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 |
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98-1225347 |
(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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85 Broad Street New York, New York 10004 (646) 654-5000 |
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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 |
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Accelerated filer |
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☐ |
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Non-accelerated filer |
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☐ (Do not check if a small reporting company) |
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Small reporting company |
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☐ |
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Emerging growth company |
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☐ |
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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.
Contents
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PAGE |
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PART I. |
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- 3 - |
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Item 1. |
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- 3 - |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
- 32 - |
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Item 3. |
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- 51 - |
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Item 4. |
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PART II. |
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- 53 - |
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Item 1. |
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- 53 - |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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- 55 - |
Item 1.Condensed Consolidated Financial Statements
Nielsen Holdings plc
Condensed Consolidated Statements of Operations (Unaudited)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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||||||||||
(IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA) |
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2017 |
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2016 |
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2017 |
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2016 |
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Revenues |
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$ |
1,641 |
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$ |
1,570 |
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$ |
4,811 |
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$ |
4,653 |
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Cost of revenues, exclusive of depreciation and amortization shown separately below |
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692 |
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642 |
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2,031 |
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1,937 |
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Selling, general and administrative expenses, exclusive of depreciation and amortization shown separately below |
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445 |
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452 |
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1,387 |
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1,391 |
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Depreciation and amortization |
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160 |
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151 |
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477 |
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450 |
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Restructuring charges |
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7 |
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29 |
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48 |
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73 |
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Operating income |
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337 |
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296 |
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868 |
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802 |
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Interest income |
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1 |
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1 |
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3 |
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3 |
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Interest expense |
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(95 |
) |
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(85 |
) |
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(277 |
) |
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(247 |
) |
Foreign currency exchange transaction gains/(losses), net |
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— |
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2 |
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(9 |
) |
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(3 |
) |
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Other expense, net |
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(1 |
) |
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— |
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(3 |
) |
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— |
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Income from continuing operations before income taxes |
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242 |
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214 |
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582 |
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555 |
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Provision for income taxes |
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(92 |
) |
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(82 |
) |
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(226 |
) |
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(208 |
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Net income |
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150 |
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132 |
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356 |
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347 |
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Net income attributable to noncontrolling interests |
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4 |
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2 |
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8 |
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4 |
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Net income attributable to Nielsen stockholders |
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$ |
146 |
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$ |
130 |
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$ |
348 |
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$ |
343 |
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Net income per share of common stock, basic |
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Net income attributable to Nielsen stockholders |
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$ |
0.41 |
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$ |
0.36 |
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$ |
0.98 |
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$ |
0.95 |
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Net income per share of common stock, diluted |
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Net income attributable to Nielsen stockholders |
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$ |
0.41 |
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$ |
0.36 |
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$ |
0.97 |
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$ |
0.94 |
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Weighted-average shares of common stock outstanding, basic |
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356,426,891 |
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357,088,498 |
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356,881,905 |
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359,303,099 |
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Dilutive shares of common stock |
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1,265,224 |
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3,486,309 |
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1,391,915 |
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3,686,397 |
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Weighted-average shares of common stock outstanding, diluted |
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357,692,115 |
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360,574,807 |
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358,273,820 |
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362,989,496 |
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Dividends declared per common share |
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$ |
0.34 |
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$ |
0.31 |
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$ |
0.99 |
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$ |
0.90 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
- 3 -
Nielsen Holdings plc
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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(IN MILLIONS) |
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2017 |
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2016 |
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2017 |
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2016 |
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Net income |
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$ |
150 |
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$ |
132 |
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$ |
356 |
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$ |
347 |
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Other comprehensive income/(loss), net of tax |
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Foreign currency translation adjustments (1) |
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66 |
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(15 |
) |
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224 |
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35 |
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Changes in the fair value of cash flow hedges (2) |
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2 |
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4 |
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3 |
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(6 |
) |
Defined benefit pension plan adjustments (3) |
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4 |
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— |
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10 |
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7 |
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Total other comprehensive income/(loss) |
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72 |
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(11 |
) |
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237 |
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36 |
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Total comprehensive income |
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222 |
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121 |
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593 |
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383 |
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Less: comprehensive income attributable to noncontrolling interests |
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4 |
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1 |
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13 |
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2 |
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Total comprehensive income attributable to Nielsen stockholders |
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$ |
218 |
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$ |
120 |
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$ |
580 |
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$ |
381 |
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(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 $1 million for the nine months ended September 30, 2017 and 2016, respectively |
The accompanying notes are an integral part of these condensed consolidated financial statements.
- 4 -
Nielsen Holdings plc
Condensed Consolidated Balance Sheets
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September 30, |
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December 31, |
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(IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA) |
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2017 |
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2016 |
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(Unaudited) |
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Assets: |
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Current assets |
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Cash and cash equivalents |
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$ |
662 |
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$ |
754 |
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Trade and other receivables, net of allowances for doubtful accounts and sales returns of $24 and $25 as of September 30, 2017 and December 31, 2016, respectively |
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1,282 |
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1,171 |
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Prepaid expenses and other current assets |
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328 |
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297 |
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Total current assets |
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2,272 |
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2,222 |
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Non-current assets |
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Property, plant and equipment, net |
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458 |
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471 |
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Goodwill |
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8,352 |
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7,845 |
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Other intangible assets, net |
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5,042 |
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4,736 |
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Deferred tax assets |
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131 |
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127 |
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Other non-current assets |
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330 |
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329 |
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Total assets |
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$ |
16,585 |
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$ |
15,730 |
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Liabilities and equity: |
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Current liabilities |
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Accounts payable and other current liabilities |
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$ |
1,015 |
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$ |
1,012 |
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Deferred revenues |
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328 |
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297 |
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Income tax liabilities |
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198 |
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97 |
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Current portion of long-term debt, capital lease obligations and short-term borrowings |
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67 |
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188 |
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Total current liabilities |
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1,608 |
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1,594 |
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Non-current liabilities |
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Long-term debt and capital lease obligations |
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8,377 |
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7,738 |
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Deferred tax liabilities |
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1,219 |
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1,175 |
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Other non-current liabilities |
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921 |
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930 |
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Total liabilities |
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12,125 |
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11,437 |
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Commitments and contingencies (Note 11) |
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Equity: |
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Nielsen stockholders’ equity |
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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 |
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32 |
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32 |
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Additional paid-in capital |
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4,755 |
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4,825 |
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Retained earnings |
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451 |
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|
456 |
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Accumulated other comprehensive loss, net of income taxes |
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(979 |
) |
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(1,211 |
) |
Total Nielsen stockholders’ equity |
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4,259 |
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4,102 |
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Noncontrolling interests |
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201 |
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191 |
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Total equity |
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4,460 |
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4,293 |
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Total liabilities and equity |
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$ |
16,585 |
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$ |
15,730 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
- 5 -
Nielsen Holdings plc
Condensed Consolidated Statements of Cash Flows (Unaudited)
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Nine Months Ended |
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September 30, |
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(IN MILLIONS) |
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2017 |
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2016 |
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Operating Activities |
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Net income |
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$ |
356 |
|
|
$ |
347 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
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Stock-based compensation expense |
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35 |
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|
37 |
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Currency exchange rate differences on financial transactions and other (gains)/losses |
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(17 |
) |
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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: |
|
|
|
|
|
|
|
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Trade and other receivables, net |
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(15 |
) |
|
|
8 |
|
Prepaid expenses and other assets |
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(8 |
) |
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(22 |
) |
Accounts payable and other current liabilities and deferred revenues |
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(131 |
) |
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(219 |
) |
Other non-current liabilities |
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(9 |
) |
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(11 |
) |
Interest payable |
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63 |
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|
|
56 |
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Income taxes |
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|
51 |
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|
|
101 |
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Net cash provided by operating activities |
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|
804 |
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|
753 |
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Investing Activities |
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Acquisition of subsidiaries and affiliates, net of cash acquired |
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(595 |
) |
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(263 |
) |
Additions to property, plant and equipment and other assets |
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(55 |
) |
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(83 |
) |
Additions to intangible assets |
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(264 |
) |
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(241 |
) |
Proceeds from the sale of property, plant and equipment and other assets |
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28 |
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|
— |
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Other investing activities |
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(2 |
) |
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(4 |
) |
Net cash used in investing activities |
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(888 |
) |
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(591 |
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Financing Activities |
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Net borrowings under revolving credit facility |
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— |
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|
193 |
|
Proceeds from issuances of debt, net of issuance costs |
|
|
2,745 |
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|
496 |
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Repayment of debt |
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(2,289 |
) |
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(101 |
) |
Decrease in other short-term borrowings |
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(5 |
) |
|
— |
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Cash dividends paid to stockholders |
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(353 |
) |
|
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(323 |
) |
Repurchase of common stock |
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(117 |
) |
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(394 |
) |
Proceeds from exercise of stock options |
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21 |
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|
|
72 |
|
Proceeds from employee stock purchase plan |
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5 |
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— |
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Capital leases |
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(42 |
) |
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(26 |
) |
Other financing activities |
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(13 |
) |
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(7 |
) |
Net cash used in financing activities |
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(48 |
) |
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(90 |
) |
Effect of exchange-rate changes on cash and cash equivalents |
|
|
40 |
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|
|
17 |
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Net (decrease)/increase in cash and cash equivalents |
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|
(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 |
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|
|
|
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|
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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: |
|
|
|
|
|
|
|
|
|
|
|
|
|