Press Room

FORT LAUDERDALE, Fla., February 2, 2005 — Spherion Corporation (NYSE: SFN) today announced financial results for the fourth quarter and year ended December 31, 2004. 

Financial Highlights

• Fourth quarter 2004 revenues were $571.8 million compared with $468.2 million in the fourth quarter of 2003, an increase of 22.1%. 
• Net earnings (loss) for the fourth quarter of 2004 were $9.8 million or $0.16 per diluted share, compared with ($0.7) million or ($0.01) per share in the fourth quarter of 2003.
• The fourth quarter of 2004 contains 14 weeks compared with 13 weeks in the fourth quarter of 2003. The estimated impact of the extra week included in the fourth quarter of 2004 is approximately $26 million of total revenue and a loss of ($0.01) per share.
• Earnings from continuing operations were $11.2 million or $0.18 per share in the fourth quarter 2004, including a state tax benefit of $6.3 million or $0.10 per share. This compares with $0.5 million or $0.01 per share in the fourth quarter of 2003.
• Adjusted earnings from continuing operations, which excludes restructuring charges and the tax benefit noted above, were $4.5 million or $0.07 per diluted share for the fourth quarter of 2004 and $2.0 million or $0.03 per share in the fourth quarter of 2003.
• Revenues for the full-year 2004 were $2.0 billion compared with $1.7 billion for the same period in 2003.  Net earnings for 2004 were $34.2 million or $0.55 per diluted share, including $20.6 million or $0.33 per diluted share from discontinued operations, primarily related to the recognition of a previously deferred tax benefit. This compares with a loss of ($13.9) million or ($0.23) per share, including a loss from discontinued operations of ($12.3) million or ($0.21) per share in 2003.

Spherion President and Chief Executive Officer Roy Krause commented, “We have made excellent progress during 2004 on several key priorities, including refining our strategic direction to concentrate on staffing and recruiting in North America, building momentum within our sales organization, completing the implementation of our ERP system, and disposition of several non-core operations. Spherion is now stronger and better positioned to compete in our targeted markets.”

Krause continued, “As we enter 2005, trends in our business such as, accelerating growth in clerical staffing, reasonable permanent placement activity and progress with efforts to improve pricing, give us increasing confidence in the outlook for Spherion and our industry. Profitability significantly improved in 2004 and remains a focus in 2005 as we execute on our commitment to deliver value to our customers at a fair price.”

Operating Performance
Staffing Services fourth quarter revenue increased by 21.9% year over year, with strong temporary staffing trends from holiday season demand and approximately 5% growth contributed from the extra week in the fourth quarter 2004. Gross profit margins in Staffing Services were 17.8% in the fourth quarter of 2004 compared with 19.7% in the prior year. Gross profit margins remained lower in the fourth quarter as compared with the prior year due to higher state unemployment taxes, lower spreads between pay rates and bill rates and a mix shift toward lower margin temporary staffing services. When compared with the third quarter 2004, improvement in the temporary staffing gross profit margins were offset by a decline in managed services gross profit margins due to the effect of the extra week in the quarter.  Segment operating profit was $8.7 million or 1.9% of revenue for the fourth quarter and $25.5 million or 1.6% for the full year 2004.

Professional Services revenue growth was 23.2% on a year over year basis in the fourth quarter 2004, including approximately 7% growth due to the extra week in the quarter. Gross profit margins in the fourth quarter of 2004 were 30.7%, a decrease of 140 basis points compared with the prior year, reflecting a slightly lower mix of permanent placement revenue and decreased temporary staffing margins. Temporary staffing gross profit margins were lower than the same period last year due to pricing declines, partially offset by lower employee benefit costs. Selling, general and administrative expenses decreased to 28.1% of segment revenue in the fourth quarter from 31.1% last year but increased from the third quarter of 2004 due to increased employee costs as we accelerated hiring plans and incurred higher performance incentives. Segment operating profit was $2.8 million or 2.5% of revenue in the fourth quarter and $19.8 million or 4.8% for the full year of 2004.

Other Items
During the fourth quarter, the Company completed the sale of its deposition services business. The gain on the sale has been included in the results of discontinued operations. 

In January, the Company was notified by a client that it would not renew certain of its managed services contracts with Spherion as a result of the client’s efforts to globally consolidate its managed service and temporary staffing suppliers and reduce costs. These contracts represented approximately $75 million in annual revenue in 2004, which we expect to transition to the new supplier beginning in April 2005.

Outlook
Krause commented, “Based on recent sales trends, the Company currently anticipates revenue for the first quarter of 2005 will be between $510 and $530 million, representing 9% to 14% year over year growth and normal seasonal slowing in the first quarter, compared with the fourth quarter 2004. Earnings from continuing operations are expected to be between $0.03 and $0.07 per share, assuming a 36% effective tax rate.”

About Spherion
Spherion Corporation is a leader in the staffing industry in North America, providing value-added staffing, recruiting and workforce solutions. Spherion has helped companies improve their bottom line by efficiently planning, acquiring and optimizing talent since 1946. To learn more, visit www.spherion.com.

This release contains statements that are forward looking in nature and, accordingly, are subject to risks and uncertainties. Factors that could cause future results to differ from current expectations include risks associated with:  Competition - our business operates in highly competitive markets with low barriers to entry; Economic conditions - a significant economic downturn could result in our clients using fewer temporary employees or the loss or bankruptcy of a significant client could materially adversely affect our business results; Changing market conditions - our business is dependent upon the availability of qualified personnel; Corporate strategy - we may not achieve the intended effect of our business strategy; Technology investments – our investment in technology initiatives may not yield their intended results; Tax filings – regulatory challenges to our tax filing positions could result in additional taxes; Debt Compliance- failure to meet certain covenant requirements under our credit facility could impact part or all of our availability to borrow; Litigation - we are a defendant in a variety of litigation and other actions from time to time and we may be exposed to employment–related claims and costs; Other - government regulation may increase our costs; business risks associated with international operations could make those operations more costly; failure or inability to perform under customer contracts could result in damage to our reputation and give rise to legal claims; certain contracts contain termination provisions and pricing risks; the disposition of our discontinued operations may create future liabilities related to contract indemnifications; and managing or integrating any future acquisitions may strain our resources. These and additional factors discussed in this release and in Spherion’s filings with the Securities and Exchange Commission could cause the Company’s actual results to differ materially from any projections contained in this release.

Spherion Corporation prepares its financial statements in accordance with generally accepted accounting principles (GAAP). Adjusted earnings (loss) from continuing operations is a non-GAAP financial measure, which excludes certain non-operating related charges and gains.  Items excluded from the calculation of adjusted earnings (loss) from continuing operations include, but are not limited to, restructuring charges, gains/losses on the sale of assets, gains (losses) on the early retirement of debt, net of taxes, and state tax benefits not realized in prior years. Adjusted earnings (loss) from continuing operations is a key measure used by management to evaluate its operations. Management does not consider the items excluded to be operating costs/gains and therefore, excludes them from the evaluation of the Company’s operating performance.  Adjusted earnings (loss) from continuing operations should not be considered a measure of financial performance in isolation or as an alternative to earnings (loss) from continuing operations or net earnings (loss) as determined in the Statement of Operations in accordance with GAAP, and, as presented, may not be comparable to similarly titled measures of other companies. Items excluded from adjusted earnings (loss) from continuing operations are significant components in understanding and assessing financial performance. 

Spherion Corporation and Subsidiaries Financial Statements