SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

[X]          QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarter ended June 30, 2002

or

[   ]          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For this transition period from _______________ to _______________

Commission file number O-19291

CORVEL CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	33-0282651
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
2010 Main Street, Suite 1020 Irvine, CA	92614
(Address of principal executive office)	(zip code)
Registrant’s telephone number, including code:	(949) 851-1473

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     [   ]

The number of shares outstanding of the registrant’s Common Stock, $0.0001 Par Value, as of June 30, 2002 was 10,815,000.

TABLE OF CONTENTS

Part I — Financial Information
	Item 1. Financial Statements
		CONSOLIDATED BALANCE SHEETS
		CONSOLIDATED STATEMENTS OF INCOME — UNAUDITED
		CONSOLIDATED STATEMENTS OF CASH FLOWS — UNAUDITED
		NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
PART II — OTHER INFORMATION
	ITEM 1 — LEGAL PROCEEDINGS
	ITEM 2 — CHANGES IN SECURITIES
	ITEM 3 — DEFAULTS UPON SENIOR SECURITIES
	ITEM 4 — SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	ITEM 5 — OTHER INFORMATION
	ITEM 6 — EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES

CORVEL CORPORATION

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION

Item 1 Financial Statements

Consolidated Balance Sheets — March 31, 2002 (audited) and June 30, 2002 (unaudited)- Page 3 of 13

Consolidated Statements of Income — Three months ended June 30, 2001 and 2002 (both unaudited) — Page 4 of 13

Consolidated Statements of Cash Flows — Three months ended June 30, 2001 and 2002 (both unaudited) — Page 5 of 13

Notes to Consolidated Financial Statements (unaudited) — June 30, 2002 - Page 6 and 7 of 13

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Pages 8 through 12 of 13

PART II. OTHER INFORMATION

Item 1. Legal Proceedings — Page 12 of 13

Item 2. Changes in Securities — Page 12 of 13

Item 3. Defaults upon Senior Securities — Page 12 of 13

Item 4. Submission of Matters to a Vote of Security Holders — Pages 12 of 13

Item 5. Other Information — Page 12 of 13

Item 6. Exhibits and Reports on Form 8-K — page 12 of 13

Page 2 of 13

Part I — Financial Information

Item 1. Financial Statements

CORVEL CORPORATION
CONSOLIDATED BALANCE SHEETS

As of March 31, 2002 and June 30, 2002

		March 31, 2002			June 30, 2002
		(audited)			(unaudited)
Assets
Current Assets
Cash and cash equivalents		$	12,601,000		$	8,468,000
Accounts receivable, net			33,040,000			39,490,000
Prepaid taxes and expenses			1,299,000			1,551,000
Deferred income taxes			4,236,000			4,236,000
	Total current assets		51,176,000			53,745,000
Property and Equipment, Net			22,481,000			23,490,000
Other Assets			6,638,000			10,441,000
TOTAL ASSETS		$	80,295,000		$	87,676,000
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable		$	3,432,000		$	7,295,000
Accrued liabilities			12,205,000			14,208,000
	Total current liabilities		15,637,000			21,503,000
Deferred income taxes			3,675,000			3,675,000
Stockholders’ Equity
Common stock			2,000			2,000
Paid-in-capital			42,825,000			43,571,000
Treasury stock, (4,769,780 shares at March 31, 2002 and 4,867,080 shares at June 30, 2002)			(69,140,000	)		(72,400,000	)
Retained earnings			87,296,000			91,325,000
	Total stockholders’ equity		60,983,000			62,498,000
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	80,295,000		$	87,676,000

See accompanying notes to consolidated financial statements.

Page 3 of 13

CORVEL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME — UNAUDITED
Three months Ended June 30, 2001 and 2002

	Three months ended June 30,
	2001		2002
REVENUES	$	58,001,000	$	66,301,000
Cost of revenues		47,637,000		53,991,000
Gross profit		10,364,000		12,310,000
General and administrative expenses		4,569,000		5,811,000
Income before income taxes		5,795,000		6,499,000
Income tax provision		2,202,000		2,470,000
NET INCOME	$	3,593,000	$	4,029,000
Net income per common and common equivalent share
Basic	$	.32	$	.37
Diluted	$	.31	$	.36
Weighted average common and common equivalent shares
Basic		11,180,000		10,828,000
Diluted		11,477,000		11,193,000

See accompanying notes to consolidated financial statements.

Page 4 of 13

CORVEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS — UNAUDITED
Three months ended June 30, 2001, and 2002

	Three months ended June 30,
	2001			2002
Cash flows from Operating Activities
NET INCOME	$	3,593,000		$	4,029,000
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		1,913,000			2,510,000
Changes in operating assets and liabilities
Accounts receivable		(359,000	)		(3,805,000	)
Prepaid taxes and expenses		1,453,000			(252,000	)
Accounts payable		1,661,000			3,863,000
Accrued liabilities		(2,846,000	)		(2,141,000	)
Deferred income taxes and income taxes payable		50,000			—
Other assets		141,000			—
Net cash provided by operating activities		5,606,000			4,204,000
Cash Flows From Investing Activities
Business acquisition, net of cash acquired					(2,304,000	)
Additions to property and equipment		(2,072,000	)		(3,519,000	)
Net cash used in investing activities		(2,072,000	)		(5,823,000	)
Cash Flows from Financing Activities
Purchase of treasury stock		(3,811,000	)		(3,260,000	)
Exercise of common stock options and related tax benefits		327,000			746,000
Net cash used in financing activities		(3,484,000	)		(2,514,000	)
Increase (Decrease) in Cash and Cash Equivalents:		50,000			(4,133,000	)
Cash and cash equivalents at beginning		9,457,000			12,601,000
Cash and cash equivalents at end	$	9,507,000		$	8,468,000

See accompanying notes to consolidated financial statements.

Page 5 of 13

CORVEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002 (Unaudited)

A.	Basis of Presentation
	The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and footnotes required by principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended June 30, 2002 are not necessarily indicative of the results that may be expected for the year ended March 31, 2003. For further information, refer to the consolidated financial statements and footnotes thereto for the year ended March 31, 2002 included in the Company’s annual report on Form 10-K.
B.	Earnings Per Share
	Earnings per common and common equivalent shares were computed by dividing net income by the weighted average number of shares of common stock and common stock equivalents outstanding during the quarter. The calculation of the common and common equivalent shares is as follows:
	BASIC EARNINGS PER SHARE

	Three months ended June 30,
	2001		2002
Weighted average common shares outstanding		11,180,000		10,828,000
Net Income	$	3,593,000	$	4,029,000
Earnings per common and common equivalent share	$	.32	$	.37

DILUTED EARNINGS PER SHARE

	Three months ended June 30,
	2001		2002
Weighted average common shares outstanding		11,180,000		10,828,000
Net effect of dilutive common stock options		297,000		365,000
Total common and common equivalent shares		11,477,000		11,193,000
Net Income	$	3,593,000	$	4,029,000
Earnings per common and common equivalent share	$	.31	$	.36

Page 6 of 13

CORVEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002 (Unaudited)

C.	Shareholder Rights Plan
	During fiscal 1997, the Company’s Board of Directors approved the adoption of a Shareholder Rights Plan. The Rights Plan, which is similar to rights plans adopted by numerous other public companies, provides for a dividend distribution to CorVel stockholders of one preferred stock purchase “Right” for each outstanding share of CorVel’s common stock. The Rights are designed to assure that all stockholders receive fair and equal treatment in the event of any proposed takeover of the Company and to encourage a potential acquirer to negotiate with the Board of Directors prior to attempting a takeover. In the quarter ended June 30, 2002, the Company’s Board of Directors approved an amendment to its existing stockholder rights agreement (the “Rights Agreement”) to: 1) extend the expiration date of the rights to February 10, 2012, 2) increase the initial exercise price of each right from $42 ($125 before adjusting for the two-for-one stock split in the form of a 100% stock dividend in May 1999 and the three-for-two stock split in the form of a 50% stock dividend in August 2001) to $118 and 3) enable Fidelity Management & Research Company and its affiliates to purchase up to 18% of the shares of common stock of the Company without triggering the stockholder rights. The limitations under the Rights Agreement remain in effect for all other stockholders of the Company. The Rights will not be exercisable until the occurrence of certain takeover-related events. The issuance of the Rights has no dilutive effect on the Company’s earnings per share.
D.	Ancicare Acquisition
	On May 16, 2002, the Company acquired AnciCare, PPO, Inc., which is a Florida-based national provider of diagnostic imaging services, including MRIs, CAT Scans, and Bone Scans. With a network of operations in over 30 states, this acquisition represents a further expansion of CorVel’s CorCare Preferred Provider Organization (PPO). The down payment for the acquisition was paid from the Company’s existing cash on hand. If the results of the Ancicare operations attain certain levels, the Company will pay an additional amount for the purchase which is expected to be funded from future earnings of the Company.
E.	Treasury Stock
	On August 2, 2002, the Company announced that its Board of Directors approved a 1,000,000 share expansion to its existing stock repurchase plan, increasing the total number of shares approved for repurchase to 6,100,000 shares from 5,100,000 shares. CorVel commenced its share repurchase program in the fall of 1996. Since that time, the Company has spent $72.4 million to repurchase 4,940,000 shares, equal to 31% of the outstanding common stock. These purchases have been funded primarily from net earnings. CorVel has 10,815,000 shares of common stock outstanding as of June 30, 2002.

