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UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


Form 10-K


|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934    
|          
|           |  | For the fiscal year ended December 31, 2004                                                 
|          
|or        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
|          
|           |  | For the transition period
    from           to                                             

Commission File No. 0-22701


Gevity HR, Inc.


(Exact name of registrant as specified in its charter)


|                                                                   |  |                                         
|------------------------------------------------------------------ |  | ----------------------------------------
|Florida                                                            |  | 65-0735612                              
|(State or other jurisdiction of
    incorporation or organization) |  | (I.R.S. Employer
    Identification No.)
|                                                                  
|600 301 Blvd West
    Bradenton, FL                                |  | 34205                                   
|(Address of principal executive offices)                           |  | (Zip Code)                              

(Registrants Telephone Number, Including Area Code):


(941) 741-4300


Securities Registered Pursuant to Section 12(b) of the
Act:


None


Securities Registered Pursuant to Section 12(g) of the
Act:


Common Stock, par value $0.01 per share


(Title of class)


þ o


þ


þ o






DOCUMENTS INCORPORATED BY REFERENCE












---










TABLE OF CONTENTS


|                                                                                      |  |                                                                                           |    |      |    | 
|------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------- | -- | ---- | -- | 
|                                                                                      |  |                                                                                           |    | Page |   
|                                                                                      |  |                                                                                           |    |      |   
|PART I                                                                                |  |                                                                                           | 1  |     
|ITEM 1.                                                                               |  | Business                                                                                  |    |      | 1  | 
|ITEM 2.                                                                               |  | Properties                                                                                |    |      | 18 | 
|ITEM 3.                                                                               |  | Legal Proceedings                                                                         |    |      | 18 | 
|ITEM 4.                                                                               |  | Submission Of Matters To A Vote Of
    Security-Holders                                   |    |      | 19 | 
|PART II                                                                               |  |                                                                                           | 19 |     
|ITEM 5.                                                                               |  | Market For Registrants Common
    Equity And Related Stockholder Matters                 |    |      | 19 | 
|ITEM 6.                                                                               |  | Selected Financial Data                                                                   |    |      | 20 | 
|ITEM 7.                                                                               |  | Managements Discussion And
    Analysis Of Financial Condition And Results Of Operations |    |      | 21 | 
|ITEM 7A.                                                                              |  | Quantitative And Qualitative Disclosures
    About Market Risk                            |    |      | 46 | 
|ITEM 8.                                                                               |  | Financial Statements And Supplementary
    Data                                           |    |      | 47 | 
|ITEM 9.                                                                               |  | Changes In And Disagreements With
    Accountants On Accounting And Financial Disclosure  |    |      | 47 | 
|ITEM 9A.                                                                              |  | Controls and Procedures                                                                   |    |      | 47 | 
|ITEM 9B.                                                                              |  | Other Information                                                                         |    |      | 51 | 
|PART III                                                                              |  |                                                                                           | 51 |     
|ITEM 10.                                                                              |  | Directors And Executive Offices Of The
    Registrant                                     |    |      | 51 | 
|ITEM 11.                                                                              |  | Executive Compensation                                                                    |    |      | 51 | 
|ITEM 12.                                                                              |  | Security Ownership Of Certain Beneficial
    Owners And Management                        |    |      | 51 | 
|ITEM 13.                                                                              |  | Certain Relationships And Related
    Transactions                                        |    |      | 51 | 
|ITEM 14.                                                                              |  | Principal Accountant Fees And
    Services                                                |    |      | 51 | 
|PART IV                                                                               |  |                                                                                           | 52 |     
|ITEM 15.                                                                              |  | Exhibits, Financial Statement
    Schedule                                                |    |      | 52 | 
|EX-21.1 LIST OF SUBSIDIARIES OF THE COMPANY                                          
|EX-23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM TO ANNUAL REPORT    
|EX-31.1 CERTIFICATION OF ERIK VONK, AS CHIEF EXECUTIVE OFFICER                       
|EX-31.2 CERTIFICATION OF PETER C. GRABOWSKI, AS CHIEF FINANCIAL OFFICER              
|EX-32.1 CERTIFICATION FURNISHED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY OF 2002



1



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##### Table of Contents






PART I







|        |         
|------- | --------
|ITEM 1. | BUSINESS

General






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Workforce alignment is the term used by the Company to refer to
    the engagement of the right people in the right place at the
    right time doing the right things. The Company assists its
    clients in achieving workforce alignment by helping them find
    exceptional talent, implement formal HR processes and
    professional management standards, and utilize employee
    motivation and retention practices.
|
| |  | Administrative relief is obtained by clients through the
    Companys management of employee administrative matters,
    such as processing of payroll, taxes and insurance premiums and
    by the Companys comprehensive record keeping and
    technology.                                                                                                                                                                
|
| |  | Business protection is provided to clients by the Company
    helping to ensure employment-related regulatory compliance and
    sound risk management practices, encompassing up-to-date
    regulatory compliance and cost- effective risk management
    practices and insurance programs.                                                                                                                                  







| |   |                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------
| |  | increasing clients productivity by improving employee
    satisfaction and generating greater employee retention;          
|
| |  | allowing clients and their employees to focus on revenue
    producing activities rather than human resource matters; and   
|
| |  | reducing clients exposure to consequences of
    non-compliance with human resource related regulatory and tax
    matters.







2



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co-employment


Human Resource Outsourcing Industry








| |   |                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | This segment is large and has a low penetration rate of
    outsourced comprehensive human resources services.                                                                                            
|
| |  | Small- and medium-sized businesses typically have fewer
    in -house resources than larger businesses and, as a
    result, are generally more dependent on their outsourced service
    providers.      
|
| |  | The quality of service, ease of use, and responsiveness to
    clients needs are the primary considerations of businesses
    of this size in selecting a service provider.                              
|
| |  | 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.
|
| |  | This segment is characterized by a relatively short sales cycle
    and lower client acquisition costs.                                                                                                   

Professional Services Provided by the Company




Workforce Alignment  Engage the
right people in the right place at the right time doing the
right things


Find Exceptional Talent




| |   |                                              
| | - | ---------------------------------------------
| |  | New hire forms kit                           
|
| |  | Interview process and procedures             
|
| |  | Candidate background screening               
|
| |  | Candidate drug testing                       
|
| |  | Essentials management training  interviewing

3



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Formal Human Resource Processes and Professional Management
Standards




| |   |                                  
| | - | ---------------------------------
| |  | Employee handbook                
|
| |  | Human resource forms library     
|
| |  | Performance management process   
|
| |  | Progressive counseling procedures

Employee Motivation and Retention Practices




| |   |                                                                     
| | - | --------------------------------------------------------------------
| |  | Benefit and insurance plan options                                  
|
| |  | Retirement plan options                                             
|
| |  | Employee relations consultations                                    
|
| |  | Employee reward and recognition program                             
|
| |  | Employee assistance program                                         
|
| |  | Essentials management training  managing and engaging
    employees

Administrative Relief  Manage
employee administration


Processing of Payroll, Taxes and Premiums




| |   |                           
| | - | --------------------------
| |  | Administrative processing:



| |   |                                   
| | - | ----------------------------------
| |  | Payroll processing                
|
| |  | Paid time off processing          
|
| |  | Tax processing and payment        
|
| |  | W-2 preparation and delivery      
|
| |  | Health and welfare plan processing



| |   |                            
| | - | ---------------------------
| |  | Unemployment claims support

Comprehensive Record Keeping and Technology




| |   |                                                                  
| | - | -----------------------------------------------------------------
| |  | Gevity
    Centralsm 
    self-service portal and Internet tools



| |   |                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------
| |  | Web access to Human Resource Management System including account
    information, employee data and reports                   
|
| |  | Web access for employees to personal information and paycheck
    history                                                     
|
| |  | Searchable database for human resource fast answers, law
    summaries, model documents, news and trends, and company policies
|
| |  | Job description creation tool                                                                                                 
|
| |  | Salary survey tool                                                                                                            
|
| |  | Performance appraisal tool                                                                                                    
|
| |  | Employee assessment tools                                                                                                     
|
| |  | Virtual intranet  capability to post human resource
    documents, company-specific information and related links            



| |   |                                            
| | - | -------------------------------------------
| |  | Payroll and human resource -related reports

4



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Business Protection  Help ensure
employment-related regulatory compliance and sound risk
management practices


Up-to-Date Regulatory Compliance




| |   |                                           
| | - | ------------------------------------------
| |  | Policy and procedure audit                
|
| |  | Separation counseling procedures          
|
| |  | Harassment prevention program and training
|
| |  | Labor law posters                         

Cost-Effective Risk Management Practices and Insurance
Programs




| |   |                                                        
| | - | -------------------------------------------------------
| |  | Workers compensation insurance options                
|
| |  | Risk assessment                                        
|
| |  | Employment Practices Liability Insurance (EPLI) options

Gevity Institute










workforce
alignment,






5



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Clients




|                                          |  |                         |       |   |      |  |       |      |  |  |       |  
|----------------------------------------- |  | ----------------------- | ----- | - | ---- |  | ----- | ---- |  |  | ----- | -
|                                          |  | Year Ended December 31, |      
|                                          |  |                         |      
|Percentage of Client Billings by Industry |  | 2004                    |       |   | 2003 |  |       | 2002 | 
|                                          |  |                         |       |   |      |  |       |      | 
|Services(1)                               |  |                         | 38.5  | % |      |  | 37.7  | %    |  |  | 34.8  | %
|Finance/Insurance/Real Estate             |  |                         | 14.7  |   |      |  | 11.6  |      |  |  | 7.8   |  
|Manufacturing                             |  |                         | 12.6  |   |      |  | 12.6  |      |  |  | 12.9  |  
|Construction(2)                           |  |                         | 11.0  |   |      |  | 14.6  |      |  |  | 17.5  |  
|Retail Trade                              |  |                         | 8.9   |   |      |  | 9.1   |      |  |  | 10.3  |  
|Wholesale Trade                           |  |                         | 7.5   |   |      |  | 7.1   |      |  |  | 6.8   |  
|Restaurants                               |  |                         | 2.1   |   |      |  | 2.9   |      |  |  | 4.5   |  
|Transportation                            |  |                         | 2.0   |   |      |  | 2.0   |      |  |  | 2.1   |  
|Agriculture                               |  |                         | 1.8   |   |      |  | 2.4   |      |  |  | 3.0   |  
|Other                                     |  |                         | 0.9   |   |      |  |      |      |  |  | 0.3   |  
|                                          |  |                         |       |   |      |  |       |      | 
|Total                                     |  |                         | 100.0 | % |      |  | 100.0 | %    |  |  | 100.0 | %
|                                          |  |                         |       |   |      |  |       |      | 






|    |                                                                                                                                                                                                                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The Services category consists principally of clients in the
    following industries: 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.
|   
|(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.                                                     











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co-employer












|                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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, |  |  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

7



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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Gevity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  | Client                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|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
     COBRA (Consolidated Omnibus Budget Reconciliation
    Act of 1986) continuation coverage for employees covered under
    health plans sponsored by Gevity
     Laws governing the garnishment of wages, including
    Title III of the Consumer Credit Protection Act
     All rules and regulations governing administration,
    procurement and payment of all Company sponsored employee
    benefit plans elected by the client or client employee
     Fair Labor Standards Act (FLSA) and the Family and
    Medical Leave Act of 1993 (FMLA)* |  | Service Contract Act of 1965; and (vii) any and all related
    or similar federal, state or local laws, regulations, ordinances
    and statutes
     Professional licensing and liability
     Internal Revenue Code Sections 414(m), (n) and
    (o) relating to client maintained benefit plans
     Laws affecting the assignment and ownership of
    intellectual property rights
     Worker Adjustment and Retraining Notification Act
    (WARN)
     Laws affecting the maintenance, storage and disposal
    of hazardous materials
     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
     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
     Fair Labor Standards Act (FLSA) and the Family
    and Medical Leave Act of 1993 (FMLA)*






|  |                                                                                                        
|- | -------------------------------------------------------------------------------------------------------
|* | The Company and the client are each responsible for certain
    provisions under the terms of each act.





Service Delivery and Information Technology


Gevity Central,


8



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Gevity Central, Gevity Central


Gevity Central. Gevity
Central.


Gevity Central




Sales and Marketing








9



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Competition






10



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Vendor Relationships






| |                                
| | -------------------------------
| | Workers Compensation Insurance











11



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| |                       
| | ----------------------
| | Employee Benefit Plans



Blue Cross and Blue Shield of Florida


Aetna Health, Inc. 







12



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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 2004




| |                 
| | ----------------
| | EPIX Acquisition







| |                   
| | ------------------
| | Secondary Offering



Conversion of the Convertible, Redeemable Preferred
Stock


16



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| |                                                              
| | -------------------------------------------------------------
| | Conversion of the Convertible, Redeemable Preferred
    Stock



Executive Officers of the Company




|                   |  |     |    |  |          |                                                                         
|------------------ |  | --- | -- |  | -------- | ------------------------------------------------------------------------
|Name               |  | Age |    |  | Position
|                   |  |     |    |  |         
|Erik Vonk          |  |     | 52 |  |          | Chairman of the Board and Chief Executive Officer                       
|Peter C. Grabowski |  |     | 42 |  |          | Senior Vice President and Chief Financial Officer                       
|Lisa J. Harris     |  |     | 44 |  |          | Senior Vice President, Client Services and Chief Information
    Officer
|Gregory M. Nichols |  |     | 51 |  |          | Senior Vice President, General Counsel                                  
|Sal Uglietta       |  |     | 52 |  |          | Senior Vice President, Marketing and Sales                              

Erik Vonk


Peter C. Grabowski


Lisa J. Harris


Gregory M. Nichols


Sal Uglietta


17



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Available Information


www.sec.gov


www.gevity.com


www.gevity.com.


www.gevity.com.









|        |           
|------- | ----------
|ITEM 2. | PROPERTIES










|        |                  
|------- | -----------------
|ITEM 3. | LEGAL PROCEEDINGS



18



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|        |                                                    
|------- | ---------------------------------------------------
|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS






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, 2004 |  | High |       |  | Low |   |       | Dividends | 
|                                    |  |      |       |  |     |   |       |           | 
|Fourth Quarter                      |  | $    | 21.34 |  |     | $ | 13.56 |           |  | $ | 0.06 | 
|Third Quarter                       |  | $    | 26.73 |  |     | $ | 14.90 |           |  | $ | 0.06 | 
|Second Quarter                      |  | $    | 30.70 |  |     | $ | 19.24 |           |  | $ | 0.06 | 
|First Quarter                       |  | $    | 29.50 |  |     | $ | 20.10 |           |  | $ | 0.05 | 

|                                    |  |      |       |  |     |   |       |           |  |   |      | 
|----------------------------------- |  | ---- | ----- |  | --- | - | ----- | --------- |  | - | ---- | 
|Fiscal Year Ended December 31, 2003 |  | High |       |  | Low |   |       | Dividends | 
|                                    |  |      |       |  |     |   |       |           | 
|Fourth Quarter                      |  | $    | 24.34 |  |     | $ | 14.00 |           |  | $ | 0.05 | 
|Third Quarter                       |  | $    | 19.95 |  |     | $ | 11.40 |           |  | $ | 0.05 | 
|Second Quarter                      |  | $    | 12.99 |  |     | $ | 6.67  |           |  | $ | 0.05 | 
|First Quarter                       |  | $    | 7.10  |  |     | $ | 3.83  |           |  | $ | 0.05 | 

Dividends




Holders




19



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Securities Authorized for Issuance under Equity Compensation
Plans




|                                                           |  |                   |           |  |                           |            |                     |                      |  |  |         | 
|---------------------------------------------------------- |  | ----------------- | --------- |  | ------------------------- | ---------- | ------------------- | -------------------- |  |  | ------- | 
|                                                           |  |                   |           |  |                           | Number of  |                    
|                                                           |  |                   |           |  |                           | securities |                    
|                                                           |  | Number of         |           |  |                           |            | remaining available |                     
|                                                           |  | securities to be  |           |  |                           |            | for future issuance |                     
|                                                           |  | issued upon       |           |  |                           |            | under equity        |                     
|                                                           |  | exercise of       |           |  | Weighted-average exercise |            |                     | compensation         | 
|                                                           |  | outstanding       |           |  | price of outstanding      |            |                     | plans (excluding     | 
|                                                           |  | options, warrants |           |  | options, warrants and     |            |                     | securities reflected | 
|                                                           |  | and rights        |           |  | rights                    |            |                     | in column (a))       | 
|Plan category                                              |  | (a)               |           |  | (b)                       |            |                     | (c)                  | 
|                                                           |  |                   |           |  |                           |            |                     |                      | 
|Equity compensation plans approved by security holders     |  |                   | 3,231,263 |  |                           | $          | 9.56                |                      |  |  | 927,029 | 
|Equity compensation plans not approved by security holders |  |                   | None      |  |                           |            | None                |                      |  |  | None    | 
|                                                           |  |                   |           |  |                           |            |                     |                      | 
|Total                                                      |  |                   | 3,231,263 |  |                           | $          | 9.56                |                      |  |  | 927,029 | 
|                                                           |  |                   |           |  |                           |            |                     |                      | 






