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EX-4.3 - EX-4.3 - Nielsen Holdings plcnlsnnv-ex43_26.htm
EX-31.2 - EX-31.2 - Nielsen Holdings plcnlsnnv-ex312_8.htm
EX-32.1 - EX-32.1 - Nielsen Holdings plcnlsnnv-ex321_6.htm
EX-4.2 - EX-4.2 - Nielsen Holdings plcnlsnnv-ex42_25.htm
EX-4.1 - EX-4.1 - Nielsen Holdings plcnlsnnv-ex41_24.htm
EX-31.1 - EX-31.1 - Nielsen Holdings plcnlsnnv-ex311_11.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

x

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

For the quarterly period ended September 30, 2015

OR

¨

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

For the transition period from _______ to _______

Commission file number 001-35042

 

Nielsen Holdings plc

(Exact name of registrant as specified in its charter)

 

 

England and Wales

 

98-1225347

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

85 Broad Street

New York, New York 10004

+1 (646) 654-5000

 

AC Nielsen House

London Road

Oxford

Oxfordshire, OX3 9RX

United Kingdom

+1 (646) 654-5000

(Address of principal executive offices) (Zip Code) (Registrant’s telephone numbers including area code)

 

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer”, “large accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

x

 

Accelerated filer

¨

Non-accelerated filer

¨

(do not check if a smaller reporting company)

Smaller reporting company

¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No   x

There were 364,057,942 shares of the registrant’s Common Stock outstanding as of September 30, 2015.

 

 

 

 

 


Table of Contents

Contents

 

 

 

 

  

PAGE

 

PART I.

 

FINANCIAL INFORMATION

- 3 -

Item 1.

 

Condensed Consolidated Financial Statements

- 3 -

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

- 28 -

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

- 44 -

Item 4.

 

Controls and Procedures

- 45 -

PART II.

 

OTHER INFORMATION

- 47 -

Item 1.

 

Legal Proceedings

- 47 -

Item 1A.

 

Risk Factors

- 47 -

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

- 47 -

Item 3.

 

Defaults Upon Senior Securities

- 47 -

Item 4.

 

Mine Safety Disclosures

- 47 -

Item 5.

 

Other Information

- 47 -

Item 6.

 

Exhibits

- 47 -

 

 

Signatures

- 48 -

 

 

 


PART I. FINANCIAL INFORMATION

 

Item  1.Condensed Consolidated Financial Statements

Nielsen Holdings plc

Condensed Consolidated Statements of Operations (Unaudited)

 

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

(IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Revenues

 

$

1,531

 

 

$

1,572

 

 

$

4,548

 

 

$

4,655

 

Cost of revenues, exclusive of depreciation and amortization shown separately below

 

 

615

 

 

 

648

 

 

 

1,885

 

 

 

1,967

 

Selling, general and administrative expenses, exclusive of depreciation and amortization shown separately below

 

 

459

 

 

 

468

 

 

 

1,405

 

 

 

1,439

 

Depreciation and amortization

 

 

144

 

 

 

139

 

 

 

432

 

 

 

425

 

Restructuring charges

 

 

15

 

 

 

6

 

 

 

43

 

 

 

43

 

Operating income

 

 

298

 

 

$

311

 

 

 

783

 

 

$

781

 

Interest income

 

 

1

 

 

 

1

 

 

 

3

 

 

 

3

 

Interest expense

 

 

(79

)

 

 

(74

)

 

 

(231

)

 

 

(229

)

Foreign currency exchange transaction gains/(losses), net

 

 

5

 

 

 

1

 

 

 

(27

)

 

 

(32

)

Other expense, net

 

 

 

 

 

(52

)

 

 

 

 

 

(100

)

Income from continuing operations before income taxes and equity in net (loss)/income of affiliates

 

 

225

 

 

 

187

 

 

 

528

 

 

 

423

 

Provision for income taxes

 

 

(82

)

 

 

(95

)

 

 

(206

)

 

 

(202

)

Equity in net (loss)/income of affiliates

 

 

(1

)

 

 

 

 

(1

)

 

 

2

 

Net income

 

 

142

 

 

 

92

 

 

 

321

 

 

 

223

 

Net income attributable to noncontrolling interests

 

 

 

 

 

1

 

 

 

2

 

 

 

Net income attributable to Nielsen stockholders

 

$

142

 

 

$

91

 

 

$

319

 

 

$

223

 

Net income per share of common stock, basic

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

0.39

 

 

$

0.24

 

 

$

0.87

 

 

$

0.59

 

Net income attributable to Nielsen stockholders

 

$

0.39

 

 

$

0.24

 

 

$

0.87

 

 

$

0.59

 

Net income per share of common stock, diluted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

0.38

 

 

$

0.24

 

 

$

0.86

 

 

$

0.58

 

Net income attributable to Nielsen stockholders

 

$

0.38

 

 

$

0.24

 

 

$

0.86

 

 

$

0.58

 

Weighted-average shares of common stock outstanding, basic

 

 

365,498,696

 

 

 

380,884,561

 

 

 

368,323,542

 

 

 

379,891,241

 

Dilutive shares of common stock

 

 

3,999,243

 

 

 

5,006,830

 

 

 

4,135,995

 

 

 

5,283,261

 

Weighted-average shares of common stock outstanding, diluted

 

 

369,497,939

 

 

 

385,891,391

 

 

 

372,459,537

 

 

 

385,174,502

 

Dividends declared per common share

 

$

0.28

 

 

$

0.25

 

 

$

0.81

 

 

$

0.70

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

- 3 -


Nielsen Holdings plc

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

(IN MILLIONS)

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Net income

 

$

142

 

 

$

92

 

 

$

321

 

 

$

223

 

Other comprehensive (loss)/income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments (1)

 

 

(148

)

 

 

(169

)

 

(285

)

 

 

(136

)

Available for sale securities (2)

 

 

(4

)

 

 

 

 

 

 

4

 

Changes in the fair value of cash flow hedges (3)

 

(4

)

 

 

4

 

 

(6

)

 

 

3

 

Defined benefit pension plan adjustments (4)

 

 

5

 

 

 

3

 

 

15

 

 

 

5

 

Total other comprehensive loss

 

 

(151

)

 

 

(162

)

 

(276

)

 

 

(124

)

Total comprehensive (loss)/income

 

 

(9

)

 

 

(70

)

 

45

 

 

 

99

 

Less: comprehensive loss attributable to noncontrolling interests

 

 

(3

)

 

 

(1

)

 

(5

)

 

 

(2

)

Total comprehensive (loss)/income attributable to Nielsen stockholders

 

$

(6

)

 

$

(69

)

 

$

50

 

 

$

101

 

 

(1)

Net of tax of (2) million and $(4) million for the three months ended September 30, 2015 and 2014, respectively, and $(14) million and $(5) million for the nine months ended September 30, 2015 and 2014, respectively

(2)

Net of tax of $3 million and zero for the three months ended September 30, 2015 and 2014, and zero and $(3) million for the nine months ended September 30, 2015 and 2014

(3)

Net of tax of $3 million and $(2) for the three months ended September 30, 2015 and 2014, respectively, and $4 million and $(2) for the nine months ended September 30, 2015 and 2014, respectively

(4)

Net of tax of $(2) million and $(1) million for the three months ended September 30, 2015 and 2014, respectively, and $(4) million and zero for the nine months ended September 30, 2015 and 2014, respectively

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

- 4 -


Nielsen Holdings plc

Condensed Consolidated Balance Sheets

 

 

 

September 30,

 

 

December 31,

 

(IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)

 

2015

 

 

2014

 

 

 

(Unaudited)

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

358

 

 

$

273

 

Trade and other receivables, net of allowances for doubtful accounts and sales

  returns of $27 and $29 as of September 30, 2015 and December 31, 2014, respectively

 

 

1,163

 

 

 

1,241

 

Prepaid expenses and other current assets

 

 

585

 

 

 

505

 

Total current assets

 

 

2,106

 

 

 

2,019

 

Non-current assets

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

486

 

 

 

533

 

Goodwill

 

 

7,588

 

 

 

7,671

 

Other intangible assets, net

 

 

4,655

 

 

 

4,715

 

Deferred tax assets

 

 

73

 

 

 

83

 

Other non-current assets

 

 

369

 

 

 

355

 

Total assets

 

$

15,277

 

 

$

15,376

 

Liabilities and equity:

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable and other current liabilities

 

$

918

 

 

$

1,035

 

Deferred revenues

 

 

299

 

 

 

304

 

Income tax liabilities

 

 

199

 

 

 

62

 

Current portion of long-term debt, capital lease obligations and short-term borrowings

 

 

339

 

 

 

397

 

Total current liabilities

 

 

1,755

 

 

 

1,798

 

Non-current liabilities

 

 

 

 

 

 

 

 

Long-term debt and capital lease obligations

 

 

7,114

 

 

 

6,465

 

Deferred tax liabilities

 

 

993

 

 

 

1,025

 

Other non-current liabilities

 

 

917

 

 

 

955

 

Total liabilities

 

 

10,779

 

 

 

10,243

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

 

Nielsen stockholders’ equity

 

 

 

 

 

 

 

 

Common stock, €0.07 par value, 1,185,800,000 and 1,185,800,000 shares authorized;   364,057,942 and 382,622,922 shares issued and 364,057,942 and 372,757,598 shares outstanding at September 30, 2015 and December 31, 2014, respectively

 

 

32

 

 

 

32

 

Additional paid-in capital

 

 

5,249

 

 

 

6,344

 

Treasury stock, at cost

 

 

 

 

 

(415

)

Retained earnings/(accumulated deficit)

 

 

191

 

 

 

(128

)

Accumulated other comprehensive loss, net of income taxes

 

 

(1,046

)

 

 

(777

)

Total Nielsen stockholders’ equity

 

 

4,426

 

 

 

5,056

 

Noncontrolling interests

 

 

72

 

 

 

77

 

Total equity

 

 

4,498

 

 

 

5,133

 

Total liabilities and equity

 

$

15,277

 

 

$

15,376

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

- 5 -


Nielsen Holdings plc

Condensed Consolidated Statements of Cash Flows (Unaudited)

 

 

 

 

Nine Months Ended

 

 

 

September 30,

 

(IN MILLIONS)

 

2015

 

 

2014

 

Operating Activities

 

 

 

 

 

 

 

 

Net income

 

$

321

 

 

$

223

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

39

 

 

 

36

 

Excess tax benefits from stock-based compensation

 

(30

)

 

 

 

Currency exchange rate differences on financial transactions and other losses

 

 

29

 

 

 

134

 

Equity in net income of affiliates, net of dividends received

 

 

2

 

 

 

(2

)

Depreciation and amortization

 

 

432

 

 

 

425

 

Changes in operating assets and liabilities, net of effect of businesses acquired and divested:

 

 

 

 

 

 

 

 

Trade and other receivables, net

 

 

32

 

 

 

(9

)

Prepaid expenses and other current assets

 

 

(65

)

 

 

(81

)

Accounts payable and other current liabilities and deferred revenues

 

 

(140

)

 

 

(159

)

Other non-current liabilities

 

 

(4

)

 

 

(6

)

Interest payable

 

 

61

 

 

 

46

 

Income taxes

 

 

101

 

 

 

85

 

Net cash provided by operating activities

 

 

778

 

 

 

692

 

Investing Activities

 

 

 

 

 

 

 

 

Acquisition of subsidiaries and affiliates, net of cash acquired

 

 

(198

)

 

 

(203

)

Additions to property, plant and equipment and other assets

 

 

(100

)

 

 

(96

)

Additions to intangible assets

 

 

(206

)

 

 

(178

)

Net cash used in investing activities

 

 

(504

)

 

 

(477

)

Financing Activities

 

 

 

 

 

 

 

 

Net payments under revolving credit facility

 

 

(70

)

 

 

Proceeds from issuances of debt, net of issuance costs

 

746

 

 

 

4,544

 

Repayment of debt

 

 

(74

)

 

 

(4,573

)

Cash dividends paid to stockholders

 

(307

)

 

 

(261

)

Repurchase of common stock

 

 

(493

)

 

 

(75

)

Proceeds from exercise of stock options

 

 

40

 

 

80

 

Excess tax benefits from stock-based compensation

 

 

30

 

 

 

 

Other financing activities

 

 

(16

)

 

 

(91

)

Net cash used in financing activities

 

 

(144

)

 

 

(376

)

Effect of exchange-rate changes on cash and cash equivalents

 

 

(45

)

 

 

(34

)

Net decrease in cash and cash equivalents

 

 

85

 

 

 

(195

)

Cash and cash equivalents at beginning of period

 

 

273

 

 

 

564

 

Cash and cash equivalents at end of period

 

$

358

 

 

$

369

 

Supplemental Cash Flow Information

 

 

 

 

 

 

 

 

Cash paid for income taxes

 

$

(105

)

 

$

(117

)

Cash paid for interest, net of amounts capitalized

 

$

(170

)

 

$

(183

)

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

- 6 -


Nielsen Holdings plc

Notes to Condensed Consolidated Financial Statements

 

1. Background and Basis of Presentation

Background

Nielsen Holdings plc (the successor issuer to Nielsen N.V.) (“Nielsen” or the “Company”), together with its subsidiaries, is a leading global information and measurement company that provides clients with a comprehensive understanding of consumers and consumer behavior. Nielsen is aligned into two reporting segments: what consumers buy (“Buy”) and what consumers watch and listen to (“Watch”). Nielsen has a presence in more than 100 countries, with its registered office located in Oxford, the United Kingdom and its headquarters in New York, USA.

The Company was formed by several private equity groups through Valcon Acquisition Holding (Luxembourg) S.à r.l. (“Luxco”). As of December 31, 2014, Luxco owned approximately 15% of the Company’s common stock. During the nine months ended September 30, 2015, Luxco sold its remaining shares of the Company’s common stock. As a result, the private equity group that held equity interests in Nielsen at the time of the January 2011 initial public offering has disposed of such interests.

On August 31, 2015, Nielsen N.V., a Dutch public company listed on the New York Stock Exchange, merged with Nielsen Holdings plc, by way of a cross-border merger under the European Cross-Border Merger Directive, with Nielsen Holdings plc being the surviving company (the “Merger”). The Merger effectively changed the place of incorporation of Nielsen’s publically traded parent holding company from the Netherlands to England and Wales, with no changes made to the business being conducted by Nielsen prior to the Merger. Due to the fact that the Merger was a business combination between entities under common control, the exchange of assets and liabilities were made at carrying value. Therefore, there were no direct accounting implications in the Company’s condensed consolidated financial statements.

Basis of Presentation

The accompanying condensed consolidated financial statements are unaudited but, in the opinion of management, contain all the adjustments (consisting of those of a normal recurring nature) considered necessary to present fairly the Company’s financial position and the results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the U.S. (“U.S. GAAP”) applicable to interim periods. For a more complete discussion of significant accounting policies, commitments and contingencies and certain other information, refer to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. All amounts are presented in U.S. Dollars (“$”), except for share data or where expressly stated as being in other currencies, e.g., Euros (“€”). The condensed consolidated financial statements include the accounts of Nielsen and all subsidiaries and other controlled entities. The Company has evaluated events occurring subsequent to September 30, 2015 for potential recognition or disclosure in the condensed consolidated financial statements and concluded there were no subsequent events that required recognition or disclosure other than those provided.

Earnings per Share

Basic net income per share is computed using the weighted-average number of shares of common stock outstanding during the period. Diluted net income per share is computed using the weighted-average number of shares of common stock and dilutive potential shares of common stock outstanding during the period. Dilutive potential shares of common stock consist of employee stock options and restricted stock.

The effect of 57,600 and 92,800 shares of common stock equivalents under stock compensation plans were excluded from the calculation of diluted earnings per share for the three months ended September 30, 2015 and 2014, respectively, as such shares would have been anti-dilutive.

The effect of 1,608,433 and 92,800 shares of common stock equivalents under stock compensation plans were excluded from the calculation of diluted earnings per share for the nine months ended September 30, 2015 and 2014, respectively, as such shares would have been anti-dilutive.

 

 

Devaluation of Venezuelan Currency

Nielsen has operations in both the Buy and Watch segments in Venezuela and the functional currency for these operations was the Venezuelan Bolivares Fuertes. Venezuela’s currency has been considered hyperinflationary since January 1, 2010 and, accordingly, the local currency transactions have been denominated in U.S. dollars since January 1, 2010 and will continue to be until Venezuela’s currency is deemed to be non-hyperinflationary.

- 7 -


During the period between the first quarter of 2013 through the third quarter of 2015, there have been a number of changes in the foreign exchange regime in Venezuela that have impacted the conversion rates used by the Company for the conversion of Venezuelan Bolivares Fuertes into U.S. Dollars in its financial statements, resulting in foreign currency exchange transaction losses in the condensed consolidated statement of operations, reflecting the write-down of monetary assets and liabilities in our Venezuelan operations.

In February 2013, the official exchange rate was moved from 4.30 to 6.30 and the regulated System of Transactions with Securities in Foreign Currency market was suspended. 

Based on facts and circumstances present at March 31, 2014, Nielsen began using the exchange rate determined by periodic auctions for U.S. dollars conducted under Venezuela’s Complementary System of Foreign Currency Administration (“SICAD I”) as the SICAD I exchange rate represented what was the most realistic official exchange rate at which to remeasure the U.S. dollar value of the bolivar-denominated monetary assets and liabilities of Nielsen’s Venezuelan operations at that time. At March 31, 2014, the SICAD I exchange rate was 10.8 bolivars to the U.S. dollar. As a result of this change, Nielsen recorded a pre-tax charge of $20 million during the first quarter of 2014.  

Due to the lack of access to the SICAD I auction system throughout the remainder of 2014, as of December 31, 2014 the Company decided it was more likely that it would be able to gain access to U.S. dollars through the SICAD II mechanism to settle transactions conducted by the Company in Venezuela as SICAD II was created to provide a more open mechanism that was designed to permit any company to request U.S. dollars for any purpose.  At December 31, 2014, the SICAD II exchange rate was 50.0 bolivars to the U.S. dollar.  As a result of the changes in exchange rate assumptions in the fourth quarter 2014, Nielsen recorded a pre-tax charge of $32 million, for a total of $52 million for the year ended December 31, 2014.

On February 12, 2015, the Venezuelan government replaced SICAD II with a new foreign exchange market mechanism (“SIMADI”). Nielsen currently expects to be able to access U.S. dollars through the SIMADI market. SIMADI has significantly higher foreign exchange rates than those available through the other foreign exchange mechanisms. At September 30, 2015, the SIMADI exchange rate was 199.4 bolivars to the U.S. dollar.  As a result of this change, Nielsen has recorded a pre-tax charge of $1 million and $9 million during the three and nine months ended September 30, 2015, respectively.

The Company will continue to assess the appropriate conversion rate based on events in Venezuela and the Company’s specific facts and circumstances.  Total net monetary assets in U.S. dollars at the September 30, 2015 SIMADI rate totaled $3 million.

 

2. Summary of Recent Accounting Pronouncements

Consolidation

          In February 2015, the FASB issued Accounting Standards Update (“ASU”) 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis”. The new standard is intended to improve targeted areas of the consolidation guidance for legal entities such as limited partnerships, limited liability corporations, and securitization structures. The amendments in the ASU affect the consolidation evaluation for reporting organizations. In addition, the amendments in this ASU simplify and improve current GAAP by reducing the number of consolidation models. This guidance is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2015; however, early adoption is permitted. Nielsen is currently assessing the impact of the adoption of this ASU will have on the Company’s condensed consolidated financial statements.

Debt Issuance Costs

         In April 2015, the FASB issued an ASU, “Simplifying the Presentation of Debt Issuance Costs”. The new standard changes the presentation of debt issuance costs in financial statements. Under the ASU, an entity will present such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs is reported as interest expense. This guidance will be effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2015; however, early adoption is permitted. Nielsen is currently assessing the impact of the adoption of this ASU will have on the Company’s condensed consolidated financial statements.

