[February 22, 2017] |
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Convergys Reports Fourth Quarter and Full Year 2016 Results
Convergys
Corporation (NYSE: CVG), a global leader in customer experience
outsourcing, today announced its financial results for the fourth
quarter and full year 2016.
Fourth Quarter Summary
-
Revenue of $758 million, up 1 percent as reported and up 2 percent on
a constant currency basis compared with prior year, including a 5
percent contribution from the buw acquisition;
-
GAAP operating income of $51 million; adjusted operating income of $66
million;
-
GAAP net income from continuing operations was $18 million, including
acquisition-related and other impacts; adjusted net income from
continuing operations was $48 million;
-
Adjusted EBITDA of $92 million;
-
GAAP EPS from continuing operations of $0.17, compared with $0.41 in
prior year; adjusted EPS from continuing operations of $0.47, compared
with $0.53 in prior year;
-
Operating cash flow of $69 million, adjusted free cash flow of $46
million;
-
$27 million capital returned to shareholders via share repurchase and
dividend.
"We generated solid revenue, profitability and cash flow in the fourth
quarter," said Andrea Ayers, President and CEO. "For 2016, adjusted EPS
improved and we had a record year of new business signings. Growth
across several verticals and solid margin performance despite revenue
headwinds are positive indicators that our long-term strategy is on
track. Strong cash generation allowed us to invest in the business while
returning $105 million to shareholders via share repurchase and
dividends. Entering 2017, we remain focused on generating long-term
profitable growth and sustained value creation. Based upon our track
record of operational excellence and disciplined investment, we are
confident in our abilities to lead in customer experience outsourcing,
expand and diversify a loyal client base, and grow revenue over time."
Fourth Quarter Results - Continuing Operations
Revenue - Revenue was $758 million including $8 million adverse
foreign currency impacts, an increase of 1 percent as reported and an
increase of 2 percent on a constant currency basis, compared with $752
million in the same period last year. This includes $37 million, an
increase of 5 percent, from the acquired buw operations.
Operating Income - GAAP operating income was $51 million,
compared with $61 million in the same period last year. Excluding
certain acquisition-related and other impacts discussed below, adjusted
operating income was $66 million, compared with $75 million in the same
period last year.
GAAP operating margin was 6.8 percent, compared with 8.1 percent in the
same period last year. Adjusted operating margin was 8.7 percent,
compared with 9.9 percent in the same period last year.
Adjusted EBITDA - Adjusted EBITDA was $92 million, compared with
$105 million in the same period last year. Adjusted EBITDA excludes
certain acquisition-related and other impacts discussed below.
Adjusted EBITDA margin was 12.2 percent, compared with 13.9 percent in
the same period last year.
Net Income - GAAP net income from continuing operations was $18
million, or $0.17 per diluted share, compared with $43 million, or $0.41
per diluted share, in the same period last year. Excluding certain
acquisition-related and other impacts discussed below, adjusted net
income from continuing operations was $48 million, or $0.47 per diluted
share, compared with $55 million, or $0.53 per diluted share, in the
same period last year.
Share Repurchase - Convergys repurchased 0.7 million shares in
the fourth quarter at a cost of $18 million. At December 31, 2016, the
remaining authorization to purchase outstanding shares was $143 million.
Quarterly Dividend - Convergys paid a $0.09 per share quarterly
dividend in January to holders of record at the close of business on
December 23, 2016. The next dividend payment of $0.09 per share is
scheduled to be made on April 7, 2017, to shareholders of record at the
close of business on March 24, 2017.
Cash Flow - Operating cash flow was $69 million, compared with
$67 million in the same period last year. Adjusted free cash flow was
$46 million, including the impact from a $10 million pension
contribution, compared with $48 million in the same period last year.
Net Debt - At December 31, 2016, cash and short term investments
were $151 million, debt maturing in one year was $2 million, and
long-term debt was $297 million. Net debt totaled $148 million at
December 31, 2016, compared with $159 million at September 30, 2016, and
$123 million at the end of the fourth quarter last year.
Acquisition-related and Other Impacts - GAAP fourth-quarter 2016
results include acquisition-related and other impacts consisting of $7
million amortization expense for acquired intangible assets, $1 million
depreciation expense related to the fair value write-up of acquired
property and equipment, $2 million integration and transaction expenses,
$5 million non-cash pension settlement charge, and $20 million tax
expense related to legal-entity restructuring and cash repatriation
activities. Prior year fourth-quarter 2015 GAAP results included $6
million amortization expense for acquired intangible assets, $4 million
depreciation expense related to the fair value write-up of acquired
property and equipment, $4 million Stream integration costs, and $2
million tax expense from the impact of cash repatriation.
Full Year 2016 Results - Continuing Operations
Revenue - Full year 2016 revenue was $2,914 million including $28
million adverse foreign currency impacts, a 1 percent decrease as
reported and flat on a constant currency basis, compared with $2,951
million in 2015. This includes $63 million, an increase of 2 percent,
from the acquired buw operations.
Operating Income - Full year 2016 GAAP operating income was $205
million, compared with $194 million in 2015. Full year GAAP operating
margin was 7.0 percent, compared with 6.6 percent in the prior year.
Full year 2016 adjusted operating income was $253 million, compared with
$252 million in 2015. Full year adjusted operating margin was 8.7
percent, compared with 8.5 percent in the prior year.
Adjusted EBITDA - Full year 2016 adjusted EBITDA was $366
million, compared with $375 million in 2015. Full year adjusted EBITDA
margin was 12.5 percent, compared with 12.7 percent in the prior year.
Net Income - Full year 2016 GAAP net income from continuing
operations was $133 million, or $1.30 per diluted share, compared with
$168 million, or $1.60 per diluted share, in 2015. Full year 2016
adjusted net income from continuing operations was $189 million, or
$1.84 per diluted share, an increase of 5 percent, compared with $185
million, or $1.76 per diluted share, in 2015.
Capital Returns - Convergys repurchased 2.7 million shares at a
cost of $72 million, and paid $33 million in dividends in 2016.
Cash Flow - Full year 2016 operating cash flow was $305, compared
with $249 in the same period last year. Adjusted free cash flow was $225
million, compared with $153 million in the prior year.
Acquisition-related and Other Impacts - Full year 2016 GAAP
results include acquisition-related and other impacts consisting of $28
million amortization expense for acquired intangible assets, $9 million
depreciation expense related to the fair value write-up of acquired
property and equipment, $3 million transaction expenses, $3 million
integration expenses, $5 million non-cash pension settlement charge, and
$22 million tax expense related to legal-entity restructuring and cash
repatriation activities. Prior year 2015 GAAP results included $27
million amortization expense for acquired intangible assets, $19 million
depreciation expense related to the fair value write-up of acquired
property and equipment, $11 million integration costs, $2 million tax
benefit from the impact of cash repatriation, and $22 million benefit
from the release of a tax reserve.
Reconciliation tables of GAAP to non-GAAP results are attached.
2017 Business Outlook
In 2017, Convergys anticipates growth with several existing and new
clients across vertical markets largely to offset continued volatility
with two large communications clients. As a result, the company's
expectations for revenue, EBITDA, EPS and cash flow include:
-
Constant currency revenue growth of negative 3 percent to positive 1
percent;
-
Adjusted EBITDA margin to approximate 12.5 percent;
-
Adjusted effective tax rate to approximate 20 percent;
-
Diluted shares outstanding to approximate 102.5 million;
-
Adjusted EPS growth of negative 3 percent to positive 3 percent;
-
Adjusted free cash flow to approximate adjusted net income.
During the year, the company expects seasonal sequential decreases in
revenue beginning in the first quarter, and sequential decreases in
EBITDA and EPS in the second quarter, with sequential improvement in
quarterly results beginning in the third quarter of 2017.
Future actions to streamline the business and align costs to match
anticipated revenue will likely require discrete actions in the first
quarter of 2017, the costs of which are not included in this guidance.
Additionally, this guidance does not include acquisition-related impacts
such as integration costs, transaction costs, intangible amortization
and depreciation related to the fair value write-up of acquired property
and equipment, as well as impacts from future currency movements,
non-cash pension settlement charges, or any future share repurchase
activities. Adjusted effective tax rate reflects the Company's
expectations for the effective tax rate, excluding the tax impact of
items discussed above, tax expense associated with cash repatriation and
significant discrete tax adjustments.
The Company believes that quantitative reconciliations of the outlook to
GAAP measures cannot be provided without unreasonable efforts due to the
forward-looking nature of the acquisition-related adjustments and future
currency movements, and their inherent variability; therefore, the
Company does not present guidance on a GAAP basis. For the same reason,
Convergys is unable to address the probable significance of the
unavailable information, which may have a material impact on the
Company's GAAP results.
Forward-Looking Statements Disclosure and "Safe Harbor" Note
This news release contains statements, estimates, or projections that
constitute "forward-looking statements" as defined under U.S. federal
securities laws. Forward looking statements may be identified by words
such as "will," "expect," "estimate," "think," "forecast," "guidance,
"outlook," "plan," "lead," "project" or other comparable terminology.
Forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
our historical experience and our present expectations or projections.
These risks include, but are not limited to: (i) the loss of a
significant client or significant business from a client; (ii) the
future financial performance of our largest clients and the major
industries that we serve; (iii) contractual provisions that may limit
our profitability or enable our clients to reduce or terminate services;
(iv) our failure to successfully acquire and integrate businesses,
including buw; (v) our inability to protect proprietary or personally
identifiable data against unauthorized access or unintended release;
(vi) our inability to maintain and upgrade our technology and network
equipment in a timely and cost effective manner; (vii) business and
political risks related to our global operations, including ongoing
political developments in the Philippines, uncertainty regarding the
impact of Britain's vote to leave the European Union (Brexit) or other
similar actions by European Union member states, and economic weakness
and operational disruption as a result of natural events, political
unrest, war, terrorist attacks or other civil disruption; (viii) the
effects of foreign currency exchange rate fluctuations; (ix) the failure
to meet expectations regarding our future tax liabilities, changes in
tax law that increase our future tax liabilities or the unfavorable
resolution of tax contingencies; (x) adverse effects of regulatory
requirements or changes thereto, investigative and legal actions, and
other commitments and contingencies and (xi) those factors contained in
our periodic reports filed with the SEC, including in the "Risk Factors"
section of our most recent Annual Report on Form 10-K. The
forward-looking information in this document is given as of the date of
the particular statement and we assume no duty to update this
information. Our filings and other important information are also
available on the investor relations page of our web site at www.convergys.com.
Non-GAAP Financial Measures
This news release contains non-GAAP financial measures as defined by the
Securities and Exchange Commission Regulation G; pursuant to the
requirements of this regulation, reconciliations of these non-GAAP
measures to their comparable GAAP measures are included in the attached
financial tables. To assess the underlying operational performance of
the continuing operations of the business for the quarter and to have a
basis to compare underlying operating results to prior and future
periods, management uses operating income, net income from continuing
operations and diluted earnings per share from continuing operations
metrics excluding certain non-operational or restructuring-related
activities.
These items are relevant in evaluating the overall performance of the
business. Limitations associated with the use of these non-GAAP measures
include that these measures do not include all of the amounts associated
with our results as determined in accordance with GAAP. Management
compensates for these limitations by using the non-GAAP measures,
operating income, income from continuing operations, net of tax, and
diluted earnings per share from continuing operations, in each case
excluding the items above, and constant currency revenue growth, as well
as the GAAP measures, operating income, income from continuing
operations, net of tax, diluted earnings per share and revenue growth,
in its evaluation of performance.
The Company presents the non-GAAP financial measure constant currency
revenue growth because management uses this measure to assess underlying
revenue trends by providing revenue growth between periods on a
consistent basis. Constant currency revenue growth is determined by
using the comparable prior year period's currency exchange rates to
translate current period revenue from local currencies. The Company
presents the non-GAAP financial measures EBITDA and adjusted EBITDA
because management uses these measures to monitor and evaluate the
performance of the business and believes the presentation of these
measures will enhance investors' ability to analyze trends in the
business and evaluate the Company's underlying performance relative to
other companies in the industry.
Management uses the non-GAAP metrics free cash flow and adjusted free
cash flow to assess the financial performance of the Company. Convergys'
management believes that free cash flow and adjusted free cash flow are
useful to investors because they present the operating cash flow of the
Company, excluding the capital that is spent to continue and improve
business operations, such as investment in the Company's existing
business. Further, free cash flow and adjusted free cash flow provide an
indication of the ongoing cash that is available for debt repayment,
returning capital to shareholders and other opportunities. Management
also believes the presentation of these measures enhances the investors'
ability to analyze trends in the business and evaluate the Company's
underlying performance relative to other companies in the industry.
Limitations associated with the use of free cash flow and adjusted free
cash flow include that they do not represent the residual cash flow
available for discretionary expenditures as they do not incorporate
certain cash payments including payments made on capital lease
obligations or cash payments for business acquisitions. Management
compensates for these limitations by utilizing the non-GAAP measures,
free cash flow and adjusted free cash flow, and the GAAP measure, cash
flow from operating activities, in its evaluation of performance.
These non-GAAP measures should be considered supplemental in nature and
should not be considered in isolation or be construed as being more
important than comparable GAAP measures. The non-GAAP financial
information that we provide may be different from that provided by our
competitors or other companies.
Webcast Presentation
Convergys will hold its Fourth Quarter and Full Year 2016 Financial
Results webcast at 9:00 a.m., Eastern time, Thursday, February 23. The
webcast presentation will take place live and will then be available for
replay at this link - 4Q16
Conference Call. This link will replay the webcast presentation
through March 24. You may also access the webcast via the Convergys
website, www.convergys.com.
Click "Investors," then "Releases, Events & Presentations."
About Convergys
Convergys delivers consistent, quality customer experiences in 58
languages and from more than 150 locations around the globe. We partner
with our clients to improve customer loyalty, reduce costs, and generate
revenue through an extensive portfolio of capabilities, including
customer care, analytics, tech support, collections, home agent, and
end-to-end selling. We are committed to delighting our clients and their
customers, delivering value to our shareholders, and creating
opportunities for our talented, caring employees, more than
130,000-strong in 33 countries around the world. Visit www.convergys.com
to learn more about us.
Supporting Resources
Follow us on Twitter and Facebook.
(Convergys and the Convergys logo are registered trademarks of Convergys
Corporation).
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CONVERGYS CORPORATION
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Consolidated Statements of Income
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(Unaudited)
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Three Months Ended
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Twelve Months Ended
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December 31,
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%
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December 31,
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%
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(Amounts in millions except per share amounts)
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2016
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2015
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Change
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2016
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2015
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Change
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Revenues:
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Communications
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$
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350.5
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$
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383.7
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|
|
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(9
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)%
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|
|
$
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1,442.1
|
|
|
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$
|
1,577.4
|
|
|
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(9
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)%
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Technology
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|
|
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151.2
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|
|
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165.6
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|
|
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(9
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)%
|
|
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623.8
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|
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|
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618.6
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|
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1
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%
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Financial Services
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59.9
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|
|
|
|
51.6
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|
|
|
16
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%
|
|
|
|
217.5
|
|
|
|
|
209.1
|
|
|
|
4
|
%
|
Other
|
|
|
|
196.3
|
|
|
|
|
150.9
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|
|
|
30
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%
|
|
|
|
630.2
|
|
|
|
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545.5
|
|
|
|
16
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%
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Total Revenues
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|
|
$
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757.9
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|
|
|
$
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751.8
|
|
|
|
1
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%
|
|
|
$
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2,913.6
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|
|
|
$
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2,950.6
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|
|
|
(1
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)%
|
Costs and Expenses:
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Cost of providing services and products sold
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498.3
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470.9
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|
|
6
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%
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1,865.9
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|
|
|
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1,877.5
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|
|
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(1
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)%
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Selling, general and administrative
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|
|
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169.6
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|
|
|
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172.9
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|
|
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(2
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)%
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|
|
|
682.3
|
|
|
|
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691.7
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|
|
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(1
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)%
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Depreciation
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|
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28.8
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|
|
|
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33.4
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|
|
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(14
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)%
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|
|
|
122.2
|
|
|
|
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141.5
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|
|
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(14
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)%
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Amortization
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|
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7.3
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|
|
|
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6.3
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|
|
16
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%
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|
|
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28.1
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|
|
|
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27.0
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|
|
|
4
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%
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Restructuring charges
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1.0
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3.7
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(73
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)%
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3.7
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7.2
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(49
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)%
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Transaction and integration costs
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1.5
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3.5
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(57
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)%
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6.5
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11.3
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(42
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)%
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Total Costs and Expenses
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706.5
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690.7
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2
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%
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2,708.7
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2,756.2
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(2
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)%
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Operating Income
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51.4
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61.1
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(16
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)%
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204.9
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194.4
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5
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%
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Other (expense) income, net
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(1.4
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)
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0.5
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NM
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(0.9
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)
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0.8
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NM
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Interest expense
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(4.6
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)
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|
(4.3
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)
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|
7
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%
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(18.1
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)
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(18.2
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)
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(1
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)%
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Income before Income Taxes
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|
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45.4
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57.3
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(21
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)%
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|
|
|
185.9
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177.0
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5
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%
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Income tax expense
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|
27.9
|
|
|
|
|
14.7
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|
|
90
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%
|
|
|
|
52.9
|
|
|
|
|
8.6
|
|
|
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NM
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Income from Continuing Operations, net of tax
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17.5
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|
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|
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42.6
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(59
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)%
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|
|
|
133.0
|
|
|
|
|
168.4
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|
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(21
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)%
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Income from Discontinued Operations, net of tax
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-
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-
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-
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%
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|
|
|
10.0
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|
|
|
|
0.6
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|
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NM
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Net Income
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$
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17.5
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$
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42.6
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(59
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)%
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|
|
$
|
143.0
|
|
|
|
$
|
169.0
|
|
|
|
(15
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)%
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|
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|
|
|
|
|
|
|
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|
|
|
|
|
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|
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|
Basic Earnings per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Continuing Operations
|
|
|
$
|
0.18
|
|
|
|
$
|
0.44
|
|
|
|
|
|
|
$
|
1.39
|
|
|
|
$
|
1.72
|
|
|
|
|
Discontinued Operations
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
|
|
|
0.10
|
|
|
|
|
0.01
|
|
|
|
|
Basic Earnings per Common Share
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|
|
$
|
0.18
|
|
|
|
$
|
0.44
|
|
|
|
|
|
|
$
|
1.49
|
|
|
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$
|
1.73
|
|
|
|
|
Diluted Earnings per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations
|
|
|
$
|
0.17
|
|
|
|
$
|
0.41
|
|
|
|
|
|
|
$
|
1.30
|
|
|
|
$
|
1.60
|
|
|
|
|
Discontinued Operations
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
|
|
|
0.10
|
|
|
|
|
0.01
|
|
|
|
|
Diluted Earnings per Common Share
|
|
|
$
|
0.17
|
|
|
|
$
|
0.41
|
|
|
|
|
|
|
$
|
1.40
|
|
|
|
$
|
1.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares Outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
95.0
|
|
|
|
|
97.1
|
|
|
|
|
|
|
|
95.8
|
|
|
|
|
98.1
|
|
|
|
|
Diluted
|
|
|
|
101.8
|
|
|
|
|
103.9
|
|
|
|
|
|
|
|
102.5
|
|
|
|
|
104.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market Price Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
$
|
30.42
|
|
|
|
$
|
26.60
|
|
|
|
|
|
|
$
|
30.92
|
|
|
|
$
|
26.60
|
|
|
|
|
Low
|
|
|
$
|
23.87
|
|
|
|
$
|
22.60
|
|
|
|
|
|
|
$
|
22.53
|
|
|
|
$
|
18.81
|
|
|
|
|
Close
|
|
|
$
|
24.56
|
|
|
|
$
|
24.89
|
|
|
|
|
|
|
$
|
24.56
|
|
|
|
$
|
24.89
|
|
|
|
|
|
|
|
|
CONVERGYS CORPORATION
|
Reconciliation of GAAP Revenue Growth to non-GAAP Constant
Currency Revenue Growth
|
(In Millions Except Per Share Amounts)
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
Revenue
|
|
|
$
|
757.9
|
|
|
|
$
|
751.8
|
|
Revenue growth, as reported under U.S. GAAP
|
|
|
|
1.0
|
%
|
|
|
|
(1.6
|
)%
|
Foreign exchange impact (a)
|
|
|
|
1.0
|
%
|
|
|
|
2.2
|
%
|
Constant currency revenue growth (a non-GAAP measure)
|
|
|
|
2.0
|
%
|
|
|
|
0.6
|
%
|
|
|
|
|
|
|
|
CONVERGYS CORPORATION
|
Reconciliation of GAAP EPS from Continuing Operations to non-GAAP
EPS from Continuing Operations
|
(In Millions Except Per Share Amounts)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
|
%
|
|
|
|
2016
|
|
|
2015
|
|
|
Change
|
Operating Income as reported under U.S. GAAP
|
|
|
$
|
51.4
|
|
|
|
$
|
61.1
|
|
|
|
(16
|
)%
|
Operating Margin
|
|
|
|
6.8
|
%
|
|
|
|
8.1
|
%
|
|
|
|
Depreciation of property & equipment write-up (b)
|
|
|
|
1.1
|
|
|
|
|
3.6
|
|
|
|
|
Amortization of acquired intangible assets (c)
|
|
|
|
7.3
|
|
|
|
|
6.3
|
|
|
|
|
Net pension and other post employment benefit plan charges (d)
|
|
|
|
4.8
|
|
|
|
|
-
|
|
|
|
|
Transaction related expenses (e)
|
|
|
|
0.1
|
|
|
|
|
-
|
|
|
|
|
Integration related expenses (f)
|
|
|
|
1.4
|
|
|
|
|
3.5
|
|
|
|
|
Total Charges
|
|
|
|
14.7
|
|
|
|
|
13.4
|
|
|
|
|
Adjusted Operating Income (a non-GAAP measure)
|
|
|
$
|
66.1
|
|
|
|
$
|
74.5
|
|
|
|
(11
|
)%
|
Adjusted Operating Margin
|
|
|
|
8.7
|
%
|
|
|
|
9.9
|
%
|
|
|
|
Income before Income Tax and Discontinued Operations as reported
under U.S. GAAP
|
|
|
$
|
45.4
|
|
|
|
$
|
57.3
|
|
|
|
(21
|
)%
|
Total operating charges from above
|
|
|
|
14.7
|
|
|
|
|
13.4
|
|
|
|
|
Adjusted Income before Income Taxes and Discontinued Operations
(a non-GAAP measure)
|
|
|
$
|
60.1
|
|
|
|
$
|
70.7
|
|
|
|
(15
|
)%
|
Income from Continuing Operations, net of tax, as reported under
U.S. GAAP
|
|
|
$
|
17.5
|
|
|
|
$
|
42.6
|
|
|
|
(59
|
)%
|
Total operating charges from above
|
|
|
|
14.7
|
|
|
|
|
13.4
|
|
|
|
|
Income tax impact from total operating charges
|
|
|
|
(4.9
|
)
|
|
|
|
(3.3
|
)
|
|
|
|
Tax provision related to unremitted non-U.S. earnings (g)
|
|
|
|
20.3
|
|
|
|
|
1.9
|
|
|
|
|
Adjusted Income from Continuing Operations, net of tax (a
non-GAAP measure)
|
|
|
$
|
47.6
|
|
|
|
$
|
54.6
|
|
|
|
(13
|
)%
|
Diluted EPS from Continuing Operations as reported under U.S. GAAP
|
|
|
$
|
0.17
|
|
|
|
$
|
0.41
|
|
|
|
(59
|
)%
|
Net impact of total charges included in Continuing Operations
|
|
|
|
0.30
|
|
|
|
|
0.12
|
|
|
|
|
Adjusted Diluted EPS from Continuing Operations (a non-GAAP
measure)
|
|
|
$
|
0.47
|
|
|
|
$
|
0.53
|
|
|
|
(11
|
)%
|
|
|
|
(a)
|
|
Changes in currency exchange rates resulted in reduced revenues in
the current quarter primarily due to the strengthening U.S. dollar
relative to the British pound and euro.
|
|
|
|
(b)
|
|
During the fourth quarter of 2016 and 2015, the Company recorded
$1.1 and $3.6, respectively, of depreciation expense resulting from
the fair value write-up of property and equipment acquired from
Stream and buw.
|
|
|
|
(c)
|
|
During the fourth quarter of 2016 and 2015, the Company recorded
amortization expense of $7.3 and $6.3, respectively, related to
acquired intangible assets.
|
|
|
|
(d)
|
|
During the fourth quarter of 2016, the Company recorded pension plan
settlement charges of $4.8, due to a high level of lump-sum payouts.
|
|
|
|
(e)
|
|
During the fourth quarter of 2016, the Company recorded $0.1 of
expense associated with the acquisition of buw, related to fees paid
for third-party consulting services.
|
|
|
|
(f)
|
|
During the fourth quarter of 2016 and 2015, the Company recorded
$1.4 and $3.5, respectively, of integration expenses associated with
Convergys' integration of the acquired Stream and buw operations.
These expenses were primarily related to third-party consulting
services.
|
|
|
|
(g)
|
|
During the fourth quarter of 2016, the Company recognized tax
expense of $20.3 associated with the restructuring of its legal
entity structure and repatriation of earnings into primarily
non-U.S. jurisdictions that provide the Company increased
flexibility to manage its strategic priorities. During the fourth
quarter of 2015, the Company recorded a $1.9 tax expense for a
change in estimate between tax previously accrued for the
repatriation of non-U.S. earnings and the actual taxes paid on the
ultimate repatriation of such earnings.
|
|
|
|
|
|
Management uses constant currency revenue growth to assess
underlying revenue trends by providing revenue growth between
periods on a consistent basis. Constant currency revenue growth is
determined by using the comparable prior year period's currency
exchange rates to translate current period revenue from local
currencies. Management uses operating income, income from continuing
operations, net of tax and earnings per share from continuing
operations excluding the above items to assess the underlying
operational performance of the continuing operations of the business
for the year and to have a basis to compare underlying operating
results to prior and future periods. These charges and credits are
relevant in evaluating the overall performance of the business.
|
|
|
|
|
|
Limitations associated with the use of these non-GAAP measures
include that these measures do not include all of the amounts
associated with our results as determined in accordance with GAAP.
Management compensates for these limitations by using the non-GAAP
measures, constant currency revenue growth, operating income, income
from continuing operations, net of tax and diluted earnings per
share excluding the charges, and the GAAP measures, revenue growth,
operating income, income from continuing operations, net of tax and
diluted earnings per share, in its evaluation of performance.
|
|
|
|
|
CONVERGYS CORPORATION
|
Reconciliation of GAAP Revenue Growth to non-GAAP Constant
Currency Revenue Growth
|
(In Millions Except Per Share Amounts)
|
|
|
|
|
|
|
|
Twelve Months Ended December 31,
|
|
|
|
2016
|
|
|
|
2015
|
Revenue
|
|
|
$
|
2,913.6
|
|
|
|
|
$
|
2,950.6
|
|
Revenue growth, as reported under U.S. GAAP
|
|
|
|
(1.0
|
)%
|
|
|
|
|
3.3
|
%
|
Foreign exchange impact (a)
|
|
|
|
1.0
|
%
|
|
|
|
|
2.6
|
%
|
Constant currency revenue growth (a non-GAAP measure)
|
|
|
|
-
|
%
|
|
|
|
|
5.9
|
%
|
|
|
|
|
|
|
|
CONVERGYS CORPORATION
|
Reconciliation of GAAP EPS from Continuing Operations to non-GAAP
EPS from Continuing Operations
|
(In Millions Except Per Share Amounts)
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31,
|
|
|
%
|
|
|
|
2016
|
|
|
2015
|
|
|
Change
|
Operating Income as reported under U.S. GAAP
|
|
|
$
|
204.9
|
|
|
|
$
|
194.4
|
|
|
|
5
|
%
|
Operating Margin
|
|
|
|
7.0
|
%
|
|
|
|
6.6
|
%
|
|
|
|
Depreciation of property & equipment write-up (b)
|
|
|
|
8.6
|
|
|
|
|
19.1
|
|
|
|
|
Amortization of acquired intangible assets (c)
|
|
|
|
28.1
|
|
|
|
|
27.0
|
|
|
|
|
Net pension and other post employment benefit plan charges (d)
|
|
|
|
4.8
|
|
|
|
|
-
|
|
|
|
|
Transaction related expenses (e)
|
|
|
|
3.2
|
|
|
|
|
-
|
|
|
|
|
Integration related expenses (f)
|
|
|
|
3.3
|
|
|
|
|
11.3
|
|
|
|
|
Total Charges
|
|
|
|
48.0
|
|
|
|
|
57.4
|
|
|
|
|
Adjusted Operating Income (a non-GAAP measure)
|
|
|
$
|
252.9
|
|
|
|
$
|
251.8
|
|
|
|
-
|
%
|
Adjusted Operating Margin
|
|
|
|
8.7
|
%
|
|
|
|
8.5
|
%
|
|
|
|
Income before Income Tax and Discontinued Operations as reported
under U.S. GAAP
|
|
|
$
|
185.9
|
|
|
|
$
|
177.0
|
|
|
|
5
|
%
|
Total operating charges from above
|
|
|
|
48.0
|
|
|
|
|
57.4
|
|
|
|
|
Adjusted Income before Income Taxes and Discontinued Operations
(a non-GAAP measure)
|
|
|
$
|
233.9
|
|
|
|
$
|
234.4
|
|
|
|
-
|
%
|
Income from Continuing Operations, net of tax, as reported under
U.S. GAAP
|
|
|
$
|
133.0
|
|
|
|
$
|
168.4
|
|
|
|
(21
|
)%
|
Total operating charges from above
|
|
|
|
48.0
|
|
|
|
|
57.4
|
|
|
|
|
Income tax impact from total operating charges
|
|
|
|
(14.0
|
)
|
|
|
|
(16.6
|
)
|
|
|
|
Tax provision (benefit) related to unremitted non-U.S. earnings (g)
|
|
|
|
21.6
|
|
|
|
|
(1.8
|
)
|
|
|
|
Release of income tax reserve (h)
|
|
|
|
-
|
|
|
|
|
(22.4
|
)
|
|
|
|
Adjusted Income from Continuing Operations, net of tax (a
non-GAAP measure)
|
|
|
$
|
188.6
|
|
|
|
$
|
185.0
|
|
|
|
2
|
%
|
Diluted EPS from Continuing Operations as reported under U.S. GAAP
|
|
|
$
|
1.30
|
|
|
|
$
|
1.60
|
|
|
|
(19
|
)%
|
Net impact of total charges included in Continuing Operations
|
|
|
|
0.54
|
|
|
|
|
0.16
|
|
|
|
|
Adjusted Diluted EPS from Continuing Operations (a non-GAAP
measure)
|
|
|
$
|
1.84
|
|
|
|
$
|
1.76
|
|
|
|
5
|
%
|
|
|
|
(a)
|
|
Changes in currency exchange rates resulted in reduced revenues in
the current year primarily due to the strengthening U.S. dollar
relative to the euro, British pound, Australian dollar and the
Canadian dollar.
|
|
|
|
(b)
|
|
During 2016 and 2015, the Company recorded $8.6 and $19.1,
respectively, of depreciation expense resulting from the fair value
write-up of property and equipment acquired from Stream and buw.
|
|
|
|
(c)
|
|
During 2016 and 2015, the Company recorded amortization expense of
$28.1 and $27.0, respectively, related to acquired intangible assets.
|
|
|
|
(d)
|
|
During 2016, the Company recorded pension plan settlement charges of
$4.8, due to a high level of lump-sum payouts.
|
|
|
|
(e)
|
|
During 2016, the Company recorded $3.2 of expense associated with
the acquisition of buw, related to fees paid for third-party
consulting services.
|
|
|
|
(f)
|
|
During 2016 and 2015, the Company recorded $3.3 and $11.3,
respectively, of integration expenses associated with Convergys'
integration of the acquired Stream and buw operations. These
expenses were primarily related to third-party consulting services
and severance expense.
|
|
|
|
(g)
|
|
During 2016, the Company recognized tax expense of $20.3 associated
with the restructuring of its legal entity structure and
repatriation of earnings into primarily non-U.S. jurisdictions that
provide the Company increased flexibility to manage its strategic
priorities. During 2016, the Company also recognized tax expense of
$1.3 associated with the repatriation of certain non-U.S. earnings
in connection with its acquisition of buw. During 2015, the Company
recognized $1.8 of tax expense for a change in estimate between tax
previously accrued for the repatriation of non-U.S. earnings and the
actual taxes paid on the ultimate repatriation of such earnings.
|
|
|
|
(h)
|
|
During 2015, the Company recorded a $22.4 tax benefit associated
with statute expirations for previous uncertain tax positions and
favorable resolutions of tax audits.
|
|
|
|
|
|
Management uses operating income, income from continuing operations,
net of tax and earnings per share data excluding the items above to
assess the underlying operational performance of the continuing
operations of the business for the year and to have a basis to
compare underlying operating results to prior and future periods.
These charges and credits are relevant in evaluating the overall
performance of the business.
|
|
|
|
|
|
Limitations associated with the use of these non-GAAP measures
include that these measures do not include all of the amounts
associated with our results as determined in accordance with GAAP.
Management compensates for these limitations by using the non-GAAP
measures, operating income, income from continuing operations, net
of tax and diluted earnings per share excluding the charges, and the
GAAP measures, operating income, income from continuing operations,
net of tax and diluted earnings per share, in its evaluation of
performance.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONVERGYS CORPORATION
|
Reconciliation of Net Income from Continuing Operations to
Adjusted EBITDA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
Twelve Months Ended
|
|
|
|
|
|
|
December 31,
|
|
|
%
|
|
|
|
December 31,
|
|
|
%
|
(In millions)
|
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
|
|
2016
|
|
|
2015
|
|
|
Change
|
Income from Continuing Operations, net of tax
|
|
|
$
|
17.5
|
|
|
|
$
|
42.6
|
|
|
|
(59
|
)%
|
|
|
|
$
|
133.0
|
|
|
|
$
|
168.4
|
|
|
|
(21
|
)%
|
Depreciation and Amortization
|
|
|
|
36.1
|
|
|
|
|
39.7
|
|
|
|
(9
|
)%
|
|
|
|
|
150.3
|
|
|
|
|
168.5
|
|
|
|
(11
|
)%
|
Interest expense
|
|
|
|
4.6
|
|
|
|
|
4.3
|
|
|
|
7
|
%
|
|
|
|
|
18.1
|
|
|
|
|
18.2
|
|
|
|
(1
|
)%
|
Income tax expense
|
|
|
|
27.9
|
|
|
|
|
14.7
|
|
|
|
90
|
%
|
|
|
|
|
52.9
|
|
|
|
|
8.6
|
|
|
|
NM
|
EBITDA (a non-GAAP measure)
|
|
|
$
|
86.1
|
|
|
|
$
|
101.3
|
|
|
|
(15
|
)%
|
|
|
|
$
|
354.3
|
|
|
|
$
|
363.7
|
|
|
|
(3
|
)%
|
Net pension and other post employment benefit plan charges
|
|
|
|
4.8
|
|
|
|
|
-
|
|
|
|
100
|
%
|
|
|
|
|
4.8
|
|
|
|
|
-
|
|
|
|
100
|
%
|
Transaction related expenses
|
|
|
|
0.1
|
|
|
|
|
-
|
|
|
|
100
|
%
|
|
|
|
|
3.2
|
|
|
|
|
-
|
|
|
|
100
|
%
|
Integration related expenses
|
|
|
|
1.4
|
|
|
|
|
3.5
|
|
|
|
(60
|
)%
|
|
|
|
|
3.3
|
|
|
|
|
11.3
|
|
|
|
(71
|
)%
|
Adjusted EBITDA (a non-GAAP measure)
|
|
|
$
|
92.4
|
|
|
|
$
|
104.8
|
|
|
|
(12
|
)%
|
|
|
|
$
|
365.6
|
|
|
|
$
|
375.0
|
|
|
|
(3
|
)%
|
EBITDA Margin
|
|
|
|
11.4
|
%
|
|
|
|
13.5
|
%
|
|
|
|
|
|
|
|
12.2
|
%
|
|
|
|
12.3
|
%
|
|
|
|
Adjusted EBITDA Margin
|
|
|
|
12.2
|
%
|
|
|
|
13.9
|
%
|
|
|
|
|
|
|
|
12.5
|
%
|
|
|
|
12.7
|
%
|
|
|
|
|
The Company presents the non-GAAP financial measures EBITDA and
Adjusted EBITDA because management uses these measures to monitor
and evaluate the performance of the business and believes the
presentation of these measures enhances the investors' ability to
analyze trends in the business and evaluate the Company's underlying
performance relative to other companies in the industry.
|
|
These non-GAAP measures should not be considered in isolation or as
a substitute for income from continuing operations, net of tax or
other income statement data prepared in accordance with GAAP and our
presentation of these measures may not be comparable to
similarly-titled measures used by other companies. Management uses
both these non-GAAP measures and the GAAP measure, income from
continuing operations, net of tax, in evaluation of its underlying
performance. These non-GAAP measures should be considered
supplemental in nature and should not be considered in isolation or
be construed as being more important than comparable GAAP measures.
|
|
|
|
|
|
|
|
CONVERGYS CORPORATION
|
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
(In millions)
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
$
|
138.8
|
|
|
|
$
|
204.7
|
Short-term investments
|
|
|
|
12.4
|
|
|
|
|
12.2
|
Receivables, net of allowances
|
|
|
|
555.0
|
|
|
|
|
536.3
|
Other current assets
|
|
|
|
78.6
|
|
|
|
|
70.1
|
Property and equipment, net
|
|
|
|
304.1
|
|
|
|
|
329.1
|
Other assets
|
|
|
|
1,282.9
|
|
|
|
|
1,204.2
|
Total Asset
|
|
|
$
|
2,371.8
|
|
|
|
$
|
2,356.6
|
|
|
|
|
|
|
|
Liabilities and Shareholders' Equity
|
|
|
|
|
|
|
Debt and capital lease obligations maturing within one year
|
|
|
$
|
1.8
|
|
|
|
$
|
3.4
|
Other current liabilities
|
|
|
|
345.8
|
|
|
|
|
335.0
|
Other liabilities
|
|
|
|
350.0
|
|
|
|
|
343.2
|
Long-term debt and capital lease obligations
|
|
|
|
297.0
|
|
|
|
|
335.9
|
Convertible debentures conversion feature
|
|
|
|
61.3
|
|
|
|
|
62.9
|
Shareholders' equity
|
|
|
|
1,315.9
|
|
|
|
|
1,276.2
|
Total Liabilities and Shareholders' Equity
|
|
|
$
|
2,371.8
|
|
|
|
$
|
2,356.6
|
|
|
|
|
|
CONVERGYS CORPORATION
|
Reconciliation of Cash Provided by Operating Activities to Free
Cash Flow
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
Twelve Months Ended December 31,
|
(In millions)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Net cash provided by operating activities
|
|
$
|
68.5
|
|
|
$
|
66.6
|
|
|
$
|
305.4
|
|
|
$
|
249.3
|
|
Capital expenditures
|
|
|
(23.4
|
)
|
|
|
(20.8
|
)
|
|
|
(87.0
|
)
|
|
|
(109.2
|
)
|
Free Cash Flow (a non-GAAP measure)
|
|
$
|
45.1
|
|
|
$
|
45.8
|
|
|
$
|
218.4
|
|
|
$
|
140.1
|
|
Acquisition - cash paid for transaction and integration related
expenses (a)
|
|
|
1.2
|
|
|
|
2.3
|
|
|
|
6.9
|
|
|
|
13.3
|
|
Adjusted Free Cash Flow (a non-GAAP measure)
|
|
$
|
46.3
|
|
|
$
|
48.1
|
|
|
$
|
225.3
|
|
|
$
|
153.4
|
|
|
(a) Payments associated with investment activity to expand the
business (the buw and Stream acquisitions).
|
|
Management uses free cash flow and adjusted free cash flow to assess
the financial performance of the Company. Convergys' Management
believes that free cash flow and adjusted free cash flow are useful
to investors because they present the operating cash flow of the
Company, excluding capital that is spent to continue and improve
business operations, such as investment in the Company's existing
businesses. Further, free cash flow and adjusted free cash flow
provide an indication of the ongoing cash that is available for debt
repayment, returning capital to shareholders and other investment
opportunities. Management also believes the presentation of these
measures will enhance the investors' ability to analyze trends in
the business and evaluate the Company's underlying performance
relative to other companies in the industry.
|
|
Limitations associated with the use of free cash flow and adjusted
free cash flow include that they do not represent the residual cash
flow available for discretionary expenditures as they do not
incorporate certain cash payments, including payments made on
capital lease obligations or cash payments for business
acquisitions. Management compensates for these limitations by using
both the non-GAAP measures, free cash flow and adjusted free cash
flow, and the GAAP measure, cash from operating activities, in its
evaluation of performance. These non-GAAP measures should be
considered supplemental in nature and should not be considered in
isolation or be construed as being more important than comparable
GAAP measures.
|
|
|
|
|
|
|
|
CONVERGYS CORPORATION
|
Summarized Statement of Cash Flow
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
Twelve Months Ended December 31,
|
(In millions)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Net cash provided by operating activities
|
|
$
|
68.5
|
|
|
$
|
66.6
|
|
|
$
|
305.4
|
|
|
$
|
249.3
|
|
Net cash used in investing activities
|
|
|
(31.4
|
)
|
|
|
(20.0
|
)
|
|
|
(225.7
|
)
|
|
|
(108.4
|
)
|
Net cash used in financing activities
|
|
|
(27.4
|
)
|
|
|
(17.7
|
)
|
|
|
(145.6
|
)
|
|
|
(135.1
|
)
|
Net increase (decrease) in cash
|
|
$
|
9.7
|
|
|
$
|
28.9
|
|
|
|
($65.9
|
)
|
|
$
|
5.8
|
|
View source version on businesswire.com: http://www.businesswire.com/news/home/20170222006367/en/
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