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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 28, 2002

Commission file number: 1-11997

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

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

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

None
(Title of class)

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

        Number of shares of Registrant's Common Stock, par value $.01 per share ("Common Stock"), outstanding on July 26, 2002 was 58,852,741.

TABLE OF CONTENTS

Part I—FINANCIAL INFORMATION

Item 1. Financial Statements

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

See notes to unaudited Condensed Consolidated Financial Statements.

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

See notes to unaudited Condensed Consolidated Financial Statements.

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

See notes to unaudited Condensed Consolidated Financial Statements.

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

See notes to unaudited Condensed Consolidated Financial Statements.

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SPHERION CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

        The condensed consolidated financial statements of Spherion Corporation and subsidiaries ("Spherion" or the "Company"), included herein, do not include all footnote disclosures normally included in annual financial statements and, therefore, should be read in conjunction with Spherion's consolidated financial statements and notes thereto for each of the fiscal years in the three-year period ended December 28, 2001 included in Spherion's Annual Report on Form 10-K.

        The condensed consolidated financial statements are unaudited and, in the opinion of management, reflect all adjustments (consisting only of normal recurring adjustments) necessary for the fair presentation of the financial position, results of operations and cash flows for the periods presented. Results for the three and six months ended June 28, 2002 are not necessarily indicative of results to be expected for the full fiscal year ending December 27, 2002. As discussed in Note 7, Discontinued Operations, certain portions of the Company's operations have been reclassified as discontinued operations in the accompanying condensed consolidated financial statements and accordingly, prior period operating results of these subsidiaries have also been reclassified. Additionally, certain 2001 amounts have been reclassified to conform with the current year presentation.

        The condensed consolidated financial statements include the accounts of Spherion Corporation and its wholly-owned subsidiaries. All material intercompany transactions and balances have been eliminated.

2. 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 franchise operations. Staffing revenues and the related labor costs and payroll are recorded in the period in which services are performed. Outsourcing revenues are recognized when the service is provided. Placement revenues are recognized when services provided are substantially completed. Revenues are recognized as services are provided and Spherion follows EITF 99-19, "Recording 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 income statement.

        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 $1.9 million and $3.3 million for the three and six months ended June 28, 2002 and $1.3 million and $2.6 million for the three and six months ended June 29, 2001, 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 employees and the licensee acts as Spherion's agent providing certain sales and recruiting services. Accordingly, sales and costs of services generated by the licensed operation are recorded gross in Spherion's condensed 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 71.9% and 71.1% for the three and six months ended June 28, 2002 and 64.2% and 62.8% for the three and six months ended June 29, 2001, 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

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salaries of the licensee's full-time office employees. Spherion's condensed consolidated statements of operations reflect the licensee commission as an expense, but does 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 customers through licensee arrangements as Spherion pays all direct costs associated with providing temporary services before related accounts receivable are collected. The Company 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.

3. Cash and Cash Equivalents and Restricted Cash

        All highly liquid investments (including investments in debt and auction rate securities) with maturities of 90 days or less at the time of purchase are classified as cash equivalents. The carrying amount approximates fair value because of the short-term maturities of these instruments. Most of Spherion's cash and cash equivalents are in short-term investment grade money market funds.

        During the second quarter of 2002, Spherion cancelled its $325 million revolving credit facility and its $75 million 364-day credit facility. Letters of credit, totaling $80.4 million which support the Company's workers' compensation insurance programs were outstanding as part of these credit facilities. At the time these credit facilities were cancelled and in order to reduce costs, the Company pledged cash to collateralize these existing letters of credit. Additionally, the Company posted cash as collateral for a surety bond in the amount of $22.9 million, relating to its workers' compensation insurance programs. The Company pledged a total of $111.9 million of cash which is included in other current assets and restricted cash in the accompanying condensed consolidated balance sheets. These amounts are restricted, while the obligations under the workers' compensation program are outstanding and cannot be used for general corporate purposes until such time as the Company enters into another revolving credit facility which provides for letters of credit or an alternative form of financing. The restricted cash balance is invested in short-term investment grade money market funds.

4. Comprehensive (Loss) Income

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

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5. Segment Information

        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 central costs, amortization expense, net interest expense, income taxes, special items (restructuring, asset impairments and other charges and the gain on the sale of Michael Page) and cumulative effect of changes in accounting principles. As discussed in Note 7, Discontinued Operations, certain of the Company's operations have been classified as discontinued operations. Accordingly, current and prior period operating results of these operations have been eliminated from the Company's segment information presented below. Additionally, as discussed in Note 10, Disposition of Michael Page, Spherion completed the initial public offering of shares of Michael Page International plc ("Michael Page"), disposing of 100% of the Company's interest at the beginning of the second quarter of 2001. As such, the results of Michael Page have been presented separately in the Company's segment information for comparative purposes. The basis of segmentation was changed effective with the fourth quarter of 2001 and all prior year amounts have been reclassified for comparative purposes. All material intercompany revenues and expenses have been eliminated.

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        Information on operating segments and a reconciliation to (loss) earnings before income taxes, discontinued operations and cumulative effect of changes in accounting principles for the three and six months ended June 28, 2002 and June 29, 2001, are as follows (in thousands):

6. Earnings Per Share

        Basic earnings per share are computed by dividing Spherion's net earnings (loss) by the weighted average number of shares outstanding during the period.

        When not anti-dilutive, diluted earnings per share are computed by dividing Spherion's net earnings 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.

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        Since Spherion incurred a net loss for the three and six months ended June 28, 2002, there is no effect of dilutive securities on the calculation of EPS as such potential common shares would be anti-dilutive. The following table reconciles the numerator (net earnings) and denominator (shares) of the basic and diluted earnings per share computation for the three and six months ended June 29, 2001.

7. Discontinued Operations

        During the three months ended June 28, 2002, the Company adopted a plan to dispose of certain consulting businesses in the United Kingdom and The Netherlands within its technology segment and a human capital measurement business within its outsourcing segment. The Company's decision to dispose of these subsidiaries is consistent with the Company's Business Transformation Strategy to improve productivity and enhance profitability. The Company expects to complete the disposal of these subsidiaries prior to year-end.

        As a result of the Company's decision to dispose of these businesses, the operating results for all periods presented and the assets and liabilities as of June 28, 2002 of these subsidiaries have been reclassified as discontinued operations in the accompanying condensed consolidated financial statements in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." The carrying amounts, as adjusted to approximate fair value, of the major classes of assets and liabilities for each subsidiary to be disposed of as of June 28, 2002 as grouped in their former segments are as follows (in thousands):

(1)

Amounts after write-down of $1.4 million to net realizable value.

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        Revenue, pre-tax losses and the expected loss on disposal of these subsidiaries included within loss from discontinued operations in the accompanying condensed consolidated statements of operations for the three and six months ended June 28, 2002 and June 29, 2001 are as follows (in thousands):

        Restructuring, asset impairments and other charges of $3.3 million consist of severance of $2.3 million for 90 employees, lease termination accruals of $0.9 million for 2 locations and $0.1 million of other exit related accruals. Such amounts were incurred as part of the Company's decision to exit these consulting businesses. All affected employees are expected to be severed prior to the end of the year. The lease termination provision will be paid out over the remaining lease terms through 2013, unless earlier buyouts or assignments can be negotiated.

8. Changes in Accounting Principles

        Spherion adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended at the beginning of the first quarter of 2001, and recorded a cumulative effect of change in accounting principle of $1.1 million, net of an income tax benefit of $0.7 million.

        Effective at the beginning of 2002, Spherion adopted SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 provides that goodwill and other intangible assets with indefinite lives will not be amortized, but will be tested for impairment on an annual basis.

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        As a result of the adoption of SFAS No. 142, Spherion recorded a pre-tax charge to earnings of $691.6 million ($615.6 million after tax) as of January 1, 2002. The charge was determined based primarily on a valuation study performed by an external valuation firm and fair values were determined based on both the discounted present value of anticipated future cash flows and the comparable market prices of competitors as of January 1, 2002.

        The charge was largely a result of the decrease in Spherion's profitability during 2001 and 2000, which negatively impacted the Company's cash flow projections, and primarily affected two of the three business segments, Recruitment and Technology. The Recruitment segment 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 U.S. and the United Kingdom), the Australian acquisition and various U.S. professional recruiting acquisitions could not be supported based on a discounted cash flow analysis or based on market comparable information resulting in a pre-tax charge of $475.3 million. In the Technology segment, the sharp decline in the post Year 2000 business environment similarly affected a number of Spherion's U.S. acquisitions (Norrell and Computer Power Group) as well as the Company's technology subsidiary in The Netherlands resulting in a pretax charge of $214.9 million.

        The changes in the carrying amount of goodwill for the six months ended June 28, 2002 are as follows (in thousands):

(1)

Amounts prior to write-down of $1.4 million to net realizable value.

        Other intangible assets, which will continue to be amortized, were comprised of trade names and trademarks and employment agreements and aggregated $1.5 million, less accumulated amortization of $0.3 million as of June 28, 2002. Annual amortization expense on other intangible assets is expected to be $0.3 million, $0.3 million, $0.2 million and $0.1 million for the fiscal years 2003 through 2006.

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        Had we accounted for goodwill under SFAS No. 142 during 2001, the Company's net (loss) / earnings and (loss) / earnings per share from continuing operations would have been as follows (in thousands, except per share amounts):

9. Restructuring, Asset Impairments and Other Charges

        During 2001, Spherion announced its Business Transformation Strategy that was focused on increasing the predictability of revenues and earnings, continuous productivity improvements and enhancing profitability. All of these factors led to an assessment of the Company's strategic direction and product mix. Consequently, restructuring plans were adopted in 2001 to terminate redundant employees, reduce excess capacity and dispose of certain non-strategic operations (the "2001 Plans").

        During the second quarter of 2002 as part of Spherion's on-going restructuring monitoring process, accruals of $4.8 million were identified that were unnecessary primarily as the 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. An analysis of the restructuring accruals is as follows (dollar amounts in thousands):

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        The remaining accruals, which are included in accrued restructuring in the accompanying condensed consolidated balance sheets, relate to lease payments on closed locations that will be paid out through 2006 (unless earlier lease terminations can be negotiated), severance costs which will be paid out during 2002 and assets to be disposed of.

        Also during the second quarter of 2002, Spherion recorded other charges (included in "restructuring, asset impairments and other charges" in the attached condensed consolidated statements of operations) in the amount of $10.0 million for additional anticipated losses associated with the sublease of Norrell's former headquarters building in Atlanta, Georgia. The $10.0 million charge reflects the weakening of the commercial rental market.

10. Disposition of Michael Page

        Spherion completed the initial public offering of shares of Michael Page, disposing of 100% of the Company's interest at the beginning of the second quarter of 2001. Spherion's proceeds were approximately $710 million, net of taxes and expenses. Spherion recorded a gain on the transaction of $305.3 million ($186.0 million after-tax) with $293.9 million ($178.8 million after-tax) recorded in the second quarter of 2001 and a $11.4 million ($7.2 million after-tax) gain recorded in the first quarter of 2001 related to foreign currency gains on forward contracts. These contracts were settled during April 2001 with a realized gain of $9.6 million. The results of Michael Page have been included in the statements of operations and cash flows through the date of its disposition.

11. Legal Proceedings

        Spherion, in the ordinary course of its business, is threatened with or named as a defendant in various lawsuits. Spherion's management does not expect that the outcome of any of these lawsuits, individually or collectively, will have a material adverse effect on Spherion's financial condition, results of operations or cash flows.

        On April 2, 2001, Cincinnati Financial Corporation ("CFC") filed a lawsuit against Spherion in the U.S. District Court, Southern District of Ohio seeking $50 million in compensatory damages and $300 million in punitive damages. The lawsuit arises out of a dispute between the parties in connection with Spherion's contract to develop a software application for use with CFC's insurance business. The plaintiff's complaint alleges the following causes of action: breach of contract, fraud, negligence and misrepresentation. Spherion denies the allegations of CFC's complaint and intends to vigorously defend against the claims. On April 2, 2001, Spherion filed a lawsuit against CFC in U.S. District Court, Northern District of Illinois seeking collection from CFC of $2.2 million in unpaid fees in connection with the contract. Management believes there is no basis for the amount of damages sought in the plaintiff's case. Management further believes that Spherion's insurance will provide adequate coverage of this claim and therefore it is not expected to have a material impact on Spherion's consolidated financial position, liquidity or results of operations.

        Interim HealthCare Inc., Catamaran Acquisition Corp. and Cornerstone Equity Investors IV, L.P. (collectively, the "Interim HealthCare Plaintiffs") have an action pending against Spherion in the Delaware Court of Chancery. Their complaint, filed on June 26, 2001 and amended on July 24, 2001, relates to Spherion's divestiture of Interim HealthCare (the "Healthcare Divestiture") and seeks damages of approximately $10 million for breach of contract, reformation of the purchase agreement to reduce the purchase price by approximately $24 million, or rescission of the contract. The same parties are also seeking damages against Spherion in an action pending in Delaware Superior Court alleging multiple breach of contract claims arising out of the Healthcare Divestiture allowing the same judge to preside over both actions. Management believes the resolution of this matter will not have a material impact on Spherion's consolidated financial position, liquidity or results of operations.