-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WnKHq2A3uoPMNNoACn5P5g1J1fRaSb0eDS0r+IRw0H9kI0YbKqKCIVkI7g3yNmql KDznPKKK5ItfDgVam7EUKg== 0000950123-03-009212.txt : 20030811 0000950123-03-009212.hdr.sgml : 20030811 20030811162658 ACCESSION NUMBER: 0000950123-03-009212 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20030630 FILED AS OF DATE: 20030811 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TEAM HEALTH INC CENTRAL INDEX KEY: 0001086795 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISC HEALTH & ALLIED SERVICES, NEC [8090] IRS NUMBER: 621562558 STATE OF INCORPORATION: TN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-80337 FILM NUMBER: 03834853 BUSINESS ADDRESS: STREET 1: 1900 WINSTON RD CITY: KNOXVILLE STATE: TN ZIP: 37919 BUSINESS PHONE: 8003422898 MAIL ADDRESS: STREET 1: 1900 WINSTON RD CITY: KNOXVILLE STATE: TN ZIP: 37919 10-Q 1 y889211e10vq.txt FORM 10-Q - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- 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 JUNE 30, 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 --------------------- 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 August 8, 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. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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. TEAM HEALTH, INC. QUARTERLY REPORT FOR THE SIX MONTHS ENDED JUNE 30, 2003
PAGE ---- PART 1. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Consolidated Balance Sheets -- June 30, 2003 and December 2 31, 2002.................................................... Consolidated Statements of Operations -- Three Months Ended 3 June 30, 2003 and 2002...................................... Consolidated Statements of Operations -- Six Months Ended 4 June 30, 2003 and 2002...................................... Consolidated Statements of Cash Flows -- Six Months Ended 5 June 30, 2003 and 2002...................................... Notes to Consolidated Financial Statements.................. 6 Item 2. Management's Discussion and Analysis of Financial Condition 13 and Results of Operations................................... Item 3. Quantitative and Qualitative Disclosures of Market Risk..... 22 Item 4. Controls and Procedures..................................... 23 PART 2. OTHER INFORMATION Item 1. Legal Proceedings........................................... 24 Item 2. Changes in Securities and Use of Proceeds................... 24 Item 3. Defaults upon Senior Securities............................. 24 Item 4. Submission of Matters to a Vote of Security Holders......... 24 Item 5. Other Information........................................... 24 Item 6. Exhibits and Reports on Form 8-K............................ 24 Signatures........................................................... 25
1 PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS TEAM HEALTH, INC. CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31, 2003 2002 ----------- ------------ (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA) ASSETS Current assets: Cash and cash equivalents................................. $ 34,086 $ 47,789 Accounts receivable, net.................................. 163,077 156,449 Prepaid expenses and other current assets................. 13,763 9,956 Income tax receivable..................................... -- 1,074 --------- -------- Total current assets........................................ 210,926 215,268 Property and equipment, net................................. 21,270 19,993 Intangibles, net............................................ 21,874 28,068 Goodwill.................................................... 166,947 164,188 Deferred income taxes....................................... 85,729 64,282 Other....................................................... 20,780 19,298 --------- -------- $ 527,526 $511,097 ========= ======== LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable.......................................... $ 12,238 $ 13,895 Accrued compensation and physician payable................ 67,519 65,697 Other accrued liabilities................................. 14,217 44,977 Income taxes payable...................................... 6,305 -- Current maturities of long-term debt...................... 14,154 20,125 Deferred income taxes..................................... 5,536 411 --------- -------- Total current liabilities................................... 119,969 145,105 Long-term debt, less current maturities..................... 291,256 300,375 Other non-current liabilities............................... 86,627 18,644 Mandatory redeemable preferred stock........................ 151,566 144,405 Commitments and Contingencies Common stock, $0.01 par value 12,000 shares authorized, 10,068 shares issued and outstanding at June 30, 2003 and December 31, 2002......................................... 101 101 Additional paid in capital.................................. 680 644 Retained earnings (deficit)................................. (120,854) (96,562) Accumulated other comprehensive loss........................ (1,819) (1,615) --------- -------- $ 527,526 $511,097 ========= ========
See accompanying notes to financial statements. 2 TEAM HEALTH, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, ------------------- 2003 2002 -------- -------- (UNAUDITED) (IN THOUSANDS) Net revenue................................................. $358,979 $295,311 Provision for uncollectibles................................ 108,848 91,256 -------- -------- Net revenue less provision for uncollectibles............. 250,131 204,055 Cost of services rendered Professional service expenses............................. 187,001 155,132 Professional liability costs.............................. 14,535 9,803 -------- -------- Gross profit........................................... 48,595 39,120 General and administrative expenses......................... 24,460 19,787 Management fee and other expenses........................... 128 124 Depreciation and amortization............................... 5,598 5,019 Interest expense, net....................................... 6,178 5,889 Refinancing costs........................................... -- 3,389 -------- -------- Earnings before income taxes.............................. 12,231 4,912 Provision for income taxes.................................. 4,553 2,585 -------- -------- Net earnings................................................ 7,678 2,327 Dividends on preferred stock................................ 3,600 3,286 -------- -------- Net earnings (loss) attributable to common stockholders... $ 4,078 $ (959) ======== ========
See accompanying notes to financial statements. 3 TEAM HEALTH, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, ------------------- 2003 2002 -------- -------- (UNAUDITED) (IN THOUSANDS) Net revenue................................................. $709,118 $559,038 Provision for uncollectibles................................ 220,573 182,073 -------- -------- Net revenue less provision for uncollectibles............. 488,545 376,965 Cost of services rendered Professional service expenses............................. 368,997 284,664 Professional liability costs.............................. 76,078 17,798 -------- -------- Gross profit........................................... 43,470 74,503 General and administrative expenses......................... 45,923 36,973 Management fee and other expenses........................... 253 262 Depreciation and amortization............................... 11,121 8,587 Interest expense, net....................................... 12,393 11,165 Refinancing costs........................................... -- 3,389 -------- -------- Earnings (loss) before income taxes and cumulative effect of change in accounting principle...................... (26,220) 14,127 Provision (benefit) for income taxes........................ (9,089) 6,410 -------- -------- Earnings (loss) before cumulative effect of change in accounting principle................................... (17,131) 7,717 Cumulative effect of change in accounting principle, net of taxes of $209............................................. -- (294) -------- -------- Net earnings (loss)......................................... (17,131) 7,423 Dividends on preferred stock................................ 7,161 6,511 -------- -------- Net earnings (loss) attributable to common stockholders... $(24,292) $ 912 ======== ========
