<PAGE>
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
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, 1993
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-15638
NORTH STAR UNIVERSAL, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-0498850
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
610 Park National Bank Building
5353 Wayzata Boulevard
Minneapolis, Minnesota 55416
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612) 546-7500
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
COMMON STOCK, $.25 PAR VALUE PACIFIC STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
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 ( )
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<PAGE>
The aggregate market value of the common stock held by non-affiliates of
the registrant at March 15, 1994 was $20,776,781, 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 15, 1994, 9,438,000 shares of the registrant's common stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: Pursuant to General Instruction G(2),
the responses to Items 5, 6, 7 and 8 of Part II of this report are incorporated
herein by reference from the Company's Annual Report to Shareholders for the
year ended December 31, 1993.
Pursuant to General Instruction G(3), the responses to Items 10, 11, 12 and
13 of Part III of this report are incorporated herein by reference from the
Company's definitive proxy statement for its 1994 Annual Meeting of Shareholders
to be filed with the Securities and Exchange Commission on or before April 30,
1994.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( X )
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<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) l. FINANCIAL STATEMENTS
The consolidated financial statements of North Star Universal, Inc. and
Subsidiaries as of December 31, 1993 and 1992 and for the three years ended
December 31, 1993 are incorporated herein by reference to "Consolidated
Financial Statements of North Star Universal, Inc. and Subsidiaries" and "Report
of Independent Certified Public Accountants" included in the Company's annual
report to shareholders for the year ended December 31, 1993.
2. FINANCIAL STATEMENTS AND SCHEDULES
(i) North Star Universal, Inc. and Subsidiaries
Report of Independent Certified Public Accountants on Schedules
Schedule VIII - Valuation and Qualifying Accounts
Schedule IX - Short-term Borrowings
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<PAGE>
All other schedules have been omitted because they are not applicable
or not required, or because the required information is included in
the consolidated financial statements or notes thereto.
(ii) Michael Foods, Inc. and Subsidiaries
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Report of Independent Certified Public Accountants
Report of Independent Certified Public Accountants on Schedules
Schedule II - Accounts Receivable from Related Parties
Schedule V - Property, Plant and Equipment
Schedule VI - Accumulated Depreciation, Depletion and
Amortization of Property, Plant and
Equipment
Schedule VIII - Valuation and Qualifying Accounts
Schedule IX - Short-Term Borrowings
Schedule X - Supplementary Income Statement Information
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.
(iii) CorVel Corporation and Subsidiaries
Consolidated Statements of Income
Consolidated Balance Sheets
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Report of Independent Auditors, including Report of Independent
Auditors on Schedules
Schedule II - Amounts Receivable from Related Parties
and Underwriters, Promoters, and
Employees Other than Related Parties
Schedule VIII - Valuation and Qualifying Accounts
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.
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<PAGE>
3. EXHIBITS
3.1 Restated Articles of Incorporation of the Company (filed as Exhibit
3.1 to the Company's Annual Report on form 10-K for the year ended
December 31, 1991 and incorporated herein by reference).
3.2 Restated by-laws of the Company (filed as Exhibit 3(a) to
Registration No. 33-10558 and incorporated herein by reference).
4.1 Form of Indenture, dated as of April 26, 1989, between the Company
and National City Bank of Minneapolis, as trustee (filed as
Exhibit 4.1 to Registration No. 33-26176 and incorporated herein by
reference).
4.2 Form of First Supplemental Indenture, dated as of March 16, 1992,
amending the Indenture described in Exhibit 4.1 above (filed as
Exhibit 4.2 to Registration No. 33-46418 and incorporated herein by
reference).
4.3 Indenture, dated as of December 1, 1986, between the Company and
National City Bank of Minneapolis, as trustee, relating to
$25,000,000 principal amount of Subordinated Debentures Series 87/88
(filed as Exhibit 4.1 to Registration No. 33-10558 and incorporated
herein by reference).
4.4 Indenture, dated as of September, 1985, between the Company and
American National Bank and Trust Company, as trustee, relating to
$14,000,000 principal amount of Subordinated Debentures, Series 1985
(filed as Exhibit 4 to Registration No. 2-99100 and incorporated
herein by reference).
9.1 Voting Agreement, dated May 16, 1991, between the Company and
V. Gordon Clemons, relating to common stock of CorVel Corporation
(filed as Exhibit 9.1 to Registration No. 33-40629 and incorporated
herein by reference).
