Organization of Information

Management's Discussion and Analysis provides a narrative on our financial performance and condition that should be read in conjunction with the accompanying Condensed Consolidated Financial Statements. In addition, reference should be made to our audited Consolidated Financial Statements and accompanying notes thereto and related Management's Discussion and Analysis included in our Annual Report on Form 10-K for the year ended December 28, 2008. Management's Discussion and Analysis includes the following sections:

º Executive Summary
º Operating Results
º Liquidity and Capital Resources
º Contractual Obligations
º Off-Balance Sheet Arrangements
º Critical Accounting Policies
º Non-GAAP Financial Measures
º Forward-Looking Statements - Safe Harbor

Executive Summary

In light of weak economic conditions our goals in 2009 are as follows:

º First, continue our focus on sales activity among targeted customer groups:
We have aligned sales resources and implemented sales activity and metrics monitoring processes to continue to stabilize our sales, particularly among our targeted small and mid-sized customers. During the third quarter of 2009, revenues from our small to mid- sized accounts (customers that do business with Spherion of $5 million or less, annually) represented 42.6% of total revenues compared with 51.1% in the same prior year period. Revenue volumes from our small to mid-sized accounts were impacted by weak economic conditions more than revenue volumes from our large accounts on a year over year basis. In addition, we continue to focus on our strategy to grow higher margin Professional Services and Recruitment Process Outsourcing ("RPO") businesses. In the third quarter, our Professional Services segment represented 38.3% of total revenue.

º Second, optimize cash flow: Throughout 2009, we have continued to adjust our cost structure as business volumes decreased due to the slowing economy. Based on our actions, we have reduced selling, general and administrative ("SG&A") expenses by $31.0 million in the third quarter of 2009 compared with the same prior year period. We continue to see signs of stabilizing temporary staffing trends in the third quarter of 2009, but will monitor SG&A and adjust expenses based on customer demand. We generated operating cash flow of $30.6 million and were able to reduce debt by $22.1 million in 2009. Days sales outstanding ("DSO") remained stable at 50 days in September 2009 compared with June 2009.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Operating Results

Consolidated Operating Results

Revenues in the third quarter of 2009 were $420.2 million, a decrease from $542.2 million in the prior year period.
Temporary employment in the U.S. decreased by 24.5% year over year in the third quarter of 2009 as estimated by the U.S. Bureau of Labor Statistics. For the same period, our combined temporary staffing and other revenue decreased 21.4% from the prior year.
Professional Services revenues decreased 28.6% compared with the prior year and Staffing Services revenues decreased 18.1% compared with the prior year. The decline in both our Professional and Staffing Services revenues is primarily due to lower business volumes within existing customers. Within Staffing Services, revenues were up 9.0% sequentially compared with the second quarter of 2009. Within Professional Services, revenues were down 6.0% sequentially compared with the second quarter of 2009.

Gross profit in 2009 was $81.6 million. Gross profit margin decreased to 19.4% in the third quarter of 2009 compared with 21.9% for the same period in 2008. Gross profit margins decreased due to:
A shift in business mix, primarily lower permanent placement volumes (150 basis points); and
Declines in temporary staffing and other margins in Staffing Services (90 basis points) primarily due to a reduction in pay/bill spreads and in Professional Services (30 basis points) due to lower pay/bill spreads, higher payroll taxes and other employee burden costs; partially offset by Higher RPO margins due to lower recruiting costs (20 basis points).

SG&A expenses decreased 28.6% to $77.5 million in the third quarter of 2009 from $108.4 million in the same period in 2008 due to the realization of acquisition related cost synergies and adjustments made to our cost structure as business volumes changed at the end of 2008 and into the first half of 2009. As a percentage of gross profit, SG&A costs increased to 94.9% from 91.5% for the same period in 2008.

Restructuring and other charges were $0.9 million in the third quarter of 2009 for lease and severance-related costs. See Note 4, "Restructuring and Other Charges," in the accompanying notes to the Condensed Consolidated Financial Statements for further discussion.

Net interest expense was $1.2 million in the third quarter of 2009 compared with net interest expense of $1.5 million in the same period of the prior year. The decrease in interest expense is primarily due to the reduction in average outstanding debt balances from $85.3 million at September 28, 2008 to $17.2 million at September 27, 2009, partially offset by higher interest rate spreads under the amended credit facility.

Our effective tax rate from continuing operations for the third quarter of 2009 was 111.2%, increasing from the prior year tax rate of 37.7%. The 2009 effective tax rate was higher as our pre-tax earnings were close to break even which caused the impact of permanent differences and fixed state taxes on the rate to be significant.

Loss from continuing operations were $0.00 per diluted share for 2009 compared with earnings of $0.08 per share in 2008. Adjusted earnings per share from continuing operations in the third quarter of 2009 were $0.01 compared with $0.08 per share in the third quarter of 2008. The decrease in earnings per share reflects the impact of deleveraging in the business as the economy slowed and demand for recruiting and staffing declined. See "Management's Discussion and Analysis - Non-GAAP Financial Measures" for further information.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Nine Months Ended September 27, 2009 Compared with September 28, 2008

Revenues in 2009 were $1.3 billion, a decrease from $1.7 billion in the prior year period.
Temporary employment in the U.S. decreased by 25.4% in the first nine months of 2009 as estimated by the U.S. Bureau of Labor Statistics. Our combined temporary staffing and other revenue decreased 24.1% from the prior year.
Professional Services revenues decreased 29.1% compared with the prior year and Staffing Services revenues decreased 22.5% compared with the prior year. The decline in both our Professional and Staffing Services revenues is primarily due to lower business volumes within existing customers.

Gross profit in 2009 was $247.9 million. Gross profit margin decreased to 19.7% in 2009 compared with 22.4% for the same period in 2008. Gross profit margins decreased due to:
Lower permanent placement volumes (170 basis points); and Declines in temporary staffing and other margins in Staffing Services (90 basis points) primarily due to a reduction in pay/bill spreads, higher payroll taxes and workers' compensation costs and in Professional Services (20 basis points) primarily due to lower pay/bill spreads, higher payroll taxes and other employee burden costs; partially offset by Higher RPO margins due to lower recruiting costs (10 basis points).

SG&A expenses decreased 29.7% to $243.9 million in 2009 from $347.2 million in the same period in 2008. The decline in SG&A expenses is due to the realization of acquisition related cost synergies and adjustments made to our cost structure as business volumes changed over the past year. As a percentage of gross profit, SG&A costs increased to 98.4% from 92.1% for the same period in 2008.

Restructuring and other charges were $5.1 million and $1.9 million in 2009 and 2008, respectively. The charges in 2009 were primarily due to lease and severance-related costs. See Note 4, "Restructuring and Other Charges," in the accompanying notes to the Condensed Consolidated Financial Statements for further discussion.

Net interest expense was $2.6 million in 2009 compared with net interest expense of $4.6 million in 2008. The decrease in interest expense is primarily due to the reduction in average outstanding debt balances.

Our effective tax rate from continuing operations for 2009 was 28.7%, decreasing from the prior year tax rate of 31.8% and different from our statutory rate as a result of the impact of permanent differences and fixed state taxes.

Loss from continuing operations was $(0.12) per diluted share for 2009 compared with earnings of $0.21 per share in 2008. Adjusted loss per share from continuing operations in 2009 was $(0.06) compared with earnings of $0.22 per share in 2008. The decrease in earnings per share reflects the impact of deleveraging in the business as the economy slowed and declining demand for recruiting and staffing services. See "Management's Discussion and Analysis - Non-GAAP Financial Measures" for further information.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Operating Segments

We have two operating segments: Professional Services and Staffing Services. We evaluate the performance of our operating segments and allocate resources based on revenue, gross profit and segment operating profit. Segment operating profit is defined as income before unallocated corporate costs, amortization expense, interest expense, interest income, income taxes and restructuring and other charges. All intercompany revenues and expenses have been eliminated. Additionally, amounts related to discontinued operations have been excluded from the segment information below and are presented as discontinued operations in the Condensed Consolidated Statements of Operations. As a result of internal organizational and business strategy changes, we realigned our operating segments during the first quarter of 2009. The RPO and Todays Office Professionals businesses are now reported in Professional Services rather than within Staffing Services. The historical segment information has been adjusted to conform to our segment presentation in 2009.

Information on operating segments and a reconciliation to earnings (loss) from continuing operations before income taxes for the periods indicated were as follows (in thousands):

                                                      Three Months Ended                                   Nine Months Ended
                                         September 27, 2009        September 28, 2008        September 27, 2009         September 28, 2008
                                                       % of                      % of                      % of                       % of
                                                       Total                     Total                     Total                      Total
Revenues:
   Professional Services                $ 160,873      38.3 %    $  225,348      41.6 %   $   513,829      40.9 %    $   724,860      43.1 %
   Staffing Services                      259,324      61.7 %       316,827      58.4 %       741,417      59.1 %        956,755      56.9 %
Total                                   $ 420,197     100.0 %    $  542,175     100.0 %   $ 1,255,246     100.0 %    $ 1,681,615     100.0 %

                                                       % of                      % of                      % of                       % of
                                                     Revenues                  Revenues                  Revenues                   Revenues
Gross profit:
   Professional Services                $  43,045      26.8 %    $   65,723      29.2 %   $   138,646      27.0 %    $   216,486      29.9 %
   Staffing Services                       38,594      14.9 %        52,824      16.7 %       109,244      14.7 %        160,416      16.8 %
Total                                   $  81,639      19.4 %    $  118,547      21.9 %   $   247,890      19.7 %    $   376,902      22.4 %

Segment SG&A:
   Professional Services                $ (35,995 )              $  (56,671 )             $  (120,968 )              $  (179,786 )
   Staffing Services                      (38,371 )                 (47,492 )                (113,728 )                 (154,875 )
Total                                     (74,366 )                (104,163 )                (234,696 )                 (334,661 )

Segment operating profit:
   Professional Services                $   7,050                $    9,052               $    17,678                $    36,700
   Staffing Services                          223                     5,332                    (4,484 )                    5,541
Total                                       7,273                    14,384                    13,194                     42,241

   Unallocated corporate costs             (3,094 )                  (4,249 )                  (9,227 )                  (12,529 )
   Amortization expense                    (1,624 )                  (2,037 )                  (4,879 )                   (6,124 )
   Interest expense                        (1,228 )                  (1,573 )                  (2,713 )                   (4,897 )
   Interest income                             41                        69                       131                        320
   Restructuring and other charges           (896 )                       -                    (5,069 )                   (1,940 )
   Earnings (loss) from continuing
       operations before income taxes   $     472                $    6,594               $    (8,563 )              $    17,071

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
               AND RESULTS OF OPERATIONS - Continued


Segment Operating Results

   Professional Services

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

                                               Three Months Ended                              Nine Months Ended
                                   September 27, 2009      September 28, 2008      September 27, 2009      September 28, 2008
                                                  % of                   % of                    % of                    % of
                                                 Total                   Total                   Total                   Total
Revenues by Skill:
   Information Technology         $  110,584     68.7 %   $   142,074    63.0 %   $   340,554    66.3 %   $  451,274     62.3 %
   Finance & Accounting               20,527     12.8 %        25,758    11.4 %        65,948    12.9 %       84,170     11.6 %
   Administration                     14,431      9.0 %        29,709    13.2 %        55,710    10.8 %       95,161     13.1 %
   Other                              15,331      9.5 %        27,807    12.4 %        51,617    10.0 %       94,255     13.0 %
    Segment revenues              $  160,873    100.0 %   $   225,348   100.0 %   $   513,829   100.0 %   $  724,860    100.0 %

Revenues by Service:
   Temporary Staffing & Other     $  156,024     97.0 %   $   213,112    94.6 %   $   499,160    97.1 %   $  682,823     94.2 %
   Permanent Placement                 4,849      3.0 %        12,236     5.4 %        14,669     2.9 %       42,037      5.8 %
    Segment revenues              $  160,873    100.0 %   $   225,348   100.0 %   $   513,829   100.0 %   $  724,860    100.0 %

Gross Profit Margin by Service:
(As % of Applicable Revenues)
   Temporary Staffing & Other           24.5 %                   25.1 %                  24.8 %                 25.5 %
   Permanent Placement                 100.0 %                  100.0 %                 100.0 %                100.0 %
   Total Professional Services          26.8 %                   29.2 %                  27.0 %                 29.9 %

Three Months Ended September 27, 2009 Compared with September 28, 2008

Revenues - Professional Services revenues were $160.9 million or 38.3% of total revenue in the third quarter of 2009 compared with $225.3 million or 41.6% of total revenue in the same period of the prior year. The 28.6% decrease in revenues in the third quarter of 2009 was attributable to lower demand from customers across all service lines and skill categories due to the continued economic slowdown. As stated in our 2009 objectives and goals, we continue to focus on our strategy to increase higher margin professional revenues.

º By skill - Information technology ("IT") decreased 22.2% in the third quarter of 2009 compared with the same period in the prior year primarily due to lower demand from several large customers, particularly within the technology, telecommunications and insurance sectors. Revenue declines within finance and accounting and administration reflect lower customer demand particularly for permanent placement services. Other skills decreased 44.9% and primarily reflects a slow down in our RPO business due to client hiring freezes and deferrals. Demand across all skill categories is lower year over year as the U.S. economy shrank during the second half of 2008 and the first half of 2009.

º By service - Temporary staffing and other decreased 26.8% in the third quarter compared with the same prior year period due to the slower economy which has resulted in lower demand from both large and small to mid-sized customers and lower RPO revenues. Permanent placement revenues decreased in the third quarter of 2009 compared with the third quarter in the prior year by $7.4 million, or 60.4%, as a result of customer decisions to freeze hiring due to economic uncertainty since the second half of 2008.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Gross Profit - Professional Services gross profit decreased 34.5% to $43.0 million in the third quarter of 2009 from $65.7 million in the same period of the prior year. The overall gross profit margin was 26.8% in 2009 compared with 29.2% in the same period of the prior year. This 240 basis point decrease in gross profit margin was primarily due to a change in service mix due to lower permanent placement revenues (180 basis points) and lower temporary staffing margins (70 basis points) driven by lower pay/bill spreads and higher payroll taxes and employee burden costs, partially offset by higher margins in our RPO business (10 basis points).

Segment Operating Profit - Professional Services segment operating profit was $7.1 million in the third quarter of 2009 compared with $9.1 million in the same period of the prior year. Operating expenses as a percentage of gross profit were down 260 basis points to 83.6% from 86.2%. The decrease in operating expenses as a percentage of gross profit was primarily due to cost reductions made in response to declining demand.

Revenues - Professional Services revenues decreased 29.1% to $513.8 million in 2009 from $724.9 million in the same period of the prior year. The decrease in revenues was attributable to the lower business volumes from customers across all service lines and skill categories due to the continuing weak economic conditions in 2009.

º By skill - IT decreased 24.5% from the same period in the prior year primarily due to the completion of a large IT staffing project in mid-2008 and lower demand from several large customers. Revenues from finance and accounting and administration decreased 32.2% compared with the prior year due to lower customer demand, including significant decreases in permanent hiring for these skills. Other skills decreased 45.2% and primarily reflects a slow down in our RPO business due to client hiring freezes and deferrals as the U.S. economy has continued to slow.

º By service - Temporary staffing and other decreased 26.9% in 2009 compared with the same prior year period due to the slower economy which has resulted in lower demand from customers and lower RPO revenues, which have decreased 49.4% year over year. Permanent placement revenues decreased by 65.1%, as a result of customer decisions to defer hiring due to economic uncertainty since the second half of 2008.

Gross Profit - Professional Services gross profit decreased 36.0% to $138.6 million in 2009 from $216.5 million in the same period of the prior year. The overall gross profit margin was 27.0% in 2009 compared with 29.9% in the same period of the prior year. This 290 basis point decrease in gross profit margin was due to a change in service mix due to lower permanent placement revenues (220 basis points) and lower temporary staffing margins (60 basis points) driven by lower pay/bill spreads and higher payroll taxes and other employee burden costs and lower revenue mix in our RPO business (10 basis points).

Segment Operating Profit - Professional Services segment operating profit was $17.7 million in 2009 compared with $36.7 million in the same period of the prior year. Despite the decrease in operating expenses, as a percentage of gross profit, operating expenses increased to 87.2% from 83.0%. The increase in operating expenses as a percentage of gross profit was primarily due to deleveraging as business volumes and gross profit margins decreased at a more rapid rate than related cost reductions.

Outlook - We continue to focus on the execution of our strategy to expand our higher margin RPO and Professional Services business through sales to our targeted small and mid-sized accounts, while leveraging opportunities to sell Professional Services to our existing larger customers. Compared with the second quarter, we have seen some stabilization in demand for certain skills and permanent placement revenue increased slightly in the third quarter of 2009. Improving demand is not widespread within our Professional Services operations. As such, we continue to carefully monitor gross profit trends and expense levels while keeping Spherion positioned to respond to growth opportunities in Professional Services markets in the future.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
               AND RESULTS OF OPERATIONS - Continued


Staffing Services

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

                                               Three Months Ended                              Nine Months Ended
                                   September 27, 2009      September 28, 2008      September 27, 2009      September 28, 2008
                                                 % of                    % of                    % of                    % of
                                                 Total                   Total                   Total                   Total
Revenues by Skill:
   Clerical                       $  157,691     60.8 %   $  189,953     60.0 %   $  470,145     63.4 %   $  573,674     60.0 %
   Light Industrial                  101,633     39.2 %      126,874     40.0 %      271,272     36.6 %      383,081     40.0 %
    Segment revenues              $  259,324    100.0 %   $  316,827    100.0 %   $  741,417    100.0 %   $  956,755    100.0 %

Revenues by Service:
   Temporary Staffing & Other     $  257,975     99.5 %   $  313,633     99.0 %   $  736,984     99.4 %   $  945,512     98.8 %
   Permanent Placement                 1,349      0.5 %        3,194      1.0 %        4,433      0.6 %       11,243      1.2 %
   Segment revenues               $  259,324    100.0 %   $  316,827    100.0 %   $  741,417    100.0 %   $  956,755    100.0 %

Gross Profit Margin by Service:
(As % of Applicable Revenues)
   Temporary Staffing & Other           14.4 %                  15.8 %                  14.2 %                  15.8 %
   Permanent Placement                 100.0 %                 100.0 %                 100.0 %                 100.0 %
   Total Professional Services          14.9 %                  16.7 %                  14.7 %                  16.8 %

Revenues - Staffing Services revenues decreased to $259.3 million in the third quarter of 2009 from $316.8 million in the same period of the prior year. The decrease was primarily due to lower business volumes among existing customers and weaker employment levels in the U.S. and Canada due to the slowing economy. On a sequential basis, Staffing Services revenues increased 9.0% in the third quarter of 2009 compared with the second quarter of 2009.

º By skill - Clerical revenues decreased 17.0% in the third quarter of 2009 compared with the same period in the prior year primarily due to lower demand among various customers, primarily in the financials services, distribution and technology industries. Light industrial revenues decreased 19.9% from prior year levels due to lower business volumes among several of our customers, primarily in the manufacturing and technology industries.

º By service - Temporary staffing and other revenues decreased 17.7% compared with the same period last year due to lower volumes in both our U.S. and Canadian operations due to the slowing economy. Permanent placement revenues decreased to $1.3 million in the third quarter of 2009 from $3.2 million in the prior year. This decrease is primarily due to weaker customer demand as a result of the slower economic activity and weaker employment trends in the U.S. and Canada.

Gross Profit - Gross profit decreased to $38.6 million or 14.9% of revenue in the third quarter of 2009 compared with $52.8 million or 16.7% in the same prior year period. The decrease of 180 basis points in the gross profit margin resulted from lower temporary staffing margins of 140 basis points due to lower pay/bill spreads (115 basis points) and higher payroll taxes and other employee burdens, including higher workers' compensation costs (25 basis points), and a change in revenue mix resulting from lower disproportionally permanent placement revenues (40 basis points).

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Segment Operating Profit - Staffing Services segment operating profit was $0.2 million in the third quarter of 2009 compared with $5.3 million in the same period of the prior year. Operating expenses decreased by $9.1 million or 19.2% year over year, but increased as a percentage of gross profit to 99.4% compared with 89.9% in the same period of the prior year. Higher operating expenses as a percentage of gross profit are due to deleveraging as volumes and gross profit margins decreased faster than operating expenses were reduced.

. . .