Press Room

FORT LAUDERDALE, Fla. , August 1, 2002 — Spherion Corporation (NYSE: SFN) today announced results for the quarter ended June 28, 2002. Revenues for the second quarter were $529.7 million, compared with $633.7 million in the second quarter 2001, a decline of 16.4% year over year and essentially flat from the first quarter of 2002. The loss from continuing operations in the second quarter was ($0.9) million or ($0.01) on a per share basis. For the second quarter 2001, the Company reported earnings from continuing operations of $183.6 million or $2.84 per diluted share, including the gain on the sale of Michael Page. During the second quarter 2002, the Company finalized a plan to exit several small consulting businesses, which have been reclassified as discontinued operations. Inclusive of discontinued operations, the Company’s net earnings (loss) for the second quarter were ($8.6) million in 2002 and $183.2 million in 2001 or ($0.14) and $2.83 per diluted share, respectively.

Spherion President and CEO Cinda A. Hallman commented, “During the second quarter we saw pockets of improvement in market conditions, most notably within light industrial staffing and relative stability in other areas of the business.  While overall business conditions remain challenging, we successfully improved the Company’s average gross profit margin by over 100 basis points from last quarter. This increase is attributable to improved consultant utilization within the Technology segment and our strategy to focus sales on ‘local decision makers’.”

For the six month period ended June 28, 2002, revenues were $1.1 billion compared to $1.5 billion in the same period last year, including $180 million from Michael Page, which was sold in the second quarter of 2001. Excluding Michael Page, revenue declined 18.1% compared with the same period last year. The year to date 2002 loss from continuing operations was ($3.0) million or ($0.05), on a per share basis. For the same period in 2001, earnings from continuing operations were $160.7 million or $2.48 per diluted share, including first quarter operating results and gain on the sale of Michael Page. Earnings (loss) for the first six months of 2002 and 2001, including discontinued operations and the cumulative effect of changes in accounting principles, were ($627.8) million and $159.3 million, respectively. Diluted earnings (loss) per share for the six months were ($10.58) in 2002 and $2.46 in 2001.

Business Transformation

Last year Spherion began a process to create a sustainable, focused business model and outlined a number of initiatives that would help increase predictability, productivity and profitability. Accomplishments over the last twelve months include:

• Reorganizing to focus on key markets within the Recruitment segment, exiting unprofitable markets, non-strategic business lines and higher risk industrial services. Total revenue exited from last year at this time is approximately $48 million per quarter.

   

• Successful addition of dedicated sales resources and sales management processes within the US Staffing Group focused on sales to local decision makers. While still a relatively small percentage of total revenue, these resources have generated business with gross profit margins that are on average 500 basis points higher than the average in that unit.

   

• Increasing and stabilizing the applications consultant utilization rate in the Information Technology (IT) Services business and reaching its initial goal to increase the variable portion of headcount to 40% in this area.

   

• Creation of an experienced sales, delivery and contract execution team within the Outsourcing business focused on expanding long-term business partnerships and increasing revenue from outsourcing business opportunities with new and existing customers.

   

As part of the IT Services optimization effort, the Company decided to exit its European technology consulting business that has struggled due to its limited scale and near-term growth potential. These operations are now reported as part of discontinued operations. In addition, by the end of the third quarter we will take actions to further integrate the based applications and infrastructure service offerings within the IT Services business to leverage the synergies between them and optimize the branch network.

Hallman continued, “I am very proud of our achievements in the last twelve months. Specifically, we have eliminated 16% of S, G & A costs since last year at this time and exited a substantial amount of higher risk or unprofitable business. However, we will not achieve our goal of increasing shareholder value by cost cutting alone. In order to reach our three year goal of 5%-6% operating margins, we are focused on driving significant profitable growth throughout the organization, placing increased emphasis on growth in higher margin recruiting and technology services.”

Other items

During the second quarter 2002, the Company finalized a plan to exit several small consulting businesses, which have been reclassified as discontinued operations. Revenues for these operations totaled $7.6 million and $15.6 million for the second quarter and first six months of 2002, respectively. The Company expects to complete the sale of these businesses by the end of the year and recorded a pre-tax charge of $7.3 million in the second quarter for the estimated loss on the disposal of these operations. These operations were previously reported as part of the Technology and Outsourcing segments.

The Company replaced its revolving credit facility with an accounts receivable secured facility, which will allow the Company to borrow up to $200 million against qualified accounts receivable. In addition, the Company collateralized obligations under its workers’ compensation program by pledging approximately $112 million in cash. These measures are intended to increase the yield on cash balances, reduce unused facilities fees and increase liquidity for business expansion opportunities.

During the second quarter, the Company received notice of termination of its call center outsourcing contract with WorldCom, effective December 31, 2002. Under a separate agreement Spherion also provides staffing services to WorldCom. In total, the Company generated $26.4 million of revenue from WorldCom in the first six months of 2002. Spherion accrued bad debt reserves in the second quarter of $1.8 million and expects a charge of up to another $1.1 million in the third quarter for additional bad debt reserves on accounts receivable that were uncollected as of WorldCom’s bankruptcy filing date, for services rendered in each period.

Outlook

Hallman concluded, “While the recovery began as expected with the light industrial skills we supply, based on mixed economic signals, a spate of corporate scandals and the largest corporate bankruptcy in history, we see continued caution among our clients to expand hiring plans, especially within the professional and technology skill sets. In light of these events, I believe our recovery will be tempered through the balance of this year, but expect modest sequential quarterly revenue growth.”

Based on current information, management expects the earnings (loss) per share from continuing operations to be between ($0.01) and $0.04, for the third quarter of 2002.

Spherion Corporation provides Recruitment, Technology and Outsourcing services. Founded in 1946, with operations in the North America , Europe and Asia/Pacific, Spherion helps companies efficiently plan, acquire and optimize talent to improve their bottom line. Visit the Company’s web site at 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 of a significant client; 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 Transformation Strategy; 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 complete our outsourcing projects could result in damage to our reputation and give rise to legal claims, and certain contracts contain termination provisions and pricing risks. 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.