+10.1 Employment Agreement, dated October 1, 1988, between the Company and
Miles E. Efron (filed as Exhibit 10.1 to Registration No. 33-26176
and incorporated herein by reference).
+10.2 Severance Agreement, dated December 31, 1990, between the Company and
Miles E. Efron (filed as Exhibit 10.1(a) to Registration No. 33-26176
and incorporated herein by reference).
+10.3 North Star Universal, Inc. Incentive Stock Option Plan, including the
form of Stock Option Agreement related thereto (filed as Exhibit
10.19 to Registration No. 33-10558 and incorporated herein by
reference).
+10.4 North Star Universal, Inc. Non-Qualified Stock Option Plan, including
the form of Stock Option Agreement related thereto (filed as Exhibit
10.19 to Registration No. 33-10558 and incorporated herein by
reference).
10.5 Letter Agreement, dated March 25, 1987, between North Star Universal,
Inc. and Michael Foods, Inc., pursuant to which the Company agreed
not to acquire any additional food related businesses as long as it
owns 25% of the capital stock of Michael Foods, Inc. (filed as
Exhibit 10.34 to Registration No. 33-10558 and incorporated herein
by reference).
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<PAGE>
10.6 Restated and Amended Credit Loan Agreement, dated May 17, 1990,
between the Company and First Bank National Association (filed as
Exhibit 19.1 to the Company's quarterly report on Form 10-Q for the
quarter ended June 30, 1990, and incorporated herein by reference).
10.7 Amendment to Restated and Amended Revolving Credit Loan Agreement,
dated January 11, 1991, between the Company and First Bank National
Association, amending the Restated and Amended Revolving Credit Loan
Agreement described in Exhibit 10.6 above (filed as Exhibit 10.11(d)
to Registration No. 33-26176 and incorporated herein by reference).
10.8 Letter Agreement, dated February 28, 1991, amending the terms of the
Amendment to Restated and Amended Revolving Credit Loan Agreement
described in Exhibit 10.7 above (filed as Exhibit 10.11(e) to
Registration No. 33-26176 and incorporated herein by reference).
10.9 Second Amendment to Restated and Amended Revolving Credit Loan
Agreement, dated January 2, 1992, between the Company and First Bank
National Association, amending the Restated and Amended Revolving
Credit Loan Agreement described in Exhibit 10.6 above (filed as
Exhibit 10.2 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1991, and incorporated herein by reference).
10.10 Third Amendment to Restated and Amended Revolving Credit Loan
Agreement, dated November 18, 1992, between the Company and First
Bank National Association, amending the terms of the Restated and
Amended Revolving Credit Loan Agreement described in 10.6 above
(filed as Exhibit 10.12(a) to Registration No. 33-46418 and
incorporated herein by reference).
10.11 Loan Agreement, dated as of May 1, 1989, between the City of Welcome,
Minnesota and Eagle relating to $1,470,000 Industrial Development
Revenue Bonds, Series 1989, Eagle Engineering and Manufacturing
Company, Inc. Project (filed as Exhibit 10.15 to Registration No.
33-26176 and incorporated herein by reference).
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<PAGE>
10.12 Mortgage and Security Agreement, dated as of May 1, 1989, securing
the obligations of Eagle under the Loan Agreement described in
Exhibit 10.11 above, pursuant to which Eagle granted a mortgage to
American National Bank and Trust Company, St. Paul, Minnesota, as
trustee under that certain Indenture, dated as of May 1, 1989,
relating to its facility in Welcome, Minnesota (filed as Exhibit
10.16 to Registration No. 33-26176 and incorporated herein by
reference).
10.13 Guaranty Agreement, dated as of May 1, 1989, executed by the Company
as guarantor, pursuant to which the Company guaranties the
obligations of Eagle under the Loan Agreement described in
Exhibit 10.11 above (filed as Exhibit 10.17 to Registration
No. 33-26176 and incorporated herein by reference).
+10.14 North Star Universal, Inc. 1988 Non-qualified Stock Option Plan, as
amended April 26, 1989 and May 15, 1989, including form of Stock
Option Agreement related thereto (filed as Exhibit 10.18 to
Registration No. 33-26176 and incorporated herein by reference).
10.15 Loan Agreement by and among Americable, certain of Americable's
subsidiaries and First Bank National Association ("First Bank"),
dated May 30, 1991, including promissory notes executed in connection
therewith (filed as Exhibit 10.25 to Registration No. 33-26176 and
incorporated herein by reference).
