SFN » Topics » 9. Legal Proceedings and Contingencies

This excerpt taken from the SFN 10-Q filed May 6, 2009.

5. Legal Proceedings and Contingencies

In connection with the disposition of certain subsidiaries, Spherion, from time to time provides routine indemnifications for certain liabilities that arose prior to a disposition date. Liabilities related to these indemnifications have been appropriately accounted for in the Condensed Consolidated Balance Sheets.

Spherion, in the ordinary course of its business, is or may be 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 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.

On March 13, 2009, Spherion initially moved for summary judgment in the action filed against Spherion Corporation by Glidepath Holding B.V. and Jeimon Holdings N.V. in the U.S. District Court for the Southern District of New York. Spherion is seeking summary judgment dismissing plaintiff's claims and in favor of Spherion's counterclaims filed in the matter. The motion for summary judgment was fully briefed on May 1, 2009.

As of March 29, 2009, Spherion had $42.5 million in outstanding irrevocable letters of credit. These instruments primarily collaterize 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. As of March 29, 2009, none of these irrevocable letters of credit had been drawn upon.

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SPHERION CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)

This excerpt taken from the SFN 10-Q filed Nov 5, 2008.

5. Legal Proceedings and Contingencies

In connection with the disposition of certain businesses, Spherion, from time to time provides routine indemnifications for certain liabilities that arose prior to a disposition date. Liabilities related to these indemnifications have been appropriately accounted for in the Condensed Consolidated Balance Sheets.

Spherion, in the ordinary course of its business, is or may be 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 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.

As of September 28, 2008 and December 30, 2007, Spherion had $43.3 million and $31.1 million, respectively, in irrevocable letters of credit outstanding, which were issued for the benefit of certain insurance carriers to guarantee payment for various self-insurance programs such as workers' compensation. As of September 28, 2008 and December 30, 2007, none of these irrevocable letters of credit had been drawn upon.

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SPHERION CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(unaudited)

This excerpt taken from the SFN 10-Q filed Aug 6, 2008.

5. Legal Proceedings and Contingencies

In connection with the disposition of certain businesses, Spherion, from time to time provides routine indemnifications with respect to equipment and real estate leases and, in certain cases, the performance of services. The disposition of these businesses also usually requires that Spherion indemnify the purchaser for liabilities that arose prior to the disposition date. Liabilities related to these indemnifications have been appropriately accounted for in the Condensed Consolidated Balance Sheets.

Spherion, in the ordinary course of its business, is or may be 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 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.

In the second quarter of 2008, the Company paid $5.5 million to settle certain indemnification claims related to the sale of the Australian education business in 2004. As a result, the Company recorded an after-tax charge of $2.0 million for the difference between established reserves and the settlement amount, plus legal fees which was included in discontinued operations. The Company also recorded a $1.0 million adjustment of a tax valuation allowance related to this item, which is included in continuing operations.

As of June 29, 2008 and December 30, 2007, Spherion had $43.3 million and $31.1 million, respectively, in irrevocable letters of credit outstanding, which were issued for the benefit of certain insurance carriers to guarantee payment for various self-insurance programs such as workers' compensation. As of June 29, 2008 and December 30, 2007, none of these irrevocable letters of credit had been drawn upon.

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SPHERION CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 (unaudited)

This excerpt taken from the SFN 10-Q filed May 8, 2008.

5. Legal Proceedings and Contingencies

In connection with the disposition of certain businesses, Spherion, from time to time provides routine indemnifications with respect to equipment and real estate leases and, in certain cases, the performance of services. The disposition of these businesses also usually requires that Spherion indemnify the purchaser for liabilities that arose prior to the disposition date. Liabilities related to these indemnifications have been appropriately accounted for in the Condensed Consolidated Balance Sheets.

Spherion, in the ordinary course of its business, is or may be 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 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.

As of March 30, 2008, we had $43.3 million in irrevocable letters of credit outstanding, which were issued primarily to certain insurance carriers to guarantee payment for various self-insurance programs such as workers' compensation insurance. As of March 30, 2008, none of these irrevocable letters of credit had been drawn upon.

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This excerpt taken from the SFN 10-Q filed Nov 8, 2007.

9. Legal Proceedings and Contingencies

 

In connection with the disposition of certain businesses, Spherion, from time to time provides routine indemnifications with respect to equipment and real estate leases and in certain cases the performance of services. The disposition of these businesses also usually requires that Spherion indemnify the purchaser for liabilities that arose prior to the disposition date. Liabilities related to these indemnifications have been appropriately accounted for in the Condensed Consolidated Balance Sheet.

 

Spherion, in the ordinary course of its business, is or may be 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 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.

 

During the current quarter, a California administrative law judge ruled on two prior year state unemployment assessments made against the Company. The judge ruled in favor of the Company on one of the assessments and ruled in favor of the state on the second assessment. The judge’s ruling in the second matter was based upon procedural matters rather than technical merits. As such, the Company is appealing the decision. The outstanding assessment approximates $1.6 million plus potential interest and penalties. As of September 30, 2007, the Company had $1.6 million accrued as its best estimate of losses it expects to incur as a result of this matter which is recorded in the Condensed Consolidated Balance Sheet in accounts payable and other accrued expenses.

 

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This excerpt taken from the SFN 10-Q filed Aug 6, 2007.

9. Legal Proceedings and Contingencies

In connection with the disposition of certain businesses, Spherion, from time to time provides routine indemnifications with respect to equipment and real estate leases and in certain cases the performance of services.  The disposition of these businesses also usually requires that Spherion indemnify the purchaser for liabilities that arose prior to the disposition date.

Spherion, in the ordinary course of its business, is or may be 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 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.

One state is examining Spherion’s prior year unemployment tax rates and the claim raised by the state approximates $2.0 million plus potential interest and penalties.  As of July 1, 2007, Spherion had $1.6 million accrued as its best estimate of losses it expects to incur as a result of this matter and is recorded in the attached Condensed Consolidated Balance Sheet in accounts payable and other accrued expenses.

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This excerpt taken from the SFN 10-Q filed May 10, 2007.

8. Legal Proceedings and Contingencies

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.  The disposition of these businesses also usually requires that Spherion indemnify the purchaser for liabilities that arose prior to the disposition date.

Spherion, in the ordinary course of its business, is or may be 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 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.

We currently own 85% of our Canadian operation and have a put/call agreement with the minority interest shareholder for the remaining 15% interest in the business.  In the first quarter of 2007, we came to an agreement in principle with the minority interest shareholder to acquire the remaining 15% effective at the end of the second quarter.  The purchase price is expected to approximate $5.2 million at current exchange rates for the remaining 15% interest and will be paid during the third and fourth quarters of the current fiscal year and is recorded in the attached Condensed Consolidated Balance Sheet in other current liabilities.  During the quarter we recorded $1.5 million in interest expense to adjust the related liability to the agreed purchase price in accordance with SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.”

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SPHERION CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)

One state is examining Spherion’s prior year unemployment tax rates and the claim raised by the state approximates $2.0 million plus potential interest and penalties.  As of April 1, 2007, Spherion had $1.6 million accrued as its best estimate of losses it expects to incur as a result of this matter.

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This excerpt taken from the SFN 10-Q filed Nov 8, 2006.

9. Legal Proceedings and Contingencies

In connection with the disposition of some subsidiaries in prior years, Spherion from time to time provided routine indemnifications with respect to equipment and real estate leases and in certain cases the performance of services.  The disposition of these businesses also usually requires that Spherion indemnify the purchaser for liabilities that arose prior to the disposition date.  See Note 3, “Discontinued Operations,” for further discussion.

Spherion, in the ordinary course of its business, is or may be 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.

In 2003, in connection with Spherion’s acquisition of 85% of its Canadian franchise operation, Spherion 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 January 1, 2006, or, as amended, Spherion can call the remaining 15% interest any time after January 1, 2008.  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 for the period preceding the exercise of the option.  Based upon these factors, the estimated purchase price would approximate $3.8 million, however, the timing of the transaction is not certain at this point in time and the price will vary depending upon the operating results and net assets of the business for the period preceding the transaction.

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SPHERION CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)

On December 13, 2004, and as amended on January 13, 2005 and October 31, 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 $32.0 million in damages, and treble for punitive damages, plus attorneys’ 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 this matter.  Although this claim is in the preliminary stages, Spherion has a reserve of $0.1 million related to this matter.  Spherion does not have insurance coverage for this claim.

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 $60.0 million.  Spherion believes that it has appropriately reported these transactions in its tax returns, and that it has established adequate reserves as of October 1, 2006 in the amount of $48.7 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.  An unfavorable settlement or adverse resolution could result in the repayment of a portion of the refund received plus interest.

Two 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 $3.1 million plus potential interest and penalties.  As of October 1, 2006, Spherion had $2.1 million accrued as its best estimate of losses it expects to incur as a result of these challenges.

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This excerpt taken from the SFN 10-Q filed Aug 8, 2006.

9. Legal Proceedings and Contingencies

 

In connection with the disposition of some subsidiaries in prior years, Spherion from time to time provided routine indemnifications with respect to equipment and real estate leases and in certain cases the performance of services. The disposition of these businesses also usually requires that Spherion indemnify the purchaser for liabilities that arose prior to the disposition date. See Note 3, “Discontinued Operations,” for further discussion.

 

Spherion, in the ordinary course of its business, is or may be 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.

 

In 2003, in connection with Spherion’s acquisition of 85% of its Canadian franchise operation, Spherion 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 January 1, 2006, or, as amended, Spherion can call the remaining 15% interest any time after January 1, 2008. 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 for the period preceding the exercise of the option. Based upon these factors, the estimated purchase price would approximate $3.6 million, however, the timing of the transaction is not certain at this point in time and the price will vary depending upon the operating results and net assets of the business for the period preceding the transaction.

 

On December 13, 2004, and as amended on January 13, 2005 and October 31, 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 $32.0 million in damages, and treble for punitive damages, plus attorneys’ 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 this matter. Although this claim is in the preliminary stages, Spherion has a reserve of $0.1 million related to this matter. Spherion does not have insurance coverage for this claim.

 

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 $60.0 million. Spherion believes that it has appropriately reported these transactions in its tax returns, and that it has established adequate reserves as of July 2, 2006 in the amount of $50.3 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. An unfavorable settlement or adverse resolution could result in the repayment of a portion of the refund received plus interest.

 

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 $3.1 million plus potential interest and penalties. As of July 2, 2006, 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.

 

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ITEM 2. MANAGEMENT’S DISCUSSION ANALYSIS OF FINANCIAL CONDITION

This excerpt taken from the SFN 10-Q filed May 8, 2006.

8. Legal Proceedings and Contingencies

 

In connection with the disposition of some subsidiaries in prior years, Spherion from time to time provided routine indemnifications with respect to equipment and real estate leases and in certain cases the performance of services. The disposition of these businesses also usually requires that Spherion indemnify the purchaser for liabilities that arose prior to the disposition date. See Note 3, Discontinued Operations, for further discussion.

 

Spherion, in the ordinary course of its business, is or may be 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.

 

In 2003, in connection with Spherion’s acquisition of 85% of its Canadian franchise operation, Spherion 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 January 1, 2006, or, as amended, Spherion can call the remaining 15% interest any time after January 1, 2008. 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. Based upon these factors, the estimated purchase price using net assets as of January 1, 2006 and operating results for the year ended January 1, 2006 would approximate $3.0 million, however, this amount is not determinable or certain to be paid at this point in time.

 

On December 13, 2004, and as amended on January 13, 2005 and October 31, 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 $32.0 million in damages, and treble for punitive damages, plus attorneys’ 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 this matter. Although this claim is in the preliminary stages, Spherion has a reserve of $0.1 million related to this matter. Spherion does not have insurance coverage for this claim.

 

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 $60.0 million. Spherion believes that it has appropriately reported these transactions in its tax returns, and that it has established adequate reserves as of April 2, 2006 in the amount of $51.5 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. An unfavorable settlement or adverse resolution could result in the repayment of a portion of the refund received plus interest.

 

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 April 2, 2006, 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.

 

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This excerpt taken from the SFN 10-Q filed Nov 10, 2005.

10. Legal Proceedings and Contingencies

 

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 $10.0 million for breach of contract, reformation of the purchase agreement to reduce the purchase price by approximately $24.0 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 $25.0 million in damages.  The parties filed 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.  After the parties stipulated to the amount of pre-judgment interest and attorneys’ fees, the judge entered an order of judgment in June 2005 directing Spherion to pay a total of approximately $1.7 million, and in August 2005 this amount was paid by Spherion to the plaintiffs.  In June 2005, the plaintiffs filed a notice of appeal and oral argument was heard in the

 

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Delaware Supreme Court on October 26, 2005.  On October 31, 2005, the Delaware Supreme Court issued its opinion affirming the trial court’s ruling in all respects.  Spherion’s reserves related to this case as of October 2, 2005 were approximately $0.2 million for payment of legal fees.

 

On December 13, 2004, and as amended on January 13, 2005 and October 31, 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 $32.0 million in damages, and treble for punitive damages, plus attorneys’ 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 this matter.  Although this claim is in the preliminary stages, Spherion has a reserve of $0.1 million related to this matter.  Spherion does not have insurance coverage for this claim.

 

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 $60.0 million.  Spherion believes that it has appropriately reported these transactions in its tax returns, and that it has established adequate reserves as of October 2, 2005 in the amount of $57.2 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.  An unfavorable settlement or adverse resolution could result in the repayment of a portion of the refund received plus interest.

 

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 October 2, 2005, 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.

 

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This excerpt taken from the SFN 10-Q filed Aug 9, 2005.

10. Legal Proceedings and Contingencies

 

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 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. After the parties stipulated to the amount of pre-judgment interest and attorneys’ fees, the judge entered an order of judgment in June 2005 directing Spherion to pay a total of approximately $1.7 million, which amount was tendered by Spherion to the plaintiffs in July 2005.  In June 2005, the plaintiffs filed a notice of appeal.  The schedule for filing briefs on the appeal extends through September 2005.  Spherion’s reserves related to this case as of July 3, 2005 were approximately $1.9 million.  After payment of the judgment in July 2005, remaining reserves now total approximately $0.2 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 attorneys’ 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

 

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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 this matter. Although this claim is in the preliminary stages, Spherion has accrued $0.1 million as its estimate of the minimum cost to resolve this matter. Spherion does not have insurance coverage for this claim.

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 July 3, 2005 in the amount of $57.4 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. An unfavorable settlement or adverse resolution could result in the repayment of a portion of the refund received plus interest.

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 July 3, 2005, 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 during the early 1990s prior to its acquisition by Spherion. These syndicates were formed to create new technologies, typically software, and allowed the investment member of the syndicates to obtain accelerated tax deductions and credits and Spherion’s former Australian subsidiary provided the investment member with certain tax indemnifications. In November 2004 and December 2004, Spherion was notified that the Australian tax authorities were examining two of these syndicates beginning in 1993. Spherion 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.

 

This excerpt taken from the SFN 10-Q filed May 11, 2005.

10. Legal Proceedings and Contingencies

 

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.

 

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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 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 parties have agreed that Spherion will pay $240,000 in attorney’s fees. We expect that the final judgment will be formally entered in the second quarter of 2005. 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 April 3, 2005 has reserves remaining in the amount of $2.2 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 this matter but has accrued a nominal settlement estimate. 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  April 3, 2005 in the amount of $57.7 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. 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 April 3, 2005, 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 during the early 1990’s. These syndicates were formed to create new technologies, typically software, and allowed the investment member of the syndicates to obtain accelerated tax deductions and credits and Spherion’s former Australian subsidiary provided the investment member with certain tax indemnifications. The Australian tax authorities have notified Spherion that they are examining two of these syndicates for the 1993 to 2000 tax years. Spherion 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.

 

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