Revenue Recognition

In May 2014, the FASB issued an ASU, “Revenue from Contracts with Customers”.  The new revenue recognition standard provides a five step analysis of transactions to determine when and how revenue is recognized. The new model will require revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services and shall be applied retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption.  The FASB has approved a one year deferral of this standard and is now

- 8 -


effective for annual periods beginning after December 15, 2017. Nielsen is currently assessing the impact of the adoption of this ASU will have on our condensed consolidated financial statements.

 

 

3. Business Acquisitions and Dispositions

For the nine months ended September 30, 2015, Nielsen paid cash consideration of $198 million associated with both current period and previously executed acquisitions, net of cash acquired. Had these current period acquisitions occurred as of January 1, 2015, the impact on Nielsen’s consolidated results of operations would not have been material.

In the third quarter of 2015, management approved a plan to sell National Research Group, Inc. (“NRG”), a leader in providing market research to movie studios. NRG is part of the Company’s Watch segment. As of September 30, 2015, Nielsen classified the net assets of NRG as held for sale. As of September 30, 2015, the Company’s condensed consolidated balance sheet included $22 million of assets in prepaid expenses and other current assets and $6 million of liabilities in accounts payable and other current liabilities classified as held for sale related to this business. The Company expects the sale to be completed during the fourth quarter of 2015.

For the nine months ended September 30, 2014, Nielsen paid cash consideration of $203 million associated with both current period and previously executed acquisitions, net of cash acquired. Had these current period acquisitions occurred as of January 1, 2014, the impact on Nielsen’s consolidated results of operations would not have been material.

 

4. Goodwill and Other Intangible Assets

Goodwill

The table below summarizes the changes in the carrying amount of goodwill by reportable segment for the nine months ended September 30, 2015.

(IN MILLIONS)

 

Buy

 

 

Watch

 

 

Total

 

Balance, December 31, 2014

 

$

3,014

 

 

$

4,657

 

 

$

7,671

 

Acquisitions, divestitures and other adjustments

 

 

3

 

 

 

129

 

 

 

132

 

Effect of foreign currency translation

 

 

(195

)

 

 

(20

)

 

 

(215

)

Balance, September 30, 2015

 

$

2,822

 

 

$

4,766

 

 

$

7,588

 

 

 

At September 30, 2015, $64 million of the goodwill is expected to be deductible for income tax purposes.

Other Intangible Assets

   

 

 

Gross Amounts

 

 

Accumulated Amortization

 

 

 

September 30,

 

 

December 31,

 

 

September 30,

 

 

December 31,

 

(IN MILLIONS)

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Indefinite-lived intangibles:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade names and trademarks

 

$

1,921

 

 

$

1,921

 

 

 

 

 

Amortized intangibles:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade names and trademarks

 

 

166

 

 

 

166

 

 

 

(81

)

 

 

(68

)

Customer-related intangibles

 

 

2,959

 

 

 

2,938

 

 

 

(1,178

)

 

 

(1,054

)

Covenants-not-to-compete

 

 

38

 

 

 

36

 

 

 

(35

)

 

 

(30

)

Computer software

 

 

2,164

 

 

 

1,935

 

 

 

(1,319

)

 

 

(1,157

)

Patents and other

 

 

105

 

 

 

105

 

 

 

(85

)

 

 

(77

)

Total

 

$

5,432

 

 

$

5,180

 

 

$

(2,698

)

 

$

(2,386

)

 

 

 

Amortization expense associated with the above intangible assets was $102 million and $99 million for the three months ended September 30, 2015 and 2014, respectively. These amounts included amortization expense associated with computer software of $56 million and $52 million for the three months ended September 30, 2015 and 2014, respectively.

 

Amortization expense associated with the above intangible assets was $305 million and $300 million for the nine months ended September 30, 2015 and 2014, respectively. These amounts included amortization expense associated with computer software of $165 million and $160 million for the nine months ended September 30, 2015 and 2014, respectively.

 

- 9 -


5. Changes in and Reclassification out of Accumulated Other Comprehensive Loss by Component

The table below summarizes the changes in accumulated other comprehensive loss, net of tax, by component for the nine months ended September 30, 2015 and 2014.

 

 

Currency

 

 

Available-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Translation

 

 

for-Sale

 

 

 

 

 

 

Post Employment

 

 

 

 

 

 

Adjustments

 

 

Securities

 

 

Cash Flow Hedges

 

 

Benefits

 

 

Total

 

(IN MILLIONS)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance December 31, 2014

$

(418

)

 

$

19

 

 

$

(2

)

 

$

(376

)

 

$

(777

)

Other comprehensive (loss)/income before reclassifications

 

(285

)

 

 

 

 

 

(11

)

 

 

2

 

 

 

(294

)

Amounts reclassified from accumulated other comprehensive (loss)/income

 

 

 

 

5

 

 

13

 

 

18

 

Net current period other comprehensive (loss)/income

 

(285

)

 

 

 

 

 

(6

)

 

 

15

 

 

 

(276

)

Net current period other comprehensive loss attributable to noncontrolling interest

 

(7

)

 

 

 

 

 

 

 

 

 

 

 

(7

)

Net current period other comprehensive (loss)/income attributable to Nielsen stockholders

 

(278

)

 

 

 

 

 

(6

)

 

 

15

 

 

 

(269

)

Balance September 30, 2015

$

(696

)

 

$

19

 

 

$

(8

)

 

$

(361

)

 

$

(1,046

)

 

 

 

Currency

 

 

 

Available-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Translation

 

 

 

for-Sale

 

 

 

 

 

 

 

 

 

 

Post Employment

 

 

 

 

 

 

Adjustments

 

 

 

Securities

 

 

 

 

Cash Flow Hedges

 

 

 

 

    Benefits

 

 

Total

 

(IN MILLIONS)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance December 31, 2013

$

(124

)

 

 

 

$

9

 

 

 

 

$

(5

)

 

 

 

$

(267

)

$

 

(387

)

Other comprehensive (loss)/income before reclassifications

 

(136

)

 

 

 

 

4

 

 

 

 

 

(4

)

 

 

 

 

 

 

(136

)

Amounts reclassified from accumulated other comprehensive (loss)/income

 

 

 

 

 

 

 

 

 

7

 

 

 

 

 

5

 

 

 

12

 

Net current period other comprehensive (loss)/income

 

(136

)

 

 

 

 

4

 

 

 

 

 

3

 

 

 

 

 

5

 

 

 

(124

)

Net current period other comprehensive loss attributable to noncontrolling interest

 

(2

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2

)

Net current period other comprehensive (loss)/income attributable to Nielsen stockholders

 

(134

)

 

 

 

 

4

 

 

 

 

 

3

 

 

 

 

 

5

 

 

 

(122

)

Balance September 30, 2014

$

(258

)

 

 

 

$

13

 

 

 

 

$

(2

)

 

 

 

$

(262

)

$

 

(509

)

 

 

The table below summarizes the reclassification of accumulated other comprehensive loss by component for the three months ended September 30, 2015 and 2014, respectively.

 

 

Amount Reclassified from

 

 

 

 

 

Accumulated Other

 

 

 

(IN MILLIONS)

 

Comprehensive Loss

 

 

 

Details about Accumulated

 

 

 

 

 

 

 

 

 

Affected Line Item in the

Other Comprehensive

 

Three Months Ended

 

 

Three Months Ended

 

 

Condensed Consolidated

Income components

 

September 30, 2015

 

 

September 30, 2014

 

 

Statement of Operations

Cash flow hedges

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

$

3

 

 

$

4

 

 

Interest expense

 

 

 

2

 

 

 

2

 

 

Benefit for income taxes

 

 

$

1

 

 

$

2

 

 

Total, net of tax

Amortization of Post-Employment Benefits

 

 

 

 

 

 

 

 

 

 

Actuarial loss

 

$

5

 

 

$

3

 

 

(a)

 

 

 

2

 

 

 

1

 

 

Benefit for income taxes

 

 

$

3

 

 

$

2

 

 

Total, net of tax

Total reclassification for the period

 

$

4

 

 

$

4

 

 

Net of tax

 

 

(a)

 This accumulated other comprehensive loss component is included in the computation of net periodic pension cost.

- 10 -


The table below summarizes the reclassification of accumulated other comprehensive loss by component for the nine months ended September 30, 2015 and 2014, respectively.

 

 

Amount Reclassified from

 

 

 

 

 

Accumulated Other

 

 

 

(IN MILLIONS)

 

Comprehensive Loss

 

 

 

Details about Accumulated

 

 

 

 

 

 

 

 

 

Affected Line Item in the

Other Comprehensive

 

Nine Months Ended

 

 

Nine Months Ended

 

 

Condensed Consolidated

Income components

 

September 30, 2015

 

 

September 30, 2014

 

 

Statement of Operations

Cash flow hedges

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

$

9

 

 

$

12

 

 

Interest expense

 

 

 

4

 

 

 

5

 

 

Benefit for income taxes

 

 

$

5

 

 

$

7

 

 

Total, net of tax

Amortization of Post-Employment Benefits

 

 

 

 

 

 

 

 

 

 

Actuarial loss

 

$

17

 

 

$

9

 

 

(a)

 

 

 

4

 

 

 

4

 

 

Benefit for income taxes

 

 

$

13

 

 

$

5

 

 

Total, net of tax

Total reclassification for the period

 

$

18

 

 

$

12

 

 

Net of tax

 

 

(a)

This accumulated other comprehensive loss component is included in the computation of net periodic pension cost.

 

 

 

 

6. Restructuring Activities

A summary of the changes in the liabilities for restructuring activities is provided below:

 

 

Total

 

(IN MILLIONS)

 

Initiatives

 

Balance at December 31, 2014

 

$

72

 

Charges

 

 

43

 

Payments

 

 

(63

)

Effect of foreign currency translation and other adjustments

 

 

(7

)

Balance at September 30, 2015

 

$

45

 

 

 

Nielsen recorded $15 million in restructuring charges for the three months ended September 30, 2015, primarily relating to severance and contract termination costs. Nielsen recorded $6 million in restructuring charges for the three months ended September 30, 2014, primarily relating to severance costs.

Nielsen recorded $43 million in restructuring charges for the nine months ended September 30, 2015 and 2014, respectively, primarily relating to severance costs.

Of the $45 million in remaining liabilities for restructuring actions, $36 million is expected to be paid within one year and is classified as a current liability within the condensed consolidated balance sheet as of September 30, 2015.

 

7. Fair Value Measurements

Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining fair value, the Company considers the principal or most advantageous market in which the Company would transact, and also considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of non-performance.

There are three levels of inputs that may be used to measure fair value:

 

Level 1:

  

Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.

 

  

 

Level 2:

  

Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.

 

  

 

Level 3:

  

Pricing inputs that are generally unobservable and may not be corroborated by market data.

- 11 -


Financial Assets and Liabilities Measured on a Recurring Basis

The Company’s financial assets and liabilities are measured and recorded at fair value, except for equity method investments, cost method investments, and long-term debt. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurements. The Company’s assessment of the significance of a particular input to the fair value measurements requires judgment, and may affect the valuation of the assets and liabilities being measured and their placement within the fair value hierarchy.

The following table summarizes the valuation of the Company’s material financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2015 and December 31, 2014:

 

 

September 30,

 

 

 

 

 

 

 

 

 

 

 

(IN MILLIONS)

 

2015

 

 

Level 1

 

 

Level 2

 

 

Level 3

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments in equity securities (1)

 

$

45

 

 

$

45

 

 

 

 

Plan assets for deferred compensation (2)

 

 

29

 

 

 

29

 

 

 

 

Investment in mutual funds (3)

 

2

 

 

2

 

 

 

 

Total

 

$

76

 

 

$

76

 

 

$

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap arrangements (4)

 

$

15

 

 

 

 

$

15

 

 

Deferred compensation liabilities (5)

 

 

29

 

 

 

29

 

 

 

 

Total

 

$

44

 

 

$

29

 

 

$

15

 

 

 

 

 

December 31,

 

 

 

 

 

 

 

 

 

 

 

 

 

2014

 

 

Level 1

 

 

Level 2

 

 

Level 3

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments in equity securities (1)

 

$

45

 

 

$

45

 

 

 

 

Plan assets for deferred compensation (2)

 

 

28

 

 

 

28

 

 

 

 

Investment in mutual funds (3)

 

 

2

 

 

 

2

 

 

 

 

Interest rate swap arrangements (4)

 

 

1

 

 

 

 

 

1

 

 

Total

 

$

76

 

 

$

75

 

 

$

1

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap arrangements (4)

 

$

6

 

 

 

 

$

6

 

 

Deferred compensation liabilities (5)

 

 

28

 

 

 

28

 

 

 

 

Total

 

$

34

 

 

$

28

 

 

$

6

 

 

 

  

(1)

Investments in equity securities are carried at fair value, which is based on the quoted market price at period end in an active market. These investments are classified as available-for-sale with any unrealized gains or losses resulting from changes in fair value recorded, net of tax, as a component of accumulated other comprehensive income/(loss) until realized. Nielsen assesses declines in the value of individual investments to determine whether such decline is other than temporary and thus the investment is impaired by considering available evidence. No impairment charge was recorded for these available-for-sale securities during the nine months ended September 30, 2015 and the year ended December 31, 2014.

(2)

Plan assets are comprised of investments in mutual funds, which are intended to fund liabilities arising from deferred compensation plans. These investments are carried at fair value, which is based on quoted market prices at period end in active markets. These investments are classified as trading securities with any gains or losses resulting from changes in fair value recorded in other expense, net.

(3)

Investments in mutual funds are money-market accounts held with the intention of funding certain specific retirement plans.

(4)

Derivative financial instruments include interest rate swap arrangements recorded at fair value based on externally-developed valuation models that use readily observable market parameters and the consideration of counterparty risk.

(5)

The Company offers certain employees the opportunity to participate in a deferred compensation plan. A participant’s deferrals are invested in a variety of participant directed stock and bond mutual funds and are classified as trading securities. Changes in the fair value of these securities are measured using quoted prices in active markets based on the market price per unit multiplied by the number of units held exclusive of any transaction costs. A corresponding adjustment for changes in fair value of the trading securities is also reflected in the changes in fair value of the deferred compensation obligation.

- 12 -


Derivative Financial Instruments

Nielsen primarily uses interest rate swap derivative instruments to manage risk that changes in interest rates will affect the cash flows of its underlying debt obligations.

To qualify for hedge accounting, the hedging relationship must meet several conditions with respect to documentation, probability of occurrence, hedge effectiveness and reliability of measurement. Nielsen documents the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions as well as the hedge effectiveness assessment, both at the hedge inception and on an ongoing basis. Nielsen recognizes all derivatives at fair value either as assets or liabilities in the consolidated balance sheets and changes in the fair values of such instruments are recognized currently in earnings unless specific hedge accounting criteria are met. If specific cash flow hedge accounting criteria are met, Nielsen recognizes the changes in fair value of these instruments in accumulated other comprehensive income/(loss).

Nielsen manages exposure to possible defaults on derivative financial instruments by monitoring the concentration of risk that Nielsen has with any individual bank and through the use of minimum credit quality standards for all counterparties. Nielsen does not require collateral or other security in relation to derivative financial instruments. A derivative contract entered into between Nielsen or certain of its subsidiaries and a counterparty that was also a lender under Nielsen’s senior secured credit facilities at the time the derivative contract was entered into is guaranteed under the senior secured credit facilities by Nielsen and certain of its subsidiaries (see Note 8 - Long-term Debt and Other Financing Arrangements for more information). Since it is Nielsen’s policy to only enter into derivative contracts with banks of internationally acknowledged standing, Nielsen considers the counterparty risk to be remote.

It is Nielsen’s policy to have an International Swaps and Derivatives Association (“ISDA”) Master Agreement established with every bank with which it has entered into any derivative contract. Under each of these ISDA Master Agreements, Nielsen agrees to settle only the net amount of the combined market values of all derivative contracts outstanding with any one counterparty should that counterparty default. Certain of the ISDA Master Agreements contain cross-default provisions where if the Company either defaults in payment obligations under its credit facility or if such obligations are accelerated by the lenders, then the Company could also be declared in default on its derivative obligations. At September 30, 2015, Nielsen had no material exposure to potential economic losses due to counterparty credit default risk or cross-default risk on its derivative financial instruments.

Foreign Currency Exchange Risk

Foreign currency translation risk is the risk that exchange rate gains or losses arise from translating foreign entities’ statements of earnings and balance sheets from functional currency to our reporting currency (the U.S. Dollar) for consolidation purposes. Nielsen manages translation risk exposure by creating “natural hedges” in its financing or by using derivative financial instruments aimed at offsetting certain exposures in the statement of earnings or the balance sheet. Nielsen does not trade derivative financial instruments for speculative purposes. During the nine months ended September 30, 2015 and 2014, Nielsen recorded a net gain of $3 million and zero, respectively, associated with foreign currency derivative financial instruments within foreign currency exchange transactions losses, net in our condensed consolidated statements of operations.  Nielsen had no foreign currency derivative financial instruments outstanding as of September 30, 2015 and December 31, 2014.      

Interest Rate Risk

Nielsen is exposed to cash flow interest rate risk on the floating-rate U.S. Dollar and Euro Term Loans, and uses floating-to-fixed interest rate swaps to hedge this exposure. For these derivatives, Nielsen reports the after-tax gain or loss from the effective portion of the hedge as a component of accumulated other comprehensive income/(loss) and reclassifies it into earnings in the same period or periods in which the hedged transaction affects earnings, and within the same income statement line item as the impact of the hedged transaction.

In April 2015, the Company entered into a $150 million in notional amount of three-year forward interest rate swap agreement with a starting date in April 2016. This agreement fixes the LIBOR-related portion of the interest rates of a corresponding amount of the Company’s variable-rate debt at an average rate of 1.40%. This derivative instrument has been designated as an interest rate cash flow hedge.

In July 2015, the Company entered into a $150 million in notional amount of three-year forward interest rate swap agreement with a starting date in July 2016. This agreement fixes the LIBOR-related portion of the interest rates of a corresponding amount of the Company’s variable-rate debt at an average rate of 1.62%. This derivative instrument has been designated as an interest rate cash flow hedge.

- 13 -


As of September 30, 2015 the Company had the following outstanding interest rate swaps utilized in the management of its interest rate risk:

 

Notional Amount

 

 

Maturity Date

 

Currency

Interest rate swaps designated as hedging instruments

 

 

 

 

 

 

 

US Dollar term loan floating-to-fixed rate swaps

$

125,000,000

 

 

November 2015

 

US Dollar

Euro term loan floating-to-fixed rate swaps

125,000,000

 

 

November 2015

 

Euro

US Dollar term loan floating-to-fixed rate swaps

$

1,575,000,000

 

 

May 2016

 

US Dollar

US Dollar term loan floating-to-fixed rate swaps

$

500,000,000

 

 

November 2016

 

US Dollar

US Dollar term loan floating-to-fixed rate swaps

$

250,000,000

 

 

September 2017

 

US Dollar

US Dollar term loan floating-to-fixed rate swaps

$

250,000,000

 

 

May 2018

 

US Dollar

US Dollar term loan floating-to-fixed rate swaps

$

150,000,000

 

 

April 2019

 

US Dollar

US Dollar term loan floating-to-fixed rate swaps

$

150,000,000

 

 

July 2019

 

US Dollar

 

 

Nielsen expects to recognize approximately $8 million of net pre-tax losses from accumulated other comprehensive loss to interest expense in the next 12 months associated with its interest-related derivative financial instruments.

Fair Values of Derivative Instruments in the Consolidated Balance Sheets

The fair values of the Company’s derivative instruments as of September 30, 2015 and December 31, 2014 were as follows:

 

 

 

September 30, 2015

 

 

December 31, 2014

 

 

 

 

Accounts Payable

 

 

 

 

 

 

 

 

 

 

Accounts Payable

 

 

 

 

 

Derivatives Designated as Hedging Instruments

 

 

and Other Current

 

 

Other Non-Current

 

 

Other Non-

 

 

and Other Current

 

 

Other Non-Current

 

(IN MILLIONS)

 

 

Liabilities

 

 

Liabilities

 

 

Current Assets

 

 

Liabilities

 

 

Liabilities

 

Interest rate swaps

 

 

$

3

 

 

$

12

 

 

$

1

 

 

$

4

 

 

$

2

 

 

Derivatives in Cash Flow Hedging Relationships

The pre-tax effect of derivative instruments in cash flow hedging relationships for the three months ended September 30, 2015 and 2014 was as follows:

 

 

 

 

 

 

 

 

Amount of Loss

 

 

 

Amount of Loss/(Gain)

 

 

 

 

Reclassified from AOCI

 

 

 

Recognized in OCI

 

 

Location of Loss

 

into Income

 

 

 

(Effective Portion)

 

 

Reclassified from AOCI

 

(Effective Portion)

 

Derivatives in Cash Flow

 

Three Months Ended

 

 

into Income  (Effective

 

Three Months Ended

 

Hedging Relationships

 

September 30,

 

 

Portion)

 

September 30,

 

(IN MILLIONS)

 

2015

 

 

2014

 

 

 

 

2015

 

 

2014

 

Interest rate swaps

 

$

9

 

 

$

(3

)

 

Interest expense

 

$

3

 

 

$

4

 

The pre-tax effect of derivative instruments in cash flow hedging relationships for the nine months ended September 30, 2015 and 2014 was as follows:

 

 

 

 

 

 

 

Amount of Loss

 

 

 

Amount of Loss

 

 

 

 

Reclassified from OCI

 

 

 

Recognized in OCI

 

 

Location of Loss

 

into Income

 

 

 

(Effective Portion)

 

 

Reclassified from OCI

 

(Effective Portion)

 

Derivatives in Cash Flow

 

Nine Months Ended

 

 

into Income  (Effective

 

Nine Months Ended

 

Hedging Relationships

 

September 30,

 

 

Portion)

 

September 30,

 

(IN MILLIONS)

 

2015

 

 

2014

 

 

 

 

2015

 

 

2014

 

Interest rate swaps

 

$

19

 

 

$

6

 

 

Interest expense

 

$

9

 

 

$

12

 

 

 

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

The Company is required, on a nonrecurring basis, to adjust the carrying value or provide valuation allowances for certain assets using fair value measurements. The Company’s equity method investments, cost method investments, and non-financial assets, such as goodwill, intangible assets, and property, plant and equipment, are measured at fair value when there is an indicator of impairment and recorded at fair value only when an impairment charge is recognized.

- 14 -


The Company did not measure any material non-financial assets or liabilities at fair value during the nine months ended September 30, 2015.

 

8. Long-term Debt and Other Financing Arrangements

Unless otherwise stated, interest rates are as of September 30, 2015.

 

 

September 30, 2015

 

 

December 31, 2014

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

Interest

 

 

Carrying

 

 

Fair

 

 

Interest

 

 

Carrying

 

 

Fair

 

(IN MILLIONS)

 

Rate

 

 

Amount

 

 

Value

 

 

Rate

 

 

Amount

 

 

Value

 

$1,580 million Senior secured term loan (LIBOR based variable rate of 2.20%) due 2019

 

 

 

 

 

 

1,481

 

 

 

1,474

 

 

 

 

 

 

 

1,542

 

 

 

1,533

 

$500 million Senior secured term loan (LIBOR based variable rate of 2.45%) due 2017

 

 

 

 

 

 

494

 

 

 

493

 

 

 

 

 

 

 

497

 

 

 

493

 

$1,100 million Senior secured term loan (LIBOR based variable rate of 3.20%) due 2021

 

 

 

 

 

 

1,086

 

 

 

1,089

 

 

 

 

 

 

 

1,094

 

 

 

1,088

 

€286 million Senior secured term loan (Euro LIBOR based variable rate of 2.89%) due 2021

 

 

 

 

 

 

316

 

 

 

316

 

 

 

 

 

 

 

345

 

 

 

343

 

$575 million senior secured revolving credit facility (Euro LIBOR or LIBOR based variable rate) due 2019

 

 

 

 

 

 

210

 

 

 

206

 

 

 

 

 

 

 

280

 

 

 

274

 

Total senior secured credit facilities (with weighted-average interest rate)

 

 

2.69

%

 

 

3,587

 

 

 

3,578

 

 

 

2.65

%

 

 

3,758

 

 

 

3,731

 

$800 million 4.50% senior debenture loan due 2020

 

 

 

 

 

 

800

 

 

 

803

 

 

 

 

 

 

 

800

 

 

 

801

 

$1,550 million 5.00% senior debenture loan due 2022

 

 

 

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

1,553

 

 

 

1,554

 

$625 million 5.50% senior debenture loan due 2021

 

 

 

 

 

 

625

 

 

 

626

 

 

 

 

 

 

 

625

 

 

 

633

 

$2,300 million 5.00% senior debenture loan due 2022

 

 

 

 

 

 

2,308

 

 

 

2,233

 

 

 

 

 

 

 

-

 

 

 

-

 

Total debenture loans (with weighted-average interest rate)

 

 

5.22

%

 

 

3,733

 

 

 

3,662

 

 

 

5.23

%

 

 

2,978

 

 

 

2,988

 

Other loans

 

 

 

 

 

 

9

 

 

 

9

 

 

 

 

 

 

 

8

 

 

 

8

 

Total long-term debt

 

 

3.98

%

 

 

7,329

 

 

 

7,249

 

 

 

3.79

%

 

 

6,744

 

 

 

6,727

 

Capital lease and other financing obligations

 

 

 

 

 

 

124

 

 

 

 

 

 

 

 

 

 

 

118

 

 

 

 

 

Total debt and other financing arrangements

 

 

 

 

 

 

7,453

 

 

 

 

 

 

 

 

 

 

 

6,862

 

 

 

 

 

Less: Current portion of long-term debt, capital lease and other financing obligations and other short-term borrowings

 

 

 

 

 

 

339

 

 

 

 

 

 

 

 

 

 

 

397

 

 

 

 

 

Non-current portion of long-term debt and capital lease and other financing obligations

 

 

 

 

 

$

7,114

 

 

 

 

 

 

 

 

 

 

$

6,465

 

 

 

 

 

 

 

The fair value of the Company’s long-term debt instruments was based on the yield on public debt where available or current borrowing rates available for financings with similar terms and maturities and such fair value measurements are considered Level 1 or Level 2 in nature, respectively.

Annual maturities of Nielsen’s long-term debt are as follows:

(IN MILLIONS)

 

 

 

 

For October 1, 2015 to December 31, 2015

 

$

235

 

2016

 

 

122

 

2017

 

 

641

 

2018

 

 

212

 

2019

 

 

1,041

 

2020

 

 

814

 

Thereafter

 

 

4,264

 

 

 

$

7,329

 

 

 

- 15 -


In February 2015, Nielsen completed the issuance of $750 million aggregate principal amount of their 5.0% Senior Notes due 2022. The notes are traded interchangeably with the $750 million and the $800 million aggregate principal amount of 5.00% Senior Notes due 2022 issued in April 2014 and July 2014, respectively.  The proceeds from the issuances have been used to make repurchases of Nielsen’s outstanding common stock from time to time, in the open market or otherwise, pursuant to Nielsen’s existing share repurchase programs, to reduce outstanding amounts under its revolving credit facility, to pay related fees and expenses, and for general corporate purposes.

 

9. Stockholders’ Equity

Common stock activity is as follows:

 

 

Nine Months Ended

 

 

 

September 30, 2015

 

Actual number of shares of common stock outstanding

 

 

 

 

Beginning of period

 

 

372,757,598

 

Shares of common stock issued through compensation plans

 

 

2,132,408

 

Shares of common stock issued through business combinations

 

 

47,413

 

Repurchases of common stock

 

 

(10,879,477

)

End of period

 

 

364,057,942

 

 

 

As a result of the Merger, the consideration paid for Nielsen shares, including any incremental directly attributable costs, is recorded as a deduction from shareholders’ equity. When such shares are sold, any consideration received, net of any directly attributable costs, is recorded within shareholders’ equity. Thus, all cumulative shares of Nielsen treasury stock have been cancelled and included within Nielsen’s share capital.

 

On January 31, 2013, the Company’s Board of Directors adopted a cash dividend policy to pay quarterly cash dividends on its outstanding common stock.   The below table summarizes the dividends declared on Nielsen’s common stock during 2014 and the nine months ended September 30, 2015.                                                                                                                                                       

Declaration Date

 

Record Date

 

Payment Date

 

Dividend Per Share

 

February 20, 2014

 

March 6, 2014

 

March 20, 2014

 

$

0.20

 

May 1, 2014

 

June 5, 2014

 

June 19, 2014

 

$

0.25

 

July 24, 2014

 

August 28, 2014

 

September 11, 2014

 

$

0.25

 

October 30, 2014

 

November 25, 2014

 

December 9, 2014

 

$

0.25

 

February 19, 2015

 

March 5, 2015

 

March 19, 2015

 

$

0.25

 

April 20, 2015

 

June 4, 2015

 

June 18, 2015

 

$

0.28

 

July 23, 2015

 

August 27, 2015

 

September 10, 2015

 

$

0.28

 

 

 

The dividend policy and the payment of future cash dividends are subject to the discretion of the Company’s Board of Directors.

 

- 16 -


On July 25, 2013, Nielsen’s Board approved a share repurchase program for up to $500 million of its outstanding common stock. The primary purpose of the program is to mitigate dilution associated with Nielsen’s equity compensation plans. On October 23, 2014, the Company announced that its board of directors approved a new share repurchase program for up to $1 billion of Nielsen’s outstanding common stock. This is in addition to the current authorization in place since July 2013 as described above.  Repurchases are made in accordance with applicable securities laws from time to time in the open market or otherwise depending on Nielsen management’s evaluation of market conditions and other factors. This program has been executed within the limitations of the existing authority granted at Nielsen’s Annual General Meetings of Shareholders held in 2014 and 2015. As of September 30, 2015, there have been 22,062,460 shares of our common stock purchased at an average price of $43.99 per share (total consideration of $970 million) under this program. The activity during the nine months ended September 30, 2015 consisted of open market share repurchases and is summarized in the following table:                                                                                                                                 

 

 

 

 

 

 

 

 

 

 

Total Number of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares Purchased as

 

 

Dollar Value of Shares

 

 

 

Total Number

 

 

Average

 

 

Part of Publicly

 

 

that may yet be

 

 

 

of Shares

 

 

Price Paid

 

 

Announced Plans

 

 

Purchased under the

 

Period

 

Purchased

 

 

per Share

 

 

or Programs

 

 

Plans or Programs

 

As of December 31, 2014

 

 

11,182,983

 

 

$

42.67

 

 

 

11,182,983

 

 

$

1,022,830,101

 

2015 Activity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

January 1- 31

 

1,611,203

 

 

44.09

 

 

1,611,203

 

 

$

951,797,780

 

February 1- 28

 

 

814,753

 

 

$

43.90

 

 

 

814,753

 

 

$

916,031,448

 

March 1- 31

 

 

772,189

 

 

$

43.76

 

 

 

772,189

 

 

$

882,241,498

 

April 1-30

 

 

1,440,798

 

 

$

45.30

 

 

 

1,440,798

 

 

$

816,973,014

 

May 1-31

 

 

1,222,800

 

 

$

45.37

 

 

 

1,222,800

 

 

$

761,496,406

 

June 1-30

 

 

1,300,836

 

 

$

45.14

 

 

 

1,300,836

 

 

$

702,774,965

 

July 1-31

 

 

1,310,000

 

 

$

45.37

 

 

 

1,310,000

 

 

$

643,345,777

 

August 1-31

 

 

1,853,142

 

 

$

47.25

 

 

 

1,853,142

 

 

$

555,793,238

 

September 1-30

 

 

553,756

 

 

$

47.39

 

 

 

553,756

 

 

$

529,551,668

 

Total

 

 

22,062,460

 

 

$

43.99

 

 

 

22,062,460

 

 

 

 

 

 

 

10. Income Taxes

The effective tax rates for the three months ended September 30, 2015 and 2014 were 36% and 51%, respectively. The tax rate for the three months ended September 30, 2015 was higher than the United Kingdom statutory rate of 20% as a result of the impact of tax rate differences in other jurisdictions where the Company files tax returns, the effect of global licensing activities and foreign distributions, and reserves for uncertain tax positions offset by the favorable impact of certain financing activities. The tax rate for the three months ended September 30, 2014 was higher than the statutory rate in the Netherlands of 25% as a result of the impact of tax rate differences in other jurisdictions where the Company files tax returns, residual tax expense on foreign source income, reserves for uncertain tax positions, and state and local income taxes offset by the favorable impact of certain financing activities.

The effective tax rates for the nine months ended September 30, 2015 and 2014 were 39% and 48%, respectively. The tax rate for the nine months ended September 30, 2015 was higher than the United Kingdom statutory rate as a result of the impact of tax rate differences in other jurisdictions where the Company files tax returns, the effect of global licensing activities and foreign distributions, audit settlements, and reserves for uncertain tax positions offset by the favorable impact of certain financing activities and release of tax contingencies. The tax rate for the nine months ended September 30, 2014 was higher than the statutory rate in the Netherlands as a result of the impact of tax rate differences in other jurisdictions where the Company files tax returns, residual tax expense on foreign source income, reserves for uncertain tax positions, and state and local income taxes offset by the favorable impact of certain financing activities.

The estimated liability for unrecognized income tax benefits as of December 31, 2015 is $463 million and was $452 million as of December 31, 2014. If the Company’s tax positions are favorably sustained by the taxing authorities, the reversal of the underlying liabilities would reduce the Company’s effective tax rate in future periods.

The Company files numerous consolidated and separate income tax returns in the U.S. and in many state and foreign jurisdictions. With few exceptions the Company is no longer subject to U.S. Federal income tax examination for 2006 and prior periods. In addition, the Company has subsidiaries in various states, provinces and countries that are currently under audit for years ranging from 2003 through 2014.

To date, the Company is not aware of any material adjustments not already accrued related to any of the current Federal, state or foreign audits under examination.

- 17 -


11. Commitments and Contingencies

Legal Proceedings and Contingencies

Nielsen is subject to litigation and other claims in the ordinary course of business, some of which include claims for substantial sums. Accruals have been recorded when the outcome is probable and can be reasonably estimated. While the ultimate results of claims and litigation cannot be determined, the Company does expect that the ultimate disposition of these matters will not have a material adverse effect on its operations or financial condition. However, depending on the amount and the timing, an unfavorable resolution of some or all of these matters could materially affect the Company’s future results of operations or cash flows in a particular period.

 

12. Segments

The Company aligns its operating segments in order to conform to management’s internal reporting structure, which is reflective of service offerings by industry. Management aggregates such operating segments into two reporting segments: what consumers buy (“Buy”), consisting principally of market research information and analytical services; and what consumers watch (“Watch”), consisting principally of television, radio, online and mobile audience and advertising measurement and corresponding analytics.

Corporate consists principally of unallocated items such as certain facilities and infrastructure costs as well as intersegment eliminations. Certain corporate costs, other than those described above, including those related to selling, finance, legal, human resources, and information technology systems, are considered operating costs and are allocated to the Company’s segments based on either the actual amount of costs incurred or on a basis consistent with the operations of the underlying segment. Information with respect to the operations of each of Nielsen’s business segments is set forth below based on the nature of the services offered and geographic areas of operations.

Business Segment Information

 

(IN MILLIONS)

 

Buy

 

 

Watch

 

 

Corporate

 

 

Total

 

Three Months Ended September 30, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

816

 

 

$

715

 

 

$

 

 

$

1,531

 

Depreciation and amortization

 

$

51

 

 

$

92

 

 

$

1

 

 

$

144

 

Restructuring charges

 

$

11

 

 

$

4

 

 

$

 

 

$

15

 

Stock-based compensation expense

 

$

4

 

 

$

1

 

 

$

7

 

 

$

12

 

Other items(1)

 

$

 

 

$

3

 

 

$

7

 

 

$

10

 

Operating income/(loss)

 

$

91

 

 

$

234

 

 

$

(27

)

 

$

298

 

Business segment income/(loss)(2)

 

$

157

 

 

$

334

 

 

$

(12

)

 

$

479

 

Total assets as of September 30, 2015

 

$

6,638

 

 

$

8,417

 

 

$

222

 

 

$

15,277

 

 

(IN MILLIONS)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

878

 

 

$

694

 

 

$

 

 

$

1,572

 

Depreciation and amortization

 

$

55

 

 

$

83

 

 

$

1

 

 

$

139

 

Restructuring charges

 

$

4

 

 

$

1

 

 

$

1

 

 

$

6

 

Stock-based compensation expense

 

$

3

 

 

$

2

 

 

$

7

 

 

$

12

 

Other items(1)

 

$

 

 

$

5

 

 

$

4

 

 

$

9

 

Operating income/(loss)

 

$

109

 

 

$

226

 

 

$

(24

)

 

$

311

 

Business segment income/(loss)(2)

 

$

171

 

 

$

317

 

 

$

(11

)

 

$

477

 

Total assets as of December 31, 2014

 

$

6,869

 

 

$

8,156

 

 

$

351

 

 

$

15,376

 

 

- 18 -


 

(IN MILLIONS)

 

Buy

 

 

Watch

 

 

Corporate

 

 

Total

 

Nine Months Ended September 30, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

2,466

 

 

$

2,082

 

 

$

 

 

$

4,548

 

Depreciation and amortization

 

$

157

 

 

$

272

 

 

$

3

 

 

$

432

 

Restructuring charges

 

$

28

 

 

$

12

 

 

$

3

 

 

$

43

 

Stock-based compensation expense

 

$

13

 

 

$

5

 

 

$

21

 

 

$

39

 

Other items (1)

 

$

 

 

$

3

 

 

$

27

 

 

$

30

 

Operating income/(loss)

 

$

231

 

 

$

634

 

 

$

(82

)

 

$

783

 

Business segment income/(loss) (2)

 

$

429

 

 

$

926

 

 

$

(28

)

 

$

1,327

 

 

(IN MILLIONS)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

2,615

 

 

$

2,040

 

 

$

 

 

$

4,655

 

Depreciation and amortization

 

$

166

 

 

$

256

 

 

$

3

 

 

$

425

 

Restructuring charges

 

$

26

 

 

$

11

 

 

$

6

 

 

$

43

 

Stock-based compensation expense

 

$

12

 

 

$

8

 

 

$

16

 

 

$

36

 

Other items (1)

 

$

 

 

$

8

 

 

$

20

 

 

$

28

 

Operating income/(loss)

 

$

252

 

 

$

602

 

 

$

(73

)

 

$

781

 

Business segment income/(loss) (2)

 

$

456

 

 

$

885

 

 

$

(28

)

 

$

1,313

 

 

(1)

Other items primarily consist of non-recurring costs for the three and nine months ended September 30, 2015 and 2014, respectively.  

(2)

The Company’s chief operating decision making group uses business segment income/(loss) to measure performance from period to period both at the consolidated level as well as within its operating segments.

 

13. Guarantor Financial Information

The following supplemental financial information is being provided for purposes of compliance with reporting covenants contained in certain debt obligations of Nielsen and its subsidiaries. The financial information sets forth for Nielsen, its subsidiaries that have issued certain debt securities (the “Issuers”) and its guarantor and non-guarantor subsidiaries, the consolidating balance sheet as of September 30, 2015 and December 31, 2014 and consolidating statements of operations and cash flows for the periods ended September 30, 2015 and 2014. During the three months ended September 30, 2015, the Company re-designated certain subsidiaries between guarantor and non-guarantor. As a result, the Company adjusted prior periods to reflect the current year structure.

The issued debt securities are jointly and severally guaranteed on a full and unconditional basis by Nielsen and subject to certain exceptions, each of the direct and indirect 100% owned subsidiaries of Nielsen, in each case to the extent that such entities provide a guarantee under the senior secured credit facilities. The issuers are also 100% owned indirect subsidiaries of Nielsen: Nielsen Finance LLC and Nielsen Finance Co. for certain series of debt obligations, and The Nielsen Company (Luxembourg) S ar l., for the other series of debt obligations. Each issuer is a guarantor of the debt obligations not issued by it.

Nielsen is a holding company and does not have any material assets or operations other than ownership of the capital stock of its direct and indirect subsidiaries. All of Nielsen’s operations are conducted through its subsidiaries, and, therefore, Nielsen is expected to continue to be dependent upon the cash flows of its subsidiaries to meet its obligations. The senior secured credit facilities contain certain limitations on the ability of Nielsen to receive the cash flows of its subsidiaries.

While all subsidiary guarantees of the issued debt securities are full and unconditional, these guarantees contain customary release provisions including when (i) the subsidiary is sold or sells all of its assets, (ii) the subsidiary is declared “unrestricted” for covenant purposes, (iii) the subsidiary’s guarantee under the senior secured credit facilities is released and (iv) the requirements for discharge of the indenture have been satisfied.

- 19 -


Nielsen Holdings plc

Condensed Consolidating Statement of Comprehensive Income (Unaudited)

For the three months ended September 30, 2015

 

(IN MILLIONS)

 

Parent

 

 

Issuers

 

 

Guarantor

 

 

Non- Guarantor

 

 

Elimination

 

 

Consolidated

 

Revenues

 

 

 

 

 

$

907

 

 

$

624

 

 

 

 

$

1,531

 

Cost of revenues, exclusive of depreciation and amortization shown separately below

 

 

 

 

 

 

328

 

 

 

287

 

 

 

 

 

615

 

Selling, general and administrative expenses, exclusive of depreciation and amortization shown separately below

 

 

3

 

 

 

 

 

236

 

 

 

220

 

 

 

 

 

459

 

Depreciation and amortization

 

 

 

 

 

 

119

 

 

 

25

 

 

 

 

 

144

 

Restructuring charges

 

 

 

 

 

 

8

 

 

 

7

 

 

 

 

 

15

 

Operating (loss)/income

 

(3

)

 

 

 

 

216

 

 

 

85

 

 

 

 

 

298

 

Interest income

 

 

 

 

227

 

 

 

9

 

 

 

1

 

 

(236

)

 

 

1

 

Interest expense

 

 

 

(74

)

 

(231

)

 

(10

)

 

236

 

 

(79

)

Foreign currency exchange transaction gains, net

 

 

 

 

 

4

 

 

1

 

 

 

 

5

 

Other income/(expense), net

 

 

 

 

 

 

106

 

 

(106

)

 

 

 

 

(Loss)/income from continuing operations before income taxes and equity in net income/(loss) of subsidiaries and affiliates

 

(3

)

 

 

153

 

 

 

104

 

 

(29

)

 

 

 

 

225

 

(Provision)/benefit for income taxes

 

 

 

(53

)

 

(38

)

 

 

9

 

 

 

 

(82

)

Equity in net income of subsidiaries

 

 

145

 

 

 

 

 

 

79

 

 

 

 

 

(224

)

 

 

Equity in net loss of affiliates

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

(1

)

Net income/(loss)

 

 

142

 

 

 

100

 

 

 

145

 

 

 

(21

)

 

(224

)

 

 

142

 

Total other comprehensive loss

 

 

(148

)

 

 

(147

)

 

 

(148

)

 

 

(125

)

 

417

 

 

 

(151

)

Total other comprehensive loss attributable to noncontrolling interests

 

 

 

 

 

 

 

(3

)

 

 

 

(3

)

Total other comprehensive loss attributable to controlling interests

 

 

(148

)

 

 

(147

)

 

 

(148

)

 

 

(122

)

 

417

 

 

 

(148

)

Total comprehensive loss

 

 

(6

)

 

 

(47

)

 

 

(3

)

 

 

(146

)

 

193

 

 

 

(9

)

Comprehensive loss attributable to noncontrolling interests

 

 

 

 

 

 

 

 

(3

)

 

 

 

 

(3

)

Total comprehensive loss attributable to controlling interest

 

$

(6

)

 

$

(47

)

 

$

(3

)

 

$

(143

)

 

193

 

 

$

(6

)

- 20 -


Nielsen Holdings plc

Condensed Consolidating Statement of Comprehensive Income (Unaudited)

For the three months ended September 30, 2014

 

(IN MILLIONS)

 

Parent

 

 

Issuers

 

 

Guarantor

 

 

Non- Guarantor

 

 

Elimination

 

 

Consolidated

 

Revenues

 

 

 

 

 

$

851

 

 

$

721

 

 

 

 

$

1,572

 

Cost of revenues, exclusive of depreciation and amortization shown    separately below

 

 

 

 

 

 

311

 

 

 

337

 

 

 

 

 

648

 

Selling, general and administrative expenses, exclusive of depreciation and amortization shown separately below

 

 

2

 

 

 

 

 

230

 

 

 

236

 

 

 

 

 

468

 

Depreciation and amortization

 

 

 

 

 

 

108

 

 

 

31

 

 

 

 

 

139

 

Restructuring charges

 

 

 

 

 

 

5

 

 

 

1

 

 

 

 

 

6

 

Operating (loss)/income

 

(2

)

 

 

 

 

197

 

 

 

116

 

 

 

 

 

311

 

Interest income

 

 

 

 

215

 

 

 

11

 

 

 

2

 

 

(227

)

 

 

1

 

Interest expense

 

 

 

(70

)

 

(219

)

 

(12

)

 

227

 

 

(74

)

Foreign currency exchange transaction gains/(losses), net

 

 

 

 

 

3

 

 

(2

)

 

 

 

1

 

Other (expense)/income, net

 

 

 

(51

)

 

 

77

 

 

(78

)

 

 

 

(52

)

(Loss)/income from continuing operations before income taxes and equity in net income/(loss) of subsidiaries and affiliates

 

(2

)

 

 

94

 

 

 

69

 

 

26

 

 

 

 

 

187

 

Provision for income taxes

 

 

 

 

(22

)

 

(58

)

 

 

(15

)

 

 

 

(95

)

Equity in net income/(loss) of subsidiaries

 

 

93

 

 

 

(74

)

 

 

82

 

 

 

 

 

(101

)

 

 

Net income/(loss)

 

 

91

 

 

 

(2

)

 

 

93

 

 

 

11

 

 

(101

)

 

 

92

 

Less net income attributable to noncontrolling interests

 

 

 

 

 

 

 

 

1

 

 

 

 

 

1

 

Net income/(loss) attributable to controlling interest

 

 

91

 

 

 

(2

)

 

 

93

 

 

 

10

 

 

(101

)

 

 

91

 

Total other comprehensive loss

 

 

(160

)

 

 

(167

)

 

 

(160

)

 

 

(261

)

 

586

 

 

 

(162

)

Other comprehensive loss attributable to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

(2

)

 

 

 

 

(2

)

Total other comprehensive loss attributable to controlling interest

 

 

(160

)

 

 

(167

)

 

 

(160

)

 

 

(259

)

 

586

 

 

 

(160

)

Total comprehensive loss

 

 

(69

)

 

 

(169

)

 

 

(67

)

 

 

(250

)

 

485

 

 

 

(70

)

Comprehensive loss attributable to noncontrolling interests

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

(1

)

Total comprehensive loss attributable to controlling interest

 

$

(69

)

 

$

(169

)

 

$

(67

)

 

$

(249

)

 

485

 

 

$

(69

)

 

 

- 21 -


Nielsen Holdings plc

Condensed Consolidated Statement of Comprehensive Income (Unaudited)

For the nine months ended September 30, 2015

 

(IN MILLIONS)

 

Parent

 

 

Issuers

 

 

Guarantor

 

 

Non- Guarantor

 

 

Elimination

 

 

Consolidated

 

Revenues

 

 

 

 

 

$

2,652

 

 

$

1,896

 

 

 

 

$

4,548

 

Cost of revenues, exclusive of depreciation and amortization shown    separately below

 

 

 

 

 

 

960

 

 

 

925

 

 

 

 

 

1,885

 

Selling, general and administrative expenses, exclusive of depreciation and amortization shown separately below

 

 

6

 

 

 

 

 

743

 

 

 

656

 

 

 

 

 

1,405

 

Depreciation and amortization

 

 

 

 

 

 

352

 

 

 

80

 

 

 

 

 

432

 

Restructuring charges

 

 

 

 

 

 

27

 

 

 

16

 

 

 

 

 

43

 

Operating (loss)/income

 

(6

)

 

 

 

 

570

 

 

 

219

 

 

 

 

 

783

 

Interest income

 

 

 

 

664

 

 

 

28

 

 

 

4

 

 

(693

)

 

 

3

 

Interest expense

 

 

 

(217

)

 

(676

)

 

(31

)

 

693

 

 

(231

)

Foreign currency exchange transaction losses, net

 

 

 

 

 

(7

)

 

(20

)

 

 

 

(27

)

Other income/(expense), net

 

 

 

 

 

 

135

 

 

(135

)

 

 

 

 

(Loss)/income from continuing operations before income taxes and equity in net income/(loss) of subsidiaries and affiliates

 

(6

)

 

 

447

 

 

 

50

 

 

37

 

 

 

 

 

528

 

Provision for income taxes

 

 

 

 

(156

)

 

(24

)

 

 

(26

)

 

 

 

(206

)

Equity in net income of subsidiaries

 

 

325

 

 

 

5

 

 

 

299

 

 

 

 

 

(629

)

 

 

Equity in net loss of affiliates

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

(1

)

Net income

 

 

319

 

 

 

296

 

 

 

325

 

 

 

10

 

 

(629

)

 

 

321

 

Less net income attributable to noncontrolling interests

 

 

 

 

 

 

 

 

2

 

 

 

 

 

2

 

Net income attributable to controlling interest

 

 

319

 

 

 

296

 

 

 

325

 

 

 

8

 

 

(629

)

 

 

319

 

Total other comprehensive loss

 

 

(269

)

 

 

(265

)

 

 

(269

)

 

 

(262

)

 

789

 

 

 

(276

)

Other comprehensive loss attributable to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

(7

)

 

 

 

 

(7

)

Total other comprehensive loss attributable to controlling interest

 

 

(269

)

 

 

(265

)

 

 

(269

)

 

 

(255

)

 

789

 

 

 

(269

)

Total comprehensive income/(loss)

 

 

50

 

 

 

31

 

 

 

56

 

 

 

(252

)

 

160

 

 

 

45

 

Comprehensive loss attributable to noncontrolling interests

 

 

 

 

 

 

 

 

(5

)

 

 

 

 

(5

)

Total comprehensive income/(loss) attributable to controlling interest

 

$

50

 

 

$

31

 

 

$

56

 

 

$

(247

)

 

160

 

 

$

50

 

 

 

- 22 -


Nielsen Holdings plc

Condensed Consolidated Statement of Comprehensive Income (Unaudited)

For the nine months ended September 30, 2014

 

(IN MILLIONS)

 

Parent

 

 

Issuers

 

 

Guarantor

 

 

Non- Guarantor

 

 

Elimination

 

 

Consolidated

Revenues

 

$

-

 

 

$

-

 

 

$

2,505

 

 

$

2,150

 

 

$

-

 

 

$

4,655

 

Cost of revenues, exclusive of depreciation and amortization shown separately below

 

 

-

 

 

 

-

 

 

 

947

 

 

 

1,020

 

 

 

-

 

 

 

1,967

 

Selling, general and administrative expenses, exclusive of depreciation and amortization shown seperately below

 

 

3

 

 

 

-

 

 

 

717

 

 

 

719

 

 

 

-

 

 

 

1,439

 

Depreciation and amortization

 

 

-

 

 

 

-

 

 

 

333

 

 

 

92

 

 

 

-

 

 

 

425

 

Restructuring charges

 

 

-

 

 

 

-

 

 

 

29

 

 

 

14

 

 

 

-

 

 

 

43

 

Operating (loss)/income

 

 

(3

)

 

 

-

 

 

 

479

 

 

 

305

 

 

 

-

 

 

 

781

 

Interest income

 

 

-

 

 

 

636

 

 

 

34

 

 

 

7

 

 

 

(674

)

 

 

3

 

Interest expense

 

 

-

 

 

 

(217

)

 

 

(649

)

 

 

(37

)

 

 

674

 

 

 

(229

)

Foreign currency exchange transaction gains/(losses), net

 

 

-

 

 

 

-

 

 

 

3

 

 

 

(35

)

 

 

-

 

 

 

(32

)

Other (expense)/income, net

 

 

-

 

 

 

(96

)

 

 

21

 

 

 

(25

)

 

 

-

 

 

 

(100

)

(Loss)/income from continuing operations before income taxes and equity in net income/(loss) of subsidiaries and affiliates

 

 

(3

)

 

 

323

 

 

 

(112

)

 

 

215

 

 

 

-

 

 

 

423

 

Benefit/(provision) for income taxes

 

 

5

 

 

 

(80

)

 

 

(54

)

 

 

(73

)

 

 

-

 

 

 

(202

)

Equity in net income of subsidiaries

 

 

221

 

 

 

87

 

 

 

388

 

 

 

-

 

 

 

(696

)

 

 

-

 

Equity in net (loss)/income of affiliates

 

 

-

 

 

 

-

 

 

 

(1

)

 

 

3

 

 

 

-

 

 

 

2

 

Net income

 

 

223

 

 

 

330

 

 

 

221

 

 

 

145

 

 

 

(696

)

 

 

223

 

Total other comprehensive loss

 

 

(122

)

 

 

(145

)

 

 

(122

)

 

 

(235

)

 

 

500

 

 

 

(124

)

Other comprehensive loss attributable to noncontrolling interests

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2

)

 

 

-

 

 

 

(2

)

Total other comprehensive loss attributable to controlling interest

 

 

(122

)

 

 

(145

)

 

 

(122

)

 

 

(233

)

 

 

500

 

 

 

(122

)

Total comprehensive income/(loss)

 

 

101

 

 

 

185

 

 

 

99

 

 

 

(90

)

 

 

(196

)

 

 

99

 

Comprehensive loss attributable to noncontrolling interests

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2

)

 

 

-

 

 

 

(2

)

Total comprehensive income/(loss) attributable to controlling interest

 

$

101

 

 

$

185

 

 

$

99

 

 

$

(88

)

 

$

(196

)

 

$

101

 

 

 

- 23 -


Nielsen Holdings plc

Condensed Consolidating Balance Sheet (Unaudited)

September 30, 2015

 

(IN MILLIONS)

 

Parent

 

 

Issuers

 

 

Guarantor

 

 

Non-Guarantor

 

 

Elimination

 

Consolidated

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1

 

 

$

(1

)

 

$

13

 

 

$

345

 

$

 

$

358

Trade and other receivables, net

 

 

 

 

 

 

529

 

 

 

634

 

 

 

 

1,163

 

Prepaid expenses and other current assets

 

 

 

 

10

 

 

 

413

 

 

 

162

 

 

 

 

585

 

Intercompany receivables

 

 

 

 

 

525

 

 

 

364

 

 

 

135

 

 

(1,024

)

 

Total current assets

 

 

1

 

 

 

534

 

 

 

1,319

 

 

 

1,276

 

 

(1,024

)

 

2,106

 

Non-current assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

 

 

 

 

319

 

 

 

167

 

 

 

 

486

 

Goodwill

 

 

 

 

 

 

5,709

 

 

 

1,879

 

 

 

 

7,588

 

Other intangible assets, net

 

 

 

 

 

 

4,331

 

 

 

324

 

 

 

 

4,655

 

Deferred tax assets

 

 

1

 

 

3

 

 

 

27

 

 

 

42

 

 

 

 

73

 

Other non-current assets

 

 

 

 

45

 

 

 

210

 

 

 

114

 

 

 

 

369

 

Equity investment in subsidiaries

 

 

4,554

 

 

 

1,156

 

 

 

3,275

 

 

 

 

 

(8,985

)

 

Intercompany loans

 

 

 

 

10,836

 

 

 

3,457

 

 

 

165

 

 

(14,458

)

 

Total assets

 

$

4,556

 

 

$

12,574

 

 

$

18,647

 

 

$

3,967

 

$

(24,467

)

$

15,277

 

Liabilities and equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and other current liabilities

 

$

1

 

 

$

97

 

 

$

354

 

 

$

466

 

$

 

$

918

 

Deferred revenues

 

 

 

 

 

 

168

 

 

 

131

 

 

 

 

299

 

Income tax liabilities

 

1

 

 

 

 

 

154

 

 

 

44

 

 

 

 

199

 

Current portion of long-term debt, capital lease obligations and short-term borrowings

 

 

 

 

108

 

 

 

230

 

 

 

1

 

 

 

 

339

 

Intercompany payables

 

 

 

 

 

63

 

 

 

660

 

 

 

301

 

 

(1,024

)

 

Total current liabilities

 

 

2

 

 

 

268

 

 

 

1,566

 

 

 

943

 

 

(1,024

)

 

1,755

 

Non-current liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt and capital lease obligations

 

 

 

 

7,002

 

 

 

91

 

 

 

21

 

 

 

 

7,114

 

Deferred tax liabilities

 

 

 

 

74

 

 

 

862

 

 

 

57

 

 

 

 

993

 

Intercompany loans

 

 

126

 

 

 

2,985

 

 

 

11,001

 

 

 

346

 

 

(14,458

)

 

Other non-current liabilities

 

 

2

 

 

 

11

 

 

 

573

 

 

 

331

 

 

 

 

917

 

Total liabilities

 

 

130

 

 

 

10,340

 

 

 

14,093

 

 

 

1,698

 

 

(15,482

)

 

10,779

 

Total stockholders’ equity

 

 

4,426

 

 

 

2,234

 

 

 

4,554

 

 

 

2,197

 

 

(8,985

)

 

4,426

 

Noncontrolling interests

 

 

 

 

 

 

 

 

72

 

 

 

 

72

 

Total equity

 

 

4,426

 

 

 

2,234

 

 

 

4,554

 

 

 

2,269

 

 

(8,985

)

 

4,498

 

Total liabilities and equity

 

$

4,556

 

 

$

12,574

 

 

$

18,647

 

 

$

3,967

 

$

(24,467

)

$

15,277

 

 

 

 

- 24 -


Nielsen Holdings plc

Condensed Consolidating Balance Sheet

December 31, 2014

 

(IN MILLIONS)

 

Parent

 

 

Issuers

 

 

Guarantor

 

 

Non-Guarantor

 

 

Elimination

 

 

Consolidated

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

49

 

 

$

1

 

 

$

(51

)

 

$

274

 

 

 

 

$

273

 

Trade and other receivables, net

 

 

1

 

 

 

 

 

526

 

 

 

714

 

 

 

 

 

1,241

 

Prepaid expenses and other current assets

 

 

 

 

8

 

 

 

339

 

 

 

158

 

 

 

 

 

505

 

Intercompany receivables

 

 

1

 

 

 

227

 

 

 

234

 

 

 

190

 

 

 

(652

)

 

 

Total current assets

 

 

51

 

 

 

236

 

 

 

1,048

 

 

 

1,336

 

 

 

(652

)

 

 

2,019

 

Non-current assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

 

 

 

 

335

 

 

 

198

 

 

 

 

 

533

 

Goodwill

 

 

 

 

 

 

5,588

 

 

 

2,083

 

 

 

 

 

7,671

 

Other intangible assets, net

 

 

 

 

 

 

4,318

 

 

 

397

 

 

 

 

 

4,715

 

Deferred tax assets

 

 

1

 

 

 

 

 

25

 

 

 

57

 

 

 

 

 

83

 

Other non-current assets

 

 

 

 

44

 

 

 

171

 

 

 

140

 

 

 

 

 

355

 

Equity investment in subsidiaries

 

 

5,017

 

 

 

1,124

 

 

 

6,596

 

 

 

 

 

 

(12,737

)

 

 

Intercompany receivables

 

 

 

 

10,494

 

 

 

492

 

 

 

191

 

 

 

(11,177

)

 

 

Total assets

 

$

5,069

 

 

$

11,898

 

 

$

18,573

 

 

$

4,402

 

 

$

(24,566

)

 

$

15,376

 

Liabilities and equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and other current liabilities

 

$

10

 

 

$

44

 

 

$

418

 

 

$

563

 

 

 

 

$

1,035

 

Deferred revenues

 

 

 

 

 

 

159

 

 

 

145

 

 

 

 

 

304

 

Income tax liabilities

 

 

1

 

 

 

 

 

18

 

 

 

43

 

 

 

 

 

62

 

Current portion of long-term debt, capital lease

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   obligations and short-term borrowings

 

 

 

98

 

 

298

 

 

1

 

 

 

 

397

 

Intercompany payables

 

 

 

 

 

 

429

 

 

 

223

 

 

 

(652

)

 

 

Total current liabilities

 

 

11

 

 

 

142

 

 

 

1,322

 

 

 

975

 

 

 

(652

)

 

 

1,798

 

Non-current liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt and capital lease obligations

 

 

 

 

6,358

 

 

 

87

 

 

 

20

 

 

 

 

 

6,465

 

Deferred tax liabilities

 

 

 

 

74

 

 

 

895

 

 

 

56

 

 

 

 

 

1,025

 

Intercompany loans

 

 

 

 

61

 

 

 

10,685

 

 

 

431

 

 

 

(11,177

)

 

 

Other non-current liabilities

 

 

2

 

 

 

2

 

 

 

567

 

 

 

384

 

 

 

 

 

955

 

Total liabilities

 

 

13

 

 

 

6,637

 

 

 

13,556

 

 

 

1,866

 

 

 

(11,829

)

 

 

10,243

 

Total stockholders’ equity

 

 

5,056

 

 

 

5,261

 

 

 

5,017

 

 

 

2,459

 

 

 

(12,737

)

 

 

5,056

 

Noncontrolling interests

 

 

 

 

 

 

 

 

77

 

 

 

 

 

77

 

Total equity

 

 

5,056

 

 

 

5,261

 

 

 

5,017

 

 

 

2,536

 

 

 

(12,737

)

 

 

5,133

 

Total liabilities and equity

 

$

5,069

 

 

$

11,898

 

 

$

18,573

 

 

$

4,402

 

 

$

(24,566

)

 

$

15,376

 

 

 

 

- 25 -


Nielsen Holdings plc

Condensed Consolidating Statement of Cash Flows (Unaudited)

For the nine months ended September 30, 2015

 

(IN MILLIONS)

 

Parent

 

 

Issuers

 

 

Guarantor

 

 

Non-
Guarantor

 

 

Consolidated

 

Net cash (used in)/provided by operating
activities

 

$

(2

)

 

$

299

 

 

$

308

 

 

$

173

 

 

$

778

 

Investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition of subsidiaries and affiliates, net of
cash acquired

 

 

 

 

 

 

 

 

(197

)

 

 

(1

)

 

 

(198

)

Additions to property, plant and equipment and
other assets

 

 

 

 

 

 

 

 

(66

)

 

 

(34

)

 

 

(100

)

Additions to intangible assets

 

 

 

 

 

 

 

 

(183

)

 

 

(23

)

 

 

(206

)

Net cash used in investing activities

 

 

 

 

 

 

 

 

(446

)

 

 

(58

)

 

 

(504

)

Financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net repayments under revolving credit facility

 

 

 

 

 

 

 

 

(70

)

 

 

 

 

 

(70

)

Repayments of debt

 

 

 

 

 

(74

)

 

 

 

 

 

 

 

 

(74

)

Proceeds from the issuance of debt, net of issuance costs

 

 

 

 

 

 

746

 

 

 

 

 

 

 

 

 

 

 

746

 

Cash dividends paid to stockholders

 

 

(307

)

 

 

 

 

 

 

 

 

 

 

 

(307

)

Repurchase of common stock

 

 

(493

)

 

 

 

 

 

 

 

 

 

 

 

(493

)

Activity under stock plans

 

 

46

 

 

 

 

 

 

(6

)

 

 

 

 

 

40

 

Excess tax benefits from stock-based compensation

 

 

 

 

 

 

 

 

30

 

 

 

 

 

 

30

 

Settlement of intercompany and other financing activities

 

 

708

 

 

 

(973

)

 

 

250

 

 

 

(1

)

 

 

(16

)

Net cash (used in)/provided by financing
activities

 

 

(46

)

 

 

(301

)

 

 

204

 

 

 

(1

)

 

 

(144

)

Effect of exchange-rate changes on cash
and cash equivalents

 

 

 

 

 

 

 

 

(2

)

 

 

(43

)

 

 

(45

)

Net (decrease)/increase in cash and cash equivalents

 

 

(48

)

 

 

(2

)

 

 

64

 

 

 

71

 

 

 

85

 

Cash and cash equivalents at beginning
of period

 

 

49

 

 

 

1

 

 

 

(51

)

 

 

274

 

 

 

273

 

Cash and cash equivalents at end of period

 

$

1

 

 

$

(1

)

 

$

13

 

 

$

345

 

 

$

358

 

 

- 26 -


Nielsen Holdings plc

Condensed Consolidated Statement of Cash Flows (Unaudited)

For the nine months ended September 30, 2014

 

(IN MILLIONS)

 

Parent

 

 

Issuers

 

 

Guarantor

 

 

Non-Guarantor

 

 

Consolidated

 

Net cash provided by operating activities

 

$

2

 

 

$

452

 

 

$

109

 

 

$

129

 

 

$

692

 

Investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition of subsidiaries and affiliates, net of
cash aquired

 

 

-

 

 

 

-

 

 

 

(121

)

 

 

(82

)

 

 

(203

)

Additions to property, plant and equipment and other assets

 

 

-

 

 

 

-

 

 

 

(63

)

 

 

(33

)

 

 

(96

)

Additions to intangible assets

 

 

-

 

 

 

-

 

 

 

(159

)

 

 

(19

)

 

 

(178

)

Other investing activities

 

 

5

 

 

 

-

 

 

 

(5

)

 

 

-

 

 

 

-

 

Net cash provided by/(used in) investing
activities

 

 

5

 

 

 

-

 

 

 

(348

)

 

 

(134

)

 

 

(477

)

Financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Repayments of debt

 

 

-

 

 

 

(4,572

)

 

 

-

 

 

 

(1

)

 

 

(4,573

)

Proceeds from the issuance of debt, net of issuance costs

 

 

-

 

 

 

4,544

 

 

 

-

 

 

 

-

 

 

 

4,544

 

Cash dividends paid to stockholders

 

 

(261

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(261

)

Repurchase of common stock

 

 

(75

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(75

)

Proceeds from the exercise of stock options

 

 

91

 

 

 

-

 

 

 

(6

)

 

 

(5

)

 

 

80

 

Settlement of intercompany and other financing activities

 

 

240

 

 

 

(404

)

 

 

59

 

 

 

14

 

 

 

(91

)

Net cash (used in)/provided by financing
activities

 

 

(5

)

 

 

(432

)

 

 

53

 

 

 

8

 

 

 

(376

)

Effect of exchange-rate changes on cash and cash equivalents

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(34

)

 

 

(34

)

Net increase/(decrease) in cash and cash equivalents

 

 

2

 

 

 

20

 

 

 

(186

)

 

 

(31

)

 

 

(195

)

Cash and cash equivalents at beginning of
period

 

 

12

 

 

 

-

 

 

 

205

 

 

 

347

 

 

 

564

 

Cash and cash equivalents at end of period

 

$

14

 

 

$

20

 

 

$

19

 

 

$

316

 

 

$

369

 

 

 

 

 

 

 

- 27 -


Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Introduction

The following discussion and analysis supplements management’s discussion and analysis of Nielsen Holdings plc (the successor issuer to Nielsen N.V.) (“the Company” or “Nielsen”) for the year ended December 31, 2014 as contained in the Annual Report on Form 10-K filed by the Company with the Securities and Exchange Commission on February 20, 2015, and presumes that readers have read or have access to such discussion and analysis. The following discussion and analysis should also be read together with the accompanying Condensed Consolidated Financial Statements and related notes thereto. Further, this report may contain material that includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect, when made, Nielsen’s current views with respect to current events and financial performance. Statements, other than those based on historical facts, which address activities, events or developments that we expect or anticipate may occur in the future are forward-looking statements. Such forward-looking statements are subject to many risks, uncertainties and factors relating to Nielsen’s operations and business environment that may cause actual results to be materially different from any future results, express or implied, by such forward-looking statements, including but not limited to, those set forth in this Item 2 and Part II, Item 1A, if any, and those noted in our 2014 Annual Report on Form 10-K under “Risk Factors.” Forward-looking statements speak only as of the date of this report or as of the date they were made. We disclaim any intention to update the current expectations or forward-looking statements contained in this report. Unless required by context, references to “we”, “us”, and “our” refer to Nielsen and each of its consolidated subsidiaries.

From time to time, Nielsen may use its website and social media outlets as channels of distribution of material company information. Financial and other material information regarding the company is routinely posted and accessible on our website at http://www.nielsen.com/investors and our Twitter account at http://twitter.com/nielsen.

Background and Executive Summary

We are a leading global performance management company. The company provides to clients a comprehensive understanding of what consumers buy and what they watch and how those choices intersect.  We deliver critical media and marketing information, analytics and manufacturer and retailer expertise about what and where consumers buy (referred to herein as “Buy”) and what consumers read, watch and listen to (consumer interaction across the television, radio, online and mobile viewing and listening platforms referred to herein as “Watch”) on a local and global basis. Our information, insights and solutions help our clients maintain and strengthen their market positions and identify opportunities for profitable growth. We have a presence in more than 100 countries, including many emerging markets, and hold leading market positions in many of our services and geographies.

We believe that important measures of our results of operations include revenue, operating income and Adjusted EBITDA (defined below). Our long-term financial objectives include consistent revenue growth and expanding operating margins. Accordingly, we are focused on geographic market and service offering expansion to drive revenue growth and improving operating efficiencies including effective resource utilization, information technology leverage and overhead cost management.

Our business strategy is built upon a model that has traditionally yielded consistent revenue performance. Typically, before the start of each year, nearly 70% of our annual revenue has been committed under contracts in our combined Buy and Watch segments, which provides us with a high degree of stability to our revenue and allows us to effectively manage our profitability and cash flows. We continue to look for growth opportunities through global expansion, specifically within emerging markets, as well as through the expansion of our measurement and analytics services.

Our restructuring and other productivity initiatives have been focused on a combination of improving operating leverage through targeted cost-reduction programs, business process improvements and portfolio restructuring actions, while at the same time investing in key programs to enhance future growth opportunities.

Achieving our business objectives requires us to manage a number of key risk areas. Our growth objective of geographic market and service expansion requires us to maintain the consistency and integrity of our information and underlying processes on a global scale, and to invest effectively our capital in technology and infrastructure to keep pace with our clients’ demands and our competitors. Our operating footprint across approximately 100 countries requires disciplined global and local resource management of internal and third party providers to ensure success. In addition, our high level of indebtedness requires active management of our debt profile, with a focus on underlying maturities, interest rate risk, liquidity and operating cash flows.

On August 31, 2015, Nielsen N.V., a Dutch public company listed on the New York Stock Exchange, merged with Nielsen Holdings plc, by way of a cross-border merger under the European Cross-Border Merger Directive, with Nielsen Holdings plc being the surviving company (the “Merger”). The Merger effectively changed the place of incorporation of Nielsen’s publically traded parent holding company from the Netherlands to England and Wales, with no changes made to the business being conducted by Nielsen prior to the Merger. Due to the fact that the Merger was a business combination between entities under common control, the

- 28 -


exchange of assets and liabilities were made at carrying value. Therefore, there were no direct accounting implications in our condensed consolidated financial statements.

Business Segment Overview

We align our business into two reporting segments, Buy (consumer purchasing measurement and analytics) and Watch (media audience measurement and analytics). Our Buy and Watch segments are built on an extensive foundation of proprietary data assets designed to yield essential insights for our clients to successfully measure, analyze and grow their businesses and manage their performance. The information from our Buy and Watch segments, when brought together, can deliver powerful insights into the effectiveness of branding, advertising and consumer choice by linking media consumption trends with consumer purchasing data to better understand behavior and better manage supply and demand as well as media spend, supply chain issues, and much more. We believe these integrated insights better enable our clients to enhance the return on both long-term and short-term investments.

Our Buy segment provides retail transactional measurement data, consumer behavior information and analytics primarily to businesses in the consumer packaged goods industry. Our extensive database of retail and consumer information, combined with our advanced analytical capabilities, helps generate strategic insights that influence our clients’ key business decisions. We track billions of sales transactions per month in retail outlets globally and our data is used to measure their sales and market share. Our Buy services also enable our clients to better manage their brands, uncover new sources of demand, manage their supply chain issues, launch and grow new services, analyze their sales, improve their marketing mix and establish more effective consumer relationships. Within our Buy segment, we have two primary geographic groups, developed and emerging markets. Developed markets primarily include the United States, Canada, Western Europe, Japan, South Korea and Australia while emerging markets include Africa, Latin America, Eastern Europe, Russia, China, India and Southeast Asia.

Our Watch segment provides viewership and listening data and analytics primarily to the media and advertising industries across the television, radio, online and mobile viewing and listening platforms. Our Watch data is used by our media clients to understand their audiences, establish the value of their advertising inventory and maximize the value of their content, and by our advertising clients to plan and optimize their spending.

Certain corporate costs, including those related to selling, finance, legal, human resources, and information technology systems, are considered operating costs and are allocated to our segments based on either the actual amount of costs incurred or on a basis consistent with the operations of the underlying segment.

Factors Affecting Our Financial Results

Acquisitions, Dispositions and Investments in Affiliates

For the nine months ended September 30, 2015, we paid cash consideration of $198 million associated with both current period and previously executed acquisitions, net of cash acquired. Had these current period acquisitions occurred as of January 1, 2015, the impact on our consolidated results of operations would not have been material.

In the third quarter of 2015, management approved a plan to sell National Research Group, Inc. (“NRG”), a leader in providing market research to movie studios.  NRG is part of our Watch segment. As of September 30, 2015, we classified the net assets of NRG as held for sale. As of September 30, 2015, the condensed consolidated balance sheet included $22 million of assets in prepaid expenses and other current assets and $6 million of liabilities in accounts payable and other current liabilities classified as held for sale related to this business. We expect the disposition to be completed in the fourth quarter of 2015.

For the nine months ended September 30, 2014, we paid cash consideration of $203 million associated with both current period and previously executed acquisitions, net of cash acquired. Had these current period acquisitions occurred as of January 1, 2014, the impact on our consolidated results of operations would not have been material.

- 29 -


Foreign Currency

Our financial results are reported in U.S. dollars and are therefore subject to the impact of movements in exchange rates on the translation of the financial information of individual businesses whose functional currencies are other than U.S. dollars. Our principal foreign exchange revenue exposure is spread across several currencies, primarily the Euro. The table below sets forth the profile of our revenue by principal currency.

 

 

Nine Months Ended
September 30,

 

 

2015

 

 

2014

 

U.S. Dollar

 

60

%

 

 

55

Euro

 

9

%

 

 

11

Other Currencies

 

31

%

 

 

34

Total

 

100

%

 

 

100

As a result, fluctuations in the value of foreign currencies relative to the U.S. dollar impact our operating results. Impacts associated with fluctuations in foreign currency are discussed in more detail under “Item 3.—Quantitative and Qualitative Disclosures about Market Risk.” In countries with currencies other than the U.S. dollar, assets and liabilities are translated into U.S. dollars using end-of-period exchange rates; revenues, expenses and cash flows are translated using average rates of exchange. The average U.S. dollar to Euro exchange rate was $1.12 to €1.00 and $1.36 to €1.00 for the nine months ended September 30, 2015 and 2014, respectively. Constant currency growth rates used in the following discussion of results of operations eliminate the impact of year-over-year foreign currency fluctuations.

We evaluate our results of operations on both an as reported and a constant currency basis. The constant currency presentation is a non-GAAP financial measure, which excludes the impact of fluctuations in foreign currency exchange rates. We believe providing constant currency information provides valuable supplemental information regarding our results of operations, consistent with how we evaluate our performance. We calculate constant currency percentages by converting our prior-period local currency financial results using the current period foreign currency exchange rates and comparing these adjusted amounts to our current period reported results. This calculation may differ from similarly-titled measures used by others.  In addition, the constant currency presentation is not meant to be a substitution for recorded amounts presented in conformity with GAAP nor should such amounts be considered in isolation.

Operations in Venezuela

We have operations in both the Buy and Watch segments in Venezuela and the functional currency for these operations was the Venezuelan Bolivares Fuertes. Venezuela’s currency has been considered hyperinflationary since January 1, 2010 and, accordingly, the local currency transactions have been denominated in U.S. dollars since January 1, 2010 and will continue to be until Venezuela’s currency is deemed to be non-hyperinflationary.

During the period between the first quarter of 2013 through the nine months ended September 30, 2015, there have been a number of changes in the foreign exchange regime in Venezuela that have impacted the conversion rates used by us for the conversion of Venezuelan Bolivares Fuertes into U.S. Dollars in its financial statements, resulting in foreign currency exchange transaction losses in the consolidated statement of operations, reflecting the write-down of monetary assets and liabilities in our Venezuelan operations.

In February 2013, the official exchange rate was moved from 4.30 to 6.30 and the regulated System of Transactions with Securities in Foreign Currency market was suspended. 

Based on facts and circumstances present at March 31, 2014, we began using the exchange rate determined by periodic auctions for U.S. dollars conducted under Venezuela’s Complementary System of Foreign Currency Administration (“SICAD I”) as the SICAD I exchange rate represented what was the most realistic official exchange rate at which to remeasure the U.S. dollar value of the bolivar-denominated monetary assets and liabilities of our Venezuelan operations at that time. At March 31, 2014, the SICAD I exchange rate was 10.8 bolivars to the U.S. dollar. As a result of this change, we recorded a pre-tax charge of $20 million during the first quarter of 2014.  

Due to the lack of access to the SICAD I auction system throughout the remainder of 2014, as of December 31, 2014 we decided it was more likely that we would be able to gain access to U.S. dollars through the SICAD II mechanism to settle transactions conducted by the Company in Venezuela as SICAD II was created to provide a more open mechanism that was designed to permit any company to request U.S. dollars for any purpose.  At December 31, 2014, the SICAD II exchange rate was 50.0 bolivars to the U.S. dollar.  As a result of the changes in exchange rate assumptions in the fourth quarter of 2014, we recorded a pre-tax charge of $32 million, for a total of $52 million for the year ended December 31, 2014.

- 30 -


On February 12, 2015, the Venezuelan government replaced SICAD II with a new foreign exchange market mechanism (“SIMADI”). We currently expect to be able to access U.S. dollars through the SIMADI market. SIMADI has significantly higher foreign exchange rates than those available through the other foreign exchange mechanisms. At September 30, 2015, the SIMADI exchange rate was 199.4 bolivars to the U.S. dollar.  As a result of this change, we recorded a pre-tax charge of $1 million and $9 million during the three and nine months ended September 30, 2015, respectively.

We will continue to assess the appropriate conversion rate based on events in Venezuela and our specific facts and circumstances.  Total net monetary assets in U.S. dollars at the September 30, 2015 SIMADI rate totaled $3 million.

Results of Operations – Three Months Ended September 30, 2015 Compared to the Three Months Ended September 30, 2014

The following table sets forth, for the periods indicated, the amounts included in our Condensed Consolidated Statements of Operations:

 

 

  

Three Months Ended
September 30,

 

(IN MILLIONS)

  

2015

 

 

2014

 

Revenues

  

$

1,531

 

 

$

1,572

 

Cost of revenues, exclusive of depreciation and amortization shown separately below

  

 

615

 

 

 

648

 

Selling, general and administrative expenses, exclusive of depreciation and amortization shown separately below

  

 

459

 

 

 

468

 

Depreciation and amortization

  

 

144

 

 

 

139

 

Restructuring charges

  

 

15

 

 

 

6

 

Operating income

  

 

298

 

 

 

311

 

Interest income

  

 

1

 

 

 

1

 

Interest expense

  

 

(79

)

 

 

(74

)

Foreign currency exchange transaction gains, net

  

 

5

 

 

 

1

 

Other expense, net

  

 

 

 

 

(52

)

Income from continuing operations before income taxes and equity in net loss of affiliates

  

 

225

 

 

 

187

 

Provision for income taxes

  

 

(82

)

 

 

(95

)

Equity in net loss of affiliates

  

 

(1

)

 

 

 

Net income

  

$

142

 

 

$

92

 

Net Income to Adjusted EBITDA Reconciliation

We define Adjusted EBITDA as net income or loss from our consolidated statements of operations before interest income and expense, income taxes, depreciation and amortization, restructuring charges, goodwill and intangible asset impairment charges, stock-based compensation expense, equity in net income of affiliates and other non-operating items from our consolidated statements of operations as well as certain other items specifically described below.

Adjusted EBITDA is not a presentation made in accordance with GAAP, and our use of the term Adjusted EBITDA may vary from the use of similarly-titled measures by others in our industry due to the potential inconsistencies in the method of calculation and differences due to items subject to interpretation.

We use Adjusted EBITDA to measure our performance from period to period both at the consolidated level as well as within our operating segments, to evaluate and fund incentive compensation programs and to compare our results to those of our competitors. In addition to Adjusted EBITDA being a significant measure of performance for management purposes, we also believe that this presentation provides useful information to investors regarding financial and business trends related to our results of operations and that when non-GAAP financial information is viewed with GAAP financial information, investors are provided with a more meaningful understanding of our ongoing operating performance.

Adjusted EBITDA should not be considered as an alternative to net income or loss, operating income, cash flows from operating activities or any other performance measures derived in accordance with GAAP as measures of operating performance or cash flows as measures of liquidity. Adjusted EBITDA has important limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP.

- 31 -


The below table presents a reconciliation from net income to Adjusted EBITDA for the three months ended September 30, 2015 and 2014:

 

 

 

Three Months Ended
September 30,

 

(IN MILLIONS)

 

2015

 

 

2014

 

Net income

 

$

142

 

 

$

92

 

Interest expense, net

 

 

78

 

 

 

73

 

Provision for income taxes

 

 

82

 

 

 

95

 

Depreciation and amortization

 

 

144

 

 

 

139

 

EBITDA

 

 

446

 

 

 

399

 

Equity in net loss of affiliates

 

 

1

 

 

 

 

Other non-operating (income)/expense, net

 

 

(5

)

 

 

51

 

Restructuring charges

 

 

15

 

 

 

6

 

Stock-based compensation expense

 

 

12

 

 

 

12

 

Other items(a)

 

 

10

 

 

 

9

 

Adjusted EBITDA

 

$

479

 

 

$

477

 

 

(a)

Other items primarily consist of non-recurring costs for the three months ended September 30, 2015 and 2014.

Consolidated Results for the Three Months Ended September 30, 2015 Compared to the Three Months Ended September 30, 2014

Revenues

Revenues decreased 2.6% to $1,531 million for the three months ended September 30, 2015 from $1,572 million for the three months ended September 30, 2014, or an increase of 5.0% on a constant currency basis, excluding a 7.6% unfavorable impact of changes in foreign currency exchange rates. Revenues within our Buy segment decreased 7.1%, or an increase of 4.1% on a constant currency basis. Revenues within our Watch segment increased 3.0%, or 6.1% on a constant currency basis. Refer to the “Business Segment Results” section for further discussion of our revenue performance.

Cost of Revenues, Exclusive of Depreciation and Amortization

Cost of revenues decreased 5.1% to $615 million for the three months ended September 30, 2015 from $648 million for the three months ended September 30, 2014, or an increase of 2.5% on a constant currency basis, excluding a 7.6% favorable impact of changes in foreign currency exchange rates.

Costs within our Buy segment decreased 9.9%, or an increase of 0.3% on a constant currency basis. Excluding a 10.2% favorable impact of changes in foreign currency exchange rates, cost of revenues increased due to the continued global investments in our services.

Costs within our Watch segment decreased 0.4%, or an increase of 3.0% on a constant currency basis. Excluding a 3.4% favorable impact of changes in foreign currency exchange rates, cost of revenues increased due to higher spending on product portfolio management initiatives, including our digital and Marketing Effectiveness product offerings.

Selling, General and Administrative Expenses, Exclusive of Depreciation and Amortization

Selling, general and administrative expenses decreased 1.9% to $459 million for the three months ended September 30, 2015 from $468 million for the three months ended September 30, 2014, or an increase of 6.5% on a constant currency basis, excluding a 8.4% favorable impact of changes in foreign currency exchange rates.

Costs within our Buy segment decreased 2.2%, or an increase of 8.8% on a constant currency basis. Excluding a 11.0% favorable impact of changes in foreign currency exchange rates, selling, general and administrative increased due to continued global investments associated with our services.

Costs within our Watch segment increased 2.2%, or 6.0% on a constant currency basis. Excluding a 3.8% favorable impact of changes in foreign currency exchange rates, selling, general and administrative expenses increased due to increased investment in product development initiatives.

 

- 32 -


Depreciation and Amortization

Depreciation and amortization expense was $144 million for the three months ended September 30, 2015 as compared to $139 million for the three months ended September 30, 2014. This increase was primarily due to higher depreciation and amortization expense associated with higher capital expenditures.

For each of the three months ended September 30, 2015 and 2014, depreciation and amortization expense included charges for the depreciation and amortization of tangible and intangible assets acquired in business combinations of $51 million.

Restructuring Charges

We recorded $15 million and $6 million in restructuring charges relating to employee severance associated with productivity initiatives for the three months ended September 30, 2015 and 2014, respectively.

Operating Income

Operating income for the three months ended September 30, 2015 was $298 million as compared to $311 million for the three months ended September 30, 2014. Operating income within our Buy segment was $91 million for the three months ended September 30, 2015 as compared to $109 million for the three months ended September 30, 2014. Operating income within our Watch segment was $234 million for the three months ended September 30, 2015 as compared to $226 million for the three months ended September 30, 2014. Corporate operating expenses were $27 million for the three months ended September 30, 2015 as compared to $24 million for the three months ended September 30, 2014.

Interest Expense

Interest expense was $79 million for the three months ended September 30, 2015 as compared to $74 million for the three months ended September 30, 2014. This increase is primarily due to the issuance of $750 million 5.00% Senior Notes in February 2015.

Foreign Currency Exchange Transaction Gains, Net

Foreign currency exchange transaction gains, net, represent the net gain or loss on revaluation of external debt, intercompany loans and other receivables and payables denominated in currencies other than the respective entity’s functional currency. Fluctuations in the value of foreign currencies relative to the U.S. Dollar have a significant effect on our operating results, primarily the Euro. The average U.S. Dollar to Euro exchange rate was $1.11 to €1.00 for the three months ended September 30, 2015 as compared to $1.33 to €1.00 for the three months ended September 30, 2014.

We realized net gains of $5 million and $1 million for the three months ended September 30, 2015 and 2014, respectively, resulting primarily from the fluctuations in certain foreign currencies associated with intercompany transactions.

Other Expense, Net

Other expense, net of $52 million for the three months ended September 30, 2014 is primarily related to the “make-whole” premium associated with the partial redemption of the 7.75% Senior Notes due 2018.

Income Taxes

The effective tax rates for the three months ended September 30, 2015 and 2014 were 36% and 51% respectively. The tax rate for the three months ended September 30, 2015 was higher than the United Kingdom statutory rate of 20% as a result of the impact of tax rate differences in other jurisdictions where the Company files tax returns and the effect of global licensing activities and foreign distributions offset by the favorable impact of certain financing activities. The tax rate for the three months ended September 30, 2014 was higher than the statutory rate in the Netherlands of 25% as a result of the impact of tax rate differences in other jurisdictions where the Company files tax returns, residual tax expense on foreign source income, reserves for uncertain tax positions, and state and local income taxes offset by the favorable impact of certain financing activities.

The estimated liability for unrecognized tax benefits as of December 31, 2015 is $463 million and was $452 million as of December 31, 2014. If the Company’s tax positions are favorably sustained by the taxing authorities, the reversal of the underlying liabilities would reduce the Company’s effective tax rate in future periods.

- 33 -


Adjusted EBITDA

Adjusted EBITDA increased 0.4% to $479 million for the three months ended September 30, 2015 from $477 million for the three months ended September 30, 2014, or 6.9% on a constant currency basis, excluding a 6.5% unfavorable impact of changes in foreign currency exchange rates. See “Results of Operations – Three months ended September 30, 2015 Compared to the Three Months Ended September 30, 2014” for the reconciliation of net income to Adjusted EBITDA.

Business Segment Results for the Three Months Ended September 30, 2015 Compared to the Three Months Ended September 30, 2014

Revenues

The table below sets forth our segment revenue performance data for the three months ended September 30, 2015 compared to the three months ended September 30, 2014, both on an as-reported and constant currency basis.

 

(IN MILLIONS)

  

Three
Months Ended
September 30,
2015
Reported

 

  

Three
Months Ended
September 30,
2014
Reported

 

  

% Variance
2015 vs. 2014
Reported

 

 

Three 
Months  Ended
September 30,
2014
Constant
Currency

  

 

% Variance
2015 vs. 2014
Constant
Currency

 

Revenues by segment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Buy

  

$

816

 

 

$

878

 

 

 

(7.1

)%

 

$

784

 

 

 

4.1

Watch

  

 

715

 

 

 

694

 

 

 

3.0

%

 

 

674

 

 

 

6.1

Total

  

$

1,531

 

 

$

1,572

 

 

 

(2.6

)%

 

$

1,458

 

 

 

5.0

Buy Segment Revenues

Revenues decreased 7.1% to $816 million for the three months ended September 30, 2015 from $878 million for the three months ended September 30, 2014, or an increase of 4.1% on a constant currency basis, excluding a 11.2% unfavorable impact of changes in foreign currency exchange rates.

Revenues from developed markets decreased 4.3% to $563 million, or an increase of 3.1% on a constant currency basis, excluding a 7.4% unfavorable impact of changes in foreign currency exchange rates. Excluding the impact of foreign currency exchange rates, revenue grew as a result of continued investments, resulting in new client wins.

Revenues from emerging markets decreased 12.8% to $253 million, or an increase of 6.3% on a constant currency basis, excluding a 19.1% unfavorable impact of changes in foreign currency exchange rates. Excluding the impact of foreign currency exchange rates, revenue growth was driven by our continued commitment to invest in coverage and analytics capabilities, which resulted in broad-based demand for our services.  For the three months ended September 30, 2015, these investments drove double-digit growth in Latin America and Africa and high-single digit growth in South East Asia and the Middle East.  

Watch Segment Revenues  

Revenues increased 3.0% to $715 million for the three months ended September 30, 2015 from $694 million for the three months ended September 30, 2014, or an increase of 6.1% on a constant currency basis, excluding a 3.1% unfavorable impact of changes in foreign currency exchange rates. Excluding the impact of foreign currency exchange rates, revenue growth was driven by growth in Audience Measurement, which increased 4.2%, or 7.0% on a constant currency basis due to the acquisition of eXelate and our continued investment in digital. Audience Measurement comprised approximately 80% of our Watch segment revenues. Excluding Audio, Audience Measurement increased 2.2%, or 5.8% on a constant currency basis. Audio increased 11.0% on a reported and constant currency basis, for the three months ended September 30, 2015, as we benefited from delivery timing that will normalize in the fourth quarter.  Our Marketing Effectiveness offerings increased 4.6%, or 7.9% on a constant currency basis, largely due to timing as some business shifted into the fourth quarter. However, this gain was offset by a decrease of 11.1%, or 5.9% on a constant currency basis in our other Watch products as we continue to exit non-core media analytics products.  Excluding the impact of our other Watch products, segment revenues increased 4.2%, or 7.1% on a constant currency basis.

- 34 -


Business Segment Profitability

We do not allocate items below operating income/(loss) to our business segments and therefore the tables below set forth a reconciliation of operating income/(loss) at the business segment level for the three months ended September 30, 2015 and 2014, adjusting for certain items affecting operating income/(loss), such as restructuring charges, depreciation and amortization, stock-based compensation expense and certain other items described below resulting in a presentation of our non-GAAP business segment profitability. Non-GAAP business segment profitability provides useful supplemental information to management and investors regarding financial and business trends related to our results of operations. When this non-GAAP financial information is viewed with our GAAP financial information, investors are provided with a meaningful understanding of our ongoing operating performance. It is important to note that the non-GAAP business segment profitability corresponds in total to our consolidated Adjusted EBITDA described within our consolidated results of operations above, which our chief operating decision making group and other members of management use to measure our performance from period to period both at the consolidated level as well as within our operating segments, to evaluate and fund incentive compensation programs and to compare our results to those of our competitors. These non-GAAP measures should not be considered as an alternative to net income/(loss), operating income/(loss), cash flows from operating activities or any other performance measures derived in accordance with GAAP as measures of operating performance or cash flows as measures of liquidity. These non-GAAP measures have important limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP.

 

THREE MONTHS ENDED SEPTEMBER 30,
2015 (IN MILLIONS)

  

Operating
Income/(Loss)

 

 

Restructuring
Charges

 

  

Depreciation and
Amortization

 

  

Stock-Based
Compensation
Expense

 

  

Other Items (1)

 

  

Non-GAAP
Business Segment
Income/(Loss)

 

Buy

  

$

91

 

 

$

11

 

  

$

51

 

  

$

4

 

  

$

 

  

$

157

 

Watch

  

 

234

 

 

 

4

 

  

 

92

 

  

 

1

 

  

 

3

 

  

 

334

 

Corporate and Eliminations

  

 

(27

)

 

 

 

  

 

1

 

  

 

7

 

  

 

7

 

  

 

(12

)

Total Nielsen

  

$

298

 

 

$

15

 

  

$

144

 

  

$

12

 

  

$

10

 

  

$

479

 

 

THREE MONTHS ENDED SEPTEMBER 30,
2014 (IN MILLIONS)

  

Operating
Income/(Loss)

 

 

Restructuring
Charges

 

  

Depreciation and
Amortization

 

  

Stock-Based
Compensation
Expense

 

  

Other Items (1)

 

  

Non-GAAP
Business Segment
Income/(Loss)

 

Buy

  

$

109

 

 

$

4

 

  

$

55

 

  

$

3

 

  

$

 

  

$

171

 

Watch

  

 

226

 

 

 

1

 

  

 

83

 

  

 

2

 

  

 

5

 

  

 

317

 

Corporate and Eliminations

  

 

(24

)

 

 

1

 

  

 

1

 

  

 

7

 

  

 

4

 

  

 

(11

)

Total Nielsen

  

$

311

 

 

$

6

 

  

$

139

 

  

$

12

 

  

$

9

 

  

$

477

 

 

(1)

Other items primarily consist of non-recurring costs for the three months ended September 30, 2015 and 2014.

 

(IN MILLIONS)

  

Three 
Months Ended
September 30,
2015
Reported

 

 

Three 
Months Ended
September 30,
2014
Reported

 

 

% Variance
2015 vs. 2014
Reported

 

 

Three 
Months Ended
September 30, 2014
Constant Currency

 

 

% Variance
2015 vs. 2014
Constant Currency

 

Non-GAAP Business Segment Income/(Loss)

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Buy

  

$

157

  

 

$

171

  

 

 

(8.2

)% 

 

$

148

  

 

 

6.1

Watch

  

 

334

  

 

 

317

  

 

 

5.4

 

 

311

  

 

 

7.4

Corporate and Eliminations

  

 

(12

 

 

(11

 

 

NM

  

 

 

(11

 

 

NM

  

Total Nielsen

  

$

479

  

 

$

477

  

 

 

0.4

 

$

448

  

 

 

6.9

Buy Segment Profitability

Operating income was $91 million for the three months ended September 30, 2015 as compared to $109 million for the three months ended September 30, 2014. The decrease was driven primarily by the revenue performance mentioned above and increased restructuring charges in 2015. Non-GAAP business segment income increased 6.1% on a constant currency basis.

Watch Segment Profitability

Operating income was $234 million for the three months ended September 30, 2015 as compared to $226 million for the three months ended September 30, 2014. The increase was driven primarily by the revenue performance discussed above and the impact of productivity initiatives partially offset by higher restructuring charges and depreciation and amortization expense. Non-GAAP business segment income increased 7.4% on a constant currency basis.

- 35 -


Corporate Expenses and Eliminations

Operating expenses were $27 million for the three months ended September 30, 2015 as compared to $24 million for the three months ended September 30, 2014 due primarily to higher non-recurring expenses for the three months ended September 30, 2015.

Results of Operations – Nine Months Ended September 30, 2015 Compared to the Nine Months Ended September 30, 2014

The following table sets forth, for the periods indicated, the amounts included in our Condensed Consolidated Statements of Operations:

 

 

  

Nine Months Ended
September 30,

 

(IN MILLIONS)

  

2015

 

 

2014

 

Revenues

  

$

4,548

 

 

$

4,655

 

Cost of revenues, exclusive of depreciation and amortization shown separately below

  

 

1,885

 

 

 

1,967

 

Selling, general and administrative expenses, exclusive of depreciation and amortization shown separately below

  

 

1,405

 

 

 

1,439

 

Depreciation and amortization

  

 

432

 

 

 

425

 

Restructuring charges

  

 

43

 

 

 

43

 

Operating income

  

 

783

 

 

 

781

 

Interest income

  

 

3

 

 

 

3

 

Interest expense

  

 

(231

)

 

 

(229

)

Foreign currency exchange transaction losses, net

  

 

(27

)

 

 

(32

)

Other expense, net

  

 

 

 

 

(100

)

Income from continuing operations before income taxes and equity in net (loss)/income of affiliates

  

 

528

 

 

 

423

 

Provision for income taxes

  

 

(206

)

 

 

(202

)

Equity in net (loss)/income of affiliates

  

 

(1

)

 

 

2

 

Net income

  

$

321

 

 

$

223

 

Net Income to Adjusted EBITDA Reconciliation

The below table presents a reconciliation from net income to Adjusted EBITDA for the nine months ended September 30, 2015 and 2014:

 

 

 

Nine Months Ended
September 30,

 

(IN MILLIONS)

 

2015

 

 

2014

 

Net income

 

$

321

 

 

$

223

 

Interest expense, net

 

 

228

 

 

 

226

 

Provision for income taxes

 

 

206

 

 

 

202

 

Depreciation and amortization

 

 

432

 

 

 

425

 

EBITDA

 

 

1,187

 

 

 

1,076

 

Equity in net loss/(income) of affiliates

 

 

1

 

 

 

(2

)

Other non-operating expense, net

 

 

27

 

 

 

132

 

Restructuring charges

 

 

43

 

 

 

43

 

Stock-based compensation expense

 

 

39

 

 

 

36

 

Other items(a)

 

 

30

 

 

 

28

 

Adjusted EBITDA

 

$

1,327

 

 

$

1,313

 

 

(a)

Other items primarily consist of non-recurring costs for the nine months ended September 30, 2015 and 2014.  

Consolidated Results for the Nine Months Ended September 30, 2015 Compared to the Nine Months Ended September 30, 2014

Revenues

Revenues decreased 2.3% to $4,548 million for the nine months ended September 30, 2015 from $4,655 million for the nine months ended September 30, 2014, or an increase of 4.7% on a constant currency basis, excluding a 7.0% unfavorable impact of changes in foreign currency exchange rates. Revenues within our Buy segment decreased 5.7%, or an increase of 4.7% on a constant

- 36 -


currency basis. Revenues within our Watch segment increased 2.1%, or 4.8% on a constant currency basis. Refer to the “Business Segment Results” section for further discussion of our revenue performance.

Cost of Revenues, Exclusive of Depreciation and Amortization

Cost of revenues decreased 4.2% to $1,885 million for the nine months ended September 30, 2015 from $1,967 million for the nine months ended September 30, 2014, or an increase of 2.8% on a constant currency basis, excluding a 7.0% favorable impact of changes in foreign currency exchange rates.

Costs within our Buy segment decreased 8.3%, or an increase of 0.9% on a constant currency basis. Excluding a 9.2% favorable impact of changes in foreign currency exchange rates, cost of revenues increased due to the continued global investments in our services.

Costs within our Watch segment increased 1.9%, or 5.2% on a constant currency basis. Excluding a 3.3% favorable impact of changes in foreign currency exchange rates, cost of revenues increased due to higher spending on product portfolio management initiatives, including our digital and Marketing Effectiveness product offerings.

Selling, General and Administrative Expenses, Exclusive of Depreciation and Amortization

Selling, general and administrative expenses decreased 2.4% to $1,405 million for the nine months ended September 30, 2015 from $1,439 million for the nine months ended September 30, 2014, or an increase of 5.2% on a constant currency basis, excluding a 7.6% favorable impact of changes in foreign currency exchange rates.

Costs within our Buy segment decreased 2.3%, or an increase of 7.8% on a constant currency basis. Excluding a 10.1% favorable impact of changes in foreign currency exchange rates, selling, general and administrative increased due to continued global investments associated with our services.

Costs within our Watch segment decreased 4.2%, or 1.0% on a constant currency basis. Excluding a 3.2% favorable impact of changes in foreign currency exchange rates, selling, general and administrative expenses decreased due to the impact from the Arbitron integration activities that occurred in the second half of 2014 as well as other productivity initiatives.

Depreciation and Amortization

Depreciation and amortization expense was $432 million for the nine months ended September 30, 2015 as compared to $425 million for the nine months ended September 30, 2014. This increase was primarily due to higher depreciation and amortization expense associated with higher capital expenditures.

For the nine months ended September 30, 2015 and 2014, depreciation and amortization expense included charges for the depreciation and amortization of tangible and intangible assets acquired in business combinations of $152 million.

Restructuring Charges

We recorded $43 million in restructuring charges relating to employee severance associated with productivity initiatives for the nine months ended September 30, 2015 and 2014.

Operating Income

Operating income for the nine months ended September 30, 2015 was $783 million as compared to $781 million for the nine months ended September 30, 2014. Operating income within our Buy segment was $231 million for the nine months ended September 30, 2015 as compared to $252 million for the nine months ended September 30, 2014. Operating income within our Watch segment was $634 million for the nine months ended September 30, 2015 as compared to $602 million for the nine months ended September 30, 2014. Corporate operating expenses were $82 million for the nine months ended September 30, 2015 as compared to $73 million for the nine months ended September 30, 2014.

Interest Expense

Interest expense was $231 million for the nine months ended September 30, 2015 as compared to $229 million for the nine months ended September 30, 2014. This increase is primarily due to the issuance of $750 million 5.00% Senior Notes in February 2015 partially offset by the partial refinancing of the 7.75% Senior Notes in April 2014 and the refinancing of the remaining 7.75% Senior Notes in July 2014.

 

- 37 -


Foreign Currency Exchange Transaction Losses, Net

Foreign currency exchange transaction losses, net, primarily represent the net gain or loss on revaluation of external debt, intercompany loans and other receivables and payables denominated in currencies other than the respective entity’s functional currency. Fluctuations in the value of foreign currencies relative to the U.S. Dollar have a significant effect on our operating results, primarily the Euro. The average U.S. Dollar to Euro exchange rate was $1.12 to €1.00 for the nine months ended September 30, 2015 as compared to $1.36 to €1.00 for the nine months ended September 30, 2014.

We realized net losses of $27 million for the nine months ended September 30, 2015, resulting primarily from the revaluation of our U.S. denominated debt and cash held in Euro functional currency entities of $13 million, the devaluation of the Venezuela bolivars Fuertes of $9 million as discussed in the “Foreign Currency” section of “Factors Affecting Nielsen’s Financial Results”, as well as the fluctuations in certain foreign currencies associated with intercompany transactions, partially offset by a gain of $3 million associated with foreign currency derivative financial instruments.

We realized net losses of $32 million for the nine months ended September 30, 2014, resulting primarily from the devaluation of the Venezuela bolivars Fuertes as discussed in the “Foreign Currency” section of “Factors Affecting Nielsen’s Financial Results”, as well as the fluctuations in certain foreign currencies associated with intercompany transactions.

Other Expense, Net

Other expense, net of $100 million for the nine months ended September 30, 2014 is primarily related to the “make-whole” premium associated with the partial redemption of our 7.75% Senior Notes due 2018, as well as the write-off of certain previously capitalized deferred financing fees associated with the Class D and E term loans, certain costs incurred in connection with the refinancings and the write down of a cost method investment. We did not incur similar expenses in the nine months ended September 30, 2015.

Income Taxes

The effective tax rates for the nine months ended September 30, 2015 and 2014 were 39% and 48%, respectively. The tax rate for the nine months ended September 30, 2015 was higher than the United Kingdom statutory rate as a result of the impact of tax rate differences in other jurisdictions where the Company files tax returns, the effect of global licensing activities and foreign distributions, and audit settlements offset by the favorable impact of certain financing activities and release of tax contingencies. The tax rate for the nine months ended September 30, 2014 was higher than the statutory rate in the Netherlands as a result of the impact of tax rate differences in other jurisdictions where the Company files tax returns, residual tax expense on foreign source income, reserves for uncertain tax positions, and state and local income taxes offset by the favorable impact of certain financing activities.

Adjusted EBITDA

Adjusted EBITDA increased 1.1% to $1,327 million for the nine months ended September 30, 2015 from $1,313 million for the nine months ended September 30, 2014, or 7.2% on a constant currency basis, excluding a 6.1% unfavorable impact of changes in foreign currency exchange rates. See “Results of Operations – Nine Months Ended September 30, 2015 Compared to the Nine Months Ended September 30, 2014” for the reconciliation of net income to Adjusted EBITDA.

Business Segment Results for the Nine Months Ended September 30, 2015 Compared to the Nine Months Ended September 30, 2014

Revenues

The table below sets forth our segment revenue performance data for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014, both on an as-reported and constant currency basis.

 

(IN MILLIONS)

  

Nine
Months Ended
September 30,
2015
Reported

 

  

Nine
Months Ended
September 30,
2014
Reported

 

  

% Variance
2015 vs. 2014
Reported

 

 

Nine 
Months  Ended
September 30,
2014
Constant
Currency

  

 

% Variance
2015 vs. 2014
Constant
Currency

 

Revenues by segment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Buy

  

$

2,466

 

 

$

2,615

 

 

 

(5.7

)%

 

$

2,356

 

 

 

4.7

Watch

  

 

2,082

 

 

 

2,040

 

 

 

2.1

%

 

 

1,986

 

 

 

4.8

Total

  

$

4,548

 

 

$

4,655

 

 

 

(2.3

)%

 

$

4,342

 

 

 

4.7

- 38 -


Buy Segment Revenues

Revenues decreased 5.7% to $2,466 million for the nine months ended September 30, 2015 from $2,615 million for the nine months ended September 30, 2014, or an increase of 4.7% on a constant currency basis, excluding a 10.4% unfavorable impact of changes in foreign currency exchange rates.

Revenues from developed markets decreased 4.8% to $1,694 million, or an increase of 3.0% on a constant currency basis, excluding a 7.8% unfavorable impact of changes in foreign currency exchange rates. Excluding the impact of foreign currency exchange rates, revenue grew as a result of continued investments in products such as advanced analytics, segmentation and innovation as well as growth in our subscription-based products.

Revenues from emerging markets decreased 7.7% to $772 million, or an increase of 8.6% on a constant currency basis, excluding a 16.3% unfavorable impact of changes in foreign currency exchange rates. Excluding the impact of foreign currency exchange rates, revenue growth was driven by our continued commitment to invest in coverage and analytics capabilities, which resulted in broad-based demand for our services within both our multinational and local client bases.  For the nine months ended September 30, 2015, these investments drove double-digit growth in Latin America, South East Asia, Africa, Middle East and Greater China.

Watch Segment Revenues  

Revenues increased 2.1% to $2,082 million for the nine months ended September 30, 2015 from $2,040 million for the nine months ended September 30, 2014 or an increase of 4.8% on a constant currency basis, excluding a 2.7% unfavorable impact of changes in foreign currency exchange rates. Excluding the impact of foreign currency exchange rates, revenue growth was driven by growth in Audience Measurement, which increased 3.0%, or 5.6% on a constant currency basis due to the resilience in our core television audience measurement, the acquisition of eXelate and our continued investment in digital. Audience Measurement comprised approximately 80% of our Watch segment revenues.  Excluding Audio, Audience Measurement increased 2.7%, or 6.0% on a constant currency basis. Audio growth was 4.1%, on a reported and constant currency basis, for the nine months ended September 30, 2015. Our Marketing Effectiveness offerings grew 13.5%, or 16.9% on a constant currency basis, as client’s demand for our Marketing ROI products continues to increase. However, this gain was offset by a decrease of 18.5%, or 14.7% on a constant currency basis in our other Watch products as we continue to run off the legacy online rankings product, which will be replaced by Digital Content Ratings in the fall of this year, in addition to exiting non-core media analytics products. Excluding the impact of our other Watch products, segment revenues increased 4.0%, or 6.7% on a constant currency basis.

 

Business Segment Profitability

 

NINE MONTHS ENDED SEPTEMBER 30,
2015 (IN MILLIONS)

  

Operating
Income/(Loss)

 

 

Restructuring
Charges

 

  

Depreciation and
Amortization

 

  

Stock-Based
Compensation
Expense

 

  

Other  Items(1)

 

  

Non-GAAP
Business Segment
Income/(Loss)

 

Buy

  

$

231

 

 

$

28

 

  

$

157

 

  

$

13

 

  

$

 

  

$

429

 

Watch

  

 

634

 

 

 

12

 

  

 

272

 

  

 

5

 

  

 

3

 

  

 

926

 

Corporate and Eliminations

  

 

(82

)

 

 

3

 

  

 

3

 

  

 

21

 

  

 

27

 

  

 

(28

)

Total Nielsen

  

$

783

 

 

$

43

 

  

$

432

 

  

$

39

 

  

$

30

 

  

$

1,327

 

 

NINE MONTHS ENDED SEPTEMBER 30,
2014 (IN MILLIONS)

  

Operating
Income/(Loss)

 

 

Restructuring
Charges

 

  

Depreciation and
Amortization

 

  

Stock-Based
Compensation
Expense

 

  

Other Items(1)

 

  

Non-GAAP
Business Segment
Income/(Loss)

 

Buy

  

$

252

 

 

$

26

 

  

$

166

 

  

$

12

 

  

$

 

  

$

456

 

Watch

  

 

602

 

 

 

11

 

  

 

256

 

  

 

8

 

  

 

8

 

  

 

885

 

Corporate and Eliminations

  

 

(73

)

 

 

6

 

  

 

3

 

  

 

16

 

  

 

20

 

  

 

(28

)

Total Nielsen

  

$

781

 

 

$

43

 

  

$

425

 

  

$

36

 

  

$

28

 

  

$

1,313

 

 

(1)

Other items primarily consist of non-recurring costs for the nine months ended September 30, 2015 and 2014.

 

- 39 -


(IN MILLIONS)

  

Nine 
Months Ended
September 30,
2015
Reported

 

 

Nine 
Months Ended
September 30,
2014
Reported

 

 

% Variance
2015 vs. 2014
Reported

 

 

Nine
Months Ended
September 30, 2014
Constant Currency

 

 

% Variance
2015 vs. 2014
Constant Currency

 

Non-GAAP Business Segment Income/(Loss)

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Buy

  

$

429

  

 

$

456

  

 

 

(5.9)

 

$

397

  

 

 

8.1

Watch

  

 

926

  

 

 

885

  

 

 

4.6

 

 

869

  

 

 

6.6

Corporate and Eliminations

  

 

(28

 

 

(28

 

 

NM

  

 

 

(28

 

 

NM

  

Total Nielsen

  

$

1,327

  

 

$

1,313

  

 

 

1.1

 

$

1,238

  

 

 

7.2

Buy Segment Profitability

Operating income was $231 million for the nine months ended September 30, 2015 as compared to $252 million for the nine months ended September 30, 2014 primarily due to the revenue performance mentioned above which was partially offset by lower depreciation and amortization expense in 2015. Non-GAAP business segment income increased 8.1% on a constant currency basis.

Watch Segment Profitability

Operating income was $634 million for the nine months ended September 30, 2015 as compared to $602 million for the nine months ended September 30, 2014. The increase was driven primarily by the revenue performance discussed above, the impact of productivity initiatives and lower non-recurring costs partially offset by higher depreciation and amortization expense. Non-GAAP business segment income increased 6.6% on a constant currency basis.

Corporate Expenses and Eliminations

Operating expenses were $82 million for the nine months ended September 30, 2015 as compared to $73 million for the nine months ended September 30, 2014 due primarily to higher stock-based compensation expense and non-recurring costs partially offset by lower restructuring charges in 2015.

Liquidity and Capital Resources

Overview

We have consistently generated strong cash flows from operations, providing a source of funds of $778 million during the nine months ended September 30, 2015 as compared to $692 million for the nine months ended September 30, 2014, an increase of $86 million primarily due to our focus on better working capital management and lower cash paid for interest and taxes for the nine months ended September 30, 2015, partially offset by the $30 million cumulative excess tax benefit from stock-based compensation. In addition to the cumulative excess tax benefit from stock-based compensation being presented as a reduction of operating cash flows, this amount is also reflected as an increase to cash flows from financing activities in the condensed consolidated statements of cash flows and consequently our total cash flow is unchanged as a result of this item. We provide for additional liquidity through several sources including maintaining an adequate cash balance, access to global funding sources and a committed revolving credit facility. The following table provides a summary of the major sources of liquidity as of and for the nine months ended September 30, 2015 and 2014:

 

  (IN MILLIONS)

 

Nine 
Months Ended
September 30,
2015

 

 

Nine 
Months Ended
September 30,
2014

 

Net cash from operating activities

 

$

778

 

 

$

692

 

Cash and cash equivalents

 

$

358

 

 

$

369

 

Availability under revolving credit facility

 

$

360

 

 

$

572

 

Of the $358 million in cash and cash equivalents, approximately $331 million was held in jurisdictions outside the U.S. and as a result there may be tax consequences if such amounts were moved out of these jurisdictions or repatriated to the U.S. We regularly review the amount of cash and cash equivalents held outside of the U.S. to determine the amounts necessary to fund the current operations of our foreign operations and their growth initiatives and amounts needed to service our U.S. indebtedness and related obligations.

- 40 -


The below table illustrates our weighted average interest rate and cash paid for interest over the nine months ended September 30, 2015 and 2014.

 

 

 

Nine 
Months Ended
September 30,
2015

 

 

Nine
Months Ended
September 30,
2014

 

Weighted average interest rate

 

 

3.98

%

 

 

3.86

%

Cash paid for interest, net of amounts capitalized (in millions)

 

$

170

 

 

$

183

 

In February 2015, we completed the issuance of $750 million in aggregate principal amount of 5.00% Senior Notes due 2022. The notes are traded interchangeably with the $750 million and the $800 million aggregate principal amount of 5.00% Senior Notes due 2022 issued in April 2014 and July 2014, respectively.  The proceeds from the issuance will be used to make repurchases of our outstanding common stock from time to time, in the open market or otherwise, pursuant to our existing share repurchase programs, to reduce outstanding amounts under its revolving credit facility, to pay related fees and expenses, and for general corporate purposes.

Our contractual obligations, commitments and debt service requirements over the next several years are significant. We believe we will have available resources to meet both our short-term and long-term liquidity requirements, including our senior secured debt service. We expect the cash flow from our operations, combined with existing cash and amounts available under the revolving credit facility, will provide sufficient liquidity to fund our current obligations, projected working capital requirements, restructuring obligations, dividend payments and capital spending over the next year. In addition, we may, from time to time, purchase, repay, redeem or retire any of our outstanding debt securities (including any publicly issued debt securities) in privately negotiated or open market transactions, by tender offer or otherwise.

Financial Debt Covenants Attributable to TNC B.V.

In April 2014, we entered into an amendment agreement to amend and restate the Third Amended and Restated Senior Secured Credit Agreement in the form of the Fourth Amended and Restated Credit Agreement.  The financial covenant contained in our Fourth Amended and Restated Credit Agreement consists of a maximum leverage ratio applicable to our indirect wholly-owned subsidiary, Nielsen Holding and Finance B.V. and its restricted subsidiaries. The leverage ratio requires that we not permit the ratio of total net debt (as defined in the Senior Secured Credit Agreement) at the end of any calendar quarter to Covenant EBITDA (as defined in the Senior Secured Credit Agreement) for the four quarters then ended to exceed a specified threshold. The maximum permitted ratio is 5.50 to 1.00.

Failure to comply with this financial covenant would result in an event of default under our Fourth Amended and Restated Credit Agreement unless waived by our senior credit lenders. An event of default under our Fourth Amended and Restated Credit Agreement can result in the acceleration of our indebtedness under the facilities, which in turn would result in an event of default and possible acceleration of indebtedness under the agreements governing our debt securities as well. As our failure to comply with the financial covenant described above can cause us to go into default under the agreements governing our indebtedness, management believes that our Fourth Amended and Restated Credit Agreement and this covenant are material to us. As of September 30, 2015, we were in full compliance with the financial covenant described above.

Revolving Credit Facility

In April 2014, we entered into an amendment agreement to amend and restate the Third Amended and Restated Senior Secured Credit Agreement in the form of the Fourth Amended and Restated Credit Agreement, in connection with which the existing $635 million revolving credit facility was replaced with new aggregate revolving credit commitments of $575 million with a final maturity of April 2019. The Fourth Amended and Restated Credit Agreement contains a senior secured revolving credit facility under which Nielsen Finance LLC, TNC (US) Holdings, Inc., and Nielsen Holding and Finance B.V. can borrow revolving loans. The revolving credit facility can also be used for letters of credit, guarantees and swingline loans.

The senior secured revolving credit facility is provided under the Senior Secured Credit Agreement and so contains covenants and restrictions as noted above with respect to the Senior Secured Credit Agreement under the “Term loan facilities” section above. Obligations under the revolving credit facility are guaranteed by the same entities that guarantee obligations under the Senior Secured Credit Agreement and Senior Secured Loan Agreement.

As of September 30, 2015 and 2014, we had $210 million and zero borrowings outstanding and had outstanding letters of credit of $5 million and $3 million, respectively. As of September 30, 2015, we had $360 million available for borrowing under the revolving credit facility.

- 41 -


Dividends and Share Repurchase Program

On January 31, 2013, our Board of Directors adopted a cash dividend policy to pay quarterly cash dividends on our outstanding common stock. Any decision to declare and pay dividends in the future will be made at the discretion of our board of directors and will be subject to the board’s continuing determination that the dividend policy and the declaration of dividends thereunder are in the best interests of our shareholders, and are in compliance with all laws and agreements to which we are subject. The below table summarizes the dividends declared on our common stock during 2014 and the nine months ended September 30, 2015.

 

  

Declaration Date

 

  

Record Date

 

  

Payment Date

 

  

Dividend Per Share

 

  

 

February 20, 2014

 

 

 

March 6, 2014

 

 

 

March 20, 2014

 

 

$

0.20

  

  

 

May 1, 2014

 

 

 

June 5, 2014

 

 

 

June 19, 2014

 

 

$

0.25

 

  

 

July 24, 2014

 

 

 

August 28, 2014

 

 

 

September 11, 2014

 

 

$

0.25

 

  

 

October 30, 2014

 

 

 

November 25, 2014

 

 

 

December 9, 2014

 

 

$

0.25

 

 

 

February 19, 2015

 

 

 

March 5, 2015

 

 

 

March 19, 2015

 

 

$

0.25

 

 

 

April 20, 2015

 

 

 

June 4, 2015

 

 

 

June 18, 2015

 

 

$

0.28

 

 

 

July 23, 2015

 

 

 

August 27, 2015

 

 

 

September 10, 2015

 

 

$

0.28

 

On July 25, 2013, our Board approved a share repurchase program for up to $500 million of its outstanding common stock. The primary purpose of the program is to mitigate dilution associated with our equity compensation plans. On October 23, 2014, we announced that its board of directors approved a new share repurchase program for up to $1 billion of Nielsen’s outstanding common stock. This is in addition to the authorization in place since July 2013 as described above.  Repurchases are made in accordance with applicable securities laws from time to time in the open market or otherwise depending on Nielsen management’s evaluation of market conditions and other factors. This program has been executed within the limitations of the existing authority granted at our Annual General Meetings of Shareholders held in 2014 and 2015. As of September 30, 2015, there have been 22,062,460 shares of our common stock purchased at an average price of $43.99 per share (total consideration of approximately $970 million) under this program. The activity during the nine months ended September 30, 2015 consisted of open market share repurchases and is summarized in the following table:

 

Period

  

Total Number of Shares Purchased

 

  

Average Price Paid per Share

 

  

Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs

 

  

Dollar Value of Shares that may yet be Purchased under the Plans or Programs

 

As of December 31, 2014

  

 

11,182,983

 

 

$

42.67

 

 

 

11,182,983

 

 

$

1,022,830,101

  

2015 Activity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

January 1- 31

 

 

1,611,203

 

 

$

44.09

 

 

 

1,611,203

 

 

$

951,797,780

 

February 1- 28

 

 

814,753

 

 

$

43.90

 

 

 

814,753

 

 

$

916,031,448

 

March 1- 31

 

 

772,189

 

 

$

43.76

 

 

 

772,189

 

 

$

882,241,498

 

April 1-30

 

 

1,440,798

 

 

$

45.30

 

 

 

1,440,798

 

 

$

816,973,014

 

May 1-31

 

 

1,222,800

 

 

$

45.37

 

 

 

1,222,800

 

 

$

761,496,406

 

June 1-30

 

 

1,300,836

 

 

$

45.14

 

 

 

1,300,836

 

 

$

702,774,965

 

July 1-31

 

 

1,310,000

 

 

$

45.37

 

 

 

1,310,000

 

 

$

643,345,777

 

August 1-31

 

 

1,853,142

 

 

$

47.25

 

 

 

1,853,142

 

 

$

555,793,238

 

September 1-30

 

 

553,756

 

 

$

47.39

 

 

 

553,756

 

 

$

529,551,668

 

Total

  

 

22,062,460

  

  

$

43.99

  

  

 

22,062,460

  

  

 

 

  

Secondary Offerings

In March 2015, a secondary public offering totaling 8,000,000 shares of our common stock was completed on behalf of the selling stockholders, comprised of two of the Sponsor group members, at a price of $45.00 per share. In April 2015, a secondary public offering totaling 20,000,000 shares of our common stock was completed on behalf of the selling stockholders, comprised of some Sponsor group members, at a price of $45.31 per share. In June 2015, a secondary public offering totaling 8,957,091 shares of our common stock was completed on behalf of the selling stockholders, comprised of some Sponsor group members, at a price of $44.96 per share. In August 2015, the remaining members of the sponsor group completed the sale of its remaining 7.4 million shares of our common stock. As a result of this transaction, all of the private equity sponsors that held equity interests in us at the time of our January 2011 initial public offering have disposed of such interests. All proceeds from these offerings were received by the selling stockholders and the offerings did not have a significant impact on our operating results or financial position.

- 42 -


Cash Flows

Operating activities. Net cash provided by operating activities was $778 million for the nine months ended September 30, 2015, as compared to $692 million for the nine months ended September 30, 2014. This increase was driven by our focus on better working capital management and reductions in interest and taxes paid partially offset by the $30 million excess tax benefits from stock-based compensation expense. Our key collections performance measure, days billing outstanding (DBO), increased by 1 day as compared to the same period last year.

Investing activities. Net cash used in investing activities was $504 million for the nine months ended September 30, 2015, as compared to $477 million for the nine months ended September 30, 2014. The primary driver for the increase was the higher capital expenditures during the nine months ended September 30, 2015 as compared to the same period for 2014.  

Financing activities. Net cash used in financing activities was $144 million for the nine months ended September 30, 2015 as compared to $376 million for the nine months ended September 30, 2014. The decrease in cash used in financing activities is primarily due to the higher net proceeds from the issuance of debt partially offset by higher dividend payments and share repurchasing, as described in the “Dividends and Share Repurchase Program” section above, during the nine months ended September 30, 2015 as compared to the same period of 2014.

Capital Expenditures

Investments in property, plant, equipment, software and other assets totaled $306 million for the nine months ended September 30, 2015 as compared to $274 million for the nine months ended September 30, 2014. The increase in capital expenditures for the nine months ended September 30, 2015 was driven by investments in local panel expansion.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that currently have or are reasonably likely to have a material effect on our consolidated financial condition, changes in financial condition, results of operations, liquidity, capital expenditure or capital resources.

Summary of Recent Accounting Pronouncements

Consolidation

In February 2015, the FASB issued Accounting Standards Update (“ASU”) 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis”. The new standard is intended to improve targeted areas of the consolidation guidance for legal entities such as limited partnerships, limited liability corporations, and securitization structures. The amendments in the ASU affect the consolidation evaluation for reporting organizations. In addition, the amendments in this ASU simplify and improve current GAAP by reducing the number of consolidation models. This guidance is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2015; however, early adoption is permitted. We are currently assessing the impact of the adoption of this ASU will have on our condensed consolidated financial statements.

Debt Issuance Costs

In April 2015, the FASB issued an ASU,Simplifying the Presentation of Debt Issuance Costs”. The new standard changes the presentation of debt issuance costs in financial statements. Under the ASU, an entity presents such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs is reported as interest expense. This guidance will be effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2015; however, early adoption is permitted. We are currently assessing the impact of the adoption of this ASU will have on our condensed consolidated financial statements.

Revenue Recognition

In May 2014, the FASB issued an ASU, “Revenue from Contracts with Customers”.  The new revenue recognition standard provides a five step analysis of transactions to determine when and how revenue is recognized. The new model will require revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services and shall be applied retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption.  The FASB has approved a one year deferral of this standard and is now effective for annual periods beginning after December 15, 2017.  We are currently assessing the impact of the adoption of this ASU will have on our condensed consolidated financial statements.

- 43 -


Commitments and Contingencies

Legal Proceedings and Contingencies

We are subject to litigation and other claims in the ordinary course of business, some of which include claims for substantial sums. Accruals have been recorded when the outcome is probable and can be reasonably estimated. While the ultimate results of claims and litigation cannot be determined, we expect that the ultimate disposition of these matters will not have a material adverse effect on its operations or financial condition. However, depending on the amount and the timing, an unfavorable resolution of some or all of these matters could materially affect our future results of operations or cash flows in a particular period.

Other Contractual Obligations

Our other contractual obligations include capital lease obligations (including interest portion), facility leases, leases of certain computer and other equipment, agreements to purchase data and telecommunication services, the payment of principal and interest on debt and pension fund obligations.

 

 

Item  3.

Quantitative and Qualitative Disclosures About Market Risk

Market risk is the potential loss arising from adverse changes in market rates and market prices such as interest rates, foreign currency exchange rates, and changes in the market value of equity instruments. We are exposed to market risk, primarily related to foreign exchange and interest rates. We actively monitor these exposures. Historically, in order to manage the volatility relating to these exposures, we entered into a variety of derivative financial instruments, mainly interest rate swaps, cross-currency swaps and forward rate agreements. Currently we only employ basic contracts, that is, without options, embedded or otherwise. Our objective is to reduce, where it is deemed appropriate to do so, fluctuations in earnings, cash flows and the value of our net investments in subsidiaries resulting from changes in interest rates and foreign currency rates. It is our policy not to trade in financial instruments for speculative purposes.

Foreign Currency Exchange Risk

We operate globally and predominantly generate revenue and expenses in local currencies. Approximately 40% of our revenues and 44% of our operating costs were generated in currencies other than the U.S. Dollar for the nine months ended September 30, 2015. Because of fluctuations (including possible devaluations) in currency exchange rates or the imposition of limitations on conversion of foreign currencies into our reporting currency, we are subject to currency translation exposure on the profits of our operations, in addition to transaction exposure. Typically, a one cent change in the U.S. Dollar/Euro exchange rate, holding all other currencies constant, will impact revenues by approximately $5 million annually, with an immaterial impact on our profitability.

Foreign currency translation risk is the risk that exchange rate gains or losses arise from translating foreign entities’ statements of earnings and balance sheets from functional currency to our reporting currency (the U.S. Dollar) for consolidation purposes. Translation risk exposure is managed by creating “natural hedges” in our financing. It is our policy not to trade derivative financial instruments for speculative purposes. During the nine months ended September 30, 2015 and 2014, we recorded a net gain of $3 million and zero, respectively, associated with foreign currency derivative financial instruments within foreign currency exchange transactions losses, net in our condensed consolidated statements of operations.  As of September 30, 2015and December 31, 2014, there were no foreign currency derivative financial instruments outstanding.

The table below details the percentage of revenues and expenses by currency for the nine months ended September 30, 2015:

 

 

U.S. Dollar

 

 

 

Euro

 

 

 

Other Currencies

 

Revenues

60

 

 

9

 

 

31

Operating costs

56

 

 

10

 

 

34

We have operations in both the Buy and Watch segments in Venezuela and the functional currency for these operations was the Venezuelan Bolivares Fuertes. Venezuela’s currency has been considered hyperinflationary since January 1, 2010 and, accordingly, the local currency transactions have been denominated in U.S. dollars since January 1, 2010 and will continue to be until Venezuela’s currency is deemed to be non-hyperinflationary.

During the period between the first quarter of 2013 through the second quarter of 2015, there have been a number of changes in the foreign exchange regime in Venezuela that have impacted the conversion rates used by the Company for the conversion of Venezuelan Bolivares Fuertes into US Dollars in its financial statements, resulting in foreign currency exchange transaction losses in the consolidated statement of operations, reflecting the write-down of monetary assets and liabilities in our Venezuelan operations.

- 44 -


In February 2013, the official exchange rate was moved from 4.30 to 6.30 and the regulated System of Transactions with Securities in Foreign Currency market was suspended. As a result of this change, we recorded a pre-tax charge of $12 million.

Based on facts and circumstances present at March 31, 2014, we began using the exchange rate determined by periodic auctions for U.S. dollars conducted under Venezuela’s Complementary System of Foreign Currency Administration (“SICAD I”) as the SICAD I exchange rate represented what was the most realistic official exchange rate at which to remeasure the U.S. dollar value of the bolivar-denominated monetary assets and liabilities of our Venezuelan operations at that time. At March 31, 2014, the SICAD I exchange rate was 10.8 bolivars to the U.S. dollar. As a result of this change, we recorded a pre-tax charge of $20 million during the first quarter of 2014.  

Due to the lack of access to the SICAD I auction system throughout the remainder of 2014, as of December 31, 2014 we decided it was more likely that we would be able to gain access to U.S. dollars through the SICAD II mechanism to settle transactions conducted by the Company in Venezuela as SICAD II was created to provide a more open mechanism that was designed to permit any company to request U.S. dollars for any purpose.  At December 31, 2014, the SICAD II exchange rate was 50.0 bolivars to the U.S. dollar.  As a result of the changes in exchange rate assumptions in the fourth quarter of 2014, we recorded a pre-tax charge of $32 million, for a total of $52 million for the year ended December 31, 2014.

On February 12, 2015, the Venezuelan government replaced SICAD II with a new foreign exchange market mechanism (“SIMADI”). We currently expect to be able to access U.S. dollars through the SIMADI market. SIMADI has significantly higher foreign exchange rates than those available through the other foreign exchange mechanisms. At September 30, 2015, the SIMADI exchange rate was 199.4 bolivars to the U.S. dollar.  As a result of this change, we recorded a pre-tax charge of $9 million during the nine months ended September 30, 2015.

We will continue to assess the appropriate conversion rate based on events in Venezuela and the Company’s specific facts and circumstances.  Total net monetary assets in U.S. dollars at the September 30, 2015 SIMADI rate totaled $3 million.

Interest Rate Risk

We continually review our fixed and variable rate debt along with related hedging opportunities in order to ensure our portfolio is appropriately balanced as part of our overall interest rate risk management strategy. At September 30, 2015, we had $3,587 million in carrying value of floating-rate debt under our senior secured credit facilities of which $2,590 million was subject to effective floating-fixed interest rate swaps. A one percent increase in interest rates applied to our floating rate indebtedness would therefore increase annual interest expense by approximately $10 million ($36 million without giving effect to any of our interest rate swaps).

In April 2015, we entered into a $150 million in notional amount of three-year forward interest rate swap agreement with a starting date in April 2016. This agreement fixes the LIBOR-related portion of the interest rates of a corresponding amount of our variable-rate debt at an average rate of 1.40%. This derivative instrument has been designated as an interest rate cash flow hedge.

In July 2015, we entered into a $150 million in notional amount of three-year forward interest rate swap agreement with a starting date in July 2016. This agreement fixes the LIBOR-related portion of the interest rates of a corresponding amount of our variable-rate debt at an average rate of 1.62%. This derivative instrument has been designated as an interest rate cash flow hedge.

Derivative instruments involve, to varying degrees, elements of non-performance, or credit risk. We do not believe that we currently face a significant risk of loss in the event of non-performance by the counterparties associated with these instruments, as these transactions were executed with a diversified group of major financial institutions with a minimum investment-grade or better credit rating. Our credit risk exposure is managed through the continuous monitoring of our exposures to such counterparties.

Equity Price Risk

We are not exposed to material equity risk.

 

Item  4.

Controls and Procedures

(a)

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in the reports that the Company files or submits to the SEC under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls

- 45 -


and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures as of September 30, 2015 (the “Evaluation Date”). Based on such evaluation and subject to foregoing, such officers have concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures are effective at the reasonable assurance level.

(b)

Changes in Internal Control over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

 

 

- 46 -


PART II. OTHER INFORMATION

 

Item  1.

Legal Proceedings

We are subject to litigation and other claims in the ordinary course of business, some of which include claims for substantial sums. Accruals have been recorded when the outcome is probable and can be reasonably estimated. While the ultimate results of claims and litigation cannot be determined, we do expect that the ultimate disposition of these matters will not have a material adverse effect on our operations or financial condition. However, depending on the amount and the timing, an unfavorable resolution of some or all of these matters could materially affect our future results of operations or cash flows in a particular period.

 

Item  1A.

Risk Factors

There have been no material changes to our Risk Factors as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2014.

 

Item  2.

Unregistered Sales of Equity Securities and Use of Proceeds

There were no unregistered sales of our common stock for the nine months ended September 30, 2015.

On July 25, 2013, our Board approved a share repurchase program for up to $500 million of our outstanding common stock. The primary purpose of the program is to mitigate dilution associated with our equity compensation plans. On October 23, 2014, we announced that our board of directors approved a new share repurchase program for up to $1 billion of our outstanding common stock. This is in addition to the authorization in place since July 2013 as described above. Repurchases are made in accordance with applicable securities laws from time to time in the open market depending on our management’s evaluation of market conditions and other factors. The program has been executed within the limitations of the existing authority granted at our Annual General Meetings of Shareholders held in 2014 and 2015. As of September 30, 2015, we have purchased 22,062,460 shares of our common stock at an average price of $43.99 per share (total consideration of approximately $970 million) under this program. The activity during the three months ended September 30, 2015 consisted of open market share repurchases and is summarized in the following table:

 

Period

  

Total Number of Shares Purchased

 

  

Average Price Paid per Share

 

  

Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs

 

  

Dollar Value of Shares that may yet be Purchased under the Plans or Programs

 

     July 1-31

 

 

1,310,000

 

 

$

45.37

 

 

 

1,310,000

 

 

$

643,345,777

 

August 1-31

 

 

1,853,142

 

 

$

47.25

 

 

 

1,853,142

 

 

$

555,793,238

 

September 1-30

 

 

553,756

 

 

$

47.39

 

 

 

553,756

 

 

$

529,551,668

 

Total

  

 

3,716,898

  

  

$

46.60

  

  

 

3,716,898

  

  

 

 

 

 

Item  3.

Defaults Upon Senior Securities

Not applicable.

 

Item 4.

Mine Safety Disclosures

Not applicable.

 

Item  5.

Other Information

None.

 

Item  6.

Exhibits

The exhibit index attached hereto is incorporated herein by reference.

 

 

 

- 47 -


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

Nielsen Holdings plc
(Registrant)

 

 

 

Date: October 21, 2015

 

/s/ Jeffrey R. Charlton

  

 

Jeffrey R. Charlton
Senior Vice President and Corporate Controller
Duly Authorized Officer and Principal Accounting Officer

 

 

 

- 48 -


EXHIBIT INDEX

The agreements and other documents filed as exhibits to this quarterly report on Form 10-Q are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by the registrant in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.

 

Exhibit
Number

  

Description of Exhibits

 

  

 

3.1

 

Articles of Association of Nielsen Holdings plc (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-k filed by the registrant on August 31, 2015 (File No. 001-35042))

 

 

 

4.1*

 

Seventh Supplemental Indenture, dated as of August 17, 2015, between Affinnova, Inc., an affiliate of Nielsen Finance LLC and Nielsen Finance Co., and Law Debenture Trust Company of New York, as trustee.

 

 

 

4.2*

 

Ninth Supplemental Indenture, dated as of August 17, 2015, between Affinnova, Inc., an affiliate of The Nielsen Company (Luxembourg) S.ar.l., and Deutsche Bank Trust Company Americas, as trustee.

 

 

 

4.3*

 

Eleventh Supplemental Indenture, dated as of August 17, 2015, between Affinnova, Inc., an affiliate of Nielsen Finance LLC and Nielsen Finance Co., and Law Debenture Trust Company of New York, as trustee.

 

 

 

10.1

 

Form of Indemnification Agreement (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-k filed by the registrant on August 31, 2015 (File No. 001-35042))

 

 

 

10.2

 

Form of Letter of Appointment (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-k filed by the registrant on August 31, 2015 (File No. 001-35042))

 

 

 

10.3

 

2006 Stock Acquisition and Option Plan for Key Employees of Nielsen Holdings plc and its Subsidiaries (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-k filed by the registrant on August 31, 2015 (File No. 001-35042))

 

 

 

10.4

 

Amended and Restated Nielsen 2010 Stock Incentive Plan (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-k filed by the registrant on August 31, 2015 (File No. 001-35042))

 

 

 

10.5

 

Amended and Restated Arbitron Inc. 2008 Equity Compensation Plan (incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-k filed by the registrant on August 31, 2015 (File No. 001-35042))

 

 

 

31.1*

 

CEO 302 Certification Pursuant to Rule 13a-15(e)/15d-15(e)

 

 

 

31.2*

 

CFO 302 Certification Pursuant to Rule 13a-15(e)/15d-15(e)

 

 

 

32.1*

 

Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)

 

 

 

101*

 

The following financial information from Nielsen Holdings plc’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, formatted in XBRL includes: (i) Condensed Consolidated Statements of Operations (Unaudited) for the three and nine months ended September 30, 2015 and 2014, (ii) Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the three and nine months ended September 30, 2015 and 2014, (iii) Condensed Consolidated Balance Sheets at September 30, 2015 (Unaudited) and December 31, 2014, (iv) Condensed Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2015 and 2014, and (v) the Notes to Condensed Consolidated Financial Statements.

 

 

 

 

*

Filed or furnished herewith

 

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