10.16 Form of Security Agreement, dated May 30, 1991, which was executed by
Americable and certain of its subsidiaries as debtors to secure the
loans described in Exhibit 10.15 above (filed as Exhibit 10.25(a) to
Registration No. 33-26176 and incorporated herein by reference).
10.17 Subordination Agreement executed by the Company and Americable for
the benefit of First Bank in connection with the loans described in
Exhibit 10.15 above (filed as Exhibit 10.25(b) to Registration No.
33-26176 and incorporated herein by reference).
10.18 First Amendment to Loan Agreement and Waiver, dated September 16,
1991, amending the Loan Agreement in Exhibit 10.15 above (filed as
Exhibit 10.7 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1991 and incorporated herein by reference).
10.19 Second Amendment to Loan Agreement, dated May 31, 1992, amending the
Loan Agreement in Exhibit 10.15 above (filed as Exhibit 10.29(a) to
Registration No. 33-46418 and incorporated herein by reference).
-5-
<PAGE>
10.20 Third Amendment to Loan Agreement, dated June 30, 1992, amending the
Loan Agreement in Exhibit 10.15 above (filed as Exhibit 10.29(b) to
Registration No. 33-46418 and incorporated herein by reference).
10.21 Fourth Amendment to Loan Agreement, dated March 12, 1993, amending
the Loan Agreement in Exhibit 10.15 above, including Letter Agreement
pursuant to which First Bank waived Americable's compliance with
certain financial covenants contained in such Loan Agreement (filed
as Exhibit 10.29(c) to Registration No. 33-46418 and incorporated
herein by reference).
+10.22 Employment Agreement, dated April 1, 1993, between the Company,
Transition Engineering, Inc. and Peter E. Flynn.
10.23 Lease, dated July 12, 1990, between C.E. Services, Inc. and Kingsland
Properties, Ltd., relating to the leased facility in Batavia,
Illinois (filed as Exhibit 10.5 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1991 and incorporated
herein by reference).
10.24 Commercial Lease Agreement, dated January 31, 1990, between C.E.
Services, Inc. and Post and Paddock Associates, relating to the
leased facility in Grand Prairie, Texas (filed as Exhibit 10.6 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1991 and incorporated herein by reference).
10.25 Registration Rights Agreement, dated May 16, 1991, between the
Company and FORTIS Corporation (filed as Exhibit 10.17 to
Registration No. 33-40629 and incorporated herein by reference).
10.26 Form of North Star Indemnification Agreement, dated May ___, 1991,
between the Company and FORTIS Corporation (filed as Exhibit 10.20 to
Registration No. 33-40629 and incorporated herein by reference).
10.27 Standstill Agreement, dated May 15, 1991, between the Company and
FORTIS Corporation (filed as Exhibit 10.21 to Registration No. 33-
40629 and incorporated herein by reference).
10.28 Promissory Note, dated June 1, 1991, executed in favor of the Company
by James H. Michael (filed as Exhibit 10.8 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1991 and
incorporated herein by reference).
10.29 Credit Agreement by and between C.E. Services, Inc. and Texas
Commerce Bank, National Association, dated September 30, 1992,
including promissory note and security agreements executed in
connection therewith (filed as Exhibit 10.38 to Registration
No. 33-46418 and incorporated herein by reference).
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<PAGE>
10.30 Purchase and Sale Agreement by and among Leslie C. Malmquist,
Universal Press and Label, Inc. and the Company, dated December 22,
1992, relating to the sale of Universal Press and Label, Inc. (filed
as Exhibit 10.39 to Registration No. 33-46418 and incorporated herein
by reference).
10.31 Amended and Restated Loan and Security Agreement dated June 1, 1993
among Americable, Inc., Transition Engineering, Inc., Cable
Distributions Systems, Inc. and First Bank National Association
(filed as Exhibit 10.31 to the Company's quarterly report on Form
10-Q for the quarter ended June 30, 1993, and incorporated herein by
reference.)
10.32 First Amendment to Credit Agreement, dated as of October 1, 1993, by
and between C.E. Services, Inc. and Texas Commerce Bank, amending the
Credit Agreement in Exhibit 10.29 above (filed as Exhibit 10.41 to
Registration No. 33-46418 and incorporated herein by reference).
10.33 Second Amendment to Credit Agreement, dated as of November 15, 1993,
by and between C.E. Services, Inc. and Texas Commerce Bank, amending
the Credit Agreement in Exhibit 10.29 above (filed as Exhibit 10.42
to Registration No. 33-46418 and incorporated herein by reference).
