=============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-K/A-1
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-29026
ENSTAR INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1831611
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6479 City West Parkway
Eden Prairie, Minnesota 55344
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612) 941-3200
----------------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.25 PAR VALUE
Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and
Exchange Act of 1934 during the preceding twelve months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes ( X ) No ( )
The aggregate market value of the common stock held by
non-affiliates of the registrant at March 19, 1997 was approximately
$7.6 million based on the last sale price for the common stock as
reported by the National Association of Securities Dealers Automated Quotation
System on that date.
At March 19, 1997, 3,306,000 shares of the registrant's common
stock were outstanding.
- Cover Page 1 of 2 -
---------------------
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE:
Certain portions of the documents listed below have been
incorporated by reference into the indicated part of this Form 10-KA.
Document Incorporated Part of Form 10-KA
--------------------- ------------------
Proxy Statement for 1997 Items 10, 11, 12 & 13
Annual Meeting of Shareholders
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K/A-1. (()
- Cover Page 2 of 2 -
---------------------
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
(i)ENStar Inc.
Consolidated Statements of Operations F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Shareholders' Equity F-4
Consolidated Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-6 to F-13
Report of Independent Certified Public Accountants F-14
Report of Independent Certified Public Accountants on Schedule F-15
Schedule II - Valuation and Qualifying Accounts F-16
(ii) CorVel Corporation
Report of Independent Auditors S-1
Consolidated Statements of Income S-2
Consolidated Balance Sheets S-3
Consolidated Statements of Stockholders' Equity S-4
Consolidated Statements of Cash Flows S-5
Notes to Consolidated Financial Statements S-6 to S-16
Schedule II - Valuation and Qualifying Accounts S-17
All other schedules are omitted because they are not applicable, or not
required, or because the required information is included in the consolidated
financial statements or notes thereto.
<PAGE>
3. EXHIBITS
<TABLE>
<C> <S>
2.1 Agreement and Plan of Reorganization, dated as of December 21,
1995, by and among North Star Universal, Inc., Michael Foods, Inc. and
NSU Merger Co. (filed as exhibit 2 to the Company's Registration
Statement on Form S-4, Registration No. 333-1925 and incorporated
herein by reference (schedules omitted -- the Company agrees to
furnish a copy of any schedule to the Commission upon request).
3.1 Articles of Incorporation of the Company (filed as Exhibit 3.1
to the Company's Registration Statement on Form S-4, Registration No.
333-1925 and incorporated herein by reference).
3.2 Bylaws of the Company (filed as Exhibit 3.2 to the Company's
to the Company's Registration Statement on Form S-4, Registration No.
333-1925 and incorporated herein by reference).
4.1 Indenture, dated as of November 7, 1996, between the Company
and National City Bank of Minneapolis, as trustee (filed as Exhibit
4.1 to the Company's Registration Statement on Form S-1, Registration
No. 333-12301 and incorporated herein by reference).
10.1 1996 Stock Incentive Plan, including forms of option
agreements (filed as exhibit 10.15 to the Company's Registration
Statement on Form S-4, Registration No. 333-1925, and incorporated
herein by reference).
10.2 Sixth Amendment to Amended and Restated Loan and Security
Agreement, dated August 9, 1996, among Americable, Inc., Transition
Networks, Inc., Cable Distribution Systems, Inc., and First Bank
National Association, amending the terms of the Amended and Restated
Loan and Security Agreement (filed as exhibit 10.1 to the Company's
Registration Statement on Form S-4, Registration No. 333-1925, and
incorporated herein by reference).
10.3 Lease Agreement dated June 13, 1995 between Transition and
West Life & Annuity Insurance Company for lease of premises at 6475
City West Parkway, Eden Prairie, Minnesota. (Filed as exhibit 10.11
to the Company's Registration Statement on Form S-4, Registration No.
333-1925, and incorporated herein by reference).
10.4 Lease Agreement dated February 21, 1989 between Americable
and Ryan/Flying Cloud Associates Limited Partnership, including
amendments thereto, for the lease of premises at 7450 Flying Cloud
Drive, Eden Prairie, Minnesota. (Filed as exhibit 10.12 to the
Company's Registration Statement on Form S-4, Registration No. 333-
1925, and incorporated herein by reference).
<PAGE>
10.5 Distribution Agreement between North Star Universal, Inc.,
and the Company. (Filed as an exhibit to Agreement and Plan of
Reorganization, dated as of December 21, 1995, by and among North Star
Universal, Inc., Michael Foods, Inc. and NSU Merger Co., which
agreement was filed as exhibit 2 to the Company's Registration
Statement on Form S-4, Registration No. 333-1925, and is incorporated
herein by reference).
10.6 Commercial Lease Agreement between Americable, Inc. and
LaSalle National Trust (filed as exhibit 10.4 to the Quarterly Report
on Form 10-Q of North Star Universal, Inc. for the quarter ended
September 30, 1996 and incorporated herein by reference).
10.7 Commercial Lease Agreement between Americable, Inc. and
Petroleum, Inc. (filed as exhibit 10.3 to the Quarterly Report on Form
10-Q of North Star Universal, Inc. for the quarter ended June 30, 1996
and incorporated herein by reference).
+10.8 Separation and General Release, dated February 17, 1997,
between Americable and Gary L. Eizenga.
12 Computation of Ratio of Earnings to Fixed Charges.
21.1 Subsidiaries of the Company.
*24.1 Consent of Independent Auditors - Ernst & Young LLP
27.1 Financial Data Schedule.
99.1 Cautionary Statement Regarding Forward Looking Statements.
</TABLE>
- -------------------------
+Management contract or compensatory plan or arrangement required to
be filed as an exhibit to this Annual Report on Form 10-K pursuant to
Item 601(b)(10)(iii)(A) of Regulation S-K.
*Filed with this Amendment No. 1 to Annual Report on Form 10-K/A-1.
(b) Reports on Form 8-K. One report for Form 8-K was filed by the Company
on June 25, 1997 to report the Company's plan for a modified "Dutch Auction"
self-tender offer for up to 600,000 shares of ENStar Inc.'s common stock.
(c) See the Exhibits set forth above.
(d) See the Consolidated Financial Statements and the Financial Statement
Schedule of CorVel Corporation attached as a separate section of the
Amendment No. 1 to the Company's report on Form 10-K/A-1.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: June 30, 1997 ENSTAR INC.
By /s/ Jeffrey J. Michael
---------------------------------
Jeffrey J. Michael
President and Chief Executive Officer
<PAGE>
Orange County, California
June 28, 1996
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
CorVel Corporation
We have audited the accompanying consolidated balance sheets of CorVel
Corporation as of March 31, 1996 and 1997, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the
three years in the period ended March 31, 1997. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These financial
statements and this schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of CorVel Corporation at March 31, 1996 and 1997, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended March 31, 1997, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule
when considered in relationship to the basic financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
/s/ ERNST & YOUNG LLP
Orange County, California
May 8, 1997
-S1-
<PAGE>
<TABLE>
<CAPTION>
CORVEL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Years Ended March 31
------------------------------------------
1995 1996 1997
------------------------------------------
<S> <C> <C> <C>
REVENUES $ 95,783,000 $109,052,000 $121,704,000
COSTS AND EXPENSES
Cost of revenues 78,950,000 88,937,000 99,323,000
General and administrative 7,186,000 8,106,000 8,645,000
------------------------------------------
86,136,000 97,043,000 107,968,000
------------------------------------------
Income before income taxes 9,647,000 12,009,000 13,736,000
Income tax provision 3,762,000 4,684,000 5,220,000
------------------------------------------
NET INCOME $ 5,885,000 $ 7,325,000 $ 8,516,000
==========================================
Net income per common
and common equivalent share $ 1.30 $ 1.57 $ 1.82
==========================================
Weighted average common
