##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
  Form 10-K
  þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2006oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934For 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 Parkway
    Bradenton, Florida(Address of principal
    executive offices)

34202(Zip Code)   (Registrants Telephone Number, Including Area Code):
 (941) 741-4300
  Securities Registered Pursuant to Section 12(b) of the
    Act:
  Title of Each Class

Name of Each Exchange on Which RegisteredCommon Stock, par value
    $0.01 per share
    Common Stock Purchase Rights

The NASDAQ Stock Market
    LLC   Securities Registered Pursuant to Section 12(g) of the
    Act:
 None
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2).
  o þ o
  Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE




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##### 



TABLE OF
    CONTENTS
  
  PART I


1ITEM
    1.

Business


1ITEM
    1A.

Risk
    Factors


18ITEM
    1B.

Unresolved
    Staff Comments


26ITEM
    2.

Properties


26ITEM
    3.

Legal
    Proceedings


26ITEM
    4.

Submission of
    Matters to a Vote of Security Holders


26PART II


27ITEM
    5.

Market for
    Registrants Common Equity, Related Stock holder Matters
    and Issuer Purchases of Equity Securities


27ITEM
    6.

Selected
    Financial Data


30ITEM
    7.

Managements Discussion and Analysis of Financial Condition
    and Results of Operations


31ITEM
    7A.

Quantitative
    and Qualitative Disclosures about Market Risk


53ITEM
    8

Financial
    Statements and Supplementary Data


53ITEM
    9.

Changes in and
    Disagreements with Accountants on Accounting and Financial
    Disclosure


53ITEM
    9A

Controls and
    Procedures


53ITEM
    9B.

Other
    Information


56PART III


56ITEM
    10.

Directors,
    Executive Officers and Corporate Governance


56ITEM
    11.

Executive
    Compensation


56ITEM
    12.

Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters


56ITEM
    13.

Certain
    Relationships and Related Transactions, and Director
    Independence


56ITEM
    14.

Principal
    Accounting Fees and Services


56PART IV


56ITEM
    15.

Exhibits,
    Financial Statement Schedules


56EX-10.36 FORM OF INDEMNIFICATION AGREEMENTEX-10.41 AIG RISK MANAGEMENT INC. WORKERS COMPENSATION FINAL BOUND PROPOSALEX-10.56 EMPLOYMENT OFFER LETTER/ MICHAEL COLLINSEX-10.57 CHANGE IN CONTROL SEVERANCE AGREEMENTEX-10.58 EMPLOYMENT OFFER LETTER/ PAUL BENZEX-21.1 LIST OF SUBSIDIARIES OF THE COMPANYEX-23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMEX-31.1 SECTION 302 CERTIFICATION OF CEOEX-31.2 SECTION 302 CERTIFICATION OF CFOEX-32 SECTION 906 CERTIFICATIONS OF CEO AND CFO




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##### Table of Contents



CAUTIONARY
    NOTE REGARDING FORWARD-LOOKING STATEMENTS
     PART I  ITEM 1.
    BUSINESS  General
  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.   1




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##### Table of Contents



tm
    
    Intra client  identification of growth
    opportunities within the existing client portfolio through
    pricing and retention;
    Intra market  generation of growth through
    further penetration of existing markets driven by sales
    production and productivity;
    Mid-market  expansion of the client portfolio
    through the addition of clients with
    500-5,000
    employees;
    New markets  expansion of field offices
    through the addition of four full service offices during 2006;
    Acquisition opportunities  introduction of a
    disciplined strategic acquisition program. 2




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##### Table of Contents




    Intra client  the Company successfully
    completed its value proposition outreach campaign by
    communicating its unique value proposition to its clients, which
    resulted in an increase in professional service fees of
    approximately 15.9% elevating the contribution of professional
    service fees to gross profit from 72% in 2005 to 80% in 2006. In
    addition, the Company recommitted itself to providing high
    quality service through the Keep Clients First
    campaign.
    Intra market  in order to gain market share in
    existing markets, the Company created greater flexibility for
    its clients by offering additional health plan options in 2006
    through the introduction of carrier choice. At the same time,
    health premiums were increased to retail rates, which was
    considered an essential step in the transition to a 100%
    recurring service fee driven business model in an insurance
    risk-free environment.
    Mid-market  the Company remains committed to
    its current mid-market clients and growth initiative. The
    Company has revised its mid-market approach away from a
    dedicated sales team and has reintegrated mid-market sales into
    existing field operations which resulted in the addition of a
    mid-market client in January 2007.
    New markets  the Company met its 2006 plan of
    opening four new full service field offices. New offices were
    opened in Charlotte, North Carolina, Chicago, Illinois, and
    Austin and San Antonio, Texas. Future office openings in
    2007 are expected to be in and around current markets, with the
    pace and timing of these openings linked to demonstrated growth
    within the market.
    Acquisition opportunities  the Company has
    adopted a strategic acquisition program that resulted in the
    acquisition of HRAmerica, Inc. in February 2007. This
    acquisition will provide Gevity with a technology platform to
    take Gevity Edge Select to market on a broader scale, which is a
    key step in the transition to a 100% recurring service fee
    driven business model.  Human
    Resource Outsourcing Industry
      
    there were approximately 61.3 million employees working for
    companies with between 10 and 499 employees, which is defined as
    the small and emerging market segment; and
    there were approximately 25.6 million employees working for
    companies with between 500 and 1,999 employees, which is defined
    as the mid-market segment.    
    this segment is large and has a low penetration rate of
    outsourced comprehensive HR services;
    small and mid-sized businesses typically have fewer in-house
    resources than larger businesses and, as a result, are generally
    more dependent on their outsourced service providers;
    businesses of this size select service providers primarily based
    upon the quality of service, ease of use, and responsiveness to
    clients needs;
    businesses of this size generally do not require customized
    solutions, enabling service providers to obtain significant
    scale advantages if they operate on an integrated technology
    platform; and 3




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
    this segment is characterized by a relatively short sales cycle
    and lower client acquisition cost as compared to the large
    business market.    Professional
    Services Provided by the Company
    Streamline HR administration Gevity
    takes the stress and effort out of payroll management and
    administration, benefits and benefits administration.
  Payroll1
    + Payroll Administration
  Services

Online ToolsAdministrative processing:

Web-based
    HRMS2
    accessFor Administrators: Payroll processing

 Account
    information W-2
    preparation and delivery

 Employee data Tax processing and
    payment

 Reports Paid time off
    processing

For Employees: Health and welfare
    plan processing

 Personal
    information Time and attendance
    service

 Payroll historyUnemployment claims supportPayroll and HR-related reports   Benefits1
    + Benefits Administration
  Services

Online ToolsBenefits and insurance plan options

Web-based HRMS accessRetirement plan options

For Administrators:Workers compensation
    insurance options

 Annual Benefits
    EnrollmentEmployee Assistance Program

 ReportsFor Employees: Benefits
    information   Optimize HR practices Gevity works
    with clients to build structure  policies, procedures
    and communications  for effective employment
    management, hiring practices and risk management over time.
    1
 2
 4




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New Hire
    Support
  Services

Online ToolsNew hire forms kit

Job description creation toolInterview process and procedures

Salary survey toolCandidate background screeningCandidate drug testing   Policies
    + Procedures/Risk Management
  Services

Online ToolsPolicy and procedure audit

HR knowledge base toolRisk assessment

 Law summariesLabor law posters

 Model documentsEmployment practices liability
    insurance

 Model company
    policiesEmployee relations consultations

 News and trendsSeparation counseling proceduresEmployee handbookHR forms library   Maximize people and performance Gevity helps hone the skills and capabilities of staff and
    management for long-term employee retention and business
    success.
  Employee
    Development + Retention
  Services

Online ToolsEssentials management training

Workplace compliance training managing and engaging
    employees interviewingHarassment prevention program and
    training   Performance
    Management
  Services

Online ToolsPerformance management process

Performance appraisal toolProgressive counseling proceduresEmployee reward and recognition
    program   Gevity
    Institute
     5




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
    Small employers recognize employees and employee management are
    key elements in the success of their firms. However, 90% of the
    small business owners surveyed said they did not know which
    employee management practices could help them achieve the best
    results for their business.
    Effective employee management practices help small employers
    improve workforce alignment, and better workforce alignment
    results in faster sales growth, increased profits and better
    customer satisfaction.
    Increased use of HR practices leads to higher levels of positive
    employee outcomes, including effort and involvement, commitment,
    trust in management, cooperation with co-workers, and lower
    turnover intentions. In turn, positive employee outcomes lead to
    higher levels of financial and operational performance.
    Small employers using effective HR practices have 22% faster
    sales growth, 23% higher profit growth and 67% lower employee
    turnover than firms not using these management practices.      Clients
    Year Ended December 31,Percentage of Client Billings by Industry

2006


2005


2004Services(1)


41.2
%


39.5
%


38.5
%Finance/Insurance/Real Estate


15.8



16.4



14.7Manufacturing


12.2



12.0



12.6Retail Trade


9.2



9.4



8.9Construction(2)


9.1



9.9



11.0Wholesale Trade


6.8



7.3



7.5Transportation


2.3



2.0



2.0Restaurants


2.0



1.9



2.1Agriculture


1.3



1.5



1.8Other


0.1



0.1



0.9Total


100.0
%


100.0
%


100.0
%     (1)
    
    The Services category consists principally of health services,
    business services, personal services (e.g., laundry and dry
    cleaning, beauty and barber shops), hotel and lodging services,
    computer services, legal services, building maintenance, social
    services and miscellaneous repair services. 6




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(2)
    
    The Construction category consists principally of general
    contracting and other trade work, such as heating, ventilation,
    air-conditioning, plumbing, electrical and flooring. This
    category does not include workers engaged in roofing or other
    high-elevation exposure risk activities.    on-site
  on-the-job
      month-to-month co-employer
    Form W-2
 7




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day-to-day day-to-day
    Gevity

Client All rules and
    regulations governing the reporting, collection and payment of
    federal and state payroll taxes on wages,
    including: (i) federal income tax withholding
    provisions of the Internal Revenue Code; (ii) state
    and/or local
    income tax withholding provisions; (iii) Federal Income
    Contributions Act (FICA); (iv) Federal Unemployment Tax Act
    (FUTA); and (v) applicable state unemployment tax
    provisions, including managing claims 
     Applicable workers compensation laws that
    cover: (i) procuring workers compensation
    insurance; (ii) completing and filing all required reports;
    and (iii) claims processing

 Worksite and employee
    safety under the Occupational Safety and Health Act (OSHA) and
    related or similar federal, state or local regulations 
     Government contracting requirements as regulated by,
    including, but not limited to: (i) Executive Order 11246;
    (ii) Vocational Rehabilitation Act of 1973;
    (iii) Vietnam Era Veterans Readjustment Assistance
    Act of 1974; (iv) Walsh-Healy Public Contracts Act;
    (v) Davis-Bacon Act; (vi) the Service Contract Act of
    1965; and (vii) any and all related or similar federal,
    state or local laws, regulations, ordinances and statutes COBRA (Consolidated
    Omnibus Budget Reconciliation Act of 1986) continuation
    coverage for employees covered under health plans sponsored by
    Gevity

 Professional licensing
    and liability 
     Internal Revenue Code Sections 414 (m),
    (n) and (o) relating to client maintained benefit plans Laws governing the
    garnishment of wages, including Title III of the Consumer
    Credit Protection Act

 Laws affecting the
    assignment and ownership of intellectual property rights All rules and
    regulations governing administration, procurement and payment of
    all Company sponsored employee benefit plans elected by the
    client or client employee

 Worker Adjustment and
    Retraining Notification Act (WARN) 
     Laws affecting the maintenance, storage and disposal
    of hazardous materials Fair Labor Standards
    Act (FLSA) and the Family and Medical Leave Act of 1993 (FMLA)*

 Title VII (Civil
    Rights Act of 1964, as amended), Immigration Reform and Control
    Act, the Americans with Disabilities Act, the Age Discrimination
    in Employment Act, Older Workers Benefit Protection Act Fair Labor Standards
    Act (FLSA) and the Family and Medical Leave Act of 1993 (FMLA)* All other federal,
    state, county or local laws, regulations, ordinances and
    statutes which regulate employees wage and hour matters,
    prohibit discrimination in the workplace or govern the
    employer/employee relationship      8




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W-2
  Service
    Delivery and Information Technology
    
    Gevity
    OnSitetm.  Local
    HR consultants are available to work with clients onsite, either
    full time or on a regularly scheduled basis.
    Gevity
    OnCalltm.  A
    dedicated team of HR professionals is available by telephone to
    address payroll and general HR needs for clients at a designated
    number.
    Gevity
    OnLinetm.  Gevity
    clients and their employees have online access to their company
    information anytime via gevity.com. The Ask Gevity link on
    gevity.com provides
    up-to-date
    critical HR, compliance and regulatory information.         9




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Sales and
    Marketing
      on-site
  Competition
       10




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Vendor
    Relationships
    Workers
    Compensation Insurance
         11




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Initial Loss Fund





Minimum ProgramPremiums


Guaranteed


Life for Guaranteed(In thousands)


Interest Rate


Interest RateProgram Year2003

$
73,500
*


2.42
%


7 years2003

$
11,500
*


1.85
%


7 years2004

$
111,400



2.92
%


10 years2005

$
100,000



3.75
%


10 years2006

$
84,000



4.58
%


10 years     *
    
    The 2003 program year consists of two loss funds totaling
    $85,000.  true-up true-up true-up
   12




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Employee
    Benefit Plans
    Blue Cross and Blue Shield of Florida
  Aetna Health, Inc. 2006/2007
  UnitedHealthcare
  Other Medical Benefit Plans
  Other Health Benefit Plans
      401(k)
    Plans
  multiple
    employer
  Internal
    Company Employees
   13




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Industry
    Regulation
  General
            401(k)
    Plans
   14




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ERISA
    Requirements
      Federal
    Employment Taxes
     15




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Significant
    Transactions in 2006
  Share
    Repurchase Program
            Executive
    Officers of the Registrant
    Name

Age

PositionErik Vonk


54


Chairman of the Board and Chief
    Executive OfficerPeter C. Grabowski


44


Chief Financial OfficerPaul Benz


47


Chief Information OfficerMichael Collins


43


Chief Marketing OfficerClifford M. Sladnick


50


Chief Administrative Officer  16




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Erik Vonk
  Peter C. Grabowski
  Paul Benz start-up
  Michael Collins
  Clifford M. Sladnick
  Available
    Information
  1-800-SEC-0330 www.sec.gov
  www.gevity.com
  www.gevity.com.
 17




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1-800-2GEVITY www.gevity.com.
    ITEM 1A.
    RISK
    FACTORS    Our
    acquisition strategy subjects us to numerous
    risks.
    Integration & Operational Risks.
  Financial Risks.
  Legal Risks.
  Completion Risks.
    Our
    quarterly results of operations may fluctuate, and we may not be
    able to grow as we have planned.
    
    competition for, and winning and maintaining, new clients with
    large employee counts;
    our ability to achieve our strategy and long-term performance
    standards, including increasing professional service fees in
    general and as a percent of total revenue, opening new
    geographic offices and our ability to pass through costs of our
    products and services, such as rising health insurance premiums,
    among other elements of our strategy; 18




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
    charges due to workers compensation claims, health
    insurance claims, and state unemployment taxes;
    new product introductions or announcements by us or our
    competitors;
    client attrition;
    market acceptance of new services;
    managing down our operating and other expenses;
    the costs of hiring and training of additional staff; and
    general economic conditions.    Our
    short-term results may be negatively impacted due to changes in
    health insurance claims, state unemployment tax rates and
    workers compensation rates, which we may not be able to
    immediately pass through to our clients.
    We are
    dependent upon key personnel, and the recruitment and retention
    of key employees may be difficult and expensive.
    If we
    cannot attract and retain qualified individuals, the quality of
    our services may deteriorate and our results of operations could
    be adversely affected.
   19




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Our
    insurance-related loss reserves may be inadequate to cover our
    ultimate liability for losses and as a result our financial
    results could be materially and adversely
    affected.
    Our
    results of operations may be adversely affected if insurance
    coverage for workers compensation or medical benefits is
    not available or if we lose relationships with our key
    providers.
    We may
    be required to provide significant cash collateral for our
    obligations to our insurance providers and the amount of cash
    necessary to provide that collateral may increase in the
    future.
    Our
    workers compensation receivable from AIG represents a
    significant concentration of credit risk. If AIG were to default
    on its obligations our results of operations would be materially
    and adversely affected.
  2000-2006
 20




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Our
    business is subject to risks associated with vendor
    agreements.
    Our
    business is subject to risks associated with geographic market
    concentration.
    Our
    headquarters, many of our clients headquarters, and the
    facilities of many of the third parties on which we rely to
    provide us and our clients with critical services are located in
    an area of the United States that is susceptible to hurricane
    damage and other natural disasters.
    We may
    find it difficult to expand our business into additional states
    due to varying state regulatory requirements and the existing
    competitive environment.
    We
    operate in a complex regulatory environment and failure to
    comply with applicable laws and regulations could adversely
    affect our business.
   21




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We
    face direct and overlapping competition from a number of other
    companies.
    Certain
    of our existing or potential competitors may have substantially
    greater financial, technical and marketing resources, larger
    customer bases, greater name recognition and more established
    relationships with their clients and key product and service
    suppliers than we do. This may enable them to develop and expand
    their delivery infrastructure and service offerings more
    quickly, which could adversely affect our ability to attain new
    clients.
    
    achieve greater scale and cost efficiencies; adapt more quickly
    to new or emerging technologies and changing client needs;
    take advantage of acquisitions and other opportunities more
    readily; establish operations in new markets more rapidly;
    devote greater resources to the marketing and sale of their
    services; and
    adopt more aggressive pricing policies and provide clients with
    additional benefits at lower overall costs in order to gain
    market share or in anticipation of future improvements in
    delivery costs.   22




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The
    market for our services and our revenue growth depends on our
    ability to use the Internet as a means of delivering HR services
    and this exposes us to various security risks.
    We are
    dependent upon technology services and any damage, interruptions
    or failures in our computer and telecommunications systems could
    adversely affect our existing client relationships and our
    ability to attract new clients.
    We may
    not be able to keep pace with changes in
    technology
    We
    depend on the technology of third parties licensed to us, and
    the loss or inability to maintain these licenses or errors in
    the software we license could result in increased costs, reduced
    service levels and delayed sales of our products and
    services.
   23




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Our
    professional services agreement allows clients to terminate
    their relationship with us upon either 30 or 45 days
    notice, and as a result, we could lose a significant number of
    customers in a short period of time.
  month-to-month
  As a
    result of our co-employment relationship with most of our
    clients and client employees, we may be subject to liabilities
    as a result of their acts or omissions.
  on-site
  Because
    we assume the obligation to make wage, tax and regulatory
    payments of behalf of our clients, we are exposed to certain
    credit risks with respect to our larger clients.
    If we
    are determined not to be an employer pursuant to
    applicable ERISA and IRS rules and regulations, we may be
    subject to additional regulations and liabilities.
   24




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We may
    not be successful in recovering the remaining premium we paid to
    a Bermuda reinsurance company that is subject to liquidation
    proceeding.
    Our
    new credit agreement contains restrictive covenants that may
    restrict our financial and operating flexibility.
    
    incurring liens and debt;
    metering investments;
    entering into a merger, sale of all or substantially all of our
    assets or undergoing a change of control;
    selling assets;
    paying dividends and metering other restricted payments;
    entering into transactions with affiliates;
    enter into agreements that limit the ability of our subsidiaries
    from paying dividends, debt, loans or entering into other
    restrictions;
    amending the terms of other debt of ours;
    enter into sale and leaseback transactions; and
    materially modifying our workers compensation arrangements.    Anti-takeover
    provisions in our organizational documents and Florida law may
    limit the ability of our shareholders to control our policies
    and effect a change of control of our company, which may not be
    in your best interests.
   25




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ITEM 1B.
    UNRESOLVED
    STAFF COMMENTS    ITEM 2.
    PROPERTIES      ITEM 3.
    LEGAL
    PROCEEDINGS      ITEM 4.
    SUBMISSION
    OF MATTERS TO A VOTE OF SECURITY HOLDERS   26




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Part II.  ITEM 5.
    MARKET
    FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
    AND ISSUER PURCHASES OF EQUITY SECURITIES  Market
    Information
    Fiscal Year Ended December 31, 2006

High


Low


DividendsFourth Quarter

$
24.11


$
20.85


$
0.09Third Quarter

$
26.65


$
19.81


$
0.09Second Quarter

$
30.40


$
22.73


$
0.09First Quarter

$
30.23


$
22.25


$
0.07   Fiscal Year Ended December 31, 2005

High


Low


DividendsFourth Quarter

$
29.00


$
24.00


$
0.07Third Quarter

$
27.92


$
19.69


$
0.07Second Quarter

$
20.59


$
15.45


$
0.07First Quarter

$
22.60


$
17.25


$
0.06   Dividends
    Holders
   27




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Issuer
    Purchases of Equity Securities
    Approximate DollarTotal Number of


Value of SharesShares Purchased as


That May Yet beTotal Number of





Part of Publicly


Purchased Under theShares Purchased


Average Price Paid


Announced Program


Program ($000s)Period

(1)


per Share


(1)


(1)10/01/2006 
    10/31/2006


705,000


$
22.13



705,000


$
56,38311/01/2006 
    11/30/2006


200,000


$
21.70



200,000


$
52,03612/01/2006 
    12/31/2006


309,432


$
22.19



309,432


$
45,159Total


1,214,432


$
22.08



1,214,432     (1)
    
    On August 15, 2006, the Company announced that the board of
    directors had authorized the purchase of up to an additional
    $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. 28




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Share
    Performance Graph
    COMPARISON
    OF 5 YEAR CUMULATIVE TOTAL RETURN*
    Among Gevity HR, The NASDAQ Composite Index
    And A Peer Group
  
  *
    
    Total return assumes that dividends were reinvested quarterly
    and is based on $100 invested on 12/31/01.
    Fiscal year ending December 31.  12/01


12/02


12/03


12/04


12/05


12/06Gevity HR

$
100.00


$
169.24


$
951.26


$
889.45


$
1,127.76


$
1,053.40NASDAQ Composite

$
100.00


$
71.97


$
107.18


$
117.07


$
120.50


$
137.02Peer Group

$
100.00


$
67.81


$
79.62


$
82.97


$
91.72


$
100.62      29




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ITEM 6.
    SELECTED
    FINANCIAL DATA  Form 10-K,
  For the Years Ended December 31,2006


2005


2004


2003


2002(In thousands except per share and statistical data)Statement of Operations
    Data:RevenuesProfessional service fees

$
163,025


$
140,698


$
134,781


$
97,376


$
89,563Employee health and welfare benefits


352,017



331,215



314,494



214,701



180,203Workers compensation


106,075



114,778



117,669



104,225



95,977State unemployment taxes and other


26,850



22,106



18,537



9,525



8,911Total revenues

$
647,967


$
608,797


$
585,481


$
425,827


$
374,654Gross profit

$
203,777


$
194,990


$
179,341


$
115,718


$
90,524Operating income

$
47,879


$
55,010


$
51,561


$
21,585


$
4,976Net income

$
35,263


$
37,378


$
34,618


$
15,391


$
4,737Net income attributable to common
    shareholders

$
35,263


$
37,378


$
4,738


$
13,005


$
4,737Net income per share: Basic

$
1.36


$
1.36


$
0.20


$
0.66


$
0.23 Diluted

$
1.32


$
1.31


$
0.18


$
0.62


$
0.22Weighted average common shares: Basic


25,933



27,452



24,125



19,686



20,722 Diluted


26,790



28,534



25,735



24,649



21,074Dividends declared per common share

$
0.36


$
0.28


$
0.24


$
0.20


$
0.20Statistical And Operating
    Data:Client employees at period end


128,427



136,687



129,876



106,452



99,408Average number of client employees
    paid by month


126,584



122,356



119,857



87,819



96,741Average wage per average number of
    client employees paid by month

$
41,044


$
39,040


$
35,953


$
33,569


$
29,924Professional service fees per
    average number of client employees paid by month

$
1,288


$
1,150


$
1,125


$
1,109


$
926Internal employees at period end


1,000



1,050



993



954



901Number of workers
    compensation
    claims(1)


5,820



6,232



6,489



5,765



7,701Frequency of workers
    compensation claims per one million dollars of workers
    compensation wages


1.26
x


1.42
x


1.59
x


2.00
x


2.74
xBalance Sheet Data:Cash, cash equivalents and
    investments(2)

$
44,516


$
64,730


$
59,412


$
152,008


$
126,223Workers compensation
    receivable

$
121,226


$
128,318


$
112,715


$
24,355



Total assets

$
374,560


$
387,869


$
339,587


$
321,564


$
265,535Long-term accrued workers
    compensation and health reserves

$
160


$
242


$
700


$
59,280


$
61,672Total shareholders equity

$
142,052


$
155,415


$
165,174


$
92,380


$
58,605     (1)
    
    The number of workers compensation claims reflects the
    number of claims reported by the end of the respective year and
    does not include any claims with respect to a specific policy
    year that are reported subsequent to the end of such year. For
    information regarding claims reported after the end of each
    respective year from 2000  2005, see the first table
    set forth in Item 7. Managements Discussion and
    Analysis of Financial Condition and Results of
    Operations  Critical Accounting Estimates 
    Workers Compensation Receivable/Reserves.(2)
    
    $8,225, $12,205, $18,636, $107,326 and $92,454 of the cash, cash
    equivalents and investments (which consist of certificates of
    deposit-restricted and marketable securities-restricted, both
    long and short term) as of December 31, 2006, 2005, 2004,
    2003, and 2002, respectively, have been utilized to
    collateralize the Companys obligations under its
    workers compensation, health benefit plans and certain
    general insurance contracts. These amounts are considered
    restricted and are not available for general
    corporate purposes. 30




---



##### Table of Contents



ITEM 7.
    MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS  Form 10-K. page F-1
    Overview
    and Introduction
          20-500 500-5,000
   31




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##### Table of Contents



For the Years Ended December 31,2006


2005


% ChangeStatistical data:Client employees at period end


128,427



136,687



(6.0
)%Clients at period
    end(1)


7,411



8,226



(9.9
)%Average number of client employees
    at period end/clients at period end


17.33



16.62



4.3
%Average number of client employees
    paid by
    month(2)


126,584



122,356



3.5
%Average wage per average number of
    client employees paid by month

$
41,044


$
39,040



5.1
%Professional service fees per
    average number of client employees paid by month

$
1,288


$
1,150



12.0
%Gross profit per average number of
    client employees paid by month

$
1,610


$
1,594



1.0
%Operating income per average
    number of client employees paid by month

$
378


$
450



(16.0
)%Adjusted operating income per
    average number of client employees paid by
    month(3),(4)

$
391


$
412



(5.1
)%     (1)
    
    Number of clients measured by individual client 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 in the year divided by
    12 months. All other statistical information above is based
    upon actual
    year-to-date
    amounts divided by the average number of client employees paid
    by month.(3)
    
    For purposes of calculating this statistic, operating income for
    the year ended December 31, 2005, has been reduced for the
    impact of the pro forma stock compensation expense of
    $4.6 million, which was previously reported on a pro forma
    basis as allowed by Statement of Financial Accounting Standards
    (SFAS) No. 123, Accounting for Stock-Based
    Compensation(SFAS 123). See
    Non-GAAP Financial Information. For purposes of
    calculating this statistic, operating income for the year ended
    December 31, 2006 includes the effect of the implementation
    of SFAS No. 123R, Share-Based Payment(SFAS 123R).(4)
    
    For purposes of calculating this statistic, operating income for
    the year ended December 31, 2006, has been adjusted to
    exclude the effect of a $1.65 million net loss arising from
    the liquidation proceeding related to the Bermuda reinsurance
    company formerly responsible for covering the Companys
    workers compensation claims liabilities between
    $0.5 million and $2.0 million. See additional
    discussion under Operating Expenses and
    Non-GAAP Financial Information.    
    the amount of time required for sales personnel 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; 32




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##### Table of Contents




    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.  Acquisitions
  EPIX Acquisition.
  Revenues
      No. 99-19, Reporting Revenue Gross as a Principal versus Net as an
    Agent. No. 99-19.
    Cost of
    Services
     33




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##### Table of Contents




    actively reviewing unemployment claims, and if warranted,
    contesting claims it believes are improper;
    avoiding unemployment tax rate increases through the use of
    voluntary contributions where available;
    using multiple state accounts for the classification of its
    workers where available;
    electing to report under its clients rates whenever
    possible; and
    using state successorship rules for its acquisitions of client
    portfolios of other companies. 34




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##### Table of Contents



Operating
    Expenses
    Income
    Taxes
    RESULTS
    OF OPERATIONS
  Year
    Ended December 31, 2006 Compared to Year Ended
    December 31, 2005.
  Revenues
    December 31,


December 31,2006


2005


% Change(In thousands, except statistical data)Revenues:Professional service fees

$
163,025


$
140,698



15.9
%Employee health and welfare
    benefits


352,017



331,215



6.3
%Workers compensation


106,075



114,778



(7.6
)%State unemployment taxes and other


26,850



22,106



21.5
%Total revenues

$
647,967


$
608,797



6.4
%Statistical data:Gross salaries and wages

$
5,195,439


$
4,776,770



8.8
%Average number of client employees
    paid by
    month(1)


126,584



122,356



3.5
%Average wage per average number of
    client employees paid by month

$
41,044


$
39,040



5.1
%Workers compensation billing
    per one hundred dollars of workers compensation
    wages(2)

$
2.30


$
2.62



(12.2
)%Workers compensation manual
    premium per one hundred dollars of workers compensation
    wages(2),(3)

$
2.68


$
3.22



(16.8
)%Professional service fees per
    average number of client employees paid by month

$
1,288


$
1,150



12.0
%Client employee health benefits
    plan participation


38
%


38
%



%     (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)
    
    Manual premium rate data is derived from tables of AIG in effect
    for 2006 and 2005, respectively.   35




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##### Table of Contents



36




---



##### Table of Contents



Cost of
    Services
    December 31,


December 31,2006


2005


% Change(In thousands, except statistical data)Cost of services:Employee health and welfare
    benefits

$
354,531


$
326,932



8.4
%Workers compensation


57,462



60,071



(4.3
)%State unemployment taxes and other


32,197



26,804



20.1
%Total cost of services

$
444,190


$
413,807



7.3
%Statistical data:Gross salaries and wages

$
5,195,439


$
4,776,770



8.8
%Average number of client employees
    paid by
    month(1)


126,584



122,356



3.5
%Workers compensation cost rate per
    one hundred dollars of workers compensation
    wages(2)

$
1.25


$
1.37



(8.8
)%Number of workers
    compensation
    claims(3)


5,820



6,232



(6.6
)%Frequency of workers
    compensation claims per one million dollars of workers
    compensation
    wages(2)


1.26
x


1.42
x


(11.3
)%     (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 year and
    does not include claims with respect to a specific policy year
    that are reported subsequent to the end of such year. For
    information regarding claims reported after the end of each
    respective year, see the first table set forth below in this
    Item 7 under Critical Accounting Estimates.      2000-2005 2000-2005
 37




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##### Table of Contents



true-ups,
  Operating
    Expenses
    December 31,


December 31,2006


2005


% Change(In thousands, except statistical data)Operating expenses:Salaries, wages and commissions

$
85,624


$
76,033



12.6
%Other general and administrative


54,746



49,312



11.0
%Reinsurance contract loss, net


1,650







n/aDepreciation and amortization


13,878



14,635



(5.2
)%Total operating expenses

$
155,898


$
139,980



11.4
%Statistical data:Internal employees at year end


1,000



1,050



(4.8
)%            38




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##### Table of Contents



Income
    Taxes
    Net
    Income and Diluted Earnings Per Share
      Year
    Ended December 31, 2005 Compared to Year Ended
    December 31, 2004.
  Revenues
    December 31,


December 31,2005


2004


% Change(In thousands, except statistical data)Revenues:Professional service fees

$
140,698


$
134,781



4.4
%Employee health and welfare
    benefits


331,215



314,494



5.3
%Workers compensation


114,778



117,669



(2.5
)%State unemployment taxes and other


22,106



18,537



19.3
%Total revenues

$
608,797


$
585,481



4.0
%Statistical data:Gross salaries and wages

$
4,776,770


$
4,309,260



10.8
%Average number of client employees
    paid by
    month(1)


122,356



119,857



2.1
%Average wage per average number of
    client employees paid by month

$
39,040


$
35,953



8.6
%Workers compensation billing
    per one hundred dollars of workers compensation
    wages(2)

$
2.62


$
2.88



(9.0
)%Workers compensation manual
    premium per one hundred dollars of workers compensation
    wages(2),(3)

$
3.22


$
3.50



(8.0
)%Professional service fees per
    average number of client employees paid by month

$
1,150


$
1,125



2.2
%Client employee health benefits
    plan participation


38
%


38
%



%     (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. 39




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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)
    
    Manual premium rate data is derived from tables of AIG in effect
    for 2005 and 2004, respectively.                 40




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##### Table of Contents



Cost of
    Services
    December 31,


December 31,2005


2004


% Change(In thousands, except statistical data)Cost of services:Employee health and welfare
    benefits

$
326,932


$
307,662



6.3
%Workers compensation


60,071



77,806



(22.8
)%State unemployment taxes and other


26,804



20,672



29.7
%Total cost of services

$
413,807


$
406,140



1.9
%Statistical data:Gross salaries and wages

$
4,776,770


$
4,309,260



10.8
%Average number of client employees
    paid by
    month(1)


122,356



119,857



2.1
%Workers compensation cost rate per
    one hundred dollars of workers compensation
    wages(2)

$
1.37


$
1.91



(28.3
)%Number of workers
    compensation
    claims(3)


6,232



6,489



(4.0
)%Frequency of workers
    compensation claims per one million dollars of workers
    compensation
    wages(2)


1.42
x


1.59
x


(10.7
)%     (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.(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 year and
    does not include claims with respect to a specific policy year
    that are reported subsequent to the end of such year. For
    information regarding claims reported after the end of each
    respective year, see the first table set forth below in this
    Item 7 under Critical Accounting Estimates.    true-up
  2000-2004
   41




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##### Table of Contents



Operating
    Expenses
    December 31,


December 31,2005


2004


% Change(In thousands, except statistical data)Operating expenses:Salaries, wages and commissions

$
76,033


$
71,803



5.9
%Other general and administrative


49,312



41,809



17.9
%Depreciation and amortization


14,635



14,168



3.3
%Total operating expenses

$
139,980


$
127,780



9.5
%Statistical data:Internal employees at year end


1,050



993



5.7
%           Income
    Taxes
    Net
    Income and Diluted Earnings Per Share
   42




---



##### Table of Contents



Preferred
    Stock Conversion and Accounting Treatment
    in-the-money paid-in-capital.
    LIQUIDITY
    AND CASH FLOWS
  Cash
    Flow
  General
    page F-1
   43




---



##### Table of Contents



Restricted
    Cash
      December 31,


December 31,2006


2005(In thousands)Certificates of
    deposit  restricted:Other

$



$
33Total certificates of
    deposit  restricted






33Short-term marketable
    securities  restricted:General insurance collateral
    obligations  AIG


4,478



4,281Total short-term marketable
    securities  restricted


4,478



4,281Long-term marketable securities
    restricted:Workers compensation
    collateral  AIG


3,747



3,582Rabbi trust






4,309Total long-term marketable
    securities  restricted


3,747



7,891Total restricted assets

$
8,225


$
12,205      44




---



##### Table of Contents



Cash
    Flows from Operating Activities
      true-ups 2000-2006
  Cash
    Flows from Investing Activities
    Cash
    Flows from Financing Activities
   45




---



##### Table of Contents



Inflation
    Commitments
    and Contractual Obligations
  Off-Balance Sheet Arrangements
  Table Of Contractual Arrangements
  Payment Due by PeriodLess








MoreThan 1


1-3


4-5


ThanContractual Obligations

Total


Year


Years


Years


5 YearsLong-term debt obligations


















Capital lease obligations


















Operating lease obligations

$
40,320


$
7,989


$
14,008


$
7,482


$
10,841Purchase obligations


















Other


















Total

$
40,320


$
7,989


$
14,008


$
7,482


$
10,841   CRITICAL
    ACCOUNTING ESTIMATES
   46




---



##### Table of Contents



page F-1.
  Workers
    Compensation Receivable/Reserves
               47




---



##### Table of Contents



Years Ended December 31,2006


2005


2004


2003


2002


2001


2000(Dollars in thousands)Originally reported reserves for
    unpaid claims and claims expenses limited to the Companys
    liability per occurrence

$
60,500


$
64,000


$
73,000


$
65,000


$
76,200


$
103,000


$
109,000Number of claims reported as of:End of initial year


5,820



6,232



6,489



5,765



7,701



10,195



11,888One year later






6,420



6,665



5,916



7,856



10,475



12,088Two years later










6,679



5,961



7,873



10,495



12,114Three years later














5,964



7,872



10,500



12,118Four years later


















7,873



10,500



12,119Five years later






















10,500



12,119Six years later


























12,119Number of open claims reported as
    of:End of initial year


1,474



1,628



2,045



1,604



1,632



2,632



3,077One year later






329



388



333



462



791



965Two years later










174



121



251



286



532Three years later














57



126



156



148Four years later


















84



84



84Five years later






















59



54Six years later


























36Insurance carrier open case reserve
    amount as of:End of initial year

$
13,997


$
15,028


$
15,339


$
12,444


$
15,272


$
23,087


$
22,315One year later





$
10,079


$
10,825


$
9,253


$
11,249


$
14,086


$
16,796Two years later









$
5,902


$
4,381


$
6,579


$
8,223


$
12,105Three years later













$
2,534


$
4,697


$
4,814


$
5,533Four years later

















$
4,249


$
2,960


$
3,639Five years later





















$
4,225


$
2,665Six years later

























$
2,629Cumulative net paid claims by
    insurance carrier as of:End of initial year

$
14,162


$
14,647


$
13,876


$
14,502


$
16,859


$
21,345


$
22,688One year later





$
29,328


$
31,488


$
30,790


$
38,006


$
47,461


$
50,524Two years later









$
40,010


$
40,343


$
50,182


$
65,925


$
69,251Three years later













$
43,221


$
56,292


$
72,457


$
81,033Four years later

















$
59,056


$
76,740


$
85,241Five years later





















$
78,217


$
88,084Six years later

























$
89,274Undiscounted reserves re-estimated
    as of:End of initial year

$
60,500


$
64,000


$
73,000


$
65,000


$
76,200


$
103,000


$
109,000One year later





$
58,500


$
63,000


$
63,000


$
78,000


$
98,000


$
109,000Two years later









$
56,700


$
56,000


$
71,000


$
99,000


$
108,400Three years later













$
51,600


$
69,000


$
93,000


$
105,000Four years later

















$
69,000


$
90,000


$
104,000Five years later





















$
86,900


$
100,000Six years later

























$
95,600  48




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##### Table of Contents



For the Policy Years Ended December 31,2006


2005


2004


2003


2000-2002(In thousands)Initial premium/collateral
    payments to carriers

$
84,000


$
100,000


$
111,402


$
85,000


$
293,720Premium/collateral refunds received


(11,658
)


(31,999
)


(48,943
)


(18,574
)


Net premiums/collateral held by
    carriers


72,342



68,001



62,459



66,426



293,720Paid claims by insurance carrier


(14,162
)


(29,328
)


(40,010
)


(43,221
)


(226,547
)Estimated future claims covered by
    premium/collateral


(46,338
)


(29,172
)


(16,690
)


(8,379
)


(24,953
)Total estimated ultimate claims


(60,500
)


(58,500
)


(56,700
)


(51,600
)


(251,500
)Estimated interest on
    premium/collateral payments earned through December 31, 2006


1,609



4,185



4,945



4,134



5,240Estimated return of
    premium/collateral (undiscounted)

$
13,451


$
13,686


$
10,704


$
18,960


$
47,460     Intangible
    Assets
  5-year
    Medical
    Benefit Plan Liabilities
     49




---



##### Table of Contents



true-up, true-up,
    Year EndedDecember 31,2006


2005Incurred but not reported claims

$
10,609


$
13,333Other health plan liabilities
    (including recall premiums)


2,457



1,709Total medical benefit plan
    liabilities

$
13,066


$
15,042       State
    Unemployment Taxes
    Allowance
    for Doubtful Accounts
    
    the Company is at risk for the payment of its direct costs and
    client employee payroll costs regardless of whether the clients
    pay their fees;
    the large volume and dollar amount of transactions processed by
    the Company; and
    the periodic and recurring nature of payroll, upon which the
    fees are based. 50




---



##### Table of Contents



page S-1).
  Deferred
    Taxes
    NEW
    ACCOUNTING PRONOUNCEMENTS
  page F-1
  Non-GAAP Financial
    Information
  Form 10-K
     51




---



##### Table of Contents



For the Year Ended December 31,2006


2005(In thousands, except per share data)Operating income  GAAP

$
47,879


$
55,010SFAS 123 pro forma stock
    compensation expense






(4,575
)Reinsurance contract loss, net


1,650



Operating income 
    non-GAAP

$
49,529


$
50,435Net income  GAAP

$
35,263


$
37,378SFAS 123 pro forma stock
    compensation expense






(3,056
)Reinsurance contract loss, net


1,023



Net income  non-GAAP

$
36,286


$
34,322Net income per common
    share  diluted  GAAP

$
1.32


$
1.31SFAS 123 pro forma stock
    compensation expense






(0.11
)Reinsurance contract loss, net


0.03



Net income per common
    share  diluted  Non-GAAP

$
1.35


$
1.20   page F-1).
    Year EndedDecember 31, 2004(In thousands, except shareand per share data)Net income attributable to common
    shareholders for purposes of computing diluted earnings per
    share (GAAP)

$
4,738Pro forma adjustments:Non-recurring, non-cash charge
    attributable to the acceleration of the unamortized discount
    associated with the conversion into common stock of all shares
    of the Preferred Stock


29,317Non-cash charges attributable to
    beneficial conversion feature and accretion of redemption value
    of Preferred Stock


129Preferred Stock dividends


434Pro forma net income for diluted
    earnings per share calculation (non-GAAP)

$
34,618Diluted earnings per share (GAAP)

$
0.18Pro forma diluted earnings per
    share (non-GAAP)

$
1.24Diluted weighted average shares
    outstanding (GAAP)


25,734,515Pro forma effect of dilutive
    securities:Preferred Stock


2,094,383Pro forma diluted weighted average
    shares outstanding (non-GAAP)


27,828,898  52




---



##### Table of Contents



ITEM 7A.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK  page F-1. page F-1).
  ITEM 8.
    FINANCIAL
    STATEMENTS AND SUPPLEMENTARY DATA  page F-1.
  ITEM 9.
    CHANGES
    IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
    FINANCIAL DISCLOSURE    ITEM 9A.
    CONTROLS
    AND PROCEDURES  Evaluation
    of Disclosure Controls and Procedures; Changes in Internal
    Control over Financial Reporting
  Form 10-K, Rule 13a-15
    Managements
    Report On Internal Control Over Financial Reporting
  Rules 13a-15(f) 15d-15(f)
  
    pertain to the maintenance of records that, in reasonable
    detail, accurately and fairly reflect the transactions and
    dispositions of assets of the Company;
    provide reasonable assurance that transactions are recorded as
    necessary to permit preparation of financial statements in
    accordance with generally accepted accounting principles; 53




---



##### Table of Contents




    provide reasonable assurance that receipts and expenditures of
    the Company are being made only in accordance with
    authorizations of management and directors of the
    Company; and
    provide reasonable assurance regarding prevention or timely
    detection of unauthorized acquisition, use or disposition of the
    Companys assets that could have a material effect on the
    financial statements.       54




---



##### Table of Contents



Report of
    Independent Registered Public Accounting firm on
    Managements Assessment of Internal Control
  REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
      Internal Control 
    Integrated Framework
        Internal
    Control  Integrated Framework Internal Control  Integrated
    Framework
  Share-Based
    Payment
  /s/  Deloitte &
    Touche LLP     55




---



##### Table of Contents



ITEM 9B.
    OTHER
    INFORMATION   PART III.  ITEM 10.
    DIRECTORS
    AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE    ITEM 11.
    EXECUTIVE
    COMPENSATION    ITEM 12.
    SECURITY
    OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
    RELATED STOCKHOLDER MATTERS    ITEM 13.
    CERTAIN
    RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
    INDEPENDENCE    ITEM 14.
    PRINCIPAL
    ACCOUNTING FEES AND SERVICES   PART IV.  ITEM 15.
    EXHIBITS,
    FINANCIAL STATEMENT SCHEDULES  (a)
    1. Financial Statements  See the Index to
    Consolidated Financial Statements on
    Page F-1.  Financial Statement Schedule:
  Page S-1
    Exhibit Index:
   56




---



##### Table of Contents



SIGNATURES
      Dated: March 13, 2007

/s/  Erik
    VonkErik
    Vonk, Chairman of the Board,
    Chief Executive Officer     Dated: March 13, 2007

/s/  Erik
    VonkErik
    Vonk
    Chairman of the Board, Chief Executive Officer
    (Principal Executive Officer)Dated: March 13, 2007

/s/  Peter
    C.
    GrabowskiPeter
    C. Grabowski
    Chief Financial Officer
    (Principal Financial and Accounting Officer)Dated: March 13, 2007

/s/  George
    B.
    BeitzelGeorge
    B. Beitzel
    DirectorDated: March 13, 2007

/s/  Darcy
    E.
    BradburyDarcy
    E. Bradbury
    DirectorDated: March 13, 2007

/s/  James
    E.
    CowieJames
    E. Cowie
    DirectorDated: March 13, 2007

/s/  Paul
    R.
    DaoustPaul
    R. Daoust
    Director 57




---



##### Table of Contents



Dated: March 13, 2007

/s/  Jonathan
    H.
    KaganJonathan
    H. Kagan
    DirectorDated: March 13, 2007

/s/  David
    S.
    KatzDavid
    S. Katz
    DirectorDated: March 13, 2007

/s/  Michael
    LavingtonMichael
    Lavington
    DirectorDated: March 13, 2007

/s/  Jeffrey
    A.
    SonnenfeldJeffrey
    A. Sonnenfeld
    Director  58




---



##### Table of Contents



GEVITY
    HR, INC. AND SUBSIDIARIES
  INDEX TO
    CONSOLIDATED FINANCIAL STATEMENTS AND
 FINANCIAL
    STATEMENT SCHEDULE
  PageReport of
    Independent Registered Public Accounting Firm

F-2Consolidated
    Balance Sheets as of December 31, 2006 and 2005

F-3Consolidated
    Statements of Operations for the Years Ended December 31,
    2006, 2005, and 2004

F-4Consolidated
    Statements of Changes in Shareholders Equity for the Years
    Ended December 31, 2006, 2005, and 2004

F-5Consolidated
    Statements of Cash Flows for the Years Ended December 31,
    2006, 2005, and 2004

F-6Notes to
    Consolidated Financial Statements

F-8Financial Statement
    Schedule II  Valuation and Qualifying
    Accounts

S-1  F-1




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM            Share-Based Payment.
  Internal Control 
    Integrated Framework
  /s/  Deloitte &
    Touche LLP     F-2




---



##### Table of Contents



GEVITY
    HR, INC. AND SUBSIDIARIES
  CONSOLIDATED
    BALANCE SHEETS
  December 31,


December 31,2006


2005(In $000s, except share andper share data)ASSETSCurrent assets:Cash and cash equivalents

$
36,291


$
52,525Certificates of
    deposit  restricted






33Marketable securities 
    restricted


4,478



4,281Accounts receivable, net


126,936



113,864Short-term workers
    compensation receivable, net


35,354



32,552Other current assets


15,927



15,713Total current assets


218,986



218,968Property and equipment, net


23,847



13,810Long-term marketable
    securities  restricted


3,747



7,891Long-term workers
    compensation receivable, net


85,872



95,766Intangible assets, net


20,856



30,494Goodwill


8,692



8,692Deferred tax asset, net


11,938



11,678Other assets


622



570Total assets

$
374,560


$
387,869LIABILITIES AND
    SHAREHOLDERS EQUITYCurrent liabilities:Accrued payroll and payroll taxes

$
163,410


$
152,940Accrued insurance premiums and
    health reserves


17,287



20,536Customer deposits and prepayments


11,893



8,315Accounts payable and other accrued
    liabilities


10,243



9,995Deferred tax liability, net


24,583



31,567Dividends payable


2,223



1,846Total current liabilities


229,639



225,199Long-term accrued workers
    compensation insurance reserves


160



242Other long-term liabilities


2,709



7,013Total liabilities


232,508



232,454Commitments and contingencies (see
    notes)Shareholders equity:Common stock, $.01 par value,
    100,000,000 shares authorized, 31,962,314 and 31,237,453
    issued and outstanding as of December 31, 2006 and 2005,
    respectively


320



312Additional paid-in capital


177,949



165,876Retained earnings


84,110



58,137Treasury stock (7,260,175 and
    4,863,098 shares at cost, respectively)


(120,327
)


(66,367
)Deferred compensation






(2,543
)Total shareholders equity


142,052



155,415Total liabilities and
    shareholders equity

$
374,560


$
387,869    F-3




---



##### Table of Contents



GEVITY
    HR, INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF OPERATIONS
  Year Ended December 31,2006


2005


2004(In $000s, except share and per share data)Revenues

$
647,967


$
608,797


$
585,481Cost of services


444,190



413,807



406,140Gross profit


203,777



194,990



179,341Operating expenses:Salaries, wages and commissions


85,624



76,033



71,803Other general and administrative


54,746



49,312



41,809Reinsurance contract loss, net


1,650







Depreciation and amortization


13,878



14,635



14,168Total operating expenses


155,898



139,980



127,780Operating income


47,879



55,010



51,561Interest income


1,157



1,371



1,165Interest expense


(430
)


(393
)


(332
)Other expense, net


(169
)






(101
)Income before income taxes


48,437



55,988



52,293Income tax provision


13,174



18,610



17,675Net income


35,263



37,378



34,618Non-recurring, non-cash charge
    attributable to the acceleration of the unamortized discount
    associated with the conversion into common stock of all shares
    of the Series A convertible, redeemable preferred stock










29,317Non-cash charges attributable to
    beneficial conversion feature and accretion of redemption value
    of the Series A convertible, redeemable preferred stock










129Series A convertible,
    redeemable preferred stock dividends










434Net income attributable to common
    shareholders

$
35,263


$
37,378


$
4,738Net income per common share: Basic

$
1.36


$
1.36


$
0.20 Diluted (reported
    earnings per common share includes adjustments per share of
    ($1.06) for 2004, substantially all attributable to the
    non-recurring, non-cash charge related to the acceleration of
    the unamortized discount associated with the conversion into
    common stock of all shares of the Series A convertible,
    redeemable preferred stock, see Note 13)

$
1.32


$
1.31


$
0.18Weighted average common shares
    outstanding: Basic


25,932,904



27,451,834



24,124,803 Diluted


26,789,652



28,534,440



25,734,515    F-4




---



##### Table of Contents



GEVITY
    HR, INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
 Years
    Ended December 31, 2006, 2005 and 2004
  Common





AdditionalStock


Common


Paid-in


Retained


Treasury


Deferred(Shares)


Stock


Capital


Earnings


Stock


Compensation


Total(In $000s, except share data)Balance, December 31, 2003


22,251,477


$
223


$
78,715


$
29,734


$
(16,292
)

$



$
92,380Issuance of common stock


892,038



8



3,488







75







3,571Tax benefit of stock option
    exercises










5,813















5,813Accretion of beneficial conversion
    feature on Series A convertible, redeemable preferred stock














(129
)










(129
)Conversion of Series A
    convertible, redeemable preferred stock to common stock


5,514,705



55



29,945



(29,317
)










683Public stock offering


1,750,000



18



34,709















34,727Series A convertible,
    redeemable preferred stock dividends paid














(434
)










(434
)Common stock dividends declared














(6,055
)










(6,055
)Net income














34,618











34,618Balance, December 31, 2004


30,408,220



304



152,670



28,417



(16,217
)






165,174Issuance of common stock


829,233



8



9,032







(751
)


(2,543
)


5,746Tax benefit of stock option
    exercises










4,174















4,174Common stock dividends declared














(7,658
)










(7,658
)Purchase of treasury stock


















(49,399
)






(49,399
)Net income














37,378











37,378Balance, December 31, 2005


31,237,453



312



165,876



58,137



(66,367
)


(2,543
)


155,415Issuance of common stock


724,861



8



6,664







(63
)






6,609Tax benefit of stock option
    exercises










4,268















4,268Stock-based compensation expense










3,684















3,684Reversal of deferred compensation
    upon adoption of SFAS 123R










(2,543
)










2,543



Common stock dividends declared














(9,290
)










(9,290
)Purchase of treasury stock


















(53,897
)






(53,897
)Net income














35,263











35,263Balance, December 31, 2006


31,962,314


$
320


$
177,949


$
84,110


$
(120,327
)

$



$
142,052    F-5




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##### Table of Contents



GEVITY
    HR, INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  Years Ended December 31,2006


2005


2004(In $000s)CASH FLOWS FROM OPERATING
    ACTIVITIES:Net income

$
35,263


$
37,378


$
34,618Adjustments to reconcile net
    income to net cash provided by (used in) operating activities:Depreciation and amortization


13,878



14,635



14,168Deferred tax (benefit) provision,
    net


(7,368
)


10,428



1,452Stock compensation


3,684



592



Excess tax benefits from
    share-based arrangements


(3,349
)






Provision for bad debts


855



598



348Other


226



55



195Changes in operating working
    capital:Accounts receivable, net


(13,927
)


(14,672
)


691Other current assets


4,178



(9,731
)


2,299Workers compensation
    receivable, net


7,092



(15,603
)


(88,360
)Other assets


(55
)


(168
)


5,394Accrued insurance premiums and
    health reserves


(3,249
)


(2,655
)


(8,880
)Accrued payroll and payroll taxes


10,336



41,253



(7,745
)Accounts payable and other accrued
    liabilities


3,304



182



600Income taxes payable






2,510



15,766Customer deposits and prepayments


3,578



(3,582
)


2,561Long-term accrued workers
    compensation insurance reserves


(82
)


(458
)


(58,580
)Other long-term liabilities


5



(236
)


1,024Net cash provided by (used in)
    operating activities


54,369



60,526



(84,449
)CASH FLOWS FROM INVESTING
    ACTIVITIES:Purchases of marketable securities
    and certificates of deposit


(363
)


(5,293
)


(133,878
)Maturities of marketable
    securities and certificates of deposit


34



11,085



227,515Assets acquired in business
    acquisitions










(40,617
)Capital expenditures


(14,198
)


(6,240
)


(4,575
)Net cash (used in) provided by
    investing activities


(14,527
)


(448
)


48,445CASH FLOWS FROM FINANCING
    ACTIVITIES:Net borrowings under revolving
    credit facility










Debt issuance costs










(192
)Proceeds from exercise of stock
    options


6,755



5,154



3,571Proceeds from stock offering, net
    of issuance costs










34,727Excess tax benefits from
    share-based arrangements


3,349







Dividends paid


(8,913
)


(7,454
)


(6,008
)Purchase of treasury stock


(57,267
)


(46,029
)


Net cash (used in) provided by
    financing activities


(56,076
)


(48,329
)


32,098Net (decrease) increase in cash
    and cash equivalents


(16,234
)


11,749



(3,906
)Cash and cash
    equivalents  beginning of year


52,525



40,776



44,682Cash and cash
    equivalents  end of year

$
36,291


$
52,525


$
40,776Supplemental disclosure of cash
    flow information:Income taxes paid

$
15,697


$
10,237


$
458Interest paid

$
576


$
176


$
228  F-6




---



##### Table of Contents



GEVITY
    HR, INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS  (Continued)
      
    approximately $1,739 of capital items purchased by the Company
    in 2006 and paid for in 2007.    
    approximately $1,425 of capital items purchased by the Company
    in 2005 and paid for in 2006;
    approximately $703 of landlord incentives related to leasehold
    improvements at the Companys corporate facility; and
    approximately $411 of capitalized rent related to the rent-free
    construction period at the Companys corporate facility.         F-7




---



##### Table of Contents



GEVITY
    HR, INC. AND SUBSIDIARIES



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS

(in $000s, except share and per share data) 1.
    SUMMARY
    OF SIGNIFICANT ACCOUNTING POLICIES  TM
  
    Streamline 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.    
    Gevity
    OnSitetm:  Local
    HR consultants are available to work with clients onsite, either
    full time or on a regularly scheduled basis.
    Gevity
    OnCalltm:  A
    dedicated team of HR professionals is available to address
    payroll and general HR needs for clients at a designated number.
    Gevity
    OnLinetm:  Gevity
    clients and their employees have online access to their company
    information anytime via gevity.com. The Ask Gevity link on
    gevity.com provides
    up-to-date
    critical HR, compliance and regulatory information.  Principles of Consolidation
  Use of Estimates
  Cash Equivalents
  Marketable Securities Accounting for Certain Investments in Debt and Equity
    Securities. held-to-maturity, available-for-sale
 F-8




---



##### Table of Contents



available-for-sale available-for-sale
  Property and Equipment
  YearsAutomobiles


5Computer hardware and software


3 to 7Furniture and equipment


3 to 7Leasehold improvements


Life of lease     Internal Use Software
  Goodwill
  Intangible Assets
  Fair Value of Financial Instruments
  Revenue Recognition
 F-9




---



##### Table of Contents



No. 99-19, Reporting Revenue Gross as a Principal versus Net as an
    Agent. No. 99-19.
  Sales and Marketing Commissions and Client Referral
    Fees
  Workers Compensation Costs
      Health Benefits
  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
   F-10




---



##### Table of Contents



Year Ended


Year EndedDecember 31, 2005


December 31, 2004Net income

As reported

$
37,378


$
34,618Add: total stock-based
    compensation included in net income, net of tax

As reported


396



Less: total stock-based employee
    compensation expense determined under fair value method for all
    awards, net of tax

Pro forma


(3,452
)


(3,264
)Net income

Pro forma

$
34,322


$
31,354Basic earnings per share

As reported

$
1.36


$
0.20Pro forma

$
1.25


$
0.06Diluted earnings per share

As reported

$
1.31


$
0.18Pro forma

$
1.20


$
0.06     
    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 year ended December 31, 2006, based upon
    grant-date fair value estimated in accordance with the
    provisions of SFAS 123R.        
    Salaries, wages and commissions include $3,684 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 $1,400.
    Net income is reduced by $2,284.
    Basic earnings per share is reduced by $0.09.
    Diluted earnings per share is reduced by $0.09.   F-11




---



##### Table of Contents



paid-in-capital.
      Income Taxes
  Earnings Per Share Earnings Per Share
  03-6, Participating Securities and the Two Class Method under
    FASB Statement No. 128.
  New Accounting Pronouncements Accounting for
    Uncertainty in Income Taxes An Interpretation
    of FASB Statement No. 109
  Fair Value Measurements
  Considering the
    Effects of Prior Year Misstatements When Quantifying
    Misstatements in Current Year Financial Statements
 F-12




---



##### Table of Contents



The Fair Value Option for Financial Assets and Financial
    Liabilities, Including an Amendment of FASB Statement
    No. 115
  2.
    SEGMENT
    REPORTING  Disclosures about Segments of an
    Enterprise and Related Information
  3.
    CERTIFICATES
    OF DEPOSIT  RESTRICTED    4.
    MARKETABLE
    SECURITIES  RESTRICTED  available-for-sale.
  available-for-sale
   F-13




---



##### Table of Contents



GrossAmortized


Unrealized


EstimatedCost


Gain


Fair ValueAs of December 31,
    2006:Short-termMoney market  restricted

$
4,478


$



$
4,478Total short-term marketable
    securities  restricted

$
4,478


$



$
4,478Long-termMoney market  restricted

$
3,747


$



$
3,747Total long-term marketable
    securities  restricted

$
3,747


$



$
3,747As 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


4,309







4,309Total long-term marketable
    securities

$
7,891


$



$
7,891     5.
    ACCOUNTS
    RECEIVABLE    December 31,


December 31,2006


2005Billed to clients

$
10,622


$
10,090Unbilled revenues


116,937



104,280127,559



114,370Less: Allowance for doubtful
    accounts


(623
)


(506
)Total

$
126,936


$
113,864     6.
    WORKERS
    COMPENSATION RECEIVABLE/RESERVES     F-14




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##### Table of Contents



F-15




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##### Table of Contents



Minimum ProgramInitial Loss Fund


Guaranteed


Life for GuaranteedProgram Year

Premiums


Interest Rate


Interest Rate2003

$
73,500
*


2.42
%


7 years2003

$
11,500
*


1.85
%


7 years2004

$
111,400



2.92
%


10 years2005

$
100,000



3.75
%


10 years2006

$
84,000



4.58
%


10 years     *
    
    The 2003 program year consists of two loss funds totaling
    $85,000.  true-up true-up true-up
  true-up
        2000-2005 2000-2004
   F-16




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##### Table of Contents



December 31,


December 31,2006


2005Loss fund premium payments to AIG

$
474,803


$
390,803Loss fund premium refunds


(111,174
)


(53,904
)Interest receivable on premium
    payments


20,113



12,027Estimated premium expense refund
    due


3,818



5,542Claims paid by AIG


(153,947
)


(108,275
)Present value of future claims
    liabilities


(112,387
)


(117,875
)Total workers compensation
    receivable


121,226



128,318Short-term workers
    compensation receivable, net


35,354



32,552Long-term workers
    compensation receivable, net

$
85,872


$
95,766   2006
    Reinsurance Contract Loss, net
   F-17




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##### Table of Contents



7.
    PROPERTY
    AND EQUIPMENT    December 31,


December 31,2006


2005Leasehold improvements

$
4,963


$
2,603Furniture and fixtures


2,403



3,570Vehicles


11



Equipment


2,487



2,345Computer hardware and software


43,992



37,879Construction in progress


8,431



6,715Total property and equipment


62,287



53,112Less accumulated depreciation


(38,440
)


(39,302
)$
23,847


$
13,810     8.
    INTANGIBLE
    ASSETS  EPIX
    Acquisition
      Business
    Combinations.
   F-18




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##### Table of Contents



Year EndedDecember 31, 2004Pro forma revenues

$
617,777Pro forma net income

$
33,605Pro forma earnings per share: Basic

$
0.15 Diluted

$
0.14   Summary
    of Intangible Assets
    December 31,


December 31,2006


2005Client service agreements

$
47,929


$
47,929Accumulated amortization


(27,073
)


(17,435
)Intangible assets, net

$
20,856


$
30,494     9.
    OTHER
    ASSETS    December 31,


December 31,2006


2005Prepaid insurance

$
5,390


$
3,657Prepaid income taxes


4,619



5,128Employee receivables


2,080



2,099Prepaid employment taxes


1,297



2,058Other prepaid expenses


1,885



2,239Other receivables


613



444Short-term deposits


43



88Total other current assets

$
15,927


$
15,713     December 31,


December 31,2006


2005Deposits

$
439


$
454Other


183



116$
622


$
570  F-19




---



##### Table of Contents



10.
    HEALTH
    BENEFITS    2006/2007
                true-up,
 F-20




---



##### Table of Contents



true-up,
  11.
    REVOLVING
    CREDIT FACILITY          12.
    COMMITMENTS
    AND CONTINGENCIES  Operating
    Leases
   F-21




---



##### Table of Contents



Year Ending December 31,

Amount2007

$
7,9892008


7,8352009


6,1732010


4,1712011


3,311Thereafter


10,841$
40,320   Litigation
    Regulatory
    Matters
       F-22




---



##### Table of Contents



13.
    CONVERTIBLE
    REDEEMABLE PREFERRED STOCK        in-the-money
    14.
    RELATED
    PARTIES  and/or
 F-23




---



##### Table of Contents



15.
    RETIREMENT
    PLAN    16.
    GEOGRAPHIC
    MARKET CONCENTRATION AND DEPENDENCE ON KEY VENDORS  Geographic Market Concentration
  Dependence on Key Vendors
  17.
    EQUITY  Share
    Repurchase Program
         F-24




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##### Table of Contents



Public
    Stock Offering
      Employee
    Stock Incentive Plan
             F-25




---



##### Table of Contents



Stock
    Option Awards
    Year Ended December 31,2006


2005


2004Risk-free interest rate


4.71
%


3.60
%


4.46
%Expected dividend yield


1.31
%


1.24
%


1.01
%Expected volatility


50.83
%


56.19
%


76.68
%Expected option life (in years)


3.7



3.1



6.6       Weighted-Weighted-


Average


AggregateAverage


Remaining


IntrinsicStock Options

Shares


Exercise Price


Contractual Term


ValueOutstanding at January 1, 2006


2,891,544


$
12.02Granted


571,556


$
27.59Exercised


(666,808
)

$
9.53Forfeited


(501,542
)

$
23.08Expired


(17,305
)

$
24.82Outstanding at December 31,
    2006


2,277,445


$
14.12



6.78


$
32,162Exercisable at December 31,
    2006


1,473,317


$
8.61



5.86


$
12,689Options vested and expected to vest


1,950,069


$
12.44



6.28


$
13,409   in-the-money
 F-26




---



##### Table of Contents



Non-Vested
    Stock Awards
    Weighted-Weighted Average


Average


AggregateGrant-


Remaining


IntrinsicNon-Vested Stock

Shares


Date Fair Value


Contractual Term


ValueOutstanding at January 1, 2006


135,689


$
22.10Granted


58,053


$
26.64Vested


(29,257
)

$
20.97Forfeited


(44,889
)

$
26.38Outstanding at December 31,
    2006


119,596


$
22.97



8.64


$
2,833Non-vested stock expected to vest


80,192


$
24.11



7.84


$
1,900     Employee
    Stock Purchase Plan
   F-27




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##### Table of Contents



18.
    EARNINGS
    PER SHARE    Net Income


Shares


Per Share(Numerator)


(Denominator)


AmountFor the year ended
    2006:Basic EPS:Net income

$
35,263



25,932,904


$
1.36Effect of dilutive securities:Options to purchase common stock






808,554Restricted stock






48,194Diluted EPS:Net income

$
35,263



26,789,652


$
1.32For the year ended
    2005:Basic EPS:Net income

$
37,378



27,451,834


$
1.36Effect of dilutive securities:Options to purchase common stock






1,062,633Restricted stock






19,973Diluted EPS:Net income

$
37,378



28,534,440


$
1.31For the year ended
    2004:Basic EPS:Net income

$
34,618Non-recurring, non-cash charge
    attributable to the acceleration of the unamortized discount
    associated with the conversion into common stock of all shares
    of the Preferred Stock


(29,317
)Non-cash charges attributable to
    beneficial conversion feature and accretion of redemption value
    of the Preferred Stock


(129
)Preferred Stock dividends


(434
)Net income attributable to common
    shareholders


4,738



24,124,803


$
0.20Effect of dilutive securities:Options to purchase common stock






1,609,712Diluted EPS:Net income attributable to common
    shareholders

$
4,738



25,734,515


$
0.18    F-28




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##### Table of Contents



19.
    INCOME
    TAXES    Year Ended December 31,2006


2005


2004Current:Federal

$
18,109


$
6,753


$
13,705State and local


2,433



1,429



2,518Total current provision for income
    taxes


20,542



8,182



16,223Deferred:Federal


(6,786
)


9,240



1,323State and local


(582
)


1,188



129Total deferred provision for
    income taxes


(7,368
)


10,428



1,452Total provision for income taxes

$
13,174


$
18,610


$
17,675     Year Ended December 31,2006


2005


2004Statutory U.S. Federal tax at
    35%

$
16,953


$
19,596


$
18,303State and local tax, less Federal
    benefit


100



2,519



1,721Adjustment to tax intangible assets






(2,445
)


Change in tax reserves


(2,482
)


(301
)


(1,090
)Tax credits


(2,278
)


(1,451
)


(907
)Permanent differences


1,107



694



Other


(226
)


(2
)


(352
)Total tax provision

$
13,174


$
18,610


$
17,675Effective tax rate


27.2
%


33.2
%


33.8
%  F-29




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##### Table of Contents



2006


2005Deferred Tax Assets:Accrued expenses

$
7,357


$
10,388Depreciation and amortization


8,490



7,613Net operating loss and tax credit
    carryover


1,835



3,943Total deferred tax assets


17,682



21,944Deferred Tax
    Liabilities:Unearned revenue


(29,720
)


(41,190
)Amortization of intangibles and
    fixed assets


(607
)


(643
)Total deferred tax liabilities


(30,327
)


(41,833
)Net deferred tax liability

$
(12,645
)

$
(19,889
)Balance Sheet
    Classification:Current:Net current deferred tax liability

$
(24,583
)

$
(31,567
)Non-current:Net non-current deferred tax asset


11,938



11,678Net deferred tax liability

$
(12,645
)

$
(19,889
)   2002-2004.
  Accounting for Income Taxes
   F-30




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##### Table of Contents



20.
    QUARTERLY
    FINANCIAL DATA (UNAUDITED):    Quarter Ended2006


2005Dec.
    31(1)


Sept.
    30(2)


June 30(3)


Mar.
    31(4)


Dec.
    31(5)


Sept.
    30(6)


June 30


Mar. 31(Dollars in thousands, except per share data)Revenues

$
156,455


$
160,615


$
161,208


$
169,689


$
154,172


$
152,896


$
147,849


$
153,880Gross profit

$
55,274


$
50,603


$
48,298


$
49,602


$
55,517


$
50,508


$
45,336


$
43,629Gross profit margin


35.3
%


31.5
%


30.0
%


29.2
%


36.0
%


33.0
%


30.7
%


28.4
%Operating income

$
12,397


$
15,115


$
7,804


$
12,563


$
13,819


$
16,510


$
12,652


$
12,029Net income

$
10,608


$
9,557


$
6,904


$
8,194


$
9,894


$
10,699


$
8,610


$
8,175Earnings per share: Basic

$
0.42


$
0.36


$
0.26


$
0.31


$
0.37


$
0.39


$
0.31


$
0.30 Diluted

$
0.41


$
0.35


$
0.26


$
0.30


$
0.35


$
0.37


$
0.30


$
0.29     (1)
    
    Included in the fourth quarter of 2006 is the impact of:  
    a $16,198 ($10,043 net of related income tax) reduction to
    previously estimated cost of prior years workers
    compensation claims in recognition of continued favorable trends
    in the Companys workers compensation insurance
    programs;
    a $4,537 ($2,813 net of related income tax) increase in
    expense related to the Companys health care plans
    primarily due to a) $1,300 of one-time premium costs for
    the month of October not passed along to clients after deferring
    the start of the new health plan year from October 1 to
    November 1, b) $500 of accrued premium related to the
    Aetna PPO recall feature, and c) approximately $2,700
    increase in health care cost estimates under the BCBSFL health
    plan due to unfavorable medical trends; and
    a $2,500 ($1,550 net of related income tax) increase in
    incentive compensation expense attributable to the attainment of
    certain bonus targets in the fourth quarter of 2006.  (2)
    
    Included in the third quarter of 2006 is the $3,000
    ($1,815 net of related income tax) gain related to the
    recovery of the portion of the reinsurance premium that the
    Company had recorded as a loss in the second quarter of 2006 in
    connection with the liquidation proceeding of the Companys
    reinsurance provider for its workers compensation program.(3)
    
    Included in the second quarter of 2006 is the impact of:  
    a $4,650 ($2,813 net of related income tax) loss the
    Company recorded in connection with the liquidation proceeding
    of the Companys reinsurance provider for its workers
    compensation program; and
    a $2,000 reversal of an income tax reserve related to the
    Companys filing of a change in accounting method with the
    Internal Revenue Service during the second quarter of 2006.  (4)
    
    Included in the first quarter of 2006 is a reduction of the
    Companys reserve for incurred but not reported claims and
    accrual for premium recalls of approximately $3,200
    ($1,936 net of related income tax) related to favorable
    claims development and finalization of prior year recall amounts.(5)
    
    Included in the fourth quarter of 2005 is the impact of:  
    a $14,480 ($10,165 net of related income tax) reduction to
    previously estimated cost of prior years workers
    compensation claims in recognition of continued favorable trends
    in the Companys workers compensation insurance
    programs;
    a $3,565 ($2,503 net of related income tax) increase in
    incentive compensation expense attributable to the attainment of
    bonus targets in the fourth quarter of 2005; and F-31




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##### Table of Contents




    a $2,836 ($1,991 net of related income tax) increase in
    state unemployment tax expense due to fourth quarter state tax
    assessments.  (6)
    
    Included in the third quarter of 2005 is the impact of a $7,777
    adjustment ($4,938 net of related income tax) to previously
    estimated cost of workers compensation claims in
    recognition of continued favorable trends in the Companys
    insurance programs.  21.
    SUBSEQUENT
    EVENT    TM
 F-32




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##### Table of Contents



GEVITY
    HR, INC. AND SUBSIDIARIES
  SCHEDULE II  VALUATION AND
    QUALIFYING ACCOUNTS
 ALLOWANCE FOR DOUBTFUL ACCOUNTS
 (In thousands of dollars)
  Balance,

Provision





Balance,January 1,

for Bad

Determined

Account

December 31,2006

Debts

Uncollectible

Recoveries

2006$506

$
855


$
(927)


$
189


$
623   Balance,

Provision





Balance,January 1,

for Bad

Determined

Account

December 31,2005

Debts

Uncollectible

Recoveries

2005$805

$
598


$
(1,220)


$
323


$
506   Balance,

Provision





Balance,January 1,

for Bad

Determined

Account

December 31,2004

Debts

Uncollectible

Recoveries

2004$811

$
348


$
(677)


$
323


$
805  S-1




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##### Table of Contents



EXHIBIT INDEX
  ExhibitNo.

Description3
.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).4
.1

Rights Agreement dated as of
    April 23, 2002 between the Company and American Stock
    Transfer & Trust Company, and Exhibits thereto (filed
    as Exhibit 1 to the Companys Registration Statement
    of
    Form 8-A
    filed April 25, 2002 and incorporated herein by reference).4
.2

First Amendment and Supplement to
    the Rights Agreement between the Company and American Stock
    Transfer & Trust Company, dated March 5, 2003
    (filed as Exhibit 99.4 to the Companys Current Report
    on
    Form 8-K
    filed March 6, 2003 and incorporated herein by reference).4
.3

Second Amendment and Supplement to
    the Rights Agreement between the Company and American Stock
    Transfer & Trust Company, dated June 6, 2003
    (filed as Exhibit 99.7 to the Companys Current Report
    on
    Form 8-K
    filed June 10, 2003 and incorporated herein by reference).4
.4

Specimen Common Stock Certificate
    (filed as Exhibit 4.1 to the Companys Registration
    Statement
    No. 333-22933
    on
    Form S-1/A
    filed May 30, 1997 and incorporated herein by reference).10
.1

Gevity HR, Inc. 2002 Stock
    Incentive Plan (filed as Exhibit B to the Companys
    Definitive Proxy Statement on Schedule 14A filed
    April 25, 2002 and incorporated herein by reference).*10
.2

Form of Employee Vesting Schedule
    pursuant to the Gevity HR, Inc. 2002 Stock Incentive Plan (filed
    as Exhibit 10.4 to the Companys Current Report on
    Form 8-K
    filed February 15, 2005 and incorporated herein by
    reference).*10
.3

Form of Director Vesting Schedule
    pursuant to the Gevity HR, Inc. 2002 Stock Incentive Plan (filed
    as Exhibit 10.5 to the Companys Current Report on
    Form 8-K
    filed February 15, 2005 and incorporated herein by
    reference).*10
.4

Form of Terms and Conditions to
    the Non-Qualified Stock Option Award pursuant to the Gevity HR,
    Inc. 2002 Stock Incentive Plan (filed as Exhibit 10.6 to
    the Companys Current Report on
    Form 8-K
    filed February 15, 2005 and incorporated herein by
    reference).*10
.5

Gevity HR, Inc. 1997 Stock
    Incentive Plan, as amended and restated (filed as
    Exhibit 4.1 to the Companys Registration Statement
    No. 333-68929
    on
    Form S-8,
    Amendment No. 1 filed September 30, 2003 and
    incorporated herein by reference).*10
.6

Form of Employee Vesting Schedule
    pursuant to the Gevity HR, Inc. 1997 Stock Incentive Plan (filed
    as Exhibit 10.1 to the Companys Current Report on
    Form 8-K
    filed February 15, 2005 and incorporated herein by
    reference).*10
.7

Form of Director Vesting Schedule
    pursuant to the Gevity HR, Inc. 1997 Stock Incentive Plan (filed
    as Exhibit 10.2 to the Companys Current Report on
    Form 8-K
    filed February 15, 2005 and incorporated herein by
    reference).*10
.8

Form of Terms and Conditions to
    the Non-Qualified Stock Option Award pursuant to the Gevity HR,
    Inc. 1997 Stock Incentive Plan (filed as Exhibit 10.3 to
    the Companys Current Report on
    Form 8-K
    filed February 15, 2005 and incorporated herein by
    reference).*10
.9

Gevity HR, Inc. 2005 Equity
    Incentive Plan, (filed as Exhibit B to the Companys
    Definitive Proxy Statement on Schedule 14A filed
    April 8, 2005 and incorporated here by reference).*10
.10

Gevity HR, Inc. 2005 Executive
    Incentive Compensation Plan, (filed as Exhibit C to the
    Companys Definitive Proxy Statement on Schedule 14A
    filed April 8, 2005 and incorporated here by reference).*10
.11

Form of Employee Option Award
    under Gevity HR, 2005 Equity Incentive Plan (filed as
    Exhibit 10.1 to the Companys Current Report on
    Form 8-K
    filed November 14, 2005 and incorporated herein by
    reference).*10
.12

Form of Employee Restricted Stock
    Award under Gevity HR, 2005 Equity Incentive Plan (filed as
    Exhibit 10.2 to the Companys Current Report on
    Form 8-K
    filed November 14, 2005 and incorporated herein by
    reference).*10
.13

Form of Executive Stock Option
    Award under Gevity HR, 2005 Equity Incentive Plan (filed as
    Exhibit 10.3 to the Companys Current Report on
    Form 8-K
    filed November 14, 2005 and incorporated herein by
    reference).*




---



##### Table of Contents



ExhibitNo.

Description10
.14

Form of Executive Restricted Stock
    Award under Gevity HR, 2005 Equity Incentive Plan (filed as
    Exhibit 10.4 to the Companys Current Report on
    Form 8-K
    filed November 14, 2005 and incorporated herein by
    reference).*10
.15

Form of Non-employee Director
    Stock Option Award under Gevity HR, 2005 Equity Incentive Plan
    (filed as Exhibit 10.5 to the Companys Current Report
    on
    Form 8-K
    filed November 14, 2005 and incorporated herein by
    reference).*10
.16

Form of Non-employee Director
    Restricted Stock Award under Gevity HR, 2005 Equity Incentive
    Plan (filed as Exhibit 10.6 to the Companys Current
    Report on
    Form 8-K
    filed November 14, 2005 and incorporated herein by
    reference).*10
.17

Gevity HR, Inc. Employee Stock
    Purchase Plan (filed as Appendix B to the Companys
    Definitive Proxy Statement on Schedule 14A filed
    April 20, 2001 and incorporated herein by reference).*10
.18

Employment Agreement between the
    Company and Erik Vonk, dated March 21, 2002 (filed as
    Exhibit 99.2 to the Companys Current Report on
    Form 8-K
    filed March 25, 2002 and incorporated herein by reference).*10
.19

Form of Securities Purchase
    Agreement between the Company and Erik Vonk (filed as
    Exhibit 99.3 to the Companys Current Report on
    Form 8-K
    filed March 25, 2002 and incorporated herein by reference).*10
.20

Change in Control Severance
    Agreement between the Company and Erik Vonk, dated
    September 21, 2004 (filed as Exhibit 10.1 to the
    Companys Current Report on
    Form 8-K
    filed September 24, 2004 and incorporated herein by
    reference).*10
.21

2006 Compensation Plan for Erik
    Vonk, Chairman and Chief Executive Officer and Roy C. King,
    President and Chief Operating Officer of Gevity HR, Inc.
    (contained within the Companys Current Report on
    Form 8-K
    filed April 6, 2006 and incorporated herein by reference).*10
.22

2005 Compensation Plan for Erik
    Vonk, Chairman and Chief Executive Officer of Gevity HR, Inc.
    (filed as exhibit 99.1 to the Companys Current Report
    on
    Form 8-K
    filed March 29, 2005 and incorporated herein by reference).*10
.23

Promotion Letter from the Company
    accepted by Peter C. Grabowski, dated April 23, 2003 (filed
    as Exhibit 99.3 to the Companys Current Report on
    Form 8-K
    filed April 24, 2003 and incorporated herein by reference).*10
.24

Change in Control Severance
    Agreement between the Company and Peter C. Grabowski, dated
    September 21, 2004 (filed as Exhibit 10.2 to the
    Companys Current Report on
    Form 8-K
    filed September 24, 2004 and incorporated herein by
    reference).*10
.25

Change in Control Severance
    Agreement between the Company and Lisa J. Harris, dated
    September 21, 2004 (filed as Exhibit 10.3 to the
    Companys Current Report on
    Form 8-K
    filed September 24, 2004 and incorporated herein by
    reference).*10
.26

Employment Offer Letter from the
    Company to Sal J. Uglietta, dated September 24, 2003 (filed
    as Exhibit 99.2 to the Companys Current Report on
    Form 8-K
    filed September 29, 2003 and incorporated herein by
    reference).*10
.27

Change in Control Severance
    Agreement between the Company and Sal J. Uglietta, dated
    September 21, 2004 (filed as Exhibit 10.6 to the
    Companys Current Report on
    Form 8-K
    filed September 24, 2004 and incorporated herein by
    reference).*10
.28

Employment offer letter from the
    Company accepted by Gregory M. Nichols, dated November 22,
    2000 (filed as Exhibit 10.26 to the Companys
    Quarterly Report on
    Form 10-Q
    for the quarter ended March 31, 2001 filed May 15,
    2001 and incorporated herein by reference).*10
.29

Change in Control Severance
    Agreement between the Company and Gregory M. Nichols, dated
    September 21, 2004 (filed as Exhibit 10.5 to the
    Companys Current Report on
    Form 8-K
    filed September 24, 2004 and incorporated herein by
    reference).*10
.30

Letter Agreement between the
    Company and Gregory M. Nichols, with Respect to his Resignation
    as the Companys Senior Vice President, General Counsel and
    Corporate Secretary (filed as Exhibit 10.1 to the
    Companys Current Report on
    Form 8-K
    filed March 10, 2006 and incorporated herein by reference).*10
.31

Employment offer letter from the
    Company accepted by Clifford M. Sladnick, dated June 6,
    2005 (filed as Exhibit 10.1 to the Companys Current
    Report on
    Form 8-K
    filed July 1, 2005 and incorporated herein by reference).*




---



##### Table of Contents



ExhibitNo.

Description10
.32

Change in Control Severance
    Agreement between the Company and Clifford M. Sladnick, dated
    July 22, 2005 (filed as Exhibit 10.1 to the
    Companys Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2005 filed July 28,
    2005 and incorporated herein by reference).*10
.33

Employment offer letter from the
    Company accepted by Roy C. King, dated December 15, 2005
    (filed as Exhibit 10.1 to the Companys Current Report
    on
    Form 8-K
    filed December 20, 2005 and incorporated herein by
    reference).*10
.34

Employment Agreement between the
    Company and Roy C. King, dated December 15, 2005 (filed as
    Exhibit 10.2 to the Companys Current Report on
    Form 8-K
    filed December 20, 2005 and incorporated herein by
    reference).*10
.35

Separation Agreement and Full and
    Final Release of Claims between Roy C. King and Gevity HR, Inc.
    (filed as Exhibit 10.1 to the Companys Quarterly
    Report on
    Form 10-Q
    for the quarter ended September 30, 2006 filed
    November 1, 2006 and incorporated herein by reference).*10
.36

Form of Indemnification Agreement
    between the Company and each of its directors and executive
    officers.* +10
.37

Agreement of Lease between
    Osprey-Lakewood Ranch Properties, LLC. and the Company, dated
    June 6, 2005, for premises located at 9000 Town Center
    Parkway, Bradenton, Florida 34202 (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) (filed as
    Exhibit 10.1 to the Companys Current Report on
    Form 8-K
    filed June 10, 2005 and incorporated herein by reference).10
.38

Healthcare Benefits Contract Among
    Blue Cross/Blue Shield of Florida, Inc., Health Options, Inc.,
    and the Company, effective October 1, 2005 (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) (filed as
    Exhibit 10 to the Companys Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2005 filed
    October 27, 2005 and incorporated herein by reference).10
.39

Amendment No. 1 to the Health
    Care Benefits Contract between the Company and Blue Cross Clue
    Shield of Florida and Health Options, Inc. dated as of
    February 15, 2006 (filed as Exhibit 10.1 to the
    Companys Current Report on
    Form 8-K
    filed February 22, 2006).10
.40

Aetna, Inc. Financial Conditions
    related to the Group Master Policy for the Company, effective
    January 1, 2003 (filed as Exhibit 10.20 to the
    Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2003 filed March 15,
    2004 and incorporated herein by reference).10
.41

AIG Risk Management, Inc.
    1/1/07-08
    Workers Compensation/Employers Liability Final Bound Proposal,
    dated December 21, 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
.42

AIG Risk Management, Inc.
    1/1/06-07
    Workers Compensation/Employers Liability Final Bound Proposal,
    dated December 21, 2005 (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) (filed as
    Exhibit 10.39 to the Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2006 and incorporated
    herein by reference).10
.43

AIG Risk Management, Inc.
    1/1/05-06
    Workers Compensation/Employers Liability Final Bound Proposal,
    dated December 16, 2004 (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) (filed as
    Exhibit 10.1 to the Companys Current Report on
    Form 8-K
    filed December 22, 2004 and incorporated herein by
    reference).10
.44

AIG Risk Management, Inc.
    1/1/04-05
    Workers Compensation/Employers Liability Final Bound Proposal,
    dated December 31, 2003 (certain confidential information
    in this document, marked by an asterisk 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) (filed as
    Exhibit 10.21 to the Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2003 filed March 15,
    2004 and incorporated herein by reference).




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##### Table of Contents



ExhibitNo.

Description10
.45

AIG Risk Management, Inc.
    1/1/03-04
    Workers Compensation/Employers Liability Final Bound Proposal,
    dated October 22, 2002 (filed as Exhibit 99.2 to the
    Companys Current Report on
    Form 8-K
    filed October 23, 2002 and incorporated herein by
    reference).10
.46

Finance Agreement for Paid Loss
    Workers Compensation Deductible between the Company and
    Continental Casualty Company, effective as of January 1,
    2002 (filed as Exhibit 10.20 to the Companys Annual
    Report on
    Form 10-K
    for the year ended December 31, 2001 filed April 1,
    2002 and incorporated herein by reference).10
.47

Finance Agreement for Paid Loss
    Workers Compensation deductible between the Company and
    Continental Casualty Company, effective as of January 1,
    2001 (filed as Exhibit 10.25 to the Companys Annual
    Report on
    Form 10-K
    for the year ended December 31, 2000 filed March 29,
    2001 and incorporated herein by reference).10
.48

Finance Agreement for Paid Loss
    Workers Compensation Deductible between the Company and
    Continental Casualty Company, effective as of January 1,
    2000 (filed as Exhibit 10.14 to the Companys Annual
    Report on
    Form 10-K
    for the year ended December 31, 1999 filed April 3,
    2000 and incorporated herein by reference).10
.49

Workers Compensation and
    Employers Liability Policy issued by Texas Workers
    Compensation Insurance Fund to Gevity HR of Texas, L.P.,
    effective January 1, 2000 (filed as Exhibit 10.13 to
    the Companys Annual Report on
    Form 10-K
    for the year ended December 31, 1999 filed April 3,
    2000 and incorporated herein by reference).10
.50

Workers Compensation and
    Employers Liability Policy issued by Continental Casualty Co. to
    the Company, effective January 1, 2000 (filed as
    Exhibit 10.15 to the Companys Annual Report on
    Form 10-K
    for the year ended December 31, 1999 filed April 3,
    2000 and incorporated herein by reference).10
.51

Final Binder prepared by National
    Union Fire Insurance Company of Vermont (a member insurance
    company of American International Group, Inc.) for the Company
    related to the Deductible Liability Protection Policy covering
    workers compensation claims up to $1.0 million per
    occurrence for the program years 2000, 2001 and 2002, dated
    September 30, 2004 (filed as Exhibit 10.8 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).10
.52

Final Binder prepared by
    Continental Casualty Company, National Fire Insurance Company
    and Transportation Insurance Company (collectively,
    CNA) and National Union Fire Insurance Company of
    Vermont (a member insurance company of American International
    Group, Inc.) for the Company related to the Deductible Liability
    Protection Policy covering workers compensation claims up
    to $1.0 million per occurrence for the program years 2000,
    2001 and 2002, dated September 30, 2004 (filed as
    Exhibit 10.9 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).10
.53

Assignment of Deductible Liability
    Protection Policy Proceeds from the Company to CNA related to
    coverage for workers compensation claims up to
    $1.0 million per occurrence for program years 2000, 2001
    and 2002, dated October 20, 2004 (filed as
    Exhibit 10.10 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).10
.54

Collateral Addendum to
    January 1, 2002 Paid Loss Workers Compensation
    Deductible Finance Agreement between the Company and CNA, dated
    October 11, 2004 (filed as Exhibit 10.11 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).10
.55

Amended and Restated Credit
    Agreement dated August 30, 2006 among Gevity HR, Inc., as
    the Borrower, the Subsidiaries of the Borrower, as the
    Guarantors, Bank of America, N.A., as Administrative Agent and
    Other Lenders Party thereto (filed as Exhibit 10.1 to the
    Companys Current Report on
    Form 8-K
    filed September 6, 2006 and incorporated herein by
    reference).10
.56

Employment offer letter from the
    Company accepted by Michael Collins on February 23, 2006.*+10
.57

Change in Control Severance
    Agreement between the Company and Michael Collins dated
    March 13, 2006.*+10
.58

Employment offer letter from the
    Company accepted by Paul Benz on June 19, 2006.*+




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##### Table of Contents



ExhibitNo.

Description18
.1

Independent Auditors letter
    regarding the Companys revenue reporting change from gross
    to net revenues (filed as Exhibit 18.1 to the
    Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2002 filed March 31,
    2003 and incorporated by reference).21
.1

List of Subsidiaries of the
    Company.+23
.1

Consent of Independent Registered
    Public Accounting Firm to Annual Report on
    Form 10-K
    for the year ended December 31, 2006.+31
.1

Certification of Erik Vonk, as
    Chief Executive Officer, pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002.+31
.2

Certification of Peter C.
    Grabowski, as 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.+     *
    
    Management contract or compensatory plan or arrangement.+
    
    Filed electronically herewith.