nlsnnv-10q_20170930.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

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

For the quarterly period ended September 30, 2017

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

(646) 654-5000

 

A C 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      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      No  

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

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  (Do not check if a small reporting company)

  

Small reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

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

There were 356,168,000 shares of the registrant’s Common Stock outstanding as of September 30, 2017.

 

 

 

 


 

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

- 32 -

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

- 51 -

Item 4.

 

Controls and Procedures

- 52 -

PART II.

 

OTHER INFORMATION

- 53 -

Item 1.

 

Legal Proceedings

- 53 -

Item 1A.

 

Risk Factors

- 53 -

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

- 53 -

Item 3.

 

Defaults Upon Senior Securities

- 53 -

Item 4.

 

Mine Safety Disclosures

- 53 -

Item 5.

 

Other Information

- 53 -

Item 6.

 

Exhibits

- 54 -

 

 

Signatures

- 55 -

 

 

 

 

 


 

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)

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Revenues

 

$

1,641

 

 

$

1,570

 

 

$

4,811

 

 

$

4,653

 

Cost of revenues, exclusive of depreciation and

   amortization shown separately below

 

 

692

 

 

 

642

 

 

 

2,031

 

 

 

1,937

 

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

 

 

445

 

 

 

452

 

 

 

1,387

 

 

 

1,391

 

Depreciation and amortization

 

 

160

 

 

 

151

 

 

 

477

 

 

 

450

 

Restructuring charges

 

 

7

 

 

 

29

 

 

 

48

 

 

 

73

 

Operating income

 

 

337

 

 

 

296

 

 

 

868

 

 

 

802

 

Interest income

 

 

1

 

 

 

1

 

 

 

3

 

 

 

3

 

Interest expense

 

 

(95

)

 

 

(85

)

 

 

(277

)

 

 

(247

)

Foreign currency exchange transaction gains/(losses), net

 

 

 

 

2

 

 

 

(9

)

 

 

(3

)

Other expense, net

 

 

(1

)

 

 

 

 

(3

)

 

 

Income from continuing operations before income taxes

 

 

242

 

 

 

214

 

 

 

582

 

 

555

 

Provision for income taxes

 

 

(92

)

 

 

(82

)

 

 

(226

)

 

 

(208

)

Net income

 

 

150

 

 

 

132

 

 

 

356

 

 

 

347

 

Net income attributable to noncontrolling interests

 

 

4

 

 

 

2

 

 

 

8

 

 

 

4

 

Net income attributable to Nielsen stockholders

 

$

146

 

 

$

130

 

 

$

348

 

 

$

343

 

Net income per share of common stock, basic

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to Nielsen stockholders

 

$

0.41

 

 

$

0.36

 

 

$

0.98

 

 

$

0.95

 

Net income per share of common stock, diluted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to Nielsen stockholders

 

$

0.41

 

 

$

0.36

 

 

$

0.97

 

 

$

0.94

 

Weighted-average shares of common stock outstanding, basic

 

 

356,426,891

 

 

 

357,088,498

 

 

 

356,881,905

 

 

 

359,303,099

 

Dilutive shares of common stock

 

 

1,265,224

 

 

 

3,486,309

 

 

 

1,391,915

 

 

 

3,686,397

 

Weighted-average shares of common stock outstanding, diluted

 

 

357,692,115

 

 

 

360,574,807

 

 

 

358,273,820

 

 

 

362,989,496

 

Dividends declared per common share

 

$

0.34

 

 

$

0.31

 

 

$

0.99

 

 

$

0.90

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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)

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Net income

 

$

150

 

 

$

132

 

 

$

356

 

 

$

347

 

Other comprehensive income/(loss), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments (1)

 

 

66

 

 

 

(15

)

 

 

224

 

 

 

35

 

Changes in the fair value of cash flow hedges (2)

 

 

2

 

 

 

4

 

 

 

3

 

 

 

(6

)

Defined benefit pension plan adjustments (3)

 

 

4

 

 

 

 

 

10

 

 

 

7

 

Total other comprehensive income/(loss)

 

 

72

 

 

 

(11

)

 

 

237

 

 

 

36

 

Total comprehensive income

 

 

222

 

 

 

121

 

 

 

593

 

 

 

383

 

Less: comprehensive income attributable to noncontrolling interests

 

 

4

 

 

 

1

 

 

 

13

 

 

 

2

 

Total comprehensive income attributable to Nielsen stockholders

 

$

218

 

 

$

120

 

 

$

580

 

 

$

381

 