Page 7 of 13

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

RESULTS OF OPERATIONS

The following table contains certain financial data as a percentage of revenues:

	2001			2002
Three months ended June 30:
Revenues		100.0	%		100.0	%
Cost of services		82.1			81.4
Gross profit		17.9			18.6
General and administrative		7.9			8.8
Income from operations		10.0			9.8
Income tax provision		3.8			3.7
NET INCOME		6.2	%		6.1	%

Revenues for the three months ended June 30, 2002 increased by $8.3 million to $66.3 million, an increase of 14% over the $58.0 million of revenues for the comparable period in the prior fiscal year. The increase in revenues is primarily attributable to a 23% increase in provider program revenues along with a 6% increase in patient management revenue. For the fiscal year ended March 31, 2002 and prior, revenues from independent medical examinations were included in patient management revenues. Starting in the quarter ending June 30, 2002, these revenues are now included in the provider program revenues as the Company expands its provider programs to include the scheduling of MRI examinations along with the scheduling of independent medical examinations. The growth rates noted above reflect the classification of revenue from independent medical examinations as provider programs for both the current and prior periods.

The significant increase in provider program revenues is primarily attributable to the growth in the Company’s independent medical examination scheduling services, an increase in the number of bills reviewed through the Company’s proprietary MedCheck software along with revenues from Ancicare, a Florida-based provider of MRI examinations, which was acquired during the June quarter. The increase in patient management revenues is primarily attributable to a nominal increase in referrals along with a price increase during the past year.

The Company’s cost of revenue consists primarily of salaries, salary related taxes and benefits, rent, telephone, and costs related to the Company’s field computer systems, including depreciation. Cost of revenues for the three months ended June 30, 2002 decreased to 81.4% from 82.1 % for the three months ended June 30, 2001. The decrease in the cost of sales percentage and corresponding increase in the gross profit margin from the first quarter of fiscal 2002 to the first quarter of fiscal 2003 is primarily attributable to a greater increase in the Company’s bill review and PPO business compared to the growth in the patient management business. The Company’s margins in the bill review and PPO business are greater than the margins in the patient management business.

Page 8 of 13

General and administrative expenses as a percentage of revenues increased from 7.9% for the quarter ended June 30, 2001, to 8.8% for the quarter ended June 30, 2002. This increase was primarily due to increased MIS support and further electronic data interface capabilities as required by customer needs and marketing expenses related to a national conference. General and administrative expenses were $4.6 million for the three months ended June 30, 2001 compared to $5.8 million for the three months ended June 30, 2002.

LIQUIDITY AND CAPITAL RESOURCES

The Company has funded its operations and capital expenditures primarily with cash flows from operations. During the quarter ended June 30, 2002, net working capital decreased by $3.3 million, from $35.5 million at March 31, 2002 to $32.2 million at June 30, 2002. Cash decreased from $12.6 million at March 31, 2002 to $8.5 million at June 30, 2002. The decreases in working capital and cash are primarily attributable to the acquisition of Ancicare, noted above, along with $3.3 million of stock repurchases and an increase in the Company’s days sales outstanding in accounts receivable offset by $4.0 million of net income during the quarter.

During the quarter ended June 30, 2002, the Company repurchased 97,000 shares of its common stock for $3.3 million. Since the repurchase program was enacted in the fall of 1996, the Company has repurchased 4.9 million shares for $72.4 million. These repurchases were paid from cash generated by the operations of the Company. The Company has historically required substantial capital to fund the growth of its operations, particularly working capital to fund the growth in accounts receivable and property. The Company believes, however, that the cash balance at June 30, 2002 along with anticipated internally generated funds and capacity to borrow will be sufficient to meet the Company’s expected cash requirements for at least the next twelve months.

Cautionary Statement Regarding Risk Factors

Certain statements contained in the Company’s Annual Report on Form 10-K for the year ended March 31, 2002, Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, as well as the Company’s Annual Report for the year ended March 31, 2002, such as statements concerning the development of new services, possible legislative changes, and other statements contained herein regarding matters that are not historical facts, are forward-looking statements (as such term is defined in the Securities Act of 1933, as amended). Because such statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements.

Past financial performance is not necessarily a reliable indicator of future performance, and investors should not use historical performance to anticipate results or future period trends. Factors that could cause actual results to differ materially include, but are not limited to, those discussed below. In addition, reference is made to the Company’s most recent annual report for the fiscal year ended March 31, 2002.

Page 9 of 13

Potential Adverse Impact of Government Regulation. Many states, including a number of those in which the Company transacts business, have licensing and other regulatory requirements applicable to the Company’s business. Approximately half of the states have enacted laws that require licensing of businesses which provide medical review services. Some of these laws apply to medical review of care covered by workers’ compensation. These laws typically establish minimum standards for qualifications of personnel, confidentiality, internal quality control, and dispute resolution procedures. These regulatory programs may result in increased costs of operation for the Company, which may have an adverse impact upon the Company’s ability to compete with other available alternatives for health care cost control. In addition, new laws regulating the operation of managed care provider networks have been adopted by a number of states. These laws may apply to managed care provider networks having contracts with the Company or to provider networks which the Company may organize. To the extent the Company is governed by these regulations, it may be subject to additional licensing requirements, financial oversight and procedural standards for beneficiaries and providers.

Regulation in the health care and workers’ compensation fields is constantly evolving. The Company is unable to predict what additional government regulations, if any, affecting its business may be promulgated in the future. The Company’s business may be adversely affected by failure to comply with existing laws and regulations, failure to obtain necessary licenses and government approvals or failure to adapt to new or modified regulatory requirements. Proposals for health care legislative reforms are regularly considered at the federal and state levels. To the extent that such proposals affect workers’ compensation, such proposals may adversely affect the Company’s business and results of operations. In addition, changes in workers’ compensation laws or regulations may impact demand for the Company’s services, require the Company to develop new or modified services to meet the demands of the marketplace or modify the fees that the Company may charge for its services. One of the proposals which has been considered is 24-hour health coverage, in which the coverage of traditional employer-sponsored health plans is combined with workers’ compensation coverage to provide a single insurance plan for work-related and non-work-related health problems. Incorporating workers’ compensation coverage into conventional health plans may adversely affect the market for the Company’s services.

Possible Litigation and Legal Liability. The Company, through its utilization management services, makes recommendations concerning the appropriateness of providers’ medical treatment plans of patients throughout the country, and it could share in potential liabilities for adverse medical consequences. The Company does not grant or deny claims for payment of benefits and the Company does not believe that it engages in the practice of medicine or the delivery of medical services. There can be no assurance, however, that the Company will not be subject to claims or litigation related to the grant or denial of claims for payment of benefits or allegations that the Company engages in the practice of medicine or the delivery of medical services. In addition, there can be no assurance that the Company will not be subject to other litigation that may adversely affect the Company’s business or results of operations. The Company maintains professional liability insurance and such other coverages as the Company believes are reasonable in light of the Company’s experience to date. There can be no assurance, however, that such insurance will be sufficient or available in the future at reasonable cost to protect the Company from liability which might adversely affect the Company’s business or results of operations.

Page 10 of 13

Competition. The Company faces competition from large insurers, health maintenance organizations (“HMOs”), preferred provider organizations (“PPOs”), third party administrators and other managed health care companies. The Company believes that, as managed care techniques continue to gain acceptance in the workers’ compensation marketplace, CorVel’s competitors will increasingly consist of nationally focused workers’ compensation managed care service companies, insurance companies, HMOs and other significant providers of managed care products. Legislative reforms in some states permit employers to designate health plans such as HMOs and PPOs to cover workers’ compensation claimants. Because many health plans have the ability to manage medical costs for workers’ compensation claimants, such legislation may intensify competition in the market served by the Company. Many of the Company’s current and potential competitors are significantly larger and have greater financial and marketing resources than those of the Company, and there can be no assurance that the Company will continue to maintain its existing performance or be successful with any new products or in any new geographical markets it may enter.

