-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QUGlohPnP2rtZomVJZnigGZkFGRNW7VXLV0AV3nXg612S4lrjAjgbvbSvDCe1hYZ N+4i7t89fcAfK0MlAYasUg== 0000892569-98-002315.txt : 19980817 0000892569-98-002315.hdr.sgml : 19980817 ACCESSION NUMBER: 0000892569-98-002315 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CORVEL CORP CENTRAL INDEX KEY: 0000874866 STANDARD INDUSTRIAL CLASSIFICATION: INSURANCE AGENTS BROKERS & SERVICES [6411] IRS NUMBER: 330282651 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19291 FILM NUMBER: 98687383 BUSINESS ADDRESS: STREET 1: 2010 MAIN STREE STREET 2: SUITE 1020 CITY: IRVINE STATE: CA ZIP: 92714 BUSINESS PHONE: 9498511473 MAIL ADDRESS: STREET 1: 2010 MAIN STREET STREET 2: SUITE 1020 CITY: IRVINE STATE: CA ZIP: 92614 FORMER COMPANY: FORMER CONFORMED NAME: FORTIS CORP DATE OF NAME CHANGE: 19600201 10-Q 1 FORM 10-Q 1 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, 1998 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 (IRS Employer Identification No.) of incorporation or organization) 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, 1998 was 4,085,000 shares. 2 CORVEL CORPORATION TABLE OF CONTENTS PART I -- FINANCIAL INFORMATION Item 1 Financial Statements Consolidated Balance Sheets - March 31, 1998 (audited) and June 30, 1998 (unaudited)- Page 3 of 14 Consolidated Statements of Income -- Three months ended June 30, 1997 and 1998 (both unaudited) - Page 4 of 14 Consolidated Statements of Cash Flows -- Three months ended June 30, 1997 and 1998 (both unaudited) - Page 5 of 14 Notes to Consolidated Financial Statements (unaudited) -- June 30, 1998 - Page 6 of 14 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Pages 7 through 10 of 14 PART II -- OTHER INFORMATION Item 1. Legal Proceedings - Page 11 of 14 Item 2. Changes in Securities - Page 11 of 14 Item 3. Defaults upon Senior Securities - Page 11 of 14 Item 4. Submission of Matters to a Vote of Security Holders - Pages 11 of 14 Item 5. Other Information - Page 11 of 14 Item 6. Exhibits and Reports on Form 8-K Page 2 3 Part I - Financial Information Item 1. Financial Statements CORVEL CORPORATION CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 1998 AND JUNE 30, 1998
March 31, 1998 June 30, 1998 -------------- ------------- (audited) (unaudited) ASSETS Current Assets Cash and cash equivalents $ 8,430,000 $ 6,408,000 Accounts receivable, net 25,633,000 27,871,000 Prepaid taxes and expenses 736,000 655,000 Deferred income taxes 2,376,000 1,725,000 ------------ ------------ Total current assets 37,175,000 36,659,000 ------------ ------------ Property and Equipment, Net 16,542,000 16,740,000 Other Assets 6,774,000 7,758,000 ------------ ------------ TOTAL ASSETS $ 60,491,000 $ 61,157,000 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $ 6,078,000 $ 4,540,000 Accrued liabilities 6,371,000 6,888,000 ------------ ------------ Total current liabilities 12,449,000 11,426,000 ------------ ------------ Deferred income taxes 2,271,000 3,366,000 Stockholders' Equity Common stock -- -- Paid-in-capital 30,615,000 31,024,000 Treasury Stock, (357,000 shares at March 31, 1998 and 792,100 shares at June 30, 1998) (21,727,000) (24,045,000) Retained earnings 36,883,000 39,384,000 ------------ ------------ Total stockholders' equity 45,771,000 46,363,000 ------------ ------------ TOTAL LIABILITIES AND EQUITY $ 60,491,000 $ 61,157,000 ============ ============
See accompanying notes to consolidated financial statements. Page 3 4 CORVEL CORPORATION INCOME STATEMENT FISCAL YEAR ENDING FISCAL MARCH 31, 1999 FIRST QUARTER ENDING JUNE 30, 1998
Three months ending June 30, ------------------------------ 1997 1998 ----------- ----------- REVENUES $34,027,000 $39,552,000 Cost of Revenues Gross profit 27,557,000 32,342,000 ----------- ----------- General and administrative expenses 6,467,000 7,210,000 Income before income taxes 2,798,000 3,177,000 ----------- ----------- Income tax provision 3,669,000 4,033,000 NET INCOME 1,394,000 1,532,000 ----------- ----------- Net income per common and common equivalent share $ 2,275,000 $ 2,501,000 =========== =========== Weighted average common and common equivalent shares $ .52 $ .60 =========== =========== 4,364,000 4,169,000
See accompanying notes to consolidated financial statements. Page 4 5 CORVEL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED JUNE 30, 1997, AND 1998
Three months ended June 30, --------------------------------- 1997 1998 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES NET INCOME $ 2,275,000 $ 2,501,000 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 1,214,000 1,304,000 Changes in operating assets and liabilities Accounts receivable (1,786,000) (2,238,000) Prepaid taxes and expenses 63,000 81,000 Accounts payable (1,128,000) (1,538,000) Accrued liabilities 734,000 517,000 Deferred income taxes and income taxes payable 1,197,000 1,746,000 Other assets (524,000) (984,000) ------------ ------------ Net cash provided by operating activities 2,045,000 1,389,000 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES Additions to property and equipment Net cash used in investing activities (2,061,000) (1,502,000) ------------ ------------ (2,061,000) (1,502,000) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Purchase of Treasury Stock Sale of common and exercise of stock options and related tax benefits (3,317,000) (2,318,000) ------------ ------------ Net cash provided by financing activities 97,000 409,000 ------------ ------------ (3,220,000) (1,909,000) INCREASE (DECREASE) IN CASH: Cash and cash equivalents at beginning (3,326,000) (2,022,000) Cash and cash equivalents at end 15,665,000 8,430,000 ------------ ------------ $ 12,429,000 $ 6,408,000 ============ ============
See accompanying notes to consolidated financial statements. Page 5 6 CORVEL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1998 (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 generally accepted accounting principles 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, 1998 are not necessarily indicative of the results that may be expected for the year ended March 31, 1998. For further information, refer to the consolidated financial statements and footnotes thereto for the year ended March 31, 1998 included in the Company's registration statement 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. For calculation of the common and common equivalent shares, see Exhibit 11 included herein. Page 6 7 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:
Three months ended June 30: 1997 1998 - --------------------------- ----- ----- Revenues 100.0% 100.0% Cost of services 81.0 81.8 ----- ----- Gross profit 19.0 18.2 ----- ----- General and administrative 8.2 8.0 ----- ----- Income from operations 10.8 10.2 ----- ----- Income tax provision 4.1 3.9 ----- ----- NET INCOME 6.7% 6.3% ===== =====
Revenues for the three months ended June 30, 1998 increased by $5.6 million to $39.6 million, an increase of 14% over the $34.0 million revenue for the comparable period in the prior fiscal year. The increase in revenues is primarily attributable to a 22% increase in patient management revenue along with a 9% increase in provider program revenues. The increase in patient management revenues is primarily attributable to an increase in referrals. The growth in the Company's revenue was at or lower than experienced by the Company in previous years. This slower growth rate in the current quarter was partially attributable to the reduction in the growth rate of healthcare expenditures on a national level which helped contribute to a reduction in the growth of the amount of claims processed by the Company. Cost of revenues for the three months ended June 30, 1998 increased to 81.8% from 81.0% for the three months ended June 30, 1996. The gross profit margin decreased due to higher growth rates in the patient management business than the provider program revenues as noted above. Provider program revenues yield a higher gross margin than patient management services. General and administrative expenses as a percentage of revenues decreased from 8.2% for the quarter ending June 30, 1997, to 8.0% for the quarter ending June 30, 1998. This decrease is due to a 14% increase in general and administrative expenses as compared to the 16% growth in revenues. General and administrative expenses were $3.2 million for the three months ended June 30, 1998 compared to $2.8 million for the three months ended June 30, 1997. LIQUIDITY AND CAPITAL RESOURCES The Company has funded its operations and capital expenditures primarily from cash flow from operations. During the quarter ending June 30, 1998, net working capital increased by $.5 million, from $24.7 million at March 31, 1998 to $25.2 million at June 30, 1997. However, cash declined from $8.4 million at March 31, 1998 to $6.4 million at June 30, 1998, a decrease of $2.0 million. This decline in cash is due to the Company's continued repurchases of its common stock. During the quarter ending June 30, 1998, the Company repurchased $2.3 million of its common stock. Since the repurchase program was enacted in the fall of 1996, the Company has repurchased $24.0 million of its common stock. 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, 1998 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. Page 7 8 CAUTIONARY STATEMENT REGARDING RISK FACTORS Certain statements contained in the Company's Annual Report on Form 10-K for the year ended March 31, 1998, Quarterly Report on Form 10-Q for the quarter ending June 30, 1998, as well as the Company's Annual Report for the year ending March 31, 1998, 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 ending March 31, 1998. 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. Page 8 9 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. 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. Page 9 10 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. 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. During the past fiscal year, the Company has made efforts to increase its presence and revenue in the group health market with limited success. Managed care in this market is more mature than managed care in workers' compensation and has numerous large competitors, primarily health maintenance organizations. The Company has limited experience in the group health market. There is no assurance that the Company will be successful in this market. 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 following this offering 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 two 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. Page 10 11 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 (a) Exhibits Exhibit 11 -- Computation of Per Share Earnings Exhibit 27 -- Financial Data Schedule 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: /s/ V. GORDON CLEMONS ----------------------------------- V. Gordon Clemons, Chairman of the Board, Chief Executive Officer, and President By: /s/ RICHARD J. SCHWEPPE ----------------------------------- Richard J. Schweppe, Chief Financial Officer August 13, 1998 Page 11 EX-11 2 COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 11 CORVEL CORPORATION COMPUTATION OF PER SHARE EARNINGS Shares used in per share calculations were determined as follows:
Three months ended June 30, ----------------------------- 1997 1998 ----------- ---------- BASIC EARNINGS PER SHARE Weighted average common shares outstanding 4,284,000 4,106,000 =========== ========== Net Income $ 2,275,000 $2,501,000 =========== ========== Earnings per common and common equivalent share $ .53 $ .61 =========== ==========
Three months ended June 30, ---------------------------- 1997 1998 ---------- ---------- DILUTED EARNINGS PER SHARE Weighted average common shares outstanding 4,284,000 4,106,000 Net effect of dilutive common stock options 80,000 63,000 ---------- ---------- Total common and common equivalent shares 4,364,000 4,169,000 ========== ========== Net Income $2,275,000 $2,501,000 ========== ========== Earnings per common and common equivalent share $ .52 $ .60 ========== ==========
EX-27 3 FINANCIAL DATA SCHEDULE
5 3-MOS MAR-31-1999 APR-01-1998 JUN-30-1998 6,408,000 0 29,957,00 2,086,000 0 36,659,000 35,394,000 18,654,000 61,157,000 11,428,000 0 0 0 31,024,000 15,339,000 61,157,000 0 39,552,000 0 35,519,000 0 0 0 4,033,000 1,532,000 2,501,000 0 0 0 2,501,000 .60 .60
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