and a $30,000 monthly service fee. An order is booked when a signed software license and a 10% deposit are received.
STAFF ORGANIZATION
MEDITECH is organized into functional units grouped around product development, sales and marketing, implementation, customer service, accounting and facility operations. MEDITECH staff work in six company owned facilities in the greater Boston area and one company owned facility in Atlanta.
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. As a result, there is no need for remote offices. 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 the creation of new products each year. The rest of the staff is developing a set of replacement products utilizing a new software technology. Approximately every ten years, MEDITECH introduces the next generation of products based on the new software technology and gradually updates existing customers.
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.
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IMPLEMENTATION
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 avoid interruptions from normal hospital activities, MEDITECH requires the hospital personnel to come to its offices in the Boston area for intensive training sessions.
As training proceeds, the implementation staff customizes certain dictionaries to fit the specific need of the hospital's environment, provides interfaces to non-MEDITECH systems and assists the hospital in converting data from legacy systems. In addition, MEDITECH delivers, installs and tests the licensed software on the customer's hardware. MEDITECH utilizes remote access communication technology to minimize 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 utilizes a MEDITECH clinical information system in over 250 hospitals and has been MEDITECH's largest customer for many years. HCA represented 8% of MEDITECH revenues in 2010.
COMPETITION
The market for health care information systems is subject to the technological imperative. Accordingly, MEDITECH has a completely integrated set of application products, implements them successfully, provides ongoing maintenance including updates and continues the developmental process. MEDITECH's competitors who make similar claims include GE, Siemens, McKesson, Cerner, Eclipsys, CPSI and Epic. MEDITECH does not offer the breadth of products and services which the competition offers to hospitals nor does MEDITECH offer the products and services which the competition offers to related medical enterprises. Instead MEDITECH focuses exclusively in the hospital information system software market and believes it competes favorably in this market.
ACCESS TO SEC FILINGS
MEDITECH's website address is "www.meditech.com" which provides access to its annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, and all amendments thereof just as soon as such reports are filed with the SEC. The links so provided allow access to copies of the reports stored on MEDITECH's website, but a link is also provided to allow access to all of MEDITECH's filings stored on the SEC's website as well.
One may use "http://www.sec.gov/cgi-bin/browse-edgar?CIK=1011452&action=getcompany" to access all of MEDITECH's filings stored on the SEC's website instead.
In addition MEDITECH will provide paper copies of these filings free of charge to its shareholders upon request.
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Item 1A
Item 1A - Risk Factors
There are numerous risk factors which may affect future results of operations. The health care industry is highly regulated and is subject to changing economic and political influences. Federal and state legislatures could modify the health care system in respect to reimbursement and financing. Hospitals may respond to these pressures by delaying the purchase of new information systems. Previous volatility in the market place such as that due to Y2K concerns and September 11th could reappear and cause delays. The Health Insurance Portability and Accountability Act of 1996 directly impacts the industry by specifying standards to protect the security and confidentiality of patient information. It may be possible for patients to bring claims against software providers regarding injuries due to errors. Hospitals consolidating into an integrated health care delivery system may be able to negotiate price reductions. Finally, MEDITECH is dependent on a cohesive group of long time senior managers and staff with vast experience in the hospital industry and software technology.
Item 1B
Item 1B - Unresolved Staff Comments
None.
Item 2
Item 2 - Properties
As of December 31, 2010 MEDITECH owned seven facilities containing over 1.2 million square feet of office space, all being well maintained Class A properties, six in the greater Boston area and one in Atlanta. MEDITECH occupies 70% of the space and the remaining 30% is leased to various tenants. MEDITECH has adequate space for its reasonable needs over the near future.
Item 3
Item 3 - Legal Proceedings
None
Item 4
Item 4 - (Removed and Reserved)
PART II
Item 5
Item 5 - Market for Registrant's Common Equity and Related Shareholder Matters
No public trading market exists for MEDITECH's common stock, and accordingly no high and low bid information or quotations are available.
The sale, assignment, transfer, pledge or other disposition of any of MEDITECH's common stock is subject to right of first refusal restrictions set forth in MEDITECH's charter.
There are no shareholder agreements with MEDITECH covering the voting or repurchase of MEDITECH stock.
During 2010 MEDITECH did not repurchase any of its shares of common stock. However, during 2010 the MEDITECH Profit Sharing Trust purchased 2,385 shares at $37.00 per share during January through April, 13,907 shares at $38.00 per share during May through August and 11,004 shares at $39.00 per share during September through December from existing shareholders in individual private transactions.
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During February 2010 pursuant to the 2004 Stock Purchase Plan, MEDITECH sold 243,738 shares of its common stock at $37 per share to certain staff members for an aggregate consideration of $9,018,306.
At December 31, 2010, there were 1,794 shareholders of record of MEDITECH's common stock and 36,186,164 shares outstanding.
MEDITECH has paid quarterly cash dividends continuously since 1980. Dividends paid per share during the last five years are set forth within the table in Item 6.
Item 6 - Selected Financial Data
Selected financial data for the past 5 years ended December 31 are as follows:
Full Year Operations:
Total revenue$344,589,232$376,233,882$397,929,595$393,025,014$459,098,488
Operating income124,794,398126,461,550130,063,109119,889,942154,766,067
Net income87,211,36288,542,50835,668,73981,833,331108,825,304
Average shares35,069,99235,388,51035,670,24635,709,92636,055,853
Net income/share$2.49$2.50$1.00$2.29$3.02
Year End Position:
Total assets$491,208,968$493,736,795$430,584,445$466,679,816$522,481,622
Total liabilities77,898,66580,272,22077,216,27286,279,50195,301,123
Shareholder equity413,310,303413,464,575353,368,173380,400,315427,180,499
Shares outstanding35,168,13335,481,27135,687,42635,822,42636,186,164
Shareholder equity/share$11.75$11.65$9.90$10.62$11.81
Other Financial Data:
Working capital$231,033,476$201,126,941$150,562,285$204,084,814$253,946,911
Operating cash flow94,626,916108,982,62089,326,267104,412,485128,263,540
Depreciation expense8,128,0388,795,5119,660,9209,916,8659,880,412
Cash dividends/share$2.16$2.40$2.52$2.52$2.40
Item 7
Item 7 - Management's Discussion and Analysis of Operating Results and Financial Condition
Comparison of Fiscal Years ended December 31, 2009 and 2010:
Total revenue from both existing and new customers increased $66.1 million or 16.8% from $393.0 million in 2009 to $459.1 million in 2010. It was composed of $50.9 million in additional product revenue and $15.2 million in additional service revenue.
Operating expenses increased $31.2 million or 11.4% from $273.1 million in 2009 to $304.3 million in 2010 due primarily to additional staff and bookings related costs. The resultant operating income increased $34.9 million or 29.1% from $119.9 million in 2009 to $154.8 million in 2010.
Other income increased $7.6 million due primarily to investment gains. Other expense decreased slightly. The resultant pretax income increased $42.7 million or 33.6% from $126.9 million in 2009 to $169.6 million in 2010.
MEDITECH's effective tax rate increased from 35.5% in 2009 to 35.8% in 2010 due primarily to a higher income tax rate on additional operating income. The resultant net income increased $27.0 million or 33.0% from $81.8 million in 2009 to $108.8 million in 2010.
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Comparison of Fiscal Years ended December 31, 2008 and 2009:
Total revenue from both existing and new customers decreased $4.9 million or 1.2% from $397.9 million in 2008 to $393.0 million in 2009. It was composed of $19.8 million in reduced product revenue and $14.9 million in additional service revenue.
Operating expenses increased $5.3 million or 2.0% from $267.9 million in 2008 to $273.1 million in 2009 due primarily to higher staff related costs. The resultant operating income decreased $10.2 million or 7.8% from $130.1 million in 2008 to $119.9 million in 2009.
Other income increased $51.3 million due primarily to the prior period's investment impairment. Other expense decreased $1.3 million due primarily to reduced professional fees. The resultant pretax income increased $42.4 million.
MEDITECH's effective tax rate decreased substantially from 57.8% in 2008 to 35.5% in 2009 due primarily to the prior period's investment impairment without any tax benefit. The resultant net income increased $46.2 million from $35.7 million in 2008 to $81.8 million in 2009.
Financial Condition:
At December 31, 2010 MEDITECH's cash, cash equivalents and marketable securities totaled $286.7 million. Marketable securities consisted of preferred and common equities plus bank and government notes. During 2010 cash flow from operations was $128.3 million, cash flow from investing was $7.7 million and cash flow used in financing was $77.4 million. The payment of $86.4 million in dividends to shareholders was the primary use of cash generated by operating activities during this period.
MEDITECH has no long-term debt. Shareholder equity at December 31, 2010 was $427.2 million. During 2010 management expended $8.0 million for updated facilities as well as continued additions of 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.
Critical Accounting Policies:
All of our significant accounting policies are described in the notes to the financial statements included in Item 8 of this report. We believe four of these constitute our most critical policies requiring estimates and judgments by management which are significant in terms of materiality. Reference Note 1(a) for revenue recognition, Note 2 for marketable securities, Note 3 for doubtful account reserve and Note 8 for income taxes.
Item 7A
Item 7A - Quantitative and Qualitative Disclosures About Market Risk
Market risk associated with equity securities is disclosed in Note 2 to the Financial Statements.
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Item 8
Item 8 - Financial Statements and Supplementary Data
Financial Statements of Medical Information Technology, Inc.
As of December 31, 2008, 2009 and 2010
Together with Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of Medical Information Technology, Inc.:
We have audited the accompanying balance sheets of Medical Information Technology, Inc. (a Massachusetts corporation) and subsidiary as of December 31, 2008, 2009 and 2010, and the related statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2010. 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 in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also 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.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Medical Information Technology, Inc. and subsidiary as of December 31, 2008, 2009 and 2010, and the results of their operations and their cash flows for each of the three years in the period ended December, 31, 2010, in conformity with accounting principles generally accepted in the United States.
Ernst & Young LLP
Boston, Massachusetts
January 31, 2011
Index to Financial StatementsPage
Balance Sheets as of December 31, 2008, 2009 and 201010
Statements of Income for the Years Ended December 31,
2008, 2009 and 201011
Statements of Shareholder Equity for the Years Ended
December 31, 2008, 2009 and 201012
Statements of Cash Flows for the Years Ended December 31,
2008, 2009 and 201013
Notes to Financial Statements14-21
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Balance Sheets as of December 31, 2008, 2009 and 2010
Dec 31, 2008Dec 31, 2009Dec 31, 2010
Cash and equivalents (Note 1)$12,964,756$39,233,486$97,789,985
Marketable securities (Note 2)152,402,588188,182,594188,888,044
Accounts receivable, net of reserve (Note 3)47,569,95049,821,76955,393,227
Deferred taxes (Note 8)14,841,26313,126,4667,176,778
Current assets227,778,557290,364,315349,248,034
Computer equipment9,513,94510,042,85910,778,178
Furniture and fixtures42,068,65242,985,48146,353,094
Buildings179,396,034179,396,034179,391,878
Land33,407,95933,407,95933,407,959
Accumulated depreciation(94,083,882)(102,027,244)(108,032,365)
Fixed assets (Note 1)170,302,708163,805,089161,898,744
Marketable securities (Note 2)20,000,00000
Other assets (Note 4)12,503,18012,510,41211,334,844
Total assets$430,584,445$466,679,816$522,481,622
Accounts payable$625,326$155,731$395,012
Taxes payable3,165,3135,938,5153,458,044
Accrued expenses (Note 5)33,967,11034,794,45943,472,113
Deferred revenue24,239,54030,971,81336,476,917
Tax reserves (Note 8)15,218,98314,418,98311,499,037
Total liabilities77,216,27286,279,50195,301,123
Common stock, $1.00 par value, authorized
40,000,000 shares, issued and outstanding
35,687,426 shares in 2008, 35,822,426 shares
in 2009 and 36,186,164 shares in 201035,687,42635,822,42636,186,164
Additional paid-in capital62,290,65767,150,65780,605,225
Retained income267,569,536259,442,204281,854,958
Unrealized security gains (losses), net of tax(12,179,446)17,985,02828,534,152
Shareholder equity353,368,173380,400,315427,180,499
Total liabilities and shareholder equity$430,584,445$466,679,816$522,481,622
The accompanying notes are an integral part of these financial statements.
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Statements of Income for the Years Ended December 31, 2008, 2009 and 2010
Dec 31, 2008Dec 31, 2009Dec 31, 2010
Product revenue$195,688,275$175,890,430$226,807,931
Service revenue202,241,320217,134,584232,290,557
Total revenue (Note 1)397,929,595393,025,014459,098,488
Operations, development181,856,359186,839,275204,445,862
Selling, G & A (Note 6)86,010,12786,295,79799,886,559
Operating expenses267,866,486273,135,072304,332,421
Operating income130,063,109119,889,942154,766,067
Other income (Note 7)(37,219,151)14,123,12621,725,896
Other expense (Note 7)8,387,1207,116,3436,902,473
Pretax income84,456,838126,896,725169,589,490
State income tax10,677,9169,983,60112,341.123
Federal income tax38,110,18335,079,79348,423,063
Income tax (Note 8)48,788,09945,063,39460,764,186
Net income$35,668,739$81,833,331$108,825,304
The accompanying notes are an integral part of these financial statements.
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Statements of Shareholder Equity for the Years Ended December 31, 2008, 2009 and 2010
CommonStock Retained Shareholder
# of sharesPaid-in capital income equity
Balance, December 31, 200735,481,271$90,350,348$321,703,233$413,464,575
Issuance of common stock pursuant
to the 2004 Stock Purchase Plan206,1557,627,735 7,627,735
Net income 35,668,73935,668,739
Unrealized security losses, net of tax (13,590,440)
Dividends paid (89,802,436)(89,802,436)
Balance, December 31, 200835,687,426$97,978,083$267,569,536$353,368,173
Issuance of common stock
sold to a Director15,000555,000 555,000
Issuance of common stock
to the Profit Sharing Plan120,0004,440,000 4,440,000
Net income 81,833,33181,833,331
Unrealized security gains 30,164,474
Dividends paid (89,960,663)(89,960,663)
Balance, December 31, 200935,822,426 $102,973,083$259,442,204$380,400,315
Issuance of common stock pursuant
to the 2004 Stock Purchase Plan243,7389,018,306 9,018,306
Issuance of common stock
to the Profit Sharing Plan120,0004,800,000 4,800,000
Net income 108,825,304108,825,304
Unrealized security gains 10,549,124
Dividends paid (86,412,550)(86,412,550)
Balance, December 31, 201036,186,164$116,791,389$281,854,958$427,180,499
The accompanying notes are an integral part of these financial statements.
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Statements of Cash Flows for the Years Ended December 31, 2008, 2009 and 2010
Dec 31, 2008Dec 31, 2009Dec 31, 2010
Net income$35,668,739$81,833,331$108,825,304
Depreciation expense9,660,9209,916,8659,880,412
Stock contributions to qualified profit sharing plan04,440,0004,800,000
Write-downs of marketable securities65,016,3451,725,0000
Reversal of prior write-downs(13,790,380)(72,680)(4,642,893)
(Gain) loss on sales of marketable securities 6,650,590(3,277)865
Deferred taxes on unrealized securities loss (gain)2,893,620(1,952,961)0
Change in accounts receivable, net of reserve(10,124,109)(2,251,819)(5,571,458)
Change in accounts payable230,209(469,595)239,281
Change in taxes payable(2,212,346)2,773,202(2,480,471)
Change in accrued expenses(508,842)827,3488,677,654
Change in deferred revenues(1,364,968)6,732,2735,505,104
Change in deferred taxes and tax reserves(2,793,511)914,7983,029,742
Net cash from operating activities89,326,267104,412,485128,263,540
Purchases of marketable securities(60,262,610)(44,045,513)(20,797,646)
Sales of marketable securities53,637,03458,733,89935,283,348
Purchases of fixed assets(11,251,283)(3,419,246)(8,016,749)
Change in other assets1,122,109(7,232)1,218,250
Net cash (used in) from investing activities(16,754,750)11,261,9087,687,203
Sales of common stock7,627,735555,0009,018,306
Dividends paid(89,802,436)(89,960,663)(86,412,550)
Net cash used in financing activities(82,174,701)(89,405,663)(77,394,244)
Net change in cash and equivalents(9,603,184)26,268,73058,556,499
Cash and equivalents at beginning of year22,567,94012,964,75639,233,486
Cash and equivalents at end of year$12,964,756$39,233,486$97,789,985
Supplemental Disclosure:
Cash paid for income taxes$53,396,731$41,842,931$60,467,824
Cash paid for interest$0$0$0
The accompanying notes are an integral part of these financial statements.
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Notes to Financial Statements December 31, 2010
(1) OPERATIONS AND ACCOUNTING POLICIES
MEDITECH is engaged in the development, manufacture, licensing and support of computer software products for the hospital market. The principal market for its products consists of health care providers located primarily in the United States and Canada.
The accompanying financial statements reflect the application of certain accounting policies discussed below. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
(a) Revenue Recognition
MEDITECH follows the provisions of ASC 985-605-25, Software Revenue Recognition, and ASC 605-35-25, Construction-Type and Production-Type Contracts. MEDITECH enters into perpetual software license contracts which provide for a customer deposit upon contract execution, milestone billings during the implementation phase and fixed monthly support fees thereafter.
MEDITECH classifies software fees and related implementation fees together as product revenue in the statement of income and recognizes these fees as revenue upon completion of each contract milestone. MEDITECH classifies post-implementation support fees as service revenue in the statement of income and recognizes these fees as revenue when the related services are rendered.
MEDITECH follows the provisions of ASC 605-45-15, Reimbursements Received for Out-of-Pocket Expenses. Such expenses are characterized as product revenue with offsetting operating expenses included in the income statement.
(b) Software Development Costs
MEDITECH follows the provisions of ASC 985-20, Accounting for the Costs of Computer Software to Be Sold, Leased or Marketed. ASC 985-20 establishes standards for capitalizing software development costs incurred after technological feasibility of the software development projects is established and the realizability of such capitalized costs through future operations is expected, if such costs become material. To date, development costs incurred by MEDITECH after technological feasibility has been established have been immaterial and as such have been charged to operations as incurred.
(c) Cash and Equivalents
MEDITECH considers all highly liquid investments purchased with original maturities of 90 days or less to be cash equivalents.
(d) Common Stock Dividend Policy
MEDITECH's Board of Directors has full discretion regarding the timing and amounts of dividends paid on common stock. The annual dividend paid quarterly on shares then outstanding for the past 3 years ended December 31 was $2.52, $2.52 and $2.40 per share.
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(e) Fixed Assets
MEDITECH carries all fixed assets on a cost basis and provides for depreciation in amounts estimated to allocate the costs thereof under the following depreciation methods and estimated useful lives:
DescriptionMethodUseful Life
Computer equipmentMACRS3-5 years
Furniture and fixturesMACRS7 years
Furniture and fixturesSL10 years
BuildingsSL31.5-40 years
Maintenance costs are expensed as incurred. Improvements are capitalized and depreciated over the asset's useful life.
During the 2nd quarter 2008 MEDITECH began staff member occupancy of a new facility. MEDITECH spent $6,000,404 for the land, $2,581,312 in architectural and engineering fees, and $33,190,036 in construction costs for this facility.
(f) Fair Value of Financial Instruments and Concentration of Credit Risk
The carrying value of MEDITECH's cash and cash equivalents, accounts receivable and accounts payable approximates their fair value due to the short-term nature of these financial instruments. MEDITECH's marketable securities are carried at fair value (see Note 2).
Financial instruments that potentially subject MEDITECH to concentrations of credit risk are principally cash, cash equivalents, marketable securities and accounts receivable. MEDITECH places its cash and cash equivalents in highly rated institutions. Concentration of credit risk with respect to accounts receivable is limited to certain customers to whom MEDITECH makes substantial sales. To reduce risk, MEDITECH routinely assesses the financial strength of its customers and, as a result, believes that its accounts receivable credit risk exposure is limited. MEDITECH maintains a reserve for doubtful accounts but historically has not experienced any significant credit losses related to an individual customer or groups of customers. As of December 31, 2008, 2009 and 2010 no individual customer accounted for greater than 10% of the outstanding accounts receivable.
(g) Net Income per Common 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 computed by dividing net income by the weighted average number of common shares outstanding for the past 3 years ended December 31 is as follows:
Net income$35,668,739$81,833,331$108,825,304
Average number of shares35,670,24635,709,92636,055,853
Earnings per share$1.00$2.29$3.02
The average number of shares outstanding during the periods reflects the issuance of common stock pursuant to the 2004 Stock Purchase Plan, the issuance of common stock to the Profit Sharing Plan and the issuance of shares sold to a Director.
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(h) Comprehensive Income
MEDITECH follows the provisions of ASC 220-10, Comprehensive Income, which 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 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. MEDITECH's comprehensive income including net unrealized gains or losses on marketable securities for the past 3 years ended December 31 is as follows:
Net income$35,668,739$81,833,331$108,825,304
Net unrealized (losses) gains(13,590,440)30,164,47410,549,124
Comprehensive income$22,078,299$111,997,805$119,374,428
(i) Segment, Geographic and Enterprise-Wide 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. MEDITECH's operating revenue percentage based on location of customer for the past 3 years ended December 31 is as follows:
United States90%86%89%
Canada8%11%9%
Other2%3%2%
One customer accounted for approximately 7%, 6% and 8% of total revenue for the past 3 years ended December 31.
(j) Recent Accounting Pronouncements
Effective January 1, 2008 MEDITECH adopted 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.
Effective June 30, 2009 MEDITECH adopted the provisions of ASC 855, Subsequent Events, which requires disclosure of the date through which subsequent events have been evaluated, as well as whether that date is the date the financial statements were issued or the date the financial statements were available to be issued. Management has evaluated subsequent events for potential disclosure in or adjustment to the financial statements through January 31, 2011, the date of filing of the Form 10-K. Based on such evaluation, no events have occurred that in the opinion of management warrant disclosure in or adjustment to the consolidation financial statements.
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(2) MARKETABLE 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 which consist of common and preferred equities 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 other-than-temporary. If the decline in fair value is 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 and evaluates its preferred securities for other-than-temporary impairment using an impairment model consistent with a debt security.
At December 31, 2010 MEDITECH's marketable securities had an adjusted cost basis of $160,353,893 and a fair value of $188,888,044. The difference included unrealized gains of $28,744,266 and unrealized losses of $210,115 which have been accounted for within comprehensive income. Those in loss status are preferred securities issued by large financial institutions and each loss is less than 1% of original cost. MEDITECH has evaluated the unrealized losses as of December 31, 2010 and has concluded that the unrealized losses are temporary in nature. The factors considered included the severity and duration of the loss, the intent and ability to hold these securities for an extended period of time until recovery, and that all of the issuers are current on dividend payments and maintain investment grade ratings. The effect of fluctuating interest rates, current economic and industry conditions, and the issuers' current financial position was also considered in order to reach the conclusion that these impairments were temporary at December 31, 2010.
The cost basis net of write-downs, unrealized gains, unrealized losses and fair market value of MEDITECH's holdings for the past 3 years ended December 31 are as follows:
Net cost of equities$128,534,995$170,197,566$160,353,893
Unrealized gains709,60319,052,09028,744,266
Unrealized losses(14,842,010)(1,067,062)(210,115)
Cost of notes58,000,000
Fair market value$172,402,588 $188,182,594$188,888,044
(3) RESERVE FOR DOUBTFUL ACCOUNTS
The components of the reserve for doubtful accounts for the past 3 years ended December 31 are as follows:
Reserve at beginning of year$1,000,000$1,210,000$1,070,000
Amounts charged to expense210,000 180,000
Amounts written off (140,000)
Reserve at end of year$1,210,000$1,070,000$1,250,000
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(4) OTHER ASSETS
MEDITECH follows the provisions of ASC 323-10, Investments - Equity Method and Joint Ventures, and as such, accounts for the equity investments in LSS Data Systems Inc. and MEDITECH South Africa in accordance with the cost method. Both companies license MEDITECH's software technology and re-license it to their respective customers. Each serves a market niche which is part of the overall medical market but is outside of the hospital market which MEDITECH serves. Meditech holds fully collateralized mortgage notes for loans to both companies to purchase land and buildings used as their corporate headquarters. MEDITECH believes the fair value of these investments and loan balances approximates their December 31, 2010 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. The values of assets acquired and liabilities assumed, including the identified intangibles, such as developed technology and backlog, and unidentified intangibles are based upon management's estimates of fair value as of the date of acquisition. An acquired deferred tax asset was also recognized to reflect the carryforward of net operating losses expected to be realized. Since the date of acquisition MEDITECH has presented the financial statements on a consolidated basis.
The identified intangibles were valued at $5,977,801, are being amortized over their 7 year useful lives and are included in other assets. A deferred tax liability was recognized to reflect the tax effect of these identified intangibles as such amounts are not deductible for tax purposes. The unidentified intangibles were valued at $1,211,786, are not amortizable and are also included in other assets. In accordance with ASC 805-10, this amount is measured at fair value on an annual basis for impairment testing, but reported at cost in our financial statements. MEDITECH conducted its annual income based fair value measurement test as of December 31, 2010 and has concluded these assets to be recoverable. PtCT merged with and into MEDITECH effective December 31, 2009.
The components of other assets for the past 3 years ended December 31 are as follows:
Investments$4,027,561$4,027,561$4,027,561
Mortgage Notes2,140,0003,001,2002,679,600
Intangibles6,335,6195,481,6514,627,683
Other assets$12,503,180$12,510,412$11,334,844
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(5) ACCRUED EXPENSES
The components of accrued expenses for the past 3 years ended December 31 are as follows:
Accrued bonuses$28,300,000$28,200,000$37,000,000
Accrued vacation3,514,5643,775,0004,000,000
Other2,152,5462,819,4592,472,113
Accrued expenses$33,967,110$34,794,459$43,472,113
(6) QUALIFIED PROFIT SHARING PLAN
MEDITECH has no obligation for post-employment or post-retirement benefits. MEDITECH maintains a qualified profit sharing plan which provides deferred compensation to substantially all of its staff members. Contributions to the plan are at the discretion of the Board of Directors and may be in the form of cash and shares of MEDITECH stock. The components of year-end contributions for the past 3 years ended December 31 are as follows:
Cash$7,000,000$2,160,000$4,200,000
120,000 shares at $37 per share 4,440,000
120,000 shares at $40 per share 4,800,000
$7,000,000$6,600,000$9,000,000
(7) OTHER INCOME AND EXPENSE
Other income consists primarily of rents, dividends, interest and marketable security activity. The components of other income for the past 3 years ended December 31 are as follows:
Rents$8,312,652$7,032,380$6,472,031
Dividends10,443,7558,952,94711,136,607
Interest2,754,966647,363329,198
Investment (losses) gains(57,876,556)(1,655,596)4,642,028
Other(853,968)(853,968)(853,968)
Other income($37,219,151)$14,123,126$21,725,896
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Other expense consists primarily of rental costs and charitable contributions. The components of other expense for the past 3 years ended December 31 are as follows:
Rental costs$6,732,120$6,419,382$6,142,473
Charitable contributions705,000715,000760,000
Other950,000(18,039)
Other expense$8,387,120$7,116,343$6,902,473
(8) INCOME TAXES, DEFERRED TAXES, AND TAX RESERVES
MEDITECH follows the provisions of ASC 740-10, Accounting for Income Taxes. The current and deferred components of the State and Federal income taxes for the past 3 years ended December 31 are as follows:
State current$10,852,888$10,092,590$11,235,734
State deferred(174,972)(108,989)1,105,389
State income tax$10,677,916$9,983,601$12,341,123
Federal current$38,635,102$36,024,942$43,996,148
Federal deferred(524,919)(945,149)4,426,915
Federal income tax$38,110,183$35,079,793$48,423,063
The effective income tax rate for the past 3 years ended December 31 is as follows:
Statutory U.S. income tax rate35.0%35.0%35.0%
Increase in taxes resulting from state income
taxes, net of federal income tax benefit8.2%5.1%4.7%
Dividend income exclusion(2.9%)(1.7%)(1.6%)
Valuation allowance20.7% 3.6%
Other(3.2%)(2.9%)(5.9%)
Effective tax rate57.8%35.5%35.8%
Deferred taxes relate to the earlier recognition of certain revenue and the later recognition of certain expenses for tax purposes. Cumulative unrealized investment write-downs which have been reflected in earnings are also a non-deductible expense for tax purposes. Because such capital losses can only be offset by future capital gains, a valuation allowance was established to reduce the deferred tax to the net amount expected to be realized. This valuation allowance has been increased to 100% of investment write-downs based on current recoverability expectations. The components of deferred taxes for the past 3 years ended December 31 are as follows:
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Prepaid tax on deposits over 1 year$3,489,868$3,555,279$4,676,286
Prepaid tax on accrued expenses1,710,0001,840,0002,100,000
Deferred tax on unrealized losses31,846,43719,660,00024,997,240
Valuation allowance(23,700,000)(13,533,838)(24,997,240)
Other1,494,9581,605,025400,491
Deferred taxes$14,841,263$13,126,466$7,176,778
Tax reserves relate to the uncertainty of research tax credit, domestic production activities deduction and state nexus. Key judgments are reviewed annually and adjusted to reflect current assessments. The years 2007 through 2010 are subject to examination by the IRS, and various years are subject to examination by state tax authorities. The components of tax reserves for the past 3 years ended December 31 are as follows:
Potential tax assessment$5,378,971$4,364,877$7,405,017
Interest and penalties9,840,01210,054,1064,094,020
Tax reserves$15,218,983$14,418,983$11,499,037
(9) SUPPLEMENTARY DATA
Unaudited operating results by quarter for the three years ended December 31, 2010 are as follows:
1st Q2nd Q3rd Q4th Q2008
Total revenue$96,757,127$97,209,002$100,589,254$103,374,212$397,929,595
Operating income31,095,14430,585,62833,235,82535,146,512130,063,109
Net income21,474,24216,323,695(27,064,517)24,935,32035,668,739
Net income per share$0.60$0.46($0.76)$0.70$1.00
1st Q2nd Q3rd Q4th Q2009
Total revenue$93,662,473$96,509,574$96,392,669$106,460,300$393,025,014
Operating income27,358,63529,644,78129,539,78433,346,744119,889,942
Net income17,176,86020,412,93420,486,15423,757,38381,833,331
Net income per share$0.48$0.57$0.57$0.67$2.29
1st Q2nd Q3rd Q4th Q2010
Total revenue$103,555,582$108,682,192$118,471,248$128,389,466$459,098,488
Operating income31,375,54934,478,71441,323,94747,587,857154,766,067
Net income21,526,66623,217,89831,957,35832,123,382108,825,304
Net income per share$0.60$0.64$0.89$0.89$3.02
Item 9
Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
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Item 9A
Item 9A - 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, the Chief Executive Officer and Chief Financial Officer have concluded MEDITECH's disclosure controls and procedures are effective at December 31, 2010 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.
MEDITECH's management is responsible for establishing, designing and maintaining internal controls over financial reporting that provide reasonable assurance to our Board of Directors and shareholders that the financial statements prepared are fairly presented. We have set assessment criteria in accordance with the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control's Integrated Framework. For the year ended December 31, 2010 we have made no changes in internal controls and our internal control over financial reporting is effective at a reasonable assurance level based on said criteria.
Item 9B
Item 9B - Other Information
During its regular January 2011 meeting the Board of Directors approved the issuance of up to 250,000 shares of common stock to be sold to staff members at $40.00 per share pursuant to the MEDITECH 2004 Stock Purchase Plan. At the same meeting the Board of Directors authorized and empowered the officers of MEDITECH to negotiate the acquisition by MEDITECH of LSS Data Systems on the terms and conditions tentatively agreed to by the CEOs of both companies.
PART III
Item 10
Item 10 - Directors, Executive Officers and Corporate Governance
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 positions held by each Director and Officer of MEDITECH on December 31, 2010, are shown below. There are no family relationships among the following persons.
Director or OfficerAgePosition with MEDITECH
A. Neil Pappalardo68Chairman and Director
Lawrence A. Polimeno69Vice Chairman and Director
Roland L. Driscoll81Director
Edward B. Roberts75Director
Morton E. Ruderman74Director
L. P. Dan Valente80Director
Howard Messing58President and Chief Executive Officer
Barbara A. Manzolillo58Treasurer, Chief Financial Officer and Clerk
Stuart N. Lefthes57Vice President of Sales
Christopher Anschuetz58Vice President of Technology
Robert G. Gale64Senior Vice President of Product Development
Joanne Wood57Senior Vice President of Client Services
Steven B. Koretz58Vice President of Client Services
Hoda Sayed-Friel52Vice President of Marketing
Michelle O'Connor44Vice President of Product Development
Leah Farina43Vice President of Client Services
Helen Waters46Vice President of Client Services
The address of all Officers and Directors is in care of Medical Information Technology, Inc., MEDITECH Circle, Westwood, MA 02090. The following is a description of the business experience during the past five years of each Director and Officer.
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A. Neil Pappalardo, the founder and Chairman of MEDITECH, has been its Chief Executive Officer until 2010, and has been a Director since 1969. He is also a Director of Palomar Medical Technologies, Inc.
Lawrence A. Polimeno has been the Vice Chairman of MEDITECH since 2002, has been its President and Chief Operating Officer prior to that, has been a Director since 1985, and has been with MEDITECH since 1969.
Roland L. Driscoll is the retired Chief Financial Officer of MEDITECH, has been a Director since 1985 and had been with MEDITECH since 1972 prior to his retirement in 1990.
Edward B. Roberts, co-founder of MEDITECH, is the David Sarnoff Professor of Management of Technology at the Sloan School of Management at the Massachusetts Institute of Technology, and has been a Director since 1969. He is also a Director of Sohu.com Inc.
Morton E. Ruderman, co-founder of MEDITECH, is Chief Executive Officer of CRES Development, a real estate developer, and has been a Director since 1969.
L. P. Dan Valente is Executive Chairman of Palomar Medical Technologies, Inc., retired Senior Vice President of EG&G, Inc. and has been a Director since 1972. He is also a Director of MKS Instruments.
Howard Messing has been the President and Chief Executive Officer of MEDITECH since 2010, has been its President and Chief Operating Officer since 2002, and has been with MEDITECH since 1974.
Barbara A. Manzolillo has been the Treasurer, Chief Financial Officer and Clerk since 1996, was the Treasurer prior to that, and has been with MEDITECH since 1975.
Stuart N. Lefthes has been the Vice President of Sales since 1997, was a Senior Manager prior to that, and has been with MEDITECH since 1983.
Christopher Anschuetz has been the Vice President of Technology since 1995, was a Senior Manager prior to that, and has been with MEDITECH since 1975.
Robert G. Gale has been the Senior Vice President of Product Development since 2007, was a Vice President of Product Development prior to that, and has been with MEDITECH since 1976.
Joanne Wood has been the Senior Vice President of Client Services since 2010, was a Vice President of Client Service prior to that, and has been with MEDITECH since 1983.