 

(1)

Net of tax of $6 million and $1 million for the three months ended September 30, 2017 and 2016, respectively, and $20 million and $4 million for the nine months ended September 30, 2017 and 2016, respectively

(2)

Net of tax of $(2) million for each of the three months ended September 30, 2017 and 2016, respectively, and $(2) million and zero for the nine months ended September 30, 2017 and 2016, respectively

(3)

Net of tax of $(1) million for each of the three months ended September 30, 2017 and 2016, respectively, and $(3) million and $1 million for the nine months ended September 30, 2017 and 2016, 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)

 

2017

 

 

2016

 

 

 

(Unaudited)

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

662

 

 

$

754

 

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

   returns of $24 and $25 as of September 30, 2017 and December 31, 2016, respectively

 

 

1,282

 

 

 

1,171

 

Prepaid expenses and other current assets

 

 

328

 

 

 

297

 

Total current assets

 

 

2,272

 

 

 

2,222

 

Non-current assets

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

458

 

 

 

471

 

Goodwill

 

 

8,352

 

 

 

7,845

 

Other intangible assets, net

 

 

5,042

 

 

 

4,736

 

Deferred tax assets

 

 

131

 

 

 

127

 

Other non-current assets

 

 

330

 

 

 

329

 

Total assets

 

$

16,585

 

 

$

15,730

 

Liabilities and equity:

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable and other current liabilities

 

$

1,015

 

 

$

1,012

 

Deferred revenues

 

 

328

 

 

 

297

 

Income tax liabilities

 

 

198

 

 

 

97

 

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

 

 

67

 

 

 

188

 

Total current liabilities

 

 

1,608

 

 

 

1,594

 

Non-current liabilities

 

 

 

 

 

 

 

 

Long-term debt and capital lease obligations

 

 

8,377

 

 

 

7,738

 

Deferred tax liabilities

 

 

1,219

 

 

 

1,175

 

Other non-current liabilities

 

 

921

 

 

 

930

 

Total liabilities

 

 

12,125

 

 

 

11,437

 

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;  356,217,848 and 357,745,953 shares issued and 356,168,000 and 357,465,614  shares outstanding at September 30, 2017 and December 31, 2016, respectively

 

 

32

 

 

 

32

 

Additional paid-in capital

 

 

4,755

 

 

 

4,825

 

Retained earnings

 

 

451

 

 

 

456

 

Accumulated other comprehensive loss, net of income taxes

 

 

(979

)

 

 

(1,211

)

Total Nielsen stockholders’ equity

 

 

4,259

 

 

 

4,102

 

Noncontrolling interests

 

 

201

 

 

 

191

 

Total equity

 

 

4,460

 

 

 

4,293

 

Total liabilities and equity

 

$

16,585

 

 

$

15,730

 

 

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)

 

2017

 

 

2016

 

Operating Activities

 

 

 

 

 

 

 

 

Net income

 

$

356

 

 

$

347

 

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

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

35

 

 

 

37

 

Currency exchange rate differences on financial transactions and other (gains)/losses

 

 

(17

)

 

 

4

 

Equity in net income of affiliates, net of dividends received

 

 

2

 

 

 

2

 

Depreciation and amortization

 

 

477

 

 

 

450

 

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

   and divested:

 

 

 

 

 

 

 

 

Trade and other receivables, net

 

 

(15

)

 

 

8

 

Prepaid expenses and other assets

 

 

(8

)

 

 

(22

)

Accounts payable and other current liabilities and deferred revenues

 

 

(131

)

 

 

(219

)

Other non-current liabilities

 

 

(9

)

 

 

(11

)

Interest payable

 

 

63

 

 

 

56

 

Income taxes

 

 

51

 

 

 

101

 

Net cash provided by operating activities

 

 

804

 

 

 

753

 

Investing Activities

 

 

 

 

 

 

 

 

Acquisition of subsidiaries and affiliates, net of cash acquired

 

 

(595

)

 

 

(263

)

Additions to property, plant and equipment and other assets

 

 

(55

)

 

 

(83

)

Additions to intangible assets

 

 

(264

)

 

 

(241

)

Proceeds from the sale of property, plant and equipment and other assets

 

 

28

 

 

 

Other investing activities

 

 

(2

)

 

 

(4

)

Net cash used in investing activities

 

 

(888

)

 

 

(591

)

Financing Activities

 

 

 

 

 

 

 

 

Net borrowings under revolving credit facility

 

 

 

 

 

193

 

Proceeds from issuances of debt, net of issuance costs

 

 

2,745

 

 

 

496

 

Repayment of debt

 

 

(2,289

)

 

 

(101

)

Decrease in other short-term borrowings

 

 

(5

)

 

 

Cash dividends paid to stockholders

 

 

(353

)

 

 

(323

)

Repurchase of common stock

 

 

(117

)

 

 

(394

)

Proceeds from exercise of stock options

 

 

21

 

 

 

72

 

Proceeds from employee stock purchase plan

 

 

5

 

 

 

Capital leases

 

 

(42

)

 

 

(26

)

Other financing activities

 

 

(13

)

 

 

(7

)

Net cash used in financing activities

 

 

(48

)

 

 

(90

)

Effect of exchange-rate changes on cash and cash equivalents

 

 

40

 

 

 

17

 

Net (decrease)/increase in cash and cash equivalents

 

 

(92

)

 

 

89

 

Cash and cash equivalents at beginning of period

 

 

754

 

 

 

357

 

Cash and cash equivalents at end of period

 

$

662

 

 

$

446

 

Supplemental Cash Flow Information

 

 

 

 

 

 

 

 

Cash paid for income taxes

 

$

(175

)

 

$

(107

)

Cash paid for interest, net of amounts capitalized

 

$

(214

)

 

$

(191

)

 

 

 

 

 

 

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 (“Nielsen” or the “Company”), together with its subsidiaries, is a leading global performance management 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 headquarters located in New York, USA.  

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, 2016. 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, 2017 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, restricted stock units and deferred stock units.

The effect of 4,141,427 and 472,433 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, 2017 and 2016, respectively, as such shares would have been anti-dilutive.

The effect of 4,349,803 and 1,176,950 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, 2017 and 2016, respectively, as such shares would have been anti-dilutive.

Accounts Receivable

During the nine months ended September 30, 2017, Nielsen sold $67 million of accounts receivable to a third party and recorded an immaterial loss on the sale to interest expense, net in the condensed consolidated statement of operations. As of September 30, 2017, $56 million remained outstanding. The sale was accounted for as a true sale, without recourse. Nielsen maintains servicing responsibilities of the receivables, for which the related costs are not significant. The proceeds of $67 million from the sale were reported as a component of the changes in trade receivables, net within operating activities in the condensed consolidated statement of cash flows.

 

- 7 -


 

2. Summary of Recent Accounting Pronouncements

Intangibles- Goodwill and Other

In January 2017, the FASB issued an Accounting Standards Update (“ASU”), “Intangibles—Goodwill and Other” to simplify the subsequent measurement of goodwill. The update requires only a single-step quantitative test to identify and measure impairment based on the excess of a reporting unit's carrying amount over its fair value. A qualitative assessment may still be completed first for an entity to determine if a quantitative impairment test is necessary. The update is effective for fiscal year 2021 and is to be adopted on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. Nielsen elected to early adopt this ASU effective January 1, 2017. There was no impact on the Company’s condensed consolidated financial statements.

Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets

In February 2017, the FASB issued an ASU, “Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets”, which clarifies the scope and application of ASC 610-20 on the sale or transfer of nonfinancial assets and in substance nonfinancial assets to noncustomers, including partial sales. It requires the application of certain recognition and measurement principles in ASC 606 when derecognizing nonfinancial assets and in substance nonfinancial assets, and the counterparty is not a customer. This ASU is effective for fiscal years (and interim reporting periods within those years) beginning after December 15, 2017. The Company is currently assessing the impact of the adoption of this ASU will have on the Company’s condensed consolidated financial statements.

Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost

In March 2017, the FASB issued an ASU, “Compensation — Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost”, which will change the presentation of net periodic benefit cost related to employer sponsored defined benefit plans and other postretirement benefits. Service cost will be included within the same income statement line item as other compensation costs arising from services rendered during the period, while other components of net periodic benefit pension cost will be presented separately outside of operating income. Additionally, only service costs may be capitalized in assets. This ASU is effective for fiscal years (and interim reporting periods within those years) beginning after December 15, 2017. The Company is currently assessing the impact of the adoption of this ASU will have on the Company’s condensed consolidated financial statements.

Compensation- Stock Compensation

In May 2017, the FASB issued an Accounting Standards Update (“ASU”), Compensation- Stock Compensation (Topic 718), “Scope of Modification Accounting”, which amends the scope of modification accounting for share-based payment arrangements. The standard provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under ASC 718. Specifically, an entity would not apply modification accounting if the fair value, vesting conditions, and classification of the awards are the same immediately before and after the modification. The new standard is effective for annual periods beginning after December 15, 2017 and interim periods within those years. Early adoption is permitted. Nielsen does not expect the adoption of this ASU to have a material impact on the Company’s condensed consolidated financial statements.

