Press Room

FORT LAUDERDALE, Fla., February 1, 2006 — Spherion Corporation (NYSE: SFN) today announced financial results for the fourth quarter and year ended January 1, 2006. 

Spherion President and Chief Executive Officer Roy Krause commented, “We are pleased with our fourth quarter and 2005 results, despite lower fourth quarter seasonal sales activity than last year.  We continued to make progress throughout the year on key strategic initiatives that led to gross profit margin expansion, improved operating leverage and significant improvements in our profitability from continuing operations. North American employment trends continue to be positive as we focus further effort on growth within our targeted customer segments.”

Financial Highlights

• Fourth quarter 2005 revenues were $496.9 million compared with $571.8 million in the fourth quarter of 2004, a decrease of 13.1%. The fourth quarter of 2005 contains 13 weeks compared with 14 weeks in the fourth quarter of 2004. Excluding the impact of the extra week in the fourth quarter 2004, revenue declined 9.0% compared with the prior year.
• Net earnings for the fourth quarter of 2005 were $6.3 million or $0.10 per diluted share, compared with $11.4 million or $0.18 per diluted share in the fourth quarter of 2004. 
• Earnings from continuing operations were $9.2 million or $0.15 per share in the fourth quarter of 2005, compared with $12.8 million or $0.21 per share in the fourth quarter of 2004. Excluding $6.7 million or $0.11 per share primarily from state tax benefits, adjusted earnings from continuing operations were $6.1 million or $0.10 per share in the fourth quarter of 2004.
• Revenues for the twelve months of 2005 were $2.0 billion, a decline of 3.0% compared with the same period in the prior year. Excluding the impact of the extra week in 2004, revenues declined 1.7% year over year. Net earnings for the twelve months were $12.0 million or $0.20 per share in 2005, compared with net earnings of $35.8 million or $0.58 per diluted share for 2004.  Earnings from continuing operations for the year were $19.3 million or $0.31 per diluted share in 2005, compared with $15.2 million or $0.24 per diluted share for the same period in 2004.

Krause continued, “We generated over $70 million of operating cash flow in 2005 and our financial position remains strong. Our operating cash flow and capital resources will support accelerated growth initiatives in core temporary staffing services as well as the expansion of specialized recruitment products and services.”

Operating Performance  
Staffing Services fourth quarter revenue decreased by 17.5% year over year. Excluding the impact of the extra week in the fourth quarter of 2004, revenue declined 13.1% year over year. Clerical temporary staffing declined at a slower rate than light industrial temporary staffing due to the intentional exit of several light industrial clients and slower seasonal activity in 2005. Managed services revenues were lower year over year consistent with client portfolio changes earlier in 2005, and managed services revenue increased 3.4% sequentially. Total segment gross profit margins in Staffing Services increased to 20.2% in the fourth quarter of 2005 compared with 17.8% in the fourth quarter of 2004. Temporary staffing gross profit margins increased 90 basis points year over year due to pricing improvement and lower workers’ compensation costs. Gross profit margins in managed services improved in the fourth quarter due to growth in higher margin recruitment outsourcing services and the impact that the extra week had on costs last year. Selling, general and administrative costs were $65.7 million or 17.3% of revenue in the fourth quarter of 2005, up from 15.9% last year, reflecting the impact of lower revenue. Segment operating profit of $11.3 million or 3.0% of revenue for the fourth quarter of 2005 increased from $8.7 million and 1.9% of revenue in the fourth quarter of 2004.

Professional Services revenue growth was 5.2% on a year over year basis in the fourth quarter 2005.  Excluding the impact of the extra week in the fourth quarter of 2004 and the reclassification of certain managed services customers earlier in 2005, year over year growth was 8.0%. Growth was strongest in information technology and finance and accounting for both temporary staffing and permanent placement. Gross profit margins in the fourth quarter of 2005 were 31.9%, compared with 30.7% in the fourth quarter of 2004. Temporary staffing margins improved by 50 basis points, primarily reflecting stable pricing and lower employee benefits and insurance costs. Selling, general and administrative expenses were $31.3 million or 26.9% of revenue in the fourth quarter of 2005, down from 28.1% last year, reflecting better expense management as the business grew. Segment operating profit grew to $5.7 million or 4.9% of revenue in the fourth quarter of 2005 compared with $2.8 million or 2.5% of revenue in the fourth quarter of 2004. 

Other Items 
During the fourth quarter the Company repurchased 1,173,000 shares of its common stock at an average price of $9.06 per share. The Company continued to make share repurchases in January and currently there are up to 2.4 million shares remaining under the current authorization.

In the fourth quarter 2005, the Company recorded expenses of $5.7 million, on a pre-tax basis, primarily for the estimated amount to settle certain indemnification and other matters associated with its operations in Australia and the United Kingdom, which were disposed of in 2004. These losses have been included in the results from discontinued operations in the fourth quarter 2005.

Beginning with the first quarter of 2006, the Company will record compensation expense related to outstanding employee stock options, in accordance with FAS123R. Based on current information the Company anticipates the impact of this item is approximately ($0.01) per share in the first quarter of 2006 and ($0.06) per share for the full year 2006.

Outlook
Krause commented, “Based on recent sales trends, the Company anticipates revenue for the first quarter will be between $470 and $490 million, a sequential quarterly decrease of 1% to 5% due to normal seasonal slowing in the first quarter, compared with the fourth quarter. First quarter 2006 revenues will be 3% to 7% lower than the first quarter of 2005, primarily a result of new sales having not yet fully offset staffing and managed services business that was exited during early 2005.”

“Including stock option expense and assuming an increase in the effective tax rate to 43%, earnings from continuing operations for the first quarter are expected to be between $0.02 and $0.06 per share.  This compares with earnings from continuing operations of $0.02 per share in the first quarter of 2005, which did not include option expenses,” concluded Krause.

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; Technology investments – our investment in technology initiatives may not yield their intended results; Debt compliance – failure to meet certain covenant requirements under our credit facility could impact part or all of our availability to borrow; Disposition of businesses - the disposition of businesses previously sold, or in the process of being sold, may create future liabilities related to contract indemnifications; Termination provisions - certain contracts contain termination provisions and pricing risks; Tax filings – regulatory challenges to our tax filing positions could result in additional taxes; Corporate strategy – we may not achieve the intended effect of our business 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 - business risks associated with international operations could make those operations more costly; government regulation may increase our costs; failure or inability to perform under customer contracts could result in damage to our reputation and give rise to legal claims; our business is dependent upon the availability of qualified personnel; 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 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, but are not limited to, restructuring charges and the loss on the early retirement of debt, 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 revenue and gross profit for the three months and twelve months ended December 31, 2004 are also non-GAAP financial measures which exclude an extra week and reflect the reclassification of certain IT managed services business between the Company’s two business segments.  The 2004 periods had 14 and 53 weeks and the extra week is excluded from the adjusted revenue figures to present more directly comparable periods of 13 and 52 weeks in each of the 2004 and 2005 periods presented.  Adjusted revenue and gross profit as presented is used by management to evaluate the Company’s operations in each period and to compare its performance in the respective periods. Adjusted revenue, gross profit and earnings from continuing operations should not be considered measures of financial performance in isolation or as an alternative to revenues, gross profit and earnings from continuing operations or net earnings 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 revenues, gross profit or earnings from continuing operations are significant components in understanding and assessing financial performance.  

Spherion Corporation and Subsidiaries Financial Statements