and common equivalent
shares outstanding 4,542,000 4,674,000 4,689,000
==========================================
See accompanying notes to consolidated financial statements
</TABLE>
-S2-
<PAGE>
<TABLE>
<CAPTION>
CORVEL CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31
---------------------------
1996 1997
---------------------------
<S> <C> <C>
ASSETS
Current Assets $ 17,113,000 $ 15,665,000
Accounts receivable (less allowance
for doubtful accounts of $1,268,000
in 1996 and $1,686,000 in 1997) 18,394,000 22,294,000
Prepaid taxes and expenses 545,000 124,000
Deferred income taxes 2,032,000 1,746,000
---------------------------
Total current assets 38,084,000 39,829,000
---------------------------
Property and equipment, net 11,468,000 13,100,000
Other assets 4,432,000 5,895,000
---------------------------
$ 53,984,000 $ 58,824,000
===========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts and taxes payable $ 3,057,000 $ 6,603,000
Accrued liabilities 4,246,000 4,630,000
---------------------------
Total current liabilities 7,303,000 11,233,000
---------------------------
Deferred income taxes 1,370,000 1,504,000
Commitments and Contingencies
Stockholders' Equity
Common Stock, $.0001 par value: 20,000,000
shares authorized; 4,593,675 and 4,697,853
shares issued and outstanding in 1996 and
1997, respectively
Paid-in Captial 26,401,000 28,122,000
Treasury Stock, at cost (no shares in 1996,
357,000 shares in 1997) --- (9,461,000)
Retained Earnings 18,910,000 27,426,000
---------------------------
Total stockholders' equity 45,311,000 46,087,000
---------------------------
$ 53,984,000 $ 58,824,000
===========================
See accompanying notes to consolidated financial statements
-S3-
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CORVEL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended March 31, 1995, 1996, and 1997
Common
stock and Treasury Total
Common paid in Treasury shares- Retained stockholders'
stock-shares capital shares cost earnings equity
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance - March 31, 1994 4,071,195 $ 21,625,000 --- $ --- $ 5,700,000 $27,325,000
Stock issued under
employee stock purchase
plan 19,634 374,000 --- --- --- 374,000
Stock issued under
employee stock option
plan and related income
tax benefits 147,421 2,170,000 --- --- --- 2,170,000
Net income --- --- --- --- 5,885,000 5,885,000
---------------------------------------------------------------------------
Balance - March 31, 1995 4,238,250 $ 24,169,000 --- --- $11,585,000 $35,754,000
----------------------------------------------------------------------------
Stock issued under
employee stock purchase
plan 18,384 444,000 --- --- --- 444,000
Stock issued under
employee stock option
plan and related income
tax benefits, net of
shares repurchased upon
exercise 337,041 1,788,000 --- --- --- 1,788,000
Net income --- --- --- --- 7,325,000 7,325,000
---------------------------------------------------------------------------
Balance - March 31, 1996 4,593,675 $ 26,401,000 --- --- $18,910,000 $45,311,000
---------------------------------------------------------------------------
Stock issued under
employee stock purchase
plan 23,039 536,000 --- --- --- 536,000
Stock issued under
employee stock option
plan and related income
tax benefits, 81,139 1,185,000 --- --- --- 1,185,000
Purchase of Common Stock --- --- (357,000) (9,461,000) --- (9,461,000)
Net income --- --- --- --- 8,516,000 8,516,000
---------------------------------------------------------------------------
Balance - March 31, 1997 4,697,853 $ 28,122,000 357,000 $(9,461,000)$27,426,000 $46,087,000
===========================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
-S4-
<PAGE>
<TABLE>
<CAPTION>
CORVEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended March 31
----------------------------------------
1995 1996 1997
----------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 5,885,000 $ 7,325,000 $ 8,516,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 2,335,000 3,048,000 4,215,000
Deferred income taxes (44,000) (79,000) 420,000
Loss on write down and disposal
of property and equipment 39,000 23,000 96,000
Changes in operating assets
and liabilities:
Accounts receivable (2,657,000) (2,526,000) (3,900,000)
Prepaid taxes and expenses 795,000 (363,000) 421,000