Derivatives and Hedging

In August 2017, the FASB issued Accounting Standards Update (“ASU”) “Derivatives and Hedging-Targeted Improvements to Accounting for Hedging Activities” (“ASU 2017-12”). The amendments expand an entity’s ability to apply hedge accounting for nonfinancial and financial risk components and allow for a simplified approach for fair value hedging of interest rate risk. ASU 2017-12 eliminates the need to separately measure and report hedge ineffectiveness and generally requires the entire change in fair value of a hedging instrument to be presented in the same income statement line as the hedged item. Additionally, the standard simplifies the hedge documentation and effectiveness assessment requirements under the previous guidance. The amendments of this ASU are effective for reporting periods beginning after December 15, 2018, with early adoption permitted. Nielsen elected to early adopt this ASU during the third quarter 2017. See footnote 8 “Fair Value Measurement”, for the additional disclosures related to this ASU. The adoption of this ASU did not have a material impact on the Company’s condensed consolidated financial statements.

- 8 -


 

Revenue Recognition

In May 2014, the FASB issued an Accounting Standards Update (“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.  In addition, the new standard requires disclosure of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. This standard is effective for annual periods beginning after December 15, 2017.

In 2014, the Company established a cross-functional implementation team consisting of representatives from across all of its business segments. Management utilized a bottoms-up approach to analyze the impact of the standard on our contract portfolio by reviewing the current accounting policies and practices to identify potential differences that would result from applying the requirements of the new standard to our revenue contracts. In addition, management identified, and are in the process of implementing appropriate changes to our business processes, systems and controls to support the recognition and disclosure under the new standard. Based on management’s preliminary assessment, it believes the most significant impact the adoption of the new standard will have on its condensed consolidated financial statements are the required financial statement disclosures. The Company is continuing to assess the impact this ASU will have on recent acquisitions as well as which transition method it will use to adopt this ASU.

 

 

3. Business Acquisitions

Gracenote

On February 1, 2017, Nielsen completed the acquisition of Gracenote, through the purchase of 100% of Gracenote’s outstanding common stock for a total purchase price of $585 million.  Nielsen acquired the data and technology that underpins the programming guides and personnel user experience for major video, music, audio and sports content. This acquisition expands Nielsen’s footprint with major clients including Gracenote’s global content database which spans across platforms including multichannel video programing distributors (MVPD’s), smart television, streaming music services, connected devices, media players and in-car infotainment systems.

The acquisition of Gracenote 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. Effective February 1, 2017, the financial results of Gracenote were included within the Watch segment of Nielsen’s condensed consolidated financial statements. For the nine months ended September 30, 2017, the Company’s condensed consolidated statement of operations includes $148 million of revenues related to the Gracenote acquisition.

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:

 

(IN MILLIONS)

 

 

 

Identifiable assets acquired and liabilities assumed:

 

 

 

Cash

$

11

 

Other current assets

 

56

 

Property and equipment

 

12

 

Goodwill

 

314

 

Amortizable intangible assets

 

341

 

Other long-term assets

 

11

 

Deferred revenue

 

(22

)

Other current liabilities

 

(21

)

Deferred tax liabilities

 

(110

)

Other long-term liabilities

 

(7

)

Total

$

585

 

 

As of the acquisition date, the fair value of accounts receivable approximated historical cost. The gross contractual receivable was $37 million, of which $1 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.

- 9 -


 

The provisional allocation of the purchase price to goodwill and identified intangible assets was $314 million and $341 million, respectively. All of the Gracenote related goodwill and intangible assets are attributable to Nielsen’s Watch segment.  As of September 30, 2017, $23 million of goodwill is expected to be deductible for income tax purposes.

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

 

(IN MILLIONS)

 

 

 

 

  

 

Description

 

Amount

 

 

Useful Life

 

Customer-related intangibles

 

$

109

 

 

 

10 - 15 years

 

Content database

 

 

168

 

 

 

12 - 16 years

 

Trade names and trademarks

 

 

7

 

 

 

5 years

 

Computer software

 

 

57

 

 

 

7-8 years

 

Total

 

$

341

 

 

 

 

 

 

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 Gracenote.

The Company incurred acquisition-related expenses of $6 million for the nine months ended September 30, 2017, 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 Gracenote for the three and nine months ended September 30, 2017, as if the acquisition had occurred on January 1, 2016, with pro forma adjustments to give effect to amortization of intangible assets, an increase in interest expense from acquisition financing, and certain other adjustments:

 

 

 

 

Three Months Ended September 30,

 

 

Nine months Ended September 30,

 

(IN MILLIONS)

 

 

2017

 

 

 

2016

 

 

 

2017

 

 

 

2016

 

Revenues

 

$

1,641

 

 

$

1,618

 

 

$

4,829

 

 

$

4,799

 

Income from continuing operations

 

$

150

 

 

$

124

 

 

356

 

 

$

327

 

 

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 Gracenote been completed as of the beginning of the reporting period.

Other Acquisitions

For the nine months ended September 30, 2017, excluding Gracenote, Nielsen paid cash consideration of $28 million associated with both current period and previously executed acquisitions, net of cash acquired. Had these current period acquisitions occurred as of January 1, 2017, the impact on Nielsen’s consolidated results of operations would not have been material.

For the nine months ended September 30, 2016, Nielsen paid cash consideration of $263 million associated with both current period and previously executed acquisitions, net of cash acquired. Had these current period acquisitions occurred as of January 1, 2016, 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, 2017.

 

(IN MILLIONS)

 

Buy

 

 

Watch

 

 

Total

 

Balance, December 31, 2016

 

$

2,696

 

 

$

5,149

 

 

$

7,845

 

Acquisitions, divestitures and other adjustments

 

 

2

 

 

 

326

 

 

 

328

 

Effect of foreign currency translation

 

 

154

 

 

 

25

 

 

 

179

 

Balance, September 30, 2017

 

$

2,852

 

 

$

5,500

 

 

$

8,352

 

 

At September 30, 2017, $64 million of the goodwill is expected to be deductible for income tax purposes.

 

- 10 -


 

Other Intangible Assets

 

 

 

Gross Amounts

 

 

Accumulated Amortization

 

 

 

September 30,

 

 

December 31,

 

 

September 30,

 

 

December 31,

 

(IN MILLIONS)

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Indefinite-lived intangibles:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade names and trademarks

 

$

1,921

 

 

$

1,921

 

 

$

 

 

$

 

Amortized intangibles:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade names and trademarks

 

 

147

 

 

 

140

 

 

 

(98

)

 

 

(88

)

Customer-related intangibles

 

 

3,161

 

 

 

3,035

 

 

 

(1,427

)

 

 

(1,312

)

Covenants-not-to-compete

 

 

39

 

 

 

39

 

 

 

(37

)

 

 

(36

)

Content databases(1)

 

 

168

 

 

 

 

 

 

(9

)

 

 

 

Computer software

 

 

2,564

 

 

 

2,223

 

 

 

(1,448

)

 

 

(1,258

)

Patents and other

 

 

172

 

 

 

173

 

 

 

(111

)

 

 

(101

)

Total

 

$

6,251

 

 

$

5,610

 

 

$

(3,130

)

 

$

(2,795

)

 

 

(1)

The content databases were acquired as part of the Gracenote acquisition on February 1, 2017. These databases represent metadata used in Gracenote’s Video, Music/Auto and Sports product offerings that is not easily replicated due to its quantity and the relationships needed to acquire the data. The estimated remaining useful life of these content databases is 12 to 16 years.

Amortization expense associated with the above intangible assets was $114 million and $107 million for the three months ended September 30, 2017 and 2016, respectively. These amounts included amortization expense associated with computer software of $64 million and $59 million for the three months ended September 30, 2017 and 2016, respectively.

Amortization expense associated with the above intangible assets was $341 million and $317 million for the nine months ended September 30, 2017 and 2016, respectively. These amounts included amortization expense associated with computer software of $190 million and $172 million for the nine months ended September 30, 2017 and 2016, respectively.

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, 2017 and 2016.

 

 

Foreign Currency

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Translation

 

 

 

 

 

 

Post Employment

 

 

 

 

 

 

Adjustments

 

 

Cash Flow Hedges

 

 

Benefits

 

 

Total

 

(IN MILLIONS)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance December 31, 2016

$

(856

)

 

$

(1

)

 

$

(354

)

 

$

(1,211

)

Other comprehensive income before reclassifications

 

224

 

 

 

1

 

 

 

 

 

 

225

 

Amounts reclassified from accumulated other comprehensive loss

 

 

 

 

2

 

 

 

10

 

 

 

12

 

Net current period other comprehensive income

 

224

 

 

 

3

 

 

 

10

 

 

 

237

 

Net current period other comprehensive income attributable to noncontrolling interest

 

5

 

 

 

 

 

 

 

 

 

5

 

Net current period other comprehensive income attributable to Nielsen stockholders

 

219

 

 

 

3

 

 

 

10

 

 

 

232

 

Balance September 30, 2017

$

(637

)

 

$

2

 

 

$

(344

)

 

$

(979

)

- 11 -


 

 

 

Foreign Currency

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Translation

 

 

 

 

 

 

Post Employment

 

 

 

 

 

 

Adjustments

 

 

Cash Flow Hedges

 

 

Benefits

 

 

Total

 

(IN MILLIONS)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance December 31, 2015

$

(767

)

 

$

(3

)

 

$

(289

)

 

$

(1,059

)

Other comprehensive income/(loss) before reclassifications

 

35

 

 

 

(9

)

 

 

1

 

 

 

27

 

Amounts reclassified from accumulated other comprehensive loss

 

 

 

 

3

 

 

 

6

 

 

 

9

 

Net current period other comprehensive income/(loss)

 

35

 

 

 

(6

)

 

 

7

 

 

 

36

 

Net current period other comprehensive loss attributable to noncontrolling interest

 

(2

)

 

 

 

 

 

 

 

 

(2

)

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

 

37

 

 

 

(6

)

 

 

7

 

 

 

38

 

Balance September 30, 2016

$

(730

)

 

$

(9

)

 

$

(282

)

 

$

(1,021

)

 

The table below summarizes the reclassification of accumulated other comprehensive loss by component for the three months ended September 30, 2017 and 2016, 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, 2017

 

 

September 30, 2016

 

 

Statement of Operations

Cash flow hedges

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

$

2

 

 

$

2

 

 

Interest expense

 

 

 

1

 

 

 

1

 

 

Benefit for income taxes

 

 

$

1

 

 

$

1

 

 

Total, net of tax

Amortization of Post-Employment Benefits

 

 

 

 

 

 

 

 

 

 

Actuarial loss

 

$

4

 

 

$

 

 

(a)

 

 

 

1

 

 

 

 

 

Benefit for income taxes

 

 

$

3

 

 

$

 

 

Total, net of tax

Total reclassification for the period

 

$

4

 

 

$

1

 

 

Net of tax

 

(a)

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

The table below summarizes the reclassification of accumulated other comprehensive loss by component for the nine months ended September 30, 2017 and 2016, 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, 2017

 

 

September 30, 2016

 

 

Statement of Operations

Cash flow hedges

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

$

4

 

 

$

5

 

 

Interest expense

 

 

 

2

 

 

 

2

 

 

Benefit for income taxes

 

 

$

2

 

 

$

3

 

 

Total, net of tax

Amortization of Post-Employment Benefits

 

 

 

 

 

 

 

 

 

 

Actuarial loss

 

$

13

 

 

$

9

 

 

(a)

 

 

 

3

 

 

 

3

 

 

Benefit for income taxes

 

 

$

10

 

 

$

6

 

 

Total, net of tax

Total reclassification for the period

 

$

12

 

 

$

9

 

 

Net of tax

 

(a)

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

- 12 -


 

 

 

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, 2016

 

$

73

 

Charges

 

 

48

 

Payments

 

 

(72

)

Effect of foreign currency translation and reclassification adjustments

 

 

3

 

Balance at September 30, 2017

 

$

52

 

 

Nielsen recorded $7 million and $48 million in restructuring charges for the three and nine months ended September 30, 2017, respectively, primarily relating to severance costs.

Nielsen recorded $29 million and $73 million in restructuring charges for the three and nine months ended September 30, 2016, respectively, primarily relating to severance and contract termination costs.

Of the $52 million in remaining liabilities for restructuring actions, $42 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, 2017.

 

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.

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.

- 13 -


 

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, 2017 and December 31, 2016:

 

 

 

September 30,

 

 

 

 

 

 

 

 

 

 

 

(IN MILLIONS)

 

2017

 

 

Level 1

 

 

Level 2

 

 

Level 3

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Plan assets for deferred compensation (1)

 

$

32

 

 

 

32

 

 

 

 

Investment in mutual funds (2)

 

 

2

 

 

 

2

 

 

 

 

Interest rate swap arrangements (3)

 

 

7

 

 

 

 

 

7

 

 

Total

 

$

41

 

 

$

34

 

 

$

7

 

 

Liabilities: