Press Room

FORT LAUDERDALE, Fla., July 27, 2005 — Spherion Corporation (NYSE: SFN) today announced financial results for the second quarter ended July 3, 2005. 

Financial Highlights

• Second quarter 2005 revenue was $476.8 million compared with $485.9 million in the second quarter of 2004, a decrease of 1.9%. 
• Net earnings for the second quarter of 2005 were $1.8 million or $0.03 per share, compared with $2.8 million or $0.05 per share in the second quarter of 2004.
• Earnings from continuing operations were $2.7 million or $0.04 per share in the second quarter 2005, compared with $4.2 million or $0.07 per share in the second quarter of 2004.
• Revenue for the first six months of 2005 was $982.4 million compared with $953.1 million for the same period in 2004. Net earnings for the six-month period in 2005 were $0.5 million or $0.01 per share, compared with a net loss for the first six months of ($5.3) million or ($0.09) per share in 2004. Earnings from continuing operations for the first six months of 2005 were $3.7 million or $0.06 per share. Results from continuing operations were breakeven for the six-month period in 2004.

Spherion President and Chief Executive Officer Roy Krause commented, “Our year over year growth in our core staffing and recruiting operations was solid for the quarter. During the quarter we generated higher rates of growth among small and mid-sized clients, a key customer segment and recorded strong permanent placement revenue. Additionally, gross profit margin expansion offset the impact of the previously announced decline in managed services and slower market trends.”

Krause continued, “In addition, we continued to make progress on business process improvements, reducing DSO by another two days this quarter, which contributed to operating cash flow of over $33 million for the second quarter. We have a strong balance sheet and, with our positive cash flow, we eliminated all of our revolving debt and have begun our share repurchase program.”
  
Operating Performance
Staffing Services second quarter revenue decreased by 5.5% year over year. Temporary staffing grew 3.8% year over year, driven by growth in clerical temporary staffing. However, this growth in temporary staffing was more than offset by the expected decline in managed services revenue. Total segment gross profit margins in Staffing Services were 18.6% in the second quarter of 2005 compared with 18.7% in the second quarter of 2004. Temporary staffing gross profit margins improved 70 basis points year over year due to pricing increases and lower employee benefit costs. However, these improvements were offset by comparatively lower revenue and gross profit margin in managed services. Selling, general and administrative costs were $65.0 million or 17.9% of revenue in the second quarter 2005, down from $66.1 million in the same period of the prior year. Segment operating profit of $2.4 million or 0.7% of revenue for the second quarter 2005 decreased from $5.7 million and 1.5% of revenue in the second quarter of 2004.

Professional Services revenue growth was 11.8% on a year over year basis in the second quarter 2005, driven by particular strength in finance and accounting temporary staffing and information technology permanent placement. In addition, approximately 3.2% of the year over year Professional Services growth is due to the reclassification of certain technology managed services business from the Staffing Services segment. Gross profit margins in the second quarter of 2005 were 32.7%, compared with 32.4% in the second quarter of 2004, reflecting a higher mix of permanent placement revenue offset by a decrease in temporary staffing margins. Selling, general and administrative expenses were 28.0% of segment revenue in the second quarter of 2005 compared with 24.8% last year in the same period, reflecting continued investment in sales and recruiting staff and a higher level of permanent placement commissions. Segment operating profit was $5.4 million or 4.8% of revenue in the second quarter of 2005 compared with $7.7 million or 7.6% of revenue in the second quarter of 2004.
 
Other Items
In May 2005, the Company announced a share repurchase program for up to 6 million shares of its outstanding common stock. During the second quarter the Company repurchased 655,900 shares at an average price of $6.37 per share. The Company continued to make share repurchases in July and currently there are up to 5.1 million shares remaining under the current authorization.

Outlook
Krause commented, “Based on recent sales trends, which improved a bit in June and early July, the Company currently anticipates revenue for the third quarter of 2005 will be between $480 and $500 million. Earnings from continuing operations are expected to be between $0.04 and $0.08 per share.”

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, 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 a measure of financial performance in isolation or as an alternative to earnings from continuing operations or net earnings 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 from continuing operations are significant components in understanding and assessing financial performance.  
 

Spherion Corporation and Subsidiaries Financial Statements