Medical Information Technology 10-Q 31 Oct 17 2017 Q3 Quarterly report Financial data

Document and Entity Information

Document and Entity Information	9 Months Ended
	Sep. 30, 2017shares
Document and Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2017
Document Fiscal Year Focus	2,017
Document Fiscal Period Focus	Q3
Entity Registrant Name	Medical Information Technology, Inc.
Entity Central Index Key	1,011,452
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Entity Common Stock, Shares Outstanding	37,190,854
Entity Current Reporting Status	Yes

Balance Sheets

Balance Sheets - USD ($)	Sep. 30, 2017	Dec. 31, 2016
Statement of Financial Position [Abstract]
Cash and equivalents	$ 7,211,770	$ 14,089,951
Marketable securities	324,467,670	325,878,440
Trade receivables, net of reserve	41,581,498	41,574,483
Contract assets, prepaid and other	12,180,539	12,571,540
Current assets	385,441,477	394,114,414
Computer equipment	14,283,487	14,948,503
Furniture and fixtures	80,441,547	75,710,297
Buildings	250,345,910	251,410,624
Land	43,163,211	43,195,576
Accumulated depreciation	(175,062,766)	(167,211,794)
Fixed assets	213,171,389	218,053,206
Other assets	10,003,443	10,764,422
Deferred tax assets	15,256,188	11,362,530
Total assets	623,872,497	634,294,572
Accounts payable	232,611	222,615
Taxes payable	3,427,458	2,652,067
Accrued expenses	26,117,160	22,542,136
Deferred revenue	57,603,996	33,702,333
Current liabilities	87,381,225	59,119,151
Deferred tax liabilities	30,587,133	33,411,551
Tax reserves	18,873,821	18,229,173
Total liabilities	136,842,179	110,759,875
Common stock value	37,190,854	37,190,854
Additional paid-in capital	122,907,959	122,907,959
Retained income	281,753,123	317,019,791
Unrealized after-tax security gains	45,178,382	46,416,093
Shareholder equity	487,030,318	523,534,697
Total liabilities and shareholder equity	$ 623,872,497	$ 634,294,572

Balance Sheets (Parenthetical)

Balance Sheets (Parenthetical) - $ / shares	Sep. 30, 2017	Dec. 31, 2016
Statement of Financial Position [Abstract]
Common stock par value	$ 1	$ 1
Common stock shares authorized	40,000,000	40,000,000
Common stock shares issued	37,190,854	37,190,854
Common stock shares outstanding	37,190,854	37,190,854

Statements of Income and Compre

Statements of Income and Comprehensive Income - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Income Statement [Abstract]
Product revenue	$ 41,029,137	$ 27,379,774	$ 110,436,929	$ 98,471,410
Service revenue	80,862,326	83,649,722	245,330,794	251,211,112
Total revenue	121,891,463	111,029,496	355,767,723	349,682,522
Operations, development	82,091,622	74,588,859	245,820,894	226,545,572
Selling, G & A	22,583,908	14,133,813	66,234,718	66,707,163
Operating expense	104,675,530	88,722,672	312,055,612	293,252,735
Operating income	17,215,933	22,306,824	43,712,111	56,429,787
Other income	9,227,317	11,087,829	26,531,870	31,162,068
Other expense	1,563,341	1,574,668	4,616,744	4,549,539
Pretax income	24,879,909	31,819,985	65,627,237	83,042,316
State income tax	1,130,000	(3,710,000)	3,053,000	(38,000)
Federal income tax	6,287,000	10,070,000	16,085,000	22,400,000
Income tax	7,417,000	6,360,000	19,138,000	22,362,000
Net income	17,462,909	25,459,985	46,489,237	60,680,316
Change in unrealized after-tax security gains	1,482,758	(6,254,993)	(1,237,711)	7,116,831
Comprehensive income	$ 18,945,667	$ 19,204,992	$ 45,251,526	$ 67,797,147

Statements of Cash Flow

Statements of Cash Flow - USD ($)	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016
Statement of Cash Flows [Abstract]
Net income	$ 46,489,237	$ 60,680,316
Depreciation and amortization expense	11,022,885	11,442,177
Pre-tax gain on sale of marketable securities	(10,605,608)	(16,285,173)
Pre-tax gain on sale of fixed assets	(864,218)	0
Change in trade receivables, net of reserve	(7,015)	2,879,079
Change in contract assets, prepaid and other	(5,777,723)	(4,255,519)
Change in deferred tax assets	3,037,016	0
Change in accounts payable	9,996	133,455
Change in taxes payable	775,391	(2,003,061)
Change in accrued expenses	3,575,024	(9,659,755)
Change in deferred revenue	9,102,192	6,168,732
Change in deferred tax liabilities	(542,673)	(9,549)
Change in tax reserves	644,648	502,461
Net cash from operations	56,859,152	49,593,163
Purchases of marketable securities	(23,151,431)	(37,677,167)
Sales of marketable securities	33,104,958	48,519,103
Purchases of fixed assets	(6,300,700)	(4,736,680)
Sales of fixed assets	1,867,600	0
Change in other assets	(82,772)	231,868
Net cash from investing	5,437,655	6,337,124
Dividends paid	(69,174,988)	(69,174,988)
Net cash used in financing	(69,174,988)	(69,174,988)
Net change in cash and equivalents	(6,878,181)	(13,244,701)
Cash and equivalents at beginning	14,089,951	23,565,899
Cash and equivalents at end	7,211,770	10,321,198
Supplemental Non-Cash Disclosure:
Net Adjustment for Revenue Recognition Standard (Note 8)	$ 12,580,916	$ 0

Significant Accounting Policies

Significant Accounting Policies	9 Months Ended
	Sep. 30, 2017
Significant Accounting Policies [Abstract]
Significant Accounting Policies	Note 1. Significant Accounting Policies The unaudited financial statements presented herein have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and note disclosures required by generally accepted accounting principles. These statements should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2016 included in MEDITECH's Form 10-K filed on January 31, 2017. 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.

Available For Sale Securities

Available For Sale Securities	9 Months Ended
	Sep. 30, 2017
Available For Sale Securities [Abstract]
Available For Sale Securities	Note 2. Available For Sale Securities MEDITECH follows the provisions of ASC 320-10, Investments - Debt and Equity Securities, which requires marketable securities be classified as trading, available-for-sale or held-to-maturity. MEDITECH classifies its marketable securities as available-for-sale and records them at fair value with any unrealized after-tax gains or losses reported as a component of shareholder equity. The fair value was determined based on quoted prices in active markets. ASC 320-10 requires that for each individual security classified as available-for-sale, a company shall determine whether a decline in fair value below the cost basis is temporary in nature. If the decline in fair value is not judged as such, the cost basis of the individual security shall be reduced to fair value and the amount of the write-down shall be reflected in earnings. MEDITECH follows the provisions of ASC 320-10-35 Subsequent Measurement, and evaluates its marketable securities for other-than-temporary impairment using an impairment model consistent with a debt security. The factors considered include the severity and duration of the loss, the intent and ability to hold the securities for an extended period of time until recovery, and whether issuers are current on dividend payments and maintain investment grade ratings. Finally, the effect of fluctuating interest rates, current economic and industry conditions, and the issuers' current financial position are also taken into consideration. MEDITECH follows the provisions of ASC 820-10, Fair Value Measurements and Disclosures, which provides for expanded disclosure and guidelines to determine fair market value of assets and liabilities. ASC 820-10 applies whenever other standards require or permit assets and liabilities to be measured at fair value, but does not expand the use of fair value in any new circumstances. MEDITECH's marketable securities represent assets measured at fair value on a recurring basis, and are considered Level 1 assets as defined by ASC 820-10. The following table indicates the original cost, unrealized pre-tax gains and losses, and fair market value of MEDITECH's securities. The change in unrealized after-tax security gains and losses have been accounted for within comprehensive income. There was an unrealized pre-tax loss as of September 30, 2017. Dec 31, 2016 Sep 30, 2017 Original cost $248,518,286 $249,170,367 Unrealized pre-tax gains 77,360,154 75,859,584 Unrealized pre-tax losses 0 (562,281) Fair market value $325,878,440 $324,467,670

