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, 2017

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. [X]

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 [ ] Emerging growth company [ ]

If an emerging growth company, indicate by check mark if the registrant has elected to not use the extended transition period for complying with any new or revisited financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

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, 2017.

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 Disclosure23
  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 Independence28
  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 2017 combined product and service revenue was $480.9M, operating income was $64.0M and net income was $77.4M. Product bookings were $180.5M and the resultant year-end product backlog was $174.0M. By year-end MEDITECH had over 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 ten company owned facilities - eight in the greater Boston area, one in Atlanta and one 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 2017.

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 2017 MEDITECH owned 10 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 1 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 2017 MEDITECH did not repurchase any of its shares of common stock. However, during 2017 the MEDITECH Profit Sharing Trust purchased 86,300 shares at $45.00 per share from existing shareholders in individual private transactions for an aggregate consideration of $3,883,500.

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 2017. During December 2017 MEDITECH contributed $9,000,000 in cash to the MEDITECH Profit Sharing Trust. At December 31, 2017, there were 1,934 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:

 20132014201520162017
 




Full Year Operations:     
  Total revenue$579,645,457$517,002,274$475,525,581$462,256,468$480,903,895
  Operating income163,615,515108,931,96367,128,62669,891,19263,981,134
  Net income133,328,172123,508,35570,066,79272,890,19877,428,576
  Average shares37,102,88337,142,93737,167,93737,190,85437,190,854
  Net income/share$3.59$3.33$1.88$1.96$2.08
Year End Position:     
  Total assets$716,476,005$704,640,374$652,479,642$634,294,572$619,228,517
  Total liabilities130,231,196128,313,314114,050,584110,759,875122,300,267
  Shareholder equity586,244,809576,327,060538,429,058523,534,697496,928,250
  Shares outstanding37,140,85437,165,85437,190,85437,190,85437,190,854
  Shareholder equity/share$15.78$15.51$14.48$14.08$13.36
Other Financial Data:     
  Working capital$366,107,324$349,807,786$341,333,049$334,995,263$301,861,999
  Operating cash flow130,019,64073,250,91079,245,82462,066,10565,337,714
  Depreciation & amortization12,934,30615,039,44415,277,30415,009,72314,433,528
  Cash dividends/share$3.00$3.00$2.72$2.48$2.48

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

Comparison of Fiscal Years ended December 31, 2016 and 2017:

Total revenue from both existing and new customers increased $18.6 million or 4.0% from $462.3 million in 2016 to $480.9 million in 2017. It was composed of a $27.1 million addition in product revenue due primarily to higher product bookings, offset by a $8.4 million reduction in service revenue.

Operating expense increased $24.6 million or 6.3% from $392.4 million in 2016 to $416.9 million in 2017 due primarily to higher staff related costs, most of which was due to a non-recurring reduction in accrued bonus in the prior period offset by a corresponding staff salary increase in the current period. The resultant operating income decreased $5.9 million or 8.5% from $69.9 million in 2016 to $64.0 million in 2017.

Other income increased $0.6 million due primarily to additional gains from the sale of marketable securities. Other expense increased by $0.2 million. The resultant pretax income decreased $5.5 million or 5.4% from $102.0 million in 2016 to $96.5 million in 2017.

Page 7 of 33

MEDITECH's effective tax rate decreased from 28.5% in 2016 to 19.8% in 2017 due primarily to the deferred tax revisions associated with the Tax Cut and Jobs Act passed in December 2017. The resultant net income increased $4.5 million or 6.2% from $72.9 million in 2016 to $77.4 million in 2017.

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.

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.

Financial Condition:

At December 31, 2017 MEDITECH's cash, cash equivalents and marketable securities totaled $323.5 million. Marketable securities consisted of preferred and common equities. During 2017 cash flow from operations was $65.3 million, cash flow from investing was $30.2 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, 2017 was $496.9 million. During 2017 management expended $10.4 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

Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Medical Information Technology, Inc.:

Opinion on the Financial Statements

We have audited the accompanying balance sheets of Medical Information Technology, Inc. (the "Company") as of December 31, 2017, 2016 and 2015, the related statements of income and comprehensive income, shareholder equity, and cash flows, for each of the three years in the period ended December 31, 2017, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017, 2016 and 2015, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting, 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.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Emphasis of a Matter

As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for revenue in 2017 due to the adoption of Accounting Standards Codification 606, Revenue from Contracts with Customers.

We have served as the Company's auditor since 2014.

Wolf & Company, P.C.
Boston, Massachusetts
January 31, 2018

Page 9 of 33

Balance Sheets
as of December 31, 2015, 2016 and 2017

 Dec 31, 2015Dec 31, 2016Dec 31, 2017
 


Cash and equivalents$23,565,899$14,089,951$17,436,627
Marketable securities328,571,476325,878,440306,086,429
Trade receivables, net of reserve40,487,64641,574,48350,522,946
Contract assets, prepaid and other14,237,96412,571,54012,376,569
 


  Current assets406,862,985394,114,414386,422,571
    
Computer equipment14,624,94614,948,50314,463,275
Furniture and fixtures73,728,40675,710,29783,719,079
Buildings251,283,833251,410,624250,962,956
Land42,137,32343,195,57643,163,211
Accumulated depreciation(157,393,862)(167,211,794)(178,192,159)
 


  Fixed assets224,380,646218,053,206214,116,362
    
Other assets12,226,14610,764,4229,466,338
Deferred tax assets9,009,86511,362,5309,223,246
 


  Total assets$652,479,642$634,294,572$619,228,517
 


    
Accounts payable$284,460$222,615$227,663
Taxes payable3,920,2122,652,0673,882,391
Accrued expenses39,781,12322,542,13622,831,337
Deferred revenue21,544,14133,702,33357,619,181
 


  Current liabilities65,529,93659,119,15184,560,572
    
Deferred tax liabilities31,495,71233,411,55119,154,929
Tax reserves17,024,93618,229,17318,584,766
 


  Total liabilities114,050,584110,759,875122,300,267
 


Common stock, $1.00 par value, authorized   
  40,000,000 shares, issued and outstanding   
  37,190,854 shares in 2015, 2016 and 201737,190,85437,190,85437,190,854
Additional paid-in capital122,907,959122,907,959122,907,959
Retained income336,362,911317,019,791289,634,133
Unrealized after-tax security gains41,967,33446,416,09347,195,304
 


  Shareholder equity538,429,058523,534,697496,928,250
 


  Total liabilities and shareholder equity$652,479,642$634,294,572$619,228,517
 



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, 2015, 2016 and 2017

 Dec 31, 2015Dec 31, 2016Dec 31, 2017
 


Product revenue$150,170,631$127,725,979$154,802,239
Service revenue325,354,950334,530,489326,101,656
 


  Total revenue475,525,581462,256,468480,903,895
    
Operations, development304,666,882307,959,189328,502,568
Selling, G & A103,730,07384,406,08788,420,193
 


  Operating expense408,396,955392,365,276416,922,761
 


  Operating income67,128,62669,891,19263,981,134
    
Other income34,628,76338,045,90038,622,542
Other expense6,528,1755,966,1446,117,897
 


  Pretax income95,229,214101,970,94896,485,779
    
State income tax2,729,2182,427,7723,535,566
Federal income tax22,433,20426,652,97815,521,637
 


  Income tax25,162,42229,080,75019,057,203
 


  Net income$70,066,792$72,890,198$77,428,576
    
Change in unrealized after-tax security gains(7,998,670)4,448,759779,211
 


  Comprehensive income$62,068,122$77,338,957$78,207,787
 



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, 2015, 2016 and 2017

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



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
Net revenue recognition standard adjustment (12,580,916) (12,580,916)
Net income 77,428,576 77,428,576
Change in unrealized after-tax security gains  779,211779,211
Dividends paid (92,233,318) (92,233,318)
 



Balance, December 31, 2017$160,098,813$289,634,133$47,195,304$496,928,250
 




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, 2015, 2016 and 2017

 Dec 31, 2015Dec 31, 2016Dec 31, 2017
 


Net income$70,066,792$72,890,198$77,428,576
Depreciation and amortization expense15,277,30415,009,72314,433,528
Stock contributions to qualified profit sharing plan1,125,000--
Pretax gain on sale of marketable securities(13,821,395)(17,804,190)(17,464,043)
Pretax gain on sale of fixed assets(29,000)-(864,218)
Change in trade receivables, net of reserve8,084,999(1,086,837)(8,948,463)
Change in contract assets, prepaid and other6,258,0651,666,424(5,973,753)
Change in deferred tax assets--9,069,958
Change in accounts payable(195,422)(61,845)5,048
Change in taxes payable50,909(1,268,145)1,230,324
Change in accrued expenses(5,344,593)(17,238,987)289,200
Change in deferred revenue1,450,94112,158,1929,117,378
Change in deferred tax liabilities586,340(3,402,665)(13,341,414)
Change in tax reserves(4,264,116)1,204,237355,593
 


  Net cash from operating activities79,245,82462,066,10565,337,714
 


Purchases of marketable securities(18,781,845)(37,677,167)(27,705,747)
Sales of marketable securities54,443,40665,588,99166,146,385
Purchases of fixed assets(11,741,030)(7,557,283)(10,375,066)
Sales of fixed assets124,800-1,867,600
Change in other assets275,981336,724309,108
 


  Net cash from investing activities24,321,31220,691,26530,242,280
 


Dividends paid(101,091,124)(92,233,318)(92,233,318)
 


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


Net change in cash and equivalents2,476,012(9,475,948)3,346,676
Cash and equivalents at beginning of year21,089,88723,565,89914,089,951
 


Cash and equivalents at end of year$23,565,899$14,089,951$17,436,627
 


Supplemental Disclosure:   
  Cash paid for income taxes$23,911,262$31,578,902$22,313,039
  Cash refunded for state income taxes-(3,998,277)-
  Net revenue recognition standard adjustment--(12,580,916)

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

Page 13 of 33

Notes to Financial Statements December 31, 2017

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 606, Revenue from Contracts with Customers. 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 a single performance obligation and classified 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 considers post-implementation support fees as a separate performance obligation and classifies as service revenue in the statement of income. These fees are recognized as revenue over time as the related services are rendered.

MEDITECH identifies the performance obligations for each contract, determines the transaction price, allocates the transaction price to the performance obligations, and recognizes revenue when (or as) a performance obligation is satisfied on the percent completion method based on completion of specific events. The primary factors taken into consideration involve tracking and measuring the progress of events needed to complete software delivery, training on software usage, interfacing the software with other vendor software, and bringing the software operational at the customer's site. Events identified are estimated at the outset of a contract and the transaction price is allocated equally over said events. Annual studies are conducted on the events required to complete contracted performance obligations and to verify the validity of total events required. Variable consideration is reviewed at the outset of a contract and if present, included in the percentage completion allocation.

At December 31, 2017, outstanding performance obligations amounted to $174.0M, with revenue to be recognized over the next 12-36 months as MEDITECH works with respective customers to schedule the corresponding software delivery and implementation events.

MEDITECH's invoices are issued as per contract terms and are typically paid by customers within one month of invoice date. Differences between timing of MEDITECH's invoicing and timing of completed performance obligations are categorized as Deferred Revenues and Contract Assets. Deferred Revenues represent invoices rendered in advance of revenue recognition. Contract Assets represent revenue recognized for which invoices have not yet been rendered.

Deferred revenues related to customer contracts were $19,024,842 and $47,913,292 at December 31, 2016 and December 31, 2017 respectively, up $28,888,450. During the year a total of $9,426,586 was removed from December 31, 2016 deferred revenues and revenue recognized as specific events were completed. Contract Assets were $3,626,786 and $9,295,458 at December 31, 2016 and December 31, 2017 respectively, up $5,668,672.

Page 14 of 33

Modified retrospective application is effective January 1, 2017 for certain contracts not completed by December 31, 2016. Such revenue and related installation costs previously recognized based on percentage of completion of contract milestones will be based on the percentage of completion of specific events. The cumulative effect of applying the new standard is a reduction to the opening balance of retained earnings. The following summarizes these changes:
During 2017, a total of $9,125,000 of additional revenue was claimed based on adoption of the new revenue standard ASC 606 as specific events were attained over time under the new percentage of completion as compared to at a point in time using the contract milestone approach previously followed under ASC 985-605. Deferred product installation costs of approximately $2,600,000 would have been recorded during 2017 under the previous revenue standard. Under ASC 606 this cost is eliminated because there is no longer any timing difference from when revenue is recognized and expenses incurred.

The resulting 2017 Operating Income and Net Income would have been down by $11,725,000 and $7,000,000 respectively under the prior standard based on the changes noted.

(b) Software Development Costs

MEDITECH follows the provisions of ASC 985-20, Accounting for the Costs of Computer Software to Be Sold, Leased or Marketed. ASC 985-20 establishes standards for capitalizing software development costs incurred after technological feasibility of the software development projects is established and the realizability of such capitalized costs through future operations is expected, if such costs become material. To date, development costs incurred by MEDITECH after technological feasibility has been established have been immaterial and as such have been charged to operations as incurred.

(c) Cash and Equivalents

MEDITECH considers all highly liquid investments purchased with original maturities of 90 days or less to be cash equivalents.

