Medical Information Technology 10-Q 2009 Q2 Quarterly report

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, 2009

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ ] 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]

There were 35,702,426 shares of Common Stock, $1.00 par value, outstanding at June 30, 2009.

Page 1 of 11

Index to Form 10-Q	Page
Part I - Financial Information
Item 1 - Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheet as of December 31, 2008 and June 30, 2009	3
Consolidated Income Statement for Three and Six Months Ended June 30, 2008 and 2009	4
Consolidated Cash Flow Statement for Six Months Ended June 30, 2008 and 2009	5
Notes To Consolidated Financial Statements	6
Item 2 - Management's Discussion and Analysis of Operating Results and Financial Condition	9
Item 3 - Quantitative and Qualitative Disclosures About Market Risk	10
Item 4 - Controls and Procedures	10
Part II - Other Information
Item 1 - Legal Proceedings	11
Item 1A - Risk Factors	11
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds	11
Item 3 - Defaults Upon Senior Securities	11
Item 4 - Submission of Matters to a Vote of Shareholders	11
Item 5 - Other Information	11
Item 6 - Exhibits	11
Signatures	11

Page 2 of 11

Part I - Financial Information

Item 1 - Consolidated Financial Statements (Unaudited)

Consolidated Balance Sheet as of December 31, 2008 and June 30, 2009

	Dec 31, 2008	Jun 30, 2009
Cash and equivalents	$12,964,756	$41,061,260
Marketable securities	152,402,588	139,687,931
Accounts receivable, less reserves	47,569,950	47,052,242
Deferred taxes	14,841,263	13,286,289
Current assets	227,778,557	241,087,722
Computer equipment	9,513,945	9,398,071
Furniture and fixtures	42,068,652	41,864,685
Buildings	179,396,034	179,396,034
Land	33,407,959	33,407,959
Accumulated depreciation	(94,083,882)	(97,060,771)
Fixed assets	170,302,708	167,005,978
Marketable securities	20,000,000	0
Other assets	12,503,180	13,193,996
Total assets	$430,584,445	$421,287,696
Accounts payable	$625,326	$3,919,388
Taxes payable	3,165,313	838,814
Accrued expenses	33,967,110	22,109,457
Customer deposits	24,239,540	27,564,876
Tax reserves	15,218,983	14,918,983
Total liabilities	77,216,272	69,351,518
Common stock, $1.00 par value,
authorized 40,000,000 shares,
issued and outstanding 35,687,426
in 2008 and 35,702,426 in 2009	35,687,426	35,702,426
Additional paid-in capital	62,290,657	62,830,657
Retained income	267,569,536	260,183,725
Unrealized security losses, net of tax	(12,179,446)	(6,780,630)
Shareholder equity	353,368,173	351,936,178
Total liabilities and shareholder equity	$430,584,445	$421,287,696

Page 3 of 11

Consolidated Income Statement for Three and Six Months Ended June 30, 2008 and 2009

	3 months	ended on	6 months	ended on
	Jun 30, 2008	Jun 30, 2009	Jun 30, 2008	Jun 30, 2009
Product revenue	$47,085,813	$42,622,637	$94,934,021	$83,216,524
Service revenue	50,123,189	53,886,937	99,032,108	106,955,523
Total revenue	97,209,002	96,509,574	193,966,129	190,172,047
Operations, development	45,345,143	46,182,617	90,145,758	92,666,919
Selling, G & A	21,278,231	20,682,176	42,139,599	40,501,712
Operating expense	66,623,374	66,864,793	132,285,357	133,168,631
Operating income	30,585,628	29,644,781	61,680,772	57,003,416
Other income	(2,101,951)	3,640,893	3,307,216	5,829,652
Other expense	2,200,159	1,781,733	4,233,170	3,664,260
Pretax income	26,283,518	31,503,941	60,754,818	59,168,808
State income tax	1,979,706	2,390,251	4,611,720	4,665,503
Federal income tax	7,980,117	8,700,756	18,345,161	16,913,511
Income tax	9,959,823	11,091,007	22,956,881	21,579,014
Net income	$16,323,695	$20,412,934	$37,797,937	$37,589,794

Page 4 of 11

Consolidated Cash Flow Statement for Six Months Ended June 30, 2008 and 2009

	6 months	ended on
	Jun 30, 2008	Jun 30, 2009
Net income	$37,797,937	$37,589,794
Depreciation expense	4,728,087	4,950,392
Write-down of marketable securities	15,016,345	1,725,000
Reversal of prior write-downs	(3,483,834)	0
Gain on sales of marketable securities	(7,126,111)	(27,200)
Deferred taxes on unrealized securities loss (gain)	2,935,970	(1,952,961)
Change in accounts receivable	(5,802,891)	517,708
Change in accounts payable	3,951,935	3,294,062
Change in taxes payable	(3,248,591)	(2,326,499)
Change in accrued expenses	(11,041,152)	(11,857,654)
Change in customer deposits	2,363,589	3,325,336
Change in deferred taxes and tax reserves	(9,443,093)	1,254,975
Net cash from operations	26,648,191	36,492,953
Purchases of marketable securities	(31,527,010)	(9,658,566)
Sales of marketable securities	47,086,845	48,027,200
Purchases of fixed assets	(8,909,041)	(1,653,662)
Change in other assets	546,984	(690,816)
Net cash from investing	7,197,778	36,024,156
Sales of common stock	7,627,735	555,000
Dividends paid	(44,836,278)	(44,975,605)
Net cash used in financing	(37,208,543)	(44,420,605)
Net change in cash and equivalents	(3,362,574)	28,096,504
Cash and equivalents at beginning	22,567,940	12,964,756
Cash and equivalents at end	$19,205,366	$41,061,260

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Notes To Consolidated Financial Statements

1. The unaudited consolidated 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, 2008 included in MEDITECH's Form 10-K/A filed on February 13, 2009. 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.

2. MEDITECH 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. 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.

	3 months	ended on	6 months	ended on
	Jun 30, 2008	Jun 30, 2009	Jun 30, 2008	Jun 30, 2009
Net income	$16,323,695	$20,412,934	$37,797,937	$37,589,794
Average number of shares	35,653,067	35,697,426	35,653,067	35,697,426
Earnings per share	$0.46	$0.57	$1.06	$1.05

The average number of shares outstanding during the periods reflects the issuance of 206,155 shares in February 2008 pursuant to the 2004 Stock Purchase Plan and the issuance of 15,000 shares sold to a Director in February 2009.

3. Effective April 1, 2009 MEDITECH adopted the provisions of Financial Accounting Standards Board Staff Position No. 115-2 and No. 124-2, Recognition and Presentation of Other-Than-Temporary Impairments (FAS 115-2/124-2). FAS 115-2/124-2 changes existing accounting requirements under SFAS 115 for measuring such impairment of debt securities, adds new disclosures, and extends disclosure requirements to interim reporting periods.

MEDITECH follows the provisions of Statement of Financial Accounting Standards No. 115 (SFAS 115), Accounting for Certain Investments in Debt and Equity Securities. SFAS 115 requires companies to classify their investments as trading, available-for-sale or held-to-maturity. MEDITECH's marketable securities consist of common and preferred equities which have been classified as available-for-sale. These are recorded in the financial statements at fair value and any unrealized gains or losses, net of tax, are reported as a component of shareholder equity. The fair value of marketable securities was determined based on quoted prices in active markets. In addition MEDITECH holds bank and government notes which have been classified as held-to-maturity. These are recorded in the financial statements at their cost which approximates their fair value.

SFAS 115 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. During the 1st quarter 2009 MEDITECH determined the decline in fair value of 6 equity issues to be other-than-temporary and reduced their cost basis by $1,725,000 to bring it in line with fair value.

Page 6 of 11

Beginning in the fourth quarter of 2008, MEDITECH began to evaluate its preferred securities for other-than-temporary impairment using an impairment model consistent with a debt security. This change in practice is in accordance with new accounting guidance related to these instruments, issued in a letter from the SEC to the FASB, dated October 14, 2008. Unlike equity securities, which use a "near term" period of recoverability when assessing impairment (usually six months), the assessment period for impairment of debt securities is dependent on the investor's ability and intent to hold the security until recovery, as well as an evaluation of the credit worthiness of the issuer.

At June 30, 2009 MEDITECH's marketable securities had an adjusted cost basis of $146,468,561 and a fair value of $139,687,931. The difference included gross unrealized gains of $4,313,518 and gross unrealized losses of $11,094,148, which have been accounted for within comprehensive income. Most of the securities in loss status are preferred securities issued by large financial institutions. None of these securities have been in a loss status in excess of 17 months.

MEDITECH has evaluated the unrealized losses as of June 30, 2009 in accordance with this new guidance, and has concluded that the unrealized losses are temporary in nature. The factors that MEDITECH considered included the severity and duration of the loss, MEDITECH's 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. MEDITECH also considered the effect of fluctuating interest rates, current economic and industry conditions, and the issuers' current financial position in order to reach its conclusion that these impairments were temporary at June 30, 2009. MEDITECH continues to evaluate whether the situation warrants further write-downs.

4. MEDITECH 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 or losses on marketable securities classified as available-for-sale, foreign currency translation adjustments and minimum pension liability adjustments.

	3 months	ended on	6 months	ended on
	Jun 30, 2008	Jun 30, 2009	Jun 30, 2008	Jun 30, 2009
Net income	$16,323,695	$20,412,934	$37,797,937	$37,589,794
Net unrealized securities (loss) gain	(1,203,614)	16,779,662	(4,403,955)	5,398,816
Comprehensive income	$15,120,081	$37,192,596	$33,393,982	$42,988,610

5. MEDITECH follows the provisions of Accounting Principles Board Opinion No. 18, The Equity Method of Accounting for Investments in Common Stock, 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. Included in these investments are the $2,020,000 balance on a mortgage note from LSS Data Systems Inc. and the $1,237,800 balance on a mortgage note from MEDITECH South Africa, both of which are fully collateralized by land and buildings owned and occupied as corporate headquarters by the borrowers. MEDITECH believes the fair value of these investments which are included in other assets approximates its carrying value of $7,285,361 at June 30, 2009.

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Patient Care Technologies, Inc. (PtCT) is engaged in the development, manufacture and licensing of computer software products and their support for the home health care market. During the 2nd quarter 2007 MEDITECH acquired PtCT which then became a wholly-owned subsidiary of MEDITECH. The financial statements for 2007 and thereafter are presented on a consolidated basis. MEDITECH accounted for this acquisition under the purchase method of accounting in accordance with FASB Statement No. 141, 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.

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. This amount is evaluated annually for impairment. MEDITECH conducted its annual impairment test as of December 31, 2008 and has concluded these assets to be recoverable.

6. MEDITECH follows the provisions of Financial Accounting Standards Board Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, which applies to all tax positions related to income taxes subject to SFAS 109, Accounting for Income Taxes. Based on the criteria set forth in FIN 48, MEDITECH's tax reserves amounted to potential tax assessments of $5,378,971 plus interest and penalties of $9,840,012 at December 31, 2008 and have not changed materially at June 30, 2009. These reserves relate to research tax credit, domestic production activities deduction, and state nexus. The years 2006 through 2008 are subject to examination by the IRS, and various years are subject to examination by state tax authorities.

7. MEDITECH 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, 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 months	ended on	6 months	ended on
Country	Jun 30, 2008	Jun 30, 2009	Jun 30, 2008	Jun 30, 2009
United States	90%	86%	90%	87%
Canada	8%	11%	8%	11%
All others	2%	3%	2%	2%

8. Effective January 1, 2008, MEDITECH adopted the provisions of Statement of Financial Accounting Standards No. 157 (SFAS 157), Fair Value Measurements. SFAS 157 provides for expanded disclosure and guidelines to determine fair market value of assets and liabilities. SFAS 157 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 full quantitative disclosure is provided under footnote 3.

9. Effective June 30, 2009 MEDITECH adopted the provisions of Financial Accounting Standards Board Statement No. 165, Subsequent Events (FAS 165). FAS 165 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. MEDITECH has evaluated subsequent events through July 31, 2009, the date of financial statement issuance.

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

Operating	3 months	ended on	Percent
Results	Jun 30, 2008	Jun 30, 2009	Change
Total revenue	$97,209,002	$96,509,574	(0.7%)
Operating income	30,585,628	29,644,781	(3.1%)
Net income	16,323,695	20,412,934	25.1%
Average number of shares	35,653,067	35,697,426	0.1%
Earnings per share	$0.46	$0.57	24.9%
Cash dividends per share	$0.63	$0.63

Total revenue from both existing and new customers decreased by $0.7 million. It was composed of $4.5 million in reduced product revenue and $3.8 million in additional service revenue.

Operating expense increased by $0.2 million or 0.4% due primarily to additional staff related expenses. The resultant operating income decreased by $0.9 million.

Other income increased by $5.7 million due primarily to the prior period's investment impairment. Other expense decreased by $0.4 million due primarily to reduced professional fees. The resultant pretax income increased by $5.2 million or 19.9%.

MEDITECH's effective tax rate decreased from 37.9% to 35.2% due primarily to the prior period's lack of research tax credit. Net income increased by $4.1 million due primarily to additional other income.

Operating	6 months	ended on	Percent
Results	Jun 30, 2008	Jun 30, 2009	Change
Total revenue	$193,966,129	$190,172,047	(2.0%)
Operating income	61,680,772	57,003,416	(7.6%)
Net income	37,797,937	37,589,794	(0.6%)
Average number of shares	35,653,067	35,697,426	0.1%
Earnings per share	$1.06	$1.05	(0.7%)
Cash dividends per share	$0.63	$0.63

Total revenue from both existing and new customers decreased by $3.8 million. It was composed of $11.7 million in reduced product revenue and $7.9 million in additional service revenue.

Operating expense increased by $0.9 million or 0.7% due primarily to additional staff related expenses. The resultant operating income decreased by $4.7 million.

Other income increased by $2.5 million due primarily to the prior period's investment impairment. Other expense decreased by $0.6 million due primarily to reduced professional fees. The resultant pretax income decreased by $1.6 million or 2.6%.

MEDITECH's effective tax rate decreased from 37.8% to 36.5% due primarily to the prior period's lack of research tax credit. Net income decreased by $0.2 million due primarily to reduced revenue.

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Financial Condition	Dec 31, 2008	Jun 30, 2009
Cash and equivalents	$12,964,756	$41,061,260
Total assets	430,584,445	421,287,696
Total liabilities	77,216,272	69,351,518
Shareholder equity	353,368,173	351,936,178
Outstanding number of shares	35,687,426	35,702,426
Shareholder equity per share	$9.90	$9.86

Accounts payable increased by $3.3 million during the first 6 months primarily because no payroll tax withholding was outstanding at December 31, 2008 while $3.0 million was outstanding at June 30, 2009.

Taxes payable decreased by $2.3 million during the first 6 months primarily because of additional state tax payments.

Accrued expenses decreased by $11.9 million during the first 6 months primarily because of the payment of $28.3 million in bonuses applicable to 2008, offset by the accrual of $15.7 million in bonus expenses applicable to 2009.

At June 30, 2009 MEDITECH's cash, cash equivalents and marketable securities totaled $180.7 million. Marketable securities consisted of preferred and common equities plus bank and government notes. For the first six months of 2009 cash flow from operations was $36.5 million, cash flow from investing was $36.0 million and cash flow used in financing was $44.4 million. The payment of $45.0 million in dividends to shareholders was the primary use of cash generated by operating activities during the period.

MEDITECH has no long-term debt. Shareholder equity at June 30, 2009 was $351.9 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

None.

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 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 MEDITECH's disclosure controls and procedures are, to the best of their knowledge, effective 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.

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Part II - Other Information

Item 1 - Legal Proceedings

None

Item 1A - Risk Factors

No material changes from risk factors as previously disclosed in MEDITECH's Form 10-K/A filed on February 13, 2009.

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

Neither MEDITECH nor the Medical Information Technology, Inc. Profit Sharing Trust purchased any shares of MEDITECH's common stock during the second quarter of 2009. However, during the second quarter A. Neil Pappalardo purchased 11,038 shares of MEDITECH's common stock at $37.00 per share for a total of $408,406 in individual private transactions.

Item 3 - Defaults Upon Senior Securities

None.

Item 4 - Submission of Matters to a Vote of Shareholders

None.

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 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.

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, 2009
(Date)

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

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