Changes in Market Dynamics. Legislative reforms in some states permit employers to designate health plans such as HMOs and PPOs to cover workers’ compensation claimants. Because many health plans have the capacity to manage health care for workers’ compensation claimants, such legislation may intensify competition in the market served by the Company. Within the past few years, several states have experienced decreases in the number of workers’ compensation claims and the average cost per claim which have been reflected in workers’ compensation insurance premium rate reductions in those states. The Company believes that declines in workers’ compensation costs in these states are due principally to intensified efforts by payors to manage and control claim costs, to improved risk management by employers and to legislative reforms. If declines in workers’ compensation costs occur in many states and persist over the long-term, they may have an adverse impact on the Company’s business and results of operations.

Dependence Upon Key Personnel. The Company is dependent to a substantial extent upon the continuing efforts and abilities of certain key management personnel. In addition, the Company faces competition for experienced employees with professional expertise in the workers’ compensation managed care area. The loss of, or the inability to attract, qualified employees could have a material adverse effect on the Company’s business and results of operations.

Risks Related to Growth Strategy. The Company’s strategy is to continue its internal growth and, as strategic opportunities arise in the workers’ compensation managed care industry, to consider acquisitions of, or relationships with, other companies in related lines of business. As a result, the Company is subject to certain growth-related risks, including the risk that it will be unable to retain personnel or acquire other resources necessary to service such growth adequately. Expenses arising from the Company’s efforts to increase its market penetration may have a negative impact on operating results. In addition, there can be no assurance that any suitable opportunities for strategic acquisitions or relationships will arise or, if they do arise, that the transactions contemplated thereby could be completed. If such a transaction does occur, there can no assurance that the Company will be able to integrate effectively any acquired business into the Company. In addition, any such transaction would be subject to various risks associated with the acquisition of businesses, including the financial impact of expenses associated with the integration of businesses.

Page 11 of 13

There can be no assurance that any future acquisition or other strategic relationship will not have an adverse impact on the Company’s business or results of operations. If suitable opportunities arise, the Company anticipates that it would finance such transactions, as well as its internal growth, through working capital or, in certain instances, through debt or equity financing. There can be no assurance, however, that such debt or equity financing would be available to the Company on acceptable terms when, and if, suitable strategic opportunities arise.

The Company expects that a considerable amount of its future growth will depend on its ability to process and manage claims data more efficiently and to provide more meaningful healthcare information to customers and payors of healthcare. There is no assurance that the Company will be able to develop, license or otherwise acquire software to address these market demands as well or as timely as its competitors.

Possible Volatility of Stock Price. The market price of the Company’s Common Stock may be highly volatile. Factors such as variations in the Company’s revenues, earnings and cash flow, general market trends in the workers’ compensation managed care market, and announcements of innovations by the Company or its competitors could cause the market price of the Common Stock to fluctuate substantially. Specifically, the quarter to quarter percentage growth in operating results for the Company’s most recently completed fiscal years was lower than the growth rates historically experienced by the Company. The Company’s slower growth rate in those quarters was partially attributable to a reduction in the growth rate of health care expenditures nationally, contributing to a reduction in the growth of claims processed by the Company. There can be no assurance that the Company’s growth rate in the future, if any, will be at or near historical levels.

PART II — OTHER INFORMATION

ITEM 1 — LEGAL PROCEEDINGS — The Company is involved in litigation arising in the normal course of business. The Company believes that resolution of these matters will not result in any payment that, in the aggregate, would be material to the financial position or financial operations of the Company.

ITEM 2 — CHANGES IN SECURITIES — None.

ITEM 3 — DEFAULTS UPON SENIOR SECURITIES — None.

ITEM 4 — SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS — None.

ITEM 5 — OTHER INFORMATION — None.

ITEM 6 — EXHIBITS AND REPORTS ON FORM 8-K — The Company filed a Report on Form 8-K on May 24, 2002, to announce that the Company’s Board of Directors had amended its Shareholder Rights Plan as noted in Footnote C — Shareholder Rights Plan above.

Page 12 of 13

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

CORVEL CORPORATION
By:	V. Gordon Clemons
V. Gordon Clemons, Chairman of the Board, Chief Executive Officer, and President

By:	Richard J. Schweppe
Richard J. Schweppe, Chief Financial Officer

August 14, 2002

PERIODIC REPORT CERTIFICATION
of the Chief Executive Officer and Chief Financial Officer

We certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to our knowledge:

(1)	the Report of CorVel Corporation (the “Company”) on Form 10-Q for the quarterly period ending June 30, 2002, as filed with the Securities and Exchange Commission (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/   V. Gordon Clemons	/s/   Richard J. Schweppe
V. Gordon Clemons Chief Executive Officer August 14, 2002	Richard J. Schweppe Chief Financial Officer August 14, 2002

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