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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 26, 2003

Commission file number: 1-11997

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

2050 Spectrum Boulevard, Fort Lauderdale, Florida 33309
(Address of principal executive offices)        (Zip code)

(954) 308-7600
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

None
(Title of class)

        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 ý    No o

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).  Yes ý    No o

        The aggregate market value of the voting stock held by non-affiliates of the Registrant, computed by reference to the closing price of the Registrant's Common Stock, par value $.01 per share ("Common Stock"), as of June 27, 2003 on the New York Stock Exchange, was $399,593,709.

        Number of shares of Registrant's Common Stock outstanding on February 20, 2004 was 60,161,147.

        Documents Incorporated by Reference:

        Certain specified portions of the registrant's definitive proxy statement to be filed within 120 days after December 26, 2003, are incorporated herein by reference in response to Part III, Items 10, 11, 13 and 14, inclusive, and to certain portions of Part III, Item 12.

PART I

Item 1.    BUSINESS

        As used in this report, the terms "we," "us," "our," "Spherion" and the "Company" refer to Spherion Corporation and its consolidated subsidiaries, unless otherwise expressly stated or the context otherwise requires.

Company Overview

        We provide temporary staffing services, managed services and permanent placement services and currently operate in eight countries: Australia, Canada, Hong Kong, New Zealand, Panama, The Netherlands, the United Kingdom and the United States. Temporary staffing services include personnel in the following skill categories: clerical, light industrial, information technology, finance and accounting, legal and administrative. Managed services include services where we assume the operation and management of a customer function such as a call center, recruitment process, help desk, administrative services, data center or network operations. Permanent placement is a service where our employees locate talent on behalf of our customers, screen the candidates and assist in the recruitment efforts. Founded in 1946, we are headquartered in Fort Lauderdale, Florida, and operate a network of over 800 locations. Spherion Corporation is incorporated under the laws of the State of Delaware.

        For the year ended December 26, 2003, we had revenues of $2.1 billion, of which $1,827.6 million, $119.8 million and $122.1 million were related to operations in North America, Europe and the Asia/Pacific region, respectively.

        During the first quarter of 2004, we decided to dispose of our operations in the United Kingdom, The Netherlands and in the Asia/Pacific region, as well as our court reporting operation in the United States. See Note 17, "Subsequent Events," in the accompanying consolidated financial statements for further discussion.

        On April 4, 2003, in connection with a three-year old agreement, we acquired 85% of our Canadian franchise operation for consideration of $21.6 million, including $10.9 million of debt assumed. We also entered into a new put/call agreement with the minority interest holder that can be exercised by either party any time after December 31, 2005, which would require/allow us to purchase the remaining 15% interest in this operation. The results of this operation are included in the Staffing Services operating segment and our consolidated results of operations as of the acquisition date.

        During 2002, we adopted a plan to dispose of certain technology consulting businesses in the United Kingdom and The Netherlands and Saratoga, a human capital measurement business in the United States. We completed the disposal of one of these subsidiaries prior to December 27, 2002 and disposed of the remaining two subsidiaries during the first half of 2003. As a result of our decision to dispose of these businesses, operating results for all periods presented and the related assets and liabilities as of December 27, 2002, have been reclassified as discontinued operations in the accompanying consolidated financial statements in accordance with Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets."

        During 2001, we completed the sale of several businesses, the most significant of which was Michael Page Group PLC. We completed the initial public offering of shares of Michael Page Group PLC, disposing of 100% of our interest on or about April 2, 2001. Our proceeds were approximately $710 million, net of taxes and expenses. We recorded a gain on the transaction of $305.7 million ($186.3 million after-tax) of which an $11.4 million ($7.2 million after-tax) gain related to foreign currency gains on forward contracts. Michael Page produced revenues of $179.6 million and earnings before interest and taxes of $28.8 million during 2001 and is included in the consolidated statements of operations and cash flows through the disposition date. We also assessed our portfolio of businesses and determined that three businesses did not provide the returns required by us or were non-strategic. Consequently, we sold

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the StratfordGroup (retained executive search), Tutor Recursos Humanos (commercial staffing in Spain) and JobOptions (internet job board) during the fourth quarter of 2001. These sales resulted in a loss of $37.1 million. These businesses produced revenues of $23.6 million and had losses before interest and taxes of $(9.3) million during 2001 and are included in the consolidated statements of operations and cash flows through the dates of their disposition. Operating results from each of these businesses were not reclassified as discontinued operations as they were disposed of prior to our adoption of SFAS No. 144.

Industry Overview

        Spherion Corporation is a diversified staffing company with primary operations in North America. The North American staffing market is estimated to be between $80 billion (per Deutsche Bank Securities Inc.) and $97 billion according to Staffing Industry Analysts, Inc. in 2002. This market includes temporary staffing, permanent placement and other services similar to the Company's for a variety of skills.

        The staffing industry is estimated to be up to 50% concentrated in professional skills, including information technology, finance and accounting, legal, administrative and other which are consistent with the skills offered within the Company's Professional Services operating segment. The balance of the North American staffing market is concentrated on services in the clerical and light industrial skill sets, similar to the Company's Staffing Services operating segment.

        Business conditions in the staffing industry are economically sensitive. During 2001-2003 revenues declined for Spherion and many of its peers in the industry due to weak economic conditions. However, demographics of the labor force continue to indicate that the overall labor pool will shrink over the next 10 years, creating a shortage of qualified job candidates, especially for certain professional workers. This shortage increases the need for businesses to use the services of Spherion and other companies within the staffing industry. Staffing industry growth rates are estimated to be between 5% and 15% depending on skill set.

        The Company also provides staffing and recruiting services in the United Kingdom, The Netherlands and the Asia/Pacific region. The staffing industry in those geographies is estimated to be $26.5 billion, $5.7 billion and $4.5 billion, respectively.

Operations Overview

        As a result of management structure changes, we reorganized the Company in 2003 around two basic operating segments—Staffing Services and Professional Services. We believe this new operating structure will allow us to streamline our business and create synergies within existing operating units. This change was effective during the fourth quarter of 2003 and all prior periods have been restated into the new segments for comparability purposes.

        Within our Staffing Services operating segment, we provide three primary services—temporary staffing, managed services, and permanent placement. Within our Professional Services operating segment, we provide temporary staffing and permanent placement services. These services are further described as follows:

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Temporary staffing—This is a service where our employees work at customer locations and under the supervision of customer personnel. The duration of the assignment can be from a day or less to a period of several months. The number of our temporary employees at any given time is directly related to our customers' requirements and these employees are generally only paid when on assignment with a customer. We provide temporary employees with clerical, light industrial, information technology, finance and accounting, legal and administrative skills. We are responsible for all employment related taxes of these temporary employees, including medical costs, workers' compensation and federal and state unemployment (burden costs). Services are generally billed by

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the hour for the number of hours worked. Bill rates are often determined as a mark-up over pay or pay plus burden.

•

Managed services—This is a service where we take responsibility for the operation and management of a customer function such as a call center, recruitment process (generally hiring), help desk, administrative services, data center or network operations and generally provide that service under long-term contracts. Managed services are provided by our employees who typically manage and staff the customer function. In certain cases we may only manage the customer function which could be staffed by a combination of Spherion, customer or other third-party employees. We are responsible for the operation of the customer function and generally are required to meet minimum service level agreements and provide customer driven reporting. Fees are determined based on a combination of headcount, service level provided and/or fixed fee per transaction/unit processed.



•

Permanent placement—This is a service where we locate candidates on behalf of our customers, screen the candidates and assist in the recruitment efforts. If the customer hires the candidate, we are generally compensated as a percentage of first year compensation for the candidate placed. Billing is contingent upon filling the assigned position.

The following table represents the 2003 revenues derived from each of these services within our two operating segments (in thousands):

        Within the services described above, the Staffing Services operating segment concentrates on placement and temporary staffing of individuals with clerical and light industrial skill sets. All managed services are provided within the Staffing Services operating segment. The Professional Services operating segment concentrates on temporary staffing and placement of higher-level skill sets such as information technology, finance and accounting, legal and administrative. All locations outside of North America are included in the Professional Services organization as the skill sets they provide align closely with that segment. See Note 14, Segment Information, in the accompanying consolidated financial statements for additional information regarding the revenues, profits and losses and total assets for both our Staffing Services and Professional Services operating segments for 2003, 2002 and 2001.

Location Structure

        Our locations are company-owned, licensed or franchised. We believe that we can increase profitability and serve our customer base through a combination of company-owned, licensed and franchised locations. For 2003, 87.1% of revenues were derived from company-owned locations, with the remaining derived from franchised and licensed locations.

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        The following table details the number of locations which are company-owned, licensed and franchised, as well as the number of locations that are located in North America and internationally as of the end of the periods listed.

Company-Owned Locations

        We operate both company-owned branch and customer on-premise locations. A branch location is designed to serve multiple customers in a geographic market, while the customer on-premise location is established at the customer's location to serve only that customer. As of December 26, 2003, we operated 606 company-owned branch and customer on-premise locations, which increased from the prior year due primarily to the acquisition of the Canadian franchise operation in 2003. Future new or closed locations is driven by sales success creating the need for new company-owned branches and customer on-premise locations. Our international locations are company-owned branches or customer on-premise locations.

Licensed Locations (dollar amounts in thousands)

        We grant licenses, which give the licensee the right to establish a recruitment business utilizing our trade names, service marks, advertising materials, sales programs, operating procedures, manuals and forms within a designated territory. We typically grant licensees the exclusive right to establish an office to market and provide light industrial and clerical temporary personnel within a designated geographic area. We also assist our licensees in obtaining business from our national accounts and provide them with national, regional and cooperative local advertising. License agreements are generally for an initial term of 10 years and are renewable for successive 5-year terms at our discretion. Our licensees operate within both the Staffing Services and Professional Services operating segments.

        Licensees operate within the framework of our policies and standards. We provide workers' compensation, general liability, professional liability, fidelity bonding and state unemployment coverage for temporary employees. We bill all customers serviced by licensees in our name and collect the remittances. Licensees use our computer systems.

        In our licensee arrangements, we act as the principal in customer transactions through direct contractual relationships with the customers, owning related customer receivables and being the legal

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employer of the temporary employee and the licensee acts as our agent providing certain sales and recruiting services. Sales by the licensed locations are included in our revenues and the direct costs of services (payroll for the temporary employees and related payroll taxes and employee benefits) are included in our cost of services. We are responsible for paying the wages of the temporary employees and all related payroll taxes, employee benefits and insurance and collecting accounts receivable. The licensee is responsible to reimburse us up to 100% of uncollected accounts receivable (bad debts are deducted from commission payments). However, we bear the loss in cases where the licensee does not have sufficient financial wherewithal to reimburse uncollectible accounts.

        The licensee is responsible for establishing their location and paying their related administrative and operating expenses, such as the rent, utilities and salaries of their full-time office employees. The licensee receives a commission from us, which averaged 75% of the licensed offices' gross profit for the year ended December 26, 2003. Our consolidated statements of operations reflect the licensee commission as an operating expense, but do not include the rent, utilities and salaries of the licensee's full-time office employees since these expenses are the responsibility of the licensee. Our consolidated balance sheets include the accounts receivable, payroll liabilities for temporary employees and related employee benefit liabilities and the licensee commission payable.

        From time to time, we will finance a portion of the purchase price of the license at market rates of interest or provide working capital loans to licensees. The outstanding principal balance of such notes receivable was $1.2 million as of December 26, 2003.

        The number of licensees has decreased over the past two years as we have terminated license agreements (usually by converting the licensee to a franchisee) primarily to reduce our exposure to workers' compensation losses. We may continue to identify licensees whose operating practices are not aligned with our operating strategy and convert these operations to company-owned, franchised or independent operations.

Franchised Locations

        We have been granting franchises for approximately 40 years. Most franchise agreements are 10 years in length and renewable every 5 years thereafter. A number of franchisees are second-generation owners. Most franchisees operate more than one franchise.

        We grant franchisees the right to market and furnish staffing services within a designated geographic area using our trade names, service marks, advertising materials, sales programs, operating procedures, manuals and forms. We provide franchisees with our national, regional and local advertising. Franchisees operate their businesses autonomously within the framework of our policies and standards and recruit, employ and pay their own full-time and temporary employees. Franchisees are responsible for all employment related taxes and workers' compensation costs of their employees. Franchisees do not use our computer systems. We receive royalty fees from each franchise based upon the franchisee's revenue.

        From time to time, we will finance a portion of the purchase price of the franchise at market rates of interest or provide working capital loans to franchisees. The outstanding principal balance of such notes receivable was $3.0 million as of December 26, 2003. The number of franchisees has increased over the past two years as we have converted licensees to franchisees and also as we have focused our company-

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owned and licensed offices on major markets while focusing franchisees on tertiary markets. The number of franchisee locations decreased in 2003 as a result of the Canadian franchise acquisition, whereby their offices were converted to company-owned branches.

Acquisitions

        We currently do not expect to undertake any significant acquisitions. However, we may consider small acquisitions within each operating segment to fill geographic needs or to complete a service offering.

        On April 4, 2003, in connection with a three-year old agreement, we acquired 85% of our Canadian franchise operation for consideration of $21.6 million, including $10.9 million of debt assumed. We also entered into a new put/call agreement with the minority interest holder that can be exercised by either party any time after December 31, 2005, which would require/allow us to purchase the remaining 15% interest in this operation.

        In 2002, we acquired one small recruitment business and a few of our licensed and franchised operations, aggregating $3.7 million. Our expenditures for acquisitions during 2001 were $38.5 million, including cash, stock and notes and primarily related to contingent payments for acquisitions consummated in prior years and for repurchases of licensed and franchised operations.

        We are generally the purchaser of choice when a Spherion franchisee or licensee decides to sell its business. We have a right of first refusal on any franchise or license sale at the same terms and conditions as may be agreed with another purchaser (who ultimately must be approved by us, even if we waive our right of first refusal), and we have a standard end of term purchase option on our licenses and our more recently granted franchises, however we are not obligated in our standard agreements to repurchase either our franchisees or licensees.

Competition

        We operate in highly competitive and fragmented markets in our operating segments. Within temporary staffing and permanent placement services, there are low barriers to entry. Within managed services, there can be significant barriers to entry as capital and systems requirements are higher.

        The staffing industry is served by thousands of competitors with most of them small, local operations. There are several very large national and international competitors who also directly compete with us. The local competitors are generally characterized as independent operators serving local marketplaces. These operations are generally not well capitalized and consequently the number of these competitors will vary upon overall economic conditions with the number decreasing in more difficult economic times. The ability to fund working capital requirements is one of the key success factors for these competitors. Local competitors may also be more flexible in offering alternatives to their customers in either attracting candidates or in servicing the customer, but generally cannot service national customers due to their systems or lack of geographic coverage. We compete with local competitors in all of our jurisdictions when the customer is a local or retail customer, and we expect to continue to do so.

        Many of the large national and international competitors are characterized by very broad geographic coverage, large and complex information systems that can handle numerous legal and regulatory requirements and substantial financial resources. We compete against these companies for the largest customers (primarily Fortune 500 companies) where the customer requires broad geographic coverage, competitive national pricing and typically consolidated reporting to assist it in better controlling costs. Since most national customers use a central procurement department, the industry has moved towards consolidated competitive bidding with these customers with pricing one of the key selection criteria in obtaining the contract. This has led to intense price competition within the staffing and recruitment industry over the past few years and a focus on reducing back office processing costs, primarily by installing enterprise-wide information systems. To keep pace with our major national and international competitors,

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we have been implementing an enterprise-wide information system to lower back office processing costs and increase reporting capabilities. We anticipate that price competition with these larger competitors will continue.

        We believe that our customers primarily focus on the following key factors in selecting a service provider: location or geographic coverage, price and service delivery. Geographic coverage is important from the customer and candidate standpoint. Customers require that their providers be able to service most, if not all, of their locations. Location is important to the candidate because many candidates are unwilling to travel outside of their particular geographic market for a position. We have over 800 locations worldwide and believe that our coverage is adequate in the markets we serve. As discussed above, price is one of the major factors in terms of selecting a provider. Service delivery is understanding the customers' specific job requirements through consultative assessments, the ability to provide the right candidate for the right job and the ability to measure the quality of job performance. Factors in obtaining qualified candidates for employment assignments with customers include the quality of available opportunities, wages, responsiveness to work schedules and the number of available work hours. No single customer accounted for 10 percent or more of our consolidated revenues in 2003.

        Within the Staffing Services operating segment, some of our largest competitors are Adecco S.A., Manpower Inc. and Kelly Services, Inc.. Within the Professional Services operating segment, we compete with Robert Half International Inc., MPS Group, Inc. and Kforce Inc. among others.

Trademarks

        Through our subsidiaries, we maintain a number of trademarks, trade names and service marks in the United States and certain other countries. We believe that many of these marks and trade names, including SPHERION®, NORRELL® and ON-PREMISE® are important to our business. In addition, we maintain other intangible property rights.

        Through our subsidiaries, we currently use and have applications for registration pending on various marks, including the following: MAKING THE WORKPLACE WORK BETTER^SM, KNOWLEDGESPHERE^SM, EMERGING WORKFORCE^SM and SALESFIT^SM.

        Our United States trademark registration for SPHERION® expires October 9, 2011, but is renewable indefinitely for successive ten-year terms. Our United States trademark registration for INTERIM® expires April 6, 2013, but is renewable indefinitely for successive ten-year terms. Our United States trademark registration for NORRELL® expires on March 8, 2013, but is renewable indefinitely for successive ten-year terms.

Governmental Regulation

        Staffing firms are generally subject to one or more of the following types of government regulations: (i) regulation of the employer/employee relationship between a firm and its flexible staff, (ii) registration, licensing, record keeping and reporting requirements and (iii) substantive limitations on its operations. Staffing firms are the legal employers of their temporary workers. Therefore, the firm is governed by laws regulating the employer/employee relationship such as tax withholding or reporting, social security or retirement, anti-discrimination and workers' compensation.

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        We have operations in a number of foreign countries. In some of these countries, particularly those in Europe, there is significant national and local regulation of staffing services. These laws generally require that part-time, temporary and contract workers receive benefits similar to full-time workers, such as vacation, welfare plan contributions and severance pay. In some cases, hours of work and the duration of assignments are limited and workers may not be assigned to certain industries. We do not anticipate that these legal structures and requirements will have a material effect on our growth or prospects. However, any material change in national or local regulation of staffing services could have a material adverse effect on us.

