##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended March 31, 2006.
 or
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from
to
 Commission File No. 0-22701
 GEVITY HR, INC.
 (Exact Name of Registrant as Specified in Its Charter)
 Florida
(State or other jurisdiction of incorporation or organization)
    
    65-0735612
(I.R.S. Employer Identification No.)9000 Town Center Parkway
Bradenton, Florida
(Address of principal executive offices)
    
    34202
(Zip Code)
 (Registrants Telephone Number, Including Area Code): (941) 741-4300
  þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
  o þ
  Class of common stock
    
    Outstanding as of April 30, 2006Par value $0.01 per share
    
    26,219,468




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##### 



TABLE OF CONTENTS
 PagePART I.
    
    FINANCIAL INFORMATIONITEM 1.
    
    Financial Statements
    
    
    3Condensed Consolidated Statements of Operations for the three months ended March 31, 2006 and 2005 (unaudited)
    
    
    3Condensed Consolidated Balance Sheets as of March 31, 2006 and December 31, 2005 (unaudited)
    
    
    4Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2006 and 2005 (unaudited)
    
    
    6Notes to Condensed Consolidated Financial Statements (unaudited)
    
    
    7ITEM 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    17ITEM 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    27ITEM 4.
    
    Controls and Procedures
    
    
    27PART II.
    
    OTHER INFORMATIONITEM 1.
    
    Legal Proceedings
    
    
    28ITEM 1A.
    
    Risk Factors
    
    
    28ITEM 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    28ITEM 6.
    
    Exhibits
    
    
    29SIGNATURE
    
    
    30EX-31.1 SECTION 302 CERTIFICATION OF CEOEX-31.2 SECTION 302 CERTIFICATION OF CFOEX-32 SECTION 906 CERTIFICATION OF CEO/CFO
  2




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PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 GEVITY HR, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
(in $000s, except share and per share data)
 For the Three Months EndedMarch 31,2006
    
    
    2005Revenues
    
    $
    169,689
    
    
    $
    153,880Cost of services
    
    
    120,087
    
    
    
    110,251Gross profit
    
    
    49,602
    
    
    
    43,629Operating expenses:Salaries, wages and commissions
    
    
    20,868
    
    
    
    17,387Other general and administrative
    
    
    12,874
    
    
    
    10,460Depreciation and amortization
    
    
    3,297
    
    
    
    3,753Total operating expenses
    
    
    37,039
    
    
    
    31,600Operating income
    
    
    12,563
    
    
    
    12,029Interest income
    
    
    252
    
    
    
    235Interest expense
    
    
    (264
    )
    
    
    (78
    )Other (expense) income, net
    
    
    (143
    )
    
    
    16Income before income taxes
    
    
    12,408
    
    
    
    12,202Income tax provision
    
    
    4,214
    
    
    
    4,027Net income
    
    $
    8,194
    
    
    $
    8,175Net income per common share-Basic
    
    $
    0.31
    
    
    $
    0.30-Diluted
    
    $
    0.30
    
    
    $
    0.29Weighted average common shares outstanding-Basic
    
    
    26,262,215
    
    
    
    27,457,849-Diluted
    
    
    27,176,671
    
    
    
    28,571,780
  3




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GEVITY HR, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED
(in $000s)
 March 31,
    
    
    December 31,2006
    
    
    2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    23,699
    
    
    $
    52,525Certificates
of deposit  restricted
    
    
    34
    
    
    
    33Marketable securities  restricted
    
    
    4,322
    
    
    
    4,281Accounts receivable, net
    
    
    110,278
    
    
    
    113,864Short-term workers compensation receivable, net
    
    
    43,711
    
    
    
    32,552Other current assets
    
    
    15,164
    
    
    
    15,713Total current assets
    
    
    197,208
    
    
    
    218,968Property and equipment, net
    
    
    19,581
    
    
    
    13,810Long-term
marketable securities  restricted
    
    
    8,008
    
    
    
    7,891Long-term workers compensation receivable, net
    
    
    96,792
    
    
    
    95,766Intangible assets, net
    
    
    28,085
    
    
    
    30,494Goodwill
    
    
    8,692
    
    
    
    8,692Deferred tax asset, net
    
    
    11,698
    
    
    
    11,678Other assets
    
    
    552
    
    
    
    570Total assets
    
    $
    370,616
    
    
    $
    387,869
  4




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GEVITY HR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
UNAUDITED
(in $000s, except share and per share data)
 March 31,
    
    
    December 31,2006
    
    
    2005LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accrued payroll and payroll taxes
    
    $
    139,499
    
    
    $
    152,940Accrued insurance premiums, health and
workers compensation insurance reserves
    
    
    17,880
    
    
    
    20,536Customer deposits and prepayments
    
    
    6,423
    
    
    
    8,315Accounts payable and other accrued liabilities
    
    
    9,909
    
    
    
    9,995Deferred tax liability, net
    
    
    31,930
    
    
    
    31,567Dividends payable
    
    
    2,359
    
    
    
    1,846Total current liabilities
    
    
    208,000
    
    
    
    225,199Long-term accrued workers compensation
insurance reserves
    
    
    236
    
    
    
    242Other long-term liabilities
    
    
    7,065
    
    
    
    7,013Total liabilities
    
    
    215,301
    
    
    
    232,454Commitments and contingencies (see notes)Shareholders equity:Preferred stock, $0.01 par value, 10,000,000 shares authorized, none
issued and outstanding as of March 31, 2006 and December 31, 2005
    
    
    
    
    
    
    Common stock, $.01 par value, 100,000,000 shares authorized,
31,471,902 and 31,237,453 issued and outstanding as of March 31,
2006 and December 31, 2005, respectively
    
    
    315
    
    
    
    312Additional paid-in capital
    
    
    166,968
    
    
    
    165,876Retained earnings
    
    
    63,972
    
    
    
    58,137Deferred compensation
    
    
    
    
    
    
    (2,543
    )Treasury stock (5,263,495 and 4,863,098 shares at cost, respectively)
    
    
    (75,940
    )
    
    
    (66,367
    )Total shareholders equity
    
    
    155,315
    
    
    
    155,415Total liabilities and shareholders equity
    
    $
    370,616
    
    
    $
    387,869
  5




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GEVITY HR, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(in $000s)
 For the Three Months EndedMarch 31,2006
    
    
    2005CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    8,194
    
    
    $
    8,175Adjustments to reconcile net income to net cash (used in) provided by operating activities:Depreciation and amortization
    
    
    3,297
    
    
    
    3,753Deferred tax provision, net
    
    
    343
    
    
    
    1,065Stock compensation
    
    
    835
    
    
    
    55Provision for bad debts
    
    
    56
    
    
    
    117Other
    
    
    175
    
    
    
    (4
    )Changes in operating working capital:Accounts receivable, net
    
    
    3,530
    
    
    
    (22,333
    )Other current assets
    
    
    549
    
    
    
    (5,511
    )Workers compensation receivable, net
    
    
    (12,185
    )
    
    
    (14,116
    )Other assets
    
    
    16
    
    
    
    29Accrued insurance premiums, health and
workers compensation insurance reserves
    
    
    (2,656
    )
    
    
    (308
    )Accrued payroll and payroll taxes
    
    
    (13,513
    )
    
    
    30,608Accounts payable and other accrued liabilities
    
    
    658
    
    
    
    (376
    )Income taxes payable
    
    
    
    
    
    
    3,514Customer deposits and prepayments
    
    
    (1,892
    )
    
    
    23,378Long-term accrued workers compensation
insurance reserves
    
    
    (6
    )
    
    
    Other long-term liabilities
    
    
    (31
    )
    
    
    (175
    )Net cash (used in) provided by operating activities
    
    
    (12,630
    )
    
    
    27,871CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of marketable securities and certificates of deposit
    
    
    (76
    )
    
    
    (36
    )Capital expenditures
    
    
    (4,208
    )
    
    
    (1,034
    )Net cash used in investing activities
    
    
    (4,284
    )
    
    
    (1,070
    )CASH FLOWS FROM FINANCING ACTIVITIES:Net
borrowings under revolving credit facility
    
    
    
    
    
    
    Proceeds from exercise of stock options
    
    
    1,359
    
    
    
    843Excess tax benefits from share-based arrangements
    
    
    1,475
    
    
    
    Dividends paid
    
    
    (1,846
    )
    
    
    (1,639
    )Purchase of treasury stock
    
    
    (12,900
    )
    
    
    Net cash used in financing activities
    
    
    (11,912
    )
    
    
    (796
    )Net (decrease) increase in cash and cash equivalents
    
    
    (28,826
    )
    
    
    26,005Cash and cash equivalents  beginning of period
    
    
    52,525
    
    
    
    40,776Cash and cash equivalents  end of period
    
    $
    23,699
    
    
    $
    66,781Supplemental disclosure of cash flow information:Income taxes paid
    
    $
    110
    
    
    $
    552Interest paid
    
    $
    281
    
    
    $
    43
    6




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GEVITY HR, INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in $000s, except share and per share data)
 1. GENERAL
    Significant Accounting Policies
 Stock-Based
Compensation Share-Based Payment
 Accounting
for Stock Issued to Employees Accounting for Stock-Based Compensation Accounting for Stock-Based Compensation-Transitions and Disclosures
   7




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Three Months EndedMarch 31,2005Net income
    
    As reported
    
    $
    8,175Add:
    
    Total stock-based compensation included in net income, net of tax effect
    
    As reported
    
    
    37Less:
    
    Total stock-based employee compensation expense determined under fair valuemethod for all awards, net of tax effect
    
    Pro forma
    
    
    (757
    )Net income
    
    Pro forma
    
    $
    7,455Basic earnings per share
    
    As reported
    
    $
    0.30Pro forma
    
    $
    0.27Diluted earnings per share
    
    As reported
    
    $
    0.29Pro forma
    
    $
    0.26
  
    
    compensation cost for all share-based awards (expected to vest) granted prior to,
but not yet vested as of January 1, 2006, based upon grant-date fair value estimated in
accordance with the original provisions of SFAS 123; and
    
    compensation cost for all share-based awards (expected to vest) granted during the
three-month period ended March 31, 2006, based upon grant-date fair value estimated in
accordance with the provisions of SFAS 123R.
    
    
    Salaries, wages and commissions include $835 of stock-based compensation expense
(which is the same impact for income from continuing operations and income before
income taxes).
    
    Provision for income taxes is reduced by $284.
    
    Net income is reduced by $551.
    
    Basic earnings per share is reduced by $0.02.
    
    Diluted earnings per share is reduced by $0.02.
    
    Deferred tax assets increased by $346.
 8




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2. MARKETABLE SECURITIES  RESTRICTED
     GrossAmortized
    
    
    Unrealized
    
    
    EstimatedCost
    
    
    Gain
    
    
    Fair ValueAs of March 31, 2006:Short-termMoney market
 restricted
    
    $
    4,322
    
    
    $
    
    
    
    $
    4,322Total short-term marketable securities  restricted
    
    $
    4,322
    
    
    $
    
    
    
    $
    4,322Long-termMoney market  restricted
    
    $
    3,617
    
    
    $
    
    
    
    $
    3,617Mutual funds
 trading  restricted
    
    
    4,391
    
    
    
    
    
    
    
    4,391Total long-term marketable securities  restricted
    
    $
    8,008
    
    
    $
    
    
    
    $
    8,008As of December 31, 2005:Short-termMoney market
 restricted
    
    $
    4,281
    
    
    $
    
    
    
    $
    4,281Total short-term marketable securities  restricted
    
    $
    4,281
    
    
    $
    
    
    
    $
    4,281Long-termMoney market  restricted
    
    $
    3,582
    
    
    $
    
    
    
    $
    3,582Mutual funds
 trading  restricted
    
    
    4,309
    
    
    
    
    
    
    
    4,309Total long-term marketable securities  restricted
    
    $
    7,891
    
    
    $
    
    
    
    $
    7,891
 9




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3. ACCOUNTS RECEIVABLE
  March 31,
    
    
    December 31,2006
    
    
    2005Billed to clients
    
    $
    8,278
    
    
    $
    10,090Unbilled revenues
    
    
    102,338
    
    
    
    104,280110,616
    
    
    
    114,370Less: Allowance for doubtful accounts
    
    
    (338
    )
    
    
    (506
    )Total
    
    $
    110,278
    
    
    $
    113,864
  4. WORKERS COMPENSATION RECEIVABLE/ RESERVES
     10




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5. INTANGIBLE ASSETS
  March 31,
    
    
    December 31,2006
    
    
    2005Purchased client service agreements
    
    $
    47,929
    
    
    $
    47,929Accumulated amortization
    
    
    (19,844
    )
    
    
    (17,435
    )Intangible assets, net
    
    $
    28,085
    
    
    $
    30,494
  6. HEALTH BENEFITS
  11




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7. REVOLVING CREDIT FACILITY
  12




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8. COMMITMENTS AND CONTINGENCIES
 Litigation
  Regulatory Matters
  9. EQUITY
 Share Repurchase Program
   13




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10. STOCK COMPENSATION
      Stock Option Awards
  March 31,
    
    March 31,2006
    
    2005Risk-free interest rate
    
    
    4.59
    %
    
    
    3.25
    %Expected life (in years)
    
    
    3.7
    
    
    
    3.1Expected volatility
    
    
    51.31
    %
    
    
    60.82
    %Dividend yield
    
    
    1.26
    %
    
    
    1.33
    %
 14




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Weighted-Weighted-
    
    
    Average RemainingAverage
    
    
    Contractual
    
    
    AggregateStock Options
    
    Shares
    
    
    Exercise Price
    
    
    Term
    
    
    Intrinsic ValueOutstanding at January 1, 2006
    
    
    2,891,544
    
    
    $
    12.02Granted
    
    
    386,242
    
    
    $
    28.58Exercised
    
    
    (183,396
    )
    
    $
    6.32Forfeited
    
    
    (58,316
    )
    
    $
    20.80Expired
    
    
    (300
    )
    
    $
    18.22Outstanding at March 31, 2006
    
    
    3,035,774
    
    
    $
    14.30
    
    
    
    7.40
    
    
    $
    32,940Exercisable at March 31, 2006
    
    
    1,511,085
    
    
    $
    9.05
    
    
    
    6.42
    
    
    $
    23,332
  Non-Vested Stock Awards
  WeightedAverage Grant-Date FairNon-Vested
Stock
    
    Shares
    
    
    ValueOutstanding at January 1, 2006
    
    
    135,689
    
    
    $
    22.10Granted
    
    
    51,053
    
    
    $
    29.09Vested
    
    
    (18,139
    )
    
    $
    21.14Forfeited
    
    
    (5,444
    )
    
    $
    21.14Outstanding at March 31, 2006
    
    
    163,159
    
    
    $
    24.43
  Employee Stock Purchase Plan (ESPP)
  15




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11. INCOME TAXES
  12. EARNINGS PER SHARE (EPS)
  Net Income
    
    
    Shares
    
    
    Per Share(Numerator)
    
    
    (Denominator)
    
    
    AmountFor the Three Months Ended March 31, 2006:Basic EPS:Net income
    
    $
    8,194
    
    
    
    26,262,215
    
    
    $
    0.31Effect of dilutive securities:Options to purchase common stock
    
    
    
    
    
    
    891,893Non-vested stock
    
    
    
    
    
    
    22,563Diluted EPS:Net income
    
    $
    8,194
    
    
    
    27,176,671
    
    
    $
    0.30
 Net Income
    
    
    Shares
    
    
    Per Share(Numerator)
    
    
    (Denominator)
    
    
    AmountFor the Three Months Ended March 31, 2005:Basic EPS:Net income
    
    $
    8,175
    
    
    
    27,457,849
    
    
    $
    0.30Effect of dilutive securities:Options to purchase common stock
    
    
    
    
    
    
    1,113,931Diluted EPS:Net income
    
    $
    8,175
    
    
    
    28,571,780
    
    
    $
    0.29
  16




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ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  OVERVIEW AND INTRODUCTION
  
    
    Workforce alignment is the term used by the Company to refer to the engagement of the
right people in the right place at the right time doing the right things. The Company
assists its clients in achieving workforce alignment by helping them find exceptional
talent, implement formal human resource processes and professional management standards,
and utilize employee motivation and retention practices.
    
    Administrative relief is obtained by clients through the Companys management of
employee administrative matters, such as processing of payroll, taxes and insurance
premiums, and by the Companys comprehensive record keeping and technology.
    
    The Company provides business protection by helping clients ensure employment-related
regulatory compliance and sound risk management practices. The Company also provides
up-to-date regulatory compliance and access to cost-effective risk management practices and
insurance programs.
  
    
    increasing clients productivity by improving employee satisfaction and generating
greater employee retention;
    
    allowing clients and their employees to focus on revenue producing activities rather
than human resource matters; and
    
    reducing clients exposure to liabilities associated with non-compliance with human
resource-related regulatory and tax matters.
   17




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Three Months Ended March 31,2006
    
    
    2005
    
    
    % ChangeStatistical data:Client employees at period end
    
    
    136,236
    
    
    
    125,406
    
    
    
    8.6
    %Clients at period end (1)
    
    
    8,128
    
    
    
    8,264
    
    
    
    (1.6
    )%Average number of client
employees/clients at period end
    
    
    16.76
    
    
    
    15.17
    
    
    
    10.5
    %Average number of client employees
paid by month (2)
    
    
    127,556
    
    
    
    117,620
    
    
    
    8.4
    %Annualized average wage per average
number of client employees paid by
month (3)
    
    $
    39,811
    
    
    $
    37,062
    
    
    
    7.4
    %Annualized professional service fees
per average number of client
employees paid by month
(3)
    
    $
    1,219
    
    
    $
    1,165
    
    
    
    4.6
    %Annualized gross profit per average
number of client employees paid by
month (3)
    
    $
    1,555
    
    
    $
    1,484
    
    
    
    4.8
    %Annualized operating income per
average number of client employees
paid by month (3), (4)
    
    $
    394
    
    
    $
    373
    
    
    
    5.6
    %
 
 (1)
    
    Clients measured by individual client Federal Employer Identification
Number (FEIN).(2)
    
    The average number of client employees paid by month is calculated based
upon the sum of the number of paid client employees at the end of each month divided
by the number of months in the period.(3)
    
    Annualized statistical information is based upon actual quarter-to-date
amounts, which have been annualized (divided by three and multiplied by twelve) and
then divided by the average number of client employees paid by month.(4)
    
    For purposes of calculating this statistic, operating income for the first
quarter of 2005 has been adjusted to include the effect of $1.1 million in
stock-based compensation expenses, which were previously recognized on a pro forma
basis as allowed by Statement of Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock-Based Compensation(SFAS
123). Excluding the effect of the pro forma stock compensation
adjustment, annualized operating income per average number of client
employees paid by month for the first quarter of 2005 was $409. Operating income for the first
quarter of 2006 is calculated on a GAAP basis and includes the effect of the 18




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| |  |                                                                                                                             
| |  | ----------------------------------------------------------------------------------------------------------------------------
| |  | implementation of SFAS No. 123R, Share-Based Payment(SFAS 123R), in that period.
See Use of Non-GAAP Financial Measures.




    
    the amount of time required for sales personnel to begin to acquire new
client employees may be longer than anticipated;
    
    the current client employee retention levels may decrease if clients
decide to use alternative providers to service their human resource outsourcing needs;
    
    the Company (under its co-employed service option) may not be able to
continue to provide insurance-related products of a quality to acquire new client
employees and to retain current client employees; and
    
    the time to achieve acceptance by prospective clients of the Companys new
business model may be longer than anticipated.


RESULTS OF OPERATIONS


Three Months Ended March 31, 2006 Compared to Three Months Ended March 31, 2005


Revenue




Three Months EndedMarch 31,
    
    
    March 31,2006
    
    
    2005
    
    
    % Change(in thousands, except statistical data)Revenues:Professional service fees
    
    $
    38,862
    
    
    $
    34,251
    
    
    
    13.5
    %Employee health and welfare
benefits
    
    
    89,259
    
    
    
    80,498
    
    
    
    10.9
    %Workers compensation
    
    
    27,415
    
    
    
    27,583
    
    
    
    (0.6
    )%State unemployment taxes and
other
    
    
    14,153
    
    
    
    11,548
    
    
    
    22.6
    %Total revenues
    
    $
    169,689
    
    
    $
    153,880
    
    
    
    10.3
    %Statistical data:Gross salaries and wages
(in thousands)
    
    $
    1,269,523
    
    
    $
    1,089,818
    
    
    
    16.5
    %Average number of client
employees paid by month
(1)
    
    
    127,556
    
    
    
    117,620
    
    
    
    8.4
    %Annualized average wage per
average client employees
paid by month
(2)
    
    $
    39,811
    
    
    $
    37,062
    
    
    
    7.4
    %Workers compensation
billing per one hundred
dollars of workers
compensation wages(3)
    
    $
    2.43
    
    
    $
    2.76
    
    
    
    (12.0
    )%Workers compensation
manual premium per one
hundred dollars of workers
compensation wages
(3), (4)
    
    $
    2.77
    
    
    $
    3.27
    
    
    
    (15.3
    )%Annualized professional
service fees per average
number of client employees
paid by month
(2)
    
    $
    1,219
    
    
    $
    1,165
    
    
    
    4.6
    %Client employee health
benefits participation
    
    
    38
    %
    
    
    38
    %
    
    
    


19



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##### Table of Contents



(1)
    
    The average number of client employees paid by month is calculated based
upon the sum of the number of paid client employees at the end of each month
divided by the number of months in the period.(2)
    
    Annualized statistical information is based upon actual quarter-to-date
amounts, which have been annualized (divided by three and multiplied by twelve),
and then divided by the average number of client employees paid by month.(3)
    
    Workers compensation wages exclude the wages of clients electing out of
the Companys workers compensation program.(4)
    
    Manual premium rate data are derived from tables of member insurance
companies of American International Group, Inc. (AIG) in effect for 2006 and
2005, respectively.      20




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##### Table of Contents



Cost of Services
  Three Months EndedMarch 31,
    
    
    March 31,2006
    
    
    2005
    
    
    % Change(in thousands, except statistical data)Cost of services:Employee health and welfare
benefits
    
    $
    86,071
    
    
    $
    79,476
    
    
    
    8.3
    %Workers compensation
    
    
    19,349
    
    
    
    19,726
    
    
    
    (1.9
    )%State unemployment taxes and
other
    
    
    14,667
    
    
    
    11,049
    
    
    
    32.7
    %Total cost of services
    
    $
    120,087
    
    
    $
    110,251
    
    
    
    8.9
    %Statistical data:Gross salaries
and wages (in
thousands)
    
    $
    1,269,523
    
    
    $
    1,089,818
    
    
    
    16.5
    %Average number of
client employees
paid by month
(1)
    
    
    127,556
    
    
    
    117,620
    
    
    
    8.4
    %Workers
compensation cost
rate per one
hundred dollars
of workers
compensation
wages
(2)
    
    $
    1.72
    
    
    $
    1.98
    
    
    
    (13.1
    )%Number of
workers
compensation
claims
(3)
    
    
    1,415
    
    
    
    1,380
    
    
    
    2.5
    %Frequency of
workers
compensation
claims per one
million dollars
of workers
compensation
wages
(2)
    
    
    1.26x
    
    
    
    1.38x
    
    
    
    (8.7
    )%
 
 (1)
    
    The average number of client employees paid by month is calculated based
upon the sum of the number of paid client employees at the end of each month divided
by the number of months in the period. 21




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##### Table of Contents



(2)
    
    Workers compensation wages exclude the wages of clients
electing out of the Companys workers compensation program.(3)
    
    The number of workers compensation claims reflects the number
of claims reported by the end of the respective period and does not include claims
with respect to a specific policy year that are reported subsequent to the end of
such period.     Operating Expenses
  Three Months EndedMarch 31,
    
    
    March 31,2006
    
    
    2005
    
    
    % Change(in thousands, except statistical data)Operating expenses:Salaries, wages and commissions
    
    $
    20,868
    
    
    $
    17,387
    
    
    
    20.0
    %Other general and administrative
    
    
    12,874
    
    
    
    10,460
    
    
    
    23.1
    %Depreciation and amortization
    
    
    3,297
    
    
    
    3,753
    
    
    
    (12.2
    )%Total operating expenses
    
    $
    37,039
    
    
    $
    31,600
    
    
    
    17.2
    %Statistical data:Internal employees at quarter end
    
    
    1,055
    
    
    
    995
    
    
    
    6.0
    %
  22




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##### Table of Contents



Income Taxes
  LIQUIDITY AND CAPITAL RESOURCES
 Cash Flow
 General
    23




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##### Table of Contents



Restricted Cash
   March 31,
    
    
    December 31,2006
    
    
    2005(in thousands)Certificates of deposit  restricted:Other
    
    $
    34
    
    
    $
    33Total certificates of deposit  restricted
    
    
    34
    
    
    
    33Short-term marketable securities  restricted:General insurance collateral obligations  AIG
    
    
    4,322
    
    
    
    4,281Total short-term marketable securities  restricted
    
    
    4,322
    
    
    
    4,281Long-term marketable securities restricted:Workers compensation collateral  AIG
    
    
    3,617
    
    
    
    3,582Rabbi trust
    
    
    4,391
    
    
    
    4,309Total long-term marketable securities  restricted
    
    
    8,008
    
    
    
    7,891Total restricted assets
    
    $
    12,364
    
    
    $
    12,205
  24




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##### Table of Contents



Cash Flows from Operating Activities
    Cash Flow from Investing Activities
  Cash Flow from Financing Activities
  25




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##### Table of Contents



Commitments and Contractual Obligations
 Off-Balance Sheet Arrangements
  Contractual Obligations
  CRITICAL ACCOUNTING ESTIMATES
    26




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##### Table of Contents



CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
   Use of Non-GAAP Financial Measures
   
 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
  
 ITEM 4. Controls and Procedures
  27




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##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1. Legal Proceedings
  
 ITEM 1A. Risk Factors
  
 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
  Total Number of
    
    
    Approximate NumberShares Purchased as
    
    
    of Shares That MayPart of Publicly
    
    
    Yet Be PurchasedTotal Number of Shares
    
    
    Average Price Paid
    
    
    Announced
    
    
    Under the ProgramPeriod
    
    Purchased(1), (2)
    
    
    per Share
    
    
    Program (1), (2)
    
    
    (1), (2)1/01/2006

1/31/2006
    
    
    23,933
    
    
    $
    25.05
    
    
    
    1,840,802
    
    
    
    2/01/2006

2/28/2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3/01/2006

3/31/2006
    
    
    380,352
    
    
    $
    23.45
    
    
    
    380,352
    
    
    
    619,648
 
 (1)
    
    On September 28, 2005, the Company announced that the board of directors authorized the
repurchase of up to $50.0 million of the Companys common stock effective immediately. Stock
repurchases under this program were to be made at such times and in such amounts as the
Company deemed appropriate, based on a variety of factors including price, corporate and
regulatory requirements and overall market conditions. The Company completed this share
repurchase program in January 2006.(2)
    
    On February 28, 2006 the Company announced that the board of directors has authorized the
purchase of up to 1,000,000 additional shares of the Companys common stock under a new share
repurchase program. Share repurchases under the new program may be made through open market
repurchases, block trades or in private transactions at such times and in such amounts as the
Company deems appropriate based upon a variety of factors including price, regulatory
requirements, market conditions and other corporate opportunities. 28




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##### Table of Contents



ITEM 6. Exhibits
 31.1
    
    Certification of the Chief Executive Officer, pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of the Chief Financial Officer, pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.32
    
    Certification furnished pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
 29




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##### Table of Contents



SIGNATURE
  GEVITY HR, INC.Dated: May 10, 2006
    
    /s/ PETER C. GRABOWSKIPeter C. GrabowskiChief Financial Officer(Principal Financial and Accounting Officer)
 30