Sfn 10-Q 2008 Q3 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 September 28, 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 No.)
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. Yesx 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 the 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 October 26, 2008 was 51,482,803.

	TABLE OF CONTENTS
		Page No.
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Statements of Earnings Three Months Ended September 28, 2008 and
	September 30, 2007 (unaudited)	1
	Condensed Consolidated Statements of Earnings Nine Months Ended September 28, 2008 and
	September 30, 2007 (unaudited)	2
	Condensed Consolidated Balance Sheets as of September 28, 2008 (unaudited) and December 30, 2007	3
	Condensed Consolidated Statements of Cash Flows Nine Months Ended September 28, 2008 and
	September 30, 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	12
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 6.	Exhibits	26
SIGNATURES		26

i

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
	September 28,			September 30,
	2008			2007
Revenues	$	542,175		$	495,168
Cost of services		423,628			376,164
Gross profit		118,547			119,004
Selling, general and administrative expenses		108,412			104,767
Amortization of intangibles		2,037			290
Interest expense		1,573			259
Interest income		(69	)		(1,285	)
		111,953			104,031
Earnings from continuing operations before income taxes		6,594			14,973
Income tax expense		(2,486	)		(5,989	)
Earnings from continuing operations		4,108			8,984
Earnings from discontinued operations, net of tax		56			497
Net earnings	$	4,164		$	9,481
Earnings per share, Basic and Diluted:
Earnings from continuing operations	$	0.08		$	0.16
Earnings from discontinued operations		-			0.01
	$	0.08		$	0.17
Weighted average shares used in computation of earnings per share:
Basic		52,336			56,072
Diluted		52,873			56,749

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)
	Nine Months Ended
	September 28,			September 30,
	2008			2007
Revenues	$	1,681,615		$	1,435,514
Cost of services		1,304,713			1,092,129
Gross profit		376,902			343,385
Selling, general and administrative expenses		347,190			311,829
Amortization of intangibles		6,124			538
Interest expense		4,897			2,591
Interest income		(320	)		(3,762	)
Restructuring and other charges		1,940			-
		359,831			311,196
Earnings from continuing operations before income taxes		17,071			32,189
Income tax expense		(5,421	)		(13,069	)
Earnings from continuing operations		11,650			19,120
Loss from discontinued operations, net of tax		(3,898	)		(3,621	)
Net earnings	$	7,752		$	15,499
Earnings per share, Basic:(1)
Earnings from continuing operations	$	0.22		$	0.34
Loss from discontinued operations		(0.07	)		(0.06	)
	$	0.14		$	0.28
Earnings per share, Diluted:(1)
Earnings from continuing operations	$	0.21		$	0.34
Loss from discontinued operations		(0.07	)		(0.06	)
	$	0.14		$	0.27
Weighted average shares used in computation of earnings per share:
Basic		54,143			56,321
Diluted		54,668			56,978

 ⁽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)
	September 28,			December 30,
Assets	2008			2007
Current Assets:
Cash and cash equivalents	$	14,002		$	15,324
Receivables, less allowance for doubtful accounts of $3,866 and
$6,523, respectively		310,766			347,908
Deferred tax asset		10,164			13,413
Insurance deposits		524			6,986
Other current assets		22,667			22,606
Total current assets		358,123			406,237
Goodwill		145,706			146,584
Property and equipment, net of accumulated depreciation of $124,001
and $109,229, respectively		69,718			78,077
Deferred tax asset		103,022			102,024
Trade names and other intangibles, net		70,670			76,776
Insurance deposits		-			11,259
Other assets		21,871			23,861
Total assets	$	769,110		$	844,818
Liabilities and Stockholders' Equity
Current Liabilities:
Current portion of long-term debt and revolving lines of credit	$	83,176		$	86,035
Accounts payable and other accrued expenses		69,966			79,779
Accrued salaries, wages and payroll taxes		65,682			78,850
Accrued insurance reserves		20,173			19,174
Accrued income tax payable		662			1,042
Other current liabilities		5,366			16,419
Total current liabilities		245,025			281,299
Long-term debt, net of current portion		2,126			22,148
Accrued insurance reserves		16,379			20,501
Deferred compensation		16,278			17,287
Other long-term liabilities		4,059			2,923
Total liabilities		283,867			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, 13,872,796 and 9,443,034 shares, respectively		(106,909	)		(83,681	)
Additional paid-in capital		849,928			848,628
Accumulated deficit		(265,641	)		(273,393	)
Accumulated other comprehensive income		7,212			8,453
Total stockholders' equity		485,243			500,660
	$	769,110		$	844,818

See accompanying notes to Condensed Consolidated Financial Statements.

3

SPHERION CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
	Nine Months Ended
	September 28,			September 30,
	2008			2007
Cash flows from operating activities:
Net earnings	$	7,752		$	15,499
Adjustments to reconcile net earnings to net cash provided by operating activities:
Discontinued operations loss (gain) on disposal, net of income tax		2,034			(658	)
Discontinued operations goodwill impairment, net of income tax		-			2,552
Depreciation and amortization		22,070			17,184
Deferred income tax expense		2,019			12,061
Share-based compensation		3,127			3,308
Other non-cash charges		387			3,251
Changes in assets and liabilities, net of effects of acquisitions:
Receivables, net		37,291			(8,682	)
Other assets		(3,514	)		(418	)
Accounts payable, income taxes payable, accrued liabilities and
other liabilities		(27,460	)		(7,835	)
Net cash provided by operating activities		43,706			36,262
Cash flows from investing activities:
(Payments) proceeds related to sale of discontinued operations		(5,301	)		100
Insurance reimbursements		17,123			13,801
Capital expenditures, net		(7,219	)		(6,006	)
Acquisitions, net of cash acquired		(94	)		(59,405	)
Other		399			166
Net cash provided by (used in) investing activities		4,908			(51,344	)
Cash flows from financing activities:
Repayments of revolving lines of credit, net		(21,630	)		-
Purchases of treasury stock		(25,312	)		(9,512	)
Deferred purchase price and debt repayments		(3,233	)		(2,131	)
Proceeds from exercise of employee stock options		59			2,857
Other, net		3			213
Net cash used in financing activities		(50,113	)		(8,573	)
Effect of exchange rates on cash and cash equivalents		177			1,092
Net decrease in cash and cash equivalents		(1,322	)		(22,563	)
Cash and cash equivalents, beginning of period		15,324			54,640
Cash and cash equivalents, end of period	$	14,002		$	32,077

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" or "Spherion"), its wholly-owned subsidiaries and certain other entities it is required to consolidate in accordance with accounting principles generally accepted in the U.S. ("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 Company’s 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 its 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 quarterly interim periods beginning after November 15, 2008, and fiscal years that include those quarterly interim periods with early adoption encouraged. The Company believes the adoption of SFAS No. 161 will not have an impact on the financial results of Spherion, but it may require additional disclosure. Spherion currently has one hedging activity related to an intercompany loan with its Canadian subsidiary totaling approximately CAD$4.4 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		Nine Months Ended
	September 28,	September 30,	September 28,	September 30,
	2008	2007	2008	2007
Weighted average shares outstanding - Basic	52,336	56,072	54,143	56,321
Effect of dilutive share-based compensation	537	677	525	657
Weighted average shares outstanding - Diluted	52,873	56,749	54,668	56,978
Anti-dilutive options not included above	3,701	2,228	3,682	2,386

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		(1,300	)		-		(1,300	)
Goodwill adjustments during the period		(811	)		1,233		422
Balance at September 28, 2008	$	53,822		$	91,884	$	145,706

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

	As of
	September 28,			December 30,
	2008			2007
Indefinite lived intangible assets - Tradenames	$	41,500		$	41,500
Finite lived intangible assets:
Customer relationship intangibles and other		36,595			36,781
Accumulated amortization		(7,425	)		(1,505	)
		29,170			35,276
	$	70,670		$	76,776

6

SPHERION CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(unaudited)

3. Goodwill and Intangible Assets (Continued)

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 September 28, 2008 and September 30, 2007 was $2.0 million and $0.3 million, respectively. Amortization expense for the nine months ended September 28, 2008 and September 30, 2007 was $6.1 million and $0.5 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.

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 26, 2008, 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 September 28, 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		Nine Months
	Ended		Ended
(Unaudited)	September 30, 2007		September 30, 2007
Revenues	$	602,325	$	1,747,703
Net earnings from continuing operations	$	7,431	$	15,954
Earnings per share from continuing operations-Diluted	$	0.13	$	0.28

7

SPHERION CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 (unaudited)

4. Acquisitions (Continued)

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.

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, Spherion recorded costs related to the integration of the acquired businesses and the elimination of duplicative activities. During the year ended December 30, 2007, Spherion recorded a liability of approximately $7.1 million, which consisted of $4.7 million for severance 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 $3.5 million for the nine months ended September 28, 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 charges related to other integration activities of $1.9 million for the nine months ended September 28, 2008.

5. Legal Proceedings and Contingencies

In connection with the disposition of certain businesses, Spherion, from time to time provides routine indemnifications for certain liabilities that arose prior to a 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.

As of September 28, 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 September 28, 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					Nine Months Ended
		September 28,		September 30,		September 28,			September 30,
		2008		2007		2008			2007
Net earnings	$	4,164		$	9,481	$	7,752		$	15,499
Other comprehensive income:
Foreign currency translation adjustments
arising during the period		(552	)		2,044		(1,241	)		4,603
Total comprehensive income	$	3,612		$	11,525	$	6,511		$	20,102

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 nine months ended September 28, 2008, Spherion purchased 1.8 million shares for approximately $9.0 million, and 4.6 million shares for approximately $25.0 million, respectively. During the three and nine months ended September 28, 2008, the average price per share repurchased was $5.11 and $5.40, respectively. This authorization replaced the previous repurchase plan authorized on February 20, 2007, which allowed for 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 nine months ended September 30, 2007, Spherion purchased 0.3 million shares for approximately $2.4 million, and 1.1 million shares for approximately $9.5 million, respectively. During the three and nine months ended Se ptember 30, 2007, the average price per share repurchased was $7.65 and $8.80, respectively. As of September 11, 2008, all $25.0 million of the Company’s common stock under the January 2008 program were repurchased.

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
	September 28, 2008									September 30, 2007
	Professional			Staffing						Professional			Staffing
	Services			Services			Total			Services			Services			Total
Revenues	$	-		$	-		$	-		$	-		$	-		$	-
Pre-tax earnings (loss) from operations	$	172		$	(80	)	$	92		$	(773	)	$	(461	)	$	(1,234	)
Pre-tax gain on disposal		-			-			-			1,887			153			2,040
Income tax benefit (expense)		(48	)		12			(36	)		302			(611	)		(309	)
Net earnings (loss) from discontinued operations	$	124		$	(68	)	$	56		$	1,416		$	(919	)	$	497
	Nine Months Ended
	September 28, 2008									September 30, 2007
	Professional			Staffing						Professional			Staffing
	Services			Services			Total			Services			Services			Total
Revenues	$	-		$	-		$	-		$	-		$	4,564		$	4,564
Pre-tax loss from operations	$	(2,839	)	$	(221	)	$	(3,060	)	$	(972	)	$	(4,859	)	$	(5,831	)
Pre-tax (loss) gain on disposal		(3,038	)		-			(3,038	)		1,286			(1,029	)		257
Income tax benefit		2,143			57			2,200			380			1,573			1,953
Net loss from discontinued operations	$	(3,734	)	$	(164	)	$	(3,898	)	$	694		$	(4,315	)	$	(3,621	)

There are 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 activity for the nine months ended September 28, 2008, includes $2.6 million of pre-tax expense related to legal fees associated with the defense of certain foreign legal matters. During the nine months ended September 28, 2008, the Company paid $5.5 million to settle certain indemnification claims relating 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.

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						Nine Months Ended
	September 28,			September 30,			September 28,			September 30,
	2008			2007			2008			2007
Revenues:
Professional Services	$	181,908		$	132,906		$	583,717		$	390,369
Staffing Services		360,267			362,262			1,097,898			1,045,145
Segment revenues	$	542,175		$	495,168		$	1,681,615		$	1,435,514
Gross profit:
Professional Services	$	53,314		$	45,149		$	173,650		$	132,284
Staffing Services		65,233			73,855			203,252			211,101
Segment gross profit	$	118,547		$	119,004		$	376,902		$	343,385
Segment SG&A expenses:
Professional Services	$	(45,064	)	$	(38,958	)	$	(142,837	)	$	(112,128	)
Staffing Services		(59,099	)		(61,933	)		(191,824	)		(187,724	)
Segment SG&A	$	(104,163	)	$	(100,891	)	$	(334,661	)	$	(299,852	)
Segment operating profit:
Professional Services	$	8,250		$	6,191		$	30,813		$	20,156
Staffing Services		6,134			11,922			11,428			23,377
Segment operating profit		14,384			18,113			42,241			43,533
Unallocated corporate costs		(4,249	)		(3,876	)		(12,529	)		(11,977	)
Amortization expense		(2,037	)		(290	)		(6,124	)		(538	)
Interest expense		(1,573	)		(259	)		(4,897	)		(2,591	)
Interest income		69			1,285			320			3,762
Restructuring and other charges		-			-			(1,940	)		-
Earnings from continuing operations before income taxes	$	6,594		$	14,973		$	17,071		$	32,189

11

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 Annual 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

·Non-GAAP Financial Measures

· Forward-Looking Statements — Safe Harbor

Executive Summary

Our progress on strategic objectives during the third 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. During the third quarter of 2008, revenues from our small to mid-sized accounts (customers that do business with Spherion of $5 million or less, annually) represented 51.1% of total revenue, up from 48.8% in the third quarter of 2007. Total revenues increased 9.5% during the third 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. On an organic basis, revenues declined 11.4% due to the slowing U.S. economy.

·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 2007. Revenues from Professional Services represented 33.6% of total revenues in the third quarter of 2008, up from 26.8% of total revenues in the third quarter of 2007.  In spite of our strategy, our gross profit margin was 21.9% for third quarter of 2008, a decrease of 210 basis points compared with the third quarter of 2007, due to a lower mix of permanent placement and managed services revenues and lower temporary staffing margins. The decline in overall U.S. employment during 2008 has dampened demand for permanent placement and recruitment outsourcing (included in managed services) which significantly impacted gross margins.

·Third, continue improving operating leverage and maintain financial discipline:Improvements in operating leverage require us to balance growth in operating expense changes with growth in business volume changes and gross profit. Selling, general and administrative ("SG&A") expenses in the third quarter of 2008 increased to 91.5% of gross profit compared with 88.0% in the third quarter of 2007 primarily due to lower business volumes as measured on an organic basis. In anticipation of the declining business volumes, SG&A was reduced by $10.5 million in the third quarter of 2008 compared with the second quarter of 2008. In addtion, the Company has realized planned synergies associated with the 2007 acquisitions and we will continue to focus on reducing our expenses relative to business volume.

12

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

AND RESULTS OF OPERATIONS – (Continued)

Operating Results

Consolidated Operating Results

Three Months Ended September 28, 2008 Compared with September 30, 2007

Revenues in the third quarter of 2008 increased $47.0 million to $542.2 million from $495.2 million in the prior year.
·	Professional Services revenues increased 36.9% to 33.6% of total revenue due primarily to the acquisition of Technisource. On an organic basis, Professional Services revenues decreased 14.9% due to the completion of a large IT staffing project and lower demand from several large customers for temporary staffing across several industry sectors. Permanent placement revenues declined 22.6% on an organic basis as customers continued to reduce their permanent hiring.
·	Staffing Services revenues were 66.4% of total revenues and slightly decreased 0.6% compared with the prior year. On an organic basis, Staffing Services revenue decreased 9.5% primarily due to the decline of economically sensitive temporary staffing revenues in the U.S. and Canada. Additionally, revenues in Recruitment Process Outsourcing ("RPO") decreased as a result of customer decisions to defer hiring due to economic uncertainty.
·	Temporary employment in the U.S. decreased by 8.7% in the third quarter of 2008 as estimated by the Bureau of Labor Statistics. The Company’s combined temporary staffing revenue decreased 10.9% on an organic basis from the prior year.
Gross profit in 2008 was $118.5 million. Gross profit margin decreased to 21.9% in 2008 compared with 24.0% for the same period in 2007. Gross profit margins decreased due to:
·	Lower permanent placement volume and mix year over year (120 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 (10 basis points).
Selling, general and administrative expenses increased to $108.4 million in 2008 from $104.8 million in the same period in 2007 primarily due to acquisitions. As a percentage of gross profit, these costs increased to 91.5% from 88.0% for the same period in 2007 as business volumes decreased on an organic basis due to the slowing U.S. economy.
Net interest expense was $1.5 million in the third quarter of 2008 compared with net interest income of $1.0 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 $0.3 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 third quarter of 2008 was 37.7%, decreasing from the prior year rate of 40.0%. The decrease in the tax rate is the result of an increase in Work Opportunity Tax Credits ("WOTC") over prior year amounts.

13

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

AND RESULTS OF OPERATIONS – (Continued)

Nine Months Ended September 28, 2008 Compared with September 30, 2007

Revenues in 2008 were $1.68 billion, an increase from $1.44 billion last year.
·	Professional Services revenues increased 49.5% compared with the prior year primarily due to the acquisitions of Technisource and Resulté. On an organic basis, Professional Services revenue decreased 6.7% compared with the prior year due to the completion of a large IT staffing project and lower demand from several large customers for temporary staffing across several industry sectors. Permanent placement revenues declined 13.2% on an organic basis as customers continued to reduce their permanent hiring.
·	Staffing Services revenues increased 5.0% compared with the prior year primarily due to the acquisition of Todays Office Professionals. On an organic basis, Staffing Services revenue decreased 5.1% compared with the prior year primarily due to the decline of economically sensitive temporary staffing revenues in the U.S. and Canada. Additionally, revenues in RPO decreased as a result of customer decisions to defer hiring due to economic uncertainty.
·	Temporary employment in the U.S. decreased by 6.3% in 2008 as estimated by the Bureau of Labor Statistics. The Company’s combined temporary staffing revenue decreased 5.4% on an organic basis from the prior year.
Gross profit in 2008 was $376.9 million. Gross profit margin decreased to 22.4% 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 (50 basis points).
Selling, general and administrative expenses increased to $347.2 million in 2008 from $311.8 million in the same period in 2007 primarily due to acquisitions. As a percentage of gross profit, these costs increased to 92.1% from 90.8% for the same period in 2007 as business volumes decreased on an organic basis due to the slowing U.S. economy.
Net interest expense was $4.6 million in 2008 compared with net interest income of $1.2 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 $6.1 million in 2008, up from $0.5 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 31.8%, decreasing from the prior year rate of 40.6% . The decrease is the result of an adjustment of a tax valuation allowance made in the second quarter of 2008 and an increase in WOTC over prior year amounts.

14

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										Nine Months Ended
	September 28, 2008					September 30, 2007					September 28, 2008					September 30, 2007
				% of					% of					% of					% of
				Total					Total					Total					Total
Revenues:
Professional Services	$	181,908		33.6	%	$	132,906		26.8	%	$	583,717		34.7	%	$	390,369		27.2	%
Staffing Services		360,267		66.4	%		362,262		73.2	%		1,097,898		65.3	%		1,045,145		72.8	%
Total	$	542,175		100.0	%	$	495,168		100.0	%	$	1,681,615		100.0	%	$	1,435,514		100.0	%
				% of					% of					% of					% of
				Revenues					Revenues					Revenues					Revenues
Gross profit:
Professional Services	$	53,314		29.3	%	$	45,149		34.0	%	$	173,650		29.7	%	$	132,284		33.9	%
Staffing Services		65,233		18.1	%		73,855		20.4	%		203,252		18.5	%		211,101		20.2	%
Total	$	118,547		21.9	%	$	119,004		24.0	%	$	376,902		22.4	%	$	343,385		23.9	%
Segment SG&A expenses:
Professional Services	$	(45,064	)			$	(38,958	)			$	(142,837	)			$	(112,128	)
Staffing Services		(59,099	)				(61,933	)				(191,824	)				(187,724	)
Total	$	(104,163	)			$	(100,891	)			$	(334,661	)			$	(299,852	)
Segment operating profit:
Professional Services	$	8,250				$	6,191				$	30,813				$	20,156
Staffing Services		6,134					11,922					11,428					23,377
Total		14,384					18,113					42,241					43,533
Unallocated corporate costs		(4,249	)				(3,876	)				(12,529	)				(11,977	)
Amortization expense		(2,037	)				(290	)				(6,124	)				(538	)
Interest expense		(1,573	)				(259	)				(4,897	)				(2,591	)
Interest income		69					1,285					320					3,762
Restructuring and other charges		-					-					(1,940	)				-
Earnings from continuing operations before
income taxes	$	6,594				$	14,973				$	17,071				$	32,189

15

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						Nine Months Ended
	September 28, 2008						September 28, 2008
	Total		Professional		Staffing		Total		Professional		Staffing
	Company		Services		Services		Company		Services		Services
Organic revenue growth	(11.4	%)	(14.9	%)	(9.5	%)	(5.6	%)	(6.7	%)	(5.1	%)
Impact of acquisitions and business reclassifications	20.9	%	51.8	%	8.9	%	22.7	%	56.2	%	10.1	%
GAAP revenue growth	9.5	%	36.9	%	(0.6	%)	17.1	%	49.5	%	5.0	%

Segment Operating Results

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										Nine Months Ended
	September 28, 2008					September 30, 2007					September 28, 2008					September 30, 2007
				% of					% of					% of					% of
				Total					Total					Total					Total
Revenues by Skill:
Information Technology	$	139,614		76.7	%	$	87,053		65.5	%	$	444,946		76.2	%	$	254,722		65.3	%
Finance & Accounting		25,758		14.2	%		26,980		20.3	%		84,170		14.4	%		82,209		21.1	%
Other		16,536		9.1	%		18,873		14.2	%		54,601		9.4	%		53,438		13.6	%
Segment revenues	$	181,908		100.0	%	$	132,906		100.0	%	$	583,717		100.0	%	$	390,369		100.0	%
Revenues by Service:
Temporary Staffing	$	170,216		93.6	%	$	119,071		89.6	%	$	543,432		93.1	%	$	347,747		89.1	%
Permanent Placement		11,692		6.4	%		13,835		10.4	%		40,285		6.9	%		42,622		10.9	%
Segment revenues	$	181,908		100.0	%	$	132,906		100.0	%	$	583,717		100.0	%	$	390,369		100.0	%
Gross Profit Margin by Service:
(As % of Applicable Revenues)
Temporary Staffing		24.5	%				26.3	%				24.5	%				25.8	%
Permanent Placement		100.0	%				100.0	%				100.0	%				100.0	%
Total Professional Services		29.3	%				34.0	%				29.7	%				33.9	%

16

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 September 28, 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	(14.9	%)	(16.4	%)	(10.5	%)	(8.1	%)	(14.9	%)	(22.6	%)	(14.3	%)
Impact of acquisitions and
business reclassifications*	51.8	%	76.8	%	6.0	%	(4.3	%)	51.8	%	7.1	%	57.3	%
GAAP revenue growth	36.9	%	60.4	%	(4.5	%)	(12.4	%)	36.9	%	(15.5	%)	43.0	%
	Nine Months Ended September 28, 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	(6.7	%)	(8.4	%)	(4.5	%)	6.0	%	(6.7	%)	(13.2	%)	(6.2	%)
Impact of acquisitions and
business reclassifications*	56.2	%	83.1	%	6.9	%	(3.8	%)	56.2	%	7.7	%	62.5	%
GAAP revenue growth	49.5	%	74.7	%	2.4	%	2.2	%	49.5	%	(5.5	%)	56.3	%

*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.

Three Months Ended September 28, 2008 Compared with September 30, 2007

Revenues— Professional Services revenues increased 36.9% to $181.9 million in the third quarter of 2008 from $132.9 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. Professional Services revenues on an organic basis decreased 14.9% primarily due to the completion of a large IT staffing project and lower demand from several large customers for temporary staffing, particularly within the technology, consumer products and financial services sectors.

·By skill — Information technology ("IT") increased 60.4% from the same period in the prior year primarily due to the Technisource acquisition made in 2007. On an organic basis, IT decreased 16.4% due to the completion of a large IT staffing project and lower demand from several large customers for temporary staffing, particularly within the technology, consumer products and financial services sectors. Revenues from finance and accounting decreased 10.5% on an organic basis and other skills decreased 8.1% on an organic basis. Demand across all skill categories has decreased during 2008 as the U.S. economy has continued to slow and overall temporary staffing employment levels have declined.

·By service — Temporary staffing increased 43.0% due to the acquisition of Technisource made at the end of 2007. On an organic basis, temporary staffing revenues decreased 14.3% primarily due to the slower economy which has resulted in lower demand from both large and small customers. Permanent placement revenues decreased 15.5%, or 22.6% on an organic basis, as a result of customer decisions to defer hiring due to economic uncertainty.

Gross Profit— Professional Services gross profit increased 18.1% to $53.3 million in the third quarter of 2008 from $45.1 million in the same period of the prior year. The overall gross profit margin was 29.3% in 2008 compared with 34.0% in the same period of the prior year. This 470 basis point decrease in gross profit margin was primarily due to a change in service mix due to lower permanent placement services (290 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 (180 basis points).

17

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

AND RESULTS OF OPERATIONS – (Continued)

Segment Operating Profit— Professional Services segment operating profit was $8.3 million compared with $6.2 million in the same period of the prior year. Operating expenses as a percentage of gross profit were down 180 basis points to 84.5% from 86.3% . The decrease in operating expenses as a percentage of gross profit was primarily due to improved operating leverage realized by the integration of Techinsource.

Nine Months Ended September 28, 2008 Compared with September 30, 2007

Revenues— Professional Services revenues increased 49.5% to $583.7 million in 2008 from $390.4 million in the same period of the prior year. The increase in revenues was mostly attributable 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 6.7% from the prior year due to the completion of a large IT staffing project and lower demand from several large customers for temporary staffing, particularly within the technology, consumer products and financial services sectors.

·By skill — IT increased 74.7% 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 8.4% due to the completion of a large IT staffing project and lower demand from several large customers for temporary staffing, particularly within the technology, consumer products and financial services sectors. Revenues from finance and accounting increased 2.4% compared with the prior year primarily due to acquired business, but revenue was down 4.5% on an organic basis as customer demand began to slow during the second quarter due to economic conditions. Revenues from other skills increased 2.2% (6.0% organic growth) primarily due to increased demand for engineering and legal staffing earlier in 2008.

·By service — Temporary staffing increased 56.3% primarily due to the acquisition of Technisource made at the end of 2007. On an organic basis, temporary staffing revenues decreased 6.2% primarily due to the completion of a large IT staffing project and lower demand from several large customers for temporary staffing, particularly within the technology, consumer products and financial services sectors. Permanent placement revenues decreased by 5.5%, or 13.2% on an organic basis, as customers continued to reduce their demand for new employees.

Gross Profit— Professional Services gross profit increased 31.3% to $173.7 million in 2008 from $132.3 million in the same prior year period. The overall gross profit margin was 29.7% in 2008 compared with 33.9% in the same period of the prior year. This 420 basis point decrease in gross profit margin was primarily due to a change in service mix due to lower permanent placement services (300 basis points). In addition, lower temporary staffing margins driven by primarily higher billable expenses and employee benefits costs (180 basis points), partially offset by lower payroll taxes (60 basis points) impacted overall segment gross profit margins.

Segment Operating Profit— Professional Services segment operating profit was $30.8 million compared with $20.2 million in the same period of the prior year. Operating expenses as a percentage of gross profit were down 250 basis points to 82.3% from 84.8% . 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— We continue to focus on the execution of our strategy to expand our higher margin Professional Services business through sales to our targeted customers, small and mid-sized accounts, while leveraging opportunities to sell Professional Services to our existing larger customers. In 2008, after fully realizing planned synergies, we continue taking steps to improve and maintain our productivity. Due to the impact on our business from the slowing U.S. economy we will carefully watch gross profit trends and reduce expenses to maintain appropriate cash flow, while keeping Spherion positioned to respond to growth opportunities in the future. There is no assurance that revenues or segment operating profit for the Professional Services operating segment will continue to grow in the remainder of 2008.

18

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

AND RESULTS OF OPERATIONS – (Continued)

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										Nine Months Ended
	September 28, 2008					September 30, 2007					September 28, 2008					September 30, 2007
				% of					% of					% of					% of
				Total					Total					Total					Total
Revenues by Skill:
Clerical	$	233,393		64.8	%	$	219,546		60.6	%	$	714,817		65.1	%	$	655,890		62.8	%
Light industrial		126,874		35.2	%		142,716		39.4	%		383,081		34.9	%		389,255		37.2	%
Segment revenues	$	360,267		100.0	%	$	362,262		100.0	%	$	1,097,898		100.0	%	$	1,045,145		100.0	%
Revenues by Service:
Temporary staffing	$	322,455		89.5	%	$	309,739		85.5	%	$	975,999		88.9	%	$	888,399		85.0	%
Managed services		34,074		9.5	%		46,480		12.8	%		108,904		9.9	%		139,320		13.3	%
Permanent placement		3,738		1.0	%		6,043		1.7	%		12,995		1.2	%		17,426		1.7	%
Segment revenues	$	360,267		100.0	%	$	362,262		100.0	%	$	1,097,898		100.0	%	$	1,045,145		100.0	%
Gross Profit Margin by Service:
(As % of Applicable Revenues)
Temporary staffing		16.1	%				17.3	%				16.2	%				17.0	%
Managed services		28.4	%				30.4	%				29.7	%				30.5	%
Permanent placement		100.0	%				100.0	%				100.0	%				100.0	%
Total Staffing Services		18.1	%				20.4	%				18.5	%				20.2	%

19

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 September 28, 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	(9.5	%)	(4.9	%)	(17.0	%)	(9.5	%)	(45.5	%)	(9.0	%)	(8.4	%)
Impact of acquisitions and
business reclassifications*	8.9	%	11.2	%	5.9	%	8.9	%	7.4	%	13.1	%	(18.3	%)
GAAP revenue growth	(0.6	%)	6.3	%	(11.1	%)	(0.6	%)	(38.1	%)	4.1	%	(26.7	%)
	Nine Months Ended September 28, 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	%)	(3.3	%)	(8.2	%)	(5.1	%)	(34.2	%)	(4.9	%)	(1.2	%)
Impact of acquisitions and
business reclassifications*	10.1	%	12.3	%	6.6	%	10.1	%	8.8	%	14.8	%	(20.6	%)
GAAP revenue growth	5.0	%	9.0	%	(1.6	%)	5.0	%	(25.4	%)	9.9	%	(21.8	%)

*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 September 28, 2008 Compared with September 30, 2007

Revenues— Staffing Services revenues decreased slightly to $360.3 million in the third quarter of 2008 from $362.3 million in the same period of the prior year. On an organic basis, revenues decreased by 9.5% from the prior year. The decrease was primarily due to the loss of a large customer due to unacceptable pricing, lower RPO revenues and generally reduced volumes among existing customers due to the slowing economy.

·By skill — Clerical revenues increased 6.3% compared with the same period in the prior year primarily due to the acquisition of Todays in 2007. On an organic basis, clerical revenues decreased 4.9% compared with the same period in the prior year due to lower demand among several of our customers, primarily in the distribution, technology and financial services industries. Light industrial revenues decreased 11.1%, or 17.0% on an organic basis, from prior year levels due to the loss of a large customer due to unacceptable pricing and lower business volumes among several of our customers, primarily in the distribution, retail and technology industries.

·By service — Temporary staffing revenues increased 4.1% compared with the same period in 2007 due to the acquisitions made in 2007. Temporary staffing revenues decreased 9.0% on an organic basis due to the loss of a large customer due to unacceptable pricing. Managed services revenues decreased 26.7% 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, including hiring freezes and lower demand for our services.

Permanent placement revenues decreased 38.1% over the prior year primarily due to weaker customer demand as a result of the slower economic growth and weaker employment trends in the U.S.

Gross Profit— Gross profit decreased to $65.2 million or 18.1% of revenue in 2008 compared with 20.4% in the same prior year period. The decrease of 230 basis points in the overall gross profit margin was primarily due to a higher mix of temporary staffing revenues which has lower average margins than our other services (100 basis points), lower margins in managed services and lower temporary staffing pay/bill spreads (60 basis points), and higher insurance and employee benefit costs (70 basis points).

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

AND RESULTS OF OPERATIONS – (Continued)

Segment Operating Profit— Staffing Services segment operating profit was $6.1 million compared with $11.9 million in the same period of the prior year. Operating expenses as a percentage of gross profit increased to 90.6% compared with 83.9% in the same period of the prior year. Higher operating expenses as a percentage of gross profit are due to deleveraging as volumes decrease due to lower demand. The Company has made and will continue to make cost reductions in response to economic conditions.

Nine Months Ended September 28, 2008 Compared with September 30, 2007

Revenues— Staffing Services revenues increased 5.0% to $1.10 billion in 2008 from $1.05 billion in the prior year. Revenue increases are 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%, which is the result of the loss of a large customer due to unacceptable pricing and reduced volumes among existing customers due to the slowing economy.

·By skill — Clerical revenue increased 9.0% and light industrial revenue decreased 1.6% from prior year levels. The increase in clerical revenues is primarily due to the acquisition of Todays made in 2007. On an organic basis, clerical revenues decreased 3.3% due to lower demand among several of our customers, primarily in the distribution and technology industries. Light industrial revenues decreased 8.2% on an organic basis due to the loss of a large customer in the third quarter due to unacceptable pricing and lower business volumes among several of our customers, primarily in the distribution, retail and technology industries.

·By service — Temporary staffing revenues increased 9.9% compared with the prior year due to the acquisitions made in 2007. Temporary staffing revenues decreased 4.9% on an organic basis due to the loss of a large customer in the third quarter due to unacceptable pricing and lower volumes in both our U.S. and Canadian operations due to the slowing economy. Managed services revenues decreased 21.8% 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. Permanent placement revenues decreased 25.4% 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 decreased 3.7% to $203.3 million from $211.1 million in the same period of the prior year. The overall gross profit margin was 18.5% in 2008 compared with 20.2% in the same prior year period. The decrease of 170 basis points in the overall gross profit margin was primarily due to a higher mix of temporary staffing services which has lower average margins than our other services (90 basis points), lower temporary staffing margins due to lower pay/bill spreads (40 basis points) and higher insurance and employee benefit costs (40 basis points).

Segment Operating Profit— Staffing Services segment operating profit was $11.4 million compared with $23.4 million in the same period of the prior year. Operating expenses as a percentage of gross profit increased to 94.4% compared with 88.9% in the same period of the prior year. The higher operating expenses were due to deleveraging as volumes decrease due to lower demand.

Outlook— We continue to focus on executing our strategy of expanding our higher margin services, such as RPO, and increasing the proportion of our business with our targeted small and mid-sized business. 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 and third quarters 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. Due to the sensitivity of our Staffing Services business to slowing economic trends, we have made and will continue to make cost adjustments in response to declining gross profit trends. Despite these efforts, there is no assurance that revenues or segment operating profit will grow in the remain der of 2008.

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

AND RESULTS OF OPERATIONS – (Continued)

Unallocated Corporate Costs

Unallocated corporate costs were $4.2 million and $3.9 million in the third quarters of 2008 and 2007, respectively. Unallocated costs as a percentage of revenues were 0.8% in both the third quarter of 2008 and 2007, respectively. Unallocated corporate costs were $12.5 million and $12.0 million for the nine month periods ended September 28, 2008 and September 30, 2007, respectively.

Liquidity and Capital Resources

Cash Flows

As of September 28, 2008, we had total cash of $14.0 million (a decrease of $1.3 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):

	Nine Months Ended
	September 28, 2008			September 30, 2007
Cash Provided By (Used In):
Operating activities	$	43,706		$	36,262
Investing activities		4,908			(51,344	)
Financing activities		(50,113	)		(8,573	)
Effect of exchange rates		177			1,092
Net decrease in cash and cash equivalents	$	(1,322	)	$	(22,563	)

Operating cash flows

Operating cash flows of $43.7 million for the nine months ended September 28, 2008 were comprised primarily of $7.8 million of earnings, plus non-cash depreciation and amortization of $22.1 million, non-cash deferred income tax expense of $2.0 million, non-cash discontinued operations related charges, share-based compensation and other non-cash charges of $5.5 million and cash generated by lower working capital of $6.3 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 nine months of 2008 compared with the end of 2007.

Operating cash flows of $36.3 million for the nine months ended September 30, 2007 were comprised primarily of $15.5 million of earnings, plus non-cash depreciation and amortization of $17.2 million, non-cash deferred income tax expense of $12.1 million, non-cash discontinued operations related charges, share-based compensation and other non-cash charges of $8.4 million partially offset by an increase in working capital items of $16.9 million. The $16.9 million increase in working capital items was due to increases in receivables from higher DSO and lower accounts payable.

Investing cash flows

Cash provided by investing activities of $4.9 million for the nine months ended September 28, 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 payment of the final settlement of $5.3 million of indemnity claims related to the 2004 sale of the Australian education business and capital expenditures of $7.2 million which primarily related to computer hardware upgrades for newly acquired companies and new systems development.

Cash used in investing activities of $51.3 million for the nine months ended September 30, 2007 was primarily due to acquisitions of $59.4 million for the purchase of Todays Staffing and Resulté, capital expenditures of $6.0 million which primarily relate to computer hardware upgrades and new system developments, partially offset by reimbursements of insurance claim payments of $13.8 million from our insurance deposit accounts.

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

AND RESULTS OF OPERATIONS – (Continued)

Financing cash flows

Financing cash used for the nine months ended September 28, 2008 of $50.1 million was primarily related to the repayments on our lines of credit and other debt of $24.9 million and the repurchase of common stock of $25.3 million.

Financing cash used for the nine months ended September 30, 2007 of $8.6 million was primarily due to the repurchase of common stock of $9.5 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 ("U.S. revolver") 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 September 28, 2008, there was $57.8 million outstanding under this facility, and as of September 30, 2007, there were no amounts outstanding. Our total availability was $93.5 million (calculated as eligible receivables of $226.5 million, less: borrowings outstanding of $57.8 million, letters of credit of $43.3 million and a one week payroll reserve of $31.9 million). The interest rate 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 5.0% (prime rate) or approximately 4.1% (LIBOR plus a spread) as of September 28, 2008. Amounts borrowed under LIBOR and prime based loans were $25.0 million and $32.8 million as of Sep tember 28, 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 in July 2010. This facility provides up to CAD$13.0 million of financing (approximately $12.6 million at current exchange rates). As of September 28, 2008, there was $5.5 million outstanding under this facility, and as of September 30, 2007, there were no borrowings outstanding. As of September 28, 2008, the interest rate for amounts borrowed on this facility approximated 5.3% (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 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 September 28, 2008, we were in compliance with the covenants of both the U.S. and Canadian lines of credit; however, m anagement anticipates that during the fourth quarter the fixed charge coverage ratio requirement within the U.S. revolver may not be maintained and as a result, availability under this line may be reduced by approximately $32.0 million, until such time as the ratio is increased.

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 plus 300 basis points, which resets semi-annually (or approximately 5.9% as of September 28, 2008). The remaining balance of $18.0 million plus $0.9 million of interest accrued to date, is due by March 2009.

Off-Balance Sheet Arrangements

As of September 28, 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 September 28, 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.

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

AND RESULTS OF OPERATIONS – (Continued)

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. 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 includes 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 operations 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 September 28, 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 (2)	Share		Program	the Program (1)
Month 1
June 30, 2008 through July 27, 2008	437,362	$	4.58	436,935	$	7,010,510
Month 2
July 28, 2008 through August 24, 2008	785,116		5.10	784,382		3,011,248
Month 3
August 25, 2008 through September 28, 2008	542,872		5.56	541,638		-
Total	1,765,350	$	5.11	1,762,955	$	-

(1) On January 4, 2008, the Board of Directors authorized the repurchase of up to $25.0 million of the Company's common stock. As of September 11, 2008, all $25.0 million of the Company’s common stock under the January 2008 program were repurchased.

(2) This also includes 2,395 shares purchased also includes purchases that relate to the deferred compensation plan for highly compensated employees.

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ITEM 6. EXHIBITS

Exhibits required by Item 601 of Regulation S-K:

Exhibit
Number			Exhibit Name
10	.1	*	Employment Agreement by and between Spherion Corporation and Loretta A. Penn, dated July 14, 2008
			(incorporated by reference from Exhibit 10.1 of the Company's Current Report on Form 8-K, filed with the
			Securities and Exchange Commission (the "Commission") on July 18, 2008).
10	.2	*	Change in Control Agreement by and between Spherion Corporation and Loretta A. Penn, dated July 14, 2008
			(incorporated by reference from Exhibit 10.2 of the Company's Current Report on Form 8-K, filed with the
			Commission on July 18, 2008).
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.
* This Exhibit is a management contract or compensatory plan or arrangement.
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: November 5, 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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