Equity Method Investments

Equity Method Investments	9 Months Ended
	Sep. 30, 2017
Equity Method Investments [Abstract]
Equity Method Investments	Note 3. Equity Method Investments MEDITECH follows the provisions of ASC 323-10, Investments - Equity Method and Joint Ventures, and as such, accounts for the equity investment in Meditech South Africa in accordance with the cost method. Meditech South Africa licenses MEDITECH's software technology and re-licenses it to its respective customers. Meditech South Africa serves a market niche which is part of the overall medical market but is outside of the health care market which MEDITECH serves. MEDITECH holds a fully collateralized mortgage note for a loan to Meditech South Africa to purchase land and a building used as its corporate headquarters. MEDITECH believes the fair value of this investment and loan balance approximates its September 30, 2017 carrying value. During the 2nd quarter 2007 MEDITECH acquired Patient Care Technologies, Inc. (PtCT), a company engaged in the development, manufacture, licensing and support of computer software products for the home health care market. MEDITECH accounted for this acquisition under the purchase method of accounting in accordance with ASC 805-10, Business Combinations. PtCT merged with and into MEDITECH effective December 31, 2009. During the 1st quarter 2011 MEDITECH acquired LSS Data Systems, Inc. (LSS), a company engaged in the development, manufacture, licensing and support of ambulatory information system software for physician practices. MEDITECH accounted for this acquisition under the purchase method of accounting in accordance with ASC 805-10, Business Combinations. LSS merged with and into MEDITECH effective December 31, 2013. MEDITECH follows the provisions of ASC 350-20-35 Intangibles, Goodwill and Other Qualitative Testing. MEDITECH annually assesses qualitative factors of its goodwill and intangible assets for impairment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The evaluation assesses all relevant economic, industry, regulatory, and legal facts and circumstances as well as overall performance. If, after assessing the totality of such facts and circumstances, MEDITECH determines that it is more likely than not that the fair value of a reporting unit is not less than its carrying amount, then no further goodwill impairment testing is necessary.

Income Tax Accounting

Income Tax Accounting	9 Months Ended
	Sep. 30, 2017
Income Tax Accounting [Abstract]
Income Tax Accounting	Note 4. Income Tax Accounting MEDITECH follows the provisions of ASC 740-10, Accounting for Income Taxes. Deferred taxes relate to the earlier recognition of certain revenue and the later recognition of certain expenses for tax purposes. They also relate to the increase in fair market value over the cost basis of marketable securities. Tax reserves relate to the uncertainty of state nexus. Key judgments are reviewed annually and adjusted to reflect current assessments. The years 2014 through 2016 are subject to examination by the IRS, and various years are subject to examination by state tax authorities.

Earnings Per Share

Earnings Per Share	9 Months Ended
	Sep. 30, 2017
Earnings Per Share [Abstract]
Earnings Per Share	Note 5. Earnings Per Share MEDITECH follows the provisions of ASC 260-10, Earnings per Share, which requires reporting both basic and diluted earnings per share. MEDITECH has no common share equivalents such as preferred stock, warrants or stock options which would dilute earnings per share. Thus, earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the applicable period. In general, the average number of shares reflects the annual issuance of shares sold to staff members in February pursuant to the 2004 Stock Purchase Plan or contributed to the MEDITECH Profit Sharing Trust in December. 3 months 3 months 9 months 9 months Sep 30, 2016 Sep 30, 2017 Sep 30, 2016 Sep 30, 2017 Net income $25,459,985 $17,462,909 $60,680,316 $46,489,237 Average number of shares 37,190,854 37,190,854 37,190,854 37,190,854 Earnings per share $0.68 $0.47 $1.63 $1.25

Comprehensive Income Presentati

Comprehensive Income Presentation	9 Months Ended
	Sep. 30, 2017
Comprehensive Income Presentation [Abstract]
Comprehensive Income Presentation	Note 6. Comprehensive Income Presentation MEDITECH follows the provisions of ASU 2011-05, Presentation of Comprehensive Income, which establishes standards for reporting comprehensive income and its components in financial statements. Comprehensive income is the total of net income and all other non-owner changes in equity including items such as unrealized after-tax gains or losses on marketable securities classified as available for sale, foreign currency translation adjustments and minimum pension liability adjustments. In MEDITECH's case net income plus the change in unrealized after-tax security gains is shown as comprehensive income in the income statement. 3 months 3 months 9 months 9 months Sep 30, 2016 Sep 30, 2017 Sep 30, 2016 Sep 30, 2017 Unrealized after-tax gains arising during the period on securities existing at period end ($2,859,983) $3,746,787 $17,671,021 $4,471,589 Unrealized after-tax gains arising before the period on securities sold during the period (3,395,010) (2,264,029) (10,554,190) (5,709,300) Change in unrealized after-tax security gains ($6,254,993) $1,482,758 $7,116,831 ($1,237,711)

Segment Reporting

Segment Reporting	9 Months Ended
	Sep. 30, 2017
Segment Reporting [Abstract]
Segment Reporting	Note 7. Segment Reporting MEDITECH follows the provisions of ASC 280-10, Segment Reporting. Based on the criteria set forth in ASC 280-10, MEDITECH currently operates in one operating segment, medical software and services. MEDITECH derives most 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 3 months 9 months 9 months Sep 30, 2016 Sep 30, 2017 Sep 30, 2016 Sep 30, 2017 United States 88% 89% 88% 88% Canada 10% 9% 10% 11% All others 2% 2% 2% 1%

New Revenue Recognition Standar

New Revenue Recognition Standard Adoption	9 Months Ended
	Sep. 30, 2017
New Revenue Recognition Standard Adoption [Abstract]
New Revenue Recognition Standard Adoption	Note 8. New Revenue Recognition Standard Adoption Effective January 1, 2017 MEDITECH adopted the provisions of ASC 606, Revenue from Contracts with Customers, the new revenue recognition standard, with modified retrospective application. Under the new standard MEDITECH enters into perpetual software license contracts that 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. Such revenue is recognized over time with the transfer of promised goods and services to the customer. MEDITECH classifies post-implementation support as service revenue in the statement of income and recognizes said revenue over time when the related services are rendered. MEDITECH identifies the performance obligations in the contract, determines the transaction price, allocates the transaction price to the performance obligations, and recognizes revenue upon completion of performance obligations on the percent completion method based on completion of specific events. The primary factors taken into consideration involve tracking and measuring progress to complete software delivery, training on software usage, interfacing the software with other vendor software, and confirming when the software becomes operational at the customer's site. Modified retrospective application is effective January 1, 2017 for certain contracts not completed by December 31, 2016. Such revenue previously recognized based on completion of contract milestones will be based on the percentage of completion of specific events and all previously paid product installation costs are removed from Contract Assets, Prepaid and Other on balance sheet. The cumulative effect of applying the new standard is a reduction to the opening balance of retained earnings. The following summarizes these changes: Deferred Revenues increased by $14,799,470, for the addition of transitional revenues, resulting in an after-tax reduction of Retained Earnings of $8,879,682. The tax impact was recorded as an increase to Net Deferred Taxes of $5,919,788. Contract Assets, Prepaid and Other were reduced by $6,168,724, for the removal of product installation costs, resulting in an after-tax reduction to retained earnings of $3,701,234. The tax impact was recorded as an increase to Net Deferred Taxes of $2,467,490. Deferred revenues and revenue claimed as specific events attained under the new percentage of completion standard were $868,466 and $6,234,703 for the three and nine months ended September 30, 2017 respectively. Deferred Revenues were $33,702,333 and $57,603,996 at December 31, 2016 and September 30, 2017 respectively. Also, during the quarter Contract Assets increased $2,927,729. Contract Assets, Prepaid and Other were $12,571,540 and $12,180,539 at December 31, 2016 and September 30, 2017 respectively.

Available For Sale Securities (

Available For Sale Securities (Details 1) - USD ($)	Sep. 30, 2017	Dec. 31, 2016
Available For Sale Securities [Abstract]
Original cost	$ 249,170,367	$ 248,518,286
Unrealized pre-tax gains	75,859,584	77,360,154
Unrealized pre-tax losses	(562,281)	0
Fair market value	$ 324,467,670	$ 325,878,440

Earnings Per Share (Details 1)

Earnings Per Share (Details 1) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Earnings Per Share [Abstract]
Net income	$ 17,462,909	$ 25,459,985	$ 46,489,237	$ 60,680,316
Average number of shares	37,190,854	37,190,854	37,190,854	37,190,854
Earnings per share	$ 0.47	$ 0.68	$ 1.25	$ 1.63

Comprehensive Income Presenta16

Comprehensive Income Presentation (Details 1) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Comprehensive Income Presentation [Abstract]
Unrealized after-tax gains arising during the period on securities existing at period end	$ 3,746,787	$ (2,859,983)	$ 4,471,589	$ 17,671,021
Unrealized after-tax gains arising before the period on securities sold during the period	(2,264,029)	(3,395,010)	(5,709,300)	(10,554,190)
Change in unrealized after-tax security gains	$ 1,482,758	$ (6,254,993)	$ (1,237,711)	$ 7,116,831

Segment Reporting (Details 1)

Segment Reporting (Details 1)	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Segment Reporting [Abstract]
United States	89.00%	88.00%	88.00%	88.00%
Canada	9.00%	10.00%	11.00%	10.00%
All others	2.00%	2.00%	1.00%	2.00%