<PAGE>
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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, 1994
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
incorporation or organization) Identification No.)
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
_____________________________
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of Each Exchange
Title of Each Class on 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, 1995 was $19,837,243 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, 1995, 9,438,00 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, 1994.
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 1995 Annual Meeting of Shareholders
to be filed with the Securities and Exchange Commission on or before April 30,
1995.
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 )
- COVER PAGE 2 OF 2 -
<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, 1994 and 1993 and for the three years ended
December 31, 1994 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, 1994.
2. FINANCIAL STATEMENTS AND SCHEDULES
(i) North Star Universal, Inc. and Subsidiaries
Report of Independent Certified Public Accountants on Schedule
Schedule II -- Valuation and Qualifying Accounts
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.
- 1 -
<PAGE>
(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 Schedule
Schedule II - 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.
(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 Releated 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.
- 2 -
<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 Amended and Restated Bylaws of the Company.
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 Form of Second Supplemental Indenture, dated as of March 16, 1995,
amending the Indenture described in Exhibit 4.1 above.
4.4 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).
- 3 -
4.5 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).
+10.1 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).
+10.2 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).
+10.3 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).
10.4 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).
10.5 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).
10.6 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).
10.7 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).
- 3 -
<PAGE>
10.8 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).
10.9 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).
10.10 Fourth Amendment to Restated and Amended Revolving Credit Loan
Amendment, dated January 3, 1994, 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.
10.11 Waiver and Fifth Amendment to Restated and Amended Revolving Credit
Loan Amendment, dated March 16, 1994, 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.
10.12 Sixth Amendment to Restated and Amended Revolving Credit Loan
Amendment, dated January 31, 1995, 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.
10.13 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).
10.14 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).
10.15 Guaranty Agreement, dated as of May 1, 1989, executed by the
Company as guarantor, pursuant to which the Company guaranties the
- 4 -
<PAGE>
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).
+10.16 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).
+10.17 Employment Agreement, dated April 1, 1993, between the Company,
Transition Engineering, Inc. and Peter E. Flynn (filed as
Exhibit 10.22 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1993 and incorporated herein by reference).
10.18 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).
10.19 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).
10.20 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).
10.21 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).
+10.22 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).
10.23 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).
- 5 -
<PAGE>
10.24 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.)
10.25 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).
10.26 First Amendment to Amended and Restated Loan and Security
Agreement, dated November 29, 1993, among Americable, Inc.,
Transition Engineering, Inc., Cable Distributions Systems, Inc. and
First Bank National Association, amending the terms of the Amended
and Restated Loan and Security Agreement described in 10.24 above.
10.27 Waiver and Second Amendment to Amended and Restated Loan and
Security Agreement, dated as of March 3, 1995, among Americable,
Inc., Transition Engineering, Inc., Cable Distributions Systems,
Inc. and First Bank National Association, amending the terms of the
Amended and Restated Loan and Security Agreement described in 10.24
above.
10.28 Supplement A to 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, supplementing the terms of the Amended and Restated
Loan and Security Agreement described in 10.24 above.
10.29 Amended, Restated and Consolidated Credit Agreement, dated as of
August 1, 1994, by and between C.E. Services, Inc. and Texas
Commerce Bank National Association.
10.30 First Amendment to Amended, Restated and Consolidated Credit
Agreement, dated as of December 27, 1994, by and between C.E.
Services, Inc. and Texas Commerce Bank National Association,
amending the Amended and Restated Consolidated Credit Agreement
described in 10.28 above.
*10.31 Continuing Guaranty by North Star Universal, Inc., dated December
1994, to Texas Commerce Bank National Association, for indebtedness
of C.E. Services, Inc., relating to the Amended and Restated
Consolidated Credit Agreement described in 10.28 above.
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
- 6 -
<PAGE>
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).
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 (filed as
Exhibit 12.4 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1993 and incorporated herein by reference).
12.5 Computation of Ratio of Earnings to Fixed Charges for North Star
Universal, Inc. for the year ended December 31, 1994.
13.1 1994 Annual Report to Shareholders of North Star Universal, Inc.
21.1 Subsidiaries of the Registrant
23.1 Consent of Independent Certified Public Accountants-Grant Thornton
LLP.
