SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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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)

|                                                                       |                                                  
|---------------------------------------------------------------------- | -------------------------------------------------
|Delaware(State or other jurisdiction of incorporation
or organization) | 36-3536544(I.R.S. Employer Identification Number)

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

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

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

|                            |  | Name of each exchange  
|--------------------------- |  | -----------------------
|Title of each class         |  | on which registered    
|COMMON STOCK$.01 PAR VALUE |  | New York Stock Exchange

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.



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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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The
following table represents the 2004 revenues derived from each of these services within our two operating segments (in thousands):

Staffing Services

Professional ServicesAmount

% Total

Amount

% TotalTemporary staffing

$
1,310,755

80.8
%
$
368,788

90.0
%Managed services


297,627

18.3
%




%Permanent placement


14,751

0.9
%

40,794

10.0
%Total

$
1,623,133

100.0
%
$
409,582

100.0
%


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:

Fiscal Years Ended
December2004

2003

2002Company-owned locations

531

550

515Licensed locations

95

94

110Franchised locations

86

91

112Discontinued operations

4

76

85Total

716

811

822United States

680

703

737Canada

32

32

Discontinued operations-International



50

59Discontinued operations-North America

4

26

26Total

716

811

822




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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Fiscal Years Ended December2004

2003(1)

2002(1)Licensee revenues (in thousands)

$
238,140

$
201,797

$
241,357Licensee commissions as a % of gross profit


68
%

68
%

64
%Number of licensees


50


51


55Number of licensee locations


95


94


110


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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.



Fiscal Years Ended December2004

2003

2002Franchisee royalty revenues (in thousands)

$
8,370

$
7,267

$
7,266Royalty revenues as a % of franchisee sales


4.0
%

4.2
%

4.0
%Number of franchisees


22


24


23Number of franchisee locations


86


91


112


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:

|Name and Age           |  | Position                                                                                                                                                                                                                                                                                                                                                  
|---------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Roy G. Krause, 58      |  | President and Chief Executive Officer since October 2004; President and Chief Operating Officer from July 2003 to October 2004; Executive Vice President and Chief Financial Officer from October 1995 to July
2003.                                                                                                                                      
|Eric Archer, 47        |  | President of Professional Services since August 2003; President, Professional Recruiting Group from January 1998 to August 2003.                                                                                                                                                                                                                          
|William G. Halnon, 46  |  | Senior Vice President and Chief Information Officer since January 2005. From April 1997 to December 2004, Vice President-Chief Information Officer for DIMON Incorporated.                                                                                                                                                                                
|Lisa G. Iglesias, 39   |  | Senior Vice President, General Counsel and Secretary since August 2003; General Counsel, Vice President and Secretary from July 1999 to August 2003; Associate Counsel from August 1998 to July 1999.                                                                                                                                                     
|Richard A. Lamond, 58  |  | Senior Vice President and Chief Human Resources Officer since November 2002. From 1973 to 2002, Senior Vice PresidentHuman Resources and Administration for Millennium Chemicals Inc.                                                                                                                                                                    
|Byrne K. Mulrooney, 44 |  | President, Staffing Services since September 2003; President, Operations SolutionsMidwest Region of Electronic Data Systems ("EDS") from July 2001 to August 2003; Vice President, Portfolio Management of EDS from January 2000 to July 2001; Vice
President, Distributed Systems Services of EDS from May 1999 to January 2000.                        
|Mark W. Smith, 42      |  | Senior Vice President and Chief Financial Officer since July 2003; Vice President, Business Services from September 2002 to July 2003; Vice President, Business Services and Controller from August 2001 to September 2002; Vice President, Finance and
Administration from June 2000 to August 2001; Vice President, Finance from June 1997 to June 2000.

Availability of Reports and Other Information

Our corporate website ishttp://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 ishttp://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:

2004

High

LowFirst Quarter

$
10.98

$
8.18Second Quarter


11.18


8.82Third Quarter


10.37


7.00Fourth Quarter


8.50


6.80


2003

High

LowFirst Quarter

$
6.86

$
3.80Second Quarter


6.98


3.80Third Quarter


7.86


5.72Fourth Quarter


10.10


6.75


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.

|                                           |                                            | Fiscal Years Ended
(in thousands, except per share data
and operating information)
|------------------------------------------ | ------------------------------------------ | ----------------------------------------------------------------------------------
|
|Statement of Operation Data:               |                                            |                                                                                   
|Revenues excluding Michael Page            |                                            | $                                                                                 
|Michael Page (2)                           |                                            |                                                                                   
|                                           |                                            |                                                                                   
|                                           | Total revenues                             |                                                                                   
|Gross profit                               |                                            |                                                                                   
|Earnings (loss) from continuing operations |                                            |                                                                                   
|Net earnings (loss)                        |                                            |                                                                                   
|Earnings (loss) per shareBasic:           |                                            |                                                                                   
|                                           | Earnings (loss) from continuing operations |                                                                                   
|                                           | Net earnings (loss) per share              |                                                                                   
|Earnings (loss) per shareDiluted:         |                                            |                                                                                   
|                                           | Earnings (loss) from continuing operations |                                                                                   
|                                           | Net earnings (loss) per share              |                                                                                   
|Weighted Average Shares:                   |                                            |                                                                                   
|                                           | Basic                                      |                                                                                   
|                                           | Diluted                                    |                                                                                   
|Balance Sheet Data (7):                    |                                            |                                                                                   
|Total assets                               |                                            | $                                                                                 
|Long-term debt, net of current portion     |                                            |                                                                                   
|Working capital                            |                                            |                                                                                   
|Operating Information (7):                 |                                            |                                                                                   
|Operating locations                        |                                            |                                                                                   

---

13

---



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:



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 theOperations Overviewsection 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:



14

---





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:



15

---





Operating Results

Consolidated Operating Results



16

---





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.

17

---



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):

Fiscal Years Ended2004

2003

2002Restructuring

$
2,759

$
4,205

$
(7,361
)Asset Impairments and other charges


5,636





17,810$
8,395

$
4,205

$
10,449


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

18

---



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):

|          |                       | Fiscal Years Ended |  
|--------- | --------------------- | ------------------ | -
|
|
|Revenues: |                       |                    |  
|          | Staffing Services     |                    | $
|          | Professional Services |                    |  
|          |                       |                    |  
|          | Total                 |                    | $
|          |                       |                    |  

|                                 |                                                                                                                                                 |  |   | % of Revenues |   |      |   | % of
Revenues |         |   |      | % of
Revenues |  
|-------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------- |  | - | ------------- | - | ---- | - | ------------- | ------- | - | ---- | ------------- | -
|Gross Profit:                    |                                                                                                                                                 |  |   |               |   |      |   |               |         |   |      |               |  
|                                 | Staffing Services                                                                                                                               |  | $ | 297,147       |   | 18.3 | % | $             | 275,243 |   | 19.9 | %             | $
|                                 | Professional Services                                                                                                                           |  |   | 128,464       |   | 31.4 | % |               | 112,885 |   | 32.2 | %             |  
|                                 |                                                                                                                                                 |  |   |               |   |      |   |               |         |   |      |               |  
|                                 | Total                                                                                                                                           |  | $ | 425,611       |   | 20.9 | % | $             | 388,128 |   | 22.4 | %             | $
|                                 |                                                                                                                                                 |  |   |               |   |      |   |               |         |   |      |               |  
|Segment Operating Profit (Loss): |                                                                                                                                                 |  |   |               |   |      |   |               |         |   |      |               |  
|                                 | Staffing Services                                                                                                                               |  | $ | 25,475        |   | 1.6  | % | $             | 29,746  |   | 2.2  | %             | $
|                                 | Professional Services                                                                                                                           |  |   | 19,769        |   | 4.8  | % |               | 4,717   |   | 1.3  | %             |  
|                                 |                                                                                                                                                 |  |   |               |   |      |   |               |         |   |      |               |  
|                                 | Total                                                                                                                                           |  |   | 45,244        |   | 2.2  | % |               | 34,463  |   | 2.0  | %             |  
|                                 |                                                                                                                                                 |  |   |               |   |      |   |               |         |   |      |               |  
|                                 | Unallocated corporate costs                                                                                                                     |  |   | (20,637       | ) |      |   |               | (30,801 | ) |      |               |  
|                                 | Amortization expense                                                                                                                            |  |   | (543          | ) |      |   |               | (448    | ) |      |               |  
|                                 | Interest expense                                                                                                                                |  |   | (5,766        | ) |      |   |               | (6,178  | ) |      |               |  
|                                 | Interest income                                                                                                                                 |  |   | 3,815         |   |      |   |               | 5,105   |   |      |               |  
|                                 | Restructuring, asset impairments and other charges                                                                                              |  |   | (8,395        | ) |      |   |               | (4,205  | ) |      |               |  
|                                 | Goodwill impairment                                                                                                                             |  |   |              |   |      |   |               |        |   |      |               |  
|                                 | (Loss) gain on retirement of debt                                                                                                               |  |   | (841          | ) |      |   |               | 313     |   |      |               |  
|                                 |                                                                                                                                                 |  |   |               |   |      |   |               |         |   |      |               |  
|                                 | Earnings (loss) from continuing operations before income taxes, discontinued operations and cumulative effect of change in accounting principle |  | $ | 12,877        |   |      |   | $             | (1,751  | ) |      |               | $
|                                 |                                                                                                                                                 |  |   |               |   |      |   |               |         |   |      |               |  

19

---



Segment Operating Results



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

|                                |                     | Fiscal Years Ended      |  
|------------------------------- | ------------------- | ----------------------- | -
|
|
|Revenues by Skill:              |                     |                         |  
|                                | Clerical            |                         | $
|                                | Light Industrial    |                         |  
|                                |                     |                         |  
|                                |                     | Segment Revenue         |  
|                                |                     |                         |  
|Revenues by Service:            |                     |                         |  
|                                | Temporary Staffing  |                         | $
|                                | Managed Services    |                         |  
|                                | Permanent Placement |                         |  
|                                |                     |                         |  
|                                |                     | Segment Revenues        |  
|                                |                     |                         |  
|Gross Profit Margin by Service: |                     |                         |  
|(As % of Applicable Revenues)   |                     |                         |  
|                                | Temporary Staffing  |                         |  
|                                | Managed Services    |                         |  
|                                | Permanent Placement |                         |  
|                                |                     | Total Staffing Services |  



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.



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

20

---



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.



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.



21

---





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.



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

|                                |                        | Fiscal Years Ended          |  
|------------------------------- | ---------------------- | --------------------------- | -
|
|
|Revenues by Skill:              |                        |                             |  
|                                | Information Technology |                             | $
|                                | Finance and Accounting |                             |  
|                                | Other                  |                             |  
|                                |                        |                             |  
|                                |                        | Segment Revenues            |  
|                                |                        |                             |  
|Revenues by Service:            |                        |                             |  
|                                | Temporary Staffing     |                             | $
|                                | Permanent Placement    |                             |  
|                                |                        |                             |  
|                                |                        | Segment Revenues            |  
|                                |                        |                             |  
|Gross Profit Margin by Service: |                        |                             |  
|(As % of Applicable Revenues)   |                        |                             |  
|                                | Temporary Staffing     |                             |  
|                                | Permanent Placement    |                             |  
|                                |                        | Total Professional Services |  

22

---







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.



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.

23

---





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



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.



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.

24

---



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.



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):

Fiscal Years Ended2004

2003

2002Cash Provided By (Used In):Operating Activities

$
6,077

$
50,040

$
39,163Investing Activities


33,997


(82,241
)

(119,238
)Financing Activities


(56,322
)

(14,047
)

(116,343
)Effect of exchange rates


154


2,040


1,615Net decrease in cash and cash equivalents

$
(16,094
)
$
(44,208
)
$
(194,803
)


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.

25

---



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.



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)

|                                |       | Payments due by period
|------------------------------- | ----- | ----------------------
|
|Long-term debt obligations (1)  |       | $                     
|Capital lease obligations       |       |                       
|Operating lease obligations (2) |       |                       
|Purchase obligations (3)        |       |                       
|Other liabilities (4)           |       |                       
|                                |       |                       
|                                | Total |                       
|                                |       |                       

---

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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

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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,



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:



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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

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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

|                                                                 |  | Page
|---------------------------------------------------------------- |  | ----
|Management's Report on Internal Control Over Financial Reporting |  | 37  
|Reports of Independent Registered Public Accounting Firm         |  | 38  
|Consolidated Statements of Operations                            |  | 40  
|Consolidated Balance Sheets                                      |  | 41  
|Consolidated Statements of Stockholders' Equity                  |  | 42  
|Consolidated Statements of Cash Flows                            |  | 43  
|Notes to Consolidated Financial Statements                       |  | 44  

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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 inInternal Control-Integrated
Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework inInternal
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.

/s/ROY G. KRAUSERoy G. Krause
President and Chief Executive Officer

/s/MARK W. SMITHMark W. Smith
Senior Vice President and Chief Financial Officer


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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 inInternal Control-Integrated
Frameworkissued 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 inInternal Control-Integrated Frameworkissued 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
inInternal Control-Integrated Frameworkissued 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 inInternal ControlIntegrated Frameworkissued 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)

|                                                                                                                                                |                                                                                                                                          | Fiscal Years Ended |          
|----------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------- | ------------------ | ---------
|
|Revenues                                                                                                                                        |                                                                                                                                          | $                  | 2,032,715
|Cost of services                                                                                                                                |                                                                                                                                          |                    | 1,607,104
|                                                                                                                                                |                                                                                                                                          |                    |          
|Gross profit                                                                                                                                    |                                                                                                                                          |                    | 425,611  
|                                                                                                                                                |                                                                                                                                          |                    |          
|Selling, general and administrative expenses                                                                                                    |                                                                                                                                          |                    | 401,547  
|Interest expense                                                                                                                                |                                                                                                                                          |                    | 5,766    
|Interest income                                                                                                                                 |                                                                                                                                          |                    | (3,815   
|Restructuring, asset impairments and other charges                                                                                              |                                                                                                                                          |                    | 8,395    
|Goodwill impairment                                                                                                                             |                                                                                                                                          |                    |         
|Loss (gain) on retirement of debt                                                                                                               |                                                                                                                                          |                    | 841      
|                                                                                                                                                |                                                                                                                                          |                    |          
|                                                                                                                                                |                                                                                                                                          |                    | 412,734  
|                                                                                                                                                |                                                                                                                                          |                    |          
|Earnings (loss) from continuing operations before income taxes, discontinued operations and cumulative effect of change in accounting principle |                                                                                                                                          |                    | 12,877   
|Income tax benefit                                                                                                                              |                                                                                                                                          |                    | 2,319    
|                                                                                                                                                |                                                                                                                                          |                    |          
|Earnings (loss) from continuing operations before discontinued operations and cumulative effect of change in accounting principle               |                                                                                                                                          |                    | 15,196   
|                                                                                                                                                |                                                                                                                                          |                    |          
|Discontinued Operations:                                                                                                                        |                                                                                                                                          |                    |          
|                                                                                                                                                | Loss from discontinued operations (including pre-tax loss on disposal of $4,352, $1,228 and $12,819 in 2004, 2003 and 2002 respectively) |                    |          
|                                                                                                                                                | Income tax benefit                                                                                                                       |                    |          
|                                                                                                                                                |                                                                                                                                          |                    |          
|                                                                                                                                                | Net earnings (loss) from discontinued operations                                                                                         |                    |          
|                                                                                                                                                |                                                                                                                                          |                    |          
|Earnings (loss) before cumulative effect of change in accounting principle                                                                      |                                                                                                                                          |                    | 35,829   
|Cumulative effect of changes in accounting principle, net of income tax benefit of $76,012 in 2002                                              |                                                                                                                                          |                    |         
|                                                                                                                                                |                                                                                                                                          |                    |          
|Net earnings (loss)                                                                                                                             |                                                                                                                                          | $                  | 35,829   
|                                                                                                                                                |                                                                                                                                          |                    |          
|Earnings (loss) per shareBasic:                                                                                                                |                                                                                                                                          |                    |          
|                                                                                                                                                | Earnings (loss) from continuing operations before discontinued operations and cumulative effect of change in accounting principle        |                    | $        
|                                                                                                                                                | Earnings (loss) from discontinued operations                                                                                             |                    |          
|                                                                                                                                                | Cumulative effect of change in accounting principle                                                                                      |                    |          
|                                                                                                                                                |                                                                                                                                          |                    |          
|                                                                                                                                                |                                                                                                                                          | $                  | 0.59     
|                                                                                                                                                |                                                                                                                                          |                    |          
|Earnings (loss) per shareDiluted:                                                                                                              |                                                                                                                                          |                    |          
|                                                                                                                                                | Earnings (loss) from continuing operations before discontinued operations and cumulative effect of change in accounting principle        |                    | $        
|                                                                                                                                                | Earnings (loss) from discontinued operations                                                                                             |                    |          
|                                                                                                                                                | Cumulative effect of change in accounting principle                                                                                      |                    |          
|                                                                                                                                                |                                                                                                                                          |                    |          
|                                                                                                                                                |                                                                                                                                          | $                  | 0.58     
|                                                                                                                                                |                                                                                                                                          |                    |          
|Basic weighted average shares outstanding                                                                                                       |                                                                                                                                          |                    | 61,036   
|Diluted weighted average shares outstanding                                                                                                     |                                                                                                                                          |                    | 62,313   

See Notes to Consolidated Financial Statements.

40

---



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

|                                                      |                                                                                                    | December 31,
2004          |         | December 26,
2003 |        
|----------------------------------------------------- | -------------------------------------------------------------------------------------------------- | -------------------------- | ------- | ----------------- | -------
|Assets                                                |                                                                                                    |                            |         |                   |        
|Current Assets:                                       |                                                                                                    |                            |         |                   |        
|                                                      | Cash and cash equivalents                                                                          |                            | $       | 5,154             |        
|                                                      | Receivables, less allowance for doubtful accounts of $7,077 and $6,671                             |                            |         | 352,606           |        
|                                                      | Deferred tax asset                                                                                 |                            |         | 19,263            |        
|                                                      | Income tax receivable                                                                              |                            |         | 12,363            |        
|                                                      | Insurance deposit                                                                                  |                            |         | 26,436            |        
|                                                      | Other current assets                                                                               |                            |         | 18,885            |        
|                                                      | Assets of discontinued operations                                                                  |                            |         | 4,772             |        
|                                                      |                                                                                                    |                            |         |                   |        
|                                                      |                                                                                                    | Total current assets       |         |                   | 439,479
|Goodwill                                              |                                                                                                    |                            | 48,757  |                   |        
|Property and equipment, net                           |                                                                                                    |                            | 97,683  |                   |        
|Deferred tax asset                                    |                                                                                                    |                            | 149,436 |                   |        
|Insurance deposit                                     |                                                                                                    |                            | 66,482  |                   |        
|Intangibles and other assets                          |                                                                                                    |                            | 28,429  |                   |        
|                                                      |                                                                                                    |                            |         |                   |        
|                                                      |                                                                                                    | $                          | 830,266 |                   | $      
|                                                      |                                                                                                    |                            |         |                   |        
|Liabilities and Stockholders' Equity                  |                                                                                                    |                            |         |                   |        
|Current Liabilities:                                  |                                                                                                    |                            |         |                   |        
|                                                      | Accounts payable and other accrued expenses                                                        |                            | $       | 108,308           |        
|                                                      | Accrued salaries, wages and payroll taxes                                                          |                            |         | 62,956            |        
|                                                      | Revolving lines of credit                                                                          |                            |         | 32,131            |        
|                                                      | Accrued insurance reserves                                                                         |                            |         | 34,135            |        
|                                                      | Accrued income taxes                                                                               |                            |         | 57,765            |        
|                                                      | Current portion of long-term debt and other short-term borrowings                                  |                            |         | 12,398            |        
|                                                      | Accrued restructuring                                                                              |                            |         | 2,420             |        
|                                                      | Other current liabilities                                                                          |                            |         | 8,050             |        
|                                                      | Liabilities of discontinued operations                                                             |                            |         | 1,488             |        
|                                                      |                                                                                                    |                            |         |                   |        
|                                                      |                                                                                                    | Total current liabilities  |         |                   | 319,651
|Long-term debt, net of current portion                |                                                                                                    |                            | 4,766   |                   |        
|Convertible subordinated notes                        |                                                                                                    |                            |        |                   |        
|Accrued insurance reserves                            |                                                                                                    |                            | 28,879  |                   |        
|Accrued income taxes                                  |                                                                                                    |                            |        |                   |        
|Deferred compensation and other long-term liabilities |                                                                                                    |                            | 32,678  |                   |        
|                                                      |                                                                                                    |                            |         |                   |        
|                                                      |                                                                                                    | Total liabilities          |         |                   | 385,974
|                                                      |                                                                                                    |                            |         |                   |        
|Commitments and contingencies (see Note 14)           |                                                                                                    |                            |         |                   |        
|Stockholders' Equity:                                 |                                                                                                    |                            |         |                   |        
|                                                      | Preferred stock, par value $.01 per share; authorized 2,500,000 shares; none issued or outstanding |                            |         |                  |        
|                                                      | Common stock, par value $.01 per share; authorized 200,000,000 shares; issued 65,341,609 shares    |                            |         | 653               |        
|                                                      | Treasury stock, at cost, 4,238,678 and 5,425,781 shares, respectively                              |                            |         | (40,430           | )      
|                                                      | Additional paid-in capital                                                                         |                            |         | 847,806           |        
|                                                      | Accumulated deficit                                                                                |                            |         | (366,771          | )      
|                                                      | Accumulated other comprehensive income                                                             |                            |         | 3,034             |        
|                                                      |                                                                                                    |                            |         |                   |        
|                                                      |                                                                                                    | Total stockholders' equity |         |                   | 444,292
|                                                      |                                                                                                    |                            |         |                   |        
|                                                      |                                                                                                    | $                          | 830,266 |                   | $      
|                                                      |                                                                                                    |                            |         |                   |        

See Notes to Consolidated Financial Statements.

41

---





SPHERION CORPORATION AND SUBSIDIARIES  CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY  For Fiscal Years Ended December 31, 2004, December 26, 2003 and December 27, 2002  (amounts in thousands)

|                                                                                         |                             | Common
Stock                                                                                                                      |     | Treasury
Stock |   | Additional
Paid-In
Capital |   | Retained
Earnings
(Accumulated
Deficit) |         | Accumulated
Other
Comprehensive
Income/(Loss) |   | Total    |         
|---------------------------------------------------------------------------------------- | --------------------------- | --------------------------------------------------------------------------------------------------------------------------------- | --- | -------------- | - | -------------------------- | - | --------------------------------------- | ------- | --------------------------------------------- | - | -------- | --------
|Balance as of December 28, 2001                                                          |                             | $                                                                                                                                 | 653 |                | $ | (77,444                    | ) | $                                       | 866,386 |                                               | $ | 514,585  |         
|                                                                                         |                             |                                                                                                                                   |     |                |   |                            |   |                                         |         |                                               |   |          |         
|Comprehensive loss:                                                                      |                             |                                                                                                                                   |     |                |   |                            |   |                                         |         |                                               |   |          |         
|                                                                                         | Net loss                    |                                                                                                                                   |     |               |   |                            |  |                                         |         |                                              |   |          | (903,272
|                                                                                         | Other comprehensive income: |                                                                                                                                   |     |                |   |                            |   |                                         |         |                                               |   |          |         
|                                                                                         |                             | Foreign currency translation adjustments arising during the period                                                                |     |                |  |                            |   |                                        |         |                                               |  |          |         
|                                                                                         |                             |                                                                                                                                   |     |                |   |                            |   |                                         |         |                                               |   |          |         
|                                                                                         | Comprehensive loss          |                                                                                                                                   |     |                |   |                            |   |                                         |         |                                               |   |          |         
|                                                                                         |                             |                                                                                                                                   |     |                |   |                            |   |                                         |         |                                               |   |          |         
|Purchase of treasury stock                                                               |                             |                                                                                                                                   |    |                |   | (1,660                     | ) |                                         |        |                                               |   |         |         
|Proceeds from exercise of employee stock options, including tax benefit                  |                             |                                                                                                                                   |    |                |   | 1,760                      |   |                                         | (493    | )                                             |   |         |         
|Proceeds from issuance of shares under Employee Stock Purchase Plan                      |                             |                                                                                                                                   |    |                |   | 3,609                      |   |                                         | (2,089  | )                                             |   |         |         
|Treasury stock reissued and compensation earned in connection with deferred compensation |                             |                                                                                                                                   |    |                |   | 6,875                      |   |                                         | (4,253  | )                                             |   |         |         
|                                                                                         |                             |                                                                                                                                   |     |                |   |                            |   |                                         |         |                                               |   |          |         
|Balance as of December 27, 2002                                                          |                             |                                                                                                                                   | 653 |                |   | (66,860                    | ) |                                         | 859,551 |                                               |   | (388,687 | )       
|                                                                                         |                             |                                                                                                                                   |     |                |   |                            |   |                                         |         |                                               |   |          |         
|Comprehensive income:                                                                    |                             |                                                                                                                                   |     |                |   |                            |   |                                         |         |                                               |   |          |         
|                                                                                         | Net loss                    |                                                                                                                                   |     |               |   |                            |  |                                         |         |                                              |   |          | (13,913 
|                                                                                         | Other comprehensive income: |                                                                                                                                   |     |                |   |                            |   |                                         |         |                                               |   |          |         
|                                                                                         |                             | Foreign currency translation adjustments arising during the period                                                                |     |                |  |                            |   |                                        |         |                                               |  |          |         
|                                                                                         |                             | Foreign currency translation adjustments related to the sale of The Netherlands technology subsidiary                             |     |                |  |                            |   |                                        |         |                                               |  |          |         
|                                                                                         |                             |                                                                                                                                   |     |                |   |                            |   |                                         |         |                                               |   |          |         
|                                                                                         | Comprehensive income        |                                                                                                                                   |     |                |   |                            |   |                                         |         |                                               |   |          |         
|                                                                                         |                             |                                                                                                                                   |     |                |   |                            |   |                                         |         |                                               |   |          |         
|Proceeds from exercise of employee stock options, including tax benefit                  |                             |                                                                                                                                   |    |                |   | 4,670                      |   |                                         | (2,463  | )                                             |   |         |         
|Proceeds from issuance of shares under Employee Stock Purchase Plan                      |                             |                                                                                                                                   |    |                |   | 3,092                      |   |                                         | (2,042  | )                                             |   |         |         
|Treasury stock reissued and compensation earned in connection with deferred compensation |                             |                                                                                                                                   |    |                |   | 4,127                      |   |                                         | (2,051  | )                                             |   |         |         
|                                                                                         |                             |                                                                                                                                   |     |                |   |                            |   |                                         |         |                                               |   |          |         
|Balance as of December 26, 2003                                                          |                             |                                                                                                                                   | 653 |                |   | (54,971                    | ) |                                         | 852,995 |                                               |   | (402,600 | )       
|                                                                                         |                             |                                                                                                                                   |     |                |   |                            |   |                                         |         |                                               |   |          |         
|Comprehensive income:                                                                    |                             |                                                                                                                                   |     |                |   |                            |   |                                         |         |                                               |   |          |         
|                                                                                         | Net income                  |                                                                                                                                   |     |               |   |                            |  |                                         |         |                                              |   |          | 35,829  
|                                                                                         | Other comprehensive income: |                                                                                                                                   |     |                |   |                            |   |                                         |         |                                               |   |          |         
|                                                                                         |                             | Foreign currency translation adjustments arising during the period                                                                |     |                |  |                            |   |                                        |         |                                               |  |          |         
|                                                                                         |                             | Foreign currency translation adjustments related to the sale of The Netherlands, Asia/Pacific and the United Kingdom subsidiaries |     |                |  |                            |   |                                        |         |                                               |  |          |         
|                                                                                         |                             |                                                                                                                                   |     |                |   |                            |   |                                         |         |                                               |   |          |         
|                                                                                         | Comprehensive income        |                                                                                                                                   |     |                |   |                            |   |                                         |         |                                               |   |          |         
|                                                                                         |                             |                                                                                                                                   |     |                |   |                            |   |                                         |         |                                               |   |          |         
|Proceeds from exercise of employee stock options, including tax benefit                  |                             |                                                                                                                                   |    |                |   | 10,020                     |   |                                         | (3,241  | )                                             |   |         |         
|Proceeds from issuance of shares under Employee Stock Purchase Plan                      |                             |                                                                                                                                   |    |                |   | 1,552                      |   |                                         | (604    | )                                             |   |         |         
|Treasury stock reissued and compensation earned in connection with deferred compensation |                             |                                                                                                                                   |    |                |   | 2,969                      |   |                                         | (1,344  | )                                             |   |         |         
|                                                                                         |                             |                                                                                                                                   |     |                |   |                            |   |                                         |         |                                               |   |          |         
|Balance as of December 31, 2004                                                          |                             | $                                                                                                                                 | 653 |                | $ | (40,430                    | ) | $                                       | 847,806 |                                               | $ | (366,771 | )       
|                                                                                         |                             |                                                                                                                                   |     |                |   |                            |   |                                         |         |                                               |   |          |         

See Notes to Consolidated Financial Statements.

42

---



SPHERION CORPORATION AND SUBSIDIARIES  CONSOLIDATED STATEMENTS OF CASH FLOWS  (amounts in thousands)

|                                                      |                                                                                                                                                   | Fiscal Years Ended                                                               |                                                    
|----------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------- | ---------------------------------------------------
|
|Cash Flows from Operating Activities:                 |                                                                                                                                                   |                                                                                  |                                                    
|                                                      | Earnings (loss) before cumulative effect of change in accounting principle                                                                        |                                                                                  | $                                                  
|                                                      | Adjustments to reconcile earnings (loss) before cumulative effect of change in accounting principle to net cash provided by operating activities: |                                                                                  |                                                    
|                                                      | Discontinued operations (gain) loss on disposal, net of income tax benefit                                                                        |                                                                                  |                                                    
|                                                      | Loss (gain) on retirement of debt                                                                                                                 |                                                                                  |                                                    
|                                                      | Goodwill impairment                                                                                                                               |                                                                                  |                                                    
|                                                      | Depreciation and amortization                                                                                                                     |                                                                                  |                                                    
|                                                      | Deferred income tax (benefit) expense                                                                                                             |                                                                                  |                                                    
|                                                      | Restructuring and other charges                                                                                                                   |                                                                                  |                                                    
|                                                      | Other non-cash charges                                                                                                                            |                                                                                  |                                                    
|                                                      | Changes in assets and liabilities, net of effects of acquisitions:                                                                                |                                                                                  |                                                    
|                                                      |                                                                                                                                                   | Receivables                                                                      |                                                    
|                                                      |                                                                                                                                                   | Other assets                                                                     |                                                    
|                                                      |                                                                                                                                                   | Income tax receivable                                                            |                                                    
|                                                      |                                                                                                                                                   | Accounts payable, accrued liabilities and other liabilities                      |                                                    
|                                                      |                                                                                                                                                   | Accrued income taxes                                                             |                                                    
|                                                      |                                                                                                                                                   | Restructuring liabilities                                                        |                                                    
|                                                      |                                                                                                                                                   |                                                                                  |                                                    
|                                                      |                                                                                                                                                   |                                                                                  | Net Cash Provided by Operating Activities          
|                                                      |                                                                                                                                                   |                                                                                  |                                                    
|Cash Flows from Investing Activities:                 |                                                                                                                                                   |                                                                                  |                                                    
|                                                      | Proceeds from sale of discontinued operations                                                                                                     |                                                                                  |                                                    
|                                                      | Acquisitions and earn-out payments, net of cash acquired                                                                                          |                                                                                  |                                                    
|                                                      | Capital expenditures                                                                                                                              |                                                                                  |                                                    
|                                                      | Insurance deposit                                                                                                                                 |                                                                                  |                                                    
|                                                      | Proceeds from sale of assets                                                                                                                      |                                                                                  |                                                    
|                                                      | Other                                                                                                                                             |                                                                                  |                                                    
|                                                      |                                                                                                                                                   |                                                                                  |                                                    
|                                                      |                                                                                                                                                   |                                                                                  | Net Cash Provided by (Used in) Investing Activities
|                                                      |                                                                                                                                                   |                                                                                  |                                                    
|Cash Flows from Financing Activities:                 |                                                                                                                                                   |                                                                                  |                                                    
|                                                      | Debt proceeds                                                                                                                                     |                                                                                  |                                                    
|                                                      | Debt repayments                                                                                                                                   |                                                                                  |                                                    
|                                                      | Retirement of convertible subordinated notes                                                                                                      |                                                                                  |                                                    
|                                                      | Net borrowings from lines of credit                                                                                                               |                                                                                  |                                                    
|                                                      | Purchase of treasury stock                                                                                                                        |                                                                                  |                                                    
|                                                      | Proceeds from exercise of employee stock options                                                                                                  |                                                                                  |                                                    
|                                                      | Other, net                                                                                                                                        |                                                                                  |                                                    
|                                                      |                                                                                                                                                   |                                                                                  |                                                    
|                                                      |                                                                                                                                                   |                                                                                  | Net Cash Used in Financing Activities              
|                                                      |                                                                                                                                                   |                                                                                  |                                                    
|Effect of exchange rates on cash and cash equivalents |                                                                                                                                                   |                                                                                  | 154                                                
|Decrease in cash and cash equivalents                 |                                                                                                                                                   |                                                                                  | (16,094                                            
|Cash and cash equivalents, beginning of period        |                                                                                                                                                   |                                                                                  | 21,248                                             
|                                                      |                                                                                                                                                   |                                                                                  |                                                    
|Cash and cash equivalents, end of period              |                                                                                                                                                   | $                                                                                | 5,154                                              
|                                                      |                                                                                                                                                   |                                                                                  |                                                    
|Supplemental Cash Flow Information:                   |                                                                                                                                                   |                                                                                  |                                                    
|                                                      | Cash (received) paid during the year for:                                                                                                         |                                                                                  |                                                    
|                                                      |                                                                                                                                                   | Income taxes                                                                     |                                                    
|                                                      |                                                                                                                                                   | Interest                                                                         |                                                    
|                                                      | Non-cash activities:                                                                                                                              |                                                                                  |                                                    
|                                                      |                                                                                                                                                   | Short-term notes payable entered into for purchase of software and related costs |                                                    
|                                                      |                                                                                                                                                   | Debt assumed with Canadian acquisition                                           |                                                    
|                                                      |                                                                                                                                                   | Deferred purchase price from the sale of the Asia/Pacific operations             |                                                    

See Notes to Consolidated Financial Statements.

43

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SPHERION CORPORATION AND SUBSIDIARIES  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BusinessSpherion Corporation provides temporary staffing services, managed services and permanent
placement services and currently operates in two countries: Canada and the United States. Temporary staffing is a service where Spherion's employees work at customer locations and under the
supervision of customer personnel. Temporary staffing services include personnel in the following skill categories: clerical, light industrial, information technology, finance and accounting and
administrative. Managed services includes services where Spherion assumes the operation and management of a customer function such as a call center, employment process, help desk, administrative
services, data center or network operations. Permanent placement is a service where Spherion employees locate talent on behalf of its customers, screen the candidates and assist in the recruitment
efforts. Spherion has two operating segments, Staffing Services and Professional Services. Founded in 1946, Spherion is headquartered in Fort Lauderdale, Florida, and operates a network of over 700
locations.

Principles of ConsolidationThe accompanying consolidated financial statements include the accounts of Spherion Corporation,
its wholly-owned subsidiaries and certain other entities it is required to consolidate ("Spherion"). All material intercompany transactions and balances have been eliminated. Certain prior year
amounts have been reclassified to conform to the current year presentation.

Use of Estimates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 and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Due to the inherent uncertainty involved in making estimates, actual results reported in
future periods may be materially different from those estimates.

Fiscal YearSpherion's fiscal year is comprised of 52 or 53 weeks, ending on the last Friday in December. The fiscal year
ended December 31, 2004 contained 53 weeks. The fiscal years ended December 26, 2003 and December 27, 2002 contained 52 weeks.

Cash and Cash EquivalentsAll highly liquid investments with original maturities of 90 days or less at the time of
purchase are classified as cash equivalents. Cash equivalents are carried at cost, which approximates fair value due to the short-term maturities of these instruments.

Allowance for Doubtful AccountsAccounts receivable are carried at the amount estimated to be collectible. Accordingly,
allowances are provided for accounts receivable estimated to be uncollectible based on management's best estimates based on historical write-off levels. Recoveries are recognized in the
period they are received. The ultimate amount of accounts receivable that become uncollectible could differ from those estimated.

InvestmentsInvestments in company-owned life insurance policies are classified as trading securities and are reported at fair
value with gains and losses included in earnings during the period incurred. Investments that are classified as available-for-sale securities are reported at fair value with
unrealized gains and losses reported, net of tax, as a component of stockholders' equity. Unrealized losses on available-for-sale securities are charged against earnings when a
decline in fair value is determined to be other than temporary. The specific identification method is used to determine the cost of investments sold. Investments in company-owned life insurance
policies are included in "Intangibles and other assets" in the accompanying consolidated balance sheets. Spherion did not have any investments in available-for-sale securities
as of December 31, 2004 or December 26, 2003.

44

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Goodwill and Other Intangible AssetsGoodwill and other intangible assets are accounted for in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets." This statement requires 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. Upon adoption, Spherion discontinued amortization of all goodwill; however, trade names and other intangible assets continue to be amortized on a straight-line
basis over a period of approximately 5 years. See Note 3, Goodwill and Intangible Assets, for further discussion.

Property and EquipmentProperty and equipment are stated at cost and depreciated using the straight-line method
over the estimated useful lives of the related assets. Leasehold improvements are amortized over the shorter of their estimated useful life or the lease term using the straight-line
method. Maintenance and repairs, which do not improve or extend the life of an asset, are expensed as incurred.

Capitalized Software CostsSoftware which has been developed for internal use is accounted for in accordance with Statement of
Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." Only costs incurred during the application development stage, including
design, coding, installation and testing are capitalized. These capitalized costs include external consulting fees, software license fees and internal labor costs for employees directly associated
with software development. Upgrades or modifications that result in additional functionality are capitalized, while upgrades or modifications that do not result in additional functionality are
expensed as incurred.

Impairment of Long-Lived AssetsAs required by SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," long-lived assets should be tested for recoverability whenever events or circumstances indicate that their carrying amount may not be recoverable. Spherion
evaluates the recoverability of long-lived assets to determine whether an adjustment to carrying values or a revision to estimated useful lives is appropriate if and/or when an event or
circumstance arises that would require it to do so. If the estimated future cash flows are projected to be less than the carrying value, an impairment write-down would be recorded,
measured by the amount of the asset's carrying value in excess of fair value. The estimated future cash flows of an asset or asset group are calculated on an undiscounted basis.

Accrued Self-Insurance LossesSpherion retains a portion of the risk under its workers' compensation, general
liability/professional liability, employment practices liability and health insurance benefits programs. Reserves have been recorded which reflect the discounted estimated liabilities including claims
incurred but not reported. Workers' compensation losses, general liability/professional liability and employment practices liability losses have been discounted at 4.2% and 4.5% at December 31,
2004 and December 26, 2003, respectively, and are based on actuarial estimates. Such liabilities are necessarily based on estimates and, while management believes that the amount is adequate,
there can be no assurance that changes to management's estimates may not occur due to limitations inherent in the estimation process. Changes in the estimates of these accruals are charged or credited
to earnings in the period determined. Spherion funds its workers' compensation liability with an insurance deposit. This deposit was $92.9 million and $95.1 million at
December 31, 2004 and December 26, 2003, respectively, and is included in "Insurance deposit" in the accompanying consolidated balance sheets. The deposit will be used to fund claims and
cannot be used for general corporate purposes.

Foreign Currency TranslationSpherion's foreign operation uses the local currency as its functional currency. Assets and
liabilities of this operation are translated at the exchange rates in effect on the balance sheet date. Amounts included in Spherion's Statements of Operations are translated at the average exchange
rates for the year. The impact of currency fluctuation is included in stockholders' equity as part of accumulated other comprehensive income.

Revenue RecognitionSpherion records revenues from sales of services by its company-owned and licensed operations and from
royalties earned on sales of services by its franchised operations. Staffing and managed service revenues and the related labor costs and payroll are recorded in the period in which

45

---



services
are performed. Permanent placement revenues are recognized upon candidate start date. Allowances are established to estimate losses due to placed candidates not remaining employed for
Spherion's guarantee period. Spherion follows Emerging Issues Task Force ("EITF") 99-19, "Reporting Revenue Gross as a Principal versus Net as an Agent" in the presentation of revenues and
expenses. This guidance requires Spherion to assess whether it acts as a principal in the transaction or as an agent acting on behalf of others. In situations where Spherion is the principal in the
transaction and has the risks and rewards of ownership, the transactions are recorded gross in the consolidated statements of operations.

Spherion
utilizes two forms of franchising agreements. Under the first form, Spherion records franchise royalties in accordance with SFAS No. 45, "Accounting for Franchise Fee
Revenue" based upon the contractual percentage of franchise sales, in the period in which the franchisee provides the service. Franchise royalties, which are included in revenues, were
$8.4 million, $7.3 million, and $7.3 million for the 2004, 2003 and 2002 fiscal years, respectively. The second form of franchising agreement is a licensee agreement where
Spherion acts 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 Spherion's agent providing certain sale and recruiting services. Accordingly, sales and costs of services generated by the licensed operation are recorded gross in
Spherion's consolidated statements of operations. Spherion pays the licensee a commission for acting as Spherion's agent and this commission is based on a percentage of gross profit from the office
managed by the licensee and averaged 68%, 68% and 64% for the years ended December 31, 2004, December 26, 2003 and December 27, 2002 respectively, of the licensed offices' gross
profit. The licensee is responsible for establishing their office location and paying related administrative and operating expenses, such as rent, utilities and salaries of the licensee's
full-time office employees.

Except
in the circumstance where Spherion is required to consolidate certain licensees' operations (see Note 8, Variable Interest Entities for further discussion), Spherion's
consolidated statements of operations reflect the licensee commission as an expense, but do not include the rent, utilities and salaries of the full-time office employees since these
expenses are the responsibility of the licensee. Spherion has credit risk for sales to its customers through licensee arrangements as Spherion pays all direct costs associated with providing temporary
services before related accounts receivable are collected. Spherion has partially mitigated this risk by making the licensee responsible to reimburse Spherion up to 100% of uncollected accounts
receivable (bad debts are deducted from commission payments); however, Spherion bears the loss in cases where the licensee does not have sufficient financial wherewithal to reimburse uncollected
amounts.

Income TaxesDeferred taxes arise from temporary differences between the tax basis of an asset or liability and its reported
amount in the consolidated financial statements. Valuation allowances on deferred tax assets are recorded to the extent it is more likely than not that a tax benefit will not be realized. See
Note 9, Income Taxes, for further discussion.

Earnings Per ShareBasic earnings (loss) per share is computed by dividing Spherion's earnings (loss) by the weighted average
number of shares outstanding during the period. When the effects of the common stock equivalents are not anti-dilutive, diluted earnings per share is computed by dividing Spherion's net
earnings plus after-tax interest on the convertible notes, by the weighted average number of shares outstanding and the impact of all dilutive potential common shares, primarily stock
options, convertible notes, restricted stock and deferred stock units. The dilutive impact of stock options is determined by applying the "treasury stock" method and the dilutive impact of the
convertible notes is determined by applying the "if converted" method. See Note 16, Earnings (Loss) Per Share, for further discussion.

Derivative Financial InstrumentsFrom time to time, Spherion enters into foreign exchange forward contracts as part of the
management of its foreign currency exchange rate exposures. These financial instruments are not held for trading purposes and none of the instruments are leveraged. All financial instruments are put
into place to hedge specific exposures. Gains and losses on foreign currency forward

46

---



contracts
offset gains and losses resulting from the underlying transactions. Gains and losses on contracts that hedge specific foreign currency commitments are deferred and recorded in net earnings
in the period in which the underlying transaction is recorded. Spherion accounts for its derivatives in accordance with SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended. As of December 31, 2004, Spherion had three outstanding forward contracts to sell €0.2 million Euro dollars in January 2005, 2006 and
2007, and one outstanding forward contract to sell 4.8 million Australian dollars in September 2005. As of December 26, 2003, Spherion 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 Spherion's consolidated results of operations.
Amounts receivable or payable under the agreements are included in "Other current assets" or "Other current liabilities" in the accompanying consolidated balance sheets.

Stock-Based CompensationSpherion accounts 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 Spherion's stock at the date of grant over the amount an employee must pay for the stock. Compensation cost related to
restricted stock or deferred stock units granted is recognized in the period the compensation is earned and measured using the quoted market price on the effective grant date.

Spherion
has one primary stock option plan, the 2000 Stock Incentive Plan, which is described more fully in Note 11, Stock-Based Compensation Plans. 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, Spherion has not historically or in the periods presented, recorded stock-based
compensation cost in the determination of net earnings or loss. The following table illustrates the effect on net earnings (loss) and earnings (loss) per share if Spherion had applied the fair value
recognition provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," to stock-based employee compensation (in thousands, except per share data):

Fiscal Years Ended2004

2003

2002Net earnings (loss), as reported

$
35,829

$
(13,913
)
$
(903,272
)Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects


(2,957
)

(3,063
)

(3,981
)Pro forma net earnings (loss)

$
32,872

$
(16,976
)
$
(907,253
)Earnings (loss) per share:Basicas reported

$
0.59

$
(0.23
)
$
(15.20
)Basicpro forma

$
0.54

$
(0.28
)
$
(15.27
)Dilutedas reported

$
0.58

$
(0.23
)
$
(15.20
)Dilutedpro forma

$
0.53

$
(0.28
)
$
(15.27
)


47

---



The fair value of options at grant date was estimated using the Black-Scholes multiple option model where each vesting increment is treated as a separate option
with its own expected life and own fair value. The following weighted average assumptions were used:

Fiscal Years Ended2004

2003

2002Expected life (in years)


3.3


3.2


3.0Interest rate


2.72
%

2.27
%

2.26
%Volatility


55.00
%

59.00
%

68.00
%Expected dividends








Weighted average per share fair value

$
3.55

$
4.11

$
3.12


New Accounting Pronouncements and InterpretationsIn December 2004, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 123 (revised 2004), "Share-Based Payment"
(SFAS No. 123R). SFAS No. 123R requires that the cost resulting from all share-based payment transactions be recognized in the financial statements. The standard also requires that
entities apply a fair-value-based measurement method to account for share-based payment transactions with employees (excluding equity instruments held by employee share ownership plans).
SFAS No. 123R is effective as of the beginning of the first interim period that begins after June 15, 2005. Spherion is evaluating the impact of the new standard and the method and
timing of adoption. Although Spherion has not completed its analysis, management anticipates the expense recorded in future periods would not differ materially from the amounts disclosed in the
Stock-Based Compensation section above.

In
December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29." This Statement amends APB No. 29 to
eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A
nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS No. 153 is effective for nonmonetary
asset exchanges occurring in fiscal periods beginning after June 15, 2005. The adoption of SFAS No. 153 is not expected to have an impact on Spherion's results of operations or financial
position.

In
December 2003, the FASB issued FASB Interpretation No. 46 (as revised), "Consolidation of Variable Interest Entities, an interpretation of ARB No. 51," ("FIN
46"). FIN 46 provides guidance on identifying variable interest entities ("VIE") and assessing whether or not a VIE should be consolidated. Variable interests are contractual, ownership or other
monetary interests in an entity that change with changes in the fair value of the entity's net assets exclusive of variable interests. An entity is considered to be a VIE when its capital is
insufficient to permit it to finance its activities without additional subordinated financial support or its equity investors, as a group, lack the characteristics of having a controlling financial
interest. FIN 46 requires the consolidation of entities which are determined to be VIEs when the reporting company determines that it will absorb a majority of the VIE's expected losses, receive a
majority of the VIE's residual returns, or both. The company that is required to consolidate the VIE is called the primary beneficiary. Spherion adopted FIN 46 during the first quarter of 2004. See
Note 8, Variable Interest Entities, for further discussion of the impact to Spherion's financial position as a result of the adoption of FIN 46.

2.    DISCONTINUED OPERATIONS

During 2004, Spherion assessed the profitability of its operations and made decisions to exit five of its business units. These business units included Spherion's
court reporting business, its staffing operations in the United Kingdom, the Asia/Pacific region and The Netherlands, as well as its call center outsourcing business. This decision enables Spherion to
focus on its core business in the North American staffing and recruiting markets. These subsidiaries' operating results for all periods presented in the accompanying

48

---



consolidated
statements of operations and notes thereto, have been reclassified as discontinued operations in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets."

During
the fourth quarter of 2004, Spherion sold its court reporting business for cash proceeds of $2.6 million, which resulted in a pre-tax gain on the sale of
$1.2 million. Spherion could receive additional proceeds in future periods if the purchaser achieves targeted revenue growth.

During
the third quarter of 2004, Spherion completed the disposition of both its staffing operation in the United Kingdom and its staffing operation in the Asia/Pacific region. The
operations in United Kingdom were sold for cash proceeds of $25.4 million (net of cash sold of $3.1 million), which resulted in a pre-tax gain on the sale of
$9.5 million, which was net of a $2.6 million reserve for estimated final adjustments to the net proceeds. Spherion is currently in the process of resolving the final working capital
amounts through a contractual dispute resolution mechanism and legal processes.

Spherion
sold its operations in the Asia/Pacific region in two separate transactions to two different purchasers. Total cash proceeds from both sales aggregated $13.7 million (net
of cash sold of $0.2 million) and the deferred purchase price of 5.0 million Australian dollars ($3.9 million at current exchange rates) due to Spherion in September 2005.
Spherion could receive additional proceeds in future periods if one of the purchasers achieves targeted earnings levels. Both sales transactions require working capital audits. The audit with one
purchaser is pending; the audit with the other purchaser is being litigated and Spherion has established a reserve of $0.3 million for this dispute. Spherion incurred a total loss on the sale
of these businesses of $3.4 million. Spherion remains obligated for a facility lease of one former operating location of this subsidiary; a charge of $0.8 million for the expected
remaining liability under this lease (net of estimated sublease income) was included in discontinued operations in 2004.

During
the first quarter of 2004, Spherion sold its operations in The Netherlands for cash proceeds of approximately $2.0 million (net of cash sold of $0.5 million)
resulting in a pre-tax loss on the sale of $1.7 million. As part of the sale, Spherion indemnified the purchaser for certain liabilities
including a potential employment related liability to The Netherlands government. This potential liability is backed by a bank guarantee in the amount of €3.4 million
(approximately $4.5 million at current exchange rates). The Netherlands government has asserted that Spherion did not obtain necessary documentation from or properly withhold wages from certain
employees in The Netherlands. Spherion denies the allegations but intends to enter into settlement negotiations with The Netherlands tax authorities and has established a reserve of
$0.4 million for the resolution of this matter.

In
conjunction with Spherion's decision to sell its call center outsourcing business, a $10.0 million estimated loss on sale was recorded in the third quarter of 2004 to
write-down the business (primarily equipment) to its estimated fair value. Spherion expects to complete the disposal of this subsidiary during the first half of 2005.

The
major classes of assets and liabilities for the call center outsourcing business as of December 31, 2004 are as follows (in thousands):

Receivables, net

$
4,406Prepaids and other current assets


366Total assets of discontinued operations

$
4,772Account payable and other accrued expenses

$
888Other current liabilities


600Total liabilities of discontinued operations

$
1,488


During
2002, Spherion adopted a plan to dispose of its technology consulting subsidiaries in the United Kingdom and The Netherlands and a human capital measurement business, Saratoga.
Spherion

49

---



disposed
of the United Kingdom technology subsidiary prior to December 27, 2002 and completed the disposition of Saratoga and The Netherlands technology subsidiary during the first half of
2003.

Revenues
and pre-tax (loss) earnings of these subsidiaries included within earnings (loss) from discontinued operations in the accompanying consolidated statements of
operations are as follows (in thousands):

|                                        |                                                  | 2004 |         | 2003   |   | 2002    |       
|--------------------------------------- | ------------------------------------------------ | ---- | ------- | ------ | - | ------- | ------
|
|Revenues                                |                                                  | $    | 185,922 |        | $ | 40,792  |       
|Pre-tax (loss) earnings from operations |                                                  |      | (5,172  | )      |   | (4,446  | )     
|Pre-tax gain (loss) on disposal         |                                                  |      | 5,656   |        |   | (10,008 | )     
|Income tax benefit (expense)            |                                                  |      | 28,875  |        |   | 5,728   |       
|                                        |                                                  |      |         |        |   |         |       
|                                        | Net earnings (loss) from discontinued operations |      | $       | 29,359 |   | $       | (8,726
|                                        |                                                  |      |         |        |   |         |       

---

Net earnings for the fiscal year ended December 31, 2004 includes the recognition of a previously deferred tax benefit of
$25.3 million that resulted from a higher tax basis than book basis on the sale of the international operations and a tax benefit of $3.9 million for the estimated loss on sale of the
call centers.

3.    GOODWILL AND INTANGIBLE ASSETS

During 2002 Spherion adopted 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 rather 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.

Spherion
has six reporting units with goodwill that was allocated to each division at the time of their acquisitions. Spherion performs its annual impairment test of goodwill as of its
November month-end. We measure for potential impairment at the reporting unit level which is one level below an operating segment. Aggregation of reporting units is done for purposes of
the impairment test only when the aggregation rules under SFAS No. 142, paragraph 30 are met. These rules permit reporting units with similar economic characteristics to be combined for
purposes of measuring impairment. Neither the 2004 nor the 2003 test resulted in any indication of impairment.

As
a result of the adoption of SFAS No. 142 during 2002, Spherion had recorded a pre-tax charge to earnings of $691.6 million ($615.6 million
after-tax). Additionally, Spherion performed its annual impairment test as of November 2002, and recorded an additional pre-tax impairment charge of
$230.7 million from 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 as of each test date.

50

---



Management
considered a number of factors, including valuations or appraisals, when determining these fair values.

The
initial charge recorded in connection with the adoption of SFAS No. 142 was largely a result of the decrease in Spherion's profitability during 2001 and 2000, which negatively
impacted Spherion's cash flow projections. Both the Staffing Services and Professional Services operating segments had grown rapidly through both acquisition and organic growth. With the decline in
economic conditions during 2001 and 2000, the purchase prices paid for the recruitment portion of the Norrell acquisition (in both the United States and the United Kingdom), the acquisition of
operations in the Asia/Pacific region and various United States professional recruiting acquisitions could not be supported based on a
discounted cash flow analysis or based on market comparable information. Additionally, the sharp decline in the post Year 2000 business environment similarly affected a number of Spherion's United
States technology acquisitions (Norrell and Computer Power Group) as well as Spherion's technology subsidiary in The Netherlands. Pre-tax charges relating to the Staffing Services and
Professional Services operating segments were $293.7 million and $397.9 million, respectively.

A
large part of the goodwill valuation is based upon cash flow projections. Spherion's initial valuation in January of 2002, based upon data available at that time, projected economic
recoveries in its industry beginning in 2002. Revised industry data in November of 2002 predicted a delay in the economic recovery and somewhat lower growth rates, thus resulting in lower cash flow
projections. This along with Spherion's decreased market capitalization for the six months prior to November 2002 resulted in its charge in the fourth quarter of 2002. Pre-tax
charges relating to the Staffing Services and Professional Services operating segments were $219.3 million and $11.4 million, respectively.

The
changes in the carrying amount of goodwill by segment for the twelve months ended December 31, 2004 are as follows (in thousands):

Staffing
Services

Professional
Services

TotalBalance at December 27, 2002

$
19,866

$
11,028

$
30,894Goodwill additions during the period


16,619





16,619Foreign currency changes


1,951


513


2,464Balance at December 26, 2003


38,436


11,541


49,977Foreign currency changes


1,508





1,508Goodwill written off in conjunction with the sale of the court reporting business





(403
)

(403
)Goodwill written off in conjunction with the sale of the Asia/Pacific operations





(2,325
)

(2,325
)Balance at December 31, 2004

$
39,944

$
8,813

$
48,757


Other intangible assets, which are amortized, are primarily comprised of trade names, trademarks and non-compete and employment agreements and
amounted to $2.0 million and $1.9 million, less accumulated amortization of $1.4 million and $0.9 million as of December 31, 2004 and December 26, 2003,
respectively. Amortization of trade names and other intangible assets for the fiscal years ended 2004, 2003 and 2002 amounted to $0.5 million, $0.4 million and $0.3 million,
respectively. Annual amortization expense of other intangible assets is expected to be $0.4 million, $0.1 million for the fiscal years 2005 and 2006 and less than $50,000 for each of the
fiscal years ended 2007, 2008 and 2009. The remaining weighted average life of other intangible assets is approximately 2 years.

51

---



4.    ACQUISITIONS

Spherion has accounted for all acquisitions subsequent to June 30, 2001, in accordance with SFAS No. 141, "Business Combinations," which requires
the use of the purchase method of accounting. As such, any acquired entities' operations are included in the consolidated statements of operations from the respective dates of acquisition.

On
April 4, 2003, in connection with a three-year old agreement, Spherion acquired 85% of its Canadian franchise operation for consideration of $21.6 million,
including $10.9 million of debt assumed. Spherion 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 Spherion any time after December 31, 2005, or, as amended, Spherion can call the remaining 15% interest any time after December 31, 2006. The
results of this operation are included in the Staffing Services operating segment and Spherion's consolidated results of operations as of the acquisition date. The minority interest is recorded in
"Deferred compensation and other long-term liabilities" in the accompanying consolidated balance sheets. Spherion recorded goodwill in connection with the acquisition of
$15.3 million, none of which is deductible for tax purposes. Other intangible
assets acquired include a customer contract and certain key employment agreements. These other intangible assets are being amortized over a period of approximately three years.

Pro
forma consolidated results of operations have not been presented as the Canadian results of operations are not material to Spherion's consolidated results of operations.

Also
during 2003, Spherion was obligated under an existing agreement to pay $5.0 million to acquire the remaining interest in JobOptions, an internet job board acquired by
Spherion during 2001. This amount is shown in the accompanying statements of cash flows as an investing cash outflow.

In
2002, Spherion acquired one small recruitment business and a few of Spherion's licensee and franchisee operations. Additionally, Spherion made payments related to prior year
acquisitions for contingent consideration based on the attainment of specified earnings. There were no such payments made during 2004 or 2003.

The
fair value of assets acquired and liabilities assumed (excluding cash acquired) in connection with acquisitions made in 2003 and 2002 are as follows (in thousands):

Fiscal Years Ended2003

2002Receivables

$
10,144

$
Goodwill


15,305


3,304Other intangible assets


272


300Other assets


1,101


96Accounts payable and other accrued expenses


(3,359
)

Debt assumed


(10,889
)

Minority interest


(1,861
)

Net assets acquired

$
10,713

$
3,700


52

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5.    PROPERTY AND EQUIPMENT

A summary of property and equipment follows (dollar amounts in thousands):

Fiscal Years EndedLife (in years)2004

2003Land



$
4,167

$
4,167Buildings

10-40


21,187


21,044Equipment

3-8


84,792


142,360Enterprise-wide information system

7


57,069


51,286Software, primarily third party purchased software

5


25,324


24,877Leasehold improvements and other

3-7


9,255


14,197201,794


257,931Less: Accumulated depreciation and amortization




(104,111
)

(124,483
)$
97,683

$
133,448


The enterprise-wide information system consists of capitalized consulting fees, labor and license costs incurred in 2002 through 2004.

Equipment
includes capital lease assets of $6.4 million as of December 31, 2004. There were no capital leases as of December 26, 2003. Equipment decreased by
$57.6 million during 2004, primarily due to the sale of Spherion's court reporting business and its staffing operations in the United Kingdom, the Asia/Pacific region and The Netherlands, in
addition to the reclassification and subsequent write-down of equipment relating to the call center outsourcing business within discontinued operations.

Depreciation
and amortization of property and equipment including leased assets for the fiscal years ended 2004, 2003 and 2002 amounted to $23.3 million, $19.6 million and
$20.1 million, respectively.

The
classification of certain of Spherion's businesses as discontinued operations in 2004 resulted in a decrease to property and equipment of $19.6 million, net of accumulated
depreciation. Depreciation and amortization of property and equipment related to discontinued operations for the fiscal years ended 2004, 2003 and 2002 amounted to $5.0 million,
$9.2 million and $8.8 million, respectively.

6.     RESTRUCTURING, ASSET IMPAIRMENTS AND OTHER CHARGES

A summary of the charges is as follows (in thousands):

Fiscal Years Ended2004

2003

2002Restructuring

$
2,759

$
4,205

$
(7,361
)Asset Impairments and other charges


5,636





17,810$
8,395

$
4,205

$
10,449


During
the second half of 2003, Spherion identified certain cost reduction opportunities primarily related to the realignment of its operating segments and the implementation of its
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,
Spherion terminated 104 personnel and closed 5 offices. During the first quarter of 2004, Spherion 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.

53

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Restructuring charges relating to the 2003 Plan totaled $3.4 million for the year ended December 31, 2004. These charges consisted of severance
charges of $2.1 million and facility closure expenses and charges for asset write-offs for property previously vacated of $1.3 million. Charges relating to the Staffing
Services and Professional Services operating segments amounted to $0.5 million and $1.5 million, respectively. The remainder of the charge related to corporate initiatives directed at
lowering back office personnel costs. Spherion also identified accruals of $0.6 million that were unnecessary primarily as the result of the resolution of uncertainties related to sublease
income
exposure and lower severance costs than initially anticipated, and these amounts were reversed to income during 2004.

As
discussed in Note 2, Discontinued Operations, Spherion remains obligated for a facility lease of one former operating location for its operations in the Asia/Pacific region.
This lease obligation of $0.8 million was recorded as a restructuring charge within discontinued operations during the second quarter of 2004 and is included in the table below as a facility
closure liability.

Restructuring
charges relating to the 2003 Plan totaled $4.8 million for the year ended December 26, 2003. These charges consisted of severance charges of
$3.9 million and facility closure expenses and charges for asset write-offs for property previously vacated of $0.9 million. Charges relating to the Staffing Services and
Professional Services operating segments amounted to $2.8 million and $1.3 million, respectively. The remainder of the charge related to corporate initiatives directed at lowering back
office personnel costs. Spherion also identified accruals that were unnecessary from prior period restructuring activities of $0.6 million, primarily as the result of lower severance costs than
initially anticipated, lower broker fees and lower fixed asset write-offs, and these amounts were reversed to income during 2003.

No
restructuring activities were undertaken during 2002, however as part of its on-going restructuring monitoring process, Spherion determined that restructuring charges of
$7.4 million from prior years were 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.



During the first quarter of 2004, Spherion incurred other charges of $5.9 million to terminate the employment contract of its 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, Spherion 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, Spherion 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, Spherion 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
Spherion's obligation under an employment contract with a former executive.

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An
analysis of the restructuring plans, along with amounts remaining to be distributed under prior years' restructuring plans, are as follows (in thousands):

Facility
Closures
and Asset
Write-offs

Severance

TotalBalance at December 28, 2001

$
25,953

$
7,864

$
33,817Utilized during fiscal 2002


(13,880
)

(5,816
)

(19,696
)Reversal of over accrual


(5,716
)

(1,645
)

(7,361
)Balance at December 27, 2002 before reclass


6,357


403


6,760Reclassified to discontinued operations (1)


(635
)

(187
)

(822
)Balance at December 27, 2002


5,722


216


5,9382003 Plan Charges


949


3,862


4,8112003 Plan Charges, discontinued operations (2)


224


785


1,009Utilized during fiscal 2003


(2,899
)

(2,721
)

(5,620
)Reversal of over accrual


(607
)




(607
)Balance at December 26, 2003


3,389


2,142


5,5312004 Plan Charges


1,285


2,146


3,4312004 Plan Charges, discontinued operations (2)


791





791Utilized during fiscal 2004


(2,546
)

(4,115
)

(6,661
)Reversal of over accrual


(590
)

(82
)

(672
)Balance at December 31, 2004

$
2,329

$
91

$
2,420


---

At
December 31, 2004, the remaining accruals for facility closures and asset write-offs of $2.3 million relate to lease payments on 15 closed locations that
will be paid out through 2013 (net of applicable sublease income), and assets to be disposed of. The remaining severance accruals relate to terminated employees who have extended payout terms.
Severance for employees with retention periods that extend past 60 days are accrued ratably over the retention period.

55

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7.     SHORT-TERM AND LONG-TERM DEBT OBLIGATIONS

A summary of short-term and long-term debt obligations is as follows (in thousands):

Fiscal Years Ended2004

2003Short-term debt obligations:U.S. dollar revolving line of credit, secured by accounts receivables, due 2009

$
25,000

$
Canadian dollar revolving line of credit, secured by accounts receivables, due 2007


7,131


U.S. dollar convertible promissory notes, due 2005


8,000


Software license note payable, due 2005 and 2004, respectively


1,526


6,775Other debt, due 2005


1,460


Current portion of long-term debt


1,412


164Total short-term debt obligations

$
44,529

$
6,939Long-term debt obligations:U.S. dollar convertible subordinated notes, due 2005

$


$
89,748U.S. dollar convertible promissory notes, due 2005





8,000Capital lease, due through 2011


5,858


Other debt, due 2005 through 2008


320


489Total long-term debt obligations


6,178


98,237Less current portion of long-term debt


(1,412
)

(164
)Less U.S. dollar convertible subordinated notes, due 2005





(89,748
)Long-term debt, net of current portion

$
4,766

$
8,325


During
2004, Spherion amended its four-year U.S. dollar revolving line of credit (secured by substantially all of its domestic accounts receivable) to provide
$250 million of on-balance sheet financing through July of 2009. There was $25.0 million outstanding at December 31, 2004 and no amounts outstanding under this
facility at December 26, 2003. Total availability under this facility was $188.6 million for the year ending December 31, 2004 and is 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. Interest on this line of credit is based upon the
duration of the loan, availability under the line and other conditions and would have been approximately 4.28% (LIBOR plus a spread) or approximately 5.25% (prime plus a spread) as of
December 31, 2004. Spherion incurred interest charges under this facility at an average interest rate approximating 3.8% during 2004. Spherion pays 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, Spherion also entered into a Canadian dollar revolving line of credit (secured by Canadian accounts receivable) that matures July 2007. This facility 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, Spherion had
8.6 million Canadian dollars (approximately $7.1 million at current exchange rates) outstanding under this facility. As of December 31, 2004, the interest rate for amounts
borrowed on this facility approximated 6.25% (prime plus a spread). Spherion incurred interest charges under this facility at an average interest rate approximating 4.8% during 2004. A commitment fee
of 0.5% per annum is payable based on the unused portion of the revolving line of credit.

Spherion's
credit facility provides for certain affirmative and negative covenants which may limit the total availability under this facility based upon Spherion's ability to meet these
covenants. These covenants include, but are not limited to: a fixed charge coverage ratio; limitations on capital expenditures; additional

56

---



debt
incurred; mergers, consolidations or sales; and transactions with subsidiaries and related parties. At December 31, 2004, Spherion was in compliance with the requirements of these
covenants.

During
2004, Spherion retired its remaining U.S. dollar convertible subordinated notes (the "Notes") and paid a premium of $0.6 million to retire the Notes and
wrote-off the remaining bond issuance costs of $0.2 million, both of which are included in "Loss (gain) on retirement of debt" in the accompanying consolidated statements of
operations. The Notes were issued in May 1998 and were convertible into common stock at any time prior to maturity at a conversion rate of 26.8052 per each $1,000 principal amount, equivalent
to a conversion price of approximately $37.31 per share. Interest on the Notes was payable semi-annually on June 1 and December 1 of each year at a rate of
41/2%. During 2003, Spherion had retired an aggregate face value of $7.0 million of the Notes for a purchase price of $6.6 million. During 2002, Spherion had retired an
aggregate face value of $110.3 million of the Notes for a purchase price of $98.7 million. Spherion recorded a gain, net of bond issuance cost write-offs, of
$0.3 million and $10.5 million, for the fiscal years ending December 26, 2003 and December 27, 2002, respectively, which is included in "Loss (gain) on retirement of debt"
in the accompanying consolidated statements of operations.

Spherion
entered into a seven-year contract with a third party information technology company to outsource its technology infrastructure operations effective as of
July 26, 2004. The contract includes the sale at book value (which approximates fair market value) of certain computer hardware to be operated by the outsource provider. Spherion accounted for
this portion of the outsourced transaction as a sale-leaseback pursuant to SFAS No. 13, "Accounting for Leases." Spherion recorded an asset and a capital lease obligation of
$6.4 million at the start of the contract. The capital lease obligation remaining at December 31, 2004 was $5.9 million.

In
October 2000, Spherion 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).

Aggregate
future maturities of long-term debt as of December 31, 2004 are $12.4 million in 2005, $1.5 million in 2006, $8.3 million in 2007,
$0.6 million in 2008, $25.6 million in 2009 and $0.9 million due thereafter. These future maturities include the U.S. and Canadian dollar revolving line of credit balances 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 management's
intent and ability to repay these obligations in 2005.

8.     VARIABLE INTEREST ENTITIES

During the first quarter of 2004, Spherion adopted FASB Interpretation ("FIN") No. 46, "Consolidation of Variable Interest Entities, an interpretation of
ARB No. 51," as revised. FIN 46 provides guidance on identifying variable interest entities ("VIE") and assessing whether or not a VIE should be consolidated. Variable interests are
contractual, ownership or other monetary interests in an entity that change with changes in the fair value of the entity's net assets exclusive of variable interests. An entity is considered to be a
VIE when its capital is insufficient to permit it to finance its activities without additional subordinated financial support or its equity investors, as a group, lack the characteristics of having a
controlling financial interest. FIN 46 requires the consolidation of entities which are determined to be VIEs when the reporting company determines that it will absorb a majority of the VIE's expected
losses, receive a majority of the VIE's residual returns, or both. The company that is required to consolidate the VIE is called the primary beneficiary.

Spherion
has two forms of franchising arrangements, franchises and licenses. Spherion has determined that the franchise and/or license arrangement alone does not create a variable
interest.

57

---



However,
Spherion has provided financing to certain of its franchisees and licensees, which does create a potential variable interest relationship.

Upon
initial adoption in the first quarter of 2004, Spherion had six franchisees with loan balances totaling approximately $3.1 million. After performing the required
probability-weighted cash flow analyses, three of the franchisees were determined not to be VIEs. The remaining three are VIEs. It was determined that Spherion is not the primary beneficiary of these
VIEs, thus consolidation is not required. During the fourth quarter of 2004, one of the franchisees purchased an additional territory; therefore the probability-weighted cash flow analysis for this
franchisee was reperformed and it was determined that this franchisee is no longer a VIE. The franchisees determined to be VIEs, provide light industrial and clerical staffing and their approximate
gross revenues for the periods ended December 31, 2004 and December 26, 2003 were $7.8 million and $6.1 million, respectively. Spherion's
maximum exposure to loss is limited to its loan and royalty receivable balances for these two VIEs of $0.5 million as of December 31, 2004. All loan and royalty receivables are included
in "Other current assets" and "Intangibles and other assets" in the accompanying consolidated balance sheets. There were no other franchisees identified as a potential VIE subsequent to adoption.

Upon
adoption in the first quarter of 2004, Spherion had 13 licensees with total loan balances approximating $1.0 million. Spherion performed its evaluation on these licensee
entities and determined that these entities are VIEs and Spherion is the primary beneficiary. As such, Spherion began consolidating the operations and assets and liabilities of these licensees upon
adoption of FIN 46. Subsequent to the initial adoption, one new licensee loan was issued, six licensees have paid off their loans and two licensees' loans were paid off due to the sale of Spherion's
court reporting business in the fourth quarter of 2004. The respective assets and liabilities of the licensees who no longer have loans with Spherion have been deconsolidated, while the licensee with
the new loan has been consolidated. Spherion's licensees provide light industrial and clerical staffing and the approximate revenues for the periods ended December 31, 2004 and
December 26, 2003 from these six licensees' operations were $39.6 million and $27.4 million, respectively. Revenues and costs of services generated by all licensed operations are
recorded gross in Spherion's consolidated statements of operations and Spherion pays the licensee a commission. The licensee is responsible for establishing their office location and paying related
administrative and operating expenses, such as rent, utilities and salaries of the licensee's full-time office employees. For the licensed operations that have been determined to be VIEs
and are now consolidated, the impact on Spherion's consolidated statements of operations is the elimination of their respective licensee commissions, which is replaced with salaries and wages,
depreciation, other operating expenses and minority interest expense as the licensee still retains the incremental profits or losses. Spherion's total assets and liabilities increased upon adoption of
FIN 46 by $3.5 million due to the consolidation and this amount decreased to $0.8 million at December 31, 2004 due to the deconsolidation of the eight licensees discussed above.
Each licensee's loan is collateralized by their respective business. In the event of default on the loan, Spherion retains the right to take over their operations. General creditors of Spherion's
licensees do not have any recourse against Spherion.

58

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9.     INCOME TAXES

Earnings (loss) from continuing operations before income taxes and the components of the income tax benefit are as follows (in thousands):

2004

2003

2002Earnings (loss) from continuing operations before income taxes:United States

$
12,643

$
(1,782
)
$
(234,105
)Foreign


234


31


$
12,877

$
(1,751
)
$
(234,105
)Current tax expense (benefit):Federal

$
1,724

$
5,580

$
(32,587
)State and local


968


806


730Foreign


44


1


2,736


6,387


(31,857
)Deferred tax (benefit) expense:Federal


579


(7,149
)

14,277State and local


(5,634
)

596


2,647(5,055
)

(6,553
)

16,924Total benefit for income taxes

$
(2,319
)
$
(166
)
$
(14,933
)


The
following table reconciles the United States Federal income tax rate to Spherion's effective tax rate (benefit):

2004

2003

2002Statutory rate

35.0
%
(35.0
)%
(35.0
)%(Decrease) increase in rate resulting from:State and local income taxes, net of Federal benefit

(40.7
)
62.1

1.5Nondeductible amortization of intangibles





29.5Wages to work credits

(17.2
)
(118.8
)
(1.0
)Foreign tax deductions and credits

1.3

71.2

(0.1
)Nondeductible meals and entertainment

4.2

35.2

0.3Company-owned life insurance

(3.2
)
(22.6
)
0.4Other, net

2.6

(1.6
)
(2.0
)(18.0
)%
(9.5
)%
(6.4
)%


59

---



Significant
components of Spherion's deferred tax assets and liabilities are as follows (in thousands):

2004

2003Current deferred tax asset:Employee benefits, primarily deferred compensation

$
2,424

$
2,579Self-insurance and accrued compensation


3,098


7,758Sale of Interim HealthCare business


938


1,896Accrued expenses, including restructuring


10,062


6,596Receivables allowances


2,741


2,03919,263


20,868Non-current deferred tax asset (liabilities):Employee benefits, primarily deferred compensation


12,944


12,402Self-insurance


20,956


25,816Fixed assets


(6,992
)

(5,467
)Intangible assets


81,707


90,666General business credit carryforward


6,428


3,200Federal net operating losses


29,922


10,834State net operating loss


8,229


3,773Unused tax credits and net operating loss benefits


242


241Canada net operating loss


2,128


1,639Foreign net operating loss and other





6,703155,564


149,807Valuation allowance


(6,128
)

(5,653
)149,436


144,154Net deferred tax asset


168,699


165,022Less current deferred tax asset


19,263


20,868Long-term deferred tax asset

$
149,436

$
144,154


At
December 31, 2004, Spherion 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. 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.

At
December 31, 2004, there were no unremitted earnings of foreign subsidiaries due to their disposition. At December 26, 2003, unremitted earnings of foreign subsidiaries
were $23.8 million.

Spherion
has a U.S. federal net operating loss carryforward in the amount of $85.5 million expiring in 2023 and thereafter. Spherion has $199.8 million of state net
operating loss carryforwards which expire over the next one to twenty years. A valuation allowance in the amount of $3.8 million has been recorded against these losses and against state
deferred tax assets. Canada net operating loss carryforwards are available in the amount of $6.0 million, and expire between 2005 and 2009. A valuation allowance has been booked against the
full benefit of the Canada losses.

In
2004, Spherion reported a state tax benefit of $6.3 million resulting from state net operating losses and from the application of a revised state income tax rate to deferred
tax assets. The benefit of the losses and state deferred tax assets was evaluated for realizability, and a valuation allowance was recorded as indicated above.

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In 2002, Spherion 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, Spherion's tax refund for its 2002 filing year was increased by approximately
$60 million. Spherion believes that it has appropriately reported these transactions in its tax returns, and that it has established adequate reserves as of December 31, 2004 in the
amount of $57.8 million, with respect to any tax liabilities that may arise in relation to these transactions and any other potential tax liabilities. These reserves are included in "Accrued
Income Taxes" in the accompanying consolidated balance sheet, and has been classified within current liabilities.

10.    EMPLOYEE SAVINGS AND INVESTMENT PLANS

Spherion has a voluntary employee savings plan (the 401(k) Benefit Plan) covering substantially all eligible United States employees. This plan has a basic match
for those employees eligible to receive the match, which is based on employee contributions. Employer contributions, net of forfeitures, by Spherion under the plan amounted to $0.6 million,
$0.5 million and $0.9 million for fiscal years 2004, 2003 and 2002, respectively. There were approximately 1,600 participating employees in this plan as of December 31, 2004.

Spherion
also has a voluntary non-qualified deferred compensation plan for highly compensated employees who are not eligible to participate in Spherion's 401(k) Benefit Plan.
The plan allows eligible employees to defer receipt of a portion of their compensation. Employee deferrals earn a return based on each employee's elected hypothetical plan investments including
amounts represented by deferred stock units of Spherion's common stock. The plan is not funded, however Spherion maintains investments in company-owned life insurance policies included in "Intangibles
and other assets" in the accompanying consolidated balance sheets. These policies had asset values of $16.7 million and $17.1 million as of December 31, 2004 and
December 26, 2003, respectively, however Spherion's available asset balance at December 31, 2004 was $15.4 million, net of a $1.3 million policy loan. The earnings from
these investments partially offset Spherion's cost of providing the benefit. The deferred compensation and accumulated investment earnings or losses, are accrued. Such accrual amounted to
$27.4 million and $26.7 million at December 31, 2004 and December 26, 2003, respectively, the long-term portion of which was included in "Deferred compensation
and other long-term liabilities" and the short-term portion in "Other current liabilities" in the accompanying consolidated balance sheets. Employee deferrals within this plan
represented as deferred stock units of Spherion are included in additional paid-in capital within the stockholders' equity section of the accompanying consolidated balance sheets (rather
than in "Deferred compensation and other long-term liabilities") as employees may only be paid out in shares of Spherion stock. There were approximately 200 employees participating in this
plan as of December 31, 2004.

Spherion
has an Employee Stock Purchase Plan that provides substantially all employees who have been employed for at least six months an opportunity to purchase shares of its common
stock at a discount of 15%. The aggregate amount an employee may purchase each calendar year is limited to a maximum of 15% of an employee's compensation or $25,000 in the value of the stock. There
were 113,473 and 224,320 shares issued in 2004 and 2003, respectively, under this plan. In March 2004, Spherion amended and restated its Employee Stock Purchase Plan to authorize an additional
1 million shares for sale under this plan. A total of 1,048,666 shares are available as of December 31, 2004 for purchase under the plan, which expires on July 1, 2015.

11.    STOCK-BASED COMPENSATION PLANS

Spherion has one primary stock option plan, the 2000 Stock Incentive Plan. Under the plan, options to purchase Spherion's common stock may be granted to employees
and outside directors of Spherion and its subsidiaries for periods not to exceed ten years at a price that is not less than 100% of fair market value on

61

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the
date of grant. At December 31, 2004 and December 26, 2003, Spherion had 3,418,626 and 2,426,701 shares, respectively, reserved for future grants under the plan.

Changes
under these stock option plans for 2004, 2003 and 2002 were as follows:

|                                       |  | 2004       |   | 2003 |       | 2002
|-------------------------------------- |  | ---------- | - | ---- | ----- | ----
|
|Outstanding at beginning of year       |  | 6,538,323  |   | $    | 10.02 |     
|Granted                                |  | 82,353     |   |      | 8.72  |     
|Exercised                              |  | (804,492   | ) |      | 6.86  |     
|Forfeited                              |  | (1,233,215 | ) |      | 11.47 |     
|                                       |  |            |   |      |       |     
|Outstanding at end of year             |  | 4,582,969  |   | $    | 10.16 |     
|                                       |  |            |   |      |       |     
|Options exercisable at end of the year |  | 3,422,654  |   | $    | 10.57 |     
|                                       |  |            |   |      |       |     

The following table summarizes information about fixed stock options outstanding at December 31, 2004:

|  |              | Options Outstanding |           |  |      | Options Exercisable
|- | ------------ | ------------------- | --------- |  | ---- | -------------------
|
|$ | 0.00-$  7.49 |                     | 1,699,710 |  | 7.11 |                    
|$ | 7.50-$  9.99 |                     | 1,623,239 |  | 8.56 |                    
|$ | 10.00-$19.99 |                     | 985,043   |  | 4.56 |                    
|$ | 20.00-$31.00 |                     | 274,977   |  | 3.25 |                    
|  |              |                     |           |  |      |                    
|  |              |                     | 4,582,969 |  | 6.84 |                    
|  |              |                     |           |  |      |                    

In December 2001, Spherion commenced a tender offer for certain stock options held by its United States resident employees. The offer granted holders of
options the ability to tender 21/2 stock options
with exercise prices of $18.00 or more for one new option to be granted on August 9, 2002 at a price equal to the fair market value on the date of the grant. Under this offer, 2,224,388 options
were forfeited and tendered in January 2002 for which Spherion issued new options in August 2002 to purchase 871,574 shares.

As
discussed in Note 1, Significant Accounting Policies, Spherion accounts for stock-based compensation using the intrinsic value method of accounting as prescribed by APB Opinion
No. 25. The table in Note 1 summarizes the impact had Spherion adopted the fair value based method prescribed by SFAS No. 123, "Accounting for Stock-Based Compensation" for the
fiscal years ended 2004, 2003 and 2002.

Spherion
employees and outside directors are also eligible to receive grants of deferred stock units. Deferred stock units entitle the individual to receive shares of Spherion common
stock at a future date after meeting service requirements or Spherion has met financial targets. Approximately 52,500 and 499,000 deferred stock units were granted during 2004 and 2003, respectively.
These deferred stock units were granted to key management employees and outside directors and ranged in market values from $4.40 to $10.00. The deferred stock units vest between one and seven years or
a shorter period based upon certain performance criteria. The value of these deferred stock units is amortized to compensation expense

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ratably
over the vesting period and totaled $1.0 million, $2.5 million and $2.7 million, for the years ended 2004, 2003 and 2002, respectively.

12.    STOCKHOLDER RIGHTS PLAN

On February 17, 1994, Spherion's Board of Directors adopted a rights plan to protect stockholders in the event of an unsolicited attempt to acquire
Spherion which is not believed by the Board of Directors to be in the best interest of stockholders. Under the plan, a dividend of one right (a "Right") per share was declared and paid on each share
of Spherion's common stock outstanding on April 1, 1994. As to shares issued after such date, Rights will automatically attach to them after their issuance.

Under
the plan, as amended during 2003, registered holders of each Right may purchase from Spherion one one-hundredth of a share of a new class of Spherion's preferred stock,
$0.01 par value per share, at a price of $55.00, subject to adjustment, when the Rights become exercisable. The Rights become exercisable when a person or group of persons acquires 15% or more of the
outstanding shares of Spherion's common stock without the prior written approval of Spherion's Board of Directors (an "Unapproved Stock Acquisition"), and after ten business days following the
commencement of a tender offer that would result in an Unapproved Stock Acquisition. If a person or group of persons makes an Unapproved Stock Acquisition, the registered holder of each Right has the
right to purchase, for the exercise price of the Right, a number of shares of Spherion's common stock
having a market value equal to twice the exercise price of the Right. In the event of an Unapproved Stock Acquisition, and if following the Unapproved Stock Acquisition, Spherion is involved in either
(i) a merger or (ii) a sale of 50% or more of Spherion's assets or earning power, then in such case, the registered holder of each Right has the right to purchase, for the exercise price
of the Right, a number of shares of the common stock of the acquiring company having a market value equal to twice the exercise price of the Right.

After
an Unapproved Stock Acquisition, but before any person or group of persons acquires 50% or more of the outstanding shares of Spherion's common stock, the Board of Directors may
exchange all or part of the then outstanding and exercisable Rights for common stock at an exchange ratio of one share of common stock per Right. Upon any such exchange, the right of any holder to
exercise a Right terminates.

Spherion
may redeem the Rights at a price of $0.01 per Right at any time prior to an Unapproved Stock Acquisition. The Rights expire on April 1, 2014, unless extended by the Board
of Directors. Until a Right is exercised, the holder thereof, as such, has no rights as a stockholder of Spherion, including the right to vote or to receive dividends. The issuance of the Rights alone
has no dilutive effect and does not affect reported earnings per share. A committee comprised of Spherion's independent board members shall review the Rights plan at least once in every
three-year period to determine whether the maintenance of the Rights plan continues to be in the interests of Spherion and its stockholders.

13.    FINANCIAL INSTRUMENTS AND FAIR VALUES

The fair value of a financial instrument represents the amount at which the instrument could be exchanged in a current transaction between willing parties, other
than in a forced or liquidation sale. Fair value estimates are made at a specific point in time, based upon relevant market information about the financial instrument.

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.
Spherion's 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.

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In
estimating the fair value of derivative positions, Spherion utilizes quoted market prices, if available, or quotes obtained from outside sources. As of December 31, 2004,
Spherion 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, Spherion had one outstanding forward contract to sell 5.0 million Canadian dollars. Each of these
derivatives had a fair value, or cost to unwind that is not material to the consolidated results of operations.

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.

14.    COMMITMENTS AND CONTINGENCIES

Substantially all of Spherion's field operations are conducted in leased premises. Spherion also leases computers and other equipment. Total lease expense for the
years ended December 31, 2004, December 26, 2003 and December 27, 2002 was $22.1 million, $23.2 million and $24.1 million, respectively. Future minimum lease
payments under non-cancelable leases as of December 31, 2004 are $24.2 million, $18.0 million, $12.8 million, $8.1 million and $6.9 million in the
years 2005 through 2009 and $5.4 million thereafter which are partially offset by $12.3 million under future non-cancelable subleases. Of these future minimum lease payments,
$10.7 million has been accrued as of December 31, 2004, related to facility closures and are included as part of "Accrued restructuring", "Accounts payable and other accrued expenses"
and "Deferred compensation and other long-term liabilities" in the accompanying consolidated balance sheets.

In
connection with the disposition of certain subsidiaries, Spherion, from time to time provides routine indemnifications with respect to equipment and real estate leases and in certain
cases the performance of services. See Note 2, Discontinued Operations for further discussion.

Spherion
had outstanding irrevocable letters of credit of approximately $1.9 million, worker's compensation collateral of approximately $1.3 million and surety bonds
outstanding of approximately $0.2 million as of December 31, 2004. These instruments primarily collateralize Spherion's recorded obligations under workers' compensation insurance
programs. The level of collateral required is determined by the insurance carrier based on claims experience of the programs and may vary from year to year. Additionally, Spherion has a bank guarantee
of €3.4 million ($4.5 million at current exchange rates) relating to an indemnification on the sale of its Netherlands operations. See Note 2, Discontinued
Operations, for further discussion.

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

Interim
HealthCare Inc., Catamaran Acquisition Corp. and Cornerstone Equity Investors IV, L.P. filed an action against Spherion in the Delaware Court of Chancery. Their complaint,
filed on June 26, 2001 and amended on July 24, 2001, related to the 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 Spherion in an action in Delaware Superior Court alleging multiple breach of contract claims arising out of the Healthcare Divestiture. Spherion's 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

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post-trial
briefs and oral argument was held in July 2004. The Court issued its opinion in February 2005. The opinion provides that Spherion does 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, Spherion reduced its reserves related to this case and as of December 31, 2004 has reserves
remaining in the amount of $2.4 million. Spherion does not have insurance coverage for these claims. Spherion believes the resolution of this matter will not have a material impact on its
consolidated financial position, liquidity or results of operations above the amounts it has 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 allege that in doing so, he was acting as an agent of Spherion. Spherion intends to vigorously defend the action. As it is too early to
determine the probability of an unfavorable outcome, Spherion has not established a reserve for the resolution of this matter. Spherion does not have insurance coverage for these claims.

In
2002, Spherion 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, Spherion's tax refund for its 2002 filing year was increased by approximately
$60 million. Spherion believes that it has appropriately reported these transactions in its tax returns, and that it has established adequate reserves as of December 31, 2004 in the
amount of $57.8 million, with respect to any tax liabilities that may arise in relation to these transactions or any other potential tax liabilities should its position be successfully
challenged by tax authorities. The sale of the international subsidiaries allowed Spherion to reverse reserves of $25.3 million during 2004. (See Note 2, Discontinued Operations, for
further information.) An unfavorable settlement or adverse resolution could result in the repayment of a portion of the refund received.

Several
states are examining Spherion's prior year unemployment tax rates. Revisions of these rates by any state would result in additional payments related to the prior year's
unemployment taxes in that state. In the states where the rate is currently being examined and challenged, the claims raised by the states approximate $3.6 million plus potential interest and
penalties. As of December 31, 2004, Spherion had $2.1 million accrued as its best estimate of losses it expects to incur as a result of these challenges. It is possible that Spherion
could face additional challenges in these or other states to its rates in prior years, but Spherion will vigorously defend against these challenges.

Spherion's
former Australian subsidiary entered into research and development syndicates formed in Australia. These syndicates were formed to create new technologies, typically software,
and allowed the investment member to obtain accelerated tax deductions and credits and Spherion's former Australian subsidiary provided the investment member with indemnification. The Australian tax
authorities have notified Spherion that they are examining two of these syndicates for the 1993 to 2000 tax years. Spherion

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has
engaged counsel in Australia to review the issues raised by the Australia Tax Office, and is awaiting the results of this review. The total amount of the tax credits and tax benefits taken by the
investment members were approximately $10 million. Management is unable at this time to assess the probability of loss, if any, and consequently has not recorded a reserve for this matter.

15.    SEGMENT INFORMATION

Spherion is organized and managed around two operating segmentsStaffing Services and Professional Services. Each segment has separate and distinct
leadership teams, each with a business unit president that reports directly to Spherion's Chief Executive Officer. Each segment provides services to customers in different types of skill-sets. The
Staffing Services operating segment is concentrated around clerical and light industrial staffing, while the Professional Services operating segment is concentrated around higher level skill-sets,
such as information technology, finance and
accounting, engineering and administrative. Spherion evaluates the performance of its operating segments and allocates resources based on revenues, gross profit and segment operating profit. Segment
operating profit is defined as earnings (loss) from continuing operations before unallocated corporate costs, amortization expense, interest expense, interest income, income taxes and special items
(restructuring, asset impairments and other charges, goodwill impairment and (loss) gain on retirement of debt). All material intercompany revenues and expenses have been eliminated. Operating results
related to discontinued operations have been eliminated from the segment information below, unless otherwise noted.

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

|                                 |                                                                                                                                                 | Fiscal Years Ended |  
|-------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------- | ------------------ | -
|
|Revenues:                        |                                                                                                                                                 |                    |  
|                                 | Staffing Services                                                                                                                               |                    | $
|                                 | Professional Services                                                                                                                           |                    |  
|                                 |                                                                                                                                                 |                    |  
|                                 |                                                                                                                                                 | Total              |  
|                                 |                                                                                                                                                 |                    |  
|Gross Profit:                    |                                                                                                                                                 |                    |  
|                                 | Staffing Services                                                                                                                               |                    | $
|                                 | Professional Services                                                                                                                           |                    |  
|                                 |                                                                                                                                                 |                    |  
|                                 |                                                                                                                                                 | Total              |  
|                                 |                                                                                                                                                 |                    |  
|Segment Operating Profit (Loss): |                                                                                                                                                 |                    |  
|                                 | Staffing Services                                                                                                                               |                    | $
|                                 | Professional Services                                                                                                                           |                    |  
|                                 |                                                                                                                                                 |                    |  
|                                 |                                                                                                                                                 | Total              |  
|                                 | Unallocated corporate costs                                                                                                                     |                    |  
|                                 | Amortization expense                                                                                                                            |                    |  
|                                 | Interest expense                                                                                                                                |                    |  
|                                 | Interest income                                                                                                                                 |                    |  
|                                 | Restructuring, asset impairments and other charges                                                                                              |                    |  
|                                 | Goodwill impairment                                                                                                                             |                    |  
|                                 | (Loss) gain on retirement of debt                                                                                                               |                    |  
|                                 |                                                                                                                                                 |                    |  
|                                 | Earnings (loss) from continuing operations before income taxes, discontinued operations and cumulative effect of change in accounting principle |                    | $
|                                 |                                                                                                                                                 |                    |  
|Geographic Information:          |                                                                                                                                                 |                    |  
|Revenues:                        |                                                                                                                                                 |                    |  
|                                 | North America                                                                                                                                   |                    | $
|                                 |                                                                                                                                                 |                    |  
|                                 |                                                                                                                                                 | Total              |  
|                                 |                                                                                                                                                 |                    |  
|                                 |                                                                                                                                                 |                    |  

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|Services Information:        |                       |       |   |           |           |   |           |           |   |          
|---------------------------- | --------------------- | ----- | - | --------- | --------- | - | --------- | --------- | - | ---------
|Revenues:                    |                       |       |   |           |           |   |           |           |   |          
|                             | Temporary Staffing    |       | $ | 1,679,543 |           | $ | 1,374,215 |           | $ | 1,385,550
|                             | Managed Services      |       |   | 297,627   |           |   | 316,355   |           |   | 348,404  
|                             | Permanent Placement   |       |   | 55,545    |           |   | 43,191    |           |   | 37,165   
|                             |                       |       |   |           |           |   |          
|                             |                       | Total |   | $         | 2,032,715 |   | $         | 1,733,761 |   | $        
|                             |                       |       |   |           |           |   |          
|Depreciation Expense:        |                       |       |   |           |           |   |           |           |   |          
|                             | Staffing Services     |       | $ | 17,312    |           | $ | 13,685    |           | $ | 13,821   
|                             | Professional Services |       |   | 5,959     |           |   | 5,937     |           |   | 6,229    
|                             |                       |       |   |           |           |   |          
|                             |                       | Total |   | $         | 23,271    |   | $         | 19,622    |   | $        
|                             |                       |       |   |           |           |   |          
|Total Assets:                |                       |       |   |           |           |   |           |           |   |          
|                             | Staffing Services     |       | $ | 323,911   |           | $ | 286,298   |           | $ | 242,647  
|                             | Professional Services |       |   | 102,104   |           |   | 162,704   |           |   | 149,624  
|                             | Corporate             |       |   | 404,251   |           |   | 415,832   |           |   | 471,424  
|                             |                       |       |   |           |           |   |          
|                             |                       | Total |   | $         | 830,266   |   | $         | 864,834   |   | $        
|                             |                       |       |   |           |           |   |          
|Property and Equipment, Net: |                       |       |   |           |           |   |           |           |   |          
|                             | North America         |       | $ | 97,683    |           | $ | 123,965   |           | $ | 86,857   
|                             | Europe                |       |   |          |           |   | 7,113     |           |   | 3,814    
|                             | Asia/Pacific          |       |   |          |           |   | 2,370     |           |   | 3,849    
|                             |                       |       |   |           |           |   |          
|                             |                       | Total |   | $         | 97,683    |   | $         | 133,448   |   | $        
|                             |                       |       |   |           |           |   |          

Spherion has no single customer representing greater than 10% of revenues.

16.    EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share are computed by dividing Spherion's earnings (loss) from continuing operations before discontinued operations and cumulative
effect of changes in accounting principle by the weighted average number of shares outstanding during the period.

When
inclusion of common stock equivalents are not anti-dilutive, diluted earnings per share are computed by dividing Spherion's earnings from continuing operations before
discontinued operations and cumulative effect of change in accounting principle plus after-tax interest on the convertible subordinated notes, by the weighted average number of shares
outstanding and the impact of all dilutive potential common shares, primarily stock options, convertible subordinated notes, restricted stock and deferred stock units. The dilutive impact of stock
options is determined by applying the "treasury stock" method and the dilutive impact of the convertible subordinated notes is determined by applying the "if converted" method.

The
following table reconciles the numerator (earnings (loss) from continuing operations) and denominator (shares) of the basic and diluted earnings per share computations (amounts in
thousands, except per share amounts):

|                               |                                             | Fiscal Years Ended |       
|------------------------------ | ------------------------------------------- | ------------------ | ------
|
|
|Basic EPS                      |                                             | $                  | 15,196
|                               |                                             |                    |       
|Effect of Dilutive Securities: |                                             |                    |       
|                               | Stock options and other dilutive securities |                    |       
|                               | Convertible notes                           |                    |       
|                               |                                             |                    |       
|Diluted EPS                    |                                             | $                  | 15,263
|                               |                                             |                    |       

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For the fiscal years ended 2004, 2003 and 2002, outstanding employee stock options of 3.0 million, 7.0 million and
8.1 million, respectively, have been excluded from the computation of diluted earnings (loss) per share since they are anti-dilutive. Additionally, 2.4 million,
3.9 million and 7.4 million of convertible securities are excluded as they would also be anti-dilutive in 2004, 2003 and 2002, respectively.

17.    QUARTERLY FINANCIAL DATA(unauditedamounts in thousands, except per share data and share price)

The
following is an analysis of certain quarterly results of operations and other data for the 2004 and 2003 fiscal years.

|                                  |  | 2004 |        
|--------------------------------- |  | ---- | -------
|
|Revenues                          |  | $    | 467,212
|Gross profit                      |  |      | 98,887 
|Net (loss) earnings               |  |      | (8,132 
|Basic (loss) earnings per share   |  |      | (0.13  
|Diluted (loss) earnings per share |  |      | (0.13  
|
|
|Revenues                          |  | $    | 404,788
|Gross profit                      |  |      | 90,796 
|Net loss                          |  |      | (4,783 
|Basic and diluted loss per share  |  |      | (0.08  

---

In the first quarter of 2004 after-tax restructuring and other charges of $(5.4) million were incurred or $(0.09) per basic and
diluted share. The third quarter of 2004 includes an
after-tax loss on the retirement of the remaining convertible subordinated notes of $(0.5) million or $(0.01) per basic and diluted share. Net earnings from discontinued operations
for the third quarter of 2004 includes a $30.4 million tax benefit or $0.50 per basic share and $0.49 per diluted share as a result of the recognition of a previously deferred tax benefit of
$26.0 million that resulted from the sale of the international operations, a tax benefit of $3.8 million for the estimated loss on sale of the call centers and a tax benefit from
operations of $0.5 million. Fourth quarter 2004 continuing operations includes a $6.3 million tax benefit for increased state deferred income tax assets resulting from an increase in the
actual state income tax rate or $0.10 per basic and diluted share. The second, third and fourth quarters of 2003 include after-tax restructuring and other reversals (charges) of
$0.3 million, $(1.6) million and $(1.5) million, respectively, or $0.01, $(0.03) and $(0.02) per basic and diluted share, respectively.

18.    SUBSEQUENT EVENTS

In February 2005, Spherion received a favorable ruling on the Interim HealthCare case and as such reduced selling, general and administrative expenses and
its reserve for the case by $2.6 million. See Note 14, Commitments and Contingencies for further discussion.

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Item 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

There has been no change in our principal accountants during the two most recent fiscal years or any subsequent interim period.

Item 9A.    CONTROLS AND PROCEDURES



We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal
financial officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Annual Report. Based upon that evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Annual Report in timely alerting them as to material
information relating to our Company (including our consolidated subsidiaries) required to be included in this Annual Report.

There
has been no change in our internal control over financial reporting during the quarter ended December 31, 2004, identified in connection with the evaluation referred to
above, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



Management's Report on Internal Control Over Financial Reporting and the corresponding Report of Independent Registered Public Accounting Firm are included in
Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K.

Item 9B.    OTHER ITEMS

On March 9, 2005, we entered into amendments to both the Employment Agreement and Change in Control Agreement with the following executive officers: Roy G.
Krause, Eric Archer, Lisa G. Iglesias, Richard A. Lamond, Byrne K. Mulrooney and Mark W. Smith. The Agreements were amended due to new legislation relating to the treatment and taxation of certain
deferred compensation. The changes to these Agreements include (i) changing the severance payment payout in the employment agreement to a lump sum; (ii) modifying the definition of
"change in control"; and (iii) acknowledging that a six month delay in payment of certain deferred compensation may be required. Further, on the same date, the Company entered into a Change in
Control agreement in the amended form described above with William G. Halnon. Copies of the forms of Executive Employment Agreement are attached as Exhibits 10.55, 10.57 and 10.62 and copies of the
forms of Change in Control Agreement are attached as Exhibits 10.56 and 10.58, all of which are incorporated herein by reference.

On
March 9, 2005, the Compensation Committee of the Board of Directors approved cash incentive payments relating to 2004 performance for the following executive officers outside
of the terms of their respective 2004 incentive award plans: $40,000 to Lisa G. Iglesias, $25,000 to Richard A. Lamond and $50,000 to Mark W. Smith.

On
March 9, 2005, the Compensation Committee of the Board of Directors approved the 2005 incentive award plans for executive officers, copies of which are attached as Exhibits
10.72 and 10.73 and are incorporated herein by reference. Under these plans, the annual incentive awards for Roy G. Krause, Lisa G. Iglesias, Richard A. Lamond, William G. Halnon and Mark W.
Smith are based 100% on EPS targets. Annual incentive awards for Eric Archer and Byrne K. Mulrooney are based 75% on EPS targets and 25% on net operating income targets.

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The
2005 annual incentive award targets for each of the executive officers are as follows: 90% of base salary for Roy G. Krause, 75% of base salary for Eric Archer and
Byrne K. Mulrooney, 60% of base salary for William G. Halnon, Lisa G. Iglesias, Richard A. Lamond, and Mark W. Smith.

On
February 21, 2005, we granted stock options and deferred stock units to the following executive officers in the following amounts: 139,000 stock options and 56,000 deferred
stock units to Roy G. Krause; 70,000 stock options and 28,000 deferred stock units to Byrne K. Mulrooney; 65,000 stock options and 26,000 deferred stock units to Eric Archer; 56,000
stock options and 22,000 deferred stock units to Mark W. Smith; 45,000 stock options and 17,000 deferred stock units to Richard A. Lamond; 40,000 stock options and 17,000 deferred stock
units to William G. Halnon; and 40,000 stock options and 16,000 deferred stock units to Lisa G. Iglesias. The stock options were granted pursuant to the Stock Option Agreement attached
hereto as Exhibit 10.65 which is incorporated herein by reference. The stock option grants have an exercise price of $7.91 per share (the closing price of our common stock on the date of
grant), have ten year terms and vest one-third each year beginning one year after the grant date. The deferred stock units were granted pursuant to the Deferred Stock Agreement attached hereto as
Exhibit 10.68 which is incorporated herein by reference. The deferred stock units cliff vest on March 31, 2008 subject to the achievement of certain performance targets.

For
fiscal 2004, the annual incentive award plans for the following executive officers were based 100% on EPS targets: Roy G. Krause, Lisa G. Iglesias, Richard A. Lamond and Mark W.
Smith. Fiscal 2004 annual incentive award plans for Eric Archer and Byrne K. Mulrooney were based 25% on EPS targets, 25% on net operating income targets and 50% on gross profit growth targets.

During
fiscal 2004, the annual incentive award targets for each of the executive officers were as follows: 70% of base salary for Roy G. Krause, 75% of base salary for Byrne K.
Mulrooney; 60% of base salary for Eric Archer, Richard A. Lamond and Mark W. Smith; and 50% of base salary for Lisa G. Iglesias.

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PART III

Items 10, 11, 12, 13 and 14.

Certain information regarding our executive officers is contained in Part I and certain information regarding our stock plans is contained in
Part III, Item 12 below. The remaining information required by Items 10 and 12 and the information required by Items 11, 13 and 14 of this Part III is omitted because, no later
than 120 days from December 31, 2004, we will file and distribute our definitive proxy statement for our 2005 annual meeting of stockholders containing the information required by such
Items. Such omitted information is incorporated herein by this reference.

Item 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table summarizes our stock options and deferred stock units to be issued upon exercise and the number of securities available for future issuances
as of December 31, 2004:

Equity Compensation Plan Information

|                                                           |  | (a)       |  | (b) |       | (c)
|---------------------------------------------------------- |  | --------- |  | --- | ----- | ---
|
|Equity compensation plans approved by security holders     |  | 4,582,969 |  | $   | 10.16 |    
|Equity compensation plans not approved by security holders |  | 661,345   |  |     |      |    
|                                                           |  |           |  |     |       |    
|Total                                                      |  | 5,244,314 |  | $   | 8.88  |    
|                                                           |  |           |  |     |       |    

The
equity compensation plan not approved by security holders is a deferred stock plan which allows grants of deferred stock units to employees and outside directors. Deferred stock
units entitle the individual to receive shares of our common stock at a future date after meeting service requirements or financial targets. The deferred stock units vest between one and seven years
or a shorter period based upon certain performance criteria.

The
information required by Item 403 of Regulation S-K is omitted because, no later than 120 days from December 31, 2004, we will file and distribute our
definitive proxy statement for our 2005 annual meeting of stockholders containing the information required by such Item.

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PART IV

Item 15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

The
following consolidated financial statements of Spherion Corporation and subsidiaries are filed under Item 8 of Part II of this Report:

PageManagement's Report on Internal Control Over Financial Reporting

37Reports of Independent Registered Public Accounting Firm

38Consolidated Statements of Operations

40Consolidated Balance Sheets

41Consolidated Statements of Stockholders' Equity

42Consolidated Statements of Cash Flows

43Notes to Consolidated Financial Statements

44


The
following financial statement schedule is filed as part of this Report:

Schedule IIValuation
and Qualifying Accounts

Schedules
not filed herewith are either not applicable, the information is not material or the information is set forth in the consolidated financial statements or notes thereto.

|Exhibit
Number |  | Exhibit Name                                                                                                                                                                                                                                                                                               
|-------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1            |  | Restated Certificate of Incorporation of Spherion, as last amended on May 19, 2004, filed as Exhibit 3.1 to Spherion's Form 10-Q for the quarter ended June 25, 2004, is incorporated herein by reference.                                                                                                 
|3.2            |  | Restated By-Laws of Spherion, as amended through November 11, 2003, filed as Exhibit 3.2 to Spherion's Form 10-K for the fiscal year ended December 26, 2003, is incorporated herein by reference.                                                                                                         
|4.1            |  | Form of Stock Certificate, filed as Exhibit 4.1 to Spherion's Form 10-K for the fiscal year ended December 29, 2000, is incorporated herein by reference.                                                                                                                                                  
|4.2            |  | Rights Agreement dated as of March 17, 1994 between Spherion and Boatmen's Trust Company, filed as Exhibit 1.1 to Spherion's Form 8-A filed April 11, 1994, is incorporated herein by reference.                                                                                                           
|4.3            |  | Restated Certificate of Designation, Preferences and Rights of Participating Preferred Stock of Spherion as filed with the Secretary of State of the State of Delaware, filed as Exhibit 4.3 to Spherion's Report on Form 8-K filed July 7, 2000, is
incorporated herein by reference.                     
|4.4            |  | Amendment No. 1, dated as of June 26, 1996, to Rights Agreement dated March 17, 1994, between Spherion, Boatmen's Trust Company and ChaseMellon Shareholder Services L.L.C., filed as Exhibit 4.1(A) to Spherion's Form 10-Q for the quarter ended
September 27, 1996, is incorporated herein by reference.
|               |  |                                                                                                                                                                                                                                                                                                            

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|4.5    |  | Amendment No. 2, dated as of February 25, 1997, to Rights Agreement dated March 17, 1994, between Spherion and ChaseMellon Shareholder Services L.L.C., filed as Exhibit 4.1(B) to Spherion's Form 10-Q for the quarter ended March 28, 1997, is
incorporated herein by reference.                                                                       
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.6    |  | Articles Fourth, Fifth, Seventh, Eighth and Tenth of the Restated Certificate of Incorporation of Spherion, as last amended May 19, 2004, filed as Exhibit 4.6 to Spherion's Form 10-Q for the quarter ended June 25, 2004, are incorporated herein
by reference.                                                                                        
|4.7    |  | Article I and Article V of the Restated By-Laws of Spherion, as amended through November 11, 2003, filed as Exhibit 4.7 to Spherion's Form 10-Q for the quarter ended June 28, 2002, are incorporated herein by reference.                                                                                                                               
|4.8    |  | Certificate of Increase of Shares Designated as Participating Preferred Stock, filed as Exhibit 2.2 to Spherion's Form 8-A/A2, dated November 3, 1997, is incorporated herein by reference.                                                                                                                                                              
|4.10   |  | Amendment No. 3, dated as of January 20, 1998, to Rights Agreement dated as of March 17, 1994, between Spherion and ChaseMellon Shareholder Services L.L.C., filed as Exhibit 4.10 to Spherion's Form 10-K for the fiscal year ended December 25,
1998, is incorporated herein by reference.                                                             
|4.11   |  | Amendment No. 4, dated as of November 21, 2000, to Rights Agreement dated March 17, 1994, between Spherion, ChaseMellon Shareholder Services L.L.C. and the Bank of New York, filed as Exhibit 4.11 to Spherion's Form 10-K for the fiscal year
ended December 29, 2000, is incorporated herein by reference.                                            
|4.12   |  | Amendment No. 5, dated as of March 23, 2001, to Rights Agreement dated March 17, 1994, by and between Spherion and the Bank of New York, filed as Exhibit 4.12 to Spherion's Form 10-Q for the quarter ended March 30, 2001, is incorporated herein
by reference.                                                                                        
|4.13   |  | Spherion is a party to other agreements for unregistered long-term debt securities, which do not exceed 10% of Spherion's total assets. Spherion agrees to furnish a copy of such agreements to the Commission upon request.                                                                                                                             
|4.14   |  | Amendment No. 6, dated as of December 1, 2003, to Rights Agreement dated March 17, 1994, by and between Spherion and the Bank of New York, filed as Exhibit 4.14 to Spherion's Form 10-K for the fiscal year ended December 26, 2003, is incorporated
herein by reference.                                                                               
|10.1*  |  | Spherion's 1994 Stock Option Plan for Franchisees, Licensees and Agents, as amended through and restated as of August 10, 1999, filed as Exhibit 10.1 to Spherion's Form 10-Q for the quarter ended September 24, 1999, is incorporated herein by
reference.                                                                                             
|10.2   |  | Form of Indemnification Agreement between Spherion and each director of Spherion, dated August 10, 1999 for all directors except James J. Forese and David R. Parker, each of which have agreements dated February 25, 2003, filed as
Exhibit 10.2 to Spherion's Form 10-Q for the quarter ended September 24, 1999, is incorporated herein by reference.
|10.11* |  | Norrell Corporation 1994 Stock Incentive Plan, filed as Exhibit 10.27 to Norrell Corporation's Registration Statement on Form S-1, as filed with the Securities and Exchange Commission on June 10, 1994, is incorporated herein by reference.                                                                                                           
|       |  |                                                                                                                                                                                                                                                                                                                                                          

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|10.17  |  | Restated Stock Purchase Agreement, dated September 26, 1997 among Interim Services Inc., Catamaran Acquisition Corp. and Cornerstone Equity Investors IV, L.P., filed as Exhibit 2.1 to Spherion's Form 8-K dated September 26, 1997 and filed
October 13, 1997, is incorporated herein by reference.
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.18* |  | The Deferred Compensation Plan of Spherion Corporation, filed as Exhibit 4.1 to Spherion's Form S-8 filed on July 23, 1997, is incorporated herein by reference.                                                                                                                                     
|10.19* |  | Spherion Corporation Outside Directors' Compensation Plan, effective July 1, 2004, filed as Exhibit 10.19 to Spherion's Form 10-Q for the quarter ended June 25, 2004, is incorporated herein by reference.                                                                                          
|10.22* |  | Spherion Corporation 2000 Stock Incentive Plan, filed as Exhibit 10.22 to Spherion's Form 10-K for the fiscal year ended December 29, 2000, is incorporated herein by reference.                                                                                                                     
|10.39* |  | Spherion Corporation Amended and Restated 2000 Employee Stock Purchase Plan, as last amended May 19, 2004, filed as Exhibit 10.39 to Spherion's Form 10-Q for the quarter ended June 25, 2004, is incorporated herein by reference.                                                                  
|10.44* |  | First Amendment dated March 5, 1999, to the Spherion Deferred Compensation Plan, filed as Exhibit 10.44 to Spherion's Form 10-K for the fiscal year ended December 29, 2000, is incorporated herein by reference.                                                                                    
|10.45* |  | Second Amendment dated June 14, 1999, to the Spherion Deferred Compensation Plan, filed as Exhibit 10.45 to Spherion's Form 10-K for the fiscal year ended December 29, 2000, is incorporated herein by reference.                                                                                   
|10.46* |  | Third Amendment dated August 1, 2000, to the Spherion Deferred Compensation Plan, filed as Exhibit 10.46 to Spherion's Form 10-K for the fiscal year ended December 29, 2000, is incorporated herein by reference.                                                                                   
|10.51* |  | Separation Agreement dated March 9, 2004, by and between Spherion and Cinda A. Hallman, filed as Exhibit 10.51 to Spherion's Form 10-Q for the quarter ended March 26, 2004, is incorporated herein by reference.                                                                                    
|10.52* |  | Fourth Amendment to the Spherion Deferred Compensation Plan dated July 7, 2000, filed as Exhibit 10.52 to Spherion's Form 10-Q for the quarter ended June 29, 2001, is incorporated herein by reference.                                                                                             
|10.53* |  | Fifth Amendment to the Spherion Deferred Compensation Plan dated January 1, 2001, filed as Exhibit 10.53 to Spherion's Form 10-Q for the quarter ended June 29, 2001, is incorporated herein by reference.                                                                                           
|10.54* |  | Sixth Amendment to the Spherion Deferred Compensation Plan dated January 1, 2004, filed as Exhibit 10.54 to Spherion's Form 10-Q for the quarter ended March 26, 2004, is incorporated herein by reference.                                                                                          
|10.55* |  | Restated Employment Agreement by and between Spherion and Roy G. Krause, amended through March 9, 2005, filed as Exhibit 10.55 attached hereto.                                                                                                                                                      
|10.56* |  | Restated Change in Control Agreement by and between Spherion and Roy G. Krause, amended through March 9, 2005, filed as Exhibit 10.56 attached hereto.                                                                                                                                               
|10.57* |  | Form of Restated Employment Agreement by and between Spherion and the individuals listed on Schedule A attached thereto, filed as Exhibit 10.57 attached hereto.                                                                                                                                     
|       |  |                                                                                                                                                                                                                                                                                                      

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|10.58*  |  | Form of Restated Change in Control Agreement by and between Spherion and the individuals listed on Schedule A attached thereto, filed as Exhibit 10.58 attached hereto.                                                                                                                                                                                                                                                                                                                                                                          
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.59*  |  | Spherion Corporation Deferred Stock Plan (as amended and restated December 20, 2002) filed as Exhibit 10.59 to Spherion's Form 10-K for the year ended December 27, 2002, is incorporated by reference.                                                                                                                                                                                                                                                                                                                                          
|10.60   |  | Credit Agreement, dated as of July 24, 2003, made by and among the financial institutions from time to time parties thereto (such financial institutions, together with their respective successors and assigns, are referred to thereinafter each
individually as a "Lender" and collectively as the "Lenders"), Bank of America, N.A., as Administrative Agent and Collateral Agent for the Lenders and Spherion, filed as Exhibit 10.60 to Spherion's Form 10-Q for the quarter ended September 26,
2003, is incorporated herein by reference.
|10.61   |  | First Amendment to Credit Agreement, Security Agreement, Pledge Agreement and Guaranty Agreement dated August 25, 2003 by and among Spherion, as borrower, each subsidiary of Borrower party to the Security Agreement, the Pledge Agreement and the
Guaranty Agreement, each of the Lenders signatory hereto and Bank of America, N.A., as agent to the Lenders, filed as Exhibit 10.61 to Spherion's Form 10-Q for the quarter ended September 26, 2003, is incorporated herein by
reference.                                                  
|10.62*  |  | Form of Restated Employment Agreement by and between Spherion and the individuals listed on Schedule A attached thereto, filed as Exhibit 10.62 attached hereto.                                                                                                                                                                                                                                                                                                                                                                                 
|10.63   |  | Second Amendment to Credit Agreement dated as of March 30, 2004, made by and among Spherion, as borrower, each subsidiary of Borrower party to the Guaranty Agreement, each of the Lenders signatory hereto and Bank of America, N.A., as agent for the
Lenders, filed as Exhibit 10.63 to Spherion's Form 10-Q for the quarter ended September 24, 2004, is incorporated herein by reference.                                                                                                                                                   
|10.64   |  | Third Amendment to Credit Agreement dated as of July 12, 2004, made by and among Spherion, as borrower, each subsidiary of Borrower party to the Guaranty Agreement, each of the Lenders signatory hereto and Bank of America, N.A., as agent for the
Lenders, filed as Exhibit 10.64 to Spherion's Form 10-Q for the quarter ended September 24, 2004, is incorporated herein by reference.                                                                                                                                                     
|10.65*  |  | Spherion Corporation form of 2000 Stock Incentive Plan Stock Option Agreement, filed as Exhibit 10.65 attached hereto.                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.66*  |  | Spherion Corporation form of standard Deferred Stock Agreement, filed as Exhibit 10.66 attached hereto.                                                                                                                                                                                                                                                                                                                                                                                                                                          
|10.67* |  | Spherion Corporation form of Deferred Stock Agreement with vesting criteria related to implementation of enterprise resource planning system, filed as Exhibit 10.67 attached hereto.                                                                                                                                                                                                                                                                                                                                                            
|10.68* |  | Spherion Corporation form of Deferred Stock Agreement with performance based vesting criteria, filed as Exhibit 10.68 attached hereto.                                                                                                                                                                                                                                                                                                                                                                                                           
|10.69*  |  | Seventh Amendment to the Spherion Deferred Compensation Plan dated October 15, 2004, filed as Exhibit 10.69 attached hereto.                                                                                                                                                                                                                                                                                                                                                                                                                     
|10.70* |  | Spherion Corporation Corporate Executives Management 2004 Variable Pay Plan for the individuals listed on Schedule A attached thereto, filed as Exhibit 10.70 attached hereto.                                                                                                                                                                                                                                                                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

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|10.71* |  | Spherion Corporation Line of Business Executive Management 2004 Variable Pay Plan for the individuals listed on Schedule A attached thereto, filed as Exhibit 10.71 attached hereto.
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.72* |  | Spherion Corporation Corporate Executives Management 2005 Variable Pay Plan for the individuals listed on Schedule A attached thereto, filed as Exhibit 10.72 attached hereto.      
|10.73* |  | Spherion Corporation Line of Business Executive Management 2005 Variable Pay Plan for the individuals listed on Schedule A attached thereto, filed as Exhibit 10.73 attached hereto.
|10.74* |  | Spherion Corporation form of Deferred Stock Agreement with vesting criteria related to EPS targets filed as Exhibit 10.74 attached hereto.                                          
|11      |  | See "Earnings (Loss) Per Share" in Note 16 of the Notes to Consolidated Financial Statements included at page 67 herein.                                                            
|21      |  | Subsidiaries of Spherion, filed as Exhibit 21 attached hereto.                                                                                                                      
|23.1    |  | Consent of Deloitte & Touche LLP, filed as Exhibit 23.1 attached hereto.                                                                                                            
|31.1    |  | Rule 13a-14(a) Certification in Accordance with Section 302 of the Sarbanes-Oxley Act of 2002, filed as Exhibit 31.1 attached hereto.                                               
|31.2    |  | Rule 13a-14(a) Certification in Accordance with Section 302 of the Sarbanes-Oxley Act of 2002, filed as Exhibit 31.2 attached hereto.                                               
|32.1    |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, furnished as Exhibit 32.1 attached hereto.                  
|32.2    |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, furnished as Exhibit 32.2 attached hereto.                  

---

|Exhibit
Number |  | Exhibit Name                                                                                                                   
|-------------- |  | -------------------------------------------------------------------------------------------------------------------------------
|10.55*         |  | Restated Employment Agreement by and between Spherion and Roy G. Krause, amended through March 9, 2005.                        
|10.56*         |  | Restated Change in Control Agreement by and between Spherion and Roy G. Krause, amended through March 9, 2005.                 
|10.57*         |  | Form of Restated Employment Agreement by and between Spherion and the individuals listed on Schedule A attached thereto.       
|10.58*         |  | Form of Restated Change in Control Agreement by and between Spherion and the individuals listed on Schedule A attached thereto.
|10.62*         |  | Form of Restated Employment Agreement by and between Spherion and the individuals listed on Schedule A attached thereto.       
|10.65*         |  | Spherion Corporation form of 2000 Stock Incentive Plan Stock Option Agreement.                                                 
|               |  |                                                                                                                                

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|10.66*  |  | Spherion Corporation form of standard Deferred Stock Agreement.                                                                              
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------
|10.67* |  | Spherion Corporation form of Deferred Stock Agreement with vesting criteria related to implementation of enterprise resource planning system.
|10.68* |  | Spherion Corporation form of Deferred Stock Agreement with performance based vesting criteria.                                               
|10.69*  |  | Seventh Amendment to the Spherion Deferred Compensation Plan dated October 15, 2004.                                                         
|10.70* |  | Spherion Corporation Corporate Executives Management 2004 Variable Pay Plan for the individuals listed on Schedule A attached thereto.       
|10.71* |  | Spherion Corporation Line of Business Executive Management 2004 Variable Pay Plan for the individuals listed on Schedule A attached thereto. 
|10.72* |  | Spherion Corporation Corporate Executives Management 2005 Variable Pay Plan for the individuals listed on Schedule A attached thereto.       
|10.73* |  | Spherion Corporation Line of Business Executive Management 2005 Variable Pay Plan for the individuals listed on Schedule A attached thereto. 
|10.74* |  | Spherion Corporation form of Deferred Stock Agreement with vesting criteria related to EPS targets.                                          
|21      |  | Subsidiaries of Spherion.                                                                                                                    
|23.1    |  | Consent of Deloitte & Touche LLP.                                                                                                            
|31.1    |  | Rule 13a-14(a) Certification in Accordance with Section 302 of the Sarbanes-Oxley Act of 2002.                                               
|31.2    |  | Rule 13a-14(a) Certification in Accordance with Section 302 of the Sarbanes-Oxley Act of 2002.                                               
|32.1    |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                      
|32.2    |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                      

---

There
were no other financial statements of the type described in subparagraph (d) of Item 15 of Part IV required to be filed herein.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Spherion has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

|               |  | SPHERION CORPORATION
|-------------- |  | --------------------
|March 15, 2005 |  | By                  

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Spherion and in the capacities and on the
date indicated.

|Signature                               |  | Title                
|--------------------------------------- |  | ---------------------
|                                        |  |                      
|/s/STEVEN S. ELBAUMSteven S. Elbaum     |  | Chairman and Director
|/s/WILLIAM F. EVANSWilliam F. Evans     |  | Director             
|/s/JAMES J. FORESEJames J. Forese       |  | Director             
|/s/ROY G. KRAUSERoy G. Krause           |  | Director             
|/s/J. IAN MORRISONJ. Ian Morrison       |  | Director             
|/s/DAVID R. PARKERDavid R. Parker       |  | Director             
|/s/A. MICHAEL VICTORYA. Michael Victory |  | Director             
|(Signed as to each on March 15, 2005)  
|                                        |  |                      

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|/s/ROY G. KRAUSERoy G. Krause         |  | President and
Chief Executive Officer                                                         
|------------------------------------- |  | ----------------------------------------------------------------------------------------------
|/s/MARK W. SMITHMark W. Smith         |  | Senior Vice President and
Chief Financial Officer
(principal financial and accounting officer)
|(Signed as to each on March 15, 2005)

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SPHERION CORPORATION AND SUBSIDIARIES  SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS(amounts in thousands)

|Column A                            |             | Column B |          | Column C Additions |   | Column D |      | Column E |    
|----------------------------------- | ----------- | -------- | -------- | ------------------ | - | -------- | ---- | -------- | ---
|
|Fiscal Year Ended December 27, 2002 |             |          |          |                    |   |          |      |          |    
|Allowance for Doubtful Accounts     |             | $        | (10,261  | )                  | $ | (3,418   | )    | $        |   
|                                    |             |          |          |                    |   |          |      |          |    
|Accumulated Amortization:           |             |          |          |                    |   |          |      |          |    
|                                    | Goodwill    |          | $        | (124,190           | ) | $        |     |          | $  
|                                    | Trade names |          |          | (246               | ) |          | (237 | )        |    
|                                    | Other       |          |          |                   |   |          | (84  | )        |    
|                                    |             |          |          |                    |   |          |      |          |    
|                                    |             | $        | (124,436 | )                  | $ | (321     | )    | $        |   
|                                    |             |          |          |                    |   |          |      |          |    
|Fiscal Year Ended December 26, 2003 |             |          |          |                    |   |          |      |          |    
|Allowance for Doubtful Accounts     |             | $        | (6,760   | )                  | $ | (3,298   | )    | $        |   
|                                    |             |          |          |                    |   |          |      |          |    
|Accumulated Amortization:           |             |          |          |                    |   |          |      |          |    
|                                    | Trade names |          | $        | (364               | ) | $        | (203 | )        | $  
|                                    | Other       |          |          | (84                | ) |          | (245 | )        |    
|                                    |             |          |          |                    |   |          |      |          |    
|                                    |             | $        | (448     | )                  | $ | (448     | )    | $        | (4 
|                                    |             |          |          |                    |   |          |      |          |    
|Fiscal Year Ended December 31, 2004 |             |          |          |                    |   |          |      |          |    
|Allowance for Doubtful Accounts     |             | $        | (6,671   | )                  | $ | (7,238   | )    | $        |   
|                                    |             |          |          |                    |   |          |      |          |    
|Accumulated Amortization:           |             |          |          |                    |   |          |      |          |    
|                                    | Trade names |          | $        | (549               | ) | $        | (208 | )        | $  
|                                    | Other       |          |          | (333               | ) |          | (335 | )        |    
|                                    |             |          |          |                    |   |          |      |          |    
|                                    |             | $        | (882     | )                  | $ | (543     | )    | $        | (23
|                                    |             |          |          |                    |   |          |      |          |    

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