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 SEPTEMBER 30, 2005
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 is an accelerated filer as defined in Rule 12b-2 of the Exchange Act. Yes [ ] No [X]
There were 34,750,437 shares of Common Stock, $1.00 par value, outstanding at September 30, 2005.
Page 1 of 10
| Index to Form 10-Q | Page |
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| Part I - Financial Information | |
| Item 1 - Financial Statements (Unaudited) | |
| Balance Sheet as of December 31, 2004 and September 30, 2005 | 3 |
| Statement of Income for the Three and Nine Months Ended September 30, 2004 and 2005 | 4 |
| Statement of Cash Flow for the Nine Months Ended September 30, 2004 and 2005 | 5 |
| Notes To Financial Statements | 6 |
| Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations | 7 |
| Item 4 - Controls and Procedures | 9 |
| Part II - Other Information | |
| Item 1 - Legal Proceedings | 9 |
| Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds | 10 |
| Item 6 - Exhibits | 10 |
| Signatures | 10 |
Page 2 of 10
Part I - Financial Information
Item 1 - Financial Statements (Unaudited)
Balance Sheet as of December 31, 2004 and September 30, 2005
(000 omitted)
| | Dec 31, 2004 | Sep 30, 2005 |
| |
|
|
| Cash and equivalents | $14,566 | $9,765 |
| Marketable securities | 192,701 | 221,447 |
| Accounts receivable less reserve | 32,082 | 32,094 |
| |
|
|
| Current assets | 239,349 | 263,306 |
| |
|
|
| Computer equipment | 7,797 | 7,824 |
| Furniture & fixtures | 28,960 | 30,426 |
| Buildings | 139,670 | 139,670 |
| Land | 26,604 | 26,604 |
| Accumulated depreciation | (68,558) | (72,808) |
| |
|
|
| Fixed assets | 134,473 | 131,716 |
| |
|
|
| Marketable securities | 45,000 | 39,990 |
| Investments | 8,493 | 8,313 |
| |
|
|
| Total assets | $427,315 | $443,325 |
| |
|
|
| Accounts payable | $282 | $3,325 |
| Taxes payable | 3,134 | 1,428 |
| Accrued expenses | 25,272 | 26,118 |
| Customer deposits | 14,585 | 19,109 |
| Deferred taxes & tax reserves | 13,992 | 13,447 |
| |
|
|
| Total liabilities | 57,265 | 63,427 |
| |
|
|
| Common stock $1.00 par value, | | |
| authorized 40,000,000 shares, | | |
| issued and outstanding 34,514,544 | | |
| in 2004 and 34,750,437 in 2005 | 34,514 | 34,750 |
| Additional paid-in capital | 24,269 | 30,874 |
| Retained income | 298,131 | 302,925 |
| Net unrealized gain on securities | 13,136 | 11,349 |
| |
|
|
| Shareholder equity | 370,050 | 379,898 |
| |
|
|
| Total liabilities and shareholder equity | $427,315 | $443,325 |
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Page 3 of 10
Statement of Income for the Three and Nine Months Ended September 30, 2004 and 2005
(000 omitted)
| | 3 months ended Sep 30 | 9 months ended Sep 30 |
| | 2004 | 2005 | 2004 | 2005 |
| |
|
|
|
|
| Product revenue | $36,947 | $39,548 | $110,280 | $118,148 |
| Service revenue | 33,390 | 36,387 | 98,186 | 106,964 |
| |
|
|
|
|
| Total revenue | 70,337 | 75,935 | 208,466 | 225,112 |
| |
|
|
|
|
| Operations, development | 29,364 | 31,306 | 88,020 | 91,817 |
| Selling, G & A | 15,778 | 16,898 | 45,245 | 50,605 |
| |
|
|
|
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| Operating expense | 45,142 | 48,204 | 133,265 | 142,422 |
| |
|
|
|
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| Operating income | 25,195 | 27,731 | 75,201 | 82,690 |
| |
|
|
|
|
| Other income | 5,475 | 5,708 | 17,025 | 17,837 |
| Other expense | 1,890 | 3,039 | 5,604 | 7,376 |
| |
|
|
|
|
| Pretax income | 28,780 | 30,400 | 86,622 | 93,151 |
| |
|