        Our sale of franchises and licenses is regulated by the Federal Trade Commission and by authorities in approximately 15 states and two Canadian provinces. Under these laws, we must deliver a franchise offering circular (similar to a prospectus) to prospective franchisees or licensees. These and other state laws may also apply substantive standards that govern the relationship between franchisors and franchisees. In states where we are selling franchises or licenses, we have filed either the appropriate registration or obtained an exemption from registration when required. We do not anticipate that these requirements or other state laws will have a material effect on our ability to sell franchises or licenses or operate our business through franchised or licensed offices.

Employees

        We estimate that we employed approximately 297,000 people in 2003. Approximately 4,000 individuals were employed full-time in both our national and international operations and the remaining 293,000 individuals were billable personnel assigned with our customers, of whom approximately 58,000 were assigned, on average, at any given time.

Seasonality and Cyclical Nature of Business

        Seasonality—Our businesses are seasonal in nature with customer related demand generally at its highest point during the third and fourth quarters and lowest during the first quarter. The third and fourth quarters are normally higher as our customers increase their temporary workforces for the holiday season. We typically experience a decrease of approximately 5 - 10% in our first quarter revenues in comparison with fourth quarter revenues. The decrease in first quarter revenue for 2003, 2002 and 2001 was 8%, 9% and 6%, respectively, in comparison with the preceding fourth quarters.

        Cyclical Nature of the Business—The staffing industry has historically been considered to be cyclical, often acting as an indicator of both economic downswings and upswings. Staffing customers tend to use temporary staffing to supplement their existing workforces and generally hire permanent workers when long-term demand is expected to increase. As a consequence of this, our revenues tend to increase quickly when the economy begins to grow. Conversely, our revenues also tend to decrease quickly when the economy begins to contract as our customers reduce temporary workers before terminating their own employees. While we have a number of longer-term managed service contracts, which are not as directly dependent upon the economic cycle, these revenues are not significant enough to offset the impact of cyclical economic activity in our larger service offerings.

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Executive Officers of the Registrant

        Our executive officers, each of whom has been elected to serve at the discretion of the Board of Directors, are:

        The board expects to name a new CEO in the next several months through a search process that had been planned as a contingency in light of Ms. Hallman's medical leave. The Company has retained a national executive search firm to conduct the search.

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Availability of Reports and Other Information

        Our corporate website is http://www.spherion.com. We make available on this website, free of charge, access to our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statement on Schedule 14A and amendments to those materials filed or furnished pursuant to Section 13(a) or 15(d) of the Securities and Exchange Act of 1934 as soon as reasonably practicable after we electronically submit such materials to the Securities and Exchange Commission. In addition, the Commission's website is http://www.sec.gov. The Commission makes available on its website, free of charge, reports, proxy and information statements, and other information regarding issuers, such as us, that file electronically with the Commission. Information provided on our website or on the Commission's website is not part of this Annual Report on Form 10-K.

Item 2.    PROPERTIES

        Our corporate headquarters are located at 2050 Spectrum Boulevard, Fort Lauderdale, Florida, in a 125,000 square-foot building owned by us, plus a leased annex of 37,250 square feet of additional space in the immediate vicinity. In addition, we lease approximately 70,000 square feet in Alpharetta, Georgia for operating functions. All other field locations operate in space held primarily under three to five year leases providing fixed monthly rentals. Our corporate headquarters and our field locations are used by both our Staffing Services and our Professional Services operating segments. We believe that our facilities are adequate for our needs.

Item 3.    LEGAL PROCEEDINGS

        In the ordinary course of our business, we are threatened with or named as a defendant in various lawsuits. We maintain insurance in such amounts and with such coverages and deductibles as we believe are reasonable and prudent. The principal risks that we insure against are workers' compensation, personal injury, bodily injury, property damage, professional malpractice, errors and omissions, employment practices and fidelity losses. Our 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 our financial condition, results of operations or cash flows.

        Interim HealthCare Inc., Catamaran Acquisition Corp. and Cornerstone Equity Investors IV, L.P. have an action pending against us in the Delaware Court of Chancery. Their complaint, filed on June 26, 2001 and amended on July 24, 2001, relates to our divestiture of Interim HealthCare (the "Healthcare Divestiture") in 1997 and seeks damages of approximately $10 million for breach of contract, reformation of the purchase agreement to reduce the purchase price by approximately $24 million, or rescission of the contract. The same parties are also seeking damages against us in an action pending in Delaware Superior Court alleging multiple breach of contract claims arising out of the Healthcare Divestiture, allowing the same judge to preside over both actions. Our motion for summary judgment was granted for the reformation claim. The cases went to trial in December 2003. In addition to the claims mentioned above, the plaintiffs also were permitted to enter evidence in support of a diminution of value claim, for which they are seeking in excess of $25 million in damages. The parties will be filing post-trial briefs, with a ruling expected sometime in the second half of 2004. We do not have insurance coverage for these claims. We believe the resolution of this matter will not have a material impact on our consolidated financial position, liquidity or results of operations above the amounts we have already provided for.

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

        No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 26, 2003.

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PART II

Item 5.    MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

        Our common stock is traded on The New York Stock Exchange under the symbol "SFN." The following table sets forth, for the periods indicated, the high and low prices per share of the common stock as reported on The New York Stock Exchange:

        On February 20, 2004, there were approximately 2,450 holders of record of our common stock.

        We did not pay cash dividends in 2002 or 2003, and do not intend to pay cash dividends in the foreseeable future. In addition, our new loan facility, which we entered into in July 2003, may restrict our ability to pay cash dividends in certain circumstances.

        The information required by Item 201(d) of Regulation S-K is set forth in Part III, Item 12 of this Annual Report on Form 10-K.

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Item 6.    SELECTED FINANCIAL DATA

        The following table summarizes selected financial information for each of the most recent five fiscal years and should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the accompanying consolidated financial statements included in this Annual Report on Form 10-K.

(1)

The 1999 fiscal year contained 53 weeks. All other years contained 52 weeks.

(2)

Operating results for Michael Page are included through the date of disposition in April 2001.

(3)

The 2003 results include the Canadian results of operations from the date of acquisition (April 4, 2003); pre-tax restructuring charges of $5.2 million; and a net loss from discontinued operations of $2.9 million.

(4)

The 2002 results include a pre-tax goodwill impairment charge of $291.5 million; pre-tax restructuring, asset impairment and other charges of $10.4 million; and a pre-tax gain on the repurchase of a portion of our convertible subordinated notes of $10.5 million. The 2002 results also include a net loss from discontinued operations of $14.4 million and the cumulative effect of a change in accounting principle to adopt SFAS No. 142, "Goodwill and Other Intangibles" of $615.6 million after-tax.

(5)

The 2001 results include a pre-tax gain on the sale of Michael Page of $305.7 million ($186.3 million after-tax); pre-tax restructuring, asset impairment and other charges of $137.3 million; and a pre-tax gain on the sale of marketable securities of $2.4 million. The 2001 results also include a net loss from discontinued operations of $7.2 million and the cumulative effect of a change in accounting principle to adopt SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" of $1.1 million after-tax.

(6)

The 2000 results include a pre-tax charge of $24.8 million to write-down an equity investment in which the decline in fair value was determined to be "other than temporary."

(7)

The 1999 results include the results of operations from the Norrell Corporation from the date of acquisition (July 2, 1999); $4.4 million of Year 2000 costs which represent the costs associated with remediating Norrell's application systems; and restructuring, asset impairment and other charges of $29.5 million.

(8)

At end of period.

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Item 7.    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 consolidated financial statements. It includes the following sections:

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Company Overview



•

Executive Summary



•

Operating Results



•

Liquidity and Capital Resources



•

Contractual Obligations and Commitments



•

Critical Accounting Policies



•

New Accounting Pronouncements



•

Inflation



•

Impact of the Euro



•

Seasonality and Cyclical Nature of Business



•

Forward-Looking Statements-Safe Harbor

Company Overview

        Spherion Corporation provides temporary staffing, managed service and permanent placement services. Founded in 1946, we are headquartered in Fort Lauderdale, Florida, and operate a network of over 800 locations with operations in North America, Europe and the Asia/Pacific region. Our locations are company-owned, licensed or franchised. As of December 26, 2003, we had 606 company-owned offices, 114 licensed locations and 91 franchised locations.

        During the fourth quarter of 2003, as a result of management structure changes, we reorganized the Company around two basic operating segments—Staffing Services and Professional Services. We believe this new operating structure will allow us to streamline our business and create synergies within existing operating units. The Staffing Services operating segment includes clerical and light industrial temporary staffing, managed services and permanent placement. The Professional Services operating segment includes temporary staffing and permanent placement of employees that specialize in information technology, finance and accounting, legal and administrative skill sets. See the Operations Overview section of Part I of this Annual Report on Form 10-K for a further description of our operating segments.

Executive Summary

        We operate in a large, fragmented market with positive long-term prospects. The staffing market is economically sensitive and declined during the past couple of years due to the weak economy. We face a challenging operating environment that requires a cost effective, competitive infrastructure and balanced revenue growth to achieve profitability. The staffing industry has experienced three years of weak markets, and in addition, faces the economic effect of increasing state unemployment and medical and worker's compensation costs (burden costs). The weaker markets have in part contributed to significant price competition and lower margins as major staffing competitors attempt to maintain or increase market share. This price competition along with the higher burden costs has led to pressure on gross profit margins. These market conditions are likely to continue as long as unemployment remains at its current

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level. However, we have taken important steps to address these issues and move towards growth and profitability. We have reorganized the Company into two operating segments with a simplified structure and are focusing on sales discipline and service quality. We are also beginning the rollout of our enterprise-wide information system, which is expected to create a more efficient operating model.

        We currently believe that many of the economic conditions impacting our business are improving. Signs of this improvement include:

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Industrial staffing revenue increased sequentially from the second to the third quarter of 2003 and the third to the fourth quarter of 2003, in addition to a fourth quarter year over year increase of 4.4%; industrial staffing growth has historically been a leading indicator of economic recovery;



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Clerical staffing revenue increased sequentially from the second to the third quarter of 2003 and the third to the fourth quarter of 2003, as well as for the fourth quarter 2003 compared to the fourth quarter of 2002;



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A sequential increase in domestic information technology staffing revenue from the third to the fourth quarter of 2003 for the first time in at least three years; and



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Higher levels of permanent placement revenue in 2003.

        As previously mentioned, during the fourth quarter of 2003, we made organizational management changes and changed our reporting segments in response to these changes. The new Staffing Services operating segment principally includes our North America staffing and managed service businesses. The key reasons behind the combination are:

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To create a single group that is focused on non-professional staffing and permanent placement. This group has established sales and account development programs to ensure balanced growth of local and national accounts;



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To deliver managed service offerings that focus on customer needs in the areas of recruiting and workforce management;



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To consolidate the delivery of managed services; and



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To reduce costs by combining management and administrative functions.

        The new Professional Services operating segment consists principally of the combination of our United States technology staffing and professional recruiting operations, along with our professional staffing operations in the United Kingdom, The Netherlands and Asia/Pacific. The key reasons behind the combination are:

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To create a single group that is focused on the professional resource needs of customers. This group has established sales and account development programs to leverage each other's customer relationships;



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To streamline into one operating model that is based on professional staffing and permanent placement. The domestic business operates under one regionalized management structure with teams in each of the branches that are specialized in our key skill sets, information technology, finance and accounting, legal and administrative; and



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To increase productivity by employing common best practices for sales and recruiting and by sharing infrastructure. The combined group will have larger scale operations concentrated in roughly 70 locations in major markets throughout the United States, after consolidating overlapping branch offices in several cities.

        During 2003, we began the implementation of our enterprise-wide information system with the implementation of new general ledger, fixed asset and accounts payable modules in July. At the end of the

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third quarter, we implemented the new payroll module for non-temporary staff and began the roll-out of the front office and payroll and billing modules for temporary staff. By the end of the fourth quarter, we had converted approximately 30 pilot locations to this front office and temporary payroll and billing system, and we had another 90 offices converted by the end of February 2004. We currently anticipate that all domestic locations will be converted to the new system early in the third quarter of 2004.

Operating Results

    Consolidated Operating Results

Fiscal 2003 compared with 2002

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Revenue in 2003 was $2,069.5 million, down 2.2% from 2002 due to weaker demand and customer losses early in 2003, however revenue trends improved during the second half of the year. We acquired 85% of a former franchise operation in Canada during April 2003; this contributed $50.2 million in revenues.



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Gross profit decreased to $479.3 million, down 9.1% from the prior year due primarily to change in skills-based business mix, pricing pressures, lower call center utilization and higher burden costs. Our overall gross profit rate decreased to 23.2% from 24.9% in the prior year.



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Selling, general and administrative expenses decreased $21.7 million, but not enough to offset decreases in gross profit. We continued to reduce costs and incurred restructuring charges of $5.2 million in 2003 versus $10.5 million in 2002. Most of the current year charge was to further consolidate operating units and to lower back office technology costs.



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During 2003, we began the implementation of our enterprise-wide system spending $45.8 million on this system. Our selling, general and administrative expenses were approximately $7.0 million higher than in 2002 due to non-capitalizable costs associated with implementing this system. We expect to complete the roll-out of this system to the remainder of our domestic offices early in the third quarter of 2004.



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We wrote off $983.1 million of intangible assets in 2002, including $691.6 million to adopt the new accounting standard on intangible assets at the beginning of 2002 and $291.5 million in the fourth quarter of 2002 as the markets we operate in continued to weaken.



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Our tax rate from continuing operations for 2003 was 33.4% versus 4.0% for 2002. The rate for 2002 was unusually low due to the write-off of a large amount of non-deductible intangible assets.



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During 2002, we adopted a plan to dispose of certain weaker performing subsidiaries and incurred operating losses and write-downs of $14.4 million. During 2003, these dispositions were completed and further operating losses of $2.9 million were incurred through the date of final disposition.



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Interest expense decreased in 2003 compared to 2002 as a result of the repurchase of a portion of our 4¹/2% convertible subordinated notes during 2002 and 2003.

Fiscal 2002 compared with 2001

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Revenue in 2002 was $2,116.1 million, down 20.7% from 2001 due to weaker demand in most of our product offerings and the sale of Michael Page at the beginning of the second quarter of 2001.



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Gross profit decreased to $527.3 million, down 30.7% from the prior year due primarily to significantly lower technology and staffing revenues and the sale of Michael Page. Our overall gross profit rate decreased to 24.9% from 28.5% in the prior year with about 70% of the decrease due to the businesses sold and the remainder due to pricing pressures and a lower percentage of permanent placement revenues as a percentage of total revenues.

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Selling, general and administrative expenses decreased $159.6 million, but not enough to offset decreases in gross profit. We incurred restructuring charges of $10.5 million in 2002 versus $137.3 million in 2001.



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We sold Michael Page for a pre-tax gain of $305.7 million in 2001.



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We discontinued the amortization of intangibles with indefinite lives in 2002 and wrote off $983.1 million pre-tax of intangible assets. Amortization expense for 2001 was $34.3 million versus $0.3 million for 2002.



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Our tax rate from continuing operations for 2002 was 4.0% versus 43.3% for 2001. The 2002 rate was unusually low due to the write-off of a large amount of non-deductible intangible assets. The 2001 rate was higher than the statutory rate of 35% due to higher state income tax expense and the tax impact of non-deductible goodwill.

Restructuring, Asset Impairments and Other Charges

        The following is a brief summary of current and prior period restructuring activities. This should be read in conjunction with Note 4, Restructuring, Asset Impairments and Other Charges, in the accompanying consolidated financial statements. A summary of the charges is as follows (in thousands):

2003 Activity

        During the second half of 2003, we identified certain cost reduction opportunities primarily related to the realignment of our operating segments and adopted a restructuring plan (the "2003 Plan") to eliminate redundancies and centralize business support functions by terminating 149 personnel and to reduce excess capacity with the closure of 13 offices, resulting in a restructuring charge of $5.8 million. This charge included $2.9 million relating to the Staffing Services operating segment, $2.2 million relating to the Professional Services operating segment and the remainder of the charge related to corporate initiatives directed at lowering back office technology costs. We expect to incur approximately $3.0 million in additional restructuring charges during the first quarter of 2004, as the enterprise-wide information system implementation and further integration of several business lines near completion. We believe this will be the last charge associated with this restructuring activity.

        As a result of the 2003 Plan, we expect to realize future annual benefits to our operating expenses of $7.6 million relating to salaries and related benefits and $0.4 million relating to property expenses beginning in the first quarter of 2004, with additional savings throughout 2004. Remaining property and severance payments under the 2003 Plan will be funded through operating cash flows in future periods.

        During 2003, as part of our on-going restructuring monitoring process, accruals of $0.6 million were identified that were unnecessary, primarily as the result of lower severance costs than initially anticipated, lower broker fees and lower fixed asset write-offs and these amounts were reversed to income.

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2002 Activity

        During 2002, no restructuring activities were undertaken, however, $7.4 million of restructuring charges from prior years were determined to be unnecessary, primarily as a result of the buyout or sublease of existing lease obligations at better than expected rates and the favorable resolution of severance payouts, and these amounts were reversed to income.

        During the second quarter of 2002, we recorded other charges (included in "restructuring, asset impairments and other charges" in the accompanying consolidated statements of operations) in the amount of $10.0 million for additional anticipated losses associated with the sublease of Norrell's former headquarters building due to the continued deterioration of the rental market in Atlanta, Georgia. During the fourth quarter of 2002, we recorded asset impairment and other charges in connection with the write-down of assets of approximately $4.3 million relating to our proprietary vendor management technology and services, and $3.5 million relating to obligations under an employment contract with a former executive.

2001 Activity

        Restructuring plans were adopted in 2001 to terminate redundant employees, reduce excess capacity and dispose of certain non-strategic assets (the "2001 Plan"). These actions included the elimination of 1,206 positions and the closure of 287 locations. Restructuring costs of $53.7 million in 2001 include employee severance costs of $22.5 million, facility closure costs and asset write-offs of $31.3 million, professional fees related to the execution of the 2001 Plan of $2.8 million and reversal of over accruals of $3.0 million. The write-down of assets of $42.7 million includes the write-down of businesses sold or held for sale of $37.1 million and the write-down of abandoned software of $5.6 million. The goodwill impairment of $33.7 million relates primarily to a write-down of goodwill associated with the impairment of the human resource consulting businesses. Other charges include the severance cost for our former chief executive officer in the amount of $6.9 million.

    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 central costs, amortization expense, interest expense, interest income, income taxes and special charges (restructuring, asset impairments and other charges, goodwill impairment, other gains and gain on sale of Michael Page). All material intercompany revenues and expenses have been eliminated. Under the guidance of SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," amounts related to discontinued operations have been eliminated from our segment information below.