10.34 Credit Agreement for Discretionary Loans, dated as of July 1, 1993
between C.E. Services, Inc. and Texas Commerce Bank (filed as
Exhibit 10.43 to Registration No. 33-46418 and incorporated herein by
reference).
10.35 First Amendment to Credit Agreement for Discretionary Loans, dated as
of October 1, 1993, by and between C.E. Services, Inc. and Texas
Commerce Bank, amending the Credit Agreement for Discretionary Loans
in Exhibit 10.33 above (filed as Exhibit 10.44 to Registration
Statement No. 33-46418 and incorporated herein by reference).
12.1 Computation of Ratio of Earnings to Fixed Charges for North Star
Universal, Inc. for the year ended December 31, 1991 (filed as
Exhibit 12.1 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1991 and incorporated herein by reference).
12.2 Computation of Ratio of Earnings to Fixed Charges for North Star
Universal, Inc. for the years ended December 31, 1988, 1989 and 1990
(filed as Exhibit 12.1 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1990 and incorporated herein by
reference).
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<PAGE>
12.3 Computation of Ratio of Earnings to Fixed Charges for North Star
Universal, Inc. for the year ended December 31, 1992 (filed as
Exhibit 12.3 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1992 and incorporated herein by reference).
12.4 Computation of Ratio of Earnings to Fixed Charges for North Star
Universal, Inc. for the year ended December 31, 1993.
13.1 1993 Annual Report to Shareholders of North Star Universal, Inc.
22.1 Subsidiaries of the Registrant
23.1 Consent of Independent Certified Public Accountants-Grant Thornton.
*24.1 Consent of Independent Certified Public Accountants-Ernst & Young.
- - --------------------
* Filed with this Amendment Number 1 to Annual Report on Form 10-K/A-1.
+ 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.
(b) Reports on Form 8-K. None.
(c) See the Exhibit Index and Exhibits attached as a separate section of this
report.
(d) See the Financial Statement Schedules of the Company, the Michael Foods,
Inc. and Subsidiaries Consolidated Financial Statements and the Michael
Foods, Inc. Financial Statement Schedules attached as a separate section of
the Company's Annual Report on Form 10-K for the year ended December 31,
1993 and the CorVel Corporation Financial Statements and the CorVel
Corporation Financial Statement Schedules attached as a separate section of
this Amendment Number 1 to the Company's Annual Report on Form 10-K/A-1.
-8-
<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 28, 1994 NORTH STAR UNIVERSAL, INC.
By /s/ Jeffrey J. Michael
------------------------------------------
Jeffrey J. Michael, President and
Chief Executive Officer
<PAGE>
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, 1993 and 1994, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended March 31, 1994. Our audits also included the financial
statement schedules listed in the Index at Item 14 (a). These financial
statements and schedules are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
schedules 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, 1993 and 1994, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended March 31, 1994, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedules when
considered in relationship to the basic financial statements taken as a whole,
present fairly on all matters with respect to the information set forth therein.
ERNST & YOUNG
May 10, 1994
Orange County, California
F-4
<PAGE>
CORVEL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
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1992 1993 1994
---- ---- ----
<S> <C> <C> <C>
REVENUES $46,886,000 $61,846,000 $80,619,000
COSTS AND EXPENSES
Cost of revenues 39,902,000 52,788,000 67,331,000
General and
administrative 4,338,000 4,899,000 6,057,000
Gain from sale of
name, net 3,300,000
Managed care
reconfiguration charge (3,300,000)
----------- ------------ -----------
44,240,000 57,687,000 73,388,000
----------- ------------ -----------
Income before
income taxes 2,646,000 4,159,000 7,231,000
Income tax provision 1,045,000 1,625,000 2,821,000
----------- ------------ -----------
NET INCOME $ 1,601,000 $ 2,534,000 $ 4,410,000
----------- ------------ -----------
----------- ------------ -----------
Net income per common
and common
equivalent share $.43 $.61 $1.01
----------- ------------ -----------
----------- ------------ -----------
Weighted average shares
outstanding 3,751,000 4,128,000 4,369,000
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
CORVEL CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31
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1993 1994
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<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,471,000 $ 8,393,000
Accounts receivable (less
allowance for doubtful
accounts of $485,000 in 1993
and $725,000 in 1994) 11,235,000 13,211,000
Prepaid taxes and expenses 833,000 977,000
Deferred income taxes 1,085,000 1,418,000
----------- -----------
Total current assets 16,624,000 23,999,000
----------- -----------
PROPERTY AND EQUIPMENT, NET 4,856,000 6,926,000
OTHER ASSETS 3,384,000 3,999,000
----------- -----------
$25,314,000 $34,624,000
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,952,000 $ 2,330,000
Accrued liabilities 3,005,000 4,090,000
----------- -----------
Total current liabilities 4,957,000 6,420,000
----------- -----------
Deferred income taxes -- 879,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
COMMON STOCK, $.0001 par value:
20,000,000 shares authorized;
3,706,649 and 4,071,195 shares
issued and outstanding at
March 31, 1993 and 1994,
respectively
PAID IN CAPITAL 19,067,000 21,625,000
RETAINED EARNINGS 1,290,000 5,700,000
----------- -----------
Total stockholders' equity 20,357,000 27,325,000
----------- -----------
$25,314,000 $34,624,000
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to the consolidated financial statements.
F-6
<PAGE>
CORVEL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED COMMON
STOCK STOCK
INVESTMENT PREFERRED COMMON AND SHARE-
SUBJECT TO STOCK STOCK- PAID IN RETAINED HOLDERs'
REDEMPTION INVESTMENT SHARES CAPITAL EARNINGS EQUITY
----------- ----------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance - March 31, 1991 $ 9,900,000 $ 1,639,000 1,500,000 - $(2,845,000) $ 8,694,000
Preferred stock investment 310,000
Initial public offering, net of
$1,728,000 of expenses and
commissions 1,600,000 14,272,000 14,272,000
Repayment of preferred stock
investment subject to redemption (9,900,000) (9,900,000)
Issuance of common stock in
exchange for preferred stock
investment (1,949,000) 75,000 1,949,000
Stock issued under employee stock
purchase plan 6,937 100,000 100,000
Stock issued under employee stock
option plan and related income
tax benefits 231,019 1,240,000 1,240,000
Net income 1,601,000 1,601,000
----------- ----------- --------- ----------- ----------- -----------
Balance - March 31, 1992 -- -- 3,412,956 17,561,000 (1,244,000) 16,317,000
Stock issued under employee stock
purchase plan 25,658 225,000 225,000
Stock issued under employee stock
option plan and related income
tax benefits 268,035 1,281,000 1,281,000
Net income 2,534,000 2,534,000
----------- ----------- --------- ----------- ----------- -----------
Balance - March 31, 1993 -- -- 3,706,649 19,067,000 1,290,000 20,357,000
----------- ----------- --------- ----------- ----------- -----------
Stock issued under employee stock
purchase plan 20,448 295,000 295,000
Stock issued under employee stock
option plan and related income
tax benefits 344,098 2,263,000 2,263,000
Net income 4,410,000 4,410,000
----------- ----------- --------- ----------- ----------- -----------
Balance - March 31, 1994 -- -- 4,071,195 $21,625,000 $ 5,700,000 $27,325,000
----------- ----------- --------- ----------- ----------- -----------
----------- ----------- --------- ----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
CORVEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended March 31
1992 1993 1994
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,601,000 $ 2,534,000 $ 4,410,000
Adjustments to reconcile net income
to net cash provided by (used in) operating activities
Depreciation and amortization 1,074,000 1,099,000 2,363,000
Deferred income taxes (1,744,000) 765,000 546,000
Loss on writedown and disposal of property
and equipment 13,000 2,323,000 75,000
Changes in operating assets and liabilities:
Accounts receivable (2,938,000) (2,782,000) (1,976,000)
Prepaid income taxes and expenses (19,000) (747,000) (144,000)
Accounts payable 629,000 979,000 378,000
Accrued liabilities 429,000 619,000 1,085,000
Deferred gain on sale of name (4,000,000)
Income taxes payable (335,000)
Other assets 11,000 (441,000) 33,000
----------- ----------- -----------
Net cash provided by (used in) operating activities (1,279,000) 349,000 6,770,000
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale of name 4,000,000
Proceeds from the sale of property and equipment 4,000
Purchases of property and equipment (2,507,000) (4,292,000) (4,406,000)
----------- ----------- -----------
Net cash used in investing activities 1,497,000 (4,292,000) (4,406,000)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from initial public offering 14,272,000
Proceeds and tax benefits from exercise of
stock options 1,340,000 1,506,000 2,558,000
Repayment of long-term debt (600,000)
Additional preferred stock investments 310,000
Redemption of preferred stock investment (9,900,000)
----------- ----------- -----------
Net cash provided by (used in) financing activities 5,422,000 1,506,000 2,558,000
----------- ----------- -----------
Increase/(Decrease) in Cash and Cash Equilavents 5,640,000 (2,437,000) 4,922,000
Cash and cash equivalents at beginning of year 268,000 5,908,000 3,471,000
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 5,908,000 $ 3,471,000 $ 8,393,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
CORVEL CORPORATION
Notes to Consolidated Financial Statements
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION: CorVel Corporation (the Company formerly
FORTIS Corporation, see Note D) 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 workers compensation benefits.
BASIS OF PRESENTATION: The consolidated financial
statements include the accounts of CorVel Corporation and
its subsidiaries. Significant intercompany accounts and
transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS: Cash and cash equivalents
consists of short-term highly-liquid investments with
maturities of 90 days or less when purchased.
CONCENTRATIONS OF CREDIT RISK: The Company performs
periodic credit evaluations of its customers' financial
condition and does not require collateral. At March 31,
1993 and 1994, accounts receivable from customers in the
casualty insurance industry were approximately $10,401,000
and $12,277,000, respectively. At March 31, 1993, accounts
receivable from one customer totaled approximately
$1,300,000. No customer represented 10% of accounts
receivable at March 31, 1994. 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: Property and equipment is
stated at cost. Depreciation and amortization is provided
using the straight-line and accelerated methods over the
estimated useful lives of the assets which range from three
to seven years.
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 on a straight-line basis over periods not
exceeding 40 years. Goodwill amounted to $3,287,000 (net of
accumulated amortization of $451,000) at March 31, 1993 and
$3,186,000 (net of accumulated amortization of $552,000) at
March 31, 1994.
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
lesser extent, on a percentage of savings achieved for the
Company's clients. Accounts receivable includes $1,190,000
and $1,206,000 of unbilled receivables at March 31, 1993 and
1994, respectively. No one customer accounted for more
than 10% of consolidated revenues during the years ended
March 31, 1992, 1993 and 1994.
F-9
<PAGE>
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
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.
RECLASSIFICATIONS: Certain 1992 and 1993 amounts
have been reclassified to correspond to the 1994
presentation.
NOTE B -- PROPERTY AND EQUIPMENT
Property and equipment consists of the following at
March 31:
<TABLE>
<CAPTION>
1993 1994
---- ----
<S> <C> <C>
Office equipment and computers $5,448,000 $ 8,002,000
Computer software 1,012,000 2,606,000
Leasehold improvements 169,000 246,000
---------- -----------
6,629,000 10,854,000
Less: accumulated depreciation
and amortization 1,773,000 3,928,000
---------- -----------
$4,856,000 $ 6,926,000
---------- -----------
---------- -----------
</TABLE>
NOTE C -- ACCRUED LIABILITIES
Accrued liabilities consists of the following at March 31:
<TABLE>
<CAPTION>
1993 1994
---- ----
<S> <C> <C>
Payroll and related benefits $1,807,000 $2,269,000
Self insurance reserves 858,000 1,069,000
Other 340,000 752,000
---------- ----------
$3,005,000 $4,090,000
---------- ----------
---------- ----------
</TABLE>
F-10
<PAGE>
NOTE D -- GAIN ON SALE OF NAME
In fiscal 1992, the Company agreed to relinquish its
rights to its previous name, "FORTIS," in exchange for a
$4,000,000 cash payment from a third party. Under the terms
of the agreement the Company had until September 30, 1992 to
complete its name change, at which time the third party had
the sole rights to the use of the FORTIS name. The Company
deferred recognition of the gain on the sale until the
quarter ended September 30, 1992, when the Company completed
its phase-in of the name CorVel Corporation and the costs to
perform the tasks necessary to conduct business under a
different name were reasonably determinable. The Company
recognized a gain of $3,300,000, which was net of $700,000
in costs to effect the name change.
NOTE E -- MANAGED CARE RECONFIGURATION CHARGE
During fiscal 1993, the Company provided for a $3.3
million managed care reconfiguration charge. This charge
include approximately $1.0 million to modify and upgrade
management and reimbursement systems and technology involved
in the patient management portion of the Company's managed
care program and $2.3 million to replace obsolete hardware
and software systems. Substantially all of these costs were
incurred prior to the end of fiscal 1993. The effect of
these costs enabled the Company to compete more effectively
in the managed care market despite changes mandated by state
legislation and technological changes in computer hardware
and software systems.
NOTE F -- INCOME TAXES
The income tax provision consists of the following for
the three years ended March 31:
<TABLE>
<CAPTION>
1992 1993 1994
---- ---- ----
<S> <C> <C> <C>
Current - Federal $ 2,380,000 $ 765,000 $ 1,903,000
Current - State 424,000 118,000 372,000
Tax benefits from option
exercises (1,206,000) (1,028,000) (1,403,000)
----------- --------- -----------
Subtotal 1,598,000 (145,000) 872,000
----------- --------- -----------
Deferred - Federal (1,493,000) 605,000 460,000
Deferred - State (266,000) 137,000 86,000
----------- --------- -----------
Subtotal (1,759,000) 742,000 546,000
----------- --------- -----------
Charge in lieu of income
taxes attributable to
tax benefits from stock
option exercises 1,206,000 1,028,000 1,403,000
----------- ----------- -----------
$ 1,045,000 $ 1,625,000 $ 2,821,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
F-11
<PAGE>
CORVEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE F -- INCOME TAXES (continued)
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 (34% for
1992 and 1993, and 35% for 1994):
<TABLE>
<CAPTION>
1992 1993 1994
---- ---- ----
<S> <C> <C> <C>
Federal statutory
income tax rate $ 900,000 $1,414,000 $2,531,000
State income taxes, net
of federal benefit 104,000 168,000 300,000
Goodwill amortization 34,000 33,000 35,000
Other 7,000 10,000 (45,000)
---------- ---------- ----------
$1,045,000 $1,625,000 2,821,000
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Income taxes paid totaled $1,635,000, $542,000 and
$925,000 for the years ended March 31, 1992, 1993, and 1994,
respectively. At March 31, 1994, the Company has net
operating loss carryforwards of $1.6 million that will begin
to expire in 2007. For financial reporting purposes, a
valuation allowance of $538,000 has been recorded to offset
the deferred asset related to these operating losses. When
realized, the tax benefits related to the reversal of this
valuation allowance will be applied to paid-in-capital
since the net operating losses are primarily attributable to
deductions for the exercise of non-qualified stock options.
Significant components of the Company's deferred tax
assets as of March 31, 1993 and 1994 are:
<TABLE>
<CAPTION>
1993 1994
---- ----
<S> <C> <C>
DEFERRED ASSET:
Excess of tax over/(under)
book basis in fixed
assets $ 35,000 $ -
Net operating loss carryover - 538,000
Accrued liabilities not
currently deductible 769,000 1,136,000
Allowance for doubtful
accounts 284,000 284,000
---------- ----------
1,088,000 1,958,000
Valuation allowance - (538,000)
---------- ----------
Deferred asset 1,088,000 1,420,000
DEFERRED TAX LIABILITIES:
Excess of tax over/(under)
book basis of fixed
assets - (879,000)
Other (3,000) (2,000)
---------- ----------
Total deferred liabilities (3,000) (881,000)
---------- ----------
Net deferred asset 1,085,000 539,000
---------- ----------
---------- ----------
</TABLE>
F-12
<PAGE>
CORVEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE G -- STOCK OPTION PLAN
Under the Company's Restated 1988 Executive Stock
Option Plan, as amended, options for up to 1,135,000 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. Summarized information for this
Plan follows:
<TABLE>
<CAPTION>
1992 1993 1994
---- ---- ----
<S> <C> <C> <C>
Options outstanding at the
beginning of the year 568,035 786,966 687,980
Options granted 286,200 109,850 111,635
Options exercised 56,019 158,035 338,998
Options canceled 11,250 50,801 16,577
------- ------- -------
Options outstanding at the
end of the year 786,966 687,980 444,040
------- ------- -------
------- ------- -------
At the end of the year:
Prices of outstanding
options $.01-$16.50 $.01-$16.50 $.01-$22.75
Average price per share $4.22 $6.16 $11.36
Exercisable options 357,317 397,378 182,920
Options available for
future grants 92,015 232,966 137,908
</TABLE>
In addition to options granted under the 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 Options to purchase 175,000,
110,000, and 5,100 shares of common stock were exercised in
fiscal 1992, 1993 and 1994, respectively. As of March 31,
1994, options to purchase 459,900 shares of common stock
were outstanding, all of which were exercisable at a nominal
price.
F-13
<PAGE>
CORVEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE H -- EMPLOYEE STOCK PURCHASE PLAN
In fiscal 1992, the Company's Board of Directors
approved the 1991 Employee Stock Purchase Plan, as amended,
that provides for the issuance of up to 100,000 shares of
the Company's common stock. Under the plan, participating
employees are granted nontransferable, six-month options on
October 1 and April 1 of each year. These options entitle
employees to purchase the number of whole shares that their
individual payroll deduction authorizations indicate can be
purchased at the end of the six-month period at 85% of the
fair market value of the Company's common stock at the date
of grant or on the last day of the six-month period,
whichever is less. Employees are allowed to participate up
to 20% of their gross pay. Summarized plan information is
as follows:
<TABLE>
<CAPTION>
1992 1993 1994
---- ---- ----
<S> <C> <C> <C>
Employee contributions $100,000 $225,000 $295,000
Shares acquired 6,937 25,658 20,448
Average purchase price $14.42 $8.77 $14.43
</TABLE>
NOTE I -- COMMITMENTS AND CONTINGENCIES
The Company leases office facilities under
noncancelable operating leases. Future minimum rental
commitments under operating leases at March 31, 1994 are
$2,700,000 in fiscal 1995, $1,951,000 in fiscal 1996,
$1,015,000 in fiscal 1997, $399,000 in fiscal 1998, $44,000
in fiscal 1999, and none thereafter. Total rental expense
of $1,724,000, $2,429,000, and $3,080,000 was charged to
operations for the years ended March 31, 1992, 1993, and
1994, 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.
NOTE J -- 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 $50,000, $100,000, and $133,000, were
charged to operations for the years ended March 31, 1992,
1993, and 1994, respectively.
F-14
<PAGE>
CORVEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE K -- QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of unaudited results of
operations for the two years ended March 31, 1993 and 1994:
<TABLE>
<CAPTION>
Net income
per common
and common
Net equivalent
Revenues Gross Profit income share
----------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Fiscal Year Ended March 31, 1993:
First Quarter $13,854,000 $2,071,000 $ 507,000 $.12
Second Quarter 14,767,000 2,179,000 611,000 .15
Third Quarter 15,843,000 2,303,000 661,000 .16
Fourth Quarter 17,382,000 2,505,000 755,000 .18
Fiscal Year Ended March 31, 1994:
First Quarter $18,857,000 $2,903,000 $ 918,000 $.22
Second Quarter 19,372,000 3,165,000 1,048,000 .24
Third Quarter 20,821,000 3,523,000 1,161,000 .26
Fourth Quarter 21,569,000 3,697,000 1,283,000 .29
</TABLE>
F-15
<PAGE>
Schedule II
CORVEL CORPORATION
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND
UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN
RELATED PARTIES
<TABLE>
<CAPTION>
NON-CURRENT
BALANCE AT DEDUCTIONS DEDUCTIONS BALANCE AT
BEGINNING -AMOUNTS -AMOUNTS END OF
OF PERIOD ADDITIONS COLLECTED WRITTEN-OFF PERIOD
---------- --------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
NAME OF DEBTOR:
Year Ended March 31, 1994:
Dan Davis $350,000 $ - $50,000 $ - $300,000
Year Ended March 31, 1993:
Dan Davis - 350,000 - - 350,000
Year Ended March 31, 1992: - - - - -
</TABLE>
Includes interest-bearing note of $350,000. The note accrues interest at a rate
of 4%. Interest is due and payable on December 31 of each year. The principal
amount of the note plus all accrued but unpaid interest are due on April 1, 1995
and are collateralized by Mr. Davis' pledge of his CorVel Corporation common
stock.
S-1
<PAGE>
Schedule VIII
CORVEL CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
---------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Year Ended March 31, 1994: $485,000 $240,000 $ - $ - $725,000
Year Ended March 31, 1993: 500,000 4,000 - 19,000 485,000
Year Ended March 31, 1992: 178,000 344,000 - 22,000 500,000
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
Exhibit Page
Number Number
- - ------ ------
24.2 Consent of Independent Certified Public Accountant
<PAGE>
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration
Statement (Form S-2 No.33-46418) of North Star Universal, Inc.
and in the related Prospectus of our report dated May 10, 1994,
with respect to the consolidated financial statements and
schedules of CorVel Corporation included in the Annual Report
(Form 10-K) for the year ended December 31, 1993 of North Star
Universal, Inc.
/s/ ERNST & YOUNG
Orange County, California
June 28, 1994
