Exhibit 99
Convergys News Release
Convergys Reports Third Quarter Results
(Cincinnati; November 8, 2010) - - - Convergys Corporation (NYSE: CVG).
| | • | | Revenue from continuing operations of $556 million; |
| | • | | Adjusted EBITDA from continuing operations of $76 million; |
| | • | | Non-GAAP EPS from continuing operations of $0.29; GAAP EPS from continuing operations of $0.28. |
Convergys Corporation (NYSE: CVG), a global leader inrelationship management, today announced its financial results for the third quarter of 2010. Revenue from continuing operations was $556 million. Adjusted EBITDA from continuing operations was $76 million. GAAP income from continuing operations was $35 million, or $0.28 per diluted share; non-GAAP income from continuing operations was $36 million, or $0.29 per diluted share. In the third quarter of 2010, adjusted free cash flow was $34 million.
“We made solid progress executing our plan with higher sequential revenue, EBITDA, and EPS in the quarter. We also had several contract wins with new and existing clients across both of our businesses,” said Jeff Fox, president and CEO of Convergys. “We are investing in our solution platforms and working hard to simplify our business. Our operating teams are focused on delivering more value to our clients which we believe will yield further revenue and profit improvements over time. In aggregate, we expect continued margin improvement in the fourth quarter.”
Reconciliation tables of GAAP to non-GAAP and adjusted EBITDA and adjusted free cash flow results are attached.
Revenue – Third-quarter 2010 revenue from continuing operations was $556 million, compared with $591 million in the same period last year.
Operating Income – Third-quarter 2010 GAAP operating income from continuing operations was $35 million, including expected $1 million CEO transition-related costs, compared with $27 million, including $17 million restructuring and HR Management-related charges in the same period last year. On a non-GAAP basis, third-quarter 2010 operating income from continuing operations was $36 million, compared with $44 million in the same period last year.
Adjusted EBITDA – Adjusted EBITDA in the third quarter of 2010 was $76 million, compared with $84 million in the same period last year. This includes earnings from
continuing operations before interest, taxes, depreciation and amortization, and excludes CEO transition-related, restructuring, and HR Management-related costs.
Income – Third-quarter 2010 GAAP income from continuing operations was $35 million, or $0.28 per diluted share, compared with $30 million, or $0.24 per diluted share, in the same period last year. On a non-GAAP basis, third-quarter 2010 adjusted income from continuing operations was $36 million, or $0.29 per diluted share, compared with $41 million, or $0.32 per diluted share, in the same period last year.
Adjusted Free Cash Flow – Adjusted free cash flow, defined as cash from operating activities less capital expenditures and excluding $8 million expected CEO transition-related payments, was $34 million in the third quarter of 2010, compared with $4 million in the same period last year.
Share Repurchase –During the third quarter 2010, Convergys purchased 2.4 million shares for $25 million, or an average price of $10.15 per share. 4.6 million Convergys shares remained authorized for repurchase at September 30, 2010.
Net Debt –Net debt, defined as long-term debt and debt maturing in one year less cash and cash equivalents, was $37 million at the end of the third quarter of 2010, compared with $268 million at the end of the same period last year, and $36 million at June 30, 2010.
Third Quarter Segment Performance
Customer Management –Third-quarter 2010 Customer Management revenue was $463 million, compared with $492 million in the same period last year. Third-quarter 2010 Customer Management operating income was $31 million and operating margin was 6.8 percent, compared with operating income of $34 million, including $4 million restructuring charges, and operating margin of 6.8 percent, in the same period last year.
Information Management –Information Management revenue in the third quarter of 2010 was $82 million, compared with $99 million in the same period last year. Third-quarter 2010 operating income was $11 million and operating margin was 13.8 percent, compared with operating income of $3 million, including $6 million restructuring charges, and operating margin of 3.3 percent, in the same period last year.
Corporate and Other –Third-quarter 2010 Corporate and Other operating results includes $11 million of revenue related to transition services provided after the sale of the HR Management business. Corporate and Other operating loss of $8 million in the third quarter of 2010 reflects long-term incentive compensation and CEO transition-related costs.
Business Outlook
For 2010, Convergys expectations for continuing operations are as follows:
| | • | | Customer Management revenue of $1.8 billion to $1.85 billion; |
| | • | | Information Management revenue to approximate $350 million; |
| | • | | Adjusted EBITDA to approximate $300 million; |
| | • | | Non-GAAP EPS from continuing operations of $0.95 to $1.05. |
Not included in full year 2010 guidance for continuing operations are HR Management-related impacts, including its sale, as well as the litigation reserve reduction, the President and CEO transition costs in the first and third quarter results, and the second quarter restructuring charges.
Convergys will continue to streamline operations and execute improvement plans that likely will require additional cost actions in the fourth quarter of 2010, which are not included in this guidance. Additionally, this guidance does not include expected pension settlements in the fourth quarter of 2010.
Forward-Looking Statements Disclosure and “Safe Harbor” Note:
This news release contains forward-looking statements that reflect Convergys’ expectations as of November 8, 2010. Actual results of Convergys could differ materially from those discussed herein. For us, particular uncertainties that could adversely or positively affect our future results include: the behavior of financial markets including fluctuations in interest or exchange rates; continued volatility and further deterioration of the capital markets; the impact of regulation and regulatory, investigative, and legal actions; strategic actions, including acquisitions and dispositions; future integration of acquired businesses; future financial performance of major industries which we serve; the loss of a significant client or significant business from a client; difficulties in completing a contract or implementing its provisions; and numerous other matters of national, regional, and global scale including those of the political, economic, business, and competitive nature. These uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. Please refer to Convergys’ most recent news releases and filings with the SEC for additional information including risk factors. We do not undertake to update our forward-looking statements as a result of new information or future events or developments.
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.
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 is useful to investors because it relates the operating cash flow of the company to the capital that is spent to continue and improve business operations, such as investment in the company’s existing businesses. Further, free cash flow facilitates management’s ability to strengthen the company’s balance sheet, to repurchase the company’s stock, and to repay the company’s debt obligations. 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. There are no material purposes for which we use these non-GAAP measures beyond the purposes described above.
Management uses operating income, income from continuing operations, net of tax, net income and earnings per share data excluding the HR Management related impacts, litigation reserve reduction, CEO transition costs and restructuring charges to assess the current operational performance of the business for the year and to have a basis to compare 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 the 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 both the non-GAAP measures, operating income, income from continuing operations, net of tax, net income and diluted earnings per share excluding the charges and credits, and the GAAP measure operating income, income from continuing operations, net of tax, net income and diluted earnings per share, in its evaluation of performance. There are no material purposes for which we use these non-GAAP measures beyond those described above.
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 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 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 Third Quarter Financial Results webcast presentation at 8:30 A.M., Eastern Standard Time, Tuesday, November 9. It will feature President and CEO Jeff Fox and CFO Earl Shanks. The webcast presentation will take place live and will then be available for replay at this link -http://tiny.cc/1zpov The replay will be available through December 9.
About Convergys
Convergys Corporation (NYSE: CVG) is a global leader in relationship management. We provide solutions that drive more value from the relationships our clients have with their customers. Convergys turns these everyday interactions into a source of profit and strategic advantage for our clients.
For more than 30 years, our unique combination of domain expertise, operational excellence, and innovative technologies has delivered process improvement and actionable business insight to marquee clients all over the world.
Convergys has approximately 65,000 employees in 68 customer contact centers and other facilities in the United States, Canada, Latin America, Europe, the Middle East, and Asia, and our global headquarters in Cincinnati, Ohio. For more information, visitwww.convergys.com
(Convergys and the Convergys logo are registered trademarks of Convergys Corporation.)
Follow us onTwitter,Facebook, andYouTube
Receive our news releases byEMAIL orhttp://url4t.com/car
Contacts:
David Stein, Investor Relations
+1 513 723 7768 orinvestor@convergys.com
John Pratt, Public/Media Relations
+1 513 723 3333 orjohn.pratt@convergys.com
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Convergys Corporation
Consolidated Statements of Operations
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | For the Three Months Ended Sep. 30, | | | %
Change | | | For the Nine Months Ended Sep. 30, | | | %
Change | |
| (In millions except per share amounts) | | 2010 | | | 2009 | | | | 2010 | | | 2009 | | |
Revenues | | $ | 556.0 | | | $ | 590.8 | | | | (6 | ) | | | 1,630.2 | | | | 1,825.0 | | | | (11 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
Costs and Expenses: | | | | | | | | | | | | | | | | | | | | | | | | |
Cost of Providing Services and Products Sold | | | 341.1 | | | | 356.1 | | | | (4 | ) | | | 982.5 | | | | 1,100.7 | | | | (11 | ) |
Selling, General and Administrative | | | 140.6 | | | | 149.3 | | | | (6 | ) | | | 440.2 | | | | 457.7 | | | | (4 | ) |
Research and Development Costs | | | 13.1 | | | | 18.7 | | | | (30 | ) | | | 42.3 | | | | 58.2 | | | | (27 | ) |
Depreciation | | | 24.1 | | | | 27.9 | | | | (14 | ) | | | 75.4 | | | | 83.8 | | | | (10 | ) |
Amortization | | | 2.4 | | | | 2.9 | | | | (17 | ) | | | 7.6 | | | | 8.5 | | | | (11 | ) |
Restructuring Charges | | | 0.0 | | | | 9.1 | | | | NM | | | | 17.6 | | | | 9.1 | | | | 93 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total Costs and Expenses | | | 521.3 | | | | 564.0 | | | | (8 | ) | | | 1,565.6 | | | | 1,718.0 | | | | (9 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
Operating Income | | | 34.7 | | | | 26.8 | | | | 29 | | | | 64.6 | | | | 107.0 | | | | (40 | ) |
| | | | | | |
Equity in Earnings of Cellular Partnerships | | | 11.9 | | | | 10.2 | | | | 17 | | | | 36.9 | | | | 31.7 | | | | 16 | |
Other Income (Expense), net | | | 1.3 | | | | (1.0 | ) | | | NM | | | | 7.9 | | | | (10.9 | ) | | | NM | |
Interest Expense | | | (4.1 | ) | | | (7.4 | ) | | | (45 | ) | | | (15.2 | ) | | | (21.1 | ) | | | (28 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
Income Before Income Taxes and Discontinued Operations | | | 43.8 | | | | 28.6 | | | | 53 | | | | 94.2 | | | | 106.7 | | | | (12 | ) |
| | | | | | |
Income Tax Expense (Benefit) | | | 8.8 | | | | (1.6 | ) | | | NM | | | | 22.4 | | | | 19.0 | | | | 18 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
Income from Continuing Operations, net of tax | | | 35.0 | | | | 30.2 | | | | 16 | | | | 71.8 | | | | 87.7 | | | | (18 | ) |
Income (Loss) from Discontinued Operations (net of tax expense (benefit) of $1.2 and $(0.5), respectively, for the three months ended September 30, 2010 and 2009 and $38.8 and $(22.5), respectively, for the nine months ended September 30, 2010 and 2009) | | | (6.2 | ) | | | (116.2 | ) | | | (95 | ) | | | 19.7 | | | | (206.6 | ) | | | NM | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net Income (Loss) | | $ | 28.8 | | | $ | (86.0 | ) | | | NM | | | | 91.5 | | | | (118.9 | ) | | | NM | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
Basic Earnings (Loss) Per Common Share | | | | | | | | | | | | | | | | | | | | | | | | |
Continuing Operations | | $ | 0.28 | | | $ | 0.25 | | | | 14 | | | $ | 0.58 | | | $ | 0.71 | | | | (18 | ) |
Discontinued Operations | | $ | (0.05 | ) | | $ | (0.95 | ) | | | (95 | ) | | $ | 0.16 | | | $ | (1.68 | ) | | | NM | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Basic Earnings (Loss) Per Common Share | | $ | 0.23 | | | $ | (0.70 | ) | | | NM | | | $ | 0.74 | | | $ | (0.97 | ) | | | NM | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
Diluted Earnings (Loss) Per Common Share | | | | | | | | | | | | | | | | | | | | | | | | |
Continuing Operations | | $ | 0.28 | | | $ | 0.24 | | | | 17 | | | $ | 0.57 | | | $ | 0.70 | | | | (19 | ) |
Discontinued Operations | | $ | (0.05 | ) | | $ | (0.93 | ) | | | (95 | ) | | $ | 0.16 | | | $ | (1.65 | ) | | | NM | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Diluted Earnings (Loss) Per Common Share | | $ | 0.23 | | | $ | (0.69 | ) | | | NM | | | $ | 0.73 | | | $ | (0.95 | ) | | | NM | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
Weighted Average Common Shares Outstanding | | | | | | | | | | | | | | | | | | | | | | | | |
Basic | | | 123.2 | | | | 122.9 | | | | | | | | 123.5 | | | | 122.7 | | | | | |
Diluted | | | 125.4 | | | | 125.4 | | | | | | | | 125.8 | | | | 124.8 | | | | | |
| | | | | | |
Market Price Per Share | | | | | | | | | | | | | | | | | | | | | | | | |
High | | $ | 11.31 | | | $ | 11.51 | | | | | | | $ | 13.78 | | | $ | 11.51 | | | | | |
Low | | $ | 9.50 | | | $ | 8.26 | | | | | | | $ | 9.50 | | | $ | 5.49 | | | | | |
Close | | $ | 10.45 | | | $ | 9.94 | | | | | | | $ | 10.45 | | | $ | 9.94 | | | | | |
Convergys Corporation
Consolidated Balance Sheets
(Unaudited)
| | | | | | | | |
| (In millions) | | Sep. 30,
2010 | | | Dec. 31,
2009 | |
| | |
Assets | | | | | | | | |
| | |
Cash and Cash Equivalents | | $ | 154.7 | | | $ | 331.7 | |
Receivables - Net | | | 354.4 | | | | 384.3 | |
Other Current Assets | | | 133.7 | | | | 200.5 | |
Current Assets - Held for Sale | | | 0.0 | | | | 41.4 | |
Property and Equipment - Net | | | 376.1 | | | | 350.5 | |
Other Assets | | | 1,222.5 | | | | 1,194.0 | |
Other Assets - Held for Sale | | | 0.0 | | | | 111.2 | |
| | | | | | | | |
Total Assets | | $ | 2,241.4 | | | $ | 2,613.6 | |
| | | | | | | | |
| | |
Liabilities and Shareholders’ Equity | | | | | | | | |
| | |
Debt Maturing in One Year | | $ | 72.6 | | | $ | 405.2 | |
Other Current Liabilities | | | 360.7 | | | | 435.4 | |
Current Liabilities - Held for Sale | | | 0.0 | | | | 48.5 | |
Other Liabilities | | | 375.6 | | | | 367.8 | |
Long-Term Debt | | | 119.0 | | | | 64.4 | |
Other Liabilities - Held for Sale | | | 0.0 | | | | 85.9 | |
Common Shareholders’ Equity | | | 1,313.5 | | | | 1,206.4 | |
| | | | | | | | |
Total Liabilities and Shareholders’ Equity | | $ | 2,241.4 | | | $ | 2,613.6 | |
| | | | | | | | |
Convergys Corporation
Summarized Statement of Cash Flow
(Unaudited)
| | | | | | | | | | | | | | | | |
| | | For the Three Months
Ended Sep. 30, | | | For the Nine Months
Ended Sep. 30, | |
| (In millions) | | 2010 | | | 2009 | | | 2010 | | | 2009 | |
| | | | |
Net cash provided by operating activities | | $ | 47.7 | | | $ | 18.7 | | | | 159.9 | | | | 221.3 | |
| | | | |
Net cash provided by (used in) investing activities | | | (23.8 | ) (a) | | | (14.5 | ) (a) | | | 22.4 | (b) | | | (62.9 | ) (b) |
| | | | |
Net cash used in financing activities | | | 1.1 | | | | (3.9 | ) | | | (359.3 | ) | | | (62.1 | ) |
| | | | | | | | | | | | | | | | |
| | | | |
Net increase (decrease) in cash | | $ | 25.0 | | | $ | 0.3 | | | ($ | 177.0 | ) | | $ | 96.3 | |
| | | | | | | | | | | | | | | | |
| (a) | Includes $21.3 and $14.5 of capital expenditures, net of proceeds for disposals, for the three months ended September 30, 2010 and 2009, respectively. |
| (b) | Includes $48.8 and $59.8 of capital expenditures, net of proceeds for disposals, for the nine months ended September 30, 2010 and 2009, respectively. |
Convergys Corporation
Segment Revenues and Operating Income (Loss)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | |
| (In millions) | | For the Three Months Ended Sep. 30, | | | %
Change | | | For the Nine Months Ended Sep. 30, | | | %
Change | |
| | | 2010 | | | 2009 | | | | 2010 | | | 2009 | | |
| | | | | | |
Revenues: | | | | | | | | | | | | | | | | | | | | | | | | |
Customer Management | | $ | 462.9 | | | $ | 491.6 | | | | (6 | ) | | $ | 1,372.6 | | | $ | 1,503.1 | | | | (9 | ) |
Information Management | | | 81.9 | | | | 99.2 | | | | (17 | ) | | | 242.3 | | | | 321.9 | | | | (25 | ) |
Corporate | | | 11.2 | | | | 0.0 | | | | NM | | | | 15.3 | | | | 0.0 | | | | NM | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Revenue from Continuing Operations | | $ | 556.0 | | | $ | 590.8 | | | | (6 | ) | | $ | 1,630.2 | | | $ | 1,825.0 | | | | (11 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
Operating Income (Loss): | | | | | | | | | | | | | | | | | | | | | | | | |
Customer Management | | $ | 31.3 | | | $ | 33.5 | | | | (7 | ) | | $ | 73.1 | | | $ | 110.7 | | | | (34 | ) |
Information Management | | | 11.3 | | | | 3.3 | | | | NM | | | | 27.6 | | | $ | 32.8 | | | | (16 | ) |
Corporate and Other | | | | | | | | | | | | | | | | | | | | | | | | |
HR Management related costs not qualifying as discontinued operations | | | — | | | | (7.8 | ) | | | NM | | | | (9.1 | ) | | | (24.2 | ) | | | (62 | ) |
CEO transition costs | | | (1.4 | ) | | | — | | | | NM | | | | (7.6 | ) | | | — | | | | NM | |
Restructuring and related charges | | | — | | | | — | | | | NM | | | | (6.5 | ) | | | — | | | | NM | |
Other, net | | | (6.5 | ) | | | (2.2 | ) | | | NM | | | | (12.9 | ) | | | (12.3 | ) | | | 5 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | (7.9 | ) | | | (10.0 | ) | | | (21 | ) | | | (36.1 | ) | | | (36.5 | ) | | | (1 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
Operating Income from Continuing Operations | | $ | 34.7 | | | $ | 26.8 | | | | 29 | | | $ | 64.6 | | | $ | 107.0 | | | | (40 | ) |
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CONVERGYS CORPORATION
Reconciliation of Cash Provided by Operating Activities to Free Cash Flow
(Unaudited)
| | | | | | | | | | | | | | | | |
| | | For the Three Months Ended Sep. 30, | | | For the Nine Months Ended Sep. 30, | |
| (In millions) | | 2010 | | | 2009 | | | 2010 | | | 2009 | |
| | | | |
Net cash provided by operating activities | | $ | 47.7 | | | $ | 18.7 | | | $ | 159.9 | | | $ | 221.3 | |
| | | | |
Capital expenditures, net | | | (21.3 | ) | | | (14.5 | ) | | | (48.8 | ) | | | (59.8 | ) |
| | | | | | | | | | | | | | | | |
Free cash flow (a non-GAAP measure) | | $ | 26.4 | | | $ | 4.2 | | | $ | 111.1 | | | $ | 161.5 | |
| | | | |
Payments made to settle obligations of HR Management in connection with and upon completion of the sale of the business | | | — | | | | — | | | | 28.2 | | | | — | |
Payments made related to CEO transition | | | 8.0 | | | | — | | | | 8.0 | | | | — | |
| | | | | | | | | | | | | | | | |
Adjusted free cash flow (a non-GAAP measure) | | $ | 34.4 | | | $ | 4.2 | | | $ | 147.3 | | | $ | 161.5 | |
| | | | | | | | | | | | | | | | |
Management uses free cash flow and adjusted free cash flow to assess the financial performance of the Company. Convergys’ Management believes that adjusted free cash flow is useful to investors because it relates the operating cash flow of the Company to the 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 facilitate Management’s ability to strengthen the Company’s balance sheet, to repay the Company’s debt obligations and to repurchase the Company’s common shares. 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. There are no material purposes for which we use these non-GAAP measures beyond the purposes described above. 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
Reconciliation of GAAP EPS from Continuing Operations to non-GAAP EPS from Continuing Operations
(In Millions Except Per Share Amounts)
| | | | | | | | | | | | | | | | |
| | | For the Three Months Ended Sep. 30, | | | For the Nine Months Ended Sep. 30, | |
| | | 2010 | | | 2009 | | | 2010 | | | 2009 | |
| | | | |
Operating income as reported under U.S. GAAP | | $ | 34.7 | | | $ | 26.8 | | | $ | 64.6 | | | $ | 107.0 | |
| | | | |
Restructuring (a) | | | — | | | | 9.1 | | | | 17.6 | | | | 9.1 | |
CEO transition costs(c) | | | 1.4 | | | | — | | | | 7.6 | | | | — | |
HR Management costs not qualifying as Discontinued Operations(b) | | | — | | | | 7.8 | | | | 9.1 | | | | 24.2 | |
| | | | | | | | | | | | | | | | |
Total charges | | | 1.4 | | | | 16.9 | | | | 34.3 | | | | 33.3 | |
| | | | | | | | | | | | | | | | |
Adjusted operating income (a non-GAAP measure) | | $ | 36.1 | | | $ | 43.7 | | | $ | 98.9 | | | $ | 140.3 | |
| | | | | | | | | | | | | | | | |
| | | | |
Income tax expense (benefit) as reported under U.S. GAAP | | $ | 8.8 | | | $ | (1.6 | ) | | $ | 22.4 | | | $ | 19.0 | |
| | | | |
Tax impact of charges above | | | 0.5 | | | | 6.6 | | | | 11.7 | | | | 11.7 | |
| | | | | | | | | | | | | | | | |
Adjusted Income tax expense (benefit) (a non-GAAP measure) | | $ | 9.3 | | | $ | 5.0 | | | $ | 34.1 | | | $ | 30.7 | |
| | | | | | | | | | | | | | | | |
| | | | |
Income from continuing operations, net of tax, as reported under U.S. GAAP | | $ | 35.0 | | | $ | 30.2 | | | $ | 71.8 | | | $ | 87.7 | |
| | | | |
Total operating charges from above, net of tax | | | 0.9 | | | | 10.3 | | | | 22.6 | | | | 21.6 | |
Litigation reserve reduction of $13, net of tax, for the nine months ended September 30, 2010 (d) | | | — | | | | — | | | | (8.1 | ) | | | — | |
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Adjusted income from continuing operations, net of tax (a non-GAAP measure) | | $ | 35.9 | | | $ | 40.5 | | | $ | 86.3 | | | $ | 109.3 | |
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Diluted EPS from continuing operations as reported under U.S. GAAP | | $ | 0.28 | | | $ | 0.24 | | | $ | 0.57 | | | $ | 0.70 | |
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Impact of net charges included in continuing operations, net of tax | | | 0.01 | | | | 0.08 | | | | 0.12 | | | | 0.18 | |
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Adjusted diluted EPS from continuing operations (a non-GAAP measure) | | $ | 0.29 | | | $ | 0.32 | | | $ | 0.69 | | | $ | 0.88 | |
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| (a) | Year-to-date 2010 results include $17.6 of restructuring charges to streamline operations across the businesses, including $15.3 within the Customer Management segment to align costs to future revenue and $2.3 within Corporate and Other largely to reduce headcount. |
| (b) | In March 2010, the Company signed a definitive agreement to sell the HR Management business. The sale was substantially completed in June 2010. Although the results of operations met the criteria for presentation as discontinued operations and therefore are presented on this basis for all periods presented, certain costs previously allocated to the HR Management segment do not qualify for discontinued operations accounting treatment and are required to be reported as costs within continuing operations. The Company classified $7.8 of these costs which previously would have been presented within the HR Management segment within continuing operations for the three months ended September 30, 2009, and $9.1 and $24.2 for the nine month periods ended September 30, 2010 and 2009, respectively. |
| (c) | On February 10, 2010, the Company announced the termination of David F. Dougherty’s role as President and Chief Executive Officer of the Company and the appointment of Jeffrey H. Fox to these roles. The Company recognized expense of $6.2 during the quarter ended March 31, 2010 and $1.4 during the quarter ended September 30, 2010 related to this transition. |
| (d) | In the first quarter of 2010, a reduction in a previously established litigation reserve resulted in a positive impact to earnings of $13.0. |
The Company uses operating income, income from continuing operations, net of tax and earnings per share data 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. Adjustments for these charges 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. There are no material purposes for which we use these non-GAAP measures beyond those described above.
Convergys Corporation
Reconciliation of Customer Management GAAP Operating Income to non-GAAP Operating Income
(In Millions)
| | | | | | | | | | | | | | | | |
| | | For the Three Months Ended Sep. 30, | | | For the Nine Months Ended Sep. 30, | |
| | | 2010 | | | 2009 | | | 2010 | | | 2009 | |
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Operating Income as reported under U.S. GAAP | | $ | 31.3 | | | $ | 33.5 | | | $ | 73.1 | | | $ | 110.7 | |
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Restructuring charges | | | — | | | | 3.5 | | | | 15.3 | | | | 3.5 | |
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Adjusted operating income (a non-GAAP measure) | | $ | 31.3 | | | $ | 37.0 | | | $ | 88.4 | | | $ | 114.2 | |
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Year-to-date third quarter 2010 results include $15.3 of restructuring charges to match costs to anticipated future revenue streams. Restructuring charges included $8.5 of severance related charges and $6.8 of facility related charges. Third quarter 2009 results include $3.5 of restructuring charges to match costs to anticipated future revenue streams.
The Company uses Customer Management operating income excluding the restructuring charges to assess the current operational performance of the business for the year and to have a basis to compare results to prior and future periods. The restructuring charges are relevant in evaluating the overall performance of the business. Limitations associated with the use of the non-GAAP measure include that this measure does 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 measure, operating income excluding the charges, and the GAAP measure, operating income, in its evaluation of performance. There are no material purposes for which we use this non-GAAP measure beyond those described above.
CONVERGYS CORPORATION
Reconciliation of Income from Continuing Operations, net of tax, to Adjusted EBITDA
(Unaudited)
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| | | For the Three Months Ended Sep. 30, | | | For the Nine Months Ended Sep. 30, | |
| (In millions) | | 2010 | | | 2009 | | | 2010 | | | 2009 | |
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Income from Continuing Operations, net of tax | | $ | 35.0 | | | $ | 30.2 | | | $ | 71.8 | | | $ | 87.7 | |
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Depreciation and Amortization | | | 26.5 | | | | 30.8 | | | | 83.0 | | | | 92.3 | |
Interest expense | | | 4.1 | | | | 7.4 | | | | 15.2 | | | | 21.1 | |
Income tax expense | | | 8.8 | | | | (1.6 | ) | | | 22.4 | | | | 19.0 | |
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EBITDA | | | 74.4 | | | | 66.8 | | | | 192.4 | | | | 220.1 | |
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Restructuring | | | — | | | | 9.1 | | | | 17.6 | | | | 9.1 | |
CEO transition costs | | | 1.4 | | | | — | | | | 7.6 | | | | — | |
HR Management related costs not qualifying as Discontinued Operations | | | — | | | | 7.8 | | | | 9.1 | | | | 24.2 | |
Litigation reserve reduction | | | — | | | | — | | | | (13.0 | ) | | | — | |
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Adjusted EBITDA (a non-GAAP measure) | | $ | 75.8 | | | $ | 83.7 | | | $ | 213.7 | | | $ | 253.4 | |
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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 believe 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.
EBITDA and Adjusted EBITDA 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 EBITDA and Adjusted EBITDA may not be comparable to similarly-titled measures used by other companies. Management uses both the non-GAAP measures, EBITDA and Adjusted EBITDA, and the GAAP measure, income from continuing operations, net of tax, in evaluation of its underlying performance. There are no material purposes for which we use these non-GAAP measures beyond the purposes described above. 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.