*24.1 Consent of Independent Certified Public Accountant--Ernst & Young
27.1 Financial Data Schedule
____________________________
* Filed with this Amendment No. 1 to Annual Report on Form 10-K.
+ 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.
- 7 -
<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 29, 1995 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, 1994 and 1995, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended March 31, 1995. 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, 1994 and 1995, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended March 31, 1995, 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 in all material respects the information set forth
therein.
ERNST & YOUNG LLP
May 10, 1995
Orange County, California
F-1
<PAGE>
CORVEL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
-------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
REVENUES $ 61,846,000 $ 80,619,000 $ 95,783,000
COSTS AND EXPENSES
Cost of revenues 52,788,000 67,331,000 78,950,000
General and administrative 4,899,000 6,057,000 7,186,000
Gain from sale of name, net 3,300,000
Managed care reconfiguration charge (3,300,000)
----------- ----------- -----------
57,687,000 73,388,000 86,136,000
----------- ----------- -----------
Income before income taxes 4,159,000 7,231,000 9,647,000
Income tax provision 1,625,000 2,821,000 3,762,000
----------- ----------- -----------
NET INCOME $ 2,534,000 $ 4,410,000 $ 5,885,000
----------- ----------- -----------
----------- ----------- -----------
Net income per common and common
equivalent share $.61 $1.01 $1.30
----------- ----------- -----------
----------- ----------- -----------
Weighted average shares outstanding 4,128,000 4,369,000 4,542,000
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
CORVEL CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31
--------
1994 1995
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 8,393,000 $ 13,211,000
Accounts receivable (less allowance for doubtful accounts of
$725,000 in 1994 and $825,000 in 1995) 13,211,000 15,868,000
Prepaid taxes and expenses 977,000 182,000
Deferred income taxes 1,418,000 1,809,000
------------ ------------
Total current assets 23,999,000 31,070,000
------------ ------------
PROPERTY AND EQUIPMENT, NET 6,926,000 8,872,000
OTHER ASSETS 3,699,000 4,023,000
------------ ------------
$ 34,624,000 $ 43,965,000
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts and taxes payable $ 2,330,000 $ 2,357,000
Accrued liabilities 4,090,000 4,628,000
------------ ------------
Total current liabilities 6,420,000 6,985,000
------------ ------------
Deferred income taxes 879,000 1,226,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
COMMON STOCK, $.0001 par value: 20,000,000 shares authorized;
4,071,195 and 4,238,250 shares issued and outstanding at
March 31, 1994 and 1995, respectively
PAID IN CAPITAL 21,625,000 24,169,000
RETAINED EARNINGS 5,700,000 11,585,000
------------ ------------
Total stockholders' equity 27,325,000 35,754,000
------------ ------------
$ 34,624,000 $ 43,965,000
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to the consolidated financial statements.
F-3
<PAGE>
CORVEL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON
STOCK AND TOTAL
COMMON PAID IN RETAINED SHAREHOLDERS'
STOCK - SHARES CAPITAL EARNINGS EQUITY
-------------- --------- -------- -------------
<S> <C> <C> <C> <C>
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
------------ -------------- -------------- --------------
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
------------ -------------- -------------- --------------
------------ -------------- -------------- --------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
CORVEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended March 31
----------------------------------------------------
1993 1994 1995
----------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,534,000 $ 4,410,000 $ 5,885,000
Adjustments to reconcile net income
to net cash provided by (used) in operating activities
Depreciation and amortization 1,099,000 2,363,000 2,335,000
Deferred income taxes 765,000 546,000 (44,000)
Loss on writedown and disposal of property and equipment 2,323,000 75,000 39,000
Changes in operating assets and liabilities:
Accounts receivable (2,782,000) (1,976,000) (2,657,000)
Prepaid income taxes and expenses (747,000 (144,000) 795,000
Accounts and taxes payable 979,000 378,000 27,000
Deferred gain on sale of name (4,000,000)
Accrued liabilities 619,000 1,085,000 538,000
Other assets (441,000) 33,000 (425,000)
----------------------------------------------------
Net cash provided by operating activities 349,000 6,770,000 6,493,000
----------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (4,292,000) (4,406,000) (4,219,000)
----------------------------------------------------
Net cash provided by (used in) investing activities (4,292,000) (4,406,000) (4,219,000)
----------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds and tax benefits from exercise of stock options 1,506,000 2,558,000 2,544,000
----------------------------------------------------
Net cash provided by financing activities 1,506,000 2,558,000 2,544,000
----------------------------------------------------
Increase/(Decrease) in Cash and Cash Equivalents (2,437,000) 4,922,000 4,818,000
Cash and cash equivalents at beginning of year 5,908,000 3,471,000 8,393,000
----------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 3,471,000 $ 8,393,000 $ 13,211,000
----------------------------------------------------
----------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<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, 1994 and 1995, accounts receivable from customers in
the casualty insurance industry were approximately $12,277,000 and $14,368,000,
respectively. No customer represented 10% of accounts receivable at March 31,
1994 and 1995. 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 $3,186,000 (net of accumulated
amortization of $552,000) at March 31, 1994 and $3,344,000 (net of accumulated
amortization of $652,000) at March 31, 1995.
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
$1,206,000 and $1,318,000 of unbilled receivables at March 31, 1994 and 1995,
respectively. No one customer accounted for more than 10% of consolidated
revenues during the years ended March 31, 1993, 1994 and 1995.
F-6
<PAGE>
CORVEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATAEMENTS
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.
NOTE B -- PROPERTY AND EQUIPMENT
Property and equipment consists of the following at March 31:
<TABLE>
<CAPTION>
1994 1995
---- ----
<S> <C> <C>
Office equipment and computers $ 8,002,000 $ 11,074,000
Computer software 2,606,000 3,490,000
Leasehold improvements 246,000 356,000
------------------------------
10,854,000 14,920,000
Less: accumulated depreciation and 3,928,000 6,048,000
amortization -------------------------------
$ 6,926,000 $ 8,872,000
-------------------------------
-------------------------------
</TABLE>
NOTE C -- ACCRUED LIABILITIES
Accrued liabilities consists of the following at March 31:
<TABLE>
<CAPTION>
1994 1995
---- ----
<S> <C> <C>
Payroll and related benefits $ 2,269,000 $ 2,327,000
Self insurance reserves 1,069,000 1,017,000
Other 752,000 1,284,000
--------------------------------
$ 4,090,000 $ 4,628,000
--------------------------------
--------------------------------
</TABLE>
F-7
<PAGE>
CORVEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATAEMENTS
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 included 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>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Current - Federal $ 765,000 $ 1,903,000 $ 3,172,000
Current - State 118,000 372,000 634,000
Tax benefits from option (1,028,000) (1,403,000) (991,000)
Utilization of net operating loss (538,000)
---------------------------------------------------
Subtotal (145,000) 872,000 2,277,000
---------------------------------------------------
Deferred - Federal 605,000 460,000 (37,000)
Deferred - State 137,000 86,000 (7,000)
---------------------------------------------------
Subtotal 742,000 546,000 (44,000)
---------------------------------------------------
Charge in lieu of income taxes
attributable to tax benefits
stock option exercises and utilization
of net operationg loss carryovers 1,028,000 1,403,000 1,529,00
---------------------------------------------------
$ 1,625,000 $ 2,821,000 $ 3,762,000
---------------------------------------------------
---------------------------------------------------
</TABLE>
F-8
<PAGE>
CORVEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATAEMENTS
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 1993, 35% for 1994 and 1995):
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Federal statutory income tax rate $ 1,414,000 $ 2,531,000 $ 3,377,000
State income taxes, net of federal
benefit 168,000 300,000 399,000
Goodwill amortization 33,000 35,000 35,000
Other 10,000 (45,000) (49,000)
----------------------------------------------------
$ 1,625,000 $ 2,821,000 $ 3,762,000
----------------------------------------------------
----------------------------------------------------
</TABLE>
Income taxes paid totaled $542,000, $925,000 and $1,100,000 for the years
ended March 31, 1993, 1994, and 1995, respectively. At March 31, 1994, the
Company had net operating loss (NOL's) carryforwards of $1,600,000 for income
tax purposes, expiring in 2007 for financial reporting purposes. A valuation
allowance of $538,000 was recorded in 1994 to offset the deferred tax assets
related to the NOL's. This $538,000 valuation allowance was applied to
additional paid in capital in 1995 since the related NOL's were principally
attributable to deductions for the exercise of non qualified stock options in
1994.
Significant components of the Company's deferred tax assets as of March 31,
1994 and 1995 are:
<TABLE>
1994 1995
---- ----
<S> <C> <C>
DEFERRED TAX ASSETS:
Net operating loss carryover $ 538,000 $ --
Accrued liabilities not currently decuctible 1,134,000 1,525,000
Allowance for doubtful accounts 284,000 284,000
------------- -------------
1,956,000 1,809,000
Valuation allowance (538,000) --
------------- -------------
Deferred assets 1,418,000 1,809,000
DEFERRED TAX LIABILITIES:
Excess of tax under book basis of fixed assets (877,000) (1,226,000)
Other (2,000) --
------------- -------------
Deferred liability (879,000) (1,226,000)
------------- -------------
Net deferred tax asset $ 539,000 $ 583,000
------------- -------------
------------- -------------
</TABLE>
F-9
<PAGE>
CORVEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATAEMENTS
NOTE G -- STOCK OPTION PLAN
Under the Company's Restated 1988 Executive Stock Option Plan, as amended,
options for up to 1,335,000 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>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Options outstanding at the
beginning of the year 786,966 687,980 444,040
Options granted 109,850 111,635 88,850
Options exercised 158,035 338,998 110,421
Options canceled 50,801 16,577 17,930
---------------------------------------------------------
Options outstanding at the end
of the year 687,980 444,040 404,539
---------------------------------------------------------
---------------------------------------------------------
At the end of the year:
Prices of outstanding options $.01-$16.50 $.01-$22.75 $.33-$26.50
Average price per share $6.16 $11.36 $15.11
Exercisable options 397,378 182,920 199,484
Options available for future 232,966 137,908 266,988
</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 110,000, 5,100, and
37,000 shares of common stock were exercised in fiscal 1993, 1994 and 1995,
respectively. As of March 31, 1995, options to purchase 422,900 shares of
common stock were outstanding, all of which were exercisable at a nominal price.
F-10
<PAGE>
CORVEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATAEMENTS
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
150,000 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>
1993 1994 1995
---- ---- -----
<S> <C> <C> <C>
Employee contributions $225,000 $295,000 $374,000
Shares acquired 25,658 20.448 19,634
Average purchase price $8.77 $14.43 $19.02
</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, 1995 are
$3,061,000 in fiscal 1996, $2,191,000 in fiscal 1997, $1,277,000 in fiscal 1998,
$483,000 in fiscal 1999, $286,000 in fiscal 2000, and $5,000 thereafter. Total
rental expense of $2,429,000, $3,080,000, and $3,559,000 was charged to
operations for the years ended March 31, 1993, 1994, and 1995, 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 $100,000, $133,000, and
$157,000, were charged to operations for the years ended March 31, 1993, 1994,
and 1995, respectively.
F-11
<PAGE>
CORVEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATAEMENTS
NOTE K -- QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of unaudited results of operations for the two
years ended March 31, 1994 and 1995:
<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, 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
Fiscal Year Ended March 31, 1995:
First Quarter $ 22,071,000 $ 3,844,000 $ 1,344,000 $ .30
Second Quarter 22,921,000 4,008,000 1,402,000 .31
Third Quarter 24,701,000 4,313,000 1,507,000 .33
Fourth Quarter 26,090,000 4,668,000 1,632,000 .35
</TABLE>
F-12
<PAGE>
Schedule II
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>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Year Ended March 31, 1995: $ 725,000 $ 100,000 $ -- $ -- $ 825,000
Year Ended March 31, 1994: 485,000 240,000 -- -- 725,000
Year Ended March 31, 1993: 500,000 4,000 -- 19,000 485,000
</TABLE>
S-1
<PAGE>
EXHIBIT 24.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement
(Form S-2 No. 33-58163) of North Star Universal, Inc. and in the related
Prospectus of our report dated May 10, 1995, with respect to the consolidated
financial statements and schedules of CorVel Corporation included in the
Annual Report (Form 10-K/A-1) for the year ended December 31, 1994 of North
Star Universal, Inc.
/s/ Ernst & Young LLP
Orange County, California
June 29, 1995
