##### 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 June 30, 2007.
 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
    
    65-0735612(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)9000 Town Center ParkwayBradenton, Florida
    
    34202(Address of principal executive offices)
    
    (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 July 31, 2007Par value $0.01 per share
    
    23,337,261




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TABLE OF CONTENTS
 PagePART I. FINANCIAL INFORMATIONITEM 1. Financial Statements
    
    
    3Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2007 and 2006 (unaudited).
    
    
    3Condensed Consolidated Balance Sheets as of June 30, 2007 and December 31, 2006 (unaudited)
    
    
    4Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2007 and 2006 (unaudited)
    
    
    6Notes to Condensed Consolidated Financial Statements (unaudited)
    
    
    7ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    16ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    33ITEM 4. Controls and Procedures
    
    
    33PART II. OTHER INFORMATIONITEM 1. Legal Proceedings
    
    
    33ITEM 1A. Risk Factors
    
    
    33ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    34ITEM 4. Submission of Matters to a Vote of Security Holders
    
    
    34ITEM 6. Exhibits
    
    
    35SIGNATURE
    
    
    36EX-10.1 UnitedHealthcare Group Benefits AgreementEX-31.1 Section 302 Certification of CEOEX-31.2 Section 302 Certification of CFOEX-32   Section 906 Certification of CEO and CFO
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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 Ended
    
    
    For The Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues
    
    $
    150,408
    
    
    $
    161,208
    
    
    $
    311,523
    
    
    $
    330,897Cost of services (exclusive of depreciation
and amortization shown below)
    
    
    102,857
    
    
    
    112,910
    
    
    
    218,578
    
    
    
    232,997Gross profit
    
    
    47,551
    
    
    
    48,298
    
    
    
    92,945
    
    
    
    97,900Operating expenses:Salaries, wages and commissions
    
    
    20,391
    
    
    
    19,507
    
    
    
    42,929
    
    
    
    40,375Other general and administrative
    
    
    15,657
    
    
    
    12,801
    
    
    
    30,450
    
    
    
    25,675Reinsurance contract loss
    
    
    
    
    
    
    4,650
    
    
    
    
    
    
    
    4,650Depreciation and amortization
    
    
    4,201
    
    
    
    3,536
    
    
    
    7,936
    
    
    
    6,833Total operating expenses
    
    
    40,249
    
    
    
    40,494
    
    
    
    81,315
    
    
    
    77,533Operating income
    
    
    7,302
    
    
    
    7,804
    
    
    
    11,630
    
    
    
    20,367Interest income
    
    
    251
    
    
    
    184
    
    
    
    416
    
    
    
    436Interest expense
    
    
    (697
    )
    
    
    (162
    )
    
    
    (996
    )
    
    
    (426
    )Other expense, net
    
    
    (9
    )
    
    
    (5
    )
    
    
    (23
    )
    
    
    (148
    )Income before income taxes
    
    
    6,847
    
    
    
    7,821
    
    
    
    11,027
    
    
    
    20,229Income tax provision
    
    
    2,157
    
    
    
    917
    
    
    
    3,823
    
    
    
    5,131Net income
    
    $
    4,690
    
    
    $
    6,904
    
    
    $
    7,204
    
    
    $
    15,098Net income per common share:- Basic
    
    $
    0.20
    
    
    $
    0.26
    
    
    $
    0.30
    
    
    $
    0.58- Diluted
    
    $
    0.19
    
    
    $
    0.26
    
    
    $
    0.29
    
    
    $
    0.56Weighted average common shares outstanding:- Basic
    
    
    23,930,779
    
    
    
    26,244,029
    
    
    
    24,178,740
    
    
    
    26,253,075- Diluted
    
    
    24,523,901
    
    
    
    27,074,808
    
    
    
    24,779,752
    
    
    
    27,130,556
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GEVITY HR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED
(in $000s, except share and per share data)
 June
30,
    
    
    December 31,2007
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    11,243
    
    
    $
    36,291Marketable securities  restricted
    
    
    5,989
    
    
    
    4,478Accounts receivable, net
    
    
    120,481
    
    
    
    126,936Short-term workers compensation receivable, net
    
    
    30,300
    
    
    
    35,354Other current assets
    
    
    11,735
    
    
    
    15,927Total current assets
    
    
    179,748
    
    
    
    218,986Property and equipment, net
    
    
    24,663
    
    
    
    23,847Long-term marketable securities  restricted
    
    
    3,839
    
    
    
    3,747Long-term workers compensation receivable, net
    
    
    108,269
    
    
    
    85,872Intangible assets, net
    
    
    18,164
    
    
    
    20,856Goodwill
    
    
    14,658
    
    
    
    8,692Deferred tax asset, net
    
    
    12,816
    
    
    
    11,938Other assets
    
    
    1,176
    
    
    
    622Total assets
    
    $
    363,333
    
    
    $
    374,560
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GEVITY HR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
UNAUDITED
(in $000s, except share and per share data)
 June 30,
    
    
    December 31,2007
    
    
    2006LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accrued payroll and payroll taxes
    
    $
    134,660
    
    
    $
    163,410Accrued insurance premiums and health reserves
    
    
    14,629
    
    
    
    17,287Customer deposits and prepayments
    
    
    17,454
    
    
    
    11,893Accounts payable and other accrued liabilities
    
    
    6,571
    
    
    
    10,243Deferred tax liability, net
    
    
    19,748
    
    
    
    24,583Dividends payable
    
    
    2,130
    
    
    
    2,223Total current liabilities
    
    
    195,192
    
    
    
    229,639Revolving credit facility
    
    
    39,967
    
    
    
    Other long-term liabilities
    
    
    4,412
    
    
    
    2,869Total liabilities
    
    
    239,571
    
    
    
    232,508Commitments and contingencies (see notes)Shareholders equity:Common stock, $.01 par value, 100,000,000 shares authorized,
32,061,038 and 31,962,314 issued and outstanding as of June 30,
2007 and December 31, 2006, respectively
    
    
    321
    
    
    
    320Additional paid-in capital
    
    
    180,355
    
    
    
    177,949Retained earnings
    
    
    86,275
    
    
    
    84,110Treasury stock (8,393,883 and 7,260,175 shares at cost, respectively)
    
    
    (143,189
    )
    
    
    (120,327
    )Total shareholders equity
    
    
    123,762
    
    
    
    142,052Total liabilities and shareholders equity
    
    $
    363,333
    
    
    $
    374,560
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GEVITY HR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(in $000s)
 For the Six Months EndedJune 30,2007
    
    
    2006CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    7,204
    
    
    $
    15,098Adjustments to reconcile net income to net cash used in operating activities:Depreciation and amortization
    
    
    7,936
    
    
    
    6,833Deferred tax (benefit) provision, net
    
    
    (5,712
    )
    
    
    348Stock compensation
    
    
    1,434
    
    
    
    1,881Excess tax benefits from share-based arrangements
    
    
    (290
    )
    
    
    (3,638
    )Provision for bad debts
    
    
    593
    
    
    
    12Other
    
    
    140
    
    
    
    175Changes in operating working capital:Accounts receivable, net
    
    
    5,862
    
    
    
    1,957Other current assets
    
    
    4,756
    
    
    
    4,734Workers compensation receivable, net
    
    
    (17,342
    )
    
    
    (16,237
    )Other assets
    
    
    (112
    )
    
    
    52Accrued insurance premiums and health reserves
    
    
    (2,658
    )
    
    
    1,754Accrued payroll and payroll taxes
    
    
    (28,855
    )
    
    
    (21,317
    )Accounts payable and other accrued liabilities
    
    
    (2,499
    )
    
    
    1,786Customer deposits and prepayments
    
    
    5,561
    
    
    
    (400
    )Other long-term liabilities
    
    
    137
    
    
    
    (87
    )Net cash used in operating activities
    
    
    (23,845
    )
    
    
    (7,049
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of marketable securities and certificates of deposit
    
    
    (1,603
    )
    
    
    (130
    )Capital expenditures
    
    
    (3,875
    )
    
    
    (9,285
    )Business acquisition
    
    
    (9,495
    )
    
    
    Net cash used in investing activities
    
    
    (14,973
    )
    
    
    (9,415
    )CASH FLOWS FROM FINANCING ACTIVITIES:Net borrowings under revolving credit facility
    
    
    39,967
    
    
    
    Proceeds from exercise of stock options
    
    
    751
    
    
    
    5,421Excess tax benefits from share-based arrangements
    
    
    290
    
    
    
    3,638Dividends paid
    
    
    (4,420
    )
    
    
    (4,204
    )Purchase of treasury stock
    
    
    (22,818
    )
    
    
    (13,561
    )Net cash provided by (used in) financing activities
    
    
    13,770
    
    
    
    (8,706
    )Net decrease in cash and cash equivalents
    
    
    (25,048
    )
    
    
    (25,170
    )Cash and cash equivalents  beginning of period
    
    
    36,291
    
    
    
    52,525Cash and cash equivalents  end of period
    
    $
    11,243
    
    
    $
    27,355Supplemental disclosure of cash flow information:Income taxes paid
    
    $
    4,396
    
    
    $
    3,210Interest paid
    
    $
    968
    
    
    $
    428
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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
    Recent Accounting Pronouncements
 Accounting for Uncertainty in Income Taxes An Interpretation of FASB
Statement No. 109
 The Fair Value Option for Financial Assets and Financial Liabilities, Including an Amendment
of FASB Statement No. 115
 Fair Value Measurements
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2. MARKETABLE SECURITIES  RESTRICTED
    3. ACCOUNTS RECEIVABLE
  June 30,
    
    
    December 31,2007
    
    
    2006Billed to clients
    
    $
    8,299
    
    
    $
    10,622Unbilled revenues
    
    
    112,907
    
    
    
    116,937121,206
    
    
    
    127,559Less: Allowance for doubtful accounts
    
    
    (725
    )
    
    
    (623
    )Total
    
    $
    120,481
    
    
    $
    126,936
  4. WORKERS COMPENSATION RECEIVABLE/ RESERVES
    8




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
    
    premiums paid for the layer of claims in excess of the deductible;
    
    estimated total costs of claims that fall within the Companys policy
deductible calculated on a net present value basis;
    
    the administrative costs of the programs (including claims
administration, state taxes and surcharges); and
    
    the return on investment for loss fund premium dollars paid to AIG.
  5. INTANGIBLE ASSETS
 TM
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Business Combinations
 June 30,2007Other current assets
    
    $
    275Software
    
    
    800Property and equipment
    
    
    327Client service agreements
    
    
    2,300Goodwill
    
    
    5,966Other current liabilities
    
    
    (36
    )Other long-term liabilities
    
    
    (137
    )Net value of purchased assets
    
    $
    9,495
    June 30,
    
    
    December 31,2007
    
    
    2006Purchased client service agreements
    
    $
    50,229
    
    
    $
    47,929Accumulated amortization
    
    
    (32,065
    )
    
    
    (27,073
    )Intangible assets, net
    
    $
    18,164
    
    
    $
    20,856
  6. HEALTH BENEFITS
  10




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11




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7. REVOLVING CREDIT FACILITY
    8. COMMITMENTS AND CONTINGENCIES
 Litigation
  Regulatory Matters
  12




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California Unemployment Tax Assessment
  9. EQUITY
 Share Repurchase Program
  10. INCOME TAXES
  13




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11. EARNINGS PER SHARE (EPS)
  Net Income
    
    
    Shares
    
    
    Per Share(Numerator)
    
    
    (Denominator)
    
    
    AmountFor the Three Months Ended June 30, 2007:Basic EPS:Net income
    
    $
    4,690
    
    
    
    23,930,779
    
    
    $
    0.20Effect of dilutive securities:Options to purchase common stock
    
    
    
    
    
    
    580,467Non-vested stock
    
    
    
    
    
    
    12,655Diluted EPS:Net income
    
    $
    4,690
    
    
    
    24,523,901
    
    
    $
    0.19
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Net Income
    
    
    Shares
    
    
    Per Share(Numerator)
    
    
    (Denominator)
    
    
    AmountFor the Three Months Ended June 30, 2006:Basic EPS:Net income
    
    $
    6,904
    
    
    
    26,244,029
    
    
    $
    0.26Effect of dilutive securities:Options to purchase common stock
    
    
    
    
    
    
    805,913Non-vested stock
    
    
    
    
    
    
    24,866Diluted EPS:Net income
    
    $
    6,904
    
    
    
    27,074,808
    
    
    $
    0.26
  Net Income
    
    
    Shares
    
    
    Per Share(Numerator)
    
    
    (Denominator)
    
    
    AmountFor the Six Months Ended June 30, 2007:Basic EPS:Net income
    
    $
    7,204
    
    
    
    24,178,740
    
    
    $
    0.30Effect of dilutive securities:Options to purchase common stock
    
    
    
    
    
    
    585,892Non-vested stock
    
    
    
    
    
    
    15,120Diluted EPS:Net income
    
    $
    7,204
    
    
    
    24,779,752
    
    
    $
    0.29
  Net Income
    
    
    Shares
    
    
    Per Share(Numerator)
    
    
    (Denominator)
    
    
    AmountFor the Six Months Ended June 30, 2006:Basic EPS:Net income
    
    $
    15,098
    
    
    
    26,253,075
    
    
    $
    0.58Effect of dilutive securities:Options to purchase common stock
    
    
    
    
    
    
    851,984Non-vested stock
    
    
    
    
    
    
    25,497Diluted EPS:Net income
    
    $
    15,098
    
    
    
    27,130,556
    
    
    $
    0.56
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ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  OVERVIEW AND INTRODUCTION
 tm,
 
    
    Streamline human resource (HR) administration. Gevity takes the stress
and effort out of payroll management and administration, benefits and benefits
administration.
    
    Optimize HR practices. Gevity works with the clients team to build
structure  policies, procedures and communications  for effective employment
management, hiring practices and risk management over time.
    
    Maximize people and performance. Gevity helps hone the skills and
capabilities of clients staff and management for long-term employee retention and
business success.
  
    
    increasing clients productivity by improving employee performance and
generating greater employee retention;
    
    allowing clients and their employees to focus on revenue producing
activities rather than HR matters; and
    
    reducing clients exposure to liabilities associated with non-compliance
with HR-related regulatory and tax matters.
   tm
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Three Months Ended June 30,2007
    
    2006
    
    % ChangeStatistical data:Client employees at period end
    
    
    141,017
    
    
    
    138,022
    
    
    
    2.2
    %Clients at period end (1)
    
    
    7,404
    
    
    
    8,018
    
    
    
    (7.7
    )%Average number of client employees/clients at period end
    
    
    19.05
    
    
    
    17.21
    
    
    
    10.7
    %Average number of client employees paid by month (2)
    
    
    133,292
    
    
    
    128,338
    
    
    
    3.9
    %Annualized average wage per average number of client employees
paid by month (3)
    
    $
    43,408
    
    
    $
    39,790
    
    
    
    9.1
    %Annualized professional service fees per average number of
client employees paid by month (3)
    
    $
    1,111
    
    
    $
    1,311
    
    
    
    (15.3
    )%Annualized gross profit per average number of client employees
paid by month (3)
    
    $
    1,427
    
    
    $
    1,505
    
    
    
    (5.2
    )%Annualized operating income per average number of client
employees paid by month (3)
    
    $
    219
    
    
    $
    243
    
    
    
    (9.9
    )%Annualized adjusted operating income per average number of
client employees paid by month (3) (4)
    
    $
    219
    
    
    $
    388
    
    
    
    (43.6
    )%
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Six Months Ended June 30,2007
    
    2006
    
    % ChangeStatistical data:Client employees at period end
    
    
    141,017
    
    
    
    138,022
    
    
    
    2.2
    %Clients at period end (1)
    
    
    7,404
    
    
    
    8,018
    
    
    
    (7.7
    )%Average number of client employees/clients at period end
    
    
    19.05
    
    
    
    17.21
    
    
    
    10.7
    %Average number of client employees paid by month (2)
    
    
    128,597
    
    
    
    127,947
    
    
    
    0.5
    %Annualized average wage per average number of client employees
paid by month (3)
    
    $
    43,466
    
    
    $
    39,800
    
    
    
    9.2
    %Annualized professional service fees per average number of
client employees paid by month (3)
    
    $
    1,149
    
    
    $
    1,265
    
    
    
    (9.2
    )%Annualized gross profit per average number of client employees
paid by month (3)
    
    $
    1,446
    
    
    $
    1,530
    
    
    
    (5.5
    )%Annualized operating income per average number of client
employees paid by month (3)
    
    $
    181
    
    
    $
    318
    
    
    
    (43.1
    )%Annualized adjusted operating income per average number of
client employees paid by month (3) (4)
    
    $
    181
    
    
    $
    391
    
    
    
    (53.7
    )%
 
 (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
period-to-date amounts, which have been annualized (divided by three or six
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 three
and six months ended June 30, 2006, has been adjusted to exclude the effect of a $4.7
million loss related to a reinsurance contract as a result of the liquidation
proceedings that were commenced against the Companys reinsurer for its workers
compensation program and related termination of the reinsurance contract. 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 HR outsourcing needs;
    
    other HR outsourcing client employee portfolios or service providers may
not be available for acquisition due to price or quality;
    
    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
Gevity Edge Select option may be longer than anticipated.
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RESULTS OF OPERATIONS
 Three Months Ended June 30, 2007 Compared to Three Months Ended June 30, 2006
 Revenue
  Three Months EndedJune 30,
    
    
    June 30,
    
    
    %2007
    
    
    2006
    
    
    Change(in thousands, except statistical data)Revenues:Professional service fees
    
    $
    37,031
    
    
    $
    42,058
    
    
    
    (12.0
    )%Employee health and welfare benefits
    
    
    87,340
    
    
    
    88,037
    
    
    
    (0.8
    )%Workers compensation
    
    
    21,312
    
    
    
    25,855
    
    
    
    (17.6
    )%State unemployment taxes and other
    
    
    4,725
    
    
    
    5,258
    
    
    
    (10.1
    )%Total revenues
    
    $
    150,408
    
    
    $
    161,208
    
    
    
    (6.7
    )%Statistical data:Gross salaries and wages (in thousands)
    
    $
    1,446,481
    
    
    $
    1,276,627
    
    
    
    13.3
    %Average number of client employees paid by month (1)
    
    
    133,292
    
    
    
    128,338
    
    
    
    3.9
    %Annualized average wage per average client employees paid by
month (2)
    
    $
    43,408
    
    
    $
    39,790
    
    
    
    9.1
    %Workers compensation billing per one hundred dollars of
workers compensation wages (3)
    
    $
    1.96
    
    
    $
    2.27
    
    
    
    (13.7
    )%Workers compensation manual premium per one hundred dollars
of workers compensation wages (3), (4)
    
    $
    2.17
    
    
    $
    2.74
    
    
    
    (20.8
    )%Annualized professional service fees per average number of
client employees paid by month (2)
    
    $
    1,111
    
    
    $
    1,311
    
    
    
    (15.3
    )%Client employee health benefits participation
    
    
    33
    %
    
    
    38
    %
    
    
    (13.2
    )%
 
 (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 2007 and 2006, respectively.   19




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20




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Cost of Services
  Three Months EndedJune 30,
    
    
    June 30,
    
    
    %2007
    
    
    2006
    
    
    Change(in thousands, except statistical data)Cost of services:Employee health and welfare benefits
    
    $
    87,340
    
    
    $
    88,046
    
    
    
    (0.8
    )%Workers compensation
    
    
    8,904
    
    
    
    18,533
    
    
    
    (52.0
    )%State unemployment taxes and other
    
    
    6,613
    
    
    
    6,331
    
    
    
    4.5
    %Total cost of services
    
    $
    102,857
    
    
    $
    112,910
    
    
    
    (8.9
    )%Statistical data:Gross salaries and wages (in thousands)
    
    $
    1,446,481
    
    
    $
    1,276,627
    
    
    
    13.3
    %Average number of client employees paid by month (1)
    
    
    133,292
    
    
    
    128,338
    
    
    
    3.9
    %Workers compensation cost rate per one hundred dollars of
workers compensation wages (2)
    
    $
    0.82
    
    
    $
    1.63
    
    
    
    (49.7
    )%Number of workers compensation claims (3)
    
    
    1,241
    
    
    
    1,593
    
    
    
    (22.1
    )%Frequency of workers compensation claims per one million
dollars of workers compensation wages (2)
    
    
    1.14x
    
    
    
    1.40x
    
    
    
    (18.6
    )%
 
 (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)
    
    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.    21




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##### Table of Contents



Operating Expenses
  Three Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    % Change(in thousands, except statistical data)Operating expenses:Salaries, wages and commissions
    
    $
    20,391
    
    
    $
    19,507
    
    
    
    4.5
    %Other general and administrative
    
    
    15,657
    
    
    
    12,801
    
    
    
    22.3
    %Reinsurance contract loss
    
    
    
    
    
    
    4,650
    
    
    
    n/aDepreciation and amortization
    
    
    4,201
    
    
    
    3,536
    
    
    
    18.8
    %Total operating expenses
    
    $
    40,249
    
    
    $
    40,494
    
    
    
    (0.6
    )%Statistical data:Internal employees at quarter end
    
    
    980
    
    
    
    1,016
    
    
    
    (3.5
    )%
     22




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Income Taxes
  Net Income and Diluted Earnings Per Share
   23




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##### Table of Contents



Six Months Ended June 30, 2007 Compared to Six Months Ended June 30, 2006
 Revenue
  Six Months EndedJune 30,
    
    
    June 30,
    
    
    %2007
    
    
    2006
    
    
    Change(in thousands, except statistical data)Revenues:Professional service fees
    
    $
    73,900
    
    
    $
    80,920
    
    
    
    (8.7
    )%Employee health and welfare benefits
    
    
    176,092
    
    
    
    177,296
    
    
    
    (0.7
    )%Workers compensation
    
    
    42,512
    
    
    
    53,270
    
    
    
    (20.2
    )%State unemployment taxes and other
    
    
    19,019
    
    
    
    19,411
    
    
    
    (2.0
    )%Total revenues
    
    $
    311,523
    
    
    $
    330,897
    
    
    
    (5.9
    )%Statistical data:Gross salaries and wages (in thousands)
    
    $
    2,794,777
    
    
    $
    2,546,149
    
    
    
    9.8
    %Average number of client employees paid by month (1)
    
    
    128,597
    
    
    
    127,947
    
    
    
    0.5
    %Annualized average wage per average client employees paid by
month (2)
    
    $
    43,466
    
    
    $
    39,800
    
    
    
    9.2
    %Workers compensation billing per one hundred dollars of
workers compensation wages (3)
    
    $
    1.95
    
    
    $
    2.35
    
    
    
    (17.0
    )%Workers compensation manual premium per one hundred dollars
of workers compensation wages (3), (4)
    
    $
    2.17
    
    
    $
    2.76
    
    
    
    (21.4
    )%Annualized professional service fees per average number of
client employees paid by month (2)
    
    $
    1,149
    
    
    $
    1,265
    
    
    
    (9.2
    )%Client employee health benefits participation
    
    
    33
    %
    
    
    38
    %
    
    
    (13.2
    )%
 
 (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 six 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 2007 and 2006, respectively.   24




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25




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Cost of Services
  Six Months EndedJune 30,
    
    
    June 30,
    
    
    %2007
    
    
    2006
    
    
    Change(in thousands, except statistical data)Cost of services:Employee health and welfare benefits
    
    $
    173,491
    
    
    $
    174,117
    
    
    
    (0.4
    )%Workers compensation
    
    
    23,920
    
    
    
    37,882
    
    
    
    (36.9
    )%State unemployment taxes and other
    
    
    21,167
    
    
    
    20,998
    
    
    
    0.8
    %Total cost of services
    
    $
    218,578
    
    
    $
    232,997
    
    
    
    (6.2
    )%Statistical data:Gross salaries and wages (in thousands)
    
    $
    2,794,777
    
    
    $
    2,546,149
    
    
    
    9.8
    %Average number of client employees paid by month (1)
    
    
    128,597
    
    
    
    127,947
    
    
    
    0.5
    %Workers compensation cost rate per one hundred dollars of
workers compensation wages (2)
    
    $
    1.10
    
    
    $
    1.67
    
    
    
    (34.1
    )%Number of workers compensation claims (3)
    
    
    2,306
    
    
    
    3,008
    
    
    
    (23.3
    )%Frequency of workers compensation claims per one million
dollars of workers compensation wages (2)
    
    
    1.06x
    
    
    
    1.33x
    
    
    
    (20.3
    )%
 
 (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)
    
    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.    26




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##### Table of Contents



Operating Expenses
  Six Months EndedJune 30,
    
    
    June 30,
    
    
    %2007
    
    
    2006
    
    
    Change(in thousands, except statistical data)Operating expenses:Salaries, wages and commissions
    
    $
    42,929
    
    
    $
    40,375
    
    
    
    6.3
    %Other general and administrative
    
    
    30,450
    
    
    
    25,675
    
    
    
    18.6
    %Reinsurance contract loss
    
    
    
    
    
    
    4,650
    
    
    
    n/aDepreciation and amortization
    
    
    7,936
    
    
    
    6,833
    
    
    
    16.1
    %Total operating expenses
    
    $
    81,315
    
    
    $
    77,533
    
    
    
    4.9
    %Statistical data:Internal employees at quarter end
    
    
    980
    
    
    
    1,016
    
    
    
    (3.5
    )%
     27




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Income Taxes
  Net Income and Diluted Earnings Per Share
   LIQUIDITY AND CAPITAL RESOURCES
 Cash Flow
 General
   28




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##### Table of Contents



Restricted Cash
   June 30,
    
    
    December 31,2007
    
    
    2006(in thousands)Short-term marketable securities  restricted:General insurance collateral obligations  AIG
    
    $
    4,589
    
    
    $
    4,478HRA escrow
    
    
    1,400
    
    
    
    Total short-term marketable securities  restricted
    
    
    5,989
    
    
    
    4,478Long-term marketable securities restricted:Workers compensation collateral  AIG
    
    
    3,839
    
    
    
    3,747Total long-term marketable securities  restricted
    
    
    3,839
    
    
    
    3,747Total restricted assets
    
    $
    9,828
    
    
    $
    8,225
  29




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##### Table of Contents



Cash Flows from Operating Activities
    Cash Flow from Investing Activities
  Cash Flow from Financing Activities
  30




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##### Table of Contents



Commitments and Contractual Obligations
 Off-Balance Sheet Arrangements
  Contractual Obligations
  CRITICAL ACCOUNTING ESTIMATES
  Accounting for Uncertainty in Income Taxes An Interpretation of FASB
Statement No. 109
 California Unemployment Tax Assessment
  31




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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
   Use of Non-GAAP Financial Measures
   32




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##### Table of Contents



For the Three Months
    
    
    For the Six MonthsEnded June 30,
    
    
    Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Operating income  GAAP
    
    $
    7,302
    
    
    $
    7,804
    
    
    $
    11,630
    
    
    $
    20,367Reinsurance contract loss
    
    
    
    
    
    
    4,650
    
    
    
    
    
    
    
    4,650Operating income  non-GAAP
    
    $
    7,302
    
    
    $
    12,454
    
    
    $
    11,630
    
    
    $
    25,017Net income  GAAP
    
    $
    4,690
    
    
    $
    6,904
    
    
    $
    7,204
    
    
    $
    15,098Reinsurance contract loss
    
    
    
    
    
    
    2,813
    
    
    
    
    
    
    
    2,813Net income  non-GAAP
    
    $
    4,690
    
    
    $
    9,717
    
    
    $
    7,204
    
    
    $
    17,911Net income per common share  diluted  GAAP
    
    $
    0.19
    
    
    $
    0.26
    
    
    $
    0.29
    
    
    $
    0.56Reinsurance contract loss
    
    
    
    
    
    
    0.10
    
    
    
    
    
    
    
    0.10Net income per common share  diluted 
Non-GAAP
    
    $
    0.19
    
    
    $
    0.36
    
    
    $
    0.29
    
    
    $
    0.66
  
 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
  
 ITEM 4. Controls and Procedures
   
 PART II. OTHER INFORMATION
 
 ITEM 1. Legal Proceedings
  
 ITEM 1A. Risk Factors
  33




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##### Table of Contents



ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
  Total Number ofShares Purchased
    
    Approximate DollarTotal
    
    
    
    
    
    as Part of
    
    Value of Shares ThatNumber of
    
    
    
    
    
    Publicly
    
    May Yet Be PurchasedShares
    
    Average Price
    
    Announced
    
    Under the ProgramPeriod
    
    Purchased (1)
    
    Paid per Share
    
    Program (1)
    
    ($000s) (1), (2)4/01/2007  4/30/2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    75,0005/01/2007  5/31/2007
    
    
    816,200
    
    
    $
    19.74
    
    
    
    816,200
    
    
    $
    58,8686/01/2007  6/30/2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    58,868Total
    
    
    816,200
    
    
    $
    19.74
    
    
    
    816,200
 
 (1)
    
    On August 15, 2006, the Company announced that the board of directors had authorized
the purchase of up to $75.0 million of the Companys common stock under a new share
repurchase program. Share repurchases under the new program are to 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.(2)
    
    On April 20, 2007, the Companys board of directors authorized an increase to its
current share repurchase program of approximately $36.5 million, which brings the current
repurchase amount authorized back up to $75.0 million. 
 ITEM 4. Submission of Matters to a Vote of Security Holders
  For
    
    WithheldErik Vonk
    
    
    21,579,535
    
    
    
    383,716George B. Beitzel
    
    
    21,051,781
    
    
    
    911,470Darcy E. Bradbury
    
    
    21,301,520
    
    
    
    661,731Paul R. Daoust
    
    
    21,898,994
    
    
    
    64,257Jonathan H. Kagan
    
    
    21,160,918
    
    
    
    802,333David S. Katz
    
    
    21,894,794
    
    
    
    68,457Michael J. Lavington
    
    
    21,898,423
    
    
    
    64,828Jeffrey A. Sonnenfeld
    
    
    21,892,125
    
    
    
    71,126Daniel J. Sullivan
    
    
    21,925,534
    
    
    
    37,717
 34




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##### Table of Contents



ITEM 6. Exhibits
 3.1
    
    Third Articles of Amendment and Restatement of the Articles of Incorporation, as
filed with the Secretary of State of the State of Florida on August 12, 2004 (filed as
Exhibit 3.1 to the Companys Quarterly Report on Form 10-Q for the quarter ended September
30, 2004 filed November 9, 2004 and incorporated herein by reference).3.2
    
    Third Amended and Restated Bylaws, dated February 16, 2005 (filed as Exhibit 3.01 to
the Companys Current Report on Form 8-K filed February 22, 2005 and incorporated herein
by reference).10.1
    
    UnitedHealthcare Group Benefits Agreement effective as of June 1, 2006 (certain
confidential information contained in this document, marked by asterisks and brackets, has
been omitted and filed separately with the Securities and Exchange Commission pursuant to
Rule 24b-2 of the Securities Exchange Act of 1934, as amended).*10.2
    
    First Amendment to the Amended and Restated Credit Agreement with Bank of America,
N.A. dated May 7, 2007 (filed as Exhibit 10.1 to the Companys Current Report on Form 8-K
filed May 10, 2007 and incorporated herein by reference).10.3
    
    Second Amendment to the Amended and Restated Credit Agreement with Bank of America,
N.A. dated June 14, 2007 (filed as Exhibit 10.1 to the Companys Current Report on Form
8-K filed June 19, 2007 and incorporated herein by reference).10.4
    
    Letter Agreement dated June 28, 2007 between the Company and ValueAct Capital
Management, L.P. (filed as Exhibit 99.1 to the Companys Current Report on Form 8-K filed
June 29, 2007 and incorporated herein by reference).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.*
 
 *
    
    Filed electronically herewith. 35




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##### Table of Contents



SIGNATURE
  GEVITY HR, INC.Dated: August 9, 2007
    /s/ GARRY J. WELSHGarry J. WelshChief Financial Officer
(Principal Financial and Accounting Officer) 36