UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

Commission File No.: 001-16753

AMN HEALTHCARE SERVICES, INC.

(Exact Name of Registrant as Specified in Its Charter)

Registrant’s Telephone Number, Including Area Code: (866) 871-8519

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes  þ  No  ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.  Yes  ¨  No  þ

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  þ  No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  ¨        Accelerated filer  þ        Non-accelerated filer  ¨

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of June 30, 20052006 was $425,716,258$633,854,386 based on a closing sale price of $15.03$20.30 per share.

As of March 9, 2006,7, 2007, there were 32,130,24134,673,461 shares of common stock, $0.01 par value, outstanding.

Documents Incorporated By Reference: Portions of the registrant’s definitive Proxy Statement for the annual meeting of shareholders to be held on April 12, 200618, 2007 have been incorporated by reference into Part II and Part III of this Form 10-K.

TABLE OF CONTENTS

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PART I

Our Company

AMN Healthcare Services, Inc. “AMN”, is the largest temporary healthcare staffing company in the United States. As the leadinglargest nationwide provider of travel nurse staffing services, and a leading provider of locum tenens (temporary physician staffing) and physician permanent placement services and a leading provider of allied healthcare professionals, we recruit physicians, nurses and allied healthhealthcare professionals, our “healthcare professionals,” nationally and internationally and place them on assignments of variable lengths of assignments and in permanent positions at acute-care hospitals, physician practice groups and other healthcare facilities throughout the United States. With the acquisition of The MHA Group, Inc., and its subsidiaries (“MHA”) on November 2, 2005, we expanded our service lines to include temporary and permanent physician staffing and clearly distinguished AMN as the largest healthcare staffing company.

Our staffing services are marketed to two distinct customer bases:groups: (1) healthcare professionals and (2) hospitalhospitals, healthcare facilities and healthcare facilities.physician practice groups. We use a multi-brand recruiting strategy to enhance our ability to successfully attract nursing and allied healthcare professionals in the United States and internationally. We market our nurse and allied healthcare professional staffing opportunities to our healthcare professionals under recruitment brands including American Mobile Healthcare^®, Medical Express^SM, NurseChoice^® InDemand, NursesRx^®, Preferred Healthcare Staffing Thera Tech Staffing,^®, Med Travelers^SM, RN Demand and^®, RN Extend^SM, O’Grady Peyton International.International^®, Staff Care^® and Merritt, Hawkins & Associates^®. Each brand has a distinct clinician focus, market strengths and brand reputation. We market our travel nursing services to hospitals and healthcare facilities under one brand, AMN Healthcare, as a single staffing provider with access to healthcare professionals from several recruitment brands. We market allied services to our clients under the brand names Thera Tech Staffing and Med Travelers, and we market long term nursing services to our clients under the brand name O’Grady Peyton International. We market our locum tenens and physician permanent placement services under the brand names Staff Care, Inc. and Merritt, Hawkins & Associates, respectively, to both healthcare professionals and hospital and healthcare facilities and physician staffing groups.

At the end of 2005,2006, we had healthcare professionals on assignment at over 1,5002,000 different healthcare facility clients. We provide services to acute-care and sub-acute healthcare facilities, physician groups, dialysis centers, clinics and schools. We market our travel nursing services to hospitals and healthcare facilities generally under one brand, AMN Healthcare^®, as a single staffing provider with access to healthcare professionals from several nurse recruitment brands. We market our locum tenens and physician permanent placement services under the brand names Staff Care and Merritt, Hawkins & Associates, respectively, to hospital and healthcare facilities and physician staffing groups. Both were acquired in November 2005 through our purchase of The MHA Group Inc., which we refer to as “MHA”. We market our allied healthcare staffing services to hospitals and healthcare facilities generally under the brand name Med Travelers.

Our hospital and healthcare facility clients utilize our temporary healthcare staffing services to cost-effectively manage both short-term and long-term shortages in their staff due to a variety of circumstances, such asincluding a lack of qualified, specialized local healthcare professionals, attrition, leave schedules, new unit openings and seasonal patient census variations, the physician and nurse staffing shortage and other short and long-term staffing needs.variations. In addition to providing continuity of care and quality patient care, we believe hospitals and healthcare facilities contract with us due to our access to a large national network of skilled permanenttemporary and temporarypermanent healthcare professionals, our ability to meet their specific staffing needs, our flexible staffing assignment lengths and our reliable and superior customer service, our ability to offer a large national network of permanent and temporary healthcare professionals and our ability to provide temporary staffing solutions while we assist the client in filling physician permanent staffing needs.service.

Physicians, nurses and allied healthcare professionals join us on temporary assignments for a wide variety of reasons that include: seeking flexible work opportunities, exploring different areas of the country, building their clinical skills and resume by working at prestigious healthcare facilities, escaping the demands and political environment of working as a permanent staff and working through life and career transitions.

Our large number of hospital and healthcare facility clients provides us with the opportunity to offer temporary or permanent positions typically in all 50 states and in a variety of work environments and clinical settings. In addition, we provide our temporary healthcare professionals with an attractive benefitsbenefit package that may include free or subsidized housing, free or reimbursed travel, competitive wages, professional development opportunities, a 401(k) plan, and health and professional liability insurance. We believe that we attract temporary healthcare professionals due to our long-standing reputation for providing a high level of service, our numerous job opportunities, our benefit packages, our innovative marketing programs and word-of-mouth referrals from our thousands of current and former healthcare professionals.

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Industry Overview

TotalTemporary healthcare expenditures in the United States were estimated at $1.9 trillion during 2005, representing approximately 15.6% of the U.S. gross domestic product, and grew approximately 7% over 2004 according to the Centers for Medicare & Medicaid Services. Over the next decade, an aging U.S. population and advances in medical technologystaffing industry revenues are expected to drive increases in hospital patient populations and the consumption of healthcare services. As a result, total healthcare expenditures are projected to increase to approximately $3.6 trillion by 2014.

The temporary healthcare staffing industry accounted for approximately $10.0 billion in revenue in 2005 according to estimates by The Staffing Industry Report, and is comprised of approximately 62% nurse staffing, 12% locum tenens, and the balance in allied health and other healthcare professional staffing. The temporary healthcare staffing industry was estimated to have grown at 2.5% in 2005 and has grown each yeargrow at a compound annual growth rate of approximately 9% since8% from 1997 through 2008, according to industry estimates. The industry has grown each year except during 2003 and 2004, when the industryin which it declined on an annual basis. We believe that the decline during 2003 and 2004 reflected hospitals’ increased focus on internal nurse recruitment efforts, over-utilization of permanent labor staff and greater reliance on cost control effortsIndustry revenues for 2007 are expected to reduce outsourced staffing solutions. In 2005, increased job turnover among permanent staff at the hospitals contributedgrow by 7% to higher utilization of temporary nurses.

We expect$11.4 billion as compared to 2006. The market segments within the temporary healthcare staffing industry in which we provide service offerings include travel nursing ($2.5 billion market), locum tenens ($1.6 billion market) and allied healthcare ($3.2 billion market). According to grow modestlyestimates prepared by Staffing Industry Analysts, projected growth rates for 2007 are 9% for travel nursing, 14% for locum tenens and 11% for allied healthcare.

The nurse and allied healthcare staffing segment, our largest reporting segment, experienced a strong demand and tight supply environment during 2005 and early 2006. During the last quarter of 2006 and into the first quarter of 2007, the industry has reported, and we have also experienced, the typical seasonal decline in nursing demand, along with a lessening of demand in certain regions and specialties. We continue to experience a demand environment that exceeds supply.

Although we experienced considerable improvements in our nurse and allied candidate supply throughout 2006 based on favorable economic conditions and into early 2007, the supply market continues to be constrained relative to the demands of our healthcare facility clients. Internationally trained nurses represent a growing supply of nurses, and roughly 15% of newly licensed nurses are foreign-trained. While roughly 90% of our nurses are trained in the United States, we recruit nurses from international channels through our O’Grady Peyton International brand to meet our facility clients’ long-term staffing needs. Our continued utilization of this international supply channel is reliant upon an increase or exemption from current permanent immigrant visa quotas. As a result of these visa quotas, there is roughly a four-year delay for nurses from certain countries, such as India and the Philippines, to enter into the United States on a permanent immigrant visa.

Locum tenens physicians are used by hospitals, healthcare facilities and physician practice groups to fill temporary vacancies created by vacations and leave schedules, and increasingly, to bridge the gap while seeking permanent candidates. Staffing Industry Analysts reports the locum tenens market to be the fastest-growing segment of the healthcare staffing industry. The demand environment for locum tenens services continues to be strong, and socioeconomic factors, such as increased physician emphasis on job and lifestyle flexibility, suggest a growing number of physicians are embracing locum tenens as a practice style.

The physician permanent placement services segment also continues to experience an environment in hospital staff job openingswhich demand exceeds supply. Physicians are significant drivers of revenue, influencing many hospitals, healthcare facilities and turnover.physician practice groups to devote the resources necessary to recruit them. While this growth is expected to be positive and expandcreates significant competition for the opportunities available to healthcare professionals, the availablelimited supply of professionals is not expectedphysicians, our national reach and brand recognition position us well in this environment.

The physician permanent placement market has significant growth potential due to keep pace withclient demand for physicians that enable our clients to generate revenue. This demand and the increase in demand.significant overlap of clients seeking both temporary and permanent placement services provides us an opportunity to cross-sell physician permanent placement services and temporary staffing services.

Competition

The healthcare staffing industry is highly competitive. We compete in national, regional and local markets with full-service staffing companies and specialized temporary staffing agencies for both healthcare professionals and hospital and healthcare facility clients. We also compete with hospital systems that have developed their own recruitment departments and interim staffing pools to attract highly qualified healthcare professionals. We compete for these healthcare professionals on the basis of customer service and expertise, the quantity, diversity and quality of available assignments, compensation packages and, for our temporary nurses and allied healthcare professionals, the benefits that we provide to them while they are on assignment. We compete with other staffing companies for hospital and healthcare facility clients on the basis of the quality and depth of our healthcare professionals, the timely availability of our professionals with requisite skills, the quality, breadth and price of our services, our customer service, our recruitment expertise and the geographic reach of our services. We compete for healthcare professionals on the basis of customer service and expertise, the quantity,

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diversity and quality of available assignments, compensation packages and, for our temporary nurses and allied healthcare professionals, the benefits that we provide to them while they are on assignment.

We believe that larger, national firms enjoy distinct competitive advantages over smaller, local and regional competitors in the healthcare staffing industry. More established firms have a larger pool of available candidates, substantial word-of-mouth referral networks and more recognizable brand names, enabling them to attract a consistent flow of new applicants. Larger firms also generally have a deeper, more comprehensive infrastructure with a more established business framework and processes that provide the foundation for nationalquality standards recognition, such as the Joint Commission on Accreditation of Healthcare Organizations (JCAHO) staffing agency certification. The greater financial resources of these larger firms also make it relatively easier to provide payroll and housing services for its temporary healthcare professionals, which is cash flow intensive.

Some of our competitors in the temporarytravel nurse, allied and locum tenens staffing sectorsectors include Cross Country Healthcare, InteliStaf Healthcare, CHG Healthcare Services, Inc., On Assignment, and Medical Doctor Associates.

Demand and Supply Drivers

Demand Drivers

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Seasonality.    Hospitals in regions that experience significant seasonal fluctuations in population, such as Florida or Arizona during the winter months, must be able to efficiently adjust their staffing levels to accommodate the change in patient census. Many of these hospitals find it more cost-effective to utilize temporary healthcare professionals to satisfy these seasonal staffing needs.

Supply Drivers

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Growth Strategy

Our goal is to expand our leadership position within the healthcare staffing sector in the United States. The key components of our business strategy include:

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Building the Strongest Management Team to Optimize Our Business Model.    In addition to a tenured senior sales and operations management team, we have continued to focus on training and professional development for all levels of management and have hired several additionalcontinue to hire skilled and experienced managementteam members over the last few years. Our management team has been further broadenedto deliver superior service to our hospital and strengthened through the addition of the MHA leadership team.healthcare facility clients.

Business Overview

Services Provided

Nurse and Allied Healthcare Staffing Segment

Hospitals and healthcare facilities generally obtain supplemental staffing for nurses and allied healthcare professionals from two external sources, local temporary (per diem) agencies and regional and national travel healthcare staffing companies. Per diem staffing involves the placement of locally based healthcare professionals on daily shift work on an as needed basis. Hospitals and healthcare facilities often give only a few hours notice of their per diem assignments, which require a quick turnaround from their staffing agencies of generally less than 24 hours. Travel staffing, on the other hand, has historically provided hospital and healthcare facilities with staffing solutions to address anticipated or longer-term staffing requirements, typically for 4four to 26 weeks. In contrast to per diem agencies, travel staffing companies select from a national (and in some cases international) skilled labor pool and provide pre-screened candidates to their hospital and healthcare facility clients, typicallyoften at a lower cost.cost than per diem staffing. Historically, we have focused on the travel segment of the temporary healthcare staffing industry for our nurse and allied healthcare professionals. In addition,More recently, in the past few years we have expanded our service offerings to include assignment lengths of 2four weeks to 24 months in placing both domestic and internationalinternationally trained healthcare professionals.

Nurses.    We provide medical nurses, surgical nurses, specialty nurses, licensed practical or vocational nurses and advanced practice nurses in a wide range of specialties for travel assignments throughout the United States. We place our qualified nurse professionals with premier, nationally recognized hospitals and hospital systems. The majority of our assignments are in acute-care hospitals, including teaching institutions, trauma centers and community hospitals. Nurses comprise approximately 93%90% of the totalour nurse and allied health temporary healthcare professionals working for us.segment of our business. We typically place the majority of our nurses on 13-week assignments with hospitals and healthcare facilities under our AMN Healthcare brand.facilities. We also offer a longer-term staffing solution, undertypically of 12-18 month assignments, through our O’Grady Peyton International brand, typically 18 months, using our English speaking internationaland RN Extend brands. While the majority of nurses that we place on assignment have been educated and trained in the United States, we recruit primarilyEnglish-speaking internationally trained nurses from foreign countries. During 2005,countries through our O’Grady Peyton International brand. In addition, we launchedoffer a differentiated new service offering,shorter-term staffing solution under our NurseChoice InDemand brand to address hospitals’ urgent need for registered nurses. NurseChoice InDemand is targeted to recruit and staff nurses who can begin assignments

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within one to two weeks in acute-care facilities in contrast to the three to five week lead time that may be required for travel nurses. Typical assignments are four to eight weeks and provide premium compensation packages to nurses.

Allied Health Professionals.    We also provide allied health professionals under our Med Travelers and Thera Tech Staffing brandsbrand to acute-care hospitals and other healthcare facilities such as skilled nursing facilities, rehabilitation clinics and schools. Allied health professionals include such disciplines as physical therapists, surgical technologists, respiratory therapists, occupational therapists, medical and radiology technologists, dialysis technicians, speech pathologists and rehabilitation assistants. Allied health professionals comprise approximately 7%10% of the total nurse and allied health temporary healthcare professionals working for us.

PhysicianLocum Tenens Staffing Segment

Hospitals, physician groups and healthcare facilities generally obtain physicians from two sources, permanent hire and outsourced temporary physician staffing. We provide both temporary and permanent physician staffing services.

Locum Tenens.    WeUnder our Staff Care brand, we place physicians of all specialties and certified registered nurse anesthetists (CRNA) on a temporary basis (locum tenens) under our Staff Care brand as independent contractors with all types of healthcare organizations throughout the United States, including hospitals, medical groups, occupational medical clinics, individual practitioners, networks, psychiatric facilities, government institutions, and managed care entities. PhysiciansThese professionals are recruited nationwide and typically placed on multi-week contracts. While assignments can rangeAssignment length ranges from a few days up to one year, thewith an average is 8 weeks in duration. The locum tenens business comprises approximately 84%assignment duration of our total physician staffing segment based on revenue.eight weeks.

Physician Permanent Placement Services Segment

Permanent Placement.We provide permanent physician placement services under our Merritt, Hawkins & Associates brand to medicalhospitals, healthcare facilities and physician practice groups throughout the United States. Using a distinct consultative approach that we believe is more client-oriented, we are paid for our services through a blend of retained search fees and variable fees tied to work performed and successful placement. Our broad specialty offerings include over 4070 specialist and sub-specialist opportunities. Permanent physician placement comprises approximately 16% of our total physician staffing segment based on revenue.opportunities including internal medicine, family practice and radiology.

Offering Comprehensive Healthcare Staffing Solutions

We employ a focused marketing strategy for our hospital and healthcare facility clients and market and administer the majority of our nursing services under the single corporate brand of AMN Healthcare. Our physician, allied and international staffing services are marketed to our hospital and healthcare facility clients under their respective brands.

The following chart depicts our comprehensive healthcare staffing capabilities and focus on critical staffing needs:

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National Presence and Diversified Hospital and Healthcare Facility Client Base

We offer our healthcare professionals nationwide placement opportunities throughout the United States and provide staffing solutions to our hospital and healthcare facility clients that are located throughout the United States. We typically generate revenue in all 50 states. During 2005,2006, the largest percentages of our revenue were concentrated in California, Arizona, Florida, Texas, Pennsylvania and New York, North Carolina and Massachusetts. Our physician permanent placement market has

significant growth potential due to the increasing demand for physicians and the ability to cross-sell permanent placement services through our temporary service relationships. Our physician permanent placement brand, Merritt Hawkins & Associates has conducted over 30,000 physician search assignments since its founding and has worked in all 50 states.York.

We had temporary healthcare professionals on assignment at over 1,5002,000 different healthcare facility clients at the end of 2005.2006. The majority of our temporary healthcare professional assignments are at acute-care hospitals. In addition to acute-care hospitals, we provide services to sub-acute healthcare facilities, physician groups, dialysis centers, clinics and schools. Our clients include hospitals and healthcare systems such as Georgetown University Hospital, HCA, NYU Medical Center, Stanford Health Care,Hospital and Clinics, UCLA Medical Center, and The University of Chicago Hospitals.Hospitals and Mayo Health System. No single client healthcare system comprised more than 10% of revenue and no single client facility comprised more than 3% of revenue for the year ended December 31, 2005.2006.

Our Business Model

We have developed and continually refinedrefine our business model to achieve greater levels of productivity and efficiency. Our model is designed to optimize the communication with, and service to, both our healthcare professionals and our hospital and healthcare facility clients.

Marketing and Recruitment of New Healthcare Professionals

We believe that physician, nursing and allied health professionals are attracted to us because of our customer service and relationship-oriented approach, our competitive compensation and benefits package, and our large and diverse offering of work assignments that provide the opportunity to work at numerous attractive locations throughout the United States. We believe that our multi-brand recruiting strategy makes us more effective at reaching a larger number of healthcare professionals.

In our effort to attract and retain highly qualified temporary healthcare professionals, we offer a variety of benefits to our employed professionals. These benefits may include: travel reimbursement; group medical, dental and life insurance; referral bonuses; completion bonuses; 401(k) plan and dependent care and medical reimbursement; and free continuing education. Additionally, most of our temporary healthcare professionals are offered free or subsidized housing while on assignment.

Screening, Licensing and Quality Management

Through our quality management and assurance departments, we screen all candidates prior to placement, and we continue to evaluate our temporary healthcare professionals after they are placed to ensure adequate performance and manage risk, as well as to determine feasibility for future placements. Our internal processes are designed to ensure that our healthcare professionals have the appropriate experience, credentials and skills for the assignments that they accept. Additionally, these processes enable us to provide licensing and privileging services to our physicians for temporary assignments. Our experience has shown us that well-matched placements result in more satisfied healthcare professionals and healthcare facility clients.

Sales, Marketing and Account Management

We market our nursing services to hospitals and healthcare facilities generally under one corporate brand name, AMN Healthcare, a single staffing provider with several recruitment sources of healthcare professionals. We utilize a team approach to service our hospital and healthcare facility clients. This team includes the Regional Client Service Director, Hospital Account Manager, Quality Management, and Clinical Liaison. We market our temporary and permanent physician placement services under the brand names Staff Care, Inc. and Merritt, Hawkins and Associates, respectively. We have a large base of professionals marketing our physician staffing services to our clients who make thousands of client contacts each month.

Placement

For theour nurse and allied healthcare staffing segment,services, generally, orders are entered into our information network by our hospital account managers and are available to the recruiters at all of our recruitment brands.

The hospital account managers develop a relationship with the healthcare facility, arrange telephone interviews between the temporary healthcare professional and the hospital, and confirm offers and placements with the hospital or healthcare

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facility. At the same time, our recruiters seek to develop and maintain strong and lasting relationships with our healthcare professionals.

In the case of our international temporary healthcare professionals, the recruiters and placement coordinators at our O’Grady Peyton International brand, including those located in the United Kingdom, Australia, and South Africa, India and Singapore, assist candidates in preparing for the United States nursing examination and subsequently obtaining a U.S. nursing license. These recruiters and other staff also assist our international temporary healthcare professionals to obtain petitions to become lawful permanent residents prior to their arrival in the United States. Our international temporary healthcare professionals are typically placed on longer-term, 18-month assignments as a result of our substantial investment in bringing them to work in the United States. Near completion of the 18-month assignment, our recruiters will work with these temporary healthcare professionals to explore their options for new assignments.

For the locum tenens staffing and physician staffing segment,permanent placement services segments, orders for temporary physicians or permanent placement requests are generated by our national marketing team. Our national presence and infrastructure enable us to provide physicians with a variety of attractive client locations, perquisites and opportunities for career development. Our recruiters and account representatives work together using proprietary information systems to fill orders and schedule physicians on temporary assignments. Our permanent placement recruiters work closely with our clients and marketing team to recruit and fill permanent placement requests. We also have the ability to cross-sell our permanent placement and temporary placement services to our clients.

Housing and Support Services

We offer substantially all of our temporary healthcare professionals free or subsidized housing while on assignment. For our nurse and allied placements, housing expenses are typically included in the hourly or weekly fees that we charge to our hospital and healthcare facility clients. For our locum tenens placements, housing costs are typically billed separately. We negotiate contracts with national property management and furniture rental companies to leverage our size and obtain more favorable pricing and terms.

Temporary Healthcare Professional Compensation

During 2005, approximately 94% of our working temporary healthcare professional employees were compensated directly by us, while approximately 6% were paid directly by the hospital or healthcare facility client.

Temporary Healthcare Professional Benefits

In our effort to attract and retain highly qualified temporary healthcare professionals, we offer a variety of benefits. These benefits may include: travel reimbursement; group medical, dental and life insurance; referral bonuses; completion bonuses; 401(k) plan and dependent care and medical reimbursement; and free continuing education.

Hospital Billing

To accommodate the needs of our hospitalhealthcare facility clients, for temporary healthcare professional staffing, we offer two types of billing: hours and days worked contracts and flat fee contracts. During 2005,2006, we billed approximately 94%98% of working nurse and allied healthcare professionalssegment services based on hours and days worked contracts and approximately 6%2% based on flat rate contracts, and we billed substantially all of the working temporary physicians based on hours and days worked contracts.

Hours and Days Worked Contracts.    Under hours and days worked contracts, the temporary healthcare professional is either our employee for payroll and benefits purposes or an independent contractor typically paid directly by us on behalf of the hospital and healthcare facility clients. Under this arrangement, we bill our hospital and healthcare facility clients at an hourly or daily rate that effectively includes reimbursement for recruitment fees, compensation and any benefits for the temporary healthcare professional and any applicable employer taxes. Housing or travel expenses are either included in the rate or billed separately. Overtime, shift differential and holiday hours worked are typically billed at a premium rate. In turn, we pay the temporary healthcare professional’s wages or contracted fees, housing and travel costs and any benefits. Providing payroll services is a value-added and convenient service that hospitals and healthcare facilities generally expect from their supplemental staffing sources.

Flat Rate Contracts.    With flat rate contracts, the temporary healthcare professional is compensated directly by the hospital or healthcare facility. We bill the hospital a “flat” weekly rate that includes reimbursement for recruitment fees, temporary healthcare professional benefits and typically housing expenses, which may be billed separately.

Information Systems

Our primary management information and communications systems, including our financial reporting systems, are primarily centralized and controlled in our corporate headquarters in San Diego, CA, with additional systems for nursingour physician businesses centralized and in the MHA headquarterscontrolled at our offices in Irving, TX for physicians. Our financial and payroll systems are centralized at these headquarters and our operational reporting is standardized at all of our offices.

TX. We have developed and currently operate proprietary information systems that include integrated processes for healthcare professional and healthcare facility contract management, matching of healthcare professionals with clients andclient assignments,

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healthcare professional file submissions for placements, quality management tracking, controllingmanaging compensation packages and managing healthcare facility contract and billing terms. These systems provide our staff with fast, detailed information regarding individual healthcare professionals and hospital and healthcare facility clients.clients and are scalable to support future business growth.

Risk Management

We have developed an integrated risk management program that focuses on loss analysis, education and assessment in an effort to reduce our operational costs and risk exposure. We regularly analyze our losses on professional liability claims and workers compensation claims to identify trends. This allows us to focus our resources on those areas that may have the greatest impact on us and adjust our sales and operational approach to these areas. We have also developed educational materials for distribution to our temporary healthcare professionals that are targeted to address specific work-injury risks and documentation of clinical events.

In addition to our proactive measures, we engage in a peer review process of any incidents involving our temporary nurses and allied healthcare professionals. Upon notification of a nurse or allied healthcare professional’s involvement in an incident that may result in liability for us, our corporate team of registered nurses reviews the healthcare professional’s actions. Our peer review committee makesactions are reviewed and a prompt determination is made regarding whether the healthcare professional will continue the assignment and whether we will place him/her on future assignments. We also rely on our hospital and healthcare facility clients and the state professional associations’ investigation of incidents involving our healthcare professionals in determining continued and future assignments.

Regulation

The healthcare industry is subject to extensive and complex federal and state laws and regulations related to professional licensure, conduct of operations, payment for services and payment for referrals. Our business, however, is not directly impacted by or subject to much of the extensive and complex laws and regulations that generally

govern the healthcare industry. The laws and regulations that are directly applicable to our hospital and healthcare facility clients could indirectly impact our business to a certain extent, but because we provide services on a contract basis and are paid directly by our hospital and healthcare facility clients, we do not have any direct Medicare or managed care reimbursement risk.

Some states require state licensure for businesses that employ, assign and/or place healthcare personnel to provide healthcare services at hospitals and other healthcare facilities. We are currently licensed in states that require such licenses and take measures to ensure compliance with all material state licensure requirements. In addition, we received our JCAHO Corporate Certification for AMN Healthcare and the nurse and allied brands of American Mobile Healthcare, Medical Express, NursesRx, Preferred Healthcare Staffing and Thera Tech StaffingNurseChoice based on a review of our compliance with national standards during the second quarter of 2005.standards. We were the first healthcare staffing firm in the country to receive the prestigious JCAHO Certification as a corporate system with multiple staffing sites. In January 2007, our international staffing brand, O’Grady-Peyton International, Inc., also received its JCAHO staffing certification.

Most of the temporary healthcare professionals that we employ or independently contract with are required to be individually licensed or certified under applicable state laws. We take prudent steps to ensure that our healthcare professionals possess all necessary licenses and certifications.

We recruit nurses from Canada for placement in the United States. Canadian nurses can come to the United States on TN Visas under the North American Free Trade Agreement. TN Visas are renewable, one-year temporary work visas, which generally allow entrance into the United States provided the nurse presents at the border proof of waiting employment in the United States, evidence of the necessary healthcare practice licenses and a visa credentials assessment from the Commission on Graduates of Foreign Nursing Schools.

With respect to our recruitment of international temporary healthcare professionals through our O’Grady Peyton International brand, we must comply with certain United States immigration law requirements, including

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the Illegal Immigration Reform and Immigrant Responsibility Act of 1996. We primarily bring healthcare professionals to the United States as immigrants, or lawful permanent residents (commonly referred to as “green card” holders). We screen foreign healthcare professionals and assist them in preparing for the national nursing examination and subsequently obtaining a U.S. nursing license. We file petitions with the United States Citizenship and Immigration Service for a healthcare professional to become a permanent resident of the United States or obtain necessary work visas. Generally, suchSuch petitions are accompanied by proof that the healthcare professional has either passed the Commission on Graduates of Foreign Nursing Schools Examination or holds a full and unrestricted state license to practice professional nursing, as well as a contract between us and the healthcare professional demonstrating that there is a bona fide job offer.

Employees

As of December 31, 2005,2006, we had approximately 1,7002,000 corporate employees. During the fourth quarter of 2005,2006, we had an average of over 6,5007,000 nurse and allied healthcare professionals working on assignment. Since our acquisition of MHA on November 2, 2005 through December 31, 2005,assignment, and days filled by our physician and CRNA independent contractors totaled 29,570.49,651. Days filled is calculated by dividing the physician independent contractor hours filled during the period by 8eight hours.

Additional Information

We maintain a corporate website at www.amnhealthcare.com/investors. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these reports, are made available, free of charge, through this website as soon as reasonably practicable after being filed with or furnished to the Securities and Exchange Commission. The information found on our website is not part of this or any other report we file with or furnish to the Securities and Exchange Commission.

Item 1A.

Risk Factors

The following risk factors should be read carefully in connection with evaluating us and the forward-looking statements contained in this Annual Report on Form 10-K. Any of the following risks could materially adversely affect our company, operating results, financial condition and the actual outcome of matters as to which forward- lookingforward-looking statements are made in this Annual Report on Form 10-K. Certain statements in “Risk Factors” constitute “forward-looking statements.” Our actual results could differ materially from those projected in the forward-looking statements as a result of certain factors and uncertainties set forth below and elsewhere in this Annual Report on Form 10-K. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Special Note Regarding Forward-Looking Statements.”

If we are unable to continue to recruit and retain healthcare professionals for our healthcare staffing business at reasonable costs, it could increase our operating costs and negatively impact our business.

We rely significantly on our ability to recruit and retain healthcare professionals who possess the skills, experience and licenses necessary to meet the requirements of our hospital, healthcare facility clients and physician practice groups. We compete for healthcare staffing personnel with other temporary healthcare staffing companies and with hospitals, healthcare facilities and physician practice groups based on the quantity, diversity and quality of assignments offered, compensation packages and the benefits that we provide to our healthcare professionals. We rely on our human capital intensive, relationship-oriented approach and national infrastructure to enable us to compete in the permanent physician staffing business. We must continually evaluate and expand our temporary and permanent healthcare professional network to keep pace withserve the needs of our hospital, healthcare facility clients and physician practice groups.

Currently, there is a shortage of qualified nurses physicians and certain allied healthcare professionals in the United States, significant competition exists for these personnel, and salaries and benefits have risen. We may be unable to continue to increase the number of temporary and permanent healthcare professionals that we recruit,

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decreasing the potential for growth of our business. Our ability to recruit and retain temporary and permanent healthcare professionals depends on several factors, including our ability to provide our healthcare professionals with assignments and placements that they view as attractive and to provide our temporary healthcare professionals with competitive wages and benefits, including health insurance and housing. We cannot assure you that we will be successful in any of these areas as the costs of attracting healthcare professionals and providing them with attractive benefit packages may be higher than we anticipate, or we may be unable to pass these costs on to our hospital and healthcare facility clients. If we are unable to increase the rates that we charge our hospital and healthcare facility clients to cover these costs, our profitability could decline. Moreover, if we are unable to recruit temporary and permanent healthcare professionals, the quality of our services to our hospital and healthcare facility clients may decline and, as a result, we could lose clients.

Our operations may deteriorate if we are unable to continue to attract, develop and retain our sales and operations personnel.

Our success is dependent upon the performance of our sales and operations personnel. The number of individuals who meet our qualifications for these positions is limited, and we may experience difficulty in attracting qualified candidates. In addition, we commit substantial resources to the training, development and support of our personnel. Competition for qualified sales personnel in the line of business in which we operate is strong, and there is a risk that we may not be able to retain our sales personnel after we have expended the time and expense to recruit and train them.

We operate in a highly competitive market and our success depends on our ability to remain competitive in obtaining and retaining hospital, healthcare facility and physician practice group clients and demonstrating the value of our services.

The temporary healthcare staffing business is highly competitive. We compete in national, regional and local markets with full-service staffing companies, specialized temporary staffing agencies and hospital systems that have developed their own interim staffing pools. Some of our large competitors in the temporary nurse and locum tenens staffing sectors include Cross Country Healthcare, InteliStaf Healthcare, CHG Healthcare Services, Inc., On Assignment, and Medical Doctor Associates.

We believe that the primary competitive factors in obtaining and retaining hospital, healthcare facility and physician practice group clients are identifying qualified healthcare professionals for specific job requirements, providing qualified employees in a timely manner, pricing services competitively and effectively monitoring employees’the job performance.performance of our employees and independent contractor professionals. Competition for hospital, healthcare facility and physician practice group clients and temporary and permanent healthcare professionals may increase in the future due to these factors or a shortage of qualified healthcare professionals in the marketplace and, as a result, we may not be able to remain competitive. To the extent competitors seek to gain or retain market share by reducing prices or increasing marketing expenditures, we could lose revenue or clients and our margins could decline, which could seriously harm our operating results and cause the price of our stock to decline. In addition, the development of alternative recruitment channels could lead our clients to bypass our services, which would also cause revenue and margins to decline.

Our business depends upon our ability to secure and fill new orders from our hospital, healthcare facility and physician practice group clients because our temporary healthcare staffing business does not have long-term, exclusive or guaranteed contracts with them, and economic conditions may adversely impact the number of new orders and contracts we receive.

We generally do not have long-term, exclusive or guaranteed order contracts for temporary healthcare staffing with our hospital, healthcare facility and physician practice group clients. The success of our business is dependent upon our ability to continually secure new contracts and orders from hospitals, healthcare facilities and physician practice groups and to fill those orders with our temporary healthcare professionals. Our hospital,

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healthcare facility and physician practice group clients are free to award contracts and place orders with our competitors and choose to use temporary healthcare professionals that our competitors offer them. Therefore, we must maintain positive relationships with our hospital, healthcare facility and physician practice group clients. If we fail to maintain positive relationships with our hospital, healthcare facility and physician practice group clients or are unable to provide a cost-effective staffing solution, we may be unable to generate new temporary healthcare professional orders and our business may be adversely affected.

Some hospitals and healthcare facility clients choose to outsource this contract and order function to staffing associations owned by member healthcare facilities or companies with vendor management servicesservice companies that may act as intermediaries with our client facilities. These organizations may impact our ability to obtain new clients and maintain our existing client relationships by impeding our ability to access and contract directly with healthcare facility clients. Additionally, weWe may also experience pricing pressure or incremental fees from these organizations that may negatively impact our revenue and profitability.

Additionally, some of our hospital and healthcare facility clients are state and federal government agencies, where our ability to compete for new contracts and orders may be affected by government legislation or policy.

Depressed economic conditions, such as increasing unemployment rates and low job growth, could also negatively influence our ability to secure new orders and contracts from clients. In times of economic downturn, permanent healthcare facility staff may be more inclined to work overtime and less likely to leave their positions, resulting in fewer available vacancies and less demand for our services. Fewer placement opportunities for our temporary healthcare professionals impairs our ability to recruit and place both temporary and permanent placement healthcare professionals and our revenues and profitability may decline as a result of this constricted demand and supply.

The demand for our services, and therefore the profitability of our business, may be adversely affected by changes in the staffing needs due to fluctuations in hospital admissions or staffing preferences of our healthcare facility clients.

The temporary healthcare staffing industry grew from 1996 through 2002, declined in early 2003 and stabilized and grew modestly from late 2003 through 2005. Demand for our temporary healthcare staffing services is affected by the staffing needs and preferences of our healthcare facility clients, as well as by fluctuations in patient occupancy at our client healthcare facilities due to economic factors and seasonal fluctuations that are beyond our control.

Hospitals in certain geographical regions experience significant seasonal fluctuations in admissions, and must be able to adjust their staffing levels to accommodate the change in patient census. Our healthcare facility clients may choose to use temporary staff, additional overtime from their permanent staff or add new permanent staff in order to accommodate changes in their staffing needs. Many healthcare facilities will utilize temporary healthcare professionals to accommodate an increase in hospital admissions. Alternatively, if hospital admissions decrease, the demand for our temporary healthcare professionals may decline as healthcare facility clients typically will reduce their use of temporary staff before reducing the workload or undertaking layoffs of their regular employees. In addition, we may experience more competitive pricing pressure during periods of patient occupancy and hospital admission downturns, negatively impacting our revenue and profitability.

The ability of our hospital, healthcare facility and physician practice group clients to retain and increase the productivity of their permanent staff may affect the demand for our services.

If our hospital, healthcare facility and physician practice group clients retain and increase the productivity of their permanent staff, their need for our services may decline. Higher permanent staff retention rates and increased productivity of permanent staff members could result in increased efficiencies, thereby reducing the demand for both our temporary staffing and permanent placement services, which could negatively impact our revenue and profitability.

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We operate in a regulated industry and changes in regulations or violations of regulations may result in increased costs or sanctions that could reduce revenue and profitability and may impact our ability to grow and operate our business.

The healthcare industry is subject to extensive and complex federal and state laws and regulations related to professional licensure, conduct of operations, costs and payment for services and payment for referrals.

Our business is generally not subject to the extensive and complex laws that apply to our hospital, healthcare facility and physician practice group clients, including laws related to Medicare, Medicaid and other federal and state healthcare programs. However, these laws and regulations could indirectly affect the demand or the prices paid for our services. For example, our hospital, healthcare facility and physician practice group clients could suffer civil and criminal penalties and be excluded from participating in Medicare, Medicaid and other healthcare programs if they fail to comply with the laws and regulations applicable to their businesses.

In addition, our hospital, healthcare facility and physician practice group clients could receive reduced reimbursements, or be excluded from coverage, because of a change in the rates or conditions set by federal or state governments. In turn, violations of or changes to these laws and regulations that adversely affect our hospital, healthcare facility and physician practice group clients could also adversely affect the prices and demand for our services. For example, legislation in Massachusetts limited the hourly rate paid to temporary nursing agencies for registered nurses, licensed practical nurses and certified nursesnurses’ aides. While weour service offerings are exempt, in part, from this regulation, in part, similar regulations may be enacted in other states in which we operate, and as a result revenue and margins could decrease. Furthermore, third party payers, such as federal and state government and health maintenance organizations, increasingly challengesignificantly impact the prices charged for medical care. Failure by hospitals, healthcare

facilities and physician practice groups to obtain full reimbursement from those third party payers could reduce the demand or the price paid for our services.services, or result in some facilities’ cessation of business.

We are also subject to certain laws and regulations applicable to healthcare staffing agencies and general temporary staffing services. Like all employers, we must also comply with various laws and regulations relating to pay practices, workers compensation and immigration. As we continue to grow, we believe that we are more likely to be a target of challenges to our pay practices, such as challenges to our employee classifications under the Fair Labor Standards Act.Act or similar state laws. There is a risk that we could be subject to payment of additional wages, insurance and employment and payroll related taxes if certain of our corporate employees classified as exempt from overtime and minimum wage requirements are re-classified as non-exempt from overtime and minimum wage requirements. Because of the nature of our business, the impact of these laws and regulations may have a more pronounced effect on our business. These laws and regulations may also impede our ability to grow our operations.

We primarily draw our supply of healthcare professionals from the United States, but international supply channels have represented a small but growing temporary nurse supply source. Our abilitycontinued utilization of this international supply channel is reliant upon an increase or exemption from current permanent immigrant visa quotas. As a result of these quotas, there is roughly a four-year delay for nurses from certain countries, such as India and the Philippines, to recruit healthcare professionals through these foreign supply channels may be impacted by government legislation limitingenter into the number ofUnited States on a permanent immigrant visas that can be issued.visa.

Additionally, we have incurred and will continue to incur additional legal and accounting expenses related to compliance with corporate governance and disclosure standards implemented by the Sarbanes-Oxley Act of 2002, the rules of the New York Stock Exchange and regulations of the Securities and Exchange Commission.Commission, including the 2006 Executive Compensation and Related Person Disclosure rule making and the Financial Accounting Standards Board (FASB) issued interpretation no. 48,Accounting for Uncertainty in Income Taxes- an interpretation of FASB Statement No. 109 (FIN 48). Regulations promulgated in connection with Section 404 of the Sarbanes-Oxley Act of 2002 require an annual and quarterly review by management and evaluation of our internal control systems, in addition to an annual auditor attestation of the effectiveness of these systems, which commenced with our fiscal year ended on December 31, 2004 (exclusive of our recent acquisition of The MHA Group, Inc.). In addition, as of December 31, 2006, we will need to certify the sufficiency of the internal control systems of MHA.2004. If we fail to complyare found in non-compliance with these

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laws and regulations, damages, civil and criminal penalties, injunctions and cease and desist orders may be imposed, which would negatively impact our business and operations. The increase in costs necessitated by compliance with the laws and regulations affecting our business reduces our overall profitability, and reduces the assets and resources available for utilization in the expansion of our business operations.

Our profitability is impacted by our ability to leverage our cost structure.

We have technology, operations and human capital infrastructures to support our existing business and contemplated growth. In the event that our business does not grow at the rate that we had anticipated, our inability to reduce these costs would impair our profitability. Additionally, if we are not able to capitalize on this infrastructure our earnings growth rate will be impacted.

The variation in pricing of the healthcare facility contracts under which we place temporary and permanent healthcare professionals impacts our profitability.

The pricing of our contracts with hospitals, healthcare facilities and physician practice groups may vary depending on circumstances, including geographic location, economic conditions and supply and demand factors. These pricing variables impact our gross margin and could result in decreased profitability if we are unable to renew existing accounts on economically favorable terms.

We may not be able to successfully implement our strategic growth, acquisition and integration strategies.

An effective growth management strategy is necessary to organically grow our current operations, and if we do not successfully execute on this growth strategy, our profitability could decline. We continue to explore strategic acquisition opportunities to supplement our organic growth strategy. Acquisitions involveOur acquisition and integration strategy involves significant risks and uncertainties, including appropriate valuation of target companies, the assumption of liabilities and exposure to unforeseen liabilities of acquired companies, difficulties integrating acquired personnel and other corporate cultures into our business, the potential loss of key employees or customers of acquired companies, the assumption of liabilities and exposure to unforeseen liabilities of acquired companies, and the diversion of management attention from existing operations. We may not be able to fully integrate the operations of the acquired businesses with our own in an efficient and cost-effective manner. Acquisitions may also require significant expenditures of cash and other resources and assumption of debt that may ultimately negatively impact our overall financial performance. In particular, we are still in the process of integrating our recent MHA acquisition.

Difficulties in maintaining our management information and communications systems may negatively impact our business operations and as a result, in increased costs that reduce our profitability.financial performance.

Our ability to deliver our staffing services to our hospital, healthcare facility and physician practice group clients and manage our internal systems depends to a large extent upon our access to and the performance of our management information and communications systems. These systems also maintain accounting and financial information, which we depend upon to fulfill our financial reporting obligations. If these systems do not adequately support our operations, these systems are damaged or service is disrupted or if we are required to incur significant additional costs to repair, maintain or expand these systems, our business and financial results could be materially adversely affected. Although we have risk mitigation measures, these systems, and our access to these systems, are not impervious to floods, fire, storms, or other natural disasters or service interruptions, and the loss of systems information could result in disruption to our business.

The challenge to the classification of certain of our healthcare professionals as independent contractors could adversely impact our profitability.

Although thereit is a long-standinggeneral industry standard to treat certain healthcare professionals, such as physicians, as independent contractors, there is a risk we could be subject to additional wage and insurance claims, and employment and payroll-related taxes if federal or state taxing authorities re-classify our independent contractor

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physicians and certified registered nurse anesthetists as employees, which would significantly reduce our profitability. In addition, many states have laws which prohibit non-physician owned companies from employing physicians, which we referreferred to as the “corporate practice of medicine.” If our independent contractor physicians are classified as employees, we wouldcould be found in violation of state laws that prohibit the corporate practice of medicine, which would have a substantial negative impact on our profitability.

The impact of medical malpractice and other claims asserted against us could subject us to substantial liabilities.

In recent years, our hospital, healthcare facility and physician practice group clients are subject to a number of legal actions alleging malpractice or related legal theories. Because our temporary and permanent healthcare professionals provide medical care and we providerecruit and assist in credentialing of these healthcare professionals, claims may be brought against us and our healthcare professionals relating to the recruitment and qualification of these healthcare professionals and the quality of medical care provided by our temporary healthcare professionals while on assignment or after placement at our hospital, healthcare facility and physician practice group clients. We and the healthcare professional are at times named in these lawsuits regardless of our contractual obligations, the competency of the healthcare professional, the standard of care provided by the healthcare professional or the quality of service that we provided. In some instances, we are required to indemnify hospital, healthcare facility and physician practice group clients contractually against some or all of these potential legal actions.

Also, because some of our temporary healthcare professionals are our employees, we may be subject to various employment claims and contractual disputes regarding the terms of a temporary healthcare professional’s employment.

Because we are in the business of placing our temporary healthcare professionals in the workplaces of other companies, we are subject to possible claims by our temporary healthcare professionals alleging discrimination, sexual harassment and other similar activities by our hospital and healthcare facility clients.clients or their agents. We maintain a policy for employment practices coverage. However, the cost of defending such claims, even if groundless, could be substantial and the associated negative publicity could adversely affect our ability to attract, retain and place qualified individuals in the future.

We maintain various types of insurance coverage, including professional liability, workers compensation and employment practices, through insurance carriers, and we also self-insure for these claims through accruals for retention reserves. We may experience increased insurance costs and reserve accruals and may not be able to pass on all or any portion of increased insurance costs to our hospital, healthcare facility and physician practice group clients, thereby reducing our profitability. Our insurance coverage and reserve accruals may not be sufficient to cover all claims against us, and we may be exposed to substantial liabilities.

Terrorist threats or attacks may disrupt or adversely affect our business operations.

Our business operations may be interrupted or adversely impacted in the United States and abroad in the event of a terrorist attack or heightened security alerts. Our temporary healthcare professionals may become reluctant to travel and may decline assignments based upon the perceived risk of terrorist activity, which would reduce our revenue and profitability. In addition, terrorist activity or threats may impede our access to our management and information systems resulting in loss of revenue. We do not maintain insurance coverage against terrorist attacks.

If we are unable to carry out our business strategy, our profitability could be negatively impacted.

Our success is dependent on our ability to execute our business strategy, which necessarily involves the successful operation of a number of integral components and business objectives. Our ability to execute these business objectives is dependent upon a sufficient cash flow and capital structure to support the business. If we are unable to access credit on commercially reasonable terms or our cash flow is significantly impaired, our profitability could be negatively impacted.

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The loss of key officers and management personnel could adversely affect our ability to remain competitive.

We believe that the success of our business strategy and our ability to operate profitablymaintain our recent levels of profitability depends on the continued employment of our senior management team. We have employment agreements only with Steven C. Francis, our Executive Chairman, Susan R. Nowakowski, our President and Chief Executive Officer, and two non-executive officers. If these individuals or members of our senior management team become unable or unwilling to continue in their present positions, our business and financial results could be materially adversely affected.

We have a substantial amount of goodwill on our balance sheet that may have the effect of decreasing our earnings or increasing our losses in the event that we are required to recognize an impairment to goodwill.

As of December 31, 2005,2006, we had $240.8$240.7 million of unamortized goodwill on our balance sheet, which represents the excess of the total purchase price of our acquisitions over the fair value of the net assets acquired. At December 31, 2005,2006, goodwill represented 38.9%38.7% of our total assets.

SFAS No. 142, Goodwill and Other Intangible Assets, requires that goodwill not be amortized but rather that it be reviewed annually for impairment. In the event impairment is identified, a charge to earnings would be recorded. Although an impairment charge to earnings for goodwill would not affect our cash flow, it would

decrease our earnings or increase our losses, as the case may be, and our stock price could be adversely affected. We have reviewed our goodwill for impairment in accordance with the provisions of SFAS No. 142, and have not identified any impairment to goodwill.

We have a substantial accrual for self-insured retentions on our balance sheet, and any significant adverse adjustments in these accruals may have the effect of decreasing our earnings or increasing our losses.

We maintain accruals for self-insured retentions for professional liability, health insurance, and workers compensation and other employment practices related matters on our balance sheet. IncreasesGenerally, increases to these accruals do not immediately affect our cash flow, but a significant increase to these self-insured retention accruals may decrease our earnings or increase our losses, as the case may be.earnings. We determine the adequacy of our self-insured retention accruals by evaluating our historical experience and trends, related to both insurance claims and payments, information provided to us by our insurance brokers, attorneys and third party administrators, as well as industry experience and trends. If such information indicates that our accruals are overstated or understated, we reduce or provide for additional accruals, as appropriate.

Due to changes in accounting rules, we are now incurring significant stock-based compensation charges related to share-based payment awards.

In December 2004, the Financial Accounting Standards Board published Statement of Financial Accounting Standards No. 123R, which requires us to measure all share-based payment awards, including stock options and other stock-based compensation awards, using a fair-value method and to record such expense in the consolidated statements of operations. This change was reflected in the presentation of our condensed consolidated financial statements for fiscal 2006 and reduced our diluted earnings per share by $0.12. The adoption of this standard has had, and will continue to have, a negative impact on our consolidated net income and earnings per share.

None.

We believe that our leased space is adequate for our current needs. In addition, we believe that adequate space can be obtained to meet our foreseeable business needs. In accordance with, and as required by, the terms

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of our New Credit Agreement, we have pledged substantially all of our assets and properties to our lenders under our New Credit Agreement to secure our obligations thereunder. Our principal leases as of December 31, 20052006 are identified in the chart below:

We are subject to various claims and legal actions in the ordinary course of our business. Some of these matters include professional liability, tax, payroll and employee-related matters and inquiries and investigations by governmental agencies regarding our employment practices. We are not aware of any pending or threatened litigation that we believe is reasonably likely to have a material adverse effect on our results of operations, financial position or liquidity.

Our hospital, and healthcare facility and physician practice clients may also become subject to claims, governmental inquiries and investigations and legal actions to which we may become a party relating to services provided by our professionals. From time to time, and depending upon the particular facts and circumstances, we may be subject to indemnification obligations under our contracts with our hospital, and healthcare facility and physician practice clients relating to these matters. At this time, we are not aware of any such pending or threatened litigation that we believe is reasonably likely to have a material adverse effect on our results of operations, financial position or liquidity.

No matters were submitted to a vote of security holders during the fourth quarter of fiscal 2005.2006.

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PART II

Our common stock has traded on the New York Stock Exchange under the symbol “AHS” since our initial public offering on November 13, 2001. Prior to that time, there was no public trading market for our common stock. The following table sets forth, for the periods indicated, the high and low sales prices reported by the New York Stock Exchange.

We completed secondary offerings of our common stock for 2,300,000 and 10,631,303 shares on April 18, 2005 and May 27, 2005, respectively. All of the 12,931,303 shares were sold by affiliates of Haas Wheat & Partners, L.P. (the “HWP Stockholders”), a private equity investment firm whose affiliates had owned shares of the company since 1999. We incurred issuance costs associated with the offerings of approximately $0.5 million during the second quarter of 2005, which were recorded in the Company’s stockholders’ equity.

As of March 9, 2006,7, 2007, there were 32,130,24134,673,461 shares of our common stock issued and outstanding that were held by 27 stockholders of record. On March 9, 2006,7, 2007, the last reported sale price of our common stock on the New York Stock Exchange was $19.49$21.42 per share.

On November 2, 2005, we issued 2.3 million shares of common stock in connection with our acquisition of MHA, and we issued an additional 0.7 million shares on March 9, 2006 for payment of earn-out amounts as provided in the acquisition agreement. The issuance is exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), pursuant to Section 4(2) thereof and Regulation D promulgated thereunder (“Regulation D”), based upon representations that the Company haswe have obtained from each MHA shareholder receiving such shares, including that such shareholder is an “accredited investor” as such term is defined in Rule 501(a) of Regulation D. Concurrently with the filing of this Form 10-K, onOn March 10, 2006, we will filefiled a registration statement on Form S-3 to register the 2.3 million shares of common stock in connection with our acquisition of MHA and the additional 0.7 million shares for payment of the earn-out amounts as provided in the acquisition agreement.

We have not paid any dividends in the past and currently do not expect to pay cash dividends or make any other distributions in the future. We expect to retain our future earnings, if any, for use in the operation and expansion of our business. Any future determination to pay dividends will be at the discretion of our board of directors and will depend upon our financial condition, results of operations, capital requirements and such other factors as our board deems relevant. In addition, our ability to declare and pay dividends on our common stock is subject to covenants in our credit facility. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”

Additional information regarding our stock option plans and plan activity for the years ended December 31, 2006, 2005 2004 and 20032004 is provided in our consolidated financial statements in this Annual Report on Form 10-K in “Notes to Consolidated Financial Statements, Note 9. Stockholders’ Equity”10 Stock-Based Compensation” and is incorporated herein by reference to theour Proxy Statement under the heading “Equity Compensation Plan Information at December 31, 2005”2006” to be distributed in connection with our Annual Meeting of Stockholders to be held on April 12, 2006.18, 2007.

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Performance Graph

This performance graph shall not be deemed “filed” with the SEC or subject to Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), nor shall it be deemed incorporated by reference in any of our filings under the Exchange Act or the Securities Act of 1933, as amended.

The graph below compares the total stockholder return on our Common Stock with the total stockholder return of (i) the New York Stock Exchange (“NYSE”) Composite Index, (ii) the Dow Jones US Health Care Providers Index (“HEA”), and (iii) the Dow Jones Business Training & Employment Agencies Index (“BTEA”), assuming an investment of $100 on November 13, 2001 (the first day of trading in our common stock) in our Common Stock, the stocks comprising the NYSE Market Index, the stocks comprising the HEA, and the stocks comprising the BTEA.

We have historically included the HEA as our peer group index. During 2006, we determined that the BTEA industry classification more closely reflects our peer group as it includes numerous healthcare staffing companies including several of our direct competitors. For comparison, we have included both the HEA and BTEA in the graph below, and in future periods we will disclose only the BTEA as our peer group index.

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The following discussion should be read in conjunction with, and is qualified in its entirety by, our consolidated financial statements and the notes thereto and other financial information included elsewhere in this Annual Report on Form 10-K. Certain statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are “forward-looking statements.” See “Special Note Regarding Forward-Looking Statements” below.

Overview

We are the largest temporary healthcare staffing company in the United States. As the largest nationwide provider of travel nurse staffing services, locum tenens (temporary physician staffing) and physician permanent placement services and a leading provider of allied healthcare professionals, we recruit physicians, nurses, and allied healthcare professionals, our “healthcare professionals”, nationally and internationally and place them on assignments of variable lengths and in permanent positions at acute-care hospitals, physician practice groups and other healthcare facilities throughout the United States.

For the year ended December 31, 2006, we recorded revenue of $1,081.7 million, as compared to revenue of $705.8 million and $629.0 million for the years ended December 31, 2005 and 2004, respectively. We recorded net income of $35.1 million for the year ended December 31, 2006, as compared to net income of $22.2 million and $17.3 million for the years ended December 31, 2005 and 2004, respectively.

Our staffing services are marketed to two distinct customer groups: (1) healthcare professionals and (2) hospitals, healthcare facilities and physician practice groups. We use distinct brands to market our differentiated services throughout the healthcare staffing spectrum.

We use a multi-brand recruiting strategy to enhance our ability to successfully attract healthcare professionals in the United States and internationally. We market our staffing opportunities to healthcare professionals under recruitment brands including American Mobile Healthcare, Medical Express, NurseChoice InDemand, NursesRx, Preferred Healthcare Staffing, Med Travelers, RN Demand, RN Extend, O’Grady Peyton International, Staff Care and Merritt, Hawkins & Associates. Each brand has a distinct clinician focus, market strengths and brand reputation.

At the end of 2006, we had healthcare professionals on assignment at over 2,000 different healthcare staffing company in the United States. As the leading nationwide provider of travel nurse staffing services and a leading provider of locum tenens (temporary physician staffing) and physician permanent placement services, we recruit physicians, nurses, and allied healthcare professionals, our “healthcare professionals”, nationally and internationally and place them on variable lengths of assignments and in permanent positions at acute-care hospitals, physician groups and other healthcare facilities throughout the United States. With the acquisition of The MHA Group, Inc., and its subsidiaries (“MHA”) on November 2, 2005, we expanded our service lines to include temporary and permanent physician staffing and clearly distinguished AMN as the largest healthcare staffing company.

For the year ended December 31, 2005, we recorded revenue of $705.8 million, as compared to revenue of $629.0 million and $714.2 million for the years ended December 31, 2004 and 2003, respectively. We recorded net income of $22.2 million for the year ended December 31, 2005, as compared to net income of $17.3 million and $37.8 million for the years ended December 31, 2004 and 2003, respectively.

Both our temporary healthcare staffing services and permanent placement services are marketed to two distinct customer bases: (1) healthcare professionals and (2) hospitals, healthcare facilities and physician practice group clients. We use distinct brands to market our differentiated services throughout the healthcare staffing spectrum.

We use a multi-brand recruiting strategy to enhance our ability to successfully attract nursing and allied healthcare professionals in the United States and internationally. We market our nurse and allied healthcare professional staffing to our healthcare professionals under recruitment brands including American Mobile Healthcare, Medical Express, NurseChoice InDemand, NursesRx, Preferred Healthcare Staffing, Thera Tech Staffing, Med Travelers, RN Demand, and O’Grady Peyton International. Each brand has distinct clinician focus, market strengths and brand reputation. We market our travel nursing services to hospitals and healthcare facilities under one brand, AMN Healthcare, as a single staffing provider with access to healthcare professionals from several recruitment brands. We market allied services to our clients under the brand names Thera Tech Staffing and Med Travelers, and we market long-term nursing services to our clients under the brand name O’Grady Peyton International. We market our locum tenens and physician permanent placement services under the brand names Staff Care, Inc. and Merritt, Hawkins & Associates, respectively, to both healthcare professionals and hospital and healthcare facilities and physician staffing groups.

Physicians, nurses and allied healthcare professionals join us on temporary assignments for a wide variety of reasons that include: seeking flexible work opportunities, exploring different areas of the country, building their clinical skills and resume by working at prestigious healthcare facilities, escaping the demands and political environment of working as a permanent staff and working through life and career transitions.

Our large number of hospital and healthcare facility clients provides us with the opportunity to offer temporary or permanent positions in all 50 states and in a variety of work environments and clinical settings. In addition, we provide our temporary healthcare professionals with an attractive benefits package that may include free or subsidized housing, free or reimbursed travel, competitive wages, professional development opportunities, a 401(k) plan, and health and professional liability insurance. We believe that we attract temporary healthcare

professionals due to our long-standing reputation for providing a high level of service, our numerous job opportunities, our benefit packages, our innovative marketing programs and word-of-mouth referrals from our thousands of current and former temporary healthcare professionals.

Our clients include hospitals and healthcare systems such as Georgetown University Hospital, HCA, NYU Medical Center, Stanford Health Care, UCLA Medical Center and The University of Chicago Hospitals. We also provide services to military facilities, sub-acute healthcare facilities, physician practice groups, dialysis centers, clinics and schools.

Our hospital and healthcare facility clients utilize our services to cost-effectively manage shortages in their staff due to a variety of circumstances, such as attrition, the Family Medical Leave Act (FMLA), new unit openings, seasonal patient census variations and other short-term, long-term and permanent staffing needs. In addition to providing continuity of care and quality patient care, we believe hospitals and healthcare facilities contract with us due to our high-quality temporary healthcare professionals, our ability to meet their specific staffing needs, our flexible staffing assignment lengths, our reliable and deep infrastructure, our superior customer service, our ability to offer a large national network of temporary healthcare professionals, and our ability to provide temporary staffing solutions while we assist the facility clients. We provide services to acute-care and sub-acute healthcare facilities, physician groups, dialysis centers, clinics and schools. We market our travel nursing services to hospitals and healthcare facilities generally under one brand, AMN Healthcare, as a single staffing provider with access to healthcare professionals from several nurse recruitment brands. We market our locum tenens staffing and physician permanent placement services under the brand names Staff Care and Merritt, Hawkins & Associates, respectively, to both healthcare professionals and hospital and healthcare facilities and physician staffing groups. We market our allied healthcare staffing services to hospitals and healthcare facilities generally under the brand name Med Travelers.

Physicians, nurses and allied healthcare professionals join us on temporary assignments for a wide variety of reasons that include: seeking flexible work opportunities, exploring different areas of the country, building their clinical skills and resume by working at prestigious healthcare facilities, escaping the demands and political environment of working as permanent staff and working through life and career transitions.

Our large number of hospital and healthcare facility clients provides us with the opportunity to offer temporary or permanent positions typically in all 50 states and in a variety of work environments and clinical settings. In addition, we provide our temporary healthcare professionals with an attractive benefits package that may include free or subsidized housing, free or reimbursed travel, competitive wages, professional development opportunities, a 401(k) plan, and health and professional liability insurance. We believe that we attract temporary

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healthcare professionals due to our long-standing reputation for providing a high level of service, our numerous job opportunities, our benefit packages, our innovative marketing programs and word-of-mouth referrals from our thousands of current and former healthcare professionals.

Our clients include hospitals and healthcare systems such as Georgetown University Hospital, HCA, NYU Medical Center, Stanford Health Care, UCLA Medical Center, The University of Chicago Hospitals, and Mayo Health System. We also provide services to government facilities, sub-acute healthcare facilities, physician practice groups, dialysis centers, clinics and schools.

Our hospital and healthcare facility clients utilize our services to cost-effectively manage shortages in their staff due to a variety of circumstances such as attrition, leave schedules, new unit openings, seasonal patient census variations, the physician and nurse staffing shortage and other short-term, long-term and permanent staffing needs. In addition to providing continuity of care and quality patient care, we believe hospitals and healthcare facilities contract with us due to our access to a large national network of skilled temporary and permanent healthcare professionals, our ability to meet their specific staffing needs, our flexible staffing assignment lengths, our reliable and superior customer service, and our ability to provide temporary staffing solutions while we assist the client in filling permanent staffing needs.

We completed secondary offerings of our common stock for 2,300,000 and 10,631,303 shares on April 18, 2005 and May 27, 2005, respectively. All of the 12,931,303 shares were sold by affiliates of Haas Wheat & Partners, L.P. (the “HWP Stockholders”), a private equity investment firm whose affiliates had owned shares of the company since 1999.

On November 2, 2005, we completed the acquisition of The MHA Group, Inc., a Texas corporation, and subsidiaries (“MHA”). MHA, through its wholly-owned subsidiaries, provides temporary physician, nurse and allied healthcare staffing services and physician and allied healthcare permanent placement services. The purchase price is comprised of $160.0 million of initial consideration plus acquisition costs of $2.7 million and an earn-out payment of $47.3 million based on MHA’s financial performance for the twelve months ended December 31, 2005, which was paid by March 10, 2006. The initial $160.0 million of consideration and the earn-out payment were paid approximately 75% in cash and 25% in unregistered shares of the Company’s common stock, par value $0.01 per share. At the closing of the acquisition of MHA, we issued 2.3 million shares of common stock and issued an additional 0.7 million shares on March 9, 2006 for payment of the earn-out amounts.

In connection with the acquisition, we amended our existing credit facility. Our amended and restated credit facility (“The Second Amended and Restated Credit Agreement” or “New Credit Agreement”) provides for, among other things, a $75 million secured revolving credit facility, a $30 million letter of credit sub-facility, a $15 million swing-line sub-facility, all maturing in November 2010, and a new $205 million secured term loan facility maturing in November 2011. The new secured term loan facility was used to pay off existing borrowings of $87.8 million of term debt and provide financing for the acquisition and related transaction costs. We wrote off $1.2 million of deferred financing costs, net of accumulated amortization, as a result of the refinancing and incurred financing costs in connection with the New Credit Agreement of $4.8 million, which will be amortized over the term of the New Credit Agreement. The six year, $205 million, term loan portion of our New Credit Agreement is subject to quarterly amortization of principal with an amount equal to 1.25% of the initial aggregate principal amount of the facility payable quarterly through September 30, 2007 (except in the case of the initial quarterly payment on June 30, 2006 of 2.5%) and 2.5% of the initial aggregate principal amount of the facility payable quarterly from December 31, 2007 through December 31, 2010 with any remaining amounts payable in 2011. These quarterly payments begin on June 30, 2006 with an initial payment of $5.1 million.

Recent Trends

It is estimated that from 1997 through 2005, the temporaryTemporary healthcare staffing industry grewrevenues are expected to grow at a compound annual growth rate of approximately 9%, growing8% from 1997 through 2008, according to industry estimates. The industry has grown each year except 2003 and 2004, in which the industryit declined

on an annual basis. Industry revenues for 2007 as compared to 2006 are expected to grow by 7% to $11.4 billion. The market segments within the temporary healthcare staffing industry in which we provide service offerings include travel nursing ($2.5 billion market), locum tenens ($1.6 billion market) and allied healthcare ($3.2 billion market). According to estimates prepared by Staffing Industry Analysts, projected growth rates for 2007 are 9% for travel nursing, 14% for locum tenens and 11% for allied healthcare.

The nurse and allied healthcare staffing segment, our largest reporting segment, experienced a strong demand and tight supply environment during 2005 and early 2006. During the last few months of 2006 and into the first quarter of 2007, the industry has reported, and we have also experienced, the typical seasonal decline in nursing demand, along with a lessening of demand in certain regions and specialties. We continue to experience a demand environment that exceeds supply.

Although we experienced considerable improvements in our nurse and allied candidate supply throughout 2006 and into early 2007, the supply market continues to be constrained relative to the demands of our healthcare facility clients. Internationally trained nurses represent a growing supply of nurses and roughly 15% of newly licensed nurses are foreign-trained. While roughly 90% of our nurses are trained in the United States, we recruit nurses from international channels through our O’Grady Peyton International brand to meet our facility clients’ long-term staffing needs. Our continued utilization of this international supply channel is reliant upon an increase or exemption from current permanent immigrant visa quotas. As a result of these visa quotas, there is roughly a four-year delay for nurses from certain countries, such as India and the Philippines, to enter into the United States on a permanent immigrant visa.

Locum tenens physicians are used by hospitals, healthcare facilities and physician practice groups to fill temporary vacancies created by vacations and leave schedules, and increasingly, to bridge the gap while seeking permanent candidates. Staffing Industry Analysts reports the locum tenens market was estimated to have grown by approximately 17% and 11% in 2003 and 2004, respectively, whilebe the travel nursingfastest-growing segment of the healthcare staffing market was estimated to have declined by approximately 9% in 2003 and 2004. It is estimated that from 2004 to 2005, theindustry. The demand environment for locum tenens services continues to be strong, and travel nurse staffing markets grew by approximately 12%socioeconomic factors, such as increased physician emphasis on job and 1%, respectively, as compared to the overall temporary healthcare industry growth ratelifestyle flexibility, suggest a growing number of approximately 2.5%. We believe that the growth of thephysicians are embracing locum tenens market reflects the growing physician shortage, the relative immaturity of the market for temporary physicians, and the financial justification for use of temporary physicians by hospitals and healthcare facilities to generate incremental revenue.as a practice style.

The temporaryphysician permanent placement services segment also continues to experience an environment in which demand exceeds supply. Physicians are significant drivers of revenue, influencing many hospitals, healthcare staffing industry is expected

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facilities and physician practice groups to grow by approximately 5% in 2006. We believe that this expected growth is based on favorable economic conditions and an increase in hospital staff job openings and turnover.devote the resources necessary to recruit them. While this growth is positive and is expected to expandcreates significant competition for the opportunities available to healthcare professionals, the availablelimited supply of professionals is not expectedphysicians, our national reach and brand recognition position us well in this environment.

The physician permanent placement market has significant growth potential due to keep pace withclient demand for physicians that enable our clients to generate revenue. This demand and the increase in demand.significant overlap of clients seeking both temporary and permanent placement services provides us an opportunity to cross-sell physician permanent placement services and temporary staffing services.

Critical Accounting Principles and Estimates

We have identified the following critical accounting policies that affect the more significant judgments and estimates used in the preparation of our consolidated financial statements. The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and judgments that affect our reported amounts of assets and liabilities, revenue and expenses, and related disclosures of contingent assets and liabilities. On an on going basis, we evaluate our estimates, including those related to asset impairment, accruals for self-insurance and compensation and related benefits, allowance for doubtful accounts and contingencies and litigation.litigation and share-based payments. These estimates are based on the information that is currently available to us and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could vary from these estimates under different assumptions or conditions.

We believe that the following critical accounting policies affect the more significant judgments and estimates used in the preparation of our consolidated financial statements:

1) Goodwill and Intangible Assets

We have recorded goodwill resulting from our past acquisitions. Commencing with the adoption of Statement of Financial Accounting Standards (“SFAS”) No. 142,Goodwill and Other Intangible Assets, on January 1, 2002, we ceased amortizing goodwill and have performed annual impairment analyses each year to assess the recoverability of the goodwill, and intangible assets, in accordance with the provisions of SFAS No. 142. UponWe originally adopted December 31st of each year as our annual impairment analyses ontesting date. In 2006, subsequent to the acquisition of MHA and the resulting addition of two reportable segments, we elected to change our annual impairment testing date to October 31st of each year, commencing October 31, 2006. Changing the testing date to October 31st will allow us more time to accurately complete our impairment testing process in order to incorporate the results in our annual financial statements and timely file those statements with the Securities and Exchange Commission. We performed the annual impairment test at December 31, 2005 and DecemberOctober 31, 2004, we2006 and determined that there was no impairment of goodwillgoodwill. No events have occurred subsequent to October 31, 2006 that indicate impairment may have occurred.

SFAS No. 142 also requires that intangible assets with estimable useful lives continue to be amortized over their respective estimated useful lives and reviewed for impairment in accordance with SFAS No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets. We have analyzed our amortizable intangible assets. assets for impairment in accordance with the provisions of SFAS No. 144 and determined that there is no impairment.

If we are required to record an impairment charge in the future, it could have an adverse impact on our results of operations. As of December 31, 20052006 and December 31, 2004,2005, we had $240.7 million and $240.8 million and $135.4 million, respectively, of goodwill, respectively, net of accumulated amortization, and $121.2$116.4 million and $3.5$121.2 million, respectively, of net intangible assets recorded on our consolidated balance sheets. The increasedecrease in goodwill and intangible assets is primarily due to our$0.4 million of tax related purchase accounting adjustments recorded during 2006, offset by $0.3 million of acquisition of MHA in November 2005.costs recorded during 2006.

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2) Professional Liability Reserve

We maintain an accrual for professional liability self-insured retention limits, net of our insurance recoverable, which is included in accounts payable and accrued expenses and other long term liabilities in our consolidated balance sheets. We determine the adequacy of this accrual by evaluating our historical experience and trends, loss reserves established by our insurance carriers, management and third party administrators, as well as through the use of independent actuarial studies. WeFor the nurse and allied healthcare staffing segment, we obtain updated actuarial studies on a regular basis that use actualour historical claims data and industry data to determine the appropriate reserves for

incurred, but not reported, professional liability claims for each year.year, with reserves for reported claims based upon loss reserves established by management and our third party administrators. For the locum tenens staffing segment, we obtain updated actuarial studies on a regular basis that primarily utilize industry data to determine the appropriate reserves for both reported claims and incurred, but not reported, claims. As of December 31, 20052006 and December 31, 2004,2005, we had $13.9$14.5 million and $7.0$13.9 million, respectively, accrued for professional liability retention of which $1.9$2.0 and $2.2$1.9 was classified as a current liability, respectively. The increase in the professional liability accrual was primarily related to an increase in the accrual added as a resultnumber of the acquisition of MHA,healthcare providers on assignment during 2006, partially offset by better than expected claims experience, primarily in our locum tenens staffing segment, and payments made for claims related to prior periods.during the period.

3) Self-Insured Health InsuranceBenefit Claims Reserve

We maintain an accrual for incurred, but not reported, claims arising from self-insured health benefits we provide to our temporary nurse and allied healthcare professionals, which is included in accrued compensation and benefits in our consolidated balance sheets. We determine the adequacy of this accrual by evaluating our historical experience and trends related to both health insurance claims and payments, information provided to us by our insurance broker and third party administrator and industry experience and trends. If such information indicates that our accruals are overstated or understated, we reduce or provide for additional accruals. Our accrual at December 31, 20052006 was based on (i) a monthly average of our actual historical health insurance claim amounts and (ii) the average period of time from the date the claim is incurred to the date that it is reported to us and paid. We believe this is the best estimate of the amount of incurred, but not reported, self-insured health benefit claims at year-end. As of December 31, 20052006 and December 31, 2004,2005, we had $2.4$2.0 million and $2.3$2.4 million, respectively, accrued for incurred, but not reported, health insurancebenefit claims. The increasedecrease in the accrual was primarily relateddue to an increasea favorable trend in insurance claims paid and a decrease in the average number of temporary healthcare professionals on assignment.reporting and payment processing time for claims. Historically, our accrual for health insurance has been adequate to provide for incurred claims and has fluctuated with increases or decreases in the average number of temporary healthcare professionals on assignment, changes in our claims experience and changes in the reporting and payment processing time for claims.

4) Workers Compensation Reserve

We maintain an accrual for workers compensation self-insured retention limits, which is included in accrued compensation and benefits and other long term liabilities in our consolidated balance sheets. We determine the adequacy of these accruals by evaluating our historical experience and trends, loss reserves established by our insurance carriers and third party administrators, as well as through the use of independent actuarial studies. We obtain updated actuarial studies on a semi-annual basis that use our payroll and actual claims data, as well as industry data, to determine the appropriate reserve both for reported claims and incurred, but not reported, claims for each policy year. The actuarial study for workers compensation provides us with the estimated losses for prior policy years and an estimated percentage of payroll compensation to be accrued for the current year. We record our accruals based on the amounts provided in the actuarial study, and we believe this is the best estimate of our liability for reported claims and incurred, but not reported, claims. As of

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December 31, 2006 and December 31, 2005, and December 31, 2004, we had $10.1$9.3 million and $8.1$10.1 million, respectively, accrued for workers compensation claims, of which $3.0$2.8 million and $2.7$3.0 million was classified as a current liability, respectively. The increase is duedecrease in the accrual was attributable to an actuarial-based reserve reduction of $1.8 million based on favorable historical claims experience, offset by the fact that claim payments made against the reserve during 20052006 for the current and prior years laggedare lagging slightly behind the additions to the reserve, as reserves continue to remain outstanding for workers compensation claims incurred during the course of the last fourfive years. We have recently experienced a slight decrease in workers compensation rates based on recent favorable historical claims experience that slightly offsets these increases.

5) Allowance for Doubtful Accounts

We maintain an allowance for doubtful accounts for estimated credit losses resulting from collection risks, including the inability of our customers to make required payments. This results in a provision for bad debt expense. The allowance for doubtful accounts is reported as a reduction of accounts

receivable in our consolidated balance sheets. We determine the adequacy of this allowance by evaluating the credit risk for individual customer receivables, consideringhistorical delinquency and write-off trends, the financial condition and credit risk and histories of each customer, and historical payment trends delinquency trends, credit histories of customers and current economic conditions. If the financial condition of our customers were to deteriorate,deteriorates, resulting in an impairment of their ability to make payments, additional allowances would be provided. As of December 31, 20052006 and December 31, 2004,2005, our allowance for doubtful accounts was $2.4$3.3 million and $1.7$2.4 million, respectively. The increase wasis primarily relatedattributable to the increasepassage of time since our acquisition of MHA in November 2005, at which time we recorded MHA’s accounts receivable resulting fromat fair value. As MHA has generated revenue and accounts receivable since the acquisition of MHA. The MHAdate, the allowance for doubtful accounts of $0.5 million represents the reserve on new receivables generated from the acquisition date through December 31, 2005.has increased accordingly.

6) Contingent Liabilities

We are subject to various claims and legal actions in the ordinary course of our business. Some of these matters include payroll and employee-related matters and investigations by governmental agencies regarding our employment practices. As we become aware of such claims and legal actions, we provide accruals if the exposures are probable and estimable. If an adverse outcome of such claims and legal actions is reasonably possible, we assess materiality and provide disclosure, as appropriate. We may also become subject to claims, governmental inquiries and investigations and legal actions relating to services provided by our temporary healthcare professionals, and we maintain accruals for these matters if the amounts are probable and estimable. We currently are currently not aware of any such pending or threatened litigation that would be considered reasonably likely to have a material adverse effect on our consolidated financial position, results of operations or liquidity.

7) Share-Based Payments

Prior to January 1, 2006, we accounted for our share-based employee compensation plans under the measurement and recognition provisions of Accounting Principles Board (“APB”) Opinion No. 25,Accounting for Stock Issued to Employees, and related Interpretations, as permitted by SFAS No. 123,Accounting for Stock-Based Compensation. We also provided disclosures in accordance with the requirements of SFAS No. 123, as amended by SFAS No. 148,Accounting for Stock-Based Compensation-Transition and Disclosure.

Effective January 1, 2006, we adopted the provisions of revised SFAS No. 123 (SFAS No. 123R),Share-Based Payment, which established accounting for share-based awards exchanged for employee services and requires companies to expense the estimated fair value of these awards over the requisite employee service period. Accordingly, stock-based compensation cost is measured at grant date, based on the fair value of the award, and is recognized as expense over the employee’s requisite service period. The measurement of stock based compensation cost is based on several criteria including, but

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not limited to, the valuation model used and associated input factors such as expected term of the award, our stock price volatility, dividend rate, risk free interest rate, and award forfeiture rate. The input factors to use in the valuation model are based on subjective future expectations combined with management judgment. We estimate the fair value of stock options and stock appreciation rights granted using the Black-Scholes valuation model and the assumptions shown in Note 10(b) to the accompanying consolidated financial statements. We use historical data to estimate pre-vesting option forfeitures and record stock-based compensation expense only for those awards that are expected to vest. We estimate the option term, dividend yield, and risk-free interest rate assumptions consistent with the methodologies used prior to January 1, 2006. After consideration of both our implied volatility and historical volatility, we determined our historical volatility to be the most accurate estimate of future volatility and therefore utilize this measure. Prior to January 1, 2006, we estimated volatility based on a combination of our historical volatility rate and the historical volatility rate of comparable companies. The fair value of equity awards granted is amortized on a straight-line basis over the requisite service periods of the awards, which are the vesting periods. If factors change, we may decide to use different assumptions under the Black-Scholes valuation model, or a different valuation model, in the future, which could materially affect our net income and earnings per share.

Results of Operations

The following table sets forth, for the periods indicated, certain statements of operations data as a percentage of revenue. Our results of operations include athree reportable segments: (1) nurse and allied healthcare staffing segmentstaffing; (2) locum tenens staffing; and a(3) physician staffing segment.permanent placement services. We completed our acquisition of MHA in November 2005, therefore the consolidated statement of operations for the year ended December 31, 2005 only includes the results of operations of MHA and the locums tenens staffing and physician staffing segmentpermanent placement services segments since the date of acquisition. Accordingly, reporting segment information in the following table would not be meaningful. Additionally, as reporting comparative information for the year ended December 31, 2005 would not be meaningful, and ourwe have included reporting segment information only for the year ended December 31, 2006. Our historical results are not necessarily indicative of our results of operations to be expected in the future.

Comparison of Results for the Year Ended December 31, 2006 to the Year Ended December 31, 2005

Revenue.    Revenue increased 53%, to $1,081.7 million for 2006 from $705.8 million for 2005. Of the $375.9 million increase, $313.6 million was attributable to the acquisition of MHA in November 2005, $32.1 million was attributable to the organic increase in revenue generated per temporary healthcare professional due primarily to an increase in the average bill rates charged to hospital and healthcare facility clients,

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$15.1 million was attributable to a shift in the mix of temporary healthcare professionals working on flat rate contracts to hours and days worked contracts and $15.1 million was attributable to the increase in the average number of temporary healthcare professionals on assignment. Revenue by reportable segment for 2006 was $763.2 million for nurse and allied healthcare staffing, $268.1 million for locum tenens staffing and $50.4 million for physician permanent placement services.

Cost of Revenue.    Cost of revenue increased 48%, to $792.4 million for 2006 from $535.6 million for 2005. Of the $256.8 million increase, $215.7 million was attributable to the acquisition of MHA in November 2005, $17.3 million was attributable to net increases in compensation provided to our temporary healthcare professionals, which was net of $2.4 million of worker’s compensation reserve adjustments, $12.3 million was attributable to the shift in the mix of temporary healthcare professionals working on flat rate contracts to hours and days worked contracts and $11.5 million was attributable to the increase in the average number of temporary healthcare professionals on assignment. Cost of revenue by reportable segment for 2006 was $575.8 million for nurse and allied healthcare staffing, $197.1 million for locum tenens staffing and $19.5 million for physician permanent placement services.

Gross Profit.    Gross profit increased 70%, to $289.3 million for 2006 from $170.2 million for 2005, representing gross margins of 26.7% and 24.1%, respectively. The increase in gross margin was primarily attributable to an increase in the spread between bill rates and pay rates, lower workers compensation costs due primarily to an actuarial-based reserve reduction during 2006, and the addition of the higher gross margin locum tenens staffing and physician permanent placement services segments through the acquisition of MHA in November 2005. Gross margin by reportable segment for 2006 was 24.6% for nurse and allied healthcare staffing, 26.5% for locum tenens staffing and 61.4% for physician permanent placement services.

Selling, General and Administrative Expenses.    Selling, general and administrative expenses increased 75%, to $205.5 million for 2006 from $117.3 million for 2005. Of the $88.2 million increase, $67.6 million was attributable to the acquisition of MHA in November 2005, which was net of a $2.6 million actuarial based reduction to our professional liability reserve during the three months ended December 31, 2006, $12.2 million was attributable to an increase in employee expenses primarily to support growth in the nurse and allied healthcare staffing segment, $6.3 million was attributable to the increase in non-cash stock-based compensation charges resulting from the adoption of SFAS No. 123R on January 1, 2006, and the remaining $2.1 million increase was primarily attributable to increases in office expenses and travel and related expense, partially offset by a decrease in professional liability insurance expenses. Selling, general and administrative expenses by reportable segment for 2006 was $137.2 million for nurse and allied healthcare staffing, $50.2 million for locum tenens staffing and $18.1 million for physician permanent placement services.

Depreciation and Amortization.    Depreciation expense increased 30%, to $7.3 million in 2006 from $5.6 million in 2005. The increase was primarily attributable to the acquisition of MHA in November 2005. Amortization expense was $3.0 million in 2006 and $0.6 million in 2005. The increase was primarily attributable to the amortization of identifiable amortizable intangible assets acquired through the acquisition of MHA in November 2005.

Interest Expense, Net.    Interest expense, net, was $16.7 million for 2006 as compared to $9.6 million for 2005. The increase was primarily attributable to interest expense on additional borrowings in connection with the acquisition of MHA in November 2005.

Income Tax Expense.    Income tax expense increased to $21.7 million for 2006 from $14.9 million for 2005, reflecting effective income tax rates of 38.2% and 40.2% for these periods, respectively. The decrease in the effective income tax rate in 2006 was primarily attributable to decreases in the state tax provision and a $0.4 million tax benefit recorded in 2006 from the adjustment of deferred taxes due to recently enacted Texas tax legislation.

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Comparison of Results for the Year Ended December 31, 2005 to the Year Ended December 31, 2004 .

Revenue.    Revenue increased 12%, to $705.8 million for 2005 from $629.0 million for 2004. Of the $76.8 million increase, $53.3 million was attributable to the acquisition of MHA in November 2005, $14.6 million was attributable to the organic increase in the average number of temporary healthcare professionals on

assignment, $6.2 million was attributable to the increase in revenue generated per traveler due primarily to an increase in the average bill rates charged to hospital and healthcare facility clients, and $4.5 million was attributable to a shift in the mix fromof temporary healthcare professionals working on flat rate contracts to hours and days worked contracts. The increase was partially offset by one less day in 2005 which reduced revenue by $1.8 million.

Cost of Revenue.    Cost of revenue increased 11%, to $535.6 million for 2005 from $484.7 million for 2004. Of the $50.9 million increase, $36.5 million was attributable to the acquisition of MHA in November 2005, $11.3 million was attributable to the increase in the average number of temporary healthcare professionals on assignment, $0.9 million was attributable to net increases in compensation provided to our temporary healthcare professionals, and $3.6 million was attributable to the shift in the mix fromof temporary healthcare professionals working on flat rate contracts to hours and days worked contracts, andthe increase was partially offset by a decrease of $1.4 million attributable to one less day in 2005.

Gross Profit.    Gross profit increased 18%, to $170.2 million for 2005 from $144.4 million for 2004, representing gross margins of 24.1% and 23.0%, respectively. The increase in gross margin was primarily attributable to an increase in the spread between bill rates and pay rates and the addition of the higher gross margin in the locum tenens staffing and physician staffing segmentpermanent placement services segments through the acquisition of MHA in November 2005.

Selling, General and Administrative Expenses.    Selling, general and administrative expenses excluding non-cash stock-based compensation, increased 16%15%, to $117.2$117.3 million for 2005 from $101.4$102.2 million for 2004. Of the $15.8$15.1 million increase, $11.7 million was attributable to the acquisition of MHA in November 2005, with the remaining $4.1$3.4 million increase primarily attributable to increases in employee expenses from a combination of normal growth in costs per employee and selective headcount additions, partially offset by decreases in professional liability insurance and professional services costs.expenses.

Non-Cash Stock-Based Compensation.Depreciation and Amortization.    We recorded non-cash compensation chargesDepreciation expense of $0.1$5.6 million inwas consistent for 2005 and $0.8 million in 2004 in connection with our stock option plans to reflect the difference between the fair market value at the measurement date and the exercise prices of previously issued stock options, which are amortized over their respective vesting periods. The decrease relates to the cancellation and completed vesting of previously issued stock options issued at exercise prices below fair market value.

Amortization and Depreciation.2004. Amortization expense was $0.6 million in 2005 and $0.2 million in 2004. The2004, with the increase was primarily attributable to the amortization of identifiable amortizable intangible assets obtained fromacquired through the acquisition of MHA in November 2005. Depreciation expense of $5.6 million was consistent for 2005 and 2004.

Interest Expense, Net.    Interest expense, net, was $9.6 million for 2005 as compared to $8.4 million for 2004. The increase was primarily due to a $1.2 million write-off of deferred financing costs from the refinancing of our credit facility in connection with the acquisition of MHA in November 2005.

Income Tax Expense.    Income tax expense increased to $14.9 million for 2005 from $10.6 million for 2004, reflecting effective income tax rates of 40.2% and 37.8% for these periods, respectively. The increase in the effective income tax rate was primarily attributable to increases in the state tax provision.

Comparison of Results for the Year Ended December 31, 2004 to the Year Ended December 31, 2003

Revenue.    Revenue decreased 12%, to $629.0 million for 2004 from $714.2 million for 2003. This decrease is comparable to the decrease in the number of temporary healthcare professionals on assignment, which decreased 12% to an average of 6,225 for 2004 from 7,113 for 2003. Of the $85.2 million decrease, $89.3 million was attributable to the decline in the average number of temporary healthcare professionals on assignment and $2.6 million was attributable to a shift in the mix from hours and days worked contracts to flat rate contracts. These decreases were partially offset by improvements in contract terms, which included increases in bill rates charged to hospital and healthcare facility clients, of approximately $5.0 million, and the additional day from leap year in 2004, which contributed $1.7 million.

Cost of Revenue.    Cost of revenue decreased 12%, to $484.7 million for 2004 from $552.1 million for 2003. Of the $67.4 million decrease, $69.1 million was attributable to the decline in the average number of temporary healthcare professionals on assignment, partially offset by an increase of $0.4 million attributable to net increases in compensation provided to our temporary healthcare professionals and by an increase of $1.3 million attributable to the extra day in 2004.

Gross Profit.    Gross profit decreased 11%, to $144.4 million for 2004 from $162.2 million for 2003, representing gross margins of 23.0% and 22.7%, respectively. The increase in gross margin was primarily attributable to decreased health insurance, housing and retirement costs as a percentage of revenue, partially offset by increases in compensation provided to our temporary healthcare professionals.

Selling, General and Administrative Expenses.    Selling, general and administrative expenses, excluding non-cash stock-based compensation, increased 10%, to $101.4 million for 2004 from $92.5 million for 2003. The $8.9 million increase was primarily attributable to an increase in expenses related to corporate facilities as we occupied a larger corporate facility for a full year compared to a half year in 2003 and corporate employee and professional services increases related to additional compliance requirements in connection with the Sarbanes-Oxley Act of 2002. In addition, we recorded an increase in our professional liability insurance reserve as we have experienced negative trends in our malpractice claims development. These increases were partially offset by a $1.2 million charge in the fourth quarter of 2003 related to vested stock options purchased in our October 2003 tender offer that was not incurred during 2004.

Non-Cash Stock-Based Compensation.    We recorded non-cash compensation charges of $0.8 million in 2004 and $0.9 million in 2003 in connection with our stock option plans to reflect the difference between the fair market value at the measurement date and the exercise prices of previously issued stock options, which are amortized over their respective vesting periods.

Amortization and Depreciation.    Amortization expense was $0.2 million in 2004 and $0.4 million in 2003. Depreciation expense increased to $5.6 million for 2004 from $4.4 million for 2003. This increase was primarily attributable to internally developed software placed into service in 2004 and 2003 and additions of leasehold improvements and assets acquired in connection with the consolidation of several San Diego, California locations into a new corporate headquarters facility during the second half of 2003.

Interest Expense, Net.    Interest expense, net, was $8.4 million for 2004 as compared to $2.3 million for 2003, due primarily to interest charges related to borrowings initiated under our credit facility in October 2003 to fund our tender offer and the amortization of deferred financing costs associated with those borrowings. In addition, interest expense was also higher due to the write-off of $0.5 million of deferred financing costs during 2004 related to $24.3 million in voluntary prepayments on our long-term debt.

Income Tax Expense.    Income tax expense decreased to $10.6 million for 2004 from $23.9 million for 2003, reflecting effective income tax rates of 37.8% and 38.7% for these periods, respectively. The reduction in the effective income tax rate was primarily attributable to changes in the state tax provision in 2004.

Liquidity and Capital Resources

Historically, our primary liquidity requirements have been for acquisitions, working capital requirements and debt service under our credit facility. We have funded these requirements through internally generated cash flow and funds borrowed under our credit facility. At December 31, 2005, $2052006, $173.4 million was outstanding under our credit facility. We believe that cash generated from operations and available borrowings under our revolving credit facility will be sufficient to fund our operations for the next 12 months. We expect to be able to finance

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future acquisitions either with cash provided from operations, borrowings under our revolving credit facility, bank loans, debt or equity offerings, or some combination of the foregoing. The following discussion provides further details of our liquidity and capital resources.

Operating Activities:

Historically, our principal working capital need has been for accounts receivable. At December 31, 20052006 and December 31, 2004,2005, our Days Sales Outstanding (“DSO”) was 63 days and 57 days, and 63 days, respectively. Excluding the impact of the acquisition of MHA, DSO was 59 days at December 31, 2005. The decreaseincrease in DSO was relatedis due in part to delays in our cash receipts cycle as a result of an increase in the acquisitionnumber of MHAour nurse and allied healthcare clients undergoing implementations of vendor management arrangements. These arrangements often involve third-party vendors specializing in November 2005, which historically has lowerstaffing procurement systems. We anticipate that our DSO than AMN, as well as improvements in billing and collection processes.will improve during fiscal 2007. Our principal sources of cash to fund our working capital needs are cash generated from operating activities and borrowings under our revolving credit facility. Net cash provided by operations increased $5.1$10.4 million to $54.5 million in 2006 from $44.1 million in 2005 from $39.0 million in 2004.2005. This increase in net cash provided by operations was primarily driven by increased earnings compared to fiscal 20042005, primarily resulting from our acquisition of MHA in November 2005, and the tax effects of temporary differences that give rise to significant portions of deferredincreases in income taxes.taxes payable and accrued compensation and benefits, offset by an increase in accounts receivable.

Investing Activities:

We continue to have relatively low capital investment requirements. Capital expenditures were $9.7 million, $3.8 million and $5.1 million in 2006, 2005 and $13.0 million in 2005, 2004, and 2003, respectively. In 2005,2006, our capital expenditures were $3.0$6.0 million for purchased and internally developed software $0.8and $3.7 million for computers, furniture and equipment, leasehold improvements and other expenditures. The higher level of capital expenditures in 2003 was primarily related to leasehold improvements for our new corporate headquarters. We expect our future capital expenditure requirements to be similar to 2005,2006 in relation to revenue.

Our business acquisition expenditures were $36.0 million in 2006 compared to $111.5 million in 2005 compared toand $0 in 2004 and 2003. Our 20052004. Of the $36.0 million of expenditures were primarilyin 2006, we paid $35.7 million related to the cash portion of the earnout payment for our November 2005 acquisition of MHA, in November 2005. This acquisitionwhich was financed through a combination of bank debt,paid with cash provided by operations and AMN common stock.on hand. The remaining $0.3 million related to transaction costs recorded during the three months ended March 31, 2006.

Financing Activities:

On November 2, 2005, we acquired MHA for an initial purchase price of $160.0 million plus acquisition costs of $2.7 million, and an earn-out payment of $47.3 million of additional consideration based on the twelve months ended December 31, 2005 performance of MHA. The initial $160.0 million of consideration and the earn-out payment were paid approximately 75% in cash and 25% in unregistered shares of the Company’s common stock. We paid $35.9 million in cash and issued 0.7 million shares of stock by March 10, 2006 related to the earn-out. In addition, as part of the acquisition, $15.0 million of the initial consideration was held back for possible contingencies. As of December 31, 2005, $0.4 million of the $15.0 million was paid to the selling shareholders, with the balance due in March 2007, net of any indemnification claims.

In connection with the acquisition of MHA, we amended and restated our existing credit facility. Our new credit facility, the Second Amended and Restated Credit Agreement (“New Credit Agreement”), provides for, among other things, a $75.0 million secured revolving credit facility, a $30.0 million letter of credit sub-facility, a $15.0 million swing-line sub-facility, all maturing in November 2010, and a new $205.0 million secured term loan facility maturing in November 2011. The new secured term loan facility was used to pay off existing borrowings of $87.8 million of term debt and provide financing for the cash portion of the initial $145.0$160.0 million of acquisition consideration, net of thea $15.0 million holdback, and related acquisition and financing costs of $2.7$3.0 million and $4.8 million, respectively. We funded

On April 28, 2006, we entered into a Stock Purchase Agreement with several former MHA stockholders to purchase from them an aggregate of 1,852,000 shares of our common stock issued in connection with the $35.9 million cash portionacquisition of MHA. The share purchase price was $20.17, calculated as the volume weighted average sales price of the earn-out paymentcommon stock on March 10,the New York Stock Exchange for the 20 consecutive trading days immediately preceding the closing date, for a total aggregate purchase price of $37.5 million, including $0.2 million of transaction costs. The Stock Purchase Agreement contains customary representations and warranties.

On May 1, 2006, we entered into a First Amendment (the “First Amendment”) to our Credit Agreement dated November 2, 2005. The First Amendment provides that we may request, on a one-time basis and subject to meeting certain conditions, an additional term loan (“Incremental Term Loan”) in an amount not to exceed $45

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million and permits us to repurchase up to $45 million of our capital stock (subject to certain conditions). The First Amendment also resets the applicable interest rate for term loan borrowings based upon our then current leverage ratio. We incurred $0.3 million of financing costs in conjunction with the First Amendment.

On May 15, 2006, we borrowed an Incremental Term Loan of $30 million which, along with cash on hand, was used to fund the purchase of shares under the Stock Purchase Agreement. Effective May 15, 2006, the interest rate for all term loans outstanding (including the Incremental Term Loan) under the Credit Agreement initially bore interest, at our option, at either LIBOR plus 2.00% or the Base Rate plus 1.00%. Beginning in August 2006 and borrowingsthereafter, based on our then current leverage ratio, all term loans bear interest, at our option, at either LIBOR plus 1.75% or the Base Rate plus 0.75%. The terms of the Incremental Term Loan are consistent with the existing term loan under our revolving credit facility.the Credit Agreement.

The revolving credit facility portion of our New Credit Agreement carries an unused fee of between 0.5% and 0.375% per annum based on our then current leverage ratio, and there are no mandatory reductions in the revolving commitment under the revolving credit facility. Borrowings under this revolving credit facility bear interest at floating rates based upon either a LIBOR or a prime interest rate option selected by us, plus a spread of 1.50% to 2.25% and 0.50% to 1.25%, respectively, to be determined based on our then current leverage ratio. Amounts available under our revolving credit facility may be used for working capital, capital expenditures, permitted acquisitions and general corporate purposes, subject to various limitations.

The six year, $205 million term loan portion of our New Credit Agreement is subject to quarterly amortization of principal (in equal installments), with an amount equal to 1.25% of the initial aggregate principal amount of the facility payable quarterly through September 30, 2007 (except in the case of the initial quarterly payment on June 30, 2006 of 2.5%) and 2.5% of the initial aggregate principal amount of the facility payable quarterly from December 31, 2007 through September 30, 2010 with any remaining amounts payable in 2011. These quarterly payments begin on June 30, 2006 with an initial payment of $5.1 million. Voluntary prepayments of the term loan portion of the credit facility are applied as we may elect, including ratably to the remaining quarterly amortization payments. Borrowings under this term loan facility bearIn May, August and November 2006, we made voluntary prepayments of $20.0 million, $8.0 million and $25.0 million, respectively, which were applied ratably to the remaining quarterly amortization payments. In connection with these voluntary prepayments, we wrote off $0.4 million, $0.1 million and $0.3 million, respectively, of deferred financing costs, which are recorded in interest at floating rates based upon either a LIBOR or a prime interest rate option selected by us, plus a spreadexpense. In June, September and December 2006, we made the quarterly amortization payments of 1.75% or 2.00%$5.4 million, $2.6 million and 0.75% or 1.00%, respectively,$2.3 million, respectively. The September and December amortization payments were reduced from their initial contractual amounts due to be determined based on our current leverage ratio.the application of the voluntary prepayments.

We are required to make additional mandatory prepayments on the term loan with the proceeds of asset dispositions, extraordinary receipts, debt issuances and certain equity issuances. We also are required to make mandatory prepayments on the term loan within ninety days after the end of each fiscal year, commencing with the fiscal year ended December 31, 2006, in an amount equal to 50% of our excess cash flow (as defined in the Second Amended and Restated Credit Agreement), less any voluntary prepayments made during the fiscal year. These mandatory prepayment amounts, if any, are applied ratably to the remaining quarterly amortization payments. The voluntary prepayments made throughout the year satisfied this additional prepayment requirement for the year ending December 31, 2006.

We are required to maintain a maximum leverage ratio, based on EBITDA and funded indebtedness as defined in the Credit Agreement, as of the end of each fiscal quarter of not more than 3.75 to 1.00 for the fiscal quarter ending December 31, 2005,2006, decreasing throughout the term of the agreement to ultimately arrive at a ratio of 2.00 to 1.00 for the fiscal quarter ending March 31, 2009 and thereafter. We are also required to maintain a minimum fixed charge coverage ratio, based on EBITDA and debt and interest payments as defined in the Credit Agreement, as of the end of each fiscal quarter of not less than 2.001.50 to 1.00 for the fiscal quarter ending December 31, 2005,2006, decreasing throughout the term of the agreement to ultimately arrive at a ratio of 1.25 to 1.00 for the fiscal quarter ending September 30, 2008 and thereafter. We are also subject to limitations on the amount of our annual capital expenditures and on the amount of consolidated total assets and consolidated

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EBITDA that may be owned or attributable to our foreign subsidiaries. We were in compliance with these requirements at December 31, 2005.2006.

Under our New Credit Agreement, our subsidiaries are not permitted to pay dividends or distributions to us, except for certain permitted dividends and distributions, including those related to taxes, certain reporting obligations under federal and state law and certain other ordinary course operating expenses, subject to the limitations contained in our New Credit Agreement.

We are also required to maintain interest rate protection on at least 50% of the term loan portion of our New Credit Agreement beginning May 2006 until November 2008. In October 2003,December 2006, we entered into anterminated one of our interest rate swap agreement to minimize our exposure to interest rate fluctuations on the first $30agreements with a notional amount of $50 million, of our outstanding variable rate debt under our existing credit facility whereby we pay a fixed rate of 2.65%4.97%, and receivean original expiration date of December 2010. We recorded a floating three-month LIBOR. This agreement expiresloss of less than $0.1 million upon termination and paid that same amount in September 2006, and nocash to settle the transaction. No initial investment was made to enter into thisthe agreement.

In June 2005, As of December 31, 2006, we entered into two additionalmaintain six interest rate swap agreements. The firstagreements with notional amounts totaling $125 million, of which $10 million relates to a forward starting agreement has a notional amount of $20 million and becamethat will become effective in September 2005, whereby weMarch 2007. We pay a fixed rate ofrates ranging from 3.99% to 4.95% under these agreements and receive a floating three-month LIBOR. The agreement expires in March 2007. The second agreement will become effective in September 2006, with a notional amount of $15 million, whereby we pay a fixed rate of 4.09% and receive a floating three-month LIBOR. This agreement will expire in September 2007.

In November 2005, we entered into five additional interest rate swap agreements for notional amounts of $15 million, $10 million, $30 million, $35 million and $50 million, whereby we pay a fixed rate of 4.82%, 4.95%, 4.87%, 4.94%, and 4.97%, respectively, and receive a floating three-month LIBOR. These agreements expire in Decemberbeginning March 2007 June 2008, December 2008,through December 2009, and December 2010, respectively.no initial investments were made to enter into these agreements.

At December 31, 20052006 and 2004,2005, the interest rate swap agreements had a fair value of ($0.1)$0.5 million and $0.7($0.1) million, respectively, which is included in other assets and liabilities in the accompanying consolidated

balance sheets. We have formally documented the hedging relationships and account for these arrangements as cash flow hedges.

As of December 31, 2006 and 2005, and 2004, our existing credit facility also served to collateralize certain letters of credit aggregating $9.6$19.5 million and $7.2$9.6 million, respectively, issued by us in the normal course of business.

Contractual Obligations

The following table summarizes our contractual obligations as of December 31, 20052006 (in thousands):

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Off-Balance Sheet and Other Financing Arrangements

At December 31, 20052006 and 2004,2005, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance, variable interest or special purpose, which would have been established for the purpose of facilitating off-balance-sheet arrangements or other contractually narrow or limited purposes. In addition, we do not engage in trading activities involving non-exchange traded contracts. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships. We do not have relationships or transactions with persons or entities that derive benefits from their non-independent relationship with us or our related parties other than what is disclosed in “Item 8. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note 10.11.”

Potential Fluctuations in Quarterly Results and Seasonality

Due to the regional and seasonal fluctuations in the hospital patient census and nurse staffing needs of our hospital and healthcare facility clients and due to the seasonal preferences for destinations of our temporary healthcare professionals, revenue, earnings and the number of temporary healthcare professionals on assignment are subject to moderate seasonal fluctuations. Many of our hospital and healthcare facility clients are located in areas that experience seasonal fluctuations in population during the winter and summer months. These facilities

adjust their staffing levels to accommodate the change in this seasonal demand and many of these facilities utilize temporary healthcare professionals to satisfy these seasonal staffing needs. This historical seasonality of revenue and earnings may vary due to a variety of factors and the results of any one quarter are not necessarily indicative of the results to be expected for any other quarter or for any year.

Inflation

Although inflation has abated during the last several years, the rate of inflation in healthcare related services continues to exceed the rate experienced by the economy as a whole. Our contracts typically provide for an annual increase in the fees paid to us by our clients based on increases in various inflation indices allowing us to pass on inflation costs to our clients.

Recent Accounting Pronouncements

In July 2006, the FASB issued FASB Interpretation No. 48 (FIN 48),Accounting for Uncertainty in Income Taxes, which prescribes a recognition threshold and measurement process for recording in the financial statements uncertain tax positions taken or expected to be taken in a tax return. Additionally, FIN 48 provides guidance on the de-recognition, classification, accounting in interim periods and disclosure requirements for uncertain tax positions. We will adopt FIN 48 as of January 1, 2007, and any material adjustment resulting from the adoption of FIN 48 will be recorded as an adjustment to retained earnings in our consolidated balance sheet as of that date. We are currently evaluating the impact of adopting FIN 48.

In September 2006, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 108 (SAB No. 108),Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, which provides interpretive guidance on the consideration of the effects of prior year misstatements in quantifying current year misstatements for the purpose of a materiality assessment. SAB No. 108 is effective for fiscal years ending after November 15, 2006. We have adopted SAB No. 108 for our fiscal year ended December 2004,31, 2006, and the adoption had no material impact on our consolidated financial statements.

In September 2006, the FASB issued Statement of Financial Accounting Standards Board (“FASB”), issued Statement No. 123 (Revised)157 (SFAS No. 157), Share-Based Payment, (“FAS 123R”), which amends Statement No. 123, Accounting for Stock-Based Compensation, and supersedes Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to EmployeesFair Value Measurements. FAS 123R requires the measurement of compensation costSFAS No. 157 defines fair value, establishes a framework for

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measuring fair value in generally accepted accounting principles, and expands disclosures related to all share-based paymentsfair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements, the Board having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, SFAS No. 157 does not require any new fair value measurements. However, for some entities, the application of this Statement will change current practice. We are required to employees, including grantsadopt SFAS No. 157 beginning January 1, 2008, and we are currently assessing the impact, if any, the adoption of employee stock options, using a fair-value-based method and the recording of such cost inSFAS No. 157 will have on our consolidated statements of operations. Additionally, FAS 123R requires the estimated forfeitures be considered in determining compensation cost. The accounting provisions of FAS 123R are effective for the first interim or annual reporting period that begins after June 15, 2005. FAS 123R, which provides certain changes to the method for valuing share-based compensation among other changes, will apply to new awards and to awards that are outstanding on the effective date and are subsequently modified or cancelled. Compensation expense for outstanding awards for which the requisite service had not been rendered as of the effective date will be recognized over the remaining service period using the compensation cost calculated for pro forma disclosure purposes under FAS 123R. At December 31, 2005, of the $11.9 million unamortized compensation expense before the effect of income taxes related to outstanding unvested options, as determined in accordance with FAS 123, $5.1 million is expected to be recorded during fiscal 2006. We will likely incur additional expense during 2006 related to new awards granted during 2006 that cannot yet be quantified. We adopted FAS 123R on January 1, 2006 using the modified prospective method and we will value share-based awards granted after the effective date using the Black-Scholes option pricing model, which is consistent with the valuation method previously used for footnote disclosure purposes in accordance with FAS 123.financial statements.

Special Note Regarding Forward-Looking Statements

This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We based these forward-looking statements on our current expectations and projections about future events. Our actual results could differ materially from those discussed in, or implied by, these forward-looking statements. Forward-looking statements are identified by words such as “believe,” “anticipate,” “expect,” “intend,” “plan,” “will,” “may” and other similar expressions. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. The following factors could cause our actual results to differ materially from those implied by the forward-looking statements in this Annual Report: