Spherion Announces Third Quarter 2005 Financial Results

FORT LAUDERDALE, Fla., October 26, 2005 — Spherion Corporation (NYSE: SFN) today announced financial results for the third quarter ended October 2, 2005. 

Financial Highlights

• Third quarter 2005 revenues were $492.4 million compared with $507.7 million in the third quarter of 2004, a decrease of 3.0%. Third quarter revenues increased 3.3% sequentially, from $476.8 million in the second quarter of 2005. 
• Net earnings for the third quarter of 2005 were $5.2 million or $0.08 per share, compared with $29.7 million or $0.48 per share in the third quarter of 2004. The 2004 period included $27.4 million or $0.44 per share from discontinued operations.
• Earnings from continuing operations were $6.4 million or $0.10 per diluted share in the third of quarter 2005, compared with $2.4 million or $0.04 per diluted share in the third quarter of 2004.
• Revenues for the first nine months of 2005 were $1.5 billion, flat with the same period in the prior year. Net earnings for the nine-month period in 2005 were $5.7 million or $0.09 per share, compared with net earnings for the first nine months in 2004 of $24.4 million or $0.40 per share. Earnings from continuing operations for the first nine months of 2005 were $10.1 million or $0.16 per share, compared with $2.4 million or $0.04 per share for the same period in 2004.

Spherion President and Chief Executive Officer Roy Krause commented, “We were pleased with the results of the third quarter as we continued to focus on our strategic initiatives of targeted growth, margin expansion and operational effectiveness. Our discipline on client selection and expense management has resulted in meaningful improvements in operating margins. We remain committed to profitable revenue growth as we continue developing our base among small and mid-sized clients.”

Krause continued, “In addition, we are maintaining our strong balance sheet and liquidity. Our progress in this area again this quarter allowed us to increase our cash position, net of debt, and continue our share repurchase program.”

Operating Performance
Staffing Services third quarter revenue decreased by 6.9% year over year. Both clerical and light industrial temporary staffing were about flat year over year. However, as expected, managed services revenues decreased due to changes in the client portfolio. Total segment gross profit margins in Staffing Services were 19.5% in the third quarter of 2005 compared with 17.8% in the third quarter of 2004. Temporary staffing gross profit margins increased 170 basis points year over year due to pricing improvement and lower workers’ compensation costs. Additionally, managed services gross profit margins improved in the third quarter due to a change in client mix and lower employee benefit costs. Selling, general and administrative costs were $65.5 million or 17.4% of revenue in the third quarter of 2005, down from $67.5 million in the same period of the prior year. Segment operating profit of $7.8 million or 2.1% of revenue for the third quarter of 2005 increased from $4.3 million and 1.1% of revenue in the third quarter of 2004.

Professional Services revenue growth was 11.9% on a year over year basis in the third quarter 2005, driven primarily by growth in our core skill areas of information technology and finance and accounting. 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, effective in the second quarter of 2005. Gross profit margins in the third quarter of 2005 were 31.8%, compared with 32.8% in the third quarter of 2004, primarily reflecting a decrease in temporary staffing margins. Selling, general and administrative expenses were 27.9% of segment revenue in the third quarter of 2005 compared with 26.1% last year in the same period, reflecting our investments in sales and recruiting staff. Segment operating profit was $4.6 million or 3.9% of revenue in the third quarter of 2005 compared with $6.9 million or 6.7% of revenue in the third quarter of 2004.

Other Items 
During the third quarter the Company repurchased 1,211,400 shares at an average price of $7.53 per share. The Company continued to make share repurchases in October and currently there are up to 3.9 million shares remaining under the current authorization.

Outlook
Krause commented, “Based on recent sales trends, which include some seasonal activity within our Staffing Services area, the Company currently anticipates revenue for the fourth quarter will be between $495 and $515 million. Earnings from continuing operations for the fourth quarter are expected to be between $0.08 and $0.12 per share, assuming of an effective tax rate of 36%.”

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, 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