Sfn 10-Q 2008 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 29, 2008

Commission file number: 1-11997

_______________

SPHERION CORPORATION
(Exact name of registrant as specified in its charter)

Delaware	36-3536544
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification Number)
2050 Spectrum Boulevard, Fort Lauderdale, Florida	33309
(Address of principal executive offices)	(Zip code)
(954)308-7600
(Registrant’s telephone number, including area code)

________________

          Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x    No¨ 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated filer	x
Non-accelerated filer	¨	Smaller reporting company	¨
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes¨      Nox

Number of shares of Registrant’s Common Stock, par value $0.01 per share ("Common Stock"), outstanding on July 27, 2008 was 52,806,991.

TABLE OF CONTENTS
		Page No.
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Statements of Earnings Three Months Ended June 29, 2008 and July 1,2007 (unaudited)	1
	Condensed Consolidated Statements of Earnings Six Months Ended June 29, 2008 and July 1,2007 (unaudited)	2
	Condensed Consolidated Balance Sheets June 29, 2008 (unaudited) and December 30, 2007	3
	Condensed Consolidated Statements of Cash Flows Six Months Ended June 29, 2008 and July 1, 2007 (unaudited)	4
	Notes to Condensed Consolidated Financial Statements (unaudited)	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4.	Controls and Procedures	25
PART II	OTHER INFORMATION
Item 1A.	Risk Factors	25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 4.	Submission of Matters to a Vote of Security Holders	26
Item 6.	Exhibits	26
SIGNATURES		26

Part I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SPHERION CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited, in thousands, except per share amounts)
	Three Months Ended
	June, 29			July 1,
	2008			2007
Revenues	$	562,977		$	478,477
Cost of services		432,790			359,817
Gross profit		130,187			118,660
Selling, general and administrative expenses		118,875			107,442
Amortization of intangibles		2,043			208
Interest expense		1,575			381
Interest income		(72	)		(1,194	)
Restructuring and other charges		944			-
		123,365			106,837
Earnings from continuing operations before income taxes		6,822			11,823
Income tax expense		(1,473	)		(4,434	)
Earnings from continuing operations		5,349			7,389
Loss from discontinued operations, net of tax		(3,043	)		(3,977	)
Net earnings	$	2,306		$	3,412
Earnings per share, Basic and Diluted:
Earnings from continuing operations	$	0.10		$	0.13
Loss from discontinued operations		(0.06	)		(0.07	)
	$	0.04		$	0.06
Weighted average shares used in computation of earnings per share:
Basic		54,352			56,334
Diluted		54,826			57,091

See accompanying notes to Condensed Consolidated Financial Statements.

1

SPHERION CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited, in thousands, except per share amounts)
	Six Months Ended
		June 29,			July 1,
		2008			2007
Revenues	$	1,139,440		$	940,346
Cost of services		881,085			715,965
Gross profit		258,355			224,381
Selling, general and administrative expenses		238,778			207,062
Amortization of intangibles		4,087			248
Interest expense		3,324			2,332
Interest income		(251	)		(2,477	)
Restructuring and other charges		1,940			-
		247,878			207,165
Earnings from continuing operations before income taxes		10,477			17,216
Income tax expense		(2,935	)		(7,080	)
Earnings from continuing operations		7,542			10,136
Loss from discontinued operations, net of tax		(3,954	)		(4,118	)
Net earnings	$	3,588		$	6,018
Earnings per share, Basic:
Earnings from continuing operations	$	0.14		$	0.18
Loss from discontinued operations		(0.07	)		(0.07	)
	$	0.07		$	0.11
Earnings per share, Diluted:(1)
Earnings from continuing operations	$	0.14		$	0.18
Loss from discontinued operations		(0.07	)		(0.07	)
	$	0.06		$	0.11
Weighted average shares used in computation of earnings per share:
Basic		55,049			56,444
Diluted		55,567			57,092

⁽¹⁾Earnings per share amounts are calculated independently for each component and may not add due to rounding.

See accompanying notes to Condensed Consolidated Financial Statements.

2

SPHERION CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)
		(unaudited)
		June 29,			December 30,
Assets		2008			2007
Current Assets:
Cash and cash equivalents	$	12,538		$	15,324
Receivables, less allowance for doubtful accounts of $3,703 and $6,523, respectively		320,428			347,908
Deferred tax asset		12,567			13,413
Insurance deposits		636			6,986
Other current assets		21,178			22,606
Total current assets		367,347			406,237
Goodwill		145,589			146,584
Property and equipment, net of accumulated depreciation of $118,978 and $109,229, respectively		71,493			78,077
Deferred tax asset		103,106			102,024
Trade names and other intangibles, net		72,723			76,776
Insurance deposits		-			11,259
Other assets		21,820			23,861
	$	782,078		$	844,818
Liabilities and Stockholders' Equity
Current Liabilities:
Current portion of long-term debt and revolving lines of credit	$	76,609		$	86,035
Accounts payable and other accrued expenses		75,124			79,779
Accrued salaries, wages and payroll taxes		72,457			78,850
Accrued insurance reserves		21,073			19,174
Accrued income tax payable		565			1,042
Other current liabilities		8,688			16,419
Total current liabilities		254,516			281,299
Long-term debt, net of current portion		1,789			22,148
Accrued insurance reserves		17,485			20,501
Deferred compensation		16,096			17,287
Other long-term liabilities		2,801			2,923
Total liabilities		292,687			344,158
Stockholders' Equity:
Preferred stock, par value $0.01 per share; authorized, 2,500,000 shares; none issued or outstanding		-			-
Common stock, par value $0.01 per share; authorized, 200,000,000; issued 65,341,609 shares		653			653
Treasury stock, at cost, 12,158,932 and 9,443,034 shares, respectively		(98,375	)		(83,681	)
Additional paid-in capital		849,154			848,628
Accumulated deficit		(269,805	)		(273,393	)
Accumulated other comprehensive income		7,764			8,453
Total stockholders' equity		489,391			500,660
	$	782,078		$	844,818

See accompanying notes to Condensed Consolidated Financial Statements.

3

SPHERION CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
	Six Months Ended
		June 29,			July 1,
		2008			2007
Cash flows from operating activities:
Net earnings	$	3,588		$	6,018
Adjustments to reconcile net earnings to net cash provided by operating activities:
Discontinued operations loss on disposal, net of income tax		2,034			1,321
Discontinued operations goodwill impairment, net of income tax		-			2,552
Depreciation and amortization		14,742			11,547
Deferred income tax (benefit) expense		(236	)		6,380
Share-based compensation		2,039			1,986
Other non-cash charges		511			2,847
Changes in assets and liabilities, net of effects of acquisitions:
Receivables, net		27,330			11,776
Other assets		323			(986	)
Accounts payable, income taxes payable, accrued liabilities and other liabilities		(13,691	)		(18,410	)
Net cash provided by operating activities		36,640			25,031
Cash flows from investing activities:
(Payments) proceeds related to sale of discontinued operations		(5,301	)		100
Insurance reimbursements		17,123			12,146
Capital expenditures, net		(4,863	)		(3,955	)
Acquisitions, net of cash acquired		(92	)		(16,749	)
Other		99			(342	)
Net cash provided by (used in) investing activities		6,966			(8,800	)
Cash flows from financing activities:
Repayments of revolving lines of credit, net		(27,656	)		-
Purchases of treasury stock		(15,990	)		(7,094	)
Deferred purchase price and debt repayments		(2,826	)		(1,666	)
Proceeds from exercise of employee stock options		59			2,287
Other, net		3			176
Net cash used in financing activities		(46,410	)		(6,297	)
Effect of exchange rates on cash and cash equivalents		18			567
Net (decrease) increase in cash and cash equivalents		(2,786	)		10,501
Cash and cash equivalents, beginning of period		15,324			54,640
Cash and cash equivalents, end of period	$	12,538		$	65,141

See accompanying notes to Condensed Consolidated Financial Statements.

4

SPHERION CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of Spherion Corporation (the "Company"), its wholly-owned subsidiaries and certain other entities it is required to consolidate in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). All material intercompany transactions and balances have been eliminated in consolidation.

These statements have been prepared in accordance with the accounting policies described in the Annual Report on Form 10-K for the fiscal year ended December 30, 2007 and should be read in conjunction with the Consolidated Financial Statements and notes included therein. These statements do not include all of the information and footnotes required by U.S. GAAP for complete financial statements.

In the opinion of management, all adjustments (primarily consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented have been included and the disclosures herein are adequate. The results for interim periods are unaudited and not necessarily indicative of the results that can be expected for a full year.

New Accounting Pronouncements

In April 2008, the FASB issued Staff Position (FSP) FAS 142-3 "Determination of the Useful Life of Intangible Assets." This FSP amends the factors that should be considered by an entity in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset, as outlined by SFAS 142 "Goodwill and Other intangible Assets." This FSP is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008, with early adoption prohibited. The guidance for determining the useful life of intangible assets included in this FSP will be applied prospectively to intangible assets acquired after the effective date. Spherion does not expect this FSP to have a material impact on our financial statements.

In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities." SFAS No. 161 is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance and cash flows. It is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early adoption encouraged. The Company believes the adoption of SFAS No. 161 will not have an impact on the financial results of Spherion Corporation, but it may require additional disclosure. Spherion currently has one hedging activity related to an intercompany loan with its Canadian subsidiary totaling approximately CAD$4 million.

In December 2007, the FASB issued SFAS No. 141R, "Business Combinations." This statement amends SFAS No. 141 and provides revised guidance for recognizing and measuring assets acquired and liabilities assumed in a business combination. This statement also requires that transaction costs in a business combination be expensed as incurred. SFAS No. 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. SFAS No. 141R will impact Spherion's accounting for business combinations completed, if any, after December 28, 2008.

5

SPHERION CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(unaudited)

2. Earnings Per Share

Basic earnings per share are computed by dividing Spherion’s earnings by the weighted average number of shares outstanding during the period. When inclusion of common stock equivalents are not anti-dilutive, diluted earnings per share are computed by dividing Spherion’s earnings by the weighted average number of shares outstanding and the impact of all dilutive potential common shares, primarily stock options and restricted stock units. The dilutive impact of share-based compensation is determined by applying the "treasury stock" method. A reconciliation of the number of shares used in computing basic and diluted earnings per common share follows (in thousands):

	Three Months Ended		Six Months Ended
	June 29, 2008	July 1, 2007	June 29, 2008	July 1, 2007
Weighted average shares outstanding - Basic	54,352	56,334	55,049	56,444
Effect of dilutive share-based compensation	474	757	518	648
Weighted average shares outstanding - Diluted	54,826	57,091	55,567	57,092
Anti-dilutive options not included above	3,761	2,420	3,674	2,470

3. Goodwill and Intangible Assets

The changes in the carrying amount of goodwill by segment are as follows (in thousands):

		Staffing			Professional
		Services			Services		Total
Balance at December 30, 2007	$	55,933		$	90,651	$	146,584
Foreign currency changes and other		(711	)		-		(711	)
Goodwill additions during the period		-			-		-
Goodwill adjustments during the period		(946	)		662		(284	)
Balance at June 29, 2008	$	54,276		$	91,313	$	145,589

A summary of tradenames and other intangibles are as follows (in thousands):

	As of
	June 29,				December 30,
	2008				2007
Indefinite lived intangible assets - Tradenames	$	41,500		$	41,500
Finite lived intangible assets:
Customer relationship intangibles and other		36,767			36,781
Accumulated amortization		(5,544	)		(1,505	)
		31,223			35,276
	$	72,723		$	76,776

Spherion's acquired tradenames have been identified as having an indefinite useful life. Amortization expense associated with finite lived intangible assets for the three months ended June 29, 2008 and July 1, 2007 was $2.0 million and $0.2 million,respectively. Amortization expense for the six months ended June 29, 2008 and July 1, 2007 was $4.1 million and less than $0.3 million, respectively. Customer relationships and other intangibles are being amortized on an accelerated method over the estimated useful life of the intangible asset ranging from 2 to 19 years.

6

 

SPHERION CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(unaudited)

3. Goodwill and Intangible Assets (Continued)

Goodwill and other intangible assets are accounted for in accordance with Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets." Goodwill and indefinite-lived intangible assets relate to Spherion’s acquisition of businesses determined to be a part of the Professional and Staffing Services reporting units.

SFAS No. 142 requires that goodwill and other intangible assets with indefinite lives not be amortized, but tested for impairment on an annual basis, as of October 30 in our case, or more often if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. In performing this assessment, management relies on a number of factors including operating results, business plans, economic projections, anticipated future cash flows, and transactions and marketplace data. There are inherent uncertainties related to these factors and judgment in applying them to our analysis of impairment. Since judgment is involved in performing a valuation analyses, there is a risk that the carrying value of our goodwill and other intangible assets may be impaired.

Impairment exists if the fair value of a reporting unit to which goodwill and other intangible assets has been allocated is less than the carrying value of the reporting unit. Management believes the most significant assumption which would have an effect on the estimated fair value of the reporting unit is projected long-term growth rates and operating margins. As of June 29, 2008, management performed an evaluation to determine if there were any indicators of impairment, as outlined in SFAS No. 142, that should cause us to accelerate our annual test of goodwill and other intangible assets and concluded that there were no such indicators.

4. Acquisitions

In December 2007, Spherion acquired the stock of IntelliMark Holdings, Inc., parent company of Technisource (together, "Technisource") a company that provides IT temporary staffing, recruiting and managed IT services for $145.8 million, subject to working capital and other adjustments. In September 2007, Spherion acquired the stock of Todays Staffing, Inc. ("Todays"), a temporary staffing and recruiting company focused in the clerical market, for $41.6 million. The results of operations of these acquired companies have been included in our Condensed Consolidated Financial Statements since the date of acquisition.

Supplemental information on an unaudited pro forma basis, as if the acquisitions described above have been completed at the beginning of the 2007 period, is as follows (in thousands, except per share amount):

		Three Months		Six Months
		Ended		Ended
(Unaudited)		July 1, 2007		July 1, 2007
Revenues	$	583,759	$	1,145,378
Net earnings from continuing operations	$	6,826	$	8,523
Earnings per share from continuing operations-Diluted	$	0.12	$	0.15

These pro forma condensed consolidated financial results have been prepared for comparative purposes only. They do not reflect the effect of costs or synergies that would have been expected to result from the integration of these acquisitions. The unaudited pro forma supplemental information is based on estimates and assumptions, which the Company believes are reasonable, including the adjustment of the historical pre-acquisition financial results of the acquired businesses to reflect the impact of certain closing balance sheet adjustments. The pro forma information does not purport to be indicative of the results of operations, that actually would have resulted, had the combination occurred at the beginning of each period presented, or of future results of the consolidated entities.

7

SPHERION CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(unaudited)

4. Acquisitions (Continued)

During 2007, Spherion also acquired Resulté Universal, Ltd. ("Resulté"), a recruiting firm within the Texas market, providing information technology, accounting and finance recruiting and staffing services. Also in 2007, Baystate Select, LLC ("Baystate"), a finance and accounting recruiting firm within the Boston market, and several area-based franchise operations were acquired. The results of operations for Resulté, Baystate and the area-based franchise operations have been included in our Condensed Consolidated Financial Statements since the dates of acquisition. The acquisition of Resulté and Baystate and the aforementioned area-based franchise operations are considered immaterial acquisitions and are not included in the unaudited pro forma financial information provided above.

Acquisition-related Integration Costs

As a result of our acquisitions of Technisource and Todays, we recorded costs related to the integration of the acquired businesses with Spherion and the elimination of duplicative activities. During the year ended December 30, 2007, we recorded a liability of approximately $7.1 million, which consisted of $4.7 million for severance reserves related to redundant positions and $2.4 million related to redundant facilities within the acquired businesses. Of the $4.7 million related to severance, $0.7 million was paid during fiscal year 2007 and $3.0 million for the six months ended June 29, 2008. Of the $2.4 million related to redundant facilities, $0.7 million was reversed to goodwill due to changes in assumptions. These activities are based upon plans committed to by management. Additionally, the Company recorded a charge related to other integration activities of $0.9 million and $1.9 million for the three and six months ended June 29, 2008, respectively.

5. Legal Proceedings and Contingencies

In connection with the disposition of certain businesses, Spherion, from time to time provides routine indemnifications with respect to equipment and real estate leases and, in certain cases, the performance of services. The disposition of these businesses also usually requires that Spherion indemnify the purchaser for liabilities that arose prior to the disposition date. Liabilities related to these indemnifications have been appropriately accounted for in the Condensed Consolidated Balance Sheets.

Spherion, in the ordinary course of its business, is or may be threatened with or named as a defendant in various lawsuits. Spherion maintains insurance in such amounts and with such coverages and deductibles as management believes are reasonable and prudent. The principal risks that Spherion insures against are workers’ compensation, personal injury, bodily injury, property damage, professional malpractice, errors and omissions and fidelity losses. Spherion’s management does not expect that the outcome of any pending lawsuits relating to such matters, individually or collectively, will have a material adverse effect on Spherion’s financial condition, results of operations or cash flows.

In the second quarter of 2008, the Company paid $5.5 million to settle certain indemnification claims related to the sale of the Australian education business in 2004. As a result, the Company recorded an after-tax charge of $2.0 million for the difference between established reserves and the settlement amount, plus legal fees which was included in discontinued operations. The Company also recorded a $1.0 million adjustment of a tax valuation allowance related to this item, which is included in continuing operations.

As of June 29, 2008 and December 30, 2007, Spherion had $43.3 million and $31.1 million, respectively, in irrevocable letters of credit outstanding, which were issued for the benefit of certain insurance carriers to guarantee payment for various self-insurance programs such as workers' compensation. As of June 29, 2008 and December 30, 2007, none of these irrevocable letters of credit had been drawn upon.

8

SPHERION CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 (unaudited)

6. Comprehensive Income

The following table displays the computation of comprehensive income (in thousands):

	Three Months Ended				Six Months Ended
	June 29,		July 1,		June 29,			July 1,
	2008		2007		2008			2007
Net earnings	$	2,306	$	3,412	$	3,588		$	6,018
Other comprehensive income:
Foreign currency translation adjustments arising during the period		266		2,556		(689	)		2,559
Total comprehensive income	$	2,572	$	5,968	$	2,899		$	8,577

7. Stockholders’ Equity

On January 4, 2008, the Board of Directors authorized the repurchase of up to $25.0 million of the Company's common stock. During the three and six months ended June 29, 2008, Spherion purchased 2.0 million shares for approximately $10.3 million, and 2.9 million shares for approximately $16.0 million, respectively. During the three and six months ended June 29, 2008, the average market price per share repurchased was $5.17 and $5.55, respectively.  This authorization replaced the previous repurchase plan authorized on February 20, 2007, which allowed the repurchase of a maximum of 50,000 shares of common stock per week to mitigate the dilutive impact of shares issued under our various employee benefit plans. During the three and six months ended July 1, 2007, Spherion purchased 0.6 million shares for approximately $5.3 million, and 0.8 million shares for approximately $7.1 million, respectively. During the three and six months ended July 1, 2007, the average price per share repurchased was $9.43 and $9.28, respectively. As of June 29, 2008, the current authorization had approximately $9.0 million remaining available for the repurchase of additional common stock.

9

SPHERION CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(unaudited)

8. Discontinued Operations

Results from discontinued operations in the accompanying Condensed Consolidated Statements of Earnings are as follows (in thousands):

	Three Months Ended
	June 29, 2008									July 1, 2007
		Professional		Staffing						Professional			Staffing
		Services		Services				Total		Services			Services				Total
Revenues	$	-		$	-		$	-		$	-		$	1,950		$	1,950
Pre-tax (loss) earnings from operations	$	(1,499	)	$	(157	)	$	(1,656	)	$	107		$	(4,439	)	$	(4,332	)
Pre-tax loss on disposal		(3,038	)		-			(3,038	)		(601	)		(1,216	)		(1,817	)
Income tax benefit (expense)		1,600			51			1,651			(42	)		2,214			2,172
Net loss from discontinued operations	$	(2,937	)	$	(106	)	$	(3,043	)	$	(536	)	$	(3,441	)	$	(3,977	)
	Six Months Ended
	June 29, 2008									July 1, 2007
		Professional		Staffing						Professional			Staffing
		Services		Services				Total		Services			Services				Total
Revenues	$	-		$	-		$	-		$	-		$	4,564		$	4,564
Pre-tax loss from operations	$	(3,011	)	$	(141	)	$	(3,152	)	$	(199	)	$	(4,398	)	$	(4,597	)
Pre-tax loss on disposal		(3,038	)		-			(3,038	)		(601	)		(1,182	)		(1,783	)
Income tax benefit		2,191			45			2,236			78			2,184			2,262
Net loss from discontinued operations	$	(3,858	)	$	(96	)	$	(3,954	)	$	(722	)	$	(3,396	)	$	(4,118	)

There were no material assets or liabilities related to discontinued operations in the Condensed Consolidated Balance Sheets presented herein.

Activity by operating segment related to discontinued operations is as follows:

Staffing Services

The 2007 activity primarily represents the results of operations and a goodwill impairment charge related to Spherion’s outplacement consulting business which was sold in the second quarter of 2007.

Professional Services

The 2008 period includes $1.5 million of pre-tax expense related to legal fees associated with the defense of certain foreign legal matters. The pre-tax loss on disposal includes a charge related to the settlement of indemnification claims relating to the sale of the Australian education business in 2004, for the difference between established reserves and the settlement amount plus legal fees associated with the matter.

10

SPHERION CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(unaudited)

9. Segment Information

Spherion has two operating segments: Staffing Services and Professional Services. Spherion evaluates the performance of its operating segments and allocates resources based on revenue, gross profit and segment operating profit. Segment operating profit is defined as income before unallocated corporate costs, amortization expense, interest expense, interest income, income taxes and restructuring and other charges. All material intercompany revenues and expenses have been eliminated.Additionally, amounts related to discontinued operations have been excluded from the segment information below and are presented as discontinued operations in the Condensed Consolidated Statements of Earnings.

Information on operating segments and a reconciliation to earnings from continuing operations before income taxes are as follows (in thousands):

	Three Months Ended						Six Months Ended
		June 29,			July 1,			June 29,			July 1,
		2008			2007			2008			2007
Revenues:
Staffing Services	$	365,621		$	346,303		$	737,631		$	682,883
Professional Services		197,356			132,174			401,809			257,463
Segment revenues	$	562,977		$	478,477		$	1,139,440		$	940,346
Gross profit:
Staffing Services	$	69,303		$	72,596		$	138,019		$	137,246
Professional Services		60,884			46,064			120,336			87,135
Segment gross profit	$	130,187		$	118,660		$	258,355		$	224,381
Segment SG&A:
Staffing Services	$	(65,802	)	$	(63,892	)	$	(132,725	)	$	(125,791	)
Professional Services		(49,009	)		(38,639	)		(97,773	)		(73,170	)
Segment SG&A	$	(114,811	)	$	(102,531	)	$	(230,498	)	$	(198,961	)
Segment operating profit:
Staffing Services	$	3,501		$	8,704		$	5,294		$	11,455
Professional Services		11,875			7,425			22,563			13,965
Segment operating profit		15,376			16,129			27,857			25,420
Unallocated corporate costs		(4,064	)		(4,911	)		(8,280	)		(8,101	)
Amortization expense		(2,043	)		(208	)		(4,087	)		(248	)
Interest expense		(1,575	)		(381	)		(3,324	)		(2,332	)
Interest income		72			1,194			251			2,477
Restructuring and other charges		(944	)		-			(1,940	)		-
Earnings from continuing operations before income taxes	$	6,822		$	11,823		$	10,477		$	17,216

11

SPHERION CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(unaudited)

10. Fair Value Measurements

Effective December 31, 2007, Spherion adopted SFAS No. 157 for all financial assets and liabilities and for nonfinancial assets and liabilities recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). To increase consistency in applying fair value measurements, SFAS No. 157 establishes a framework for measuring fair value and expands disclosures about the use of fair value measurements. The standard describes three levels of inputs that may be used to measure fair value:

Level 1—Assets or liabilities for which the identical item is traded on an active exchange, such as publicly-traded instruments.

Level 2—Assets and liabilities valued based on observable market data for similar instruments.

Level 3—Assets or liabilities for which significant valuation assumptions are not readily observable in the market; instruments valued based on the best available data, some which is internally-developed, and considers risk premiums that a market participant would require.

	Fair Value Measurements
	As of June 29, 2008
	(in thousands)
Description	Level 1		Level 2		Level 3		Total
Assets:
Trust investments	$	20,751	$	-	$	-	$	20,751
Liabilities:
Deferred compensation plan	$	20,767	$	-	$	-	$	20,767

Spherion has a voluntary non-qualified deferred compensation plan for highly compensated employees not fully eligible to participate in Spherion’s   401(k) Benefit Plan. Spherion maintains investments in a portfolio of mutual funds held in a trust which are intended to match the related deferred compensation plan liability. These funds may be used for general corporate purposes. The deferred compensation plan liability represents compensation deferrals and investment returns based upon participants’ investment elections.  The amounts reported above for Trust investments are recorded in "Other assets" (current and non-current) and Deferred compensation plan are recorded in "Other current liabilities" and "Deferred compensation" in the accompanying Condensed Consolidated Balance Sheets.

Both the trust investments and the deferred compensation plan liability are valued at the quoted market prices of the participants’ investment elections in various mutual fund investments. As such, Spherion has classified these assets and liabilities as Level 1 within the fair value hierarchy set forth by SFAS No. 157.

12

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Organization of Information

Management’s Discussion and Analysis provides a narrative on our financial performance and condition that should be read in conjunction with the accompanying Condensed Consolidated Financial Statements. In addition, reference should be made to our audited Consolidated Financial Statements and accompanying notes thereto and related Management's Discussion and Analysis included in the Company's Anuual Report on Form 10-K for the year ended December 30, 2007.  It includes the following sections:

·Executive Summary

·Operating Results

·Liquidity and Capital Resources

·Off-Balance Sheet Arrangements

·Critical Accounting Policies

·New Accounting Pronouncements

·Non-GAAP Financial Measures

·Forward-Looking Statements — Safe Harbor

Executive Summary

Our progress on strategic objectives during the second quarter of 2008 was as follows:

·First, generate revenue growth among small to mid-sized accounts:Our strategy is to grow revenue with our targeted small and mid-sized accounts and increase the portion of company revenues generated from Professional Services. Total revenues increased 17.7% during the second quarter of 2008 compared with the prior year, primarily as a result of the acquisition of businesses focused on professional and other services to small and mid-sized accounts. During the second quarter of 2008, revenues from our small to mid-sized accounts (customers that do business with Spherion of $5 million or less, annually) represented 50.9% of total revenue, up from 49.3% in the second quarter of 2007. Revenues from Professional Services represented 35.1% of total revenues in the second quarter of 2008, up from 27.6% of total revenues in the second quarter of 2007.

·Second, emphasize higher margin services:We continue to focus on providing additional services to existing customers, particularly higher value Professional Services, which is now a more significant part of the Company as a result of the acquisitions made in the second half of 2007, and growth in small to mid-sized customers.  However, our gross profit margin was 23.1% for the second quarter of 2008, a decrease of 170 basis points compared with the second quarter of 2007, due to changes in service mix between permanent placement, temporary staffing and managed services combined with lower temporary staffing margins.

·Third, continue improving operating leverage and maintain financial discipline:Improvements in operating leverage require us to balance operating expense changes with business volume changes and gross profit. Selling, general and administrative expenses in the second quarter of 2008 increased slightly to 91.3% of gross profit compared with 90.5% in the second quarter of 2007. Through effective management of our cost structure and beginning to realize synergies associated with the 2007 acquisitions, we will continue to focus on reducing our expenses relative to business volume. During the second quarter of 2008, we completed the systems and back office integration of Technisource and synergies are being realized.

13

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS – (Continued)

Operating Results

Consolidated Operating Results

Three Months Ended June 29, 2008 Compared with July 1, 2007

Revenues increased $84.5 million to $563.0 million in the second quarter of 2008 from $478.5 million in the prior year.
·	Staffing Services revenues were 64.9% of total revenues and increased 5.6% compared with the prior year primarily due to the acquisition of Todays. On an organic basis, Staffing Services revenue decreased 5.1% primarily due to the decline of economically sensitive temporary staffing revenues.
·	Professional Services revenues increased 49.3% to 35.1% of total revenue due primarily to the acquisitions of Technisource and Resulté. On an organic basis, Professional Services decreased 5.3% due to the completion of a large project during the second quarter and lower demand from customers for permanent placement and professional temporary staffing due to the weaker hiring demand.
·	Temporary employment in the United States of America decreased by 6.1% in the second quarter of 2008 as estimated by the Bureau of Labor Statistics. The Company’s combined temporary staffing revenue decreased 4.7% on an organic basis from the prior year.
Gross profit in 2008 was $130.2 million. Gross profit margin decreased to 23.1% in 2008 compared with 24.8% for the same period in 2007. Gross profit margins decreased due to:
·	Lower mix of managed services, including Recruitment Process Outsourcing ("RPO") (140 basis points); and
·	Lower permanent placement volume and mix year over year (100 basis points); partially offset by
·	Higher total flexible margin due to the higher mix of professional temporary staffing with the addition of Technisource and Resulté (70 basis points).
Selling, general and administrative expenses increased to $118.9 million in 2008 from $107.4 million in the same period in 2007 primarily due to acquisitions. As a percentage of gross profit, these costs slightly increased to 91.3% from 90.5% for the same period in 2007.
Net interest expense was $1.5 million in the second quarter of 2008 compared with net interest income of $0.8 million in the same period of the prior year primarily due to the use of existing cash and increases in borrowings used to fund acquisitions made in 2007.
Amortization expense was $2.0 million in 2008, up from $0.2 million in 2007 primarily due to the amortization of intangibles related to the acquisitions made in 2007.
Our effective tax rate from continuing operations for the second quarter of 2008 was 21.6%, decreasing from the prior year rate of 37.5%. The decrease is the result of an adjustment of a tax valuation allowance.

14

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS – (Continued)

Six Months Ended June 29, 2008 Compared with July 1, 2007

Revenues in 2008 were $1.14 billion, an increase from $940.3 million last year.
·	Staffing Services revenues increased 8.0% compared with the prior year primarily due to the acquisition of Todays. On an organic basis, Staffing Services revenue decreased 2.6% compared with the prior year primarily due to lower demand for temporary staffing services, partially offset by an increase in the RPO business.
·	Professional Services revenues increased 56.1% compared with the prior year primarily due to the acquisitions of Technisource and Resulté. On an organic basis, Professional Services revenue decreased 2.5% compared with the prior year primarily due to the completion of certain projects in 2008.
·	Temporary employment in the United States of America decreased by 5.0% in 2008 as estimated by the Bureau of Labor Statistics. The Company’s combined temporary staffing revenue decreased 2.4% on an organic basis from the prior year.
Gross profit in 2008 was $258.4 million. Gross profit margin decreased to 22.7% in 2008 compared with 23.9% for the same period in 2007. Gross profit margins decreased due to:
·	Lower permanent placement volume and mix year over year (100 basis points); and
·	Lower mix of managed services, including RPO (100 basis points); partially offset by
·	Higher total flexible margin due to the higher mix of professional temporary staffing with the addition of Technisource and Resulté (80 basis points).
Selling, general and administrative expenses increased to $238.8 million in 2008 from $207.1 million in the same period in 2007. As a percentage of gross profit, these costs were about flat from the prior year.
Net interest expense was $3.1 million in 2008 compared with net interest income of $0.1 million in 2007 primarily due to the use of existing cash and increases in borrowings used to fund acquisitions made in 2007.
Amortization expense was $4.1 million in 2008, up from $0.2 million in 2007 primarily due to the amortization of intangibles related to the acquisitions made in fiscal year 2007.
Our effective tax rate from continuing operations for 2008 was 28.0%, decreasing from the prior year rate of 41.1%. The decrease is the result of an adjustment of a tax valuation allowance made in the second quarter of 2008.

15

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS – (Continued)

Operating Segments

We evaluate the performance of our operating segments and allocate resources based on revenues, gross profit and segment operating profit. Segment operating profit from continuing operations is defined as income before unallocated corporate costs, amortization expense, interest expense, interest income, income taxes and restructuring and other charges. All material intercompany revenues and expenses have been eliminated. Additionally, amounts related to discontinued operations have been excluded from the segment information below and are presented as discontinued operations in the Condensed Consolidated Statements of Earnings.

Information on operating segments and a reconciliation to earnings from continuing operations before income taxes for the periods indicated were as follows (in thousands):

	Three Months Ended										Six Months Ended
	June 29, 2008					July 1, 2007					June 29, 2008					July 1, 2007
			% of					% of					% of					% of
			Total					Total					Total					Total
Revenues:
Staffing Services	$	365,621		64.9	%	$	346,303		72.4	%	$	737,631		64.7	%	$	682,883		72.6	%
Professional Services		197,356		35.1	%		132,174		27.6	%		401,809		35.3	%		257,463		27.4	%
Total	$	562,977		100.0	%	$	478,477		100.0	%	$	1,139,440		100.0	%	$	940,346		100.0	%
				% of					% of					% of					% of
				Revenues					Revenues					Revenues					Revenues
Gross profit:
Staffing Services	$	69,303		19.0	%	$	72,596		21.0	%	$	138,019		18.7	%	$	137,246		20.1	%
Professional Services		60,884		30.8	%		46,064		34.9	%		120,336		29.9	%		87,135		33.8	%
Total	$	130,187		23.1	%	$	118,660		24.8	%	$	258,355		22.7	%	$	224,381		23.9	%
Segment operating profit:
Staffing Services	$	3,501		1.0	%	$	8,704		2.5	%	$	5,294		0.7	%	$	11,455		1.7	%
Professional Services		11,875		6.0	%		7,425		5.6	%		22,563		5.6	%		13,965		5.4	%
Total		15,376		2.7	%		16,129		3.4	%		27,857		2.4	%		25,420		2.7	%
Unallocated corporate costs		(4,064	)				(4,911	)				(8,280	)				(8,101	)
Amortization expense		(2,043	)				(208	)				(4,087	)				(248	)
Interest expense		(1,575	)				(381	)				(3,324	)				(2,332	)
Interest income		72					1,194					251					2,477
Restructuring and other charges		(944	)				-					(1,940	)				-
Earnings from continuing operations
before income taxes	$	6,822				$	11,823				$	10,477				$	17,216

RECONCILIATION OF YEAR-OVER-YEAR REVENUE GROWTH
	Three Months Ended						Six Months Ended
	June 29, 2008						June 29, 2008
	Total		Staffing		Professional		Total		Staffing		Professional
	Company		Services		Services		Company		Services		Services
Organic revenue growth	(5.2	%)	(5.1	%)	(5.3	%)	(2.5	%)	(2.6	%)	(2.5	%)
Impact of acquisitions and business
reclassifications	22.9	%	10.7	%	54.6	%	23.7	%	10.6	%	58.6	%
GAAP revenue growth	17.7	%	5.6	%	49.3	%	21.2	%	8.0	%	56.1	%

16

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS – (Continued)

Segment Operating Results

Staffing Services

Information on the Staffing Services segment’s skill sets and service lines for the periods indicated were as follows (in thousands):

	Three Months Ended										Six Months Ended
	June 29, 2008					July 1, 2007					June 29, 2008					July 1, 2007
				% of					% of					% of					% of
				Total					Total					Total					Total
Revenues by Skill:
Clerical	$	239,743		65.6	%	$	218,263		63.0	%	$	481,424		65.3	%	$	436,344		63.9	%
Light industrial		125,878		34.4	%		128,040		37.0	%		256,207		34.7	%		246,539		36.1	%
Segment revenues	$	365,621		100.0	%	$	346,303		100.0	%	$	737,631		100.0	%	$	682,883		100.0	%
Revenues by Service:
Temporary staffing	$	325,683		89.1	%	$	292,625		84.5	%	$	653,544		88.6	%	$	578,660		84.7	%
Managed services		35,775		9.8	%		47,596		13.7	%		74,830		10.1	%		92,840		13.6	%
Permanent placement		4,163		1.1	%		6,082		1.8	%		9,257		1.3	%		11,383		1.7	%
Segment revenues	$	365,621		100.0	%	$	346,303		100.0	%	$	737,631		100.0	%	$	682,883		100.0	%
Gross Profit Margin by Service:
(As % of Applicable Revenues)
Temporary staffing		16.9	%				17.5	%				16.2	%				16.9	%
Managed services		28.5	%				32.0	%				30.3	%				30.5	%
Permanent placement		100.0	%				100.0	%				100.0	%				100.0	%
Total Staffing Services		19.0	%				21.0	%				18.7	%				20.1	%

17

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS – (Continued)

RECONCILIATION OF YEAR-OVER-YEAR REVENUE GROWTH
	Three Months Ended June 29, 2008
	Revenue Growth by Skill						Revenue Growth by Service
	Total				Light		Total		Permanent		Temporary		Managed
Staffing Services	Staffing		Clerical		Industrial		Staffing		Placement		Staffing		Services
Organic revenue growth	(5.1	%)	(3.8	%)	(7.5	%)	(5.1	%)	(39.4	%)	(4.4	%)	(4.9	%)
Impact of acquisitions
and business reclassifications*	10.7	%	13.6	%	5.8	%	10.7	%	7.8	%	15.7	%	(19.9	%)
GAAP revenue growth	5.6	%	9.8	%	(1.7	%)	5.6	%	(31.6	%)	11.3	%	(24.8	%)
	Six Months Ended June 29, 2008
	Revenue Growth by Skill						Revenue Growth by Service
	Total				Light		Total		Permanent		Temporary		Managed
Staffing Services	Staffing		Clerical		Industrial		Staffing		Placement		Staffing		Services
Organic revenue growth	(2.6	%)	(2.7	%)	(2.4	%)	(2.6	%)	(28.2	%)	(2.6	%)	2.5	%
Impact of acquisitions
and business reclassifications*	10.6	%	13.0	%	6.3	%	10.6	%	9.5	%	15.5	%	(21.9	%)
GAAP revenue growth	8.0	%	10.3	%	3.9	%	8.0	%	(18.7	%)	12.9	%	(19.4	%)

*Effective with the first quarter of 2008, the management of certain customer contracts was transferred between operating segments, primarily from Staffing Services to Professional Services, and have been adjusted for the purpose of calculating organic growth.

Three Months Ended June 29, 2008 Compared with July 1, 2007

Revenues— Staffing Services revenues increased 5.6% to $365.6 million in the second quarter of 2008 from $346.3 million in the same period of the prior year. The increase is primarily due to the acquisition of Todays in the third quarter of 2007 and several franchise buybacks. On an organic basis, revenues decreased by 5.1% from the prior year. The decrease was experienced across all three service lines and generally reflects the current decline in temporary employment and overall general employment levels.

· By skill — Clerical revenue increased 9.8% and light industrial revenue decreased 1.7% from prior year levels. The increase in clerical revenues is primarily due to the acquisitions made in 2007, partially offset by lower RPO activity. On an organic basis, clerical revenues decreased 3.8% and light industrial revenues decreased 7.5% due to lower demand among several of our customers, primarily in the retail and technology industries, as well as the manufacturing industry in our Canadian operations.

· By service — Temporary staffing revenues increased 11.3% compared with the same period in 2007 due to acquisitions made in 2007. Temporary staffing revenues decreased 4.4% on an organic basis due to lower volume among small and mid-sized accounts and lower volumes in our Canadian operations. Managed services revenues decreased 24.8% compared with the same period in the prior year primarily due to the reclassification of certain managed services contracts from this operating segment to our Professional Services operating segment and lower RPO revenue. RPO revenue declined this quarter due to customer specific changes in hiring plans. Permanent placement revenues decreased 31.6% over the prior year primarily due to the slower economic growth and lower overall employment levels, which has resulted in a decrease in customer demand.

Gross Profit— Gross profit decreased to $69.3 million or 19.0% of revenue in 2008 compared with 21.0% in the same prior year period. The decrease of 200 basis points in the overall gross profit margin was primarily due to a higher mix of temporary staffing revenues (110 basis points), lower margins in managed services due to volume reductions at certain customers (35 basis points), slightly lower pay/bill spreads (20 basis points) in temporary staffing due to pricing pressures and higher insurance and employee benefit costs (35 basis points).

18

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS – (Continued)

Segment Operating Profit— Staffing Services segment operating profit was $3.5 million compared with $8.7 million in the same period of the prior year. Operating expenses as a percentage of gross profit increased to 94.9% compared with 88.0% in the same period of the prior year. Higher operating expenses as a percentage of gross profit are due to deleveraging in the core temporary staffing operations as volumes decrease due to lower demand. The Company has made and will continue to make cost reductions in response to economic conditions.

Six Months Ended June 29, 2008 Compared with July 1, 2007

Revenues— Staffing Services revenues increased 8.0% to $737.6 million in 2008 from $682.9 million in the prior year. Revenue increases are primarily due to the acquisition of Todays in the third quarter of 2007 and several franchise buybacks, and the growth in our RPO business during the first quarter. On an organic basis, revenues decreased by 2.6%, which is the result of lower volume within U.S. and Canadian temporary staffing and permanent placement.

· By skill — Clerical revenue increased 10.3% and light industrial revenue increased 3.9% from prior year levels. The increase in clerical revenues is primarily due to the acquisitions made in 2007 and the first quarter growth in 2008 in our RPO business. On an organic basis, clerical revenues decreased 2.7% due to lower demand among several of our customers, primarily in the retail and technology industries. Light industrial revenues decreased 2.4% on an organic basis due to lower business volumes with existing and new customers primarily in the manufacturing and distribution industries.

· By service — Temporary staffing revenues increased 12.9% compared with the prior year due to the growth from the acquisitions made in 2007. Temporary staffing revenues decreased 2.6% on an organic basis due to lower volumes in both our U.S. and Canadian operations. Managed services revenues decreased 19.4% compared with the same period in the prior year primarily due to the reclassification of certain managed services contracts from this operating segment to our Professional Services operating segment, partially offset by first quarter 2008 RPO growth. Managed services revenues increased 2.5% on an organic basis primarily due to the growth in our RPO business. Permanent placement revenues decreased 18.7% (28.2% on an organic basis) over the prior year primarily due to the weaker customer demand as a result of the slower economic growth and weaker employment trends in the U.S.

Gross Profit— Gross profit increased 0.6% to $138.0 million from $137.2 million in the same period of the prior year. The overall gross profit margin was 18.7% in 2008 compared with 20.1% in the same prior year period. The decrease of 140 basis points in the overall gross profit margin was primarily due to a higher mix of temporary staffing services (80 basis points), lower temporary staffing margins due to slightly lower pay/bill spreads (25 basis points) and higher insurance and employee benefit costs (35 basis points).

Segment Operating Profit— Staffing Services segment operating profit was $5.3 million compared with $11.5 million in the same period of the prior year. Operating expenses as a percentage of gross profit increased to 96.2% compared with 91.7% in the same period of the prior year. The higher operating expenses were due to deleveraging in our core temporary staffing operations as volumes decrease due to lower demand as well as redundant costs related to the Todays acquisition in the first quarter as we completed the integration process.

Outlook— Sales activity and improving operating leverage will remain our major areas of focus for the remainder of 2008. We are continuing to focus on our targeted customers, small and mid-sized accounts, to obtain higher gross margins. Although RPO revenue declined in the second quarter on a year over year basis, our sales pipeline remains strong. We continue to win new business and will make additional investments in this area in the future. Although industry conditions are expected to remain challenging in 2008, we have made and will continue to make cost adjustments in response to economic conditions. However, we are also taking steps to keep the Company in a strong position to take advantage of the eventual recovery by continuously improving our productivity and maintaining our financial discipline. Despite these efforts, there is no assurance that revenues or segment operating profit will grow in 2008.

19

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS – (Continued)

Professional Services

Information on the Professional Services segment’s skill sets and service lines for the periods indicated were as follows (in thousands):

	Three Months Ended										Six Months Ended
	June 29, 2008					July 1, 2007					June 29, 2008						July 1, 2007
				% of					% of					% of					% of
				Total					Total					Total					Total
Revenues by Skill:
Information Technology	$	148,925		75.5	%	$	85,252		64.5	%	$	305,332		76.0	%	$	167,669		65.1	%
Finance & Accounting		29,584		15.0	%		28,946		21.9	%		58,412		14.5	%		55,229		21.5	%
Other		18,847		9.5	%		17,976		13.6	%		38,065		9.5	%		34,565		13.4	%
Segment revenues	$	197,356		100.0	%	$	132,174		100.0	%	$	401,809		100.0	%	$	257,463		100.0	%
Revenues by Service:
Temporary Staffing	$	181,913		92.2	%	$	116,957		88.5	%	$	373,216		92.9	%	$	228,676		88.8	%
Permanent Placement		15,443		7.8	%		15,217		11.5	%		28,593		7.1	%		28,787		11.2	%
Segment revenues	$	197,356		100.0	%	$	132,174		100.0	%	$	401,809		100.0	%	$	257,463		100.0	%
Gross Profit Margin by Service:
(As % of Applicable Revenues)
Temporary Staffing		25.0	%				26.4	%				24.6	%				25.5	%
Permanent Placement		100.0	%				100.0	%				100.0	%				100.0	%
Total Professional Services		30.9	%				34.9	%				30.0	%				33.8	%

RECONCILIATION OF YEAR-OVER-YEAR REVENUE GROWTH
	Three Months Ended June 29, 2008
	Revenue Growth by Skill								Revenue Growth by Service
	Total		Information		Finance &				Total		Permanent		Temporary
Professional Services	Professional		Technology		Accounting		Other		Professional		Placement		Staffing
Organic revenue growth	(5.3	%)	(7.5	%)	(4.3	%)	14.3	%	(5.3	%)	(6.4	%)	(5.2	%)
Impact of acquisitions and
business reclassifications*	54.6	%	82.2	%	6.5	%	(9.4	%)	54.6	%	7.9	%	60.7	%
GAAP revenue growth	49.3	%	74.7	%	2.2	%	4.9	%	49.3	%	1.5	%	55.5	%
	Six Months Ended June 29, 2008
	Revenue Growth by Skill								Revenue Growth by Service
	Total		Information		Finance &				Total		Permanent		Temporary
Professional Services	Professional		Technology		Accounting		Other		Professional		Placement		Staffing
Organic revenue growth	(2.5	%)	(4.5	%)	(1.6	%)	15.9	%	(2.5	%)	(8.8	%)	(1.9	%)
Impact of acquisitions and
business reclassifications*	58.6	%	86.6	%	7.4	%	(5.8	%)	58.6	%	8.1	%	65.1	%
GAAP revenue growth	56.1	%	82.1	%	5.8	%	10.1	%	56.1	%	(0.7	%)	63.2	%

*Effective with the first quarter of 2008, the management of certain customer contracts was transferred between operating segments, primarily to Professional Services from Staffing Services, and have been adjusted for the purpose of calculating organic growth.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS – (Continued)

Three Months Ended June 29, 2008 Compared with July 1, 2007

Revenues— Professional Services revenues increased 49.3% to $197.4 million in the second quarter of 2008 from $132.2 million in the same period of the prior year. The increase in revenues was mostly attributable to the Technisource acquisition made at the end of 2007 and the reclassification of certain managed services contracts from our Staffing Services operating segment. Organically, Professional Services revenues decreased 5.3% primarily due to the completion of a large project during the second quarter and lower demand from customers due to general weaker employment trends.

· By skill — Information technology ("IT") increased 74.7% from the same period in the prior year primarily due to the acquisitions made in 2007. On an organic basis, IT decreased 7.5% due to the completion of a large project during the second quarter. Revenues from finance and accounting decreased 4.3% on an organic basis due to lower demand among some larger accounts offset by growth from acquired business. Revenues from other skills increased 14.3% on an organic basis primarily due to increased demand for engineering and legal staffing.

· By service — Temporary staffing increased 55.5% due to the acquisition of Technisource made at the end of 2007. On an organic basis, temporary staffing revenues decreased 5.2% primarily due to the completion of a large project in the second quarter and lower demand from customers due to the slower economy. Permanent placement revenues increased 1.5% as a result of acquired business and primarily within the finance and accounting skill areas. On an organic basis, permanent placement revenues decreased 6.4% due to growing concerns from customers about the slower economy in the U.S.

Gross Profit— Professional Services gross profit increased 32.2% to $60.9 million in the second quarter of 2008 from $46.1 million in the same prior year period. The overall gross profit margin was 30.8% in 2008 compared with 34.9% in the same period of the prior year. This 410 basis point decrease in gross profit margin was primarily due to a lower proportion of permanent placement revenues due to the acquisition of Technisource (270 basis points), and lower temporary margins due to the impact of a higher proportion of pass thru billable expenses, partially offset by lower payroll taxes (140 basis points).

Segment Operating Profit— Professional Services segment operating profit was $11.9 million compared with $7.4 million in the same period of the prior year. Operating expenses as a percentage of gross profit were down 340 basis points to 80.5% from 83.9% . The decrease in operating expenses as a percentage of gross profit was primarily due to improved operating leverage realized by the integration of Techinsource.

Six Months Ended June 29, 2008 Compared with July 1, 2007

Revenues— Professional Services revenues increased 56.1% to $401.8 million in 2008 from $257.5 million in the same period of the prior year. The increase in revenues was mostly attributable to temporary staffing revenues, which increased $144.5 million, due to the acquisition of Technisource at the end of 2007 and the reclassification of certain managed services contracts from our Staffing Services operating segment to this operating segment. Revenue on an organic basis decreased 2.5% from the prior year.

·By skill — IT increased 82.1% from the same period in the prior year primarily due to the acquisition of Technisource made at the end of 2007. On an organic basis, IT decreased 4.5% due to the completion of several projects during 2008 and the slower economy. Revenues from finance and accounting increased 5.8% compared with the prior year primarily due to acquired business, but revenue was down slightly on an organic basis as demand was stronger in the first quarter of 2008 and has slowed during the second quarter. Revenues from other skills increased 10.1% (15.9% organic growth) primarily due to increased demand for engineering, human resources and legal staffing.

· By service — Temporary staffing increased 63.2% primarily due to the acquisition of Technisource made at the end of 2007. On an organic basis, temporary staffing revenues decreased 1.9% primarily due to the completion of several projects during 2008. Permanent placement revenues decreased by 0.7%, or 8.8% on an organic basis, due to growing concerns from customers about the slower economy in the U.S.

Gross Profit— Professional Services gross profit increased 38.1% to $120.3 million in 2008 from $87.1 million in the same prior year period. The overall gross profit margin was 29.9% in 2008 compared with 33.8% in the same period of the prior year. This 390 basis point decrease in gross profit margin was primarily due to the lower mix of permanent placement business due to the acquisition of Technisource. Temporary staffing margins decreased 90 basis points due to a higher proportion of billable expenses at low margins, partially offset by lower payroll taxes.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS – (Continued)

Segment Operating Profit— Professional Services segment operating profit was $22.6 million compared with $14.0 million in the same period of the prior year. Operating expenses as a percentage of gross profit were down 270 basis points to 81.3% from 84.0% . The decrease in operating expenses as a percentage of gross profit was primarily due to improved operating leverage realized by the integration of Techinsource.

Outlook— Our major areas of focus in 2008 are sales activity and improving our operating leverage. We will focus on our targeted customers, small and mid-sized accounts, and leverage opportunities to sell Professional Services to our existing larger customers. In 2008, we are continuing to focus on integrating acquisitions and fully realizing planned synergies. We are also taking steps to improve and maintain the productivity and financial discipline gained in 2007. There is no assurance that revenues or segment operating profit for the Professional Services operating segment will continue to grow at the same pace.

Unallocated Corporate Costs

Unallocated corporate costs were $4.1 million and $4.9 million in the second quarters of 2008 and 2007, respectively. Unallocated costs as a percentage of revenues were 0.7% and 1.0% in the second quarters of 2008 and 2007, respectively. Unallocated corporate costs were $8.3 million and $8.1 million for the six-month periods ended June 29, 2008 and July 1, 2007, respectively.

Liquidity and Capital Resources

Cash Flows

As of June 29, 2008, we had total cash of $12.5 million (a decrease of $2.8 million from December 30, 2007). Cash flows from operating, investing and financing activities, as reflected in the accompanying Condensed Consolidated Statements of Cash Flows, are summarized as follows (in thousands):

	Six Months Ended
	June 29, 2008			July 1, 2007
Cash Provided By (Used In):
Operating activities	$	36,640		$	25,031
Investing activities		6,966			(8,800	)
Financing activities		(46,410	)		(6,297	)
Effect of exchange rates		18			567
Net (decrease) increase in cash and cash equivalents	$	(2,786	)	$	10,501

Operating cash flows

Operating cash flows of $36.6 million for the six months ended June 29, 2008 were comprised primarily of $3.6 million of earnings, plus non-cash depreciation and amortization of $14.7 million, non-cash discontinued operations related charges, share-based compensation and other non-cash charges of $4.6 million, lower working capital items of $13.9 million partially offset by a non-cash deferred income tax benefit of $0.2 million. Working capital was reduced primarily due to a decrease in accounts receivable compared with year-end levels as a result of lower revenues in the first half of 2007 compared with the end of 2006.

Operating cash flows of $25.0 million for the six months ended July 1, 2007 were comprised primarily of $6.0 million of earnings, plus non-cash depreciation and amortization of $11.5 million, non-cash deferred income tax expense of $6.4 million, non-cash discontinued operations related charges of $3.9 million and non-cash share-based compensation and other non-cash charges of $4.8 million partially offset by an increase in working capital items of $7.6 million. The $7.6 million increase in working capital items was due to the reduction of normally higher year end accounts payable partially offset by a decrease in receivables as a result of lower revenues in the first half of 2007 compared with the end of 2006.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS – (Continued)

Investing cash flows

Cash provided by investing activities of $7.0 million for the six months ended June 29, 2008 was primarily due to the return of $17.1 million of cash collateral from our restricted insurance deposit accounts upon the issuance of additional letters of credit. This was partially offset by the final settlement of $5.3 million of indemnity claims related to the 2004 sale of the Australian education business and capital expenditures of $4.9 million which primarily related to computer hardware upgrades for newly acquired companies and new systems development.

Cash used in investing activities of $8.8 million for the six months ended July 1, 2007 was primarily due to acquisitions of $16.7 million for the purchase of Resulté and one franchise buy back, capital expenditures of $4.0 million which primarily relate to computer network upgrades and loans to licensee and franchises of $0.3 million, partially offset by reimbursements from insurance companies of $12.1 million from our insurance deposit accounts.

Financing cash flows

Financing cash used for the six months ended June 29, 2008 of $46.4 million was primarily related to the repayments of our lines of credit and other debt of $30.5 million and the repurchase of common stock of $16.0 million.

Financing cash used for the six months ended July 1, 2007 of $6.3 million was primarily due to the repurchase of common stock of $7.1 million, as proceeds from option exercises more than offset debt repayments.

Financing

We believe that a combination of our existing cash balances, other liquid assets, operating cash flows and existing revolving lines of credit, taken together, provide adequate resources to fund ongoing operating requirements. However, our operating cash flow could be impacted by factors outside of our control.

We have a U.S. dollar revolving line of credit in the amount of $250 million that is secured by substantially all of our domestic accounts receivable. At our option, the amount available can be increased to $300 million. As of June 29, 2008, there was $50.7 million outstanding under this facility, and as of July 1, 2007, there were no amounts outstanding. Our total availability was $101.3 million (calculated as eligible receivables of $227.6 million, less: amounts outstanding, if any, letters of credit of $43.3 million and a one week payroll reserve of $32.3 million). Interest on this line of credit is based upon the duration of the loan, availability under the line and other conditions and would have been approximately 4.8% (prime less a spread) or approximately 4.1% (LIBOR plus a spread) as of June 29, 2008. Amounts borrowed under LIBOR and prime based loans were $30.0 million and $20.7 million as of June 29, 2008, respectively. We pay an unused line fee in the range of 0.25% to 0.38% per annum that is determined by the unused portion of the revolving line of credit. For letters of credit, we pay an annual rate based on availability under the line (currently 1.50%) plus a fixed fronting fee of 0.25% . This line of credit expires in July 2010.

We also have a Canadian dollar revolving line of credit (secured by Canadian accounts receivable) that matures July 2010. This facility provides up to CAD$13.0 million of financing (approximately $12.9 million at current exchange rates). As of June 29, 2008, there was $6.6 million outstanding under this facility, and as of July 1, 2007, there were no borrowings outstanding. As of June 29, 2008, the interest rate for amounts borrowed on this facility approximated 5.8% (Canadian prime plus a spread). An unused line fee of 0.5% per annum is payable based on the unused portion of the revolving line of credit. Spherion Corporation guarantees the Canadian dollar revolving line of credit.

Our revolving lines of credit provide for certain affirmative and negative covenants which may limit the total availability under these revolving lines of credit based upon our ability to meet these covenants. These covenants include, but are not limited to: a fixed charge coverage ratio; limitations on capital expenditures; additional debt incurred; mergers, consolidations or sales; and transactions with subsidiaries and related parties. Failure to meet compliance with one or more of these covenants in the future could affect the amount of availability we have to borrow against and as a result, our liquidity and financial condition may be adversely affected. In June 2008, the Canadian credit facility was amended to exclude certain one-time restructuring costs from EBITDA for purposes of calculating the fixed charge coverage ratio covenant. At June 29, 2008, we were in compliance with the covenants of both the U.S. and Canadian lines of credit.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS – (Continued)

In connection with the purchase of Technisource, a portion of the purchase price was deferred and is payable to the sellers including interest based on the six-month LIBOR rate, which resets semi-annually, plus 300 basis points (or approximately 5.9% as of June 29, 2008). The remaining balance of $18.0 million plus $0.6 million of interest accrued to date, is due by March 2009.

Off-Balance Sheet Arrangements

As of June 29, 2008 and December 30, 2007, we had $43.3 million and $31.1 million, respectively, in irrevocable letters of credit outstanding, which were issued primarily for the benefit of certain insurance carriers to guarantee payment for various self-insurance programs such as workers' compensation insurance. As of June 29, 2008 and December 30, 2007, none of these irrevocable letters of credit had been drawn upon.

We do not have any other significant off-balance sheet arrangements.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and the disclosure of contingencies. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be materially different from those estimates. There were no changes from the Critical Accounting Policies as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 30, 2007.

Non-GAAP Financial Measures

This Quarterly Report on Form 10-Q includes information extracted from consolidated financial information but not required by generally accepted accounting principles ("GAAP") to be presented in the financial statements. Certain of this information are considered "non-GAAP financial measures" as defined by SEC rules. Organic revenue growth is calculated assuming that all acquisitions were consummated on January 1, 2007. This calculation has the effect of adding revenues for the acquired businesses prior to their acquisition dates to Spherion Corporation’s reported revenues. In addition, organic revenue growth is calculated assuming that business reclassifications were effective on January 1, 2007, so that revenues for this business are included in the same segment, skill and service in the current and prior period for purposes of calculating year over year growth. Organic growth is a key measurement used by management to evaluate its operations. Management include s revenues prior to acquisition date for acquired companies in the organic revenue growth calculation in order to evaluate the Company's operating performance. Organic growth should not be considered a measure of financial performance in isolation or as an alternative to revenue growth as determined in the Condensed Consolidated 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. Non-GAAP financial measures should be considered in addition to, but not as a substitute for or superior to, other measures of financial performance prepared in accordance with GAAP. Reconciliations of organic growth are presented in the respective sections of the Management's Discussion and Analysis.

Forward-Looking Statements — Safe Harbor

This Quarterly Report on Form 10-Q may include "forward-looking statements" within the meaning of Section 21E of the Securities Act of 1934, as amended, including, in particular, statements about our plans, strategies and prospects. Although we believe that our plans, strategies and prospects reflected in or suggested by our forward-looking statements, and the assumptions on which they are based, are reasonable, we cannot assure you that our plans, strategies and prospects or our other expectations and intentions will be realized or achieved. Important factors that could cause our actual results to differ materially from our forward-looking statements include those set forth in our Annual Report on Form 10-K for the fiscal year ended December 30, 2007. If any of those risks, or other risks not presently known to us or that we currently believe to not be significant, do materialize or develop into actual events, then our business, financial condition, results of operati ons or prospects could be materially adversely affected. All forward-looking statements attributable to us or any persons acting on our behalf are expressly qualified in their entirety by the risk factors discussed in our Annual Report on Form 10-K for the fiscal year ended December 30, 2007.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes to our exposures to market risk since December 30, 2007. Please refer to our Annual Report on Form 10-K for the fiscal year ended December 30, 2007 for a complete discussion of our exposures to market risk.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective for the period covered by this Quarterly Report.

There has been no change in our internal control over financial reporting during the quarter ended June 29, 2008, identified in connection with the evaluation referred to above, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

ITEM 1A. RISK FACTORS

There were no material changes from Risk Factors as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 30, 2007.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

					Average	Total Number of	Maximum Dollar
	Total				Price	Shares Purchased	Amount that
	Number of				Paid	as Part of	May Yet Be
	Shares				per	Publicly Announced	Purchased Under
Period	Purchased				Share	Program	the Program (1)
Month 1
March 31, 2008 through April 27, 2008	299,119	(2	)	$	5.98	298,600	17,507,094
Month 2
April 28, 2008 through May 25, 2008	651,130	(2	)		5.25	650,500	14,092,568
Month 3
May 26, 2008 through June 29, 2008	1,029,092	(2	)		4.94	1,027,752	9,010,219
Total	1,979,341			$	5.20	1,976,852	9,010,219

(1) On January 4, 2008, the Board of Directors authorized the repurchase of up to $25.0 million of the Company's common stock.

(2) Number of shares purchased also includes purchases that relate to deferred compensation plan for highly compensated employees. This is a non-publicly announced program.

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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

(a) Our Annual Meeting of Stockholders was held on May 20, 2008.

(b) The Annual Meeting involved the re-election of Class III directors James J. Forese, J. Ian Morrison and A. Michael Victory. In addition, the term of the following directors continued after the Annual Meeting: Steven S. Elbaum, David R. Parker, Anne Szostak, William F. Evans, Roy G. Krause and Barbara Pellow.

(c) At the Annual Meeting, stockholders voted on the following matters:

ELECTION OF DIRECTORS

	Votes
Director	For	Withheld
James J. Forese	46,912,243	5,906,569
J. Ian Morrison	24,579,679	28,239,133
A. Michael Victory	24,570,853	28,247,959

MANAGEMENT PROPOSALS

	Votes Cast
	For	Against	Abstain
Ratification of Deloitte & Touche LLP as auditors	52,215,985	587,936	15,481

(d) Not applicable.

ITEM 6. EXHIBITS
	Exhibits required by Item 601 of Regulation S-K:
Exhibit
Number	Exhibit Name
31.1	Rule 13a-14(a) Certification in Accordance with Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Rule 13a-14(a) Certification in Accordance with Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certification of Roy G. Krause and Mark W. Smith pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
	Section 906 of the Sarbanes-Oxley Act of 2002, furnished as Exhibit 32.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.

		SPHERION CORPORATION
		(Registrant)
Date: August 6, 2008	By:	/s/ Mark W. Smith
		Mark W. Smith
		Executive Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)

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