(d) Common Stock Dividend Policy

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

(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.

Page 15 of 33

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.

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, 2017 and had concluded that these were temporary in nature.

 201520162017
 


Original cost$258,625,920$248,518,286$227,405,667
Unrealized pretax gains70,995,01177,360,15478,907,615
Unrealized pretax losses(1,049,455)-(226,853)
 


Fair market value$328,571,476$325,878,440$306,086,429
 



Page 16 of 33

Note 3. Reserve for Doubtful Accounts

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

 201520162017
 


Reserve at beginning of year$1,575,000$1,575,000$1,575,000
Amounts charged to expense95,3000848,739
Amounts written off(95,300)0(1,323,739)
 


Reserve at end of year$1,575,000$1,575,000$1,100,000
 



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 are as follows:

 201520162017
 


Deferred tax asset$9,009,865$11,362,530$9,223,246
Deferred tax liability31,495,71233,411,55119,154,929

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.

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, 2017 carrying value.

Page 17 of 33

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, 2017, 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:

 201520162017
 


Investments$1,440,061$1,440,061$1,260,054
Mortgage notes452,600299,600130,400
Goodwill & intangibles5,884,8154,702,5333,577,533
Other4,448,6704,322,2284,498,351
 


Other assets$12,226,146$10,764,422$9,466,338
 



Note 7. Accrued Expenses

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

 201520162017
 


Accrued bonuses$32,500,000$15,000,000$15,000,000
Accrued vacation4,950,0005,110,0005,115,000
Other2,331,1232,432,1362,716,337
 


Accrued expenses$39,781,123$22,542,136$22,831,337
 



Page 18 of 33

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 2014 through 2017 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:

 201520162017
 


Potential tax assessment$6,274,117$8,776,368$9,362,662
Interest and penalties10,750,8199,452,8059,222,104
 


Tax reserves$17,024,936$18,229,173$18,584,766
 



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:

 201520162017
 


Total revenue$475,525,581$462,256,468$480,903,895
 


United States87%88%88%
Canada11%10%11%
All others2%2%1%
 


Largest customer6%7%7%

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:

 201520162017
 


Rents$6,473,013$6,828,374$7,012,603
Dividends13,828,32713,395,46313,078,062
Interest17,85117,719203,617
Security gains13,821,39517,804,34417,464,043
Other488,177-864,217
 


Other income$34,628,763$38,045,900$38,622,542
 



Page 19 of 33

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:

 201520162017
 


Rental costs$5,626,279$5,104,892$5,267,922
Charitable contributions790,000790,000755,000
Other111,89671,25294,975
 


Other expense$6,528,175$5,966,144$6,117,897
 



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:

 201520162017
 


State current$2,737,228$2,626,131$3,225,483
State deferred(8,010)(198,359)310,083
 


State income tax$2,729,218$2,427,772$3,535,566
 


Federal current$21,719,429$29,857,284$20,103,177
Federal deferred713,775(3,204,306)(4,581,540)
 


Federal income tax$22,433,204$26,652,978$15,521,637
 



Note 13. Income Tax Rate

During 2015 tax reserves for uncertainty of domestic production activities were removed. During 2017 the Tax Cut and Jobs Act reduced 2018 corporate tax rate from 35% to 21% requiring adjustment to 2017 deferred taxes. The effective income tax rate for the three years ended December 31 is as follows:

 201520162017
 


Statutory U.S. income tax rate35.0%35.0%35.0%
State income taxes net of federal benefit1.9%1.5%2.4%
Dividend income exclusion(3.5%)(3.9%)(4.0%)
Federal R&D tax credit(4.2%)(3.4%)(5.1%)
Tax reserve(2.2%)--
Tax code revision--(9.1%)
Other(0.6%)(0.7%)0.6%
 


Effective tax rate26.4%28.5%19.8%
 



Page 20 of 33

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.

 201520162017
 


Net income $70,066,792$72,890,198$77,428,576
Average number of shares37,167,93737,190,85437,190,854
Earnings per share$1.88$1.96$2.08

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.

 201520162017
 


Unrealized after-tax gains arising during the   
  period on securities existing at period end$64,541$16,233,829$13,065,056
Unrealized after-tax gains arising before the   
  period on securities sold during the period(8,063,211)(11,785,071)(12,285,845)
 


  Change in unrealized after-tax security gains($7,998,670)$4,448,759$779,211

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:

 201520162017
 


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


Total Contribution$9,000,000$9,000,000$9,000,000
 



Page 21 of 33

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 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. Upon adoption the Company no longer has Comprehensive Income to report. In addition, all marketable securities will be classified as equity investments on the balance sheet.

Note 19. Supplemental Data

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

 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$0.33$1.96
      
 1st Q2nd Q3rd Q4th Q2017
 




Total revenue$117,152,968$116,723,292$121,891,463$125,136,172$480,903,895
Operating income13,249,93713,246,24117,215,93320,269,02363,981,134
Net income14,507,35414,518,97417,462,90930,939,33977,428,576
Net income per share$0.39$0.39$0.47$0.83$2.08

Page 22 of 33

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, 2017 to ensure information requiring disclosure by MEDITECH in reports which it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

MEDITECH's management is responsible for establishing, designing and maintaining internal controls over financial reporting that provide reasonable assurance to our Board of Directors and shareholders that the financial statements prepared are fairly presented. We have set assessment criteria in accordance with the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control's Integrated Framework (2013 Framework). Based on this assessment, we believe that as of December 31, 2017, 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, 2017, are shown below. There are no family relationships among the following persons.

Director or OfficerAgePosition with MEDITECH



A. Neil Pappalardo75Chairman and Director
Lawrence A. Polimeno76Vice Chairman and Director
Howard Messing65President, Chief Executive Officer and Director
Barbara A. Manzolillo65Treasurer, Chief Financial Officer and Director
Edward B. Roberts82Director
Stuart N. Lefthes64Director
Michelle I. O'Connor51Executive Vice President and Chief Operating Officer
Hoda Sayed-Friel59Executive Vice President
Helen M. Waters53Executive Vice President
Christopher J. Anschuetz65Senior Vice President
Steven B. Koretz65Senior Vice President
Leah L. Farina50Vice President
Scott M. Radner52Vice President
James W. Merlin57Controller 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 I. 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 M. 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 J. 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.

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 L. 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 M. 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 W. 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 2017 the Board held 4 regularly scheduled quarterly meetings and at least 5 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 expert 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 2017 the committee contributed $755,000 to 39 cultural, educational and social service organizations primarily within the greater Boston area.

During 2017 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 Messing2017$432,000$7,790$52,308$3,717$495,815
  President, Chief Executive2016432,00016,99167,4683,780520,239
  Officer and Director2015360,00019,37761,2653,785444,427







Barbara A. Manzolillo2017$408,000$7,790$52,308$3,717$471,815
  Treasurer, Chief Financial2016408,00016,99167,4683,780496,239
  Officer and Director2015300,00019,37761,2653,785384,427







Michelle I. O'Connor2017$384,000$7,790$34,486$3,717$429,993
  Executive Vice President2016384,00016,99141,4313,780446,202
  and Chief Operating Officer2015264,000194,37735,2313,785497,393







Hoda Sayed-Friel2017$384,000$7,790$52,308$3,717$447,815
  Executive Vice President2016384,00016,99164,6803,780469,451
 2015264,000194,37755,1243,785517,286







Helen M. Waters2017$384,000$7,790$37,616$3,717$433,124
  Executive Vice President2016384,00016,99145,2133,780$449,984
 2015264,000194,37738,4673,785500,629

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, 2017 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*16,456,26344.25%
MEDITECH Profit Sharing Trust*6,555,50917.63%
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 Waters44,2000.12%
Michelle O'Connor35,0000.09%
Hoda Sayed-Friel32,1000.08%
14 Directors and Officers as a Group*19,196,86751.62%

*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 14 Directors and Officers as a Group includes the shares owned by the MEDITECH Profit Sharing Trust.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

During 2017, 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 other Section 16(a) filing requirements applicable to its Executive Officers, Directors and greater-than-10% shareholders were satisfied in 2017.

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

No additional shares of MEDITECH stock were purchased from MEDITECH by any Director or Officer in 2015, 2016 or 2017.

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Item 14 - Principal Accounting Fees and Services

During 2017, 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:

 201520162017
 


Annual audit and quarterly reviews$265,000$282,500$305,000
Audit related to Profit Sharing Trust22,00023,00024,000
 


 $287,000$305,500$329,000
 



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, 2017.

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, 2018
(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, 2018.

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, 2018, 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, 2017.

/s/ Wolf & Company, P.C.
Boston, Massachusetts
January 31, 2018

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, 2018
(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, 2018
(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, 2017, 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, 2018
(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, 2017, 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, 2018
(Date)

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

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