Accounts and taxes payable 27,000 700,000 3,546,000
Accrued liabilities 538,000 (382,000) 384,000
Other assets (425,000) (511,000) (1,607,000)
----------------------------------------
Net cash provided by operating activities 6,493,000 7,235,000 12,091,000
----------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (4,219,000) (5,565,000) (5,799,000)
----------------------------------------
Net cash used in investing activities (4,219,000) (5,565,000) (5,799,000)
----------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds and tax benefits from
exercise of stock options 2,544,000 2,232,000 1,721,000
Purchase of common stock --- --- (9,461,000)
----------------------------------------
Net cash provided by (used in)
financing activities 2,544,000 2,232,000 (7,740,000)
----------------------------------------
Net increase (decrease) in cash
and cash equivalents 4,818,000 3,902,000 (1,448,000)
Cash and cash equivalents at beginning of year 8,393,000 13,211,000 17,113,000
----------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 13,211,000 $ 17,113,000 $ 15,665,000
========================================
See accompanying notes to consolidated financial statements
</TABLE>
-S5-
<PAGE>
CorVel Corporation
Notes to Consolidated Financial Statements
March 31, 1997
NOTE A - Summary of Significant Accounting Policies
Organization: CorVel Corporation (CorVel or the Company) provides
services and programs nationwide that are designed to enable insurance
carriers, third party administrators and employers with self-insured programs
to administer, manage and control the cost of worker's compensation and other
healthcare benefits.
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 conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the accompanying
financial statements. Actual results could differ from those estimates.
Cash and Cash Equivalents: Cash and cash equivalents consists of
short-term, highly-liquid investments with maturities of 90 days or less when
purchased. The carrying amounts of the Company's financial instruments
approximate their relative fair values at March 31, 1996 and 1997.
Concentrations of Credit Risk: The Company performs periodic credit
evaluations of its customers' financial condition and does not require
collateral. No customer represented 10% of accounts receivable at March 31,
1996 and 1997. Receivables generally are due within 60 days. Credit losses
relating to customers in the workers compensation insurance industry
consistently have been within management's expectations.
Property and Equipment: Additions to property and equipment are recorded
at cost. Depreciation and amortization are provided using the straight-line
and accelerated methods over the estimated useful lives of the related assets
which range from three to seven 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 unamoretized 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.
Other Assets: Other assets consists primarily of the excess of the
purchase price over the estimated fair value of the net assets of businesses
acquired (goodwill) and is being amortized using the straight-line method over
periods not exceeding 40 years. Goodwill amounted to $3,636,000 (net of
accumulated amortization of $754,000) at March 31, 1996 and 4,886,000 (net of
accumulated amortization of $898,000) at March 31, 1997.
-S6-
<PAGE>
CorVel Corporation
Notes to Consolidated Financial Statements
March 31, 1997
(Continued)
NOTE A - Summary of Significant Accounting Policies (continued)
Revenue Recognition: The Company's revenues are recognized primarily as
services are rendered based on time and expenses incurred. A certain portion
of the Company's revenues are derived from fee schedule auditing which is
based on the number of provider charges audited and, to a limited extent, on a
percentage of savings achieved for the Company's clients. Accounts receivable
includes $1,527,000 and $1,580,000 of unbilled receivables at March 31, 1996
and 1997, respectively. No one customer accounted for more than 10% of
consolidated revenues during the years ended March 31, 1995, 1996 and 1997.
Income Taxes: The consolidated financial statements reflect the
application of Statement of Financial Accounting Standards No. 109 -
"Accounting for Income Taxes".
