UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2016

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)

Securities registered pursuant to Section 12(b) of the Exchange Act: None

Securities registered pursuant to Section 12(g) of the Securities Exchange Act: Common Stock, par value $1.00 per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act. Yes [ ] No [X]

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

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

Page 1 of 33

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

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 definition of large accelerated file, accelerated filer and smaller reporting company in Rule 12b-2 of the Securities 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 Securities Exchange Act). Yes [ ] No [X]

No public trading market exists for the registrant's common stock. There were 37,190,854 shares of common stock, $1.00 par value, outstanding at December 31, 2016.

Index to Form 10-KPage


Part I 
  Item 1 - Business3
  Item 1A - Risk Factors6
  Item 1B - Unresolved Staff Comments6
  Item 2 - Properties6
  Item 3 - Legal Proceedings6
  Item 4 - Mine Safety Disclosures6
Part II 
  Item 5 - Market for Registrant's Common Equity and Related Shareholder Matters6
  Item 6 - Selected Financial Data7
  Item 7 - Management's Discussion and Analysis of Operating Results and 
    Financial Condition7
  Item 7A - Quantitative and Qualitative Disclosures About Market Risk8
  Item 8 - Financial Statements and Supplemental Data9
  Item 9 - Changes in and Disagreements with Accountants on Accounting and 
    Financial Disclosure22
  Item 9A - Controls and Procedures23
  Item 9B - Other Information23
Part III 
  Item 10 - Directors, Executive Officers and Corporate Governance24
  Item 11 - Executive Compensation27
  Item 12 - Security Ownership of Certain Beneficial Owners and Management and 
    Related Shareholder Matters28
  Item 13 - Certain Relationships and Related Transactions, and Director Independence29
  Item 14 - Principal Accounting Fees and Services29
Part IV 
  Item 15 - Exhibits30
Signatures30
Exhibit 23 - Consent of Independent Registered Public Accounting Firm31
Exhibit 31 - Rule 13a-14(a) Certifications31
Exhibit 32 - Section 1350 Certifications33

Page 2 of 33

Part I

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 2016 combined product and service revenue was $462.3M, operating income was $69.9M and net income was $72.9M. Product bookings were $143.7M and the resultant year-end product backlog was $158.1M. By year-end MEDITECH had about 3,700 staff members, and about 2,400 active healthcare sites throughout the United States, Canada and the United Kingdom.

HEALTHCARE SOFTWARE

At the beginning 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. More recently, as healthcare organizations have increased the breadth of their services, MEDITECH has expanded its offering to include software that operates in home healthcare, ambulatory, mental health and long-term care settings.

Although the individual products could be operated in a stand alone fashion, a healthcare organization achieved maximum effectiveness when they were used in an integrated mode, sharing access to the common clinical and financial records. 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. Today MEDITECH calls this an Electronic Health Record abbreviated as an EHR.

COMPUTER HARDWARE

Sophisticated software, such as MEDITECH's, requires extensive computer and communication equipment to function. In spite of this, MEDITECH limits itself to specifying the aggregate components needed as well as suggesting typical configurations from certain hardware vendors. The responsibility is left to the healthcare organization to purchase the requisite hardware and secure a continuing source of maintenance service for it.

The hardware components traditionally consist of a set of central medium-sized computers and a large set of display terminals and printers distributed throughout the healthcare organization. All of these elements are interconnected by means of a standard high speed communication network. The computers execute the software and include large storage subsystems containing the permanent and common clinical, administrative and financial records of the healthcare organization.

Hardware technology evolves rapidly, and the current trend has been to replace the display terminals with desktop computers and mobile devices, 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.

Page 3 of 33

LICENSED SOFTWARE

MEDITECH requires a healthcare 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 minimizes liability arising from incorrect operation of the software.

MEDITECH generally 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 installations. As a result larger organizations pay more than smaller organizations. The monthly service fees are typically 1% of the product fees. A typical 150 bed acute care hospital which licenses much of our software might incur a $3,000,000 product fee, a $1,000,000 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 eleven company owned facilities - eight in the greater Boston area, one in Atlanta and two in the Minneapolis area.

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 lines, 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

Many of the direct sales staff, organized into regions, concentrate on new prospects. In addition, the rest of the sales staff monitor existing customers to expose them to MEDITECH's entire product line. Marketing activities and promotion are low key because healthcare organizations are easily identified, finite in number and generally send a request for proposal to vendors when they contemplate the purchase of an Electronic Health Record.

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.

Page 4 of 33

IMPLEMENTATION

To ensure a successful implementation, the staff must properly train a core group of customer personnel about the operation of the software and how to use it in their daily activity. To avoid interruptions from normal activities, MEDITECH invites the customer personnel to come to its corporate offices in the Boston area for intensive training sessions.

As implementation proceeds, the staff trains the customer in the use of certain dictionaries to fit the specific need of the environment, provides interfaces to non-MEDITECH systems and assists the customer in converting data from legacy systems. In addition, MEDITECH delivers, installs and trains the customer to test the licensed software on the customer's hardware. MEDITECH utilizes remote access communication technology to minimize the need to travel.

CUSTOMER SERVICE

Once an organization 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 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 200 hospitals and has been MEDITECH's largest customer for many years. HCA represented 7% of MEDITECH revenues in 2016.

COMPETITION

The market for healthcare 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 Epic, Cerner, McKesson and CPSI. In addition, there are competitors for components of MEDITECH's offerings. MEDITECH does not offer the breadth of products and services which some of the competition offers nor does some of the competition offer what MEDITECH offers. MEDITECH focuses exclusively on the healthcare 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.

Page 5 of 33

Item 1A - Risk Factors

There are numerous risk factors which may affect future results of operations. The healthcare industry is highly regulated and is subject to changing economic and political influences. Federal and state legislatures could modify the healthcare system in respect to reimbursement and financing. Healthcare organizations 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 to bring claims against software providers regarding injuries due to software or operational errors as well as breaches of security or privacy of medical or financial records. Healthcare organizations consolidating into an integrated healthcare 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 - Unresolved Staff Comments

None.

Item 2 - Properties

At year-end 2016 MEDITECH owned 11 facilities containing almost 1.7 million square feet of office space, all being well maintained Class A properties, 8 in the greater Boston area, 1 in Atlanta and 2 in the Minneapolis area. MEDITECH occupies 81% of the space and the remainder is leased to various tenants. MEDITECH has adequate space for its reasonable needs in the near future.

Item 3 - Legal Proceedings

None

Item 4 - Mine Safety Disclosures

Not applicable

PART II

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 2016 MEDITECH did not repurchase any of its shares of common stock. However, during 2016 the MEDITECH Profit Sharing Trust purchased 141,249 shares at $45.00 per share from existing shareholders in individual private transactions for an aggregate consideration of $6,356,205.

Page 6 of 33

No shares of MEDITECH common stock were offered or sold to staff members pursuant to the 2004 Stock Purchase Plan during 2016. During December 2016 MEDITECH contributed $9,000,000 in cash to the MEDITECH Profit Sharing Trust. At December 31, 2016, there were 1,977 shareholders of MEDITECH's common stock and 37,190,854 shares outstanding. MEDITECH has paid quarterly cash dividends continuously since 1980 and such annual Dividends paid per share during the last five years are set forth within the table in Item 6.

Item 6 - Selected Financial Data

MEDITECH's financial statements are presented in this 10-K. Selected financial data for the past 5 years ended December 31 are as follows:

 20122013201420152016
 




Full Year Operations:     
  Total revenue$597,838,787$579,645,457$517,002,274$475,525,581$462,256,468
  Operating income191,605,850163,615,515108,931,96367,128,62669,891,192
  Net income130,546,535133,328,172123,508,35570,066,79272,890,198
  Average shares36,777,38037,102,88337,142,93737,167,93737,190,854
  Net income/share$3.55$3.59$3.33$1.88$1.96
Year End Position:     
  Total assets$647,188,025$716,476,005$704,640,374$652,479,642$634,294,572
  Total liabilities109,391,458130,231,196128,313,314114,050,584110,759,875
  Shareholder equity537,796,567586,244,809576,327,060538,429,058523,534,697
  Shares outstanding36,935,20137,140,85437,165,85437,190,85437,190,854
  Shareholder equity/share$14.56$15.78$15.51$14.48$14.08
Other Financial Data:     
  Working capital$355,756,499$366,107,324$349,807,786$341,333,049$334,995,263
  Operating cash flow139,841,329130,019,64073,250,91079,245,82462,066,105
  Depreciation & amortization11,810,96012,934,30615,039,44415,277,30415,009,723
  Cash dividends/share$2.88$3.00$3.00$2.72$2.48

Item 7 - Management's Discussion and Analysis of Operating Results and Financial Condition

Comparison of Fiscal Years ended December 31, 2015 and 2016:

Total revenue from both existing and new customers decreased $13.3 million or 2.8% from $475.5 million in 2015 to $462.3 million in 2016. It was composed of a $22.4 million reduction in product revenue due primarily to lower product bookings, offset by a $9.2 million addition in service revenue.

Operating expense decreased $16.0 million or 3.9% from $408.4 million in 2015 to $392.4 million in 2016 due primarily to lower staff related costs, most of which was due to a non-recurring reduction in accrued bonus. The resultant operating income increased $2.8 million or 4.1% from $67.1 million in 2015 to $69.9 million in 2016.

Other income increased $3.4 million due primarily to additional gains from the sale of marketable securities. Other expense decreased by $0.6 million. The resultant pretax income increased $6.7 million or 7.1% from $95.2 million in 2015 to $102.0 million in 2016.

Page 7 of 33

MEDITECH's effective tax rate increased from 26.4% in 2015 to 28.5% in 2016 due primarily to the prior period's tax reserve revision. The resultant net income increased $2.8 million or 4.0% from $70.1 million in 2015 to $72.9 million in 2016.

Comparison of Fiscal Years ended December 31, 2014 and 2015:

Total revenue from both existing and new customers decreased $41.5 million or 8.0% from $517.0 million in 2014 to $475.5 million in 2015. It was composed of a $54.9 million reduction in product revenue due primarily to lower product bookings, offset by a $13.4 million addition in service revenue.

Operating expense increased $0.3 million or 0.1% from $408.1 million in 2014 to $408.4 million in 2015 due primarily to higher staff related costs. The resultant operating income decreased $41.8 million or 38.4% from $108.9 million in 2014 to $67.1 million in 2015.

Other income decreased $27.8 million due primarily to the prior period's gains from the sale of previously impaired marketable securities. Other expense decreased by $0.2 million. The resultant pretax income decreased $69.4 million or 42.2% from $164.6 million in 2014 to $95.2 million in 2015.

MEDITECH's effective tax rate increased from 25.0% in 2014 to 26.4% in 2015 due primarily to the prior period's reduced taxes on gains from the sale of previously impaired marketable securities. The resultant net income decreased $53.4 million or 43.3% from $123.5 million in 2014 to $70.1 million in 2015.

Financial Condition:

At December 31, 2016 MEDITECH's cash, cash equivalents and marketable securities totaled $340.0 million. Marketable securities consisted of preferred and common equities. During 2016 cash flow from operations was $62.1 million, cash flow from investing was $20.7 million and cash flow used in financing was $92.2 million. The payment of $92.2 million in dividends to shareholders was the primary use of cash generated by operating and investing activities during this period.

MEDITECH has no long-term debt. Shareholder equity at December 31, 2016 was $523.5 million. During 2016 management expended $7.6 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 and Estimates:

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 Notes 4, 8, 12 and 13 for income taxes.

Item 7A - Quantitative and Qualitative Disclosures About Market Risk

Market risk associated with equity securities is disclosed in Note 2 to the Financial Statements.

Page 8 of 33

Item 8 - Financial Statements and Supplemental Data

Financial Statements of Medical Information Technology, Inc.
As of December 31, 2014, 2015 and 2016
Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Medical Information Technology, Inc.:

We have audited the accompanying balance sheets of Medical Information Technology as of December 31, 2014, 2015 and 2016, and the related statements of income and comprehensive income, shareholder equity, and cash flows for the years then ended. 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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included 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, as well as 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 as of December 31, 2014, 2015 and 2016, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

Wolf & Company, P.C.
Boston, Massachusetts
January 31, 2017

Index to Financial StatementsPage


Balance Sheets as of December 31, 2014, 2015 and 201610
  
Statements of Income and Comprehensive Income 
  for the Years 2014, 2015 and 201611
  
Statements of Shareholder Equity for the Years 2014, 2015 and 201612
  
Statements of Cash Flows for the Years 2014, 2015 and 201613
  
Notes to Financial Statements14-21

Page 9 of 33

Balance Sheets
as of December 31, 2014, 2015 and 2016

 Dec 31, 2014Dec 31, 2015Dec 31, 2016
 


Cash and equivalents$21,089,887$23,565,899$14,089,951
Marketable securities363,742,759328,571,476325,878,440
Trade receivables, net of reserve48,572,64540,487,64641,574,483
Other receivables and prepaid20,496,02914,237,96412,571,540
 


  Current assets453,901,320406,862,985394,114,414
 


Computer equipment14,546,08414,624,94614,948,503
Furniture and fixtures71,174,81073,728,40675,710,297
Buildings245,099,444251,283,833251,410,624
Land42,233,12342,137,32343,195,576
Accumulated depreciation(146,165,740)(157,393,862)(167,211,794)
 


  Fixed assets226,887,721224,380,646218,053,206
    
Other assets13,627,12612,226,14610,764,422
Deferred taxes10,224,2079,009,86511,362,530
 


  Total assets$704,640,374$652,479,642$634,294,572
 


    
Accounts payable$479,882$284,460$222,615
Taxes payable3,869,3033,920,2122,652,067
Accrued expenses45,125,71639,781,12322,542,136
Deferred revenue20,093,20021,544,14133,702,333
 


  Current liabilities69,568,10165,529,93659,119,151
    
Deferred taxes37,456,16131,495,71233,411,551
Tax reserves21,289,05217,024,93618,229,173
 


  Total liabilities128,313,314114,050,584110,759,875
 


Common stock, $1.00 par value, authorized   
  40,000,000 shares, issued and outstanding   
  37,165,854 shares in 2014, 37,190,854 shares   
  in 2015 and 37,190,854 shares in 201637,165,85437,190,85437,190,854
Additional paid-in capital121,807,959122,907,959122,907,959
Retained income367,387,243336,362,911317,019,791
Unrealized after-tax security gains49,966,00441,967,33446,416,093
 


  Shareholder equity576,327,060538,429,058523,534,697
 


  Total liabilities and shareholder equity$704,640,374$652,479,642$634,294,572
 



The accompanying notes are an integral part of these financial statements.

Page 10 of 33

Statements of Income and Comprehensive Income
for the Years Ended December 31, 2014, 2015 and 2016

 Dec 31, 2014Dec 31, 2015Dec 31, 2016
 


Product revenue$205,070,319$150,170,631$127,725,979
Service revenue311,931,955325,354,950334,530,489
 


  Total revenue517,002,274475,525,581462,256,468
 


Operations, development296,636,408304,666,882307,959,189
Selling, G & A111,433,903103,730,07384,406,087
 


  Operating expense408,070,311408,396,955392,365,276
 


  Operating income108,931,96367,128,62669,891,192
    
Other income62,403,76234,628,76338,045,900
Other expense6,715,0886,528,1755,966,144
 


  Pretax income164,620,63795,229,214101,970,948
    
State income tax9,037,7532,729,2182,427,772
Federal income tax32,074,52922,433,20426,652,978
 


  Income tax41,112,28225,162,42229,080,750
 


  Net income$123,508,355$70,066,79272,890,198
    
Change in unrealized after-tax security gains(23,128,542)(7,998,670)4,448,759
 


  Comprehensive income$100,379,813$62,068,122$77,338,957
 



The accompanying notes are an integral part of these financial statements.

Page 11 of 33

Statements of Shareholder Equity
for the Years Ended December 31, 2014, 2015 and 2016

 
 
Common Stock
Paid-in capital
   Retained
    income
      Other
Comprehensive
 Shareholder
    equity
 



Balance, December 31, 2013$157,848,813$355,301,450$73,094,546$586,244,809
Issuance of common stock    
  to the Profit Sharing Plan1,125,000  1,125,000
Net income 123,508,355 123,508,355
Change in unrealized after-tax security gains  (23,128,542)(23,128,542)
Dividends paid (111,422,562) (111,422,562)
 



Balance, December 31, 2014$158,973,813$367,387,243$49,966,004$576,327,060
Issuance of common stock    
  to the Profit Sharing Plan1,125,000  1,125,000
Net income 70,066,792 70,066,792
Change in unrealized after-tax security gains  (7,998,670)(7,998,670)
Dividends paid (101,091,124) (101,091,124)
 



Balance, December 31, 2015$160,098,813$336,362,911$41,967,334$538,429,058
Net income 72,890,198 72,890,198
Change in unrealized after-tax security gains  4,448,7594,448,759
Dividends paid (92,233,318) (92,233,318)
 



Balance, December 31, 2016$160,098,813$317,019,791$46,416,093$523,534,697
 




The accompanying notes are an integral part of these financial statements.

Page 12 of 33

Statements of Cash Flows
for the Years Ended December 31, 2014, 2015 and 2016

 Dec 31, 2014Dec 31, 2015Dec 31, 2016
 


Net income$123,508,355$70,066,792$72,890,198
Depreciation and amortization expense15,039,44415,277,30415,009,723
Stock contributions to qualified profit sharing plan1,125,0001,125,000-
Pretax gain on sale of marketable securities(41,381,522)(13,821,395)(17,804,190)
Pretax gain on sale of fixed assets-(29,000)-
Change in trade receivables, net of reserve2,066,0958,084,999(1,086,837)
Change in other receivables and prepaid(9,814,114)6,258,0651,666,424
Change in accounts payable(1,054,603)(195,422)(61,845)
Change in taxes payable1,814,60050,909(1,268,145)
Change in accrued expenses(8,851,095)(5,344,593)(17,238,987)
Change in deferred revenue(15,410,126)1,450,94112,158,192
Change in deferred taxes3,432,101586,340(3,402,665)
Change in tax reserves2,776,775(4,264,116)1,204,237
 


  Net cash from operating activities73,250,91079,245,82462,066,105
 


Purchases of marketable securities(24,482,878)(18,781,845)(37,677,167)
Sales of marketable securities65,064,32954,443,40665,588,991
Purchases of fixed assets(24,131,455)(11,741,030)(7,557,283)
Sales of fixed assets-124,800-
Change in other assets329,546275,981336,724
 


  Net cash from investing activities16,779,54224,321,31220,691,265
 


Dividends paid(111,422,562)(101,091,124)(92,233,318)
 


  Net cash used in financing activities(111,422,562)(101,091,124)(92,233,318)
 


Net change in cash and equivalents(21,392,110)2,476,012(9,475,948)
Cash and equivalents at beginning of year42,481,99721,089,88723,565,899
 


Cash and equivalents at end of year$21,089,887$23,565,899$14,089,951
 


Supplemental Disclosure:   
  Cash paid for income taxes$40,726,970$23,911,262$31,578,902
  Cash refunded for state income taxes--(3,998,277)

The accompanying notes are an integral part of these financial statements.

Page 13 of 33

Notes to Financial Statements December 31, 2016

Note 1. Significant 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 healthcare 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. Such revenue is recognized when persuasive evidence of an agreement exists, the fee is fixed or determinable and collection of the fee is probable. Revenue is recognized on the percent completion method based on completion of contract milestones and/or specific events. Determining whether and when some of these criteria have been satisfied often involves assumptions and judgments that can have a significant impact on the timing and amount of revenue recognized. The primary factors taken into consideration involve tracking and measuring progress to complete software delivery and installation, training on the use the software, interfacing the software with other vendor software, and timing when the software becomes operational at the customer's site. 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.

(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.

Page 14 of 33

(d) Common Stock Dividend Policy

MEDITECH's Board of Directors has full discretion regarding the timing and amounts of dividends paid on common stock.

(e) 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.

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.

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.

Page 15 of 33

The following table indicates the original cost, unrealized pretax gains and losses, and fair market value of MEDITECH's securities for the three years ended December 31. The change in unrealized after-tax security gains and losses have been accounted for within comprehensive income. MEDITECH had evaluated the unrealized losses as of December 31, 2015 and had concluded that these were temporary in nature.

 201420152016
 


Original cost$280,466,086$258,625,920$248,518,286
Unrealized pretax gains83,276,67370,995,01177,360,154
Unrealized pretax losses-(1,049,455)-
 


Fair market value$363,742,759$328,571,476$325,878,440
 



Note 3. Reserve for Doubtful Accounts

The components of the reserve for doubtful accounts for the three years ended December 31 are as follows:

 201420152016
 


Reserve at beginning of year$1,575,000$1,575,000$1,575,000
Amounts charged to expense28,34295,3000
Amounts written off(28,342)(95,300)0
 


Reserve at end of year$1,575,000$1,575,000$1,575,000
 



Note 4. Deferred Taxes

Deferred taxes relate to the earlier recognition of certain revenue and the later recognition of certain expense for tax purposes. Deferred tax assets consist primarily of prepaid tax on accrued expenses, prepaid tax on deposits, deferred revenues, and Federal benefit for tax reserves. Deferred tax liabilities consist primarily of tax on unrealized pretax gains. The deferred tax asset and liability for the three years ended December 31 have been retroactively reclassified as follows:

 201420152016
 


Deferred tax asset$10,224,207$9,009,865$11,362,530
Deferred tax liability37,456,16131,495,71233,411,551

Note 5. 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 estimated useful lives. Maintenance costs are expensed as incurred. Improvements are capitalized and depreciated over the asset's useful life.

Page 16 of 33

DescriptionUseful Life


Computer equipment3-5 years
Furniture and fixtures7-10 years
Buildings31.5-40 years

Note 6. Equity Method Investments

MEDITECH follows the provisions of ASC 323-10, Investments - Equity Method and Joint Ventures, and as such, accounts for the equity investment in Meditech South Africa in accordance with the cost method. Meditech South Africa licenses MEDITECH's software technology and re-licenses it to its respective customers. Meditech South Africa serves a market niche which is part of the overall medical market but is outside of the hospital market which MEDITECH serves. Meditech holds a fully collateralized mortgage note for a loan to Meditech South Africa to purchase land and a building used as its corporate headquarters. MEDITECH believes the fair value of this investment and loan balance approximates its December 31, 2016 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 healthcare 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 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. In accordance with ASC 805-10 and ASC 350-20-35, on December 31, 2016, MEDITECH concluded no impairment was needed on a qualitative testing basis. The components of other assets for the three years ended December 31 are as follows:

 201420152016
 


Investments$1,440,061$1,440,061$1,440,061
Mortgage notes591,200452,600299,600
Goodwill & intangibles7,246,4675,884,8154,702,533
Other4,349,3984,448,6704,322,228
 


Other assets$13,627,126$12,226,146$10,764,422
 



Page 17 of 33

Note 7. Accrued Expenses

The components of accrued expenses for the three years ended December 31 are as follows:

 201420152016
 


Accrued bonuses$37,245,000$32,500,000$15,000,000
Accrued vacation5,108,0004,950,0005,110,000
Other2,772,7162,331,1232,432,136
 


Accrued expenses$45,125,716$39,781,123$22,542,136
 



Note 8. Tax Reserves

Tax reserves relate to the uncertainty of domestic production activities deduction and state nexus. During 2015, upon completion of IRS audit for 2012, our return was accepted as filed thus tax reserves for uncertainty of domestic production activities were removed. Key judgments are reviewed annually and additional adjustments to state nexus were made to reflect current assessments. The years 2013 through 2016 are subject to examination by the IRS, and various years are subject to examination by state tax authorities. MEDITECH accounts for the annual change in tax reserves as part of its provision for income taxes. The components of tax reserves for the three years ended December 31 are as follows:

 201420152016
 


Potential tax assessment$9,040,063$6,274,117$8,776,368
Interest and penalties12,248,98910,750,8199,452,805
 


Tax reserves$21,289,052$17,024,936$18,229,173
 



Note 9. 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 its 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 percentage of revenue based on customer location plus the percentage of revenue from the largest customer for the three years ended December 31 is as follows:

 201420152016
 


Total revenues$517,002,274$475,525,581$462,256,468
 


United States89%87%88%
Canada9%11%10%
All others2%2%2%
 


Largest customer7%6%7%

Page 18 of 33

Note 10. Other Income

Other income consists primarily of rents, dividends, interest and realized marketable security activity. The components of other income for the three years ended December 31 are as follows:

 201420152016
 


Rents$6,792,908$6,473,013$6,828,374
Dividends14,145,69813,828,32713,395,463
Interest83,63417,85117,719
Security gains41,381,52213,821,39517,804,344
Other-488,177-
 


Other income$62,403,762$34,628,763$38,045,900
 



Note 11. Other Expense

Other expense consists primarily of rental costs and charitable contributions. The components of other expense for the three years ended December 31 are as follows:

 201420152016
 


Rental costs$5,804,562$5,626,279$5,104,892
Charitable contributions815,000790,000790,000
Other95,526111,89671,252
 


Other expense$6,715,088$6,528,175$5,966,144
 



Note 12. Income Tax Accounting

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 three years ended December 31 are as follows:

 201420152016
 


State current$8,652,777$2,737,228$2,626,131
State deferred384,976(8,010)(198,359)
 


State income tax$9,037,753$2,729,218$2,427,772
 


Federal current$29,027,406$21,719,429$29,857,284
Federal deferred3,047,123713,775(3,204,306)
 


Federal income tax$32,074,529$22,433,204$26,652,978
 



Page 19 of 33

Note 13. Income Tax Rate

During 2008 MEDITECH recorded an impairment loss of $41 million on marketable securities, but a deferred tax asset was not recognized because unrealized gains were not available at the time of impairment. In 2014 the previously impaired marketable securities were sold and MEDITECH realized a tax benefit of $16.4 million upon the sale. During 2015 tax reserves for uncertainty of domestic production activities were removed. The effective income tax rate for the three years ended December 31 is as follows:

 201420152016
 


Statutory U.S. income tax rate35.0%35.0%35.0%
State income taxes net of federal benefit3.6%1.9%1.5%
Dividend income exclusion(2.1%)(3.5%)(3.9%)
Federal R&D tax credit(2.5%)(4.2%)(3.4%)
Gain on sale of impaired securities(8.8%)--
Tax reserve revision-(2.2%)-
Other(0.2%)(0.6%)(0.7%)
 


Effective tax rate25.0%26.4%28.5%
 



Note 14. 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 three years ended December 31. 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 and the annual issuance of shares contributed to the MEDITECH Profit Sharing Trust in December.

 201420152016
 


Net income$123,508,355 $70,066,792$72,890,198
Average number of shares37,142,93737,167,93737,190,854
Earnings per share$3.33$1.88$1.96

Note 15. Comprehensive Income Presentation

Effective January 1, 2012 MEDITECH adopted the provisions of ASU 2011-05, Presentation of Comprehensive Income, which establishes standards for reporting comprehensive income and its components in financial statements. Comprehensive income is the total of net income and all other non-owner changes in equity including items such as 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.

Page 20 of 33

 201420152016
 


Unrealized after-tax gains arising during the   
  period on securities existing at period end$8,214,218$64,541$16,233,829
Unrealized after-tax gains arising before the   
  period on securities sold during the period(31,342,760)(8,063,211)(11,785,071)
 


  Change in unrealized after-tax security gains($23,128,542)($7,998,670)$4,448,759

Note 16. 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 three years ended December 31 are as follows:

 201420152016
 


Cash$9,375,000$7,875,000$9,000,000
25,000 shares at $45 per share1,125,0001,125,000-
 


Total Contribution$10,500,000$9,000,000$9,000,000
 



Note 17. Litigation

From time to time, the Company is a party to or may be threatened by litigation in the ordinary course of its business. The Company regularly analyzes current information, including, as applicable, the Company's defenses and insurance coverage and, as necessary, provides accruals for probable and estimable liabilities for the eventual disposition of these matters. The Company is not a party to any material legal proceedings.

Note 18. Recent Accounting Pronouncement

In August 2015, the FASB issued updated accounting guidance on revenue recognition. This update provides a comprehensive new revenue recognition model that requires revenue to be recognized in a manner to depict the transfer of goods and services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods and services. As permitted, the Company has elected to early adopt effective January 1, 2017 with the modified retrospective application and will apply the guidance retrospectively only to the most current period presented in the financial statements and only on contracts that are not completed as of the date of initial application. The cumulative effect of initially applying the standard will be recognized as an adjustment to the opening balance of retained earnings component of shareholder equity. For certain contracts, revenue previously recognized based on completion of contract milestones will now be based on the percentage of completion of specific events.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments, Recognition and Measurement of Financial Assets and Financial Liabilities, which updates certain aspects of recognition, measurement, presentation and disclosure of financial instruments. ASU 2016-01 is effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the impact of ASU 2016-01 on its financial statements.

Page 21 of 33

Note 19. Supplemental Data

Unaudited operating results by quarter for the three years ended December 31 are as follows:

 1st Q2nd Q3rd Q4th Q2014
 




Total revenue$130,701,929$139,089,612$123,444,726$123,766,007$517,002,274
Operating income29,113,79433,954,70125,659,62620,203,842108,931,963
Net income61,844,70823,556,34918,425,37219,681,926123,508,355
Net income per share$1.67$0.63$0.50$0.53$3.33
      
 1st Q2nd Q3rd Q4th Q2015
 




Total revenue$113,045,487$117,135,917$119,107,098$126,237,079$475,525,581
Operating income14,944,54716,259,81116,864,19919,060,06967,128,626
Net income19,775,73017,253,64313,591,07719,446,34270,066,792
Net income per share$0.53$0.46$0.37$0.52$1.88
      
 1st Q2nd Q3rd Q4th Q2016
 




Total revenue$117,926,283$120,726,743$111,029,496$112,573,946$462,256,468
Operating income15,993,08118,129,88222,306,82413,461,40569,891,192
Net income18,980,45616,239,87525,459,98512,209,88272,890,198
Net income per share$0.51$0.44$0.68$0.62$1.96

Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A - Controls and Procedures

Management's Annual Report On Internal Control Over Financial Reporting

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, 2016 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.

Page 22 of 33

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 (2013 Framework). Based on this assessment, we believe that as of December 31, 2016, MEDITECH's internal control over financial reporting was effective based on said criteria.

This Annual Report on Form 10-K does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to the rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this Annual Report on Form 10-K.

Item 9B - Other Information

None.

Page 23 of 33

PART III

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, 2016, are shown below. There are no family relationships among the following persons.

Director or OfficerAgePosition with MEDITECH



A. Neil Pappalardo74Chairman and Director
Lawrence A. Polimeno75Vice Chairman and Director
Howard Messing64President, Chief Executive Officer and Director
Barbara A. Manzolillo64Treasurer, Chief Financial Officer and Director
Edward B. Roberts81Director
Stuart N. Lefthes63Director
Michelle O'Connor50Executive Vice President and Chief Operating Officer
Hoda Sayed-Friel58Executive Vice President
Helen Waters52Executive Vice President
Christopher Anschuetz64Senior Vice President
Robert G. Gale70Senior Vice President
Steven B. Koretz64Senior Vice President
Leah Farina49Vice President
Scott Radner51Vice President
James Merlin56Controller and Chief Accounting Officer

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.

A. Neil Pappalardo, the founder and Chairman of MEDITECH, was its Chief Executive Officer until 2010, and has been a Director since 1969.

Lawrence A. Polimeno has been the Vice Chairman of MEDITECH since 2002, was its President and Chief Operating Officer prior to that, has been a Director since 1985, and has been with MEDITECH since 1969.

Howard Messing has been the President and Chief Executive Officer of MEDITECH since 2010, was its President and Chief Operating Officer prior to that, has been a Director since 2011, and has been with MEDITECH since 1974.

Barbara A. Manzolillo has been a Director since 2016, is the Treasurer and Chief Financial Officer since 1996, and has been with MEDITECH since 1975.

Page 24 of 33

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.

Stuart N. Lefthes has been a Director since 2016, retired as the Senior Vice President of Sales in 2016, and had been with MEDITECH since 1983.

Michelle O'Connor has been the Executive Vice President and Chief Operating Officer since 2016, was Executive Vice President of Product Development prior to that, and has been with MEDITECH since 1988.

Hoda Sayed-Friel has been the Executive Vice President of Strategy and Client Services since 2012, was the Vice President of Marketing prior to that, and has been with MEDITECH since 1986.

Helen Waters has been the Executive Vice President of Sales and Marketing since 2016, was a Vice President of Customer Service prior to that, and has been with MEDITECH since 1990.

Christopher Anschuetz has been the Senior Vice President of Technology since 2011, was a Vice President 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 prior to that, and has been with MEDITECH since 1976.

Steven B. Koretz has been the Senior Vice President of Client Services since 2012, was a Vice President prior to that, and has been with MEDITECH since 1982.

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.

Scott Radner has been the Vice President of Technology since 2011, was a Senior Manager prior to that, and has been with MEDITECH since 1990.

James Merlin has been the Controller and Chief Accounting Officer since 2016, was the Controller prior to that, and has been with MEDITECH since 1986.

THE BOARD OF DIRECTORS AND ITS COMMITTEES

The Board of Directors oversees MEDITECH's business and financial activities and monitors the performance of management, but is not involved in the day-to-day operations. The Directors review MEDITECH's performance, processes and controls, key policies, legal and regulatory requirements, ethical conduct and new or unusual transactions. The Directors are actively involved in oversight of business and financial risks which could affect MEDITECH. The Board receives regular quarterly reports from Officers which cover topics such as financial, technological, regulatory and reputation risk. The Directors meet regularly with the CEO, the CFO, other Officers; read reports and other materials; and participate in Board and committee meetings. The Board consists of 6 members. During 2016 the Board held 4 regularly scheduled quarterly meetings and all 6 members attended all 4 meetings. Messrs. Roberts and Lefthes are "independent" as defined by the rules of the NYSE and NASDAQ.

Page 25 of 33

The Board of Directors does not have an Audit Committee. Ms. Manzolillo is a financial experts within the meaning of applicable rules under the Securities Exchange Act of 1934, as amended. The Board has selected Mr. Lefthes as its representative to meet quarterly with MEDITECH's Independent Registered Public Accounting firm to review accounting practices and advise MEDITECH's CFO.

The Board of Directors does not have a Compensation Committee. Instead, the full Board, because of its small size, carries out the duties of this Committee. The Board annually determines the total amount of the Staff Bonus and the contribution to the MEDITECH Profit Sharing Trust. Once a year the full Board meets with all the Officers to review their performance and responsibilities. The Board annually sets the compensation for each of the Officers.

The Board of Directors does not have 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 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 2016 the committee contributed $790,000 to 40 cultural, educational and social service organizations primarily within the greater Boston area.

During 2016 the 2 members of the Board of Directors who were not Officers of MEDITECH received 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 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 are designed to 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 - 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







Howard Messing2016$432,000$16,991$67,468$3,780$520,239
  President, Chief Executive2015360,00019,37761,2653,785444,427
  Officer and Director2014300,000624,04269,4014,382997,825







Barbara A. Manzolillo2016$408,000$16,991$67,468$3,780$496,239
  Treasurer, Chief Financial2015300,00019,37761,2653,785384,427
  Officer and Director2014252,000374,04269,4014,382699,825







Michelle O'Connor2016$384,000$16,991$41,431$3,780$446,202
  Executive Vice President2015264,000194,37735,2313,785497,393
  and Chief Operating Officer2014216,000374,04237,0354,382631,459







Hoda Sayed-Friel2016$384,000$16,991$64,680$3,780$469,451
  Executive Vice President2015264,000194,37755,1243,785517,286
 2014216,000374,04258,1084,382652,532







Helen Waters2016$384,000$16,991$45,213$3,780$449,984
  Executive Vice President2015264,000194,37738,4673,785500,629
 2014216,000374,04240,4644,382634,888

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 prior five years of cash compensation capped at $600,000. In the above table certain Officers received an Officer bonus in prior years.

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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Item 12 - Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

The following table provides information as of December 31, 2016 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*16,369,96344.02%
MEDITECH Profit Sharing Trust*6,469,20917.39%
Ruderman Group3,666,0409.86%
Curtis W. Marble2,500,0006.72%
Grossman Group2,061,1445.54%
Lawrence A. Polimeno975,0002.62%
Edward B. Roberts676,8791.82%
Howard Messing405,0001.09%
Barbara A. Manzolillo195,0000.52%
Stuart N. Lefthes113,0000.30%
Helen Waters39,2000.11%
Hoda Sayed-Friel27,0000.07%
Michelle O'Connor21,0000.06%
15 Directors and Officers as a Group*19,150,46751.49%

*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 has the power to vote its shares in addition to his own 9,900,754 shares. Likewise the number of shares indicated for the 15 Directors and Officers as a Group includes the shares owned by the MEDITECH Profit Sharing Trust.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

During 2016, 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 2016.

Item 13 - Certain Relationships and Related Transactions, and Director Independence

No additional shares of MEDITECH stock was purchased from MEDITECH by any Director or Officer in 2014, 2015 or 2016.

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Item 14 - Principal Accounting Fees and Services

During 2016, 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 or to be paid for such services for the three years ended December 31 are as follows:

 201420152016
 


Annual audit and quarterly reviews$250,000$265,000$282,500
Audit related to Profit Sharing Trust17,50022,00023,000
 


 $267,500$287,000$305,500
 



It is the policy of the Board of Directors to 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 - 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, Exhibit 32: Section 1350 Certifications and Exhibit 101: Interactive Data Files are appended to this report.

There were no reports filed on Form 8-K during the quarter ended December 31, 2016.

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, 2017
(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, 2017.

A. Neil Pappalardo, Chairman and Director
(Signature)

Lawrence A. Polimeno, Vice Chairman and Director
(Signature)

Howard Messing, President, CEO and Director
(Signature)

Edward B. Roberts, Director
(Signature)

Barbara A. Manzolillo, Treasurer, CFO and Director
(Signature)

Stuart N. Lefthes, Director
(Signature)

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Exhibit 23: Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the Registration Statements (Nos. 333-186353, 333-179252, 333-171967, 333-164576, 333-157030, 333-148979, 333-140337, 333-131395, 333-122399, and 333-113559) on Form S-8 of our report dated January 31, 2017, relating to our audit of the financial statements included in the Annual Report on Form 10-K of Medical Information Technology, Inc. for the year ended December 31, 2016.

/s/ Wolf & Company, P.C.
Boston, Massachusetts
January 31, 2017

Exhibit 31: Rule 13a-14(a) Certifications

CERTIFICATION PURSUANT TO RULE 13A-14 OR 15D-14 OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Howard Messing, certify that:

1. I have reviewed this annual report on Form 10-K of Medical Information Technology, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

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(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

January 31, 2017
(Date)

Howard Messing, Chief Executive Officer and President
(Signature)

I, Barbara A. Manzolillo, certify that:

1. I have reviewed this annual report on Form 10-K of Medical Information Technology, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

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(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting;and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

January 31, 2017
(Date)

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

Exhibit 32: Section 1350 Certifications

I, Howard Messing, certify this annual report on Form 10-K of Medical Information Technology, Inc. (MEDITECH) for the period ended December 31, 2016, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in this report fairly presents, in all material respects, the financial condition and results of operations of MEDITECH.

January 31, 2017
(Date)

Howard Messing, Chief Executive Officer and President
(Signature)

I, Barbara A. Manzolillo, certify this annual report on Form 10-K of Medical Information Technology, Inc. (MEDITECH) for the period ended December 31, 2016, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in this report fairly presents, in all material respects, the financial condition and results of operations of MEDITECH.

January 31, 2017
(Date)

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

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