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        Information on operating segments and a reconciliation to (loss) earnings from continuing operations before income taxes, discontinued operations and cumulative effect of changes in accounting principle for the periods indicated are as follows (in thousands):

(1)

Operating results from StratfordGroup, Tutor Recursos Humanos and JobOptions, which were sold during the fourth quarter of 2001, are included in the Professional Services operating segment through their dates of disposition. Operating results from Michael Page are included through its date of disposition in April 2001. Operating results for these businesses were not reclassified as discontinued operations as they were disposed of prior to our adoption of SFAS No. 144. See the notes to the accompanying consolidated financial statements for further discussion and financial information regarding these operating segments.

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    Segment Operating Results

Staffing Services

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

Fiscal 2003 Compared with 2002

        Revenues—Staffing Services revenues decreased 2.9% to $1,416.3 million in 2003 from $1,458.3 million in the prior year. Staffing Services revenues for 2003 include $50.2 million of revenues from our Canadian operations acquired on April 4, 2003. Excluding this acquisition, Staffing Services revenues would have been $1,366.1 million, a decrease from the prior year of 6.3%.

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By skill—Excluding Canada, clerical and light industrial revenues decreased 5.2% and 8.7%, respectively, from the prior year. The decrease in clerical revenues is primarily due to the loss of customer contracts, the largest of which was MCI Worldcom, and volume decreases, specifically managed service contracts including call center, help desk and data center. The decrease in light industrial revenues is due primarily to the loss of a large temporary staffing contract in January 2003. There were new customer wins and sequential growth in the second, third and fourth quarters of 2003, but these increases were not enough to offset the customer losses and other decreases from the prior year.



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By service—Temporary staffing increased, especially in the latter half of the year, as the temporary staffing industry started to recover from prior year levels and our customers began to increase their temporary work forces. Managed services decreased due to the loss of contracts and volume decreases mentioned above. Permanent placement grew as we added resources to focus on this area.

        Gross Profit—Gross profits decreased 12.3% to $272.4 million from $310.7 million in the prior year and the overall gross profit percentage was 19.2% in 2003 compared to 21.3% in the prior year. Excluding

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the Canadian acquisition, gross profits were $262.3 million, or a decrease of 15.6% from prior year and the overall gross profit percentage was 19.2%. The decrease in gross profits, excluding Canada, from prior year of 15.6% was due primarily to pricing pressures, a shift in the mix of business to lower margin temporary staffing services in addition to managed services revenue declines in domestic call centers, help desks and data centers which have a relatively consistent amount of fixed costs.

        Segment Operating Profit—Staffing Services segment operating profit was $22.5 million compared to $39.1 million in the prior year. Excluding the Canadian acquisition, the Staffing Services operating profit was $21.6 million or a decrease of 44.8% from the prior year. The decrease from prior year, excluding Canada, was due to the decrease in gross profit of $48.4 million as described above, partially offset by lower operating expenses of $30.9 million. Excluding Canada, operating expenses as a percentage of revenues were 17.6% compared to 18.6% in the prior year. The decrease in operating expenses is due to cost control activities including a reduction in employee costs to match lower revenues and the disposition of our proprietary vendor management technology and services in the fourth quarter of 2002.

        Outlook—In spite of sequential increases in temporary staffing revenue that began in the second quarter of 2003, the market remains highly competitive and is characterized by intense pricing pressures and competitive bidding. If the temporary staffing industry continues to recover, revenues may increase. Pricing pressures are likely to continue at least in the near term and state unemployment costs will increase in 2004. As such, gross profit margins may decrease further until unemployment levels are reduced and higher costs are passed on to customers. Therefore, we plan to focus our resources to grow our business with small and mid-sized customers where pricing pressures tend to be less severe. We remain uncertain about the outlook for managed services in 2004 as customers continue to use service offerings in countries overseas that enable reduced price levels. Additionally, current managed service contracts will continue to expire during 2004, and we are unsure as to whether or not we will be able to renew or replace them.

Fiscal 2002 Compared with 2001

        Revenues—Staffing Services revenues decreased 13.4% to $1,458.3 million in 2002 from $1,684.0 million in 2001 primarily due to decreases in demand in all of our major product offerings.

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By skill—Clerical and light industrial revenues decreased 8.9% and 21.4%, respectively, from the prior year as certain company owned branches and licensee branches were converted to franchisee contracts, some targeted customers were exited to reduce workers' compensation exposure and due to a net loss of business within the managed services businesses, including a 13.0% decrease with the segment's largest customer.



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By service—Temporary staffing revenues decreased due to lower demand and the conversion of company-owned branches and licensed operations to franchised operations as well as targeted exits from certain customers. Managed services decreased due to the net loss of business in call centers and administrative services as well as a decrease in human resource consulting services as fewer major outplacement projects were sold.

        Gross Profit—Staffing Services gross profits decreased 15.5% to $310.7 million from $367.6 million in the prior year and the overall gross profit percentage was 21.3% in 2002 compared to 21.8% in 2001. The decrease in overall gross profits is primarily due to the decrease in revenues discussed above. The decrease in the gross profit percentage is due to pricing pressures in the temporary staffing business and lower permanent placement revenues as a percentage of total revenues which was partially offset by higher gross profit as a result of contract termination fees in the call center business and a higher percentage of revenue from technology managed services.

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        Segment Operating Profit—Staffing Services segment operating profit decreased 30.5% to $39.1 million in 2002 from $56.3 million in 2001. The decrease from prior year was due to the decrease in gross profit of $56.9 million, as described above, partially offset by lower operating expenses of $39.7 million. Operating expenses as a percentage of revenues were relatively flat at 18.6% compared to 18.5% in the prior year as lower operating expenses within temporary staffing services were offset by higher operating expenses within human resource consulting services and increased expenses in managed services sales, marketing and product development to facilitate growth of the managed services business.

Professional Services

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

(1)

Excludes Michael Page.

Fiscal 2003 Compared with 2002

        Revenues—Professional Services revenues decreased 0.7% to $653.2 million in 2003 from $657.8 million in the prior year. During 2003, the Professional Services operating segment experienced increases in both temporary staffing and permanent placement services within the finance and accounting, legal and other and administrative skill sets. Finance and accounting demand increased significantly as the economy began to recover and was partially the result of mortgage refinancing activity and new financial compliance regulations in the United States. Legal and other increased due to organic growth within these service lines. These increases largely offset the decreases in information technology as demand for information technology related services continued to decrease in the United States and Australia. Revenues from foreign operations in the United Kingdom, The Netherlands and Australia were relatively flat with the prior year as revenue decreases in local currencies were largely offset by the weakening of the U.S. dollar which caused the local currency to convert to a higher number of U.S. dollars. This foreign exchange impact amounted to approximately $32 million.

        Gross Profit—Professional Services gross profits decreased 4.5% to $206.9 million from $216.6 million in the prior year and the overall gross profit percentage was 31.7% in 2003 compared with 32.9% in the

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prior year. This decrease is due to pricing pressures within domestic and foreign temporary staffing services, the two most significant impacts were in information technology and in our foreign operations. This decrease was partially offset by an increase due to a shift in the mix of business to permanent placement services and higher margin temporary staffing services within the United States, primarily within the finance and accounting skill sets.

        Segment Operating Profit (Loss)—Professional Services segment operating loss was $(2.1) million compared to $(0.3) million in the prior year. The increased loss from prior year was due to the decrease in gross profit of $9.7 million as described above, partially offset by lower operating expenses of $7.9 million. Operating expenses as a percentage of revenues were 32.0% compared to 33.0% in the prior year. The decrease in operating expenses is due primarily to lower technology related operating expenses as we continue to reduce these expenses in line with lower revenues. Operating losses from foreign operations amounted to $(10.2) million in 2003.

        Outlook—In spite of increases during the second half of 2003 in temporary staffing revenues, particularly within the finance and accounting skills, the market remains highly competitive for technology skills and demand is still weak in the marketplace. We believe that pricing pressures will continue at least in the near term for technology skills but expect finance and accounting demand to remain strong as the economy continues to recover. We plan to focus our resources to grow our business with small and mid-sized customers where pricing pressures tend to be less severe. Margins will be impacted by higher state unemployment costs in 2004 until these costs are fully passed on to our customers.

Fiscal 2002 Compared with 2001

        Revenues—Professional Services revenues decreased 18.1% to $657.8 million in 2002 from to $803.4 million in the prior year. Information technology revenue decreased $101.4 million due to a sharp decrease in demand in the United States. Administrative revenues decreased primarily due to the sale of the Company's operations in Spain at the end of 2001. Other revenues decreased due to lower demand for engineering skills and the sale of the Company's retained search firm during 2001 (StratfordGroup), which was partially offset by organic revenue growth in the legal and other area.

        Gross Profit—Professional Services gross profits decreased 24.3% to $216.6 million from $286.0 million in the prior year and the overall gross profit percentage was 32.9% in 2002 compared with 35.6% in the prior year. This decrease is primarily due to lower spreads between bill and pay rates within the domestic technology skills, partially offset by improved consultant utilization. Also contributing to the decrease in the gross profit rate was the sale of the retained search business (StratfordGroup) during 2001 and lower revenues from the permanent placement businesses in the United States and in Europe (permanent placement revenues have 100% gross profit as commissions are shown as an operating expense).

        Segment Operating Profit (Loss)—Professional Services segment operating loss was $(0.3) million in 2002 compared to an operating profit of $20.3 million in 2001. The decrease from prior year was due to the decrease in gross profit of $69.4 million as described above, partially offset by lower operating expenses of $48.8 million. Operating expenses as a percentage of revenues were relatively flat at 33.0% compared to 33.1% in the prior year. The largest decline in this segment's operating profit was largely due to the decrease in demand for information technology services in 2002 as compared to 2001, in addition to the economic slow-down which decreased demand in our international operations.

    Unallocated central costs

        2003 compared with 2002—Unallocated central costs increased 16.0% to $30.8 million in 2003 compared to $26.6 million in 2002. Unallocated central costs increased in 2003 primarily due to higher non-capitalizable costs of approximately $7.0 million related to the implementation of our enterprise-wide information system which was partially offset by other decreases in general corporate overhead of

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approximately $3.0 million. As a percentage of consolidated revenues, these costs were 1.5% during 2003 compared to 1.3% in 2002.

        2002 compared with 2001—Unallocated central costs remained constant at $26.6 million when compared to the prior year. Unallocated central costs in 2002 included approximately $2.0 million in costs relating to the identification and selection of our enterprise-wide information system, while 2001 unallocated central costs included charges recorded for a $2.5 million bad debt provision related to a loan made to a company in which we previously had an investment, and higher professional fees associated with our 2001 business strategy. As a percentage of consolidated revenues, these costs were 1.3% during 2002 compared to 1.1% in 2001 (excluding Michael Page which did not significantly impact central cost levels in 2001).

Liquidity And Capital Resources

        Historically, we have financed our operations through cash generated by operating activities and bank lines of credit. Our principal uses of cash are capital expenditures, working capital needs and repayment of debt. The nature of our business requires payment of wages to our temporary employees and consultants on a weekly or bi-weekly basis, while payments from customers are generally received 30-60 days after billing.

Cash Flow

        As of December 26, 2003, we had total cash resources available of $21.2 million of which $10.5 million was held in the United States and the remainder by foreign subsidiaries. This was a decrease of $44.2 million from December 27, 2002, and is due primarily to the use of cash for capital expenditures, the acquisition of our Canadian operations and working capital needs. Total operating cash flow in 2003 of $50 million included tax refunds of approximately $81 million.

        Cash flows from operating, investing and financing activities, as reflected in the accompanying consolidated statements of cash flows, are summarized as follows:

        Cash provided by operating activities in 2003 was higher than 2002 and 2001 primarily due to cash provided by working capital. Cash provided or (used) by changes in working capital was $31.3 million for 2003, $(26.1) million for 2002 and $(34.9) million for 2001.

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Working capital for 2003 was provided primarily through federal tax refunds of $80.9 million, partially offset by a use of cash of $38.7 million to finance accounts receivable as days sales outstanding ("DSO") increased to 56 days from 50 days in the prior year. We are actively addressing DSO but may not attain our goal to reach 2002 levels of about 49 days due to large customers extending their payment terms and our current system implementation.



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Working capital for 2002 was primarily used for prepaid taxes, accounts payable, accrued liabilities and other liabilities, which was partially offset by cash provided by accounts receivable (due to decreased revenues from the prior year and days sales outstanding improvement of five days) and

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accrued income taxes. Restructuring activities used $15.6 million as we neared the completion of prior year restructuring activities. Other operating cash flows were provided by depreciation and deferred taxes.

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Working capital for 2001 was primarily used for restructuring activities and accounts payable, accrued and other liabilities. Working capital for 2001 was positively impacted by the collection of outstanding accounts receivable (due to decreased revenues from the prior year and days sales outstanding improvement).

        Cash used in investing activities in 2003 is primarily related to capital expenditures of $60.5 million. Current year capital expenditures included the investment in our enterprise-wide information system, which amounted to $38.6 million ($45.8 million including notes payable for capital purchases) for the fiscal year ended 2003. We paid $10.7 million (excluding the assumption of debt) to acquire 85% of our Canadian franchise during the second quarter of 2003. Cash used in investing activities in 2002 was primarily to fund $85.9 million of insurance deposits to collateralize workers' compensation obligations. Capital expenditures for 2002 included $9.3 million ($15.0 million including notes payable for capital purchases) relating to our enterprise-wide information system. In 2001, the sale of Michael Page generated gross cash proceeds before tax payments and debt pay down of $852.7 million. In addition, in 2001 we had acquisition expenditures of $34.1 million (contingent payments for acquisitions consummated in prior years and the repurchases of licensee and franchise operations) and had $34.9 million of capital expenditures. Capital expenditures (including $5.2 million relating to Michael Page) for 2001 include the normal replacement of hardware and software as well as office furnishings and leasehold improvements.

        We expect additional capital spending for our enterprise-wide information system investment to be approximately $2 million to $3 million for the twelve months ended December 31, 2004. We expect our total 2004 capital expenditures of $18 million to $20 million to be funded through operating cash flow or through borrowings under our existing credit facility.

        Cash used in financing activities was substantially lower in 2003 than in 2002 and 2001 primarily due to lower debt repayments than in prior years. Debt repayments during 2003 relate to the repurchase of a portion of our 4¹/2% convertible subordinated notes, the repayment of a portion of the debt assumed in conjunction with the Canadian acquisition and repayment of a portion of the short-term notes payable for software and related costs. The use of cash during 2002 primarily reflects the repurchase of some of our 4¹/2% convertible subordinated notes and the repayment of short-term borrowings associated with prior years acquisitions. Cash used by financing activities for 2001 primarily reflects the repayment of debt with proceeds from the sale of Michael Page and share repurchases of $38.0 million. During 2001, we purchased approximately 4.0 million shares of our common stock at an average price of $9.42 per share.

Financing

        We believe that a combination of our existing cash balances, other liquid assets, operating cash flows, and existing bank lines of credit, taken together, provide adequate resources to fund ongoing operating requirements and required or planned capital expenditures in 2004. During 2003, we elected to no longer have our debt rated by Standard and Poor's and plan to do the same with Moody's Financial Services during the first half of 2004. We intend to refinance our $89.7 million 4¹/2% convertible subordinated notes as they come due.

        In July 2003, we cancelled our 364-day U.S. dollar loan facility and entered into a four-year U.S. dollar loan facility (also secured by substantially all of our domestic accounts receivable). The new loan facility provides us $200 million of on-balance sheet financing through July of 2007, with an option (expiring in July 2006) to increase the facility to a maximum of $250 million. Interest on this facility is based on LIBOR plus a credit spread. Our credit facility provides for certain affirmative and negative covenants which may limit the total availability under this facility 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,

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additional debt incurred, mergers, consolidations or sales and transactions with international subsidiaries. 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. As of December 26, 2003, there were no amounts outstanding under this facility and total availability under this facility was approximately $150 million.

        In May 1998, we issued $207.0 million of 4¹/2% Convertible Subordinated Notes ("Notes") due June 1, 2005. During 2002, our Board of Directors authorized us to repurchase from time to time any of our outstanding Notes in such amounts and on such terms as deemed advisable by management if approached by a bondholder. During 2003, we repurchased an aggregate face value of $7.0 million of the Notes for a purchase price of $6.6 million. During 2002, we repurchased an aggregate face value of $110.3 million of the Notes for a purchase price of $98.7 million. We recorded a gain, net of bond issuance cost write-offs, of $0.3 million and $10.5 million, for the fiscal years ending December 26, 2003 and December 27, 2002, respectively, which is included in "Other gains" in the accompanying consolidated statements of operations. Repurchases during 2003 and 2002 are not necessarily indicative of the future. Additional repurchases, if any, will depend on factors such as the prevailing market price of the Notes, overall market conditions and alternative uses of our liquidity.

Contractual Obligations and Commitments (in thousands)

(1)

Purchase obligations include normal and customary technology maintenance contracts, as well as minimum spend contracts with certain telecom vendors.

(2)

Other liabilities include deferred purchase price payments in connection with prior years' acquisition agreements and contractual obligations for severance liabilities.

(3)

Operating lease obligations will be offset by future sublease income of $2.6 million, $2.0 million, $1.9 million and $1.9 million in 2004, 2005, 2006 and 2007, respectively.

        In connection with the acquisition of our Canadian franchise we entered into a new put/call agreement with the minority interest holder that can be exercised by either party any time after December 31, 2005, which would require/allow us to purchase the remaining 15% interest in this operation. If the put or the call were exercised, the purchase price would be primarily determined based upon the net assets and gross profits from this operation in future periods. Based upon these factors, the purchase price using 2003 operating results and net assets as of the end of the year would approximate $2.5 million. As this amount is not truly determinable or certain to be paid at this point in time, it is not included in the table above.

        Spherion does not have or engage in any off-balance sheet arrangements.

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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 and 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. The following policies are those that we consider to be the most critical. See Note 1, Summary of Significant Accounting Policies, for further description of these and all other accounting policies.

        Allowance for Doubtful Accounts—Management analyzes aged receivables and the related allowance for doubtful accounts on a monthly basis. Based upon our historical experience, receivables reaching certain aged brackets, or when deemed by management to be uncollectible, are reserved for and/or consequently written-off. Historically, losses from uncollectible accounts have not exceeded our allowance. Due to the judgment used in making these assumptions, the ultimate amount of accounts receivable that become uncollectible could differ from our original estimate due to a worsening financial position in the economy or with our customers and could result in charges or credits to amounts recorded in selling, general and administrative expenses.

        Intangible Assets—Effective at the beginning of 2002, Spherion adopted Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 provides that goodwill and other intangible assets with indefinite lives should not be amortized, but will be tested for impairment on an annual basis. As a result of the initial adoption of SFAS No. 142, we recorded a pre-tax charge to earnings of $691.6 million ($615.6 million after-tax) as of January 1, 2002. Additionally, we performed our annual impairment test as of November 22, 2002, and recorded an additional impairment charge of $291.5 million. These charges were determined based primarily on management's estimated fair value of each reporting unit using both the discounted present value of anticipated future cash flows and the comparable market prices of competitors. Management considered a number of factors, including valuations or appraisals, when determining these fair values. We performed our annual impairment test as of November 2003, which did not result in an indication of impairment. Due to the judgment inherent in estimating future cash flows, there could be further charges to operations for up to the full value of our goodwill balance, which is currently $50.0 million, if the markets in which we operate decline or if the market values of competitors decrease.

        Accrued Self-Insurance Losses—We retain a portion of the risk under our workers' compensation, general liability/professional liability, employment practices liability insurance programs and health insurance benefits programs. Estimated losses for workers' compensation, general liability/professional liability and employment practices have been discounted at 4.5% and 5.0% at December 26, 2003 and December 27, 2002, respectively, and are based on actuarial estimates. Changes in legislation, the cost of health care services, claims processing costs, or increased litigation could all affect the adequacy of these estimated liabilities. Prolonged changes in interest rates for long-term bonds could also affect the discount rate used in estimating these liabilities. A decrease of 1% in the discount rate would result in an additional pre-tax expense of approximately $1.7 million. Management reviews these assumptions and related reserves and changes in the estimates of these accruals are charged or credited to operations in the period determined. Due to the judgment used in recording these reserves, the ultimate amount of reserves that are needed could differ from our original estimate and could result in charges or credits to amounts recorded in cost of services and/or selling, general and administrative expenses.

        Stock-based Compensation—We account for stock-based compensation to employees using the intrinsic value method as prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. Accordingly, compensation cost for stock options issued to employees is measured as the excess, if any, of the quoted market price of our stock at the date of grant over the amount an employee must pay for the stock.

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        No stock-based employee compensation cost relating to stock options is reflected in net (loss) earnings, as all options granted under this plan had exercise prices equal to the market value of the underlying common stock on the date of grant. If we had applied the fair value recognition provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," to stock-based employee compensation, our net loss for the year ended December 26, 2003, would have been $(17.0) million or $(0.28) per diluted share. The fair value of options at grant date was estimated using the Black-Scholes multiple option model. Changes in any of the assumptions used in this model for 2003 (expected life of 3.2 years, a weighted-average risk free interest rate of 2.27%, volatility of 59.00% and no expected dividends), would change the weighted average per share fair value of $4.11. If our stock continues to experience a high degree of price volatility or if employees begin to exercise more options (which may indicate a longer option life), the fair value of our options would increase. The assumptions we used are based upon our historical experience, however future results could differ from these assumptions. Currently there would not be any effect on our operations due to changes in these assumptions, however if we choose to adopt the provisions of SFAS No. 123, changes in these assumptions could impact our operating results.

        Income Taxes—At December 26, 2003, we have a net deferred tax asset of $165.0 million. This deferred tax asset was evaluated under the guidelines of SFAS No. 109, "Accounting for Income Taxes," and a determination on the basis of objective factors was made that the asset will be realized through future years taxable earnings. If we determine that future taxable earnings will be insufficient to recover the deferred tax assets, we will be required to write-off all or a portion of the deferred tax asset by a charge to earnings.

New Accounting Pronouncements

        See Note 1, Summary of Significant Accounting Policies in the accompanying consolidated financial statements for discussion of New Accounting Pronouncements.

Inflation

        The effects of inflation on our operations were not significant during the periods presented in the accompanying consolidated financial statements.

Impact of the Euro

        The Euro became the legal tender for our operations in The Netherlands effective January 1, 2002. The costs of addressing the Euro conversion were not material. The overall Euro conversion did not have a material impact on our financial condition or results of operations.

Seasonality And Cyclical Nature Of Business

        Seasonality—Our businesses are seasonal in nature with customer related demand generally at its highest point during the third and fourth quarters and lowest during the first quarter. The third and fourth quarters are normally higher as our customers increase their temporary workforces for the holiday season. We typically experience a decrease of approximately 5 - 10% in our first quarter revenues in comparison with fourth quarter revenues. The decrease in first quarter revenue for 2003, 2002 and 2001 was 8%, 9% and 6%, respectively in comparison with the preceding fourth quarters.

        Cyclical Nature of the Business—The staffing industry has historically been considered to be cyclical, often acting as an indicator of both economic downswings and upswings. Staffing customers tend to use temporary staffing to supplement their existing workforces and generally hire permanent workers when long term demand is expected to increase. As a consequence of this, our revenues tend to increase quickly when the economy begins to grow. Conversely, our revenues also tend to decrease quickly when the economy begins to contract as our customers reduce temporary workers before terminating their own

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employees. While we have a number of longer-term managed service contracts which are not as directly dependent upon the economic cycle, these revenues are not significant enough to offset the impact of cyclical economic activity in our larger service offerings.

Forward Looking Statements—Safe Harbor

        In evaluating our business, you should carefully consider the following factors in addition to the information contained elsewhere in this Annual Report on Form 10-K or incorporated by reference herein. This Annual Report on Form 10-K includes "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 this Forward Looking Statements—Safe Harbor section. If any of the following 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 cautionary statements set forth below.

        We operate in highly competitive markets with low barriers to entry, and may be unable to compete successfully against existing or new competitors.

        We operate in highly competitive and fragmented markets in both of our operating segments. There are low barriers to entry by potential competitors at the local level. We face significant competition in the markets we serve and will continue to face significant competition in any geographic markets or industry sectors that we may enter. The majority of competitors are significantly smaller than us. However, certain of our competitors are larger, have greater marketing, technical and financial resources, and have stronger brand and name recognition than us. As a result, some of our competitors may be in a better position to capitalize on new technologies and changes in customer requirements, and to devote more resources than we can to the development, promotion and sale of their service offerings.

        There has been a significant increase in the number of customers consolidating their staffing services purchases with a single provider or with a small number of providers. The trend to consolidate purchases has in some cases made it more difficult for us to obtain or retain customers. We also face the risk that certain of our current and prospective customers may decide to provide similar services internally. Additionally, pricing pressures have intensified as customers have continued to competitively bid new contracts. This trend is expected to continue for the foreseeable future. As a result, we cannot assure you that we will not encounter increased competition in the future.

        Any significant economic downturn could result in our customers using fewer temporary employees or the loss or bankruptcy of a significant customer.

        Because demand for personnel services and recruitment services is sensitive to changes in the level of economic activity, our business may suffer during economic downturns. As economic activity slows down, companies tend to reduce their use of temporary employees and recruitment services before undertaking layoffs of their regular employees, resulting in decreased demand for our personnel. Also, as businesses reduce their hiring of permanent employees, revenue from our recruitment services is adversely affected. As a result, any significant economic downturn could have a material adverse effect on our business, financial condition or results of operations. During 2002 and 2001 the slowdown in the U.S. economy significantly impacted the staffing market, which in turn reduced our revenues significantly.

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        A loss or a bankruptcy of a significant customer or a number of customers from one of our operating segments, or reduced business from such customers, could have a significant adverse impact on our business and results of operations in future periods. We cannot guarantee that we will be able to retain long-term relationships or secure renewals of short-term relationships with our more substantial customers in the future.

        We are dependent upon availability of qualified personnel, and may not be able to attract and retain sufficient numbers of qualified personnel necessary to succeed.

        We depend upon our ability to attract qualified personnel who possess the skills and experience necessary to meet the staffing requirements of our customers or to successfully bid for new customer projects. We must continually evaluate and upgrade our base of available qualified personnel to keep pace with changing customer needs and emerging technologies. Competition for individuals with proven professional or technical skills always exists. We could have difficulty attracting and retaining sufficient numbers of qualified personnel necessary for our business to succeed.

        We may not achieve the intended effects of our business strategy.

        Our business strategy is primarily based on profitable growth in our North American operations and we plan to grow at rates equal to or in excess of our major competitors. We are implementing steps to improve the number and type of services that we sell to our existing and new customers and have reorganized our reporting segments into two segments that are focused on the type of employee skills that the customer requires. By combining like skill sets within each segment and emphasizing the depth and penetration of our marketing efforts within each segment, we plan to grow more rapidly. We also expect to reduce our operating costs further as we combine management teams and offices. Although these actions are designed to improve our marketing efforts and increase revenues and profits, there is no assurance that we will be successful. We may not be successful in reducing our operating costs by combining management teams and reducing the number of offices or in generating sufficient productivity improvements to offset intense pricing pressures.

        Our investment in technology initiatives may not yield their intended results.

        We are investing approximately $60 to $65 million over two to three years in a new enterprise-wide information system. This initiative is designed to replace many of our existing systems, including disparate legacy systems from various acquisitions, so that many of our administrative functions and operations can be combined and communicate in a state of the art, enterprise-wide integrated system. Although these technology initiatives are intended to increase productivity and operating efficiencies while lowering costs, we cannot assure you that these initiatives will yield their intended results. Delays in completing or an inability to successfully complete these technology initiatives could adversely affect our operations, liquidity and financial condition.

        Regulatory challenges to our tax filing positions could result in additional taxes.

        In 2002, we engaged in transactions that generally had the effect of accelerating certain future projected tax deductions and losses, resulting in an increase in the amount of net operating losses and capital losses available for carry back into prior tax years. As a result of these transactions, our tax refund for the 2002 filing year was increased by approximately $60 million. We believe that we have appropriately reported these transactions in our tax returns, and that we have established adequate reserves with respect to any tax liabilities that may arise in relation to these transactions should our position be challenged by the Internal Revenue Service. However, an unfavorable settlement or adverse resolution of a challenge by the Internal Revenue Service could result in the repayment of some or all of the refund received.

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        Failure to meet certain covenant requirements under our credit facility could impact part or all of our availability to borrow under this facility.

        Our credit facility provides for certain affirmative and negative covenants which may limit the total availability under this facility 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 international subsidiaries. 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.

        We may be exposed to employment-related claims and costs that could have a material adverse affect on our business, financial condition and results of operations.

        We employ and place people in the workplaces of other businesses. Attendant risks of such activity that could increase our cost of doing business include:

•

possible claims of discrimination and harassment;



•

errors and omissions by the personnel we place, particularly for the acts of temporary professionals (e.g., accountants, attorneys and information technology consultants);



•

misuse or misappropriation of customer funds or proprietary information; and



•

payment of workers' compensation and other similar claims.

        Although we maintain insurance coverage for general liability, errors and omissions and employee theft, such insurance coverage may not be adequate in scope or amount to cover any such liability. A failure of any of our personnel to observe our policies and guidelines intended to reduce exposure to these risks could have a material adverse effect upon us. We cannot assure that we will not experience such problems in the future.

        We retain a portion of the risk under our workers' compensation, general liability/professional liability, employment practices liability insurance programs and health insurance benefits programs. Changes in the estimates of these accruals are charged or credited to earnings in the period determined, and therefore a large fluctuation in any given quarter could materially adversely affect earnings in that period.

        Government regulation may significantly increase our costs.

        In conducting our business, we are required to pay a number of payroll and related costs and expenses, including unemployment taxes, workers' compensation and medical insurance for our personnel. Unemployment insurance premiums paid by employers typically increase during periods of increased levels of unemployment. Workers' compensation costs have increased over the past decade and may increase in the future as states have raised benefit levels and liberalized allowable claims. Future earnings could be adversely affected if we are not able to increase the fees charged to customers to absorb the increased costs related to unemployment insurance or workers' compensation benefits. Future earnings could also be adversely affected if state governments successfully challenge prior year unemployment experience ratings. We are also required to comply with regulations concerning the maintenance of employee health care data. Costs related to maintaining this data could increase.

        We are subject to business risks associated with international operations, which could make our international operations significantly more costly.

        Operations in certain of our markets are subject to risks inherent in international business activities, including,

•

fluctuations in currency exchange rates;

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•

complicated work permit requirements;



•

varying economic and political conditions;



•

overlapping or differing tax structures; and



•

multiple regulations concerning pay rates, benefits, vacation, union membership, redundancy payments and the termination of employment.

        Our failure or inability to perform under customer contracts could result in damage to our reputation and give rise to legal claims against us.

        Certain areas of our business require us to assume a greater level of responsibility for developing or maintaining processes on behalf of our customers. Many of these processes are critical to the operation of our customers' businesses. Our failure or inability to complete these engagements satisfactorily could have a material adverse effect on our customers' operations and consequently may give rise to claims against us for actual or consequential damages or otherwise damage our reputation. Any of these claims could have a material adverse effect on our business, financial condition or results of operations.

        We are a defendant in a variety of litigation and other actions from time to time, which may have a material adverse effect on our business, financial condition and results of operations.

        We and our subsidiaries are regularly involved in a variety of litigation arising out of our business. Occasionally, this litigation can be serious. We cannot assure you that our insurance will cover all claims that may be asserted against us. Should the ultimate judgments or settlements exceed our insurance coverage, they could have a material effect on our results of operations, financial position and cash flows. We also cannot assure you that we will be able to obtain appropriate types or levels of insurance in the future or that adequate replacement policies will be available on acceptable terms, if at all. See Part I, Item 3, Legal Proceedings for more information.

        Our contracts contain termination provisions and pricing risks that could decrease our revenues, profitability and cash flow.

        Some of our customer contracts permit termination in the event our performance is not consistent with service levels specified in those contracts. Our customers' ability to terminate contracts creates uncertain revenue streams. In addition, if customers are not satisfied with our level of performance, our reputation in the industry may suffer, which could materially and adversely affect our business, financial condition, results of operations and cash flow. Some of our contracts contain pricing provisions that allow customers to pay a set fee for our services regardless of whether our costs to perform these services exceed the amount of the set fee. Many of our contracts provide for credits to our customers if we fail to achieve specific contract standards. Some of our contracts contain re-pricing provisions that can result in reductions of our fees for performing our services. In these situations, we could incur significant unforeseen costs or financial penalties in performance under the contracts.

        The termination of a customer contract or the deterioration of the financial condition or prospects of a customer may result in an impairment of the net book value of the assets we use in connection with that contract.

        Managing or integrating any future acquisitions may strain our resources.

        In the future, we may acquire other businesses to expand our service offerings, broaden our customer base or expand our geographic presence. Acquisitions involve a number of additional risks, including the diversion of management's attention from our existing operations, the failure to retain key personnel or customers of an acquired business, the assumption of unknown liabilities of the acquired business for which there are inadequate reserves, the potential impairment of acquired intangible assets and the ability to successfully integrate the business. We could experience financial or other setbacks if any of the businesses that we acquire have liabilities or problems of which we are not aware. Further, we cannot assure you that any future acquired businesses will generate anticipated revenues or earnings. As a result, the anticipated benefits from future acquisitions may not be achieved.

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Item 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        As of December 26, 2003, the majority of our cash and cash equivalents were invested in investment grade money market funds. These financial instruments are not considered to be subject to interest rate risk due to their short duration.

        We are exposed to interest rate risk related to a portion of our debt. Our outstanding variable-rate debt at both December 26, 2003 and December 27, 2002 was $8.0 million. Based on the outstanding balance, a change of 1% in the interest rate would have caused a change in interest expense of approximately $0.1 million in both 2003 and 2002, on an annual basis.

        From time to time, we participate in foreign exchange hedging activities to mitigate the impact of changes in foreign currency exchange rates. We attempt to hedge transaction exposures through natural offsets. To the extent this is not practicable, exposure areas which are considered for hedging include foreign currency denominated receivables and payables, intercompany loans and firm committed transactions and dividends related to foreign subsidiaries. We use financial instruments, principally forward exchange contracts, in our management of foreign currency exposures. We do not enter into forward contracts for trading purposes. In estimating the fair value of derivative positions, we utilize quoted market prices, if available, or quotes obtained from outside sources. As of December 26, 2003, we had one outstanding forward contract to sell 5.0 million Canadian dollars. The fair value or cost to unwind is not material to our consolidated results of operations. As of December 27, 2002, we had no outstanding forward contracts.

        When foreign currency financial instruments are outstanding, exposure to market risk on these instruments results from fluctuations in currency rates during the periods in which the contracts are outstanding. The counterparties to our currency exchange contracts consist of a diversified group of major financial institutions, each of which is rated investment grade. We are exposed to credit risk to the extent of potential nonperformance by counterparties on financial instruments. Any potential credit exposure does not exceed the fair value. We believe the risk of incurring losses due to credit risk is remote.

        The carrying amount of cash and cash equivalents, trade receivables and other current assets approximates fair value due to the short-term maturities of these instruments. Our insurance deposits earn a fixed interest rate as determined at the time of funding and are carried at fair value or $95.1 million and $88.7 million as of December 26, 2003 and December 27, 2002, respectively. Company-owned life insurance policies are carried at fair market value which approximated $17.1 million and $15.9 million as of December 26, 2003 and December 27, 2002, respectively.

        The fair value of our fixed-rate convertible subordinated notes as of December 26, 2003 and December 27, 2002 was $88.8 million and $87.2 million, respectively, with a $89.7 million and $96.7 million carrying value at December 26, 2003 and December 27, 2002, respectively. The fair value of our fixed-rate debt is estimated based on quoted market prices for the same issue. The fair values of all other financial instruments, including debt other than the Notes, approximate their book values as the instruments are short-term in nature or contain market rates of interest.

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Item 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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INDEPENDENT AUDITORS' REPORT

To the Board of Directors
    of Spherion Corporation
Fort Lauderdale, Florida

We have audited the accompanying consolidated balance sheets of Spherion Corporation and subsidiaries ("Spherion") as of December 26, 2003 and December 27, 2002, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 26, 2003. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of Spherion's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Spherion Corporation and subsidiaries as of December 26, 2003 and December 27, 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 26, 2003, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Note 1 to the consolidated financial statements, in 2001 Spherion changed its method of accounting for derivative instruments to conform to Statement of Financial Accounting Standards No. 133.

As discussed in Notes 1 and 2 to the consolidated financial statements, in 2002 Spherion changed its method of accounting for goodwill and other intangible assets to conform to Statement of Financial Accounting Standards No. 142.

DELOITTE & TOUCHE LLP
Certified Public Accountants

Fort Lauderdale, Florida
March 10, 2004

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SPHERION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share amounts)