Steven B. Koretz has been the Vice President of Client Services since 1997, was a Senior Manager prior to that, and has been with MEDITECH since 1982.
Hoda Sayed-Friel has been the Vice President of Marketing since 2003, was a Senior Manager prior to that, and has been with MEDITECH since 1986.
Michelle O'Connor has been the Vice President of Product Development since 2007, was a Senior Manager prior to that, and has been with MEDITECH since 1988.
Leah Farina has been the Vice President of Client Services since 2010, was a Senior Manager prior to that, and has been with MEDITECH since 1989.
Helen Waters has been the Vice President of Client Services since 2010, was a Senior Manager prior to that, and has been with MEDITECH since 1990.
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THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors oversees MEDITECH's business affairs and monitors the performance of management, but is not involved in the day-to-day operations. The Directors meet regularly with the CEO, the CFO, other officers and our independent registered public accounting firm; read reports and other materials; and participate in Board and committee meetings. The Board currently consists of 6 members. During 2010 the Board held 4 regularly scheduled quarterly meetings and all 6 members attended all 4 meetings. Messrs. Driscoll, Roberts, Ruderman and Valente are "independent" as defined by the rules of the NYSE and NASDAQ.
The Board of Directors has an Audit Committee and a Charitable Contribution Committee. During 2010 each committee member attended all committee meetings. The following is a description of the committees.
The Audit Committee consists of Messrs. Driscoll and Valente. Both members are former CPAs and audit committee financial experts within the meaning of applicable rules under the Securities Exchange Act of 1934, as amended. The committee met 6 times in 2010 to review accounting practices and advise MEDITECH's CFO. In addition, the committee met with MEDITECH's Independent Registered Public Accounting firm and reviewed MEDITECH's business operations, industry, financial performance, business and financial risks, processes and controls, key policies, legal and regulatory requirements, code of ethical conduct and new or unusual transactions. The Committee does not have a written charter. The Committee submits its annual report to the Board of Directors each April.
The Board of Directors no longer has an Executive Compensation Committee. Instead, the full Board annually establishes the criteria for and the total amount of the Officer Bonus and thereafter sets the salary and bonus amount for each of the officers.
The Charitable Contribution Committee consists of Messrs. Pappalardo, Polimeno and Messing. This committee meets at least 6 times a year to review the criteria for the year's charitable contribution program, meets and evaluates each organization under consideration and determines the amount to be contributed to each organization for the year. During December 2010 the committee contributed $760,000 to 43 cultural, educational and social service organizations within the greater Boston area.
The Board of Directors does not have a nominating committee. Instead, the full Board, because of its small size, carries out the duties of a nominating committee. The Board considers a broad range of characteristics related to qualifications, background and diversity of nominees based on MEDITECH's current business needs. The Board has not adopted written guidelines regarding nominees for Director.
The Board of Directors is actively involved in oversight of risks which could affect MEDITECH. The Board receives regular quarterly reports from Officers which cover topics such as financial, technological, regulatory and reputational risk. Once a year the full Board meets with all the Officers to review their performance and responsibilities.
During 2005 a Code of Ethical Conduct was created by management and adopted by the Board of Directors in an effort to outline the principles established at MEDITECH which help guide the actions of its staff, Officers and Directors. This Code sets forth ethical standards of conduct for all to follow and provides a framework for decision-making. This Code is intended to promote proper conduct at all levels of business in compliance with all applicable laws and regulations as well as to deter wrongdoing. These guiding principles propel MEDITECH forward towards future success in a continued tradition of "ingenuity delivered with integrity" in all of our business relationships. The Code of Ethical Conduct is available on MEDITECH's web site and any waiver for senior management will be disclosed there as well.
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Item 11
Item 11 - Executive Compensation
There are no employment contracts providing for continued compensation in effect for any Officer of MEDITECH. MEDITECH has no Stock Award programs, no Stock Option programs and no Non-equity Incentive plans. The compensation received by MEDITECH's Chief Executive Officer, Chief Financial Officer and the three most highly compensated other Officers for the past 3 years ended December 31 is summarized in the following table. The deferred columns represent, respectively, the annual increase in the individual's balance in the MEDITECH Profit Sharing Plan and the individual's share of MEDITECH's annual contribution to this Plan.
Name and PositionYearSalaryBonusDeferredDeferredTotal
A. Neil Pappalardo2010$360,000$725,406$0$0$1,085,406
Chairman and2009360,00021,78200381,782
Director2008360,00024,15900384,159
Lawrence A. Polimeno2010$180,000$525,406$129,077$5,328$839,811
Vice Chairman and2009180,000421,78249,9334,133655,848
Director2008180,000524,15977,5974,844786,600
Howard Messing2010$264,000$675,406$129,077$5,328$1,073,811
President and Chief2009264,000421,78249,9334,133739,848
Executive Officer2008264,000549,15977,5974,844895,600
Barbara A. Manzolillo2010$228,000$375,406$129,077$5,328$737,811
Treasurer and Chief2009228,000321,78249,9334,133603,848
Financial Officer2008228,00024,15977,5974,844334,600
Stuart N. Lefthes2010$228,000$375,406$129,077$5,328$737,811
Vice President2009216,000321,78249,9334,133591,848
of Sales2008216,000349,15977,5974,844647,600
Annual Cash Bonus: MEDITECH pays a Staff Bonus to all staff members, including officers, in recognition of services rendered by them during each calendar year. The individual portion of the Staff Bonus payable to each recipient is determined by prorating the sum of the recipient's last five years of cash compensation (capped at $600,000). MEDITECH also pays an Officer Bonus solely to the officers, in recognition of services rendered by them during the calendar year. The individual portion of the Officer Bonus payable to each recipient is determined by the Board. Cash bonuses are paid to the designated recipient during the following January. In light of MEDITECH's reduced net income for 2008, Mr. Pappalardo and Ms. Manzolillo requested the Board issue them only their share of the Staff Bonus and nothing from the Officer Bonus. Similarly because of MEDITECH's reduced revenue and operating profit for 2009, Mr. Pappalardo requested the Board issue him only his share of the Staff Bonus and nothing from the Officer Bonus.
