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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





Form 10-Q







|þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
|- | ----------------------------------------------------------------------------------------

For the quarterly period ended June 30, 2010

Or



| ̈ | 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 001-34583





Team Health Holdings, Inc.

(Exact name of registrant as specified in its charter)



|                                               |  |                                     
|---------------------------------------------- |  | ------------------------------------
|Delaware                                       |  | 36-4276525                          
|(State or other jurisdiction
of incorporation) |  | (I.R.S. Employer
Identification No.)

265 Brookview Centre Way

Suite 400

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  þ    No   ̈

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).    Yes   ̈    No   ̈

Indicate by check mark whether the registrant is a large accelerated filer, accelerated filer, non-accelerated filer or smaller reporting
company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):



|                           |  |                      |  |                                              |  |                             
|-------------------------- |  | -------------------- |  | -------------------------------------------- |  | ----------------------------
|Large accelerated filer   ̈ |  | Accelerated filer   ̈ |  | Non-accelerated filer  þ                     |  | Smaller reporting company   ̈
|                           |  |                      |  | (Do not check if asmaller reporting company) |  |                             

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).    Yes   ̈    No  þ

As of August 10, 2010, there were outstanding              shares of
Common Stock of Team Health Holdings, Inc, with a par value of $.01.











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FORWARD LOOKING STATEMENTS

Statements made in this Form 10-Q that are not historical facts and that reflect the current view of Team Health Holdings, Inc. (the
Company) about future events and financial performance are hereby identified as forward looking statements. Some of these statements can be identified by terms and phrases such as anticipate, believe,
intend, estimate, expect, continue, could, should, may, plan, project, predict and similar expressions. The Company cautions
readers of this Form 10-Q 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 Form 10-Q 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. Factors that could cause our actual results to differ materially from those expressed or implied in such
forward-looking statements, include, but are not limited to:



| |  |  | the current U.S. and global economic conditions;
| | - |  | ------------------------------------------------



| |  |  | the current U.S. and state health reform legislative initiatives;
| | - |  | -----------------------------------------------------------------



| |  |  | the effect and interpretation of current or future government regulation of the healthcare industry, and our ability to comply with these regulations;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our exposure to billing investigations and audits by federal and state authorities, as well as non-governmental auditing contractors;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our exposure to professional liability lawsuits;
| | - |  | ------------------------------------------------



| |  |  | the adequacy of our insurance reserves;
| | - |  | ---------------------------------------



| |  |  | our reliance on reimbursements by third-party payers, as well as payments by individuals;
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | change in rates or methods of government payments for our services;
| | - |  | -------------------------------------------------------------------



| |  |  | the general level of emergency department patient volumes at our clients facilities;
| | - |  | -------------------------------------------------------------------------------------



| |  |  | our exposure to the financial risks associated with fee for service contracts;
| | - |  | ------------------------------------------------------------------------------



| |  |  | our ability to timely or accurately bill for services;
| | - |  | ------------------------------------------------------



| |  |  | our ability to timely enroll healthcare professionals in the Medicare program;
| | - |  | ------------------------------------------------------------------------------



| |  |  | a reclassification of independent contractor physicians by tax authorities;
| | - |  | ---------------------------------------------------------------------------



| |  |  | the concentration of a significant number of our programs in certain states, particularly Florida and Tennessee;
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | any loss of or failure to renew contracts within the Military Health System Program, which are subject to a competitive bidding process;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our exposure to litigation;
| | - |  | ---------------------------



| |  |  | fluctuations in our quarterly operating results which could affect our ability to raise new capital for our business;
| | - |  | ---------------------------------------------------------------------------------------------------------------------



| |  |  | effect on our revenues if we experience a net loss of contracts;
| | - |  | ----------------------------------------------------------------



| |  |  | our ability to accurately assess the costs we will incur under new contracts;
| | - |  | -----------------------------------------------------------------------------



| |  |  | our ability to find suitable acquisition candidates or successfully integrate completed acquisitions;
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | our ability to implement our business strategy and manage our growth effectively;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | our future capital needs and ability to raise capital when needed;
| | - |  | ------------------------------------------------------------------



2



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| |  |  | our ability to successfully recruit and retain qualified physicians and nurses;
| | - |  | -------------------------------------------------------------------------------



| |  |  | enforceability of our non-competition and non-solicitation contractual arrangements with some affiliated physicians and professional corporations;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the high level of competition in our industry;
| | - |  | ----------------------------------------------



| |  |  | our dependence on numerous complex information systems and our ability to maintain these systems or implement new systems;
| | - |  | --------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to protect our proprietary technology and services;
| | - |  | ---------------------------------------------------------------



| |  |  | our loss of key personnel and/or ability to attract and retain highly qualified personnel;
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | our exposure to risks relating to the managements evaluation and auditors opinion on the effectiveness of our internal control over
financial reporting as required by Section 404 of the Sarbanes-Oxley Act of 2002;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to comply with federal or state anti-kickback laws;
| | - |  | ---------------------------------------------------------------



| |  |  | changes in existing laws or regulations, adverse judicial or administrative interpretations of these laws and regulations or enactment of new
legislation;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our exposure to a loss of contracts with our physicians or termination of relationships with our affiliated professional corporations in order to
comply with antitrust laws;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our substantial indebtedness and ability to incur substantially more debt;
| | - |  | --------------------------------------------------------------------------



| |  |  | our ability to generate sufficient cash to service our debt;
| | - |  | ------------------------------------------------------------



| |  |  | restrictive covenants in our debt agreements which may restrict our ability to pursue our business strategies and our ability to comply with them; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the interests of our sponsor may be in conflict with your interests.
| | - |  | --------------------------------------------------------------------

For a more detailed discussion of these factors, see the information under the caption Risk Factors in the Companys
most recent annual report on Form 10-K filed with the Securities and Exchange Commission and Managements Discussion and Analysis of Financial Condition and Results of Operations herein and in the Companys most recent
annual report on Form 10-K.

The Companys forward-looking statements speak only as of the date of this report or as
of the date they are made. The Company disclaims any intent or obligation to update any forward looking statement made in this Form 10-Q to reflect changed assumptions, the occurrence of unanticipated events or changes to future
operating results over time.



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TEAM HEALTH HOLDINGS, INC.

QUARTERLY REPORT FOR THE THREE AND SIX MONTHS

ENDED JUNE 30, 2010



|                              |  |                                                                                       |  |     
|----------------------------- |  | ------------------------------------------------------------------------------------- |  | ----
|                              |  |                                                                                       |  | Page
|Part 1. Financial Information |  |                                                                                      
|Item 1.                       |  | Financial Statements (Unaudited)                                                      |  | 5   
|                              |  | Consolidated Balance SheetsDecember 31, 2009 and June 30, 2010                       |  | 5   
|                              |  | Consolidated Statements of OperationsThree months ended June 30, 2009 and 2010       |  | 6   
|                              |  | Consolidated Statements of OperationsSix months ended June 30, 2009 and 2010         |  | 7   
|                              |  | Consolidated Statements of Cash FlowsSix months ended June 30, 2009 and 2010         |  | 8   
|                              |  | Notes to Consolidated Financial Statements                                            |  | 9   
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 27  
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 46  
|Item 4.                       |  | Controls and Procedures                                                               |  | 46  
|                              | 
|Part 2. Other Information     |  |                                                                                      
|Item 1.                       |  | Legal Proceedings                                                                     |  | 48  
|Item 1A.                      |  | Risk Factors                                                                          |  | 48  
|Item 2.                       |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 48  
|Item 3.                       |  | Defaults Upon Senior Securities                                                       |  | 48  
|Item 4.                       |  | (Removed and Reserved)                                                                |  | 48  
|Item 5.                       |  | Other Information                                                                     |  | 48  
|Item 6.                       |  | Exhibits                                                                              |  | 48  
|Signatures                    |  | 49                                                                                   



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PART 1. FINANCIAL INFORMATION



|Item 1. | Financial Statements
|------- | --------------------

TEAM HEALTH HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS



|                                                                                                                                              |  |                            |          |   |              |   |          |  
|--------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------- | -------- | - | ------------ | - | -------- | -
|                                                                                                                                              |  | December 31,2009           |          |   | June 30,2010 |  
|                                                                                                                                              |  | (Unaudited)
(In thousands) |         
|ASSETS                                                                                                                                        |  |                            |          |   |              |   |          |  
|Current assets:                                                                                                                               |  |                            |          |   |              |   |          |  
|Cash and cash equivalents                                                                                                                     |  | $                          | 170,331  |   |              | $ | 33,290   |  
|Accounts receivable, less allowance for uncollectibles of $178,712 and $203,086 in 2009 and 2010, respectively                                |  |                            | 237,703  |   |              |   | 255,302  |  
|Prepaid expenses and other current assets                                                                                                     |  |                            | 17,040   |   |              |   | 25,236   |  
|Receivables under insured programs                                                                                                            |  |                            | 17,615   |   |              |   | 12,304   |  
|                                                                                                                                              |  |                            |          |   |              |   |          |  
|Total current assets                                                                                                                          |  |                            | 442,689  |   |              |   | 326,132  |  
|Investments of insurance subsidiary                                                                                                           |  |                            | 86,975   |   |              |   | 93,805   |  
|Property and equipment, net                                                                                                                   |  |                            | 28,850   |   |              |   | 29,589   |  
|Other intangibles, net                                                                                                                        |  |                            | 59,505   |   |              |   | 52,519   |  
|Goodwill                                                                                                                                      |  |                            | 213,978  |   |              |   | 217,682  |  
|Deferred income taxes                                                                                                                         |  |                            | 44,880   |   |              |   | 39,722   |  
|Receivables under insured programs                                                                                                            |  |                            | 24,708   |   |              |   | 30,230   |  
|Other                                                                                                                                         |  |                            | 39,361   |   |              |   | 38,549   |  
|                                                                                                                                              |  |                            |          |   |              |   |          |  
|                                                                                                                                              |  | $                          | 940,946  |   |              | $ | 828,228  |  
|                                                                                                                                              |  |                            |          |   |              |   |          |  
|LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)                                                                                                |  |                            |          |   |              |   |          |  
|Current liabilities:                                                                                                                          |  |                            |          |   |              |   |          |  
|Accounts payable                                                                                                                              |  | $                          | 17,472   |   |              | $ | 12,236   |  
|Accrued compensation and physician payable                                                                                                    |  |                            | 124,380  |   |              |   | 110,223  |  
|Other accrued liabilities                                                                                                                     |  |                            | 83,955   |   |              |   | 76,132   |  
|Income tax payable                                                                                                                            |  |                            | 2,979    |   |              |   | 7,533    |  
|Current maturities of long-term debt                                                                                                          |  |                            | 161,752  |   |              |   | 4,250    |  
|Deferred income taxes                                                                                                                         |  |                            | 34,764   |   |              |   | 35,783   |  
|                                                                                                                                              |  |                            |          |   |              |   |          |  
|Total current liabilities                                                                                                                     |  |                            | 425,302  |   |              |   | 246,157  |  
|Long-term debt, less current maturities                                                                                                       |  |                            | 449,273  |   |              |   | 447,148  |  
|Other non-current liabilities                                                                                                                 |  |                            | 158,703  |   |              |   | 172,750  |  
|Shareholders equity (deficit):                                                                                                               |  |                            |          |   |              |   |          |  
|Common stock, 100,000 shares authorized, 62,401 and 64,437 shares issued and outstanding at December 31, 2009 and
June 30, 2010, respectively |  |                            | 624      |   |              |   | 644      |  
|Additional paid-in capital                                                                                                                    |  |                            | 490,989  |   |              |   | 514,359  |  
|Accumulated deficit                                                                                                                           |  |                            | (582,708 | ) |              |   | (553,189 | )
|Accumulated other comprehensive (loss) earnings                                                                                               |  |                            | (1,237   | ) |              |   | 359      |  
|                                                                                                                                              |  |                            |          |   |              |   |          |  
|Total shareholders deficit                                                                                                                   |  |                            | (92,332  | ) |              |   | (37,827  | )
|                                                                                                                                              |  |                            |          |   |              |   |          |  
|                                                                                                                                              |  | $                          | 940,946  |   |              | $ | 828,228  |  
|                                                                                                                                              |  |                            |          |   |              |   |          |  

See accompanying notes to consolidated financial statements.



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TEAM HEALTH HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS



|                                                                                              |  |                                       |         |      |   |        
|--------------------------------------------------------------------------------------------- |  | ------------------------------------- | ------- | ---- | - | -------
|                                                                                              |  | Three Months EndedJune 30,           
|                                                                                              |  | 2009                                  |         | 2010
|                                                                                              |  | (Unaudited)                          
|                                                                                              |  | (In thousands, except per share data)
|Net revenue                                                                                   |  | $                                     | 635,729 |      | $ | 655,971
|Provision for uncollectibles                                                                  |  |                                       | 273,640 |      |   | 280,445
|                                                                                              |  |                                       |         |      |   |        
|Net revenue less provision for uncollectibles                                                 |  |                                       | 362,089 |      |   | 375,526
|Cost of services rendered (exclusive of depreciation and amortization shown separately below) |  |                                       |         |      |   |        
|Professional service expenses                                                                 |  |                                       | 278,151 |      |   | 283,601
|Professional liability costs                                                                  |  |                                       | 12,399  |      |   | 13,282 
|General and administrative expenses                                                           |  |                                       | 31,614  |      |   | 32,942 
|Other expenses                                                                                |  |                                       | 580     |      |   | 777    
|Depreciation and amortization                                                                 |  |                                       | 4,707   |      |   | 6,423  
|Interest expense, net                                                                         |  |                                       | 9,026   |      |   | 4,922  
|Transaction costs                                                                             |  |                                       | 79      |      |   | 393    
|Impairment of intangibles                                                                     |  |                                       |        |      |   | 2,523  
|                                                                                              |  |                                       |         |      |   |        
|Earnings before income taxes                                                                  |  |                                       | 25,533  |      |   | 30,663 
|Provision for income taxes                                                                    |  |                                       | 9,700   |      |   | 12,043 
|                                                                                              |  |                                       |         |      |   |        
|Net earnings                                                                                  |  | $                                     | 15,833  |      | $ | 18,620 
|                                                                                              |  |                                       |         |      |   |        
|                                                                                              | 
|                                                                                              |  | Three Months EndedJune 30,           
|                                                                                              |  | 2009(Pro forma)                       |         | 2010
|Net earnings per share                                                                        |  |                                       |         |      |   |        
|Basic                                                                                         |  | $                                     | 0.32    |      | $ | 0.29   
|Diluted                                                                                       |  | $                                     | 0.32    |      | $ | 0.29   
|Weighted average shares outstanding                                                           |  |                                       |         |      |   |        
|Basic                                                                                         |  |                                       | 48,788  |      |   | 64,166 
|Diluted                                                                                       |  |                                       | 48,994  |      |   | 64,711 

See accompanying
notes to consolidated financial statements.



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TEAM HEALTH HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS



|                                                                                              |  |                                       |           |      |   |          
|--------------------------------------------------------------------------------------------- |  | ------------------------------------- | --------- | ---- | - | ---------
|                                                                                              |  | Six Months EndedJune 30,             
|                                                                                              |  | 2009                                  |           | 2010
|                                                                                              |  | (Unaudited)                          
|                                                                                              |  | (In thousands, except per share data)
|Net revenue                                                                                   |  | $                                     | 1,230,521 |      | $ | 1,287,937
|Provision for uncollectibles                                                                  |  |                                       | 518,846   |      |   | 547,945  
|                                                                                              |  |                                       |           |      |   |          
|Net revenue less provision for uncollectibles                                                 |  |                                       | 711,675   |      |   | 739,992  
|Cost of services rendered (exclusive of depreciation and amortization shown separately below) |  |                                       |           |      |   |          
|Professional service expenses                                                                 |  |                                       | 547,083   |      |   | 566,426  
|Professional liability costs                                                                  |  |                                       | 5,666     |      |   | 19,219   
|General and administrative expenses                                                           |  |                                       | 60,834    |      |   | 63,743   
|Other expenses                                                                                |  |                                       | 1,519     |      |   | 716      
|Depreciation and amortization                                                                 |  |                                       | 9,332     |      |   | 12,838   
|Interest expense, net                                                                         |  |                                       | 19,122    |      |   | 10,685   
|Transaction costs                                                                             |  |                                       | 159       |      |   | 458      
|Impairment of intangibles                                                                     |  |                                       |          |      |   | 2,523    
|Loss on extinguishment of debt                                                                |  |                                       |          |      |   | 14,862   
|                                                                                              |  |                                       |           |      |   |          
|Earnings before income taxes                                                                  |  |                                       | 67,960    |      |   | 48,522   
|Provision for income taxes                                                                    |  |                                       | 26,229    |      |   | 19,004   
|                                                                                              |  |                                       |           |      |   |          
|Net earnings                                                                                  |  | $                                     | 41,731    |      | $ | 29,518   
|                                                                                              |  |                                       |           |      |   |          
|                                                                                              | 
|                                                                                              |  | Six Months EndedJune 30,             
|                                                                                              |  | 2009(Pro forma)                       |           | 2010
|Net earnings per share                                                                        |  |                                       |           |      |   |          
|Basic                                                                                         |  | $                                     | 0.85      |      | $ | 0.46     
|Diluted                                                                                       |  | $                                     | 0.85      |      | $ | 0.46     
|Weighted average shares outstanding                                                           |  |                                       |           |      |   |          
|Basic                                                                                         |  |                                       | 48,874    |      |   | 64,056   
|Diluted                                                                                       |  |                                       | 49,030    |      |   | 64,618   

See accompanying
notes to consolidated financial statements.



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TEAM HEALTH HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                  |  |                          |          |   |      |   |          |  
|----------------------------------------------------------------- |  | ------------------------ | -------- | - | ---- | - | -------- | -
|                                                                  |  | Six Months EndedJune 30, |         
|                                                                  |  | 2009                     |          |   | 2010 |  
|                                                                  |  | (Unaudited)              |         
|                                                                  |  | (In thousands)           |         
|Operating Activities                                              |  |                          |          |   |      |   |          |  
|Net earnings                                                      |  | $                        | 41,731   |   |      | $ | 29,518   |  
|Adjustments to reconcile net earnings:                            |  |                          |          |   |      |   |          |  
|Depreciation and amortization                                     |  |                          | 9,332    |   |      |   | 12,838   |  
|Amortization of deferred financing costs                          |  |                          | 1,036    |   |      |   | 1,029    |  
|Employee equity based compensation expense                        |  |                          | 371      |   |      |   | 610      |  
|Provision for uncollectibles                                      |  |                          | 518,846  |   |      |   | 547,945  |  
|Impairment of intangibles                                         |  |                          |         |   |      |   | 2,523    |  
|Deferred income taxes                                             |  |                          | 5,520    |   |      |   | 5,207    |  
|Loss on extinguishment of debt                                    |  |                          |         |   |      |   | 3,837    |  
|Loss on disposal of equipment                                     |  |                          | 39       |   |      |   | 9        |  
|Equity in joint venture income                                    |  |                          | (993     | ) |      |   | (1,137   | )
|Changes in operating assets and liabilities, net of acquisitions: |  |                          |          |   |      |   |          |  
|Accounts receivable                                               |  |                          | (514,190 | ) |      |   | (565,545 | )
|Prepaids and other assets                                         |  |                          | (16,898  | ) |      |   | (10,605  | )
|Income tax accounts                                               |  |                          | 12,480   |   |      |   | 4,609    |  
|Accounts payable                                                  |  |                          | (2,713   | ) |      |   | (5,018   | )
|Accrued compensation and physician payable                        |  |                          | 1,281    |   |      |   | (14,477  | )
|Other accrued liabilities                                         |  |                          | 198      |   |      |   | 697      |  
|Professional liability reserves                                   |  |                          | (6,677   | ) |      |   | 2,481    |  
|                                                                  |  |                          |          |   |      |   |          |  
|Net cash provided by operating activities                         |  |                          | 49,363   |   |      |   | 14,521   |  
|                                                                  |  |                         
|Investing Activities                                              |  |                          |          |   |      |   |          |  
|Purchases of property and equipment                               |  |                          | (4,036   | ) |      |   | (3,874   | )
|Cash paid for acquisitions, net                                   |  |                          | (2,699   | ) |      |   | (4,159   | )
|Purchases of investments by insurance subsidiary                  |  |                          | (73,151  | ) |      |   | (27,871  | )
|Proceeds from investments by insurance subsidiary                 |  |                          | 67,830   |   |      |   | 21,817   |  
|Other investing activities                                        |  |                          | 3        |   |      |   | 4        |  
|                                                                  |  |                          |          |   |      |   |          |  
|Net cash used in investing activities                             |  |                          | (12,053  | ) |      |   | (14,083  | )
|                                                                  |  |                         
|Financing Activities                                              |  |                          |          |   |      |   |          |  
|Payments on notes payable                                         |  |                          | (2,125   | ) |      |   | (2,125   | )
|Payments on 11.25% senior subordinated notes                      |  |                          |         |   |      |   | (157,502 | )
|Proceeds from revolving credit facility                           |  |                          |         |   |      |   | 56,800   |  
|Payments on revolving credit facility                             |  |                          |         |   |      |   | (56,800  | )
|Proceeds from sale of common shares                               |  |                          |         |   |      |   | 21,769   |  
|Proceeds from the exercise of stock options                       |  |                          |         |   |      |   | 379      |  
|Redemption of common units                                        |  |                          | (1,716   | ) |      |   |         |  
|                                                                  |  |                          |          |   |      |   |          |  
|Net cash used in financing activities                             |  |                          | (3,841   | ) |      |   | (137,479 | )
|                                                                  |  |                          |          |   |      |   |          |  
|Net increase (decrease) in cash                                   |  |                          | 33,469   |   |      |   | (137,041 | )
|Cash and cash equivalents, beginning of period                    |  |                          | 46,398   |   |      |   | 170,331  |  
|                                                                  |  |                          |          |   |      |   |          |  
|Cash and cash equivalents, end of period                          |  | $                        | 79,867   |   |      | $ | 33,290   |  
|                                                                  |  |                          |          |   |      |   |          |  
|Interest paid                                                     |  | $                        | 19,388   |   |      | $ | 12,920   |  
|                                                                  |  |                          |          |   |      |   |          |  
|Taxes paid                                                        |  | $                        | 8,195    |   |      | $ | 9,233    |  
|                                                                  |  |                          |          |   |      |   |          |  

See accompanying notes to consolidated financial statements.



