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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 31, 2004

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 25, 2004 on the New York Stock Exchange, was $623,559,497.

        Number of shares of Registrant's Common Stock outstanding on February 27, 2005 was 61,189,323.

        Documents Incorporated by Reference:

        Certain specified portions of the registrant's definitive proxy statement to be filed within 120 days after December 31, 2004, are incorporated herein by reference in response to Part III, Items 11, 13 and 14, inclusive, and to certain portions of Part III, Items 10 and 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 within North America. Temporary staffing services include personnel in the following skill categories: clerical, light industrial, information technology, finance and accounting, engineering and administrative. Managed services include services where we assume the operation and management of a customer function such as the 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 700 locations. Spherion Corporation is incorporated under the laws of the State of Delaware.

        During 2004, we announced our intention to sell our operations in the United Kingdom, The Netherlands and in the Asia/Pacific region, as well as our court reporting operation and call center outsourcing business in the United States. This decision was due to recent changes in client demand and is consistent with our strategy to focus on the North American staffing and recruiting markets. The international operations, as well as the court reporting business, were all sold prior to December 31, 2004. The call center outsourcing business may be sold during the first half of 2005. 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 31, 2004, have been reclassified as discontinued operations in the accompanying consolidated financial statements.

        During 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. 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.

Industry Overview

        Spherion Corporation is a diversified staffing company operating in North America. The North American staffing market was estimated to be between $62 billion (per Deutsche Bank Securities, Inc.) and $87 billion (per Staffing Industry Analyst, Inc.) in 2003. This market includes temporary staffing, permanent placement and other services similar to those provided by Spherion. The North American staffing market in 2004 is estimated to have grown by approximately 7% to 12% and at a faster rate for high demand skill sets such as finance and accounting due to increased regulatory and reporting requirements.

        Up to 50% of the staffing industry is estimated to be concentrated in professional skills, including information technology, finance and accounting, legal, administrative and other skills that are consistent with those offered within Spherion'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 those offered in Spherion's Staffing Services operating segment.

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        Business conditions in the staffing industry are economically sensitive. In 2001 and 2002, the industry experienced a decline in revenues, but economic conditions began to change through 2003. In 2004, Spherion and many of its peers benefited from the growth in revenues. Companies have continued to experience success in the usage of temporary help, which has facilitated rapid workforce adjustments as economic conditions improve. This practice has increased the demand for temporary help in North America, which as of September 2004 was 1.9% of the total workforce, an increase from 1.0% in the early 1990's. Demographics of the labor force continue to indicate that the overall labor pool may shrink over the next 10 years, creating a shortage of qualified job candidates, especially for certain professional workers. This shortage increases the need for companies to continue to use the services of Spherion and other companies within the staffing industry. The 10-year average growth rate for the North American staffing industry is estimated at 7.6% (per Deutsche Bank Securities, Inc.).

Operations Overview

        The Company is organized around two basic operating segments—Staffing Services and Professional Services. 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 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, engineering and administrative skill sets. We are responsible for all employment related taxes of these temporary employees, workers' compensation and federal and state unemployment (burden costs). Services are generally billed by the hour for the number of hours worked. Bill rates are often determined as a mark-up over pay or a mark-up over pay plus burden.



•

Managed services—This is a service where we take responsibility for the operation and management of a customer function such as the 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.



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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, our billing is generally a percentage of first year compensation for the candidate placed. Billing is contingent upon filling the assigned position.

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The following table represents the 2004 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, engineering and administrative. See Note 15, 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 2004, 2003 and 2002.

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 2004, 87.9% of revenues were derived from company-owned locations, with the remaining derived from franchised and licensed locations.

        The following table details the number of locations:

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 31, 2004, we operated 531 company-owned branch and customer on-premise locations. Future new or closed locations are driven by sales success creating the need for new company-owned branches and customer on-premise locations.

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Licensed Locations

(1)

Licensee data for 2003 and 2002 have been adjusted from prior years to exclude discontinued operations.

        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 in the Staffing Services operating segment.

        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 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, but 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 its location and paying its 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 68% of the licensed offices' gross profit for the year ended December 31, 2004. 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. The only exception to this financial statement presentation is the circumstance when we are required to consolidate certain licensees. See Note 8, Variable Interest Entities, in the accompanying consolidated financial statements for further discussion of these licensees.

        From time to time, we may 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 $0.2 million as of December 31, 2004.

        The number of licensees has decreased since 2002 as we have terminated license agreements (usually by converting the licensee to a franchisee) primarily to reduce our exposure to workers' compensation

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losses. We may continue to identify licensees whose operating practices are not aligned with our operating strategy and either convert these operations to company-owned or franchised locations or terminate the license agreement.

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 revenues.

        From time to time, we may 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 31, 2004.

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.

        In 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 put/call agreement with the minority interest holder, whereby the minority interest holder can put the remaining 15% interest in the Canadian operations back to us any time after December 31, 2005, or, as amended, we can call the remaining 15% interest any time after December 31, 2006. In 2002, we acquired one small recruitment business and a few of our licensed and franchised operations, aggregating $3.7 million.

        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 franchised or licensed locations.

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.

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        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. 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 as one of the key selection criteria in obtaining the contract. This has led to intense price competition within the staffing and recruitment industry 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, we have implemented an enterprise-wide information system to reduce our back office processing costs and increase our 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 700 locations in North America and believe that our coverage is adequate in the markets we serve. During 2004, we sold all of our international operations with the exception of Canada; our lack of international coverage could put us at a disadvantage compared to our larger competitors in obtaining new business from multinational customers. 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 2004.

        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 registered trademarks, and applications for trademark registration pending on various marks, including the following: MAKING THE WORKPLACE WORK BETTER®, KNOWLEDGESPHERE®, EMERGING WORKFORCE® and SALESFIT®.

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        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, staffing firms are governed by laws regulating the employer/employee relationship such as tax withholding or reporting, social security or retirement, anti-discrimination and workers' compensation.

        We also have operations in Canada and Panama. In either or both of these countries, there is significant national, provincial or local regulation of staffing services. These laws may require that part-time, temporary and contract workers receive benefits similar to full-time workers, such as vacation, welfare plan contributions, notice prior to termination 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, provincial 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 14 states and is subject to statutory requirements in two Canadian provinces. Under these laws, we must deliver a franchise offering circular or disclosure document (similar to a prospectus) to prospective franchisees and 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. 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 285,000 people in 2004, excluding employees of foreign operations sold during 2004. On average, approximately 60,000 billable personnel were assigned with our customers, 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 to 10% in our first quarter revenues in comparison with fourth quarter revenues. First quarter revenues of 2004 in comparison with the preceding fourth quarter growth remained stable due to a higher volume of contract-based work in managed services and increased demand experienced from the economic recovery. The decrease in first quarter revenues in comparison with the preceding fourth quarters for 2003 and 2002 was 8% and 9%, respectively.

        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 weaken as our customers reduce temporary workers before terminating their own employees. While we have 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:

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. Also available on our website, or in print to any shareholder that requests it, are Spherion's Corporate Governance Principles, Code of Business Conduct and Ethics, as well as, charters for the Audit Committee, Compensation Committee, Corporate Governance Committee, Executive Committee and Nominating Committee. 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.

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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 30,000 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. filed an action against us in the Delaware Court of Chancery. Their complaint, filed on June 26, 2001 and amended on July 24, 2001, related to our divestiture of Interim HealthCare (the "Healthcare Divestiture") in 1997 and sought 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 also sought damages against us in an action in Delaware Superior Court alleging multiple breach of contract claims arising out of the Healthcare Divestiture. 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 sought in excess of $25 million in damages. The parties filed post-trial briefs and oral argument occurred in July 2004. The Court issued its opinion in February 2005. The opinion provides that we do not have to pay damages on any of the claims, except for one breach of contract claim for which the damages awarded to the plaintiffs total approximately $1.1 million plus pre-and post-judgment interest and attorneys' fees. The final judgment will be formally entered after the parties stipulate to the amount of attorneys' fees owed. The plaintiffs will then have thirty days after entry of the final judgment to file a notice of appeal. After issuance of the Court's opinion, we reduced our reserves related to this case and as of December 31, 2004 have reserves remaining in the amount of $2.4 million. 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 reserved.

        On December 13, 2004, and as amended on January 13, 2005, Glidepath Holding B.V. and Jeimon Holdings N.V. filed an action against Spherion Corporation in the U.S. District Court of the Southern District of New York. Glidepath and Jeimon Holdings, investors in the entity that acquired the Cyber Center business of Spherion Technology (UK) Limited, a subsidiary of Spherion Corporation, in 2002, sued Spherion for fraud, negligent misrepresentation, aiding and abetting breach of fiduciary duty and unjust enrichment and seek $32 million in damages, and treble for punitive damages, plus attorney fees, expert fees and costs. Glidepath and Jeimon Holdings allege that an individual who was an officer of Spherion Technology (UK), fraudulently induced them to invest in a corporation formed to purchase the Cyber Center business, while he remained in the employ of Spherion Technology (UK) and was to be paid an incentive bonus for the sale by Spherion. They allege that he misled them as to his employment status at the time, as to the prospects for the Cyber Center, and as to whether the newly formed corporation was assuming the indebtedness of Spherion Technology (UK) associated with the Cyber Center business. They

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allege that in doing so, he was acting as an agent of Spherion. We intend to vigorously defend the action. As it is too early to determine the probability of an unfavorable outcome, we have not established a reserve for the resolution of this matter. We do not have insurance coverage for these claims.

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 31, 2004.

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PART II

Item 5.    MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

        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 27, 2005, there were approximately 2,373 holders of record of our common stock.

        We did not pay cash dividends in 2004 and 2003, and do not intend to pay cash dividends in the foreseeable future. In addition, our U.S. revolving line of credit, which we amended in July 2004, and our Canadian revolving line of credit, which we entered into in 2004, 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. During 2004, we announced and sold our operations in the United Kingdom, The Netherlands and in the Asia/Pacific region, and our court reporting operation in the United States. In the third quarter of 2004 we announced our intention to sell our call center outsourcing business. As a result of our decision to dispose of these businesses, the statement of operation data for all periods presented below, have been reclassified as discontinued operations.

(1)

The 2004 fiscal year contains 53 weeks. All other years contain 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 $4.2 million; and a net loss from discontinued operations of $12.3 million.

(4)

The 2002 results include a pre-tax goodwill impairment charge of $230.7 million; pre-tax restructuring, and other charges of $10.4 million; and a pre-tax gain on the retirement of a portion of our convertible subordinated notes of $10.5 million. The 2002 results also include a net loss from discontinued operations of $68.5 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 $130.8 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 $9.4 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)

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



•

Seasonality and Cyclical Nature of Business



•

Forward-Looking Statements-Safe Harbor

Company Overview

        Spherion Corporation provides temporary staffing services, managed services and permanent placement services. Founded in 1946, we are headquartered in Fort Lauderdale, Florida, and operate a network of over 700 locations within North America. Our locations are company-owned, licensed or franchised. As of December 31, 2004, we had 531 company-owned offices, 95 licensed locations and 86 franchised locations.

        The Company is organized around two basic operating segments—Staffing Services and Professional Services. 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 with higher-level skill sets, such as information technology, finance and accounting, engineering and administrative. 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

        The staffing industry experienced declines in revenues during 2001 and 2002. Economic conditions began to improve in 2003, and in 2004 our results are indicative of this economic recovery. Staffing Industry Analysts, Inc. estimated the total staffing industry growth at approximately 12% for 2004. Even considering the significant jobs growth in 2004, the staffing industry still remains economically sensitive and continues to be a challenging operating environment. The industry is still experiencing intense pricing pressures from customers, increased state unemployment costs as well as increased medical and workers' compensation costs.

        The following is a brief summary of our primary 2004 objectives and accomplishments:

•

Grow revenues at or above the industry average. After three years of no growth, our revenues increased 17.2% year over year, including approximately 1.5% of growth due to an additional week in 2004.

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•

Implement a modern competitive infrastructure. During the fourth quarter of 2004 we completed the final roll-out of our enterprise-wide information system which we plan to leverage with future growth.



•

Stabilize gross profit margins. This has been our biggest challenge for the last two years due to the significance of some of the employee tax increases and continued strategic sourcing efforts by our Fortune 500 clients. We believe that recent pricing initiatives could be positive to margin trends, but that margins may continue to be negatively impacted by market conditions.



•

Dispose of several non-core business operations. During 2004, we sold our staffing operations in the United Kingdom, the Asia/Pacific region and The Netherlands, in addition to our court reporting business, and used these cash proceeds to significantly reduce our debt.

        Progress during 2004 included refining our strategic direction to concentrate on our core business in the North American staffing and recruiting markets and building momentum within our sales organization. Trends in our business, such as accelerating growth in clerical staffing, increased permanent placement activity and progress with efforts to improve pricing, give us confidence in the outlook for Spherion and our industry for 2005, in spite of a customer loss, as further discussed below. Profitability improved in 2004 and remains a focus in 2005 as we execute on our commitment to deliver value to our customers at a fair price.

        In 2005 and beyond we plan to focus on four key operating objectives:

•

First, to further increase our growth rates in local markets with small and mid-sized clients through relationship selling:



-

During 2004, our local staffing sales efforts generated more growth than the growth rate in our national accounts. Growth rates continue to be strong in this area as we strive to change our overall revenues mix through increased business development in the local branches.



-

Relationship selling is also key in professional services and our goal is to increase sales and recruiter headcount by 25% in 2005. We accelerated our hiring plans in the fourth quarter of 2004 and believe we are positioned to achieve this goal.



•

Second, to expand penetration in targeted mid-market accounts:



-

During 2004 we increased our sales focus in this client segment where pricing and service delivery requirements appear to align best with our capabilities.



-

We have specific targeting criteria that focus on high growth mid-market companies and companies undergoing significant change.



-

Additionally, we have identified a number of existing accounts that we believe have an opportunity for the expansion of skills sold. We have enhanced our account management capabilities for these clients and established specific sales quotas.



•

Third, to strategically manage our large accounts:



-

Last quarter we discussed our initiative to review pricing and services for our largest 200 accounts. We believe these activities are progressing well and have resulted in price increases at a number of clients. This type of review will be an ongoing part of our account management process to insure that we are receiving a fair price for our services.



-

However, with certain accounts if pricing goals are not achieved and service delivery remains intensive, we are willing to make some decisions to scale back services.



•

And finally, to leverage the technology infrastructure investments that we have spent the last two years implementing.

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Operating Results

    Consolidated Operating Results

Fiscal 2004 compared with 2003

•

Revenues in 2004 were $2,032.7 million, up 17.2% from 2003 due to increased demand including 1.5% of growth due to the additional week in 2004. The Bureau of Labor Statistics reported an estimated increase of approximately 7.7% in the number of temporary employees in comparison with the prior year.



•

Gross profit increased to $425.6 million, up 9.7% from the prior year primarily due to the increase in revenues. Our overall gross profit rate decreased to 20.9% from 22.4% in the prior year due primarily to pricing pressure (125 basis points) and increased state unemployment and federal employment taxes (75 basis points), which has only been partially offset by lower employee benefit costs, including workers' compensation costs (50 basis points).



•

Selling, general and administrative expenses were $401.5 million, an increase of 4.3% over prior year. Selling, general and administrative expenses as a percentage of revenues decreased to 19.8% from 22.2% in the prior year. We continued to reduce costs and incurred restructuring and other charges of $8.4 million in 2004 versus $4.2 million in 2003.



•

We completed the implementation of our enterprise-wide information system, spending $5.8 million in capital on this system in 2004. Our selling, general and administrative expenses included $7.3 million non-capitalizable costs associated with this system, down $1.6 million from 2003.



•

Our effective tax rate (benefit) from continuing operations for 2004 was (18.0%) versus (9.5%) for 2003. The rate for 2004 is lower than the federal statutory rate due to the impact of work tax credits renewed in the Working Families Tax Relief Act of 2004, and due to state tax benefits. The rate for 2003 was lower than the federal statutory rate of 35.0% as a result of the state tax expense impact that reduced the overall tax benefit on operating losses.



•

Discontinued operations incurred pre-tax losses of $14.0 million in 2004, which includes losses from operations of $9.6 million and an estimated loss on sale of $4.4 million during 2004.



•

Interest expense decreased marginally in 2004 compared to 2003, as the decrease in interest expense relating to the retirement of our remaining 4¹/2% convertible subordinated notes during 2004 was largely offset by increased expense related to debt outstanding on our U.S. and Canadian revolving lines of credit.



•

Days Sales Outstanding (DSO, a measure of how quickly accounts receivable are collected) increased to 60 days at the end of 2004 compared with 55 days at the end of 2003. Each one day increase in DSO approximates a use of $6 million of working capital.

Fiscal 2003 compared with 2002

•

Revenues in 2003 were $1,733.8 million, down 2.1% from 2002 due to weaker demand and customer losses early in 2003, however revenues improved during the second half of the year. We acquired 85% of a former franchise operation in Canada during April 2003, which contributed $50.2 million in revenues during 2003.



•

Gross profit decreased to $388.1 million, down 7.5% from the prior year and our overall gross profit rate decreased to 22.4% from 23.7% in the prior year. This decrease was due primarily to pricing pressure (140 basis points) and increased federal payroll costs (10 basis points), which has only partially been offset by lower employee benefit costs, including workers' compensation (20 basis points).

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•

Selling, general and administrative expenses were $384.9 million, a decrease of 7.8% over prior year. Selling, general and administrative expenses as a percentage of revenues decreased to 22.2% from 23.6% in the prior year. We continued to reduce costs and incurred restructuring and other charges of $4.2 million in 2003 versus $10.4 million in 2002. Most of the 2003 charge was to further consolidate operating units and to lower back office technology costs.



•

Capital spending for the implementation of our enterprise-wide information system was $45.8 million in 2003. Our selling, general and administrative expenses were approximately $7.0 million higher in 2003 compared with 2002 due to non-capitalizable costs associated with implementing this system.



•

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 $230.7 million (an additional $60.8 million was recorded to subsidiaries which have been reclassified to discontinued operations) in the fourth quarter of 2002 as the markets we operated in continued to weaken.



•

Our effective tax rate (benefit) from continuing operations for 2003 was (9.5%) versus (6.4%) for 2002. The rate for 2003 was lower than the federal statutory rate due to the state tax expense impact that reduced the overall tax benefit on operating losses. The rate for 2002 was lower than the federal statutory rate of 35.0% as a result of non-deductible goodwill amortization expense.



•

In 2003, discontinued operations generated pre-tax losses of $16.1 million, including the loss from operations of $14.9 million and an estimated loss on sale of $1.2 million.



•

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

Discontinued Operations

        During 2004, we assessed the profitability of our operations and made decisions to exit five of our business units. These business units included our court reporting business, our staffing operations in the United Kingdom, the Asia/Pacific region and The Netherlands, as well as our call center outsourcing business. This decision enables us to focus on our core business in the North American staffing and recruiting markets.

        These operations have been reported as part of discontinued operations in the accompanying consolidated financial statements. For the fiscal years ended December 31, 2004, December 26, 2003 and December 27, 2002, these subsidiaries had revenues of $226.7 million, $335.7 million and $344.9 million, respectively, and had pre-tax operating losses of $9.6 million, $14.8 million and $50.7 million, respectively. The results of discontinued operations for the fiscal years ended December 26, 2003 and December 27, 2002 also include revenues from our former Netherlands and United Kingdom technology subsidiaries and Saratoga of $5.0 million and $27.6 million, respectively, and pre-tax operating losses of $0.1 million and $10.4 million, respectively.

        See Note 2, Discontinued Operations, in the accompanying consolidated financial statements for further discussion.

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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 6, Restructuring, Asset Impairments and Other Charges, in the accompanying consolidated financial statements. A summary of the charges is as follows (in thousands):

Restructuring Charges

        During the second half of 2003, we identified certain cost reduction opportunities primarily related to the realignment of our operating segments and the implementation of our enterprise-wide information system and adopted a restructuring plan (the "2003 Plan") to eliminate redundancies, reduce excess capacity and centralize business support functions. In 2003, we terminated 104 personnel and closed 5 offices. During the first quarter of 2004, we implemented additional cost reduction actions pursuant to the 2003 Plan resulting in the termination of 49 additional personnel and the closure of 9 additional offices. Restructuring charges, net of reversals for the years ended December 31, 2004 and December 26, 2003, totaled $2.8 million and $4.2 million, respectively. In both 2004 and 2003, these charges included amounts related to severance, costs for facility closures and asset write-offs. These charges related to both segments, as well as, corporate initiatives to lower back office personnel costs. See Note 6, Restructuring, Asset Impairments and Other Charges, in the accompanying consolidated financial statements for further information relating to these activities.

        No restructuring activities were undertaken during 2002, however restructuring charges of $7.4 million from prior years were determined 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 2002.

Asset Impairments and Other Charges

        During the first quarter of 2004, we incurred other charges of $5.9 million to terminate the employment contract of our former chief executive officer. This includes approximately $0.8 million of non-cash charges related to stock-based compensation. In the second quarter of 2004, we reversed $0.3 million of this charge as a result of a decision to accelerate the timing of the payout, for a pre-agreed discount, as provided for in the employment contract.

        During the second quarter of 2002, we recorded other charges 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 also recorded asset impairment and other charges in connection with the write-down of assets of approximately $4.3 million relating to a going-concern software development operating unit, and $3.5 million relating to our obligation under an employment contract with a former executive.

Operating Segments

        We evaluate the performance of our operating segments and allocate resources based on revenues, gross profit and segment operating profit. Segment operating profit from continuing operations is defined as income before unallocated corporate costs, amortization expense, interest expense, interest income, income taxes and special items (restructuring, asset impairments and other charges, goodwill impairment

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and gain (loss) on retirement of debt). 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.

        Information on operating segments and a reconciliation to earnings (loss) 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):

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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 2004 Compared with 2003

        Revenues—Staffing Services revenues increased 17.4% to $1,623.1 million in 2004 from $1,383.0 million in the prior year, including acquisition growth of 1.5% from our Canadian operations and an increase of approximately 1.4% due to an additional week in 2004. This year over year growth was due to economic growth (GDP increased 4.4% during 2004) and the success of our marketing efforts within the United States. A number of new marketing initiatives were undertaken and our Staffing Services operating segment grew at a faster rate than our largest competitors. Our largest 250 customers grew at a slower rate than the smaller customers in this operating segment. Customers in the telecommunications, manufacturing, retail, consulting and information technology (IT) industries represented our largest revenue growth.

•

By skill—Clerical revenues increased 10.5% and light industrial revenues increased 31.2% from the prior year due to the reasons mentioned above.



•

By service—Temporary staffing increased 24.3%, compared with the prior year, due to the reasons mentioned above. Managed services decreased 5.9% from the prior year as customer losses and decreases in revenues from existing customers particularly for IT managed services such as help desk and data centers more than offset increases in outsourced recruitment and administrative services. Permanent placement revenues increased 22.0% over the prior year due to the addition of recruitment resources and increased market demand.

        Gross Profit—Gross profits increased 8.0% to $297.1 million from $275.2 million in the prior year. Of this increase, $3.9 million or 1.4% was acquisition growth from our Canadian operations, and $18.0 million, or 6.6% organic growth. The overall gross profit percentage was 18.3% in 2004 compared to

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19.9% in the prior year, or a decrease of about 160 basis points. The decrease in the gross profit margin is due primarily to pricing pressure that we began to experience in 2003 (75 basis points), a shift in the mix of business to lower margin temporary staffing services (40 basis points), and an increase in state unemployment and federal employment taxes (90 basis points), partially offset by a decrease in employee benefit costs (45 basis points).

        Segment Operating Profit—Staffing Services segment operating profit was $25.5 million compared to $29.7 million in the prior year. The decrease from the prior year was due to higher operating expenses of $26.1 million which was partially offset by the increase in gross profits of $21.9 million described above. The increased operating expenses were primarily associated with a higher revenues base, and included higher bonus, bad debt expenses, temporary help, salaries and licensee commissions, which was only partially offset by lower travel and meeting expenses. Operating expenses as a percentage of revenues decreased to 16.7% compared with 17.8% in the prior year due to greater leveraging of expenses.

        Outlook—During the first quarter of 2005, a customer notified us that it will not renew certain of its managed services contracts as a result of its efforts to globally consolidate its managed services and temporary staffing suppliers and reduce costs. These contracts represented approximately $75 million in annual revenues in 2004, which we expect to transition to the new supplier beginning in April 2005. Additionally, we are carefully examining our portfolio of customers and may elect to terminate a select number of customer contracts where the returns do not meet our minimum targets. Employment in the staffing industry is expected to increase during 2005 and in spite of customer losses, we still anticipate that revenue could grow over 2004.

        Burden costs within the staffing industry increased significantly the past three years, particularly for state unemployment taxes. We believe that the majority of these increases have already been placed into effect and that the likelihood of further significant increases is less than the experience of the past three years. However, states could change laws and increase either the tax rates or the qualifying wages upon which we pay taxes.

        Unemployment continues to decline in most of the major markets that we service. Declining unemployment generally means a tighter supply of available workers and increased pricing, but there is no assurance that we will be able to increase pricing in response to this. Pricing pressure from customers remains strong and consolidated procurement buying remains in place in most customers.

Fiscal 2003 Compared with 2002

        Revenues—Staffing Services revenues decreased 1.8% to $1,383.0 million in 2003 from $1,407.6 million in the prior year. Of this $24.6 million decrease, $74.8 million or 5.3% was due to organic decline in our staffing operations partially offset by $50.2 million or 3.5% of acquisition growth from our Canadian operations.

•

By skill—Clerical revenues decreased 0.8% from the prior year consisting of $33.5 million or 3.6% of organic decline offset by $26.0 million or 2.8% of acquisition growth from our Canadian operations. The decrease in clerical revenues is primarily due to the loss of customer contracts and volume decreases, specifically managed service contracts, help desk and data center. Light industrial revenues decreased 3.6% from the prior year consisting of $24.2 million or 5.1% of acquisition growth from our Canadian operations and $41.4 million or 8.7% of organic decline. 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.



•

By service—Temporary staffing revenues increased 0.5% compared with the prior year consisting of $43.5 million or 4.1% of organic decline offset by $48.4 million or 4.6% of acquisition growth from

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our Canadian operations. Temporary staffing revenues 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 9.2% from the prior year due to the loss of contracts and volume decreases mentioned above. Permanent placement revenues increased 26.4% over the prior year consisting of $1.8 million or 19.3% of acquisition growth and $0.7 million or 7.1% of organic growth due to the addition of recruitment resources and increased market demand. Permanent placement grew as we added resources to focus on this area.

        Gross Profit—Gross profits decreased 7.6% to $275.2 million from $298.1 million in the prior year. Of this decrease, $32.9 million or 11.0% was due to organic decline of our staffing operations, which was partially offset by $10.0 million or 3.4% of acquisition growth from our Canadian operations. The overall gross profit margin was 19.9% in 2003 compared with 21.2% in the prior year, or a decrease of about 130 basis points. The decrease in the gross profit margin was due primarily to pricing pressure that we started to experience in 2003 (90 basis points), a shift in the mix of business to lower margin temporary staffing services (35 basis points), and other costs (5 basis points), due in part to managed services revenues declines in help desks and data centers which have a relatively consistent amount of fixed costs.

        Segment Operating Profit—Staffing Services segment operating profit was $29.7 million compared to $31.7 million in the prior year. The decrease from prior year was due to the decrease in gross profit of $22.9 million as described above partially offset by lower operating expenses of $20.9 million. Operating expenses as a percentage of revenues decreased to 17.8% from 18.9% 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.

Professional Services

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

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Fiscal 2004 Compared with 2003

        Revenues—Professional Services revenues increased 16.8% to $409.6 million in 2004 from $350.8 million in the prior year, including an increase of approximately 1.9% due to an additional week in 2004. Market conditions substantially improved over the prior year and economic recovery (4.4% GDP growth) along with increased governmental regulation contributed to overall growth. Our professional services segment grew at a slower rate than our largest competitors in this area. Additional recruitment resources are being added to accelerate growth.

•

By skill—Information technology increased 16.5% from prior year due to increased market demand for IT consultants. Finance and accounting increased 12.9% as companies continued to actively address increased regulatory reporting requirements in the United States, which more than offset decreases in the mortgage banking industry. Increased revenues in other skill-sets were primarily driven by increased demand for temporary staffing in the legal and human resources sectors.



•

By service—Temporary staffing increased to meet demand for technology skills and to a lesser extent for finance and accounting personnel in response to increased regulatory and reporting requirements. Permanent placement services increased 31.2% due to improving market conditions and a higher demand for employees in finance and accounting and an increased emphasis on IT.

        Gross Profit—Professional Services gross profits increased 13.8% to $128.5 million in 2004 from $112.9 million in the prior year. The overall gross profit margin was 31.4% in 2004 compared with 32.2% in the prior year or a 80 basis point decrease. This decrease in gross profit margin is due to lower pay/bill spreads that we experienced in 2003 and again in the second half of 2004 (200 basis points), increased state unemployment and federal employment taxes (30 basis points). These factors have been partially offset by a shift in business mix towards permanent placement business (80 basis points), and lower employee benefit costs (70 basis points).

        Segment Operating Profit—Professional Services segment operating profit was $19.8 million compared to $4.7 million in the prior year. The increased profit from prior year was due to the increase in gross profit of $15.6 million as described above. Operating expenses increased $0.5 million and as a percentage of revenues were 26.5% compared to 30.8% in the prior year. Operating expenses did not increase significantly as synergies obtained from combining the former technology and professional recruiting business units largely offset higher bonus and commission payments due to higher profits.

        Outlook—In Professional Services, performance for both temporary staffing and permanent placement will be driven by jobs growth and client investment, particularly within the informational technology area. Within the technology skill-set, we experienced year over year growth compared with the preceding three years when technology revenues decreased. Demand for technology skill sets continues to improve, but there is no assurance that it will continue. Within the finance and accounting skill sets, the strong growth that was experienced in 2004 is expected to continue into 2005. The regulatory environment, including Sarbanes-Oxley compliance work, was partly responsible for growth in 2004 as well as general economic recovery. Management has increased its investment in recruiters and headcount is expected to increase approximately 25% over the prior year.

        Burden costs within the staffing industry increased significantly the past three years, particularly for state unemployment taxes. We believe that the majority of these increases have already been placed into effect and that the likelihood of further significant increases is significantly less than the experiences of the past three years. However, states could change laws and increase either the tax rates or the qualifying wages upon which we pay taxes.

        Unemployment is declining and this generally results in higher pay and bill spreads. However, pricing pressure from customers remains strong and consolidated procurement buying remains in place in most customers.

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Fiscal 2003 Compared with 2002

        Revenues—Professional Services revenues decreased 3.5% to $350.8 million in 2003 from $363.5 million in the prior year.

•

By skill—Information technology decreased 14.5% from prior year as demand for related services continued to decline. Finance and accounting increased 46.0% significantly as the economy began to recover and was partially the result of mortgage refinancing activity and new financial compliance regulations. Revenues in other skill-sets, including legal, remained relatively constant during 2003.



•

By service—Temporary staffing decreased 4.8% in information technology skills as demand for related services continued to decline. Permanent placement services increased 12.7% within the finance and accounting skills sets.

        Gross Profit—Professional Services gross profits decreased 7.0% to $112.9 million from $121.4 million in the prior year. The overall gross profit percentage was 32.2% in 2003 compared with 33.4% in the prior year or a 120 basis point decrease. This decrease is due to pricing pressures within temporary staffing services and decreased higher margin IT service revenues (310 basis points), and higher payroll taxes (20 basis points). This decrease was partially offset by an increase due to a shift in the mix of business to permanent placement services (90 basis points) and lower costs for paid time off (120 basis points).

        Segment Operating Profit (Loss)—Professional Services segment operating profit was $4.7 million compared to an operating loss of $(2.8) million in the prior year. The increase from prior year was due to lower operating expenses of $16.0 million, partially offset by the decrease in gross profit of $8.5 million as described above. Operating expenses as a percentage of revenues were 30.8% compared to 34.2% in the prior year. The decrease in operating expenses is due primarily to operating efficiencies gained in combining the former technology segment with our professional recruiting group to create the Professional Services segment, in addition to cost containment.

Unallocated corporate costs

        2004 compared with 2003—Unallocated corporate costs decreased 33.0% to $20.6 million in 2004 compared to $30.8 million in 2003. Unallocated corporate costs decreased in 2004 as a result of four items: decreases in general corporate overhead ($3.6 million); lower non-capitalizable costs related to the implementation of our enterprise-wide information system ($1.6 million); the recovery of an amount owed under a purchase agreement that was written-off in 2002; and a favorable judgment in the Interim HealthCare lawsuit. During 2004, we recovered $1.4 million owed under a purchase agreement that was written-off in 2002 associated with the sale of a business, unpaid rent costs and the related legal fees. The favorable judgment in the Interim HealthCare lawsuit resulted in a total decrease of $3.6 million in unallocated corporate costs from 2003 as follows: 2004 included an additional accrual of $0.7 million and reversal of the reserve after the judgment was received in the amount of $2.6 million; whereas 2003 included a $1.7 million accrual for the lawsuit. See Note 14, Commitments and Contingencies in the accompanying consolidated financial statements for further discussion. As a percentage of consolidated revenues, unallocated corporate costs were 1.0% during 2004 compared to 1.8% in 2003.

        2003 compared with 2002—Unallocated corporate costs increased 15.9% to $30.8 million in 2003 compared to $26.6 million in 2002. Unallocated corporate 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 approximately $3.0 million. As a percentage of consolidated revenues, these costs were 1.8% during 2003 compared to 1.5% in 2002.

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Liquidity And Capital Resources

        Historically, we have financed our operations through existing cash balances, operating cash flows and revolving 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 Flows

        As of December 31, 2004, we had total cash resources available of $5.2 million of which $4.7 million was held in the United States. Since we are a net borrower, we closely manage our cash and debt balances to minimize interest expense. As of December 31, 2004 we have availability of $188.6 million under our revolving line of credit to fund operations.

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

Operating cash flows

        Operating cash flows for 2004 of $6.1 million are primarily comprised of earnings, excluding the gain on disposal of discontinued operations, of $8.8 million plus non-cash expenses for depreciation and amortization of $28.8 million, offset by working capital usage of $34.0 million and a non-cash deferred income tax benefit of $8.9 million. Working capital was used primarily to fund accounts receivable as days sales outstanding ("DSO") increased to 60 days from 55 days in the prior year. Each one day increase in DSO approximates a use of $6 million of working capital.

        Operating cash flows for 2003 of $50.0 million are primarily comprised of cash provided by reductions in working capital of $28.4 million plus non-cash expenses for depreciation and amortization of $29.3 million and deferred compensation of $7.4 million, partially offset by the net loss, excluding the loss on disposal of discontinued operations, of $9.8 million and non-cash deferred tax benefit of $10.2 million. 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 fund accounts receivable as DSO increased to 55 days from 49 days in the prior year.

        Operating cash flows for 2002 of $39.2 million are primarily comprised of non-cash expenses, depreciation and amortization of $29.2 million, restructuring and other charges of $10.4 million and deferred income taxes of $14.1 million, partially offset by a working capital usage of $21.5 million. Working capital for 2002 was primarily used to reduce our 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 four days) and accrued income taxes. Restructuring activities used $15.6 million as we neared the completion of prior year restructuring activities.

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Investing cash flows

        Investing cash flows for 2004 of $34.0 million are primarily related to proceeds from the sale of discontinued operations of $43.7 million, offset by capital expenditures of $12.1 million. Current year proceeds from the sale of discontinued operations (net of cash sold) included $2.0 million, $13.7 million, $25.4 million and $2.6 million from the sale of Spherion operations in The Netherlands, Asia/Pacific region, United Kingdom and Spherion's court reporting business, respectively. Current year capital expenditures included the investment in our enterprise-wide information system, which amounted to $5.8 million.

        Investing cash outflows for 2003 of $82.2 million are primarily related to capital expenditures of $60.5 million. These 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). We also paid $10.7 million (excluding the assumption of debt) to acquire 85% of our Canadian franchise during the second quarter of 2003.

        Investing cash outflows for 2002 of $119.2 million are primarily to fund $85.9 million of insurance deposits to collateralize workers' compensation obligations. Capital expenditures for 2002 of $34.6 million included $9.3 million ($15.0 million including notes payable for capital purchases) relating to our enterprise-wide information system.

        We expect our total 2005 capital expenditures to be between $13.0 million and $15.0 million and to be funded through operating cash flow or through borrowings under our existing revolving lines of credit.

Financing cash flows

        Financing cash outflows for 2004 of $56.3 million are primarily due to the retirement of the remaining 4¹/2% convertible subordinated notes in the amount of $89.7 million, partially offset by net borrowings from lines of credit used to fund our working capital.

        Financing cash outflows for 2003 of $14.0 million are primarily for the retirement 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.

        Financing cash outflows for 2002 of $116.3 million are primarily for the retirement of a portion of our 4¹/2% convertible subordinated notes and the repayment of short-term borrowings associated with prior years acquisitions.

Financing

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

        We have a U.S. dollar revolving line of credit that is secured by substantially all of our domestic accounts receivable. This revolving line of credit was amended in July 2004 to increase the line of credit availability from $200 million to $250 million of on-balance sheet financing. As amended, this revolving line of credit expires in July 2009. As of December 31, 2004, there was $25.0 million outstanding under this revolving line of credit. Total availability at December 31, 2004, was $188.6 million (calculated as eligible receivables of $250 million, less: amounts outstanding, letters of credit of $5.2 million and a one week payroll reserve of $31.2 million). We have the option to borrow under this revolving line of credit for a defined period of time (one, two, three or six months) or for an undefined period of time. Interest is based upon the duration of the borrowing, the availability under the line and other notification conditions. As of

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December 31, 2004, the interest rate for amounts borrowed for a defined period of time would have been approximately 4.28% (LIBOR plus a spread) or approximately 5.25% (prime plus a spread) as of December 31, 2004. We incurred interest charges under this revolving line of credit at an average interest rate approximating 3.8% during 2004. We pay an unused line fee of 0.5% per annum that is determined by the unused portion of the revolving line of credit as well as a letter of credit fee of 0.25% per annum.

        During 2004, we also entered into a Canadian dollar revolving line of credit (secured by Canadian accounts receivable) that matures July 2007. This revolving line of credit provides up to 13 million Canadian dollars of on-balance sheet financing (approximately $10.8 million at current exchange rates). As of December 31, 2004, there was 8.6 million Canadian dollars (approximately $7.1 million at current exchange rates) outstanding under this revolving line of credit. As of December 31, 2004, the interest rate for amounts borrowed on this revolving line of credit approximated at 6.25% (prime plus a spread). We incurred interest charges under this revolving line of credit at an average interest rate approximating 4.8% during 2004. A commitment fee of 0.5% is paid per annum based on the unused portion of the revolving line of credit. Spherion Corporation guarantees the Canadian dollar revolving line of credit.

        Our credit facilities provides for certain affirmative and negative covenants which may limit the total availability under this revolving line of credit based upon our ability to meet these covenants. These covenants include, but are not limited to: a fixed charge coverage ratio; limitations on capital expenditures; additional debt incurred; mergers, consolidations or sales; and transactions with subsidiaries and related parties. Failure to meet compliance with one or more of these covenants in the future could affect the amount of availability we have to borrow against and as a result, our liquidity and financial condition may be adversely affected. At December 31, 2004, we were in compliance with the requirements of these covenants.

        In August 2004, we retired the remaining U.S. dollar convertible subordinated notes (the "Notes") that would have matured in June 2005. We used a combination of cash on hand, proceeds from the sales of our discontinued operations and borrowings under the U.S. dollar revolving line of credit to fund the redemption. The Notes, which had an aggregate face value of $89.6 million, were retired at a premium of $0.6 million.

        In October 2000, we issued $8.0 million of interest-bearing convertible promissory notes due October 1, 2005 in conjunction with the purchase of 80% of the membership interests of JobOptions, LLC. The promissory note bears interest at the three month LIBOR rate (2.56% as of December 31, 2004 and 1.4% and 1.3% weighted average for 2004 and 2003, respectively).

Contractual Obligations and Commitments (in thousands)

(1)

The U.S. and Canadian dollar revolving line of credit balances are included in their respective year of scheduled maturity, although these revolving lines of credit are classified as current debt obligations in the accompanying consolidated balance sheet based upon our intent and ability to repay these obligations in 2005. Additionally, we are obligated to pay interest charges, an unused line fee and a letter of credit fee on these revolving lines of credit. These amounts will vary and as such have not

27

been included in the table above. Interest charges are determined as discussed above. The unused line and letter of credit fees would not exceed $1.9 million in any given year.

(2)

Operating lease obligations for rent and equipment will be offset by future sublease income of $2.7 million in 2005, $2.3 million in 2006 and $2.2 million in 2007, 2008 and 2009 and $0.7 million thereafter.

(3)

Purchase obligations include normal and customary contracts and minimum spend contracts in the ordinary course of business with certain vendors and information technology maintenance contracts.

(4)

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

        In connection with the acquisition of our Canadian franchise we entered into a put/call agreement with the minority interest holder, whereby the minority interest holder can put the remaining 15% interest in the Canadian operations back to us any time after December 31, 2005, or, as amended, we can call the remaining 15% interest any time after December 31, 2006. 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 2004 operating results and net assets as of the end of the year would approximate $2.3 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.

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 should be tested for impairment on an annual basis, or earlier if an event occurs or circumstances changes that would more likely than not reduce the fair value of a reporting unit below its carrying amount. 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 in November 2002, and recorded an additional impairment charge of $230.7 million relating to our continuing operations. 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. Even though neither our 2003 or 2004 annual impairment test resulted

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in impairment, due to the judgment inherent in estimating future cash flows, there could be further charges in future years to operations for up to the full value of our goodwill balance, which is currently $48.8 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 4.2% and 4.5% at December 31, 2004 and December 26, 2003, respectively, and are based on actuarial estimates. Changes in legislation, the cost of health care services, claims processing costs, or increased litigation could affect the adequacy of these estimated liabilities. Prolonged changes in interest rates for risk-free U.S. government 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.

        No stock-based employee compensation cost relating to stock options is reflected in net earnings (loss), 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 earnings for the year ended December 31, 2004 would have been $32.9 million or $0.53 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 2004 (expected life of 3.3 years, a weighted-average risk free interest rate of 2.72%, volatility of 55.00% and no expected dividends), would change the weighted average per share fair value of $3.55. 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. SFAS No. 123(R), "Share-Based Payment," issued in December 2004, will require us to expense stock options beginning in the third quarter of 2005. At that time, changes or additions to assumptions or a change in the option-pricing model used, could impact our financial operating results.

        Income Taxes—At December 31, 2004, we had a net deferred tax asset of $168.7 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. These objective factors include historical taxable income, normalized for non-recurring income and expense items. Using an average of this income projected to future years, if the asset can be recovered within the statutory carryforward periods there is no impairment. If our future earnings, after being adjusted for non-recurring items, should decrease from present levels and remain low for a period of 1 to 2 years, there could be impairment of the existing deferred tax asset.

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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.

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 to 10% in our first quarter revenues in comparison with fourth quarter revenues. First quarter revenues of 2004 in comparison with the preceding fourth quarter growth remained stable due to a higher volume of contract-based work in managed services and increased demand experienced from the economic recovery. The decrease in first quarter revenues in comparison with the preceding fourth quarters for 2003 and 2002 was 8% and 9%, respectively.

        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 weaken as our customers reduce temporary workers before terminating their own employees. While we have 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

30

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 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. In the first quarter of 2005, we were notified of a customer non-renewal representing approximately $75 million in annual revenues. 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, revenues 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 2001 and 2002, the slowdown in the U.S. economy significantly impacted the staffing market, which in turn reduced our revenues significantly.

        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.

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

        We completed the implementation of our enterprise-wide information system during 2004. This initiative replaced many of our existing systems, including disparate legacy systems resulting from various acquisitions, so that many of our administrative functions and operations are now combined and communicate in an enterprise-wide integrated system. We expect to begin realizing the benefits from this system during 2005. Although this technology initiative is intended to increase productivity and operating efficiencies while lowering costs, we cannot assure you that this initiative will yield its intended results.

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

        Our revolving lines of credit provide for certain affirmative and negative covenants which may limit the total availability under this line of credit based upon our ability to meet these covenants. These covenants include, but are not limited to: a fixed charge coverage ratio; limitations on capital expenditures, additional debt incurred, mergers, consolidations or sales; and transactions with subsidiaries and related parties. Failure to meet compliance with one or more of these covenants in the future could affect the amount of availability we have to borrow against and as a result, our liquidity and financial condition may be adversely affected.

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        The disposition of businesses previously sold, or in the process of being sold, may create contractual liabilities associated with indemnifications provided.

        We have disposed of several business units over the past three years and plan to dispose of an additional business unit in 2005. The disposition of these businesses usually requires that we indemnify the purchaser for liabilities that arose prior to the disposition date. These liabilities are typically related to audits of tax liabilities by local authorities and other pre-existing liabilities such as lease obligations. Additionally, in the contracts we make a number of representations and warranties and from time to time claims are made against us related to these items. When any of these liabilities become known and are both reasonably probable and estimable they are recorded as an expense. For some of the dispositions, we have had or expect to have claims which are not yet reasonably probable and estimable and have not been recorded as an expense. Future earnings from discontinued operations could be materially adversely affected if we are not successful in defending our positions with the purchasers of these discontinued operations. Additionally, if we are required to make cash payments for any of these liabilities, our financial condition could be materially adversely affected.

        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.

        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 successfully challenged by tax authorities. However, an unfavorable settlement or adverse resolution could result in the repayment of some or all of the refund received.

        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 increase our growth rates in local markets with small and mid-sized clients through relationship selling, expanding our penetration in targeted mid-market accounts, strategically managing our large accounts and leveraging our investment in technology infrastructure. If we are not successful in achieving these objectives with our customers, our revenues, costs and overall profitability could be negatively affected. If we are unable to leverage our investment in technology effectively, our productivity and costs could be negatively affected.

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        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 material. 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 adverse 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.

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

        Operation in this market is subject to risks inherent in international business activities, including,

•

fluctuations in currency exchange rates;



•

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.

        Government regulation may significantly increase our costs, including payroll-related costs and unemployment taxes.

        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 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.

        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 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);

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•

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.

        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.

        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.

Item 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        As of December 31, 2004, approximately $3.2 million of cash and cash equivalents were invested in investment grade money market mutual 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 December 31, 2004 and December 26, 2003 was $40.1 million and $8.0 million, respectively. Based on the outstanding balance, a change of 1% in the interest rate would have caused a change in interest expense of approximately $0.4 and $0.1 million in 2004 and 2003, respectively, 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 are 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

34

available, or quotes obtained from outside sources. As of December 31, 2004, we had three outstanding forward contracts to sell € 0.2 million in January 2005, 2006 and 2007, and one outstanding forward contract to sell 4.8 million Australian dollars in September of 2005. As of December 26, 2003, we had one outstanding forward contract to sell 5.0 million Canadian dollars that was settled in 2004. Each of these derivatives had a fair value or cost to unwind that is not material to our consolidated results of operations.

        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 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 $92.9 million and $95.1 million as of December 31, 2004 and December 26, 2003, respectively. Company-owned life insurance policies are carried at fair market value which approximated $16.7 million and $17.1 million as of December 31, 2004 and December 26, 2003, respectively.

        The fair values of all other financial instruments, including debt, 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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Management's Report on Internal Control Over Financial Reporting

        Management is responsible for the fair presentation of the consolidated financial statements of Spherion Corporation. Management is also responsible for establishing and maintaining a system of internal controls over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. These internal controls are designed to provide reasonable assurance that the reported financial information is presented fairly, that disclosures are adequate and that the judgments inherent in the preparation of financial statements are reasonable. There are inherent limitations in the effectiveness of any system of internal control, including the possibility of human error and overriding of controls. Consequently, an effective internal control system can only provide reasonable, not absolute assurance, with respect to reporting financial information.

        Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control-Integrated Framework, management concluded that our internal control over financial reporting was effective as of December 31, 2004. Management's assessment of the effectiveness of our internal control over financial reporting as of December 31, 2004 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their attestation report which is included herein.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders
    of Spherion Corporation

We have audited management's assessment, included in the accompanying Management's Report on Internal Control over Financial Reporting, that Spherion Corporation and subsidiaries (the "Company") maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the Company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management's assessment that the Company maintained effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2004 of the Company and our report dated March 11, 2005 expressed an unqualified opinion on those financial statements and financial statement schedule.

DELOITTE & TOUCHE LLP
Certified Public Accountants

Fort Lauderdale, Florida
March 11, 2005

38

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have audited the accompanying consolidated balance sheets of Spherion Corporation and subsidiaries ("Spherion") as of December 31, 2004 and December 26, 2003, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2004. 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 the standards of the Public Company Accounting Oversight Board (United States). 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 31, 2004 and December 26, 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004, 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.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Spherion's internal control over financial reporting as of December 31, 2004, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 11, 2005 expressed an unqualified opinion on management's assessment of the effectiveness of Spherion's internal control over financial reporting and an unqualified opinion on the effectiveness of Spherion's internal control over financial reporting.

As discussed in Notes 1 and 3 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 11, 2005

39

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

See Notes to Consolidated Financial Statements.

40

SPHERION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share data)