Spherion Announces Third Quarter 2006 Financial Results

FORT LAUDERDALE, Fla., November 1, 2006 — Spherion Corporation (NYSE: SFN) today announced financial results for the third quarter ended October 1, 2006. 

Spherion President and Chief Executive Officer Roy Krause commented, “Our efforts to focus on profitable growth within our targeted customer segments are yielding results with gross profit increasing 6.1%, compared with last year. We will continue to make investments in sales and recruiting resources to support further growth. However, we are making certain adjustments to our administrative cost structure over the next several quarters to improve operating margins.”

Financial Highlights

• Third quarter 2006 revenues were $495.5 million compared with $494.5 million in the third quarter of 2005, an increase of 0.2% from the prior year and 4.8% from the second quarter 2006.
• Earnings from continuing operations were $5.6 million or $0.10 per share in the third quarter of 2006, including stock option expense of $0.01 per share, compared with $6.6 million or $0.11 per share in the third quarter of 2005.
• Net earnings, which include discontinued operations, for the third quarter of 2006 were $8.4 million or $0.15 per share, compared with $5.2 million or $0.08 per share in the third quarter of 2005. 
• Revenues for the first nine months of 2006 were $1.4 billion, a decrease of 3.3% from the same period in 2005. Earnings from continuing operations for the first nine months of 2006 were $12.3 million or $0.21 per share, including stock option expense of $0.04 per share, compared with $10.7 million or $0.17 per share for the same period in 2005. Net earnings were $14.9 million or $0.26 per share for the first nine months of 2006, compared with $5.7 million or $0.09 per share in 2005.  

Krause continued, “The U.S. economy and the staffing industry continue to show signs of moderating growth. However, long-term industry opportunities are positive and our priorities remain profitable revenue growth and improving operating profit, while maintaining our financial discipline.”

Operating Performance
Staffing Services third quarter revenue decreased by 1.9% year over year. Growth within our targeted small and mid-sized staffing customers and recruitment outsourcing services has not yet fully offset declines among our largest staffing customers. Temporary staffing gross profit margins increased by 40 basis points year over year due primarily to lower workers’ compensation and benefits expenses.  Managed Services revenues increased 10.7% year over year and gross profit margins increased to 32.1%, driven primarily by increased recruitment outsourcing. Total segment gross profit margins in Staffing Services increased to 20.8% in the third quarter of 2006 compared with 19.4% in the third quarter of 2005. Selling, general and administrative costs were $69.5 million or 18.7% of revenue in the third quarter of 2006, compared with $65.5 million or 17.3% of revenue last year. Segment operating profit was $7.7 million or 2.1% of revenue for the third quarter of 2006, compared with $8.1 million and 2.1% of revenue in the third quarter of 2005.

Professional Services revenue growth was 7.1% on a year over year basis in the third quarter of 2006.  Revenue growth was strongest in information technology, both in temporary staffing and permanent placement. Gross profit margins in the third quarter of 2006, were 32.2%, an increase of 40 basis points, due to improved pay/bill spreads and lower employee benefit and insurance costs. Selling, general and administrative expenses were $35.1 million or 28.2% of revenue in the third quarter of 2006, compared with $32.4 million or 27.9% of revenue in the third quarter last year. Segment operating profit grew to $5.0 million or 4.0% of revenue in the third quarter of 2006 compared with $4.6 million or 3.9% of revenue in the third quarter of 2005.

Other Items
As previously announced, in July, the Company repurchased the remaining 118,000 shares available under the 6 million share authorization, at an average price of $8.76 per share.

During the third quarter, the company resolved several outstanding tax matters related to international businesses previously sold. These items resulted in income of $2.8 million or $0.05 per share, which are included in discontinued operations.

Outlook
Krause commented, “Based on recent sales trends, the Company anticipates revenue for the fourth quarter will be between $500 and $520 million, reflecting year over year revenue growth of up to 4%, 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, including stock option expense of $0.01 per share, fourth quarter severance costs of approximately $0.01 per share and assuming 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 locations 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 and other 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