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TEAM HEALTH HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1.
Organization and Basis of Presentation

The accompanying unaudited consolidated financial statements include the accounts
of Team Health Holdings, LLC (pre-corporate conversion) and Team Health Holdings, Inc. (post-conversion) (collectively, Holdings or the Company) and its wholly owned subsidiaries (see Corporate Conversion and Initial Public
Offering below) 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.

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, 2009 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, 2009 audited consolidated financial statements and the notes thereto.

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.

Corporate Conversion and Initial Public Offering

On December 14, 2009, Team Health Holdings, LLC converted from a limited liability company to a Delaware corporation, Team Health
Holdings, Inc. As a result, the investors in Team Health Holdings LLC now own common stock rather than equity interests in a limited liability company. The Company refers to this event as its corporate conversion.

As a result of the corporate conversion, Team Health Holdings, LLCs Class A, B and C units were converted to 49,101,000 shares
of Team Health Holdings, Inc.s common stock.

In December 2009, the Company completed its initial public offering of
13,300,000 shares of common stock. Including the exercise of the underwriters over-allotment in January 2010 of 1,995,000 shares, a total of 15,295,000 shares were sold. The total number of outstanding shares of common stock was 64,437,468 as
of June 30, 2010.

Unaudited Pro forma Financial Information

The accompanying consolidated statements of operations discloses unaudited pro forma earnings per share for the three and six months ended
June 30, 2009, after giving effect to the exchange of Class A, B and C units of Team Health Holdings, LLC for shares of Team Health Holdings, Inc.s common stock.

Note 2. Recently Issued Accounting Standards

In January 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2010-06, Improving
Disclosures about Fair Value Measurements(the ASU). The ASU amends



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Accounting Standards Codification (ASC) Topic 820, Fair Value Measurements and Disclosures (ASC Topic 820) to require a number of additional disclosures regarding
fair value measurements including the requirement that companies disclose the amounts of significant transfers between Level 1 and Level 2 of the fair value hierarchy and the reasons for these transfers. The ASU also provided clarification on the
requirement that companies are required to provide fair value measurement disclosures for each class of assets and liabilities. In accordance with the first quarter 2010 effective date, the newly required disclosures have been reflected in the
accompanying notes to these consolidated financial statements.

Note 3. Acquisitions

In December 2009, the Company acquired the operations of an anesthesiology staffing company located in Florida that provides outsourced
anesthesiology staffing services to hospitals. Also in December 2009, the Company completed the acquisition of certain assets and related business operations of a locums tenens business located in Georgia that provides temporary staffing of
psychiatric physicians to hospitals and other healthcare organizations. In November 2009, the Company completed the acquisition of certain assets and related business operations of an emergency medicine staffing business located in Florida. In March
2009, the Company acquired the operations of a physician staffing business that provides hospital emergency department services under three contracts for locations in Kentucky. The purchase price for these acquisitions was allocated, in accordance
with the provisions of ASC Topic 805 Business Combinations, to net assets acquired, including goodwill of $56.7 million (of which $3.0 million is tax deductible goodwill) and contract intangibles of approximately $35.4 million,
based on managements estimates.

In March 2010, the Company completed the acquisitions of certain assets and related
business operations of two emergency medical staffing businesses and clinics located in Virginia, Rhode Island and Florida. In August 2010, the Company completed the acquisition of certain assets and related business operations of an emergency
medical staffing business located in Oklahoma and Kansas. The purchase price for the March 2010 acquisitions was allocated to net assets acquired, including goodwill of $3.7 million (of which all is tax deductible goodwill) and contract intangibles
of approximately $2.7 million, based on managements estimates. The purchase price for the August 2010 acquisition will be allocated to the assets acquired and liabilities assumed based on the provisions of ASC Topic 805.

The results of operations of the acquired businesses have been or will be included in the Companys consolidated financial
statements beginning on the respective acquisition dates.

Note 4. Impairment

In June 2010, the Company recorded an impairment loss of $2.5 million related to the remaining contract intangible associated with a
contractual relationship acquired in a previous acquisition. The Company determined, in accordance with the provisions of ASC Subtopic 360-10, Impairment or Disposal of Long-Lived Assets, that the recoverability of the remaining net contract
intangible was impaired due to the anticipated termination of the contractual relationship. Based on the Companys assessment, it was determined that there were not any material future cash flows associated with the contract; therefore, the
total net contract intangible as of June 30, 2010, was considered to be impaired.

Note 5. Fair Value Measurements

The Company applies the provisions of FASB ASC Topic 820, Fair Value Measurements and Disclosures, in determining the
fair value of its financial assets and liabilities. This standard defines fair value, provides guidance for measuring fair value and requires certain disclosures. This standard does not require any new fair value measurements, but rather applies to
all other accounting pronouncements that require or permit fair value measurements.



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FASB ASC Topic 820 prioritizes the inputs used in measuring fair value into the following
hierarchy:



| | Level 1 | Quoted prices (unadjusted) in active markets for identical assets or liabilities;
| | ------- | ---------------------------------------------------------------------------------



| | Level 2 | Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable;
| | ------- | ----------------------------------------------------------------------------------------------------------



| | Level 3 | Unobservable inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions about the assumptions that market
participants would use in pricing.
| | ------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The following table provides information on those assets and liabilities the
Company measures at fair value on a recurring basis (in thousands):



|                                          |  |                                                         |        |                        |   |                   |  |                   |        |                   |   |       |  |   |  
|----------------------------------------- |  | ------------------------------------------------------- | ------ | ---------------------- | - | ----------------- |  | ----------------- | ------ | ----------------- | - | ----- |  | - | -
|                                          |  | Carrying AmountIn ConsolidatedBalance SheetJune 30,2010 |        | Fair ValueJune 30,2010 |   | Fair ValueLevel 1 |  | Fair ValueLevel 2 |        | Fair ValueLevel 3
|Investments of insurance subsidiary:      |  |                                                         |        |                        |   |                   |  |                   |        |                   |   |       |  |   |  
|Money market funds                        |  | $                                                       | 13,143 |                        | $ | 13,143            |  | $                 | 13,143 |                   | $ |      |  | $ | 
|U. S. Treasury securities                 |  |                                                         | 12,591 |                        |   | 12,591            |  |                   | 12,591 |                   |   |      |  |   | 
|Municipal bonds                           |  |                                                         | 47,770 |                        |   | 47,770            |  |                   | 47,770 |                   |   |      |  |   | 
|Agency notes                              |  |                                                         | 20,301 |                        |   | 20,301            |  |                   | 20,301 |                   |   |      |  |   | 
|                                          |  |                                                         |        |                        |   |                   |  |                   |        |                   |   |       |  |   |  
|Total investments of insurance subsidiary |  | $                                                       | 93,805 |                        | $ | 93,805            |  | $                 | 93,805 |                   | $ |      |  | $ | 
|                                          |  |                                                         |        |                        |   |                   |  |                   |        |                   |   |       |  |   |  
|Interest rate swap liability              |  | $                                                       | 2,942  |                        | $ | 2,942             |  | $                 |       |                   | $ | 2,942 |  | $ | 
|                                          |  |                                                         |        |                        |   |                   |  |                   |        |                   |   |       |  |   |  

The fair values of the Companys investments of
insurance subsidiary are based on quoted prices. As of June 30, 2010, the fair value of these investments reflected unrealized gains of $3.3 million and $36,000 of unrealized losses. See Note 7 for more information regarding the Companys
investments. The fair value of the Companys interest rate swaps were determined using inputs that are available in the public swap markets for similarly termed instruments and then making adjustments for terms specific to the Companys
instruments and the Companys and counterpartys implied credit risk. See Note 6 for more information regarding the Companys interest rate swap agreements. The fair value of the Companys other financial instruments approximates
their carrying values.

Note 6. Financial Derivative Instruments

As of June 30, 2010, the Company was a party to three separate forward interest rate swap agreements. The objective of the agreements
is to eliminate the variability of the cash flows in interest payments for $200.0 million of the Companys variable-rate term loan facility for a three-year period. The agreements are contracts to exchange, on a quarterly basis, floating
interest rate payments based on the Eurocurrency rate, for fixed interest payments over the life of the agreements. The Company has determined the interest rate swaps are highly effective and qualify for hedge accounting; therefore, the changes in
fair value of the interest rate swaps, net of tax, are recorded as a component of other comprehensive earnings. At June 30, 2010, the Company does not expect to reclassify any net gains or losses on its interest rate swap agreements from
accumulated other comprehensive income to earnings during the next twelve months.

These agreements expose the Company to
credit losses in the event of non-performance by the counterparty to the financial instruments. The counterparty is a creditworthy financial institution and the Company believes the counterparty will be able to fully satisfy its obligations under
the contracts.



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The following table presents the location of the liabilities associated with the
Companys interest rate swap agreements within the accompanying consolidated Balance Sheets (in thousands):



|                                   |  |                               |                               |                   |                           |                       |                               |   |                           |   |       |  |   |      
|---------------------------------- |  | ----------------------------- | ----------------------------- | ----------------- | ------------------------- | --------------------- | ----------------------------- | - | ------------------------- | - | ----- |  | - | -----
|                                   |  | Balance SheetLocation         |                               | Asset Derivatives |                           | Liability Derivatives
|                                   |  |                               | Fair Value atDecember 31,2009 |                   | Fair Value atJune 30,2010 |                       | Fair Value atDecember 31,2009 |   | Fair Value atJune 30,2010
|Derivatives designated as hedging: |  |                               |                               |                   |                           |                       |                               |   |                           |   |       |  |   |      
|Interest rate swap contracts       |  | Other non-current liabilities |                               | $                 |                          |                       | $                             |  |                           | $ | 4,731 |  | $ | 2,942

The following table
presents the impact of the Companys interest rate swap agreements and their location within the accompanying consolidated financial statements (in thousands):



|                             |  |                                                                                               |      |      |                                                                                                 |   |                                                                              |      |  |      |   |      |   |      |  |   |   |  |   |  
|---------------------------- |  | --------------------------------------------------------------------------------------------- | ---- | ---- | ----------------------------------------------------------------------------------------------- | - | ---------------------------------------------------------------------------- | ---- |  | ---- | - | ---- | - | ---- |  | - | - |  | - | -
|                             |  | Amount of (Gain)Loss Recognized inOther ComprehensiveIncome 
on Derivative(Effective Portion) |      |      | Amount of (Gain)Loss Reclassified fromOther ComprehensiveIncome 
into Income(Effective Portion) |   | Amount of (Gain)Loss Recognized inIncome on 
Derivative(Ineffective Portion)
|                             |  | Six Months EndedJune 30,                                                                      |      |      | Six Months EndedJune 30,                                                                        |   | Six Months EndedJune 30,                                                    
|                             |  | 2009                                                                                          |      |      | 2010                                                                                            |   |                                                                              | 2009 |  | 2010 |   | 2009 |   | 2010
|Interest rate swap contracts |  | $                                                                                             | (688 | )(a) |                                                                                                 | $ | (1,091                                                                       | )(a) |  | $    |  |      | $ |     |  | $ |  |  | $ | 



|(a) | Net of tax
|--- | ----------

Note 7. Investments

Investments represent securities held by the Companys captive insurance subsidiary. At December 31, 2009 and
June 30, 2010, amortized cost basis and aggregate fair value of the Companys available-for-sale securities by investment type were as follows (in thousands):



|                          |  |           |        |                      |   |                       |  |   |           |   |  |   |       
|------------------------- |  | --------- | ------ | -------------------- | - | --------------------- |  | - | --------- | - |  | - | ------
|                          |  | CostBasis |        | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | FairValue
|December 31, 2009         |  |           |        |                      |   |                       |  |   |           |   |  |   |       
|Money market funds        |  | $         | 3,090  |                      | $ |                      |  | $ |          |   |  | $ | 3,090 
|U. S. Treasury securities |  |           | 13,672 |                      |   | 84                    |  |   | (380      | ) |  |   | 13,376
|Municipal bonds           |  |           | 44,795 |                      |   | 2,163                 |  |   | (37       | ) |  |   | 46,921
|Agency notes              |  |           | 22,882 |                      |   | 706                   |  |   |          |   |  |   | 23,588
|                          |  |           |        |                      |   |                       |  |   |           |   |  |   |       
|                          |  | $         | 84,439 |                      | $ | 2,953                 |  | $ | (417      | ) |  | $ | 86,975
|                          |  |           |        |                      |   |                       |  |   |           |   |  |   |       
|June 30, 2010             |  |           |        |                      |   |                       |  |   |           |   |  |   |       
|Money market funds        |  | $         | 13,143 |                      | $ |                      |  | $ |          |   |  | $ | 13,143
|U. S. Treasury securities |  |           | 12,383 |                      |   | 208                   |  |   |          |   |  |   | 12,591
|Municipal bonds           |  |           | 45,107 |                      |   | 2,699                 |  |   | (36       | ) |  |   | 47,770
|Agency notes              |  |           | 19,861 |                      |   | 440                   |  |   |          |   |  |   | 20,301
|                          |  |           |        |                      |   |                       |  |   |           |   |  |   |       
|                          |  | $         | 90,494 |                      | $ | 3,347                 |  | $ | (36       | ) |  | $ | 93,805
|                          |  |           |        |                      |   |                       |  |   |           |   |  |   |       



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At December 31, 2009 and June 30, 2010, the amortized cost basis and aggregate
fair value of the Companys available-for-sale securities by contractual maturities were as follows (in thousands):



|                                       |  |           |        |                      |   |                       |  |   |           |   |  |   |       
|-------------------------------------- |  | --------- | ------ | -------------------- | - | --------------------- |  | - | --------- | - |  | - | ------
|                                       |  | CostBasis |        | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | FairValue
|December 31, 2009                      |  |           |        |                      |   |                       |  |   |           |   |  |   |       
|Due in less than one year              |  | $         | 18,199 |                      | $ | 314                   |  | $ |          |   |  | $ | 18,513
|Due after one year through five years  |  |           | 25,285 |                      |   | 918                   |  |   | (13       | ) |  |   | 26,190
|Due after five years through ten years |  |           | 40,955 |                      |   | 1,721                 |  |   | (404      | ) |  |   | 42,272
|Due after ten years                    |  |           |       |                      |   |                      |  |   |          |   |  |   |      
|                                       |  |           |        |                      |   |                       |  |   |           |   |  |   |       
|Total                                  |  | $         | 84,439 |                      | $ | 2,953                 |  | $ | (417      | ) |  | $ | 86,975
|                                       |  |           |        |                      |   |                       |  |   |           |   |  |   |       
|June 30, 2010                          |  |           |        |                      |   |                       |  |   |           |   |  |   |       
|Due in less than one year              |  | $         | 31,305 |                      | $ | 251                   |  | $ | (11       | ) |  | $ | 31,545
|Due after one year through five years  |  |           | 20,473 |                      |   | 809                   |  |   | (9        | ) |  |   | 21,273
|Due after five years through ten years |  |           | 38,716 |                      |   | 2,287                 |  |   | (16       | ) |  |   | 40,987
|Due after ten years                    |  |           |       |                      |   |                      |  |   |          |   |  |   |      
|                                       |  |           |        |                      |   |                       |  |   |           |   |  |   |       
|Total                                  |  | $         | 90,494 |                      | $ | 3,347                 |  | $ | (36       | ) |  | $ | 93,805
|                                       |  |           |        |                      |   |                       |  |   |           |   |  |   |       

A summary of the Companys temporarily impaired
available-for-sale investment securities as of June 30, 2010 follows (in thousands):



|                          |  |                             |       |                  |                        |     |           |  |                  |   |           |   |                  |  |   |       |  |   |     |  
|------------------------- |  | --------------------------- | ----- | ---------------- | ---------------------- | --- | --------- |  | ---------------- | - | --------- | - | ---------------- |  | - | ----- |  | - | --- | -
|                          |  | Impaired LessThan 12 Months |       |                  | ImpairedOver 12 Months |     | Total     | 
|                          |  | FairValue                   |       | UnrealizedLosses |                        |     | FairValue |  | UnrealizedLosses |   | FairValue |   | UnrealizedLosses | 
|June 30, 2010             |  |                             |       |                  |                        |     |           |  |                  |   |           |   |                  |  |   |       |  |   |     |  
|Money market funds        |  | $                           |      |                  | $                      |    |           |  | $                |  |           | $ |                 |  | $ |      |  | $ |    |  
|U. S. Treasury securities |  |                             |      |                  |                        |    |           |  |                  |  |           |   |                 |  |   |      |  |   |    |  
|Municipal bonds           |  |                             | 2,858 |                  |                        | (36 | )         |  |                  |  |           |   |                 |  |   | 2,858 |  |   | (36 | )
|Agency notes              |  |                             |      |                  |                        |    |           |  |                  |  |           |   |                 |  |   |      |  |   |    |  
|                          |  |                             |       |                  |                        |     |           |  |                  |   |           |   |                  |  |   |       |  |   |     |  
|Total investment          |  | $                           | 2,858 |                  | $                      | (36 | )         |  | $                |  |           | $ |                 |  | $ | 2,858 |  | $ | (36 | )
|                          |  |                             |       |                  |                        |     |           |  |                  |   |           |   |                  |  |   |       |  |   |     |  

The unrealized losses resulted from changes in market interest rates, not from changes in the probability of
contractual cash flows. Because the Company has the ability and intent to hold the investments until a recovery of carrying value and full collection of the amounts due according to the contractual terms of the investments is expected, the Company
does not consider these investments to be other-than-temporarily impaired at June 30, 2010.

During the six months ended
June 30, 2010, the Company recorded a gain on the sale of investments of approximately $0.1 million.



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Note 8. Net Revenue

Net revenue for the three and six months ended June 30, 2009 and 2010 consisted of the following (in thousands):



|                        |  |                            |         |                          |   |         |  |      |           |  |   |          
|----------------------- |  | -------------------------- | ------- | ------------------------ | - | ------- |  | ---- | --------- |  | - | ---------
|                        |  | Three Months EndedJune 30, |         | Six Months EndedJune 30,
|                        |  | 2009                       |         | 2010                     |   | 2009    |  | 2010
|Fee-for-service revenue |  | $                          | 513,967 |                          | $ | 545,597 |  | $    | 989,518   |  | $ | 1,063,849
|Contract revenue        |  |                            | 115,027 |                          |   | 103,528 |  |      | 228,034   |  |   | 210,467  
|Other revenue           |  |                            | 6,735   |                          |   | 6,846   |  |      | 12,969    |  |   | 13,621   
|                        |  |                            |         |                          |   |         |  |      |           |  |   |          
|                        |  | $                          | 635,729 |                          | $ | 655,971 |  | $    | 1,230,521 |  | $ | 1,287,937
|                        |  |                            |         |                          |   |         |  |      |           |  |   |          

Note 9. Other Intangible Assets

The following is a summary of intangible assets and related amortization as of December 31, 2009 and June 30, 2010 (in
thousands):



|                                                      |  |                      |        |                         |   |       
|----------------------------------------------------- |  | -------------------- | ------ | ----------------------- | - | ------
|                                                      |  | Gross CarryingAmount |        | AccumulatedAmortization
|As of December 31, 2009:                              |  |                      |        |                         |   |       
|Contracts                                             |  | $                    | 83,249 |                         | $ | 24,584
|Other                                                 |  |                      | 1,288  |                         |   | 448   
|                                                      |  |                      |        |                         |   |       
|Total                                                 |  | $                    | 84,537 |                         | $ | 25,032
|                                                      |  |                      |        |                         |   |       
|As of June 30, 2010:                                  |  |                      |        |                         |   |       
|Contracts                                             |  | $                    | 81,689 |                         | $ | 29,926
|Other                                                 |  |                      | 840    |                         |   | 84    
|                                                      |  |                      |        |                         |   |       
|Total                                                 |  | $                    | 82,529 |                         | $ | 30,010
|                                                      |  |                      |        |                         |   |       
|Aggregate amortization expense:                       |  |                      |        |                         |   |       
|For the six months ended June 30, 2010                |  | $                    | 7,160 
|                                                      |  |                      |        |                         |   |       
|Estimated amortization expense:                       |  |                      |        |                         |   |       
|For the remainder of the year ended December 31, 2010 |  | $                    | 6,930 
|For the year ended December 31, 2011                  |  |                      | 12,142
|For the year ended December 31, 2012                  |  |                      | 11,710
|For the year ended December 31, 2013                  |  |                      | 10,096
|For the year ended December 31, 2014                  |  |                      | 7,671 

Note 10. Long-Term Debt

Long-term debt as of June 30, 2010 consisted of the following (in thousands):



|                                 |  |   |         |  
|-------------------------------- |  | - | ------- | -
|Term Loan Facility               |  | $ | 405,875 |  
|11.25% Senior Subordinated Notes |  |   | 45,523  |  
|Revolving line of credit         |  |   |        |  
|                                 |  |   |         |  
|                                 |  |   | 451,398 |  
|Less current portion             |  |   | (4,250  | )
|                                 |  |   |         |  
|                                 |  | $ | 447,148 |  
|                                 |  |   |         |  



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The Company amended its senior secured credit agreement effective December 22, 2009. As
part of the amendment, lenders holding $125.0 million of commitments in the aggregate under the revolving credit facility agreed to extend the maturity date of their commitments to August 23, 2012. Outstanding term loan borrowings under the
senior credit term loan facility mature on November 23, 2012. The amendment also provides additional flexibility under certain of the covenants, including permitting the Company to make additional investments, loans and advances, to make
additional repayments of the 11.25% Senior Subordinated Notes (11.25% Notes) and to incur additional earn-out obligations in connection with permitted acquisitions. The interest rate on the Companys outstanding term loan facility
is equal to the euro dollar rate plus 2.0% or the agent banks base rate plus 1.0%. The interest rate at June 30, 2010 was 2.5% for amounts outstanding under the term loan facility.

The interest rate for any revolving credit facility borrowings is based on a grid that is based on the consolidated ratio of total funded
debt less unrestricted cash on the balance sheet to earnings before interest, taxes, depreciation and amortization, all as set forth in the credit agreement. As of June 30, 2010, the interest rate for borrowings under the revolving credit
facility was equal to the euro dollar rate plus 2.0% or the agent banks base rate plus 1.0%. In addition, the Company pays a commitment fee for the revolving credit facility which is equal to 0.5% of the commitment at June 30, 2010. The
total available borrowings under the revolving credit facility was $125.0 million as of June 30, 2010, excluding $7.3 million of standby letters of credit. No borrowings under the revolving credit facility were outstanding as of June 30,
2010.

As of June 30, 2010, the Company is a party to three separate forward interest rate swap agreements. The objective
of these agreements is to eliminate the variability of the cash flows in interest payments for $200.0 million of the variable-rate senior secured term loan facility for a three-year period. The agreements are contracts to exchange, on a quarterly
basis, floating interest rate payments based on the Eurocurrency rate, for fixed interest payments over the life of the agreements. The Company has determined that the interest rate swaps are highly effective and qualify for hedge accounting;
therefore, for the six months ended June 30, 2010, the Company recorded the increase in the fair value of the interest rate swaps, net of tax, of approximately $1.1 million as a component of other comprehensive earnings. As of December 31,
2009 and June 30, 2010, we had a $4.7 million and $2.9 million liability recorded related to the swaps, respectively.

These agreements expose the Company to credit losses in the event of non-performance by the counterparty to the financial instruments.
The counterparty is a creditworthy financial institution and the Company believes the counterparty will be able to fully satisfy its obligations under the contracts.

The Company issued on November 23, 2005, 11.25% Notes due December 1, 2013 in the amount of $215.0 million. The 11.25% Notes
are subordinated in right of payment to all senior debt of the Company and are senior in right of payment to all existing and future subordinated indebtedness of the Company. Interest on the 11.25% Notes accrues at the rate of 11.25% per annum,
payable semi-annually in arrears on June 1 and December 1 of each year. Subsequent to December 31, 2009, the Company redeemed a total of $157.5 million of the 11.25% Notes utilizing the net proceeds from its initial public offering
and the exercise of the underwriters over-allotment option. The 11.25% Notes were redeemed at a redemption price of 107.0% of the principal amount thereof, plus accrued and unpaid interest in the amount of $2.8 million resulting in a loss on
extinguishment of debt of $14.9 million. Included in the calculation of the loss was the write-off of deferred financing costs of approximately $3.8 million. The Company may redeem some or all of the remaining 11.25% Notes at any time at various
redemption prices.

The 11.25% Notes are guaranteed jointly and severally on a full and unconditional basis by the Company and
all of its domestic wholly-owned operating subsidiaries (Subsidiary Guarantors) as required by the indenture.

Both the 11.25% Notes and the term loan facility contain 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 and pay dividends, and require the Company to comply with
certain coverage and leverage ratios.



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##### Table of Contents

Aggregate annual maturities of long-term debt as of June 30, 2010 are as follows (in
thousands):



|           |  |   |        
|---------- |  | - | -------
|2010       |  | $ | 4,250  
|2011       |  |   | 4,250  
|2012       |  |   | 397,375
|2013       |  |   | 45,523 
|Thereafter |  |   |       

The fair
value of the Companys debt is estimated using quoted market prices when available. When quoted market prices are not available, fair value is estimated based on current market interest rates for debt with similar maturities.

The fair value of the Companys debt was $605.9 million and $435.2 million at December 31, 2009 and June 30, 2010,
respectively. The financial statement carrying value was $611.0 million and $451.4 million at December 31, 2009 and June 30, 2010, respectively.

Note 11. Professional Liability Insurance

The Companys professional liability loss reserves consisted of the following (in thousands):



|                                                     |  |                  |         |              |   |        
|---------------------------------------------------- |  | ---------------- | ------- | ------------ | - | -------
|                                                     |  | December 31,2009 |         | June 30,2010
|Estimated losses under self-insured programs         |  | $                | 145,237 |              | $ | 147,718
|Estimated losses under commercial insurance programs |  |                  | 42,323  |              |   | 42,534 
|                                                     |  |                  |         |              |   |        
|                                                     |  |                  | 187,560 |              |   | 190,252
|Less estimated payable within one year               |  |                  | 61,701  |              |   | 49,949 
|                                                     |  |                  |         |              |   |        
|                                                     |  | $                | 125,859 |              | $ | 140,303
|                                                     |  |                  |         |              |   |        

The changes to the Companys estimated losses
under self-insured programs as of June 30, 2010 were as follows (in thousands):



|                                         |  |   |         |  
|---------------------------------------- |  | - | ------- | -
|Balance, December 31, 2009               |  | $ | 145,237 |  
|Reserves related to current period       |  |   | 19,000  |  
|Changes related to prior period reserves |  |   | (7,219  | )
|Payments for current period reserves     |  |   | (238    | )
|Payments for prior period reserves       |  |   | (9,062  | )
|                                         |  |   |         |  
|Balance, June 30, 2010                   |  | $ | 147,718 |  
|                                         |  |   |         |  

The Company provides for its estimated professional liability losses through a combination of self-insurance
and commercial insurance programs. 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 commercial insurance carrier policy initially included an insured loss limit of $130.0 million. In April 2006, the Company amended the policy with its commercial insurance carrier to provide for an increase in the aggregate limit
of coverage based upon certain premium funding levels. As of June 30, 2010, the insured loss limit under the policy was $156.6 million. Losses in excess of the limit of coverage remain as a self-insured obligation of the Company. Beginning
March 12, 2003, professional liability loss risks are principally being provided for through self-insurance with a portion of such risks (claims-made basis) transferred to and funded into a captive insurance company. The accounts of
the captive insurance company are fully consolidated with those of the other operations of the Company in the accompanying consolidated financial statements.



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The self-insurance components of our risk management program include reserves for future
claims incurred but not reported (IBNR). As of December 31, 2009, of the $145.2 million of estimated losses under self-insured programs, approximately $82.1 million represents an estimate of IBNR claims and expenses and additional
loss development, with the remaining $63.1 million representing specific case reserves. Of the existing case reserves as of December 31, 2009, $1.6 million represent case reserves that have settled but not yet funded, and $61.5 million reflect
unsettled case reserves.

As of June 30, 2010, of the $147.7 million of estimated losses under self insurance programs,
approximately $74.9 million represents an estimate of IBNR claims and expenses and additional loss development with the remaining $72.8 million representing specific case reserves. Of the existing case reserves as of June 30, 2010, $2.2 million
represent case reserves that have been settled but not yet funded, and $70.6 million reflect unsettled case reserves.

The
Companys provisions for losses under its self-insurance components are estimated using the results of periodic actuarial studies. Such actuarial studies include 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 Companys provisions for losses under its self-insured components are subject to subsequent adjustment should future actuarial projected
results for such periods indicate projected losses greater or less than previously projected. The Companys estimated loss reserves under such programs are discounted at 3.9% and 3.0% at December 31, 2009 and June 30, 2010,
respectively, which was the current ten year U.S. Treasury rate at each of those dates, which reflects the risk free interest rate over the expected period of claims payments.

The Companys most recent actuarial valuation was completed in April 2010. As a result of such actuarial valuation, the Company
realized a $7.2 million reduction in its reserves for professional liability losses associated with prior year loss estimates during the first quarter of 2010. The Company had previously realized a reduction in its provision for professional
liability losses of $18.8 million in the six months ended June 30, 2009. Factors contributing to the change in prior year loss estimates included favorable loss development on historical periods between actuarial studies as well as continued
favorable trends in the frequency and severity of claims reported compared to historical trends.

Note 12. Share-based Compensation

2009 Stock Incentive Plan

In connection with the corporate conversion, the Company adopted the Team Health Holdings, Inc. 2009 Stock Incentive Plan (2009 Stock
Plan). Under the 2009 Stock Plan, previous holders of Class B and C units of Team Health Holdings, LLC were granted options to purchase shares of our common stock at the time of the completion of our initial public offering.

Purpose.The purpose of the 2009 Stock Plan is to aid in recruiting and retaining key employees, directors, consultants,
and other service providers of outstanding ability and to motivate those employees, directors, consultants, and other service providers to exert their best efforts on the behalf the Company and its affiliates by providing incentives through the
granting of options, stock appreciation rights and other stock-based awards.

Shares Subject to the Plan. The
2009 Stock Plan provides that the total number of shares of common stock that may be issued under the 2009 Stock Plan is 15,100,000, and the maximum number of shares for which incentive stock options may be granted is 10,000,000. Shares of the
Companys common stock covered by awards that terminate or lapse without the payment of consideration may be granted again under the 2009 Stock Plan.



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The following table summarizes the status of options under the 2009 Stock Plan as of
June 30, 2010:



|                                 |  |                      |   |  |                                |       |                                        |   |                                        |  |   
|-------------------------------- |  | -------------------- | - |  | ------------------------------ | ----- | -------------------------------------- | - | -------------------------------------- |  | --
|                                 |  | Shares(in thousands) |   |  | Weighted AverageExercise Price |       | AggregateIntrinsic Value(in thousands) |   | Weighted AverageRemaining Lifein Years
|Outstanding at beginning of year |  | 5,640                |   |  | $                              | 13.89 |                                        |   |                                        |  |   
|Granted                          |  | 1,442                |   |  | $                              | 13.46 |                                        |   |                                        |  |   
|Exercised                        |  | (30                  | ) |  |                                | 13.54 |                                        |   |                                        |  |   
|Expired or forfeited             |  | (23                  | ) |  |                                | 14.12 |                                        |   |                                        |  |   
|                                 |  |                      |   |  |                                |       |                                        |   |                                        |  |   
|Outstanding at end of period     |  | 7,029                |   |  | $                              | 13.80 |                                        | $ | 25,631                                 |  | 10
|                                 |  |                      |   |  |                                |       |                                        |   |                                        |  |   
|Exercisable at end of period     |  | 4,719                |   |  | $                              | 13.84 |                                        | $ | 22,727                                 |  | 10
|                                 |  |                      |   |  |                                |       |                                        |   |                                        |  |   

Intrinsic value is the amount by which the stock price
as of June 30, 2010 exceeds the exercise price of the options. As of June 30, 2010, the Company had approximately $8.4 million of unrecognized compensation expense net of estimated forfeitures related to unvested options which will be
recognized over the remaining requisite service period. Fair value of the options granted in 2010 was based on the grant date fair value as calculated by the Black-Sholes option pricing formula with the following weighted average assumptions:
risk-free interest rate of 2.6%, implied volatility of 42.9% and an expected life of the options of 6.25 years. Forfeitures of employee equity-based awards have been historically immaterial to the Company.

The Company also granted 15,000 shares of restricted stock during the six months ended June 30, 2010 to certain board members. The
issued shares vest annually over a three-year period from the initial grant date. The Company recorded restricted stock expense of $6,300 during the six months ended June 30, 2010 and has $0.2 million of expense remaining to be recognized over
the requisite service period for these awards.

A summary of changes in unvested shares of restricted stock for the six months
ended June 30, 2010 is as follows (in thousands):



|                                 |  |                      |  
|-------------------------------- |  | -------------------- | -
|                                 |  | Shares(in thousands) |  
|Outstanding at beginning of year |  | 279                  |  
|Granted                          |  | 15                   |  
|Vested                           |  | (97                  | )
|Forfeited and expired            |  | (3                   | )
|                                 |  |                      |  
|Outstanding at June 30, 2010     |  | 194                  |  
|                                 |  |                      |  

Stock Purchase Plans

In May 2010, the Board adopted the 2010 Employee Stock Purchase Plan (ESPP) and the 2010 Nonqualified Stock Purchase Plan
(NQSPP). The ESPP provides for the issuance of up to 600,000 shares to our employees. All eligible employees are granted identical rights to purchase common stock for each Board authorized offering under the ESPP. Rights granted pursuant
to any offering under the ESPP terminate immediately upon cessation of an employees employment for any reason. In general, an employee may reduce their contribution or withdraw from participation in an offering at any time during the purchase
period for such offering. Employees receive a 5% discount on shares purchased under the ESPP. Rights granted under the plan are not transferable and may be exercised only by the person to whom such rights are granted. The initial offering under the
ESPP commenced July 1, 2010 and terminates on September 30, 2010. Subsequent offerings will occur every six months commencing October 1, 2010. The NQSPP provides for the issuance of up to 800,000 shares to our independent contractors.
All eligible contractors are granted identical rights to purchase common stock for each Board authorized offering under the NQSPP. Rights granted pursuant to any offering under the NQSPP terminate immediately upon cessation of a contractors
relationship for any reason. In general, a contractor may



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reduce their contribution or withdraw from participation in an offering at any time during the purchase period for such offering. Contractors receive a 5% discount on shares purchased under the
NQSPP. Rights granted under the NQSPP are not transferable and may be exercised only by the person to whom such rights are granted. The initial offering under the NQSPP commenced July 1, 2010 and terminates on September 30, 2010.
Subsequent offerings will occur every six months commencing October 1, 2010.

Note 13. Contingencies

Litigation

We are currently a party to various legal proceedings. While we currently believe that the ultimate outcome of such proceedings,
individually and in the aggregate, will not have a material adverse effect on our financial position or results of operations, litigation is subject to inherent uncertainties. If an unfavorable ruling were to occur, there exists the possibility of a
material adverse impact on our net earnings in the period in which a ruling occurs. The estimate of the potential impact of such legal proceedings on our financial position or results of operations could change in the future.

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.

Healthcare Reform

The President of the United States and members of the U.S. Congress have enacted significant reforms to the U.S.
health care system. On March 23, 2010, the President signed into law The Patient Protection and Affordable Care Act, and on March 30, 2010, the President signed into law The Health Care and Education Reconciliation Act of 2010 (referred to
collectively as the Health Reform Laws). The Health Reform Laws include a number of provisions that may affect the Company, although the impact of many of the changes will be unknown until they are implemented, which in some cases will
not occur for several years. The impact of some of these provisions may be positive such as increasing access to health benefits for the uninsured and underinsured populations, while other provisions such as Medicare payment reforms and reductions
that could reduce provider payments may have an adverse effect on the reimbursement rates the Company receives for services it provides.

Acquisition Payments

As of June 30, 2010, the Company may have to pay up to $22.5 million in future contingent payments as additional consideration for
acquisitions made prior to June 30, 2010. Including the August 2010 acquisition, total future contingent payments are $38.4 million. These payments will be made and recorded as additional purchase price or will reduce existing liabilities
should the acquired operations achieve the financial targets or certain contract terms as agreed to in the respective acquisition agreements. No payments were made related to previous acquisitions in the six months ended June 30, 2009 or 2010.



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Note 14. Comprehensive Earnings

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



|                                                      |  |                            |        |                          |      |   |        |  |   |        |   |  |   |       
|----------------------------------------------------- |  | -------------------------- | ------ | ------------------------ | ---- | - | ------ |  | - | ------ | - |  | - | ------
|                                                      |  | Three Months EndedJune 30, |        | Six Months EndedJune 30,
|                                                      |  | 2009                       |        |                          | 2010 |   | 2009   |  |   | 2010  
|Net earnings                                          |  | $                          | 15,833 |                          |      | $ | 18,620 |  | $ | 41,731 |   |  | $ | 29,518
|Net change in fair market value of investments        |  |                            | (361   | )                        |      |   | 592    |  |   | (7     | ) |  |   | 505   
|Net change in fair market value of interest rate swap |  |                            | 466    |                          |      |   | 820    |  |   | 688    |   |  |   | 1,091 
|                                                      |  |                            |        |                          |      |   |        |  |   |        |   |  |   |       
|Comprehensive earnings                                |  | $                          | 15,938 |                          |      | $ | 20,032 |  | $ | 42,412 |   |  | $ | 31,114
|                                                      |  |                            |        |                          |      |   |        |  |   |        |   |  |   |       

Note 15. Segment Reporting

The Company provides services through four operating segments which are aggregated into two reportable segments, Healthcare Services and
Billing Services. The Healthcare Services segment, which is an aggregation of healthcare staffing, clinics and occupational health, provides comprehensive healthcare service programs to users and providers of healthcare services on a fee-for-service
as well as a cost plus basis. The Billing Services segment provides a range of external billing, collection and consulting services on a fee basis to outside third-party customers.

Segment amounts disclosed are prior to any elimination entries made in consolidation, except in the case of net revenue, where
intercompany charges have been eliminated. Certain expenses are not allocated to the segments. These unallocated expenses are corporate expenses, net interest expense, depreciation and amortization, transaction costs and income taxes. The Company
evaluates segment performance based on profit and loss before the aforementioned expenses.

The following table presents
financial information for each reportable segment. Depreciation, amortization, management fee and other expenses separately identified in the consolidated statements of operations are included as a reduction to the operating earnings of each segment
in each period below (in thousands):



|                                                      |  |                            |         |   |                          |   |         |      |  |   |         |   |  |   |         |  
|----------------------------------------------------- |  | -------------------------- | ------- | - | ------------------------ | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                                      |  | Three Months EndedJune 30, |         |   | Six Months EndedJune 30, |  
|                                                      |  | 2009                       |         |   | 2010                     |   |         | 2009 |  |   | 2010    |  
|Net Revenues less Provision for Uncollectibles:       |  |                            |         |   |                          |   |         |      |  |   |         |   |  |   |         |  
|Healthcare Services                                   |  | $                          | 358,393 |   |                          | $ | 372,388 |      |  | $ | 704,518 |   |  | $ | 733,962 |  
|Billing Services                                      |  |                            | 3,696   |   |                          |   | 3,138   |      |  |   | 7,157   |   |  |   | 6,030   |  
|                                                      |  |                            |         |   |                          |   |         |      |  |   |         |   |  |   |         |  
|                                                      |  | $                          | 362,089 |   |                          | $ | 375,526 |      |  | $ | 711,675 |   |  | $ | 739,992 |  
|                                                      |  |                            |         |   |                          |   |         |      |  |   |         |   |  |   |         |  
|Operating Earnings:                                   |  |                            |         |   |                          |   |         |      |  |   |         |   |  |   |         |  
|Healthcare Services                                   |  | $                          | 46,865  |   |                          | $ | 48,327  |      |  | $ | 111,186 |   |  | $ | 98,201  |  
|Billing Services                                      |  |                            | 1,042   |   |                          |   | 898     |      |  |   | 1,750   |   |  |   | 1,526   |  
|General Corporate                                     |  |                            | (13,348 | ) |                          |   | (13,640 | )    |  |   | (25,854 | ) |  |   | (40,520 | )
|                                                      |  |                            |         |   |                          |   |         |      |  |   |         |   |  |   |         |  
|                                                      |  | $                          | 34,559  |   |                          | $ | 35,585  |      |  | $ | 87,082  |   |  | $ | 59,207  |  
|                                                      |  |                            |         |   |                          |   |         |      |  |   |         |   |  |   |         |  
|Reconciliation of Operating Earnings to Net Earnings: |  |                            |         |   |                          |   |         |      |  |   |         |   |  |   |         |  
|Operating earnings                                    |  | $                          | 34,559  |   |                          | $ | 35,585  |      |  | $ | 87,082  |   |  | $ | 59,207  |  
|Interest expense, net                                 |  |                            | 9,026   |   |                          |   | 4,922   |      |  |   | 19,122  |   |  |   | 10,685  |  
|Provision for income taxes                            |  |                            | 9,700   |   |                          |   | 12,043  |      |  |   | 26,229  |   |  |   | 19,004  |  
|                                                      |  |                            |         |   |                          |   |         |      |  |   |         |   |  |   |         |  
|Net earnings                                          |  | $                          | 15,833  |   |                          | $ | 18,620  |      |  | $ | 41,731  |   |  | $ | 29,518  |  
|                                                      |  |                            |         |   |                          |   |         |      |  |   |         |   |  |   |         |  



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Note 16. Financial Information for Subsidiary Guarantors and Non-Guarantor Subsidiary

The Company conducts substantially all of its business through its subsidiaries. The current registrant, Team Health Holdings, Inc., is a
holding company that conducts no operations and whose financial position is its investments in its subsidiaries. As of June 30, 2010, the Company and its wholly-owned domestic subsidiaries jointly and severally guarantee the 11.25% Notes on an
unsecured senior subordinated basis. Prior to the corporate conversion, Team Finance, LLC, a subsidiary of the Company, was the registrant. Team Finance, LLC conducts no operations and its financial position is comprised of its investments in its
subsidiaries, deferred financing costs and the Companys debt. The condensed consolidating financial information for the current and former registrants, the subsidiary guarantors, the non-guarantor subsidiary, certain reclassifications and
eliminations and the consolidated Company as of December 31, 2009 and June 30, 2010 and for the three and six months ended June 30, 2009 and 2010, are as follows:

Consolidated Balance Sheet



|                                                |  |                                          |          |   |                         |   |                                   |  |   |                   |   |  |   |          |  
|----------------------------------------------- |  | ---------------------------------------- | -------- | - | ----------------------- | - | --------------------------------- |  | - | ----------------- | - |  | - | -------- | -
|                                                |  | As of December 31, 2009                  |         
|                                                |  | Parent, Issuer,and GuarantorSubsidiaries |          |   | Non-GuarantorSubsidiary |   | Reclassificationsand Eliminations |  |   | TotalConsolidated |  
|                                                |  | (in thousands)                           |         
|Assets                                          |  |                                          |          |   |                         |   |                                   |  |   |                   |   |  |   |          |  
|Current assets:                                 |  |                                          |          |   |                         |   |                                   |  |   |                   |   |  |   |          |  
|Cash and cash equivalents                       |  | $                                        | 170,331  |   |                         | $ |                                  |  | $ |                  |   |  | $ | 170,331  |  
|Accounts receivable, net                        |  |                                          | 237,703  |   |                         |   |                                  |  |   |                  |   |  |   | 237,703  |  
|Prepaid expenses and other current assets       |  |                                          | 15,129   |   |                         |   | 15,296                            |  |   | (13,385           | ) |  |   | 17,040   |  
|Receivables under insured programs              |  |                                          | 17,615   |   |                         |   |                                  |  |   |                  |   |  |   | 17,615   |  
|                                                |  |                                          |          |   |                         |   |                                   |  |   |                   |   |  |   |          |  
|Total current assets                            |  |                                          | 440,778  |   |                         |   | 15,296                            |  |   | (13,385           | ) |  |   | 442,689  |  
|Investments of insurance subsidiary             |  |                                          |         |   |                         |   | 86,975                            |  |   |                  |   |  |   | 86,975   |  
|Property and equipment, net                     |  |                                          | 28,850   |   |                         |   |                                  |  |   |                  |   |  |   | 28,850   |  
|Other intangibles, net                          |  |                                          | 59,505   |   |                         |   |                                  |  |   |                  |   |  |   | 59,505   |  
|Goodwill                                        |  |                                          | 213,978  |   |                         |   |                                  |  |   |                  |   |  |   | 213,978  |  
|Deferred income taxes                           |  |                                          | 41,617   |   |                         |   | 401                               |  |   | 2,862             |   |  |   | 44,880   |  
|Receivables under insured programs              |  |                                          | 24,708   |   |                         |   |                                  |  |   |                  |   |  |   | 24,708   |  
|Investment in subsidiary                        |  |                                          | 15,007   |   |                         |   |                                  |  |   | (15,007           | ) |  |   |         |  
|Other                                           |  |                                          | 38,332   |   |                         |   | 1,029                             |  |   |                  |   |  |   | 39,361   |  
|                                                |  |                                          |          |   |                         |   |                                   |  |   |                   |   |  |   |          |  
|                                                |  | $                                        | 862,775  |   |                         | $ | 103,701                           |  | $ | (25,530           | ) |  | $ | 940,946  |  
|                                                |  |                                          |          |   |                         |   |                                   |  |   |                   |   |  |   |          |  
|Liabilities and shareholders equity (deficit)  |  |                                          |          |   |                         |   |                                   |  |   |                   |   |  |   |          |  
|Current liabilities:                            |  |                                          |          |   |                         |   |                                   |  |   |                   |   |  |   |          |  
|Accounts payable                                |  | $                                        | 17,420   |   |                         | $ | 52                                |  | $ |                  |   |  | $ | 17,472   |  
|Accrued compensation and physician payable      |  |                                          | 124,380  |   |                         |   |                                  |  |   |                  |   |  |   | 124,380  |  
|Other accrued liabilities                       |  |                                          | 37,111   |   |                         |   | 57,367                            |  |   | (10,523           | ) |  |   | 83,955   |  
|Income tax payable                              |  |                                          | 2,409    |   |                         |   | 570                               |  |   |                  |   |  |   | 2,979    |  
|Current maturities of long-term debt            |  |                                          | 161,752  |   |                         |   |                                  |  |   |                  |   |  |   | 161,752  |  
|Deferred income taxes                           |  |                                          | 34,764   |   |                         |   |                                  |  |   |                  |   |  |   | 34,764   |  
|                                                |  |                                          |          |   |                         |   |                                   |  |   |                   |   |  |   |          |  
|Total current liabilities                       |  |                                          | 377,836  |   |                         |   | 57,989                            |  |   | (10,523           | ) |  |   | 425,302  |  
|Long-term debt, less current maturities         |  |                                          | 449,273  |   |                         |   |                                  |  |   |                  |   |  |   | 449,273  |  
|Other non-current liabilities                   |  |                                          | 127,998  |   |                         |   | 30,705                            |  |   |                  |   |  |   | 158,703  |  
|Common stock                                    |  |                                          | 624      |   |                         |   | 120                               |  |   | (120              | ) |  |   | 624      |  
|Additional paid in capital                      |  |                                          | 490,989  |   |                         |   | 4,610                             |  |   | (4,610            | ) |  |   | 490,989  |  
|Accumulated (deficit) earnings                  |  |                                          | (581,059 | ) |                         |   | 8,628                             |  |   | (10,277           | ) |  |   | (582,708 | )
|Accumulated other comprehensive (loss) earnings |  |                                          | (2,886   | ) |                         |   | 1,649                             |  |   |                  |   |  |   | (1,237   | )
|                                                |  |                                          |          |   |                         |   |                                   |  |   |                   |   |  |   |          |  
|Total shareholders (deficit) equity            |  |                                          | (92,332  | ) |                         |   | 15,007                            |  |   | (15,007           | ) |  |   | (92,332  | )
|                                                |  |                                          |          |   |                         |   |                                   |  |   |                   |   |  |   |          |  
|                                                |  | $                                        | 862,775  |   |                         | $ | 103,701                           |  | $ | (25,530           | ) |  | $ | 940,946  |  
|                                                |  |                                          |          |   |                         |   |                                   |  |   |                   |   |  |   |          |  



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Consolidated Balance Sheet



|                                                |  |                                          |          |   |                         |   |                                   |  |   |                   |   |  |   |          |  
|----------------------------------------------- |  | ---------------------------------------- | -------- | - | ----------------------- | - | --------------------------------- |  | - | ----------------- | - |  | - | -------- | -
|                                                |  | As of June 30, 2010                      |         
|                                                |  | Parent, Issuer,and GuarantorSubsidiaries |          |   | Non-GuarantorSubsidiary |   | Reclassificationsand Eliminations |  |   | TotalConsolidated |  
|                                                |  | (in thousands)                           |         
|Assets                                          |  |                                          |          |   |                         |   |                                   |  |   |                   |   |  |   |          |  
|Current assets:                                 |  |                                          |          |   |                         |   |                                   |  |   |                   |   |  |   |          |  
|Cash and cash equivalents                       |  | $                                        | 33,290   |   |                         | $ |                                  |  | $ |                  |   |  | $ | 33,290   |  
|Accounts receivable, net                        |  |                                          | 255,302  |   |                         |   |                                  |  |   |                  |   |  |   | 255,302  |  
|Prepaid expenses and other current assets       |  |                                          | 24,246   |   |                         |   | 30,441                            |  |   | (29,451           | ) |  |   | 25,236   |  
|Receivables under insured programs              |  |                                          | 12,304   |   |                         |   |                                  |  |   |                  |   |  |   | 12,304   |  
|                                                |  |                                          |          |   |                         |   |                                   |  |   |                   |   |  |   |          |  
|Total current assets                            |  |                                          | 325,142  |   |                         |   | 30,441                            |  |   | (29,451           | ) |  |   | 326,132  |  
|Investments of insurance subsidiary             |  |                                          |         |   |                         |   | 93,805                            |  |   |                  |   |  |   | 93,805   |  
|Property and equipment, net                     |  |                                          | 29,589   |   |                         |   |                                  |  |   |                  |   |  |   | 29,589   |  
|Other intangibles, net                          |  |                                          | 52,519   |   |                         |   |                                  |  |   |                  |   |  |   | 52,519   |  
|Goodwill                                        |  |                                          | 217,682  |   |                         |   |                                  |  |   |                  |   |  |   | 217,682  |  
|Deferred income taxes                           |  |                                          | 35,466   |   |                         |   |                                  |  |   | 4,256             |   |  |   | 39,722   |  
|Receivables under insured programs              |  |                                          | 30,230   |   |                         |   |                                  |  |   |                  |   |  |   | 30,230   |  
|Investment in subsidiary                        |  |                                          | 10,156   |   |                         |   |                                  |  |   | (10,156           | ) |  |   |         |  
|Other                                           |  |                                          | 37,469   |   |                         |   | 1,080                             |  |   |                  |   |  |   | 38,549   |  
|                                                |  |                                          |          |   |                         |   |                                   |  |   |                   |   |  |   |          |  
|                                                |  | $                                        | 738,253  |   |                         | $ | 125,326                           |  | $ | (35,351           | ) |  | $ | 828,228  |  
|                                                |  |                                          |          |   |                         |   |                                   |  |   |                   |   |  |   |          |  
|Liabilities and shareholders equity (deficit)  |  |                                          |          |   |                         |   |                                   |  |   |                   |   |  |   |          |  
|Current liabilities:                            |  |                                          |          |   |                         |   |                                   |  |   |                   |   |  |   |          |  
|Accounts payable                                |  | $                                        | 3,192    |   |                         | $ | 9,044                             |  | $ |                  |   |  | $ | 12,236   |  
|Accrued compensation and physician payable      |  |                                          | 110,223  |   |                         |   |                                  |  |   |                  |   |  |   | 110,223  |  
|Other accrued liabilities                       |  |                                          | 38,382   |   |                         |   | 62,945                            |  |   | (25,195           | ) |  |   | 76,132   |  
|Income tax payable                              |  |                                          | 5,379    |   |                         |   | 2,154                             |  |   |                  |   |  |   | 7,533    |  
|Current maturities of long-term debt            |  |                                          | 4,250    |   |                         |   |                                  |  |   |                  |   |  |   | 4,250    |  
|Deferred income taxes                           |  |                                          | 35,783   |   |                         |   |                                  |  |   |                  |   |  |   | 35,783   |  
|                                                |  |                                          |          |   |                         |   |                                   |  |   |                   |   |  |   |          |  
|Total current liabilities                       |  |                                          | 197,209  |   |                         |   | 74,143                            |  |   | (25,195           | ) |  |   | 246,157  |  
|Long-term debt, less current maturities         |  |                                          | 447,148  |   |                         |   |                                  |  |   |                  |   |  |   | 447,148  |  
|Other non-current liabilities                   |  |                                          | 131,723  |   |                         |   | 41,027                            |  |   |                  |   |  |   | 172,750  |  
|Common stock                                    |  |                                          | 644      |   |                         |   | 120                               |  |   | (120              | ) |  |   | 644      |  
|Additional paid in capital                      |  |                                          | 514,359  |   |                         |   | 4,610                             |  |   | (4,610            | ) |  |   | 514,359  |  
|Accumulated (deficit) earnings                  |  |                                          | (551,035 | ) |                         |   | 3,272                             |  |   | (5,426            | ) |  |   | (553,189 | )
|Accumulated other comprehensive (loss) earnings |  |                                          | (1,795   | ) |                         |   | 2,154                             |  |   |                  |   |  |   | 359      |  
|                                                |  |                                          |          |   |                         |   |                                   |  |   |                   |   |  |   |          |  
|Total shareholders (deficit) equity             |  |                                          | (37,827  | ) |                         |   | 10,156                            |  |   | (10,156           | ) |  |   | (37,827  | )
|                                                |  |                                          |          |   |                         |   |                                   |  |   |                   |   |  |   |          |  
|                                                |  | $                                        | 738,253  |   |                         | $ | 125,326                           |  | $ | (35,351           | ) |  | $ | 828,228  |  
|                                                |  |                                          |          |   |                         |   |                                   |  |   |                   |   |  |   |          |  



22



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##### Table of Contents

Consolidated Statement of Operations



|                                                                                              |  |                                          |         |                         |   |       |                                   |  |   |                   |   |  |   |        
|--------------------------------------------------------------------------------------------- |  | ---------------------------------------- | ------- | ----------------------- | - | ----- | --------------------------------- |  | - | ----------------- | - |  | - | -------
|                                                                                              |  | Three Months Ended June 30, 2009        
|                                                                                              |  | Parent, Issuer,and GuarantorSubsidiaries |         | Non-GuarantorSubsidiary |   |       | Reclassificationsand Eliminations |  |   | TotalConsolidated
|                                                                                              |  | (in thousands)                          
|Net revenue                                                                                   |  | $                                        | 635,729 |                         | $ | 8,017 |                                   |  | $ | (8,017            | ) |  | $ | 635,729
|Provision for uncollectibles                                                                  |  |                                          | 273,640 |                         |   |      |                                   |  |   |                  |   |  |   | 273,640
|                                                                                              |  |                                          |         |                         |   |       |                                   |  |   |                   |   |  |   |        
|Net revenue less provision for uncollectibles                                                 |  |                                          | 362,089 |                         |   | 8,017 |                                   |  |   | (8,017            | ) |  |   | 362,089
|Cost of services rendered (exclusive of depreciation and amortization shown separately below) |  |                                          |         |                         |   |       |                                   |  |   |                   |   |  |   |        
|Professional expenses                                                                         |  |                                          | 291,212 |                         |   | 7,355 |                                   |  |   | (8,017            | ) |  |   | 290,550
|General and administrative expenses                                                           |  |                                          | 31,562  |                         |   | 52    |                                   |  |   |                  |   |  |   | 31,614 
|Other expenses (income)                                                                       |  |                                          | 886     |                         |   | (306  | )                                 |  |   |                  |   |  |   | 580    
|Depreciation and amortization                                                                 |  |                                          | 4,707   |                         |   |      |                                   |  |   |                  |   |  |   | 4,707  
|Interest expense (income), net                                                                |  |                                          | 9,664   |                         |   | (638  | )                                 |  |   |                  |   |  |   | 9,026  
|Transaction costs                                                                             |  |                                          | 79      |                         |   |      |                                   |  |   |                  |   |  |   | 79     
|                                                                                              |  |                                          |         |                         |   |       |                                   |  |   |                   |   |  |   |        
|Earnings before income taxes                                                                  |  |                                          | 23,979  |                         |   | 1,554 |                                   |  |   |                  |   |  |   | 25,533 
|Provision for income taxes                                                                    |  |                                          | 9,264   |                         |   | 436   |                                   |  |   |                  |   |  |   | 9,700  
|                                                                                              |  |                                          |         |                         |   |       |                                   |  |   |                   |   |  |   |        
|Net earnings                                                                                  |  | $                                        | 14,715  |                         | $ | 1,118 |                                   |  | $ |                  |   |  | $ | 15,833 
|                                                                                              |  |                                          |         |                         |   |       |                                   |  |   |                   |   |  |   |        

Consolidated Statement of Operations



|                                                                                              |  |                                          |         |                         |   |       |                                   |  |   |                   |   |  |   |        
|--------------------------------------------------------------------------------------------- |  | ---------------------------------------- | ------- | ----------------------- | - | ----- | --------------------------------- |  | - | ----------------- | - |  | - | -------
|                                                                                              |  | Three Months Ended June 30, 2010        
|                                                                                              |  | Parent, Issuer,and GuarantorSubsidiaries |         | Non-GuarantorSubsidiary |   |       | Reclassificationsand Eliminations |  |   | TotalConsolidated
|                                                                                              |  | (in thousands)                          
|Net revenue                                                                                   |  | $                                        | 655,971 |                         | $ | 7,552 |                                   |  | $ | (7,552            | ) |  | $ | 655,971
|Provision for uncollectibles                                                                  |  |                                          | 280,445 |                         |   |      |                                   |  |   |                  |   |  |   | 280,445
|                                                                                              |  |                                          |         |                         |   |       |                                   |  |   |                   |   |  |   |        
|Net revenue less provision for uncollectibles                                                 |  |                                          | 375,526 |                         |   | 7,552 |                                   |  |   | (7,552            | ) |  |   | 375,526
|Cost of services rendered (exclusive of depreciation and amortization shown separately below) |  |                                          |         |                         |   |       |                                   |  |   |                   |   |  |   |        
|Professional expenses                                                                         |  |                                          | 296,689 |                         |   | 7,746 |                                   |  |   | (7,552            | ) |  |   | 296,883
|General and administrative expenses                                                           |  |                                          | 32,896  |                         |   | 46    |                                   |  |   |                  |   |  |   | 32,942 
|Other expenses                                                                                |  |                                          | 777     |                         |   |      |                                   |  |   |                  |   |  |   | 777    
|Depreciation and amortization                                                                 |  |                                          | 6,423   |                         |   |      |                                   |  |   |                  |   |  |   | 6,423  
|Interest expense (income), net                                                                |  |                                          | 5,607   |                         |   | (685  | )                                 |  |   |                  |   |  |   | 4,922  
|Transaction costs                                                                             |  |                                          | 393     |                         |   |      |                                   |  |   |                  |   |  |   | 393    
|Impairment of intangibles                                                                     |  |                                          | 2,523   |                         |   |      |                                   |  |   |                  |   |  |   | 2,523  
|                                                                                              |  |                                          |         |                         |   |       |                                   |  |   |                   |   |  |   |        
|Earnings before income taxes                                                                  |  |                                          | 30,218  |                         |   | 445   |                                   |  |   |                  |   |  |   | 30,663 
|Provision (benefit) for income taxes                                                          |  |                                          | 12,044  |                         |   | (1    | )                                 |  |   |                  |   |  |   | 12,043 
|                                                                                              |  |                                          |         |                         |   |       |                                   |  |   |                   |   |  |   |        
|Net earnings                                                                                  |  | $                                        | 18,174  |                         | $ | 446   |                                   |  | $ |                  |   |  | $ | 18,620 
|                                                                                              |  |                                          |         |                         |   |       |                                   |  |   |                   |   |  |   |        



23



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##### Table of Contents

Consolidated Statement of Operations



|                                                                                              |  |                                          |           |                         |   |        |                                   |  |   |                   |   |  |   |          
|--------------------------------------------------------------------------------------------- |  | ---------------------------------------- | --------- | ----------------------- | - | ------ | --------------------------------- |  | - | ----------------- | - |  | - | ---------
|                                                                                              |  | Six Months Ended June 30, 2009          
|                                                                                              |  | Parent, Issuer,and GuarantorSubsidiaries |           | Non-GuarantorSubsidiary |   |        | Reclassificationsand Eliminations |  |   | TotalConsolidated
|                                                                                              |  | (in thousands)                          
|Net revenue                                                                                   |  | $                                        | 1,230,521 |                         | $ | 16,096 |                                   |  | $ | (16,096           | ) |  | $ | 1,230,521
|Provision for uncollectibles                                                                  |  |                                          | 518,846   |                         |   |       |                                   |  |   |                  |   |  |   | 518,846  
|                                                                                              |  |                                          |           |                         |   |        |                                   |  |   |                   |   |  |   |          
|Net revenue less provision for uncollectibles                                                 |  |                                          | 711,675   |                         |   | 16,096 |                                   |  |   | (16,096           | ) |  |   | 711,675  
|Cost of services rendered (exclusive of depreciation and amortization shown separately below) |  |                                          |           |                         |   |        |                                   |  |   |                   |   |  |   |          
|Professional expenses                                                                         |  |                                          | 563,897   |                         |   | 4,948  |                                   |  |   | (16,096           | ) |  |   | 552,749  
|General and administrative expenses                                                           |  |                                          | 60,735    |                         |   | 99     |                                   |  |   |                  |   |  |   | 60,834   
|Other expenses (income)                                                                       |  |                                          | 1,825     |                         |   | (306   | )                                 |  |   |                  |   |  |   | 1,519    
|Depreciation and amortization                                                                 |  |                                          | 9,332     |                         |   |       |                                   |  |   |                  |   |  |   | 9,332    
|Interest expense (income), net                                                                |  |                                          | 20,619    |                         |   | (1,497 | )                                 |  |   |                  |   |  |   | 19,122   
|Transaction costs                                                                             |  |                                          | 159       |                         |   |       |                                   |  |   |                  |   |  |   | 159      
|                                                                                              |  |                                          |           |                         |   |        |                                   |  |   |                   |   |  |   |          
|Earnings before income taxes                                                                  |  |                                          | 55,108    |                         |   | 12,852 |                                   |  |   |                  |   |  |   | 67,960   
|Provision for income taxes                                                                    |  |                                          | 21,984    |                         |   | 4,245  |                                   |  |   |                  |   |  |   | 26,229   
|                                                                                              |  |                                          |           |                         |   |        |                                   |  |   |                   |   |  |   |          
|Net earnings                                                                                  |  | $                                        | 33,124    |                         | $ | 8,607  |                                   |  | $ |                  |   |  | $ | 41,731   
|                                                                                              |  |                                          |           |                         |   |        |                                   |  |   |                   |   |  |   |          

Consolidated Statement of Operations



|                                                                                              |  |                                          |           |                         |   |        |                                   |  |   |                   |   |  |   |          
|--------------------------------------------------------------------------------------------- |  | ---------------------------------------- | --------- | ----------------------- | - | ------ | --------------------------------- |  | - | ----------------- | - |  | - | ---------
|                                                                                              |  | Six Months Ended June 30, 2010          
|                                                                                              |  | Parent, Issuer,and GuarantorSubsidiaries |           | Non-GuarantorSubsidiary |   |        | Reclassificationsand Eliminations |  |   | TotalConsolidated
|                                                                                              |  | (in thousands)                          
|Net revenue                                                                                   |  | $                                        | 1,287,937 |                         | $ | 15,445 |                                   |  | $ | (15,445           | ) |  | $ | 1,287,937
|Provision for uncollectibles                                                                  |  |                                          | 547,945   |                         |   |       |                                   |  |   |                  |   |  |   | 547,945  
|                                                                                              |  |                                          |           |                         |   |        |                                   |  |   |                   |   |  |   |          
|Net revenue less provision for uncollectibles                                                 |  |                                          | 739,992   |                         |   | 15,445 |                                   |  |   | (15,445           | ) |  |   | 739,992  
|Cost of services rendered (exclusive of depreciation and amortization shown separately below) |  |                                          |           |                         |   |        |                                   |  |   |                   |   |  |   |          
|Professional expenses                                                                         |  |                                          | 589,452   |                         |   | 11,638 |                                   |  |   | (15,445           | ) |  |   | 585,645  
|General and administrative expenses                                                           |  |                                          | 63,628    |                         |   | 115    |                                   |  |   |                  |   |  |   | 63,743   
|Other expenses (income)                                                                       |  |                                          | 780       |                         |   | (64    | )                                 |  |   |                  |   |  |   | 716      
|Depreciation and amortization                                                                 |  |                                          | 12,838    |                         |   |       |                                   |  |   |                  |   |  |   | 12,838   
|Interest expense (income), net                                                                |  |                                          | 12,053    |                         |   | (1,368 | )                                 |  |   |                  |   |  |   | 10,685   
|Transaction costs                                                                             |  |                                          | 458       |                         |   |       |                                   |  |   |                  |   |  |   | 458      
|Impairment of intangibles                                                                     |  |                                          | 2,523     |                         |   |       |                                   |  |   |                  |   |  |   | 2,523    
|Loss on extinguishment of debt                                                                |  |                                          | 14,862    |                         |   |       |                                   |  |   |                  |   |  |   | 14,862   
|                                                                                              |  |                                          |           |                         |   |        |                                   |  |   |                   |   |  |   |          
|Earnings before income taxes                                                                  |  |                                          | 43,398    |                         |   | 5,124  |                                   |  |   |                  |   |  |   | 48,522   
|Provision for income taxes                                                                    |  |                                          | 17,525    |                         |   | 1,479  |                                   |  |   |                  |   |  |   | 19,004   
|                                                                                              |  |                                          |           |                         |   |        |                                   |  |   |                   |   |  |   |          
|Net earnings                                                                                  |  | $                                        | 25,873    |                         | $ | 3,645  |                                   |  | $ |                  |   |  | $ | 29,518   
|                                                                                              |  |                                          |           |                         |   |        |                                   |  |   |                   |   |  |   |          



24



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##### Table of Contents

Consolidated Statement of Cash Flows



|                                                                  |  |                                          |          |   |                         |   |         |                                   |  |                   |   |  |   |          |  
|----------------------------------------------------------------- |  | ---------------------------------------- | -------- | - | ----------------------- | - | ------- | --------------------------------- |  | ----------------- | - |  | - | -------- | -
|                                                                  |  | Six Months Ended June 30, 2009           |         
|                                                                  |  | Parent, Issuer,and GuarantorSubsidiaries |          |   | Non-GuarantorSubsidiary |   |         | Reclassificationsand Eliminations |  | TotalConsolidated |  
|                                                                  |  | (in thousands)                           |         
|Operating activities                                              |  |                                          |          |   |                         |   |         |                                   |  |                   |   |  |   |          |  
|Net earnings                                                      |  | $                                        | 33,124   |   |                         | $ | 8,607   |                                   |  | $                 |  |  | $ | 41,731   |  
|Adjustments to reconcile net earnings:                            |  |                                          |          |   |                         |   |         |                                   |  |                   |   |  |   |          |  
|Depreciation and amortization                                     |  |                                          | 9,332    |   |                         |   |        |                                   |  |                   |  |  |   | 9,332    |  
|Amortization of deferred financing costs                          |  |                                          | 1,036    |   |                         |   |        |                                   |  |                   |  |  |   | 1,036    |  
|Employee equity based compensation expense                        |  |                                          | 371      |   |                         |   |        |                                   |  |                   |  |  |   | 371      |  
|Provision for uncollectibles                                      |  |                                          | 518,846  |   |                         |   |        |                                   |  |                   |  |  |   | 518,846  |  
|Deferred income taxes                                             |  |                                          | 6,393    |   |                         |   | (873    | )                                 |  |                   |  |  |   | 5,520    |  
|Loss on disposal of equipment                                     |  |                                          | 39       |   |                         |   |        |                                   |  |                   |  |  |   | 39       |  
|Equity in joint venture income                                    |  |                                          | (993     | ) |                         |   |        |                                   |  |                   |  |  |   | (993     | )
|Changes in operating assets and liabilities, net of acquisitions: |  |                                          |          |   |                         |   |         |                                   |  |                   |   |  |   |          |  
|Accounts receivable                                               |  |                                          | (514,190 | ) |                         |   |        |                                   |  |                   |  |  |   | (514,190 | )
|Prepaids and other assets                                         |  |                                          | (1,006   | ) |                         |   | (15,892 | )                                 |  |                   |  |  |   | (16,898  | )
|Income tax accounts                                               |  |                                          | 11,696   |   |                         |   | 784     |                                   |  |                   |  |  |   | 12,480   |  
|Accounts payable                                                  |  |                                          | (2,731   | ) |                         |   | 18      |                                   |  |                   |  |  |   | (2,713   | )
|Accrued compensation and physician payable                        |  |                                          | 1,281    |   |                         |   |        |                                   |  |                   |  |  |   | 1,281    |  
|Other accrued liabilities                                         |  |                                          | (15,306  | ) |                         |   | 15,504  |                                   |  |                   |  |  |   | 198      |  
|Professional liability reserves                                   |  |                                          | (3,850   | ) |                         |   | (2,827  | )                                 |  |                   |  |  |   | (6,677   | )
|                                                                  |  |                                          |          |   |                         |   |         |                                   |  |                   |   |  |   |          |  
|Net cash provided by operating activities                         |  |                                          | 44,042   |   |                         |   | 5,321   |                                   |  |                   |  |  |   | 49,363   |  
|                                                                  |  |                                          |          |  
|Investing activities                                              |  |                                          |          |   |                         |   |         |                                   |  |                   |   |  |   |          |  
|Purchases of property and equipment                               |  |                                          | (4,036   | ) |                         |   |        |                                   |  |                   |  |  |   | (4,036   | )
|Cash paid for acquisitions, net                                   |  |                                          | (2,699   | ) |                         |   |        |                                   |  |                   |  |  |   | (2,699   | )
|Purchases of investments by insurance subsidiary                  |  |                                          |         |   |                         |   | (73,151 | )                                 |  |                   |  |  |   | (73,151  | )
|Proceeds from investments by insurance subsidiary                 |  |                                          |         |   |                         |   | 67,830  |                                   |  |                   |  |  |   | 67,830   |  
|Other investing activities                                        |  |                                          | 3        |   |                         |   |        |                                   |  |                   |  |  |   | 3        |  
|                                                                  |  |                                          |          |   |                         |   |         |                                   |  |                   |   |  |   |          |  
|Net cash used in investing activities                             |  |                                          | (6,732   | ) |                         |   | (5,321  | )                                 |  |                   |  |  |   | (12,053  | )
|                                                                  |  |                                          |          |  
|Financing activities                                              |  |                                          |          |   |                         |   |         |                                   |  |                   |   |  |   |          |  
|Payments on notes payable                                         |  |                                          | (2,125   | ) |                         |   |        |                                   |  |                   |  |  |   | (2,125   | )
|Redemption of common units                                        |  |                                          | (1,716   | ) |                         |   |        |                                   |  |                   |  |  |   | (1,716   | )
|                                                                  |  |                                          |          |   |                         |   |         |                                   |  |                   |   |  |   |          |  
|Net cash used in financing activities                             |  |                                          | (3,841   | ) |                         |   |        |                                   |  |                   |  |  |   | (3,841   | )
|                                                                  |  |                                          |          |   |                         |   |         |                                   |  |                   |   |  |   |          |  
|Net increase in cash                                              |  |                                          | 33,469   |   |                         |   |        |                                   |  |                   |  |  |   | 33,469   |  
|Cash and cash equivalents, beginning of period                    |  |                                          | 46,398   |   |                         |   |        |                                   |  |                   |  |  |   | 46,398   |  
|                                                                  |  |                                          |          |   |                         |   |         |                                   |  |                   |   |  |   |          |  
|Cash and cash equivalents, end of period                          |  | $                                        | 79,867   |   |                         | $ |        |                                   |  | $                 |  |  | $ | 79,867   |  
|                                                                  |  |                                          |          |   |                         |   |         |                                   |  |                   |   |  |   |          |  



25



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##### Table of Contents

Consolidated Statement of Cash Flows



|                                                                  |  |                                          |          |   |                         |   |         |                                   |  |                   |   |  |   |          |  
|----------------------------------------------------------------- |  | ---------------------------------------- | -------- | - | ----------------------- | - | ------- | --------------------------------- |  | ----------------- | - |  | - | -------- | -
|                                                                  |  | Six Months Ended June 30, 2010           |         
|                                                                  |  | Parent, Issuer,and GuarantorSubsidiaries |          |   | Non-GuarantorSubsidiary |   |         | Reclassificationsand Eliminations |  | TotalConsolidated |  
|                                                                  |  | (in thousands)                           |         
|Operating activities                                              |  |                                          |          |   |                         |   |         |                                   |  |                   |   |  |   |          |  
|Net earnings                                                      |  | $                                        | 25,873   |   |                         | $ | 3,645   |                                   |  | $                 |  |  | $ | 29,518   |  
|Adjustments to reconcile net earnings:                            |  |                                          |          |   |                         |   |         |                                   |  |                   |   |  |   |          |  
|Depreciation and amortization                                     |  |                                          | 12,838   |   |                         |   |        |                                   |  |                   |  |  |   | 12,838   |  
|Amortization of deferred financing costs                          |  |                                          | 1,029    |   |                         |   |        |                                   |  |                   |  |  |   | 1,029    |  
|Employee equity based compensation expense                        |  |                                          | 610      |   |                         |   |        |                                   |  |                   |  |  |   | 610      |  
|Provision for uncollectibles                                      |  |                                          | 547,945  |   |                         |   |        |                                   |  |                   |  |  |   | 547,945  |  
|Impairment of intangibles                                         |  |                                          | 2,523    |   |                         |   |         |                                   |  |                   |  |  |   | 2,523    |  
|Deferred income taxes                                             |  |                                          | 5,314    |   |                         |   | (107    | )                                 |  |                   |  |  |   | 5,207    |  
|Loss on extinguishment of debt                                    |  |                                          | 3,837    |   |                         |   |        |                                   |  |                   |  |  |   | 3,837    |  
|Loss on disposal of equipment                                     |  |                                          | 9        |   |                         |   |        |                                   |  |                   |  |  |   | 9        |  
|Equity in joint venture income                                    |  |                                          | (1,137   | ) |                         |   |        |                                   |  |                   |  |  |   | (1,137   | )
|Changes in operating assets and liabilities, net of acquisitions: |  |                                          |          |   |                         |   |         |                                   |  |                   |   |  |   |          |  
|Accounts receivable                                               |  |                                          | (565,545 | ) |                         |   |        |                                   |  |                   |  |  |   | (565,545 | )
|Prepaids and other assets                                         |  |                                          | 3,196    |   |                         |   | (13,801 | )                                 |  |                   |  |  |   | (10,605  | )
|Income tax accounts                                               |  |                                          | 3,025    |   |                         |   | 1,584   |                                   |  |                   |  |  |   | 4,609    |  
|Accounts payable                                                  |  |                                          | (5,010   | ) |                         |   | (8      | )                                 |  |                   |  |  |   | (5,018   | )
|Accrued compensation and physician payable                        |  |                                          | (14,477  | ) |                         |   |        |                                   |  |                   |  |  |   | (14,477  | )
|Other accrued liabilities                                         |  |                                          | (11,322  | ) |                         |   | 12,019  |                                   |  |                   |  |  |   | 697      |  
|Professional liability reserves                                   |  |                                          | (241     | ) |                         |   | 2,722   |                                   |  |                   |  |  |   | 2,481    |  
|                                                                  |  |                                          |          |   |                         |   |         |                                   |  |                   |   |  |   |          |  
|Net cash provided by operating activities                         |  |                                          | 8,467    |   |                         |   | 6,054   |                                   |  |                   |  |  |   | 14,521   |  
|                                                                  |  |                                          |          |  
|Investing activities                                              |  |                                          |          |   |                         |   |         |                                   |  |                   |   |  |   |          |  
|Purchases of property and equipment                               |  |                                          | (3,874   | ) |                         |   |        |                                   |  |                   |  |  |   | (3,874   | )
|Cash paid for acquisitions, net                                   |  |                                          | (4,159   | ) |                         |   |        |                                   |  |                   |  |  |   | (4,159   | )
|Purchases of investments by insurance subsidiary                  |  |                                          |         |   |                         |   | (27,871 | )                                 |  |                   |  |  |   | (27,871  | )
|Proceeds from investments by insurance subsidiary                 |  |                                          |         |   |                         |   | 21,817  |                                   |  |                   |  |  |   | 21,817   |  
|Other investing activities                                        |  |                                          | 4        |   |                         |   |         |                                   |  |                   |  |  |   | 4        |  
|                                                                  |  |                                          |          |   |                         |   |         |                                   |  |                   |   |  |   |          |  
|Net cash used in investing activities                             |  |                                          | (8,029   | ) |                         |   | (6,054  | )                                 |  |                   |  |  |   | (14,083  | )
|                                                                  |  |                                          |          |  
|Financing activities                                              |  |                                          |          |   |                         |   |         |                                   |  |                   |   |  |   |          |  
|Payments on notes payable                                         |  |                                          | (2,125   | ) |                         |   |        |                                   |  |                   |  |  |   | (2,125   | )
|Payments on 11.25% senior subordinated notes                      |  |                                          | (157,502 | ) |                         |   |        |                                   |  |                   |  |  |   | (157,502 | )
|Proceeds from revolving credit facility                           |  |                                          | 56,800   |   |                         |   |        |                                   |  |                   |  |  |   | 56,800   |  
|Payments on revolving credit facility                             |  |                                          | (56,800  | ) |                         |   |        |                                   |  |                   |  |  |   | (56,800  | )
|Proceeds from sale of common shares                               |  |                                          | 21,769   |   |                         |   |        |                                   |  |                   |  |  |   | 21,769   |  
|Proceeds from exercise of stock options                           |  |                                          | 379      |   |                         |   |        |                                   |  |                   |  |  |   | 379      |  
|                                                                  |  |                                          |          |   |                         |   |         |                                   |  |                   |   |  |   |          |  
|Net cash used in financing activities                             |  |                                          | (137,479 | ) |                         |   |        |                                   |  |                   |  |  |   | (137,479 | )
|                                                                  |  |                                          |          |   |                         |   |         |                                   |  |                   |   |  |   |          |  
|Net decrease in cash                                              |  |                                          | (137,041 | ) |                         |   |        |                                   |  |                   |  |  |   | (137,041 | )
|Cash and cash equivalents, beginning of period                    |  |                                          | 170,331  |   |                         |   |        |                                   |  |                   |  |  |   | 170,331  |  
|                                                                  |  |                                          |          |   |                         |   |         |                                   |  |                   |   |  |   |          |  
|Cash and cash equivalents, end of period                          |  | $                                        | 33,290   |   |                         | $ |        |                                   |  | $                 |  |  | $ | 33,290   |  
|                                                                  |  |                                          |          |   |                         |   |         |                                   |  |                   |   |  |   |          |  



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|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

Introduction

We believe
we are one of the largest suppliers of outsourced healthcare professional staffing and administrative services to hospitals and other healthcare providers in the United States, based upon revenues and patient visits. Our regional operating models
also include comprehensive programs for inpatient care, anesthesiology, radiology, pediatrics and other healthcare services, principally within hospital departments and other healthcare treatment facilities. We have focused, however, primarily on
providing outsourced services to hospital emergency departments or EDs, which accounts for the majority of our net revenues.

The
Corporate Conversion

Effective December 15, 2009, we converted from a limited liability company to a corporation
in connection with our initial public offering. In addition to converting Class A units, Class B units and Class C units into common stock, each holder of Class B units and Class C units was also issued vested and unvested options to acquire
shares of our common stock in substitution for part of the economic benefits of their outstanding Class B units or Class C units not reflected in the conversion of the units into shares of common stock, with the exercise price of these options equal
to the initial public offering price or such higher price as was necessary to accurately reflect the terms of the Class B units or Class C units to which they related. The common stock received in the conversion associated with unvested Class B
units and Class C units and the unvested options are subject to the same vesting schedule that previously applied to the Class B units or Class C units to which they related.

Initial Public Offering

In December 2009, we completed our initial public offering of 13,300,000 shares of common stock. Including the subsequent exercise in
January 2010 of the underwriters over-allotment option to purchase 1,995,000 shares, a total of 15,295,000 shares of common stock were sold. The total number of outstanding shares of common stock was 62,401,000 as of December 31, 2009,
and the total number of outstanding shares of common stock after the exercise of the over-allotment option was 64,396,000.

Our net proceeds of approximately $168.5 million from the offering were used for the pro rata redemption of approximately $157.5 million
aggregate amount of our 11.25% Notes due 2013. We completed the initial $136.9 million redemption on January 25, 2010, and the additional $20.6 million redemption using the over-allotment option exercise proceeds on February 12, 2010.

Factors and Trends that Affect Our Results of Operations

In reading our financial statements, you should be aware of the following factors and trends we believe are important in understanding our
financial performance.

General Economic Conditions

The continuation of the current economic conditions may adversely impact our ability to collect for the services we provide as higher
unemployment and reductions in commercial managed care and governmental healthcare enrollment may increase the number of uninsured and underinsured patients seeking healthcare at one of our staffed EDs. We could be negatively affected if the federal
government or the states reduce funding of Medicare, Medicaid and other federal and state healthcare programs in response to increasing deficits in their budgets. Also, patient volume trends in our hospital EDs could be adversely affected as
individuals potentially defer or forego seeking care in such departments due to the loss or reduction of coverage previously available to such individuals under commercial insurance or governmental healthcare programs.



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Healthcare Reform

The President of the United States and members of the U.S. Congress have enacted significant reforms to the U.S. healthcare system. On
March 23, 2010, the President signed into law The Patient Protection and Affordable Care Act, and on March 30, 2010, the President signed into law The Health Care and Education Reconciliation Act of 2010 (referred to collectively as the
Health Reform Laws). The Health Reform Laws include a number of provisions that may affect us, although the impact of many of the changes will be unknown until they are implemented, which in some cases will not occur for several years.
The impact of some of these provisions may be positive, such as increasing access to health benefits for the uninsured and underinsured populations, while other provisions such as Medicare payment reforms and reductions that could reduce provider
payments may have an adverse affect on the reimbursement rates we receive for services we provide.

2010 Medicare Fee Schedule Changes

The Medicare program reimburses for our services based upon the rates in its Physician Fee Schedule, and each year the
Medicare program updates the Physician Fee Schedule reimbursement rates based on a formula approved by Congress in the Balanced Budget Act of 1997. Many private payers use the Medicare fee schedule to determine their own reimbursement rates.

The Medicare law requires the Centers for Medicare and Medicaid Services (CMS) to adjust the Medicare Physician Fee Schedule
(MPFS) payment rates annually based on an update formula which includes application of the Sustainable Growth Rate (SGR) that was adopted in the Balanced Budget Act of 1997. This formula has yielded negative updates every year beginning in 2002,
although CMS was able to take administrative steps to avoid a reduction in 2003 and Congress took a series of legislative actions to prevent reductions each year from 2004 to 2009. On October 30, 2009, CMS released its final 2010 MPFS payment
changes covering the period from January 1, 2010 through December 30, 2010. The final rule includes a 21.2% rate reduction in the MPFS for 2010 as a result of the application of the SGR. Although the final rule was to become effective
January 1, 2010, on April 15, 2010, Congress and the President enacted legislation to delay the MPFS SGR payment reductions through May 31, 2010. On June 25, 2010, the Preservation of Access to Care for Medicare Beneficiaries and
Pension Relief Act of 2010 was signed into law, further delaying the payment reductions and providing for a 2.2% update to the 2010 MPFS, effective for dates of service June 1, 2010 through November 30, 2010. However, absent regulatory
changes or further Congressional action with respect to the application of the SGR, Medicare physician services will be subject to significant reductions beginning on December 1, 2010.

In June 2010, CMS released the proposed rule to update the 2011 MPFS. Included in the proposed rule are changes in reimbursement that are
overall budget neutral, but redistribute payments between different medical specialties. The proposed 2011 MPFS rule is not final and is subject to comment and revision, however, if implemented we estimate that the proposed rule would reduce 2011
reimbursement rates to emergency medicine providers by 2% - 3%. This proposed reimbursement reduction would be in addition to any reduction associated with SGR changes in 2011.

Any future reductions in amounts paid by government programs for physician services or changes in methods or regulations governing
payment amounts or practices could cause our revenues to decline and we may not be able to offset reduced operating margins through cost reductions, increased volume or otherwise.

Military Healthcare Staffing

We are a provider of healthcare professionals that serve military personnel and their dependents in military treatment facilities
nationwide administered by the U.S. Department of Defense. Our revenues derived from military healthcare staffing totaled $83.0 million and $50.8 million for the six months ended June 30, 2009 and 2010, respectively. These revenues are derived
from contracts that are subject to a competitive bidding process.



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Approximately $92.5 million of the estimated revenue won by us as part of the
militarys contract bidding process in 2009 was awarded to us on a one-year contract basis and will be subject to re-bid and award on or about October 1, 2010. Approximately $65.0 million of the estimated annual revenue won during the 2009
bidding process was awarded to us on a twofive option year contract basis which gives the government the option to exercise available option years each October 1. The government also reserves a portion of its contracts for award to small
businesses. We participate in such small business awards to the extent we can serve as a sub-contractor to small businesses that win such bids. Approximately 27.8% and 30.6% of our military staffing revenue for each of the six month periods ended
June 30, 2009 and 2010, respectively, was derived through a subcontracting agreement with a small business prime contractor.

Impairment of Intangibles

In June 2010, we recorded an impairment loss of $2.5 million related to the remaining contract intangible associated with a contractual
relationship acquired in a previous acquisition. We determined, in accordance with the provisions of Accounting Standards Codification (ASC) Subtopic 360-10, Impairment or Disposal of Long-Lived Assets, that the recoverability of
the remaining net contract intangible was impaired due to the anticipated termination of the contractual relationship. Based on our assessment it was determined that there were not any material future cash flows associated with the contract;
therefore, the total net contract intangible, as of June 30, 2010, was considered to be impaired.

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 the Companys consolidated financial statements.

There have been no changes to these critical accounting policies or
their application during the six months ended June 30, 2010.

Revenue Recognition

Net Revenue.Net revenue consists of fee-for-service revenue, contract revenue and other revenue. Net revenue is recorded in the
period in which services are rendered. Our net revenue is principally derived from the provision of healthcare staffing services to patients within healthcare facilities. The form of billing and related risk of collection for such services may vary
by customer. The following is a summary of the principal forms of our billing arrangements and how net revenue is recognized for each.

A significant portion (83% of our net revenue in the six months ended June 30, 2010 and 81% for the year ended December 31,
2009) resulted from fee-for-service patient visits. Fee-for-service revenue represents revenue earned under contracts in which we bill and collect the professional component of charges for medical services rendered by our contracted and employed
physicians. Under the fee-for-service arrangements, we bill patients for services provided and receive payment from patients or their third-party payers. Fee-for-service revenue is reported net of contractual allowances and policy discounts. All
services provided are expected to result in cash flows and are therefore reflected as net revenue in the financial statements. Fee-for-service revenue is recognized in the period in which the services are rendered to specific patients and reduced
immediately for the estimated impact of contractual allowances in the case of those patients having third-party payer coverage. 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 our billing centers for medical coding and entering into our billing systems and the verification of each patients submission or
representation at the time services are rendered as to the payer(s) responsible for payment of such services. Net revenue is recorded based on the information known at the time of entering of such information into



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our billing systems as well as an estimate of the net revenue associated with medical charts for a given service period that have not been processed yet into our billing systems. The above
factors and estimates are subject to change. For example, patient payer information may change following an initial attempt to bill for services due to a change in payer status. Such changes in payer status have an impact on recorded net revenue due
to different payers being subject to different contractual allowance amounts. Such changes in net revenue are recognized in the period that such changes in payer 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.

Contract revenue represents revenue generated under contracts in which we provide physician and other healthcare staffing and
administrative services in return for a contractually negotiated fee. Contract revenue consists primarily of billings based on hours of healthcare staffing provided at agreed-to hourly rates. Revenue in such cases is recognized as the hours are
worked by our staff and contractors. Additionally, contract revenue also includes supplemental revenue from hospitals where we may have a fee-for-service contract arrangement. Contract revenue for the supplemental billing in such cases is recognized
based on the terms of each individual contract. Such contract terms generally either provide for a fixed monthly dollar amount or a variable amount based upon measurable monthly activity, such as hours staffed, patient visits or collections per
visit compared to a minimum activity threshold. Such supplemental revenues based on variable arrangements are usually contractually fixed on a monthly, quarterly or annual calculation basis considering the variable factors negotiated in each such
arrangement. Such supplemental revenues are recognized as revenue in the period when such amounts are determined to be fixed and therefore contractually obligated as payable by the customer under the terms of the respective agreement.

Other revenue consists primarily of revenue from management and billing services provided to outside parties. Revenue is recognized for
such services pursuant to the terms of the contracts with customers. Generally, such contracts consist of fixed monthly amounts with revenue recognized in the month services are rendered or as hourly consulting fees recognized as revenue as hours
are worked in accordance with such arrangements. Additionally, we derive a portion of our revenues from providing billing services that are contingent upon the collection of third-party physician billings by us on behalf of such customers. Revenues
are not considered earned and therefore not recognized as revenue until actual cash collections are achieved in accordance with the contractual arrangements for such services.

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 approximately eight million annual fee-for-service patient visits and procedures, considers such factors as prior contract
collection experience, current period changes in payer mix and patient acuity indicators, reimbursement rate trends in governmental and private sector insurance programs, resolution of overprovision account balances, the estimated impact of billing
system effectiveness improvement initiatives, and trends in collections from self-pay patients and external collection agencies. In developing our estimate of collections per visit or procedure, we consider the amount of outstanding gross accounts
receivable by period of service, but do not use an accounts receivable aging schedule to establish estimated collection valuations. Individual estimates of net revenue less provision by contractual location are monitored and refreshed each month as
cash receipts are applied to existing accounts receivable and other current trends that have an impact upon the estimated collections per visit are observed. Such estimates are substantially formulaic in nature. In the ordinary course of business we
experience changes in our initial estimates of net revenues less provision for uncollectibles during the year following commencement of services. 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.



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Net revenue less provision for uncollectibles for the three and six months ended
June 30, 2009 and 2010, respectively, consisted of the following (in thousands):



|                                              |  |                            |           |   |                          |   |           |      |  |   |            |   |  |   |            |  
|--------------------------------------------- |  | -------------------------- | --------- | - | ------------------------ | - | --------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                              |  | Three Months EndedJune 30, |           |   | Six Months EndedJune 30, |  
|                                              |  | 2009                       |           |   | 2010                     |   |           | 2009 |  |   | 2010       |  
|Gross fee-for-service charges                 |  | $                          | 1,114,719 |   |                          | $ | 1,268,169 |      |  | $ | 2,162,252  |   |  | $ | 2,446,929  |  
|Unbilled revenue                              |  |                            | 1,110     |   |                          |   | 2,124     |      |  |   | 5,029      |   |  |   | 4,276      |  
|Less: Contractual adjustments                 |  |                            | (601,862  | ) |                          |   | (724,696  | )    |  |   | (1,177,763 | ) |  |   | (1,387,356 | )
|                                              |  |                            |           |   |                          |   |           |      |  |   |            |   |  |   |            |  
|Fee-for-service revenue                       |  |                            | 513,967   |   |                          |   | 545,597   |      |  |   | 989,518    |   |  |   | 1,063,849  |  
|Contract revenue                              |  |                            | 115,027   |   |                          |   | 103,528   |      |  |   | 228,034    |   |  |   | 210,467    |  
|Other revenue                                 |  |                            | 6,735     |   |                          |   | 6,846     |      |  |   | 12,969     |   |  |   | 13,621     |  
|                                              |  |                            |           |   |                          |   |           |      |  |   |            |   |  |   |            |  
|Net revenue                                   |  |                            | 635,729   |   |                          |   | 655,971   |      |  |   | 1,230,521  |   |  |   | 1,287,937  |  
|Provision for uncollectibles                  |  |                            | (273,640  | ) |                          |   | (280,445  | )    |  |   | (518,846   | ) |  |   | (547,945   | )
|                                              |  |                            |           |   |                          |   |           |      |  |   |            |   |  |   |            |  
|Net revenue less provision for uncollectibles |  | $                          | 362,089   |   |                          | $ | 375,526   |      |  | $ | 711,675    |   |  | $ | 739,992    |  
|                                              |  |                            |           |   |                          |   |           |      |  |   |            |   |  |   |            |  

Contractual adjustments represent the Companys estimate of discounts and other adjustments to be
recognized from gross fee-for-service charges under contractual payment arrangements, primarily with commercial, managed care, and governmental payment plans such as Medicare and Medicaid when the Companys providers participate in such plans.
The increase in contractual adjustments noted above is due to the overall increase in gross fee-for-service charges resulting from annual increases in the gross billing fee schedules and increases in patient visits and procedures between periods.
Contractual adjustments increased at a faster pace than the increase in gross fee-for-service charges as the annual reimbursement increases under contracts with managed care plans and government payers that are subject to contractual adjustments
tend to be less than the overall annual increase in the Companys gross billing fee schedules.

The table below
summarizes our approximate payer mix as a percentage of fee-for-service volume for the periods indicated:



|                            |  |                            |   |  |                          |   |  |       |   |  |       |  
|--------------------------- |  | -------------------------- | - |  | ------------------------ | - |  | ----- | - |  | ----- | -
|                            |  | Three Months EndedJune 30, |   |  | Six Months EndedJune 30, |  
|                            |  | 2009                       |   |  | 2010                     |   |  | 2009  |   |  | 2010  |  
|Payer:                      |  |                            |   |  |                          |   |  |       |   |  |       |  
|Medicare                    |  | 21.6                       | % |  | 22.4                     | % |  | 21.9  | % |  | 22.6  | %
|Medicaid                    |  | 25.4                       |   |  | 26.6                     |   |  | 25.3  |   |  | 26.4  |  
|Commercial and managed care |  | 28.8                       |   |  | 27.8                     |   |  | 28.9  |   |  | 27.9  |  
|Self pay                    |  | 21.9                       |   |  | 21.2                     |   |  | 21.6  |   |  | 21.0  |  
|Other                       |  | 2.3                        |   |  | 2.0                      |   |  | 2.3   |   |  | 2.1   |  
|                            |  |                            |   |  |                          |   |  |       |   |  |       |  
|Total                       |  | 100.0                      | % |  | 100.0                    | % |  | 100.0 | % |  | 100.0 | %
|                            |  |                            |   |  |                          |   |  |       |   |  |       |  

Accounts Receivable.As described above and below, we determine the estimated value of our accounts
receivable based on estimated cash collection run rates of estimated future collections by contract for patient visits under our fee-for-service contract revenue. Accordingly, we are unable to report the payer mix composition on a dollar basis of
our outstanding net accounts receivable. However, a 1% change in the estimated carrying value of our net fee-for-service patient accounts receivable before consideration of the allowance for uncollectible accounts at June 30, 2010 could have an
after tax effect of approximately $2.4 million on our financial position and results of operations. Our days revenue outstanding at December 31, 2009 and June 30, 2010, were 62.3 days and 61.4 days, respectively. The number of days
outstanding will fluctuate over time due to a number of factors. The decrease in average days outstanding of approximately 0.9 days includes a decrease of 7.2 days resulting from an increase in average revenue per day and a decrease of 0.8 days
associated with a



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decrease in estimated value of contract accounts receivable. These decreases were partially offset by an increase of 7.1 days related to the increase in estimated value of fee-for-service
accounts. The increase in average revenue per day is primarily attributed to an increase in gross charges, increased pricing with managed care plans and increases in average patient acuity levels. The increase of 7.1 days related to fee-for-service
accounts receivable and the decrease of 0.8 days associated with the decrease of contract accounts receivable are primarily due to timing of cash collections and valuation adjustments recorded in the period. Our allowance for doubtful accounts
totaled $203.1 million as of June 30, 2010.

Approximately 99% of our allowance for doubtful accounts is related to gross
fees for fee-for-service patient visits. Our principal exposure for uncollectible fee-for-service visits is centered in self-pay patients and, to a lesser extent, for co-payments and deductibles from patients with insurance. While we do not
specifically allocate the allowance for doubtful accounts to individual accounts or specific payer classifications, the portion of the allowance associated with fee-for-service charges as of June 30, 2010, was equal to approximately 92% of
outstanding self-pay fee-for-service patient accounts.

The majority of our fee-for-service patient visits are for the
provision of emergency care in hospital settings. Due to federal government regulations governing the provision of such care, we are obligated to provide emergency care regardless of the patients ability to pay or whether or not the patient
has insurance or other third-party coverage for the cost of the services rendered. While we attempt to obtain all relevant billing information at the time emergency care services are rendered, there are numerous patient encounters where such
information is not available at time of discharge. In such cases where detailed billing information relative to insurance or other third-party coverage is not available at discharge, we attempt to obtain such information from the patient or client
hospital billing record information subsequent to discharge to facilitate the collections process. Collections at the time of rendering such services (emergency room discharge) are not significant. Primary responsibility for collection of
fee-for-service accounts receivable resides within our internal billing operations. Once a claim has been submitted to a payer or an individual patient, employees within our billing operations have responsibility for the follow up collection
efforts. The protocol for follow up differs by payer classification. For self-pay patients, our billing system will automatically send a series of dunning letters on a prescribed time frame requesting payment or the provision of information
reflecting that the balance due is covered by another payer, such as Medicare or a third-party insurance plan. Generally, the dunning cycle on a self pay account will run from 90 to 120 days. At the end of this period, if no collections or
additional information is obtained from the patient, the account is no longer considered an active account and is transferred to a collection agency. Upon transfer to a collection agency, the patient account is written-off as a bad debt. Any
subsequent cash receipts on accounts previously written off are recorded as a recovery. For non-self pay accounts, billing personnel will follow up and respond to any communication from payers such as requests for additional information or denials
until collection of the account is obtained or other resolution has occurred. At the completion of our active collection cycle, we factor on a non-recourse basis selected patient accounts to external collection agencies while other selected accounts
may be transferred to external and internal collection agencies under a contingent collection basis. The projected value of future factoring and contingent collection proceeds are considered in the estimation of our overall accounts receivable
valuation. For contract accounts receivable, invoices for services are prepared in the various operating areas of the Company and mailed to our customers, generally on a monthly basis. Contract terms under such arrangements generally require payment
within thirty days of receipt of the invoice. Outstanding invoices are periodically reviewed and operations personnel with responsibility for the customer relationship will contact the customer to follow up on any delinquent invoices. Contract
accounts receivable will be considered as bad debt and written-off based upon the individual circumstances of the customer situation after all collection efforts have been exhausted, including legal action if warranted, and it is the judgment of
management that the account is not expected to be collected.

Methodology for Computing Allowance for Doubtful Accounts.We employ several methodologies for determining our allowance for doubtful accounts depending on the nature of the net revenue recognized. We initially determine gross revenue for our fee-for-service patient visits based upon established fee
schedule prices. Such gross revenue is reduced for estimated contractual allowances for those patient visits covered by contractual



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insurance arrangements to result in net revenue. Net revenue is then reduced for our estimate of uncollectible amounts. Fee-for-service net revenue less provision for uncollectibles represents
our estimated cash to be collected from such patient visits and is net of our estimate of account balances estimated to be uncollectible. The provision for uncollectible fee-for-service patient visits is based on historical experience resulting from
approximately eight million annual fee-for-service patient visits. The significant volume of patient visits and the terms of thousands of commercial and managed care contracts and the various reimbursement policies relating to governmental
healthcare programs do not make it feasible to evaluate fee-for-service accounts receivable on a specific account basis. Fee-for-service accounts receivable collection estimates are reviewed on a quarterly basis for each of our fee-for-service
contracts by period of accounts receivable origination. Such reviews include the use of historical cash collection percentages by contract adjusted for the lapse of time since the date of the patient visit. In addition, when actual collection
percentages differ from expected results, on a contract by contract basis, supplemental detailed reviews of the outstanding accounts receivable balances may be performed by our billing operations to determine whether there are facts and
circumstances existing that may cause a different conclusion as to the estimate of the collectibility of that contracts accounts receivable from the estimate resulting from using the historical collection experience. Contract-related net
revenue is billed based on the terms of the contract at amounts expected to be collected. Such billings are typically submitted on a monthly basis and aged trial balances prepared. Allowances for estimated uncollectible amounts related to such
contract billings are made based upon specific accounts and invoice periodic reviews once it is concluded that such amounts are not likely to be collected. The methodologies employed to compute allowances for doubtful accounts were unchanged between
2009 and 2010.

Insurance Reserves.

The nature of our business is such that it is subject to professional liability claims and lawsuits. Historically, to mitigate a portion
of this risk, we have maintained insurance for individual professional liability claims with per incident and annual aggregate limits per physician for all incidents. Prior to March 12, 2003, we obtained such insurance coverage from commercial
insurance providers. Subsequent to March 11, 2003, we have provided for a significant portion of our professional liability loss exposures through the use of a captive insurance company and through greater utilization of self-insurance
reserves. Since March 12, 2003, the most significant cost element within our professional liability program has consisted of the actuarial estimates of losses by occurrence period. In addition to the estimated actuarial losses, other costs that
are considered by management in the estimation of professional liability costs include program costs such as brokerage fees, claims management expenses, program premiums and taxes, and other administrative costs of operating the program, such as the
costs to operate the captive insurance subsidiary. Net costs in any period reflect our estimate of net losses to be incurred in that period as well as any changes to our estimates of the reserves established for net losses of prior periods.

Our commercial insurance policy for professional liability losses for the period March 12, 1999 through March 11,
2003 included insured limits applicable to such coverage in the period. Effective April 2006, we executed an agreement with the commercial insurance provider that issued the policy that ended March 11, 2003 to increase the existing $130.0
million aggregate limit of coverage. Under the terms of the agreement, we will make periodic premium payments to the commercial insurance company and the total aggregate limit of coverage under the policy will be increased by a portion of the
premiums paid. We have committed to fund premiums such that the total aggregate limit of coverage under the program remains greater than the paid losses at any point in time. During fiscal year 2009, we funded a total of $4.6 million under this
agreement. For the six months ended June 30, 2010, we funded a total of $0.4 million and have agreed to fund additional payments which will be based upon the level of incurred losses relative to the aggregate limit of coverage at that time.

As of June 30, 2010, the current aggregate limit of coverage under this policy is $156.6 million and the estimated loss
reserve for claim losses and expenses in excess of the current aggregate limit recorded by the Company was $7.4 million.



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The accounts of the captive insurance company are fully consolidated with those of our other
operations in the accompanying financial statements.

The estimation of medical professional liability losses is inherently
complex. Medical professional liability claims are typically resolved over an extended period of time, often as long as ten years or more. The combination of changing conditions and the extended time required for claim resolution results in a loss
estimation process that requires actuarial skill and the application of judgment, and such estimates require periodic revision. A report of actuarial loss estimates is prepared at least semi-annually. Managements estimate of our professional
liability costs resulting from such actuarial studies is significantly influenced by assumptions and assessments regarding expectations of several factors. These factors include, but are not limited to: historical paid and incurred loss development
trends; hours of exposure as measured by hours of physician and related professional staff services; trends in the frequency and severity of claims, which can differ significantly by jurisdiction due to the legislative and judicial climate in such
jurisdictions; coverage limits of third-party insurance; the effectiveness of our claims management process; and the outcome of litigation. As a result of the variety of factors that must be considered by management, there is a risk that actual
incurred losses may develop differently from estimates.

The underlying information that serves as the foundational basis for
making our actuarial estimates of professional liability losses is our internal database of incurred professional liability losses. The Company has captured extensive professional liability loss data going back, in some cases, over twenty years,
that is maintained and updated on an ongoing basis by our internal claims management personnel. Our database contains comprehensive incurred loss information for our existing operations as far back as fiscal 1997 (reflecting the initial timeframe in
which we migrated to a consolidated professional liability program concurrent with the consummation of several significant acquisitions) and, in addition, we possess additional loss data that predates 1997 dates of occurrence for certain of our
operations. Loss information reflects both paid and reserved losses incurred when we were covered by outside commercial insurance programs as well as paid and reserved losses incurred under our self insurance program. Because of the comprehensive
nature of the loss data and our comfort with the completeness and reliability of the loss data, this is the information that is used in the development of our actuarial loss estimates. We believe this database is one of the largest repositories of
physician professional liability loss information available in our industry and provides us and our actuarial consultants with sufficient data to develop reasonable estimates of the ultimate losses under our self insurance program. In addition to
the estimated losses, as part of the actuarial process, we obtain revised payment pattern assumptions that are based upon our historical loss and related claims payment experience. Such payment patterns reflect estimated cash outflows for aggregate
incurred losses by period based upon the occurrence date of the loss as well as the report date of the loss. Although variances have been observed in the actuarial estimate of ultimate losses by occurrence period between actuarial studies, the
estimated payment patterns have shown much more limited variability. We use these payment patterns to develop our estimate of the discounted reserve amounts. The relative consistency of the payment pattern estimates provides us with a foundation in
which to develop a reasonable estimate of the discount value of the professional liability reserves based upon the most current estimate of ultimate losses to be paid and the reasonable likelihood of the related cash flows over the payment period.
As of December 31, 2009 and June 30, 2010, our estimated loss reserves were discounted at 3.9% and 3.0%, respectively, which was the current ten year U.S. Treasury rate at each of those dates, and which reflects the risk free interest rate
over the expected period of claims payments.

In establishing our initial reserves for a given loss period, management
considers the results of the actuarial loss estimates for such periods as well as assumptions regarding loss retention levels and other program costs to be incurred. On a semi-annual basis, we will review our professional liability reserves
considering not only the reserves and loss estimates associated with the current period but also the reserves established in prior periods based upon revised actuarial loss estimates. The actuarial estimation process employed utilizes a frequency
severity simulation model to estimate the ultimate cost of claims for each loss period. The results of the simulation model are then validated by a comparison to the results from several different actuarial methods (paid loss development, incurred
loss development, incurred Bornhuetter-Ferguson method, paid Bornhuetter-Ferguson



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method) for reasonableness. Each method contains assumptions regarding the underlying claims process. Actuarial loss estimates at various confidence levels capture the variability in the loss
estimates for process risk but assume that the underlying model and assumptions are correct. Adjustments to professional liability loss reserves will be made as needed to reflect revised assumptions and emerging trends and data. Any adjustments to
reserves are reflected in the current operations. Due to the size of our reserve for professional liability losses, even a small percentage adjustment to these estimates can have a material effect on the results of operations for the period in which
the adjustment is made. Given the number of factors considered in establishing the reserves for professional liability losses, it is neither practical nor meaningful to isolate a particular assumption or parameter of the process and calculate the
impact of changing that single item. The actuarial reports provide a variety of loss estimates based upon statistical confidence levels reflecting the inherent uncertainty of the medical professional liability claims environment in which we operate.
Initial year loss estimates are generally recorded using the actuarial expected loss estimate, but aggregate professional liability loss reserves may be carried at amounts in excess of the expected loss estimates provided by the actuarial reports
due to the relatively short time period in which the Company has provided for its losses on a self insured basis and the expectation that we believe additional adjustments to prior year estimates may occur as our reporting history and loss portfolio
matures. In addition, the Company is subject to the risk of claims in excess of insured limits as well as unlimited aggregate risk of loss in certain loss periods. As the Companys self insurance program continues to mature and additional
stability is noted in the loss development trends in the initial years of the program, we expect to continue to review and evaluate the carried level of reserves and make adjustments as needed.

Based on the results of the actuarial study completed in April 2010, we recorded a reduction in professional liability reserves
associated with prior year loss estimates in the amount of $7.2 million during the first quarter of 2010. Of the total reserve reduction, approximately $5.4 million was associated with loss estimates established in prior years for the self insurance
program covering the loss occurrence periods from March 12, 2003 through December 31, 2009. The remaining reserve reduction of $1.8 million was associated with the estimated losses in excess of the aggregate limit of coverage under the
commercial insurance program that ended March 12, 2003.

The following reflects the current reserves for professional
liability costs as of June 30, 2010 (in millions) as well as the sensitivity of the reserve estimates at a 75% and 90% confidence level:



|                        |  |   |      
|----------------------- |  | - | -----
|As reported             |  | $ | 147.7
|At 75% confidence level |  | $ | 152.2
|At 90% confidence level |  | $ | 168.2

It is not possible to
quantify the amount of the change in our estimate of prior year losses by individual fiscal period due to the nature of the professional liability loss estimates that are provided to us on an occurrence period basis and the nature of the coverage
that is obtained in the commercial insurance market which is generally underwritten on a claims made or report period basis. Even though we are self insured for a significant portion of our risk, due to customer contracting requirements and state
insurance regulations, we still, at times, must place coverage on a claims made or report period basis with commercial insurance carriers. When evaluating the appropriate carrying level of our self insured professional liability reserves, management
considers the current estimates of occurrence period loss estimates as well as how such loss estimates and related future claims will interact with previous or current commercial insurance programs when projecting future cash flows. However, the
complexity that is associated with multiple occurrence periods interacting with multiple report periods that contain risks and related reserves retained by us, as well as transferred to commercial insurance carriers, makes it impossible to allocate
the change in prior year loss estimates to individual occurrence periods. Instead, we evaluate the future expected cash flows for all historical loss periods in the aggregate and compare such estimates to the current carrying value of our
professional liability reserves. This process provides the basis for us to conclude that our reserves for professional liability losses are reasonable and properly stated. Management considers the results of actuarial studies when estimating the
appropriate level of professional liability reserves and no adjustments to prior year loss estimates were made in periods where updated actuarial loss estimates were not available. Contributing to the reduction in professional liability reserves
associated with



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prior years recognized in the first quarter of 2010 were improvements in the estimate of ultimate losses by occurrence periods contained in the actuarial report received in April 2010. The April
2010 actuarial report reflected a reduction in the estimated ultimate undiscounted losses by occurrence period of between 5.8% and 6.3% (at various confidence factors) for the self insured loss period from March 12, 2003 through
December 31, 2009. The April 2010 actuarial report also reflected a reduction in the estimated undiscounted losses of between 4.0% and 4.6% (at various confidence factors) for the Companys exposure in excess of the aggregate limit of
coverage in place on the commercial insurance program that ended March 12, 2003.

Due to the complexity of the actuarial
estimation process, there are many factors, trends, and assumptions that must be considered in the development of the actuarial loss estimates and we are not able to quantify and disclose which specific elements are primarily contributing to the
overall favorable development in the revised loss estimates of historical occurrence periods. However, we believe that our internal investments in enhanced risk management and claims management resources and initiatives, such as the employment of
additional claims and litigation management personnel and practices and an expansion of programs such as root cause loss analysis, early claim evaluation, and litigation support for insured providers, as well as the improved legal environment
resulting from professional liability tort reform efforts in certain key jurisdictions such as Florida and Texas have contributed to the favorable trend in loss development estimates noted during the prior year occurrence periods.

Impairment of Intangible Assets

In assessing the recoverability of the Companys intangibles, we 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, we may be required to record impairment charges for these assets.

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 EndedJune 30, |   |  | Six Months EndedJune 30, |  
|                                              |  | 2009                       |   |  | 2010                     |   |  | 2009  |   |  | 2010  |  
|Net revenue less provision for uncollectibles |  | 100.0                      | % |  | 100.0                    | % |  | 100.0 | % |  | 100.0 | %
|Professional service expenses                 |  | 76.8                       |   |  | 75.5                     |   |  | 76.9  |   |  | 76.5  |  
|Professional liability costs                  |  | 3.4                        |   |  | 3.5                      |   |  | 0.8   |   |  | 2.6   |  
|General and administrative expenses           |  | 8.7                        |   |  | 8.8                      |   |  | 8.5   |   |  | 8.6   |  
|Other expenses                                |  | 0.1                        |   |  | 0.2                      |   |  | 0.2   |   |  | 0.1   |  
|Depreciation and amortization                 |  | 1.3                        |   |  | 1.7                      |   |  | 1.3   |   |  | 1.7   |  
|Interest expense, net                         |  | 2.5                        |   |  | 1.3                      |   |  | 2.7   |   |  | 1.4   |  
|Transaction costs                             |  |                           |   |  | 0.1                      |   |  |      |   |  | 0.1   |  
|Impairment of intangibles                     |  |                           |   |  | 0.7                      |   |  |      |   |  | 0.3   |  
|Loss on extinguishment of debt                |  |                           |   |  |                         |   |  |      |   |  | 2.0   |  
|                                              |  |                            |   |  |                          |   |  |       |   |  |       |  
|Earnings before income taxes                  |  | 7.1                        |   |  | 8.2                      |   |  | 9.5   |   |  | 6.6   |  
|Provision for income taxes                    |  | 2.7                        |   |  | 3.2                      |   |  | 3.7   |   |  | 2.6   |  
|                                              |  |                            |   |  |                          |   |  |       |   |  |       |  
|Net earnings                                  |  | 4.4                        | % |  | 5.0                      | % |  | 5.9   | % |  | 4.0   | %
|                                              |  |                            |   |  |                          |   |  |       |   |  |       |  



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Three Months Ended June 30, 2010 Compared to the Three Months Ended June 30, 2009

Net Revenue. Net revenue in the three months ended June 30, 2010 increased $20.2 million, or 3.2%, to $656.0
million from $635.7 million in the three months ended June 30, 2009. The increase in net revenue resulted primarily from increases in fee-for-service revenue of $31.6 million and other revenue of $0.1 million while contract revenue decreased
$11.5 million. The increase in fee-for-service revenue was primarily a result of increases in estimated collections per billed visit and a 1.8% increase in total fee-for-service visits and procedures. Estimated collections per visit increased due to
annual increases in gross charges, managed care pricing, increases in average patient acuity levels, and revenue cycle improvements. The decrease in contract revenue was due primarily to declines in our military operations resulting from contracting
changes within the military, partially offset by the contribution of our newly acquired anesthesiology operations. In the three months ended June 30, 2010, fee-for-service revenue was 83.2% of net revenue compared to 80.8% in the same period of
2009, contract revenue was 15.8% of net revenue in 2010 compared to 18.1% in 2009 and other revenue was 1.0% in 2010 compared to 1.1% in 2009.

Provision for Uncollectibles. The provision for uncollectibles was $280.4 million in the three months ended June 30, 2010
compared to $273.6 million in the corresponding period in 2009, an increase of $6.8 million, or 2.5%. The provision for uncollectibles as a percentage of net revenue was 42.8% in the three months ended June 30, 2010 compared with 43.0% in the
corresponding period of 2009. The provision for uncollectibles is primarily related to revenue generated under fee-for-service contracts that is not expected to be fully collected. The period over period increase in the provision for uncollectibles
is due primarily to annual increases in gross fee schedules and increases in patient volumes and procedures. Changes in payer mix, particularly the level of self pay fee-for-service visits, also have an impact on the provision for uncollectibles.
For the three months ended June 30, 2010, self pay fee-for-service visits were approximately 21.2% of the total fee-for-service visits compared to approximately 21.9% in the same period of 2009.

Net Revenue Less Provision for Uncollectibles. Net revenue less provision for uncollectibles in the three months ended
June 30, 2010 increased $13.4 million, or 3.7%, to $375.5 million from $362.1 million in the three months ended June 30, 2009. Acquisitions and same contract revenue contributed 5.5% and 2.5%, respectively, of the growth in net revenue
less provision for uncollectibles between quarters. New contracts, net of terminations (excluding the military division), contributed 0.4% of the growth. Net contract changes within our military division reduced quarter-over-quarter net revenue
growth by 4.6%. Same contract revenue less provision for uncollectibles, which consists of contracts under management in both periods, increased $9.0 million, or 2.8%, to $332.4 million in 2010 compared to $323.4 million in 2009. In the second
quarter of 2010, same contract revenue less provision benefited from increases in estimated collections on fee-for-service visits in the amount of 5.6% which contributed approximately 4.0% of same contract growth between quarters. The increase in
the estimated collections per visit is attributable to annual increases in gross charges, managed care pricing improvements, increases in average patient acuity levels and ongoing improvements in revenue cycle processes, partially offset by changes
in payer mix between periods. Also contributing to the increase in same contract revenue growth between quarters was an increase in fee-for-service volume of 0.9% which resulted in growth of 0.6%. These increases were partially offset by declines in
contract and other revenue, primarily associated with our military and locums tenens operations which constrained same contract revenue growth by 1.8%. Acquisitions contributed $19.8 million of growth between quarters. Excluding the impact of
contracting changes within the military division, net new contract revenue increased $1.5 million while changes within military staffing contracts resulted in a decline of $16.8 million between quarters. We typically gain new contracts by replacing
competitors at hospitals that currently outsource such services, obtaining new contracts from facilities that do not currently outsource and responding to contracting opportunities within the military healthcare system. Factors influencing new
contracting opportunities include the depth and breath of our service offerings, our reputation and experience, our ability to recruit and retain qualified clinicians, and pricing considerations when a subsidy or contract payment is required.
Contracts are typically terminated due to economic considerations, a change in hospital administration or ownership, dissatisfaction with our service offerings or, primarily relating to our military staffing arrangements, at the end of the contract
term.



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The components of net revenue less provision for uncollectibles includes revenue from
contracts that have been in effect for prior periods (same contracts) and from net, new and acquired contracts during the periods, as set forth in the table below:



|                                                    |  |                            |         |      |   |        
|--------------------------------------------------- |  | -------------------------- | ------- | ---- | - | -------
|                                                    |  | Three Months EndedJune 30,
|                                                    |  | 2009                       |         | 2010
|                                                    |  | (in thousands)            
|Same contracts:                                     |  |                            |         |      |   |        
|Fee-for-service revenue                             |  | $                          | 226,820 |      | $ | 241,578
|Contract and other revenue                          |  |                            | 96,611  |      |   | 90,815 
|                                                    |  |                            |         |      |   |        
|Total same contracts                                |  |                            | 323,431 |      |   | 332,393
|New contracts, net of terminations:                 |  |                            |         |      |   |        
|Fee-for-service revenue                             |  |                            | 14,067  |      |   | 12,131 
|Contract and other revenue                          |  |                            | 24,591  |      |   | 11,225 
|                                                    |  |                            |         |      |   |        
|Total new contracts, net of terminations            |  |                            | 38,658  |      |   | 23,356 
|Acquired contracts:                                 |  |                            |         |      |   |        
|Fee-for-service revenue                             |  |                            |        |      |   | 11,338 
|Contract and other revenue                          |  |                            |        |      |   | 8,439  
|                                                    |  |                            |         |      |   |        
|Total acquired contracts                            |  |                            |        |      |   | 19,777 
|Consolidated:                                       |  |                            |         |      |   |        
|Fee-for-service revenue                             |  |                            | 240,887 |      |   | 265,047
|Contract and other revenue                          |  |                            | 121,202 |      |   | 110,479
|                                                    |  |                            |         |      |   |        
|Total net revenue less provision for uncollectibles |  | $                          | 362,089 |      | $ | 375,526
|                                                    |  |                            |         |      |   |        

The following table reflects the visits and procedures
included within fee-for-service revenues described in the table above:



|                                                |  |                            |  |      
|----------------------------------------------- |  | -------------------------- |  | -----
|                                                |  | Three Months EndedJune 30,
|                                                |  | 2009                       |  | 2010 
|                                                |  | (in thousands)            
|Fee-for-service visits and procedures:          |  |                            |  |      
|Same contract                                   |  | 1,869                      |  | 1,885
|New and acquired contracts, net of terminations |  | 132                        |  | 152  
|                                                |  |                            |  |      
|Total fee-for-service visits and procedures     |  | 2,001                      |  | 2,037
|                                                |  |                            |  |      

Professional Service Expenses. Professional
service expenses, which include physician and provider costs, billing and collection expenses, and other professional expenses, totaled $283.6 million in the three months ended June 30, 2010 compared to $278.2 million in the three months ended
June 30, 2009, an increase of $5.4 million, or 2.0%. The higher cost between quarters included an increase of approximately $4.6 million associated with increases in the average rates paid per hour of provider service and number of provider
hours staffed on a same contract basis. Increases in average rates paid reflect period over period wage and benefit increases associated with the provision of clinical services. Also contributing to the increase in expense was $0.8 million related
to our acquisitions and net growth. The increases in professional service costs were largely offset by reductions in provider costs within our military operations due to net contract terminations. Professional service expenses as a percentage of net
revenue less provision for uncollectibles decreased to 75.5% in the three months ended June 30, 2010 compared to 76.8% in the three months ended June 30, 2009.

Professional Liability Costs. Professional liability costs were $13.3 million in the three months ended June 30, 2010
compared to $12.4 million in the three months ended June 30, 2009. The increase was primarily attributable to



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an increase in total provider hours. Professional liability costs as a percentage of net revenue less provisions for uncollectibles was 3.5% in the second quarter of 2010 compared to 3.4% in the
corresponding period of 2009.

General and Administrative Expenses. General and administrative expenses increased $1.3
million, or 4.2%, to $32.9 million for the three months ended June 30, 2010 from $31.6 million in the three months ended June 30, 2009. Excluding the impact of our acquisitions, which increased expenses by $2.4 million, general and
administrative expenses decreased $1.1 million due primarily to lower incentive and deferred compensation costs, partially offset by increases in other non-salary administrative expenses. Total general and administrative expenses as a percentage of
net revenue less provision for uncollectibles were 8.8% in 2010 compared to 8.7% in 2009.

Other Expenses.Other
expenses were $0.8 million in the three months ended June 30, 2010 compared to $0.6 million for the three months ended June 30, 2009. The increase is attributable to unrealized losses related to deferred compensation plan assets in 2010,
partially offset by the termination of our monitoring fee agreement with our sponsor in 2009 in connection with our initial public offering.

Depreciation and Amortization. Depreciation and amortization expense was $6.4 million in the three months ended June 30, 2010
compared to $4.7 million for the three months ended June 30, 2009. The increase of $1.7 million was primarily due to higher amortization expense related to our acquisitions in 2009 and 2010.

Net Interest Expense. Net interest expense decreased $4.1 million to $4.9 million in the three months ended June 30, 2010,
compared to $9.0 million in the corresponding period in 2009, primarily due to reduced levels of outstanding debt as well as lower borrowing rates on our term loan facility.

Transaction Costs.Transaction costs were $0.4 million for the three months ended June 30, 2010 and $0.1 million for the
three months ended June 30, 2009. These costs relate to advisory, legal, accounting and other fees incurred related to acquisition activity during the respective periods.

Impairment of Intangibles.In June 2010 we recorded an impairment loss of $2.5 million related to a contract intangible associated
with a contractual relationship acquired in prior years whose expected term is now anticipated to be less than initially estimated.

Earnings before Income Taxes. Earnings before income taxes in the three months ended June 30, 2010 were $30.7 million
compared to $25.5 million in the three months ended June 30, 2009.

Provision for Income Taxes. The provision for
income taxes was $12.0 million in the three months ended June 30, 2010 compared to $9.7 million in the corresponding period in 2009.

Net Earnings. Net earnings were $18.6 million in the three months ended June 30, 2010 compared to $15.8 million in the three
months ended June 30, 2009.

Six Months Ended June 30, 2010 Compared to the Six Months Ended June 30, 2009

Net Revenue. Net revenue in the six months ended June 30, 2010 increased $57.4 million, or 4.7%, to $1.29
billion from $1.23 billion in the six months ended June 30, 2009. The increase in net revenue resulted primarily from increases in fee-for-service revenue of $74.3 million and other revenue of $0.7 million while contract revenue decreased $17.6
million. The increase in fee-for-service revenue was primarily a result of increases in estimated collections per billed visit and a 2.1% increase in total fee-for-service visits and procedures. Estimated collections per visit increased due to
annual increases in gross charges, managed care pricing, increases in average patient acuity levels, and revenue cycle improvements. The decrease in contract revenue was due primarily to declines in our military, locums tenens and radiology
operations associated with contracting within the military and reductions in temporary staffing and teleradiology volumes. These contract revenue decreases were partially offset by the contribution of our newly acquired anesthesiology operations. In
the six months ended June 30, 2010,



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fee-for-service revenue was 82.6% of net revenue compared to 80.4% in the same period of 2009, contract revenue was 16.3% of net revenue in 2010 compared to 18.5% in 2009 and other revenue was
1.1% in 2010 and 2009.

Provision for Uncollectibles. The provision for uncollectibles was $547.9 million in the six
months ended June 30, 2010 compared to $518.8 million in the corresponding period in 2009, an increase of $29.1 million, or 5.6%. The provision for uncollectibles as a percentage of net revenue was 42.5% in the six months ended June 30,
2010 compared with 42.2% in the corresponding period of 2009. The provision for uncollectibles is primarily related to revenue generated under fee-for-service contracts that is not expected to be fully collected. The period over period increase in
the provision is due primarily to annual increases in gross fee schedules and increases in patient volumes and procedures. Changes in payer mix, particularly the level of self pay fee-for-service visits, also have an impact on the provision for
uncollectibles. For the six months ended June 30, 2010, self pay fee-for-service visits were approximately 21.0% of the total fee-for-service visits compared to approximately 21.6% in the same period of 2009.

Net Revenue Less Provision for Uncollectibles. Net revenue less provision for uncollectibles in the six months ended June 30,
2010 increased $28.3 million, or 4.0%, to $740.0 million from $711.7 million in the six months ended June 30, 2009. Revenue less provision for uncollectibles from acquisitions and same contract revenue contributed 5.8% and 1.3%, respectively,
of the growth between periods. New contracts, net of terminations (excluding the military division), contributed 1.0% of growth. Net contract changes within the military division reduced period-over-period net revenue growth by 4.1%. Same contract
revenue, which consists of contracts under management in both periods, increased $9.1 million, or 1.5%, to $633.0 million in the six months ended June 30, 2010 compared to $623.9 million in the corresponding period in 2009. In the six months
ended June 30, 2010, same contract revenue less provision benefited from increases in estimated collections on fee-for-service visits in the amount of 4.0% which contributed approximately 2.9% of same contract growth between quarters.
Fee-for-service visits were flat between periods, while declines in contract and other revenue, primarily associated with our military and locums tenens operations constrained same contract revenue growth by 1.4%. The increase in the estimated
collections per visit is attributable to annual increases in gross charges, managed care pricing improvements, increases in average patient acuity levels, and ongoing improvements in revenue cycle processes, partially offset by changes in payer mix
between periods. Acquisitions contributed $41.3 million of growth between periods. Excluding the impact of contracting changes within the military division, net new contract revenue increased $7.5 million while changes within military staffing
contracts resulted in a decline of $29.5 million between periods. We typically gain new contracts by replacing competitors at hospitals that currently outsource such services, obtaining new contracts from facilities that do not currently outsource
and responding to contracting opportunities within the military healthcare system. Factors influencing new contracting opportunities include the depth and breath of our service offerings, our reputation and experience, our ability to recruit and
retain qualified clinicians, and pricing considerations when a subsidy or contract payment is required. Contracts are typically terminated due to economic considerations, a change in hospital administration or ownership, dissatisfaction with our
service offerings or, primarily relating to our military staffing arrangements, at the end of the contract term.



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The components of net revenue less provision for uncollectibles includes revenue from
contracts that have been in effect for prior periods (same contracts) and from net, new and acquired contracts during the periods, as set forth in the table below:



|                                                    |  |                          |         |      |   |        
|--------------------------------------------------- |  | ------------------------ | ------- | ---- | - | -------
|                                                    |  | Six Months EndedJune 30,
|                                                    |  | 2009                     |         | 2010
|                                                    |  | (in thousands)          
|Same contracts:                                     |  |                          |         |      |   |        
|Fee-for-service revenue                             |  | $                        | 435,039 |      | $ | 452,360
|Contract and other revenue                          |  |                          | 188,821 |      |   | 180,604
|                                                    |  |                          |         |      |   |        
|Total same contracts                                |  |                          | 623,860 |      |   | 632,964
|New contracts, net of terminations:                 |  |                          |         |      |   |        
|Fee-for-service revenue                             |  |                          | 33,733  |      |   | 35,561 
|Contract and other revenue                          |  |                          | 51,164  |      |   | 27,271 
|                                                    |  |                          |         |      |   |        
|Total new contracts, net of terminations            |  |                          | 84,897  |      |   | 62,832 
|Acquired contracts:                                 |  |                          |         |      |   |        
|Fee-for-service revenue                             |  |                          | 2,918   |      |   | 27,432 
|Contract and other revenue                          |  |                          |        |      |   | 16,764 
|                                                    |  |                          |         |      |   |        
|Total acquired contracts                            |  |                          | 2,918   |      |   | 44,196 
|Consolidated:                                       |  |                          |         |      |   |        
|Fee-for-service revenue                             |  |                          | 471,690 |      |   | 515,353
|Contract and other revenue                          |  |                          | 239,985 |      |   | 224,639
|                                                    |  |                          |         |      |   |        
|Total net revenue less provision for uncollectibles |  | $                        | 711,675 |      | $ | 739,992
|                                                    |  |                          |         |      |   |        

The following table reflects the visits and procedures
included within fee-for-service revenues described in the table above:



|                                                |  |                          |  |      
|----------------------------------------------- |  | ------------------------ |  | -----
|                                                |  | Six Months EndedJune 30,
|                                                |  | 2009                     |  | 2010 
|                                                |  | (in thousands)          
|Fee-for-service visits and procedures:          |  |                          |  |      
|Same contract                                   |  | 3,533                    |  | 3,531
|New and acquired contracts, net of terminations |  | 341                      |  | 422  
|                                                |  |                          |  |      
|Total fee-for-service visits and procedures     |  | 3,874                    |  | 3,953
|                                                |  |                          |  |      

Professional Service Expenses. Professional
service expenses, which include physician and provider costs, billing and collection expenses, and other professional expenses, totaled $566.4 million in the six months ended June 30, 2010 compared to $547.1 million in the six months ended
June 30, 2009, an increase of $19.3 million, or 3.5%. The higher cost between periods included an increase of approximately $11.5 million associated with increases in the average rates paid per hour of provider service and number of provider
hours staffed on a same contract basis. Increases in average rates paid reflect period over period wage and benefit increases associated with the provision of clinical services. Also contributing to the increase in expense was $7.8 million related
to our acquisitions and net growth. The increases in professional service costs were partially offset by reductions in provider costs within our military operations due to net contract terminations. Professional service expenses as a percentage of
net revenue less provision for uncollectibles decreased to 76.5% in the six months ended June 30, 2010 compared to 76.9% in the six months ended June 30, 2009.

Professional Liability Costs. Professional liability costs were $19.2 million in the six months ended June 30, 2010 compared
to $5.7 million in the six months ended June 30, 2009. Professional liability costs for the six



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months ended June 30, 2010 and 2009 include reductions in professional liability reserves related to prior years of $7.2 million in 2010 and $18.8 million in 2009 resulting from actuarial
studies completed in April of each year. Factors contributing to the change in prior year loss estimates included favorable loss development on historical periods between actuarial studies as well as favorable trends in the frequency and severity of
claims reported compared to historical trends. We believe that both internal initiatives in the areas of patient safety, risk management and claims management, as well as external factors such as tort reform in certain key states, continue to
contribute to these favorable trends in prior year loss estimates. Excluding the benefit of prior year reserve adjustments in both periods, professional liability costs increased $1.9 million, or 8.0%, between periods. The increase was primarily
attributable to an increase in total provider hours. Excluding the benefit of prior year reserve adjustments in each period, professional liability costs as a percentage of net revenue less provisions for uncollectibles were 3.6% in 2010 compared to
3.4% in the corresponding period of 2009.

General and Administrative Expenses. General and administrative expenses
increased $2.9 million, or 4.8%, to $63.7 million for the six months ended June 30, 2010 from $60.8 million in the six months ended June 30, 2009. Excluding the impact of our acquisitions, which increased expenses by $3.8 million, general
and administrative expenses decreased $0.9 million due primarily to lower incentive and deferred compensation costs partially offset by increases in other non-salary administrative expenses between periods. Total general and administrative expenses
as a percentage of net revenue less provision for uncollectibles were 8.6% in 2010 compared to 8.5% in 2009

Other
Expenses.Other expenses were $0.7 million in the six months ended June 30, 2010 compared to $1.5 million in the same period in 2009. The decrease is attributable to the termination of our monitoring fee agreement with our sponsor in 2009
in connection with our initial public offering partially offset by an increase in unrealized losses related to deferred compensation plan assets in 2010.

Depreciation and Amortization. Depreciation and amortization expense was $12.8 million in the six months ended June 30, 2010
compared to $9.3 million for the six months ended June 30, 2009. The increase of $3.5 million was primarily due to higher amortization expense related to our acquisitions in 2009 and 2010.

Net Interest Expense. Net interest expense decreased $8.4 million to $10.7 million in the six months ended June 30, 2010,
compared to $19.1 million for the six months ended June 30, 2009, primarily due to reduced levels of outstanding debt as well as lower borrowing rates on our term loan facility.

Transaction Costs.Transaction costs were $0.5 million for the six months ended June 30, 2010 compared to $0.2 million for
the six months periods ended June 30, 2009. These costs relate to advisory, legal, accounting and other fees incurred related to acquisition activity during the respective periods.

Impairment of Intangibles.In June 2010, we recorded an impairment loss of $2.5 million associated with a contractual relationship
acquired in prior years whose expected term is now anticipated to be less than initially estimated.

Loss on Extinguishment
of Debt.We recognized a loss of $14.9 million in connection with the redemption of $157.5 million of our 11.25% Notes in 2010. The loss consists of $11.0 million of bond redemption premium payments and the write off of $3.9 million of
previously deferred financing costs.

Earnings before Income Taxes. Earnings before income taxes in the six months
ended June 30, 2010 were $48.5 million compared to $68.0 million in the corresponding period in 2009.

Provision for
Income Taxes. The provision for income taxes was $19.0 million in the six months ended June 30, 2010 compared to $26.2 million in the corresponding period in 2009.

Net Earnings. Net earnings were $29.5 million in the six months ended June 30, 2010 compared to $41.7 million in the six
months ended June 30, 2009.



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Liquidity and Capital Resources

Our principal ongoing uses of cash are to meet working capital requirements, fund debt obligations and to finance our capital expenditures
and acquisitions. We believe that our cash needs, other than for significant acquisitions, will continue to be met through the use of existing available cash, cash flows derived from future operating results and cash generated from borrowings under
our senior secured revolving credit facility.

Cash provided by operating activities in the six months ended June 30,
2010 was $14.5 million compared to cash provided by operations of $49.4 million in the corresponding period in 2009. The $34.8 million reduction in operating cash flow was principally the result of $13.8 million of cash costs associated with the
11.25% Notes redemption, including $2.8 million of accrued interest payments. In addition to the bond redemption, other elements contributing to the change in operating cash between quarters were increased levels of accounts receivable funding, and
increases in the funding of current liabilities, including prior year incentive plan liabilities during the six months ended June 30, 2010 compared to the corresponding period in 2009. Cash used in investing activities in the six months ended
June 30, 2010 was $14.1 million compared to $12.1 million in the same period of 2009. The $2.0 million increase in cash used in investing activities was principally due to an increase in net purchases of investments between periods at the
captive insurance subsidiary and an increase in cash payments made related to acquisitions partially offset by a decrease in capital expenditures. Cash used in financing activities in the six months ended June 30, 2010 was $137.5 million
compared to $3.8 million in the three months ended June 30, 2009. The increase in cash used for financing activities is due to the $157.5 million payment made in connection with the redemption of our 11.25% Notes, partially offset by the $21.8
million net proceeds received in connection with the exercise of the underwriters over allotment option during the six months ended June 30, 2010 and $0.4 million proceeds from the exercise of stock options.

We spent $3.9 million in the first six months of 2010 and $4.0 million in the first six months of 2009 for capital expenditures. These
expenditures were primarily for billing and information technology investments and related development projects along with projects in support of operational initiatives.

As of June 30, 2010, we had $451.4 million in aggregate indebtedness consisting of $405.9 million of our term loan and $45.5 million
of the 11.25% Notes, with an additional $125.0 million of borrowing capacity available under our senior secured revolving credit facility (without giving effect to $7.3 million of undrawn letters of credit). During the first six months of 2010,
we redeemed a total of $157.5 million of the 11.25% Notes utilizing the net proceeds from our initial public offering. The 11.25% Notes were redeemed at a redemption price of 107.0% of the principal amount thereof, plus accrued and unpaid interest.

The 11.25% Notes, which were issued on November 23, 2005 by our subsidiaries, Team Finance LLC and Health Finance
Corporation, and mature on December 1, 2013, are subordinated in right of payment to all of our senior debt and are senior in right of payment to all of our existing and future subordinated debt. Interest on the 11.25% Notes accrues at the rate
of 11.25% per annum, payable semi-annually in arrears on June 1 and December 1 of each year. We may redeem some or all of the 11.25% Notes at any time at various redemption prices. The 11.25% Notes are guaranteed jointly and severally
by Team Health Holdings, Inc. and all of our domestic wholly-owned operating subsidiaries as required by the indenture governing the 11.25% Notes.

We amended our senior secured credit agreement effective December 22, 2009. As part of the amendment, lenders holding $125.0 million
of commitments in the aggregate under the revolving credit facility agreed to extend the maturity date of their commitments to August 23, 2012. Outstanding term loan borrowings under the senior credit facility mature on November 23, 2012.

The senior credit facility agreement, as amended, and the indenture governing the 11.25% Notes contain both affirmative and
negative covenants, including limitations on our ability to incur additional indebtedness, sell material assets, retire, redeem or otherwise reacquire our capital stock, acquire the capital stock or assets of another business, pay dividends, and
require us to comply with certain coverage and leverage ratios. The



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December 2009 amendment provides additional flexibility under certain of our covenants, including permitting us to make additional investments, loans and advances, to make additional repayments
of our 11.25% Notes and to incur additional earn-out obligations in connection with permitted acquisitions. 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
we generate excess cash flow, as defined in the agreement.

As of June 30, 2010 we were a party to three
separate forward interest rate swap agreements. The objective of the agreements is to eliminate the variability of the cash flows in interest payments for $200.0 million of the variable-rate term loan for a three year period. The agreements are
contracts to exchange, on a quarterly basis, floating interest rate payments based on the Eurocurrency rate, for fixed interest payments over the life of the agreements. We have determined that the interest rate swaps are highly effective and
qualify for hedge accounting; therefore, in the six months ended June 30, 2010, we have recorded the increase in the fair value of the interest rate swaps, net of tax, of approximately $1.1 million as a component of other comprehensive
earnings.

These agreements expose us to credit losses in the event of non-performance by the counterparty to the financial
instruments. The counterparty is a creditworthy financial institution and we believe the counterparty will be able to fully satisfy its obligations under the contracts.

Subject to any contractual restrictions, the Company and its subsidiaries, affiliates or significant shareholders (including The
Blackstone Group L.P. and its affiliates) may from time to time, in their sole discretion, purchase, repay, redeem or retire any of the Companys outstanding debt or equity securities (including any publicly issued debt or equity securities),
in privately negotiated or open market transactions, by tender offer or otherwise.

As of June 30, 2010, we had total
cash and cash equivalents of approximately $33.3 million. There are no known liquidity restrictions or impairments on our cash and cash equivalents as of June 30, 2010. Our ongoing cash needs for the six months ended June 30, 2010 were
substantially met from internally generated operating sources and periodic borrowing under the revolving facility. As of June 30, 2010, there were no amounts outstanding under the revolving credit facility.

We have historically been an acquirer of other physician staffing businesses and related interests. During 2010, including our August
2010 acquisition, we completed the acquisitions of certain assets and related business operations of three emergency medical staffing businesses and clinics located in Oklahoma, Kansas, Virginia, Rhode Island and Florida for a total of $53.8 million
in cash. In addition, we may have to pay up to $18.2 million in future contingent payments related to these acquisitions. For the same period in 2009 we acquired an emergency staffing business located in Kentucky for a total of $2.7 million in cash.
In addition, we may have to pay up to $2.3 million in future contingent payments related to this acquisition. Total future contingent payment obligations for these and previous acquisitions are estimated to be approximately $38.4 million.

We are in discussions with certain physician staffing businesses regarding potential acquisition opportunities. If we
consummate these potential acquisitions, we would expect to fund such acquisitions using our existing cash or through borrowings under our revolving credit facility.

Effective March 12, 2003, we began providing for professional liability risks in part through a captive insurance company. Prior to
such date we insured such risks principally through the commercial insurance market. The change in the professional liability insurance program initially resulted in increased cash flow due to the retention of cash formerly paid out in the form of
insurance premiums to a commercial insurance company coupled with a long period (typically 2-4 years or longer on average) before cash payout of such losses occurs. A portion of such cash retained is retained within our captive insurance company and
therefore not immediately available for general corporate purposes. As of June 30, 2010, the current value of cash or cash equivalents and related investments held within the captive insurance company totaled approximately $93.8 million.
Investments



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of the captive insurance subsidiary are carried at fair market value and as of June 30, 2010 reflected $3.3 million of net unrealized gains. Effective June 1, 2010, we renewed our
fronting carrier program with a commercial insurance carrier through May 31, 2011. In connection with this renewal, we have paid cash premiums of approximately $7.5 million to the commercial insurance carrier. For the six months ended
June 30, 2010, we funded approximately $12.8 million of premiums to the captive subsidiary. For the six months ended June 30, 2010, we also funded a total of $0.4 million to a commercial insurance provider in order to meet our obligation
for incurred costs in excess of the aggregate limits of coverage in place on the commercial insurance policy that ended March 11, 2003. We will fund additional payments which will be based upon the level of incurred losses relative to the
aggregate limit of the coverage at that time as additional claims are processed.

Under the indenture governing the 11.25%
Notes, our ability to engage in certain activities such as incurring certain additional indebtedness, making certain investments, and paying certain dividends is tied to ratios based on Adjusted EBITDA (which is defined as EBITDA in the
indenture). Adjusted EBITDA under the indenture is defined as net earnings before interest expense, taxes, depreciation and amortization, as further adjusted to exclude unusual items, non-cash items and the other adjustments shown in the table
below. We believe that the disclosure of the calculation of Adjusted EBITDA provides information that is useful to an investors understanding of our covenant compliance and financial flexibility under our indenture covenants. Adjusted EBITDA
is not a measurement of financial performance or liquidity under generally accepted accounting principles. It should not be considered in isolation or as a substitute for net income, operating income, cash flows from operating, investing or
financing activities, or any other measure calculated in accordance with generally accepted accounting principles. Adjusted EBITDA as calculated under the indenture for the 11.25% Notes is as follows (in thousands):



|                                     |  |                            |        |                          |   |        |  |      |         |  |   |       
|------------------------------------ |  | -------------------------- | ------ | ------------------------ | - | ------ |  | ---- | ------- |  | - | ------
|                                     |  | Three Months EndedJune 30, |        | Six Months EndedJune 30,
|                                     |  | 2009                       |        | 2010                     |   | 2009   |  | 2010
|                                     |  | (in thousands)            
|Net earnings                         |  | $                          | 15,833 |                          | $ | 18,620 |  | $    | 41,731  |  | $ | 29,518
|Interest expense, net                |  |                            | 9,026  |                          |   | 4,922  |  |      | 19,122  |  |   | 10,685
|Provision for income taxes           |  |                            | 9,700  |                          |   | 12,043 |  |      | 26,229  |  |   | 19,004
|Depreciation and amortization        |  |                            | 4,707  |                          |   | 6,423  |  |      | 9,332   |  |   | 12,838
|Other
expenses(a)                    |  |                            | 580    |                          |   | 777    |  |      | 1,519   |  |   | 716   
|Loss on extinguishment of
debt(b)    |  |                            |       |                          |   |       |  |      |        |  |   | 14,862
|Impairment of intangibles            |  |                            |       |                          |   | 2,523  |  |      |        |  |   | 2,523 
|Transaction
costs(c)                 |  |                            | 79     |                          |   | 393    |  |      | 159     |  |   | 458   
|Stock based compensation
expense(d)  |  |                            | 185    |                          |   | 406    |  |      | 371     |  |   | 610   
|Insurance subsidiary interest income |  |                            | 638    |                          |   | 685    |  |      | 1,497   |  |   | 1,369 
|Severance and other charges          |  |                            | 10     |                          |   | 83     |  |      | 322     |  |   | 96    
|                                     |  |                            |        |                          |   |        |  |      |         |  |   |       
|Adjusted EBITDA*                     |  | $                          | 40,758 |                          | $ | 46,875 |  | $    | 100,282 |  | $ | 92,679
|                                     |  |                            |        |                          |   |        |  |      |         |  |   |       



|* | Adjusted EBITDA totals are not adjusted for the favorable effects of professional liability loss reserve adjustments associated with prior years of $18,824 and $7,219
for the six months ended June 30, 2009 and 2010, respectively. Adjusting for the effects of professional liability loss reserve adjustments associated with prior years, Adjusted EBITDA would have been reduced to $81,458 and $85,460 for the six
months ended June 30, 2009 and 2010, respectively.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(a) | Reflects sponsor management fee and loss on disposal of assets in 2009 and loss on disposal of assets and unrealized loss on investments in 2010.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Reflects the loss on the redemption of a portion of the 11.25% Notes, including the write-off of deferred financing costs of $3,837.
|--- | ------------------------------------------------------------------------------------------------------------------------------------

|(c) | Reflects expenses associated with acquisition transaction fees.
|--- | ---------------------------------------------------------------

|(d) | Reflects, for 2009, costs related to the recognition of expense in connection with the issuance of restricted units under the Team Health, Inc. 2005 Unit Plan and, for
2010, reflects costs related to options and restricted shares granted under the Team Health Holdings, Inc. 2009 Stock Incentive Plan.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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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.

Seasonality

Historically, our revenues and operating results have reflected minimal seasonal variation due to the significance of revenues derived
from patient visits to emergency departments, which are generally open on a year-round basis, 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.

Recently Issued Accounting Standards

See Note 2 of the accompanying consolidated financial statements for a discussion of recently issued accounting standards.



|Item 3. | Quantitative and Qualitative Disclosures About 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 term loan facility.

At June 30, 2010, the fair value of the Companys total debt, which
has a carrying value of $451.4 million, was approximately $435.2 million. The Company had $405.9 million of variable debt outstanding at June 30, 2010. If the market interest rates for the Companys variable rate borrowings had averaged 1%
more subsequent to December 31, 2009, the Companys interest expense (excluding the impact of our interest rate swap agreements) would have increased, and earnings before income taxes would have decreased, by approximately $2.0 million for
the six months ended June 30, 2010. 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 in an attempt 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. This level of interest rate exposure is consistent with the overall interest rate exposure at December 31, 2009.



|Item 4. | Controls and Procedures
|------- | -----------------------

We maintain disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of 1934, as amended (Exchange Act), that are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods
specified in the SECs rules and forms, and that such information is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate, to
allow timely decisions regarding required disclosure. As of June 30, 2010, we conducted an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of June 30, 2010, our disclosure controls and procedures
were effective at the reasonable assurance level.



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Changes in Internal Control Over Financial Reporting:There were no changes in
our internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended June 30, 2010 that has materially affected, or is reasonably likely to
materially affect, the Companys internal control over financial reporting.



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##### Table of Contents

PART 2. OTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------

We are currently a party to various legal proceedings. While we currently believe that the ultimate outcome of such proceedings,
individually and in the aggregate, will not have a material adverse effect on our financial position or overall trends in results of operations, litigation is subject to inherent uncertainties. If an unfavorable ruling were to occur, there exists
the possibility of a material adverse impact on our net earnings in the period in which the ruling occurs. The estimate of the potential impact from such legal proceedings on our financial position or overall results of operations could change in
the future.



|Item 1A. | Risk Factors
|-------- | ------------

There are no material changes from the risk factors previously disclosed in our Form 10-K, filed with the Securities and Exchange
Commission on March 12, 2010.



|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------

None.



|Item 3. | Defaults upon Senior Securities
|------- | -------------------------------

None.



|Item 4. | (Removed and Reserved)
|------- | ----------------------



|Item 5. | Other Information
|------- | -----------------

None.



|Item 6. | Exhibits
|------- | --------



|     |  |                                                                                                                                                                    
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1  |  | Certificate of Incorporation of Team Health Holdings, Inc. (incorporated by reference to Exhibit 3.1 of the Current Report on Form 8-K, filed on December 12,
2009)
|     | 
|3.2  |  | By-laws of Team Health Holdings, Inc. (incorporated by reference to Exhibit 3.2 of the Current Report on Form 8-K, filed on December 12, 2009)                     
|     | 
|31.1 |  | Certification by Greg Roth for Team Health Holdings, Inc. dated August 10, 2010 as required by Section 302 of the Sarbanes-Oxley Act of 2002. (filed herewith)     
|     | 
|31.2 |  | Certification by David Jones for Team Health Holdings, Inc. dated August 10, 2010 as required by Section 302 of the Sarbanes-Oxley Act of 2002. (filed herewith)   
|     | 
|32.1 |  | Certification by Greg Roth for Team Health Holdings, Inc. dated August 10, 2010 as required by Section 906 of the Sarbanes-Oxley Act of 2002. (filed herewith)     
|     | 
|32.2 |  | Certification by David Jones for Team Health Holdings, Inc. dated August 10, 2010 as required by Section 906 of the Sarbanes-Oxley Act of 2002. (filed
herewith)   



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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report on Form 10-Q to be signed
on its behalf by the undersigned thereunto duly authorized.



|                |  |                                       
|--------------- |  | --------------------------------------
|                |  | TEAM HEALTH HOLDINGS, INC.            
|                | 
|August 10, 2010 |  | /S/    GREG
ROTH                      
|                |  | Greg Roth
Chief Executive Officer     
|                | 
|August 10, 2010 |  | /S/    DAVID P.
JONES                 
|                |  | David P. Jones
Chief Financial Officer



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##### Table of Contents

EXHIBIT INDEX



|     |  |                                                                                                                                                                    
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1  |  | Certificate of Incorporation of Team Health Holdings, Inc. (incorporated by reference to Exhibit 3.1 of the Current Report on Form 8-K, filed on December 12,
2009)
|     | 
|3.2  |  | By-laws of Team Health Holdings, Inc. (incorporated by reference to Exhibit 3.2 of the Current Report on Form 8-K, filed on December 12, 2009)                     
|     | 
|31.1 |  | Certification by Greg Roth for Team Health Holdings, Inc. dated August 10, 2010 as required by Section 302 of the Sarbanes-Oxley Act of 2002. (filed herewith)     
|     | 
|31.2 |  | Certification by David Jones for Team Health Holdings, Inc. dated August 10, 2010 as required by Section 302 of the Sarbanes-Oxley Act of 2002. (filed herewith)   
|     | 
|32.1 |  | Certification by Greg Roth for Team Health Holdings, Inc. dated August 10, 2010 as required by Section 906 of the Sarbanes-Oxley Act of 2002. (filed herewith)     
|     | 
|32.2 |  | Certification by David Jones for Team Health Holdings, Inc. dated August 10, 2010 as required by Section 906 of the Sarbanes-Oxley Act of 2002. (filed
herewith)   



50