Press Room

FORT LAUDERDALE, Fla., August 2, 2006 — Spherion Corporation (NYSE: SFN) today announced financial results for the second quarter ended July 2, 2006. 

Spherion President and Chief Executive Officer Roy Krause commented, “We are pleased that continued success in selling to our targeted customer segments is improving our gross profit margin trends. Operating margins also expanded during the quarter, despite making investments in sales and recruiting resources, as we position the Company for growth.”

Financial Highlights

• Second quarter 2006 revenues were $472.7 million compared with $479.1 million in the second quarter of 2005, a decrease of 1.3%.
• Earnings from continuing operations were $4.5 million or $0.08 per share in the second quarter of 2006, compared with $3.0 million or $0.05 per share in the second quarter of 2005.
• Net earnings, which include discontinued operations, for the second quarter of 2006 were $3.6 million or $0.06 per share, compared with $1.8 million or $0.03 per share in the second quarter of 2005.  
• Revenues for the first six months of 2006 were $937.0 million compared with $986.8 million for the same period in 2005. Earnings from continuing operations for the first six months of 2006 were $6.7 million or $0.11 per share compared with $4.1 million or $0.07 per share for the same period in 2005. Net earnings were $6.5 million or $0.11 per share for the first six months of 2006, compared with $0.5 million or $0.01 per share in 2005.  

Krause continued, “The U.S. economy continues to grow, although the pace may be slowing, and our industry dynamics remain favorable for the long-term. Our balance sheet is strong and we have the financial resources to support the Company’s growth strategy.”

Operating Performance
Staffing Services second quarter revenue decreased by 4.4% year over year. Continued growth within the targeted, higher margin small and mid-sized customer base, did not offset declines among several of our largest staffing customers. Temporary staffing gross profit margins increased by 50 basis points year over year due to increasing average pay/bill spreads and lower workers’ compensation expense. Managed Services revenues increased 4.9% year over year and gross profit margins increased to 32.8%, driven primarily by increased recruitment outsourcing. Total segment gross profit margins in Staffing Services increased to 20.5% in the second quarter of 2006 compared with 18.6% in the second quarter of 2005. Selling, general and administrative costs were $67.3 million or 19.3% of revenue in the second quarter of 2006, compared with $65.0 million or 17.8% of revenue last year. Segment operating profit of $4.2 million or 1.2% of revenue for the second quarter of 2006 increased from $2.8 million and 0.8% of revenue in the second quarter of 2005.

Professional Services revenue growth was 8.4% on a year over year basis in the second quarter of 2006. Growth was strongest in information technology, in part, due to strategic initiatives to increase professional staffing within existing customers. Gross profit margins in the second quarter of 2006 were 33.3%, compared with 32.7% in the second quarter of 2005. Temporary staffing margins improved by 90 basis points, primarily reflecting improved pay/bill spreads and lower employee benefit and insurance costs. Selling, general and administrative expenses were $34.6 million or 27.9% of revenue in the second quarter of 2006, compared with 28.0% of revenue in the second quarter last year. Segment operating profit grew to $6.7 million or 5.4% of revenue in the second quarter of 2006 compared with $5.4 million or 4.8% of revenue in the second quarter of 2005.

Other Items
During the second quarter, the Company repurchased 1,469,500 shares of its common stock at an average price of $8.92 per share. In July, the Company repurchased the remaining 118,000 shares under the 6 million share authorization, at an average price of $8.76 per share.   

Outlook
Krause commented, “Based on recent sales trends, the Company anticipates revenue for the third quarter will be between $480 and $500 million, reflecting continued sequential revenue increases as we remain focused on profitable growth in our targeted customer segments. Earnings from continuing operations are expected to be between $0.08 and $0.12 per share. These estimates assume a 45% effective tax rate.”

About Spherion
Spherion Corporation (NYSE:SFN) is a leading recruiting and staffing company that provides integrated solutions to meet the evolving needs of companies and job candidates. As an industry pioneer for 60 years, Spherion has screened and placed millions of individuals in temporary, temp-to-hire and full-time jobs. Positions range from administrative and light industrial to a host of professions that include accounting/finance, information technology, engineering, manufacturing, legal, human resources and sales/marketing.

With approximately 650 offices in the United States and Canada, Spherion delivers innovative workforce solutions that improve business performance. Spherion provides its services to more than 8,000 customers, from Fortune 500 companies to a wide range of small and mid-size organizations.  Employing 375,000 people annually through its network, Spherion is one of North America’s largest employers. 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 – any significant economic downturn could result in lower revenues or a significant reduction in demand from our customers may result in a material impact on the results of our operations; Corporate strategy – we may not achieve the intended effects of our business strategy; Termination provisions - certain contracts contain termination provisions and pricing risks; Failure to perform – our failure or inability to perform under customer contracts could result in damage to our reputation and give rise to legal claims;  Disposition of businesses - the disposition of businesses previously sold, may create contractual liabilities associated with indemnifications provided; Tax filings – regulatory challenges to our tax filing positions could result in additional taxes; Government Regulation - government regulation may increase our costs; International operations – we are subject to business risks associated with our international operations in Canada which could make those operations more costly; Litigation – we may be exposed to employment–related claims and costs and we are a defendant in a variety of litigation and other actions from time to time; Personnel - our business is dependent upon the availability of qualified personnel and we may lose key personnel which could cause our business to suffer; Integrating acquisitions - managing or integrating any future acquisitions may strain our resources; Debt compliance – failure to meet certain covenant requirements under our credit facility could impact part or all of our availability to borrow; and Common stock – the price of our common stock may fluctuate significantly, which may result in losses for our investors. 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 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 from continuing operations include restructuring charges and stock option expense under FAS No. 123R, net of taxes. Adjusted earnings 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 from continuing operations should not be considered measures of financial performance in isolation or as an alternative to earnings from continuing operations or net earnings (loss) as determined in the Statement of Earnings in accordance with GAAP, and, as presented, may not be comparable to similarly titled measures of other companies, and therefore this measure has material limitations. Items excluded from adjusted earnings from continuing operations are significant components in understanding and assessing financial performance. 

Spherion Corporation and Subsidiaries Financial Statements