The following discussion contains forward-looking statements that are subject to known and unknown risks, uncertainties (some of which are beyond the Company's control), other factors and other assumptions that may cause actual results or performance to be materially different from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include those discussed below, elsewhere in this Form 10-Q and in the Company's Annual Report on Form 10-K for the year ended December 31, 2008 (the "Form 10-K"), as filed with the Securities and Exchange Commission. See "Cautionary Note Regarding Forward-Looking Statements" below in this Item 2. The following discussion should be read in conjunction with the Company's condensed consolidated financial statements and related notes contained in this report. Historical results are not necessarily indicative of trends in operating results for any future period.

OVERVIEW

Gevity HR, Inc. ("Gevity" or the "Company") specializes in providing small- and medium-sized businesses nationwide with a wide-range of competitively priced payroll, insurance and human resource ("HR") outsourcing services.

Gevity is a professional employer organization ("PEO") that provides certain HR-related services and functions for clients under a co-employment arrangement. Under the co-employment arrangement, Gevity assumes certain HR/employment-related responsibilities, as provided for by a professional services agreement ("PSA") and as may be required under certain state laws. The co-employment relationship allows the PEO to become an employer of record and administrator for matters such as employment tax and insurance-related paperwork as well as relieving the client of these time-consuming administrative burdens. Because a PEO can aggregate a number of small clients into a larger pool, the PEO is able to create economies of scale-enabling smaller businesses to get competitively priced benefits.

The core services typically provided by a PEO are payroll processing, access to health and welfare benefits and workers' compensation coverage. In addition to these core offerings, the Company's Gevity Edge™ offering provides value-adding HR services such as employee retention programs, new hire support, employment practices liability insurance coverage and performance management programs, all designed to help clients effectively grow their businesses. Gevity is one of few PEOs with dedicated field-based HR consultants. The Company's HR consultants work directly with clients to provide HR expertise and HR strategies that can help drive their business forward, while lowering potential exposure to HR-related claims.

Previously, Gevity also provided service to its clients through a non co-employment relationship. The non co-employment relationship between Gevity and its clients was also governed by a PSA. Under the non co-employment PSA, the employment related liabilities remained with the client and the client was responsible for its own workers' compensation insurance and health and welfare plans. The Company assumed responsibility for payroll administration (including payroll processing, payroll tax filing and W-2 preparation) and provided access to all of its HR services. This non co-employment offering was known as Gevity Edge Select™. After completion of a comprehensive strategic review, the Company decided to focus on the growth of its core co-employment offering, Gevity Edge. As such, on February 25, 2008, the board of directors of the Company approved a plan to discontinue the Company's non co-employment offering, Gevity Edge Select. Clients that existed at February 25, 2008, were notified of this decision and given until June 30, 2008 to transition to other service providers. The Company completed its transition of all remaining Gevity Edge Select clients during the second quarter of 2008, processing of the final payrolls dated June 30, 2008. The Company determined that the exit from the Gevity Edge Select business met the criteria of discontinued operations in accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Accordingly, the results of operations and related exit costs associated with Gevity Edge Select have been reported as discontinued operations for all periods presented The impact of this decision on the results of operations of the Company is included in the "Results of Operations" discussion that follows under "Discontinued Operations."

Potential Acquisition of Gevity

On March 4, 2009, Gevity, TriNet Group, Inc. ("TriNet") and Gin Acquisition, Inc., a wholly owned subsidiary of TriNet ("Merger Sub"), entered into a Merger Agreement (the "Merger Agreement"). Under the Merger Agreement, Merger Sub will be merged with and into Gevity (the "Merger") with Gevity surviving the Merger as a wholly owned subsidiary of TriNet. Pursuant to the Merger Agreement, at the effective time of the Merger, each share of common stock of Gevity issued and outstanding immediately prior to the effective time (other than common shares held by TriNet or Merger Sub or any of their affiliates) will be automatically converted into the right to receive $4.00 in cash. The transaction is not subject to a financing condition.

The Merger is expected to be completed in the second quarter of 2009 and is subject to various customary conditions, including Gevity shareholder approval. The Company has received clearance on certain regulatory requirements necessary to consummate the Merger. The waiting period under the Hart-Scott-Rodino Antitrust Improvements Act has expired without a request for additional information from the U.S. Federal Trade Commission. In addition, the State of Florida licensing authority has approved Gevity's change in ownership application and the State of Arkansas licensing authority has granted preliminary approval, subject to certain supplemental filings. The Merger Agreement contains customary representations and warranties between Gevity, TriNet and Merger Sub. The Merger Agreement also contains customary covenants and agreements, including covenants relating to (a) the conduct of Gevity's business between the date of the signing of the Merger Agreement and the closing of the Merger, (b) non-solicitation of competing acquisition proposals and
(c) the efforts of the parties to cause the Merger to be completed. The Merger Agreement contains certain termination rights and provides that, upon or following the termination of the Merger Agreement, under specified circumstances involving a competing acquisition proposal, Gevity may be required to pay TriNet a termination fee of $2.95 million and up to $1.0 million of expenses incurred by TriNet and its affiliates.

Concurrently with the execution and delivery of the Merger Agreement, ValueAct Capital Master Fund, L.P. and certain of its affiliates ("ValueAct") entered into a voting agreement (the "Voting Agreement") with TriNet whereby ValueAct committed to vote for the approval of the Merger. The Voting Agreement will terminate in the event the Merger Agreement is terminated.

RESULTS OF OPERATIONS



Three Months Ended March 31, 2009 Compared to Three Months Ended March 31, 2008



Revenue



The following table presents certain information related to the Company's
revenues from continuing operations for the three months ended March 31, 2009
and 2008:



                                                         Three Months Ended
                                                    March 31,          March 31,           %
                                                      2009                2008          Change
                                                    (in thousands, except statistical data)
Revenues:
Professional service fees                        $        23,091    $         29,829      (22.6 )%
Employee health and welfare benefits                      78,393              83,814       (6.5 )%
Workers' compensation                                     12,228              15,846      (22.8 )%
State unemployment taxes and other                        15,872              12,209       30.0 %
Total revenues                                   $       129,584    $        141,698       (8.5 )%

Statistical data:
Gross salaries and wages (in thousands)          $       969,165    $      1,053,448       (8.0 )%
Client employees at period end                            94,379             106,784      (11.6 )%
Clients at period end (1)                                  5,607               6,282      (10.7 )%
Average number of client employees/clients at
period end                                                    17                  17        N/A
Average number of client employees paid (2)               89,591             100,084      (10.5 )%
Annualized average wage per average client
employees paid (3)                               $        43,271    $         42,103        2.8 %
Workers' compensation billing per one hundred
dollars of workers' compensation wages (4)       $          1.46    $           1.67      (12.6 )%
Workers' compensation manual premium per one
hundred dollars of workers' compensation
wages (4), (5)                                   $          1.45    $           1.81      (19.9 )%
Annualized professional service fees per
average number of client employees paid (3)      $         1,031    $          1,192      (13.5 )%
Client employee health benefits participation                 39 %                37 %      5.4 %

(2) The average number of client employees paid is calculated based upon the sum of the number of paid client employees at the end of each month divided by the number of months in the period.

(3) Annualized statistical information is based upon actual quarter-to-date amounts, which have been annualized

(divided by three and multiplied by twelve), and then divided by the average number of client employees paid.

(4) Workers' compensation wages exclude the wages of clients electing out of the Company's workers' compensation program.

(5) Manual premium rate data is derived from tables of member insurance companies of American International Group, Inc. ("AIG") Commercial Insurance Group ("AIG CI") in effect for 2009 and 2008, respectively.

For the three months ended March 31, 2009, total revenues were $129.6 million compared to $141.7 million for the three months ended March 31, 2008, representing a decrease of $12.1 million or 8.5%. This decrease was a result of the reduction in the majority of revenue components as described below.

As of March 31, 2009, the Company served 5,607 clients, as measured by each client's FEIN, with 94,379 active client employees. This compares to 6,282 clients, as measured by each client's FEIN, with 106,784 active client employees at March 31, 2008. The average number of client employees paid was 89,591 for the first quarter of 2009 compared to 100,084 for the first quarter of 2008. The declines in client and client employee metrics were attributable to the impact of higher than expected client and client employee attrition levels during 2008 and the first quarter of 2009, which included a larger than expected decline in the worksite employees of existing clients. These declines were primarily a result of general economic conditions and lower than expected production levels during 2008 and the first quarter of 2009. In addition, during the first three quarters of 2008, the Company terminated approximately 240 unprofitable clients (impacting approximately 4,500 client employees) in an effort to improve overall earnings in the long-term.

Revenues from professional service fees decreased to $23.1 million for the three months ended March 31, 2009, from $29.8 million for the three months ended March 31, 2008, representing a decrease of $6.7 million or 22.6%. The decrease was due to the overall decrease in the average number of client employees paid by 10.5% as discussed above as well as a reduction in annualized professional service fees per average number of client employees paid by 13.5%, from $1,192 for the three months ended March 31, 2008 to $1,031 for the three months ended March 31, 2009. The decrease in annualized professional service fees was primarily attributable to general economic conditions and the impact of the 2008 terminations of unprofitable clients which, despite having a negative impact on gross profit, generally had higher professional service fee levels.

Revenues for providing health and welfare benefits for the three months ended March 31, 2009 were $78.4 million as compared to $83.8 million for the three months ended March 31, 2008, representing a decrease of $5.4 million or 6.5%. Health and welfare benefit plan revenues decreased due to the decrease in the average number of participants in the Company's health and welfare benefit plans of approximately 8.4% and was partially offset by the increase in health insurance premiums as a result of higher costs to the Company to provide such coverage for client employees and the Company's approach to pass through all insurance-related cost increases.

Revenues for providing workers' compensation insurance coverage decreased to $12.2 million for the three months ended March 31, 2009, from $15.8 million for the three months ended March 31, 2008, representing a decrease of $3.6 million or 22.8%. Workers' compensation billings, as a percentage of workers' compensation wages for the three months ended March 31, 2009, were 1.46% as compared to 1.67% for the same period in 2008, representing a decrease of 12.6%. Workers' compensation revenue decreased in the first quarter of 2009 primarily due to the combined effects of a decrease in billings for Florida clients reflecting a reduction in Florida manual premium rates beginning in January 2009 and a decrease in the number of clients that participate in the Company's workers' compensation program. The manual premium rates for workers' compensation applicable to the Company's clients decreased 19.9% during the three months ended March 31, 2009 as compared to the three months ended March 31, 2008. Manual premium rates are the allowable rates that employers are charged by insurance companies for workers' compensation insurance coverage. The decrease in the Company's manual premium rates primarily reflects the reduction in the Florida manual premium rates.

Revenues from state unemployment taxes and other revenues increased to $15.9 million for the three months ended March 31, 2009 from $12.2 million for the three months ended March 31, 2008, representing an increase of $3.7 million or 30.0%. The impact of the overall reduction in wages of approximately 8.0% was more than offset by the portion of the increase in state unemployment tax rates that were passed through to the Company's clients.

Cost of Services

The following table presents certain information related to the Company's cost of services from continuing operations for the three months ended March 31, 2009 and 2008:

                                                        Three Months Ended
                                                   March 31,          March 31,           %
                                                     2009                2008          Change
                                                   (in thousands, except statistical data)
Cost of services:
Employee health and welfare benefits            $        75,284    $         82,814       (9.1 )%
Workers' compensation                                     9,913              10,042       (1.3 )%
State unemployment taxes and other                       18,811              14,602       28.8 %
Total cost of services                          $       104,008    $        107,458       (3.2 )%

Statistical data:

Gross salaries and wages (in thousands)         $       969,165    $      1,053,448       (8.0 )%
Average number of client employees paid (1)              89,591             100,084      (10.5 )%
Workers compensation cost rate per one
hundred dollars of workers' compensation
wages (2)                                       $          1.18    $           1.06       11.3 %
Number of workers' compensation claims (3)                  666                 867      (23.2 )%
Frequency of workers' compensation claims
per one million dollars of workers'
compensation wages (2)                                     0.79 x              0.91 x    (13.2 )%

(2) Workers' compensation wages exclude the wages of clients electing out of the Company's workers' compensation program.

(3) The number of workers' compensation claims reflects the number of claims reported by the end of the respective period and does not include claims with respect to a specific policy year that are reported subsequent to the end of such period.

Cost of services, which includes the cost of the Company's health and welfare benefit plans, workers' compensation insurance, state unemployment taxes and other costs, was $104.0 million for the three months ended March 31, 2009, compared to $107.5 million for the three months ended March 31, 2008, representing a decrease of $3.5 million or 3.2%. This decrease was due to the reduction in the majority of the cost of services components as described below.

The cost of providing health and welfare benefits to clients' employees for the three months ended March 31, 2009 was $75.3 million as compared to $82.8 million for the three months ended March 31, 2008, representing a decrease of $7.5 million or 9.1%. This decrease was primarily attributable to the decrease in the number of client employees participating in the health and welfare benefit plans and was partially offset by higher cost of health benefits. In addition, the first quarters of 2009 and 2008 were favorably impacted by the recognition of a health benefit surplus of $3.1 million and $1.0 million, respectively, based upon favorable claims experience. The Company expects that price increases implemented in conjunction with healthcare renewals effective October 1, 2008 and the continuation of current claims experience will continue to favorably impact healthcare costs during 2009.

Workers' compensation costs were $9.9 million for the three months ended March 31, 2009, as compared to $10.0 million for the three months ended March 31, 2008, representing a decrease of $0.1 million or 1.3%. Workers' compensation costs decreased in the first quarter of 2009 primarily due to the approximate 10.5% reduction in the average number of client employees paid and related reduction in wages and claims. The three months ended March 31, 2009 and 2008 were also favorably impacted by the reduction in the prior years' workers' compensation loss estimates of approximately $1.2 million and $2.7 million, respectively, as a result of continued favorable claims development for those prior open policy years. The Company expects that if current claims development trends continue, this will have a favorable impact on workers' compensation costs for the remainder of 2009.

State unemployment taxes and other costs were $18.8 million for the three months ended March 31, 2009, compared to $14.6 million for the three months ended March 31, 2008, representing an increase of $4.2 million or 28.8%. The impact of the overall reduction in wages of approximately 8.0% was more than offset by the increase in state unemployment tax rates.

Operating Expenses



The following table presents certain information related to the Company's
operating expenses from continuing operations for the three months ended
March 31, 2009 and 2008:



                                            Three Months Ended
                                       March 31,          March 31,
                                         2009               2008         % Change
                                       (in thousands, except statistical data)
Operating expenses:
Salaries, wages and commissions     $        17,197    $        18,776       (8.4 )%
Other general and administrative             10,881             11,549       (5.8 )%
Depreciation and amortization                 3,367              3,936      (14.5 )%
Total operating expenses            $        31,445    $        34,261       (8.2 )%

Statistical data:
Internal employees at quarter end               656                815      (19.5 )%

Total operating expenses were $31.4 million for the three months ended March 31, 2009 as compared to $34.3 million for the three months ended March 31, 2008, representing a decrease of $2.8 million or 8.2%.

Salaries, wages and commissions were $17.2 million for the three months ended March 31, 2009 as compared to $18.8 million for the three months ended March 31, 2008, representing a decrease of $1.6 million or 8.4%. The decrease is primarily a result of the reduction in management and support personnel that occurred throughout 2008 and the first quarter of 2009. Included in salaries, wages and commissions for the three months ended March 31, 2009 are severance costs of approximately $1.6 million related to personnel reductions as compared to severance wages of approximately $0.4 million for the three months ended March 31, 2008.

Other general and administrative expenses were $10.9 million for the three months ended March 31, 2009 as compared to $11.5 million for the three months ended March 31, 2008, representing a decrease of $0.7 million or 5.8%. The decrease occurred across all major components of general and administrative expenses and is attributable to cost alignment measures taken during 2008 and the first quarter of 2009. Partially offsetting the reduction in other general and administrative expenses for the three months ended March 31, 2009 are $1.6 million of costs incurred in connection with the Merger.

Depreciation and amortization expenses were $3.4 million for the three months ended March 31, 2009 compared to $3.9 million for the three months ended March 31, 2008, representing a decrease of $0.6 million or 14.5%. The decrease is primarily attributable to the completion in the fourth quarter of 2008 and the first quarter of 2009 of the amortization of intangible assets previously acquired.

The Company continues to review its overhead cost structure to ensure alignment with its business development.

Income Taxes

For the three months ended March 31, 2009, the income tax benefit from continuing operations was $2.3 million compared to an income tax benefit of $0.2 million for the three months ended March 31, 2008. The increased income tax benefit is primarily a function of the increased loss from continuing operations. The Company's effective tax rate from continuing operations for the three months ended March 31, 2009 and 2008 was 38.4% and 39.0%, respectively. The Company's effective tax rates differed from the statutory federal tax rates because of the impact of state taxes and federal tax credits.

Gross Profit, Operating Loss, Loss from Continuing Operations and Net Loss Per
Share from Continuing Operations



As a net result of the factors described above, the following table summarizes
the changes in gross profit, operating loss, loss from continuing operations and
net loss per share from continuing operations:



                                                             Three Months Ended
                                                     March 31,               March 31,
                                                        2009                    2008               % Change
                                                     (in thousands, except per share and statistical data)

Gross profit                                    $             25,576    $             34,240              (25.3 )%
Operating loss                                  $             (5,869 )  $                (21 )              N/A
Loss from continuing operations                 $             (3,678 )  $               (271 )              N/A
Net loss per share from continuing
operations                                      $              (0.15 )  $              (0.01 )              N/A
Statistical data:
Annualized gross profit per average number
of client employees paid (1)                    $              1,142    $              1,368              (16.5 )%
Annualized operating loss per average number
of client employees paid (1)                    $               (262 )  $                 (1 )              N/A

Discontinued Operations

The loss from discontinued operations for the three months ended March 31, 2009 was $0.05 million ($0.03 million net of income tax) compared to a loss of $2.2 million ($1.3 million net of income tax) for the three months ended March 31, 2008. The decrease in the loss of $2.1 million was a result of the exit from the Gevity Edge Select business. The Company's operations related to Gevity Edge Select ceased on June 30, 2008. The Company does not expect to incur any further significant costs related to the exit of this business.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flow

General

The Company believes that its current cash balances, cash flow from operations and the existing credit facility will be sufficient to meet its operational requirements for the next 12 months. The Company has a secured credit facility for $85.0 million with Bank of America, N.A. and Wachovia, N.A. (the "Lenders") and had no outstanding borrowings as of March 31, 2009. See Note 8 to the condensed consolidated financial statements contained in this form 10-Q for additional information regarding the Company's credit facility. On February 25, 2008, the Company entered into the Third Amendment to Amended and Restated Credit Agreement ("Third Amendment"). The Third Amendment provides for the grant of security interests and liens in substantially all the property and assets (with agreed upon carveouts and exceptions) of the Company to the Lenders. The Third Amendment also provided for an automatic decrease of the aggregate revolving commitment of the credit facility from $100.0 million to $85.0 million on September 30, 2008. The Third Amendment includes additional covenants and amends certain financial covenants and negative covenants with an effective date of December 31, 2007. These include the maintenance of a minimum consolidated . . .