|
|
|
| State income tax | 2,544 | 2,752 | 7,635 | 8,521 |
| Federal income tax | 8,636 | 8,970 | 26,178 | 27,829 |
| |
|
|
|
|
| Income tax | 11,180 | 11,722 | 33,813 | 36,350 |
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|
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| Net income | $17,600 | $18,678 | $52,809 | $56,801 |
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Page 4 of 10
Statement of Cash Flow for the Nine Months Ended September 30, 2004 and 2005
(000 omitted)
| | 9 months ended Sep 30 |
| | 2004 | 2005 |
| |
|
|
| Net income | $52,809 | $56,801 |
| Realized gain on sales of marketable securities | | (990) |
| Depreciation expense | 5,784 | 5,656 |
| Change in accounts receivable | (2,936) | (12) |
| Change in accounts payable | 2,911 | 3,044 |
| Change in taxes payable | (2,035) | (1,707) |
| Change in accrued expenses | (514) | 846 |
| Change in customer deposits | 1,647 | 4,524 |
| Net effect of non-cash adjustments | 1,136 | 646 |
| |
|
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| Net cash from operations | 58,802 | 68,808 |
| |
|
|
| Purchases of marketable securities | (29,104) | (63,968) |
| Sales/maturities of marketable securities | | 38,244 |
| Purchases of equipment, furniture & fixtures | (1,601) | (2,898) |
| Proceeds from mortgage note receivable | 180 | 180 |
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| Net cash used in investing | (30,525) | (28,442) |
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| Sales of common stock | 5,544 | 6,841 |
| Dividends paid | (46,391) | (52,008) |
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| Net cash used in financing | (40,847) | (45,167) |
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| Net change in cash and equivalents | (12,570) | (4,801) |
| Cash and equivalents at beginning | 18,691 | 14,566 |
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| Cash and equivalents at end | $6,121 | $9,765 |
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Page 5 of 10
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, 2004 included in the Company's Form 10-K filed January 31, 2005. 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 the Company's financial position, results of operations and cash flow.
2. During 2005, the Company made certain reclassifications to amounts in its balance sheet. The September 30, 2005 deferred taxes and tax reserves of $13,447 thousand are now recorded as current and the corresponding amount of $13,992 thousand at December 31, 2004 has been reclassified for comparative purposes.
3. 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 for the Three and Nine Months Ended September 30, 2004 and 2005
(in thousands where applicable)
| | 3 months ended Sep 30 | 9 months ended Sep 30 |
| | 2004 | 2005 | 2004 | 2005 |
| |
|
|
|
|
| Net income | $17,600 | $18,678 | $52,809 | $56,801 |
| Average number of shares | 34,387 | 34,724 | 34,387 | 34,724 |
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| Earnings per share | $0.51 | $0.54 | $1.54 | $1.64 |
The average number of shares outstanding during the periods reflects the issuance of 213,221 shares in March 2004 and 235,893 shares in February 2005 pursuant to the 2004 Stock Purchase Plan.
4. 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 non-owner changes in equity including items such as net unrealized gains/losses/reclassifications on marketable securities classified as available for sale, foreign currency translation adjustments and minimum pension liability adjustments.
Comprehensive Income for the Three and Nine Months Ended September 30, 2004 and 2005
(000 omitted)
| | 3 months ended Sep 30 | 9 months ended Sep 30 |
| | 2004 | 2005 | 2004 | 2005 |
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|
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| Net income | $17,600 | $18,678 | $52,809 | $56,801 |
| Net unrealized gains/losses/reclassifications | 5,221 | (155) | (2,257) | (1,786) |
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| Comprehensive income | $22,821 | $18,523 | $50,552 | $55,015 |
Page 6 of 10
5. At September 30, 2005 the Company's marketable securities had a fair market value of $261,436,843 which includes a gross unrealized gain of $21,373,908 and a gross unrealized loss of $2,458,455. The gross unrealized loss is composed of 6 equities with an original cost of $33,390,605 and a fair market value of $30,932,150. These 6 equities have been in an unrealized loss status for less than 9 months. The Company considered the effect of rising interest rates and the issuers' current financial position in order to reach its conclusion that these impairments are temporary at September 30, 2005. The details are as follows:
Description
of Securities | Fair Market
Value | Unrealized
Loss |
|
|
|
| 3 common equities | $9,288,900 | $1,326,775 |
| 3 preferred equities | $21,643,250 | $1,131,680 |
6. 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 9 months of 2005, 90% of our operating revenue was derived from the United States, 9% from Canada and 1% from other countries, all of which is similar to prior years.
7. During the month of February from 1997 through 2003, the Company offered and sold shares of its common stock to its staff members in a manner which may not have complied with the registration requirements of certain federal and state securities laws. During the 4th quarter of 2004 the Company made a recision offer to these individuals so as to extinguish its liability, if any, for these potential securities law violations. None of these individuals accepted the recision offer.
Prior to the 4th quarter of 2004 the shares subject to recision rights were considered and treated as redeemable common stock for financial accounting purposes until such time as the recision rights terminated or were exercised. Therefore the recision amount and the related shares were classified as Temporary Equity. In late December, when the recision offer expired, the Company transferred the recision amount and related shares from Temporary Equity to Shareholder Equity.
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations for 3 Months Ended September 30, 2004 and 2005
(in thousands where applicable)
| | 3 months ended Sep 30 | |
| | 2004 | 2005 | Change |
| |
|
|
|
| Total revenue | $70,337 | $75,935 | 8.0% |
| Operating income | 25,195 | 27,731 | 10.1% |
| Net income | 17,600 | 18,678 | 6.1% |
| Average number of shares | 34,387 | 34,724 | 1.0% |
| Earnings per share | $0.51 | $0.54 | 5.1% |
| Cash dividends per share | $0.45 | $0.50 | 11.1% |
Page 7 of 10
Total revenue from both existing and new customers increased by $5.6 million. It was composed of a $2.6 million increase in product revenue and a $3.0 million increase in service revenue.
Operating expense increased by $3.1 million or 6.8% due to an overall increase in staff and additional bonus expense accruals. The resultant operating income increased by $2.5 million.
Other income increased by $0.2 million or 4.3% due primarily to increased dividends and interest. Other expense increased by $1.1 million or 60.8% due primarily to higher charitable donations and increased lawsuit related legal expenses. The resultant pretax income increased by $1.6 million or 5.6%.
The Company's effective tax rate decreased from 38.8% to 38.6%. Net income increased by $1.1 million due primarily to the greater increase in revenue compared to expense.
Results of Operations for 9 Months Ended September 30, 2004 and 2005
(in thousands where applicable)
| | 9 months ended Sep 30 | |
| | 2004 | 2005 | Change |
| |
|
|
|
| Total revenue | $208,466 | $225,112 | 8.0% |
| Operating income | 75,201 | 82,690 | 10.0% |
| Net income | 52,809 | 56,801 | 7.6% |
| Average number of shares | 34,387 | 34,724 | 1.0% |
| Earnings per share | $1.54 | $1.64 | 6.5% |
| Cash dividends per share | $1.35 | $1.50 | 11.1% |
Total revenue from both existing and new customers increased by $16.6 million. It was composed of a $7.8 million increase in product revenue and a $8.8 million increase in service revenue.
Operating expense increased by $9.2 million or 6.9% due to an overall increase in staff and additional bonus expense accruals. The resultant operating income increased by $7.5 million.
Other income increased by $0.8 million or 4.8% due primarily to $1.0 million realized gains from the redemption and sale of marketable securities. Other expense increased by $1.8 million or 31.6% due primarily to higher charitable donations and increased lawsuit related legal expenses. The resultant pretax income increased by $6.5 million or 7.5%.
The Company's effective tax rate remained unchanged at 39.0%. Net income increased by $4.0 million due primarily to the greater increase in revenue compared to expense.
Financial Condition as of December 31, 2004 and September 30, 2005
(in thousands where applicable)
| | Dec 31, 2004 | Sep 30, 2005 |
| |
|
|
| Cash and equivalents | $14,566 | $9,765 |
| Total assets | 427,315 | 443,325 |
| Total liabilities | 57,265 | 63,427 |
| Shareholder equity | 370,050 | 379,898 |
| Outstanding number of shares | 34,514 | 34,750 |
| Shareholder equity per share | $10.72 | $10.93 |
At September 30, 2005, one customer owed $4.2 million or 13% of the accounts receivable balance.
During the first 9 months accounts payable increased by $3.0 million primarily because no payroll tax withholding was outstanding at December 31, 2004 while $2.4 million was outstanding at September 30, 2005.
During the first 9 months taxes payable decreased by $1.7 million due primarily to additional state tax payments in 2005.
During the first 9 months accrued expenses increased by a nominal $0.8 million. The primary activity therein consisted of the payment of $21.3 million in bonuses applicable to 2004, offset by the accrual of $21.4 million in bonus expenses applicable to 2005.
During the first 9 months customer deposits increased by $4.5 million due to increase product bookings.
Page 8 of 10
Liquidity and Capital Resources:
At September 30, 2005 the Company's cash, cash equivalents and marketable securities totaled $271.2 million. Marketable securities consisted of preferred equities, common equities and government notes which can easily be converted to cash. During the first 9 months of 2005 cash flow from operations was $68.8 million, cash flow used in investing was $28.4 million and cash flow used in financing was $45.2 million. During the first 9 months of 2005 the payment of $52.0 million in dividends to shareholders was the primary use of cash generated by operating activities.
MEDITECH has no long-term debt. Shareholder equity at September 30, 2005 was $379.9 million. Management anticipates additions to property, plant and equipment 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 4 - Controls and Procedures
An evaluation was conducted under the supervision and with the participation of the Company's management, including the Chief Executive Officer and Chief Financial Officer, on the effectiveness of the Company's disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)14(c) 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 the Company's disclosure controls and procedures are, to the best of their knowledge, effective to ensure information requiring disclosure by the Company 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 the Company'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 the Company's internal control over financial reporting.
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 2004 Annual Report on Form 10-K.
On February 10, 2005, a former employee filed a complaint in the United States District Court for the District of Massachusetts against the Medical Information Technology Profit Sharing Plan and all six of the Company's Directors. The complaint is summarized in the 2005 Definitive Proxy Statement on Schedule 14A.
Page 9 of 10
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds
The Company did not repurchase any of its shares of common stock during the third quarter of 2005. However, during the quarter the Medical Information Technology, Inc. Profit Sharing Trust purchased 850 shares of the Company's common stock for a total of $26,350 in individual private transactions. Below is a table showing the purchases of common stock by the Trust during each month of the third quarter of 2005.
3rd quarter
of 2005 | shares
purchased | price per
share |
|
|
|
| July | none | n/a |
| August | 785 | $31 |
| September | 65 | $31 |
Item 6 - Exhibits
Exhibit 3.1: MEDITECH's Articles of Organization, as amended to date, is incorporated by reference to an exhibit to the Form 10 filed with the SEC on March 28, 1996, an exhibit to the annual report on Form 10-K for the year ended December 31, 2001 and an exhibit to the quarterly report on Form 10-Q for the quarter ended September 30, 2004.
Exhibit 3.2: MEDITECH's By-laws, as amended to date, are incorporated by reference to an exhibit to the annual report on Form 10-K for the year ended December 31, 2001.
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 September 30, 2005.
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)
October 31, 2005
(Date)
By: Barbara A. Manzolillo, Chief Financial Officer and Treasurer
(Signature)
Page 10 of 10