Profit Sharing Plan: MEDITECH maintains a qualified defined contribution plan for all of MEDITECH's staff known as the Medical Information Technology, Inc. Profit Sharing Plan. All of the staff 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 of all eligible members for the Plan year (capped at $100,000). No allocation is allowable under this Plan to owners of 10% or more of MEDITECH's common stock. Contributions by members are not permitted. Benefits under the Plan are considered deferred compensation and become fully vested after five years of continuous service with MEDITECH. 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.
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Compensation of Directors: The members of the Board of Directors who are not Officers of MEDITECH currently receive a fee of $8,000 for each quarterly meeting fully attended, with such fee being deemed to also cover any special meetings, conference or committee time, and incidental expenses expended by such directors on behalf of MEDITECH during the year.
Item 12
Item 12 - Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
The following table provides information as of December 31, 2010 with respect to the shares of common stock beneficially owned by each person known by MEDITECH to own more than 5% of MEDITECH's outstanding common stock, each Director of MEDITECH, each Executive Officer named in the Compensation Table and by all Directors and Officers of MEDITECH 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.
Name of Number of SharesPercentage
Shareholder,of Common Stockof Shares of
Director or OfficerBeneficially OwnedCommon Stock
A. Neil Pappalardo*13,982,40538.64%
MEDITECH Profit Sharing Trust*4,584,39212.67%
Morton E. Ruderman4,532,70412.53%
Curtis W. Marble3,500,0009.67%
Grossman Group2,061,1445.70%
Lawrence A. Polimeno1,050,0002.90%
Edward B. Roberts774,1682.14%
Roland L. Driscoll528,0001.46%
Howard Messing373,0001.03%
Barbara A. Manzolillo205,0000.57%
Stuart N. Lefthes103,0000.28%
L. P. Dan Valente100,0000.28%
17 Directors and Officers as a Group*22,055,42761.15%
*The number of shares indicated for Mr. Pappalardo includes the shares owned by the MEDITECH Profit Sharing Trust. Mr. Pappalardo is the sole Trustee of the MEDITECH Profit Sharing Trust and therefore is entitled to vote its shares in addition to his own 9,398,013 shares. Likewise the number of shares indicated for the 17 Directors and Officers as a Group includes the shares owned by the MEDITECH Profit Sharing Trust.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
During 2010, the MEDITECH Profit Sharing Trust filed Forms 4 for its purchases of MEDITECH stock, but some of these filings were late. To MEDITECH's knowledge, based solely on a review of the reports given to MEDITECH, all Section 16(a) filing requirements applicable to its executive officers, Directors and greater-than-10% shareholders were satisfied in 2010.
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Item 13
Item 13 - Certain Relationships and Related Transactions, and Director Independence
A. Neil Pappalardo, Chairman and Director, purchased for cash from MEDITECH 25,000 shares of common stock at $37 per share in February 2008 and 25,000 shares of common stock at $37 per share in February 2010. No shares were purchased from MEDITECH during 2009.
Lawrence A. Polimeno, Vice Chairman and Director, purchased for cash from MEDITECH 8,000 shares of common stock at $37 per share in February 2010. No shares were purchase from MEDITECH during 2008 and 2009.
Howard Messing, President and Chief Executive Officer, purchased for cash from MEDITECH 15,000 shares of common stock at $37 per share in February 2008 and 15,000 shares of common stock at $37 per share in February 2010. No shares were purchase from MEDITECH during 2009.
Barbara A. Manzolillo, Treasurer, Chief Financial Officer and Clerk, purchased for cash from MEDITECH 5,000 shares of common stock at $37 per share in February 2008 and 5,000 shares of common stock at $37 per share in February 2010. No shares were purchase from MEDITECH during 2009.
Stuart N. Lefthes, Vice President of Sales, purchased for cash from MEDITECH 5,000 shares of common stock at $37 per share in February 2008 and 5,000 shares of common stock at $37 per share in February 2010. No shares were purchase from MEDITECH during 2009.
L. P. Dan Valente, Director, purchased for cash from MEDITECH 15,000 shares of common stock at $37 per share in February 2009. No shares were purchase from MEDITECH during 2008 and 2010.
Item 14
Item 14 - Principal Accountant Fees and Services
During 2010, audit and non-audit services included auditing MEDITECH's financial statements, reviewing unaudited quarterly financial information and discussing various accounting, tax, and regulatory matters. Fees paid for such services for the three years ended December 31 are as follows:
Annual audit and quarterly reviews$305,000$365,000$284,000
Audit related to Profit Sharing Trust12,00014,00014,000
Tax or all other matters10,00050,000
$327,000$429,000$298,000
It is the policy of the Audit Committee to pre-approve all audit and non-audit services to be provided to MEDITECH by its Independent Registered Public Accounting Firm and the above amounts were so approved.
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PART IV
Item 15
Item 15 - Exhibits
Exhibit 3.1: MEDITECH's Articles of Organization, as amended to date, is 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, is incorporated by reference to an exhibit to the annual report on Form 10-K for the year ended December 31, 2001.
Exhibit 10: MEDITECH 2004 Stock Purchase Plan is incorporated by reference to the annual report on Form 10-K for the year ended December 31, 2003.
Exhibit 23: Consent of Independent Registered Public Accounting Firm, 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 December 31, 2010.
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)
By: Howard Messing, Chief Executive Officer and President
(Signature)
By: Barbara A. Manzolillo, Chief Financial Officer and Treasurer
(Signature)
January 31, 2011
(Date)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on January 31, 2011.
A. Neil Pappalardo, Chairman and Director
(Signature)
Lawrence A. Polimeno, Vice Chairman and Director
(Signature)
Roland L. Driscoll, Director
(Signature)
Edward B. Roberts, Director
(Signature)
Morton E. Ruderman, Director
(Signature)
L. P. Dan Valente, Director
(Signature)
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