Income Per Share: Income per share is computed by dividing net income
by the weighted average number of common and common equivalent shares
outstanding during the year. In February 1997, the Financial Accounting
Standards Board issued Statement of Financial Account Standards No. 128,
"Earnings Per Share" (SFAS 128). SFAS 128 redefines the standards for
computing earnings per share and is effective for the Company on March 31,
1998. The Company believes adoption of SFAS No. 128 will not have a material
impact on future earnings per share calculations.
Stock Option Plans: Effective April 1, 1996, the Company has adopted the
disclosure-only provisions of Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" (SFAS 123) and accordingly, is
continuing to account for its stock-based compensation plans under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
and related interpretations. The adoption of SFAS No. 123 had no impact on
the Company's consolidated results of operations or financial position.
-S7-
<PAGE>
CorVel Corporation
Notes to Consolidated Financial Statements
March 31, 1997
(Continued)
NOTE B - Property and Equipment
Property and equipment consists of the following at March 31:
<TABLE>
<CAPTION>
1996 1997
-----------------------------
<S> <C> <C>
Office equipment and computers $ 15,542,000 $ 19,875,000
Computer software 4,207,000 5,186,000
Leasehold improvements 613,000 784,000
-----------------------------
20,362,000 25,845,000
Less: accumulated depreciation
and amortization 8,894,000 12,745,000
-----------------------------
$ 11,468,000 $ 13,100,000
=============================
</TABLE>
NOTE C - Accrued Liabilities
<TABLE>
<CAPTION>
Accrued liabilities consists of the following at March 31:
1996 1997
----------------------------
<S> <C> <C>
Payroll and related benefits $ 2,366,000 $ 2,891,000
Self-insurance reserves 737,000 599,000
Other 1,143,000 1,140,000
----------------------------
$ 4,246,000 $ 4,630,000
============================
</TABLE>
-S8-
<PAGE>
CorVel Corporation
Notes to Consolidated Financial Statements
March 31, 1997
NOTE D - Income Taxes
<TABLE>
<CAPTION>
The income tax provision consists of the following for the three years
ended March 31:
1995 1996 1997
----------------------------------------------
<S> <C> <C> <C>
Current - Federal $ 3,172,000 $ 4,405,000 $ 4,212,000
Current - State 634,000 718,000 588,000
Utilization of net
operating loss (538,000) --- ---
----------------------------------------------
3,268,000 4,763,000 4,800,000
----------------------------------------------
Deferred - Federal (37,000) (102,000) 368,000
Deferred - State (7,000) 23,000 52,000
----------------------------------------------
(44,000) (79,000) 420,000
----------------------------------------------
Utilization of net
operating loss carryovers 538,000 --- ---
----------------------------------------------
$ 3,762,000 $ 4,684,000 $ 5,220,000
==============================================
</TABLE>
Income tax benefits associated with the exercise of stock options were
$991,000, $4,245,000 and $228,000 for fiscal 1995, 1996 ,and 1997,
respectively.
<TABLE>
<CAPTION>
The following is a reconciliation of the income tax provision from the
statutory federal income tax rate to the effective rate for the three years
ended March 31:
1995 1996 1997
----------------------------------------------
<S> <C> <C> <C>
Income taxes at federal
statutory rate $ 3,377,000 $ 4,203,000 $ 4,808,000
State income taxes, net
of federal benefit 399,000 446,000 423,000
Goodwill amortization 35,000 37,000 40,000
Other (49,000) (2,000) (51,000)
----------------------------------------------
$ 3,762,000 $ 4,684,000 $ 5,220,000
==============================================
</TABLE>
-S9-
<Page2>
CorVel Corporation
Notes to Consolidated Financial Statements
March 31, 1997
(Continued)
Note D - Income Taxes (continued)
Income taxes paid totaled $1,100,000, $1,193,000 and $1,683,000 for the
years ended March 31, 1995, 1996, and 1997, respectively. At March 31, 1994,
the Company had net operating loss (NOLs) carryforwards of $1,600,000 for
income tax purposes. A valuation allowance of $538,000 was recorded in 1994 to
offset the deferred tax assets related to the NOLs. This $538,000 valuation
allowance was applied to additional paid-in capital in 1995 since the related
NOLs were principally attributable to deductions for the exercise of non-
qualified stock options in 1994.
<TABLE>
<CAPTION>
Deferred taxes at March 31, 1996 and 1997 are:
1996 1997
----------------------------
<S> <C> <C>
Deferred tax assets:
Accrued liabilities not currently deductible $ 1,310,000 $ 939,000
Allowance for doubtful accounts 495,000 580,000
Other 227,000 227,000
----------------------------
Deferred assets $ 2,032,000 $ 1,746,000
Deferred tax liabilities:
Excess of tax under book basis
of fixed assets (1,370,000) (1,504,000)
----------------------------
Deferred liability (1,370,000) (1,504,000)
----------------------------
Net deferred tax asset $ 662,000 $ 242,000
============================
</TABLE>
-S10-
<PAGE>
CorVel Corporation
Notes to Consolidated Financial Statements
March 31, 1997
(Continued)
NOTE E - Stock Option Plans
The Company has elected to follow Accounting Prinicples Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting of its employee stock options because, as
discussed below, the alternative fair value accounting provided for under
SFAS No. 123 requres use of option valuation models that were not developed
for use in valuing employee stock options. Under APB 25, because the exercise
price of the Company's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
Under the Company's Restated 1988 Executive Stock Option Plan, as
amended, options for up to 1,535,000 shares of the Company's common stock may
be granted to key employees, nonemployee directors and consultants at prices
not less than 85% of the fair value of the stock at the date of grant as
determined by the Board. Options granted under the Plan may be either
incentive stock options or non-statutory stock options and are generally
exercisable beginning one year from the date of grant and vest monthly
thereafter for three years. In addition to the aforementioned Plan, the
Company's President was issued an option to purchase 750,000 shares of common
stock at an exercise price of $.0001 per share in January 1988. As of March
31, 1997, all of these options have vested and options to purchase 60,000
shares of common stock are outstanding.
<TABLE>
<CAPTION>
Summarized information for all of the stock options follows:
------------------------------------------
1995 1996 1997
------------------------------------------
<S> <C> <C> <C>
Options outstanding at the
beginning of the year 903,867 827,018 423,411
Options granted 88,850 81,300 126,450
Options exercised (147,421) (468,572) (81,139)
Options cancelled (18,278) (16,335) (12,890)
------------------------------------------
Options outstanding at the
end of the year 827,018 423,411 455,832
==========================================
During the year
Weighted average price of
options granted $ 22.26 $ 25.19 $ 28.48
Weighted average price of
options exercised $ 4.36 $ 2.54 $ 11.71
Weighted average price of
options cancelled $ 15.25 $ 18.40 $ 22.80
At the end of the year:
Prices of outstanding options $.0001- $.0001- $.0001-
$26.50 $31.50 $31.50
Average price per share $ 7.38 $15.73 $19.77
Options available for
future grants 266,988 202,444 288,884
Exercisable options 622,348 242,575 244,881
</TABLE>
-S11-
<PAGE>
CorVel Corporation
Notes to Consolidated Financial Statements
March 31, 1997
(Continued)
NOTE E - Stock Option Plans (continued)
<TABLE>
<CAPTION>
The following table summarizes the status of fixed stock options
outstanding and exercisable at March 31, 1997:
Outstanding Exercisable
Weighted Options- Options-
Average Weighted Weighted
Remaining Average Number of Average
Range of Number of Contractual Exercise Exercisable Exercise
Exercise Prices Options Life Price Options Price
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$.0001-$.0001 60,000 .76 years $.0001 60,000 $.0001
10.75 - 15.00 71,640 .81 years 12.67 69,859 12.72
17.00 - 23.00 148,002 2.70 years 21.07 95,299 20.88
25.50 - 31.50 175,658 5.11 years 28.33 19,723 27.79
----------------------------------------------------------
455,300 3.08 years $19.77 244,881 $13.99
==========================================================
</TABLE>
The Company has adopted the disclosure-only provisions of SFAS No. 123.
Had compensation cost for the Company's stock option and stock purchase plans
been recorded consistent with the provisions of SFAS No. 123, pro forma net
income would have been reduced to $7,251,000 and $8,315,000 from $7,325,000
and $8,516,000 for the years ended March 31, 1996 and 1997, respectively.
Pro forma earnings per share would have been reduced to $1.55 and $1.77 from
$1.56 and $1.82 for the years ended March 31, 1996 and 1997, respectively.
The fair value of each plan is estimated on the date of grant using the
Black-Scholes option-pricing model. The following weighted average
assumptions were used for fiscal 1996: expected volatility of .45; risk free
interest rate of 6.4%. The following weighted average assumptions were used
for fiscal 1997: expected volatility of .41; risk free interest rate of 6.4%.
The assumptions for both years reflect no dividend yield and a weighted average
option life of three years.
-S12-
<PAGE>
CorVel Corporation
Notes to Consolidated Financial Statements
March 31, 1997
(Continued)
NOTE E - Stock Option Plans (continued)
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjecting assumptions including the
expected stock price volatility. Because the Company's employee stock options
have characteristics significantly different from those of traded options,
and because changes in the sujective input assumptions can materially affect
the fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its
employee stock options.
Because SFAS 123 is applicable only to the Company's options granted
subsequent to April 1, 1995, its proforma effect will not be fully reflected
until 1999. The aforementioned results are not likely to be representative
of the effects of applying SFAS 123 on reported net income for future years
as these amounts reflect the expense for only one or two years of vesting.
NOTE F - Employee Stock Purchase Plan
The Company maintains an Employee Stock Purchase Plan which allows
employees of the Company and its subsidiaries to purchase shares of common
stock on the last day of two six-month purchase periods (i.e. March 31 and
September 30) at a purchase price which is 85% of the closing sale price of
shares as quoted on NASDAQ on the first or last day of such purchase period,
whichever is lower. Employees are allowed to participate up to 20% of their
gross pay. A maximum of 150,000 shares has been authorized for issuance under
the plan. As of March 31, 1997, 114,141 shares had been issued pursuant to
the plan.
<TABLE>
<CAPTION>
-S13-
<PAGE>
CorVel Corporation
Notes to Consolidated Financial Statements
March 31, 1997
(Continued)
NOTE F - Employee Stock Purchase Plan (continued)
Summarized plan information is as follows:
------------------------------------------
1995 1996 1997
------------------------------------------
<C> <C> <C>
Employee contributions $ 374,000 $ 444,000 $ 536,000
Shares acquired 19,634 18,384 23,039
Average purchase price $19.02 $24.15 $23.27
</TABLE>
NOTE G - Treasury Stock
In August 1996, the Company announced that its Board of Directors had
approved a plan to repurchase up to 100,000 shares, or approximately 2% of the
Company's then outstanding Common Stock. The Company's Board of Directors
subsequently increased the number of shares authorized to repurchase to a
total 550,000 shares, or approximately 12% of the Company's stock. Through
March 31, 1997, the Company had repurchased 357,000 shares of its common stock
for $9,461,000, at prices ranging from $24.63 to $30.00 per share, with an
average price of $26.50. The stock was recorded as treasury stock, at cost,
and is available for general corporate purposes. The repurchases were
financed from cash generated from operations.
NOTE H - Commitments and Contingencies
The Company leases office facilities under noncancelable operating
leases. Future minimum rental commitments under operating leases at March 31,
1997 are $4,013,000 in fiscal 1998, $2,896,000 in fiscal 1999, $2,166,000 in
fiscal 2000, $1,194,000 in fiscal 2001, $547,000 in fiscal 2002, and $69,000,
thereafter. Total rental expense of $3,559,000, $3,901,000, and $4,573,000
was charged to operations for the years ended March 31, 1995, 1996, and 1997,
respectively.
The Company is involved in litigation arising in the normal course of
business. The Company believes that resolution of these matters will not
result in any payment that, in the aggregate, would be material to the
financial position and results of the operations of the Company.
-S14-
<PAGE>
CorVel Corporation
Notes to Consolidated Financial Statements
March 31, 1997
(Continued)
NOTE I - Savings Plan
The Company maintains a retirement savings plan for its employees which
is a qualified plan under section 401(k) of the Internal Revenue Code. Full-
time employees that meet certain requirements are eligible to participate in
the plan. Contributions are made annually primarily at the discretion of the
Company's Board of Directors. Contributions of $157,000, $50,000, and
$135,000, were charged to operations for the years ended March 31, 1995, 1996,
and 1997, respectively.
NOTE J - Shareholder Rights Plan
During fiscal 1997, the Company's Board of Directors approved the
adoption of a Shareholder Rights Plan. The Rights Plan, which is similar to
rights plans adopted by numerous other public companies, provides for a
dividend distribution to CorVel stockholders of one preferred stock purchase
"Right" for each outstanding share of CorVel's common stock. The Rights are
designed to assure that all stockholders receive fair and equal treatment in
the event of any proposed takeover of the company and to encourage a potential
acquirer to negotiate with the Board of Directors prior to attempting a
takeover. The Rights have an exercise price of $125.00 per Right, subject to
subsequent adjustment. Initially, the Rights will trade with the company's
common stock, and will not be exercisable until the occurrence of certain
takeover-related events. The issuance of the Rights has no dilutive effect on
the Company's earnings per share.
-S15-
<PAGE>
CorVel Corporation
Notes to Consolidated Financial Statements
March 31, 1997
(Continued)
NOTE K - Quarterly Results
<TABLE>
<CAPTION>
The following is a summary of unaudited results of operations for the two
years ended March 31, 1996 and 1997:
Net income
per common Weighted
and common common
Gross Net equivalent equivalent
Revenues Margin income share shares
<S> <C> <C> <C> <C> <C>
Fiscal Year Ended
March 31, 1996:
First Quarter $ 26,779,000 $ 4,856,000 $ 1,701,000 $ .37 4,592,000
Second Quarter 26,863,000 4,989,000 1,818,000 .39 4,661,000
Third Quarter 27,082,000 5,127,000 1,887,000 .40 4,718,000
Fourth Quarter 28,328,000 5,143,000 1,919,000 .41 4,724,000
Fiscal Year Ended
March 31, 1997:
First Quarter $ 29,851,000 $ 5,390,000 $ 2,042,000 $ .43 4,759,000
Second Quarter 29,719,000 5,488,000 2,092,000 .44 4,760,000
Third Quarter 30,441,000 5,681,000 2,177,000 .46 4,736,000
Fourth Quarter 31,693,000 5,822,000 2,205,000 .49 4,501,000
-S16-
<PAGE>
CorVel Corporation
Notes to Consolidated Financial Statements
March 31, 1997
(Continued)
</TABLE>
<TABLE>
<CAPTION>
Schedule II
CORVEL CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
Balance at Charged to Balance at
Beginning Costs and End of
of Year Expenses Deductions Period
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended March 31, 1997: $1,268,000 $1,763,000 $(1,345,000) $1,686,000
Year ended March 31, 1996: 825,000 500,000 (57,000) 1,268,000
Year ended March 31, 1995: 725,000 100,000 --- 825,000
</TABLE>
-S17-
<PAGE>
EXHIBIT 24.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated May 8, 1997, with respect to the
consolidated financial statements and schedule of CorVel Corporation included
in the ENStar Inc. Annual Report (Form 10-K/A-1) for the year ended December
31, 1996.
/s/Ernst & Young LLP
Orange County, California
June 30, 1997