|        |                        
|------- | -----------------------
|ITEM 6. | SELECTED FINANCIAL DATA



|                                    |                                                       |                                      |           |         |         |        |      |         |         |        |      |        |         |        |      |         |         |        |   |        |         |        | 
|----------------------------------- | ----------------------------------------------------- | ------------------------------------ | --------- | ------- | ------- | ------ | ---- | ------- | ------- | ------ | ---- | ------ | ------- | ------ | ---- | ------- | ------- | ------ | - | ------ | ------- | ------ | 
|                                    |                                                       | For the Years Ended December 31,     |          
|                                    |                                                       |                                      |          
|                                    |                                                       | 2004                                 |           |         | 2003    |        |      | 2002    |         |        | 2001 |        |         | 2000   |     
|                                    |                                                       |                                      |           |         |         |        |      |         |         |        |      |        |         |        |     
|                                    |                                                       | (In thousands except per share data) |          
|Statement Of Operations Data:       |                                                       |                                      |           |         |         |        |      |         |         |        |      |        |         |        |      |         |         |        |   |       
|                                    | Revenues(1)                                           |                                      |           |         |         |        |      |         |         |        |      |        |         |        |      |         |         |        |   |        |        
|                                    |                                                       | Professional service fees            |           | $       | 134,781 |        |      | $       | 97,376  |        |      | $      | 89,563  |        |      | $       | 75,704  |        |   | $      | 68,067  |       
|                                    |                                                       | Employee health and welfare benefits |           |         | 314,494 |        |      |         | 214,701 |        |      |        | 180,203 |        |      |         | 129,243 |        |   |        | 101,761 |       
|                                    |                                                       | Workers compensation                |           |         | 117,669 |        |      |         | 104,225 |        |      |        | 95,977  |        |      |         | 117,895 |        |   |        | 140,319 |       
|                                    |                                                       | State unemployment and other         |           |         | 18,537  |        |      |         | 9,525   |        |      |        | 8,911   |        |      |         | 9,986   |        |   |        | 12,187  |       
|                                    |                                                       |                                      |           |         |         |        |      |         |         |        |      |        |         |        |     
|                                    |                                                       | Total revenues                       |           | $       | 585,481 |        |      | $       | 425,827 |        |      | $      | 374,654 |        |      | $       | 332,828 |        |   | $      | 322,334 |       
|                                    | Gross profit                                          |                                      | $         | 179,341 |         |        | $    | 115,718 |         |        | $    | 90,524 |         |        | $    | 70,985  |         |        | $ | 95,565 |        
|                                    | Operating income (loss)                               |                                      | $         | 51,561  |         |        | $    | 21,585  |         |        | $    | 4,976  |         |        | $    | (29,288 | )       |        | $ | (3,784 | )      
|                                    | Net income (loss)                                     |                                      | $         | 34,618  |         |        | $    | 15,391  |         |        | $    | 4,737  |         |        | $    | (15,603 | )       |        | $ | 604    |        
|                                    | Net income (loss) attributable to common shareholders |                                      | $         | 4,738   |         |        | $    | 13,005  |         |        | $    | 4,737  |         |        | $    | (15,603 | )       |        | $ | 604    |        
|                                    | Net income (loss) per share:                          |                                      |           |         |         |        |      |         |         |        |      |        |         |        |      |         |         |        |   |        |        
|                                    |                                                       |                                      |  Basic   |         | $       | 0.20   |      |         | $       | 0.66   |      |        | $       | 0.23   |      |         | $       | (0.76  | ) |        | $       | 0.03   | 
|                                    |                                                       |                                      |  Diluted |         | $       | 0.18   |      |         | $       | 0.62   |      |        | $       | 0.22   |      |         | $       | (0.76  | ) |        | $       | 0.03   | 
|Weighted average common shares:     |                                                       |                                      |           |         |         |        |      |         |         |        |      |        |         |        |      |         |         |        |   |       
|                                    |                                                       |                                      |  Basic   |         |         | 24,125 |      |         |         | 19,686 |      |        |         | 20,722 |      |         |         | 20,606 |   |        |         | 21,361 | 
|                                    |                                                       |                                      |  Diluted |         |         | 25,735 |      |         |         | 24,649 |      |        |         | 21,074 |      |         |         | 20,606 |   |        |         | 21,373 | 
|Dividends declared per common share |                                                       | $                                    | 0.24      |         |         | $      | 0.20 |         |         | $      | 0.20 |        |         | $      | 0.20 |         |         |        |  |       

20



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|                                                                                                     |  |                                      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|---------------------------------------------------------------------------------------------------- |  | ------------------------------------ | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                                                                                     |  | For the Years Ended December 31,     |        
|                                                                                                     |  |                                      |        
|                                                                                                     |  | 2004                                 |         |   | 2003 |   |         | 2002 |  |   | 2001    |   |  | 2000 |        
|                                                                                                     |  |                                      |         |   |      |   |         |      |  |   |         |   |  |      |        
|                                                                                                     |  | (In thousands except per share data) |        
|Statistical And Operating Data:                                                                      |  |                                      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Client employees at period end                                                                       |  |                                      | 129,876 |   |      |   | 106,452 |      |  |   | 99,408  |   |  |      | 111,910 |   |  |   | 124,014 |  
|Average wage per average number of client employees paid by month                                    |  | $                                    | 35,953  |   |      | $ | 33,569  |      |  | $ | 29,924  |   |  | $    | 25,761  |   |  | $ | 23,137  |  
|Professional service fees per average number of client employees
    paid by month                   |  | $                                    | 1,125   |   |      | $ | 1,109   |      |  | $ | 926     |   |  | $    | 722     |   |  | $ | 598     |  
|Internal employees at period end                                                                     |  |                                      | 993     |   |      |   | 954     |      |  |   | 901     |   |  |      | 1,018   |   |  |   | 1,277   |  
|Number of workers compensation claims(2)                                                            |  |                                      | 6,489   |   |      |   | 5,765   |      |  |   | 7,701   |   |  |      | 10,195  |   |  |   | 13,087  |  
|Frequency of workers compensation claims per one million
    dollars of workers compensation wages |  |                                      | 1.59    | x |      |   | 2.00    | x    |  |   | 2.74    | x |  |      | 3.90    | x |  |   | 5.20    | x
|Balance Sheet Data:                                                                                  |  |                                      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Cash, cash equivalents and investments(3)                                                            |  | $                                    | 59,412  |   |      | $ | 152,008 |      |  | $ | 126,223 |   |  | $    | 92,892  |   |  | $ | 96,968  |  
|Workers compensation receivable                                                                     |  | $                                    | 112,715 |   |      | $ | 24,355  |      |  |   |        |   |  |      |        |   |  |   |        |  
|Total assets                                                                                         |  | $                                    | 339,587 |   |      | $ | 321,564 |      |  | $ | 265,535 |   |  | $    | 219,903 |   |  | $ | 212,338 |  
|Long-term accrued workers compensation and health reserves                                          |  | $                                    | 700     |   |      | $ | 59,280  |      |  | $ | 61,672  |   |  | $    | 48,049  |   |  | $ | 20,530  |  
|Total shareholders equity                                                                           |  | $                                    | 165,174 |   |      | $ | 92,380  |      |  | $ | 58,605  |   |  | $    | 57,511  |   |  | $ | 77,460  |  






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Prior to December 31, 2002, the Company reported revenue on
    a gross basis rather than a net revenue basis. Revenues reported
    for 2001 and 2000 have been restated to conform with the current
    presentation.                                                                                                                                                                                                                                                                                                                             
|   
|(2) | 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  2004, see the first table
    set forth in Item 7. Managements Discussion and
    Analysis of Financial Condition and Results of
    Operations  Critical Accounting Estimates.
|   
|(3) | $18,636, $107,326, $92,454, $34,262 and $7,781 of the cash, cash
    equivalents and investments as of December 31, 2004, 2003,
    2002, 2001 and 2000, 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.                                                                                             






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
    CONDITION AND RESULTS OF OPERATIONS



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Non-GAAP Financial Information






|                                                                                                               |                                                                                                                                                                                                                       |                             |            |           | 
|-------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------- | ---------- | --------- | 
|                                                                                                               |                                                                                                                                                                                                                       | Year Ended                  |           
|                                                                                                               |                                                                                                                                                                                                                       | December 31, 2004           |           
|                                                                                                               |                                                                                                                                                                                                                       |                             |           
|                                                                                                               |                                                                                                                                                                                                                       | (In thousands, except share |           
|                                                                                                               |                                                                                                                                                                                                                       | and per share data)         |           
|Net income attributable to common shareholders for purposes of
    computing diluted earnings per share (GAAP) |                                                                                                                                                                                                                       | $                           | 4,738      |          
|Pro 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 convertible, redeemable
    preferred stock |                             |            | 29,317    | 
|                                                                                                               | Non-cash charges attributable to beneficial conversion feature
    and accretion of redemption value of convertible, redeemable
    preferred stock                                                                   |                             |            | 129       | 
|                                                                                                               | Preferred stock dividends                                                                                                                                                                                             |                             |            | 434       | 
|                                                                                                               |                                                                                                                                                                                                                       |                             |           
|Pro forma net income for diluted earnings per share calculation
    (non-GAAP)                                 |                                                                                                                                                                                                                       | $                           | 34,618     |          
|                                                                                                               |                                                                                                                                                                                                                       |                             |           
|Diluted earnings per share (GAAP)                                                                              |                                                                                                                                                                                                                       | $                           | 0.18       |          
|                                                                                                               |                                                                                                                                                                                                                       |                             |           
|Pro forma diluted earnings per share (non-GAAP)                                                                |                                                                                                                                                                                                                       | $                           | 1.24       |          
|                                                                                                               |                                                                                                                                                                                                                       |                             |           
|Diluted weighted average shares outstanding (GAAP)                                                             |                                                                                                                                                                                                                       |                             | 25,734,515 |          
|Pro forma effect of dilutive securities:                                                                       |                                                                                                                                                                                                                       |                             |            |          
|                                                                                                               | Convertible, redeemable preferred stock                                                                                                                                                                               |                             |            | 2,094,383 | 
|                                                                                                               |                                                                                                                                                                                                                       |                             |           
|Pro forma diluted weighted average shares outstanding (non-GAAP)                                               |                                                                                                                                                                                                                       |                             | 27,828,898 |          
|                                                                                                               |                                                                                                                                                                                                                       |                             |           

Overview and Introduction








22



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23



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|                                                                                                                   |  |                                  |         |  |      |   |         |          |  |  |      |   
|------------------------------------------------------------------------------------------------------------------ |  | -------------------------------- | ------- |  | ---- | - | ------- | -------- |  |  | ---- | --
|                                                                                                                   |  | For the Years Ended December 31, |        
|                                                                                                                   |  |                                  |        
|                                                                                                                   |  | 2004                             |         |  | 2003 |   |         | % Change | 
|                                                                                                                   |  |                                  |         |  |      |   |         |          | 
|Statistical Data:                                                                                                  |  |                                  |         |  |      |   |         |          |  |  |      |   
|Client employees at period end                                                                                     |  |                                  | 129,876 |  |      |   | 106,452 |          |  |  | 22.0 | % 
|Clients at period end(1)                                                                                           |  |                                  | 8,539   |  |      |   | 7,723   |          |  |  | 10.6 | % 
|Average number of client employees at period end/clients at
    period end                                         |  |                                  | 15.21   |  |      |   | 13.78   |          |  |  | 10.4 | % 
|Average number of client employees paid by month(2)                                                                |  |                                  | 119,857 |  |      |   | 87,819  |          |  |  | 36.5 | % 
|Average wage per average number of client employees paid by month                                                  |  | $                                | 35,953  |  |      | $ | 33,569  |          |  |  | 7.1  | % 
|Professional service fees per average number of client employees
    paid by month                                 |  | $                                | 1,125   |  |      | $ | 1,109   |          |  |  | 1.4  | % 
|Gross profit per average number of client employees paid by month                                                  |  | $                                | 1,496   |  |      | $ | 1,318   |          |  |  | 13.5 | % 
|Operating expense excluding depreciation and amortization per
    average number of client employees paid by month |  | $                                | 948     |  |      | $ | 988     |          |  |  | (4.0 | )%
|Operating income per average number of client employees paid by
    month                                          |  | $                                | 430     |  |      | $ | 246     |          |  |  | 74.8 | % 






|    |                                                                                                                                                                                                                                                                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | 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.



Acquisitions


EPIX Acquisition.


TeamStaff Acquisition.


24



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Revenues






Reporting Revenue Gross as a Principal versus
Net as an Agent.




Cost Of Services








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| |   |                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Companys Claims Administration Department actively
    reviews unemployment claims, and if warranted, contests claims
    it believes are improper.
|
| |  | Many states allow the Company to avoid unemployment tax rate
    increases through the use of voluntary contributions.                                  
|
| |  | Where allowed, the Company uses multiple state accounts for the
    classification of our workers.                                                      
|
| |  | In certain states, the Company elects to report under our
    clients rates.                                                                           
|
| |  | The Company utilizes state successorship rules for its
    acquisitions of client portfolios of other companies.                                        

Operating Expenses




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Income Taxes




RESULTS OF OPERATIONS




| |                                                                           
| | --------------------------------------------------------------------------
| | Year Ended December 31, 2004 Compared to Year Ended
    December 31, 2003.



| |         
| | --------
| | Revenues



|                  |                                                                                                        |                                                                                    |         |           |              |   |         |           |       |   |      |       |     |  
|----------------- | ------------------------------------------------------------------------------------------------------ | ---------------------------------------------------------------------------------- | ------- | --------- | ------------ | - | ------- | --------- | ----- | - | ---- | ----- | --- | -
|                  |                                                                                                        | December 31,                                                                       |         |           | December 31, |   |         |          
|                  |                                                                                                        | 2004                                                                               |         |           | 2003         |   |         | % Change  |      
|                  |                                                                                                        |                                                                                    |         |           |              |   |         |           |      
|                  |                                                                                                        | (In thousands,                                                                     |        
|                  |                                                                                                        | except statistical data)                                                           |        
|Revenues:         |                                                                                                        |                                                                                    |         |           |              |   |         |           |       |   |      |      
|                  | Professional service fees                                                                              |                                                                                    | $       | 134,781   |              |   | $       | 97,376    |       |   |      | 38.4  | %  
|                  | Employee health and welfare benefits                                                                   |                                                                                    |         | 314,494   |              |   |         | 214,701   |       |   |      | 46.5  | %  
|                  | Workers compensation                                                                                  |                                                                                    |         | 117,669   |              |   |         | 104,225   |       |   |      | 12.9  | %  
|                  | State unemployment taxes and other                                                                     |                                                                                    |         | 18,537    |              |   |         | 9,525     |       |   |      | 94.6  | %  
|                  |                                                                                                        |                                                                                    |         |           |              |   |         |           |      
|Total revenues    |                                                                                                        | $                                                                                  | 585,481 |           |              | $ | 425,827 |           |       |   | 37.5 | %    
|                  |                                                                                                        |                                                                                    |         |           |              |   |         |           |      
|Statistical data: |                                                                                                        |                                                                                    |         |           |              |   |         |           |       |   |      |      
|                  | Gross salaries and wages (in thousands)                                                                |                                                                                    | $       | 4,309,260 |              |   | $       | 2,948,005 |       |   |      | 46.2  | %  
|                  | Average number of client employees paid by month(1)                                                    |                                                                                    |         | 119,857   |              |   |         | 87,819    |       |   |      | 36.5  | %  
|                  | Average wage per average number of client employees paid by month                                      |                                                                                    | $       | 35,953    |              |   | $       | 33,569    |       |   |      | 7.1   | %  
|                  | Workers compensation billing per one hundred dollars of
    workers compensation wages(2)            |                                                                                    | $       | 2.88      |              |   | $       | 3.70      |       |   |      | (22.2 | )% 
|                  | Workers compensation manual premium per one hundred
    dollars of workers compensation wages(2),(3) |                                                                                    | $       | 3.50      |              |   | $       | 4.27      |       |   |      | (18.0 | )% 
|                  |                                                                                                        | Professional service fees per average number of client employees
    paid by month |         | $         | 1,125        |   |         | $         | 1,109 |   |      |       | 1.4 | %
|                  |                                                                                                        | Client employee health benefits plan participation                                 |         |           | 38           | % |         |           | 36    | % |      |       | 5.6 | %






|    |                                                                                                                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The average number of client employees paid by month is
    calculated based upon the sum of the number of paid client
    employees at the end of each month divided by the number of
    months in the period.
|   
|(2) | Workers compensation wages exclude the wages of clients
    electing out of the Companys workers compensation
    program.                                                                                   
|   
|(3) | Manual premium rate data is derived from tables of AIG in effect
    for 2004 and 2003, respectively.                                                                                                           





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Cost of Services




|                       |                                                                                                         |                       |         |           |              |   |         |           |   |  |      |       |   
|---------------------- | ------------------------------------------------------------------------------------------------------- | --------------------- | ------- | --------- | ------------ | - | ------- | --------- | - |  | ---- | ----- | --
|                       |                                                                                                         | December 31,          |         |           | December 31, |   |         |          
|                       |                                                                                                         | 2004                  |         |           | 2003         |   |         | % Change  |  
|                       |                                                                                                         |                       |         |           |              |   |         |           |  
|                       |                                                                                                         | (In thousands, except |         |           |             
|                       |                                                                                                         | statistical data)     |         |           |             
|Cost of services:      |                                                                                                         |                       |         |           |              |   |         |           |   |  |      |      
|                       | Employee health and welfare benefits                                                                    |                       | $       | 307,662   |              |   | $       | 212,081   |   |  |      | 45.1  | % 
|                       | Workers compensation                                                                                   |                       |         | 77,806    |              |   |         | 90,305    |   |  |      | (13.8 | )%
|                       | State unemployment taxes and other                                                                      |                       |         | 20,672    |              |   |         | 7,723     |   |  |      | 167.7 | % 
|                       |                                                                                                         |                       |         |           |              |   |         |           |  
|Total cost of services |                                                                                                         | $                     | 406,140 |           |              | $ | 310,109 |           |   |  | 31.0 | %    
|                       |                                                                                                         |                       |         |           |              |   |         |           |  
|Statistical data:      |                                                                                                         |                       |         |           |              |   |         |           |   |  |      |      
|                       | Gross salaries and wages (in thousands)                                                                 |                       | $       | 4,309,260 |              |   | $       | 2,948,005 |   |  |      | 46.2  | % 
|                       | Average number of client employees paid by month(1)                                                     |                       |         | 119,857   |              |   |         | 87,819    |   |  |      | 36.5  | % 
|                       | Workers compensation cost rate per one hundred dollars of
    workers compensation wages(2)            |                       | $       | 1.91      |              |   | $       | 3.20      |   |  |      | (40.3 | )%
|                       | Number of workers compensation claims(3)                                                               |                       |         | 6,489     |              |   |         | 5,765     |   |  |      | 12.6  | % 
|                       | Frequency of workers compensation claims per one million
    dollars of workers compensation wages(2) |                       |         | 1.59      | x            |   |         | 2.00      | x |  |      | (20.5 | )%






|    |                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 in Critical
    Accounting Estimates.







29



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##### Table of Contents







Operating Expenses




|                         |                                  |                       |         |        |              |   |        |          |  |  |      |      |  
|------------------------ | -------------------------------- | --------------------- | ------- | ------ | ------------ | - | ------ | -------- |  |  | ---- | ---- | -
|                         |                                  | December 31,          |         |        | December 31, |   |        |         
|                         |                                  | 2004                  |         |        | 2003         |   |        | % Change | 
|                         |                                  |                       |         |        |              |   |        |          | 
|                         |                                  | (In thousands, except |         |        |             
|                         |                                  | statistical data)     |         |        |             
|Operating expenses:      |                                  |                       |         |        |              |   |        |          |  |  |      |     
|                         | Salaries, wages and commissions  |                       | $       | 71,803 |              |   | $      | 55,287   |  |  |      | 29.9 | %
|                         | Other general and administrative |                       |         | 41,809 |              |   |        | 31,476   |  |  |      | 32.8 | %
|                         | Depreciation and amortization    |                       |         | 14,168 |              |   |        | 7,370    |  |  |      | 92.2 | %
|                         |                                  |                       |         |        |              |   |        |          | 
|Total operating expenses |                                  | $                     | 127,780 |        |              | $ | 94,133 |          |  |  | 35.7 | %   
|                         |                                  |                       |         |        |              |   |        |          | 
|Statistical data:        |                                  |                       |         |        |              |   |        |          |  |  |      |     
|                         | Internal employees at year end   |                       |         | 993    |              |   |        | 954      |  |  |      | 4.1  | %









Income Taxes




Net Income and Diluted Earnings Per Share




30



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##### Table of Contents







| |                                                    
| | ---------------------------------------------------
| | Preferred Stock Conversion and Accounting Treatment







31



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##### Table of Contents





| |                                                                          
| | -------------------------------------------------------------------------
| | Year Ended December 31, 2003 Compared to Year Ended
    December 31, 2002



| |         
| | --------
| | Revenues



|                  |                                                                                                    |                       |         |           |              |   |         |           |   |  |      |      |   
|----------------- | -------------------------------------------------------------------------------------------------- | --------------------- | ------- | --------- | ------------ | - | ------- | --------- | - |  | ---- | ---- | --
|                  |                                                                                                    | December 31,          |         |           | December 31, |   |         |          
|                  |                                                                                                    | 2003                  |         |           | 2002         |   |         | % Change  |  
|                  |                                                                                                    |                       |         |           |              |   |         |           |  
|                  |                                                                                                    | (In thousands, except |         |           |             
|                  |                                                                                                    | statistical data)     |         |           |             
|Revenues:         |                                                                                                    |                       |         |           |              |   |         |           |   |  |      |     
|                  | Professional service fees                                                                          |                       | $       | 97,376    |              |   | $       | 89,563    |   |  |      | 8.7  | % 
|                  | Employee health and welfare benefits                                                               |                       |         | 214,701   |              |   |         | 180,203   |   |  |      | 19.1 | % 
|                  | Workers compensation                                                                              |                       |         | 104,225   |              |   |         | 95,977    |   |  |      | 8.6  | % 
|                  | State unemployment taxes and other                                                                 |                       |         | 9,525     |              |   |         | 8,911     |   |  |      | 6.9  | % 
|                  |                                                                                                    |                       |         |           |              |   |         |           |  
|Total revenues    |                                                                                                    | $                     | 425,827 |           |              | $ | 374,654 |           |   |  | 13.7 | %   
|                  |                                                                                                    |                       |         |           |              |   |         |           |  
|Statistical data: |                                                                                                    |                       |         |           |              |   |         |           |   |  |      |     
|                  | Gross salaries and wages (in thousands)                                                            |                       | $       | 2,948,005 |              |   | $       | 2,894,919 |   |  |      | 1.8  | % 
|                  | Average number of client employees paid by month(1)                                                |                       |         | 87,819    |              |   |         | 96,741    |   |  |      | (9.2 | )%
|                  | Average wage per average number of client employees paid by month                                  |                       | $       | 33,569    |              |   | $       | 29,924    |   |  |      | 12.2 | % 
|                  | Workers compensation billing per one hundred dollars of
    workers compensation wages           |                       | $       | 3.70      |              |   | $       | 3.41      |   |  |      | 8.5  | % 
|                  | Workers compensation manual premium per one hundred
    dollars of workers compensation wages(2) |                       | $       | 4.27      |              |   | $       | 4.67      |   |  |      | (8.6 | )%
|                  | Professional service fees per average number of client employees
    paid by month                 |                       | $       | 1,109     |              |   | $       | 926       |   |  |      | 19.8 | % 
|                  | Client employee health benefits participation                                                      |                       |         | 36        | %            |   |         | 36        | % |  |      |     |   






|    |                                                                                                                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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) | Manual premium rate data is derived from tables of AIG in effect
    for 2003.                                                                                                                                  









32



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Cost of Services




|                       |                                                                                                      |                       |         |           |              |   |         |           |   |  |     |       |   
|---------------------- | ---------------------------------------------------------------------------------------------------- | --------------------- | ------- | --------- | ------------ | - | ------- | --------- | - |  | --- | ----- | --
|                       |                                                                                                      | December 31,          |         |           | December 31, |   |         | %         |  
|                       |                                                                                                      | 2003                  |         |           | 2002         |   |         | Change    |  
|                       |                                                                                                      |                       |         |           |              |   |         |           |  
|                       |                                                                                                      | (In thousands, except |         |           |             
|                       |                                                                                                      | statistical data)     |         |           |             
|Cost of services:      |                                                                                                      |                       |         |           |              |   |         |           |   |  |     |      
|                       | Employee health and welfare benefits                                                                 |                       | $       | 212,081   |              |   | $       | 190,030   |   |  |     | 11.6  | % 
|                       | Workers compensation                                                                                |                       |         | 90,305    |              |   |         | 87,991    |   |  |     | 2.6   | % 
|                       | State unemployment taxes and other                                                                   |                       |         | 7,723     |              |   |         | 6,109     |   |  |     | 26.4  | % 
|                       |                                                                                                      |                       |         |           |              |   |         |           |  
|Total cost of services |                                                                                                      | $                     | 310,109 |           |              | $ | 284,130 |           |   |  | 9.1 | %    
|                       |                                                                                                      |                       |         |           |              |   |         |           |  
|Statistical data:      |                                                                                                      |                       |         |           |              |   |         |           |   |  |     |      
|                       | Gross salaries and wages (in thousands)                                                              |                       | $       | 2,948,005 |              |   | $       | 2,894,919 |   |  |     | 1.8   | % 
|                       | Average number of client employees paid by month(1)                                                  |                       |         | 87,819    |              |   |         | 96,741    |   |  |     | (9.2  | )%
|                       | Workers compensation cost rate per one hundred dollars of
    workers compensation wages            |                       | $       | 3.20      |              |   | $       | 3.13      |   |  |     | 2.2   | % 
|                       | Number of workers compensation claims(2)                                                            |                       |         | 5,765     |              |   |         | 7,701     |   |  |     | (25.1 | )%
|                       | Frequency of workers compensation claims per one million
    dollars of workers compensation wages |                       |         | 2.00      | x            |   |         | 2.74      | x |  |     | (27.0 | )%

33



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|    |                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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) | 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 in Critical
    Accounting Estimates.











Operating Expenses




|                               |                                  |                       |        |        |              |   |        |          |  |  |      |      |   
|------------------------------ | -------------------------------- | --------------------- | ------ | ------ | ------------ | - | ------ | -------- |  |  | ---- | ---- | --
|                               |                                  | December 31,          |        |        | December 31, |   |        |         
|                               |                                  | 2003                  |        |        | 2002         |   |        | % Change | 
|                               |                                  |                       |        |        |              |   |        |          | 
|                               |                                  | (In thousands, except |        |        |             
|                               |                                  | statistical data)     |        |        |             
|Operating expenses:            |                                  |                       |        |        |              |   |        |          |  |  |      |     
|                               | Salaries, wages and commissions  |                       | $      | 55,287 |              |   | $      | 52,341   |  |  |      | 5.6  | % 
|                               | Other general and administrative |                       |        | 31,476 |              |   |        | 25,091   |  |  |      | 25.4 | % 
|                               | Depreciation and amortization    |                       |        | 7,370  |              |   |        | 8,116    |  |  |      | (9.2 | )%
|                               |                                  |                       |        |        |              |   |        |          | 
|Total operating expenses       |                                  | $                     | 94,133 |        |              | $ | 85,548 |          |  |  | 10.0 | %   
|                               |                                  |                       |        |        |              |   |        |          | 
|Statistical Data:              |                                  |                       |        |        |              |   |        |          |  |  |      |     
|Internal employees at year end |                                  |                       | 954    |        |              |   | 901    |          |  |  | 5.9  | %   



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Income Taxes




LIQUIDITY AND CASH FLOWS




| |          
| | ---------
| | Cash Flow



| |        
| | -------
| | General







35



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| |                
| | ---------------
| | Restricted Cash





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|                                                    |                                                |                |        |       |              |   |         |        | 
|--------------------------------------------------- | ---------------------------------------------- | -------------- | ------ | ----- | ------------ | - | ------- | ------ | 
|                                                    |                                                | December 31,   |        |       | December 31, |  
|                                                    |                                                | 2004           |        |       | 2003         |  
|                                                    |                                                |                |        |       |              |  
|                                                    |                                                | (In thousands) |       
|Certificates of deposit  restricted:               |                                                |                |        |       |              |   |         |       
|                                                    | BCBSFL standby letter of credit                |                | $      | 6,000 |              |   | $       | 6,000  | 
|                                                    | Other                                          |                |        | 33    |              |   |         | 32     | 
|                                                    |                                                |                |        |       |              |  
|Total certificates of deposit  restricted          |                                                |                | 6,033  |       |              |   | 6,032   |       
|                                                    |                                                |                |        |       |              |  
|Short-term marketable securities  restricted:      |                                                |                |        |       |              |   |         |       
|                                                    | General insurance collateral obligations  AIG |                |        | 4,168 |              |   |         | 2,635  | 
|                                                    | Workers compensation collateral  CNA         |                |        |      |              |   |         | 79,136 | 
|                                                    | Escrow for TeamStaff acquisition               |                |        |      |              |   |         | 2,500  | 
|                                                    |                                                |                |        |       |              |  
|Total short-term marketable securities  restricted |                                                |                | 4,168  |       |              |   | 84,271  |       
|                                                    |                                                |                |        |       |              |  
|Long-term marketable securities restricted:         |                                                |                |        |       |              |   |         |       
|                                                    | Workers compensation collateral  AIG         |                |        | 3,488 |              |   |         | 17,023 | 
|                                                    | Rabbi trust                                    |                |        | 4,947 |              |   |         |       | 
|                                                    |                                                |                |        |       |              |  
|Total long-term marketable securities  restricted  |                                                |                | 8,435  |       |              |   | 17,023  |       
|                                                    |                                                |                |        |       |              |  
|Total restricted assets                             |                                                | $              | 18,636 |       |              | $ | 107,326 |       
|                                                    |                                                |                |        |       |              |  













| |                                     
| | ------------------------------------
| | Cash Flows from Operating Activities



37



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| |                                     
| | ------------------------------------
| | Cash Flows from Investing Activities





| |                                     
| | ------------------------------------
| | Cash Flows from Financing Activities







Inflation




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Commitments and Contractual Obligations


Off-Balance Sheet Arrangements 


Table Of Contractual Arrangements 


|                            |  |                       |  |           |       |  |           |   |           |           |  |   |         |  |  |  |      | 
|--------------------------- |  | --------------------- |  | --------- | ----- |  | --------- | - | --------- | --------- |  | - | ------- |  |  |  | ---- | 
|                            |  | Payment Due by Period | 
|                            |  |                       | 
|Contractual                 |  |                       |  | Less than |       |  |           |   | More than |          
|Obligations                 |  | Total                 |  | 1 Year    |       |  | 1-3 Years |   |           | 4-5 Years |  |   | 5 Years | 
|                            |  |                       |  |           |       |  |           |   |           |           |  |   |         | 
|Long-term debt obligations  |  | None                  |  |           | None  |  |           |   | None      |           |  |   | None    |  |  |  | None | 
|Capital lease obligations   |  | None                  |  |           | None  |  |           |   | None      |           |  |   | None    |  |  |  | None | 
|Operating lease obligations |  | $15,314               |  | $         | 6,131 |  |           | $ | 6,037     |           |  | $ | 3,146   |  |  |  | None | 
|Purchase obligations        |  | None                  |  |           | None  |  |           |   | None      |           |  |   | None    |  |  |  | None | 
|Other                       |  | None                  |  |           | None  |  |           |   | None      |           |  |   | None    |  |  |  | None | 
|                            |  |                       |  |           |       |  |           |   |           |           |  |   |         | 
|Total                       |  | $15,314               |  | $         | 6,131 |  |           | $ | 6,037     |           |  | $ | 3,146   |  |  |  | None | 
|                            |  |                       |  |           |       |  |           |   |           |           |  |   |         | 

CRITICAL ACCOUNTING ESTIMATES




Workers Compensation Receivable/ Reserves








39



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|                                                                                                              |                     |                          |        |        |      |   |        |        |  |   |        |        |  |      |         |        |  |   |         |        | 
|------------------------------------------------------------------------------------------------------------- | ------------------- | ------------------------ | ------ | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ |  | ---- | ------- | ------ |  | - | ------- | ------ | 
|                                                                                                              |                     | Years Ended December 31, |       
|                                                                                                              |                     |                          |       
|                                                                                                              |                     | 2004                     |        |        | 2003 |   |        | 2002   |  |   | 2001   |        |  | 2000 |        
|                                                                                                              |                     |                          |        |        |      |   |        |        |  |   |        |        |  |      |        
|                                                                                                              |                     | (Dollars in thousands)   |       
|Originally reported reserves for unpaid claims and claims
    expenses limited to $1.0 million per occurrence |                     | $                        | 73,000 |        |      | $ | 65,000 |        |  | $ | 76,200 |        |  | $    | 103,000 |        |  | $ | 109,000 |       
|Number of claims reported as of:                                                                              |                     |                          |        |        |      |   |        |        |  |   |        |        |  |      |         |        |  |   |         |       
|                                                                                                              | End of initial year |                          |        | 6,489  |      |   |        | 5,765  |  |   |        | 7,701  |  |      |         | 10,195 |  |   |         | 11,888 | 
|                                                                                                              | One year later      |                          |        |       |      |   |        | 5,916  |  |   |        | 7,856  |  |      |         | 10,475 |  |   |         | 12,088 | 
|                                                                                                              | Two years later     |                          |        |       |      |   |        |       |  |   |        | 7,873  |  |      |         | 10,495 |  |   |         | 12,114 | 
|                                                                                                              | Three years later   |                          |        |       |      |   |        |       |  |   |        |       |  |      |         | 10,500 |  |   |         | 12,118 | 
|                                                                                                              | Four years later    |                          |        |       |      |   |        |       |  |   |        |       |  |      |         |       |  |   |         | 12,119 | 
|Number of open claims reported as of:                                                                         |                     |                          |        |        |      |   |        |        |  |   |        |        |  |      |         |        |  |   |         |       
|                                                                                                              | End of initial year |                          |        | 2,045  |      |   |        | 1,604  |  |   |        | 1,632  |  |      |         | 2,632  |  |   |         | 3,077  | 
|                                                                                                              | One year later      |                          |        |       |      |   |        | 333    |  |   |        | 462    |  |      |         | 791    |  |   |         | 965    | 
|                                                                                                              | Two years later     |                          |        |       |      |   |        |       |  |   |        | 251    |  |      |         | 286    |  |   |         | 532    | 
|                                                                                                              | Three years later   |                          |        |       |      |   |        |       |  |   |        |       |  |      |         | 156    |  |   |         | 148    | 
|                                                                                                              | Four years later    |                          |        |       |      |   |        |       |  |   |        |       |  |      |         |       |  |   |         | 93     | 
|Insurance carrier open case reserve amount as of:                                                             |                     |                          |        |        |      |   |        |        |  |   |        |        |  |      |         |        |  |   |         |       
|                                                                                                              | End of initial year |                          | $      | 15,339 |      |   | $      | 12,444 |  |   | $      | 15,272 |  |      | $       | 23,087 |  |   | $       | 22,315 | 
|                                                                                                              | One year later      |                          |        |       |      |   | $      | 9,253  |  |   | $      | 11,249 |  |      | $       | 14,086 |  |   | $       | 16,796 | 
|                                                                                                              | Two years later     |                          |        |       |      |   |        |       |  |   | $      | 6,579  |  |      | $       | 8,223  |  |   | $       | 12,105 | 
|                                                                                                              | Three years later   |                          |        |       |      |   |        |       |  |   |        |       |  |      | $       | 4,814  |  |   | $       | 5,533  | 
|                                                                                                              | Four years later    |                          |        |       |      |   |        |       |  |   |        |       |  |      |         |       |  |   | $       | 5,102  | 

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|                                                       |                     |                          |   |        |      |  |   |        |  |  |      |        |  |      |   |         |  |  |   |         | 
|------------------------------------------------------ | ------------------- | ------------------------ | - | ------ | ---- |  | - | ------ |  |  | ---- | ------ |  | ---- | - | ------- |  |  | - | ------- | 
|                                                       |                     | Years Ended December 31, |  
|                                                       |                     |                          |  
|                                                       |                     | 2004                     |   |        | 2003 |  |   | 2002   |  |  | 2001 |        |  | 2000 |  
|                                                       |                     |                          |   |        |      |  |   |        |  |  |      |        |  |      |  
|                                                       |                     | (Dollars in thousands)   |  
|Cumulative net paid claims by insurance carrier as of: |                     |                          |   |        |      |  |   |        |  |  |      |        |  |      |   |         |  |  |   |        
|                                                       | End of initial year |                          | $ | 13,876 |      |  | $ | 14,502 |  |  | $    | 16,859 |  |      | $ | 21,345  |  |  | $ | 22,688  | 
|                                                       | One year later      |                          |   |       |      |  | $ | 30,790 |  |  | $    | 38,006 |  |      | $ | 47,461  |  |  | $ | 50,524  | 
|                                                       | Two years later     |                          |   |       |      |  |   |       |  |  | $    | 50,182 |  |      | $ | 65,925  |  |  | $ | 69,251  | 
|                                                       | Three years later   |                          |   |       |      |  |   |       |  |  |      |       |  |      | $ | 72,457  |  |  | $ | 81,033  | 
|                                                       | Four years later    |                          |   |       |      |  |   |       |  |  |      |       |  |      |   |        |  |  | $ | 85,241  | 
|Undiscounted reserves reestimated as of:               |                     |                          |   |        |      |  |   |        |  |  |      |        |  |      |   |         |  |  |   |        
|                                                       | End of initial year |                          | $ | 73,000 |      |  | $ | 65,000 |  |  | $    | 76,200 |  |      | $ | 103,000 |  |  | $ | 109,000 | 
|                                                       | One year later      |                          |   |       |      |  | $ | 63,000 |  |  | $    | 78,000 |  |      | $ | 98,000  |  |  | $ | 109,000 | 
|                                                       | Two years later     |                          |   |       |      |  |   |       |  |  | $    | 71,000 |  |      | $ | 99,000  |  |  | $ | 108,400 | 
|                                                       | Three years later   |                          |   |       |      |  |   |       |  |  |      |       |  |      | $ | 93,000  |  |  | $ | 105,000 | 
|                                                       | Four years later    |                          |   |       |      |  |   |       |  |  |      |       |  |      |   |        |  |  | $ | 104,000 | 



|                                                                                       |  |                                         |         |   |      |   |         |           |  |   |          |  
|-------------------------------------------------------------------------------------- |  | --------------------------------------- | ------- | - | ---- | - | ------- | --------- |  | - | -------- | -
|                                                                                       |  | For the Policy Years Ended December 31, |        
|                                                                                       |  |                                         |        
|                                                                                       |  | 2004                                    |         |   | 2003 |   |         | 2000-2002 | 
|                                                                                       |  |                                         |         |   |      |   |         |           | 
|                                                                                       |  | (In thousands)                          |        
|Actual premium/collateral payments to carriers                                         |  | $                                       | 111,402 |   |      | $ | 85,000  |           |  | $ | 293,720  |  
|                                                                                       |  |                                         |         |   |      |   |         |           | 
|Paid claims by insurance carrier                                                       |  |                                         | (13,876 | ) |      |   | (30,790 | )         |  |   | (207,880 | )
|Estimated future claims covered by premium/collateral                                  |  |                                         | (59,124 | ) |      |   | (32,210 | )         |  |   | (60,120  | )
|                                                                                       |  |                                         |         |   |      |   |         |           | 
|Total estimated ultimate claims                                                        |  |                                         | (73,000 | ) |      |   | (63,000 | )         |  |   | (268,000 | )
|Estimated interest on premium/collateral payments earned through
    December 31, 2004 |  |                                         | 1,545   |   |      |   | 2,351   |           |  |   | 602      |  
|                                                                                       |  |                                         |         |   |      |   |         |           | 
|Estimated return of premium/collateral (undiscounted)                                  |  | $                                       | 39,947  |   |      | $ | 24,351  |           |  | $ | 26,322   |  
|                                                                                       |  |                                         |         |   |      |   |         |           | 



Intangible Assets




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| |                                 
| | --------------------------------
| | Medical Benefit Plan Liabilities













|                                       |  |              |        |  |      |   |        | 
|-------------------------------------- |  | ------------ | ------ |  | ---- | - | ------ | 
|                                       |  | Year Ended   |       
|                                       |  | December 31, |       
|                                       |  |              |       
|                                       |  | 2004         |        |  | 2003 |  
|                                       |  |              |        |  |      |  
|Incurred but not reported claims       |  | $            | 14,580 |  |      | $ | 17,302 | 
|Other health plan liabilities payable  |  |              | 4,251  |  |      |   | 2,931  | 
|                                       |  |              |        |  |      |  
|Total medical benefit plan liabilities |  | $            | 18,831 |  |      | $ | 20,233 | 
|                                       |  |              |        |  |      |  







| |                         
| | ------------------------
| | State Unemployment Taxes



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| |                                
| | -------------------------------
| | Allowance for Doubtful Accounts





| |   |                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the fact that 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.                                                                                    





| |               
| | --------------
| | Deferred Taxes



NEW ACCOUNTING PRONOUNCEMENTS


Share-Based Payment Accounting
for Stock Issued to Employees,


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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS






| |   |                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | potential liability as a co-employer as a result of acts or
    omissions by the Companys clients or client employees;                                                          
|
| |  | exposure to client credit risk as a result of the Companys
    obligation to make certain payments in respect of client
    employees;                                          
|
| |  | unfavorable determinations under certain laws and regulations
    regarding the Companys status as an employer
    of client employees;                                       
|
| |  | inadequacy of the Companys insurance-related loss reserves
    to cover its ultimate liability for losses;                                                                      
|
| |  | unavailability of insurance coverage for workers
    compensation, medical benefits and general liability on
    financial terms and premium rates acceptable to the Company;   
|
| |  | significant collateral requirements in respect of the
    Companys obligations to its insurance carriers and the
    potential for those requirements to increase in the future;
|
| |  | the Companys failure to comply with applicable laws and
    regulations in a complex regulatory environment;                                                                    

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| |   |                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | inexperience of a large portion of the Companys sales
    staff;                                                                                                                                                  
|
| |  | the Companys failure to properly manage its growth and to
    successfully integrate acquired companies, including risks of
    client attrition and the risks associated with assumed employee
    benefit plans;
|
| |  | risks associated with geographic market concentration;                                                                                                                                                             
|
| |  | risks associated with expansion into additional states with
    varying state regulatory requirements;                                                                                                             
|
| |  | the impact of competition from existing and new businesses
    offering human resource outsourcing services;                                                                                                       
|
| |  | the ability of the Companys clients to terminate their
    relationship with the Company upon 30 days or less notice;                                                                                             
|
| |  | errors or omissions by the Company in performing its services;                                                                                                                                                     
|
| |  | the Companys dependency on key personnel and potential
    difficulties and expenses in the recruitment and retention of
    key employees;                                                                       
|
| |  | the Companys inability to attract and retain qualified
    human resource consultants and sales personnel;                                                                                                        
|
| |  | risks associated with the Companys dependency on
    technology services and third party licenses of technology;                                                                                                  
|
| |  | the Companys inability to use the Internet as a means of
    delivering human resource services;                                                                                                                  
|
| |  | fluctuations in interest rates and the associated effect on the
    Companys investments;                                                                                                                         
|
| |  | the Companys failure to adequately protect its proprietary
    rights;                                                                                                                                            
|
| |  | the Companys reliance on one financial institution to
    transfer its payroll funds;                                                                                                                             
|
| |  | the Companys reliance on a single company to provide its
    workers compensation insurance coverage and the
    Companys receivable from such company for all program
    years;                               
|
| |  | exposure to natural disasters, such as hurricanes and electrical
    failures, which affect the Company and its clients;                                                                                           
|
| |  | risks associated with the interruption of clients
    businesses due to natural disasters, which are potentially
    increased due to geographic concentration;                                                   
|
| |  | unproven client acceptance of new business model service
    offerings; and                                                                                                                                        
|
| |  | other factors which are described in further detail in the
    Companys Annual Report on this Form 10-K, and in
    other filings by the Company with the Securities and Exchange
    Commission.                 








|         |                                                               
|-------- | --------------------------------------------------------------
|ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
    RISK



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|        |                                            
|------- | -------------------------------------------
|ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA








|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
    ACCOUNTING AND FINANCIAL DISCLOSURE








|         |                        
|-------- | -----------------------
|ITEM 9A. | CONTROLS AND PROCEDURES

Disclosure Controls and Procedures




Internal Control Over Financial Reporting




|    |                                                                     
|--- | --------------------------------------------------------------------
|(a) | Managements Report On Internal Control Over
    Financial Reporting





| |   |                                                                                                                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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, and
    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.                                                                                                                                       

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|    |                                                            
|--- | -----------------------------------------------------------
|(b) | Report of Independent Registered Public Accounting
    Firm







Internal Control  Integrated Framework




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Internal Control  Integrated Framework Internal Control  Integrated Framework




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|    |                                                                               
|--- | ------------------------------------------------------------------------------
|(c) | Additional Information Regarding Internal Control Over
    Financial Reporting











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##### Table of Contents





|    |                             
|--- | ----------------------------
|(d) | Changes in Internal Controls










|         |                  
|-------- | -----------------
|ITEM 9B. | OTHER INFORMATION






PART III.







|         |                                                
|-------- | -----------------------------------------------
|ITEM 10. | DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY








|         |                       
|-------- | ----------------------
|ITEM 11. | EXECUTIVE COMPENSATION








|         |                                                                   
|-------- | ------------------------------------------------------------------
|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
    MANAGEMENT








|         |                                               
|-------- | ----------------------------------------------
|ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS








|         |                                       
|-------- | --------------------------------------
|ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES



51



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##### Table of Contents






PART IV.







|         |                                        
|-------- | ---------------------------------------
|ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES

Financial Statements


Financial Statement
Schedule




| |                                                                                 
| | --------------------------------------------------------------------------------
| | All other schedules are omitted as the required information is
    inapplicable.

Exhibit Index


|        |    |             |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|------- | -- | ----------- |  |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|No.     |    | Description
|        |    |            
|        | 2  | .1          |  |  |  | Asset Purchase Agreement among the Company, EPIX Holdings
    Corporation and the subsidiaries of EPIX Holdings Corporation
    named therein, dated March 26, 2004 (schedules and exhibits
    omitted except for Exhibit B, the Transition Services
    Agreement, but copies of the omitted items will be furnished
    supplementally to the Securities and Exchange Commission upon
    request; provided, however, that Gevity HR, Inc. may request
    confidential treatment of the omitted items) (filed as
    Exhibit 2.1 to the Companys Current Report on 8-K
    filed April 9, 2004 and incorporated herein by reference).
|        | 2  | .2          |  |  |  | Transition Service Agreement among the Company, EPIX Holdings
    Corporation and the subsidiaries of EPIX Holdings Corporation
    named therein, dated March 26, 2004 (schedules and exhibits
    omitted, but copies of the omitted items will be furnished
    supplementally to the Securities and Exchange Commission upon
    request; provided, however, that Gevity HR, Inc. may request
    confidential treatment of the omitted items) (filed as
    Exhibit 2.2 to the Companys Current Report on 8-K
    filed April 9, 2004 and incorporated herein by reference).                                                        
|        | 2  | .3          |  |  |  | Form of Agreement and Plan of Merger among SLI Transitory, L.P.,
    Staff Capital, L.P. and the Company (filed as Exhibit 4.3
    to the Companys Registration Statement No. 333-22933
    on Form S-1 filed March 7, 1997 and incorporated
    herein by reference).                                                                                                                                                                                                                                                                                                                                                                   
|        | 3  | .1          |  |  |  | Third Articles of Amendment and Restatement of the Articles of
    Incorporation, as filed with the Secretary of State of the State
    of Florida on August 12, 2004 (filed as Exhibit 3.1 to
    the Companys Quarterly Report on Form 10-Q for the quarter
    ended September 30, 2004 filed November 9, 2004 and
    incorporated herein by reference).                                                                                                                                                                                                                                                                             
|        | 3  | .2          |  |  |  | Third Amended and Restated Bylaws, dated February 16, 2005
    (filed as Exhibit 3.01 to the Companys Current Report
    on Form 8-K filed February 22, 2005 and incorporated herein
    by reference).                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        | 4  | .1          |  |  |  | Form of 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  | .2          |  |  |  | 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 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).*                                                                                                                                                                                                                                                                                                                                                                                                

52



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|        |    |             |  |  |  |                                                                                                                                                                                                                                                                                        
|------- | -- | ----------- |  |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|No.     |    | Description
|        |    |            
|        | 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. Employee Stock Purchase Plan (filed as
    Appendix B to the Companys Proxy Statement on
    Schedule 14A filed April 20, 2001 and incorporated herein
    by reference).*                                                                                            
|        | 10 | .10         |  |  |  | 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 | .11         |  |  |  | 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 | .12         |  |  |  | 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 | .13         |  |  |  | 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 | .14         |  |  |  | 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 | .15         |  |  |  | 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 | .16         |  |  |  | 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 | .17         |  |  |  | Non-Solicitation, Non-Compete and Confidentiality Agreement
    between the Company and Sal J. Uglietta, dated
    September 24, 2003 (filed as Exhibit 99.3 to the
    Companys Current Report on Form 8-K filed
    September 29, 2003 and incorporated herein by reference).*      
|        | 10 | .18         |  |  |  | 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 | .19         |  |  |  | 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 | .20         |  |  |  | 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).*                         

53



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|        |    |             |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|------- | -- | ----------- |  |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|No.     |    | Description
|        |    |            
|        | 10 | .21         |  |  |  | Form of Indemnification Agreement between the Company and each
    of its directors and executive officers (filed as
    Exhibit 10.5 to the Companys Annual Report on Form
    10-K filed March 31, 2003, and incorporated herein by
    reference).*                                                                                                                                                                                                                                                                                                                                 
|        | 10 | .22         |  |  |  | Agreement of Lease between Quixotic Investment Holdings, Inc.
    and the Company, dated March 27, 1995, for premises located
    at 600 301 Boulevard West, Suite 202, Bradenton, Florida
    34205 (filed as Exhibit 10.7 to the Companys
    Registration Statement No. 333-22933 on Form S-1 filed
    March 7, 1997 and incorporated herein by reference).                                                                                                                                                                                                                        
|        | 10 | .23         |  |  |  | Blue Cross/ Blue Shield of Florida Group Master Policy for the
    Company, effective January 1, 2003 (filed as
    Exhibit 10.19 to the Company Annual Report on Form 10-K for
    the year ended December 31, 2003 filed March 15, 2004
    and incorporated herein by reference).                                                                                                                                                                                                                                                                                                    
|        | 10 | .24         |  |  |  | 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 Annual Report on Form 10-K for
    the year ended December 31, 2003 filed March 15, 2004
    and incorporated herein by reference).                                                                                                                                                                                                                                                                                       
|        | 10 | .25         |  |  |  | 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 Commission 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 | .26         |  |  |  | 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).
|        | 10 | .27         |  |  |  | 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 | .28         |  |  |  | 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 | .29         |  |  |  | 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 | .30         |  |  |  | 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 | .31         |  |  |  | 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 | .32         |  |  |  | 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).                                                                                                                                                                                                                                                               

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|        |    |             |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|------- | -- | ----------- |  |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|No.     |    | Description
|        |    |            
|        | 10 | .33         |  |  |  | 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 | .34         |  |  |  | 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
    9/30/04 (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 | .35         |  |  |  | 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 | .36         |  |  |  | Collateral Addendum to January 1, 2002 Paid Loss
    Workers Compensation Deductible Finance Agreement between
    the Company and Continental Casualty Company, National Fire
    Insurance Company and Transportation Insurance Company
    (collectively, 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 | .37         |  |  |  | First Amendment to Credit Agreement among the Company as the
    Borrower, the subsidiaries of the Borrower named therein as the
    Guarantors, and Bank of America, N.A. as the Lender, dated
    September 22, 2004 (filed as Exhibit 10.7 to the
    Companys Current Report on 8-K filed September 24,
    2004 and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                             
|        | 10 | .38         |  |  |  | Credit Agreement among the Company as the Borrower, the
    subsidiaries of the Borrower named therein as the Guarantors,
    and Bank of America, N.A. as the Lender, dated March 26,
    2004 (schedules and exhibits omitted, except for Exhibit A
    the Form of Loan Notice and Exhibit B the Form of Revolving
    Note, but copies of the omitted items will be furnished
    supplementally to the Securities and Exchange Commission upon
    request; provided, however, that Gevity HR, Inc. may request
    confidential treatment of the omitted items) (filed as
    Exhibit 10.1 to the Companys Current Report on 8-K
    filed April 9, 2004 and incorporated herein by reference).   
|        | 10 | .39         |  |  |  | Form of the Preferred Stock Purchase Agreement among Gevity HR,
    Inc., Frontenac VIII Limited Partnership, Frontenac Masters VIII
    Limited Partnership, SunTrust Equity Funding, LLC d/b/a SunTrust
    Equity Partners and BVCF IV, L.P., dated April 24, 2003
    (filed as Exhibit 99.1 to the Companys Current Report
    on Form 8-K filed June 10, 2003 and incorporated herein by
    reference).                                                                                                                                                                                                                                                                                          
|        | 10 | .40         |  |  |  | Form of the First Amendment to Purchase Agreement among Gevity
    HR, Inc., Frontenac VIII Limited Partnership, Frontenac Masters
    VIII Limited Partnership, SunTrust Equity Funding, LLC d/b/a
    SunTrust Equity Partners, BVCF IV, L.P. and C&B Capital
    L.P., dated June 3, 2003 (filed as Exhibit 99.2 to the
    Companys Current Report on Form 8-K filed June 10,
    2003 and incorporated herein by reference).                                                                                                                                                                                                                                                                       
|        | 10 | .41         |  |  |  | Form of the Voting Rights Letter Agreement among Frontenac VIII
    Limited Partnership, Frontenac Masters VIII Limited Partnership,
    SunTrust Equity Funding, LLC d/b/a SunTrust Equity Partners,
    BVCF IV, L.P. and C&B Capital L.P., dated June 6, 2003
    (filed as Exhibit 99.4 to the Companys Current Report
    on Form 8-K filed June 10, 2003 and incorporated herein by
    reference).                                                                                                                                                                                                                                                                                               
|        | 10 | .42         |  |  |  | Form of the Registration Rights Agreement among Gevity HR, Inc.,
    Frontenac VIII Limited Partnership, Frontenac Masters VIII
    Limited Partnership, SunTrust Equity Funding, LLC d/b/a SunTrust
    Equity Partners, BVCF IV, L.P. and C&B Capital L.P., dated
    June 6, 2003 (filed as Exhibit 99.5 to the
    Companys Current Report on Form 8-K filed June 10,
    2003 and incorporated herein by reference).                                                                                                                                                                                                                                                                               

55



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|        |    |             |  |  |  |                                                                                                                                                                                                                                             
|------- | -- | ----------- |  |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|No.     |    | Description
|        |    |            
|        | 18 | .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 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,
    2004.                                                                                                       
|        | 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 | .1          |  |  |  | Certification furnished pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002.                                                                                                                                                     






|  |                                                         
|- | --------------------------------------------------------
|* | Management contract or compensatory plan or arrangement.



|  |                               
|- | ------------------------------
| | Filed electronically herewith.

56



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##### Table of Contents



SIGNATURES






| |                                  
| | ---------------------------------
| | GEVITY HR, INC.                  
|
| | /s/ Erik Vonk                    
| |                                  
| | Erik Vonk, Chairman of the Board,
| | Chief Executive Officer          





|                      |  |                                                                                                                                                                                        
|--------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                     
|Dated: March 16, 2005 |  | /s/ Erik Vonk
    --------------------------------------------------------
    Erik Vonk
    Chairman of the Board, Chief Executive Officer
    (Principal Executive Officer)          
|                     
|Dated: March 16, 2005 |  | /s/ Peter C. Grabowski
    --------------------------------------------------------
    Peter C. Grabowski
    Chief Financial Officer
    (Principal Financial and Accounting Officer)
|                     
|Dated: March 16, 2005 |  | /s/ George B. Beitzel
    --------------------------------------------------------
    George B. Beitzel
    Director                                                                  
|                     
|Dated: March 16, 2005 |  | /s/ Darcy E. Bradbury
    --------------------------------------------------------
    Darcy E. Bradbury
    Director                                                                  
|                     
|Dated: March 16, 2005 |  | /s/ James E. Cowie
    --------------------------------------------------------
    James E. Cowie
    Director                                                                        
|                     
|Dated: March 16, 2005 |  | /s/ A. D. Frazier, Jr.
    --------------------------------------------------------
    A. D. Frazier, Jr.
    Director                                                                
|                     
|Dated: March 16, 2005 |  | /s/ Jonathan H. Kagan
    --------------------------------------------------------
    Jonathan H. Kagan
    Director                                                                  
|                     
|Dated: March 16, 2005 |  | /s/ David S. Katz
    --------------------------------------------------------
    David S. Katz
    Director                                                                          

57



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##### Table of Contents



|                      |  |                                                                                                                              
|--------------------- |  | -----------------------------------------------------------------------------------------------------------------------------
|                     
|Dated: March 16, 2005 |  | /s/ James F. Manning
    --------------------------------------------------------
    James F. Manning
    Director          
|                     
|Dated: March 16, 2005 |  | /s/ Elliot B. Ross
    --------------------------------------------------------
    Elliot B. Ross
    Director              
|                     
|Dated: March 16, 2005 |  | /s/ Jeffrey A. Sonnenfeld
    --------------------------------------------------------
    Jeffrey A. Sonnenfeld
    Director

58



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##### Table of Contents



GEVITY HR, INC. AND SUBSIDIARIES


INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


AND FINANCIAL STATEMENT SCHEDULE


|                                                                                                                         |  |      |     | 
|------------------------------------------------------------------------------------------------------------------------ |  | ---- | --- | 
|                                                                                                                         |  | Page |    
|                                                                                                                         |  |      |    
|Report of Independent Registered Public
    Accounting Firm                                                              |  |      | F-2 | 
|Consolidated Balance Sheets as of
    December 31, 2004 and 2003                                                         |  |      | F-3 | 
|Consolidated Statements of Operations for
    the Years Ended December 31, 2004, 2003, and 2002                          |  |      | F-4 | 
|Consolidated Statements of Changes in
    Shareholders Equity for the Years Ended December 31,
    2004, 2003, and 2002 |  |      | F-5 | 
|Consolidated Statements of Cash Flows for
    the Years Ended December 31, 2004, 2003, and 2002                          |  |      | F-6 | 
|Notes to Consolidated Financial
    Statements                                                                           |  |      | F-7 | 
|Financial Statement
    Schedule II  Valuation and Qualifying
    Accounts                                              |  |      | S-1 | 

F-1



---



##### Table of Contents






REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
















Internal Control 
Integrated Framework








F-2



---



##### Table of Contents



GEVITY HR, INC. AND SUBSIDIARIES





CONSOLIDATED BALANCE SHEETS


|                                                                                                                                                                                                                           |                                                                                                                                                                      |                                                                                        |                           |         |              |         |        |         |         |         | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------- | ------------------------- | ------- | ------------ | ------- | ------ | ------- | ------- | ------- | 
|                                                                                                                                                                                                                           |                                                                                                                                                                      | December 31,                                                                           |                           |         | December 31, |        
|                                                                                                                                                                                                                           |                                                                                                                                                                      | 2004                                                                                   |                           |         | 2003         |        
|                                                                                                                                                                                                                           |                                                                                                                                                                      |                                                                                        |                           |         |              |        
|                                                                                                                                                                                                                           |                                                                                                                                                                      | (In $000s, except share and                                                           |                          
|                                                                                                                                                                                                                           |                                                                                                                                                                      | per share data)                                                                        |                          
|ASSETS                                                                                                                                                                                                                    
|Current assets:                                                                                                                                                                                                            |                                                                                                                                                                      |                                                                                        |                           |         |              |         |        |        
|                                                                                                                                                                                                                           | Cash and cash equivalents                                                                                                                                            |                                                                                        | $                         | 40,776  |              |         | $      | 44,682  |        
|                                                                                                                                                                                                                           | Certificates of deposit  restricted                                                                                                                                 |                                                                                        |                           | 6,033   |              |         |        | 6,032   |        
|                                                                                                                                                                                                                           | Marketable securities  restricted                                                                                                                                   |                                                                                        |                           | 4,168   |              |         |        | 84,271  |        
|                                                                                                                                                                                                                           | Accounts receivable, net                                                                                                                                             |                                                                                        |                           | 99,790  |              |         |        | 100,829 |        
|                                                                                                                                                                                                                           | Short-term workers compensation receivable, net                                                                                                                     |                                                                                        |                           | 33,405  |              |         |        | 11,734  |        
|                                                                                                                                                                                                                           | Deferred tax asset, net                                                                                                                                              |                                                                                        |                           |        |              |         |        | 2,410   |        
|                                                                                                                                                                                                                           | Other current assets                                                                                                                                                 |                                                                                        |                           | 5,982   |              |         |        | 8,281   |        
|                                                                                                                                                                                                                           |                                                                                                                                                                      |                                                                                        |                           |         |              |        
|                                                                                                                                                                                                                           |                                                                                                                                                                      |                                                                                        | Total current assets      |         |              | 190,154 |        |         |         | 258,239 | 
|Property and equipment, net                                                                                                                                                                                                |                                                                                                                                                                      |                                                                                        | 10,079                    |         |              |         | 12,253 |        
|Long-term marketable securities  restricted                                                                                                                                                                               |                                                                                                                                                                      |                                                                                        | 8,435                     |         |              |         | 17,023 |        
|Long-term workers compensation receivable, net                                                                                                                                                                            |                                                                                                                                                                      |                                                                                        | 79,310                    |         |              |         | 12,621 |        
|Intangible assets, net                                                                                                                                                                                                     |                                                                                                                                                                      |                                                                                        | 40,133                    |         |              |         | 7,128  |        
|Goodwill                                                                                                                                                                                                                   |                                                                                                                                                                      |                                                                                        | 8,692                     |         |              |         | 8,692  |        
|Deferred tax asset, net                                                                                                                                                                                                    |                                                                                                                                                                      |                                                                                        | 2,380                     |         |              |         |       |        
|Other assets                                                                                                                                                                                                               |                                                                                                                                                                      |                                                                                        | 404                       |         |              |         | 5,608  |        
|                                                                                                                                                                                                                           |                                                                                                                                                                      |                                                                                        |                           |         |              |        
|                                                                                                                                                                                                                           |                                                                                                                                                                      |                                                                                        | Total assets              |         | $            | 339,587 |        |         | $       | 321,564 | 
|                                                                                                                                                                                                                           |                                                                                                                                                                      |                                                                                        |                           |         |              |        
|                                                                                                                                                                                                                          
|LIABILITIES, CONVERTIBLE REDEEMABLE PREFERRED STOCK
    AND SHAREHOLDERS EQUITY                                                                                                                                          
|Current liabilities:                                                                                                                                                                                                       |                                                                                                                                                                      |                                                                                        |                           |         |              |         |        |        
|                                                                                                                                                                                                                           | Accrued payroll and payroll taxes                                                                                                                                    |                                                                                        | $                         | 111,687 |              |         | $      | 119,432 |        
|                                                                                                                                                                                                                           | Accrued insurance premiums, health and workers
    compensation insurance reserves                                                                                  |                                                                                        |                           | 23,191  |              |         |        | 32,071  |        
|                                                                                                                                                                                                                           | Customer deposits and prepayments                                                                                                                                    |                                                                                        |                           | 11,897  |              |         |        | 9,336   |        
|                                                                                                                                                                                                                           | Accounts payable and other accrued liabilities                                                                                                                       |                                                                                        |                           | 4,907   |              |         |        | 4,307   |        
|                                                                                                                                                                                                                           | Income taxes payable                                                                                                                                                 |                                                                                        |                           | 11,786  |              |         |        | 1,833   |        
|                                                                                                                                                                                                                           | Deferred tax liability, net                                                                                                                                          |                                                                                        |                           | 1,718   |              |         |        |        |        
|                                                                                                                                                                                                                           | Dividends payable                                                                                                                                                    |                                                                                        |                           | 1,642   |              |         |        | 1,161   |        
|                                                                                                                                                                                                                           |                                                                                                                                                                      |                                                                                        |                           |         |              |        
|                                                                                                                                                                                                                           |                                                                                                                                                                      |                                                                                        | Total current liabilities |         |              | 166,828 |        |         |         | 168,140 | 
|Long-term accrued workers compensation insurance reserves                                                                                                                                                                 |                                                                                                                                                                      |                                                                                        | 700                       |         |              |         | 59,280 |        
|Deferred tax liability, net                                                                                                                                                                                                |                                                                                                                                                                      |                                                                                        |                          |         |              |         | 296    |        
|Other long-term liabilities                                                                                                                                                                                                |                                                                                                                                                                      |                                                                                        | 6,885                     |         |              |         | 914    |        
|                                                                                                                                                                                                                           |                                                                                                                                                                      |                                                                                        |                           |         |              |        
|                                                                                                                                                                                                                           |                                                                                                                                                                      | Total liabilities                                                                      |                           |         | 174,413      |         |        |         | 228,630 |        
|                                                                                                                                                                                                                           |                                                                                                                                                                      |                                                                                        |                           |         |              |        
|Commitments and contingencies (see notes)                                                                                                                                                                                  |                                                                                                                                                                      |                                                                                        |                           |         |              |         |        |        
|Series A convertible, redeemable preferred stock,
    $0.01 par value, ($30,000 liquidation preference) 0 and
    30,000 shares authorized, issued and outstanding as of
    December 31, 2004 and 2003, respectively, net |                                                                                                                                                                      |                                                                                        |                          |         |              |         | 554    |        
|                                                                                                                                                                                                                           |                                                                                                                                                                      |                                                                                        |                           |         |              |        
|Shareholders equity:                                                                                                                                                                                                      |                                                                                                                                                                      |                                                                                        |                           |         |              |         |        |        
|                                                                                                                                                                                                                           | Common stock, $.01 par value, 100,000,000 shares
    authorized, 30,408,220 and 22,251,477 issued and outstanding as
    of December 31, 2004 and 2003, respectively |                                                                                        |                           | 304     |              |         |        | 223     |        
|                                                                                                                                                                                                                           | Additional paid in capital                                                                                                                                           |                                                                                        |                           | 152,670 |              |         |        | 78,715  |        
|                                                                                                                                                                                                                           | Retained earnings                                                                                                                                                    |                                                                                        |                           | 28,417  |              |         |        | 29,734  |        
|                                                                                                                                                                                                                           | Treasury stock (3,034,974 and 3,062,751 shares at cost,
    respectively)                                                                                            |                                                                                        |                           | (16,217 | )            |         |        | (16,292 | )      
|                                                                                                                                                                                                                           |                                                                                                                                                                      |                                                                                        |                           |         |              |        
|                                                                                                                                                                                                                           |                                                                                                                                                                      | Total shareholders equity                                                             |                           |         | 165,174      |         |        |         | 92,380  |        
|                                                                                                                                                                                                                           |                                                                                                                                                                      |                                                                                        |                           |         |              |        
|                                                                                                                                                                                                                           |                                                                                                                                                                      | Total liabilities, convertible redeemable preferred stock and
    shareholders equity |                           | $       | 339,587      |         |        | $       | 321,564 |        
|                                                                                                                                                                                                                           |                                                                                                                                                                      |                                                                                        |                           |         |              |        



F-3



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##### Table of Contents



GEVITY HR, INC. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF OPERATIONS


|                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                 |                                              |         |        |            |   |         |        |            |   |         |        |            | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------- | ------- | ------ | ---------- | - | ------- | ------ | ---------- | - | ------- | ------ | ---------- | 
|                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                 | Year Ended December 31,                      |        
|                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                 |                                              |        
|                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                 | 2004                                         |         |        | 2003       |   |         | 2002   |           
|                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                 |                                              |         |        |            |   |         |        |           
|                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                 | (In $000s, except share and per share data) |        
|Revenues                                                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                 | $                                            | 585,481 |        |            | $ | 425,827 |        |            | $ | 374,654 |       
|Cost of services                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                 |                                              | 406,140 |        |            |   | 310,109 |        |            |   | 284,130 |       
|                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                 |                                              |         |        |            |   |         |        |           
|Gross profit                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                 |                                              | 179,341 |        |            |   | 115,718 |        |            |   | 90,524  |       
|                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                 |                                              |         |        |            |   |         |        |           
|Operating expenses:                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                 |                                              |         |        |            |   |         |        |            |   |         |       
|                                                                                                                                                                                                                      | Salaries, wages and commissions                                                                                                                                                                                                                                                                                                                                                 |                                              |         | 71,803 |            |   |         | 55,287 |            |   |         | 52,341 |           
|                                                                                                                                                                                                                      | Other general and administrative                                                                                                                                                                                                                                                                                                                                                |                                              |         | 41,809 |            |   |         | 31,476 |            |   |         | 25,091 |           
|                                                                                                                                                                                                                      | Depreciation and amortization                                                                                                                                                                                                                                                                                                                                                   |                                              |         | 14,168 |            |   |         | 7,370  |            |   |         | 8,116  |           
|                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                 |                                              |         |        |            |   |         |        |           
|                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                 | Total operating expenses                     |         |        | 127,780    |   |         |        | 94,133     |   |         |        | 85,548     | 
|                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                 |                                              |         |        |            |   |         |        |           
|Operating income                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                 |                                              | 51,561  |        |            |   | 21,585  |        |            |   | 4,976   |       
|Interest income, net                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                 |                                              | 833     |        |            |   | 1,515   |        |            |   | 1,986   |       
|Other (expense) income, net                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                 |                                              | (101    | )      |            |   | (128    | )      |            |   | 126     |       
|                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                 |                                              |         |        |            |   |         |        |           
|Income before income taxes                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                 |                                              | 52,293  |        |            |   | 22,972  |        |            |   | 7,088   |       
|Income tax provision                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                 |                                              | 17,675  |        |            |   | 7,581   |        |            |   | 2,351   |       
|                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                 |                                              |         |        |            |   |         |        |           
|Net income                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                 |                                              | 34,618  |        |            |   | 15,391  |        |            |   | 4,737   |       
|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 convertible, redeemable
    preferred stock |                                                                                                                                                                                                                                                                                                                                                                                 |                                              | 29,317  |        |            |   |        |        |            |   |        |       
|Non-cash charges attributable to beneficial conversion feature
    and accretion of redemption value of convertible, redeemable
    preferred stock                                                                   |                                                                                                                                                                                                                                                                                                                                                                                 |                                              | 129     |        |            |   | 166     |        |            |   |        |       
|Preferred stock dividends                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                 |                                              | 434     |        |            |   | 781     |        |            |   |        |       
|Assumed preferred stock dividend (assuming full distribution of
    net income)                                                                                                                                       |                                                                                                                                                                                                                                                                                                                                                                                 |                                              |        |        |            |   | 1,439   |        |            |   |        |       
|                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                 |                                              |         |        |            |   |         |        |           
|Net income attributable to common shareholders                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                 | $                                            | 4,738   |        |            | $ | 13,005  |        |            | $ | 4,737   |       
|                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                 |                                              |         |        |            |   |         |        |           
|Net income per common share                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                 |                                              |         |        |            |   |         |        |            |   |         |       
|                                                                                                                                                                                                                      |  Basic                                                                                                                                                                                                                                                                                                                                                                         |                                              | $       | 0.20   |            |   | $       | 0.66   |            |   | $       | 0.23   |           
|                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                 |                                              |         |        |            |   |         |        |           
|                                                                                                                                                                                                                      |  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 convertible,
    redeemable preferred stock, see Note 17.) |                                              | $       | 0.18   |            |   | $       | 0.62   |            |   | $       | 0.22   |           
|                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                 |                                              |         |        |            |   |         |        |           
|Weighted average common shares outstanding                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                 |                                              |         |        |            |   |         |        |            |   |         |       
|                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                 |  Basic                                      |         |        | 24,124,803 |   |         |        | 19,686,185 |   |         |        | 20,722,100 | 
|                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                 |                                              |         |        |            |   |         |        |           
|                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                 |  Diluted                                    |         |        | 25,734,515 |   |         |        | 24,649,119 |   |         |        | 21,073,934 | 
|                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                 |                                              |         |        |            |   |         |        |           



F-4



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##### Table of Contents



GEVITY HR, INC. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS
EQUITY


YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002


|                                                              |                                          |                                    |            |   |        |   |            |         |  |             |          |               |  |        |         |        |          |   |   |       |   |   |         |   |  |   |         |        | 
|------------------------------------------------------------- | ---------------------------------------- | ---------------------------------- | ---------- | - | ------ | - | ---------- | ------- |  | ----------- | -------- | ------------- |  | ------ | ------- | ------ | -------- | - | - | ----- | - | - | ------- | - |  | - | ------- | ------ | 
|                                                              |                                          |                                    |            |   |        |   |            |         |  | Accumulated |          |               |  |        |        
|                                                              |                                          |                                    |            |   |        |   |            |         |  | Other       |          |               |  |        |        
|                                                              |                                          | Common                             |            |   |        |   | Additional |         |  |             |          | Comprehensive |  |        |         |        |         
|                                                              |                                          | Stock                              |            |   | Common |   |            | Paid In |  |             | Retained |               |  | Income |         |        | Treasury |   |   |      
|                                                              |                                          | (shares)                           |            |   | Stock  |   |            | Capital |  |             | Earnings |               |  | (Loss) |         |        | Stock    |   |   | Total |  
|                                                              |                                          |                                    |            |   |        |   |            |         |  |             |          |               |  |        |         |        |          |   |   |       |  
|                                                              |                                          | (In $000s, except for share data) |           
|Balance, December 31, 2001                                    |                                          |                                    | 20,612,562 |   |        | $ | 206        |         |  | $           | 38,826   |               |  | $      | 18,578  |        |          | $ | 1 |       |   | $ | (100    | ) |  | $ | 57,511  |       
|Issuance of common stock                                      |                                          |                                    | 197,995    |   |        |   | 2          |         |  |             | 562      |               |  |        |        |        |          |   |  |       |   |   | 76      |   |  |   | 640     |       
|Purchase of treasury stock                                    |                                          |                                    |           |   |        |   |           |         |  |             |         |               |  |        |        |        |          |   |  |       |   |   | (136    | ) |  |   | (136    | )     
|Tax benefit of stock option exercises                         |                                          |                                    |           |   |        |   |           |         |  |             | 10       |               |  |        |        |        |          |   |  |       |   |   |        |   |  |   | 10      |       
|Common stock dividends paid and payable                       |                                          |                                    |           |   |        |   |           |         |  |             |         |               |  |        | (4,157  | )      |          |   |  |       |   |   |        |   |  |   | (4,157  | )     
|Comprehensive income:                                         |                                          |                                    |            |   |        |   |            |         |  |             |          |               |  |        |         |        |          |   |   |       |   |   |         |   |  |   |         |       
|                                                              | Net income                               |                                    |            |  |        |   |            |        |  |             |          |              |  |        |         | 4,737  |          |   |   |      |   |   |         |  |  |   |         |        | 
|                                                              | Total comprehensive income               |                                    |            |   |        |   |            |         |  |             |          |               |  |        |         |        |          |   |   |       |   |   |         |   |  |   |         | 4,737  | 
|                                                              |                                          |                                    |            |   |        |   |            |         |  |             |          |               |  |        |         |        |          |   |   |       |  
|Balance, December 31, 2002                                    |                                          |                                    | 20,810,557 |   |        |   | 208        |         |  |             | 39,398   |               |  |        | 19,158  |        |          |   | 1 |       |   |   | (160    | ) |  |   | 58,605  |       
|Purchase of treasury stock                                    |                                          |                                    |           |   |        |   |           |         |  |             |         |               |  |        |        |        |          |   |  |       |   |   | (16,272 | ) |  |   | (16,272 | )     
|Issuance of common stock                                      |                                          |                                    | 1,440,920  |   |        |   | 15         |         |  |             | 7,365    |               |  |        |        |        |          |   |  |       |   |   | 140     |   |  |   | 7,520   |       
|Tax benefit of stock option exercises                         |                                          |                                    |           |   |        |   |           |         |  |             | 4,654    |               |  |        |        |        |          |   |  |       |   |   |        |   |  |   | 4,654   |       
|Beneficial conversion discount on redeemable preferred stock  |                                          |                                    |           |   |        |   |           |         |  |             | 27,298   |               |  |        |        |        |          |   |  |       |   |   |        |   |  |   | 27,298  |       
|Accretion of beneficial conversion feature on preferred stock |                                          |                                    |           |   |        |   |           |         |  |             |         |               |  |        | (166    | )      |          |   |  |       |   |   |        |   |  |   | (166    | )     
|Preferred stock dividends paid and payable                    |                                          |                                    |           |   |        |   |           |         |  |             |         |               |  |        | (781    | )      |          |   |  |       |   |   |        |   |  |   | (781    | )     
|Common stock dividends paid and payable                       |                                          |                                    |           |   |        |   |           |         |  |             |         |               |  |        | (3,868  | )      |          |   |  |       |   |   |        |   |  |   | (3,868  | )     
|Comprehensive income:                                         |                                          |                                    |            |   |        |   |            |         |  |             |          |               |  |        |         |        |          |   |   |       |   |   |         |   |  |   |         |       
|                                                              | Unrealized loss on marketable securities |                                    |            |  |        |   |            |        |  |             |          |              |  |        |         |       |          |   |   | (1    | ) |   |         |  |  |   |         |        | 
|                                                              | Net income                               |                                    |            |  |        |   |            |        |  |             |          |              |  |        |         | 15,391 |          |   |   |      |   |   |         |  |  |   |         |        | 
|                                                              | Total comprehensive income               |                                    |            |   |        |   |            |         |  |             |          |               |  |        |         |        |          |   |   |       |   |   |         |   |  |   |         | 15,390 | 
|                                                              |                                          |                                    |            |   |        |   |            |         |  |             |          |               |  |        |         |        |          |   |   |       |  
|Balance, December 31, 2003                                    |                                          |                                    | 22,251,477 |   |        |   | 223        |         |  |             | 78,715   |               |  |        | 29,734  |        |          |   |  |       |   |   | (16,292 | ) |  |   | 92,380  |       
|Issuance of common stock                                      |                                          |                                    | 892,038    |   |        |   | 8          |         |  |             | 3,488    |               |  |        |        |        |          |   |  |       |   |   | 75      |   |  |   | 3,571   |       
|Tax benefit of stock option exercises                         |                                          |                                    |           |   |        |   |           |         |  |             | 5,813    |               |  |        |        |        |          |   |  |       |   |   |        |   |  |   | 5,813   |       
|Accretion of beneficial conversion feature on preferred stock |                                          |                                    |           |   |        |   |           |         |  |             |         |               |  |        | (129    | )      |          |   |  |       |   |   |        |   |  |   | (129    | )     
|Conversion of preferred stock to common stock                 |                                          |                                    | 5,514,705  |   |        |   | 55         |         |  |             | 29,945   |               |  |        | (29,317 | )      |          |   |  |       |   |   |        |   |  |   | 683     |       
|Secondary stock offering                                      |                                          |                                    | 1,750,000  |   |        |   | 18         |         |  |             | 34,709   |               |  |        |        |        |          |   |  |       |   |   |        |   |  |   | 34,727  |       
|Preferred stock dividends paid                                |                                          |                                    |           |   |        |   |           |         |  |             |         |               |  |        | (434    | )      |          |   |  |       |   |   |        |   |  |   | (434    | )     
|Common stock dividends paid and payable                       |                                          |                                    |           |   |        |   |           |         |  |             |         |               |  |        | (6,055  | )      |          |   |  |       |   |   |        |   |  |   | (6,055  | )     
|Comprehensive income:                                         |                                          |                                    |            |   |        |   |            |         |  |             |          |               |  |        |         |        |          |   |   |       |   |   |         |   |  |   |         |       
|                                                              | Net income                               |                                    |            |  |        |   |            |        |  |             |          |              |  |        |         | 34,618 |          |   |   |      |   |   |         |  |  |   |         |        | 
|                                                              | Total comprehensive income               |                                    |            |  |        |   |            |        |  |             |          |              |  |        |         |       |          |   |   |      |   |   |         |  |  |   |         | 34,618 | 
|                                                              |                                          |                                    |            |   |        |   |            |         |  |             |          |               |  |        |         |        |          |   |   |       |  
|Balance, December 31, 2004                                    |                                          |                                    | 30,408,220 |   |        | $ | 304        |         |  | $           | 152,670  |               |  | $      | 28,417  |        |          | $ |  |       |   | $ | (16,217 | ) |  | $ | 165,174 |       
|                                                              |                                          |                                    |            |   |        |   |            |         |  |             |          |               |  |        |         |        |          |   |   |       |  



F-5



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##### Table of Contents



GEVITY HR, INC. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                  |                                                                                                      |                                                      |                                                                                     |                                                     |        |         |         |         |        |         |         |          |         |        |         |  
|------------------------------------------------- | ---------------------------------------------------------------------------------------------------- | ---------------------------------------------------- | ----------------------------------------------------------------------------------- | --------------------------------------------------- | ------ | ------- | ------- | ------- | ------ | ------- | ------- | -------- | ------- | ------ | ------- | -
|                                                  |                                                                                                      | Years Ended December 31,                             |                                                                                    
|                                                  |                                                                                                      |                                                      |                                                                                    
|                                                  |                                                                                                      | 2004                                                 |                                                                                     |                                                     | 2003   |         |         | 2002    |       
|                                                  |                                                                                                      |                                                      |                                                                                     |                                                     |        |         |         |         |       
|                                                  |                                                                                                      | (In $000s)                                          |                                                                                    
|CASH FLOWS FROM OPERATING ACTIVITIES:             |                                                                                                      |                                                      |                                                                                     |                                                     |        |         |         |         |        |         |         |         
|                                                  | Net income                                                                                           |                                                      | $                                                                                   | 34,618                                              |        |         | $       | 15,391  |        |         | $       | 4,737    |        
|                                                  | Adjustments to reconcile net income to net cash (used in)
    provided by operating activities:      |                                                      |                                                                                     |                                                     |        |         |         |         |        |         |         |          |        
|                                                  |                                                                                                      | Depreciation and amortization                        |                                                                                     |                                                     | 14,168 |         |         |         | 7,370  |         |         |          | 8,116   |       
|                                                  |                                                                                                      | Deferred tax provision (benefit), net                |                                                                                     |                                                     | 1,452  |         |         |         | 2,951  |         |         |          | (2,257  | )     
|                                                  |                                                                                                      | Provision for bad debts                              |                                                                                     |                                                     | 348    |         |         |         | 305    |         |         |          | 491     |       
|                                                  |                                                                                                      | Other                                                |                                                                                     |                                                     | 195    |         |         |         | 87     |         |         |          | 34      |       
|                                                  |                                                                                                      | Changes in operating working capital:                |                                                                                     |                                                     |        |         |         |         |        |         |         |          |         |       
|                                                  |                                                                                                      |                                                      | Accounts receivable, net                                                            |                                                     |        | 691     |         |         |        | (13,832 | )       |          |         | (8,717 | )      
|                                                  |                                                                                                      |                                                      | Other current assets                                                                |                                                     |        | 2,299   |         |         |        | 4,787   |         |          |         | (8,862 | )      
|                                                  |                                                                                                      |                                                      | Workers compensation receivable, net                                               |                                                     |        | (88,360 | )       |         |        | (24,355 | )       |          |         |       |        
|                                                  |                                                                                                      |                                                      | Other assets                                                                        |                                                     |        | 5,394   |         |         |        | 135     |         |          |         | (1,509 | )      
|                                                  |                                                                                                      |                                                      | Accrued insurance premiums, health and workers
    compensation insurance reserves |                                                     |        | (8,880  | )       |         |        | (1,928  | )       |          |         | 3,796  |        
|                                                  |                                                                                                      |                                                      | Accrued payroll and payroll taxes                                                   |                                                     |        | (7,745  | )       |         |        | 26,053  |         |          |         | 22,814 |        
|                                                  |                                                                                                      |                                                      | Accounts payable and other accrued liabilities                                      |                                                     |        | 600     |         |         |        | (101    | )       |          |         | (1,566 | )      
|                                                  |                                                                                                      |                                                      | Income taxes payable                                                                |                                                     |        | 15,766  |         |         |        | 5,558   |         |          |         | 2,840  |        
|                                                  |                                                                                                      |                                                      | Customer deposits and prepayments                                                   |                                                     |        | 2,561   |         |         |        | 1,186   |         |          |         | 3,947  |        
|                                                  |                                                                                                      |                                                      | Long-term accrued workers compensation insurance reserves                          |                                                     |        | (58,580 | )       |         |        | (2,392  | )       |          |         | 13,623 |        
|                                                  |                                                                                                      |                                                      | Other long-term liabilities                                                         |                                                     |        | 1,024   |         |         |        | 604     |         |          |         | 45     |        
|                                                  |                                                                                                      |                                                      |                                                                                     |                                                     |        |         |         |         |       
|                                                  |                                                                                                      |                                                      |                                                                                     | Net cash (used in) provided by operating activities |        |         | (84,449 | )       |        |         | 21,819  |          |         |        | 37,532  |  
|                                                  |                                                                                                      |                                                      |                                                                                     |                                                     |        |         |         |         |       
|CASH FLOWS FROM INVESTING ACTIVITIES:             |                                                                                                      |                                                      |                                                                                     |                                                     |        |         |         |         |        |         |         |         
|                                                  | Purchases of marketable securities and certificates of deposit                                       |                                                      |                                                                                     | (133,878                                            | )      |         |         | (85,307 | )      |         |         | (182,887 | )      
|                                                  | Maturities of marketable securities and certificates of deposit                                      |                                                      |                                                                                     | 227,515                                             |        |         |         | 70,435  |        |         |         | 127,443  |        
|                                                  | Assets acquired in business acquisitions                                                             |                                                      |                                                                                     | (40,617                                             | )      |         |         | (7,312  | )      |         |         |         |        
|                                                  | Capital expenditures                                                                                 |                                                      |                                                                                     | (4,575                                              | )      |         |         | (3,127  | )      |         |         | (607     | )      
|                                                  |                                                                                                      |                                                      |                                                                                     |                                                     |        |         |         |         |       
|                                                  |                                                                                                      |                                                      |                                                                                     | Net cash provided by (used in) investing activities |        |         | 48,445  |         |        |         | (25,311 | )        |         |        | (56,051 | )
|                                                  |                                                                                                      |                                                      |                                                                                     |                                                     |        |         |         |         |       
|CASH FLOWS FROM FINANCING ACTIVITIES:             |                                                                                                      |                                                      |                                                                                     |                                                     |        |         |         |         |        |         |         |         
|                                                  | Proceeds from secondary stock offering, net of issuance costs                                        |                                                      |                                                                                     | 34,727                                              |        |         |         |        |        |         |         |         |        
|                                                  | Proceeds from credit line borrowing                                                                  |                                                      |                                                                                     | 27,000                                              |        |         |         |        |        |         |         |         |        
|                                                  | Payments on credit line borrowing                                                                    |                                                      |                                                                                     | (27,000                                             | )      |         |         |        |        |         |         |         |        
|                                                  | Proceeds from issuance of common shares                                                              |                                                      |                                                                                     | 3,571                                               |        |         |         | 7,520   |        |         |         | 640      |        
|                                                  | Payment of cash dividends to shareholders                                                            |                                                      |                                                                                     | (6,008                                              | )      |         |         | (4,529  | )      |         |         | (4,145   | )      
|                                                  | Debt issuance cost                                                                                   |                                                      |                                                                                     | (192                                                | )      |         |         |        |        |         |         |         |        
|                                                  | Proceeds from issuance of Series A Convertible Redeemable
    Preferred Stock, net of issuance costs |                                                      |                                                                                     |                                                    |        |         |         | 27,686  |        |         |         |         |        
|                                                  | Purchase of treasury stock                                                                           |                                                      |                                                                                     |                                                    |        |         |         | (16,272 | )      |         |         | (136     | )      
|                                                  |                                                                                                      |                                                      |                                                                                     |                                                     |        |         |         |         |       
|                                                  |                                                                                                      |                                                      |                                                                                     | Net cash provided by (used in) financing activities |        |         | 32,098  |         |        |         | 14,405  |          |         |        | (3,641  | )
|                                                  |                                                                                                      |                                                      |                                                                                     |                                                     |        |         |         |         |       
|                                                  |                                                                                                      | Net (decrease) increase in cash and cash equivalents |                                                                                     |                                                     | (3,906 | )       |         |         | 10,913 |         |         |          | (22,160 | )     
|Cash and cash equivalents  beginning of year     |                                                                                                      |                                                      | 44,682                                                                              |                                                     |        |         | 33,769  |         |        |         | 55,929  |         
|                                                  |                                                                                                      |                                                      |                                                                                     |                                                     |        |         |         |         |       
|Cash and cash equivalents  end of year           |                                                                                                      | $                                                    | 40,776                                                                              |                                                     |        | $       | 44,682  |         |        | $       | 33,769  |         
|                                                  |                                                                                                      |                                                      |                                                                                     |                                                     |        |         |         |         |       
|Supplemental disclosure of cash flow information: |                                                                                                      |                                                      |                                                                                     |                                                     |        |         |         |         |        |         |         |         
|                                                  | Income taxes paid (refund)                                                                           |                                                      | $                                                                                   | 458                                                 |        |         | $       | (930    | )      |         | $       | 1,747    |        
|                                                  |                                                                                                      |                                                      |                                                                                     |                                                     |        |         |         |         |       
|                                                  | Interest paid                                                                                        |                                                      | $                                                                                   | 228                                                 |        |         | $       |        |        |         | $       |         |        
|                                                  |                                                                                                      |                                                      |                                                                                     |                                                     |        |         |         |         |       









F-6



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##### 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

Description of Business




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Workforce alignment is the term used by the Company to refer to
    the engagement of the right people in the right place at the
    right time doing the right things. The Company assists its
    clients in achieving workforce alignment by helping them find
    exceptional talent, implement formal HR processes and
    professional management standards, and utilize employee
    motivation and retention practices.
|
| |  | Administrative relief is obtained by clients through the
    Companys management of employee administrative matters,
    such as processing of payroll, taxes and insurance premiums and
    by the Companys comprehensive record keeping and
    technology.                                                                                                                                                                
|
| |  | Business protection is provided to clients by the Company
    helping to ensure employment-related regulatory compliance and
    sound risk management practices, encompassing up-to-date
    regulatory compliance and cost- effective risk management
    practices and insurance programs.                                                                                                                                  





Principles of Consolidation


Use of Estimates


F-7



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##### Table of Contents



GEVITY HR, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)


Cash Equivalents


Marketable Securities Accounting for Certain Investments in Debt and Equity
Securities.


Property and Equipment


|                               |  |              
|------------------------------ |  | -------------
|                               |  | Years        
|                               |  |              
|Automobiles                    |  | 5            
|Computer hardware and software |  | 3 to 7       
|Furniture and equipment        |  | 5 to 7       
|Leasehold improvements         |  | Life of lease



Internal Use Software


Goodwill


Intangible Assets


F-8



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##### Table of Contents



GEVITY HR, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)


Fair Value of Financial Instruments


Revenue Recognition


Reporting Revenue Gross as a Principal versus
Net as an Agent.


Sales and Marketing Commissions and Client Referral
Fees


Workers Compensation Costs






F-9



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##### Table of Contents



GEVITY HR, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)




Health Benefits


Stock-Based Compensation Accounting for Stock
Issued to Employees, Accounting for
Stock Based Compensation,


|                                                                            |  |             |  |                     |        |  |           |   |        |      |  |   |       | 
|--------------------------------------------------------------------------- |  | ----------- |  | ------------------- | ------ |  | --------- | - | ------ | ---- |  | - | ----- | 
|                                                                            |  |             |  | For the Years Ended |       
|                                                                            |  |             |  | 2004Dece            |        |  | mber 331, |   |        | 2002 | 
|                                                                            |  |             |  |                     |        |  |           |   |        |      | 
|                                                                            |  |             |  |                     |        |  |           |   |        |      | 
|Net income                                                                  |  | As reported |  | $                   | 34,618 |  |           | $ | 15,391 |      |  | $ | 4,737 | 
|Less: employee compensation for stock option program, net of tax
    effect |  | Pro forma   |  |                     | 3,264  |  |           |   | 2,454  |      |  |   | 1,820 | 
|                                                                            |  |             |  |                     |        |  |           |   |        |      | 
|Net income                                                                  |  | Pro forma   |  | $                   | 31,354 |  |           | $ | 12,937 |      |  | $ | 2,917 | 
|                                                                            |  |             |  |                     |        |  |           |   |        |      | 
|Basic earnings per share                                                    |  | As reported |  | $                   | 0.20   |  |           | $ | 0.66   |      |  | $ | 0.23  | 
|                                                                            |  | Pro forma   |  | $                   | 0.06   |  |           | $ | 0.54   |      |  | $ | 0.14  | 
|Diluted earnings per share                                                  |  | As reported |  | $                   | 0.18   |  |           | $ | 0.62   |      |  | $ | 0.22  | 
|                                                                            |  | Pro forma   |  | $                   | 0.06   |  |           | $ | 0.52   |      |  | $ | 0.14  | 

Income Taxes


Earnings Per Share Earnings Per Share.


Participating Securities and the Two
Class Method under FASB Statement No. 128. Earnings per Share.


F-10



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##### Table of Contents



GEVITY HR, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)




Comprehensive Income (Loss) Reporting Comprehensive Income


New Accounting Pronouncements Share-Based Payment Accounting for Stock Issued to Employees,




F-11



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GEVITY HR, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)




|   |                  
|-- | -----------------
|2. | SEGMENT REPORTING

Disclosures about Segments of an
Enterprise and Related Information,




|   |                                     
|-- | ------------------------------------
|3. | CERTIFICATES OF DEPOSIT  RESTRICTED





|   |                                   
|-- | ----------------------------------
|4. | MARKETABLE SECURITIES  RESTRICTED









F-12



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##### Table of Contents



GEVITY HR, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)


|                         |            |                                                     |                                                     |       |            |        |            |   |   |   |  |   |        |        | 
|------------------------ | ---------- | --------------------------------------------------- | --------------------------------------------------- | ----- | ---------- | ------ | ---------- | - | - | - |  | - | ------ | ------ | 
|                         |            |                                                     |                                                     | Gross |            |       
|                         |            | Amortized                                           |                                                     |       | Unrealized |        | Estimated  |  
|                         |            | Cost                                                |                                                     |       | Gain       |        | Fair Value |  
|                         |            |                                                     |                                                     |       |            |        |            |  
|As of December 31, 2004: |            |                                                     |                                                     |       |            |        |            |   |   |   |  |  
|                         | Short-term |                                                     |                                                     |       |            |        |            |   |   |   |  |   |       
|                         |            | Money market  restricted                           |                                                     | $     | 4,168      |        |            | $ |  |   |  | $ | 4,168  |       
|                         |            |                                                     |                                                     |       |            |        |            |   |  
|                         |            | Total short-term marketable securities  restricted |                                                     | $     | 4,168      |        |            | $ |  |   |  | $ | 4,168  |       
|                         |            |                                                     |                                                     |       |            |        |            |   |  
|                         | Long-term  |                                                     |                                                     |       |            |        |            |   |   |   |  |   |       
|                         |            | Money market  restricted                           |                                                     | $     | 3,488      |        |            | $ |  |   |  | $ | 3,488  |       
|                         |            | Mutual funds  trading                              |                                                     |       | 4,947      |        |            |   |  |   |  |   | 4,947  |       
|                         |            |                                                     |                                                     |       |            |        |            |   |  
|                         |            | Total long-term marketable securities               |                                                     | $     | 8,435      |        |            | $ |  |   |  | $ | 8,435  |       
|                         |            |                                                     |                                                     |       |            |        |            |   |  
|As of December 31, 2003: |            |                                                     |                                                     |       |            |        |            |   |   |   |  |  
|                         | Short-term |                                                     |                                                     |       |            |        |            |   |   |   |  |   |       
|                         |            | Auction market municipal bonds  restricted         |                                                     | $     | 63,450     |        |            | $ |  |   |  | $ | 63,450 |       
|                         |            | Auction market preferred shares  restricted        |                                                     |       | 11,700     |        |            |   |  |   |  |   | 11,700 |       
|                         |            | Money market  restricted                           |                                                     |       | 9,121      |        |            |   |  |   |  |   | 9,121  |       
|                         |            |                                                     |                                                     |       |            |        |            |   |  
|                         |            |                                                     | Total short-term marketable securities  restricted |       | $          | 84,271 |            |   | $ |  |  |   | $      | 84,271 | 
|                         |            |                                                     |                                                     |       |            |        |            |   |  
|                         | Long-term  |                                                     |                                                     |       |            |        |            |   |   |   |  |   |       
|                         |            | Money market  restricted                           |                                                     | $     | 17,023     |        |            | $ |  |   |  | $ | 17,023 |       
|                         |            |                                                     |                                                     |       |            |        |            |   |  







|   |                    
|-- | -------------------
|5. | ACCOUNTS RECEIVABLE



|                                      |       |              |         |        |              |   |         |         | 
|------------------------------------- | ----- | ------------ | ------- | ------ | ------------ | - | ------- | ------- | 
|                                      |       | December 31, |         |        | December 31, |  
|                                      |       | 2004         |         |        | 2003         |  
|                                      |       |              |         |        |              |  
|Billed to clients                     |       | $            | 17,886  |        |              | $ | 6,415   |        
|Unbilled revenues                     |       |              | 82,709  |        |              |   | 95,225  |        
|                                      |       |              |         |        |              |  
|                                      |       |              | 100,595 |        |              |   | 101,640 |        
|Less: Allowance for doubtful accounts |       |              | (805    | )      |              |   | (811    | )      
|                                      |       |              |         |        |              |  
|                                      | Total |              | $       | 99,790 |              |   | $       | 100,829 | 
|                                      |       |              |         |        |              |  





|   |                                          
|-- | -----------------------------------------
|6. | WORKERS COMPENSATION RECEIVABLE/RESERVES



F-13



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##### Table of Contents



GEVITY HR, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)












F-14



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##### Table of Contents



GEVITY HR, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)












F-15



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##### Table of Contents



GEVITY HR, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)




|                                           |                                                  |              |          |        |              |   |         |        | 
|------------------------------------------ | ------------------------------------------------ | ------------ | -------- | ------ | ------------ | - | ------- | ------ | 
|                                           |                                                  | December 31, |          |        | December 31, |  
|                                           |                                                  | 2004         |          |        | 2003         |  
|                                           |                                                  |              |          |        |              |  
|Premium payments to AIG                    |                                                  | $            | 290,803  |        |              | $ | 85,000  |       
|Interest receivable on premium payments    |                                                  |              | 4,498    |        |              |   | 776     |       
|Estimated premium expense refund due       |                                                  |              | 3,839    |        |              |   |        |       
|Claims paid by AIG                         |                                                  |              | (53,226  | )      |              |   | (14,502 | )     
|Present value of future claims liabilities |                                                  |              | (133,199 | )      |              |   | (46,919 | )     
|                                           |                                                  |              |          |        |              |  
|Total workers compensation receivable     |                                                  |              | 112,715  |        |              |   | 24,355  |       
|                                           | Short-term workers compensation receivable, net |              |          | 33,405 |              |   |         | 11,734 | 
|                                           |                                                  |              |          |        |              |  
|                                           | Long-term workers compensation receivable, net  |              | $        | 79,310 |              |   | $       | 12,621 | 
|                                           |                                                  |              |          |        |              |  





|   |                       
|-- | ----------------------
|7. | PROPERTY AND EQUIPMENT



|                               |  |              |         |   |              |   |         |  
|------------------------------ |  | ------------ | ------- | - | ------------ | - | ------- | -
|                               |  | December 31, |         |   | December 31, |  
|                               |  | 2004         |         |   | 2003         |  
|                               |  |              |         |   |              |  
|Leasehold improvements         |  | $            | 2,690   |   |              | $ | 2,542   |  
|Furniture and fixtures         |  |              | 3,476   |   |              |   | 3,452   |  
|Equipment                      |  |              | 2,366   |   |              |   | 2,128   |  
|Computer hardware and software |  |              | 43,588  |   |              |   | 42,469  |  
|                               |  |              |         |   |              |  
|Total property and equipment   |  |              | 52,120  |   |              |   | 50,591  |  
|Less accumulated depreciation  |  |              | (42,041 | ) |              |   | (38,338 | )
|                               |  |              |         |   |              |  
|                               |  | $            | 10,079  |   |              | $ | 12,253  |  
|                               |  |              |         |   |              |  





|   |                  
|-- | -----------------
|8. | INTANGIBLE ASSETS



| |                 
| | ----------------
| | EPIX Acquisition





F-16



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##### Table of Contents



GEVITY HR, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)




Business
Combinations.








|                              |           |                         |         |      |      |   |         |      | 
|----------------------------- | --------- | ----------------------- | ------- | ---- | ---- | - | ------- | ---- | 
|                              |           | Year Ended December 31, |        
|                              |           | 2004                    |         |      | 2003 |  
|                              |           |                         |         |      |      |  
|Pro forma revenues            |           | $                       | 617,777 |      |      | $ | 562,969 |     
|Pro forma net income          |           | $                       | 33,605  |      |      | $ | 14,587  |     
|Pro forma earnings per share: |           |                         |         |      |      |   |         |     
|                              |  Basic   |                         | $       | 0.15 |      |   | $       | 0.62 | 
|                              |  Diluted |                         | $       | 0.14 |      |   | $       | 0.59 | 

F-17



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##### Table of Contents



GEVITY HR, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)




| |                      
| | ---------------------
| | TeamStaff Acquisition





Business
Combinations.








| |      
| | -----
| | Other



F-18



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##### Table of Contents



GEVITY HR, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)




| |                             
| | ----------------------------
| | Summary of Intangible Assets



|                          |  |              |        |   |              |   |       |  
|------------------------- |  | ------------ | ------ | - | ------------ | - | ----- | -
|                          |  | December 31, |        |   | December 31, |  
|                          |  | 2004         |        |   | 2003         |  
|                          |  |              |        |   |              |  
|Client service agreements |  | $            | 47,929 |   |              | $ | 7,312 |  
|Accumulated amortization  |  |              | (7,796 | ) |              |   | (184  | )
|                          |  |              |        |   |              |  
|Intangible assets, net    |  | $            | 40,133 |   |              | $ | 7,128 |  
|                          |  |              |        |   |              |  







|   |             
|-- | ------------
|9. | OTHER ASSETS



|                           |  |              |       |  |              |   |       | 
|-------------------------- |  | ------------ | ----- |  | ------------ | - | ----- | 
|                           |  | December 31, |       |  | December 31, |  
|                           |  | 2004         |       |  | 2003         |  
|                           |  |              |       |  |              |  
|Due from EPIX              |  | $            | 630   |  |              | $ |      | 
|Due from TeamStaff         |  |              |      |  |              |   | 2,671 | 
|Prepaid insurance          |  |              | 90    |  |              |   | 755   | 
|Employee receivables       |  |              | 1,732 |  |              |   | 1,618 | 
|Prepaid employment taxes   |  |              | 1,251 |  |              |   | 1,380 | 
|Other prepaid expenses     |  |              | 1,776 |  |              |   | 1,271 | 
|Other receivables          |  |              | 397   |  |              |   | 310   | 
|Short-term deposits        |  |              | 106   |  |              |   | 276   | 
|                           |  |              |       |  |              |  
|Total other current assets |  | $            | 5,982 |  |              | $ | 8,281 | 
|                           |  |              |       |  |              |  





|         |  |              |     |  |              |   |       | 
|-------- |  | ------------ | --- |  | ------------ | - | ----- | 
|         |  | December 31, |     |  | December 31, |  
|         |  | 2004         |     |  | 2003         |  
|         |  |              |     |  |              |  
|Deposits |  | $            | 223 |  |              | $ | 5,568 | 
|Other    |  |              | 181 |  |              |   | 40    | 
|         |  |              |     |  |              |  
|         |  | $            | 404 |  |              | $ | 5,608 | 
|         |  |              |     |  |              |  







|    |                
|--- | ---------------
|10. | HEALTH BENEFITS



F-19



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##### Table of Contents



GEVITY HR, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)


















F-20



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##### Table of Contents



GEVITY HR, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)




|    |                          
|--- | -------------------------
|11. | REVOLVING CREDIT FACILITY







|    |                              
|--- | -----------------------------
|12. | COMMITMENTS AND CONTINGENCIES



| |                 
| | ----------------
| | Operating Leases



|                         |  |        |        | 
|------------------------ |  | ------ | ------ | 
|Year Ending December 31, |  | Amount |       
|                         |  |        |       
|2005                     |  | $      | 6,131  | 
|2006                     |  |        | 3,755  | 
|2007                     |  |        | 2,282  | 
|2008                     |  |        | 2,146  | 
|2009                     |  |        | 1,000  | 
|Thereafter               |  |        |       | 
|                         |  |        |       
|                         |  | $      | 15,314 | 
|                         |  |        |       



| |           
| | ----------
| | Litigation



F-21



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##### Table of Contents



GEVITY HR, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)




| |                   
| | ------------------
| | Regulatory Matters











|    |                                       
|--- | --------------------------------------
|13. | CONVERTIBLE REDEEMABLE PREFERRED STOCK



F-22



---



##### Table of Contents



GEVITY HR, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)














|    |                
|--- | ---------------
|14. | RELATED PARTIES



F-23



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##### Table of Contents



GEVITY HR, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)




|    |                
|--- | ---------------
|15. | RETIREMENT PLAN





|    |                                                                  
|--- | -----------------------------------------------------------------
|16. | GEOGRAPHIC MARKET CONCENTRATION AND DEPENDENCE ON KEY
    VENDORS

Geographic Market Concentration 


Dependence on Key Vendors 




|    |       
|--- | ------
|17. | EQUITY







| |                           
| | --------------------------
| | Employee Stock Option Plan



F-24



---



##### Table of Contents



GEVITY HR, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)








|                                |  |                         |       |   |      |  |       |      |  |  |       |  
|------------------------------- |  | ----------------------- | ----- | - | ---- |  | ----- | ---- |  |  | ----- | -
|                                |  | Year Ended December 31, |      
|                                |  |                         |      
|                                |  | 2004                    |       |   | 2003 |  |       | 2002 | 
|                                |  |                         |       |   |      |  |       |      | 
|Risk-free interest rate         |  |                         | 4.46  | % |      |  | 4.61  | %    |  |  | 5.03  | %
|Expected dividend yield         |  |                         | 1.01  | % |      |  | 1.10  | %    |  |  | 5.13  | %
|Expected volatility             |  |                         | 76.68 | % |      |  | 77.18 | %    |  |  | 79.61 | %
|Expected option life (in years) |  |                         | 6.6   |   |      |  | 7.0   |      |  |  | 7.0   |  





|                                 |  |        |           |          |       |   |       |        |          |  |            |   |  |          |       |  |       |  |           |   |  |   |      | 
|-------------------------------- |  | ------ | --------- | -------- | ----- | - | ----- | ------ | -------- |  | ---------- | - |  | -------- | ----- |  | ----- |  | --------- | - |  | - | ---- | 
|                                 |  | 2004   |           |          | 2003  |   |       | 2002   |         
|                                 |  |        |           |          |       |   |       |        |         
|                                 |  |        |           | Weighted |       |   |       |        | Weighted |  |            |   |  | Weighted |      
|                                 |  |        |           | Average  |       |   |       |        | Average  |  |            |   |  | Average  |      
|                                 |  |        |           | Exercise |       |   |       |        | Exercise |  |            |   |  | Exercise |      
|                                 |  | Shares |           |          | Price |   |       | Shares |          |  | Price      |   |  | Shares   |       |  | Price | 
|                                 |  |        |           |          |       |   |       |        |          |  |            |   |  |          |       |  |       | 
|Outstanding at beginning of year |  |        | 4,495,928 |          |       | $ | 7.83  |        |          |  | 5,217,433  |   |  | $        | 4.61  |  |       |  | 3,534,233 |   |  | $ | 5.13 | 
|Granted                          |  |        | 217,332   |          |       | $ | 23.63 |        |          |  | 1,164,239  |   |  | $        | 17.95 |  |       |  | 2,277,000 |   |  | $ | 1.90 | 
|Exercised                        |  |        | (892,038  | )        |       | $ | 3.59  |        |          |  | (1,440,920 | ) |  | $        | 5.23  |  |       |  | (8,750    | ) |  | $ | 2.01 | 
|Forfeited                        |  |        | (589,959  | )        |       | $ | 10.61 |        |          |  | (444,824   | ) |  | $        | 4.93  |  |       |  | (585,050  | ) |  | $ | 4.75 | 
|                                 |  |        |           |          |       |   |       |        |          |  |            |   |  |          |       |  |       | 
|Outstanding at end of year       |  |        | 3,231,263 |          |       | $ | 9.56  |        |          |  | 4,495,928  |   |  | $        | 7.83  |  |       |  | 5,217,433 |   |  | $ | 4.61 | 
|                                 |  |        |           |          |       |   |       |        |          |  |            |   |  |          |       |  |       | 
|Exercisable at end of year       |  |        | 1,528,626 |          |       | $ | 8.62  |        |          |  | 1,526,714  |   |  | $        | 6.34  |  |       |  | 1,910,717 |   |  | $ | 6.57 | 
|                                 |  |        |           |          |       |   |       |        |          |  |            |   |  |          |       |  |       | 

F-25



---



##### Table of Contents



GEVITY HR, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)




|                |  |                     |           |  |                     |  |           |                  |  |   |           |  |  |                  |           |  |  |   |       | 
|--------------- |  | ------------------- | --------- |  | ------------------- |  | --------- | ---------------- |  | - | --------- |  |  | ---------------- | --------- |  |  | - | ----- | 
|                |  | Options Outstanding |           |  | Options Exercisable | 
|                |  |                     |           |  |                     | 
|Range of        |  | Number of           |           |  | Remaining           |  |           | Weighted-Average |  |   | Number of |  |  | Weighted-Average |          
|Exercise Prices |  | Shares              |           |  | Contractual Life    |  |           | Exercise Price   |  |   | Shares    |  |  | Exercise Price   |          
|                |  |                     |           |  |                     |  |           |                  |  |   |           |  |  |                  |          
|$ 0.00 - $ 2.95 |  |                     | 269,915   |  |                     |  | 6.8 Years |                  |  | $ | 1.80      |  |  |                  | 98,036    |  |  | $ | 1.74  | 
|$ 2.96 - $ 5.90 |  |                     | 1,639,664 |  |                     |  | 7.3 Years |                  |  | $ | 3.83      |  |  |                  | 832,537   |  |  | $ | 3.83  | 
|$ 5.91 - $ 8.86 |  |                     | 89,084    |  |                     |  | 5.3 Years |                  |  | $ | 8.30      |  |  |                  | 83,084    |  |  | $ | 8.40  | 
|$ 8.87 - $11.82 |  |                     | 109,126   |  |                     |  | 4.2 Years |                  |  | $ | 10.98     |  |  |                  | 76,126    |  |  | $ | 11.42 | 
|$11.83 - $14.78 |  |                     | 62,200    |  |                     |  | 4.5 Years |                  |  | $ | 12.54     |  |  |                  | 56,750    |  |  | $ | 12.42 | 
|$14.79 - $17.73 |  |                     | 348,700   |  |                     |  | 7.9 Years |                  |  | $ | 16.77     |  |  |                  | 119,700   |  |  | $ | 16.83 | 
|$17.74 - $20.69 |  |                     | 88,800    |  |                     |  | 4.6 Years |                  |  | $ | 18.84     |  |  |                  | 56,200    |  |  | $ | 18.19 | 
|$20.70 - $23.64 |  |                     | 578,074   |  |                     |  | 9.0 Years |                  |  | $ | 21.84     |  |  |                  | 205,393   |  |  | $ | 21.85 | 
|$23.65 - $26.59 |  |                     | 27,000    |  |                     |  | 9.5 Years |                  |  | $ | 26.38     |  |  |                  |          |  |  | $ |      | 
|$26.60 - $29.55 |  |                     | 18,700    |  |                     |  | 9.3 Years |                  |  | $ | 29.52     |  |  |                  | 800       |  |  | $ | 29.51 | 
|                |  |                     |           |  |                     |  |           |                  |  |   |           |  |  |                  |          
|                |  |                     | 3,231,263 |  |                     |  | 7.4 Years |                  |  | $ | 9.56      |  |  |                  | 1,528,626 |  |  | $ | 8.62  | 
|                |  |                     |           |  |                     |  |           |                  |  |   |           |  |  |                  |          





| |                             
| | ----------------------------
| | Employee Stock Purchase Plan



F-26



---



##### Table of Contents



GEVITY HR, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)




|    |                   
|--- | ------------------
|18. | EARNINGS PER SHARE



|                               |                                                                                                                                                                                                                       |                                                |   |        |               |  |  |            |            |  |   |      |      | 
|------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------- | - | ------ | ------------- |  |  | ---------- | ---------- |  | - | ---- | ---- | 
|                               |                                                                                                                                                                                                                       | Net Income                                     |   |        | Shares        |  |  | Per Share  |           
|                               |                                                                                                                                                                                                                       | (Numerator)                                    |   |        | (Denominator) |  |  | Amount     |           
|                               |                                                                                                                                                                                                                       |                                                |   |        |               |  |  |            |           
|For the year ended 2004:       |                                                                                                                                                                                                                       |                                                |   |        |               |  |  |            |            |  |   |     
|Basic EPS:                     |                                                                                                                                                                                                                       |                                                |   |        |               |  |  |            |            |  |   |     
|                               | Net income                                                                                                                                                                                                            |                                                | $ | 34,618 |               |  |  |            |            |  |   |      |     
|                               | 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 convertible, redeemable
    preferred stock |                                                |   | 29,317 |               |  |  |            |            |  |   |      |     
|                               | Non-cash charges attributable to beneficial conversion feature
    and accretion of redemption value of convertible, redeemable
    preferred stock                                                                   |                                                |   | 129    |               |  |  |            |            |  |   |      |     
|                               | Preferred stock dividends                                                                                                                                                                                             |                                                |   | 434    |               |  |  |            |            |  |   |      |     
|                               |                                                                                                                                                                                                                       |                                                |   |        |               |  |  |            |           
|                               | Net income attributable to common shareholders                                                                                                                                                                        |                                                |   | 4,738  |               |  |  | 24,124,803 |            |  | $ | 0.20 |     
|                               |                                                                                                                                                                                                                       |                                                |   |        |               |  |  |            |           
|Effect of dilutive securities: |                                                                                                                                                                                                                       |                                                |   |        |               |  |  |            |            |  |   |     
|                               |                                                                                                                                                                                                                       | Options to purchase common stock               |   |        |               |  |  |            | 1,609,712  |  |   |      |      | 
|                               |                                                                                                                                                                                                                       |                                                |   |        |               |  |  |            |           
|Diluted EPS:                   |                                                                                                                                                                                                                       |                                                |   |        |               |  |  |            |            |  |   |     
|                               | Net income attributable to common shareholders                                                                                                                                                                        |                                                | $ | 4,738  |               |  |  | 25,734,515 |            |  | $ | 0.18 |     
|                               |                                                                                                                                                                                                                       |                                                |   |        |               |  |  |            |           
|For the year ended 2003:       |                                                                                                                                                                                                                       |                                                |   |        |               |  |  |            |            |  |   |     
|Basic EPS:                     |                                                                                                                                                                                                                       |                                                |   |        |               |  |  |            |            |  |   |     
|                               | Net income                                                                                                                                                                                                            |                                                | $ | 15,391 |               |  |  |            |            |  |   |      |     
|                               | Non-cash charges attributable to beneficial conversion feature
    and accretion of redemption value of convertible, redeemable
    preferred stock                                                                   |                                                |   | 166    |               |  |  |            |            |  |   |      |     
|                               | Preferred stock dividends                                                                                                                                                                                             |                                                |   | 781    |               |  |  |            |            |  |   |      |     
|                               | Assumed preferred stock dividend (assuming full distribution of
    net income)                                                                                                                                       |                                                |   | 1,439  |               |  |  |            |            |  |   |      |     
|                               |                                                                                                                                                                                                                       |                                                |   |        |               |  |  |            |           
|                               |                                                                                                                                                                                                                       | Net income attributable to common shareholders |   |        | 13,005        |  |  |            | 19,686,185 |  |   | $    | 0.66 | 
|                               |                                                                                                                                                                                                                       |                                                |   |        |               |  |  |            |           
|Effect of dilutive securities: |                                                                                                                                                                                                                       |                                                |   |        |               |  |  |            |            |  |   |     
|                               |                                                                                                                                                                                                                       | Options                                        |   |        |              |  |  |            | 1,805,199  |  |   |      |      | 
|                               |                                                                                                                                                                                                                       | Convertible, redeemable preferred stock        |   |        | 2,386         |  |  |            | 3,157,735  |  |   |      |      | 
|                               |                                                                                                                                                                                                                       |                                                |   |        |               |  |  |            |           
|Diluted EPS:                   |                                                                                                                                                                                                                       |                                                |   |        |               |  |  |            |            |  |   |     
|                               | Net income                                                                                                                                                                                                            |                                                | $ | 15,391 |               |  |  | 24,649,119 |            |  | $ | 0.62 |     
|                               |                                                                                                                                                                                                                       |                                                |   |        |               |  |  |            |           
|For the year ended 2002:       |                                                                                                                                                                                                                       |                                                |   |        |               |  |  |            |            |  |   |     
|Basic EPS:                     |                                                                                                                                                                                                                       |                                                |   |        |               |  |  |            |            |  |   |     
|                               | Net income                                                                                                                                                                                                            |                                                | $ | 4,737  |               |  |  | 20,722,100 |            |  | $ | 0.23 |     
|                               |                                                                                                                                                                                                                       |                                                |   |        |               |  |  |            |           
|Effect of dilutive securities: |                                                                                                                                                                                                                       |                                                |   |        |               |  |  |            |            |  |   |     
|                               |                                                                                                                                                                                                                       | Options                                        |   |        |              |  |  |            | 351,834    |  |   |      |      | 
|                               |                                                                                                                                                                                                                       |                                                |   |        |               |  |  |            |           
|Diluted EPS:                   |                                                                                                                                                                                                                       |                                                |   |        |               |  |  |            |            |  |   |     
|                               | Net income                                                                                                                                                                                                            |                                                | $ | 4,737  |               |  |  | 21,073,934 |            |  | $ | 0.22 |     
|                               |                                                                                                                                                                                                                       |                                                |   |        |               |  |  |            |           

F-27



---



##### Table of Contents



GEVITY HR, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)






|    |             
|--- | ------------
|19. | INCOME TAXES





|                    |  |         |        |  |          |   |       |       |  |   |        | 
|------------------- |  | ------- | ------ |  | -------- | - | ----- | ----- |  | - | ------ | 
|                    |  | Current |        |  | Deferred |   |       | Total | 
|                    |  |         |        |  |          |   |       |       | 
|U.S. Federal Tax    |  | $       | 13,705 |  |          | $ | 1,323 |       |  | $ | 15,028 | 
|State and local tax |  |         | 2,518  |  |          |   | 129   |       |  |   | 2,647  | 
|                    |  |         |        |  |          |   |       |       | 
|Total provision     |  | $       | 16,223 |  |          | $ | 1,452 |       |  | $ | 17,675 | 
|                    |  |         |        |  |          |   |       |       | 



|                    |  |         |       |  |          |   |       |       |  |   |       | 
|------------------- |  | ------- | ----- |  | -------- | - | ----- | ----- |  | - | ----- | 
|                    |  | Current |       |  | Deferred |   |       | Total | 
|                    |  |         |       |  |          |   |       |       | 
|U.S. Federal Tax    |  | $       | 4,318 |  |          | $ | 2,625 |       |  | $ | 6,943 | 
|State and local tax |  |         | 312   |  |          |   | 326   |       |  |   | 638   | 
|                    |  |         |       |  |          |   |       |       | 
|Total provision     |  | $       | 4,630 |  |          | $ | 2,951 |       |  | $ | 7,581 | 
|                    |  |         |       |  |          |   |       |       | 



|                          |  |         |       |  |          |   |        |       |  |   |       | 
|------------------------- |  | ------- | ----- |  | -------- | - | ------ | ----- |  | - | ----- | 
|                          |  | Current |       |  | Deferred |   |        | Total | 
|                          |  |         |       |  |          |   |        |       | 
|U.S. Federal Tax          |  | $       | 3,939 |  |          | $ | (1,851 | )     |  | $ | 2,088 | 
|State and local tax       |  |         | 669   |  |          |   | (406   | )     |  |   | 263   | 
|                          |  |         |       |  |          |   |        |       | 
|Total provision (benefit) |  | $       | 4,608 |  |          | $ | (2,257 | )     |  | $ | 2,351 | 
|                          |  |         |       |  |          |   |        |       | 

F-28



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##### Table of Contents



GEVITY HR, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)




|                                  |                                           |      |        |        |      |   |       |        |   |   |       |      |  
|--------------------------------- | ----------------------------------------- | ---- | ------ | ------ | ---- | - | ----- | ------ | - | - | ----- | ---- | -
|                                  |                                           | 2004 |        |        | 2003 |   |       | 2002   |  
|                                  |                                           |      |        |        |      |   |       |        |  
|Statutory U.S. Federal tax at 35% |                                           | $    | 18,303 |        |      | $ | 8,040 |        |   | $ | 2,481 |     
|Increase (reduction) from:        |                                           |      |        |        |      |   |       |        |   |   |       |     
|                                  | State and local tax, less Federal benefit |      |        | 1,721  |      |   |       | 638    |   |   |       | 263  |  
|                                  | Tax credits                               |      |        | (907   | )    |   |       | (1,108 | ) |   |       | (626 | )
|                                  | Change in tax reserves                    |      |        | (1,090 | )    |   |       |       |   |   |       |     |  
|                                  | Other, net                                |      |        | (352   | )    |   |       | 11     |   |   |       | 233  |  
|                                  |                                           |      |        |        |      |   |       |        |  
|Total tax provision               |                                           | $    | 17,675 |        |      | $ | 7,581 |        |   | $ | 2,351 |     
|                                  |                                           |      |        |        |      |   |       |        |  
|                                  | Effective tax rate                        |      |        | 33.8   | %    |   |       | 33.0   | % |   |       | 33.2 | %
|                                  |                                           |      |        |        |      |   |       |        |  



|                                                       |                                                |      |        |        |      |   |        |        |  
|------------------------------------------------------ | ---------------------------------------------- | ---- | ------ | ------ | ---- | - | ------ | ------ | -
|                                                       |                                                | 2004 |        |        | 2003 |  
|                                                       |                                                |      |        |        |      |  
|Deferred Tax Assets:                                   |                                                |      |        |        |      |   |        |       
|Reserves not currently deductible                      |                                                | $    | 30,042 |        |      | $ | 34,135 |       
|Tax basis in excess of book basis of intangible assets |                                                |      | 3,965  |        |      |   | 1,524  |       
|Tax credit carryover                                   |                                                |      |       |        |      |   | 4,108  |       
|                                                       |                                                |      |        |        |      |  
|                                                       | Total deferred tax assets                      |      |        | 34,007 |      |   |        | 39,767 |  
|                                                       |                                                |      |        |        |      |  
|Deferred Tax Liabilities:                              |                                                |      |        |        |      |   |        |       
|Unearned revenue                                       |                                                |      | 31,760 |        |      |   | 35,833 |       
|Depreciation                                           |                                                |      | 1,585  |        |      |   | 1,820  |       
|                                                       |                                                |      |        |        |      |  
|Total deferred tax liabilities                         |                                                |      | 33,345 |        |      |   | 37,653 |       
|                                                       |                                                |      |        |        |      |  
|Net deferred tax asset                                 |                                                | $    | 662    |        |      | $ | 2,114  |       
|                                                       |                                                |      |        |        |      |  
|Balance Sheet Classification:                          |                                                |      |        |        |      |   |        |       
|Current:                                               |                                                |      |        |        |      |   |        |       
|                                                       | Net current deferred tax (liability) asset     |      | $      | (1,718 | )    |   | $      | 2,410  |  
|Non-current:                                           |                                                |      |        |        |      |   |        |       
|                                                       | Net non-current deferred tax asset (liability) |      |        | 2,380  |      |   |        | (296   | )
|                                                       |                                                |      |        |        |      |  
|Net deferred tax asset                                 |                                                | $    | 662    |        |      | $ | 2,114  |       
|                                                       |                                                |      |        |        |      |  





F-29



---



##### Table of Contents



GEVITY HR, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)






|    |                                      
|--- | -------------------------------------
|20. | QUARTERLY FINANCIAL DATA (UNAUDITED):



|                    |           |                                               |         |      |          |   |         |         |  |   |         |       |   |         |         |      |          |   |         |         |  |   |         |      |  |   |         |      |  |   |         |      | 
|------------------- | --------- | --------------------------------------------- | ------- | ---- | -------- | - | ------- | ------- |  | - | ------- | ----- | - | ------- | ------- | ---- | -------- | - | ------- | ------- |  | - | ------- | ---- |  | - | ------- | ---- |  | - | ------- | ---- | 
|                    |           | Quarter Ended                                 |        
|                    |           |                                               |        
|                    |           | 2004                                          |         |      | 2003     |  
|                    |           |                                               |         |      |          |  
|                    |           | Dec. 31(1)                                    |         |      | Sept. 30 |   |         | June 30 |  |   | Mar. 31 |       |   | Dec. 31 |         |      | Sept. 30 |   |         | June 30 |  |   | Mar. 31 |     
|                    |           |                                               |         |      |          |   |         |         |  |   |         |       |   |         |         |      |          |   |         |         |  |   |         |     
|                    |           | (Dollars in thousands, except per share data) |        
|Revenues            |           | $                                             | 153,533 |      |          | $ | 147,969 |         |  | $ | 158,067 |       |   | $       | 125,912 |      |          | $ | 118,082 |         |  | $ | 102,833 |      |  | $ | 102,142 |      |  | $ | 102,770 |     
|Gross profit        |           | $                                             | 53,780  |      |          | $ | 44,102  |         |  | $ | 45,669  |       |   | $       | 35,790  |      |          | $ | 34,285  |         |  | $ | 28,794  |      |  | $ | 27,861  |      |  | $ | 24,778  |     
|Gross profit margin |           |                                               | 35.0    | %    |          |   | 29.8    | %       |  |   | 28.9    | %     |   |         | 28.4    | %    |          |   | 29.0    | %       |  |   | 28.0    | %    |  |   | 27.3    | %    |  |   | 24.1    | %   
|Operating income    |           | $                                             | 19,216  |      |          | $ | 11,811  |         |  | $ | 11,330  |       |   | $       | 9,204   |      |          | $ | 7,372   |         |  | $ | 5,737   |      |  | $ | 4,976   |      |  | $ | 3,500   |     
|Net income          |           | $                                             | 12,491  |      |          | $ | 8,131   |         |  | $ | 7,631   |       |   | $       | 6,365   |      |          | $ | 5,056   |         |  | $ | 4,118   |      |  | $ | 3,617   |      |  | $ | 2,600   |     
|Earnings per share: |           |                                               |         |      |          |   |         |         |  |   |         |       |   |         |         |      |          |   |         |         |  |   |         |      |  |   |         |      |  |   |         |     
|                    |  Basic   |                                               | $       | 0.46 |          |   | $       | 0.30    |  |   | $       | (0.95 | ) |         | $       | 0.31 |          |   | $       | 0.20    |  |   | $       | 0.17 |  |   | $       | 0.16 |  |   | $       | 0.12 | 
|                    |  Diluted |                                               | $       | 0.44 |          |   | $       | 0.29    |  |   | $       | (0.95 | ) |         | $       | 0.24 |          |   | $       | 0.19    |  |   | $       | 0.16 |  |   | $       | 0.15 |  |   | $       | 0.12 | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Included in the fourth quarter of 2004 is the positive impact of
    an approximate $5,374 year end adjustment ($3,558 after
    tax) to previously estimated cost of workers compensation
    claims in recognition of continued favorable trends in the
    Companys insurance programs. Also included is the positive
    impact of an approximate $5,463 year end adjustment ($3,616
    after tax) related to favorable medical benefit plan experience
    and the resulting adjustment to incurred by not reported claims
    at December 31, 2004.



|    |                 
|--- | ----------------
|21. | SUBSEQUENT EVENT



F-30



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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, | 
|2004       |  | Debts     |     |  | Uncollectible |   |      | Recoveries |          |   | 2004         | 
|           |  |           |     |  |               |   |      |            |          |   |              | 
|$811       |  | $         | 348 |  |               | $ | (677 | )          |          | $ | 323          |  |  | $ | 805 | 

|           |  |           |     |  |               |   |      |            |          |   |              |  |  |   |     | 
|---------- |  | --------- | --- |  | ------------- | - | ---- | ---------- | -------- | - | ------------ |  |  | - | --- | 
|Balance,   |  | Provision |     |  |               |   |      |            | Balance, |  
|January 1, |  | for Bad   |     |  | Determined    |   |      | Account    |          |   | December 31, | 
|2003       |  | Debts     |     |  | Uncollectible |   |      | Recoveries |          |   | 2003         | 
|           |  |           |     |  |               |   |      |            |          |   |              | 
|$831       |  | $         | 305 |  |               | $ | (568 | )          |          | $ | 243          |  |  | $ | 811 | 

|           |  |           |     |  |               |   |      |            |          |   |              |  |  |   |     | 
|---------- |  | --------- | --- |  | ------------- | - | ---- | ---------- | -------- | - | ------------ |  |  | - | --- | 
|Balance,   |  | Provision |     |  |               |   |      |            | Balance, |  
|January 1, |  | for Bad   |     |  | Determined    |   |      | Account    |          |   | December 31, | 
|2002       |  | Debts     |     |  | Uncollectible |   |      | Recoveries |          |   | 2002         | 
|           |  |           |     |  |               |   |      |            |          |   |              | 
|$747       |  | $         | 491 |  |               | $ | (739 | )          |          | $ | 332          |  |  | $ | 831 | 

S-1