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0000950123-11-073793.txt : 20110805 0000950123-11-073793.hdr.sgml : 20110805 20110805171752 ACCESSION NUMBER: 0000950123-11-073793 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20110630 FILED AS OF DATE: 20110805 DATE AS OF CHANGE: 20110805 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: 1934 Act SEC FILE NUMBER: 000-19291 FILM NUMBER: 111015059 BUSINESS ADDRESS: STREET 1: 2010 MAIN STREE STREET 2: SUITE 1020 CITY: IRVINE STATE: CA ZIP: 92614 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 a58186e10vq.htm FORM 10-Q e10vq

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended June 30, 2011


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

For the transition period from to

Commission file number 0-19291

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 600
Irvine, CA		92614

(Address of principal executive office)		(zip code)

Registrant’s telephone number, including area 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 þ No o

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

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 the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The number of shares outstanding of the registrant’s Common Stock, $0.0001 par value per share, as of July 28, 2011 was 11,548,983.

CORVEL CORPORATION
FORM 10-Q
TABLE OF CONTENTS


	Page
PART I — FINANCIAL INFORMATION

Item 1. Financial Statements
Consolidated Balance Sheets — March 31, 2011 and June 30, 2011 (unaudited)		3
Consolidated Income Statements (unaudited) — Three months ended June 30, 2010 and 2011		4
Consolidated Statements of Cash Flows (unaudited) — Three months ended June 30, 2010 and 2011		5
Notes to Consolidated Financial Statements (unaudited) — June 30, 2011		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		18
Item 3. Quantitative and Qualitative Disclosures About Market Risk		28
Item 4. Controls and Procedures		28

PART II. OTHER INFORMATION
Item 1. Legal Proceedings		29
Item 1A. Risk Factors		30
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		38
Item 3. Defaults Upon Senior Securities		38
Item 4. (Removed and Reserved)		38
Item 5. Other Information		38
Item 6. Exhibits		38
Signatures		39
EX-10.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT

Page 2

Part I — Financial Information

Item 1. Financial Statements

CORVEL CORPORATION

CONSOLIDATED BALANCE SHEETS


	March 31, 2011			June 30, 2011
				(Unaudited)
Assets
Current Assets
Cash and cash equivalents (Note A)	$	12,269,000		$	17,577,000
Customer deposits		5,279,000			4,348,000
Accounts receivable, net		48,964,000			48,813,000
Prepaid taxes and expenses		6,417,000			6,659,000
Deferred income taxes		9,298,000			9,485,000

Total current assets		82,227,000			86,882,000

Property and equipment, net		38,500,000			42,148,000
Goodwill		36,769,000			36,769,000
Other intangibles, net (Note F)		6,729,000			6,581,000
Other assets		0			70,000


TOTAL ASSETS	$	164,225,000		$	172,450,000


Liabilities and Stockholders’ Equity
Current Liabilities
Accounts and taxes payable	$	14,590,000		$	19,393,000
Accrued liabilities		40,248,000			37,722,000

Total current liabilities		54,838,000			57,115,000

Deferred income taxes		9,748,000			9,748,000

Commitments and contingencies (Note G and H)

Stockholders’ Equity
Common stock, $.0001 par value: 60,000,000 shares authorized; 26,122,084 shares issued (11,630,921 shares outstanding, net of Treasury shares) and 26,146,901 shares issued (11,578,208 shares outstanding, net of Treasury shares) at March 31, 2011 and June 30, 2011, respectively		3,000			3,000

Paid-in capital		100,073,000			101,496,000

Treasury Stock (14,491,163 shares at March 31, 2011 and 14,568,693 shares at June 30, 2011)		(248,931,000	)		(252,604,000	)

Retained earnings		248,494,000			256,692,000

Total stockholders’ equity		99,639,000			105,587,000


TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	164,225,000		$	172,450,000

See accompanying notes to consolidated financial statements.

Page 3

CORVEL CORPORATION

CONSOLIDATED INCOME STATEMENTS — UNAUDITED


	Three Months Ended June 30,
	2010		2011
REVENUES	$	91,503,000	$	102,307,000

Cost of revenues		67,700,000		76,764,000


Gross profit		23,803,000		25,543,000

General and administrative expenses		11,486,000		12,294,000


Income before income tax provision		12,317,000		13,249,000

Income tax provision		4,557,000		5,051,000


NET INCOME	$	7,760,000	$	8,198,000


Net income per common and common equivalent share
Basic	$	0.65	$	0.71


Diluted	$	0.64	$	0.70


Weighted average common and common equivalent
Basic		11,957,000		11,617,000

Diluted		12,187,000		11,787,000

See accompanying notes to consolidated financial statements.

Page 4

CORVEL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS — UNAUDITED


	Three Months Ended June 30,
	2010			2011
*Cash flows from Operating Activities*
NET INCOME	$	7,760,000		$	8,198,000

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization		2,861,000			3,396,000
Loss on disposal of assets		141,000			67,000
Stock compensation expense		590,000			658,000
Write-off of uncollectible accounts		730,000			616,000

Changes in operating assets and liabilities
Accounts receivable		(2,173,000	)		(465,000	)
Customer deposits		(548,000	)		931,000
Prepaid taxes and expenses		2,459,000			(242,000	)
Other assets		212,000			(63,000	)
Accounts and taxes payable		739,000			4,803,000
Accrued liabilities		(1,629,000	)		(2,526,000	)
Deferred income tax		(223,000	)		(194,000	)

Net cash provided by operating activities		10,919,000			15,179,000


*Cash Flows from Investing Activities*
Purchase of property and equipment		(5,090,000	)		(6,963,000	)

Net cash (used in) investing activities		(5,090,000	)		(6,963,000	)


*Cash Flows from Financing Activities*
Purchase of treasury stock		(5,469,000	)		(3,673,000	)
Tax effect of stock option exercises		248,000			284,000
Exercise of common stock options		592,000			481,000

Net cash (used in) financing activities		(4,629,000	)		(2,908,000	)


*Increase in cash and cash equivalents*		1,200,000			5,308,000
Cash and cash equivalents at beginning of period		10,242,000			12,269,000

Cash and cash equivalents at end of period	$	11,442,000		$	17,577,000


Supplemental Cash Flow Information:
Income taxes paid	$	827,000		$	291,000
Purchase of software license under finance agreement	$	1,700,000			—

See accompanying notes to consolidated financial statements.

Page 5

CORVEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011

Note A — Basis of Presentation and Summary of Significant Accounting Policies

The unaudited financial statements herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. The accompanying interim financial statements have been prepared under the presumption that users of the interim financial information have either read or have access to the audited financial statements for the latest fiscal year ended March 31, 2011. Accordingly, footnote disclosures which would substantially duplicate the disclosures contained in the March 31, 2011 audited financial statements have been omitted from these interim financial statements.

During fiscal 2011, the Company implemented Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 855-10-05 through 885-10-55, Subsequent Events as amended by ASU 2010-09. This standard establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. In accordance with ASU 2010-09 the Company evaluated all subsequent events or transactions. During the period subsequent to June 30 and through August 3, 2011 the Company repurchased 46,090 shares for $2.2 million or approximately $48.66 per share. These shares were repurchased under the Company’s ongoing share repurchase program described in Note C.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. 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, 2011 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2012. For further information, refer to the consolidated financial statements and footnotes for the fiscal year ended March 31, 2011 included in the Company’s Annual Report on Form 10-K.

Basis of Presentation: The consolidated financial statements include the accounts of CorVel and its subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates: The preparation of financial statements in compliance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the accompanying financial statements. Actual results could differ from those estimates. Significant estimates include the values assigned to intangible assets, capitalized software development, the allowance for doubtful accounts, accrual for income taxes, purchase price allocation for acquisitions, and accrual for self-insurance reserves loss contingencies, share-based payments related to performance based awards, estimated claims for claims administration revenue recognition, and estimates used in stock option valuations.

Cash and Cash Equivalents: Cash and cash equivalents consist of short-term highly-liquid investment-grade interest-bearing securities with maturities of 90 days or less when purchased.

Page 6

CORVEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011

Note A — Basis of Presentation and Summary of Significant Accounting Policies (continued)

Fair Value of Financial Instruments: The Company applies ASC 820, “Fair Value Measurements and Disclosures” with respect to fair value measurements of (a) nonfinancial assets and liabilities that are recognized or disclosed at fair value in the Company’s Consolidated Financial Statements on a recurring basis (at least annually) and (b) all financial assets and liabilities. ASC 820 prioritizes the inputs used in measuring fair value into the following hierarchy:

Level 1 Quoted market prices in active markets for identical assets or liabilities;

Level 2 Observable inputs other than those included in Level 1 (for example, quoted prices for similar assets in active markets or quoted prices for identical assets in inactive markets); and

Level 3 Unobservable inputs reflecting management’s own assumptions about the inputs used in estimating the value of the asset.

The carrying amount of the Company’s financial instruments (i.e. cash, accounts receivable, accounts payable, etc.) approximate their fair values due to the short term nature of the instruments at March 31, 2011 and June 30, 2011. The Company has no Level 2 or Level 3 assets.

Goodwill: The Company accounts for its business combinations in accordance with FASB ASC 805-10 through ASC 805-50 Business Combinations which requires that the purchase method of accounting be applied to all business combinations and addresses the criteria for initial recognition of intangible assets and goodwill. In accordance with FASB ASC 350-10 through ASC 350-30, goodwill and other intangible assets with indefinite lives are not amortized but are tested for impairment annually, or more frequently if circumstances indicate the possibility of impairment. If the carrying value of goodwill or an intangible asset exceeds its fair value, an impairment loss shall be recognized. The Company’s goodwill impairment test is conducted company-wide and the fair value is compared to its carrying value. The measurement of fair value is based on an evaluation of market capitalization and is further tested using a multiple of earnings approach. For all periods presented, no material impairment existed and, accordingly, no loss was recognized.

Revenue Recognition: The Company recognizes revenue when there is persuasive evidence of an arrangement, the services have been provided to the customer, the sales price is fixed or determinable, and collectability is reasonably assured. For the Company’s services, as the Company’s professional staff performs work, they are contractually permitted to bill for fees earned in fraction of an hour increments worked or by units of production. The Company recognizes revenue as the time is worked or as units of production are completed, which is when the revenue is earned and realized. Labor costs are recognized as the costs are incurred. The Company derives the majority of its revenue from the sale of Network Solutions and Patient Management services. Network Solutions and Patient Management services may be sold individually or combined with any of the services the Company provides. When a sale combines multiple elements, the Company accounts for multiple element arrangements in accordance with the guidance included in ASC 605-25.

Page 7

CORVEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011

Note A — Basis of Presentation and Summary of Significant Accounting Policies (continued)

In accordance with ASC 605-25, the Company allocates revenue for transactions or collaborations that include multiple elements to each unit of accounting based on its relative fair value, and recognizes revenue for each unit of accounting when the revenue recognition criteria have been met. The price charged when the element is sold separately generally determines fair value. When our customers purchase several products from CorVel, the pricing of the products sold is generally the same as if the product were sold on an individual basis. As a result, the fair value of each product sold in a multiple element arrangement is almost always determinable. The Company recognizes revenue for delivered elements when the delivered elements have standalone value and the Company has objective and reliable evidence of fair value for each undelivered element. If the fair value of any undelivered element included in a multiple element arrangement cannot be objectively determined, revenue is deferred until all elements are delivered and services have been performed, or until fair value can objectively be determined for any remaining undelivered elements. Based upon the nature of our products, bundled products are generally delivered in the same accounting period.

In October 2009, the FASB issued Accounting Standards Update No. 2009-13, Multiple Deliverable Revenue Arrangements—a consensus of FASB Emerging Issues Task Force (“ASU 2009-13”). ASU 2009-13 provides for less restrictive separation criteria that must be met for a deliverable to be considered a separate unit of accounting. Additionally, under this Standard, there is a hierarchy for determining the selling price of a unit of accounting and consideration must be allocated using a relative-selling price method. ASU 2009-13 was be effective for CorVel Corporation on April 1, 2011. We reviewed the requirements of ASU 2009-13 and determined the pronouncement had no material impact on our financial position or results of operations.

Accounts Receivable: The majority of the Company’s accounts receivable are due from companies in the property and casualty insurance industries, self-insured employers, and government entities. Accounts receivable are due within 30 days and are stated as amounts due from customers net of an allowance for doubtful accounts. Those accounts outstanding longer than the contractual payment terms are considered past due. The Company determines its allowance by considering a number of factors, including the length of time trade accounts receivable are past due, the Company’s previous loss history, the customer’s current ability to pay its obligation to the Company and the condition of the general economy and the industry as a whole. No one customer accounted for 10% or more of accounts receivable at either March 31, 2011 or June 30, 2011. No one customer accounted for 10% or more of revenue during either of the three month periods ended June 30, 2010 or 2011.

Property and Equipment: Additions to property and equipment are recorded at cost. Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the related assets, which range from one to seven years. The Company accounts for internally developed software costs in accordance with FASB ASC 350-40, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use, which allows for the capitalization of software developed for internal use. These costs are included in computer software in property and equipment and are amortized over a period of five years.

Long-Lived Assets: The carrying amount of all long-lived assets is evaluated periodically to determine if adjustment to the depreciation and amortization period or to the unamortized balance is warranted. Such evaluation is based principally on the expected utilization of the long-lived assets and the projected, undiscounted cash flows of the operations in which the long-lived assets are deployed.

Income Taxes: The Company provides for income taxes under the liability method. Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities as measured by the enacted tax rates which are expected to be in effect when these differences reverse. Income tax expense is the tax payable for the period and the change during the period in net deferred tax assets and liabilities. The balance of the unrecognized tax benefits as of March 31, 2011 and June 30, 2011 was $1,608,000 and $1,503,000, respectively.

Page 8

CORVEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011

Note A — Basis of Presentation and Summary of Significant Accounting Policies (continued)

Earnings Per Share: Earnings per common share-basic is based on the weighted average number of common shares outstanding during the period. Earnings per common shares-diluted is based on the weighted average number of common shares and common share equivalents outstanding during the period. In calculating earnings per share, earnings are the same for the basic and diluted calculations. Weighted average shares outstanding decreased in the June 2011 quarter compared to the same quarter of the prior year primarily due to repurchase of shares under the Company’s share repurchase program. See also Note D.

Note B — Stock Based Compensation and Stock Options

Under the Company’s Restated Omnibus Incentive Plan (Formerly The Restated 1988 Executive Stock Option Plan) (“the Plan”) as in effect at June 30, 2011, options for up to 9,682,500 shares of the Company’s common stock may be granted to key employees, non-employee directors and consultants at exercise prices not less than the fair market value of the stock at the date of grant. Options granted under the Plan are non-statutory stock options and generally vest 25% one year from date of grant and the remaining 75% vesting ratably each month for the next 36 months. The options granted to employees and the board of directors expire at the end of five years and ten years from date of grant, respectively.

The Company records compensation expense for employee stock options based on the estimated fair value of the options on the date of grant using the Black-Scholes option-pricing model with the assumptions included in the table below. The Company uses historical data among other factors to estimate the expected volatility, the expected option life, and the expected forfeiture rate. The risk-free rate is based on the interest rate paid on a U.S. Treasury issue with a term similar to the estimated life of the option. Based upon the historical experience of options cancellations, the Company has estimated an annualized forfeiture rate of 9.05% and 9.30% for the three months ended June 30, 2010 and 2011, respectively. Forfeiture rates will be adjusted over the requisite service period when actual forfeitures differ, or are expected to differ, from the estimate. The following assumptions were used to estimate the fair value of options granted during the three months ended June 30, 2010 and 2011 using the Black-Scholes option-pricing model:


	Three Months Ended June 30,
	2010			2011
Risk-free interest rate		2.15	%		1.88	%
Expected volatility		46	%		46	%
Expected dividend yield		0.00	%		0.00	%
Expected forfeiture rate		9.05	%		9.30	%
Expected weighted average life of option in years	4.8 years			4.7 years

All options granted in the three months ended June 30, 2010 and 2011 were granted at fair market value and are non-statutory stock options.

Page 9

CORVEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011

Note B — Stock Options and Stock-Based Compensation (continued)

In May 2006, the Company’s Board of Directors granted performance-based stock options for 149,175 shares of common stock at fair market value at the date of grant, which would only vest if the Company attained certain earnings per share targets, as established by the Company’s Board of Directors, for calendar years 2008, 2009, and 2010. These options were granted with an exercise price of $15.76 per share, which was the fair market value at the date of grant, and have a valuation of $6.75 per share. The Company did not attain the targets for calendar years 2008 and 2009. The Company attained the earnings per share target for calendar year 2010 which allowed for options for 68,025 shares to vest. The Company recognized $413,000 in stock compensation expense in fiscal 2011, and $459,000, cumulatively, for these options. No further stock options will vest under this grant and there will be no further recognition of stock compensation expense.

In February 2008, the Company’s Board of Directors granted performance-based stock options for 42,000 shares of common stock at fair market value at the date of grant, which will only vest if the Company attains certain revenue targets for all services sold to claims administration clients and out-of-network bill review revenues, as established by the Company’s Board of Directors, for calendar years 2009, 2010, and 2011. The targets for the various options varied by the regions managed by these optionees with each region having a different target. These options were granted with an exercise price of $25.10 per share, which was the fair market value at the date of grant, and have a valuation of $9.81 per share. Currently, management has determined that optionees with 12,000 shares attained the revenue targets for calendar year 2009 and 2010, and, accordingly, the Company has recognized $33,000 during fiscal 2011, $11,000 during the quarter ended June 30, 2011, and $94,000, cumulatively, since the date of the option grant. Currently, management has determined that it is not probable that the revenue targets for the remaining optionees will be attained and, accordingly, the Company has recognized no stock compensation expense for those options.

In February 2009, the Company’s Board of Directors granted performance-based stock options for 100,000 shares of common stock at fair market value at the date of grant, which will only vest if the Company attains certain earnings per share targets, as established by the Company’s Board of Directors, for calendar years 2009, 2010, and 2011. Net of cancelations due to employee terminations, options for 95,000 shares remained under these performance-based stock options as of June 30, 2011. These options were granted with an exercise price of $19.79 per share, which was the fair market value at the date of grant, and have a valuation of $8.21 per share. The Company attained these targets for calendar 2009 and 2010, and, accordingly, the Company has recognized stock compensation expense of $221,000 during fiscal year 2011, $78,000 during the quarter ended June 30, 2011, and $624,000, cumulatively, since the date of the option grants.

In February 2009, the Company’s Board of Directors granted performance-based stock options for 10,000 shares of common stock at fair market value at the date of grant, which will only vest if the Company attains certain revenue targets for all services sold to claims administration clients and out-of-network bill review revenues, as established by the Company’s Board of Directors, for calendar years 2009, 2010, and 2011. These options were granted with an exercise price of $20.37 per share, which was the fair market value at the date of grant, and have a valuation of $8.45 per share. The Company did not achieve the revenue target for calendar year 2009 or 2010. Currently, management has determined that it is not probable that the Company will attain the revenue targets for calendar year 2011, and, accordingly, the Company has recognized no stock compensation expense for this stock option grant during fiscal 2011 or the quarter ended June 30, 2011.

Page 10

CORVEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011

Note B — Stock Options and Stock-Based Compensation (continued)

In November 2009, the Company’s Board of Directors granted performance-based stock options for 110,000 shares of common stock at fair market value at the date of grant, which will only vest if the Company attains certain earnings per share targets, as established by the Company’s Board of Directors, for calendar years 2010, 2011, and 2012. These options were granted with an exercise price of $28.92 per share, which was the fair market value at the date of grant, and have a valuation of $12.57 per share. The Company attained the earnings per share target in calendar year 2010, and currently, management has determined that it is probable that the Company will attain the earnings per share targets for calendar year 2011. Accordingly, the Company has recognized $337,000 of stock compensation expense for this stock option grant during fiscal 2011, $104,000 for the quarter ended June 30, 2011, and $622,000, cumulatively.

In December 2010, the Company’s Board of Directors granted performance-based stock options for 100,000 shares of common stock at fair market value at the date of grant, which will only vest if the Company attains certain earnings per share targets, as established by the Company’s Board of Directors, for calendar years 2011, 2012, and 2013. These options were granted with an exercise price of $46.14 per share, which was the fair market value at the date of grant, and have a valuation of $18.72 per share. Management has determined that it is probable that the Company will attain the earnings per share targets for calendar year 2011. Accordingly, the Company has recognized $140,000 of stock compensation expense for this stock option grant during fiscal 2011, $140,000 during the quarter ended June 30, 2011, and $281,000, cumulatively.

The table below shows the amounts recognized in the financial statements for stock compensation expense for time based options and performance based options the three months ended June 30, 2010 and 2011, respectively. Included in the three months ended June 30, 2011 stock compensation expense is $334,000 for the expense related to the performance based options.


	Three Months Ended
	June 30, 2010			June 30, 2011
Cost of revenues	$	134,000		$	126,000
General and administrative		456,000			532,000


Total cost of stock-based compensation included in income before income tax provision		590,000			658,000
Amount of income tax benefit recognized		(218,000	)		(256,000	)

Amount charged against net income	$	372,000		$	402,000

Effect on diluted net income per share	$	(0.03	)	$	(0.03	)

Page 11

CORVEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011

Note B — Stock Based Compensation and Stock Options (continued)

Summarized information for all stock options for the three months ended June 30, 2010 and 2011 follows:


	Three Months Ended June 30, 2010					Three Months Ended June 30, 2011
	Shares			Average Price		Shares			Average Price

Options outstanding, beginning		1,065,403		$	22.57		813,662		$	29.26
Options granted		48,000			36.55		15,675			49.56
Options exercised		(34,221	)		17.31		(28,544	)		22.85
Options cancelled		(160	)		28.28		(3,416	)		29.47

Options outstanding, ending		1,079,022		$	23.35		797,377		$	29.89

The following table summarizes the status of stock options outstanding and exercisable at June 30, 2011:


									Exercisable
			Weighted		Outstanding		Exercisable		Options –
			Average		Options –		Options –		Weighted
			Remaining		Weighted		Number of		Average
	Number of		Contractual		Average		Exercisable		Exercise
Range of Exercise Price	Outstanding Options		Life		Exercise Price		Options		Price

$15.55 to $21.76		198,247		2.81	$	18.97		147,295	$	18.57
$21.77 to $27.15		173,340		2.73	$	25.57		115,165	$	25.63
$27.16 to $35.20		213,553		3.09	$	30.17		97,495	$	30.36
$35.20 to $49.56		212,237		4.63	$	43.33		13,638	$	37.51

Total		797,377		3.35	$	29.89		373,593	$	24.51

Page 12

CORVEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011

Note B — Stock Based Compensation and Stock Options (continued)

A summary of the status for all outstanding options at June 30, 2011, and changes during the three months then ended, is presented in the table below:


						Weighted Average		Aggregate
				Weighted Average		Remaining Contractual		Intrinsic Value as
	Number of Options			Exercise Per Share		Life (Years)		of June 30, 2011

Options outstanding at April 1, 2011		813,662		$	29.26
Granted		15,675			49.56
Exercised		(28,544	)		22.85
Cancelled — forfeited		(2,928	)		33.24
Cancelled — expired		(488	)		14.84

Ending outstanding		797,377		$	29.89		3.35	$	13,608,574

Ending vested and expected to vest		731,991		$	29.14		3.28	$	13,032,835

Ending exercisable at June 30, 2011		373,593		$	24.51		2.64	$	8,364,683

The weighted-average grant-date fair value of options granted during the three months ended June 30, 2010 and 2011, was $15.27 and $20.31, respectively.

Note C — Treasury Stock and Subsequent Event

The Company’s Board of Directors initially approved the commencement of a share repurchase program in the fall of 1996. In May 2010, the Board approved an 850,000 share expansion of the repurchase program to 15,000,000 shares over the life of the share repurchase program. Since the commencement of the share repurchase program, the Company has spent $253 million to repurchase 14,568,693 shares of its common stock, equal to 56% of the outstanding common stock had there been no repurchases. The average price of these repurchases is $17.34 per share. These purchases have been funded primarily from the net earnings of the Company, along with the proceeds from the exercise of common stock options. During the three months ended June 30, 2011, the Company repurchased 77,530 shares for $3.7 million. The Company had 11,578,208 shares of common stock outstanding as of June 30, 2011, net of the 14,568,693 shares in treasury. Subsequent to the end of the quarter, through July 28, 2011, the Company repurchased 46,090 shares of common stock for $2.2 million or $48.66 a share.

Page 13

CORVEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011

Note D — Weighted Average Shares and Net Income Per Share

Weighted average basic common and common equivalent shares decreased from 11,957,000 for the quarter ended June 30, 2010 to 11,617,000 for the quarter ended June 30, 2011. Weighted average diluted common and common equivalent shares decreased from 12,187,000 for the quarter ended June 30, 2010 to 11,787,000 for the quarter ended June 30, 2011. The net decrease in both of these weighted share calculations is due to the repurchase of common stock as noted above, offset by an increase in shares outstanding due to the exercise of stock options under the Company’s employee stock option plan.

Net income per common and common equivalent shares was computed by dividing net income by the weighted average number of common and common stock equivalents outstanding during the quarter. The calculations of the basic and diluted weighted shares for the three months ended June 30, 2010 and 2011, are as follows:


	Three Months Ended June 30,
	2010		2011
Net Income	$	7,760,000	$	8,198,000


Basic:
Weighted average common shares outstanding		11,957,000		11,617,000

Net Income per share	$	0.65	$	0.71


Diluted:
Weighted average common shares outstanding		11,957,000		11,617,000
Treasury stock impact of stock options		230,000		170,000

Total common and common equivalent shares		12,187,000		11,787,000

Net Income per share	$	0.64	$	0.70

Page 14

CORVEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011

Note E — Shareholder Rights Plan

During fiscal 1997, the Company’s Board of Directors approved the adoption of a Shareholder Rights Plan. The Shareholder Rights Plan provides for a dividend distribution to CorVel stockholders of one preferred stock purchase right for each outstanding share of CorVel’s common stock under certain circumstances. In November 2008, the Company’s Board of Directors approved an amendment to the Shareholder Rights Plan to extend the expiration date of the rights to February 10, 2022, and set the exercise price of each right at $118.

The rights are designed to assure that all shareholders 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. The rights have an exercise price of $118 per right, subject to subsequent adjustment. The rights trade with the Company’s common stock and will not be exercisable until the occurrence of certain takeover-related events.

Generally, the Shareholder Rights Plan provides that if a person or group acquires 15% or more of the Company’s common stock without the approval of the Board, subject to certain exceptions, the holders of the rights, other than the acquiring person or group, would, under certain circumstances, have the right to purchase additional shares of the Company’s common stock having a market value equal to two times the then-current exercise price of the right.

In addition, if the Company is thereafter merged into another entity, or if 50% or more of the Company’s consolidated assets or earning power are sold, then the right will entitle its holder to buy common shares of the acquiring entity having a market value equal to two times the then-current exercise price of the right. The Company’s Board of Directors may exchange or redeem the rights under certain conditions.

Note F — Other Intangible Assets

Other intangible assets consist of the following at June 30, 2011:


								Cost, Net of
				Three Months Ended		Accumulated		Accumulated
				June 30, 2011		Amortization at		Amortization at
Item	Life	Cost		Amortization Expense		June 30, 2011		June 30, 2011

Covenants Not to Compete	5 Years	$	775,000	$	39,000	$	553,000	$	222,000
Customer Relationships	18-20 Years		7,922,000		106,000		1,714,000		6,208,000
TPA Licenses	15 Years		204,000		3,000		53,000		151,000

Total		$	8,901,000	$	148,000	$	2,320,000	$	6,581,000

Page 15

CORVEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011

Note G — Line of Credit

In June 2010, the Company renewed a credit agreement that had been in place throughout fiscal 2011 and the quarter ended June 30, 2011. The line is with a financial institution to provide a revolving credit facility with borrowing capacity of up to $10 million. Borrowings under this agreement, as amended, bear interest, at the Company’s option, at a fixed LIBOR-based rate plus 1.50% or at a fluctuating rate determined by the financial institution to be 1.50% above the daily one-month LIBOR rate. The loan covenants require the Company to maintain the current assets to liabilities ratio of at least 1.25:1, debt to tangible net worth not greater than 1.25:1 and have positive net income. There were no outstanding revolving loans at any time during fiscal 2011 or the quarter ended June 30, 2011, or as of the date hereof, but letters of credit in the aggregate amount of $6.3 million have been issued separate from the line of credit and therefore do not reduce the amount of borrowings available under the revolving credit facility. The renewed credit agreement expires in September 2011.

Note H — Contingencies, Litigation and Subsequent Event

On March 25, 2011, George Raymond Williams, MD. (“Williams”), as plaintiff, individually and on behalf of those similarly situated, filed a First Amended and Restated Petition for Damages and Class Certification in the 27^th Judicial District Court, Parish of St. Landry, Louisiana, against CorVel Corporation (“CorVel”) and its insurance carriers, Homeland Insurance Company of New York and Executive Risk Specialty Insurance Company and several other unrelated parties. Williams alleges that CorVel violated Louisiana’s Any Willing Provider Act (the “AWPA”), which requires a payor accessing a preferred provider contract to give 30 days’ advance written notice or point of service notice in the form of a benefit card before the payor accesses the discounted rates in the contract to pay the provider for services rendered to an insured under that payor’s health benefit plan.

On March 31, 2011, CorVel entered into a Memorandum of Understanding with attorneys representing the plaintiffs and the class setting forth the terms of settlement of this class action lawsuit. The Memorandum of Understanding provides that subject to the execution of a mutually acceptable settlement agreement and final non-appealable approval of such settlement by the Louisiana state court, CorVel will pay $9 million to resolve claims for which CorVel recorded a $9 million pre-tax charge to earnings during the March 2011 quarter. In addition, CorVel will assign to the class certain rights it has to the proceeds of CorVel’s insurance policies relating to the claims asserted by the class. The class action arbitration filed with the American Arbitration Association against CorVel in December 2006 by Southwest Louisiana Hospital Association dba Lake Charles Memorial Hospital as previously disclosed by CorVel is encompassed within the settlement terms of the Memorandum of Understanding. Pursuant to the Memorandum of Understanding, the parties have also agreed to request that the appropriate courts stay all related proceedings in State and Federal Court, as well as the Louisiana Office of Workers Compensation and the arbitration proceeding before the American Arbitration Association in which the parties are named, until the settlement agreement is prepared, executed and receives final court approval. The settlement does not constitute an admission of liability.

On June 23, 2011 CorVel and class counsel executed a definitive settlement agreement. The settlement agreement contains the same terms and conditions as were set forth in the Memorandum of Understanding. Accordingly, CorVel made a $9 million cash payment into escrow on July 6, 2011. As set forth in the settlement agreement, certain contingencies such as preliminary court approval, resolutions of objections filed by class members challenging the fairness of the settlement, class members excluded from the settlement not exceeding a materiality threshold, and final court approval, must be satisfied before the settlement become final.

On June 23, 2011, the 27^th Judicial District Court for the Parish of St. Landry, Louisiana granted preliminary approval of settlement. Notice of the settlement is being given to Class Members. The Court has set a deadline of October 16, 2011 for parties to opt out of or object to the proposed settlement. The Court has set the hearing for final approval on November 4, 2011.

In exchange for the settlement payment by CorVel, class members will release CorVel and all of its affiliates and clients for any claims relating in any way to re-pricing, payment for, or reimbursement of a workers’ compensation bill, including but not limited to claims under the AWPA. Plaintiffs have also agreed to a notice procedure that CorVel may follow in the future to comply with the AWPA. As noted, the Memorandum of Understanding is contingent upon the execution of a mutually acceptable definitive settlement agreement. Under Louisiana law, once the parties have executed such a settlement agreement, they must apply to the court for approval of the settlement following a court-supervised process of notice to the class and an opportunity for the class to be heard about the fairness of the settlement or to be excluded from the settlement. CorVel expects to be able to arrive at such a definitive settlement agreement by the end of June 2011, but there can be no assurance that the parties will be able to reach a definitive settlement agreement within that timeframe or at all, that the court will approve the settlement or that a large number of class members will not opt out of the settlement. If a definitive settlement agreement is not reached or is not approved by the court, all related proceedings in State and Federal Court, as well as the Louisiana Office of Workers Compensation and the arbitration proceeding before the American Arbitration Association that have been stayed pending settlement will resume.

Page 16

CORVEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011

Note H — Contingencies, Litigation and Subsequent Event (continued)

In February 2005, Kathleen Roche, D.C., as plaintiff, filed a putative class action in Circuit Court for the 20th Judicial District, St. Clair County, Illinois, against the Company. The case sought unspecified damages based on the Company’s alleged failure to direct patients to medical providers who were members of the CorVel CorCare PPO network and also alleged that the Company used biased and arbitrary computer software to review medical providers’ bills. On October 29, 2010, the Company entered into a settlement agreement providing for the payment of $2.1 million to class members and up to an additional $700,000 for attorneys’ fees and expenses, and as a result the Company accrued $2.8 million of estimated liability for this settlement agreement during the quarter ended September 30, 2010. Initial payments were sent to class members on July 18, 2011. The Company denies that its conduct was improper in any way and has denied all liability. In exchange for the settlement payment by the Company, class members consisting of Illinois medical providers (excluding hospitals) have released the Company and all of its affiliates for claims relating to any PPO or usual and customary reductions recommended by the Company on class members’ medical bills. On January 21, 2011, the Circuit Court gave final approval to the settlement and awarded class counsel $700,000 in attorneys’ fees and expenses and a $5,000 incentive award to Kathleen Roche, the class representative.

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

Page 17


Item 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This report may include certain forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including (without limitation) statements with respect to anticipated future operating and financial performance, growth and acquisition opportunities and other similar forecasts and statements of expectation. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” “may”, “will”, “would”, “could” and “should”, and variations of these words and similar expressions, are intended to identify these forward-looking statements. Forward-looking statements made by the Company and its management are based on estimates, projections, beliefs and assumptions of management at the time of such statements and are not guarantees of future performance.

The Company disclaims any obligations to update or revise any forward-looking statement based on the occurrence of future events, the receipt of new information or otherwise, except as required by law. Actual future performance, outcomes and results may differ materially from those expressed in forward-looking statements made by the Company and its management as a result of a number of risks, uncertainties and assumptions. Representative examples of these factors include (without limitation) general industry and economic conditions including a decreasing number of national claims due to decreasing number of injured workers; cost of capital and capital requirements; existing and possible litigation and legal liability in the course of operations; competition from other managed care companies; the ability to expand certain areas of the Company’s business; shifts in customer demands; the ability of the Company to produce market-competitive software; changes in operating expenses including employee wages, benefits and medical inflation; governmental and public policy changes; dependence on key personnel; and the continued availability of financing in the amounts and at the terms necessary to support the Company’s future business.

Overview

CorVel Corporation is an independent nationwide provider of medical cost containment and managed care services designed to address the escalating medical costs of workers’ compensation and auto policies. The Company’s services are provided to insurance companies, TPA’s, and self-administered employers to assist them in managing the medical costs and monitoring the quality of care associated with healthcare claims.

Page 18

Network Solutions Services

The Company’s network solutions services are designed to reduce the price paid by its customers for medical services rendered in workers’ compensation cases, auto policies and, to a lesser extent, group health policies. The network solutions offered by the Company include automated medical fee auditing, preferred provider services, retrospective utilization review, independent medical examinations, and inpatient bill review. Network solutions services also includes revenue from the Company’s directed care network, including imaging and physical therapy.

Patient Management Services

The Company offers a range of patient management services, which involve working on a one-on-one basis with injured employees and their various healthcare professionals, employers and insurance company adjusters. The services are designed to monitor the medical necessity and appropriateness of healthcare services provided to workers’ compensation and other healthcare claimants and to expedite their return to work. The Company offers these services on a stand-alone basis, or as an integrated component of its medical cost containment services.

Organizational Structure

The Company’s management is structured geographically with regional vice-presidents who report to the President of the Company. Each of these regional vice-presidents is responsible for all services provided by the Company in his or her particular region and for the operating results of the Company in multiple states. These regional vice presidents have area and district managers who are also responsible for all services provided by the Company in their given area and district.

Business Enterprise Segments

The Company operates in one reportable operating segment, managed care. The Company’s services are delivered to its customers through its local offices in each region and financial information for the Company’s operations follows this service delivery model. All regions provide the Company’s patient management and network solutions services. FASB ASC 280-10 establishes standards for the way that public business enterprises report information about operating segments in annual and interim consolidated financial statements. The Company’s internal financial reporting is segmented geographically, as discussed above, and managed on a geographic rather than service line basis, with virtually all of the Company’s operating revenue generated within the United States.

Under FASB ASC 280-10, two or more operating segments may be aggregated into a single operating segment for financial reporting purposes if aggregation is consistent with the objective and basic principles, if the segments have similar economic characteristics, and if the segments are similar in each of the following areas: 1) the nature of products and services; 2) the nature of the production processes; 3) the type or class of customer for their products and services; and 4) the methods used to distribute their products or provide their services. The Company believes each of its regions meet these criteria as each provides similar services and products to similar customers using similar methods of productions and similar methods to distribute the services and products.

Summary of Quarterly Results

The Company generated revenues of $102.3 million for the quarter ended June 30, 2011, an increase of $10.8 million or 11.8% compared to revenues of $91.5 million for the quarter ended June 30, 2010. The increase in revenues was primarily due to a 12% increase in both patient management and network solutions businesses. The increase in patient management services was primarily due to an increase in the level of services provided to existing TPA customers. The increase in network solutions revenue was primarily due to an increase in the customer’s utilization of the Company’s pharmacy services and directed care services.

The Company’s cost of revenues increased by $9.1 million, from $67.7 million in the June 30, 2010 quarter to $76.8 million in the June 30, 2011 quarter, an increase of 13.4%. This increase was primarily due to the costs associated with the increase in demand for the Company’s pharmacy and directed care services.

The Company’s general and administrative expense increased by $0.8 million, from $11.5 million in the June 30, 2010 quarter to $12.3 million in the June 30, 2011 quarter, an increase of 7.0%. This increase is primarily due to an increase in the Company’s systems costs.

Page 19

The Company’s income tax expense increased by $0.5 million, or 10.8%, from $4.6 million, in the June 30, 2010 quarter to $5.1 million in the June 30, 2011 quarter. The increase in income tax expense before income taxes was primarily due to the aforementioned increase in income before income taxes.

Weighted diluted shares decreased from 12.2 million shares in the June 30, 2010 quarter to 11.8 million shares in the June 30, 2011 quarter, a decrease of 400,000 shares, or 3.3%. This decrease was due primarily to the repurchase of 640,218 shares of stock in the September 2010, December 2010, March 2011 and June 2011 quarters.

Diluted earnings per share increased from $0.64 in the June 30, 2010 quarter to $0.70 in the June 30, 2011 quarter, an increase of $0.06 per share, or 9.4%. The increase in diluted earnings per share was due to the increase in income before income taxes along with the reduction in the number of shares outstanding due to the shares repurchased.

Results of Operations for the three months ended June 30, 2010 and 2011

The Company derives its revenues from providing patient management and network solutions services to payors of workers’ compensation benefits, auto insurance claims and health insurance benefits. Patient management services include claims management, case management, 24/7 nurse triage, utilization management, vocational rehabilitation and life care planning. Network solutions services include medical bill review, PPO management, enhanced bill review, provider reimbursement, professional review, pharmacy services, directed care services, Medicare solutions and clearinghouse services. The percentage of total revenues attributable to patient management and network solutions services for the quarters ended June 30, 2010 and June 30, 2011 are as follows:


	June 30, 2010			June 30, 2011
Patient management services		47.4	%		47.2	%
Network solutions services		52.6	%		52.8	%

The following table sets forth, for the periods indicated, the dollar amounts, dollar and percent changes, share changes, and the percentage of revenues represented by certain items reflected in the Company’s consolidated income statements for the three months ended June 30, 2010 and June 30, 2011. The Company’s past operating results are not necessarily indicative of future operating results.

Page 20


	Three Months Ended			Three Months Ended						Percentage
	June 30, 2010			June 30, 2011			Change			Change

Revenue	$	91,503,000		$	102,307,000		$	10,804,000			11.8	%
Cost of revenues		67,700,000			76,764,000			9,064,000			13.4	%

Gross profit		23,803,000			25,543,000			1,740,000			7.3	%

Gross profit as percentage of revenue		26.0	%		25.0	%

General and administrative		11,486,000			12,294,000			808,000			7.0	%
General and administrative as percentage of revenue		12.6	%		12.0	%

Income before income tax provision		12,317,000			13,249,000			932,000			7.6	%

Income before income tax provision as percentage of revenue		13.5	%		13.0	%

Income tax provision		4,557,000			5,051,000			494,000			10.8	%

Net income	$	7,760,000		$	8,198,000		$	438,000			5.6	%


Weighted Shares
Basic		11,957,000			11,617,000			(340,000	)		(2.8	%)
Diluted		12,187,000			11,787,000			(400,000	)		(3.3	%)

Earnings Per Share
Basic	$	0.65		$	0.71		$	0.06			9.2	%
Diluted	$	0.64		$	0.70		$	0.06			9.4	%

Revenues

Change in revenue from the three months ended June 30, 2010 to the three months ended June 30, 2011

Revenues increased from $91.5 million for the three months ended June 30, 2010 to $102.3 million for the three months ended June 30, 2011, an increase of $10.8 million or 11.8%. The Company’s patient management revenues increased $5.0 million or 11.5% from $43.3 million in the three months ended June 30, 2010 to $48.3 million in the three months ended June 30, 2011. The increase in patient management services was primarily due to an increase in the level of services provided to existing TPA customers. The Company’s network solutions revenues increased from $48.2 million in the three months ended June 30, 2010 to $54.0 million in the three months ended June 30, 2011, an increase of $5.8 million or 12.0%. The increase in network solutions revenue was primarily due to an increase in the customer’s utilization of the Company’s pharmacy services and directed care services.

Cost of Revenues

The Company’s cost of revenues consist of direct expenses, costs directly attributable to the generation of revenue, and field indirect costs which are incurred in the field offices of the Company. Direct costs are primarily case manager salaries, bill review analysts, related payroll taxes and fringe benefits, and costs for independent medical examination (IME) and diagnostic imaging providers. Most of the Company’s revenues are generated in offices which provide both patient management services and network solutions services. The largest of the field indirect costs are manager salaries and bonus, account executive base pay and commissions, administrative and clerical support, field systems personnel, prescription drug costs, PPO network developers, related payroll taxes and fringe benefits, office rent, and telephone expense. Approximately 35% of the costs incurred in the field are costs which support both the patient management services and network solutions operations of the Company’s field offices, such as district managers, branch clerical, account executives, related payroll taxes and fringe benefits, rent, and telephone.

Page 21

Change in cost of revenue from the three months ended June 30, 2010 to the three months ended June 30, 2011

The Company’s cost of revenues increased from $67.7 million in the three months ended June 30, 2010 to $76.8 million in the three months ended June 30, 2011, an increase of $9.1 million or 13.4%. This increase was primarily due to the costs associated with the increase in demand for the Company’s TPA services, pharmacy and directed care services. Cost of revenues increased by 13%, roughly approximating the 12% increase in revenues from the quarter ended June 30, 2010 to the quarter ended June 30, 2011. Direct salaries increased from $18 million for the quarter ended June 30, 2010, to $19 million for the quarter ended June 30, 2011. Direct pharmacy costs increased from $6 million for the quarter ended June 30, 2010 to $10 million for the quarter ended June 30, 2011.

General and Administrative Expense

For the quarter ended June 30, 2011, general and administrative expense consisted of approximately 55% of corporate systems costs which include the corporate systems support, implementation and training, amortization of software development costs, depreciation of the hardware costs in the Company’s national systems, the Company’s national wide area network and other systems related costs. The remaining 45% of the general and administrative expense consisted of national marketing, national sales support, corporate legal, corporate insurance, human resources, accounting, product management, new business development and other general corporate matters. The increase in legal costs is due to a general increase in the costs to resolve pending litigation.

Change in cost of general and administrative expense from the three months ended June 30, 2010 to the three months ended June 30, 2011

General and administrative expense increased from $11.5 million in the three months ended June 30, 2010 to $12.3 million in the three months ended June 30, 2011, an increase of $0.8 million, or 7.0%. This increase is primarily due to an increase in the Company’s systems costs from $6.3 million in the quarter ended June 30, 2010 to $6.8 million in the quarter ended June 30, 2011 due to improvements to the company’s proprietary claims systems and an increase in ongoing support and maintenance. Additionally, during the quarter, the Company continued software development expenditures to further enhance the TPA services. The Company expects to continue to grow software development expenditures.

Income Tax Provision

The Company’s income tax expense increased by $0.5 million, or 10.8%, from $4.6 million for the three months ended June 30, 2010 to $5.1 million for the three months ended June 30, 2011 due to the increase in income before income taxes from $12.3 million to $13.2 million. The income tax expense as a percentage of income before income taxes, also known as the effective tax rate, was 37% for the three months ended June 30, 2010 and 38% for the three months ended June 30, 2011. The income tax provision rates were based upon management’s review of the Company’s estimated annual income tax rate, including state taxes. This effective tax rate differed from the statutory federal tax rate of 35.0% primarily due to state income taxes and certain non-deductible expenses offset by tax credits.

Liquidity and Capital Resources

The Company has historically funded its operations and capital expenditures primarily from cash flow from operations, and to a lesser extent, stock option exercises. Working capital increased $2.4 million, or 9%, from $27.4 million as of March 31, 2011 to $29.8 million as of June 30, 2011, primarily due to an increase in cash from $12.3 million as of March 31, 2011 to $17.6 million as of June 30, 2011.

The Company believes that cash from operations and funds from exercises of stock options granted to employees are adequate to fund existing obligations, repurchase shares of the Company’s common stock under its current share repurchase program, introduce new services, and continue to develop healthcare related businesses for at least the next twelve months. The Company regularly evaluates cash requirements for current operations and commitments, and for capital acquisitions and other strategic transactions. The Company may elect to raise

Page 22

additional funds for these purposes, through debt or equity financings or otherwise, as appropriate. Additional equity or debt financing may not be available when needed, on terms favorable to the Company or at all.

As of June 30, 2011, the Company had $17.6 million in cash and cash equivalents, invested primarily in short-term, interest-bearing, highly liquid investment-grade securities with maturities of 90 days or less in federally regulated banks.

In June 2010, the Company renewed a credit agreement that had been in place throughout fiscal 2011. The line is with a financial institution to provide a revolving credit facility with borrowing capacity of up to $10 million. Borrowings under this agreement, as amended, bear interest, at the Company’s option, at a fixed LIBOR-based rate plus 1.50% or at a fluctuating rate determined by the financial institution to be 1.50% above the daily one-month LIBOR rate. The loan covenants require the Company to maintain the current assets to liabilities ratio of at least 1.25:1, debt to tangible net worth not greater than 1.25:1 and have positive net income. There were no outstanding revolving loans at any time during fiscal 2011 or the quarter ended June 30, 2011, or as of the date hereof, but letters of credit in the aggregate amount of $8.0 million have been issued separate from the line of credit and therefore do not reduce the amount of borrowings available under the revolving credit facility. The renewed credit agreement expires in September 2011. The Company expects to renew the line of credit at that time.

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 capital expenditures. The Company believes, however, that the cash balance at June 30, 2011 along with anticipated internally generated funds, will be sufficient to meet the Company’s expected cash requirements for at least the next twelve months.

Operating Cash Flows

Three months ended June 30, 2010 compared to three months ended June 30, 2011

Net cash provided by operating activities increased from $10.9 million in the three months ended June 30, 2010 to $15.2 million in the three months ended June 30, 2011. The increase in cash flow from operating activities was primarily due to the increase in accounts and taxes payable as the first quarter tax payment for fiscal year ending March 31, 2012 was not due until the middle of July resulting in an increase in taxes payable for the income tax provision for the quarter ended June 30, 2011. Additionally, net income increased from $7.8 million for the quarter ended June 30, 2010 to $8.2 million for the quarter ended June 30, 2011.

Investing Activities

Three months ended June 30, 2010 compared to three months ended June 30, 2011

Net cash flow used in investing activities increased from $5.1 million in the three months ended June 30, 2010 to $7.0 million in the three months ended June 30, 2011, an increase of $1.9 million. The increase in net cash used in investing activities is primarily due to an increase in the software development activity and capitalization in the three months ended June 30, 2011 compared to the same period for the prior year.

Financing Activities

Three months ended June 30, 2010 compared to three months ended June 30, 2011

Net cash flow used in financing activities decreased from $4.6 million for the three months ended June 30, 2010 to $2.9 million for the three months ended June 30, 2011, a decrease of $1.7 million. The decrease in cash flow used in financing activities was primarily due to a decrease in purchases under the Company’s share repurchase program, partially offset by an increase in the number and amount of stock options exercised by employees. During the three months ended June 30, 2011, the Company spent $3.7 million to repurchase 77,530 shares of its common stock. During the three months ended June 30, 2010, the Company spent $5.5 million to repurchase 153,000 shares of its common stock. The Company has historically used cash provided by operating activities and from the exercise of

Page 23

stock options to repurchase stock. The Company expects it may use some of the $17.6 million of cash on its balance sheet at June 30, 2011 to repurchase additional shares of stock.

Contractual Obligations

The following table summarizes the Company’s contractual obligations outstanding as of June 30, 2011.


	Payments Due by Period
			Within One		Between One and		Between Three and		More than
	Total		Year		Three Years		Five Years		Five Years

Operating leases	$	48,018,000	$	13,226,000	$	18,822,000	$	12,017,000	$	3,953,000
Uncertain tax positions		1,503,000		1,503,000		—		—		—
Software licenses		861,000		861,000		—		—		—

Total	$	50,382,000	$	15,590,000	$	18,822,000	$	12,017,000	$	3,953,000

Operating leases are rents paid for the Company’s physical locations.

Litigation

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

Inflation

The Company experiences pricing pressures in the form of competitive prices. The Company is also impacted by rising costs for certain inflation-sensitive operating expenses such as labor and employee benefits, and facility leases. However, the Company generally does not believe these impacts are material to its revenues or net income.

Off-Balance Sheet Arrangements

The Company is not a party to off-balance sheet arrangements as defined by the rules of the Securities and Exchange Commission. However, from time to time the Company enters into certain types of contracts that contingently require the Company to indemnify parties against third-party claims. The contracts primarily relate to: (i) certain contracts to perform services, under which the Company may provide customary indemnification to the purchases of such services; (ii) certain real estate leases, under which the Company may be required to indemnify property owners for environmental and other liabilities, and other claims arising from the Company’s use of the applicable premises; and (iii) certain agreements with the Company’s officers, directors and employees, under which the Company may be required to indemnify such persons for liabilities arising out of their relationship with the Company.

The terms of such obligations vary by contract and in most instances a specific or maximum dollar amount is not explicitly stated therein. Generally, amounts under these contracts cannot be reasonably estimated until a specific claim is asserted. Consequently, no liabilities have been recorded for these obligations on the Company’s balance sheets for any of the periods presented.

Critical Accounting Policies

The SEC defines critical accounting policies as those that require application of management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods.

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The following is not intended to be a comprehensive list of our accounting policies. Our significant accounting policies are more fully described in Note A to the Consolidated Financial Statements. In many cases, the accounting treatment of a particular transaction is specifically dictated by accounting principles generally accepted in the United States of America, with no need for management’s judgment in their application. There are also areas in which management’s judgment in selecting an available alternative would not produce a materially different result.

We have identified the following accounting policies as critical to us: 1) revenue recognition, 2) cost of revenues, 3) allowance for uncollectible accounts, 4) goodwill and long-lived assets, 5) accrual for self-insured costs, 6) accounting for income taxes, and 7) share-based compensation.

In accordance with ASC 605-25, the Company allocates revenue for transactions or collaborations that include multiple elements to each unit of accounting based on its relative fair value, and recognizes revenue for each unit of accounting when the revenue recognition criteria have been met. The price charged when the element is sold separately generally determines fair value. When our customers purchase several products from CorVel, the pricing of the products sold is generally the same as if the product were sold on an individual basis. As a result, the fair value of each product sold in a multiple element arrangement is almost always determinable. In the absence of fair value of a delivered element, the Company would allocate revenue first to the fair value of the undelivered elements and the residual revenue to the delivered elements. The Company recognizes revenue for delivered elements when the delivered elements have standalone value and the Company has objective and reliable evidence of fair value for each undelivered element. If the fair value of any undelivered element included in a multiple element arrangement cannot be objectively determined, revenue is deferred until all elements are delivered and services have been performed, or until fair value can objectively be determined for any remaining undelivered elements. Based upon the nature of our products, bundled products are generally delivered in the same accounting period.

Cost of revenues: Cost of services consists primarily of the compensation and fringe benefits of field personnel, including managers, medical bill analysts, field case managers, telephonic case managers, systems support, administrative support and account managers and account executives and related facility costs including rent, telephone and office supplies. Historically, the costs associated with these additional personnel and facilities have been the most significant factor driving increases in the Company’s cost of services. Locally managed and incurred IT costs are charged to cost of revenues whereas the costs incurred and managed at the corporate offices are charged to general and administrative expense.

Allowance for Uncollectible Accounts: The Company determines its allowance by considering a number of factors, including the length of time trade accounts receivable are past due, the Company’s previous loss history, the customers’ current ability to pay its obligation to the Company, and the condition of the general economy and the industry as a whole. The Company writes off accounts receivable when they become uncollectible.

The Company must make significant management judgments and estimates in determining contractual and bad debt allowances in any accounting period. One significant uncertainty inherent in the Company’s analysis is whether its past experience will be indicative of future periods. Although the Company considers future projections when estimating contractual and bad debt allowances, the Company ultimately makes its decisions based on the best

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information available to it at that time. Adverse changes in general economic conditions or trends in reimbursement amounts for the Company’s services could affect the Company’s contractual and bad debt allowance estimates, collection of accounts receivable, cash flows, and results of operations. No one customer accounted for 10% or more of accounts receivable at March 31, 2011 or June 30, 2011.

Goodwill and Long-Lived Assets: Goodwill arising from business combinations represents the excess of the purchase price over the estimated fair value of the net assets of the acquired business. Pursuant to ASC 350-10 through ASC 350-30, “Goodwill and Other Intangible Assets,” goodwill is tested annually for impairment or more frequently if circumstances indicate the potential for impairment. Also, management tests for impairment of its amortizable intangible assets and long-lived assets and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company’s impairment is conducted at a company-wide level. The measurement of fair value is based on an evaluation of market capitalization and is further tested using a multiple of earnings approach. In projecting the Company’s cash flows, management considers industry growth rates and trends and cost structure changes. No changes or events occurred which indicated a need to test impairment during the quarter. However, future events or changes in current circumstances could affect the recoverability of the carrying value of goodwill and long-lived assets. Should an asset be deemed impaired, an impairment loss would be recognized to the extent the carrying value of the asset exceeded its estimated fair market value.

Accrual for Self-insurance Costs: The Company self-insures for the group medical costs and workers’ compensation costs of its employees. The Company purchases stop loss insurance for large claims. Management believes that the self-insurance reserves are appropriate; however, actual claims costs may differ from the original estimates requiring adjustments to the reserves. The Company determines its estimated self-insurance reserves based upon historical trends along with outstanding claims information provided by its claims paying agents.

Accounting for Income Taxes: The Company provides for income taxes in accordance with provisions specified in ASC 740, “Accounting for Income Taxes”, which is based upon management’s judgments and estimations of various tax rates. Accordingly, deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities. These differences will result in taxable or deductible amounts in the future, based on tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences become deductible. In making an assessment regarding the probability of realizing a benefit from these deductible differences, management considers the Company’s current and past performance, the market environment in which the Company operates, tax-planning strategies and the length of carry-forward periods for loss carry-forwards, if any. Valuation allowances are established when necessary to reduce deferred tax assets to amounts that are more likely than not to be realized. Further, the Company provides for income tax issues not yet resolved with federal, state and local tax authorities.

Share-Based Compensation: The Company accounts for share based compensation in accordance with the provisions of ASC Topic 718 “Compensation — Stock Compensation”. Under ASC 718, share-based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the employee’s requisite service period (generally the vesting period of the equity grant). Some of the stock options are performance based and the stock compensation expense is recorded based upon the actual results compared to the option targets. For the quarter ended June 30, 2011, the Company recorded share-based compensation expense of $658,000. Share-based compensation expense recognized in fiscal 2011 is based on awards ultimately expected to vest; therefore, it has been reduced for estimated forfeitures. ASC Topic 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

The Company estimates the fair value of stock options using the Black-Scholes valuation model. Key input assumptions used to estimate the fair value of stock options include the exercise price of the award, the expected option term, the expected volatility of the Company’s stock over the option’s expected term, the risk-free interest rate over the option’s term, and the Company’s expected annual dividend yield. The Company’s management believes that the valuation technique and the approach utilized to develop the underlying assumptions are

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appropriate in calculating the fair values of the Company’s stock options granted in fiscal 2011 and 2012. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by persons who receive equity awards.

The key input assumptions that were utilized in the valuation of the stock options granted during the quarter ended June 30, 2011 are summarized in the table below.


Expected option term (1)	4.7 years
Expected volatility (2)		46	%
Risk-free interest rate (3)		1.88	%
Expected forfeiture rate		9.30	%
Expected annual dividend yield		0	%


(1)		The expected option term is based on historical exercise and post-vesting termination patterns, as well as our expectations regarding future trends.

(2)		Expected volatility represents a combination of historical stock price volatility and estimated future volatility.

(3)		The risk-free interest rate is based on the implied yield on five year United States Treasury Bill on the date of grant.

Recent Accounting Standards Update

In October 2009, the FASB issued Accounting Standards Update No. 2009-13, Multiple Deliverable Revenue Arrangements—a consensus of FASB Emerging Issues Task Force (“ASU 2009-13”). ASU 2009-13 provides for less restrictive separation criteria that must be met for a deliverable to be considered a separate unit of accounting. Additionally, under this Standard, there is a hierarchy for determining the selling price of a unit of accounting and consideration must be allocated using a relative-selling price method. ASU 2009-13 was effective for CorVel Corporation on April 1, 2011. We reviewed the requirements of ASU 2009-13 and determined that the impact on our financial position or results of operations was considered immaterial.

Item 3 — Quantitative and Qualitative Disclosures About Market Risk

As of June 30, 2011, the Company held no market risk sensitive instruments for trading purposes, and the Company did not employ any derivative financial instruments, other financial instruments, or derivative commodity instruments to hedge any market risk. The Company had no debt outstanding as of June 30, 2011, and therefore, had no market risk related to debt.

Item 4 — Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management has evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our 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 upon that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of June 30, 2011, our disclosure controls and procedures were effective in ensuring that information

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required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission and (ii) accumulated and communicated to our management, including our principal executive and principal accounting officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) during the three months ended June 30, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1 — Legal Proceedings

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In February 2005, Kathleen Roche, D.C., as plaintiff, filed a putative class action in Circuit Court for the 20th Judicial District, St. Clair County, Illinois, against the Company. The case sought unspecified damages based on the Company’s alleged failure to direct patients to medical providers who were members of the CorVel CorCare PPO network and also alleged that the Company used biased and arbitrary computer software to review medical providers’ bills. On October 29, 2010, the Company entered into a settlement agreement providing for the payment of $2.1 million to class members and up to an additional $700,000 for attorneys’ fees and expenses, and as a result the Company accrued $2.8 million of estimated liability for this settlement agreement during the quarter ended September 30, 2010. Initial payments were sent to class members of July 18, 2011. The Company denies that its conduct was improper in any way and has denied all liability. In exchange for the settlement payment by the Company, class members consisting of Illinois medical providers (excluding hospitals) have released the Company and all of its affiliates for claims relating to any PPO or usual and customary reductions recommended by the Company on class members’ medical bills. On January 21, 2011, the Circuit Court gave final approval to the settlement and awarded class counsel $700,000 in attorneys’ fees and expenses and a $5,000 incentive award to Kathleen Roche, the class representative.

Item 1A. Risk Factors

Past financial performance is not necessarily a reliable indicator of future performance, and investors in our common stock should not use historical performance to anticipate results or future period trends. Investing in our common stock involves a high degree of risk. Investors should consider carefully the following risk factors, as well as the other information in this report and our other filings with the Securities and Exchange Commission, including our consolidated financial statements and the related notes, before deciding whether to invest or maintain an investment in shares of our common stock. If any of the following risks actually occurs, our business, financial condition and results of operations would suffer. In this case, the trading price of our common stock would likely decline. The risks described below are not the only ones we face. Additional risks that we currently do not know about or that we currently believe to be immaterial also may impair our business operations.

Legal

Exposure to possible litigation and legal liability may adversely affect our business, financial condition and results of operations.

We, through our utilization management services, make recommendations concerning the appropriateness of providers’ medical treatment plans of patients throughout the country, and as a result, could be exposed to claims for adverse medical consequences. We do not grant or deny claims for payment of benefits and we do not believe that we engage in the practice of medicine or the delivery of medical services. There can be no assurance, however, that we will not be subject to claims or litigation related to the authorization or denial of claims for payment of benefits or allegations that we engage in the practice of medicine or the delivery of medical services.

In addition, there can be no assurance that we will not be subject to other litigation that may adversely affect our business, financial condition or results of operations, including but not limited to being joined in litigation brought against our customers in the managed care industry. We maintain professional liability insurance and such other coverages as we believe are reasonable in light of our experience to date. If such insurance is insufficient or

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unavailable in the future at reasonable cost to protect us from liability, our business, financial condition or results of operations could be adversely affected.

In February 2005, Kathleen Roche, D.C., as plaintiff, filed a putative class action in Circuit Court for the 20th Judicial District, St. Clair County, Illinois, against us. The case sought unspecified damages based on our alleged failure to direct patients to medical providers who were members of the CorVel CorCare PPO network and also alleged that we used biased and arbitrary computer software to review medical providers’ bills. On October 29, 2010, we entered into a settlement agreement providing for the payment of $2.1 million to class members and up to an additional $700,000 for attorneys’ fees and expenses, and as a result we accrued $2.8 million of estimated liability for this settlement agreement during the quarter ended September 30, 2010. Initial payments were sent to class members on July 18, 2011 On January 21, 2011, the Circuit Court gave final approval to the settlement and awarded class counsel $700,000 in attorneys’ fees and expenses and a $5,000 incentive award to Kathleen Roche, the class representative. Through March 31, 2011, the plaintiff’s attorneys had been paid but no amounts had been paid to the claimants.

There can be no assurance that we will not be subjected to additional litigation similar to the proceedings described above. Any such additional litigation could have a material adverse effect on our business, financial condition and results of operations.

The increased costs of professional and general liability insurance may have an adverse effect on our profitability.

The cost of commercial professional and general liability insurance coverage has risen significantly in the past several years, and this trend may continue. In addition, if we were to suffer a material loss, our costs may increase over and above the general increases in the industry. If the costs associated with insuring our business continue to increase, it may adversely affect our business. We believe our current level of insurance coverage is adequate for a company of our size engaged in our business.

If lawsuits against us are successful, we may incur significant liabilities.

We provide to insurers and other payors of healthcare costs managed care programs that utilize preferred provider organizations and computerized bill review programs. Health care providers have brought, against us and

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our customers, individual and class action lawsuits challenging such programs. If such lawsuits are successful, we may incur significant liabilities.

We make recommendations about the appropriateness of providers’ proposed medical treatment plans for patients throughout the country. As a result, we could be subject to claims arising from any adverse medical consequences. Although plaintiffs have not to date subjected us to any claims or litigation relating to the granting or denial of claims for payment of benefits or allegations that we engage in the practice of medicine or the delivery of medical services, we cannot assure you that plaintiffs will not make such claims in future litigation. We also cannot assure you that our insurance will provide sufficient coverage or that insurance companies will make insurance available at a reasonable cost to protect us from significant future liability.

Regulatory

Changes in government regulations could increase our costs of operations and/or reduce the demand for our services.

Many states, including a number of those in which we transact business, have licensing and other regulatory requirements applicable to our business. Approximately half of the states have enacted laws that require licensing of businesses which provide medical review services such as ours. 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 us, which may have an adverse impact upon our ability to compete with other available alternatives for healthcare 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 us or to provider networks which we may organize. To the extent we are governed by these regulations, we may be subject to additional licensing requirements, financial and operational oversight and procedural standards for beneficiaries and providers.

Regulation in the healthcare and workers’ compensation fields is constantly evolving. We are unable to predict what additional government initiatives, if any, affecting our business may be promulgated in the future. Our 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 healthcare 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 our business, financial condition and results of operations.

In addition, changes in workers’ compensation, auto and managed health care laws or regulations may reduce demand for our services, require us to develop new or modified services to meet the demands of the marketplace or reduce the fees that we may charge for our services. One proposal which had been considered in the past, but not enacted by Congress or certain state legislatures, 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.

We are subject to risks associated with acquisitions of intangible assets.

Our acquisition of other businesses may result in significant increases in our intangible assets and goodwill. We regularly evaluate whether events and circumstances have occurred indicating that any portion of our intangible assets and goodwill may not be recoverable. When factors indicate that intangible assets and goodwill should be evaluated for possible impairment, we may be required to reduce the carrying value of these assets. We cannot currently estimate the timing and amount of any such charges.

Business Environment

Growth Oriented

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If we fail to grow our business internally or through strategic acquisitions we may be unable to execute our business plan, maintain high levels of service or adequately address competitive challenges.

Our strategy is to continue 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, we are subject to certain growth-related risks, including the risk that we will be unable to retain personnel or acquire other resources necessary to service such growth adequately. Expenses arising from our efforts to increase our 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 could be completed. If such a transaction does occur, there can be no assurance that we will be able to integrate effectively any acquired business. In addition, any such transaction would be subject to various risks associated with the acquisition of businesses, including, but not limited to, the following:

	•		an acquisition may negatively impact our results of operations because it may require incurring large one-time charges, substantial debt or liabilities; it may require the amortization or write down of amounts related to deferred compensation, goodwill and other intangible assets; or it may cause adverse tax consequences, substantial depreciation or deferred compensation charges;

	•		we may encounter difficulties in assimilating and integrating the business, technologies, products, services, personnel or operations of companies that are acquired, particularly if key personnel of the acquired company decide not to work for us;

	•		an acquisition may disrupt ongoing business, divert resources, increase expenses and distract management;

	•		the acquired businesses, products, services or technologies may not generate sufficient revenue to offset acquisition costs;

	•		we may have to issue equity or debt securities to complete an acquisition, which would dilute the position of stockholders and could adversely affect the market price of our common stock; and

	•		acquisitions may involve the entry into a geographic or business market in which we have little or no prior experience.

There can be no assurance that we will be able to identify or consummate any future acquisitions or other strategic relationships on favorable terms, or at all, or that any future acquisition or other strategic relationship will not have an adverse impact on our business or results of operations. If suitable opportunities arise, we may finance such transactions, as well as internal growth, through debt or equity financing. There can be no assurance, however, that such debt or equity financing would be available to us on acceptable terms when, and if, suitable strategic opportunities arise.

If we are unable to increase our market share among national and regional insurance carriers and large, self-funded employers, our results may be adversely affected.

Our business strategy and future success depend in part on our ability to capture market share with our cost containment services as national and regional insurance carriers and large, self-funded employers look for ways to achieve cost savings. We cannot assure you that we will successfully market our services to these insurance carriers and employers or that they will not resort to other means to achieve cost savings. Additionally, our ability to capture additional market share may be adversely affected by the decision of potential customers to perform services internally instead of outsourcing the provision of such services to us. Furthermore, we may not be able to demonstrate sufficient cost savings to potential or current customers to induce them not to provide comparable services internally or to accelerate efforts to provide such services internally.

If competition increases, our growth and profits may decline.

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The markets for our network services and patient management services are also fragmented and competitive. Our competitors include national managed care providers, preferred provider networks, smaller independent providers and insurance companies. Companies that offer one or more workers’ compensation managed care services on a national basis are our primary competitors. We also compete with many smaller vendors who generally provide unbundled services on a local level, particularly companies with an established relationship with a local insurance company adjuster. In addition, several large workers’ compensation insurance carriers offer managed care services for their customers, either by performance of the services in-house or by outsourcing to organizations like ours. If these carriers increase their performance of these services in-house, our business may be adversely affected. In addition, consolidation in the industry may result in carriers performing more of such services in-house.

Our sequential revenue may not increase and may decline. As a result, we may fail to meet or exceed the expectations of investors or analysts which could cause our common stock price to decline.

Our sequential revenue growth may not increase and may decline in the future as a result of a variety of factors, many of which are outside of our control. If changes in our sequential revenue fall below the expectations of investors or analysts, the price of our common stock could decline substantially. Fluctuations or declines in sequential revenue growth may be due to a number of factors, including, but not limited to, those listed below and identified throughout this “Risk Factors” section: the decline in manufacturing employment, the decline in workers’ compensation claims, the decline in healthcare expenditures, the considerable price competition in a flat-to-declining workers’ compensation market, litigation, the increase in competition, and the changes and the potential changes in state workers’ compensation and automobile managed care laws which can reduce demand for our services. These factors create an environment where revenue and margin growth is more difficult to attain and where revenue growth is less certain than historically experienced. Additionally, our technology and preferred provider network face competition from companies that have more resources available to them than we do. Also, some customers may handle their managed care services in-house and may reduce the amount of services which are outsourced to managed care companies such as CorVel. These factors could cause the market price of our common stock to fluctuate substantially. There can be no assurance that our growth rate in the future, if any, will be at or near historical levels.

In addition, the stock market has in the past experienced price and volume fluctuations that have particularly affected companies in the healthcare and managed care markets resulting in changes in the market price of the stock of many companies, which may not have been directly related to the operating performance of those companies

Due to the foregoing factors, and the other risks discussed in this report, investors should not rely on period-to-period comparisons of our results of operations as an indication of our future performance.

If the referrals for our patient management services decline, our business, financial condition and results of operations would be materially adversely affected.

In some years, we have experienced a general decline in the revenue and operating performance of patient management services. We believe that the performance decline has been due to the following factors: the decrease of the number of workplace injuries that have become longer-term disability cases; increased regional and local competition from providers of managed care services; a possible reduction by insurers on the types of services provided by our patient management business; the closure of offices and continuing consolidation of our patient management operations; and employee turnover, including management personnel, in our patient management business. In the past, these factors have all contributed to the lowering of our long-term outlook for our patient management services. If some or all of these conditions continue, we believe that the performance of our patient management revenues could decrease.

Customers

If we lose several customers in a short period, our results may be materially adversely affected.

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Our results may decline if we lose several customers during a short period. Most of our customer contracts permit either party to terminate without cause. If several customers terminate, or do not renew or extend their contracts with us, our results could be materially and adversely affected. Many organizations in the insurance industry have consolidated and this could result in the loss of one or more of our customers through a merger or acquisition. Additionally, we could lose customers due to competitive pricing pressures or other reasons.

Our failure to compete successfully could make it difficult for us to add and retain customers and could reduce or impede the growth of our business.

We face competition from PPOs, TPAs and other managed healthcare companies. We believe that as managed care techniques continue to gain acceptance in the workers’ compensation marketplace, our 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 reform in some states has been considered, but not enacted to 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 markets served by us. Many of our current and potential competitors are significantly larger and have greater financial and marketing resources than we do, and there can be no assurance that we will continue to maintain our existing customers, our past level of operating performance or be successful with any new products or in any new geographical markets we may enter.

Services

If the utilization by healthcare payors of early intervention services continues to increase, the revenue from our later-stage network and healthcare management services could be negatively affected.

The performance of early intervention services, including injury occupational healthcare, first notice of loss, and telephonic case management services, often result in a decrease in the average length of, and the total costs associated with, a healthcare claim. By successfully intervening at an early stage in a claim, the need for additional cost containment services for that claim often can be reduced or even eliminated. As healthcare payors continue to increase their utilization of early intervention services, the revenue from our later stage network and healthcare management services will decrease.

Declines in workers’ compensation claims may harm our results of operations.

Within the past few years, the economy has performed below historical averages which leads to fewer workers on a national level and could lead to fewer work related injuries. If declines in workers’ compensation costs occur in many states and persist over the long-term, it would have an adverse impact on our business, financial condition and results of operations.

We provide an outsource service to payors of workers’ compensation and auto healthcare benefits. These payors include insurance companies, TPAs, municipalities, state funds, and self-insured, self-administered employers. If these payors reduce the amount of work they outsource, our results of operations would be materially adversely affected.

Healthcare providers are becoming increasingly resistant to the application of certain healthcare cost containment techniques; this may cause revenue from our cost containment operations to decrease.

Healthcare providers have become more active in their efforts to minimize the use of certain cost containment techniques and are engaging in litigation to avoid application of certain cost containment practices. Recent litigation between healthcare providers and insurers has challenged certain insurers’ claims adjudication and reimbursement decisions. Although these lawsuits do not directly involve us or any services we provide, these cases may affect the use by insurers of certain cost containment services that we provide and may result in a decrease in revenue from our cost containment business.

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Systems

An interruption in our ability to access critical data may cause customers to cancel their service and/or may reduce our ability to effectively compete.

Certain aspects of our business are dependent upon our ability to store, retrieve, process and manage data and to maintain and upgrade our data processing capabilities. Interruption of data processing capabilities for any extended length of time, loss of stored data, programming errors or other system failures could cause customers to cancel their service and could have a material adverse effect on our business and results of operations.

In addition, we expect that a considerable amount of our future growth will depend on our ability to process and manage claims data more efficiently and to provide more meaningful healthcare information to customers and payors of healthcare. There can be no assurance that our current data processing capabilities will be adequate for our future growth, that we will be able to efficiently upgrade our systems to meet future demands, or that we will be able to develop, license or otherwise acquire software to address these market demands as well or as timely as our competitors.

A breach of security may cause our customers to curtail or stop using our services.

We rely largely on our own security systems, confidentiality procedures and employee nondisclosure agreements to maintain the privacy and security of our and our customers’ proprietary information. Accidental or willful security breaches or other unauthorized access by third parties to our information systems, the existence of computer viruses in our data or software and misappropriation of our proprietary information could expose us to a risk of information loss, litigation and other possible liabilities which may have a material adverse effect on our business, financial condition and results of operations. If security measures are breached because of third-party action, employee error, malfeasance or otherwise, or if design flaws in our software are exposed and exploited, and, as a result, a third party obtains unauthorized access to any customer data, our relationships with our customers and our reputation will be damaged, our business may suffer and we could incur significant liability. Because techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures.

Our Internet-based services are dependent on the development and maintenance of the Internet infrastructure.

The Internet has experienced a variety of outages and other delays as a result of damages to portions of its infrastructure, and it could face outages and delays in the future. These outages and delays could reduce the level of Internet usage, as well as the availability of the Internet to us for delivery of our Internet-based services. In addition, our customers who use our Web-based services depend on Internet service providers, online service providers and other Web site operators for access to our Web site. All of these providers have experienced significant outages in the past and could experience outages, delays and other difficulties in the future due to system failures unrelated to our systems. Any significant interruptions in our services or increases in response time could result in a loss of potential or existing users, and, if sustained or repeated, could reduce the attractiveness of our services.

If we are unable to leverage our information systems to enhance our outcome-driven service model, our results may be adversely affected.

To leverage our knowledge of workplace injuries, treatment protocols, outcomes data, and complex regulatory provisions related to the workers’ compensation market, we must continue to implement and enhance information systems that can analyze our data related to the workers’ compensation industry. We frequently upgrade existing operating systems and are updating other information systems that we rely upon in providing our services and financial reporting. We have detailed implementation schedules for these projects that require extensive involvement from our operational, technological and financial personnel. Delays or other problems we might encounter in implementing these projects could adversely affect our ability to deliver streamlined patient care and outcome reporting to our customers.

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The introduction of software products incorporating new technologies and the emergence of new industry standards could render our existing software products less competitive, obsolete or unmarketable.

There can be no assurance that we will be successful in developing and marketing new software products that respond to technological changes or evolving industry standards. If we are unable, for technological or other reasons, to develop and introduce new software products cost-effectively, in a timely manner and in response to changing market conditions or customer requirements, our business, results of operations and financial condition may be adversely affected.

Developing or implementing new or updated software products and services may take longer and cost more than expected. We rely on a combination of internal development, strategic relationships, licensing and acquisitions to develop our software products and services. The cost of developing new healthcare information services and technology solutions is inherently difficult to estimate. Our development and implementation of proposed software products and services may take longer than originally expected, require more testing than originally anticipated and require the acquisition of additional personnel and other resources. If we are unable to develop new or updated software products and services cost-effectively on a timely basis and implement them without significant disruptions to the existing systems and processes of our customers, we may lose potential sales and harm our relationships with current or potential customers.

Employment

The failure to attract and retain qualified or key personnel may prevent us from effectively developing, marketing, selling, integrating and supporting our services.

We are dependent, to a substantial extent, upon the continuing efforts and abilities of certain key management personnel. In addition, we face competition for experienced employees with professional expertise in the workers’ compensation managed care area. The loss of key personnel, especially V. Gordon Clemons, Chairman, and Dan Starck, President, Chief Executive Officer, and Chief Operating Officer, or the inability to attract, qualified employees, could have a material unfavorable effect on our business and results of operations.

We face competition for staffing, which may increase our labor costs and reduce profitability.

We compete with other healthcare providers in recruiting qualified management and staff personnel for the day-to-day operations of our business, including nurses and other case management professionals. In some markets, the scarcity of nurses and other medical support personnel has become a significant operating issue to healthcare providers. This shortage may require us to enhance wages to recruit and retain qualified nurses and other healthcare professionals. Our failure to recruit and retain qualified management, nurses and other healthcare professionals, or to control labor costs could have a material adverse effect on profitability.

General

There is a risk that the Company has not identified all the potential risk factors.

The Company has listed an extensive list of risk factors; however, the potential exists that there are more that the Company has not identified. These could be in any form and could affect the Company in an unfavorable manner. The Company is always aware of looking for other potential risk factors.

Page 37

Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds

There were no sales of unregistered securities during the period covered by this report. The following table shows the repurchases of the Company’s common stock made by or on behalf of the Company in open-market transactions for the quarter ended June 30, 2011 pursuant to a publicly announced plan.


					Total Number of
					Shares Purchased		Maximum Number
					as Part of Publicly		of Shares that may
	Total Number of		Average Price Paid		Announced		yet be Purchased
Period	Shares Purchased		Per Share		Program		Under the Program

April 1 to April 30, 2011		—		—		—		508,837
May 1 to May 31, 2011		30,620		48.93		30,620		478,217
June 1 to June 30, 2011		46,910		46.36		46,910		431,307

Total		77,530	$	47.38		77,530		431,307

In 1996, the Company’s Board of Directors authorized a stock repurchase program for up to 100,000 shares of the Company’s common stock. The Company’s Board of Directors has periodically increased the number of shares authorized for repurchase under the repurchase program. The most recent increase occurred in May 2010 and brought the number of shares authorized for repurchase over the life of the program to 15,000,000 shares. There is no expiration date for the repurchase program. As of June 30, 2011, the Company had repurchased 14,568,693 shares of its common stock.

Item 3 — Defaults Upon Senior Securities — None.

Item 4 — (Removed and Reserved)

Item 5 — Other Information

For more information, please refer in this report to Part 2, Item 1 under Legal Proceedings.

Item 6 — Exhibits

3.1 Amended and Restated Certificate of Incorporation of the Company. Incorporated herein by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2007 filed on August 9, 2007.

3.2 Amended and Restated Bylaws of the Company. Incorporated herein by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2006 filed on August 14, 2006.

3.3 Certification of Designation Increasing the Number of Shares of Series A Junior Participating Preferred Stock. Incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on November 24, 2008.

10.1 Settlement Agreement dated June 23, 2011 by and among CorVel Corporation and counsel for class representatives, George Raymond Williams, M.D., Orthopaedic Surgery, A Profession Medical, L.L.C. and Southwest Louisiana Hospital Association d/b/a Lake Charles Memorial Hospital, and all other class members.

Page 38

31.1 Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2 Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1 Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)

32.2 Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)

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 hereunto duly authorized.


		CORVEL CORPORATION

		By:		/s/ Daniel J. Starck

		Daniel J. Starck, President,
		Chief Executive Officer, and
		Chief Operating Officer

		By:		/s/ Scott R. McCloud

		Scott R. McCloud,
		Chief Financial Officer

August 5, 2011

Page 39

EX-10.1 2 a58186exv10w1.htm EX-10.1 exv10w1

Exhibit 10.1

27^TH JUDICIAL DISTRICT COURT FOR THE PARISH OF ST. LANDRY

STATE OF LOUISIANA


NO: 09-C-5244		DIVISION: “C”

GEORGE RAYMOND WILLIAMS M.D,, ORTHOPAEDIC SURGERY, A PROFESSIONAL MEDICAL, L.L.C.

Versus

S.I.F. CONSULTANTS OF LOUISIANA, ET AL.


FILED:

		DEPUTY CLERK

SETTLEMENT AGREEMENT
TABLE OF CONTENTS


No.	Section	Page
1	Definitions of Terms of General Application	1
2	Nature and Status of the Class Action and Related Proceedings	8
3	Basis for the Proposed Settlement	8
4	General Provisions and Purposes of this Settlement	9
5	Stay Order/Stand Down	12
6	Opt-Out Parties	13
7	Preliminary Approval of the Settlement Agreement and Certification of the Class for Settlement Purposes Only	15
8	Final Approval and Effect of the Agreement	15
9	Signed Releases/Assignment	18
10	Contributions to and Disbursements from the Class Settlement Fund	19
11	Insurance Assignment	20
12	Termination of Agreement	21
13	Additional Obligations of the PSC and CorVel	24
14	Miscellaneous Provisions	25
	List of Exhibits	31

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27^TH JUDICIAL DISTRICT COURT FOR THE PARISH OF ST. LANDRY

STATE OF LOUISIANA


NO: 09-C-5244		DIVISION: “C”

GEORGE RAYMOND WILLIAMS M.D,, ORTHOPAEDIC SURGERY, A PROFESSIONAL MEDICAL, L.L.C.

Versus

S.I.F. CONSULTANTS OF LOUISIANA, ET AL.


FILED:

		DEPUTY CLERK

SETTLEMENT AGREEMENT

This Settlement Agreement is made and entered into, on the dates indicated below, by and between the Plaintiff Steering Committee, individually and on behalf of the Class and the Plaintiffs, George Raymond, Williams, M.D., Orthopaedic Surgery, A Professional Medical, L.L.C. and Southwest Louisiana Medical Center dbs Lake Charles Memorial Hospital and Defendant CorVel Corporation, (“CorVel”). This Settlement Agreement sets forth the terms, conditions, and provisions of a settlement of all Liability; it shall be Exhibit A attached to and made part of the Joint Motion for Preliminary Approval of Proposed Settlement to be filed in the Class Action; and it is subject to the recitals, definitions, terms, and conditions set forth herein.

RECITALS

WHERAS, on March 24, 2011, plaintiff, George Raymond Williams, M.D., Orthopaedic Surgery, A Professional Medical, L.L.C. filed a First Amended and Re-Stated Petition for Damages and Class Certification naming CorVel Corporation as a defendant and alleging that medical providers’ bills in workers’ compensation matters were discounted through PPO Agreements with CorVel or accessed by CorVel without the benefit of prior notice as required by La.R.S. 40:2203.1(B).

WHERAS, Plaintiffs allege that they are entitled to damages from CorVel Corporation under La.R.S. 40:2203.1(G) in an amount equal to double the fair market value of the medical services provided, but in no event less than fifty dollars per day of non-compliance or two thousand dollars, whichever is greater, together with attorney’s fees.

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WHEREAS, Louisiana medical providers have filed over one hundred (100) actions in the Louisiana Office of Workers’ Compensation against CorVel’s payor clients alleging that CorVel’s payor clients violated La. R.S. 23:1201(F) by underpaying medical bills.

WHERAS, it is conceivable that CorVel’s payor clients may make demand for contribution or indemnification upon CorVel if they are cast in judgment by the Louisiana Office of Workers’ Compensation.

WHERAS, CorVel denies the material allegations raised in this class action petition.

WHERAS, CorVel denies the material allegations raised by the OWC plaintiffs against CorVel’s payor clients.

WHERAS, CorVel denies that it that it would owe any contribution or indemnification to CorVel’s payor clients if they are cast in judgment by the Louisiana Office of Workers’ Compensation.

1. DEFINITIONS OF TERMS OF GENERAL APPLICATION

Unless otherwise expressly stated herein, the following terms, as capitalized and used in this Settlement Agreement, shall have the following meanings and definitions:

1.1 The term “Affiliates” when used in connection with CorVel shall mean CorVel Corporation and/or CorVel Healthcare Corporation, together with each of their respective predecessors, successors, assignors, assignees, subsidiaries, parents, affiliated entities, acquired entities, officers, directors, employees, agents, legal representatives, partnerships, joint ventures, attorneys, owners, and/or shareholders. Notwithstanding the foregoing, any and all Insurers are excluded from the definition of the term “Affiliate” to the extent of their obligations of defense or indemnity under policies of liability insurance as they pertain to the claims asserted in the matter bearing number 09-C-5244 on the docket of the 27^th Judicial District Court, State of Louisiana and the Related Proceedings only.

1.2 The term “Affiliates” when used in connection with the terms “Class Member” or “Class Members” shall mean and include their respective predecessors, successors, assignors, assignees, subsidiaries, parents, affiliated entities, acquired entities, officers, insurer, directors, employees, agents, legal representatives, partnerships, joint ventures, attorneys, owners, and/or shareholders.

1.3 The term “Agreement” shall mean and include this Settlement Agreement, all exhibits and attachments to this Settlement Agreement, and all judgments or orders of the Court approving or incorporating this Settlement Agreement.

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1.4 The term “Class Action” shall mean and refer to Suit No. 09-C-5244, Div. “C,” on the docket of the 27^th Judicial District Court in and for the Parish of St. Landry, Louisiana.

1.5 The term “Class” shall mean the persons and/or entities included in the Class Definition.

1.6 The term “Class Definition” or “Class as Defined” shall mean and refer to the following:

“All medical providers, institutions, and facilities that have provided services to workers’ compensation patients pursuant to the Louisiana Workers’ Compensation Act, LSA-R.S. 23:1021 et seq., and whose bills have been discounted, adjusted, paid on a reduced basis, or otherwise paid at less than the billed amount pursuant to a Preferred Provider Agreement contracted with CorVel or owned or operated by CorVel. “

In the event the Court should alter or modify the above class definition, and such amended class definition is accepted in writing by the PSC and CorVel, such amended class definition shall be considered the “Class Definition” or “Class as Defined” under this Settlement Agreement, and all references to “Class Definition” or “Class as Defined” in this Settlement Agreement shall mean and refer to such accepted amended class definition.

1.7 The terms “Class Members” or “Class Member” shall mean and refer to those persons and/or entities who or which are included within the Class Definition and do not timely opt out. The terms “Class Members” or “Class Member” shall not include the Opt-Out Parties.

1.8 The term “Class Representatives” shall mean and refer to George Raymond Williams, M.D., Orthopaedic Surgery, A Professional Medical, L.L.C. and Southwest Louisiana Hospital Association d/b/a Lake Charles Memorial Hospital.

1.9 The term “Class Settlement Fund” shall mean and refer to the total amount of settlement funds deposited in the Escrow Account pursuant to Section 10.1, together with all interest earned or accrued thereon, and less (a) the charges, expenses, etc., specified in the Escrow Agreement, and (b) the reserves, if any, established in furtherance of this Settlement Agreement.

1.10 The term “Class Settlement Notice” shall mean and refer to the legal notice of the terms of the settlement embodied in this Settlement Agreement which is to be provided in accordance with the order of the Court, articles 591, et seq. of the Louisiana Code of Civil Procedure, and the terms of this Settlement Agreement.

1.11 The term “Court” shall mean and refer to the 27^th Judicial District Court in and for the Parish of St. Landry, Louisiana, and the Honorable Alonzo Harris, or his successor.

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1.12 The terms “Court Appointed Disbursing Agent” or “CADA” shall mean and refer to the accounting firm to be appointed by the Court, after consideration of the recommendations of the PSC and CorVel. The accounting firm of Bourgeois Bennett, LLC, CPAs, shall be proposed for use as the CADA.

1.13 The term “Effective Date” shall mean and refer to the first business day following the date that the Final Order and Judgment becomes Final and non-appealable, or such other date as may be agreed to in writing by the PSC and CorVel.

1.14 The term “Episode” shall mean and refer to and include each and every event, circumstance, and/or situation upon which allegations have been made or could have been made relating in any way to repricing, payment for, or reimbursement of a Provider’s bill for medical services or supplies furnished to a workers’ compensation patient from January 1, 2000 through the Effective Date of the Settlement, and including but not limited to, claims that discounts under provider contracts or the manner or absence of notice of discounts violated Louisiana workers’ compensation laws or regulations or any provisions of the Louisiana Any Willing Provider Act, including La. R.S. 40:2203.1, and/or the Louisiana Workers’ Compensation Law, La. R.S. 23:1021, et seq., and/or that these discounts were not applied appropriately, that notice or payment was insufficient, inadequate, improper, or untimely, or that reimbursement amounts for Provider charges were computed incorrectly, provided that the bill was discounted pursuant to a PPO contract owned or operated by CorVel or contracted with CorVel or any of its Affiliates, including but not limited to CorVel’s CorCare network and MedComp USA PPO network.

1.15 The term “Escrow Account” shall mean and refer to the interest-bearing escrow account to be established and administered in accordance with the Settlement Agreement and the Escrow Agreement. All interest accrued in the Escrow Account, from the date of deposit of settlement funds, shall be distributed pursuant to the terms of the Escrow Agreement.

1.16 The term “Escrow Agent” shall mean and refer to the escrow agent under the Escrow Agreement to be appointed by the Court, after consideration of the recommendations of the PSC and CorVel. First NBC Bank, New Orleans, Louisiana, shall be proposed for use as the Escrow Agent.

1.17 The term “Escrow Agreement” shall mean and refer to an agreement substantially in the form attached hereto as Exhibit 1.

1.18 The term “Final” shall mean that: (a) the Court shall approve the Settlement Agreement in all respects and enter a Final Order and Judgment, and (b) either no timely appeals,

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writs, petitions, lawsuits, or requests for court review or extraordinary relief have been taken within seventy (70) days from or with respect to such Final Order and Judgment, or if any such appeal, writ, petition, lawsuit, or request for court review or extraordinary relief has been taken from or with respect to the Final Order and Judgment, and that Final Order and Judgment has been affirmed without revision and there is no further right to appeal, petition, bring a writ or lawsuit or request court review or extraordinary relief from or with respect to such judgment, order, ruling, or decision, unless otherwise agreed to in writing by both Thomas A. Filo, on behalf of the PSC, and John V. Quaglino, on behalf of CorVel (such agreement not to be unreasonably withheld).

1.19 The term “Final Order and Judgment” shall mean and refer to the order and judgment to be entered by the Court pursuant to Section 8.2 below.

1.20 The term “CorVel” shall mean CorVel Corporation and its affiliates.

1.21 The term “Insurer” shall mean and refer to those persons or entities who/which may owe CorVel obligations of defense or indemnity under policies of liability insurance for the claims asserted in the matter bearing number 09-C-5244 on the docket of the 27^th Judicial District Court, State of Louisiana and the Related Proceedings.

1.22 The term “Liability” shall mean and refer to all claims against and/or potential liabilities of the Released Parties of whatever nature arising out of, related to, or connected in any way with any and all Episodes, regardless of whether the claims, liabilities, and/or resulting damages are not yet known or manifested or whether such claims, liabilities, and/or resulting damages are known or unknown, asserted or unasserted, including but not limited to the Released Party’s liability for contribution, indemnification, contractual liability, statutory violation and/or tort, to any other person or entity.

1.23 The term “Notice Plan” shall mean and refer to the plan for disseminating the Class Settlement Notice.

1.24 The terms “Opt-Out Parties” or “Opt-Out Party” shall mean and refer to those persons and/or entities who or which are included within the Class Definition but timely opt out of the Class pursuant to the procedures specified by the Court. Unless otherwise ordered by the Court, to opt out of the Class, a putative Class Member must take timely affirmative written action pursuant to Section 6.1 and the procedure to be approved by the Court, even if the putative Class Member desiring to opt out of the Class (a) files or has filed a separate action against any

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of the Released Parties, or (b) is, or becomes, a putative class member in any other class action filed against any of the Released Parties.

1.25 The term “Opt-Out Reserve” shall mean and refer to the reserve that may be set aside within the Escrow Account pursuant to Sections 6.3 — 6.5.

1.26 The term “Order of Preliminary Approval” shall mean and refer to the order to be entered by the Court pursuant to Section 7.1.

1.27 The terms “Parties” or “Party” as referring to this Settlement Agreement shall mean and refer to CorVel, the Class, the PSC, and the Plaintiffs.

1.28 The terms “Plaintiffs” or “Plaintiff” shall mean and refer to the named plaintiffs and Class Representatives in the Class Action.

1.29 The terms “Plaintiffs’ Steering Committee” or “PSC” shall mean and refer to the following attorneys appointed by the Court:

Thomas A. Filo, Chairman and Liaison Counsel
Stephen B. Murray
Arthur M. Murray
Stephen B. Murray, Jr.
John S. Bradford
William B. Monk
Michael K. Cox
Patrick Morrow

1.30 The terms “Preferred Provider Organization” and “PPO” shall mean and refer to preferred provider organization as defined in La. R.S. 40:2202(5).

1.31 The term “Provider” shall mean and refer to any provider as defined in La. R.S. 40:2202(6) and/or La. R.S. 23:1021(6).

1.32 The term “Related Proceedings” shall mean and refer to all proceedings brought by any Class Member or any of its Affiliates against any of the Released Parties, other than the Class Action, whether in the Office of Workers’ Compensation courts, state court, federal court, or any arbitral forum in which any claims and/or defenses related to any Episode have been asserted that have led to, or could lead to, Liability on the part of the Released Parties.

1.33 The terms “Released Parties” or “Released Party” shall mean and refer to CorVel and all Affiliates thereof and all of their respective payors, clients, contractors, or any entity or person, who paid or repriced/adjusted an invoice for medical services provided to injured workers that was discounted or reduced under a PPO network owned or operated by CorVel or its Affiliates or a PPO network contracted with CorVel or its Affiliates. Notwithstanding the foregoing, any and all Insurers are excluded from the definition of the term “Released Party” to the extent of their obligations of defense or indemnity under policies of liability insurance as

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they pertain to the claims asserted in the matter bearing number 09-C-5244 on the docket of the 27th Judicial District Court, State of Louisiana and the Related Proceedings only.

1.34 The term “Settlement Agreement” shall mean and refer to this agreement, together with all of its exhibits and attachments, and any properly perfected amendments.

1.35 The term “Special Master” shall mean and refer to that person appointed, or to be appointed, by the Court, with the consent of counsel for the Parties, pursuant to La. R.S. 13:4165, to assist the Court, in cooperation and coordination with the PSC, with the management of the Class Action. Patrick A. Juneau shall be proposed as the Special Master.

1.36 The term “Stay Order” shall mean and refer to the order to be entered pursuant to Section 5.2 below.

2. NATURE AND STATUS OF THE CLASS ACTION AND RELATED PROCEEDINGS

2.1 Stated generally, the Class Action and Related Proceedings involve, among other claims, claims for injuries and/or damages allegedly related to Episodes.

2.2 Stated generally, the Plaintiffs and the Class allege (and CorVel denies) that such damages are the responsibility of CorVel.

2.3 The claims involved in the Class Action and Related Proceedings have been substantially litigated and/or are substantially understood, such that the Parties are in a reasonable position to assess the merits and weaknesses of their respective claims and defenses.

2.4 Substantial time and effort has been expended by the Parties and their counsel in negotiating this Settlement Agreement.

3. BASIS FOR THE PROPOSED SETTLEMENT

3.1 As a result of the extensive litigation to date, the Plaintiffs and CorVel entered into negotiations to settle the Class Action and Related Proceedings regarding the Liability of the Released Parties, taking into account the following considerations: (a) the merits of the complaints or the lack thereof covered by the Settlement Agreement; (b) the relative strengths and weaknesses of the Class’ claims; (c) the time, expense and effort necessary to maintain the Class Action and/or Related Proceedings to conclusion; (d) the possibilities of success weighed against the possibilities of loss; (e) the range of final judgment values; (f) the legal complexities of the contested issues in the Class Action and Related Proceedings; (g) the risks inherent in protracted litigation; (h) the magnitude of benefits to be gained from immediate settlement in light of both the maximum potential of a favorable outcome with the attendant expense and

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likelihood of an unfavorable outcome; and (i) the fairness of benefits to or from an immediate settlement under all of the foregoing considerations.

4. GENERAL PROVISIONS AND PURPOSES OF THIS SETTLEMENT

4.1 The Parties have reached agreement on the terms of a settlement of claims in the Class Action and Related Proceedings, through the establishment of a conditional settlement class to afford a procedural vehicle by which all potential Liability of Released Parties to Class Members may finally be concluded and settled. The Parties agree that proceeding in this manner is in their best interests and also shall contribute to judicial efficiency.

4.2 In entering into this Settlement Agreement, each Party hereto has taken into account the uncertainties, delays, expenses and exigencies of the litigation process, including the extensive depositions, document production, and other discovery taken to date in the Class Action and Related Proceedings. The Released Parties have each denied, and continue to deny, any liability, wrongdoing or responsibility for the claims asserted in the Class Action and Related Proceedings and believe that any and all claims for Liability are without merit.

4.3 The Parties hereto have evaluated the claims related to Liability asserted against the Released Parties, considering the nature and extent of the alleged injury and the alleged liability of the Released Parties.

4.4 CorVel is willing to enter into this Settlement Agreement so that all of the Released Parties will thereby be relieved and discharged from all Liability to all Class Members. In view of the present procedural status of the Class Action and Related Proceedings, the Parties recognize the necessity for a procedural means by which any negotiated settlement of all potential Liability asserted against the Released Parties may finally be resolved. It is expressly the intention of this Settlement Agreement that no claims whatsoever by Class Members or any of their Affiliates against the Released Parties arising out of an Episode will survive the approval of this Settlement Agreement.

4.5 The Parties agree that immediate payment to the proposed settlement fund and the management thereof pursuant to the Escrow Agreement and under the supervision of the Court would more likely result in greater benefit to the Released Parties and the Class Members than would continued prosecution of the Class Action and Related Proceedings. Accordingly, a class certified for settlement purposes in the Class Action meets the standards of articles 591, et seq. of the Louisiana Code of Civil Procedure so as to permit conditional certification of a settlement class. Accordingly, as more fully described in Section 7 below, the Parties will submit this

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Settlement Agreement to the Court via a Joint Motion for Preliminary Approval of Proposed Settlement and will marshal and present at any hearing thereon evidence to support the motion.

4.6 The PSC is entering into this Settlement Agreement on behalf of each of the Class Members and the Plaintiffs to terminate and settle all potential Liability of the Released Parties in recognition of (a) the existence of complex and contested issues of law and fact, (b) the risk, difficulty, and uncertainty of success associated with pursuing the claims asserted in this action, (c) the comparative degree of the alleged liability or culpability of the Released Parties, (d) the risks inherent in litigation, (e) the likelihood that future proceedings will be unduly protracted and expensive if these matters are not settled by voluntary agreement with the Parties, (f) the magnitude of the benefits derived from the contemplated settlement in light of both the maximum potential and likely range of recovery to be obtained through further litigation and the expense thereof and the exposure associated therewith, and (g) the determination by the Plaintiffs and its counsel that the settlement is fair, reasonable, adequate, and in the best interests of, and will substantially benefit, the members of the Class.

4.7 CorVel enters into this Settlement Agreement, notwithstanding its continuing denial of liability for alleged injuries and/or compensatory damages and/or statutory damages allegedly related to Liability, and notwithstanding its denials concerning causation of any alleged injuries and/or damages, to terminate the Class Action and Related Proceedings insofar as affecting the Released Parties, and to finally resolve all potential Liability, and to avoid further litigation, without any admission on the part of the Released Parties of any liability or fault whatsoever.

4.8 It is the intention and a condition of this Settlement Agreement, and the Parties agree, that the Class reserves all rights against any and all Insurers.

4.9 It is the intention and a condition of this Settlement Agreement, and the Parties agree, that as of the Effective Date, this settlement shall fully, completely, finally, and conclusively settle, compromise, and release all Liability of the Released Parties to Class Members and their Affiliates. Without limiting the foregoing, it is also the intention and a condition of this Settlement Agreement, and the Parties hereto agree, that upon the Effective Date, (a) the Released Parties shall be finally released from all Liability, by, through, or on behalf of each of the Class Members and their Affiliates, (b) the Class Action shall be dismissed as to CorVel, with prejudice and with each party to bear its own costs through dismissal, (c) the Released Parties shall be dismissed with prejudice from all Related Proceedings and with each

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party to bear its own costs, including costs paid through dismissal, (d) each of the Class Members and their Affiliates shall be forever barred and enjoined from instituting, maintaining, or prosecuting any action against the Released Parties with respect to the Released Parties’ respective Liability, and (e) that as against any of the Released Parties, the exclusive remedy of all Class Members and their Affiliates with respect to any Liability shall be claims against the Class Settlement Fund as described in the Settlement Agreement. Nothing in this paragraph is intended to limit the intention, condition and agreement set forth in Section 4.8.

4.10 It is the intention and a condition of this Settlement Agreement that the Final Order and Judgment be entered and become Final. The Parties agree to take all actions reasonably necessary and appropriate to fulfill and satisfy this intention and condition.

4.11 Without limiting the foregoing, it is the intention and a condition of this Settlement Agreement, and the Parties agree, that no Class Member or Class Member’s Affiliate shall recover, directly or indirectly, any sums for Liability, from any Released Party other than those received from the Escrow Account (or a subaccount thereof) under the terms of this Settlement Agreement. Nothing in this paragraph is intended to limit the intention, condition and agreement set forth in Section 4.8.

4.12 Without limiting the foregoing, it is the intention and a condition of this Settlement Agreement, and the Parties agree, that each of the Class Members and their Affiliates shall not attempt to execute or to collect any judgment or any portion of any judgment if such execution or collection could create liability of any Released Party in connection with any Episode, whether through contribution, indemnity or otherwise.

4.13 Without limiting the foregoing, it is the intention and a condition of this Settlement Agreement, and the Parties agree, that each of the Class Members and their Affiliates shall reduce, remit or satisfy any judgment, based, in whole or in part, on Liability of any Released Party that any Class Member and/or Class Member’s Affiliate has obtained or may obtain to the extent necessary to extinguish any claims against any Released Party, including but not limited to claims against any Released Party for contribution, indemnity, subrogation, breach of contract, statutory violation, and/or tort.

4.14 Without limiting the foregoing, it is the intention and a condition of this Settlement Agreement, and the Parties agree, that the commencement and prosecution of any and all claims of the Class as a whole and/or the Class Members and/or their Affiliates individually against the Released Parties (including, without limitation, subrogation claims derived from or

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through the Class, Class Members or their Affiliates) related to Liability (including, without limitation, all of the claims of the Class set forth in the Class Action and/or Related Proceedings involving the Released Parties, to the extent based upon their respective Liability) be immediately enjoined and stayed during the pendency of the settlement proceedings referred to herein and that they be permanently barred and enjoined and dismissed with prejudice on the Effective Date of the Final Order and Judgment. The Parties agree to use their best efforts to fulfill and satisfy this intention and condition.

4.15 Without limiting the foregoing, it is the intention and a condition of this Settlement Agreement, and the Parties agree, that the Parties shall use their best efforts to (a) obtain the Stay Order as part of the Court’s Order of Preliminary Approval, (b) ensure that the Stay Order is maintained during the pendency of the settlement proceedings, and (c) obtain the dismissal with prejudice of any Released Party from any Related Proceeding upon the Effective Date.

4.16 It is the intention and a condition of this Settlement Agreement that any attempt by a Class Member or its Affiliate to collect or seek additional reimbursement from a Released Party for any Episode will constitute a violation of this Settlement Agreement; the Class Members and their Affiliates agree to the immediate dismissal of any such current or future action brought in any forum and further agree that all such actions are subject to involuntary dismissal based upon the terms of this Settlement Agreement.

4.17 Anything in this Settlement Agreement to the contrary notwithstanding, CorVel or any of its Affiliates shall have the unilateral right, in their sole discretion, to waive, in writing, in whole or in part, any condition inuring to its benefit set forth in Section 4, Section 5, Section 6, Section 8, and Section 12 of this Settlement Agreement, which waiver shall be binding upon the PSC, the Class, and the Plaintiffs. Waiver by CorVel or its Affiliates of any condition as to any Class Member shall not constitute a waiver as to any other condition or any other Class Member.

5. STAY ORDER/STAND DOWN

5.1 Immediately upon execution of this Settlement Agreement by or on behalf of all Parties, the Parties shall submit to the American Arbitration Association a Joint Motion to Stay the matter filed by Southwest Louisiana Hospital Association d/b/a Lake Charles Memorial Hospital until the Effective Date.

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5.2 In the Joint Motion for Preliminary Approval described in Section 7.1, the Parties shall request that the Court stay the Class Action and enjoin and stay, during the pendency of the settlement proceedings contemplated by this Settlement Agreement, the commencement and/or continued prosecution of any and all Related Proceedings pending the completion of the settlement embodied in this Settlement Agreement (the “Stay Order”) (excluding, therefrom, however, those proceedings in the Class Action itself necessary to obtain certification of the Class as Defined and final approval of the settlement embodied in this Settlement Agreement), unless requested otherwise by CorVel.

6. OPT-OUT PARTIES

6.1 All persons and/or entities included within the Class Definition but who properly file a timely written request to opt out of the Class as set forth in Section 6.1(a) below will not be included as Class Members, shall have no rights as Class Members pursuant to this Settlement Agreement, and shall receive no payments as provided herein.

(a) A request to opt out of the Class must be in writing and state the name, address and phone number of the person(s) seeking to opt out. Each request must also contain a duly authorized and signed statement that: “I hereby request that I be excluded from the proposed Class in the Williams Class Action.” The request must be mailed to the PSC at the address provided in the Class Notice and postmarked by the deadline specified in the Class Notice. An opt out request that does not include all of the foregoing information, that is sent to an address other than the one designated in the Class Notice, or that is not postmarked within the time or sent in the manner specified, shall be invalid and the person or entity serving such a request shall be included as a Class Member and shall be bound by this settlement.

(b) The PSC shall make best efforts to encourage the clients they represent, including but not limited to those who are parties to any Related Proceeding, to remain a Class Member and not opt out of the Class. The PSC likewise acknowledge that each of them and their firms have an unwaivable conflict of interest in representing any Opt-Out Party.

6.2 The PSC shall forward, by overnight mail, copies of all opt out requests to counsel for CorVel no later than ten (10) days after the deadline for Class Members to submit such opt out requests. Within fifteen (15) business days after the expiration of the period for

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persons or entities within the Class Definition to opt out of the Class, the PSC and counsel for CorVel shall jointly prepare a list identifying all Opt-Out Parties, any actions in which such Opt-Out Parties have asserted claims related to any Episode against any of the Released Parties, the number of Episodes reflected in claims asserted by Opt-Out Parties, and the types of claims asserted by such Opt-Out Parties. This description of any such actions shall be amended from time to time as further information becomes available to the PSC and counsel for CorVel. Further, immediately following the end of such fifteen-day period, the PSC and counsel for CorVel shall hold a conference to review the nature and status of all Opt-Out Parties.

6.3 If there are any Opt-Out Parties, funds that would have been distributed to Opt-Out Parties if they had not opted out shall be reserved, earmarked, and held escrowed from the funds on deposit in the Escrow Account (pursuant to Section 10) and placed within an opt-out reserve; provided, however, if at any time after the establishment of the Opt-Out Reserve, (a) the PSC, acting through Thomas A. Filo, and (b) CorVel, acting through John V. Quaglino, both determine that the amount of the Opt-Out Reserve should be reduced, the amount of the Opt-Out Reserve shall be so reduced (such consent not to be unreasonably withheld). In preparing the plan of distribution and in order to properly calculate the Opt-Out Reserve, the Special Master shall not treat Opt-Out Parties differently than Class Members. Until the Special Master has prepared a plan of distribution that would enable the Parties to determine the amount of the Opt-Out Reserve, no funds deposited under Section 10.1, with the exception of plaintiffs’ counsel’s costs, fees and expenses, shall be distributed from the Escrow Account, until such time as the Opt-Out Reserve amount can be determined, unless agreed in writing by the PSC, acting through Thomas A. Filo, and CorVel, acting through John V. Quaglino. Nothing in this paragraph shall be construed as conferring upon Opt-Out Parties any right to payment.

6.4 The Opt-Out Reserve may be used by CorVel, in its sole discretion, to pay settlement or judgment amounts to Opt-Out Parties and/or litigation costs/expenses associated with litigating the claims of the Opt-Out Parties.

6.5 The Opt-Out Reserve shall be terminated upon the earliest of the following to occur: (a) one year from the Effective Date; (b) the date when all claims of Opt-Out Parties are released or dismissed with prejudice; (c) the date when the amount held in the Opt-Out Reserve is reduced to zero; or (d) such other date as agreed upon, in writing, by (i) the PSC, acting through Thomas A. Filo, and (ii) CorVel, acting through John V. Quaglino. Upon the

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termination of the Opt-Out Reserve and the payment therefrom of all valid claims made against the Opt-Out Reserve, any funds then remaining in the Opt-Out Reserve shall revert to CorVel.

6.6 The list identifying all Opt-Out Parties prepared pursuant to Section 6.2 shall be jointly submitted to the Court prior to the final approval hearing. As part of the Final Order and Judgment granting final approval of this settlement, the Court will incorporate a final list of all Opt-Out Parties. The list identifying Opt-Out Parties will be attached as an exhibit to the Final Order and Judgment granting final approval of the Settlement Agreement.

PRELIMINARY APPROVAL OF THE SETTLEMENT AGREEMENT AND CERTIFICATION OF THE CLASS FOR SETTLEMENT PURPOSES ONLY

7.1 On or before May 27, 2011, this Settlement Agreement shall be signed by all Parties and the Parties shall submit this Settlement Agreement to the Court for preliminary approval. This submission shall be made by means of a Joint Motion for Preliminary Approval of Proposed Settlement signed by or on behalf of the Class, the Plaintiffs, and CorVel with a proposed form of order of preliminary approval attached thereto, which order of preliminary approval will include the Court’s preliminary approval of the Settlement Agreement, a preliminary determination that the settlement set forth therein is fair, reasonable, and adequate, a conditional certification of the Class as Defined for settlement purposes only, and provisions specifying notice to the Class. The Order of Preliminary Approval shall be substantially in the form attached hereto as Exhibit 2.

7.2 At the preliminary approval hearing, prior to the Court’s entry of the Order of Preliminary Approval, the PSC shall move to grant conditional certification of the Class as Defined for settlement purposes only and the appointment of the Class Representatives as appropriate representatives for the Class under articles 591, et seq., of the Louisiana Code of Civil Procedure. CorVel shall not object to the conditional certification of the Class as Defined for settlement purposes only and/or the appointment of the Class Representatives as appropriate representatives for the Class. The Parties acknowledge and agree, and shall so stipulate to the Court, that (a) the Class as Defined is being certified for settlement purposes only pursuant to the Settlement Agreement, and (b) the Released Parties reserve the right to object to class certification de novo in the event this Agreement is terminated for any reason.

8. FINAL APPROVAL AND EFFECT OF THE AGREEMENT

8.1 If the Court enters the orders as described in Section 7, the Parties shall proceed with due diligence to conduct the fairness hearing as ordered by the Court.

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8.2 The Settlement Agreement is subject to and conditioned upon (a) the issuance by the Court and subsequent entry, following the fairness hearing, of a Final Order and Judgment granting final approval of the Settlement Agreement in accordance with article 594 of the Louisiana Code of Civil Procedure, (b) such Final Order and Judgment becoming Final, and (c) compliance with Section 6. It is a condition of this Settlement Agreement that the Final Order and Judgment shall be substantially in the form attached hereto as Exhibit 3. The Parties shall take all reasonable and necessary actions to obtain the Final Order and Judgment and to have it made Final as promptly as practical.

8.3 The Parties agree that, to the extent CorVel, its Affiliates, and/or Clients/Payors, comply with the procedure described in Exhibit 4 attached hereto, the Released Parties shall not incur any future liability or contractual impairment under the Louisiana Workers Compensation Act or La. R.S. 40:2203.1 or otherwise by reason of any alleged failure to comply with La. R.S. 40:2203.1 or give adequate notice to Providers of the entities accessing Providers’ contractual rates of payment, and, under such circumstances, any and all claims against the Released Parties related thereto are hereby released, discharged, and forever waived, and the Class Members agree, on their own behalf and for their Affiliates, that they shall not assert such claims in the future. The Parties agree that the foregoing is a settlement of the Class’ extant and potential future injunctive relief claims against the Released Parties. The Final Order and Judgment shall include a specific finding by the Court that such notice procedure is fair to the Class.. The Parties further agree that this provision shall not afford any person or entity other than CorVel, its Affiliates and the Released Parties protection from future liability under La R.S. 40:2201, et seq. and/or 23:1021, et seq.

8.4 Upon the Effective Date, each of the Class Members and their Affiliates releases and shall defend and hold harmless the Released Parties from and against any and all past, present, or future claims, demands, suits, causes of action, rights of action, liabilities, liens, privileges, or judgments of any kind whatsoever, including, without limitation, claims for damages, fines, workers’ compensation or other penalties, contribution, indemnity, subrogation, breach of contract, statutory violation, and/or tort, by, on behalf of, through, or deriving from the claims of that Class Member and/or its Affiliate, or by, on behalf of, through, or deriving from his, her, or its heirs, executors, representatives, relatives, custodians, attorneys or former attorneys, successors, employers, insurers, employers’ insurers, health insurers, healthcare providers, assignees, subrogees, predecessors in interest, successors in interest, beneficiaries or

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survivors or any other person or entity asserting a right to sue any of the Released Parties by virtue of a personal or legal relationship with that Class Member or its Affiliate related to any Episode and/or related to or connected in any way with claims of that Class Member or its Affiliate that might give rise to any Liability. The release, hold harmless and defense obligation of this Section shall include any and all claims, demands, suits, causes of action, rights of action, liabilities, liens, privileges, or judgments of any kind whatsoever related, directly or indirectly, to the disbursement of or from, or the failure to make disbursement of or from, the Class Settlement Fund with respect to that Class Member or its Affiliate, but shall not include any proceedings before the Court to enforce rights under the settlement.

8.5 It is expressly understood and agreed that the release, hold harmless, defense, and judgment-reduction obligations set forth in Section 8.4 and this Agreement shall exist regardless of the legal basis for the claim, demand, cause of action, right of action, suit, liability, lien, privilege, or judgment asserted by any person and/or entity to the extent related to an Episode. In particular, the Class Members and their Affiliates expressly bind themselves to the foregoing release, hold harmless, defense and judgment-reduction obligations. regardless of whether the claim, demand, suit, liability, lien, privilege, judgment, cause of action, or right of action related to any Episode is based on or related to contribution, indemnity, subrogation, breach of contract, statutory violation, and/or tort.

8.6 This Settlement Agreement shall be the exclusive remedy for any and all claims of Class Members and their Affiliates against the Released Parties based on any Episode or giving rise to any Liability. When the Final Order and Judgment becomes Final, each of the Class Members and their Affiliates shall be barred from initiating, asserting, prosecuting or continuing to prosecute any such claims; notwithstanding the foregoing, the Class and/or any member of the Class (a) reserves all rights against any and all Insurers of CorVel Corporation, and (b) reserves its right to proceed with any and all claims it may now have (whether currently pending or not) or may in the future have against any and all persons or entities that are not released or otherwise addressed pursuant to this Settlement Agreement.

8.7 The Parties agree that, to the best of their knowledge, information and belief, the Settlement Agreement is made in good faith and in accordance with the laws of the United States and the State of Louisiana. The Parties agree to cooperate by providing affidavits and/or testimony concerning the circumstances of this settlement and attesting to the fact that it is a good faith settlement.

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8.8 The Court shall retain jurisdiction over the Class Action, the Settlement Agreement, the Final Order and Judgment, the Class Settlement Fund, the Escrow Agreement, the Escrow Account and the Parties to this Settlement Agreement solely for the purpose of administering, supervising, construing, and enforcing the Agreement and the Final Order and Judgment and supervising the management and disbursement of the funds in the Escrow Account.

8.9 This Court shall have jurisdiction over any dispute that arises under this Settlement Agreement. If any dispute is so submitted, each concerned party shall be entitled to fifteen (15) days’ written notice (or otherwise, as the Court may for good cause direct) and the opportunity to submit evidence and to be heard on oral argument as the Court may direct.

9. SIGNED RELEASES/ASSIGNMENT

9.1 Without limiting the foregoing, each Class Member who receives any money from the Class Settlement Fund shall, on or before the time that such Class Member receives such money, execute for delivery to CorVel a receipt and release substantially in the form attached hereto as Exhibit 5, expressly memorializing the release of all Liability, and each and all of the claims based on any Episode, by, through, or on behalf of that Class Member; holding the Released Parties harmless from and defending them against any claims or cross-claims for indemnity or contribution and/or any claims by any person who or which derives or obtains any right or claim from or through any such Class Member (e.g., subrogation claims by worker’s compensation insurers, employers, and/or health care providers, heirs, relatives and/or custodians); and acknowledging his/her/its receipt of the money to be paid to that Class Member. The receipt and release required pursuant to this Section 9.1 may be in the form of an instrument included with the allocation check for each Class Member; in such event, a Class Member’s endorsement and/or deposit of such allocation check shall serve as that Class Member’s acknowledgment of, and agreement to, the terms and conditions set forth in the instrument included with the allocation check. The CADA shall, within a reasonable period of time following the CADA’s receipt thereof, deliver to CorVel the endorsed allocation checks (or copies thereof, if appropriate).

9.2 Nothing in the Agreement shall affect or release claims available to the Released Parties except as otherwise expressly set forth in Section 11.

9.3 The claims of each Class Member based on any Episode or giving rise to any Liability, as against each of the Released Parties shall be assigned to that Released Party for the

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purpose of legally extinguishing any further liability of the Released Parties.

10. CONTRIBUTIONS TO AND DISBURSEMENTS FROM THE CLASS SETTLEMENT FUND

10.1 Within seven (7) business days after the Court’s entry of the Order of Preliminary Approval, CorVel shall pay into the Escrow Account the sum of Nine Million and No/100 ($9,000,000.00) Dollars. The Released Parties shall never be called upon to pay any sums in addition to these amounts to or on behalf of the Class Members or their counsel as a result of their respective Liability.

10.2 If CorVel fails to timely make the above payments in full, the PSC may notify CorVel in writing of such failure, and CorVel shall have a reasonable time (no more than five (5) days) to pay any unpaid amounts.

10.3 All contributions into the Escrow Account shall be held in an interest-bearing trust account, and, as applicable, in separate subaccounts within the Escrow Account prior to the Effective Date and, if necessary, after the Effective Date, pursuant to the terms of the Escrow Agreement.

10.4 The obligations of CorVel under the Agreement are not intended to and shall not create or be deemed to create any joint or joint and several or in solido obligations on the part of any person and/or entity, including the Released Parties.

10.5 The Escrow Account shall be formed and operated to meet all requirements of a qualified settlement fund within the meaning of Section 468B of the Internal Revenue Code of 1986 and all regulations and rulings thereunder. CorVel shall be permitted, in its discretion, and at its own cost, to seek a private letter ruling from the Internal Revenue Service regarding the tax status of the Escrow Account. The Parties agree to negotiate in good faith any changes to the Agreement necessary to obtain IRS approval of the Escrow Account as a qualified settlement fund.

10.6 Except as otherwise expressly provided herein, all of the costs, fees, and expenses for plaintiffs’ counsel shall come from the contribution made by CorVel to the Escrow Account pursuant to Section 10.1; provided, however, that no sums shall be paid for the costs, expenses (other than as otherwise expressly provided for herein), or fees of plaintiffs’ counsel until after the Effective Date.

10.7 The Class shall be responsible for the costs of notice and administration associated with obtaining final approval of the Class Action Settlement and distribution of the

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Settlement Fund, including the obligations set forth in paragraphs 14.21 and 14.22 of the Agreement.

10.8 Until the Effective Date, except as otherwise specifically provided herein and/or in the Escrow Agreement, no monies in the Escrow Account shall be used or disbursed.

10.9 Upon the Effective Date: (a) except as otherwise provided herein, the Class Settlement Fund shall vest in and to the benefit of Class Members; (b) except as otherwise specifically provided for herein, the interests of CorVel in the Class Settlement Fund shall cease; and (c) the Released Parties shall have no further obligations to the Class or the Class Members in connection with their respective Liability.

10.10 Except as otherwise specifically provided herein and/or in the Escrow Agreement, after the Effective Date, all costs or expenses in connection with or incidental to this settlement, shall, to the extent approved by the Court, be paid exclusively from the Class Settlement Fund. CorVel shall not be liable for any such costs or expenses, except that CorVel shall be responsible for the cost of its own attorneys, expert witnesses, consultants, and employees.

10.11 The Parties agree that at such time as the Effective Date has occurred, the Court may proceed in the manner prescribed by due process of law and article 594 of the Louisiana Code of Civil Procedure to the allocation and distribution of the Class Settlement Fund to Class Members according to a protocol submitted by the Special Master and approved by the Court. As of the one year anniversary of the Effective Date, any funds which remain unclaimed by the Class Member to whom they have been allotted by the Special Master shall revert to CorVel.

11. INSURANCE ASSIGNMENT

11.1 In addition to the consideration paid in Section 10 above, upon final approval of this Settlement, CorVel shall assign to the Class any and all of its rights to: (a) receive any and all proceeds available/awarded pursuant to CorVel’s insurance policies with respect to the released claims, with the exception that CorVel shall retain the right to reimbursement on a first dollar basis of the legal fees and litigation costs incurred by CorVel in the defense or prosecution of any and all litigation or arbitration proceeding up to $1,000,000; and (b) pursue a declaratory judgment and/or damages action with respect to indemnity coverage under these policies for the released claims. The claims excepted from the assignment to the Class shall have priority over those assigned to the Class in terms of payment from the proceeds of the policies.

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11.2 By making this partial assignment of its right to recover under the above policies with respect to the released claims, CorVel and its Affiliates make no warranty as to either the existence or extent of coverage afforded by these policies or the validity of the assignment. The Parties agree that the validity and finality of this Settlement is not contingent upon the outcome of any declaratory judgment and/or damages action or actual payment of any proceeds from any of the policies.

11.3 CorVel’s good faith defense and prosecution of the existing Delaware coverage litigation, entitled Homeland Insurance Company of New York v. CorVel Corporation and docketed as Civil Action No. N11E-01-089 in the Superior Court of Delaware in New Castle County, until the date any assignment pursuant hereto takes effect shall not provide the basis for any allegation of breach of this Settlement Agreement and shall not provide any cause of action against CorVel or its Affiliates. Subject to the provisions of any confidentiality order, CorVel shall provide to the PSC a copy of all pleadings that have been filed in the Delaware coverage litigation and any subsequently filed pleadings.

11.4 Upon any assignment pursuant this Section 11, the Class shall assume sole responsibility for any and all legal fees and litigation costs related to the defense and prosecution of any coverage litigation relating to indemnity under the policies. Following such assignment, the members of the PSC recognize that each of them and their firms may be provided with confidential information by CorVel and its Affiliates in their discretion, for the defense and prosecution of the coverage litigation. In that event, the PSC agrees that an attorney-client relationship with CorVel and its Affiliates would be created such that the PSC and each of them and their firms would have an unwaivable conflict of interest in representing, directly or indirectly, any party adverse to CorVel or its Affiliates concerning the same subject matter litigated in or related to either the assigned claims or information shared by CorVel or its Affiliates.

11.5 If final approval of this Settlement is not obtained, all right, title and interest to the policies and their proceeds, including the right to pursue the aforementioned declaratory judgment and/or damages action with respect to coverage under the policies and to recover funds available or previously paid under those policies, shall remain with CorVel.

12. TERMINATION OF AGREEMENT

12.1 As provided below, the Agreement may be terminated by CorVel or the PSC upon written notice if any one or more of the following events occur (provided, however, that a Party

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whose willful conduct causes the event giving rise to the right to terminate shall not have a right to terminate the Agreement by reason of such event and further provided that copies of any written notice of termination shall be provided to the Court and filed in the record of the Class Action):

(a) this Settlement Agreement is not signed by or on behalf of all Parties and CorVel gives the PSC written notice of termination of this Agreement for such reason or the PSC gives CorVel written notice of termination of this Agreement for such reason;

(b) the Joint Motion for Preliminary Approval of Proposed Settlement described in Section 7.1 is not submitted to the Court on or before April 30, 2011, and CorVel gives the PSC written notice of termination of this Agreement for such reason or the PSC gives CorVel written notice of termination of this Agreement for such reason;

(c) the Court does not issue the Order of Preliminary Approval substantially in the form attached hereto as Exhibit 2, and CorVel gives the PSC written notice of termination of this Agreement for such reason or the PSC gives CorVel written notice of termination of this Agreement for such reason;

(d) the Court does not enter the Final Order and Judgment substantially in the form attached hereto as Exhibit 3 or in a form mutually acceptable to the PSC and CorVel, and CorVel gives the PSC written notice of termination of this Agreement for such reason or the PSC gives CorVel written notice of termination of this Agreement for such reason;

(e) the Final Order and Judgment does not become Final, and CorVel gives the PSC written notice of termination of this Agreement for such reason or the PSC gives CorVel written notice of termination of this Agreement for such reason;

(f) there are Opt-Out Parties who have claims affecting more than 5% of the Episodes to which this Settlement applies (see Section 6.2, above) and CorVel gives the PSC written notice of termination of this Agreement;

(g) contributions to the Escrow Account are not made timely in accordance with the provisions of this Settlement Agreement and the PSC gives CorVel written notice of termination of this Agreement for such reason;

(h) the Final Order and Judgment is substantively modified or reversed on any writ or appeal, and CorVel gives the PSC written notice of termination of this Agreement

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for such reason or the PSC gives CorVel written notice of termination of this Agreement for such reason;

(i) CorVel or the Affiliates thereof are ordered or required to pay any amount over the amounts set forth in Section 10.1, whether in settlement, administration fees, costs, attorneys’ fees, or any other award, fee, or cost of any nature whatsoever as a result of their respective Liability, and CorVel gives the PSC written notice of termination of this Agreement for such reason;

(j) there are any material alterations to the terms and conditions of the Settlement Agreement, unless agreed to by the Parties, and CorVel gives the PSC written notice of termination of this Agreement for such reason or the PSC gives CorVel written notice of termination of this Agreement for such reason;

(k) the Effective Date does not occur on or before the later of May 27, 2012 or any extended date mutually agreed upon, in writing, by (i) Thomas A. Filo, on behalf of the PSC, and (ii) John V. Quaglino., on behalf of CorVel, gives the PSC written notice of termination of this Agreement for such reason or the PSC gives CorVel written notice of termination of this Agreement for such reason.

12.2 In the event of termination of the Agreement, (a) the Settlement Agreement shall be null and void and have no force and effect and, except as otherwise provided in this Settlement Agreement, no Party shall be bound by its terms, (b) all Parties shall be restored to their respective positions immediately before execution of the Settlement Agreement; (c) any and all monies or other contributions paid into the Escrow Account, by CorVel (actual and accrued) thereon, shall be returned to CorVel; and (d) the Class Action and Related Proceedings shall revert to their status before the execution of the Settlement Agreement as if related orders and papers and the efforts leading to the Agreement had not been entered, prepared, or taken. Further, in the event of such termination, CorVel shall have full authority to immediately withdraw from the Escrow Account CorVel’s contributions and payments, and the earnings (actual and accrued) thereon, without further proceedings or approval of any court, subject to and in accordance with the Escrow Agreement. In the event any settlement funds are to be returned to CorVel in accordance with this Agreement, the necessary consent by the PSC shall be deemed to have been given as required for Section 468B of the Internal Revenue Code of 1986.

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13. ADDITIONAL OBLIGATIONS OF THE PSC AND CORVEL

13.1 The PSC covenants, represents and warrants to CorVel, and CorVel covenants, represents and warrants to the PSC, that, as applicable:

13.1.1 The PSC and CorVel have not been notified of any pending lawsuit, claim, or legal action related to any Episode brought or made by or on behalf of any putative Class Member other than the Class Action and Related Proceedings;

13.1.2 The PSC and CorVel have not been notified of any lawsuit, claim, or legal action against CorVel or any Released Party related to any Episode brought or made by or on behalf of any person and/or entity who is not a putative Class Member against CorVel;

13.1.3 All liens, assigned claims, interventions, subrogation interests and/or claims, and other encumbrances attaching to the proceeds of this settlement, or the interest of any individual Class Member therein, of which the PSC or CorVel have been placed on notice are set forth in Exhibit 6 hereto, and as additional liens, assigned claims, interventions, subrogation interests and/or claims, and other encumbrances become known to the PSC and/or CorVel, such exhibit shall be supplemented accordingly; and

13.1.4 The PSC and CorVel have exercised due diligence in ascertaining that their respective representations contained in this Settlement Agreement are true and accurate, and the PSC and CorVel shall have, until the Effective Date, a continuing obligation to ensure that their representations are accurate, and the PSC and CorVel shall notify each other within a reasonable time after learning that any of the representations are or become inaccurate.

13.2 The PSC further covenants, represents and warrants to CorVel that:

13.2.1 Prior to the fairness hearing, the PSC shall have explained the terms and effect of this Settlement Agreement to the Plaintiffs;

13.2.2 The PSC has not and will not make any undisclosed payment or promise to any Class Representative;

13.2.3 The PSC have read and reviewed the Settlement Agreement and believe that the settlement embodied therein is in the best interests of each of its clients;

13.2.4 The PSC will strongly recommend to each of its clients that they settle their claims under the terms of the Settlement Agreement; and

13.2.5 Thomas A. Filo, Arthur M. Murray, and John S. Bradford have full authority to enter into and execute this Settlement Agreement and all related settlement documents for and on behalf of and to bind the PSC, individually and on behalf of the Class and the Plaintiffs.

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13.2.6 Each named Plaintiff has full authority to enter into and execute this Settlement Agreement and all related documents for, and on behalf of and to bind, him or it.

13.3 The Parties shall use their best efforts to conclude the settlement and obtain the Final Order and Judgment. The Parties agree that it is essential that this proposed settlement be prosecuted to a successful conclusion in accordance with all applicable provisions of law and in the exercise of good faith on the part of the Parties. Inherent in the accomplishment of this mutual goal is the understanding among the Parties that the Parties assume the mutual obligation to each other to assist and cooperate in the effectuation of the settlement in accordance with all applicable legal requirements. To that end, the Parties are obliged to affirmatively support the settlement in the event of appeal, to maintain the integrity and goals of the settlement in all further proceedings in the Class Action, and to take such actions as may be legally proper to assure the jurisdiction of the Court in this and all subsequent proceedings. The settlement is intended to be a final and binding resolution of all Liability.

14. MISCELLANEOUS PROVISIONS

14.1 The execution of this Settlement Agreement by or on behalf of CorVel shall not be construed to release—and the Released Parties expressly do not intend to release and, instead, expressly reserve—any claims the Released Parties have, or may have, against any party (other than the Class and the Class Members acting consistent with the terms of this settlement), including, but not limited to, any claim for any cost or expense incurred in connection with this Settlement Agreement and/or all actions and proceedings contemplated hereunder, including attorneys’ fees and costs. Moreover, nothing in this Settlement Agreement shall be construed as an admission or acknowledgement that CorVel has any obligation to any other Released Party, whether for contribution, for indemnification, or based in contract, related to any Episode.

14.2 Neither this Settlement Agreement, nor the settlement contemplated thereby, nor any proceeding taken hereunder shall be construed as or deemed to be evidence of any fact or an admission or concession by the Released Parties of any liability or wrongdoing whatsoever, which is expressly denied by the Released Parties, or, on the part of the Class Members, of any lack of merit in their claims. None of the provisions of this Settlement Agreement, nor evidence of any negotiations or proceedings in pursuance of the compromise and settlement herein, shall be offered or received in evidence in the Class Action or any other action or proceeding as an admission or concession of liability or wrongdoing of any nature on the part of the Released Parties, or as an admission of any fact or presumption on the part of the Class, or to establish

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jurisdiction or venue or to create a waiver of any affirmative defense. None of the provisions of this Settlement Agreement or the Agreement shall be considered an admission or stipulation that the notice requirements of La. R.S. 40:2203.1 are binding on CorVel or apply to PPO discounts for workers’ compensation services. The provisions of the Settlement Agreement and/or the Agreement may be offered or received in evidence solely to enforce the terms and provisions thereof and shall not be offered in evidence or used in the Class Action or any other action or proceeding for any other purpose, including in support of the existence, certification, or maintenance of any purported class. The Parties specifically acknowledge, agree and admit that this Settlement Agreement and the Agreement, along with all related motions and pleadings, shall be considered an offer to compromise and a compromise within the meaning of Rule 408 of the Federal Rules of Evidence, article 408 of the Louisiana Code of Evidence, and any equivalent rule of evidence of any state or federal court, and shall not be offered or received into evidence as an admission or concession of liability or wrongdoing on the part of the Released Parties. This Section 14.2 shall survive the termination of the Agreement.

14.3 This Settlement Agreement constitutes the entire agreement among the Parties and may not be modified, amended, or waived except by a written instrument duly executed by all the Parties or their authorized representatives; provided, however, CorVel may exercise the waiver rights provided under Section 4.17. Each Party hereto represents and warrants that it is not relying on any representation that is not specifically included in this Settlement Agreement. This Settlement Agreement supersedes any previous agreements or understandings between or among the Parties on the subject matter of this Settlement Agreement.

14.4 This Settlement Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument.

14.5 The terms and conditions of this Settlement Agreement shall bind and inure to the benefit of the heirs, executors, administrators, predecessors in interest, successors in interest, legal representatives, and assigns of all Parties.

14.6 Except with respect to any waiver provided pursuant to Sections 4.17 or 14.3, any waiver by a Party of any term, condition, covenant, or breach of the Settlement Agreement shall not be deemed to be a continuing waiver of same.

14.7 The Parties agree that the terms and conditions of this Settlement Agreement are the result of arm’s length negotiations between the Parties or their counsel. None of the Parties

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shall be considered to be the drafter of the Settlement Agreement or any provision hereof for the purpose of any statute, jurisprudential rule, or rule of contractual interpretation or construction that might cause any provision to be construed against the drafter.

14.8 For purposes of this Settlement Agreement, the use of the singular form of any word includes the plural and vice versa.

14.9 The table of contents and the headings of each Section in this Settlement Agreement are included for convenience only and shall not be deemed to constitute part of this Settlement Agreement or to affect its construction.

14.10 The Parties have agreed that the validity and interpretation of this Settlement Agreement and any of the terms or provisions hereof, as well as the rights and duties of the Parties thereunder, shall be governed solely by the laws of the State of Louisiana without giving effect to any conflict of laws principles and that the exclusive forum for any claim related to the interpretation or enforcement of the Settlement Agreement shall be the 27th Judicial District Court in and for the Parish of St. Landry, Louisiana.

14.11 Any notice, request, instruction, or other document to be given by any Party to any other Party (other than class notification) shall be in writing and delivered personally, sent by registered or certified mail, postage prepaid, or sent by private, overnight delivery carrier operating in the United States of America, providing a receipt with evidence of delivery, as follows:

(a) If to CorVel or the Released Parties, to:

John V. Quaglino.
3320 West Esplanade North
Metairie, Louisiana 70002

(b) If to the PSC, the Class, or the Plaintiffs, to:

Thomas A. Filo
Cox, Cox, Filo, Camel & Wilson, L.L.P.
723 Broad Street
Lake Charles, Louisiana 70601

and

Arthur M. Murray
The Murray Law Firm
625 S. Charles Ave., 3^rd Floor
New Orleans, LA 70130

The Parties may change their respective recipients and addresses for notice by giving notice of such change to the other Parties pursuant to this Section 14.11.

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14.12 Thomas A. Filo, as Chairman and Liaison Counsel for the PSC, shall provide, or otherwise ensure the provision of, all required notices to the other members of PSC, including, without limitation, any orders issued by the Court.

14.13 The PSC may seek an order from the Court, which CorVel shall not oppose, stating that any contingency fee contracts entered into and dated after March 31, 2010 shall not be enforceable without approval of the Court.

14.14 CorVel agrees that in the event that any appeal is taken with respect to the settlement embodied in this Settlement Agreement, CorVel will join in a motion to require any appellant other than CorVel to post an appeal bond set at the maximum amount allowed by law.

14.15 In the event that one or more of the provisions of this Settlement Agreement shall for any reason be held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision, but only if the Parties mutually elect to proceed as if such invalid, illegal, or unenforceable provision had never been included in this Settlement Agreement.

14.16 In entering into this Settlement Agreement, each Party represents and warrants that it has relied upon its own knowledge and judgment and the advice of counsel. It is expressly understood, agreed, and warranted that, in entering into this Settlement Agreement, no Party has acted in reliance upon any representation, warranty, advice, or action by any other Party except as specifically set forth herein.

14.17 Except as otherwise provided herein or as may be required by law or in connection with notice of the settlement or as otherwise agreed in writing by the Parties, the Parties shall keep the existence of the settlement in confidence until the Court’s entry of the Order of Preliminary Approval.

14.18 Anything contained herein to the contrary notwithstanding, nothing contained in this Settlement Agreement shall afford a Class Member any right to reserve rights against any of the Released Parties, except as provided in Section 1.1, Section 4.8, and Section 8.6.

14.19 All valid liens, assigned claims, interventions, subrogation interests and/or claims, and encumbrances of any third parties related to any Episode and/or otherwise attaching to the proceeds of this settlement, or the interest of any individual Class Member therein shall be satisfied solely from the Class Settlement Fund. The Released Parties shall not be subject to any liability or expense of any kind to any person and/or entity with regard to such liens, assigned claims, interventions, subrogation interests and/or claims, and encumbrances. The PSC and the

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Class reserve the right to contest the validity and/or amount of any such lien, assigned claim, intervention, subrogation interest and/or claim, and encumbrance.

14.20 In order to assist the Special Master in allocating settlement funds, CorVel shall provide the Special Master appropriate data concerning benefits, claims, and workers’ compensation payments made to Louisiana Providers since January 1, 2000 where a PPO discount was taken by or through any CorVel network or a CorVel Networks Access Agreement with another network.

14.21 The Class Settlement Notice will be designed to (a) provide proper notice to the Class Members; (b) effectively reach the Class Members; and (c) satisfy federal and state due process and other relevant standards. The Class Settlement Notice will be prepared to allow persons and entities to opt out of the Class as Defined.

14.22 The Notice Plan, as approved by the Court, shall provide for dissemination: (a) by first class mail to the last known address of all putative Class Members, if reasonably ascertainable; (b) by publication in the Lake Charles American Press, The Times (Shreveport), and The Advocate (Baton Rouge), and the Times Picayune, each on two separate days; (c) by such other newspaper publication(s), if any, as necessary to satisfy due process; (d) to all known attorneys who have in the past represented or presently represent any Class Member individually in matters related to any Episode with instructions that such counsel are to disseminate a copy of the notice to their respective clients who have not received notice pursuant to (a) above; (e) by posting at the courthouse of the 27th Judicial District Court in and for the Parish of St. Landry in the office of the Clerk of Court; (f) by posting at such other public places as may be further ordered by the Court; and (g) by posting a copy at a neutral website. The dissemination of the notice shall be the responsibility of the PSC.

14.23 The PSC and CorVel must jointly agree on the Class Settlement Notice and the Notice Plan prior to submission to the Court.

14.24 If, for any reason, John V. Quaglino or Thomas A. Filo become unable to fulfill their respective roles under this Settlement Agreement and/or any exhibit hereto, including, without limitation, the Escrow Agreement, they may be replaced by the Party and/or Parties they represent via written notice provided to the other Parties pursuant to Section 14.11.


Date		Thomas A. Filo
		Michael K. Cox
		Cox, Cox, Filo, Camel & Wilson, L.L.P.
		723 Broad Street

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		Lake Charles, Louisiana 70601


Date		Stephen B. Murray
		Arthur M. Murray
		Stephen B. Murray, Jr.
		The Murray Law Firm
		625 St. Charles Ave., 3^rd Floor
		New Orleans, LA 70130


Date		John S. Bradford
		William B. Monk
		Stockwell, Sievert, Viccellio,
		Clements & Shaddock, L.L.P.
		One Lakeside Plaza, Fourth Floor
		Lake Charles, Louisiana 70601

		REPRESENTING THE PSC, INDIVIDUALLY AND ON
		BEHALF OF THE CLASS AND THE PLAINTIFFS


Date		John V. Quaglino.
		3320 West Esplanade North
		Metairie, Louisiana 70002
		Office: 504-831-7270
		Fax: 504-831-7284

		ATTORNEY FOR CORVEL CORP.

		CorVel Corporation


Date		By:

		Its:

		DEFENDANT

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Exhibit 1

ESCROW AGREEMENT

Except as otherwise expressly provided below or as the context otherwise requires, all capitalized terms used in this Escrow Agreement (“EA”) shall have the meanings and/or definitions given them in the Settlement Agreement (“SA”) entered into by or on behalf of the PSC, the Class, the Plaintiffs, and CorVel as of ____________, 2011.

THIS AGREEMENT made effective as of ___, 2011, by and among:

	A.		the PSC;

	B.		the Class, by their attorneys, the PSC;

	C.		the Plaintiffs, by their attorneys, the PSC;

	D.		CorVel Corporation, by its counsel of record; and

	E.		First NBC Bank (“Escrow Agent”).

The PSC, the Class, the Plaintiffs, and CorVel are collectively referred to herein as the “Settling Parties”.

RECITALS

The Court appointed the PSC to represent the Class and all Class Members in the Class Action.

The PSC, the Class, the Plaintiffs, and CorVel have entered into the SA which contemplates, as a condition of the SA, that they execute this EA.

A copy of the SA has been delivered to the Escrow Agent.

In accordance with the terms and conditions of the SA, the Settling Parties desire: (1) to resolve all Liability; (2) that CorVel place in an account referred to as the Escrow Account certain funds in accordance with the SA; (3) that the funds in the Escrow Account be used to pay claims asserted, and fees, costs, and expenses incurred as set forth in the SA; (4) that the Escrow Account qualify as a qualified settlement fund as defined by Int. Rev. Code §468B and the regulations promulgated thereunder; (5) to appoint the Escrow Agent as escrow agent for the Escrow Account to accept, invest, administer, disburse and transfer funds into, within, and from the Escrow Account in accordance with the provisions of this EA and the SA; (6) to establish, pursuant to this EA, certain subaccounts within the Escrow Account to facilitate the administration, disbursement and accounting of the funds in the Escrow Account; and (7) to otherwise implement the SA, including, without limitation, to effectuate a complete and final settlement and compromise of all Liability.

The Escrow Agent is willing to accept, invest, administer, disburse and transfer funds into, within and from the Escrow Account as provided in this EA.

NOW, THEREFORE, THE SETTLING PARTIES AND THE ESCROW AGENT AND EACH OF THEM, HEREBY AGREE AND OBLIGATE THEMSELVES AS FOLLOWS:

1. RECITALS

Recitals. The Settling Parties and the Escrow Agent acknowledge and agree that the recitals set forth above are an integral part of this EA and incorporate them herein and make them a part hereof.

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2. THE SETTLEMENT FUND

2.1 Creation. Funds will be deposited into the Escrow Account in accordance with the provisions of the SA. CorVel shall be responsible only for its agreed contributions to the Escrow Account.

2.2 Order. The Class, the Plaintiffs, and CorVel shall jointly seek from the Court an order which provides that the Escrow Account and all funds deposited therein shall be formed and operate to meet all the requirements of a qualified settlement fund within the meaning of Section 468B of the Internal Revenue Code of 1986 and all regulations and rulings thereunder.

2.3 Name. The Escrow Account shall be known as the CorVel Settlement Fund, and it shall be referred to under that name in its official actions and dealings, including its: (1) investments; (2) applications for taxpayer identification number(s); and (3) tax returns, reports and other documents related thereto filed or prepared by the Escrow Agent.

2.4 Investments. The Escrow Agent shall invest the funds deposited in the Escrow Account in a fund which meets each of the following requirements: (1) it is rated in the highest rating category by both Moody’s Investors Service and Standard and Poor’s Corporation, (2) it is a diversified money market fund that seeks current income with daily liquidity and stability of principal, (3) it accrues interest daily and credits said interest no less frequently than monthly, and (4) it invests exclusively in short-term U.S. Treasury obligations, repurchase agreements collateralized by the U.S. Government, and other obligations issued or guaranteed by the U.S. Government (hereinafter “the Fund”). The Escrow Agent will maintain the Escrow Account as a Trust Class Shares account as described in the Fund prospectus provided to the PSC and CorVel, and the Fund will be subject only to the fees and expenses described in such prospectus as applicable to such Trust Class Shares accounts. The Escrow Agent hereby confirms and agrees that 12b-1 fees will not be applicable to or assessed against the Escrow Account or the earnings thereof. In the event the Fund fails to meet each of the above requirements, the Escrow Account shall immediately be transferred to another U. S. Treasury money market mutual fund that meets each of said requirements and has comparable fund fees and expenses. All parties acknowledge and agree that collected funds must be delivered to the Escrow Agent no later than 11:00 a.m. (Central Standard Time) in order to be invested that business day. Otherwise, the funds will be invested on the next business day. The parties further recognize and agree that the Escrow Agent will not provide supervision, recommendations or advice related to either investment of moneys held in the Escrow Account or the purchase, sale, retention, or other disposition of any investment. The Escrow Agent is hereby authorized to execute purchases and sales of investments through the facilities of its own trading or capital markets operations or those of an affiliated entity. Although each of the parties recognizes that it may obtain broker confirmation or a written statement containing comparable information at no additional cost, such parties hereby agree that confirmation of investments are not required to be issued by the Escrow Agent for each month in which a monthly statement is issued.

2.5 Earnings. All investment income resulting from the investment of the funds in the Escrow Account shall constitute and be held and administered as part of the CorVel Settlement Fund. Each subaccount established hereunder shall be credited with its respective investment income earned.

2.6 Disbursements and Transfers. The Escrow Agent shall disburse or otherwise transfer amounts in the Escrow Account only as follows: (1) pursuant to an order of the Court; (2) upon the Escrow Agent’s receipt of and pursuant to written notice from CorVel, substantially in the form attached hereto as Exhibit A; (3) pursuant to Paragraphs 4.1.4, 5.1.3, 6.1, and/or 6.3 below; (4) upon receipt of and pursuant to written instructions signed by each of (i) John V. Quaglino, on behalf of CorVel, and (ii) Thomas A. Filo, on behalf of the PSC; (5) solely with respect to payments from the Opt-Out Reserve pursuant to Section 6 of the SA, upon receipt of and pursuant to written instructions signed by John V. Quaglino, on behalf of CorVel; and/or (6) upon the Effective Date, as otherwise provided for in the SA. Notwithstanding anything to the contrary that may be contained in this EA, any amounts to be disbursed, paid or otherwise transferred pursuant to clauses (2), (3), (4), (5) or (6) of this Paragraph 2.6 shall be distributed by the Escrow Agent without the need for any court order or court approval.

2.7 Accounting. The Escrow Agent shall cause to be maintained at all times detailed written accounts that reflect, separately for each subaccount that may be established hereunder and in the aggregate: (1) the principal amounts deposited into the Escrow Account by

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CorVel; (2) the earnings thereon; (3) the taxes imposed upon the Escrow Account and paid by the Escrow Agent pursuant to this EA; (4) the fees and expenses (including legal expenses) paid, assessed or debited pursuant to this EA; and (5) the amounts transferred or disbursed from the Escrow Account pursuant to Paragraph 2.6 above. The Escrow Agent shall cause a written report, including a full accounting for each such subaccount and for the settlement fund as a whole to be delivered to the PSC and CorVel not less than once each calendar month throughout the period that this EA remains in effect. After the Court has given its preliminary approval to the SA, this report shall also be delivered to the Court Appointed Disbursing Agent (as such term is defined in the SA (the “CADA”)) and the Court.

3. TERM

3.1 Termination of Agreement. This EA shall terminate when the disbursement or other transfer of all of the amounts in the Escrow Account is completed in accordance with the provisions of this EA and the SA and the amount in the Escrow Account (including all subaccounts) is thereby reduced to zero. The Escrow Agent’s rights to receive payments of its fees and expenses as permitted hereunder shall survive the termination of this EA.

4. TAX COMPLIANCE

4.1 Tax Compliance. The Escrow Agent shall:

4.1.1 as necessary, forthwith apply for a taxpayer identification number for the Escrow Account;

4.1.2 as necessary, promptly after being requested in writing by the Settling Parties, file or caused to be filed, a “relation-back election” as defined in Treas. Reg. § 468B-1(j)(2) to treat the Escrow Account as a qualified settlement fund from the earliest possible date;

4.1.3 timely file, or cause to be filed, all tax returns the Escrow Account is required to file under federal, state or other laws, and provide on a timely basis to CorVel all information which CorVel requires in order to prepare timely federal and state income tax returns in respect of the earnings of the Escrow Account for all periods when it does not qualify as a qualified settlement fund under Int. Rev. Code § 468B and CorVel, as grantor, is deemed the owner of the amounts CorVel transferred to the Escrow Account;

4.1.4 (a) timely pay or cause to be paid from the Escrow Account all taxes that are imposed upon the Escrow Account and/or the earnings thereof by federal, state or other laws, it being understood and agreed that except as may otherwise be provided in Paragraph 6.3, if subaccounts within the Escrow Account are established pursuant to Paragraph 5.1.3, the taxes shall be paid in the same proportion as earnings are credited to such subaccounts pursuant to Paragraph 2.5 above;

4.1.4 (b) from time to time, pay from the Escrow Account to CorVel, within ten days after receipt thereof, the amount set forth on any certificate (“Tax Certificate”), signed by an authorized officer of CorVel (a copy of which shall be delivered to all other Parties), stating that (i) the Escrow Account was not treated as a qualified settlement fund under Int. Rev. Code §468B for a period set forth in such Tax Certificate, and (ii) the amount set forth on such Tax Certificate, which the Escrow Agent is thereby requested to pay, is equal to the amount of all taxes that would be imposed on CorVel at the maximum applicable federal income tax rate in respect of the earnings of the portion of the funds in the Escrow Account contributed by CorVel (for purposes of this Paragraph 4.1.4(b), the Escrow Account shall be treated as not a qualified settlement fund (x) for all periods prior to the date of the entry of the order referred to in Paragraph 2.2 above, provided, however, that if the Escrow Agent properly files the “relation-back election” as required by Paragraph 4.1.2 above, the Escrow Account shall be treated as not a qualified settlement fund for all periods prior to January 1 of the calendar year in which such order is entered, and (y) for all other periods identified in a Tax Certificate, which certifies that, based on (i) written advice of counsel, a copy of which shall be attached to such Tax Certificate, or (ii) a ruling of the Internal Revenue Service, a copy of which shall be attached to such Tax Certificate, the Escrow Account is not a qualified settlement fund under Int. Rev. Code §468B and CorVel is treated for federal income tax purposes as the owner of, and required to include in its income, the earnings of the portion of the funds in the Escrow Account contributed by CorVel);

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4.1.5 promptly file, or cause to be filed, tax elections available to the Escrow Account, including a request for a prompt assessment under Int. Rev. Code §6501(d) upon the joint request of the Settling Parties; and

4.1.6 prepare and deliver to CorVel such returns, statements or other documents that CorVel, as transferor of the above-stated contributions to the Escrow Account, is required to provide to the Internal Revenue Service relating to the Escrow Account, the earnings therefrom or its contributions thereto, it being understood that CorVel will assist the Escrow Agent in preparing such returns, statements or other documents.

4.2 Assistance in Tax Compliance. The Escrow Agent may engage the CADA to advise and assist the Escrow Agent in fulfilling its obligations under Paragraph 4.1 above.

5. OTHER OBLIGATIONS OF THE ESCROW AGENT

5.1 Duties and Responsibilities. The Escrow Agent shall (in addition to any other obligations set forth in this EA):

5.1.1 accept, invest, administer, disburse and transfer all or portions of the amounts in the Escrow Account pursuant to this EA;

5.1.2. maintain the Escrow Account and all investments as assets of the trust department of the Escrow Agent for the benefit of the Escrow Account;

5.1.3 upon written notice jointly from CorVel and the PSC, divide all or a portion of the Escrow Account into subaccounts within the Escrow Account as so instructed in the written notice, it being agreed that one such subaccount shall be established to hold the amounts constituting the Class Settlement Fund;

5.1.4 send monthly reports to the PSC and CorVel of all investments, transactions, earnings, transfers, disbursements and other activities of the Escrow Agent affecting or otherwise relating to the Escrow Account;

5.1.5 disburse and otherwise transfer the amounts in the Escrow Account in accordance with Paragraph 2.6 and not otherwise;

5.1.6 act in good faith and exercise due care and prudence in fulfilling its obligations under this EA; and

5.1.7 provide tax and financial information to the party responsible for tax filings under Article 4 of this EA (if other than the Escrow Agent).

5.2 Limitations on Obligations of the Escrow Agent.

5.2.1 The Escrow Agent shall not:

5.2.1.1 be required or be under any duty to independently corroborate or investigate the truth, validity, correctness or efficacy of a certified copy of any order issued by the Court;

5.2.1.2 be responsible for the application or use by others of the funds in the Escrow Account if the Escrow Agent invests, disburses or transfers amounts in the Escrow Account in accordance with this EA;

5.2.1.3 be bound by any waiver, modification, amendment or rescission of this EA prior to its receipt of written notice thereof from the Settling Parties; and

5.2.1.4 have any duties, responsibilities or obligations under this EA, except those which are set forth herein.

5.2.2 Notwithstanding any provision contained herein to the contrary, the Escrow Agent, including its officers, directors, employees and agents, shall:

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5.2.2.1 have no responsibility to ensure the genuineness, authenticity, or sufficiency of any securities, checks, or other documents or instruments submitted to it in connection with its duties hereunder;

5.2.2.2 be entitled to deem the signatories of any documents or instruments submitted to it hereunder as being those purported to be authorized to sign such documents or instruments on behalf of the parties hereto, and shall be entitled to rely upon the genuineness of the signatures of such signatories without inquiry and without requiring substantiating evidence of any kind;

5.2.2.3 have no responsibility or liability for any diminution in value of any assets held hereunder which may result from any investments or reinvestment made in accordance with any provision which may be contained herein;

5.2.2.4 have only those duties as are specifically provided herein, which shall be deemed purely ministerial in nature, and shall under no circumstance be deemed a fiduciary for any of the parties to this EA. Except as otherwise provided herein, the Escrow Agent shall neither be responsible for, nor chargeable with, knowledge of the terms and conditions of any other agreement (except for the SA), instrument or document between the other parties hereto. This EA sets forth all matters pertinent to the escrow contemplated hereunder, and no additional obligations of the Escrow Agent shall be inferred from the terms of this EA or any other agreement; and

5.2.2.5 notwithstanding any other provision of this EA, the Escrow Agent shall not be obligated to perform any obligation hereunder and shall not incur any liability for the nonperformance or breach of any obligation hereunder to the extent that the Escrow Agent is delayed in performing, unable to perform or breaches such obligation because of acts of God, war, terrorism, fire, floods, strikes, electrical outages, equipment or transmission failures, or other causes reasonably beyond its control. Any banking association or corporation into which the Escrow Agent may be merged, converted or with which the Escrow Agent may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Escrow Agent shall be a party, shall succeed to all the Escrow Agent’s rights and obligations hereunder without the execution or filing of any paper or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding.

5.3 Agreement Not to Sue the Escrow Agent. The PSC, the Class, the Plaintiffs, and CorVel each agree that they will not bring any legal action against the Escrow Agent based upon any claim, loss or liability they may incur or sustain by reason of the Escrow Agent carrying out its obligations hereunder unless the claim, loss or liability is caused or results from the Escrow Agent’s (1) failure to act as required by this EA, or (2) negligence or willful misconduct (or that of the Escrow Agent’s agents, employees or representatives). In addition, it is agreed that any legal expenses, including attorneys’ fees (other than in-house counsel) reasonably incurred by the Escrow Agent (i) in defending any legal action prohibited by this Paragraph 5.3 or (ii) in connection with the performance of its duties under this EA, including, without limitation, obtaining any court order as set forth in Paragraph 5.5, shall be paid to the Escrow Agent from the Escrow Account; provided, however, that no legal or other expenses incurred by the Escrow Agent shall be paid from the Escrow Account if such expenses arise from actions or failures to act described in clauses (1) or (2) above and/or from legal actions arising from such actions or failures. In no event shall the Escrow Agent be liable to the PSC, the Class, the Plaintiffs, or CorVel for special, indirect, or consequential damages or lost profits or loss of business arising under or in connection with this EA. This Paragraph 5.3 shall survive the termination of this EA.

5.4 Resignation or Removal of Escrow Agent. The Escrow Agent shall have the right to resign upon 30 days prior written notice to each of the PSC and CorVel. Upon such resignation, the PSC and CorVel shall have the joint right to appoint a successor and shall endeavor to appoint a successor acceptable to each of them as promptly as reasonably possible. In the event that a successor has not been agreed to by the PSC and CorVel and appointed by the end of such 30 day period, the Escrow Agent shall have the right to request the Court to appoint a successor. The PSC and CorVel, acting jointly, shall have the right to remove the Escrow Agent at any time for cause and to appoint an agreed upon successor.

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5.5 Inconsistent Instructions. In the event the Escrow Agent receives inconsistent instructions or claims with regard to the Escrow Account, the Escrow Agent shall rely upon an order of the Court to resolve such inconsistency. Notwithstanding anything to the contrary contained in this EA, the Settling Parties expressly agree that the Escrow Agent is authorized and directed to rely conclusively on any written notice given (1) by CorVel pursuant to Paragraph 2.6(2) above; or (2) by each of (i) John V. Quaglino, on behalf of CorVel, and (ii) Thomas A. Filo, on behalf of the PSC, pursuant to Paragraph 2.6(4) above; or (3) by John V. Quaglino, on behalf of CorVel, pursuant to Paragraph 2.6(5) above; or (4) in connection with Paragraph 4.1.4(b) above, by CorVel.

6. TAXES, FEES AND EXPENSES

6.1 Fees Due the Escrow Agent. The entire compensation of the Escrow Agent for its duties and obligations hereunder are the fees set forth in Exhibit B. The Escrow Agent is authorized to withdraw payment for such compensation from the Escrow Account monthly.

6.2 Limitation on Payment of Expenses. The Escrow Agent shall pay from the Escrow Account, only such taxes, fees, costs and expenses (1) as are specified in this EA or (2) as are ordered by the Court.

6.3 Other Costs/Expenses/Subaccounts. Until the Effective Date, all other costs and expenses incidental to the settlement embodied in the SA shall be paid as provided in Section 10.7 of the SA. Until the Effective Date, if subaccounts within the Escrow Account are established pursuant to Paragraph 5.1.3, the Escrow Agent shall pay from the subaccounts in the Escrow Account all applicable taxes and fees of the Escrow Agent in the same proportion as earnings are credited to such subaccounts pursuant to Paragraph 2.5 of this EA.

7. NOTICES

7.1 Notices. Any notice, accounting, direction, request or instructions required or which may be given pursuant to this EA shall be in writing and shall be considered give when delivered personally, sent by registered or certified mail, postage prepaid, or sent by private, overnight delivery carrier operating in the United States of America, providing a receipt with evidence of delivery, to each of the following:

(a) If to CorVel, to:

John V. Quaglino
3320 West Esplanade Ave. North
Metairie, LA 70001

(b) If to the PSC, the Class, or the Plaintiffs, to:

Thomas A. Filo
Cox, Cox, Filo, Camel & Wilson, L.L.P.
723 Broad Street
Lake Charles, Louisiana 70601

and

Arthur M. Murray
The Murray Law Firm
625 St. Charles Ave., 3^rd Floor
New Orleans, LA 70130

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First NBC Bank
Attention: William M. Roohi
Senior Vice President
210 Baronne Street
New Orleans, LA 70112

or any other addresses as may hereafter be specified by written notice given to the other parties in accordance with this Paragraph 7.1.

8. MISCELLANEOUS

8.1 Governing Law. The rights and obligations of the parties hereto are to be construed, interpreted, and enforced solely in accordance with the laws of Louisiana, without giving effect to any conflict of laws principles. The Settling Parties and the Escrow Agent agree that any judicial proceeding arising out of or resulting from this EA or the breach thereof shall be filed only in the 27^th Judicial District Court in and for the Parish of St. Landry, Louisiana, the Honorable Alonzo Harris, or his successor, presiding.

8.2 Scope of Agreement. This EA, together with the SA, constitutes the entire understanding and agreement of the Settling Parties and the Escrow Agent regarding the subject matter hereof. This EA may not be modified except in writing signed by the Settling Parties and the Escrow Agent or their respective authorized agents.

8.3 Counterparts. This EA may be executed simultaneously in two or more counterparts, and those counterparts shall be construed together and constitute one agreement.

8.4 Non-Assignability. Except as otherwise provided in Paragraph 5.2.2.5, neither this EA nor any of the rights or obligations hereunder may be assigned without the prior written consent of the Settling Parties and the Escrow Agent, which consent shall not be unreasonably withheld.

8.5 Headings. Paragraph headings in this EA are included herein for convenience of reference only and shall not constitute a part of this agreement for any other purpose.

SIGNED in multiple originals on the dates indicated below.



Date		John V. Quaglino 3320 West Esplanade Ave. North Metairie, LA 70002


		ATTORNEY FOR CORVEL CORPORATION



Date		Thomas A. Filo Michael K. Cox Cox, Cox, Filo, Camel & Wilson, L.L.C. 723 Broad Street Lake Charles, Louisiana 70601



Date		Stephen B. Murray Arthur M. Murray Stephen B. Murray, Jr. The Murray Law Firm 625 St. Charles Ave., 3^rd Floor New Orleans, LA 70130

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Date		John S. Bradford William B. Monk Stockwell, Sievert, Viccellio, Clements & Shaddock, L.L.P. One Lakeside Plaza, Fourth Floor Lake Charles, Louisiana 70601

		REPRESENTING THE PSC, INDIVIDUALLY AND ON BEHALF OF THE CLASS AND THE PLAINTIFF


		FIRST NBC BANK

	By:

Date		William M. Roohi Senior Vice President

		ESCROW AGENT

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EXHIBIT A

CorVel Corporation

_____________________

[DATE]

First NBC Bank

_____________________

Attn: William M. Roohi

Ladies & Gentlemen:

Reference is made to the Escrow Agreement made effective as of ______, 2010 and signed by or on behalf of the PSC, the Class, the Plaintiffs, CorVel, and First NBC Bank, as Escrow Agent. Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Settlement Agreement (“SA”) executed by or on behalf of the PSC, the Class, the Plaintiffs, and CorVel.

This letter constitutes notice by CorVel of the termination of the SA in accordance with the provisions of the SA. The Escrow Agent is hereby directed to disburse to CorVel in accordance with the instructions annexed hereto as Exhibit 1, the full amount of the Escrow Account, less any amount required to pay accrued taxes, fees, costs, and expenses pursuant to Paragraphs 6.1, 6.2, and 6.3 of the Escrow Agreement.

Very truly yours,

EXHIBIT B

ESCROW AGENT’S FEES

MONTHLY FEE: $250.00

MINIMUM FEE (over life of account): $2,500.00


LEGAL EXPENSES:		All legal expenses of the PSC, the Class, the Plaintiffs, and CorVel shall be borne by the PSC, the Class, and the Plaintiffs. Subject to Paragraph 5.3 of the Escrow Agreement, all legal expenses incurred by the Escrow Agent in rendering its services under the Escrow Agreement shall be paid for out of the Escrow Account.

Escrow Agent will provide up to three subaccounts for no additional charge. In the event more than three subaccounts are required, there will be an additional monthly charge of $25.00 per additional subaccount in excess of three.

THE ABOVE FEES AND EXPENSES WILL BE ASSESSED AND DEBITED AGAINST THE INCOME EARNED BY THE ESCROW ACCOUNT MONTHLY.

Exhibit 2

27^TH JUDICIAL DISTRICT COURT FOR THE PARISH OF ST. LANDRY

STATE OF LOUISIANA


NO: 09-C-5244		DIVISION: “C”

GEORGE RAYMOND WILLIAMS M.D., ORTHOPAEDIC SURGERY, A
PROFESSIONAL MEDICAL, L.L.C.

Versus

S.I.F. CONSULTANTS OF LOUISIANA, ET AL.

ORDER OF PRELIMINARY APPROVAL OF PROPOSED SETTLEMENT

Except as otherwise expressly provided below or as context otherwise requires, all capitalized terms used in this Preliminary Order shall have the meanings and/or definition given them in the Settlement Agreement (“SA” or “Settlement Agreement”) entered into by or on behalf of the PSC, the Class, the Plaintiffs and Corvel on June 23, 2011. The original of the SA is filed in these proceedings as Exhibit A to the Joint Motion for Preliminary Approval of Proposed Settlement signed by or on behalf of the Class, the Plaintiffs and Corvel.

On considering Joint Motion for Preliminary Approval of Proposed Settlement (“Motion”), the evidence submitted to the Court by the parties in support of their Motion, the record of these proceedings, the recommendation of Class Counsel, and the requirements of law, the Court finds, upon preliminary review, that: (1) this court has jurisdiction over the subject matter and the Parties; (2) the proposed Settlement is the result of arms-length negotiations between the Parties; (3) the proposed Settlement bears a probable, reasonable relationship to the claims alleged by the Plaintiffs and the litigation risks of Plaintiffs and the Class; and (4) the proposed settlement is within the range of possible judicial approval. Accordingly:

IT IS HEREBY ORDERED THAT:

(1) For settlement purposes only, and pursuant to La. Code of Civil Procedure 591(B)(3) and (B)(4), the Court conditionally certifies the following Class:

All medical providers, institutions, and facilities that have provided services to workers’ compensation patients pursuant to the Louisiana Workers’ Compensation Act, LSA-R.S. 23:1021 et seq., and whose bills have been discounted, adjusted, paid on a reduced basis, or otherwise paid at less than the billed amount pursuant to a Preferred Provider Agreement contracted with CorVel or owned or operated by CorVel.

(2) For settlement purposes only, and pursuant to La. Code of Civil Procedure 591(B)(3) and (B)(4), the Court finds that the prerequisites of articles 591 and 592 of the Louisiana Code of Civil Procedure are satisfied and that, subject to final approval, the Class may be certified for settlement purposes only. Further, for purposes of the settlement only, it is determined that (a) the putative Class Members are so numerous that joinder of all such Class members is impracticable; (b) there are a number of questions of law and fact common in the Class which predominates over any individual questions affecting only individual Class Members; (c) a class action is superior to other available methods for the fair and efficient resolution of the controversy in that, among other reasons, it will avoid the need for costly individual adjudications of the Class Members’ claims, and, in the present circumstances, there will be no further litigation of the issues and no trial either of the Class Action against CorVel or its Affiliates of the Related Proceedings as to the Released Parties; (d) the claims and defenses of the Plaintiffs are typical of the claims and defenses of the Class; (e) the Plaintiffs have protected, and will fairly and adequately protect, the interest of the Class; (f) the Class is defined objectively in terms of ascertainable criteria, such that the Court may determine the constituency of the Class for the purposes of the conclusiveness of any judgment that may be rendered in this matter; (g) the interests of the individual Class Members in controlling the prosecution of separate actions is outweighed by the interests of the Class as a whole in bringing this matter to a successful conclusion via the proposed settlement. The Court recognizes that the Released Parties have preserved all of their defenses and objectives against and rights to oppose certification of the Class for litigation purposes, if the proposed settlement does not become Final in accordance with the Settlement Agreement and the Settlement Agreement is terminated for any reason.

(3) Plaintiffs, George Raymond Williams, MD, Orthopedic Surgery, A Professional Medical, LLC and Southwest Louisiana Hospital Association d/b/a Lake Charles Memorial Hospital, are certified as Class Representatives, and Thomas File, Michael Cox, John Bradford, William Monk, Stephen Murray, Sr., Arthur Murray, Stephen Murray, Jr., and Patrick Morrow, as Class Counsel, on the condition that this certification for settlement purposes and any related designations shall be automatically vacated if the Settlement Agreement is terminated or is disapproved in whole or in part by the Court, any appellate court, or any of the Parties;

(4) The Settlement Agreement and the settlement set forth therein, and all exhibits therefore, are preliminarily approved by the Court as being fair, reasonable, and adequate, entered into in good faith, free of collusion, and within the range of possible judicial approval.

(5) Any certification by the Court of the Class is for settlement purposes only and shall not constitute, nor be construed as, an admission on the part of the Released Parties that class certification is appropriate pursuant to articles 591, et seq, of the Louisiana Code of Civil Procedure or any similar class action statute or rule. If the Settlement Agreement is not finally approved, terminate, or fails to be implemented for any reason, the conditional certification of the Settlement Class shall be null and void ab initio.

(6) Unless otherwise expressly agreed in writing by the Class, the Plaintiffs, Class Counsel and counsel for Corvel, if the Effective Date does not occur, or in the event that the Settlement Agreement does not become effective as required by its terms for any other reason, any order entered by this Court pursuant to the Settlement Agreement (each a “Settlement Class Order”) shall become null and void, and the parties shall be restored to their respective positions status quo ante; in such event, all Settlement Orders shall have no force and effect, and may not be used or referred to for any purpose whatsoever.

(7) A final approval hearing shall commence on the _____ day of ________, 2011 at ______ at the St. Landry Parish Courthouse, 118 South Court Street, Opelousas, LA 70570.

(8) Subject to the Court’s consideration of additional evidence regarding the Class Settlement Notice at the final approval hearing, and based on the documents submitted to the Court in connection with preliminary approval, the Class Settlement Notice fully complies with the requirements of La. Code of Civil Procedure 594(A)(2) and due process, constitutes the best notice practicable under the circumstances, and is due and sufficient notice to all persons entitled to notice of the settlement of this lawsuit;

(9) In further aid of the Court’s jurisdiction to implement and enforce the proposed settlement, all Class Members and each of their Affiliates shall be preliminarily enjoined and barred from instituting, maintaining, prosecuting or continuing to prosecute any and all actions and proceedings related to any Episode against the Related Parties, including by not limited to any and all contributions, indemnity, subrogation, breach of contract, statutory violation and/or tort claims by, on behalf of or through any Class Members and/or their Affiliates, either directly, representatively, derivatively, or in any other capacity, whether by a complaint, counterclaim, reconventional demand, defense, or otherwise, in any local, state, or federal court, or in any agency or other authority or forum wherever located. Any person or entity who knowingly violates such injunction shall pay attorneys’ fees and costs incurred by any Released Party as a result of the violation. Nothing in this paragraph shall be construed

to preclude any proceedings in the Class Action itself necessary to obtain certification of the Class as Defined and final approval of the settlement embodied in the Settlement Agreement unless otherwise requested by Corvel or to prevent a Class Member from presenting objections to the Court regarding the Settlement Agreement in accordance with this Order.

(10) All persons and entities who are included within the Class Definition and who submit a Request for exclusion that conforms to the terms of this Order may be excluded from the Class.

(A) Any request to opt out of the Class must be postmarked no later than ________, 2011 and addressed to CorVel Exclusions, 723 Broad Street, Lake Charles, LA 70601.

(B) A request to opt out of the Class must be in writing and state the name, address and phone number of the person(s) seeking to opt out. Each request must also contain a duly authorized and signed statement that: “I hereby request that I be excluded from the proposed Class in the Williams Class Action.” An opt out request that does not include all of the foregoing information, that is sent to an address other than the one designated in the Class Settlement Notice, or that is not sent within the time or in the manner specified, shall be invalid and the person or entity serving such a request shall be included as a Class Member and shall be bound by this settlement.

(C) The PSC shall make best efforts to encourage the clients they represent in any Related Proceeding to remain a Class Member and not opt out of the Class. The PSC likewise acknowledge that each of them and t heir firms have an unwaivable conflict of interest in representing any Opt-Out Party.

(D) Class Counsel shall forward copies of all reports for exclusion to counsel for Corvel no later than ten (10) days after the deadline for class members to submit such requests.

(E) All persons and entities who are included within the Class Definition and who properly file a timely written request to opt out of the settlement shall be excluded from the Class, shall have no rights as Class Members pursuant to the Settlement Agreement, and shall receive no payments pursuant to the Settlement Agreement.

(11) Any Class Member who objects to the settlement may appear in person or through counsel, at his or her own expense, at the final approval hearing to present any evidence or argument that may be proper and relevant. No Class Member shall he heard and no papers,

briefs, pleadings, or other documents submitted by any such Class Member shall be received and considered by the Court unless, no later than ______________, 2011, such Class Member both files with the Court and mails to Class Counsel and counsel for Corvel, a written objection that includes (a) notice of intent to appear, (b) proof of membership in the Class and, (c) the specific grounds for the objection and any reasons why such Class Member desires to appear and be heard, as well as all documents, writings or materials that such Class Member desires the Court to consider. Any Class Member who fails to object in the manner prescribed herein shall be deemed to have waived his or her objections and forever be barred from making any such objections in this action or in any other action, proceeding or appeal.

(12) Patrick A. Juneau is appointed as Special Master, pursuant to La. R.S. 13:4165, to assist the Court, in cooperation and coordination with Class Counsel, to: (i) establish proposed allocations for each Class Member, (ii) prepare a proposed plan for distribution of the proposed allocations, (iii) submit to the court a report on the above, along with recommendations for the Court’s consideration in proceeding with the allocation and distribution process following the Effective Date, and (iv) engage such staff, deputies and experts as reasonably necessary and conduct such hearings as may be necessary and appropriate to carry out his duties.

(13) The form and execution of the Escrow Agreement and the nomination of First NBC Bank as the Escrow Agent are hereby approved.

(14) The accounting firm of Bourgeois Bennett, LLC, CPAs, shall serve as the Court Appointed Disbursing Agent in connection with this settlement under the supervision of the Court or its designee, and as such, is hereby charged with the responsibility, in conjunction with the Special Master, of maintaining records pertaining to receipts and the computerized generation and preparation of all data regarding evaluation of claims; managing the financial aspects of the eventual disbursement of the Class Settlement Fund, and administering, with the Escrow Agent, the Class Settlement Fund, subject in all respects to further orders and direction of the Court;

(15) Class Counsel and counsel for Corvel are hereby authorized to use all reasonable procedures in connection with approval and administration of the settlement that are not materially inconsistent with this Order or the Settlement Agreement, including making, without further approval of the Court, minor changes to the form or content of the Class Settlement Notice, the Notice Plan, the Mailed Summary Notice, the Publication Summary Notice, the Detailed Notice, or any exhibits to the Settlement Agreement that the parties jointly agree are reasonable or necessary.

Thus done and signed this _____ day of ____________, 2011, Opelousas, Louisiana.




	HONORABLE ALONZO HARRIS
	JUDGE, 27TH JUDICIAL DISTRICT COURT

Exhibit 4

NOTICE PROCEDURE

Except as otherwise expressly provided below or as the context otherwise requires, all capitalized terms used in this Exhibit 4—Notice Procedure shall have the meanings and/or definitions given them in the Settlement Agreement to which this Exhibit 4—Notice Procedure is attached.

Notices to Providers purportedly required under La. R.S. 40:2203.1 shall be provided pursuant to the following procedure:

	1.		Prior to allowing a client to access a PPO Agreement owned, operated or contracted with CorVel,, CorVel will instruct its client in writing to send Providers written notice at the time an initial request for authorization to treat a patient is requested by a provider that a PPO Agreement owned, operated or contracted with CorVel network will be accessed to discount the provider’s services under the terms of the PPO Agreement. Additionally, CorVel will amend its existing PPO agreements and will require all new PPO Agreements entered into with a Provider to include language similar to “CorVel will require its clients utilizing PPO discounts in Louisiana to send Provider written notice that a PPO Agreement owned, operated or contracted with CorVel will be accessed with respect to the work related accident for which authorization to treat is sought by the Provider at the time Provider seeks its initial authorization to treat the injured worker.”

	2.		To the extent that CorVel maintains a website or other electronic format for its contracted providers, it shall include current listing of all entities that have contracted to access CorVel’s network in Louisiana.

	3.		CorVel will be deemed to be in compliance with this Settlement Agreement if CorVel complies with its obligations under Paragraph 1. With respect to CorVel’s clients and/or parties accessing a PPO agreement owned, operated or contracted with CorVel, such client and/or party accessing a CorVel PPO agreement will be deemed to be in compliance with this Settlement Agreement if it complies with the notice obligations to the provider as set forth in Paragraph1.

	4.		It is expressly understood that written notice required pursuant to this Settlement Agreement shall not be required where no prior authorization for treatment is sought by the provider. Where no prior authorization is sought by the provider, this Settlement Agreement shall preclude any claim against CorVel, its clients, and or parties accessing a PPO agreement owned, operated or contracted with CorVel for a claim for violation of the notice requirements of La. R.S. 40:2203.1.

	5.		The agreed to settlement procedure outline herein shall serve between the parties as any and all notice required to the provider under the Louisiana Willing Provider Act, La. R.S. 40:2201, et seq., unless and until such time as the Act is repealed or the notice requirements of the Act are substantially altered.

Page 1 of 1

Exhibit 5

RECEIPT, RELEASE, AND CONFIRMATION OF SETTLEMENT AGREEMENT
(Class Member)

NOTICE! NOTICE! NOTICE! NOTICE! NOTICE! NOTICE!

PLEASE BE ADVISED THAT THE ENDORSEMENT AND/OR DEPOSIT OF THE ENCLOSED ALLOCATION CHECK SHALL CONSTITUTE THE BINDING AGREEMENT OF THE PERSON OR ENTITY TO WHOM SUCH CHECK IS MADE PAYABLE (“Releasor”) TO THE FOLLOWING:

1. Except as otherwise expressly provided herein or as the context otherwise requires, all capitalized terms used in this Receipt, Release, and Confirmation of Settlement Agreement shall have the meanings and/or definitions given them in the Settlement Agreement entered into by or on behalf of the PSC, the Class, the Plaintiffs, and CorVel, and approved by the 27th^th Judicial District Court in and for the Parish of St. Landry, Louisiana, on _______, 2011 in those proceedings entitled “George Raymond Williams, M.D., Orthopaedic Surgery, A Professional Medical L.L.C.. v. S.I.F. Consultants., et al.,” Suit No. 2009-C-5944, Div. “C,” on the docket of such court. Such Settlement Agreement is hereinafter referred to as the “SA”. The SA, Court-ordered notices, other Court orders, and related documents may be found at the following website: ____________. Generally speaking, the enclosed allocation check is being provided to Releasor because of the settlement of certain Class claims based on alleged deficiencies in the provision of notices related to preferred provider discounts in Louisiana. More details regarding the settlement can be found in the controlling settlement documents (copies of which may be found at the foregoing website).

2. Releasor is a Class Member. Releasor’s S.S.N./T.I.N. is ), and Releasor’s permanent mailing address is .

3. Releasor hereby acknowledges receipt of $ from the Class Settlement Fund in full and final settlement of all claims based on Liability, that Releasor may have against any one or more of the Released Parties.

4. Without limiting the foregoing, Releasor hereby releases and forever discharges all Liability, and each and all claims based thereon that Releasor may have against any one or more of the Released Parties. Releasor also agrees to hold the Released Parties harmless from and defend them against any claims or cross-claims for indemnity or contribution and/or any claims by any person who or which derives or obtains any right or claim from or through Releasor (e.g., subrogation claims by worker’s compensation insurers, employers, and/or health care providers, heirs, relatives and/or custodians). Releasor further subjects Releasor to the jurisdiction of the Court for any and all purposes necessary or desirable in order to effectuate the settlement embodied in the SA.

5. Releasor hereby acknowledges and confirms that: (a) Releasor has been given an opportunity to read and review a complete copy of the SA, (b) the pages from the SA setting forth the definition of Liability, have been brought to the particular attention of Releasor and Releasor has had the opportunity to read them before executing this Release, Receipt and Confirmation of Settlement Agreement, (c) Releasor is bound by all of the terms, conditions, and obligations contained in the SA, including, without limitation, any indemnification/hold harmless/defense obligations imposed on Class Members in the SA, (d) any questions that Releasor may have had regarding the intent, effect and meaning of the SA and this Release, Receipt and Confirmation of Settlement Agreement (including, without limitation, the definition of the Liability being released and discharged hereby and the obligations imposed by the SA) have been answered to Releasor’s satisfaction by Releasor’s lawyer or a lawyer for the Class, and (e) Releasor is satisfied that the settlement embodied in the SA and this Release, Receipt and Confirmation of Settlement Agreement insofar as it relates to Releasor’s rights, claims, and

- 1 -

obligations (including, without limitation, the monetary settlement received as set forth above) is fair and adequate.

6. Releasor acknowledges that Releasor fully understands the nature of the claims released and the obligations undertaken by the Releasor herein and/or in the SA.

SHOULD THE PERSON OR ENTITY TO WHOM THE ENCLOSED ALLOCATION CHECK IS MADE PAYABLE NOT AGREE TO THE FOREGOING, THE ALLOCATION CHECK SHOULD NOT BE ENDORSED OR DEPOSITED. INSTEAD, THE ALLOCATION CHECK SHOULD BE RETURNED TO THE FOLLOWING ADDRESS: ____________________.

The front of each allocation check shall bear the following inscription:

Full Settlement of Liability.

The back of each allocation check shall bear the following inscription:

Enclosed in the envelope with this allocation check is a written document entitled Receipt, Release, and Confirmation of Settlement Agreement (“Release”). Please be advised that your endorsement and/or deposit of this allocation check constitutes your binding acknowledgment of your receipt of the Release and your binding agreement to the terms and conditions set forth in the Release, including, without limitation, your release of certain claims. If you have any questions, call 1-800-__-_____ or write to class counsel at ____ before you endorse or deposit this allocation check.

- 2 -

EX-31.1 3 a58186exv31w1.htm EX-31.1 exv31w1

Exhibit 31.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Daniel J. Starck, certify that:

1. I have reviewed this quarterly report on Form 10-Q of CorVel Corporation;

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;

(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.

Date: August 5, 2011



	/s/ DANIEL J. STARCK
	Daniel J. Starck
	Chief Executive Officer (Principal Executive Officer)

EX-31.2 4 a58186exv31w2.htm EX-31.2 exv31w2

Exhibit 31.2

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Scott R. McCloud, certify that:

1. I have reviewed this quarterly report on Form 10-Q of CorVel Corporation;

(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.

Date: August 5, 2011



	/s/ SCOTT R. MCCLOUD
	Scott R. McCloud
	Chief Financial Officer (Principal Financial Officer)

EX-32.1 5 a58186exv32w1.htm EX-32.1 exv32w1

Exhibit 32.1

This certification accompanies this report and is being furnished pursuant to Item 601(b)(32) of Regulation S-K promulgated under the Securities Act of 1933, as amended (the “Securities Act”) and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. This certification shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed “filed” by the Registrant for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, or incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Registrant specifically incorporates it by reference into such a filing.

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
UNDER SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of CorVel Corporation (the “Registrant”) on Form 10-Q for the period ended June 30, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Quarterly Report”), I, Daniel J. Starck, Chief Executive Officer of the Registrant, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my best knowledge:

(1) the Quarterly 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 Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

Date: August 5, 2011



	/s/ DANIEL J. STARCK
	Daniel J. Starck
	Chief Executive Officer

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to CorVel Corporation and will be retained by CorVel Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2 6 a58186exv32w2.htm EX-32.2 exv32w2

Exhibit 32.2

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
UNDER SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of CorVel Corporation (the “Registrant”) on Form 10-Q for the period ended June 30, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Quarterly Report”), I, Scott R. McCloud, Chief Financial Officer of the Registrant, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) the Quarterly 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 Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

Date: August 5, 2011



	/s/ SCOTT R. MCCLOUD
	Scott R. McCloud
	Chief Financial Officer

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<div style="font-family: 'Times New Roman',Times,serif"> <div align="left"> </div> <div align="center" style="font-size: 10pt; margin-top: 0pt"><b> </b> </div> <div align="left" style="font-size: 10pt; margin-top: 12pt"><u><b>Note A — Basis of Presentation and Summary of Significant Accounting Policies</b></u> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The unaudited financial statements herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. The accompanying interim financial statements have been prepared under the presumption that users of the interim financial information have either read or have access to the audited financial statements for the latest fiscal year ended March 31, 2011. Accordingly, footnote disclosures which would substantially duplicate the disclosures contained in the March 31, 2011 audited financial statements have been omitted from these interim financial statements. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     During fiscal 2011, the Company implemented Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 855-10-05 through 885-10-55, <i>Subsequent Events </i>as amended by ASU 2010-09. This standard establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. In accordance with ASU 2010-09 the Company evaluated all subsequent events or transactions. During the period subsequent to June 30 and through August 3, 2011 the Company repurchased 46,090 shares for $2.2 million or approximately $48.66 per share. These shares were repurchased under the Company’s ongoing share repurchase program described in Note C. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. 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, 2011 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2012. For further information, refer to the consolidated financial statements and footnotes for the fiscal year ended March 31, 2011 included in the Company’s Annual Report on Form 10-K. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     <i>Basis of Presentation: </i>The consolidated financial statements include the accounts of CorVel and its subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     <i>Use of Estimates: </i>The preparation of financial statements in compliance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the accompanying financial statements. Actual results could differ from those estimates. Significant estimates include the values assigned to intangible assets, capitalized software development, the allowance for doubtful accounts, accrual for income taxes, purchase price allocation for acquisitions, and accrual for self-insurance reserves loss contingencies, share-based payments related to performance based awards, estimated claims for claims administration revenue recognition, and estimates used in stock option valuations. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     <i>Cash and Cash Equivalents: </i>Cash and cash equivalents consist of short-term highly-liquid investment-grade interest-bearing securities with maturities of 90 days or less when purchased. </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif"> <div align="center" style="font-size: 10pt; margin-top: 0pt"> <b> </b> </div> <div align="left" style="font-size: 10pt; margin-top: 0pt"> <u> <b> </b> </u> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     <i>Fair Value of Financial Instruments: </i>The Company applies ASC 820, “Fair Value Measurements and Disclosures” with respect to fair value measurements of (a) nonfinancial assets and liabilities that are recognized or disclosed at fair value in the Company’s Consolidated Financial Statements on a recurring basis (at least annually) and (b) all financial assets and liabilities. ASC 820 prioritizes the inputs used in measuring fair value into the following hierarchy: </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     <i>Level 1 </i>Quoted market prices in active markets for identical assets or liabilities; </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     <i>Level 2 </i>Observable inputs other than those included in Level 1 (for example, quoted prices for similar assets in active markets or quoted prices for identical assets in inactive markets); and </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     <i>Level 3 </i>Unobservable inputs reflecting management’s own assumptions about the inputs used in estimating the value of the asset. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The carrying amount of the Company’s financial instruments (i.e. cash, accounts receivable, accounts payable, etc.) approximate their fair values due to the short term nature of the instruments at March 31, 2011 and June 30, 2011. The Company has no Level 2 or Level 3 assets. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">          <i>Goodwill: </i>The Company accounts for its business combinations in accordance with FASB ASC 805-10 through ASC 805-50 <i>Business Combinations </i>which requires that the purchase method of accounting be applied to all business combinations and addresses the criteria for initial recognition of intangible assets and goodwill. In accordance with FASB ASC 350-10 through ASC 350-30, goodwill and other intangible assets with indefinite lives are not amortized but are tested for impairment annually, or more frequently if circumstances indicate the possibility of impairment. If the carrying value of goodwill or an intangible asset exceeds its fair value, an impairment loss shall be recognized. The Company’s goodwill impairment test is conducted company-wide and the fair value is compared to its carrying value. The measurement of fair value is based on an evaluation of market capitalization and is further tested using a multiple of earnings approach. For all periods presented, no material impairment existed and, accordingly, no loss was recognized. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">          <i>Revenue Recognition: </i>The Company recognizes revenue when there is persuasive evidence of an arrangement, the services have been provided to the customer, the sales price is fixed or determinable, and collectability is reasonably assured. For the Company’s services, as the Company’s professional staff performs work, they are contractually permitted to bill for fees earned in fraction of an hour increments worked or by units of production. The Company recognizes revenue as the time is worked or as units of production are completed, which is when the revenue is earned and realized. Labor costs are recognized as the costs are incurred. The Company derives the majority of its revenue from the sale of Network Solutions and Patient Management services. Network Solutions and Patient Management services may be sold individually or combined with any of the services the Company provides. When a sale combines multiple elements, the Company accounts for multiple element arrangements in accordance with the guidance included in ASC 605-25. </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif"> <div align="center" style="font-size: 10pt; margin-top: 0pt"> <b> </b> </div> <div align="left" style="font-size: 10pt; margin-top: 0pt"> <u> <b> </b> </u> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     In accordance with ASC 605-25, the Company allocates revenue for transactions or collaborations that include multiple elements to each unit of accounting based on its relative fair value, and recognizes revenue for each unit of accounting when the revenue recognition criteria have been met. The price charged when the element is sold separately generally determines fair value. When our customers purchase several products from CorVel, the pricing of the products sold is generally the same as if the product were sold on an individual basis. As a result, the fair value of each product sold in a multiple element arrangement is almost always determinable. The Company recognizes revenue for delivered elements when the delivered elements have standalone value and the Company has objective and reliable evidence of fair value for each undelivered element. If the fair value of any undelivered element included in a multiple element arrangement cannot be objectively determined, revenue is deferred until all elements are delivered and services have been performed, or until fair value can objectively be determined for any remaining undelivered elements. Based upon the nature of our products, bundled products are generally delivered in the same accounting period. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     In October 2009, the FASB issued Accounting Standards Update No. 2009-13, Multiple Deliverable Revenue Arrangements—a consensus of FASB Emerging Issues Task Force (“ASU 2009-13”). ASU 2009-13 provides for less restrictive separation criteria that must be met for a deliverable to be considered a separate unit of accounting. Additionally, under this Standard, there is a hierarchy for determining the selling price of a unit of accounting and consideration must be allocated using a relative-selling price method. ASU 2009-13 was be effective for CorVel Corporation on April 1, 2011. We reviewed the requirements of ASU 2009-13 and determined the pronouncement had no material impact on our financial position or results of operations. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     <i>Accounts Receivable: </i>The majority of the Company’s accounts receivable are due from companies in the property and casualty insurance industries, self-insured employers, and government entities. Accounts receivable are due within 30 days and are stated as amounts due from customers net of an allowance for doubtful accounts. Those accounts outstanding longer than the contractual payment terms are considered past due. The Company determines its allowance by considering a number of factors, including the length of time trade accounts receivable are past due, the Company’s previous loss history, the customer’s current ability to pay its obligation to the Company and the condition of the general economy and the industry as a whole. No one customer accounted for 10% or more of accounts receivable at either March 31, 2011 or June 30, 2011. No one customer accounted for 10% or more of revenue during either of the three month periods ended June 30, 2010 or 2011. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     <i>Property and Equipment: </i>Additions to property and equipment are recorded at cost. Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the related assets, which range from one to seven years. The Company accounts for internally developed software costs in accordance with FASB ASC 350-40, <i>Accounting for the Costs of Computer Software Developed or Obtained for Internal Use</i>, which allows for the capitalization of software developed for internal use. These costs are included in computer software in property and equipment and are amortized over a period of five years. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     <i>Long-Lived Assets: </i>The carrying amount of all long-lived assets is evaluated periodically to determine if adjustment to the depreciation and amortization period or to the unamortized balance is warranted. Such evaluation is based principally on the expected utilization of the long-lived assets and the projected, undiscounted cash flows of the operations in which the long-lived assets are deployed. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     <i>Income Taxes: </i>The Company provides for income taxes under the liability method. Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities as measured by the enacted tax rates which are expected to be in effect when these differences reverse. Income tax expense is the tax payable for the period and the change during the period in net deferred tax assets and liabilities. The balance of the unrecognized tax benefits as of March 31, 2011 and June 30, 2011 was $1,608,000 and $1,503,000, respectively. </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif"> <div align="center" style="font-size: 10pt; margin-top: 0pt"> <b> </b> </div> <div align="left" style="font-size: 10pt; margin-top: 0pt"> <u> <b> </b> </u> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     <i>Earnings Per Share: </i>Earnings per common share-basic is based on the weighted average number of common shares outstanding during the period. Earnings per common shares-diluted is based on the weighted average number of common shares and common share equivalents outstanding during the period. In calculating earnings per share, earnings are the same for the basic and diluted calculations. Weighted average shares outstanding decreased in the June 2011 quarter compared to the same quarter of the prior year primarily due to repurchase of shares under the Company’s share repurchase program. See also Note D. </div> </div>

<div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><u><b>Note B — Stock Based Compensation and Stock Options</b></u> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Under the Company’s Restated Omnibus Incentive Plan (Formerly The Restated 1988 Executive Stock Option Plan) (“the Plan”) as in effect at June 30, 2011, options for up to 9,682,500 shares of the Company’s common stock may be granted to key employees, non-employee directors and consultants at exercise prices not less than the fair market value of the stock at the date of grant. Options granted under the Plan are non-statutory stock options and generally vest 25% one year from date of grant and the remaining 75% vesting ratably each month for the next 36 months. The options granted to employees and the board of directors expire at the end of five years and ten years from date of grant, respectively. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The Company records compensation expense for employee stock options based on the estimated fair value of the options on the date of grant using the Black-Scholes option-pricing model with the assumptions included in the table below. The Company uses historical data among other factors to estimate the expected volatility, the expected option life, and the expected forfeiture rate. The risk-free rate is based on the interest rate paid on a U.S. Treasury issue with a term similar to the estimated life of the option. Based upon the historical experience of options cancellations, the Company has estimated an annualized forfeiture rate of 9.05% and 9.30% for the three months ended June 30, 2010 and 2011, respectively. Forfeiture rates will be adjusted over the requisite service period when actual forfeitures differ, or are expected to differ, from the estimate. The following assumptions were used to estimate the fair value of options granted during the three months ended June 30, 2010 and 2011 using the Black-Scholes option-pricing model: </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="76%"> </td> <td width="5%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="3%"> </td> <td width="5%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="3%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="7" style="border-bottom: 1px solid #000000">Three Months Ended June 30,</td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000">2010</td> <td> </td> <td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000">2011</td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Risk-free interest rate </div></td> <td> </td> <td nowrap="nowrap" align="right"> </td> <td align="right">2.15</td> <td nowrap="nowrap">%</td> <td> </td> <td nowrap="nowrap" align="right"> </td> <td align="right">1.88</td> <td nowrap="nowrap">%</td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Expected volatility </div></td> <td> </td> <td nowrap="nowrap" align="right"> </td> <td align="right">46</td> <td nowrap="nowrap">%</td> <td> </td> <td nowrap="nowrap" align="right"> </td> <td align="right">46</td> <td nowrap="nowrap">%</td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Expected dividend yield </div></td> <td> </td> <td nowrap="nowrap" align="right"> </td> <td align="right">0.00</td> <td nowrap="nowrap">%</td> <td> </td> <td nowrap="nowrap" align="right"> </td> <td align="right">0.00</td> <td nowrap="nowrap">%</td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Expected forfeiture rate </div></td> <td> </td> <td nowrap="nowrap" align="right"> </td> <td align="right">9.05</td> <td nowrap="nowrap">%</td> <td> </td> <td nowrap="nowrap" align="right"> </td> <td align="right">9.30</td> <td nowrap="nowrap">%</td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Expected weighted average life of option in years </div></td> <td> </td> <td colspan="3" nowrap="nowrap" align="center">4.8 years</td> <td> </td> <td colspan="3" nowrap="nowrap" align="center">4.7 years</td> </tr>  </table> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     All options granted in the three months ended June 30, 2010 and 2011 were granted at fair market value and are non-statutory stock options. </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif"> <div align="center" style="font-size: 10pt; margin-top: 0pt"> <b> </b> </div> <div align="left" style="font-size: 10pt; margin-top: 0pt"> <u> <b> </b> </u> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     In May 2006, the Company’s Board of Directors granted performance-based stock options for 149,175 shares of common stock at fair market value at the date of grant, which would only vest if the Company attained certain earnings per share targets, as established by the Company’s Board of Directors, for calendar years 2008, 2009, and 2010. These options were granted with an exercise price of $15.76 per share, which was the fair market value at the date of grant, and have a valuation of $6.75 per share. The Company did not attain the targets for calendar years 2008 and 2009. The Company attained the earnings per share target for calendar year 2010 which allowed for options for 68,025 shares to vest. The Company recognized $413,000 in stock compensation expense in fiscal 2011, and $459,000, cumulatively, for these options. No further stock options will vest under this grant and there will be no further recognition of stock compensation expense. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     In February 2008, the Company’s Board of Directors granted performance-based stock options for 42,000 shares of common stock at fair market value at the date of grant, which will only vest if the Company attains certain revenue targets for all services sold to claims administration clients and out-of-network bill review revenues, as established by the Company’s Board of Directors, for calendar years 2009, 2010, and 2011. The targets for the various options varied by the regions managed by these optionees with each region having a different target. These options were granted with an exercise price of $25.10 per share, which was the fair market value at the date of grant, and have a valuation of $9.81 per share. Currently, management has determined that optionees with 12,000 shares attained the revenue targets for calendar year 2009 and 2010, and, accordingly, the Company has recognized $33,000 during fiscal 2011, $11,000 during the quarter ended June 30, 2011, and $94,000, cumulatively, since the date of the option grant. Currently, management has determined that it is not probable that the revenue targets for the remaining optionees will be attained and, accordingly, the Company has recognized no stock compensation expense for those options. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     In February 2009, the Company’s Board of Directors granted performance-based stock options for 100,000 shares of common stock at fair market value at the date of grant, which will only vest if the Company attains certain earnings per share targets, as established by the Company’s Board of Directors, for calendar years 2009, 2010, and 2011. Net of cancelations due to employee terminations, options for 95,000 shares remained under these performance-based stock options as of June 30, 2011. These options were granted with an exercise price of $19.79 per share, which was the fair market value at the date of grant, and have a valuation of $8.21 per share. The Company attained these targets for calendar 2009 and 2010, and, accordingly, the Company has recognized stock compensation expense of $221,000 during fiscal year 2011, $78,000 during the quarter ended June 30, 2011, and $624,000, cumulatively, since the date of the option grants. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     In February 2009, the Company’s Board of Directors granted performance-based stock options for 10,000 shares of common stock at fair market value at the date of grant, which will only vest if the Company attains certain revenue targets for all services sold to claims administration clients and out-of-network bill review revenues, as established by the Company’s Board of Directors, for calendar years 2009, 2010, and 2011. These options were granted with an exercise price of $20.37 per share, which was the fair market value at the date of grant, and have a valuation of $8.45 per share. The Company did not achieve the revenue target for calendar year 2009 or 2010. Currently, management has determined that it is not probable that the Company will attain the revenue targets for calendar year 2011, and, accordingly, the Company has recognized no stock compensation expense for this stock option grant during fiscal 2011 or the quarter ended June 30, 2011. </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif"> <div align="center" style="font-size: 10pt; margin-top: 0pt"> <b> </b> </div> <div align="left" style="font-size: 10pt; margin-top: 0pt"> <u> <b> </b> </u> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     In November 2009, the Company’s Board of Directors granted performance-based stock options for 110,000 shares of common stock at fair market value at the date of grant, which will only vest if the Company attains certain earnings per share targets, as established by the Company’s Board of Directors, for calendar years 2010, 2011, and 2012. These options were granted with an exercise price of $28.92 per share, which was the fair market value at the date of grant, and have a valuation of $12.57 per share. The Company attained the earnings per share target in calendar year 2010, and currently, management has determined that it is probable that the Company will attain the earnings per share targets for calendar year 2011. Accordingly, the Company has recognized $337,000 of stock compensation expense for this stock option grant during fiscal 2011, $104,000 for the quarter ended June 30, 2011, and $622,000, cumulatively. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     In December 2010, the Company’s Board of Directors granted performance-based stock options for 100,000 shares of common stock at fair market value at the date of grant, which will only vest if the Company attains certain earnings per share targets, as established by the Company’s Board of Directors, for calendar years 2011, 2012, and 2013. These options were granted with an exercise price of $46.14 per share, which was the fair market value at the date of grant, and have a valuation of $18.72 per share. Management has determined that it is probable that the Company will attain the earnings per share targets for calendar year 2011. Accordingly, the Company has recognized $140,000 of stock compensation expense for this stock option grant during fiscal 2011, $140,000 during the quarter ended June 30, 2011, and $281,000, cumulatively. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The table below shows the amounts recognized in the financial statements for stock compensation expense for time based options and performance based options the three months ended June 30, 2010 and 2011, respectively. Included in the three months ended June 30, 2011 stock compensation expense is $334,000 for the expense related to the performance based options. </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="76%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">Three Months Ended</td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">June 30, 2010</td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">June 30, 2011</td> <td> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Cost of revenues </div></td> <td> </td> <td align="left">$</td> <td align="right">134,000</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">126,000</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">General and administrative </div></td> <td> </td> <td> </td> <td align="right">456,000</td> <td> </td> <td> </td> <td> </td> <td align="right">532,000</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Total cost of stock-based compensation included in income before income tax provision </div></td> <td> </td> <td> </td> <td align="right">590,000</td> <td> </td> <td> </td> <td> </td> <td align="right">658,000</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Amount of income tax benefit recognized </div></td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(218,000</td> <td nowrap="nowrap">)</td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(256,000</td> <td nowrap="nowrap">)</td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Amount charged against net income </div></td> <td> </td> <td align="left">$</td> <td align="right">372,000</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">402,000</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Effect on diluted net income per share </div></td> <td> </td> <td nowrap="nowrap" align="left">$</td> <td align="right">(0.03</td> <td nowrap="nowrap">)</td> <td> </td> <td nowrap="nowrap" align="left">$</td> <td align="right">(0.03</td> <td nowrap="nowrap">)</td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr>  </table> </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif"> <div align="center" style="font-size: 10pt; margin-top: 0pt"> <b> </b> </div> <div align="left" style="font-size: 10pt; margin-top: 0pt"> <b> <u> </u> </b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Summarized information for all stock options for the three months ended June 30, 2010 and 2011 follows: </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="52%"> </td> <td width="5%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="3%"> </td> <td width="5%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="3%"> </td> <td width="5%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="3%"> </td> <td width="5%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="3%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="7" style="border-bottom: 1px solid #000000">Three Months Ended June 30, 2010</td> <td style="border-bottom: 1px solid #000000"> </td> <td nowrap="nowrap" align="center" colspan="7" style="border-bottom: 1px solid #000000">Three Months Ended June 30, 2011</td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="3">Shares</td> <td> </td> <td nowrap="nowrap" align="center" colspan="3">Average Price</td> <td> </td> <td nowrap="nowrap" align="center" colspan="3">Shares</td> <td> </td> <td nowrap="nowrap" align="center" colspan="3">Average Price</td> </tr>   <tr style="font-size: 1px"> <td> </td> <td> </td> <td colspan="15" align="left" style="border-top: 1px solid #000000"> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Options outstanding, beginning </div></td> <td> </td> <td> </td> <td align="right">1,065,403</td> <td> </td> <td> </td> <td align="right">$</td> <td align="right">22.57</td> <td> </td> <td> </td> <td> </td> <td align="right">813,662</td> <td> </td> <td> </td> <td align="right">$</td> <td align="right">29.26</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Options granted </div></td> <td> </td> <td> </td> <td align="right">48,000</td> <td> </td> <td> </td> <td> </td> <td align="right">36.55</td> <td> </td> <td> </td> <td> </td> <td align="right">15,675</td> <td> </td> <td> </td> <td> </td> <td align="right">49.56</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Options exercised </div></td> <td> </td> <td nowrap="nowrap" align="right"> </td> <td align="right">(34,221</td> <td nowrap="nowrap">)</td> <td> </td> <td> </td> <td align="right">17.31</td> <td> </td> <td> </td> <td nowrap="nowrap" align="right"> </td> <td align="right">(28,544</td> <td nowrap="nowrap">)</td> <td> </td> <td> </td> <td align="right">22.85</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Options cancelled </div></td> <td> </td> <td nowrap="nowrap" align="right"> </td> <td align="right">(160</td> <td nowrap="nowrap">)</td> <td> </td> <td> </td> <td align="right">28.28</td> <td> </td> <td> </td> <td nowrap="nowrap" align="right"> </td> <td align="right">(3,416</td> <td nowrap="nowrap">)</td> <td> </td> <td> </td> <td align="right">29.47</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> </td> <td> </td> <td colspan="15" align="left" style="border-top: 1px solid #000000"> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Options outstanding, ending </div></td> <td> </td> <td> </td> <td align="right">1,079,022</td> <td> </td> <td> </td> <td align="right">$</td> <td align="right">23.35</td> <td> </td> <td> </td> <td> </td> <td align="right">797,377</td> <td> </td> <td> </td> <td align="right">$</td> <td align="right">29.89</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> </td> <td> </td> <td colspan="15" align="left" style="border-top: 3px double #000000"> </td> </tr>  </table> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">The following table summarizes the status of stock options outstanding and exercisable at June 30, 2011: </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="40%"> </td> <td width="5%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="3%"> </td> <td width="5%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="3%"> </td> <td width="5%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="3%"> </td> <td width="5%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="3%"> </td> <td width="5%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="3%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="3">Exercisable</td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="3">Weighted</td> <td> </td> <td nowrap="nowrap" align="center" colspan="3">Outstanding</td> <td> </td> <td nowrap="nowrap" align="center" colspan="3">Exercisable</td> <td> </td> <td nowrap="nowrap" align="center" colspan="3">Options –</td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="3">Average</td> <td> </td> <td nowrap="nowrap" align="center" colspan="3">Options –</td> <td> </td> <td nowrap="nowrap" align="center" colspan="3">Options –</td> <td> </td> <td nowrap="nowrap" align="center" colspan="3">Weighted</td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="3">Remaining</td> <td> </td> <td nowrap="nowrap" align="center" colspan="3">Weighted</td> <td> </td> <td nowrap="nowrap" align="center" colspan="3">Number of</td> <td> </td> <td nowrap="nowrap" align="center" colspan="3">Average</td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="3">Number of</td> <td> </td> <td nowrap="nowrap" align="center" colspan="3">Contractual</td> <td> </td> <td nowrap="nowrap" align="center" colspan="3">Average</td> <td> </td> <td nowrap="nowrap" align="center" colspan="3">Exercisable</td> <td> </td> <td nowrap="nowrap" align="center" colspan="3">Exercise</td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td nowrap="nowrap" align="left">Range of Exercise Price</td> <td> </td> <td nowrap="nowrap" align="center" colspan="3">Outstanding Options</td> <td> </td> <td nowrap="nowrap" align="center" colspan="3">Life</td> <td> </td> <td nowrap="nowrap" align="center" colspan="3">Exercise Price</td> <td> </td> <td nowrap="nowrap" align="center" colspan="3">Options</td> <td> </td> <td nowrap="nowrap" align="center" colspan="3">Price</td> </tr>   <tr style="font-size: 1px"> <td> </td> <td> </td> <td colspan="19" align="left" style="border-top: 1px solid #000000"> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">$15.55 to $21.76 </div></td> <td> </td> <td> </td> <td align="right">198,247</td> <td> </td> <td> </td> <td> </td> <td align="right">2.81</td> <td> </td> <td> </td> <td align="right">$</td> <td align="right">18.97</td> <td> </td> <td> </td> <td> </td> <td align="right">147,295</td> <td> </td> <td> </td> <td align="right">$</td> <td align="right">18.57</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">$21.77 to $27.15 </div></td> <td> </td> <td> </td> <td align="right">173,340</td> <td> </td> <td> </td> <td> </td> <td align="right">2.73</td> <td> </td> <td> </td> <td align="right">$</td> <td align="right">25.57</td> <td> </td> <td> </td> <td> </td> <td align="right">115,165</td> <td> </td> <td> </td> <td align="right">$</td> <td align="right">25.63</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">$27.16 to $35.20 </div></td> <td> </td> <td> </td> <td align="right">213,553</td> <td> </td> <td> </td> <td> </td> <td align="right">3.09</td> <td> </td> <td> </td> <td align="right">$</td> <td align="right">30.17</td> <td> </td> <td> </td> <td> </td> <td align="right">97,495</td> <td> </td> <td> </td> <td align="right">$</td> <td align="right">30.36</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">$35.20 to $49.56 </div></td> <td> </td> <td> </td> <td align="right">212,237</td> <td> </td> <td> </td> <td> </td> <td align="right">4.63</td> <td> </td> <td> </td> <td align="right">$</td> <td align="right">43.33</td> <td> </td> <td> </td> <td> </td> <td align="right">13,638</td> <td> </td> <td> </td> <td align="right">$</td> <td align="right">37.51</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> </td> <td> </td> <td colspan="19" align="left" style="border-top: 1px solid #000000"> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Total </div></td> <td> </td> <td> </td> <td align="right">797,377</td> <td> </td> <td> </td> <td> </td> <td align="right">3.35</td> <td> </td> <td> </td> <td align="right">$</td> <td align="right">29.89</td> <td> </td> <td> </td> <td> </td> <td align="right">373,593</td> <td> </td> <td> </td> <td align="right">$</td> <td align="right">24.51</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> </td> <td> </td> <td colspan="19" align="left" style="border-top: 3px double #000000"> </td> </tr>  </table> </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif"> <div align="center" style="font-size: 10pt; margin-top: 0pt"> <b> </b> </div> <div align="left" style="font-size: 10pt; margin-top: 0pt"> <b> <u> </u> </b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     A summary of the status for all outstanding options at June 30, 2011, and changes during the three months then ended, is presented in the table below: </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="52%"> </td> <td width="5%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="3%"> </td> <td width="5%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="3%"> </td> <td width="5%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="3%"> </td> <td width="5%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="3%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="3">Weighted Average</td> <td> </td> <td nowrap="nowrap" align="center" colspan="3">Aggregate</td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="3">Weighted Average</td> <td> </td> <td nowrap="nowrap" align="center" colspan="3">Remaining Contractual</td> <td> </td> <td nowrap="nowrap" align="center" colspan="3">Intrinsic Value as</td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="3">Number of Options</td> <td> </td> <td nowrap="nowrap" align="center" colspan="3">Exercise Per Share</td> <td> </td> <td nowrap="nowrap" align="center" colspan="3">Life (Years)</td> <td> </td> <td nowrap="nowrap" align="center" colspan="3">of June 30, 2011</td> </tr>   <tr style="font-size: 1px"> <td> </td> <td> </td> <td colspan="15" align="left" style="border-top: 1px solid #000000"> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td nowrap="nowrap"> <div style="margin-left:15px; text-indent:-15px">Options outstanding at April 1, 2011 </div></td> <td> </td> <td> </td> <td align="right">813,662</td> <td> </td> <td> </td> <td align="right">$</td> <td align="right">29.26</td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Granted </div></td> <td> </td> <td> </td> <td align="right">15,675</td> <td> </td> <td> </td> <td> </td> <td align="right">49.56</td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Exercised </div></td> <td> </td> <td nowrap="nowrap" align="right"> </td> <td align="right">(28,544</td> <td nowrap="nowrap">)</td> <td> </td> <td> </td> <td align="right">22.85</td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Cancelled — forfeited </div></td> <td> </td> <td nowrap="nowrap" align="right"> </td> <td align="right">(2,928</td> <td nowrap="nowrap">)</td> <td> </td> <td> </td> <td align="right">33.24</td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Cancelled — expired </div></td> <td> </td> <td nowrap="nowrap" align="right"> </td> <td align="right">(488</td> <td nowrap="nowrap">)</td> <td> </td> <td> </td> <td align="right">14.84</td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr style="font-size: 1px"> <td> </td> <td> </td> <td colspan="7" align="left" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Ending outstanding </div></td> <td> </td> <td> </td> <td align="right">797,377</td> <td> </td> <td> </td> <td align="right">$</td> <td align="right">29.89</td> <td> </td> <td> </td> <td> </td> <td align="right">3.35</td> <td> </td> <td> </td> <td align="right">$</td> <td align="right">13,608,574</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> </td> <td> </td> <td colspan="15" align="left" style="border-top: 3px double #000000"> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Ending vested and expected to vest </div></td> <td> </td> <td> </td> <td align="right">731,991</td> <td> </td> <td> </td> <td align="right">$</td> <td align="right">29.14</td> <td> </td> <td> </td> <td> </td> <td align="right">3.28</td> <td> </td> <td> </td> <td align="right">$</td> <td align="right">13,032,835</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> </td> <td> </td> <td colspan="15" align="left" style="border-top: 3px double #000000"> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Ending exercisable at June 30, 2011 </div></td> <td> </td> <td> </td> <td align="right">373,593</td> <td> </td> <td> </td> <td align="right">$</td> <td align="right">24.51</td> <td> </td> <td> </td> <td> </td> <td align="right">2.64</td> <td> </td> <td> </td> <td align="right">$</td> <td align="right">8,364,683</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> </td> <td> </td> <td colspan="15" align="left" style="border-top: 3px double #000000"> </td> </tr>  </table> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The weighted-average grant-date fair value of options granted during the three months ended June 30, 2010 and 2011, was $15.27 and $20.31, respectively. </div> </div>

<div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 6pt"><b><u>Note C — Treasury Stock and Subsequent Event</u></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The Company’s Board of Directors initially approved the commencement of a share repurchase program in the fall of 1996. In May 2010, the Board approved an 850,000 share expansion of the repurchase program to 15,000,000 shares over the life of the share repurchase program. Since the commencement of the share repurchase program, the Company has spent $253 million to repurchase 14,568,693 shares of its common stock, equal to 56% of the outstanding common stock had there been no repurchases. The average price of these repurchases is $17.34 per share. These purchases have been funded primarily from the net earnings of the Company, along with the proceeds from the exercise of common stock options. During the three months ended June 30, 2011, the Company repurchased 77,530 shares for $3.7 million. The Company had 11,578,208 shares of common stock outstanding as of June 30, 2011, net of the 14,568,693 shares in treasury. Subsequent to the end of the quarter, through July 28, 2011, the Company repurchased 46,090 shares of common stock for $2.2 million or $48.66 a share. </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif"> <div align="center" style="font-size: 10pt; margin-top: 0pt"> <b> </b> </div> </div>

<div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 6pt"><u><b>Note D — Weighted Average Shares and Net Income Per Share</b></u> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Weighted average basic common and common equivalent shares decreased from 11,957,000 for the quarter ended June 30, 2010 to 11,617,000 for the quarter ended June 30, 2011. Weighted average diluted common and common equivalent shares decreased from 12,187,000 for the quarter ended June 30, 2010 to 11,787,000 for the quarter ended June 30, 2011. The net decrease in both of these weighted share calculations is due to the repurchase of common stock as noted above, offset by an increase in shares outstanding due to the exercise of stock options under the Company’s employee stock option plan. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Net income per common and common equivalent shares was computed by dividing net income by the weighted average number of common and common stock equivalents outstanding during the quarter. The calculations of the basic and diluted weighted shares for the three months ended June 30, 2010 and 2011, are as follows: </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="76%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">Three Months Ended June 30,</td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td> <td> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Net Income </div></td> <td> </td> <td align="left">$</td> <td align="right">7,760,000</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">8,198,000</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px"><b>Basic:</b> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Weighted average common shares outstanding </div></td> <td> </td> <td> </td> <td align="right">11,957,000</td> <td> </td> <td> </td> <td> </td> <td align="right">11,617,000</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Net Income per share </div></td> <td> </td> <td align="left">$</td> <td align="right">0.65</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">0.71</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px"><b>Diluted:</b> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Weighted average common shares outstanding </div></td> <td> </td> <td> </td> <td align="right">11,957,000</td> <td> </td> <td> </td> <td> </td> <td align="right">11,617,000</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Treasury stock impact of stock options </div></td> <td> </td> <td> </td> <td align="right">230,000</td> <td> </td> <td> </td> <td> </td> <td align="right">170,000</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Total common and common equivalent shares </div></td> <td> </td> <td> </td> <td align="right">12,187,000</td> <td> </td> <td> </td> <td> </td> <td align="right">11,787,000</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Net Income per share </div></td> <td> </td> <td align="left">$</td> <td align="right">0.64</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">0.70</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr>  </table> </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif"> <div align="center" style="font-size: 10pt; margin-top: 0pt"> <b> </b> </div> </div>

<div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 6pt"><b><u>Note E — Shareholder Rights Plan</u></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     During fiscal 1997, the Company’s Board of Directors approved the adoption of a Shareholder Rights Plan. The Shareholder Rights Plan provides for a dividend distribution to CorVel stockholders of one preferred stock purchase right for each outstanding share of CorVel’s common stock under certain circumstances. In November 2008, the Company’s Board of Directors approved an amendment to the Shareholder Rights Plan to extend the expiration date of the rights to February 10, 2022, and set the exercise price of each right at $118. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The rights are designed to assure that all shareholders 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. The rights have an exercise price of $118 per right, subject to subsequent adjustment. The rights trade with the Company’s common stock and will not be exercisable until the occurrence of certain takeover-related events. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Generally, the Shareholder Rights Plan provides that if a person or group acquires 15% or more of the Company’s common stock without the approval of the Board, subject to certain exceptions, the holders of the rights, other than the acquiring person or group, would, under certain circumstances, have the right to purchase additional shares of the Company’s common stock having a market value equal to two times the then-current exercise price of the right. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     In addition, if the Company is thereafter merged into another entity, or if 50% or more of the Company’s consolidated assets or earning power are sold, then the right will entitle its holder to buy common shares of the acquiring entity having a market value equal to two times the then-current exercise price of the right. The Company’s Board of Directors may exchange or redeem the rights under certain conditions. </div> </div>

<div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 6pt"><b><u>Note F — Other Intangible Assets</u></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     Other intangible assets consist of the following at June 30, 2011: </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="40%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="5%"> </td> <td width="1%"> </td> <td width="3%"> </td> <td width="3%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Cost, Net of</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Three Months Ended</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Accumulated</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Accumulated</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>June 30, 2011</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Amortization at</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Amortization at</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td nowrap="nowrap" align="left"><b>Item</b></td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Life</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Cost</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Amortization Expense</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>June 30, 2011</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>June 30, 2011</b></td> <td> </td> </tr>   <tr style="font-size: 1px"> <td colspan="21" align="left" style="border-top: 1px solid #000000"> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Covenants Not to Compete </div></td> <td> </td> <td nowrap="nowrap" colspan="3" align="center">5 Years</td> <td> </td> <td align="right">$</td> <td align="right">775,000</td> <td> </td> <td> </td> <td align="right">$</td> <td align="right">39,000</td> <td> </td> <td> </td> <td align="right">$</td> <td align="right">553,000</td> <td> </td> <td> </td> <td align="right">$</td> <td align="right">222,000</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Customer Relationships </div></td> <td> </td> <td nowrap="nowrap" colspan="3" align="center">18-20 Years</td> <td> </td> <td> </td> <td align="right">7,922,000</td> <td> </td> <td> </td> <td> </td> <td align="right">106,000</td> <td> </td> <td> </td> <td> </td> <td align="right">1,714,000</td> <td> </td> <td> </td> <td> </td> <td align="right">6,208,000</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">TPA Licenses </div></td> <td> </td> <td colspan="3" align="center">15 Years</td> <td> </td> <td> </td> <td align="right">204,000</td> <td> </td> <td> </td> <td> </td> <td align="right">3,000</td> <td> </td> <td> </td> <td> </td> <td align="right">53,000</td> <td> </td> <td> </td> <td> </td> <td align="right">151,000</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td colspan="15" align="left" style="border-top: 1px solid #000000"> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Total </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td align="right">$</td> <td align="right">8,901,000</td> <td> </td> <td> </td> <td align="right">$</td> <td align="right">148,000</td> <td> </td> <td> </td> <td align="right">$</td> <td align="right">2,320,000</td> <td> </td> <td> </td> <td align="right">$</td> <td align="right">6,581,000</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td colspan="15" align="left" style="border-top: 3px double #000000"> </td> </tr>  </table> </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif"> <div align="center" style="font-size: 10pt; margin-top: 0pt"> <b> </b> </div> </div>

<div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 6pt"><u><b>Note G — Line of Credit</b></u> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     In June 2010, the Company renewed a credit agreement that had been in place throughout fiscal 2011 and the quarter ended June 30, 2011. The line is with a financial institution to provide a revolving credit facility with borrowing capacity of up to $10 million. Borrowings under this agreement, as amended, bear interest, at the Company’s option, at a fixed LIBOR-based rate plus 1.50% or at a fluctuating rate determined by the financial institution to be 1.50% above the daily one-month LIBOR rate. The loan covenants require the Company to maintain the current assets to liabilities ratio of at least 1.25:1, debt to tangible net worth not greater than 1.25:1 and have positive net income. There were no outstanding revolving loans at any time during fiscal 2011 or the quarter ended June 30, 2011, or as of the date hereof, but letters of credit in the aggregate amount of $6.3 million have been issued separate from the line of credit and therefore do not reduce the amount of borrowings available under the revolving credit facility. The renewed credit agreement expires in September 2011. </div> </div>

<div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 6pt"><u><b>Note H — Contingencies, Litigation and Subsequent Event</b></u> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     On March 25, 2011, George Raymond Williams, MD. (“Williams”), as plaintiff, individually and on behalf of those similarly situated, filed a First Amended and Restated Petition for Damages and Class Certification in the 27<sup style="font-size: 85%; vertical-align: text-top">th</sup> Judicial District Court, Parish of St. Landry, Louisiana, against CorVel Corporation (“CorVel”) and its insurance carriers, Homeland Insurance Company of New York and Executive Risk Specialty Insurance Company and several other unrelated parties. Williams alleges that CorVel violated Louisiana’s Any Willing Provider Act (the “AWPA”), which requires a payor accessing a preferred provider contract to give 30 days’ advance written notice or point of service notice in the form of a benefit card before the payor accesses the discounted rates in the contract to pay the provider for services rendered to an insured under that payor’s health benefit plan. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     On March 31, 2011, CorVel entered into a Memorandum of Understanding with attorneys representing the plaintiffs and the class setting forth the terms of settlement of this class action lawsuit. The Memorandum of Understanding provides that subject to the execution of a mutually acceptable settlement agreement and final non-appealable approval of such settlement by the Louisiana state court, CorVel will pay $9 million to resolve claims for which CorVel recorded a $9 million pre-tax charge to earnings during the March 2011 quarter. In addition, CorVel will assign to the class certain rights it has to the proceeds of CorVel’s insurance policies relating to the claims asserted by the class. The class action arbitration filed with the American Arbitration Association against CorVel in December 2006 by Southwest Louisiana Hospital Association dba Lake Charles Memorial Hospital as previously disclosed by CorVel is encompassed within the settlement terms of the Memorandum of Understanding. Pursuant to the Memorandum of Understanding, the parties have also agreed to request that the appropriate courts stay all related proceedings in State and Federal Court, as well as the Louisiana Office of Workers Compensation and the arbitration proceeding before the American Arbitration Association in which the parties are named, until the settlement agreement is prepared, executed and receives final court approval. The settlement does not constitute an admission of liability. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     On June 23, 2011 CorVel and class counsel executed a definitive settlement agreement. The settlement agreement contains the same terms and conditions as were set forth in the Memorandum of Understanding. Accordingly, CorVel made a $9 million cash payment into escrow on July 6, 2011. As set forth in the settlement agreement, certain contingencies such as preliminary court approval, resolutions of objections filed by class members challenging the fairness of the settlement, class members excluded from the settlement not exceeding a materiality threshold, and final court approval, must be satisfied before the settlement become final. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     On June 23, 2011, the 27<sup style="font-size: 85%; vertical-align: text-top">th</sup> Judicial District Court for the Parish of St. Landry, Louisiana granted preliminary approval of settlement. Notice of the settlement is being given to Class Members. The Court has set a deadline of October 16, 2011 for parties to opt out of or object to the proposed settlement. The Court has set the hearing for final approval on November 4, 2011. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     In exchange for the settlement payment by CorVel, class members will release CorVel and all of its affiliates and clients for any claims relating in any way to re-pricing, payment for, or reimbursement of a workers’ compensation bill, including but not limited to claims under the AWPA. Plaintiffs have also agreed to a notice procedure that CorVel may follow in the future to comply with the AWPA. As noted, the Memorandum of Understanding is contingent upon the execution of a mutually acceptable definitive settlement agreement. Under Louisiana law, once the parties have executed such a settlement agreement, they must apply to the court for approval of the settlement following a court-supervised process of notice to the class and an opportunity for the class to be heard about the fairness of the settlement or to be excluded from the settlement. CorVel expects to be able to arrive at such a definitive settlement agreement by the end of June 2011, but there can be no assurance that the parties will be able to reach a definitive settlement agreement within that timeframe or at all, that the court will approve the settlement or that a large number of class members will not opt out of the settlement. If a definitive settlement agreement is not reached or is not approved by the court, all related proceedings in State and Federal Court, as well as the Louisiana Office of Workers Compensation and the arbitration proceeding before the American Arbitration Association that have been stayed pending settlement will resume. </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif"> <div align="center" style="font-size: 10pt; margin-top: 0pt"> <b> </b> </div> <div align="left" style="font-size: 10pt; margin-top: 0pt"> <b> <u> </u> </b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     In February 2005, Kathleen Roche, D.C., as plaintiff, filed a putative class action in Circuit Court for the 20th Judicial District, St. Clair County, Illinois, against the Company. The case sought unspecified damages based on the Company’s alleged failure to direct patients to medical providers who were members of the CorVel CorCare PPO network and also alleged that the Company used biased and arbitrary computer software to review medical providers’ bills. On October 29, 2010, the Company entered into a settlement agreement providing for the payment of $2.1 million to class members and up to an additional $700,000 for attorneys’ fees and expenses, and as a result the Company accrued $2.8 million of estimated liability for this settlement agreement during the quarter ended September 30, 2010. Initial payments were sent to class members on July 18, 2011. The Company denies that its conduct was improper in any way and has denied all liability. In exchange for the settlement payment by the Company, class members consisting of Illinois medical providers (excluding hospitals) have released the Company and all of its affiliates for claims relating to any PPO or usual and customary reductions recommended by the Company on class members’ medical bills. On January 21, 2011, the Circuit Court gave final approval to the settlement and awarded class counsel $700,000 in attorneys’ fees and expenses and a $5,000 incentive award to Kathleen Roche, the class representative. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The Company is involved in other litigation arising in the normal course of business. Management believes that resolution of these matters will not result in any payment that, in the aggregate, would be material to the financial position or results of the operations of the Company. </div> </div>

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Consolidated Balance Sheets (Parenthetical) (USD $)	Jun. 30, 2011	Mar. 31, 2011
Stockholders' Equity
Common stock, par value	$ 0.0001	$ 0.0001
Common stock, shares authorized	60,000,000	60,000,000
Common stock, shares outstanding	11,578,208	11,630,921
Common stock, shares issued	26,146,901	26,122,084
Treasury stock, shares	14,568,693	14,491,163

- Definition

Total number of shares of common stock held by shareholders. May be all or portion of the number of common shares authorized. These shares represent the ownership interest of the common shareholders. Shares outstanding equals shares issued minus shares held in treasury and other adjustments, if any.

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Consolidated Income Statements (Unaudited) (USD $)	3 Months Ended
Consolidated Income Statements (Unaudited) (USD $)	Jun. 30, 2011	Jun. 30, 2010
Consolidated Income Statements [Abstract]
REVENUES	$ 102,307,000	$ 91,503,000
Cost of revenues	76,764,000	67,700,000
Gross profit	25,543,000	23,803,000
General and administrative expenses	12,294,000	11,486,000
Income before income tax provision	13,249,000	12,317,000
Income tax provision	5,051,000	4,557,000
NET INCOME	$ 8,198,000	$ 7,760,000
Net income per common and common equivalent share
Basic	$ 0.71	$ 0.65
Diluted	$ 0.70	$ 0.64
Weighted average common and common equivalent
Basic	11,617,000	11,957,000
Diluted	11,787,000	12,187,000

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Document and Entity Information (USD $)	3 Months Ended
Document and Entity Information (USD $)	Jun. 30, 2011	Jul. 28, 2011	Sep. 30, 2010
Document and Entity Information [Abstract]
Entity Registrant Name	CORVEL CORP
Entity Central Index Key	0000874866
Document Type	10-Q
Document Period End Date	Jun. 30, 2011
Amendment Flag	false
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q1
Current Fiscal Year End Date	--03-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Public Float			$ 276,324,000
Entity Common Stock, Shares Outstanding		11,548,983

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Line of Credit	3 Months Ended
Line of Credit	Jun. 30, 2011
Line of Credit [Abstract]
Line of Credit	Note G — Line of Credit In June 2010, the Company renewed a credit agreement that had been in place throughout fiscal 2011 and the quarter ended June 30, 2011. The line is with a financial institution to provide a revolving credit facility with borrowing capacity of up to $10 million. Borrowings under this agreement, as amended, bear interest, at the Company’s option, at a fixed LIBOR-based rate plus 1.50% or at a fluctuating rate determined by the financial institution to be 1.50% above the daily one-month LIBOR rate. The loan covenants require the Company to maintain the current assets to liabilities ratio of at least 1.25:1, debt to tangible net worth not greater than 1.25:1 and have positive net income. There were no outstanding revolving loans at any time during fiscal 2011 or the quarter ended June 30, 2011, or as of the date hereof, but letters of credit in the aggregate amount of $6.3 million have been issued separate from the line of credit and therefore do not reduce the amount of borrowings available under the revolving credit facility. The renewed credit agreement expires in September 2011.

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

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Treasury Stock and Subsequent Event	3 Months Ended
Treasury Stock and Subsequent Event	Jun. 30, 2011
Treasury Stock and Subsequent Event [Abstract]
Treasury Stock and Subsequent Event	Note C — Treasury Stock and Subsequent Event The Company’s Board of Directors initially approved the commencement of a share repurchase program in the fall of 1996. In May 2010, the Board approved an 850,000 share expansion of the repurchase program to 15,000,000 shares over the life of the share repurchase program. Since the commencement of the share repurchase program, the Company has spent $253 million to repurchase 14,568,693 shares of its common stock, equal to 56% of the outstanding common stock had there been no repurchases. The average price of these repurchases is $17.34 per share. These purchases have been funded primarily from the net earnings of the Company, along with the proceeds from the exercise of common stock options. During the three months ended June 30, 2011, the Company repurchased 77,530 shares for $3.7 million. The Company had 11,578,208 shares of common stock outstanding as of June 30, 2011, net of the 14,568,693 shares in treasury. Subsequent to the end of the quarter, through July 28, 2011, the Company repurchased 46,090 shares of common stock for $2.2 million or $48.66 a share.

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Contingencies, Litigation and Subsequent Event	3 Months Ended
Contingencies, Litigation and Subsequent Event	Jun. 30, 2011
Contingencies, Litigation and Subsequent Event [Abstract]
Contingencies, Litigation and Subsequent Event	Note H — Contingencies, Litigation and Subsequent Event On March 25, 2011, George Raymond Williams, MD. (“Williams”), as plaintiff, individually and on behalf of those similarly situated, filed a First Amended and Restated Petition for Damages and Class Certification in the 27^th Judicial District Court, Parish of St. Landry, Louisiana, against CorVel Corporation (“CorVel”) and its insurance carriers, Homeland Insurance Company of New York and Executive Risk Specialty Insurance Company and several other unrelated parties. Williams alleges that CorVel violated Louisiana’s Any Willing Provider Act (the “AWPA”), which requires a payor accessing a preferred provider contract to give 30 days’ advance written notice or point of service notice in the form of a benefit card before the payor accesses the discounted rates in the contract to pay the provider for services rendered to an insured under that payor’s health benefit plan. On March 31, 2011, CorVel entered into a Memorandum of Understanding with attorneys representing the plaintiffs and the class setting forth the terms of settlement of this class action lawsuit. The Memorandum of Understanding provides that subject to the execution of a mutually acceptable settlement agreement and final non-appealable approval of such settlement by the Louisiana state court, CorVel will pay $9 million to resolve claims for which CorVel recorded a $9 million pre-tax charge to earnings during the March 2011 quarter. In addition, CorVel will assign to the class certain rights it has to the proceeds of CorVel’s insurance policies relating to the claims asserted by the class. The class action arbitration filed with the American Arbitration Association against CorVel in December 2006 by Southwest Louisiana Hospital Association dba Lake Charles Memorial Hospital as previously disclosed by CorVel is encompassed within the settlement terms of the Memorandum of Understanding. Pursuant to the Memorandum of Understanding, the parties have also agreed to request that the appropriate courts stay all related proceedings in State and Federal Court, as well as the Louisiana Office of Workers Compensation and the arbitration proceeding before the American Arbitration Association in which the parties are named, until the settlement agreement is prepared, executed and receives final court approval. The settlement does not constitute an admission of liability. On June 23, 2011 CorVel and class counsel executed a definitive settlement agreement. The settlement agreement contains the same terms and conditions as were set forth in the Memorandum of Understanding. Accordingly, CorVel made a $9 million cash payment into escrow on July 6, 2011. As set forth in the settlement agreement, certain contingencies such as preliminary court approval, resolutions of objections filed by class members challenging the fairness of the settlement, class members excluded from the settlement not exceeding a materiality threshold, and final court approval, must be satisfied before the settlement become final. On June 23, 2011, the 27^th Judicial District Court for the Parish of St. Landry, Louisiana granted preliminary approval of settlement. Notice of the settlement is being given to Class Members. The Court has set a deadline of October 16, 2011 for parties to opt out of or object to the proposed settlement. The Court has set the hearing for final approval on November 4, 2011. In exchange for the settlement payment by CorVel, class members will release CorVel and all of its affiliates and clients for any claims relating in any way to re-pricing, payment for, or reimbursement of a workers’ compensation bill, including but not limited to claims under the AWPA. Plaintiffs have also agreed to a notice procedure that CorVel may follow in the future to comply with the AWPA. As noted, the Memorandum of Understanding is contingent upon the execution of a mutually acceptable definitive settlement agreement. Under Louisiana law, once the parties have executed such a settlement agreement, they must apply to the court for approval of the settlement following a court-supervised process of notice to the class and an opportunity for the class to be heard about the fairness of the settlement or to be excluded from the settlement. CorVel expects to be able to arrive at such a definitive settlement agreement by the end of June 2011, but there can be no assurance that the parties will be able to reach a definitive settlement agreement within that timeframe or at all, that the court will approve the settlement or that a large number of class members will not opt out of the settlement. If a definitive settlement agreement is not reached or is not approved by the court, all related proceedings in State and Federal Court, as well as the Louisiana Office of Workers Compensation and the arbitration proceeding before the American Arbitration Association that have been stayed pending settlement will resume. In February 2005, Kathleen Roche, D.C., as plaintiff, filed a putative class action in Circuit Court for the 20th Judicial District, St. Clair County, Illinois, against the Company. The case sought unspecified damages based on the Company’s alleged failure to direct patients to medical providers who were members of the CorVel CorCare PPO network and also alleged that the Company used biased and arbitrary computer software to review medical providers’ bills. On October 29, 2010, the Company entered into a settlement agreement providing for the payment of $2.1 million to class members and up to an additional $700,000 for attorneys’ fees and expenses, and as a result the Company accrued $2.8 million of estimated liability for this settlement agreement during the quarter ended September 30, 2010. Initial payments were sent to class members on July 18, 2011. The Company denies that its conduct was improper in any way and has denied all liability. In exchange for the settlement payment by the Company, class members consisting of Illinois medical providers (excluding hospitals) have released the Company and all of its affiliates for claims relating to any PPO or usual and customary reductions recommended by the Company on class members’ medical bills. On January 21, 2011, the Circuit Court gave final approval to the settlement and awarded class counsel $700,000 in attorneys’ fees and expenses and a $5,000 incentive award to Kathleen Roche, the class representative. The Company is involved in other litigation arising in the normal course of business. Management believes that resolution of these matters will not result in any payment that, in the aggregate, would be material to the financial position or results of the operations of the Company.

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Basis of Presentation and Summary of Significant Accounting Policies	3 Months Ended
	Jun. 30, 2011
Basis of Presentation and Summary of Significant Accounting Policies [Abstract]
Basis of Presentation and Summary of Significant Accounting Policies	Note A — Basis of Presentation and Summary of Significant Accounting Policies The unaudited financial statements herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. The accompanying interim financial statements have been prepared under the presumption that users of the interim financial information have either read or have access to the audited financial statements for the latest fiscal year ended March 31, 2011. Accordingly, footnote disclosures which would substantially duplicate the disclosures contained in the March 31, 2011 audited financial statements have been omitted from these interim financial statements. During fiscal 2011, the Company implemented Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 855-10-05 through 885-10-55, Subsequent Events as amended by ASU 2010-09. This standard establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. In accordance with ASU 2010-09 the Company evaluated all subsequent events or transactions. During the period subsequent to June 30 and through August 3, 2011 the Company repurchased 46,090 shares for $2.2 million or approximately $48.66 per share. These shares were repurchased under the Company’s ongoing share repurchase program described in Note C. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. 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, 2011 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2012. For further information, refer to the consolidated financial statements and footnotes for the fiscal year ended March 31, 2011 included in the Company’s Annual Report on Form 10-K. Basis of Presentation: The consolidated financial statements include the accounts of CorVel and its subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation. Use of Estimates: The preparation of financial statements in compliance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the accompanying financial statements. Actual results could differ from those estimates. Significant estimates include the values assigned to intangible assets, capitalized software development, the allowance for doubtful accounts, accrual for income taxes, purchase price allocation for acquisitions, and accrual for self-insurance reserves loss contingencies, share-based payments related to performance based awards, estimated claims for claims administration revenue recognition, and estimates used in stock option valuations. Cash and Cash Equivalents: Cash and cash equivalents consist of short-term highly-liquid investment-grade interest-bearing securities with maturities of 90 days or less when purchased. Fair Value of Financial Instruments: The Company applies ASC 820, “Fair Value Measurements and Disclosures” with respect to fair value measurements of (a) nonfinancial assets and liabilities that are recognized or disclosed at fair value in the Company’s Consolidated Financial Statements on a recurring basis (at least annually) and (b) all financial assets and liabilities. ASC 820 prioritizes the inputs used in measuring fair value into the following hierarchy: Level 1 Quoted market prices in active markets for identical assets or liabilities; Level 2 Observable inputs other than those included in Level 1 (for example, quoted prices for similar assets in active markets or quoted prices for identical assets in inactive markets); and Level 3 Unobservable inputs reflecting management’s own assumptions about the inputs used in estimating the value of the asset. The carrying amount of the Company’s financial instruments (i.e. cash, accounts receivable, accounts payable, etc.) approximate their fair values due to the short term nature of the instruments at March 31, 2011 and June 30, 2011. The Company has no Level 2 or Level 3 assets. Goodwill: The Company accounts for its business combinations in accordance with FASB ASC 805-10 through ASC 805-50 Business Combinations which requires that the purchase method of accounting be applied to all business combinations and addresses the criteria for initial recognition of intangible assets and goodwill. In accordance with FASB ASC 350-10 through ASC 350-30, goodwill and other intangible assets with indefinite lives are not amortized but are tested for impairment annually, or more frequently if circumstances indicate the possibility of impairment. If the carrying value of goodwill or an intangible asset exceeds its fair value, an impairment loss shall be recognized. The Company’s goodwill impairment test is conducted company-wide and the fair value is compared to its carrying value. The measurement of fair value is based on an evaluation of market capitalization and is further tested using a multiple of earnings approach. For all periods presented, no material impairment existed and, accordingly, no loss was recognized. Revenue Recognition: The Company recognizes revenue when there is persuasive evidence of an arrangement, the services have been provided to the customer, the sales price is fixed or determinable, and collectability is reasonably assured. For the Company’s services, as the Company’s professional staff performs work, they are contractually permitted to bill for fees earned in fraction of an hour increments worked or by units of production. The Company recognizes revenue as the time is worked or as units of production are completed, which is when the revenue is earned and realized. Labor costs are recognized as the costs are incurred. The Company derives the majority of its revenue from the sale of Network Solutions and Patient Management services. Network Solutions and Patient Management services may be sold individually or combined with any of the services the Company provides. When a sale combines multiple elements, the Company accounts for multiple element arrangements in accordance with the guidance included in ASC 605-25. In accordance with ASC 605-25, the Company allocates revenue for transactions or collaborations that include multiple elements to each unit of accounting based on its relative fair value, and recognizes revenue for each unit of accounting when the revenue recognition criteria have been met. The price charged when the element is sold separately generally determines fair value. When our customers purchase several products from CorVel, the pricing of the products sold is generally the same as if the product were sold on an individual basis. As a result, the fair value of each product sold in a multiple element arrangement is almost always determinable. The Company recognizes revenue for delivered elements when the delivered elements have standalone value and the Company has objective and reliable evidence of fair value for each undelivered element. If the fair value of any undelivered element included in a multiple element arrangement cannot be objectively determined, revenue is deferred until all elements are delivered and services have been performed, or until fair value can objectively be determined for any remaining undelivered elements. Based upon the nature of our products, bundled products are generally delivered in the same accounting period. In October 2009, the FASB issued Accounting Standards Update No. 2009-13, Multiple Deliverable Revenue Arrangements—a consensus of FASB Emerging Issues Task Force (“ASU 2009-13”). ASU 2009-13 provides for less restrictive separation criteria that must be met for a deliverable to be considered a separate unit of accounting. Additionally, under this Standard, there is a hierarchy for determining the selling price of a unit of accounting and consideration must be allocated using a relative-selling price method. ASU 2009-13 was be effective for CorVel Corporation on April 1, 2011. We reviewed the requirements of ASU 2009-13 and determined the pronouncement had no material impact on our financial position or results of operations. Accounts Receivable: The majority of the Company’s accounts receivable are due from companies in the property and casualty insurance industries, self-insured employers, and government entities. Accounts receivable are due within 30 days and are stated as amounts due from customers net of an allowance for doubtful accounts. Those accounts outstanding longer than the contractual payment terms are considered past due. The Company determines its allowance by considering a number of factors, including the length of time trade accounts receivable are past due, the Company’s previous loss history, the customer’s current ability to pay its obligation to the Company and the condition of the general economy and the industry as a whole. No one customer accounted for 10% or more of accounts receivable at either March 31, 2011 or June 30, 2011. No one customer accounted for 10% or more of revenue during either of the three month periods ended June 30, 2010 or 2011. Property and Equipment: Additions to property and equipment are recorded at cost. Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the related assets, which range from one to seven years. The Company accounts for internally developed software costs in accordance with FASB ASC 350-40, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use, which allows for the capitalization of software developed for internal use. These costs are included in computer software in property and equipment and are amortized over a period of five years. Long-Lived Assets: The carrying amount of all long-lived assets is evaluated periodically to determine if adjustment to the depreciation and amortization period or to the unamortized balance is warranted. Such evaluation is based principally on the expected utilization of the long-lived assets and the projected, undiscounted cash flows of the operations in which the long-lived assets are deployed. Income Taxes: The Company provides for income taxes under the liability method. Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities as measured by the enacted tax rates which are expected to be in effect when these differences reverse. Income tax expense is the tax payable for the period and the change during the period in net deferred tax assets and liabilities. The balance of the unrecognized tax benefits as of March 31, 2011 and June 30, 2011 was $1,608,000 and $1,503,000, respectively. Earnings Per Share: Earnings per common share-basic is based on the weighted average number of common shares outstanding during the period. Earnings per common shares-diluted is based on the weighted average number of common shares and common share equivalents outstanding during the period. In calculating earnings per share, earnings are the same for the basic and diluted calculations. Weighted average shares outstanding decreased in the June 2011 quarter compared to the same quarter of the prior year primarily due to repurchase of shares under the Company’s share repurchase program. See also Note D.

- Definition

The entire disclosure for organization, consolidation and basis of presentation of financial statements disclosure.

+ References

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Weighted Average Shares and Net Income Per Share

3 Months Ended

Jun. 30, 2011

Weighted Average Shares and Net Income Per Share [Abstract]

Weighted Average Shares and Net Income Per Share

Note D — Weighted Average Shares and Net Income Per Share


	Three Months Ended June 30,
	2010		2011
Net Income	$	7,760,000	$	8,198,000


Basic:
Weighted average common shares outstanding		11,957,000		11,617,000

Net Income per share	$	0.65	$	0.71


Diluted:
Weighted average common shares outstanding		11,957,000		11,617,000
Treasury stock impact of stock options		230,000		170,000

Total common and common equivalent shares		12,187,000		11,787,000

Net Income per share	$	0.64	$	0.70

- Definition

The entire disclosure for earnings per share.

+ References+ Details

XML 21 R10.htm IDEA: XBRL DOCUMENT

Shareholder Rights Plan	3 Months Ended
Shareholder Rights Plan	Jun. 30, 2011
Shareholder Rights Plan [Abstract]
Shareholder Rights Plan	Note E — Shareholder Rights Plan During fiscal 1997, the Company’s Board of Directors approved the adoption of a Shareholder Rights Plan. The Shareholder Rights Plan provides for a dividend distribution to CorVel stockholders of one preferred stock purchase right for each outstanding share of CorVel’s common stock under certain circumstances. In November 2008, the Company’s Board of Directors approved an amendment to the Shareholder Rights Plan to extend the expiration date of the rights to February 10, 2022, and set the exercise price of each right at $118. The rights are designed to assure that all shareholders 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. The rights have an exercise price of $118 per right, subject to subsequent adjustment. The rights trade with the Company’s common stock and will not be exercisable until the occurrence of certain takeover-related events. Generally, the Shareholder Rights Plan provides that if a person or group acquires 15% or more of the Company’s common stock without the approval of the Board, subject to certain exceptions, the holders of the rights, other than the acquiring person or group, would, under certain circumstances, have the right to purchase additional shares of the Company’s common stock having a market value equal to two times the then-current exercise price of the right. In addition, if the Company is thereafter merged into another entity, or if 50% or more of the Company’s consolidated assets or earning power are sold, then the right will entitle its holder to buy common shares of the acquiring entity having a market value equal to two times the then-current exercise price of the right. The Company’s Board of Directors may exchange or redeem the rights under certain conditions.

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Other Intangible Assets

3 Months Ended

Jun. 30, 2011

Other Intangible Assets [Abstract]

Other Intangible Assets

Note F — Other Intangible Assets

Other intangible assets consist of the following at June 30, 2011:


								Cost, Net of
				Three Months Ended		Accumulated		Accumulated
				June 30, 2011		Amortization at		Amortization at
Item	Life	Cost		Amortization Expense		June 30, 2011		June 30, 2011

Covenants Not to Compete	5 Years	$	775,000	$	39,000	$	553,000	$	222,000
Customer Relationships	18-20 Years		7,922,000		106,000		1,714,000		6,208,000
TPA Licenses	15 Years		204,000		3,000		53,000		151,000

Total		$	8,901,000	$	148,000	$	2,320,000	$	6,581,000

- Definition

The entire disclosure for all or part of the information related to intangible assets.

+ References+ Details

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Consolidated Statements of Cash Flows (Unaudited) (USD $)	3 Months Ended
	Jun. 30, 2011	Jun. 30, 2010
Cash flows from Operating Activities
NET INCOME	$ 8,198,000	$ 7,760,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	3,396,000	2,861,000
Loss on disposal of assets	67,000	141,000
Stock compensation expense	658,000	590,000
Write-off of uncollectible accounts	616,000	730,000
Changes in operating assets and liabilities
Accounts receivable	(465,000)	(2,173,000)
Customer deposits	931,000	(548,000)
Prepaid taxes and expenses	(242,000)	2,459,000
Other assets	(63,000)	212,000
Accounts and taxes payable	4,803,000	739,000
Accrued liabilities	(2,526,000)	(1,629,000)
Deferred income tax	(194,000)	(223,000)
Net cash provided by operating activities	15,179,000	10,919,000
Cash Flows from Investing Activities
Purchase of property and equipment	(6,963,000)	(5,090,000)
Net cash (used in) investing activities	(6,963,000)	(5,090,000)
Cash Flows from Financing Activities
Purchase of treasury stock	(3,673,000)	(5,469,000)
Tax effect of stock option exercises	284,000	248,000
Exercise of common stock options	481,000	592,000
Net cash (used in) financing activities	(2,908,000)	(4,629,000)
Increase in cash and cash equivalents	5,308,000	1,200,000
Cash and cash equivalents at beginning of period	12,269,000	10,242,000
Cash and cash equivalents at end of period	17,577,000	11,442,000
Supplemental Cash Flow Information:
Income taxes paid	291,000	827,000
Purchase of software license under finance agreement		$ 1,700,000

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Stock Based Compensation and Stock Options

3 Months Ended

Jun. 30, 2011

Stock Based Compensation and Stock Options [Abstract]

Stock Based Compensation and Stock Options

Note B — Stock Based Compensation and Stock Options


	Three Months Ended June 30,
	2010			2011
Risk-free interest rate		2.15	%		1.88	%
Expected volatility		46	%		46	%
Expected dividend yield		0.00	%		0.00	%
Expected forfeiture rate		9.05	%		9.30	%
Expected weighted average life of option in years	4.8 years			4.7 years

All options granted in the three months ended June 30, 2010 and 2011 were granted at fair market value and are non-statutory stock options.


	Three Months Ended
	June 30, 2010			June 30, 2011
Cost of revenues	$	134,000		$	126,000
General and administrative		456,000			532,000


Total cost of stock-based compensation included in income before income tax provision		590,000			658,000
Amount of income tax benefit recognized		(218,000	)		(256,000	)

Amount charged against net income	$	372,000		$	402,000

Effect on diluted net income per share	$	(0.03	)	$	(0.03	)

Summarized information for all stock options for the three months ended June 30, 2010 and 2011 follows:


	Three Months Ended June 30, 2010					Three Months Ended June 30, 2011
	Shares			Average Price		Shares			Average Price

Options outstanding, beginning		1,065,403		$	22.57		813,662		$	29.26
Options granted		48,000			36.55		15,675			49.56
Options exercised		(34,221	)		17.31		(28,544	)		22.85
Options cancelled		(160	)		28.28		(3,416	)		29.47

Options outstanding, ending		1,079,022		$	23.35		797,377		$	29.89

The following table summarizes the status of stock options outstanding and exercisable at June 30, 2011:


									Exercisable
			Weighted		Outstanding		Exercisable		Options –
			Average		Options –		Options –		Weighted
			Remaining		Weighted		Number of		Average
	Number of		Contractual		Average		Exercisable		Exercise
Range of Exercise Price	Outstanding Options		Life		Exercise Price		Options		Price

$15.55 to $21.76		198,247		2.81	$	18.97		147,295	$	18.57
$21.77 to $27.15		173,340		2.73	$	25.57		115,165	$	25.63
$27.16 to $35.20		213,553		3.09	$	30.17		97,495	$	30.36
$35.20 to $49.56		212,237		4.63	$	43.33		13,638	$	37.51

Total		797,377		3.35	$	29.89		373,593	$	24.51

A summary of the status for all outstanding options at June 30, 2011, and changes during the three months then ended, is presented in the table below:


						Weighted Average		Aggregate
				Weighted Average		Remaining Contractual		Intrinsic Value as
	Number of Options			Exercise Per Share		Life (Years)		of June 30, 2011

Options outstanding at April 1, 2011		813,662		$	29.26
Granted		15,675			49.56
Exercised		(28,544	)		22.85
Cancelled — forfeited		(2,928	)		33.24
Cancelled — expired		(488	)		14.84

Ending outstanding		797,377		$	29.89		3.35	$	13,608,574

Ending vested and expected to vest		731,991		$	29.14		3.28	$	13,032,835

Ending exercisable at June 30, 2011		373,593		$	24.51		2.64	$	8,364,683

The weighted-average grant-date fair value of options granted during the three months ended June 30, 2010 and 2011, was $15.27 and $20.31, respectively.

- Definition

The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
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Consolidated Balance Sheets (USD $)

Jun. 30, 2011

Mar. 31, 2011

Current Assets

Cash and cash equivalents (Note A) $ 17,577,000 $ 12,269,000

Customer deposits 4,348,000 5,279,000

Accounts receivable, net 48,813,000 48,964,000

Prepaid taxes and expenses 6,659,000 6,417,000

Deferred income taxes 9,485,000 9,298,000

Total current assets 86,882,000 82,227,000

Property and equipment, net 42,148,000 38,500,000

Goodwill 36,769,000 36,769,000

Other intangibles, net (Note F) 6,581,000 6,729,000

Other assets 70,000 0

TOTAL ASSETS 172,450,000 164,225,000

Current Liabilities

Accounts and taxes payable 19,393,000 14,590,000

Accrued liabilities 37,722,000 40,248,000

Total current liabilities 57,115,000 54,838,000

Deferred income taxes 9,748,000 9,748,000

Commitments and contingencies (Note G and H)

Stockholders' Equity

Common stock, $.0001 par value: 60,000,000 shares authorized; 26,122,084 shares issued (11,630,921 shares outstanding, net of Treasury shares) and 26,146,901 shares issued (11,578,208 shares outstanding, net of Treasury shares) at March 31, 2011 and June 30, 2011, respectively 3,000 3,000

Paid-in capital 101,496,000 100,073,000

Treasury Stock (14,491,163 shares at March 31, 2011 and 14,568,693 shares at June 30, 2011) (252,604,000) (248,931,000)

Retained earnings 256,692,000 248,494,000

Total stockholders' equity 105,587,000 99,639,000

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 172,450,000 $ 164,225,000

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Large accelerated filer o

Accelerated filer þ

Non-accelerated filer o

Smaller Reporting Company o

(do not check if smaller reporting company)

Consolidated Balance Sheets (USD $)	Jun. 30, 2011	Mar. 31, 2011
Current Assets
Cash and cash equivalents (Note A)	$ 17,577,000	$ 12,269,000
Customer deposits	4,348,000	5,279,000
Accounts receivable, net	48,813,000	48,964,000
Prepaid taxes and expenses	6,659,000	6,417,000
Deferred income taxes	9,485,000	9,298,000
Total current assets	86,882,000	82,227,000
Property and equipment, net	42,148,000	38,500,000
Goodwill	36,769,000	36,769,000
Other intangibles, net (Note F)	6,581,000	6,729,000
Other assets	70,000	0
TOTAL ASSETS	172,450,000	164,225,000
Current Liabilities
Accounts and taxes payable	19,393,000	14,590,000
Accrued liabilities	37,722,000	40,248,000
Total current liabilities	57,115,000	54,838,000
Deferred income taxes	9,748,000	9,748,000
Commitments and contingencies (Note G and H)
Stockholders' Equity
Common stock, $.0001 par value: 60,000,000 shares authorized; 26,122,084 shares issued (11,630,921 shares outstanding, net of Treasury shares) and 26,146,901 shares issued (11,578,208 shares outstanding, net of Treasury shares) at March 31, 2011 and June 30, 2011, respectively	3,000	3,000
Paid-in capital	101,496,000	100,073,000
Treasury Stock (14,491,163 shares at March 31, 2011 and 14,568,693 shares at June 30, 2011)	(252,604,000)	(248,931,000)
Retained earnings	256,692,000	248,494,000
Total stockholders' equity	105,587,000	99,639,000
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 172,450,000	$ 164,225,000