TEAM HEALTH INC - 10-Q Quarterly Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q EQUIVALENT(1)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.

FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NUMBER 333-80337
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TEAM HEALTH, INC.
(Exact name of registrant as specified in its charter)

TENNESSEE 62-1562558
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)

1900 WINSTON ROAD
SUITE 300
KNOXVILLE, TENNESSEE 37919
(865) 693-1000
(Address, zip code, and telephone number, including
area code, of registrant's principal executive office.)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 and 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods 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 [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).
Yes [ ] No [X]

Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.

Common Stock par value $0.01 per share -- 10,067,513 shares as of May 14,
2003.

(1) This Form 10-Q Equivalent is only being filed solely pursuant to a
requirement contained in the indenture governing Team Health, Inc.'s 12% Senior
Subordinated Notes due 2009.
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FORWARD LOOKING STATEMENTS

Statements in this document that are not historical facts are hereby
identified as "forward looking statements" for the purposes of the safe harbor
provided by Section 21E of the Securities Exchange Act of 1934 (the "Exchange
Act") and Section 27A of the Securities Act of 1933 (the "Securities Act"). Team
Health, Inc. (the "Company") cautions readers that such "forward looking
statements", including without limitation, those relating to the Company's
future business prospects, revenue, working capital, professional liability
expense, liquidity, capital needs, interest costs and income, wherever they
occur in this document or in other statements attributable to the Company, are
necessarily estimates reflecting the judgment of the Company's senior management
and involve a number of risks and uncertainties that could cause actual results
to differ materially from those suggested by the "forward looking statements".
Such "forward looking statements" should, therefore, be considered in light of
the factors set forth in "Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations".

The "forward looking statements" contained in this report are made under
the caption "Management's Discussion and Analysis of Financial Condition and
Results of Operations". Moreover, the Company, through its senior management,
may from time to time make "forward looking statements" about matters described
herein or other matters concerning the Company.

The Company disclaims any intent or obligation to update "forward looking
statements" to reflect changed assumptions, the occurrence of unanticipated
events or changes to future operating results over time.

1

TEAM HEALTH, INC.

QUARTERLY REPORT FOR THE THREE MONTHS
ENDED MARCH 31, 2003

2

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TEAM HEALTH, INC.

CONSOLIDATED BALANCE SHEETS

See accompanying notes to financial statements.
3

TEAM HEALTH, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

See accompanying notes to financial statements.
4

TEAM HEALTH, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

See accompanying notes to financial statements.
5

TEAM HEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 1. BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements include the
accounts of Team Health, Inc. (the "Company") and its wholly owned subsidiaries
and have been prepared in accordance with accounting principles generally
accepted in the United States for interim financial reporting and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and notes required by accounting principles
generally accepted in the United States for complete financial statements.
Certain prior year amounts have been reclassified to conform to the current year
presentation.

In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of normal recurring
items) necessary for a fair presentation of results for the interim periods
presented. The results of operations for any interim period are not necessarily
indicative of results for the full year. The consolidated balance sheet of the
Company at December 31, 2002 has been derived from the audited financial
statements at that date, but does not include all of the information and
disclosures required by accounting principles generally accepted in the United
States for complete financial statements. These financial statements and
footnote disclosures should be read in conjunction with the December 31, 2002
audited consolidated financial statements and the notes thereto included in the
Company's Form 10-K.

The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the accompanying
consolidated financial statements and notes. Actual results could differ from
those estimates.

NOTE 2. IMPLEMENTATION OF NEW ACCOUNTING STANDARDS

Effective January 1, 2002, the Company adopted the provisions of Statement
of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible
Assets. Under SFAS No. 142, goodwill and intangible assets deemed to have
indefinite lives are no longer amortized but are subject to impairment tests on
an annual basis, or more frequently if certain indicators arise. Other
intangible assets continue to be amortized over their useful lives. The Company
completed its required initial impairment testing of goodwill during the three
months ended March 31, 2002. As a result of this review, the Company concluded
that a portion of its recorded goodwill was impaired. Accordingly, an impairment
loss of $0.5 million ($0.3 million net of taxes) was recorded at March 31, 2002
as the cumulative effect of a change in accounting principle.

During July 2002, the Financial Accounting Standards Board (FASB) issued
SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities.
SFAS No. 146 addresses significant issues regarding the recognition,
measurement, and reporting of costs that are associated with exit and disposal
activities, including restructuring activities that were previously accounted
for pursuant to the guidance that the Emerging Issues Task Force (EITF) has set
forth in EITF Issue No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (Including Certain
Costs Incurred in a Restructuring). SFAS No. 146 requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan. The scope of SFAS
No. 146 also includes (1) costs related to terminating a contract that is not a
capital lease and (2) termination benefits that employees who are involuntarily
terminated receive under the terms of a one-time benefit arrangement that is not
an ongoing benefit arrangement or an individual deferred-compensation contract.
The new standard is effective for exit or restructuring activities initiated
after December 31, 2002.

On December 31, 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation -- Transition and Disclosure. SFAS No. 148 amends SFAS
No. 123, Accounting for Stock-Based Compensation, to provide alternative methods
of transition to the fair value method of accounting for stock-based

6

TEAM HEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

employee compensation under SFAS No. 123. SFAS No. 148 also amends the
disclosure provisions of SFAS No. 123 and APB Opinion No. 28, Interim Financial
Reporting, to require disclosure in the summary of significant accounting
policies of the effects of an entity's accounting policy with respect to
stock-based employee compensation on reported earnings in annual and interim
financial statements. While the Statement does not amend SFAS No. 123 to require
companies to account for employee stock options using the fair value method, the
disclosure provisions of SFAS No. 148 are applicable to all companies with
stock-based employee compensation, regardless of whether the accounting for that
compensation is using the fair value method of SFAS No. 123 or the intrinsic
value method of Opinion 25.

As more fully discussed in Note 7, the Company adopted the disclosure
requirements of SFAS No. 148 and the fair value recognition provisions of SFAS
No. 123, Accounting for Stock-Based Compensation, prospectively to all new
awards granted to employees after January 1, 2003.

NOTE 3. NET REVENUE

Net revenue as of March 31, 2003 and 2002, respectively, consisted of the
following:

NOTE 4. INTANGIBLE ASSETS

The following is a summary of intangible assets and related amortization as
of March 31, 2003 and December 31, 2002 (in thousands):

7

TEAM HEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

As of March 31, 2003, the Company may have to pay up to $10.2 million in
future contingent payments as additional consideration for acquisitions made
prior to March 31, 2003. These payments will be made and recorded as additional
goodwill should the acquired operations achieve the financial targets agreed to
in the respective acquisition agreements. During the three months ended March
31, 2003, the Company recorded an additional $2.8 million of goodwill related to
previous acquisitions.

NOTE 5. LONG-TERM DEBT

Long-term debt as of March 31, 2003 consists of the following (in
thousands):

Term Loan Facilities........................................ $218,250
12% Senior Subordinated Notes............................... 100,000
--------
318,250
Less current portion........................................ (22,342)
--------
$295,908
========

The Term Loan Facilities consisted of the following (in thousands):

Senior Secured Term Loan A.................................. $ 68,250
Senior Secured Term Loan B.................................. 150,000
--------
$218,250
========

In addition to the term loan facilities, the Company has a senior secured
revolving credit facility totaling $75.0 million.

The senior credit facility agreement contains both affirmative and negative
covenants, including limitations on the Company's ability to incur additional
indebtedness, sell material assets, retire, redeem or otherwise reacquire its
capital stock, acquire the capital stock or assets of another business, pay
dividends, and requires the Company to meet or exceed certain coverage, leverage
and indebtedness ratios.

The Company during the three months ended March 31, 2003, recorded a
provision for losses resulting from an actuarial projection of losses and
expenses in excess of an aggregate limit for insured professional liability
losses under a commercial insurance policy for certain insurance policy periods
ended March 11, 2003. See Note 6 for additional information. As a result of the
excess loss provision recorded, the Company was in violation of certain of its
financial covenant tests under its bank facilities. The Company has requested
and its lending banks have approved an amendment that waives such violations
resulting from the loss provision as of March 31, 2003. The Company intends to
meet with its banks in the near future to secure appropriate additional
amendments to its bank covenants to allow for a change in its program for
providing for its professional liability risks. While the Company believes it
will be successful in obtaining acceptable amendments, there can be no assurance
at this time that such amendments will be obtained or that the Company's
borrowing costs will remain unchanged from present levels. In the event that
such amendments are not obtained, the Company's long-term debt would become due
and payable on a current basis. In such an event, the Company would not be in a
position to immediately repay its long-term debt without either first securing
replacement loan facilities and/or arranging for additional equity financing.
There can be no assurance that the Company's efforts would be successful to
achieve either or both of these options in combination.

The interest rates for any senior revolving credit facility borrowings and
for the Term Loan A amounts are based on a grid which is based on the
consolidated ratio of total funded debt to earnings before interest, taxes,
depreciation and amortization, all as defined in the credit agreement. The
interest rate on any Term Loan B amount outstanding is equal to the eurodollar
rate plus 3.25% or the agent bank's base rate plus 1.25%. In the

8

TEAM HEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

event of a default by the Company under its bank loan covenants, such interest
rates would increase by 2.0% over the current rates then in effect. Upon
expiration of the current interest rate period, the Company would pay the agent
bank's base rates plus 2.0% plus the maximum applicable margin. Under the bank's
base rate borrowing base, the maximum applicable margin for the senior revolving
credit facility borrowings and Term Loan A amounts is 1.0% and for the Term Loan
B amounts is 1.25%.

The interest rates at March 31, 2003 were 4.3125% and 4.6875% for term
loans A and B, respectively. The Company pays a commitment fee for the revolving
credit facility which was equal to 0.5% of the commitment at March 31, 2003. No
funds have been borrowed under the revolving credit facility as of March 31,
2003, but the Company had $1.8 million of standby letters of credit outstanding
against the revolving credit facility commitment. The Company has a forward
interest rate swap agreement that became effective November 7, 2002, to
effectively convert $62.5 million of floating-rate borrowings to 3.86%
fixed-rate borrowings through April 30, 2005.

The senior credit agreement includes a provision for the prepayment of a
portion of the outstanding term loan amounts at any year-end if the Company
generates "excess cash flow," as defined in the agreement. On April 30, 2003 the
Company made an $8.3 million excess cash flow payment as required under the
terms of the senior credit agreement. An estimated excess cash flow payment of
$7.0 million was included within current maturities of long-term debt at
December 31, 2002. Current maturities of long-term in the accompanying balance
sheet at March 31, 2003 reflect the final determination of the excess cash flow
payment of $8.3 million.

Aggregate maturities of long-term debt due within one year of March 31,
2003 are currently as follows (in thousands):

2004........................................................ $ 22,342
2005........................................................ 17,000
2006........................................................ 21,500
2007........................................................ 18,971
Thereafter.................................................. 238,437
--------
$318,250
========

NOTE 6. PROFESSIONAL LIABILITY INSURANCE

The Company provides for its estimated professional liability losses
through a combination of commercial insurance company coverage as well as
reserves established to provide for future payments under self-insured retention
components and to establish reserves for future claims incurred but not
reported. Since March 12, 1999 and through March 11, 2003, the primary source of
the Company's coverage for such risks has been a professional liability
insurance policy provided through one insurance carrier. The policy with the
Company's primary insurance carrier for such coverage and period provided
coverage for potential liabilities on a "claims-made" basis. The policy included
the ability for the Company to be able to exercise a "tail" premium option. The
tail premium option, if exercised, included an aggregate limit of $130.0 million
which includes claims reported during the two year period ended March 12, 2003,
as well as all incurred but not reported claims during the period March 12, 1999
to March 11, 2003. As a result of recent conditions in the professional
liability insurance market, including such factors as a significant escalation
in the cost of professional liability coverage as well as a lack of insurance
carriers providing acceptable levels of such coverage, the Company decided that
it would provide, beginning March 12, 2003, for such risks previously covered by
the Company's primary insurance carrier through a captive insurance company.
Such loss estimates on a "claims-made" basis will be provided for and funded
within the captive insurance company. Additionally, the Company will provide for
an actuarial estimate of losses for professional liability claims incurred but
not reported in each period.

9

TEAM HEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The option for the tail premium was exercised by the Company effective
March 11, 2003, at a cost of approximately $30.6 million, which was subsequently
paid on April 11, 2003. The Company had previously recorded the cost of such
option over the four-year period ended March 11, 2003. The pro rata portion of
the tail premium purchase price is included in other accrued liabilities in the
accompanying balance sheets as of March 31, 2003 and December 31, 2002.

The Company's provisions for losses subsequent to March 11, 2003, that are
not covered by commercial insurance company coverage are subject to subsequent
adjustment should future actuarial projected results for such periods indicate
projected losses are greater or less than previously projected. In addition,
when and if in the event that claims reported during the two-year period ended
March 11, 2003, as well as all incurred but not reported claims during the
period March 12, 1999 to March 11, 2003, become known to likely be greater than
the insured aggregate limit of $130.0 million, such excess would require an
additional loss provision by the Company once such excess is able to be
reasonably estimated.

An actuarial study was prepared to provide the Company with an actuarial
estimate of the current annual cost of its professional liability claim losses
and related expenses and also to estimate the Company's potential exposure to
prior period losses in excess of the $130.0 million aggregate policy limit. The
aforegoing actuarial study includes numerous underlying estimates and
assumptions, including assumptions as to future claim losses, the severity and
frequency of such projected losses, loss development factors, and others. The
results of the actuarial study included a projection that the Company would
incur a loss resulting from claims for the covered periods exceeding the $130.0
million aggregate insurance company loss limit under the previous policy. Such
loss estimate, discounted at 4% over the projected future payment periods,
totaled $50.8 million. The Company has recorded this loss estimate in the
accompanying statement of operations for the three months ended March 31, 2003.
See footnote 5 for the effect of this loss provision on the Company's revolving
and term loan bank credit facilities.

The results of future actuarial studies may result in such loss estimate
provision under the aggregate policy limit to be further adjusted upward or
downward as actual results are realized over time.

NOTE 7. STOCK OPTIONS

Effective January 1, 2003, the Company adopted the fair value recognition
provisions of SFAS No. 123, Accounting for Stock-Based Compensation,
prospectively to all new awards granted to employees after January 1, 2003.
Prior to January 1, 2003 the Company applied the recognition and measurement
provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees, and
related Interpretations in accounting for options awarded. No stock-based
employee compensation expense is reflected in net earnings for the three months
ended March 31, 2002 as all options granted prior to January 1, 2003 had an
exercise price equal to the market value of the underlying common stock on the
date of grant. Therefore, the expense related to stock-based employee
compensation included in the determination of net earnings for the three months
ended March 31, 2003 and 2002 is less than that which would have been recognized
if the fair value method had

10

TEAM HEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

been applied to all awards. The following table illustrates the effect on net
earnings if the fair value method had been applied to all outstanding and
unvested awards in each period (in thousands):

NOTE 8. CONTINGENCIES

LITIGATION

We are party to various pending legal actions arising in the ordinary
operation of our business such as contractual disputes, employment disputes and
general business actions as well as professional liability actions. We believe
that any payment of damages resulting from these types of lawsuits would be
covered by insurance, exclusive of deductibles, would not be in excess of
related reserves, and such liabilities, if incurred, should not have a
significant negative effect on the results of operations and financial condition
of our Company.

INDEMNITY

In connection with the acquisition of a company that specializes in
providing medical staff providers to military treatment facilities on May 1,
2002, subject to certain limitations, the previous shareholders of such company
and its related entities have indemnified us against certain potential losses
attributable to events or conditions that existed prior to May 1, 2002. The
indemnity limit is $10.0 million, with certain potential losses, as defined,
subject to a $0.5 million "basket" before such losses are recoverable from the
previous shareholders. In addition, a separate indemnification exists with a
limit of $10.0 million relating to any claims asserted against the acquired
company during the three years subsequent to the date of its acquisition related
to tax matters whose origin was attributable to tax periods prior to May 1,
2002.

HEALTHCARE REGULATORY MATTERS

Laws and regulations governing the Medicare and Medicaid programs are
complex and subject to interpretation. Compliance with such laws and regulations
can be subject to future governmental review and interpretation as well as
significant regulatory action. From time to time, governmental regulatory
agencies will conduct inquiries and audits of the Company's practices. It is the
Company's current practice and future intent to cooperate fully with such
inquiries.

In addition to laws and regulations governing the Medicare and Medicaid
programs, there are a number of federal and state laws and regulations governing
such matters as the corporate practice of medicine and fee splitting
arrangements, anti-kickback statutes, physician self-referral laws, false or
fraudulent claims filing and patient privacy requirements. The failure to comply
with any of such laws or regulations could have an adverse impact on our
operations and financial results. It is management's belief that the Company is
in substantial compliance in all material respects with such laws and
regulations.

CONTINGENT ACQUISITION PAYMENTS

As of March 31, 2003, the Company may have to pay up to $10.2 million in
future contingent payments as additional consideration for acquisitions made
prior to March 31, 2003. These payments will be made and

11

TEAM HEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

recorded as additional purchase price should the acquired operations achieve the
financial targets agreed to in the respective acquisition agreements.

NOTE 9. COMPREHENSIVE EARNINGS

The components of comprehensive earnings, net of related taxes, are as
follows (in thousands):

Accumulated other comprehensive loss, net of related taxes, was $1.7
million at March 31, 2003, relating to the fair value of interest rate swaps.

12

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

INTRODUCTION

We believe we are among the largest national providers of outsourced
physician staffing and administrative services to hospitals and other healthcare
providers in the United States. Since our inception, we have focused primarily
on providing outsourced services to hospital emergency departments, which
accounts for the majority of our net revenue. Effective May 1, 2002, we acquired
a provider of outsourced physician staffing and administrative services to
military treatment facilities. In addition to providing physician staffing, the
acquired provider also provides a broad array of non-physician health care
services including specialty technical staffing, para-professionals and nurse
staffing on a permanent basis to the military.

Our regional operating models include comprehensive programs for emergency
medicine, radiology, anesthesiology, inpatient care, pediatrics and other health
care services, principally within hospital departments and other health care
treatment facilities.

The following discussion provides an assessment of the Company's results of
operations, liquidity and capital resources and should be read in conjunction
with the consolidated financial statements of the Company and notes thereto
included elsewhere in this document.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The consolidated financial statements of the Company are prepared in
accordance with United States generally accepted accounting principles, which
requires us to make estimates and assumptions. Management believes the following
critical accounting policies, among others, affect its more significant
judgments and estimates used in the preparation of its consolidated financial
statements.

REVENUE RECOGNITION

Net Revenue. A significant portion (70.4%) of the Company's revenue in the
three months ended March 31, 2003 resulted from fee-for-service patient visits.
The recognition of net revenue (gross charges less contractual allowances) from
such visits is dependent on such factors as proper completion of medical charts
following a patient visit, the forwarding of such charts to one of the Company's
billing centers for medical coding and entering into the Company's billing
systems, and the verification of each patient's submission or representation at
the time services are rendered as to the payor(s) responsible for payment of
such services. Net revenues are recorded based on the information known at the
time of entering of such information into our billing systems as well as an
estimate of the net revenues associated with medical charts for a given service
period that have not been processed yet into the Company's billing systems. The
above factors and estimates are subject to change. For example, patient payor
information may change following an initial attempt to bill for services due to
a change in payor status. Such changes in payor status have an impact on
recorded net revenue due to differing payors being subject to different
contractual allowance amounts. Such changes in net revenue are recognized in the
period that such changes in payor become known. Similarly, the actual volume of
medical charts not processed into our billing systems may be different from the
amounts estimated. Such differences in net revenue are adjusted in the following
month based on actual chart volumes processed.

Net Revenue Less Provision For Uncollectibles. Net revenue less provision
for uncollectibles reflects management's estimate of billed amounts to
ultimately be collected. Management, in estimating the amounts to be collected
resulting from its over six million annual fee-for-service patient visits and
procedures, considers such factors as prior contract collection experience,
current period changes in payor mix and patient acuity indicators, reimbursement
rate trends in governmental and private sector insurance programs, resolution of
credit balances, the estimated impact of billing system effectiveness
improvement initiatives and trends in collections from self-pay patients. Such
estimates are substantially formulaic in nature and are calculated at the
individual contract level. The estimates are continuously updated and adjusted
if subsequent actual collection experience indicates a change in estimate is
necessary. Such provisions and any subsequent changes in estimates may result in
adjustments to our operating results with a corresponding adjustment to our
accounts receivable allowance for uncollectibles on our balance sheet.

13

INSURANCE RESERVES

The nature of the Company's business is such that it is subject to
professional liability lawsuits. Historically, to mitigate a portion of this
risk, the Company has maintained insurance for individual professional liability
claims with per incident and annual aggregate limits per physician for all
incidents. Prior to March 12, 2003, such insurance coverage has been provided by
a commercial insurance company provider. Professional liability lawsuits are
routinely reviewed by the Company's insurance carrier and management for
purposes of establishing ultimate loss estimates. Provisions for estimated
losses in excess of insurance limits have been provided at the time such
determinations are made. In addition, where as a condition of a professional
liability insurance policy the policy includes a self-insured risk retention
layer of coverage, the Company has recorded a provision for estimated losses
likely to be incurred during such periods and within such limits based on its
past loss experience following consultation with its outside insurance experts
and claims managers.

Subsequent to March 11, 2003, due to the cost and lack of availability of
acceptable commercial professional liability insurance coverage, the Company has
decided to provide for a significant portion of its professional liability loss
exposures through the use of a captive insurance company and through greater
utilization of self-insurance reserves. Accordingly, beginning on March 12,
2003, a substantial portion of the Company's provision for professional
liability losses is based on periodic actuarially determined estimates of such
losses for periods subsequent to March 11, 2003. An independent actuary firm is
responsible for preparation of the periodic actuarial studies. Management's
estimate of the Company's professional liability costs resulting from such
actuarial studies is significantly influenced by assumptions, which are limited
by the uncertainty of predicting future events, and assessments regarding
expectations of several factors. These factors include, but are not limited to:
the frequency and severity of claims, which can differ significantly by
jurisdiction; coverage limits of third-party insurance; the effectiveness of the
Company's claims management process; and the outcome of litigation.

If in the event that losses for the period March 12, 1999 through March 11,
2003, become known to likely be greater than the insured limits applicable to
such coverage in such periods, or in the event that subsequent to March 11,
2003, such actuarial determined estimates of losses are greater or less than
previous loss estimates, such change in estimates will require an adjustment to
the Company's loss provisions in the periods such change in loss estimates are
determined. The Company in March 2003 had an actuarial projection made of its
potential exposure for losses under the provisions of its commercial insurance
policy that ended March 11, 2003. The results of that actuarial study indicated
that the Company would incur a loss for claim losses and expenses in excess of
the $130.0 million aggregate limit. Accordingly, the Company has recorded a loss
estimate, discounted at 4%, of $50.8 million in the accompanying statement of
operations for the three months ended March 31, 2003. The results of future
actuarial studies may result in such loss estimate provision under the aggregate
policy limit to be further adjusted upward or downward as actual results are
realized over time.

The payment of any losses realized by the Company under the aggregate loss
provision discussed above will only be after the Company's previous commercial
insurance carrier has paid such losses and expenses up to $130.0 million for the
applicable prior periods. The pattern of payment for professional liability
losses for any incurrence year typically is as long as six years. Accordingly,
the Company's portion of its loss exposure under the aggregate policy feature,
if realized, is not expected to result in a cash outflow from the Company
relating to this exposure in 2003.

An actuarial study was completed for the purpose of providing for losses
under the Company's captive and self-insurance programs in effect since March
12, 2003. The annual projected costs resulting from such actuarial study along
with other professional liability insurance premiums and programs available to
the Company that remain in effect, resulted in a projected annual professional
liability cost estimate on a discounted (4% assumption) basis of approximately
$58.2 million. The combined captive insurance company and self-insurance program
estimated component of such annual cost estimate is approximately $54.2 million.
As noted above, due to the long pattern of payout for such exposures, the
Company anticipates that a

14

substantial portion of such latter amount will not be realized in the form of
actual cash outlays until periods beyond 2003.

IMPAIRMENT OF INTANGIBLE ASSETS

In assessing the recoverability of the Company's intangibles the Company
must make assumptions regarding estimated future cash flows and other factors to
determine the fair value of the respective assets. If these estimates or their
related assumptions change in the future, the Company may be required to record
impairment charges for these assets. Effective January 1, 2002, the Company
adopted Statement of Financial Standards (SFAS) No. 142, Goodwill and Other
Intangible Assets, which required the Company to analyze its goodwill for
impairment issues during the first three months of 2002, and thereafter on an
annual basis. As a result of the initial impairment review, the Company recorded
as a cumulative change of accounting principle a loss of $0.3 million net of
related tax benefit in the three months ended March 31, 2002.

The Company's critical accounting policies have been disclosed in its 2002
Annual Report on Form 10-K. There have been no changes to these critical
accounting policies or their application during the three months ended March 31,
2003.

RESULTS OF OPERATIONS

The following discussion provides an analysis of our results of operations
and should be read in conjunction with our unaudited consolidated financial
statements. The operating results of the periods presented were not
significantly affected by general inflation in the U.S. economy. Net revenue
less the provision for uncollectibles is an estimate of future cash collections
and as such it is a key measurement by which management evaluates performance of
individual contracts as well as the Company as a whole. The following table sets
forth the components of net earnings as a percentage of net revenue less
provision for uncollectibles for the periods indicated:

THREE MONTHS ENDED MARCH 31, 2003 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
2002

Net Revenues. Net revenues for the three months ended March 31, 2003
increased $86.4 million, or 32.8%, to $350.1 million from $263.7 million for the
three months ended March 31, 2002. The increase in net

15

revenues of $86.4 million included an increase of $32.5 million in
fee-for-service revenue and $54.3 million in contract revenue, offset by a
decrease of $0.4 million in other revenue. For the three month periods ended
March 31, 2003 and 2002, fee-for-service revenue was 70.4% of net revenue in
2003 compared to 81.1% in 2002, contract revenue was 27.6% of net revenue in
2003 compared to 16.1% in 2002 and other revenue was 2.0% of net revenue in 2003
compared to 2.8% in 2002. The change in the mix of revenues is primarily due to
the effect of an acquisition in 2002. The acquired operation derives a higher
percentage of its revenues from hourly contract billing than fee-for-service
contracts.

Provision for Uncollectibles. The provision for uncollectibles was $111.7
million for the three months ended March 31, 2003 compared to $90.8 million for
the three months ended March 31, 2002, an increase of $20.9 million or 23.0%. As
a percentage of net revenue the provision for uncollectibles was 31.9% for the
three months ended March 31, 2003 compared to 34.4% for the three months ended
March 31, 2002. The provision for uncollectibles is primarily related to revenue
generated under fee-for-service contracts that is not expected to be fully
collected. The lower provision as a percentage of net revenue in 2003 is
principally due to the lower mix of fee-for-service revenue in 2003.

Net Revenue Less Provision for Uncollectibles. Net revenue less provision
for uncollectibles for the three months ended March 31, 2003 increased $65.5
million, or 37.9%, to $238.4 million from $172.9 million for the corresponding
three months in 2002. Acquisitions contributed $41.8 million and new contracts
obtained through internal sales contributed $26.5 million of the increase. The
aforementioned increases were partially offset by $12.6 million of revenue
derived from contracts that terminated during the periods. Same contract revenue
less provision for uncollectibles, which consists of contracts under management
from the beginning of the prior period through the end of the subsequent period,
increased $9.8 million or 6.3%, to $164.9 million during 2003 from $155.1
million during 2002. The increase in same contract revenue of 6.3% includes the
effects of both an increase in emergency department ("ED") fee-for-service
billing volume of 5.9% and increased estimated net revenue per ED patient visit
of approximately 2.3% between periods. Net revenue less provision for
uncollectibles for other physician specialties and ED non fee-for-service
revenue overall increased less than 1% between periods due to a continued shift
to cost-plus or management service agreements for such other physician
specialties. Such arrangements typically have lower net revenues overall than
fee-for-service arrangements.

Cost of Services Rendered. Cost of services rendered includes professional
service expenses (including provider compensation as well as billing and
collection costs for services rendered) and professional liability costs which
represents the cost of professional liability losses and insurance. Professional
service expenses for the three months ended March 31, 2003 were $182.0 million
compared to $129.5 million for the three months ended March 31, 2002, an
increase of $52.5 million or 40.5%. The increase of $52.5 million included $32.7
million resulting from acquisitions between periods. As a percentage of net
revenue less provision for uncollectibles, professional service expenses were
76.3% for the three months ended March 31, 2003 compared to 74.9% for the three
months ended March 31, 2002. The increase in professional service expenses was
principally due to increases in physician and medical licensed practitioner
hours and rates as the result of net new contract sales, principally for
staffing within military treatment facilities resulting from troop deployments
in 2003, as well as to accommodate increased ED patient visits. Professional
liability costs were $61.5 million for the three months ended March 31, 2003,
including a provision for losses in excess of an aggregate insured limit for
periods prior to March 12, 2003 of $50.8 million. The total professional
liability cost of $61.5 million in the period compared with $8.0 million for the
three months ended March 31, 2002, resulting in an increase between years of
$53.5 million (33.8% excluding the effect of the $50.8 million provision for
excess insurance losses). The increase in professional liability costs, in
addition to increases resulting from the provision for excess losses ($50.8
million) and from acquisitions ($0.9 million), is due to an increase between
periods in the Company's commercial insurance program premium through its
expiration date of March 11, 2003, plus an increased level of cost resulting
from an estimate of the Company's losses on a self-insured basis subsequent to
March 11, 2003.

Gross Profit (Loss). Gross profit (loss) was a loss of $5.1 million for
the three months ended March 31, 2003 compared to a profit of $35.4 million for
the corresponding quarter in 2002. The decrease in gross profit is attributable
to the effect of the provision for excess losses of $50.8 million offset by the
effect of acquisitions
16

and net new contract growth between periods. Gross profit as a percentage of
revenue less provision for uncollectibles for the three months ended March 31,
2003 was 19.2% before the provision for excess losses for prior periods compared
to 20.5% for the three months ended March 31, 2002. The decrease was principally
due to increases in provider and professional liability costs increasing faster
than growth in related revenues for provider services.

General and Administrative Expenses. General and administrative expenses
for the three months ended March 31, 2003 increased to $21.5 million from $17.2
million for the three months ended March 31, 2002, for an increase of $4.3
million, or 25.0% between periods. General and administrative expenses as a
percentage of net revenue less provision for uncollectibles were 9.0% for the
three months ended March 31, 2003 compared to 9.9% for the three months ended
March 31, 2002. The increase in general and administrative expenses between
periods included expenses associated with acquired operations of $3.6 million
which was 20.8% of the increase between periods. The remaining net increase of
4.2% was principally due to increases in salaries and related benefit costs
resulting from periodic wage increases, the full year effect of additional staff
added in prior periods and increased commissions expense due to new business
volume.

Management Fee and Other Operating Expenses. Management fee and other
operating expenses were $0.1 million for the three months ended March 31, 2003
and 2002, respectively.

Depreciation and Amortization. Depreciation and amortization was $5.5
million for the three months ended March 31, 2003 and $3.6 million for the three
months ended March 31, 2002. Depreciation increased by $0.1 million between
periods while amortization expense increased by $1.9 million between periods.
The increase in depreciation expense was due to capital expenditures made during
2002 and 2003. Amortization expense increased $1.9 million between periods
principally due to the acquisition of contract intangibles in 2002.

Net Interest Expense. Net interest expense increased $0.9 million to $6.2
million for the three months ended March 31, 2003 compared to $5.3 million for
the corresponding quarter in 2002. The increase in net interest expense is
principally due to increases in outstanding debt resulting from acquisitions
between periods.

Earnings (Loss) before Income Taxes and Cumulative Effect of Change in
Accounting Principle. Earnings (loss) before income taxes for the three months
ended March 31, 2003 was a loss of $38.5 million compared to earnings of $9.2
million for the three months ended March 31, 2002.

Provision (Benefit) for Income Taxes. Income taxes for the three months
ended March 31, 2003 was a benefit of $13.6 million compared to a provision of
$3.8 million for the three months ended March 31, 2002. The decrease in income
taxes for the three months ended March 31, 2003 over the same period in 2002 was
due to the decreased level of earnings before income taxes in 2003.

Earnings (Loss) before Cumulative Effect of Change in Accounting Principle,
Net of Taxes. Earnings (loss) before cumulative effect of change in accounting
principle, net of taxes, for the three months ended March 31, 2003, was a loss
of $24.8 million compared to earnings of $5.4 million for the three months ended
March 31, 2002.

Cumulative Effect of Change in Accounting Principle. In connection with
implementing SFAS No. 142, Goodwill and Other Intangible Assets, as of January
1, 2002, the Company completed a transitional impairment test of existing
goodwill and concluded that a portion of its goodwill was impaired. Accordingly,
an impairment loss of $0.5 million ($0.3 million net of taxes) was recorded as
the cumulative effect of a change in accounting principle during the three
months ended March 31, 2002.

Net Earnings (Loss). Net earnings (loss) for the three months ended March
31, 2003 was a net loss of $24.8 million compared to net earnings of $5.1
million for the three months ended March 31, 2002.

Dividends on Preferred Stock. The Company accrued $3.6 million of
dividends for the three months ended March 31, 2003 and $3.2 million of
dividends for the three months ended March 31, 2002, on its outstanding Class A
mandatory redeemable preferred stock.

17

LIQUIDITY AND CAPITAL RESOURCES

The Company's principal uses of cash are to meet working capital
requirements, fund debt obligations and to finance its capital expenditures and
acquisitions. Funds generated from operations during the past two years, with
the exception of the acquisition of a provider of medical staffing to military
treatment facilities on May 1, 2002, have been sufficient to meet the Company's
cash requirements.

Cash provided by operating activities in the three months ended March 31,
of 2003 and 2002 was $9.6 million and $4.7 million, respectively. The $4.9
million increase in cash provided by operating activities is principally due to
an increased level of net earnings coupled with lower growth in accounts
receivable between periods.

The Company spent $3.2 million in the first three months of 2003 and $2.2
million in the first three months of 2002 for capital expenditures. These
capital expenditures are primarily for information technology related
maintenance capital and development projects.

The Company has historically been an acquirer of other physician staffing
businesses and interests. Such acquisitions in recent years have been completed
for cash. The acquisition completed on May 1, 2002 of a provider of medical
staffing to military treatment facilities, at a purchase price of $147.0 million
(before transaction costs and adjustment for net working capital) was financed
through the use of available cash of approximately $39.9 million and the use of
new bank senior credit facilities. The acquisitions in many cases (excluding the
acquisition noted above) include contingent purchase price payment amounts that
are payable in years subsequent to the years of acquisition. Cash payments made
in connection with acquisitions, including contingent payments, were $1.6
million during the three months ended March 31, 2003 and $13.7 million in the
corresponding period in 2002. Future contingent payment obligations are
approximately $10.2 million as of March 31, 2003.

The Company made scheduled debt maturity payments of $2.3 million in the
first three months of 2003 and $6.4 million during the corresponding period in
2002 in accordance with its applicable term loan facilities.

The Company effective March 11, 2003, elected to exercise its option to
purchase a "tail" policy under its principal commercial insurance company policy
providing for its professional liability risks through such date. The cost of
such option totaled approximately $30.6 million and was subsequently paid on
April 11, 2003.

The current senior credit facility at March 31, 2003 provides for up to
$75.0 million of borrowings under a senior revolving credit facility and
provided $225 million of term loans. Borrowings outstanding under the senior
credit facility mature in various years with a final maturity date of October
31, 2008. The senior credit facility agreement contains both affirmative and
negative covenants, including limitations on the Company's ability to incur
additional indebtedness, sell material assets, retire, redeem or otherwise
reacquire its capital stock, acquire the capital stock or assets of another
business, pay dividends, and requires the Company to meet or exceed certain
coverage, leverage and indebtedness ratios. As a result of an excess aggregate
professional liability loss provision recorded in the three months ended March
31, 2003, the Company was in violation of certain of its financial covenant
tests under its bank facilities. The Company requested and its lending banks
have approved an amendment that waives such violations resulting from the loss
provision as of March 31, 2003. The Company intends to meet with its banks in
the near future to secure additional appropriate amendments to its bank
covenants to allow for the change in its program for providing for its
professional liability risks. While the Company believes it will be successful
in obtaining acceptable amendments, there can be no assurance at this time that
such amendments will be obtained or that the Company's borrowing costs will
remain unchanged from present levels. In the event that such amendments are not
obtained, the Company's long-term debt would become due and payable on a current
basis. In such an event, the Company would not be in a position to immediately
repay its long-term debt without either first securing replacement loan
facilities or arranging for additional equity financing. There can be no
assurance that the Company's efforts to achieve either or both of these options
in combination would be successful.

In addition, the senior credit agreement includes a provision for the
prepayment of a portion of the outstanding term loan amounts at any year-end if
the Company generates "excess cash flow," as defined in the agreement.
Subsequent to March 31, 2003, the Company made an "excess cash flow payment" on
April 30,
18

2003 of approximately $8.3 million as a result of cash flow generated in 2002.
The payment of $8.3 million had been recorded in current maturity of long-term
debt as of March 31, 2003 (previously estimated at $7.0 million in the December
31, 2002 balance sheet of the Company).

The Company as of March 31, 2003, had cash and cash equivalents of
approximately $47.9 million and a revolving credit facility borrowing
availability of $73.2 million. The Company's cash needs in the three months
ended March 31, 2003 were met from internally generated operating sources and
there were no borrowings by the Company under its revolving credit facility.

The Company believes that its cash needs, other than for significant
acquisitions, will continue to be met through the use of its remaining existing
available cash, cash flows derived from future operating results and cash
generated from borrowings under its senior revolving credit facility.

INFLATION

We do not believe that general inflation in the U.S. economy has had a
material impact on our financial position or results of operations.

PROFESSIONAL LIABILITY INSURANCE

A significant operating cost of the Company is the cost of providing for
its professional liability losses. The Company's cost associated with
professional liability losses was $37.0 million in fiscal 2002 and $10.6 million
(prior to a provision for losses in excess of an aggregate loss limit of $50.8
million) for the three months ended March 31, 2003. Such costs have historically
been determined by a combination of premiums for the purchase of commercial
insurance or through self-insurance reserve provisions. Due to adverse
conditions in the commercial insurance marketplace for such coverage, there has
been a significant increase in the cost of such insurance coverage in recent
months. The Company's professional liability commercial insurance coverage in
effect for the four-year period ended March 11, 2003, ended on such date. The
Company, in seeking to renew commercial insurance coverage for such risks,
sought competitive quotes to continue to provide such professional liability
insurance coverage on a commercially insured basis. As a result of conditions in
the commercial marketplace for such coverage, including a lack of such coverage
being competitively available on a commercial basis, the Company implemented
effective March 12, 2003, a program of insurance that includes both a captive
insurance company arrangement and self-insurance reserve provisions for
potential losses beginning on such date. The Company's provisions for its
professional liability losses will be determined through actuarial studies of
its projected losses. Such actuarial projected losses, in addition to
considering the Company's loss experience, also include assumptions as to the
frequency and severity of claims which in turn may be influenced by market
expectations and experience in general. Accordingly, the Company's cost for
professional liability risks is expected to increase significantly in 2003.

TRICARE PROGRAM

During the three months ended March 31, 2003, the Company derived
approximately $52.9 million of revenue for services rendered to military
personnel and their dependents as a subcontractor under the TRICARE program
administered by the Department of Defense. The Department of Defense has a
requirement for an integrated healthcare delivery system that includes a
contractor managed care support contract to provide health, medical and
administrative support services to its eligible beneficiaries. The Company
currently provides its services through subcontract arrangements with managed
care organizations that contract directly with the TRICARE program. On August 1,
2002, the Department of Defense issued a request for proposals ("RFP") for the
managed care support contracts, also known as TRICARE Next Generation ("T-Nex").
The intent of the RFP is to replace the existing managed care support contracts
on a phased-in basis between April 2004 and November 2004.

The responses to the RFP by interested managed care organizations were
submitted in January 2003. The Company is actively pursuing contractual
relationships with several of the managed care organizations responding to the
RFPs. The current T-Nex proposal provides for awarding prime contracts to three
managed care organizations to cover three distinct geographical regions of the
country. The award of such prime
19

contracts is currently expected to occur in mid-2003 with the start of the
delivery of healthcare services in 2004 as noted above.

The impact on the results of operations of the Company resulting from the
changes stemming from the T-Nex proposal are not known or able to be estimated
at this time. In the event that the managed care organizations that the Company
has established relationships with in response to the RFP process are not
awarded prime contracts, the Company expects that it will be able to pursue
direct service contracts with individual military treatment facilities. The
potential success and impact on the results of operations of the Company in
obtaining direct service contracts is similarly not known or able to be
estimated at this time. If the Company is unable to establish contracts with
military treatment facilities either directly or through managed care
organizations, then it could have a material adverse effect on our financial
condition and results of operations.

SEASONALITY

Historically, because of the significance of our revenues derived from
patient visits to emergency departments, which are generally open on a 365 day
basis, our revenues and operating results have reflected minimal seasonal
variation and also due to our geographic diversification. Revenue from our
non-emergency department staffing lines is dependent on a healthcare facility
being open during selected time periods. Revenue in such instances will
fluctuate depending upon such factors as the number of holidays in the period.
Accordingly, revenues derived from the hourly contract business of SHR is
generally lower in the fourth quarter of the year due to the number of holidays
therein.

RECENTLY ISSUED ACCOUNTING STANDARDS

On December 31, 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation -- Transition and Disclosure. SFAS No. 148 amends SFAS
No. 123, Accounting for Stock-Based Compensation, to provide alternative methods
of transition to the fair value method of accounting for stock-based employee
compensation under SFAS No. 123. SFAS No. 148 also amends the disclosure
provisions of SFAS No. 123 and APB Opinion No. 28, Interim Financial Reporting,
to require disclosure in the summary of significant accounting policies of the
effects of an entity's accounting policy with respect to stock-based employee
compensation on reported earnings in annual and interim financial statements.
While the Statement does not amend SFAS No. 123 to require companies to account
for employee stock options using the fair value method, the disclosure
provisions of SFAS No. 148 are applicable to all companies with stock-based
employee compensation, regardless of whether the accounting for that
compensation is using the fair value method of SFAS No. 123 or the intrinsic
value method of Opinion 25.

As more fully discussed in Note 7, the Company adopted the disclosure
requirements of SFAS No. 148 and the fair value recognition provisions of SFAS
No. 123, Accounting for Stock-Based Compensation, prospectively to all new
awards granted to employees after January 1, 2003.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK

The Company is exposed to market risk related to changes in interest rates.
The Company does not use derivative financial instruments for speculative or
trading purposes.

The Company's earnings are affected by changes in short-term interest rates
as a result of its borrowings under its senior credit facilities. Interest rate
swap agreements are used to manage a portion of the Company's interest rate
exposure.

The Company was obligated under the terms of its senior credit facility
agreement to obtain within 90 days of the date of entering into the agreement
interest rate hedge agreements covering at least 50% of all funded debt, as
defined, of the Company. Such hedge agreements are required to be maintained for
at least the first three years of the senior credit facility agreement. The
Company entered into a forward interest rate swap agreement effective November
7, 2002, to effectively convert $62.5 million of floating-rate borrowings to
3.86% fixed-rate borrowings. The agreement is a contract to exchange, on a
quarterly basis, floating interest

20

rate payments based on the eurodollar rate, for fixed interest rate payments
over the life of the agreement. The contract has a final expiration date of
April 30, 2005. This agreement exposes the Company to credit losses in the event
of non-performance by the counterparty to the financial instrument. The
counterparty is a creditworthy financial institution and the Company believes
the counterparty will be able to fully satisfy its obligations under the
contract.

At March 31, 2003, the fair value of the Company's total debt, which has a
carrying value of $318.3 million, was approximately $314.6 million. The Company
had $218.3 million of variable debt outstanding at March 31, 2003. If the market
interest rates for the Company's variable rate borrowings averaged 1% more
during the twelve months subsequent to March 31, 2003, the Company's interest
expense would increase, and earnings before income taxes would decrease, by
approximately $2.0 million. This analysis does not consider the effects of the
reduced level of overall economic activity that could exist in such an
environment. Further, in the event of a change of such magnitude, management
could take actions to further mitigate its exposure to the change. However, due
to the uncertainty of the specific actions that would be taken and their
possible effects, the sensitivity analysis assumes no changes in the Company's
financial structure.

ITEM 4. CONTROLS AND PROCEDURES

(a) The Company carried out an evaluation, under the supervision and with
the participation of the Company's management, including the Company's Chairman
and Chief Executive Officer along with the Company's Executive Vice President of
Finance and Administration, of the effectiveness of the design and operation of
the Company's disclosure controls and procedures pursuant to Exchange Act Rule
13a-14 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Based upon that evaluation the Company's Chief Executive Officer along
with the Company's Executive Vice President of Finance and Administration
concluded that as of May 5, 2003 the Company's disclosure controls and
procedures (1) are effective in timely alerting them to material information
relating to the Company (including its consolidated subsidiaries) required to be
included in the Company's periodic SEC filings and (2) are adequate to ensure
that information required to be disclosed by the Company in the reports filed or
submitted by the Company under the Exchange Act is recorded, processed and
summarized and reported within the time periods specified in the SEC's rules and
forms.

(b) There have been no significant changes in the Company's internal
controls or in other factors which could significantly effect internal controls
subsequent to the date the Company carried out its evaluation.

21

PART 2. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Team Health is a party to various pending legal actions arising in the
ordinary operation of its business such as contractual disputes, employment
disputes and general business actions as well as malpractice actions. Team
Health does not believe that the results of such legal actions, individually or
in the aggregate, will have a material adverse effect on the Company's business
or its results of operations, cash flows or financial condition.

See note 8 to the financial statements for a description of legal actions
to which we are party.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

3.126 Articles of Incorporation of Correctional Healthcare
Solutions, Inc., dated December 2, 2002
3.127 Articles of Amendment to Articles of Incorporation of
Correctional Healthcare Solutions, Inc., dated December 4,
2002
3.128 Bylaws of Correctional Healthcare Advantage, Inc.
3.129 Certificate of Incorporation of Physicians Underwriting
Group, Ltd., dated February 26, 2003
3.130 Memorandum of Association of Physicians Underwriting Group,
Ltd.
3.131 Articles of Association of Physicians Underwriting Group,
Ltd.
10.19 Amendment No. 1 to Credit Agreement dated May 1, 2002

(b) Reports of Form 8-K

None

22

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 on Form 10-Q
Equivalent to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Knoxville, Tennessee, on May 14, 2003.

TEAM HEALTH, INC.

/s/ H. LYNN MASSINGALE, M.D.
--------------------------------------
H. Lynn Massingale
Chief Executive Officer

/s/ ROBERT J. ABRAMOWSKI
--------------------------------------
Robert J. Abramowski
Executive Vice President Finance and
Administration

/s/ DAVID JONES
--------------------------------------
David Jones
Vice President and Treasurer

23

SECTION 302 CERTIFICATE

I, H. Lynn Massingale, Chief Executive Officer of Team Health, Inc., certify
that:

1. I have reviewed this quarterly report on Form 10-Q of Team Health, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;

b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of the registrant's board of directors (or persons performing the equivalent
function):

a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: May 14, 2003

By: /s/ H. LYNN MASSINGALE, M.D.
----------------------------------
H. Lynn Massingale
Chief Executive Officer

24

SECTION 302 CERTIFICATE

I, Robert J. Abramowski, Executive Vice President of Finance and Administration
of Team Health, Inc., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Team Health, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;

b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of the registrant's board of directors (or persons performing the equivalent
function):

a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: May 14, 2003

By: /s/ ROBERT J. ABRAMOWSKI
----------------------------------
Robert J. Abramowski
Executive Vice President of
Finance and Administration

25