See accompanying notes to financial statements. 4 TEAM HEALTH, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, --------------------- 2003 2002 --------- --------- (UNAUDITED) (IN THOUSANDS) OPERATING ACTIVITIES Net earnings (loss)......................................... $ (17,131) $ 7,423 Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Depreciation and amortization............................. 11,121 8,587 Amortization of deferred financing costs.................. 714 871 Provision for uncollectibles.............................. 220,573 182,073 Deferred income taxes..................................... (17,032) 6,626 Loss on sale of equipment................................. 3 44 Write-off of deferred financing costs..................... -- 3,389 Cumulative effect of change in accounting principle....... -- 294 Equity in joint venture income............................ (91) (232) Changes in operating assets and liabilities, net of acquisitions: Accounts receivable....................................... (227,140) (191,862) Prepaid expenses and other current assets................. (2,799) (3,913) Income tax receivable..................................... 7,118 1,627 Accounts payable.......................................... (1,644) (2,592) Accrued compensation and physician payable................ 2,077 (2,940) Other accrued liabilities................................. (2,037) 1,767 Professional liability reserves........................... 37,992 2,895 --------- --------- Net cash provided by operating activities................... 11,724 14,057 INVESTING ACTIVITIES Purchases of property and equipment......................... (5,891) (4,898) Cash paid for acquisitions, net............................. (1,571) (161,630) Purchase of investments..................................... (1,864) (1,046) Other investing activities.................................. (960) 1,344 --------- --------- Net cash used in investing activities....................... (10,286) (166,230) FINANCING ACTIVITIES Payments on notes payable................................... (15,090) (117,300) Proceeds from notes payable................................. -- 225,000 Payment of deferred financing costs......................... (51) (5,145) Proceeds from sales of common stock......................... -- 644 Proceeds from sale of preferred stock....................... -- 1,270 --------- --------- Net cash provided by (used in) financing activities......... (15,141) 104,469 --------- --------- Net decrease in cash........................................ (13,703) (47,704) Cash and cash equivalents, beginning of period.............. 47,789 70,183 --------- --------- Cash and cash equivalents, end of period.................... $ 34,086 $ 22,479 ========= ========= Interest paid............................................... $ 11,639 $ 10,109 ========= ========= Taxes paid.................................................. $ 1,079 $ 6,175 ========= =========
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 Equivalent. 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 Compensa- 6 TEAM HEALTH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) tion, 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. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150 requires that certain financial instruments, which under previous guidance were accounted for as equity-type instruments, must now be accounted for as liabilities. The financial instruments affected include mandatory redeemable stock, certain financial instruments that require or may require the issuer to buy back some of its shares in exchange for cash or other assets and certain obligations that can be settled with shares of stock. The Company's mandatory redeemable preferred stock is subject to the provisions of this statement beginning January 1, 2004. In addition, dividends on its redeemable preferred stock will be required to be included in interest expense in the Company's statements of operations beginning January 1, 2004. The Company does not expect the adoption of SFAS No. 150 to have a material effect on the results of its operations or financial condition. NOTE 3. NET REVENUE Net revenue for the three and six months ended June 30, 2003 and 2002, respectively, consisted of the following:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------- ------------------- 2003 2002 2003 2002 -------- -------- -------- -------- Fee for service revenue.................... $245,511 $217,571 $491,930 $431,489 Contract revenue........................... 104,743 70,341 201,451 112,729 Other revenue.............................. 8,725 7,399 15,737 14,820 -------- -------- -------- -------- $358,979 $295,311 $709,118 $559,038 ======== ======== ======== ========
7 TEAM HEALTH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 4. INTANGIBLE ASSETS The following is a summary of intangible assets and related amortization as of June 30, 2003 and December 31, 2002 (in thousands):
GROSS CARRYING ACCUMULATED AMOUNT AMORTIZATION -------------- ------------ As of June 30, 2003: Contracts................................................ $46,763 $25,431 Other.................................................... 758 216 ------- ------- Total................................................. $47,521 $25,647 ======= ======= As of December 31, 2002: Contracts................................................ $46,763 $19,015 Other.................................................... 685 365 ------- ------- Total................................................. $47,448 $19,380 ======= ======= Aggregate amortization expense: For the three months ended June 30, 2003................. $ 3,258 ======= For the six months ended June 30, 2003................... $ 6,504 ======= Estimated amortization expense: For the year ended December 31, 2003..................... $13,021 For the year ended December 31, 2004..................... 5,264 For the year ended December 31, 2005..................... 3,903 For the year ended December 31, 2006..................... 2,325 For the year ended December 31, 2007..................... 1,894
As of June 30, 2003, the Company may have to pay up to $9.8 million in future contingent payments as additional consideration for acquisitions made prior to June 30, 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 six months ended June 30, 2003, the Company recorded an additional $0.7 million of goodwill related to previous acquisitions. NOTE 5. LONG-TERM DEBT Long-term debt as of June 30, 2003 consists of the following (in thousands): Term Loan Facilities........................................ $205,410 12% Senior Subordinated Notes............................... 100,000 -------- 305,410 Less current portion........................................ 14,154 -------- $291,256 ========
The Term Loan Facilities consisted of the following (in thousands): Senior Secured Term Loan A.................................. $ 62,473 Senior Secured Term Loan B.................................. 142,937 -------- $205,410 ========
8 TEAM HEALTH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 began providing, effective March 12, 2003, for its professional liability risks through a captive insurance company. The Company prior to such date insured such risks principally through the commercial insurance market. While the existing senior credit facility provides for the use of a captive insurance company for such coverage and the Company is currently in compliance with the terms of the senior credit facility, the captive insurance program as presently structured will necessitate certain amendments to the terms of the senior credit facility. The Company intends to secure amendments to the terms of the senior credit agreement 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. Alternatively, the Company may be required to re-enter the commercial insurance market for such coverage or alter the structure of its captive insurance program, either alternative of which may be at a costs that may be significantly higher than the Company currently expects under the present captive insurance program based on the most recent actuarial study results. 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 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 June 30, 2003 were 4.03% and 4.53% 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 June 30, 2003. No funds have been borrowed under the revolving credit facility as of June 30, 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. 9 TEAM HEALTH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Aggregate maturities of long-term debt due within one year of June 30, 2003 are currently as follows (in thousands): 2004........................................................ $ 14,154 2005........................................................ 17,392 2006........................................................ 20,689 2007........................................................ 16,013 Thereafter.................................................. 237,162 -------- $305,410 ========
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. During the period March 12, 1999 through March 11, 2003, the primary source of the Company's coverage for such risks was 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 included an aggregate limit of $130.0 million that included 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, 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. Since March 12, 2003, loss estimates on a "claims-made" basis are being provided for and funded within the captive insurance company. Additionally, the Company is providing for an actuarial estimate of losses for professional liability claims incurred but not reported since March 12, 2003. The option for the tail premium was exercised by the Company effective March 11, 2003, and its cost of approximately $30.6 million, was paid in April 2003. The Company had previously recorded the cost of such option over the four-year period ended March 11, 2003. The Company's decision to forego commercial professional liability insurance in favor of a self-insured program was, in part, based on the results of an actuarial study. The 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 under the $130.0 million aggregate policy limit. The foregoing actuarial study included 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 had previously recorded this loss estimate in its statement of operations for the three months ended March 31, 2003. 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, the results of future actuarial studies may result in the loss estimate provision under the aggregate policy limit to be further adjusted upward or downward as actual results are realized over time. 10 TEAM HEALTH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 six months ended June 30, 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 (loss) for the three and six months ended June 30, 2003 and 2002 is less than that which would have been recognized if the fair value method had been applied to all awards. The following table illustrates the effect on net earnings (loss) if the fair value method had been applied to all outstanding and unvested awards in each period (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------ ----------------- 2003 2002 2003 2002 ------- ------ --------- ----- Net earnings (loss) attributable to common stockholders, as reported...................... $4,078 $(959) $(24,292) $912 Add: Stock-based employee compensation expense included in reported net earnings (loss) attributable to common stockholders, net of related tax effects......................... 4 -- 6 -- Deduct: Total stock-based employee compensation expense determined under the fair value method for all awards, net of related tax effects..................................... (24) (18) (47) (36) ------ ----- -------- ---- Pro forma net earnings (loss) attributable to common stockholders......................... $4,058 $(977) $(24,333) $876 ====== ===== ======== ====
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. 11 TEAM HEALTH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 June 30, 2003, the Company may have to pay up to $9.8 million in future contingent payments as additional consideration for acquisitions made prior to June 30, 2003. These payments will be made and recorded as additional purchase price should the acquired operations achieve the financial targets agreed to in the respective acquisition agreements. POTENTIAL TAX ASSESSMENT On July 17, 2003, the Company received a Notice of Proposed Adjustment (NOPA) from the Internal Revenue Service (IRS) relating to audits of its federal corporate income taxes for the 2000 and 2001 tax years. The IRS is asserting deficiencies of taxable income in such tax returns in the total amount of $92.2 million plus interest on the resulting taxes due. In addition, the IRS is asserting deficiencies of taxable income in certain 1999 tax returns of affiliated professional corporations in the amount of $8.4 million. The Company has filed a protest with the Office of the Regional Director of Appeals in connection with the 1999 tax returns and is currently in the process of reviewing and formulating its response to the IRS agent's NOPA for 2000 and 2001. The Company believes that it has meritorious legal defenses to those deficiencies and believes that the ultimate outcome of the proposed adjustments will not result in a material impact on the Company's consolidated results of operations or financial position. NOTE 9. COMPREHENSIVE EARNINGS The components of comprehensive earnings, net of related taxes, are as follows (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------ ----------------- 2003 2002 2003 2002 ------- ------ -------- ------ Net earnings (loss) attributable to common shareholders................................. $4,078 $(959) $(24,292) $ 912 Net change in fair value of interest rate swaps........................................ (150) -- (204) 219 ------ ----- -------- ------ Comprehensive earnings (loss).................. $3,928 $(959) $(24,496) $1,131 ====== ===== ======== ======
Accumulated other comprehensive loss, net of related taxes, was $1.8 million at June 30, 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 account 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 accounting principles generally accepted in the United States, 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 (69.4%) of the Company's revenue in the six months ended June 30, 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 recorded a loss estimate, discounted at 4%, of $50.8 million in its 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 in 2003. The actuarial study completed in March 2003 included projections of professional liability loss estimates for purposes of providing for such 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. This annual cost estimate is subject to change as a result of several factors, including fluctuating hours of exposure as measured by hours of physician and related professional staff services. As noted above, due to the long pattern of payout for such exposures, 14 the Company anticipates that a 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 Equivalent. There have been no changes to these critical accounting policies or their application during the six months ended June 30, 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 SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, --------------- --------------- 2003 2002 2003 2002 ------ ------ ------ ------ Net revenue............................................ 143.5% 144.7% 145.2% 148.3% Provision for uncollectibles........................... 43.5 44.7 45.2 48.3 Net revenue less provision for uncollectibles.......... 100.0 100.0 100.0 100.0 Cost of services rendered.............................. 80.6 80.8 91.1 80.2 Gross profit........................................... 19.4 19.2 8.9 19.8 General and administrative expenses.................... 9.8 9.7 9.4 9.8 Management fee and other expenses...................... 0.1 0.1 0.1 0.1 Depreciation and amortization.......................... 2.2 2.5 2.3 2.3 Interest expense, net.................................. 2.5 2.9 2.5 3.0 Refinancing costs...................................... -- 1.6 -- 0.9 Earnings (loss) before income taxes and cumulative effect of change in accounting principle............. 4.8 2.4 (5.4) 3.7 Provision (benefit) for income taxes................... 1.8 1.3 (1.9) 1.6 Earnings (loss) before cumulative effect of change in accounting principle................................. 3.0 1.1 (3.5) 2.1 Cumulative effect of change in accounting principle, net of income tax benefit............................ -- -- -- 0.1 Net earnings (loss).................................... 3.0 1.1 (3.5) 2.0 Dividends on preferred stock........................... 1.4 1.6 1.5 1.8 Net earnings (loss) attributable to common stockholders......................................... 1.6 (0.5) (5.0) 0.2
15 THREE MONTHS ENDED JUNE 30, 2003 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2002 Net Revenues. Net revenues for the three months ended June 30, 2003 increased $63.7 million, or 21.6%, to $359.0 million from $295.3 million for the three months ended June 30, 2002. The increase in net revenues of $63.7 million included an increase of $27.9 million in fee-for-service revenue, $34.4 million in contract revenue and $1.3 million in other revenue. For the three month periods ended June 30, 2003 and 2002, fee-for-service revenue was 68.4% of net revenue in 2003 compared to 73.7% in 2002, contract revenue was 29.2% of net revenue in 2003 compared to 23.8% in 2002 and other revenue was 2.4% of net revenue in 2003 compared to 2.5% 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 $108.8 million for the three months ended June 30, 2003 compared to $91.3 million for the three months ended June 30, 2002, an increase of $17.5 million or 19.2%. The provision for uncollectibles as a percentage of net revenue was 30.3% for the three months ended June 30, 2003 compared to 30.9% for the three months ended June 30, 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 June 30, 2003 increased $46.0 million, or 22.6%, to $250.1 million from $204.1 million for the corresponding three months in 2002. Acquisitions contributed $15.4 million and new contracts obtained through internal sales contributed $31.1 million of the increase. The aforementioned increases were partially offset by $15.7 million of revenue derived from contracts that terminated during the periods. Same contract revenue less provision for uncollectibles, which consists of contracts under management in both periods, increased $15.2 million, or 8.4%, to $196.5 million in 2003 from $181.3 million in 2002. The increase in same contract revenue of 8.4% includes the effects between periods of both an increase in emergency department ("ED") fee-for-service billing volume of approximately 3.0% and increased estimated net revenue per ED patient visit of approximately 9.1%, principally as the result of higher acuity factors and reimbursement rate increases. Net revenue less provision for uncollectibles for other physician specialties and ED non fee-for-service revenue overall increased approximately 3.5% between periods. 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 June 30, 2003 were $187.0 million compared to $155.1 million for the three months ended June 30, 2002, an increase of $31.9 million or 20.6%. The increase of $31.9 million included $12.0 million resulting from acquisitions between periods. The remaining increase in professional service expenses was principally due to increases in provider hours as the result of net new contract sales, principally for staffing within military treatment facilities, including increases resulting from troop deployments in 2003, as well as additional costs to accommodate increased ED patient visits. As a percentage of net revenue less provision for uncollectibles, professional service expenses were 74.8% for the three months ended June 30, 2003 compared to 76.0% for the three months ended June 30, 2002. While the provider compensation portion of provider service expenses increased commensurately with the increase in net revenues, the lower percentage of new revenues less provision for uncollectibles is the result of the billing and collection cost component of provider service expenses remaining unchanged between periods. Professional liability costs were $14.5 million for the three months ended June 30, 2003. The total professional liability cost of $14.5 million in the period compared with $9.8 million for the three months ended June 30, 2002, resulting in an increase between years of $4.7 million or 48.0%. The increase in professional liability costs is due to an increased level of cost resulting from an estimate of the Company's losses on a self-insured basis beginning March 12, 2003 compared to its commercial insurance premium based cost in the prior period. Gross Profit. Gross profit was $48.6 million for the three months ended June 30, 2003 compared to $39.1 million for the corresponding quarter in 2002. The increase in gross profit is attributable to the effect of 16 acquisitions and net new contract growth between periods as well as increases in ED volumes and estimated net revenue per ED patient visit. Gross profit as a percentage of revenue less provision for uncollectibles for the three months ended June 30, 2003 was 19.4% compared to 19.2% for the three months ended June 30, 2002. General and Administrative Expenses. General and administrative expenses for the three months ended June 30, 2003 increased to $24.5 million from $19.8 million for the three months ended June 30, 2002, for an increase of $4.7 million, or 23.6% between periods. General and administrative expenses as a percentage of net revenue less provision for uncollectibles were 9.8% for the three months ended June 30, 2003, compared to 9.7% for the three months ended June 30, 2002. The increase in general and administrative expenses between periods included expenses associated with acquired operations of $1.3 million, which was 6.6% of the increase between periods. The remaining net increase of 17.0%, or approximately $3.4 million, was principally due to increases in salaries and related benefit costs of approximately $2.5 million and costs related to a disputed contract settlement of approximately $0.6 million. Included in the increase in salaries and benefits between periods was an increase of approximately $1.4 million related to the Company's management incentive plan. Management Fee and Other Operating Expenses. Management fee and other operating expenses were $0.1 million for the three months ended June 30, 2003 and 2002, respectively. Depreciation and Amortization. Depreciation and amortization was $5.6 million for the three months ended June 30, 2003 and $5.0 million for the three months ended June 30, 2002. Depreciation expense was unchanged between periods while amortization expense increased by $0.6 million between periods. Amortization expense increased $0.6 million between periods principally due to the acquisition of contract intangibles in 2002. Net Interest Expense. Net interest expense increased $0.3 million to $6.2 million for the three months ended June 30, 2003 compared to $5.9 million for the corresponding period in 2002. The increase in net interest expense is principally due to increases in outstanding debt resulting from acquisitions between periods. Refinancing Costs. The Company expensed in the three months ended June 30, 2002 $3.4 million of deferred financing costs related to its previously outstanding bank debt that was refinanced in 2002. Earnings before Income Taxes. Earnings before income taxes for the three months ended June 30, 2003 were $12.2 million compared to $4.9 million for the three months ended June 30, 2002. Provision for Income Taxes. Income taxes for the three months ended June 30, 2003 were $4.6 million compared to $2.6 million for the three months ended June 30, 2002. The increase in income taxes for the three months ended June 30, 2003 over the same period in 2002 was due to the increased level of earnings before income taxes in 2003. Net Earnings. Net earnings for the three months ended June 30, 2003 were $7.7 million compared to $2.3 million for the three months ended June 30, 2002. Dividends on Preferred Stock. The Company accrued $3.6 million of dividends for the three months ended June 30, 2003 and $3.3 million of dividends for the three months ended June 30, 2002, on its outstanding Class A mandatory redeemable preferred stock. SIX MONTHS ENDED JUNE 30, 2003 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2002 Net Revenues. Net revenues for the six months ended June 30, 2003 increased $150.1 million, or 26.8%, to $709.1 million from $559.0 million for the six months ended June 30, 2002. The increase in net revenues of $150.1 million included an increase of $60.4 million in fee-for-service revenue, $88.7 million in contract revenue and $1.0 million in other revenue. For the six month periods ended June 30, 2003 and 2002, fee-for-service revenue was 69.4% of net revenue in 2003 compared to 77.2% in 2002, contract revenue was 28.4% of net revenue in 2003 compared to 20.2% in 2002 and other revenue was 2.2% of net revenue in 2003 compared to 2.6% 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. 17 Provision for Uncollectibles. The provision for uncollectibles was $220.6 million for the six months ended June 30, 2003 compared to $182.1 million for the six months ended June 30, 2002, an increase of $38.5 million or 21.1%. The provision for uncollectibles as a percentage of net revenue was 31.1% for the six months ended June 30, 2003 compared to 32.6% for the six months ended June 30, 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 six months ended June 30, 2003 increased $111.6 million, or 29.6%, to $488.5 million from $376.9 million for the corresponding six months in 2002. Acquisitions contributed $56.0 million and new contracts obtained through internal sales contributed $57.8 million of the increase. The aforementioned increases were partially offset by $26.9 million of revenue derived from contracts that terminated during the periods. Same contract revenue less provision for uncollectibles, which consists of contracts under management in both periods, increased $24.7 million, or 7.5%, to $352.2 million in 2003 from $327.5 million in 2002. The increase in same contract revenue of 7.5% between periods includes the effects of both an increase in emergency department ("ED") fee-for-service billing volume of approximately 4.5% and increased estimated net revenue per ED patient visit of approximately 5.0%, principally as the result of higher acuity factors and reimbursement rate increases. Net revenue less provision for uncollectibles for other physician specialties and ED non fee-for-service revenue overall increased approximately 6.0% between periods. 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 six months ended June 30, 2003 were $369.0 million compared to $284.7 million for the six months ended June 30, 2002, an increase of $84.3 million or 29.6%. The increase of $84.3 million included $43.8 million resulting from acquisitions between periods. As a percentage of net revenue less provision for uncollectibles, professional service expenses were 75.5% in both the six months ended June 30, 2003 and June 30, 2002. The remaining increase in professional service expenses was principally due to increases in provider hours as the result of net new contract sales, principally for staffing within military treatment facilities, including increases resulting from troop deployments in 2003, as well as additional costs to accommodate increased ED patient visits. Professional liability costs were $76.1 million for the six months ended June 30, 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 $76.1 million in the period compared with $17.8 million for the six months ended June 30, 2002, resulting in an increase between years of $58.3 million (42.1% 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 ($1.3 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. Gross profit was $43.5 million for the six months ended June 30, 2003 compared to $74.5 million for the corresponding period in 2002. The decrease in gross profit is attributable to the effect of the provision for excess losses of $50.8 million partially offset by the effect of acquisitions and net new contract growth between periods. Gross profit as a percentage of revenue less provision for uncollectibles for the six months ended June 30, 2003 was 19.3% before the provision for excess losses for prior periods compared to 19.8% for the six months ended June 30, 2002. The decrease was principally due to increases in provider and professional liability costs increasing faster than growth in revenues. General and Administrative Expenses. General and administrative expenses for the six months ended June 30, 2003 increased to $45.9 million from $37.0 million for the six months ended June 30, 2002, for an increase of $8.9 million, or 24.2% between periods. General and administrative expenses as a percentage of net revenue less provision for uncollectibles were 9.4% for the six months ended June 30, 2003, compared to 9.8% for the six months ended June 30, 2002. The increase in general and administrative expenses between periods included expenses associated with acquired operations of $4.7 million, which was 12.7% of the increase 18 between periods. The remaining net increase of 11.5%, or approximately $4.2 million, was principally due to increases in salaries and related benefit costs of approximately $3.2 million and costs related to a disputed contract settlement of approximately $0.6 million. Included in the increase in salaries and benefits between periods was an increase of approximately $1.2 million related to the Company's management incentive plan. Management Fee and Other Operating Expenses. Management fee and other operating expenses were $0.3 million for the six months ended June 30, 2003 and 2002, respectively. Depreciation and Amortization. Depreciation and amortization was $11.1 million for the six months ended June 30, 2003 and $8.6 million for the six months ended June 30, 2002. Depreciation was unchanged between periods while amortization expense increased by $2.5 million between periods. The increase in amortization expense is principally due to the acquisition of contract intangibles in 2002. Net Interest Expense. Net interest expense increased $1.2 million to $12.4 million for the six months ended June 30, 2003 compared to $11.2 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. Refinancing Costs. The Company expensed in the six months ended June 30, 2002 $3.4 million of deferred financing costs related to its previously outstanding bank debt that was refinanced in 2002. Earnings (Loss) before Income Taxes and Cumulative Effect of Change in Accounting Principle. Earnings (loss) before income taxes for the six months ended June 30, 2003 was a loss of $26.2 million compared to earnings of $14.1 million for the six months ended June 30, 2002. Provision (Benefit) for Income Taxes. Income taxes for the six months ended June 30, 2003 was a benefit of $9.1 million compared to a provision of $6.4 million for the six months ended June 30, 2002. The decrease in income taxes for the six months ended June 30, 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 six months ended June 30, 2003, was a loss of $17.1 million compared to earnings of $7.7 million for the six months ended June 30, 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 six months ended June 30, 2003 was a net loss of $17.1 million compared to net earnings of $7.4 million for the six months ended June 30, 2002. Dividends on Preferred Stock. The Company accrued $7.2 million of dividends for the six months ended June 30, 2003 and $6.5 million of dividends for the six months ended June 30, 2002, on its outstanding Class A mandatory redeemable preferred stock. 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 six months ended June 30, of 2003 and 2002 was $11.7 million and $14.1 million, respectively. The $2.4 million decrease in cash provided by operating activities is principally due to the payment of a $30.6 million premium on its previous professional liability insurance policy and to fund growth in accounts receivable of approximately $6.6 million, both of which were substantially offset by cash flow from other operating activities. 19 The Company spent $5.9 million in the first six months of 2003 and $4.9 million in the first three months of 2002 for capital expenditures. These expenditures were primarily for information technology investments and related 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 six months ended June 30, 2003 and $161.6 million in the corresponding period in 2002. Future contingent payment obligations are approximately $9.8 million as of June 30, 2003. The Company made scheduled debt maturity payments of $6.8 million in the first six months of 2003 and $6.4 million during the corresponding period in 2002 in accordance with its applicable term loan facilities. In addition, the Company in 2003 prepaid $8.3 million of its bank term debt under an "excess cash flow" payment provision of its senior credit facility agreement. 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 paid in April 2003. The current senior credit facility at June 30, 2003 provides for up to $75.0 million of borrowings under a senior revolving credit facility and $205.4 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. The Company began providing effective March 12, 2003, for its professional liability risks in part through a captive insurance company. The Company prior to such date insured such risks principally through the commercial insurance market. While the existing senior credit facility provides for the use of a captive insurance company for such coverage and the Company is currently in compliance with the terms of the senior credit facility, the captive insurance program as presently structured will necessitate certain amendments to the terms of the senior credit facility. The Company intends to secure amendments to the terms of its senior credit agreement to allow for the change in its program for providing for its professional liability risks. Alternatively, the Company may be required to re-enter the commercial insurance market for such coverage or alter the structure of its captive insurance program, either alternative of which may be at a costs that may be significantly higher than the Company currently expects under the present captive insurance program based on the most recent actuarial study results. The senior credit agreement also 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 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 June 30, 2003, had cash and cash equivalents of approximately $34.1 million and a revolving credit facility borrowing availability of $73.2 million. The Company's cash needs in the six months ended June 30, 2003 were met from internally generated operating sources and there were no borrowings by the Company under its revolving credit facility. 20 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 $25.3 million (prior to a provision for losses in excess of an aggregate loss limit of $50.8 million) for the six months ended June 30, 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 six months ended June 30, 2003, the Company derived approximately $111.4 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 contracts is currently expected to occur in August 2003 or shortly thereafter, 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 21 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. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150 requires that certain financial instruments, which under previous guidance were accounted for as equity-type instruments, must now be accounted for as liabilities. The financial instruments affected include mandatory redeemable stock, certain financial instruments that require or may require the issuer to buy back some of its shares in exchange for cash or other assets and certain obligations that can be settled with shares of stock. The Company's mandatory redeemable preferred stock is subject to the provisions of this statement beginning January 1, 2004. In addition, dividends on its redeemable preferred stock will be required to be included in interest expense in the Company's statements of operations beginning January 1, 2004. The Company does not expect the adoption of SFAS No. 150 to have a material effect on the results of its operations or financial condition. 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 22 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 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 June 30, 2003, the fair value of the Company's total debt, which has a carrying value of $305.4 million, was approximately $304.0 million. The Company had $205.4 million of variable debt outstanding at June 30, 2003. If the market interest rates for the Company's variable rate borrowings averaged 1% more during the twelve months subsequent to June 30, 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-15(d) 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 the end of the period covered by this report the Company's disclosure controls and procedures (1) were 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) were 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 control over financial reporting identified in connection with the evaluation described in paragraph (a) above, that have materially affected or are reasonably likely to materially affect, the Company's internal control over financial reporting. 23 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 3.132 Articles of Incorporation of Greenbrier Emergency Physicians, Inc. dated April 10, 2003 3.133 Bylaws of Greenbrier Emergency Physicians, Inc. 31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(b) Reports of Form 8-K None 24 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 August 8, 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 25 EX-3.132 3 y889211exv3w132.txt ARTICLES OF INCORPORATION EXHIBIT 3.132 STATE OF WEST VIRGINIA [STATE OF WEST VIRGINIA SEAL] CERTIFICATE I, JOE MANCHIN III, SECRETARY OF STATE OF THE STATE OF WEST VIRGINIA, HEREBY CERTIFY THAT GREENBRIER EMERGENCY PHYSICIANS, INC. CONTROL NUMBER: 55164 has filed its "Articles of Incorporation" in my office according to the provisions of the West Virginia Code. I hereby declare the organization to be registered as corporation from its effective date of April 10, 2003 with the right of perpetual existence. Therefore, I hereby issue this CERTIFICATE OF INCORPORATION [STATE OF WEST VIRGINIA SEAL] GIVEN UNDER MY HAND AND THE GREAT SEAL OF THE STATE OF WEST VIRGINIA ON THIS DAY OF APRIL 10, 2003 /s/ Joe Manchin III SECRETARY OF STATE JOE MANCHIN, III Penney Barker, TeamLeader Secretary of State Corporations Division State Capitol Building Tel : (304)558-8000 1900 Kanawha Blvd. East Fax: (304)558-5758 Charleston, WV 25305-0770 www.wvsos.com FILE One Original [STATE OF WEST VIRGINIA SEAL] CONTROL # 55164 WEST VIRGINIA ARTICLES OF INCORPORATION ________________________________________________________________________________ The undersigned, acting as incorporator(s) according to the West Virginia Code, adopts the following Articles of Incorporation for a West Virginia Domestic Corporation, which shall be perpetual: 1. The NAME of the WEST VIRGINIA CORPORATION shall be: [This name is your official name and and must Greenbrier Emergency Physicians, Inc. be used in ITS ENTIRETY when in use UNLESS a trade name is registered with the Office of Secretary of State, according to Chapter 47-8-3 of the West Virginia Code. 2. The ADDRESS of the PRINCIPAL OFFICE of the Street: 1900 Winston Road, Suite 300 corporation will be: City/State/Zip: Knoxville, Tennessee 37919 located in the County of: County: Knox The mailing address of the above location, if different, will be: Street/Box: ______________________________________________ City/State/Zip: ______________________________________________ 3. The PHYSICAL ADDRESS (not a PO box) Street: Not Applicable of the PRINCIPAL PLACE OF BUSINESS IN WEST VIRGINIA, IF ANY of the corporation City/State/Zip: ______________________________________________ will be: located in the County of: County: ______________________________________________ The mailing address of the above Street/Box: ______________________________________________ location, if different, will be: City/State/Zip: ______________________________________________ Name: Corporation Service Company 4. The name and address of the PERSON TO WHOM NOTICE OF PROCESS MAY BE Street: 1600 Laidley Tower SENT IS: City/State/Zip: Charleston, WV 25301 5. This corporation is organized as: (check one below) [ ] NON-PROFIT, NON-STOCK, (if you plan on applying for 501(c)(3) status with the IRS, you may want to include certain languages that is required by IRS to be included in your articles of incorporation) [X] FOR PROFIT 6. FOR PROFIT ONLY: The total value of all authorized capital stock of the corporation will be $25.00. The capital stock will be divided into 2,000 shares at the par value of $0 per share. FORM CD-1 ISSUED BY THE SECRETARY OF STATE, STATE CAPITAL, CHARLESTON, WV 25305 REVISED 10/02
Page 2 WEST VIRGINIA ARTICLES OF INCORPORATION 7. The PURPOSES for which this corporation is formed are as follows: (Describe the type(s) of business activity which will be conducted, for example, "agricultural production of grain and poultry", "construction of residential and commercial buildings", "manufacturing of food products", "commercial printing", "retail grocery and sale of beer and wine". Purposes may conclude with words"... including the transaction of any or all lawful business for which corporations may be incorporated in West Virginia.") Medical Staffing Services _________________________________________________________________________ _________________________________________________________________________ 8. FOR NON PROFITS ONLY: (Check the statement the applies to your entity) -- Corporation will have no members -- Corporation will have members (NOTE) If corporation has one or more classes of members, the designation of a class or classes is to be set forth in the articles of incorporation and the manner of election or appointment and the qualifications and rights of the members of each class is to be set forth in the articles of incorporation or bylaws. If this applies to your entity, you will have to attach a separate sheet listing the above required information, unless it will fit in the space below Not Applicable _________________________________________________________________________ _________________________________________________________________________ 9. The name and address of the incorporator(s) is:
Name Address City/State/Zip John R. Stair 1900 Winston Road, Suite 300 Knoxville, TN 37919 ______________________________ ______________________________ ______________________________ ______________________________ ______________________________ ______________________________ ______________________________ ______________________________ ______________________________
10. Contact and Signature Information: a. Contact person to reach in case there is a problem with filing: John R. Stair Phone # 8652935665 b. Print Name of person who is signing articles of incorporation: John R. Stair c. Signature of Incorporator: /s/ John R. Stair Date: 4/7/03 Checklist for New Businesses After Filing With The Office of Secretary of State Filing with the Secretary of State is your first step in getting your business registered and in compliance with the State of West Virginia. However, there may be additional steps that need to be followed throughout the life of your business. The list below will inform you of those steps in order for your organization to stay in compliance with the State. Please know that the Secretary of State's Office is here to assist you throughout the span of your business. You may contact our office at 304-558-8000, through our website www.wvsos.com or by email at business@wvsos.com and we will be happy to answer any of your questions or send you any applications that you may need. - - CONTACT THE WEST VIRGINIA TAX DEPARTMENT at 304-558-3333 to obtain a business license and tax identification number. (Form WV/BUS-APP). The tax department also has information relating to all taxes such as sales and use, license, severance, gasoline, withholding, and much more. Their web site is www.state.wv.us/taxrev/ - - CONTACT BUREAU OF EMPLOYMENT PROGRAMS at 304-926-5000 for Workers Compensation or 304-558-1324 for Unemployment Compensation or visit their web site at www.state.wv.us/bep/. The Bureau of Employment Programs can help you understand what your responsibilities are as an employer to your employees with regard to workers compensation, what your premiums will be, how to file claims, when reports are due and much more. - - CONTACT DIVISION OF LABOR at 304-558-7890 to inquire about wage and hour information, OSHA training and regulations, applying for a contractors license and more. Their web site is www.state.wv.us/labor. - - CONTACT THE WV SMALL BUSINESS DEVELOPMENT CENTER at 304-5582960 or their web site at www.wvsbdc.org to learn about all the different resources and counseling centers available to new business owners that explore and explain how to develop and business and financial plan as well as developing marketing strategies. - - TRADENAMES/DBA NAMES: If at any time you choose to operate or advertise under any name other than the registered organization name then you are required by WV Code to file an application for "TRADENAME REGISTRATION" (NR-3) with the Secretary of State's Office. - - AMENDMENTS, MERGERS, AND NAME CHANGES: If at any time you amend your articles, change the name of your entity or undergo a merger then you are required by WV Code to file those changes in the Secretary of State's Office. You may file any amendments and name changes on the forms issues by the Secretary of State titled, "PROFIT AMENDMENT" (CD-2) or "NON-PROFIT AMENDMENT" (CD-3). - - CHANGING OFFICERS, PROCESS AGENT OR OFFICE ADDRESS: If at any time you change your officers, who your notice of process agents is or any address of the company then it is a good idea to file those changes with the Secretary of State so that the Secretary of State's Office can maintain accurate information on your company. You may file this information on the form issued by the Secretary of State titled, "APPLICATION TO APPOINT OR CHANGE AGENT FOR PROCESS, OFFICERS, AND/OR OFFICE ADDRESSES" (AAQ). - - CLOSING YOUR BUSINESS: When you decide to close your business you must file dissolution or termination forms with the Secretary of State's Office. Until you file those applications with the Secretary of State's Office you will continue to be responsible for taxes and other regulatory fees from other agencies. You may file your dissolution or termination on the forms issues by the Secretary of State titled, "ARTICLES OF DISSOLUTION" (CD 5 & 6) if a corporation or "ARTICLES OF TERMINATION" (LLD-9) if a LLC. [SEAL] Secretary of State's Office State of West Virginia Telephone: (304) 558-6000 Building 1, Suite 157-K Joe Manchin, III Toll Free: 1-866-SOS-VOTE 1900 Kanawha Blvd., East Secretary of State Corporations: (304) 558-8000 Charleston, WV 25305-0770 FAX: (304) 558-0900 www.wvsos.com
April 10, 2003 Dear New Business Owner: Congratulations on completing the registration process for your new West Virginia business! We are honored that you have chosen to operate within our state and are eager to help you in any way possible. Therefore, we would like to provide you with the following information: - DON'T FORGET - after filing with the Secretary of State's office you must OBTAIN A BUSINESS REGISTRATION NUMBER WITH THE WEST VIRGINIA DEPARTMENT OF TAX AND REVENUE before conducting any business. Their phone number is 304-558-3333, or you may download their Business Registration Form from their website (www.state.wv.us/taxrev/). - Remember to KEEP THE SECRETARY OF STATE'S OFFICE INFORMED of any officer or agent changes, as well as any trade names, amendments, name changes or mergers that your company may undergo. - Please feel free to visit our website (www.wvsos.com) to obtain forms, fees and other information relating to business filings. In addition, you may also wish to visit our "ON LINE BUSINESS DATA" site. This area contains information such as names, addresses, officers, notice of process agent, amendments, names changes, dissolutions and terminations for all of the businesses currently on file in the Secretary of State's office. - If you have registered a partnership or association, you must FILE A COPY OF THE REGISTRATION WITH THE COUNTY CLERKS OFFICE in the county where the entities principal office is located or where the business in question is being transacted. Again, I thank you for choosing to do business in West Virginia. For your convenience, our office is open Monday - Friday from 8:30 a.m. to 5.00 p.m. Please don't hesitate to contact us if we can provide you with any additional assistance or information. Best Wishes! /s/ Joe Manchin - --------------- Joe Manchin, III EX-3.133 4 y889211exv3w133.txt BYLAWS EXHIBIT 3.133 BYLAWS OF GREENBRIER EMERGENCY PHYSICIANS, INC. ARTICLE I. Meetings of Shareholders Section 1. Annual Meeting. The annual meeting of the Shareholders shall be held at such time and place, either within or without the State of West Virginia, as may be designated from time to time by the Directors. Section 2. Special Meetings. Special meetings of the Shareholders may be called by the President, by a majority of the Board of Directors or by the holders of not less than ten percent (10%) of all of the shares entitled to vote at such meetings, the time and place of any such meeting to be designated by the Directors. In the event any such special meetings shall be called by the Shareholders, as is hereinbefore provide, such Shareholders shall sign, date and deliver to the corporation's Secretary one (1) or more written demands for the meeting, describing the purpose or purposes for which it is to be held. Section 3. Notice of Shareholder Meetings. Written notice stating the date, time and place of any meeting of the Shareholders and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered either personally or by mail or at the direction of the President, Secretary or other officer or person calling the meeting to each Shareholder entitled to vote at the meeting. Such notice shall be delivered not less than ten (10) days nor more than two (2) months before the date of the meeting and shall be deemed to be delivered when deposited in the United States Mail, postage prepaid, and correctly addressed (if mailed) or upon actual receipt (if hand-delivered). The person giving such notice shall certify to the corporation that the notice required by this paragraph has been given. Section 4. Quorum Requirements. A majority of the shares entitled to vote shall constitute a quorum for the transaction of business. Once a share is represented for any purpose at a meeting, it shall be deemed present for quorum purposes for the remainder of the meeting and for any adjournment of that meeting, unless a new record date is or must be set for that adjourned meeting. Section 5. Voting and Proxies. If a quorum exists, action on any matter by a voting group shall be approved if the votes cast within the voting group favoring the action exceed the votes cast opposing the action. A Shareholder may vote either in person or by written proxy, any such proxy to be effective when received by the Secretary or other person authorized to tabulate votes. No proxy shall be valid after the expiration of eleven (11) months from and after the date of its execution, unless it is otherwise expressly provided in the proxy. ARTICLE II. Board of Directors Section 1. Qualification and Election. Directors shall be natural persons, but need not be Shareholders of the corporation or residents of the State of West Virginia. They shall be elected by a plurality of the votes case at a meeting of the Shareholders at which a quorum is present. Each Director shall hold office until the expiration of the term for which the Director is elected and thereafter, until a successor has been elected and qualified, unless removed from office as is hereinafter provided. Section 2. The number of Directors shall be fixed from time to time by either the Shareholders of the Board of Directors. 2 Section 3. Meetings. The Board of Directors may hold such regular and special meetings as it from time to time decides, which meetings may be either in person or by conference telephone call. Special meetings may be called at any time by the Chairman of the Board, President or any two (2) Directors. Section 4. Notices of Directors Meetings. All regular meetings of the Directors may be held without notice. Special meetings shall be preceded by at least two (2) days notice of the date, time and place of the meeting. Notice of an adjourned meeting need not be given if the time and place to which the meeting is adjourned affixed at the meeting at which the adjournment is taken and if the period of adjournment does not exceed one (1) month in any one adjournment. Section 5. Quorum and Vote. The presence of a majority of the Directors shall constitute a quorum for the transaction of business. The vote of a majority of the Directors present at any meeting at which a quorum is present shall be the act of the Board. Section 6. Board Committees. The Board of Directors, by resolution adopted by a majority of its members, may create one or more committees, consisting of one or more Directors, and may delegate to such committee or committees any and all such authority as is permitted by law. ARTICLE III. Officers Section 1. Number. The corporation shall have a President and a Secretary and such other officers as the Board of Directors shall from time to time deem necessary or desirable. Any two or more offices may be held by the same person, except the offices of President and Secretary. Section 2. Election and Term. The officers shall be elected by the Board of Directors and each officer shall serve at the pleasure of the Board until such officer=s resignation or removal. 3 Section 3. Duties. All officers shall have such authority and perform such duties in the management of the corporation as are normally incident to their offices and as the Board of Directors may from time to time provide. ARTICLE IV. Indemnification of Directors and Officers Section 1. Any person who is or was a Director of this Corporation, or of any other corporation which he serves or served in such capacity at the request of this Corporation, because of this corporation=s interest, direct or indirect, as owner of shares of capital stock or as a creditor, may, in accordance with Section 2 below, be indemnified by this Corporation against any and all liability and reasonable expense (including, but not by way of limitation, counsel fees and disbursements and amounts paid in settlement or in satisfaction of judgments or as fines or penalties) paid or incurred by him in connection with or resulting from any claim, action, suit or proceeding (whether brought by or in the right of this Corporation or of such other corporation or otherwise), civil, criminal, administrative or investigative, including any appeal relating thereto, in which he may be involved, or threatened to be involved, as a party or otherwise, by reason of his being or having been a director or officer of this Corporation or of such other corporation, or by reason of any action taken or not taken in the course and scope of his employment as such officer or in his capacity as such Director, provided: (i) in the case of a claim, action, suit or proceeding brought by or in the right of this Corporation to procure a judgment in its favor, that such person has not been adjudged to be liable for negligence or misconduct in the performance of his duty to this Corporation, and (ii) in the case of a claim, action, suit or proceeding brought other than by or in the right of this Corporation to procure judgment in its favor, that such person acted in good faith for the purpose which he 4 reasonably believed to be in the best interest of the Corporation. In any criminal action or proceeding, such person shall be deemed not to have met the standards set forth in clause (ii) of the foregoing sentence if he had reasonable cause to believe that his conduct was unlawful or improper. Determination of any claim, action, suit or proceeding, civil, criminal, administrative or investigative, by judgment, order, settlement (whether with or without court approval, conviction or upon a plea of guilty or of nolo contendere or its equivalent), shall not itself create a presumption that a Director or officer did not meet the standards of conduct set forth in this paragraph. Section 2. Any person referred to in Section 1 of this Bylaw who has been wholly successful on the merits with respect to any claim, action, suit or proceeding of the character described in Section 1 shall be entitled to and shall be granted indemnification as of right, except to the extent that he has otherwise been indemnified. Except as in provided in the preceding sentence, the grant of indemnification under this Bylaw, unless awarded by a court, shall be at the discretion of the Board, but may be granted only (i) if the Board, acting by a quorum consisting of Directors not parties to such claim, action, suit or proceeding, shall have determined that, in its opinion, the Director of officer has met the applicable standards of conduct set forth in Section 1, or (ii) alternatively, if the Board shall have received the written advice of independent legal counsel that in the latter=s judgment, such applicable standards of conduct have been met. If several claims, issues, matters or actions are involved, any person referred to in Section 1 of this Bylaw may be indemnified by the Board to the extent of that portion of the liability and expenses described in Section 1 above which are applicable to the claims, issues and matters of action in respect of which such person has met the applicable standards of conduct set forth in said Section 1. Any rights of indemnification provided in this Bylaw shall not include any amount paid to this Corporation pursuant to any 5 settlement of or any judgment rendered in or resulting from any claim, action, suit or proceeding brought by or in the right of this Corporation to procure a judgment in its favor, unless the amount so paid is fully covered by insurance payable to this Corporation and/or to the party to be indemnified. Suction 3. Expenses incurred with respect to any claim, action, suit or proceeding of the character described in Section 1 of this Bylaw may be advanced by the Corporation prior to the final disposition thereof, upon receipt of an undertaking by or on behalf of the Director or officer to repay such amount, unless it shall ultimately be determined that he or she is entitled to and is granted indemnification under this Bylaw. Section 4. The right of indemnification provided in this Bylaw shall be in addition to any other right to which any such Director of officer may otherwise be entitled by contract or otherwise, and in the event of such person=s death, such rights shall extend to his heirs and legal representatives. The foregoing rights shall be available whether or not such person continues to be a Director or officer at the time of incurring or becoming subject to such liability and expenses, and whether or not the claim asserted against him or her is based on matters which antedate the adoption of this Bylaw. Section 5. If any word, clause or provision of this Bylaw or any award made hereunder shall for any reason be determined to be invalid, the provisions hereof shall not otherwise be affected thereby, but shall remain in full force and effect. It is the intent of this Article IV that officers and directors of the corporation be indemnified be the Corporation to the full extent permitted by law, and this Article should be construed in accordance with that intent. 6 ARTICLE V. Resignations, Removals and Vacancies Section 1. Resignations. Any officer or Director may resign at any time by giving notice to the Chairman of the Board, the President or the Secretary. Any such resignation shall take effect at the time specified therein, or if no time is specified, then upon its delivery. Section 2. Removal of Officers. Any officer may be removed by the Board at any time, with or without cause. Section 3. Removal of Directors. Any or all of the Directors may be removed at any time by majority vote of the Shareholders, with or without cause. Section 4. Vacancies. Newly created directorships, resulting from an increase in the number of Directors and/or vacancies occurring in any office or directorship for any reason, including removal of an officer or Director, may be filled by the vote of a majority of the Directors then in office, even if less than a quorum exists. ARTICLE VI. Action by Consent Whenever the Shareholders or Directors are required or permitted to take any action by vote, such action may be taken without a meeting on written consent, setting forth the action so taken, signed by all the persons or entities entitled to vote thereon. The affirmative vote of the number of Shareholders or Directors that would be necessary to take such action at a meeting shall be the act of the Shareholders or Directors, as the case may be. 7 ARTICLE VII. Capital Stock Section 1. Stock Certificates. Every Shareholder shall be entitled to a certificate of certificates of capital stock of the corporation in such form as may be prescribed by the Board of Directors. Unless otherwise decided by the Board, such certificates shall be signed by the President and Secretary of the corporation. Section 2. Transfer of Shares. Shares of stock may be transferred on the books of the corporation by delivery and surrender of the properly assigned certificate, but subject to any restrictions on transfer imposed by either the applicable securities laws or any Shareholder Agreement. Section 3. Loss of Certificates. In the case of the loss, mutilation or destruction of a certificate of stock, a duplicate certificate may be issued upon such terms and conditions as the Board of Directors shall prescribe. ARTICLE VIII. Amendment of Bylaws These Bylaws may be amended, added to or repealed, either by the Shareholders or by the Board of Directors, as provided by statute. Any change in the Bylaws made by the Board of Directors, however, may be amended or repealed by the Shareholders. ARTICLE IX. Construction of Provisions If any provision of these Bylaws shall be found to be contrary to or in conflict with any provision of the West Virginia Business Corporation Act or contrary to or in conflict with any 8 other proper and applicable law, rule, regulation or ordinance, federal, state or local, then and in that event, any such provision hereof shall be so construed as to be in compliance with such provision of the said West Virginia Business Corporation Act or with such other law, rule, regulation or ordinance, adhering as closely as possible to the intent of said provision as originally herein set forth. CERTIFICATION I, the undersigned, do hereby certify that the foregoing Bylaws for the corporation were duly adopted as of the 10th day of April, 2003. /s/ John R. Stair -------------------------------- Assistant Secretary 9 EX-31.1 5 y889211exv31w1.txt 302 CERTIFICATION: CEO EXHIBIT 31.1 CERTIFICATIONS 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 report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 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-15(e) and 15d-15(e)) for the registrant and we have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report and change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. By:/s/ H. LYNN MASSINGALE, M.D. -------------------------------------- H. Lynn Massingale Chief Executive Officer Date: August 8, 2003 26 EX-31.2 6 y889211exv31w2.txt 302 CERTIFICATION: VP OF FINANCE / ADMINISTRATION EXHIBIT 31.2 CERTIFICATIONS 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 report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 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-15(e) and 15d-15(e)) for the registrant and we have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report and change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. By: /s/ ROBERT J. ABRAMOWSKI -------------------------------------- Robert J. Abramowski Executive Vice President of Finance and Administration Date: August 8, 2003 27 -----END PRIVACY-ENHANCED MESSAGE-----