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

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

The Netherlands		98-0662038
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
85 Broad Street New York, New York 10004 (646) 654-5000		Diemerhof 2 1112 XL Diemen The Netherlands +31(0) 20 398 87 77
(Address of principal executive offices) (Zip Code) (Registrant’s telephone numbers including area code)

Large accelerated filer	x		Accelerated filer	¨
Non-accelerated filer	¨	(do not check if a smaller reporting company)	Smaller reporting company	¨

				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	- 22 -
Item 3.		Quantitative and Qualitative Disclosures About Market Risk	- 39 -
Item 4.		Controls and Procedures	- 40 -
PART II.		OTHER INFORMATION	- 41 -
Item 1.		Legal Proceedings	- 41 -
Item 1A.		Risk Factors	- 41 -
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	- 41 -
Item 3.		Defaults Upon Senior Securities	- 41 -
Item 4.		Mine Safety Disclosures	- 41 -
Item 5.		Other Information	- 41 -
Item 6.		Exhibits	- 42 -
		Signatures	- 43 -

Item  1.Condensed Consolidated Financial Statements

 

Nielsen Holdings N.V.

Condensed Consolidated Statements of Operations (Unaudited)

   

 

   

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

   

   

 

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Nielsen Holdings N.V.

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

   

 

 

 

 

 

   

   

   

   

   

   

   

   

   

   

   

   

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

   

   

 

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Nielsen Holdings N.V.

Condensed Consolidated Balance Sheets

   

 

   

   

   

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

   

   

   

   

 

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Nielsen Holdings N.V.

Condensed Consolidated Statements of Cash Flows (Unaudited)

   

 

   

   

   

   

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

   

   

 

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Nielsen Holdings N.V.

Notes to Condensed Consolidated Financial Statements

   

1. Background and Basis of Presentation

Background

Nielsen Holdings 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 (“Watch”). In June 2013, Nielsen completed the sale of its Expositions operating segment (see Note 4, Discontinued Operations, for more information). The Company’s condensed consolidated statements of operations reflect the Expositions operating segment as a discontinued operation.  Nielsen has a presence in more than 100 countries, with its headquarters located in Diemen, the Netherlands and 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, 2012, Luxco owned 236,266,399 shares (or approximately 65%) of the Company’s common stock. In February and May 2013, Luxco and certain Nielsen employees completed public offerings of 40,814,884 and 40,250,000 shares, respectively, of the Company’s common stock at a price of $32.55 and $35.01 per share, respectively. Subsequent to these offerings and as of September 30, 2013, Luxco owned 155,224,724 shares (or approximately 41%) of the Company’s common stock.

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 Current Report on Form 8-K filed with the Securities and Exchange Commission on August 12, 2013. 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, 2013 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 or loss 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 2,502,717 and 8,815,982 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, 2013 and 2012, respectively, as such shares would have been anti-dilutive.

The effect of 2,427,945 and 6,960,905 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, 2013 and 2012, 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 was considered hyperinflationary as of January 1, 2010 and further, in January 2010, Venezuela’s currency was devalued and a new currency exchange rate system was announced. In 2010, Nielsen evaluated the new exchange rate system and concluded that the local currency transactions will be denominated in U.S. dollars effective as of January 1, 2010 and until Venezuela’s currency is deemed to be non-hyperinflationary.

In February 2013, the Venezuelan government devalued its currency by 32%. The official exchange rate 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

 

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Nielsen recorded a charge of $12 million during the first quarter of 2013 in foreign currency exchange transaction (losses)/gains, net line in the condensed consolidated statement of operations primarily reflecting the write-down of monetary assets and liabilities.

   

2. Summary of Recent Accounting Pronouncements

Reclassification from accumulated other comprehensive income

In February 2013, the FASB issued an accounting update “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income”, to improve the transparency of reporting reclassifications out of accumulated other comprehensive income. The Company has presented the significant amounts reclassified from each component of accumulated other comprehensive income and the income statement line items affected by the reclassification in Note 6 to these condensed consolidated financial statements. This amended guidance does not have any other impact on the Company’s condensed consolidated financial statements.

Foreign Currency Matters

In March 2013, the FASB issued an accounting update, “Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity”, to resolve the diversity in practice regarding the release into net income of the cumulative translation adjustment upon derecognition of a subsidiary or group of assets within a foreign entity. The amendment requires an entity that ceases to have a controlling financial interest in a subsidiary or group of assets within a foreign entity to release any related cumulative translation adjustment into net income. Accordingly, the cumulative translation adjustment should be released into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. This guidance is effective for Nielsen interim and annual reporting periods in 2014. The adoption of this update is not expected to have a significant impact on the Company’s condensed consolidated financial statements.

Income Taxes

In July 2013, the FASB issued an accounting update, “Income Taxes: Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists ”. The update provides guidance on the financial statement presentation of an unrecognized tax benefit, as either a reduction of a deferred tax asset or as a liability, when a net operating loss carryforward, similar tax loss, or a tax credit carryforward exists. The update will be effective for interim and annual periods beginning after December 15, 2013 and may be applied on a retrospective basis. Early adoption is permitted. The Company does not expect the adoption of this update to have a significant impact on the Company’s condensed consolidated financial statements.

   

3. Business Acquisitions

Arbitron Inc.

On September 30, 2013 (the “Acquisition Date”), Nielsen completed the acquisition of Arbitron Inc., an international media and marketing research firm (“Arbitron”), through the purchase of 100% of Arbitron’s outstanding common stock for a total cash purchase price of $1.3 billion (the “Acquisition”).  Arbitron is expected to help Nielsen better address client needs in unmeasured areas of media consumption, including streaming audio and out-of-home and Nielsen’s global distribution footprint can help expand Arbitron’s capabilities outside of the U.S. With Arbitron’s assets, Nielsen intends to further expand its “Watch” segment’s audience measurement across screens and forms of listening.  Arbitron has been rebranded Nielsen Audio.

As a part of the Acquisition, Nielsen acquired the remaining 49.5% interest in Scarborough Research, a joint venture between Nielsen and Arbitron (“Scarborough”) that Nielsen historically accounted for under the equity method of accounting. Nielsen accounted for this transaction as a step-acquisition and calculated the fair value of its investment immediately before the acquisition to be $75 million.  As a result, during the third quarter of 2013, Nielsen recorded a $24 million gain on its investment in Scarborough to other income/(expense), net in the condensed consolidated statement of operations.  Effective October 1, 2013, the financial results of Scarborough will be included within the consolidated financial statements of Nielsen.  

The Acquisition was accounted for using the acquisition method of accounting which requires, among other things, the assets acquired and the liabilities assumed be recognized at their fair values as of the acquisition date. Since the date of the acquisition occurred on the last day of the quarter, the results of Arbitron will be included within Company's consolidated financial statements commencing October 1, 2013.

The purchase price was preliminarily allocated based upon the fair value of the assets acquired and liabilities assumed at the date of acquisition using available information and certain assumptions management believed reasonable. The following table summarizes the preliminary purchase price allocation:

   

 

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(IN MILLIONS)

 

   

   

            As of the Acquisition Date, the expected fair value of accounts receivable approximated historical cost. The gross contractual receivable was $64 million, of which $4 million was deemed uncollectible.  The estimated fair values assigned to amortizable intangible assets, goodwill and uncertain tax positions are provisional and subject to adjustment primarily based upon additional information the Company is in process of obtaining.

   

The provisional allocation of the purchase price to goodwill and identified intangible assets was $931 million and $517 million, respectively. All of the Arbitron related goodwill and intangible assets are attributable to the Nielsen’s Watch segment.

   

          Intangible assets and their estimated useful lives consist of the following:

   

   

 

   

   

Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents expected synergies and the going concern nature of Arbitron.

   

The Company incurred acquisition related expenses of $4 million and $18 million for the three and nine months ended September 30, 2013, respectively, which primarily consisted of transaction fees, legal, accounting and other professional services that are included in selling, general and administrative expense in the condensed consolidated statement of operations.

   

The following unaudited pro forma information presents the consolidated results of operations of the Company and Arbitron for the three and nine months ended September 30, 2013 and 2012, as if the acquisition had occurred on January 1, 2012, with pro forma

 

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adjustments to give effect to amortization of intangible assets, an increase in interest expense from acquisition financing, and certain other adjustments:

   

 

   

   

The unaudited pro forma results do not reflect any synergies and are not necessarily indicative of the results that the Company would have attained had the acquisition of Arbitron been completed as of the beginning of the reporting period.

   

Other Acquisitions

For the nine months ended September 30, 2013, excluding Arbitron, Nielsen paid cash consideration of $42 million associated with both current period and previously executed acquisitions, net of cash acquired. Had these current period acquisitions occurred as of January 1, 2013, the impact on Nielsen’s consolidated results of operations would not have been material.

For the nine months ended September 30, 2012, Nielsen paid cash consideration of $136 million associated with both current period and previously executed acquisitions, net of cash acquired. Had these current period acquisitions occurred as of January 1, 2012, the impact on Nielsen’s consolidated results of operations would not have been material.

   

4. Discontinued Operations

In June 2013, the Company completed the sale of its Expositions business, which operates one of the largest portfolios of business-to-business trade shows and conference events in the United States, for total cash consideration of $950 million and recorded a gain of $303 million.  The condensed consolidated statements of operations reflect the operating results of this business as a discontinued operation.

In March 2013, Nielsen completed the exit and shut down of one of its legacy online businesses and recorded a net loss of $3 million associated with this divestiture. The condensed consolidated statements of operations reflect the operating results of this business as a discontinued operation.

 

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Summarized results of operations for discontinued operations are as follows:

   

 

   

Nielsen allocated a portion of its consolidated interest expense to discontinued operations based upon the ratio of net assets sold as a proportion of consolidated net assets. For the three and nine months ended September 30, 2013 and 2012, interest expense of zero and $8 million, respectively and $6 million and $18 million, respectively, was allocated to discontinued operations.

Following are the major categories of cash flows from discontinued operations, as included in Nielsen’s condensed consolidated statements of cash flows:

   

 

   

5. 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, 2013.

   

 

   

At September 30, 2013, $108 million of the goodwill is expected to be deductible for income tax purposes.

 

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Other Intangible Assets

   

 

Amortization expense associated with the above intangible assets was $74 million and $73 million for the three months ended September 30, 2013 and 2012, respectively. These amounts included amortization expense associated with computer software of $38 million and $38 million for the three months ended September 30, 2013 and 2012, respectively.

The amortization expense for the nine months ended September 30, 2013 and 2012 was $228 million and $217 million, respectively. These amounts included amortization expense associated with computer software of $120 million and $111 million for the nine months ended September 30, 2013 and 2012, respectively.

   

6. 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, 2013.

   

 

 

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The table below summarizes the reclassification of accumulated other comprehensive loss by component for the three and nine months ended September 30, 2013.

   

 

 

   

7. Restructuring Activities

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

   

 

Nielsen recorded $20 million and $4 million in restructuring charges for the three months ended September 30, 2013 and 2012, respectively, primarily relating to severance cost. Nielsen recorded $63 million and $57 million in restructuring charges for the nine months ended September 30, 2013 and 2012, respectively, primarily relating to severance cost and contract termination costs.

Of the $64 million in remaining liabilities for restructuring actions, $53 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, 2013.

   

8. 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:

   

 

Financial Assets and Liabilities Measured on a Recurring Basis

 

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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, 2013 and December 31, 2012: