S-1/A 1 ds1a.htm AMENDMENT NO. 6 TO FORM S-1 Amendment No. 6 to Form S-1
Table of Contents

As filed with the Securities and Exchange Commission on January 10, 2011

Registration No. 333-167271

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 6

to

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

NIELSEN HOLDINGS B.V.

(To be converted into Nielsen Holdings N.V.)

(Exact name of registrant as specified in its charter)

 

 

 

The Netherlands   7374   98-0662038

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

James W. Cuminale, Esq.

Nielsen Holdings B.V.

770 Broadway

New York, New York 10003

(646) 654-5000

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

 

Joseph H. Kaufman, Esq.

Simpson Thacher & Bartlett LLP

425 Lexington Avenue

New York, New York 10017-3954

(212) 455-2000

 

William M. Hartnett, Esq.

William J. Miller, Esq.

Douglas S. Horowitz, Esq.

Cahill Gordon & Reindel LLP

80 Pine Street

New York, New York 10005

(212) 701-3000

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement is declared effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

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

 

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

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of

Securities to be Registered

 

Amount to

Be Registered(1)

 

Proposed

Maximum

Offering

Price Per

Unit(2)

 

Proposed

Maximum Aggregate

Offering Price

 

Amount of

Registration Fee

Common Stock, par value €0.07 per share

  82,142,858   $22.00   $1,807,142,876   $132,530(3)

    % Mandatory Convertible Subordinated Bonds due                     , 2013(4)

  5,750,000   $50.00   $ 287,500,000   $20,498(5)

Common Stock, par value €0.07 per share(6)

  1,904,762   $22.00   $41,904,764   $3,074(7)
 
 
(1) Includes shares to be sold upon exercise of the underwriters’ option. See “Underwriting.”
(2) Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(a) under the Securities Act of 1933, as amended.
(3) $122,993 has been previously paid with respect to a proposed maximum aggregate offering price of $1,725,000,000 at a rate of $71.30 per $1,000,000, which was the rate in effect at the time of payment. An additional $9,537 is being paid with respect to the additional $82,142,876 proposed maximum aggregate offering price at the rate currently in effect.
(4) In accordance with Rule 457(i) under the Securities Act, this registration statement also registers the shares of our common stock that are initially issuable upon conversion of the     % Mandatory Convertible Subordinated Bonds due                     , 2013 registered hereby. The number of shares of our common stock issuable upon such conversion is subject to adjustment upon the occurrence of certain events described herein and will vary based on the public offering price of the common stock registered hereby. Pursuant to Rule 416 under the Securities Act, the number of shares of our common stock to be registered includes an indeterminable number of shares of common stock that may become issuable upon conversion of the     % Mandatory Convertible Subordinated Bonds due                     , 2013 as a result of such adjustments.
(5) Previously paid.
(6) Represents common stock that may be issued with respect to deferred interest upon conversion of the     % Mandatory Convertible Subordinated Bonds in accordance with the terms thereof.
(7) $2,852 had been previously paid with respect to a proposed maximum aggregate offering price of $40,000,000 at a rate of $71.30 per $1,000,000, which was the rate in effect at the time of payment. An additional $222 is being paid with respect to the additional $1,904,764 proposed maximum aggregate offering price at the rate currently in effect.

 

The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

 


Table of Contents

EXPLANATORY NOTE

This Registration Statement contains a prospectus relating to an offering of shares of our common stock (for purposes of this Explanatory Note, the Common Stock Prospectus), together with separate prospectus pages relating to an offering of our     % Mandatory Convertible Subordinated Bonds due                     , 2013 (for purposes of this Explanatory Note, the Mandatory Convertible Subordinated Bonds Prospectus). The complete Common Stock Prospectus follows immediately. Following the Common Stock Prospectus are the following alternative and additional pages for the Mandatory Convertible Subordinated Bonds Prospectus:

 

   

front and back cover pages, which will replace the front and back cover pages of the Common Stock Prospectus;

 

   

pages for the “Prospectus Summary—The Offering” section, which will replace the “Prospectus Summary—The Offering” section of the Common Stock Prospectus;

 

   

pages for the “Risk Factors—Risks Related to this Offering and Ownership of Our Mandatory Convertible Subordinated Bonds and Common Stock” section, which will replace the “Risk Factors—Risks Related to this Offering and Ownership of Our Common Stock” section of the Common Stock Prospectus;

 

   

pages for the “Description of Bonds” section, which will replace the “Concurrent Offering of Mandatory Convertible Subordinated Bonds” section of the Common Stock Prospectus;

 

   

pages for the “Taxation” section, which will replace the “Taxation” section of the Common Stock Prospectus; and

 

   

pages for the “Underwriting” section, which will replace the “Underwriting” section of the Common Stock Prospectus.

The following disclosures contained within the Common Stock Prospectus will be replaced in the Mandatory Convertible Subordinated Bonds Prospectus:

 

   

the reference to “—Risks Related to this Offering and Ownership of Our Common Stock” contained in “Prospectus Summary—Company Information” will be replaced with a reference to “—Risks Related to this Offering and Ownership of Our Mandatory Convertible Subordinated Bonds and Common Stock” in the Mandatory Convertible Subordinated Bonds Prospectus.

In addition, the following references contained within the Common Stock Prospectus will be replaced or removed in the Mandatory Convertible Subordinated Bonds Prospectus:

 

   

references to “this offering” contained in “Use of Proceeds”, “Capitalization”, “Dilution”, and “Shares Eligible for Future Sale” will be replaced with references to “the concurrent offering of our common stock” in the Mandatory Convertible Subordinated Bonds Prospectus;

 

   

references to “the concurrent offering of Mandatory Convertible Subordinated Bonds” contained in “Use of Proceeds” and “Capitalization” will be replaced with references to “this offering” in the Mandatory Convertible Subordinated Bonds Prospectus;

 

   

references to the “concurrent issuance of Mandatory Convertible Subordinated Bonds” will be replaced with references to “issuance of the bonds in this offering” in the Mandatory Convertible Subordinated Bonds Prospectus;

 

   

references to “Mandatory Convertible Subordinated Bonds” will be replaced with references to “bonds” in the Mandatory Convertible Subordinated Bonds Prospectus;

 

   

the fourth paragraph in “Use of Proceeds” will be removed; and

 

   

the final sentence in each of footnotes (8), (9) and (13) in “Capitalization” will be removed.

All words and phrases similar to those specified above that appear throughout the Common Stock Prospectus will be revised accordingly to make appropriate references in the Mandatory Convertible Subordinated Bonds Prospectus.

Each of the complete Common Stock Prospectus and Mandatory Convertible Subordinated Bonds Prospectus will be filed with the Securities and Exchange Commission in accordance with Rule 424 under the Securities Act of 1933, as amended. The closing of the offering of common stock is not conditioned upon the closing of the offering of     % Mandatory Convertible Subordinated Bonds due                     , 2013, but the closing of the offering of     % Mandatory Convertible Subordinated Bonds due                     , 2013 is conditioned upon the closing of the offering of common stock.


Table of Contents

The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and we are not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

Subject to Completion, dated January 10, 2011

Preliminary Prospectus

71,428,572 Shares

LOGO

Common Stock

 

 

We are selling 71,428,572 shares of our common stock. This is an initial public offering of our common stock. Prior to this offering, there has been no public market for our common stock. The initial public offering price is estimated to be between $20.00 and $22.00 per share. We have applied to have our common stock listed on the New York Stock Exchange under the symbol “NLSN.” We intend to use the anticipated net proceeds of this offering to repay certain of our existing indebtedness.

After the completion of this offering, the Sponsors (as defined herein) will continue to own a majority of the voting power of our outstanding common stock. As a result, we will be a “controlled company” within the meaning of the corporate governance standards of the New York Stock Exchange. See “Principal Stockholders.”

Concurrently with this offering, we are also making a public offering of $250,000,000 in aggregate principal amount of our     % Mandatory Convertible Subordinated Bonds due                     , 2013 (the “Mandatory Convertible Subordinated Bonds”). In that offering, we have granted the underwriters an option to purchase up to an additional $37,500,000 aggregate principal amount of Mandatory Convertible Subordinated Bonds to cover over-allotments. We cannot assure you that the offering of Mandatory Convertible Subordinated Bonds will be completed or, if completed, on what terms it will be completed. The closing of this offering is not conditioned upon the closing of the offering of Mandatory Convertible Subordinated Bonds, but the closing of our offering of Mandatory Convertible Subordinated Bonds is conditioned upon the closing of this offering.

 

 

 

     Per
Share
     Total  

Initial public offering price

   $                   $               

Underwriting discount

   $        $    

Proceeds to us, before expenses

   $        $    

 

 

We have granted the underwriters an option for a period of 30 days to purchase up to 10,714,286 additional shares of common stock on the same terms and conditions set forth above to cover over-allotments, if any.

Investing in our common stock involves a high degree of risk. See “Risk Factors” beginning on page 15.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

 

 

The underwriters expect to deliver the shares of common stock on                     , 2011.

 

 

 

J.P. Morgan

  Morgan Stanley

  Credit Suisse

   Deutsche Bank Securities       Goldman, Sachs & Co.   Citi  

BofA Merrill Lynch

William Blair & Company

  Guggenheim Securities

RBS

  Wells Fargo Securities

 

Blaylock Robert Van, LLC   HSBC   Loop Capital Markets
Mizuho Securities USA Inc.   Ramirez & Co., Inc.   The Williams Capital Group, L.P.

 

 

                    , 2011


Table of Contents

LOGO


Table of Contents

TABLE OF CONTENTS

 

     Page  

Prospectus Summary

     1   

Risk Factors

     15   

Cautionary Statement Regarding Forward-Looking Statements

     29   

Use of Proceeds

     30   

Dividend Policy

     32   

Capitalization

     33   

Dilution

     36   

Selected Financial and Other Data

     38   

Ratio of Earnings to Fixed Charges

     40   

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

     41   

Business

     88   

Market and Industry Data

     99   

Management

     100   

Executive Compensation

     109   

Principal Stockholders

     133   

Certain Relationships and Related Party Transactions

     138   

Concurrent Offering of Mandatory Convertible Subordinated Bonds

     142   

Description of Indebtedness

     145   

Description of Capital Stock

     151   

Shares Eligible for Future Sale

     160   

Taxation

     162   

Underwriting

     169   

Legal Matters

     176   

Experts

     176   

Where You Can Find More Information

     177   

Index to Consolidated Financial Statements

     F-1   

 

 

You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. We are not making an offer to sell nor seeking offers to buy these securities in any jurisdiction where an offer or sale is not permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common stock.

Nielsen® and our logo are registered trademarks of ours. This prospectus includes other registered and unregistered trademarks of ours. Other products, services and company names mentioned in this prospectus are the service marks/trademarks of their respective owners.

 

 

Until                     , 2011 (25 days after the date of this prospectus), all dealers that effect transactions in our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This requirement is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to unsold allotments or subscriptions.

 

i


Table of Contents

PROSPECTUS SUMMARY

This summary highlights significant aspects of our business and this offering, but it is not complete and does not contain all of the information that you should consider before making your investment decision. You should carefully read the entire prospectus, including the information presented under the section entitled “Risk Factors” and our audited consolidated financial statements, unaudited condensed consolidated financial statements and related notes included elsewhere in this prospectus, before making an investment decision. This summary contains forward-looking statements that involve risks and uncertainties. Our actual results may differ significantly from the results discussed in the forward-looking statements as a result of certain factors, including those set forth in “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements.”

The terms “Company,” “Nielsen,” “we,” “our” or “us,” as used herein, refer to Nielsen Holdings B.V. and its affiliates prior to the Conversion (as defined below) and to Nielsen Holdings N.V. and its affiliates upon and after the Conversion, including, in each case, The Nielsen Company B.V., unless otherwise stated or indicated by context. The term “Nielsen Holdings,” as used herein, refers to Nielsen Holdings B.V. prior to the Conversion and to Nielsen Holdings N.V. after the Conversion, in each case, without including any of its affiliates, unless otherwise stated or indicated by context. The term “affiliates” means our direct and indirect subsidiaries and partnerships and joint ventures in which such subsidiaries are partners.

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

Our Company

We are a leading global information and measurement company that provides clients with a comprehensive understanding of consumers and consumer behavior. We deliver critical media and marketing information, analytics and industry expertise about what consumers watch (consumer interaction with television, online and mobile) and what consumers buy on a global and local basis. Our information, insights and solutions help our clients maintain and strengthen their market positions and identify opportunities for profitable growth. We have a presence in approximately 100 countries, including many developing and emerging markets, and hold leading market positions in many of our services and geographies. Based on the strength of the Nielsen brand, our scale and the breadth and depth of our solutions, we believe we are the global leader in measuring and analyzing consumer behavior in the segments in which we operate.

We help our clients enhance their interactions with consumers and make critical business decisions that we believe positively affect our clients’ sales. Our data and analytics solutions, which have been developed through substantial investment over many decades, are deeply embedded into our clients’ workflow as demonstrated by our long-term client relationships, multi-year contracts and high contract renewal rates. The average length of relationship with our top ten clients, which include The Coca-Cola Company, NBC Universal, Nestle S.A., News Corp., The Procter & Gamble Company and the Unilever Group, is more than 30 years. Typically, before the start of each year, nearly 70% of our annual revenue has been committed under contracts in our combined Watch and Buy segments.

We align our business into three reporting segments, the principal two of which are What Consumers Watch (media audience measurement and analytics) and What Consumers Buy (consumer purchasing measurement and

 

 

1


Table of Contents

analytics). Our Watch and Buy segments, which together generated 96% of our revenues in 2009, are built on an extensive foundation of proprietary data assets designed to yield essential insights for our clients to successfully measure, analyze and grow their businesses. The information from our Watch and Buy segments, when brought together, can deliver powerful insights into the effectiveness of advertising by linking media consumption trends with consumer purchasing data to better understand how media exposure drives purchase behavior. We believe these integrated insights will better enable our clients to enhance the return on investment of their advertising and marketing spending.

David Calhoun was appointed as our Chief Executive Officer in August 2006 following the purchase of our Company by a consortium of private equity firms on May 24, 2006. Mr. Calhoun and the management team have focused on building an open, simple and integrated operating model that drives innovation, delivers greater value to our clients and enhances the scalability of our global platform. We have made significant investments in expanding and optimizing our product portfolio and extending our technology platform to strengthen our analytics, measurement science and client delivery capabilities. We have also improved our operating efficiencies by streamlining our organizational structure and processes throughout the Company.

As a result of the May 2006 acquisition, we incurred a significant amount of indebtedness and have a net tangible book deficit ($8.6 billion and $8.8 billion, respectively, as of September 30, 2010). We also have generated net losses since that time ($489 million, $589 million and $354 million for the years ended December 31, 2009, 2008 and 2007, respectively). As a result of the initiatives made since the acquisition, certain of our financial performance metrics have improved significantly between the year ended December 31, 2006 and the year ended December 31, 2009:

 

   

Revenues increased to $4.8 billion, generating a compound annual growth rate of 6.2% on an as reported basis and 5.7% on a constant currency basis;

 

   

Adjusted EBITDA increased to $1.3 billion, generating a compound annual growth rate of 14.3% on an as reported basis and 13.9% on a constant currency basis; and

 

   

Adjusted EBITDA as a percentage of revenue increased to 27.3% from 21.9%.

See note 7 to “—Summary Financial and Other Data” for a definition of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net income.

Our Segments

Our Watch segment provides viewership data and analytics primarily to the media and advertising industries across television, online and mobile screens. According to ZenithOptimedia, a leading global media services agency, in 2009, total global spending on advertising across television, online and mobile platforms was at least $228 billion. Our Watch data is used by our media clients to understand their audiences, establish the value of their advertising inventory and maximize the value of their content, and by our advertising clients to plan and optimize their spending. Within our Watch segment, our ratings are the primary metrics used to determine the value of programming and advertising in the U.S. total television advertising marketplace, which was approximately $77 billion in 2008 according to a report by Veronis Suhler Stevenson. In addition to the United States, we measure television viewing in 29 countries. We also measure markets that account for approximately 80% of global internet users and offer mobile measurement services in 10 countries, including the United States, where we are the market leader. Watch represented 34% of our total revenues in 2009.

Our Buy segment provides retail transactional measurement data, consumer behavior information and analytics primarily to businesses in the consumer packaged goods industry. According to Euromonitor International, global consumer spending in the product categories we measure was over $7.0 trillion in 2009. Our

 

 

2


Table of Contents

extensive database of retail and consumer information, combined with our advanced analytical capabilities, helps generate strategic insights that influence our clients’ key business decisions. We track billions of sales transactions per month in retail outlets in approximately 100 countries around the world and our data is used by our clients to measure their sales and market share. We are the only company offering such extensive global coverage for the collection, provision and analysis of this information for consumer packaged goods. Our Buy products and services also enable our clients to better manage their brands, uncover new sources of demand, launch and grow new products, analyze their sales, improve their marketing mix and establish more effective consumer relationships. Buy represented 62% of our total revenues in 2009.

Our Expositions segment operates one of the largest portfolios of business-to-business trade shows in the United States. Each year, we produce approximately 40 trade shows, which in 2009 connected approximately 270,000 buyers and sellers across 20 industries. Expositions represented 4% of our total revenue in 2009.

The Nielsen Opportunity

We believe companies, including our clients, require an increasing amount of data and analytics to set strategy and direct operations. This has resulted in a large market for business information and insight which we believe will continue to grow. Our clients are media, advertising and consumer packaged goods companies in the large and growing markets described above. We believe that significant economic, technological, demographic and competitive trends facing consumers and our clients will provide a competitive advantage to our business and enable us to capture a greater share of our significant market opportunity.

Developing markets present significant expansion opportunities. Brand marketers are focused on attracting new consumers in developing countries as a result of the fast-paced population growth of the middle class in these regions. In addition, the retail trade in these markets is quickly evolving from small, local formats toward larger, more modern formats with electronic points of sale, a similar evolution to what occurred in developed markets over the last several decades. We provide established measurement methodologies to help give consumer packaged goods companies, retailers and media companies an accurate understanding of local consumers to allow them to harness growing consumer buying power in fast growing markets like Brazil, Russia, India and China.

The media landscape is dynamic and changing. Consumers are rapidly changing their media consumption patterns. The growing availability of the internet, and the proliferation of new formats and channels such as mobile devices, social networks and other forms of user-generated media have led to an increasingly fragmented consumer base that is more difficult to measure and analyze. In addition, simultaneous usage of more than one screen is becoming a regular aspect of daily consumer media consumption. We have effectively measured and tracked media consumption through numerous cycles in the industry’s evolution—from broadcast to cable, from analog to digital, from offline to online and from live to time-shifted. We believe our distinct ability to provide metrics across television, online and mobile platforms helps our clients better understand, adapt to and profit from the continued transformation of the global media landscape.

Increasing amounts of consumer information are leading to new marketing approaches. The advent of the internet and other digital platforms has created rapid growth in consumer data that is expected to intensify as more entertainment and commerce are delivered across these platforms. As a result, companies are looking for real-time access to more granular levels of data to understand growth opportunities more quickly and more precisely. This presents a significant opportunity for us to work with companies to effectively manage, integrate and analyze large amounts of information and extract meaningful insights that allow marketers to generate profitable growth.

Consumers are more connected, informed and in control. Today, more than three-quarters of the world’s homes have access to television, there are more than 1.8 billion internet users around the globe, and there are

 

 

3


Table of Contents

two-thirds as many mobile phones in the world as people. Advances in technology have given consumers a greater level of control of when, where and how they consume information and interact with media and brands. They can compare products and prices instantaneously and have new avenues to learn about, engage with and purchase products and services. These shifts in behavior create significant complexities for our clients. Our broad portfolio of information and insights enables our clients to engage consumers with more impact and efficiency, influence consumer purchasing decisions and actively participate in and shape conversations about their brands.

Demographic shifts and changes in spending behavior are altering the consumer landscape. Consumer demographics and related trends are constantly evolving globally, leading to changes in consumer preferences and the relative size and buying power of major consumer groups. Shifts in population size, age, racial composition, family size and relative wealth are causing marketers to continuously re-evaluate and reprioritize their consumer marketing strategies. We track and interpret consumer demographics that help enable our clients to engage more effectively with their existing consumers as well as forge new relationships with emerging segments of the population.

Consumers are looking for greater value. Economic and social trends have spurred consumers to seek greater value in what they buy as exemplified by the rising demand for “private label” (store branded) products. For instance, in the United States, the absolute dollar share for private label consumer packaged goods increased more than $10 billion over the last two years. This increased focus on value is causing manufacturers, retailers and media companies to re-evaluate brand positioning, pricing and loyalty. We believe companies will increasingly look to our broad range of consumer purchasing insights and analytics to more precisely and effectively measure consumer behavior and target their products and marketing offers at the right place and at the right price.

Our Competitive Advantages

Our key competitive advantages include:

Global Scale and Brand. For nearly 90 years, we have advanced the practice of market research and media audience measurement to provide our clients with a better understanding of their consumer. We provide a breadth of information and insights about the consumer in approximately 100 countries. We believe our global footprint, neutrality, credibility and leading market positions will continue to contribute to our long-term growth and strong operating margins as the number and role of multinational companies expands. Our scale is supported by our global brand, which is defined by the original Nielsen code created by our founder, Arthur C. Nielsen, Sr.: impartiality, thoroughness, accuracy, integrity, economy, price, delivery and service.

Strong, Diversified Client Relationships. Many of the world’s largest brands rely on us as their information and analytics provider to create value for their business. We maintain long-standing relationships across multiple industries, including consumer packaged goods, broadcast and cable television, advertising, online media, telecommunications, retail and automotive. We have more than 20,000 clients across our Watch and Buy segments, with no single client accounting for more than 4% of our total 2009 revenues. In addition, due to our growing presence in developing markets, we have cultivated strong relationships with local market leaders that can benefit from our services as they expand globally. The depth of our client relationships provides a foundation for recurring revenues as well as a platform for growth.

Enhanced Data Assets and Measurement Science. Our extensive portfolio of transactional and consumer behavioral data across our Watch and Buy segments enables us to provide critical information to our clients. Much of the information we provide is not available from any other source and would be difficult and costly for another party to replicate. For decades, we have employed advanced measurement methodologies that yield statistically accurate information about consumer behavior while having due regard for their privacy. We believe that our expertise, established standards and increasingly granular and comprehensive data assets provide us with a distinct advantage as we deliver more precise insights to our clients.

 

 

4


Table of Contents

Innovation. We have consistently focused on innovation to deepen our capabilities, expand in new and emerging forms of measurement, enhance our analytical offerings and capitalize on industry trends. We are continuously developing advanced delivery technologies that allow us to maximize the full suite of our data assets for our clients as evidenced by our new delivery platform, Nielsen Answers, which brings a broad portfolio of our data and information to a single client desktop.

Scalable Operating Model. Our global presence and operating model allow us to scale our services and solutions rapidly and efficiently. We have a long track record of establishing leading products that can be quickly expanded across clients, markets and geographies. Our global operations and technology organization enables us to achieve faster, higher quality outcomes for clients in a cost-efficient manner. Our flexible architecture allows us to incorporate leading third-party technologies as well as data from external sources, and enables our clients to use our technology and solutions on their own technology platforms.

Our Growth Strategy

We believe we are well-positioned for growth worldwide and have a multi-faceted strategy that builds upon our brand, strong client relationships and integral role in measuring and analyzing the global consumer.

Continue to grow in developing markets

Developing markets comprised approximately 17% of our 2009 revenues and represent a significant long-term opportunity for us given the growth of the middle class and the rapid evolution and modernization of the retail trade in these regions. Currently, the middle class is growing by 70 million people globally each year, with Brazil, Russia, India and China expected to contribute approximately half of all global consumption growth in 2010. Key elements of our strategy include:

 

   

Continuing to grow our existing services in local markets while simultaneously introducing into developing markets new services drawn from our global portfolio;

 

   

Partnering with existing clients as they expand their businesses into developing and emerging markets and providing the high-quality measurement and insights to which they are accustomed; and

 

   

Building relationships with local companies that are expanding beyond their home markets by capitalizing on the global credibility and integrity of the Nielsen brand.

Continue to develop innovative products and services

We intend to continue developing our product and service portfolio to provide our clients with comprehensive and advanced solutions. Key elements of our strategy include:

 

   

Further developing our analytics offerings across all facets of our client base to provide a more comprehensive offering and help our clients think through their most important challenges;

 

   

Continuing to grow our leadership in measurement and insight services related to each individual screen (TV, online and mobile) and expanding our three screen measurement services to help our media clients more effectively reach their target audiences and better understand the value of their content; and

 

   

Expanding our Advertiser Solutions offering, which integrates our proprietary data and analytics from both the Watch and Buy segments, by developing powerful tools to help clients better understand the effectiveness of advertising spending on consumer purchasing behavior.

 

 

5


Table of Contents

Continue to attract new clients and expand existing relationships

We believe that substantial opportunities exist to both attract new clients and to increase our revenue from existing clients. Building on our deep knowledge and the embedded position of our Watch and Buy segments, we expect to sell new and innovative solutions to our new and existing clients, increasing our importance to their decision making processes.

Continue to pursue acquisitions to complement our leadership positions

We have increased our capabilities and expanded our geographic footprint through acquisitions in the areas of online and mobile measurement, social networking, advanced analytics and advertising effectiveness. Going forward, we will consider select acquisitions of complementary businesses that enhance our product and geographic portfolio and can benefit from our scale, scope and status as a global leader.

Key Risks

An investment in our common stock involves substantial risks and uncertainties. Any of the factors set forth under “Risk Factors” may limit our ability to successfully execute our business strategy. Among these important risks are the following:

 

   

we may be unable to adapt to significant technological change which could adversely affect our business;

 

   

consolidation in the consumer packaged goods, media, entertainment, telecommunications and technology industries could put pressure on the pricing of our products and services, thereby leading to decreased earnings;

 

   

continued adverse market conditions, particularly in the consumer packaged goods, media, entertainment, telecommunications or technology industries in particular, could adversely impact our revenue; and

 

   

our substantial indebtedness could adversely affect our financial health and we and our subsidiaries may still be able to incur substantially more debt, which could further increase the risk associated with our substantial leverage.

 

 

Company Information

Nielsen Holdings B.V. is a Dutch private company with limited liability (besloten vennootschap met beperkte aansprakelijkeid), incorporated under the laws of the Netherlands on May 17, 2006. The Nielsen Company B.V. and its subsidiaries were purchased on May 24, 2006 through Nielsen Holdings (the “Acquisition”) by a consortium of private equity firms (AlpInvest Partners, The Blackstone Group, The Carlyle Group, Hellman & Friedman, Kohlberg Kravis Roberts & Co. and Thomas H. Lee Partners), who we collectively refer to in this prospectus as the “Original Sponsors.” Subsequently, Centerview Partners invested in the Company. Centerview Partners and the Original Sponsors are collectively referred to in this prospectus as the “Sponsors.” Investment funds associated with or designated by the Sponsors own shares of Nielsen Holdings indirectly through their holdings in Valcon Acquisition Holding (Luxembourg) S.à r.l., a private limited company incorporated under the laws of Luxembourg (“Luxco”). As of September 30, 2010, Luxco owned 270,746,445 shares (or approximately 98%) of our common stock. Upon the completion of this offering, it is anticipated Luxco will own approximately 78% of our common stock, assuming the underwriters do not exercise their option to purchase additional shares of our common stock. See “Principal Stockholders.” As a result, we will be a “controlled company” within the meaning of the corporate governance rules of the New York Stock Exchange (the “NYSE”). See “Risk Factors—Risks Related to this Offering and Ownership of Our Common Stock—We

 

 

6


Table of Contents

are a “controlled company” within the meaning of the NYSE rules and, as a result, will qualify for, and intend to rely on, exemptions from certain corporate governance requirements. You will not have the same protections afforded to stockholders of companies that are subject to such requirements.” Upon completion of this offering, we will pay a fee to the Sponsors in connection with the termination of certain advisory agreements. See “Certain Relationships and Related Party Transactions—Advisory Agreements.”

We declared a special dividend of approximately €6 million ($7 million) in the aggregate, or €0.02 per share, to our existing stockholders prior to the completion of this offering, a portion of which is in the form of a non-cash settlement of loans that we have previously extended to Luxco as described under “Certain Relationships and Related Party Transactions—Intercompany Loans and Special Dividend”, and the remainder of which utilizes existing cash from operations.

We are a holding company whose only material asset is 100% of the shares of Valcon Acquisition B.V., a Dutch private company with limited liability, which in turn is a holding company whose only material asset is 100% of the shares of The Nielsen Company B.V. We are owned and controlled by a group of investment funds associated with the Sponsors.

Our stockholders have resolved (i) to convert Nielsen Holdings B.V. into a Dutch public company with limited liability (naamloze vennootschap) incorporated under the laws of the Netherlands, and change our name to Nielsen Holdings N.V. and (ii) to amend our articles of association. These actions are collectively referred to herein as the “Conversion,” which will take effect prior to the completion of this offering.

Our registered office is located at Diemerhof 2, 1112 XL Diemen, the Netherlands and it is registered at the Commercial Register for Amsterdam under file number 34248449. The phone number of Nielsen in the Netherlands is +31 20 398 8777. Our headquarters are located in New York, New York and the phone number is +1 (646) 654-5000. We maintain a website at www.nielsen.com where general information about our business is available. The information contained on, or accessible from, our website is not a part of this prospectus.

 

 

7


Table of Contents

The Offering

 

Common stock offered by us

71,428,572 shares

 

Common stock to be outstanding after this offering

347,629,277 shares (358,343,563 shares if the underwriters exercise their option in full)

 

Use of Proceeds

We estimate that the net proceeds to us from this offering, after deducting underwriting discounts and commissions and estimated offering expenses, will be approximately $1,424 million, assuming the shares are offered at $21.00 per share, which is the mid-point of the estimated offering price range set forth on the cover page of this prospectus.

We estimate that the net proceeds to us from the concurrent offering of our Mandatory Convertible Subordinated Bonds, after deducting underwriting discounts and commissions and estimated offering expenses, will be approximately $240 million if completed.

We intend to use the anticipated net proceeds of both offerings as follows:

 

   

approximately $195 million of the net proceeds will be applied to redeem approximately $163 million in aggregate principal amount (approximately $175 million face amount) of our 11.5% Senior Notes due 2016;

 

   

approximately $129 million of the net proceeds will be applied to redeem approximately $107 million in aggregate principal amount (approximately $115 million face amount) of our 11.625% Senior Notes due 2014;

 

   

approximately $1,130 million of the net proceeds will be applied to redeem approximately $969 million in aggregate principal amount (approximately $1,070 million face amount) of our 12.5% Senior Subordinated Discount Notes due 2016;

 

   

approximately $107 million of the net proceeds will be applied to redeem approximately $93 million in aggregate principal amount (approximately $102 million face amount) of our 11.125% Senior Discount Notes due 2016; and

 

   

approximately $103 million will be paid to the Sponsors as a fee in connection with the termination of certain advisory agreements in accordance with their terms, as described under “Certain Relationships and Related Party Transactions—Advisory Agreements.”

If we do not complete the offering of our Mandatory Convertible Subordinated Bonds, we would intend to (1) eliminate the proposed redemption of $93 million in aggregate principal amount ($107 million of net proceeds) of our 11.125% Senior Discount Notes due 2016 and (2) reduce by $115 million the aggregate principal amount ($133 million of net proceeds) of our 12.5% Senior Subordinated Discount Notes due 2016 that we intend to redeem.

 

 

8


Table of Contents

The redemptions of the 11.5% Senior Notes due 2016 and 11.625% Senior Notes due 2014 will be made pursuant to a provision of the applicable indenture that permits us to redeem up to 35% of the aggregate principal amount of such notes with the net proceeds of certain equity offerings. In each case, we will pay accrued and unpaid interest on the notes through the redemption date with cash generated from operations. To the extent that the underwriters exercise all or a portion of their option to purchase additional shares of our common stock or the underwriters in our offering of Mandatory Convertible Subordinated Bonds exercise all or a portion of their option to purchase additional Mandatory Convertible Subordinated Bonds, the net proceeds received will be used to further reduce our existing indebtedness and to pay any related fees, premiums and expenses, in such manner as we will subsequently determine. Pending such application all or a portion of the net proceeds of this offering may be invested by us in short-term interest-bearing obligations.

 

Dividend policy

We do not intend to pay dividends on our common stock for the foreseeable future.

 

We declared a special dividend of approximately €6 million ($7 million) in the aggregate, or €0.02 per share, to our existing stockholders prior to the completion of this offering, a portion of which is in the form of a non-cash settlement of loans that we have previously extended to Luxco as described under “Certain Relationships and Related Party Transactions—Intercompany Loans and Special Dividend,” and the remainder of which utilizes existing cash from operations. We are paying this dividend so that Luxco will have sufficient cash to pay its operating expenses for the next three years. Accordingly, we do not expect to pay any similar dividends in the foreseeable future.

 

Risk Factors

You should carefully read and consider the information set forth under “Risk Factors” beginning on page 15 of this prospectus and all other information set forth in this prospectus before investing in our common stock.

 

Proposed NYSE ticker symbol

NLSN

 

Concurrent Offering of Mandatory Convertible Subordinated Bonds

Concurrently with this offering of common stock, we are making a public offering of $250,000,000 aggregate principal amount of our Mandatory Convertible Subordinated Bonds, and we have granted the underwriters of that offering a 30-day option to purchase up to an additional $37,500,000 aggregate principal amount of our Mandatory Convertible Subordinated Bonds to cover over-allotments. The Mandatory Convertible Subordinated Bonds will be convertible into an aggregate of up to             shares of our common stock (up to              shares of our common stock if the underwriters in that offering exercise their over-allotment option in full), in each case subject to anti-dilution, make-whole and other adjustments.

 

 

9


Table of Contents

We cannot assure you that the offering of Mandatory Convertible Subordinated Bonds will be completed or, if completed, on what terms it will be completed. The closing of this offering is not conditioned upon the closing of the Mandatory Convertible Subordinated Bonds offering, but the closing of our offering of Mandatory Convertible Subordinated Bonds is conditioned upon the closing of this offering. See the section of this prospectus entitled “Concurrent Offering of Mandatory Convertible Subordinated Bonds” for a summary of the terms of our Mandatory Convertible Subordinated Bonds and a further description of the concurrent offering.

Unless we indicate otherwise or the context otherwise requires, all information in this prospectus:

 

   

assumes (1) no exercise of the underwriters’ option to purchase additional shares of our common stock; and (2) an initial public offering price of $21.00 per share, the midpoint of the initial public offering range indicated on the cover of this prospectus;

 

   

assumes the completion of the concurrent offering of $250,000,000 aggregate principal amount of our Mandatory Convertible Subordinated Bonds and assuming no exercise by the underwriters of that offering of their option to purchase additional Mandatory Convertible Subordinated Bonds;

 

   

assumes the completion of the Conversion;

 

   

does not reflect (1) 17,084,646 shares of our common stock issuable upon the exercise of outstanding stock options at a weighted average exercise price of $17.55 per share as of September 30, 2010, of which 8,363,363 were then exercisable; (2) 14,106,466 shares of our common stock reserved for future grants under our stock incentive plans; and (3) up to             shares of our common stock (up to             shares if the underwriters in our offering of Mandatory Convertible Subordinated Bonds exercise their over-allotment option in full), in each case subject to anti-dilution, make-whole and other adjustments, that would be issuable upon conversion of the Mandatory Convertible Subordinated Bonds issued in our concurrent offering of Mandatory Convertible Subordinated Bonds; and

 

   

reflects the reverse stock split that we effectuated on August 30, 2010 whereby each one and six tenths (1.6) issued and outstanding share of common stock, par value €0.04 per share, was converted into one (1.0) share of common stock, par value €0.07 per share.

 

 

10


Table of Contents

Summary Financial and Other Data

The following table sets forth our summary financial and other data as of the dates and for the periods indicated. The summary consolidated statement of operations and statement of cash flows data for the years ended December 31, 2009, 2008 and 2007 and summary consolidated balance sheet data as of December 31, 2009 have been derived from our audited consolidated financial statements and related notes appearing elsewhere in this prospectus.

The summary financial and other data as of September 30, 2010 and for the nine months ended September 30, 2010 and 2009 have been derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. The unaudited financial data presented have been prepared on a basis consistent with our audited consolidated financial statements. In the opinion of management, such unaudited financial data reflect all adjustments, consisting only of normal and recurring adjustments, necessary for a fair presentation of the results for those periods.

The results of operations for any period are not necessarily indicative of the results to be expected for any future period. The audited consolidated financial statements from which the historical financial information for the periods set forth below have been derived were prepared in accordance with GAAP. The summary financial and other data set forth below should be read in conjunction with, and are qualified by reference to “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Selected Financial and Other Data” and our audited consolidated financial statements, unaudited condensed consolidated financial statements and related notes thereto appearing elsewhere in this prospectus.

 

     Nine Months
Ended
September 30,
    Year Ended
December 31,
 

(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

  2010     2009     2009     2008     2007  

Statement of Operations Data:

         

Revenues

  $ 3,755      $ 3,511      $ 4,808      $ 4,806      $ 4,458   
                                       

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

    1,569        1,484        2,023        2,057        1,992   

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

    1,219        1,127        1,523        1,616        1,506   

Depreciation and amortization(1)

    419        409        557        499        451   

Impairment of goodwill and intangible assets(2)

    —          527        527        96        —     

Restructuring costs(3)

    33        6        62        118        133   
                                       

Operating income/(loss)

    515        (42     116        420        376   
                                       

Interest expense, net

    (488     (477     (640     (684     (661

Other non-operating income/(expense), net(4)

    133        (55     (79     (7     (69
                                       

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

    160        (574     (603     (271     (354

(Provision)/benefit for income taxes

    (14     124        197        (36     (12

Equity in net income/(loss) of affiliates

    1        (25     (22     (7     2   
                                       

Income/(loss) from continuing operations

    147        (475     (428     (314     (364

(Loss)/income from discontinued operations, net of tax

    (19     (58     (61     (275     10   
                                       

Net income/(loss)

    128        (533     (489     (589     (354

Net income attributable to noncontrolling interests

    1        2        2        —          —     
                                       

Net income/(loss) attributable to Nielsen stockholders

  $ 127      $ (535   $ (491   $ (589   $ (354
                                       

Income/(loss) from continuing operations per common share (diluted)

  $ 0.52      $ (1.75   $ (1.57   $ (1.39   $ (1.62

Net income/(loss) attributable to Nielsen stockholders per common share (diluted)

  $ 0.45      $ (1.96   $ (1.79   $ (2.61   $ (1.57

 

 

11


Table of Contents

 

      Nine Months
Ended

September 30,
    Year Ended
December 31,
 

(IN MILLIONS)

   2010     2009    
2009
    2008     2007  

Statement of Cash Flows Data:

          

Net cash provided by operating activities

   $ 294      $ 323      $ 517      $ 317      $ 233   

Net cash used in investing activities

     (241     (221     (227     (591     (517

Net cash (used in)/provided by financing activities

     (140     (185     (271     367        9   

 

(IN MILLIONS)

   September 30,
2010
     December 31,
2009
 

Balance Sheet Data (at period end):

     

Cash and cash equivalents

   $ 423       $ 514   

Goodwill and intangible assets(5)

     11,717         11,813   

Total assets

     14,427         14,600   

Total long-term debt and capital lease obligations, including current portions

     8,570         8,640   

Total Nielsen stockholders’ equity

     2,888         2,798   

 

      Nine Months
Ended
September 30,
    Year Ended
December 31,
 

(IN MILLIONS)

   2010     2009     2009     2008     2007  

Other Financial Data:

          

Constant currency revenue growth(6)

     5.7     *        4.0     6.1     *   

Adjusted EBITDA(7)

   $ 1,009      $ 931      $ 1,312      $ 1,205      $ 1,081   

Capital expenditures

     (226     (204     (282     (370     (266

Cash paid for income taxes

     (89     (106     (139     (91     (99

 

(1) Depreciation and amortization expense included charges for the depreciation and amortization of acquired tangible and intangible assets of $167 million and $185 million for the nine months ended September 30, 2010 and 2009, respectively, and $247 million, $245 million and $233 million for the years ended December 31, 2009, 2008 and 2007, respectively.

 

(2) Our results for the year ended December 31, 2009 included an aggregate goodwill impairment charge of $282 million and an aggregate customer-related intangible asset impairment charge of $245 million, which were recorded in the third quarter of 2009 relating to our Watch and Expositions segments. Our results for the year ended December 31, 2008 included a goodwill impairment charge of $96 million relating to our Watch segment. See Note 5 – Goodwill and Other Intangible Assets – to the audited consolidated financial statements included elsewhere in this prospectus for additional information.

 

(3) Represents costs incurred associated with major restructuring initiatives, including the Transformation Initiative and Other Productivity Initiatives discussed further in Note 8 – Restructuring Activities – to the audited consolidated financial statements included elsewhere in this prospectus.

 

(4)

Includes foreign currency exchange transaction gains of $141 million and $10 million for the nine months ended September 30, 2010 and 2009, respectively, a loss of $2 million for the year ended December 31, 2009, a gain of $20 million for the year ended December 31, 2008 and a loss of $110 million for the year ended December 31, 2007. These gains and losses resulted primarily from the fluctuation in the value of the U.S. dollar against the Euro applied to certain of our Euro denominated senior secured term loans and debenture loans as well as fluctuations in certain currencies including the Euro and Canadian dollar associated with a portion of our intercompany loan portfolio. Also includes losses on derivative financial instruments, primarily comprised of interest and currency swap arrangements, of $17 million and $54 million for the nine months ended September 30, 2010 and 2009, respectively, losses of $60 million and $15 million for the years ended December 31, 2009 and 2008, respectively, and gains of $40 million for the year ended December 31, 2007. In addition, includes other income, net of $9 million and other expense, net of $11 million for the nine

 

 

12


Table of Contents
 

months ended September 30, 2010 and 2009, respectively, other expenses, net of $17 million and $12 million for the years ended December 31, 2009 and 2008, respectively, and other income, net of $1 million for the year ended December 31, 2007.

 

(5) Includes intangible assets subject to amortization of $2,696 million and $2,808 million as of September 30, 2010 and December 31, 2009, respectively.

 

(6) Constant currency revenue growth represents, for each period presented, the percentage growth in revenues from the prior year period removing the positive and negative impacts of changes in foreign currency exchange rates. No data has been presented for the nine months ended September 30, 2009 or year ended December 31, 2007 as financial information for the comparable prior year period is not included herein. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

(7) We define Adjusted EBITDA as net income/(loss) attributable to Nielsen stockholders from our consolidated statements of operations before interest income and expense, income taxes, depreciation and amortization, restructuring charges, goodwill and intangible asset impairment charges, stock compensation expense and other non-operating items from our consolidated statements of operations as well as certain other items specifically described below.

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

We believe that the presentation of Adjusted EBITDA provides useful information to management and investors regarding financial and business trends related to our results of operations and that when non-GAAP financial information is viewed with GAAP financial information, investors are provided with a more meaningful understanding of our ongoing operating performance. We also use Adjusted EBITDA to compare our results to those of our competitors and to consistently measure our performance from period to period.

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

 

 

13


Table of Contents

The below table presents a reconciliation from net income/(loss) attributable to Nielsen stockholders to Adjusted EBITDA for the periods presented elsewhere in this prospectus:

 

      Nine Months
Ended
September 30,
    Year Ended
December 31,
 

(IN MILLIONS)

   2010     2009     2009     2008     2007  

Net income/(loss) attributable to Nielsen stockholders

   $ 127      $ (535   $ (491   $ (589   $ (354

Income attributable to noncontrolling interests

     1        2        2        —          —     
                                        

Net income/(loss)

     128        (533     (489     (589     (354

Loss/(gain) on discontinued operations, net

     19        58        61        275        (10

Equity in net (income)/loss of affiliates, net

     (1     25        22        7        (2

Provision/(benefit) for income taxes

     14        (124     (197     36        12   

Other non-operating (income)/expense, net

     (133     55        79        7        69   

Interest expense, net

     488        477        640        684        661   
                                        

Operating income/(loss)

     515        (42 )       116        420        376   

Specified transaction costs(a)

     —          —          —          —          37   

Restructuring costs

     33        6        62        118        133   

Impairment of goodwill and intangible assets

     —          527        527        96        —     

Depreciation and amortization

     419        409        557        499        451   

Stock compensation expense

     13        6        14        18        52   

Sponsor monitoring fees

     9        9        12        11        10   

Other items(b)

     20        16        24        43        22   
                                        

Adjusted EBITDA

   $ 1,009      $ 931      $ 1,312      $ 1,205      $ 1,081   
                                        

 

(a) For the year ended December 31, 2007, we recorded $37 million of charges associated with transaction costs, legal settlements and incremental expenses associated with compensation arrangements and recruiting costs for certain corporate executives.

 

(b) Other items include Transformation Initiative dual running costs of $6 million and $5 million for the nine months ended September 30, 2010 and 2009, respectively, and $7 million, $15 million and $7 million for the years ended December 31, 2009, 2008 and 2007, respectively. Also includes consulting and other costs of $14 million and $11 million for the nine months ended September 30, 2010 and 2009, respectively, and $17 million, $28 million and $15 million for the years ended December 31, 2009, 2008 and 2007, respectively, associated with information technology infrastructure transformation, fees associated with certain consulting arrangements and charges associated with a deferred compensation plan.

 

 

14


Table of Contents

RISK FACTORS

An investment in our common stock involves risk. You should carefully consider the following risks as well as the other information included in this prospectus, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes, before investing in our common stock. Any of the following risks could materially and adversely affect our business, financial condition or results of operations.

Risks Related to Our Business

We may be unable to adapt to significant technological change which could adversely affect our business.

We operate in businesses that require sophisticated data collection, processing systems, software and other technology. Some of the technologies supporting the industries we serve are changing rapidly. We will be required to adapt to changing technologies, either by developing and marketing new products and services or by enhancing our existing products and services, to meet client demand.

Moreover, the introduction of new products and services embodying new technologies and the emergence of new industry standards could render existing products and services obsolete. Our continued success will depend on our ability to adapt to changing technologies, manage and process ever-increasing amounts of data and information and improve the performance, features and reliability of our existing products and services in response to changing client and industry demands. We may experience difficulties that could delay or prevent the successful design, development, testing, introduction or marketing of our products and services. New products and services, or enhancements to existing products and services, may not adequately meet the requirements of current and prospective clients or achieve any degree of significant market acceptance.

Traditional methods of television viewing are changing as a result of fragmentation of channels and digital and other new television technologies, such as video-on-demand, digital video recorders and internet viewing. If we are unable to continue to successfully adapt our media measurement systems to new viewing habits, our business, financial position and results of operations could be adversely affected.

Consolidation in the consumer packaged goods, media, entertainment, telecommunications and technology industries could put pressure on the pricing of our products and services, thereby leading to decreased earnings.

Consolidation in the consumer packaged goods, media, entertainment, telecommunications and technology industries could reduce aggregate demand for our products and services in the future and could limit the amounts we earn for our products and services. When companies merge, the products and services they previously purchased separately are often purchased by the combined entity in the aggregate in a lesser quantity than before, leading to volume compression and loss of revenue. While we attempt to mitigate the revenue impact of any consolidation by expanding our range of products and services, there can be no assurance as to the degree to which we will be able to do so as industry consolidation continues, which could adversely affect our business, financial position and results of operations.

Client procurement strategies could put additional pressure on the pricing of our information products and services, thereby leading to decreased earnings.

Certain of our clients may continue to seek further price concessions from us. This puts pressure on the pricing of our information products and services, which could limit the amounts we earn. While we attempt to mitigate the revenue impact of any pricing pressure through effective negotiations and by providing services to individual businesses within particular groups, there can be no assurance as to the degree to which we will be able to do so, which could adversely affect our business, financial position and results of operations.

 

15


Table of Contents

Continued adverse market conditions, particularly in the consumer packaged goods, media, entertainment, telecommunications or technology industries in particular, could adversely impact our revenue.

As experienced in 2009, a number of adverse financial developments have impacted the U.S. and global financial markets. These developments include a significant economic deterioration both in the United States and globally, volatility and deterioration in the equity markets, and deterioration and tightening of liquidity in the credit markets. In addition, issues related to sovereign debt in Europe recently have negatively affected the global financial markets. The current economic environment has witnessed a significant reduction in consumer confidence and demand, impacting the demand for our customers’ products and services. Those reductions could adversely affect the ability of some of our customers to meet their current obligations to us and hinder their ability to incur new obligations until the economy and their businesses strengthen. The inability of our customers to pay us for our services and/or decisions by current or future customers to forego or defer purchases may adversely impact our business, financial condition, results of operations, profitability and cash flows and may continue to present risks for an extended period of time. We cannot predict the impact of economic slowdowns on our future financial performance.

We expect that revenues generated from our marketing information and television audience measurement services and related software and consulting services will continue to represent a substantial portion of our overall revenue for the foreseeable future. To the extent the businesses we service, especially our clients in the consumer packaged goods, media, entertainment, telecommunications and technology industries, are subject to the financial pressures of, for example, increased costs or reduced demand for their products, the demand for our services, or the prices our clients are willing to pay for those services, may decline.

Clients within our Watch segment derive a significant amount of their revenue from the sale or purchase of advertising. During challenging economic times, advertisers may reduce advertising expenditures and advertising agencies and other media may be less likely to purchase our media information services.

During challenging economic times, clients, typically advertisers, within our Buy segment may reduce their discretionary advertising expenditures and may be less likely to purchase our analytical services.

Our Expositions segment derives a significant amount of its revenues from business-to-business trade shows and events. As experienced in both 2008 and 2009, during challenging economic times exhibitors may cut back on attending our events which would have an adverse effect on our revenue.

We have suffered losses due to goodwill impairment charges and could do so again in the future.

Goodwill and indefinite-lived intangible assets are subject to annual review for impairment (or more frequently should indications of impairment arise). In addition, other intangible assets are also reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Economic volatility has negatively impacted our financial results and, as a direct result, we recorded goodwill impairment charges of $282 million and $96 million for the years ended December 31, 2009 and 2008 respectively (as well as $55 million and $336 million in 2009 and 2008, respectively, relating to discontinued operations) and $245 million of intangible asset impairment charges for the year ended December 31, 2009. Subsequent to the recognition of these impairment charges and as of September 30, 2010, we had goodwill and intangible assets of approximately $11.7 billion. Any further downward revisions in the fair value of our reporting units or our intangible assets could result in further impairment charges for goodwill and intangible assets that could materially affect our financial performance.

Our substantial indebtedness could adversely affect our financial health.

We have now and will continue to have a significant amount of indebtedness. As of September 30, 2010, we had total indebtedness of $8,570 million, excluding bank overdrafts. Furthermore, the interest payments on our indebtedness could reduce the availability of our cash flow.

 

16


Table of Contents

Our substantial indebtedness could have important consequences. For example, it could:

 

   

increase our vulnerability to the current general adverse economic and industry conditions;

 

   

require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, product development efforts and other general corporate purposes;

 

   

limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;

 

   

expose us to the risk of increased interest rates as certain of our borrowings are at variable rates of interest;

 

   

restrict us from making strategic acquisitions or causing us to make non-strategic divestitures;

 

   

limit our ability to obtain additional financing for working capital, capital expenditures, product development, debt service requirements, acquisitions and general corporate or other purposes;

 

   

limit our ability to adjust to changing market conditions; and

 

   

place us at a competitive disadvantage compared to our competitors that have less debt.

In addition, the indentures governing our outstanding notes and our credit facilities contain financial and other restrictive covenants that will limit the ability of our operating subsidiaries to engage in activities that may be in our best interests in the long term. The failure to comply with those covenants could result in an event of default which, if not cured or waived, could result in the acceleration of all of our debt.

Despite current indebtedness levels, we and our subsidiaries may still be able to incur substantially more debt. This could further increase the risks associated with our substantial leverage.

We and our subsidiaries may be able to incur substantial additional indebtedness in the future. If new debt is added to our and our subsidiaries’ current debt levels, the related risks that we and they now face could intensify.

To service our indebtedness, we will require a significant amount of cash as well as continued access to the capital markets. Our ability to generate cash and our access to the capital markets depend on many factors beyond our control.

Our ability to make payments on our indebtedness and to fund planned capital expenditures and product development efforts will depend on our ability to generate cash in the future and our ability to refinance our indebtedness. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.

We may not be able to generate sufficient cash flow from operations to pay our indebtedness or to fund our other liquidity needs. Our cash interest expense for the years ended December 31, 2009, 2008 and 2007 was $495 million, $494 million and $533 million, respectively, and $392 million and $383 million for the nine-month periods ended September 30, 2010 and 2009, respectively. At September 30, 2010, we had $4,615 million of floating-rate debt under our 2006 Senior Secured Credit Facilities and our existing floating rate notes. A one percent increase in our floating rate indebtedness would increase annual interest expense by approximately $46 million (without giving effect to any of our interest rate swaps). We may need to refinance all or a portion of our indebtedness on or before maturity. We may not be able to refinance any of our indebtedness, including our senior secured credit facilities, on commercially reasonable terms or at all.

The success of our business depends on our ability to recruit sample participants to participate in our research samples.

Our business uses scanners and diaries to gather consumer data from sample households as well as Set Meters, People Meters, Active/Passive Meters and diaries to gather television audience measurement data from

 

17


Table of Contents

sample households. It is increasingly difficult and costly to obtain consent from households to participate in the surveys. In addition, it is increasingly difficult and costly to ensure that the selected sample of households mirrors the behaviors and characteristics of the entire population and covers all of the demographic segments requested by our clients. Additionally, as consumers adopt modes of telecommunication other than traditional telephone service, such as mobile, cable and internet calling, it may become more difficult for our services to reach and recruit participants for consumer purchasing and audience measurement services. If we are unsuccessful in our efforts to recruit appropriate participants and maintain adequate participation levels, our clients may lose confidence in our ratings services and we could lose the support of the relevant industry groups. If this were to happen, our consumer purchasing and audience measurement services may be materially and adversely affected.

Data protection laws may restrict our activities and increase our costs.

Various statutes and rules regulate conduct in areas such as privacy and data protection which may affect our collection, use, storage and transfer of personally identifiable information both abroad and in the United States. Compliance with these laws may require us to make certain investments or may dictate that we not offer certain types of products and services or only offer such services or products after making necessary modifications. Failure to comply with these laws may result in, among other things, civil and criminal liability, negative publicity, data being blocked from use and liability under contractual warranties. In addition, there is an increasing public concern regarding data and consumer protection issues, and the number of jurisdictions with data protection laws has been slowly increasing. There is also the possibility that the scope of existing privacy laws may be expanded. For example, several countries including the United States have regulations that restrict telemarketing to individuals who request to be included on a do-not-call list. Typically, these regulations target sales activity and do not apply to survey research. If the laws were extended to include survey research, our ability to recruit research participants could be adversely affected. These or future initiatives may adversely affect our ability to generate or assemble data or to develop or market current or future products or services, which could negatively impact our business.

If we are unable to protect our intellectual property rights, our business could be adversely affected.

The success of our business will depend, in part, on:

 

   

obtaining patent protection for our technology, products and services;

 

   

defending our patents, copyrights, trademarks, service marks and other intellectual property;

 

   

preserving our trade secrets and maintaining the security of our know-how and data; and

 

   

operating our business without infringing upon intellectual property rights held by third parties.

We rely on a combination of contractual provisions, confidentiality procedures and the patent, copyright, trademark and trade secret laws of the United States and other countries to protect our intellectual property. These legal measures afford only limited protection and may not provide sufficient protection to prevent the infringement, misuse or misappropriation of our intellectual property. Intellectual property law in several foreign jurisdictions is subject to considerable uncertainty. There can be no assurances that the protections we have available for our proprietary technology in the United States and other countries will be available to us in all of the places we sell our products and services. Any infringement or misappropriation of our technology can have a negative impact on our business. The patents we own could be challenged, invalidated or circumvented by others and may not be of sufficient scope or strength to provide us with meaningful protection or commercial advantage. The expiration of our patents may lead to increased competition. Although our employees, consultants, clients and collaborators enter into confidentiality agreements with us, our trade secrets, data and know-how could be subject to unauthorized use, misappropriation or unauthorized disclosure. The growing need for global data, along with increased competition and technological advances, puts increasing pressure on us to share our intellectual property for client applications with others, which could result in infringement. Competitors

 

18


Table of Contents

may gain access to our intellectual property and proprietary information. Our trademarks could be challenged, which could force us to rebrand our products or services, result in a loss of brand recognition and require us to devote resources to advertising and marketing new brands. Furthermore, litigation may be necessary to enforce our intellectual property rights, to protect our trade secrets and to determine the validity and scope of our proprietary rights. Given the importance of our intellectual property, we will enforce our rights whenever it is necessary and prudent to do so. Any future litigation, regardless of the outcome, could result in substantial expense and diversion of time and attention of management, may not be resolved in our favor and could adversely affect our business.

If third parties claim that we infringe upon their intellectual property rights, our operating profits could be adversely affected.

We cannot be certain that we do not and will not infringe the intellectual property rights of others in operating our business. We may be subject to legal proceedings and claims in the ordinary course of our business, including claims that we have infringed third parties’ intellectual property rights. Any such claims of intellectual property infringement, even those without merit, could:

 

   

be expensive and time-consuming to defend;

 

   

result in our being required to pay possibly significant damages;

 

   

cause us to cease providing our products and services that incorporate the challenged intellectual property;

 

   

require us to redesign or rebrand our products or services;

 

   

divert management’s attention and resources; or

 

   

require us to enter into potentially costly royalty or licensing agreements in order to obtain the right to use a third party’s intellectual property, although royalty or licensing agreements may not be available to us on acceptable terms or at all.

Any of the above could have a negative impact on our operating profits and harm our future prospects and financial condition.

We generate revenues throughout the world which are subject to exchange rate fluctuations, and our revenue and net income may suffer due to currency translations.

We operate globally, deriving approximately 47% of revenues for the year ended December 31, 2009 in currencies other than U.S. dollars. Our U.S. operations earn revenue and incur expenses primarily in U.S. dollars, while our European operations earn revenue and incur expenses primarily in Euros, which have recently been subject to significant volatility. Outside the United States and the European Union, we generate revenue and expenses predominantly in local currencies. Because of fluctuations (including possible devaluations) in currency exchange rates, we are subject to currency translation exposure on the profits of our operations, in addition to economic exposure. In certain instances, we may not be able to freely convert foreign currencies into U.S. dollars due to limitations placed on such conversions. Certain of the countries in which we operate, such as Venezuela, have currencies which are considered to be hyperinflationary. This risk could have a material adverse effect on our business, results of operations and financial condition.

Our international operations are exposed to risks which could impede growth in the future.

We continue to explore opportunities in major international markets around the world, including China, Russia, India and Brazil. International operations expose us to various additional risks, which could adversely affect our business, including:

 

   

costs of customizing services for clients outside of the United States;

 

19


Table of Contents

 

   

reduced protection for intellectual property rights in some countries;

 

   

the burdens of complying with a wide variety of foreign laws;

 

   

difficulties in managing international operations;

 

   

longer sales and payment cycles;

 

   

exposure to foreign currency exchange rate fluctuation;

 

   

exposure to local economic conditions;

 

   

exposure to local political conditions, including adverse tax policies, civil unrest and seizure of assets by a foreign government; and

 

   

the risks of an outbreak of war, the escalation of hostilities and acts of terrorism in the jurisdictions in which we operate.

In countries where there has not been a historical practice of using consumer packaged goods retail information or audience measurement information in the buying and selling of advertising time, it may be difficult for us to maintain subscribers.

Criticism of our audience measurement service by various industry groups and market segments could adversely affect our business.

Due to the high-profile nature of our services in the media, internet and entertainment information industries, we could become the target of criticism by various industry groups and market segments. We strive to be fair, transparent and impartial in the production of audience measurement services, and the quality of our U.S. ratings services are voluntarily subject to review and accreditation by the Media Rating Council, a voluntary trade organization, whose members include many of our key client constituencies. However, criticism of our business by special interests, and by clients with competing and often conflicting demands on our measurement service, could result in government regulation. While we believe that government regulation is unnecessary, no assurance can be given that legislation will not be enacted in the future that would subject our business to regulation, which could adversely affect our business.

A loss of one of our largest clients could adversely impact our results of operations.

Our top ten clients accounted for approximately 23% of our total revenues for the year ended December 31, 2009. We cannot assure you that any of our clients will continue to use our services to the same extent, or at all, in the future. A loss of one or more of our largest clients, if not replaced by a new client or an increase in business from existing clients, would adversely affect our prospects, business, financial condition and results of operations.

We rely on third parties to provide certain data and services in connection with the provision of our current services.

We rely on third parties to provide certain data and services for use in connection with the provision of our current services. For example, our Buy segment enters into agreements with third parties (primarily retailers of fast-moving consumer goods) to obtain the raw data on retail product sales it processes and edits and from which it creates products and services. These suppliers of data may increase restrictions on our use of such data, fail to adhere to our quality control standards, increase the price they charge us for this data or refuse altogether to license the data to us. In addition, we may need to enter into agreements with third parties to assist with the marketing, technical and financial aspects of expanding our services for other types of media. In the event we are unable to use such third party data and services or if we are unable to enter into agreements with third parties, when necessary, our business and/or our potential growth could be adversely affected. In the event that such data and services are unavailable for our use or the cost of acquiring such data and services increases, our business could be adversely affected.

 

20


Table of Contents

We rely on a third party for the performance of a significant portion of our worldwide information technology and operations functions, various services and assistance in certain integration projects. A failure to provide these functions, services or assistance in a satisfactory manner could have an adverse effect on our business.

Pursuant to the terms of a ten year agreement, effective February 19, 2008, we are dependent upon Tata America International Corporation and Tata Consultancy Services Limited (collectively, “TCS”) for the performance of a significant portion of our information technology and operations functions worldwide, the provision of a broad suite of information technology and business process services, including general and process consulting, product engineering, program management, application development and maintenance, coding, data management, finance and accounting services and human resource services, as well as assistance in integrating and centralizing multiple systems, technologies and processes on a global scale. The success of our business depends in part on maintaining our relationships with TCS and their continuing ability to perform these functions and services in a timely and satisfactory manner. If we experience a loss or disruption in the provision of any of these functions or services, or they are not performed in a satisfactory manner, we may have difficulty in finding alternate providers on terms favorable to us, or at all, and our business could be adversely affected.

Long term disruptions in the mail, telecommunication infrastructure and/or air service could adversely affect our business.

Our business is dependent on the use of the mail, telecommunication infrastructure and air service. Long term disruptions in one or more of these services, which could be caused by events such as natural disasters, the outbreak of war, the escalation of hostilities, civil unrest and/or acts of terrorism could adversely affect our business, results of operations and financial condition.

Hardware and software failures, delays in the operation of our computer and communications systems or the failure to implement system enhancements may harm our business.

Our success depends on the efficient and uninterrupted operation of our computer and communications systems. A failure of our network or data gathering procedures could impede the processing of data, delivery of databases and services, client orders and day-to-day management of our business and could result in the corruption or loss of data. While many of our services have appropriate disaster recovery plans in place, we currently do not have full backup facilities everywhere in the world to provide redundant network capacity in the event of a system failure. Despite any precautions we may take, damage from fire, floods, hurricanes, power loss, telecommunications failures, computer viruses, break-ins and similar events at our various computer facilities could result in interruptions in the flow of data to our servers and from our servers to our clients. In addition, any failure by our computer environment to provide our required data communications capacity could result in interruptions in our service. In the event of a delay in the delivery of data, we could be required to transfer our data collection operations to an alternative provider of server hosting services. Such a transfer could result in significant delays in our ability to deliver our products and services to our clients and could be costly to implement. Additionally, significant delays in the planned delivery of system enhancements and improvements, or inadequate performance of the systems once they are completed, could damage our reputation and harm our business. Finally, long-term disruptions in infrastructure caused by events such as natural disasters, the outbreak of war, the escalation of hostilities, civil unrest and/or acts of terrorism (particularly involving cities in which we have offices) could adversely affect our services. Although we carry property and business interruption insurance, our coverage may not be adequate to compensate us for all losses that may occur.

The presence of our Global Technology and Information Center in Florida heightens our exposure to hurricanes and tropical storms, which could disrupt our business.

The technological data processing functions for certain of our U.S. operations are concentrated at our Global Technology and Information Center (“GTIC”) at a single location in Florida. Our geographic concentration in

 

21


Table of Contents

Florida heightens our exposure to a hurricane or tropical storm. These weather events could cause severe damage to our property and technology and could cause major disruptions to our operations. Although our GTIC was built in anticipation of severe weather events and we have insurance coverage, if we were to experience a catastrophic loss, we may exceed our policy limits and/or we may have difficulty obtaining similar insurance coverage in the future. As such, a hurricane or tropical storm could have an adverse effect on our business.

Our services involve the storage and transmission of proprietary information. If our security measures are breached and unauthorized access is obtained, our services may be perceived as not being secure and panelists and survey respondents may hold us liable for disclosure of personal data, and clients and venture partners may hold us liable or reduce their use of our services.

We store and transmit large volumes of proprietary information and data that contains personally identifiable information about individuals. Security breaches could expose us to a risk of loss of this information, litigation and possible liability and our reputation could be damaged. For example, hackers or individuals who attempt to breach our network security could, if successful, misappropriate proprietary information or cause interruptions in our services. If we experience any breaches of our network security or sabotage, we might be required to expend significant capital and resources to protect against or to alleviate problems. We may not be able to remedy any problems caused by hackers or saboteurs in a timely manner, or at all. Techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until launched against a target and, as a result, we may be unable to anticipate these techniques or to implement adequate preventive measures. If an actual or perceived breach of our security occurs, the perception of the effectiveness of our security measures could be harmed and we could lose current and potential clients.

If we are unable to attract, retain and motivate employees, we may not be able to compete effectively and will not be able to expand our business.

Our success and ability to grow are dependent, in part, on our ability to hire, retain and motivate sufficient numbers of talented people, with the increasingly diverse skills needed to serve clients and expand our business, in many locations around the world. Competition for highly qualified, specialized technical and managerial, and particularly consulting personnel is intense. Recruiting, training and retention costs and benefits place significant demands on our resources. The inability to attract qualified employees in sufficient numbers to meet particular demands or the loss of a significant number of our employees could have an adverse effect on us, including our ability to obtain and successfully complete important client engagements and thus maintain or increase our revenues.

Changes in tax laws may adversely affect our reported results.

Changes in tax laws, regulations, related interpretations and tax accounting standards in the United States, the Netherlands and other countries in which we operate may adversely affect our financial results. For example, recent legislative proposals to reform U.S. taxation of non-U.S. earnings could have a material adverse effect on our financial results by subjecting a significant portion of our non-U.S. earnings to incremental U.S. taxation and/or by delaying or permanently deferring certain deductions otherwise allowed in calculating our U.S. tax liabilities. In addition, governments are increasingly considering tax law changes as a means to cover budgetary shortfalls resulting from the current economic environment.

We face competition, which could adversely affect our business, financial condition, results of operations and cash flow.

We are faced with a number of competitors in the markets in which we operate. Some of our competitors in each market may have substantially greater financial marketing and other resources than we do and may in the future engage in aggressive pricing action to compete with us. Although we believe we are currently able to compete effectively in each of the various markets in which we participate, we may not be able to do so in the

 

22


Table of Contents

future or be capable of maintaining or further increasing our current market share. Our failure to compete successfully in our various markets could adversely affect our business, financial condition, results of operations and cash flow.

We may be subject to antitrust litigation or government investigation in the future, which may result in an award of money damages or force us to change the way we do business.

In the past, certain of our business practices have been investigated by government antitrust or competition agencies, and we have on several occasions been sued by private parties for alleged violations of the antitrust and competition laws of various jurisdictions. Following some of these actions, we have changed certain of our business practices to reduce the likelihood of future litigation. Although each of these material prior legal actions have been resolved, there is a risk based upon the leading position of certain of our business operations that we could, in the future, be the target of investigations by government entities or actions by private parties challenging the legality of our business practices. Also, in markets where the retail trade is concentrated, regulatory authorities may perceive certain of our retail services as potential vehicles for collusive behavior by retailers or manufacturers. There can be no assurance that any such investigation or challenge will not result in an award of money damages, penalties or some form of order that might require a change in the way that we do business, any of which could adversely affect our revenue stream and/or profitability.

The use of joint ventures, over which we do not have full control, could prevent us from achieving our objectives.

We have conducted and will continue to conduct a number of business initiatives through joint ventures, some of which are or may be controlled by others. Our joint venture partners might have economic or business objectives that are inconsistent with our objectives. Our joint venture partners could go bankrupt, leaving us liable for their share of joint venture liabilities. Although we generally will seek to maintain sufficient control of any joint venture to permit our objectives to be achieved, we might not be able to take action without the approval of our joint venture partners. Also, our joint venture partners could take appropriate actions binding on the joint venture without our consent. In addition, the terms of our joint venture agreements may limit our business opportunities. Accordingly, the use of joint ventures could prevent us from achieving our intended objectives.

Risks Related to this Offering and Ownership of Our Common Stock

There is no existing market for our common stock and an active, liquid trading market may not develop.

Prior to this offering, there has not been a public market for our common stock. We cannot predict the extent to which investor interest in our company will lead to the development of a trading market on the NYSE or otherwise or how active and liquid that market may become. If an active and liquid trading market does not develop, you may have difficulty selling any of our common stock that you purchase. The initial public offering price for the shares will be determined by negotiations between us and the underwriters and may not be indicative of prices that will prevail in the open market following this offering. The market price of our common stock may decline below the initial offering price, and you may not be able to sell your shares of our common stock at or above the price you paid in this offering, or at all.

You will incur immediate and substantial dilution in the net tangible book value of the shares you purchase in this offering.

Prior investors have paid substantially less per share of our common stock than the price in this offering. The initial public offering price of our common stock is substantially higher than the net tangible book value per share of outstanding common stock prior to completion of the offering. Based on our net tangible book deficit as of September 30, 2010 and upon the issuance and sale of 71,428,572 shares of common stock by us at an assumed initial public offering price of $21.00 per share (the midpoint of the initial public offering price range indicated on the cover of this prospectus), if you purchase our common stock in this offering, you will pay more for your shares than the amounts paid by our existing stockholders for their shares and you will suffer immediate

 

23


Table of Contents

dilution of approximately $42.31 per share in net tangible book value. We also have a large number of outstanding stock options to purchase common stock with exercise prices that are below the estimated initial public offering price of our common stock. To the extent that these options are exercised, you will experience further dilution.

Our stock price may change significantly following the offering, and you could lose all or part of your investment as a result.

The trading price of our common stock is likely to be highly volatile and could fluctuate due to a number of factors such as those listed in “—Risks Related to Our Business” and the following, some of which are beyond our control:

 

   

quarterly variations in our results of operations;

 

   

results of operations that vary from the expectations of securities analysts and investors;

 

   

results of operations that vary from those of our competitors;

 

   

changes in expectations as to our future financial performance, including financial estimates by securities analysts and investors;

 

   

announcements by us, our competitors or our vendors of significant contracts, acquisitions, joint marketing relationships, joint ventures or capital commitments;

 

   

announcements by third parties of significant claims or proceedings against us;

 

   

future sales and anticipated future sales of our common stock; and

 

   

general domestic and international economic conditions.

Furthermore, the stock market has experienced extreme volatility that, in some cases, has been unrelated or disproportionate to the operating performance of particular companies. These broad market and industry fluctuations may adversely affect the market price of our common stock, regardless of our actual operating performance.

In the past, following periods of market volatility, stockholders have instituted securities class action litigation. If we were involved in securities litigation, it could have a substantial cost and divert resources and the attention of executive management from our business regardless of the outcome of such litigation.

Certain stockholders’ shares are restricted from immediate resale but may be sold into the market in the near future. This could cause the market price of our common stock to drop significantly.

After the completion of this offering, we will have 347,629,277 shares of common stock outstanding (358,343,563 shares if the underwriters exercise their option to purchase additional shares in full). This number includes 71,428,572 shares sold in this offering, which may be resold immediately in the public market.

We, our directors and executive officers and certain holders of our outstanding common stock and options to purchase our common stock, including the Sponsors, have agreed not to offer or sell, dispose of or hedge, directly or indirectly, any common stock without the permission of J.P. Morgan Securities LLC and Morgan Stanley & Co. Incorporated for a period of 180 days from the date of this prospectus, subject to certain exceptions and automatic extension in certain circumstances. In addition, pursuant to a registration rights agreement, we will grant to Luxco and the Sponsors the right to cause us, in certain instances, at our expense, to file registration statements under the Securities Act covering resales of our common stock held by them. These shares will represent approximately 78% of our outstanding common stock after this offering, or 76% if the underwriters exercise their option to purchase additional shares in full. These shares also may be sold pursuant to Rule 144 under the Securities Act, depending on their holding period and subject to restrictions in the case of

 

24


Table of Contents

shares held by persons deemed to be our affiliates. As restrictions on resale end or if these stockholders exercise their registration rights, the market price of our stock could decline if the holders of restricted shares sell them or are perceived by the market as intending to sell them. See “Certain Relationships and Related Party Transactions—Shareholders’ Agreement.”

As of September 30, 2010, 276,200,705 shares of our common stock were outstanding, 8,363,363 shares were issuable upon the exercise of outstanding vested stock options under our stock incentive plans, 8,721,283 shares were subject to outstanding unvested stock options and restricted stock grants under our stock incentive plans, and 14,106,466 shares were reserved for future grant under our stock incentive plans. Shares acquired upon the exercise of vested options under our 2006 Stock Acquisition and Option Plan are subject to restrictions on resale for so long as we are owned by the Sponsors. Sales of a substantial number of shares of our common stock following the vesting of outstanding stock options could cause the market price of our common stock to decline.

The availability of shares for sale in the future could reduce the market price of our common stock.

In the future, we may issue securities to raise cash for acquisitions. We may also acquire interests in other companies by using a combination of cash and our common stock or just our common stock. We also expect to issue common stock upon the conversion of our Mandatory Convertible Subordinated Bonds. We may also issue preferred stock or additional securities convertible into our common stock or preferred stock. Any of these events may dilute your ownership interest in our Company and have an adverse effect on the price of our common stock.

In addition, sales of a substantial amount of our common stock in the public market, or the perception that these sales may occur, could reduce the market price of our common stock. This could also impair our ability to raise additional capital through the sale of our securities.

The Mandatory Convertible Subordinated Bonds may adversely affect the market price of our common stock.

The market price of our common stock is likely to be influenced by the Mandatory Convertible Subordinated Bonds. For example, the market price of our common stock could become more volatile and could be depressed by:

 

   

investors’ anticipation of the potential resale in the market of a substantial number of additional shares of our common stock received upon conversion of the Mandatory Convertible Subordinated Bonds;

 

   

possible sales of our common stock by investors who view the Mandatory Convertible Subordinated Bonds as a more attractive means of equity participation in us than owning shares of our common stock; and

 

   

hedging or arbitrage trading activity that may develop involving the Mandatory Convertible Subordinated Bonds and our common stock.

Because we do not currently intend to pay cash dividends on our common stock for the foreseeable future, you may not receive any return on investment unless you sell your common stock for a price greater than that which you paid for it.

We currently intend to retain future earnings, if any, for future operation, expansion and debt repayment and do not intend to pay any cash dividends for the foreseeable future following this offering. Any decision to declare and pay dividends in the future to the holders of our common stock will be made at the discretion of our board of directors, and the recommendation of the board will depend on, among other things, our results of operations, financial condition, cash requirements, contractual and legal restrictions and other factors that our board of directors may deem relevant. In addition, our ability to pay dividends may be limited by covenants of any existing and future outstanding indebtedness we or our subsidiaries incur, including our senior secured credit

 

25


Table of Contents

facilities and the indentures governing our notes. As a result, you may not receive any return on an investment in our common stock unless you sell our common stock for a price greater than that which you paid for it. Any dividend actually declared and paid may also be subject to a Dutch withholding tax, currently at a rate of 15 percent.

The Sponsors will continue to have significant influence over us after this offering, including control over decisions that require the approval of stockholders. This interest may conflict with yours and such influence could limit your ability to influence the outcome of key transactions, including a change of control.

We are controlled, and after this offering is completed will continue to be controlled, by the Sponsors. The Sponsors will indirectly own through their investment in Luxco approximately 78% of our common stock (or 76% if the underwriters exercise their option to purchase additional shares in full) after the completion of this offering. In addition, prior to the completion of this offering, representatives of the Sponsors will have been appointed to our board of directors such that they occupy a majority of the seats on our board of directors. As a result, the Sponsors will have control over the board and thus our decisions to enter into any corporate transaction and the ability to prevent any transaction that requires stockholder approval regardless of whether others believe that the transaction is in our best interests. So long as the Sponsors continue to indirectly hold a majority of our outstanding common stock, they will have the ability to control the vote in any election of directors. See “Certain Relationships and Related Party Transactions” and “Principal Stockholders.”

The Sponsors are also in the business of making investments in companies and may from time to time acquire and hold interests in businesses that compete directly or indirectly with us. The Sponsors may also pursue acquisition opportunities that are complementary to our business and, as a result, those acquisition opportunities may not be available to us. So long as the Sponsors, or other funds controlled by or associated with the Sponsors, continue to indirectly own a significant amount of our outstanding common stock, even if such amount is less than 50%, the Sponsors will continue to be able to strongly influence or effectively control our decisions. The concentration of ownership may have the effect of delaying, preventing or deterring a change of control of our Company, could deprive stockholders of an opportunity to receive a premium for their common stock as part of a sale of our Company and might ultimately affect the market price of our common stock.

We are a “controlled company” within the meaning of the NYSE rules and, as a result, will qualify for, and intend to rely on, exemptions from certain corporate governance requirements. You will not have the same protections afforded to stockholders of companies that are subject to such requirements.

After completion of this offering, the Sponsors will continue to control a majority of the voting power of our outstanding common stock. As a result, we are a “controlled company” within the meaning of the corporate governance standards of the NYSE. Under these rules, a company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements, including:

 

   

the requirement that a majority of the board of directors consist of independent directors;

 

   

the requirement that we have a nomination/corporate governance committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities;

 

   

the requirement that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and

 

   

the requirement for an annual performance evaluation of the nomination/corporate governance and compensation committees.

Following this offering, we intend to utilize each of these exemptions. As a result, we will not have a majority of independent directors, our nomination and corporate governance committee and compensation committee will not consist entirely of independent directors and such committees will not be subject to annual performance evaluations. Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the NYSE.

 

26


Table of Contents

United States civil liabilities may not be enforceable against us.

We are incorporated under the laws of the Netherlands and substantial portions of our assets are located outside of the United States. As a result, it may be difficult for investors to effect service of process within the United States upon us or such other persons residing outside the United States, or to enforce outside the United States judgments obtained against such persons in U.S. courts in any action, including actions predicated upon the civil liability provisions of the U.S. federal securities laws. In addition, it may be difficult for investors to enforce, in original actions brought in courts in jurisdictions located outside the United States, rights predicated upon the U.S. federal securities laws.

There is no treaty between the United States and the Netherlands for the mutual recognition and enforcement of judgments (other than arbitration awards) in civil and commercial matters. Therefore, a final judgment for the payment of money rendered by any federal or state court in the United States based on civil liability, whether or not predicated solely upon the U.S. federal securities laws, would not be enforceable in the Netherlands unless the underlying claim is re-litigated before a Dutch court. Under current practice however, a Dutch court will generally grant the same judgment without a review of the merits of the underlying claim if (i) that judgment resulted from legal proceedings compatible with Dutch notions of due process, (ii) that judgment does not contravene public policy of the Netherlands and (iii) the jurisdiction of the United States federal or state court has been based on internationally accepted principles of private international law.

Based on the foregoing, it may not be possible for U.S. investors to enforce against us any judgments obtained in U.S. courts in civil and commercial matters, including judgments under the U.S. federal securities laws.

Dutch courts may refuse to enforce contracts governed by foreign law or which require performance in a foreign jurisdiction if such other laws do not comply with certain mandatory rules under Dutch law. Under the rules of Dutch private international law (and those of the EC Regulation on the Law Applicable to Contractual Obligations (Rome I) of June 17, 2008, or the “Rome I Regulation”), in applying the laws of another jurisdiction, the Dutch courts may (i) give effect to certain mandatory rules under Dutch law irrespective of the law otherwise applicable thereto, (ii) give effect to certain mandatory rules of the law of the country where any of the obligations arising out of an agreement have to be or have been performed, insofar as those rules render the performance of the agreement unlawful and (iii) refuse the application of a term or condition of an agreement or a rule of foreign law applicable thereto under the Rome I Regulation, if that application is manifestly incompatible with Dutch public policy. Furthermore, Dutch courts, when considering the manner of performance and the steps to be taken in the event of defective performance in respect of an agreement, will consider the law of the country in which performance takes place. In addition, there is doubt as to whether a Dutch court would impose civil liability on us in an original action predicated solely upon the U.S. federal securities or other laws brought in a court of competent jurisdiction in the Netherlands against us.

After the Conversion, we will be a Dutch public company with limited liability, which may grant different rights to our stockholders than the rights granted to stockholders of companies organized in the United States.

The rights of our stockholders may be different from the rights of stockholders governed by the laws of U.S. jurisdictions. After the Conversion, we will be a Dutch public company with limited liability (naamloze vennootschap). Our corporate affairs are governed by our articles of association and by the laws governing companies incorporated in the Netherlands. The rights of stockholders and the responsibilities of members of our board of directors may be different from the rights and obligations of stockholders in companies governed by the laws of U.S. jurisdictions. In the performance of its duties, our board of directors is required by Dutch law to consider the interests of our Company, its stockholders, its employees and other stakeholders, in all cases with due observation of the principles of reasonableness and fairness. It is possible that some of these parties will have interests that are different from, or in addition to, your interests as a stockholder. See “Description of Capital Stock—Corporate Governance.”

In addition, the rights of holders of common stock are governed by Dutch law and our articles of association and differ from the rights of stockholders under U.S. law. Although stockholders will have the right to approve

 

27


Table of Contents

mergers and consolidations, Dutch law does not grant appraisal rights to the Company’s stockholders who wish to challenge the consideration to be paid upon a merger or consolidation of the Company. Also, generally only a company can bring a civil action against a third party against whom such company alleges wrongdoing, including the directors and officers of such company. A stockholder will have an individual right of action against such a third party only if the tortious act also constitutes a tortious act directly against such stockholder. The Dutch Civil Code provides for the possibility to initiate such actions collectively. A foundation or an association whose objective is to protect the rights of a group of persons having similar interests may institute a collective action. The collective action cannot result in an order for payment of monetary damages but may result in a declaratory judgment. The foundation or association and the defendant are permitted to reach (often on the basis of such declaratory judgment) a settlement which provides for monetary compensation for damages. The Dutch Enterprise Chamber may declare the settlement agreement binding upon all the injured parties with an opt-out choice for an individual injured party. An individual injured party, within the period set by the Dutch Enterprise Chamber, may also individually institute a civil claim for damages if such injured party is not bound by a collective agreement. See “Description of Capital Stock”.

The non-executive directors supervise the executive directors and our general affairs and provide general advice to the executive directors. Each director owes a duty to the Company to properly perform the duties assigned to him and to act in the corporate interest of the Company. Under Dutch law, the corporate interest extends to the interests of all corporate stakeholders, such as stockholders, creditors, employees, customers and suppliers. Any board resolution regarding a significant change in the identity or character of the Company requires stockholders’ approval.

The provisions of Dutch corporate law and our articles of association have the effect of concentrating control over certain corporate decisions and transactions in the hands of our board. As a result, holders of our shares may have more difficulty in protecting their interests in the face of actions by members of the board of directors than if we were incorporated in the United States.

Our articles of association and Dutch corporate law contain provisions that may discourage a takeover attempt.

Provisions contained in our articles of association and the laws of the Netherlands could make it more difficult for a third party to acquire us, even if doing so might be beneficial to our stockholders. Provisions of our articles of association impose various procedural and other requirements, which could make it more difficult for stockholders to effect certain corporate actions.

For example, our shares and rights to subscribe for our shares may only be issued pursuant to (i) a resolution of the general meeting of stockholders at the proposal of the board of directors or (ii) a resolution of the board of directors, if by a resolution of the general meeting the board of directors has been authorized thereto for a specific period not exceeding five years. Following the Conversion, the board of directors will be empowered for a period of five years to issue cumulative preferred shares and shares of common stock.

Further, our amended articles of association will empower our board of directors to restrict or exclude pre-emptive rights on shares for a period of five years. Accordingly, an issue of new shares to a third party may make it more difficult for others to obtain control over the general meeting of stockholders.

Dutch insolvency laws to which we are subject may not be as favorable to you as U.S. or other insolvency laws.

As a company incorporated under the laws of the Netherlands with its registered offices in the Netherlands, subject to applicable EU insolvency regulations, any insolvency proceedings in relation to us may be based on Dutch insolvency law. Dutch insolvency proceedings differ significantly from insolvency proceedings in the United States and may make it more difficult for stockholders to recover the amount they may normally expect to recover in a liquidation or bankruptcy proceeding in the United States.

 

28


Table of Contents

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains “forward-looking statements” within the meaning of the federal securities laws, including certain of the statements under “Prospectus Summary,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” Forward-looking statements include all statements that do not relate solely to historical or current facts, and can be identified by the use of words like “may,” “believe,” “will,” “expect,” “project,” “estimate,” “anticipate,” “plan,” “initiative” or “continue.” These forward-looking statements are based on our current plans and expectations and are subject to a number of known and unknown uncertainties and risks, many of which are beyond our control, that could significantly affect current plans and expectations and our future financial position and results of operations. These factors include, but are not limited to:

 

   

the timing and scope of technological advances;

 

   

consolidation in our customers’ industries may reduce the aggregate demand for our services;

 

   

customer procurement strategies that could put additional pricing pressure on us;

 

   

general economic conditions, including the effects of the current economic environment on advertising spending levels, the costs of, and demand for, consumer packaged goods, media, entertainment and technology products and any interest rate or exchange rate fluctuations;

 

   

our substantial indebtedness;

 

   

certain covenants in our debt documents and our ability to comply with such covenants;

 

   

regulatory review by governmental agencies that oversee information gathering and changes in data protection laws;

 

   

the ability to maintain the confidentiality of our proprietary information gathering processes and intellectual property;

 

   

intellectual property infringement claims by third parties;

 

   

risks to which our international operations are exposed, including local political and economic conditions, the effects of foreign currency fluctuations and the ability to comply with local laws;

 

   

criticism of our audience measurement services;

 

   

the ability to attract and retain customers and key personnel;

 

   

the effect of disruptions to our information processing systems;

 

   

the effect of disruptions in the mail, telecommunication infrastructure and/or air services;

 

   

the impact of tax planning initiatives and resolution of audits of prior tax years;

 

   

future litigation or government investigations;

 

   

the possibility that the Sponsors’ interests will conflict with ours or yours;

 

   

the impact of competitive products;

 

   

the financial statement impact of changes in generally accepted accounting principles; and

 

   

the ability to successfully integrate our Company in accordance with our strategy and success of our joint ventures.

We caution you that the foregoing list of important factors may not contain all of the material factors that are important to you. In addition, in light of these risks and uncertainties, the matters referred to in the forward-looking statements contained in this prospectus may not in fact occur. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

 

29


Table of Contents

USE OF PROCEEDS

We estimate that the net proceeds we will receive from the sale of 71,428,572 shares of our common stock in this offering, after deducting underwriters’ discounts and commissions and estimated expenses payable by us, will be approximately $1,424 million (or $1,639 million if the underwriters exercise the option to purchase additional shares in full). This estimate assumes an initial public offering price of $21.00 per share, the midpoint of the range set forth on the cover page of this prospectus. A $1.00 increase (decrease) in the assumed initial public offering price of $21.00 per share would increase (decrease) the net proceeds to us from this offering by $68 million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated expenses payable by us.

We estimate that the net proceeds to us from the concurrent offering of Mandatory Convertible Subordinated Bonds, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, will be approximately $240 million if completed (or $277 million if the underwriters of the concurrent offering of Mandatory Convertible Subordinated Bonds exercise their option to purchase additional Mandatory Convertible Subordinated Bonds in full).

We intend to use the anticipated net proceeds of both offerings as follows:

 

   

approximately $195 million of the net proceeds will be applied to redeem approximately $163 million in aggregate principal amount (approximately $175 million face amount) of our 11.5% Senior Notes due 2016;

 

   

approximately $129 million of the net proceeds will be applied to redeem approximately $107 million in aggregate principal amount (approximately $115 million face amount) of our 11.625% Senior Notes due 2014;

 

   

approximately $1,130 million of the net proceeds will be applied to redeem approximately $969 million in aggregate principal amount (approximately $1,070 million face amount) of our 12.5% Senior Subordinated Discount Notes due 2016;

 

   

approximately $107 million of the net proceeds will be applied to redeem approximately $93 million in aggregate principal amount (approximately $102 million face amount) of our 11.125% Senior Discount Notes due 2016; and

 

   

approximately $103 million will be paid to the Sponsors as a fee in connection with the termination of certain advisory agreements in accordance with their terms, as described under “Certain Relationships and Related Party Transactions—Advisory Agreements.”

If we do not complete the offering of our Mandatory Convertible Subordinated Bonds, we would intend to (1) eliminate the proposed redemption of $93 million in aggregate principal amount ($107 million of net proceeds) of our 11.125% Senior Discount Notes due 2016 and (2) reduce by $115 million the aggregate principal amount ($133 million of net proceeds) of our 12.5% Senior Subordinated Discount Notes due 2016 that we intend to redeem.

The redemptions of the 11.5% Senior Notes due 2016 and 11.625% Senior Notes due 2014 will be made pursuant to a provision of the applicable indenture that permits us to redeem up to 35% of the aggregate principal amount of such notes with the net cash proceeds of certain equity offerings. In each case, we will pay accrued and unpaid interest on the notes through the redemption date with cash generated from operations. To the extent that the underwriters exercise all or a portion of their option to purchase additional shares of our common stock or the underwriters in our offering of Mandatory Convertible Subordinated Bonds exercise all or a portion of their option to purchase additional Mandatory Convertible Subordinated Bonds, the net proceeds received will be used to further reduce our existing indebtedness and to pay any related fees, premiums and expenses, in such manner as we will subsequently determine. A portion of the debt that will be repaid is held by the Sponsors and their affiliates as well as affiliates of the underwriters in this offering. Pending such application all or a portion of the net proceeds of this offering may be invested by us in short-term interest-bearing obligations.

 

30


Table of Contents

As of September 30, 2010, there was outstanding:

 

   

$466 million aggregate principal amount ($500 million face amount) of 11.5% Senior Notes due 2016, which bear interest at a rate of 11.5% per annum and mature on May 1, 2016;

 

   

$306 million aggregate principal amount ($330 million face amount) of 11.625% Senior Notes due 2014, which bear interest at a rate of 11.625% per annum and mature on February 1, 2014;

 

   

$969 million aggregate principal amount ($1,070 million face amount) of 12.5% Senior Subordinated Discount Notes due 2016, which currently accrete at a rate of 12.5% per annum until reaching par on August 1, 2011, and which thereafter bear cash interest at a rate of 12.5% per annum and mature on August 1, 2016; and

 

   

€314 million aggregate principal amount (€343 million face amount) of 11.125% Senior Discount Notes due 2016 , which currently accrete at a rate of 11.125% per annum until reaching par on August 1, 2011, and which thereafter bear interest at a rate of 11.125% per annum and mature on August 1, 2016.

 

31


Table of Contents

DIVIDEND POLICY

Following completion of the offering, we do not intend to pay any cash dividends on our common stock for the foreseeable future and instead may retain earnings, if any, for future operation and expansion and debt repayment. Any decision to declare and pay dividends in the future will be made at the discretion of our board of directors and will depend on, among other things, our results of operations, cash requirements, financial condition, contractual restrictions and other factors that our board of directors may deem relevant. Furthermore, a determination by the board of directors to distribute dividends must be approved by our stockholders. In addition, our ability to pay dividends is limited by covenants in our senior secured credit facilities and in the indentures governing our notes. See “Description of Indebtedness” and Note 10 – Long-term Debt and Other Financing Arrangements – to our audited consolidated financial statements for restrictions on our ability to pay dividends.

We declared a special dividend of approximately €6 million ($7 million) in the aggregate, or €0.02 per share, to our existing stockholders prior to the completion of this offering, a portion of which is in the form of a non-cash settlement of loans that we have previously extended to Luxco as described under “Certain Relationships and Related Party Transactions—Intercompany Loans and Special Dividend”, and the remainder of which utilizes existing cash from operations. We are paying this dividend so that Luxco will have sufficient cash to pay its operating expenses for the next three years. Accordingly, we do not expect to pay any similar dividends in the foreseeable future.

 

32


Table of Contents

CAPITALIZATION

The following table sets forth our capitalization as of September 30, 2010:

 

   

on an actual basis; and

 

   

on an as adjusted basis to give effect to (1) the issuance of common stock in this offering, (2) the concurrent issuance of Mandatory Convertible Subordinated Bonds, which is contingent upon the completion of our common stock offering, (3) the application of proceeds from this offering and the concurrent offering of Mandatory Convertible Subordinated Bonds as described in “Use of Proceeds,” (4) our issuance of $750 million aggregate principal amount of 7.75% Senior Notes due 2018 on October 12, 2010, (5) our issuance of $330 million aggregate principal amount of 7.75% Senior Notes due 2018 on November 9, 2010, (6) our redemption of $750 million aggregate principal amount of our 10% Senior Notes due 2014 on November 1, 2010, (7) our redemption of the remaining $120 million principal amount of our 10% Senior Notes due 2014 on November 29, 2010 and (8) our redemption of all €150 million principal amount of our 9% Senior Notes due 2014 on December 1, 2010 as if each had occurred on September 30, 2010.

You should read this table in conjunction with “Prospectus Summary—Summary Financial and Other Data,” “Use of Proceeds,” “Selected Financial and Other Data,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and notes thereto, included elsewhere in this prospectus.

 

     September 30, 2010  
(IN MILLIONS)       
     Actual     As Adjusted  

Cash and cash equivalents(1)

   $ 423      $ 335   
                

Long-term obligations:

    

Senior secured term loans due 2013(2)

   $ 1,817      $ 1,817   

Senior secured term loans due 2016(3)

     2,731        2,731   

8 1/2% Senior secured term loan due 2017

     500        500   

Revolving credit facility(4)

     —          —     

11 5/8% Senior Notes due 2014(5)

     306        199   

10% Senior Notes due 2014(6)

     869        —     

9% Senior Notes due 2014(7)

     202        —     

12 1/2% Senior Subordinated Discount Notes due 2016(8)

     969        —     

11 1/8% Senior Discount Notes due 2016(9)

     423        330   

11 1/2% Senior Notes due 2016(10)

     466        303   

7.75% Senior Notes due 2018(11)

     —          1,085   

Euro Medium Term Notes(12)

     156        156   

Mandatory Convertible Subordinated Bonds(13)

     —          250   

Other long-term debt

     5        5   

Capital lease obligations

     126        126   
                

Total long-term debt and capital lease obligations, including current portion(14)

     8,570        7,502   
                

Nielsen stockholders’ equity:

    

Common stock, €0.07 par value, 1,000,000,000 shares authorized, 277,012,866 shares issued and 276,200,705 shares outstanding; pro forma 1,185,800,000 shares authorized, 348,441,438 issued and 347,629,277 shares outstanding

     22        29   

Cumulative preferred stock, Series PA, €0.07 par value, none authorized; pro forma 57,100,000 shares authorized, none issued and outstanding

     —          —     

Cumulative preferred stock, Series PB, €0.07 par value, none authorized; pro forma 57,100,000 shares authorized, none issued and outstanding

     —          —     

Additional paid-in capital

     4,573        5,977   

Accumulated deficit(15)

     (1,612 )     (1,889

Accumulated other comprehensive loss, net of income taxes

     (95     (95
                

Total Nielsen stockholders’ equity

     2,888        4,022   
                

Total capitalization

   $ 11,458      $ 11,524   
                

 

33


Table of Contents

 

(1) As adjusted column reflects aggregate net proceeds of approximately $1,065 million from the offering of the 7.75% Senior Notes due 2018 after the initial purchaser discount and estimated offering expenses payable by us less $1,153 million associated with the redemption of $870 million aggregate principal amount of our 10% Senior Notes due 2014 and €150 million aggregate principal amount of our 9% Senior Notes due 2014 using the proceeds from the offering of the 7.75% Senior Notes due 2018 including a redemption premium as well as accrued and unpaid interest.
(2) Actual is comprised of two tranches of $1,527 million and €215 million.
(3) Actual is comprised of two dollar-denominated tranches totaling $2,368 million and two Euro-denominated tranches totaling €270 million.
(4) Our revolving credit facility provides for availability of $688 million. As of September 30, 2010, we had no borrowings outstanding under our revolving credit facility, not including $20 million of outstanding letters of credit and bank guarantees.
(5) $330 million face amount, actual. We intend to redeem approximately $107 million (approximately $115 million face amount) using a portion of the proceeds of this offering.
(6) $870 million face amount, of which $750 million was redeemed on November 1, 2010 and the remaining $120 million of which was redeemed on November 29, 2010.
(7) Denominated in Euros and had a face amount of €150 million, all of which were redeemed on December 1, 2010.
(8) $1,070 million face amount, all of which we intend to redeem using a portion of the proceeds of this offering. If we do not complete the offering of our Mandatory Convertible Subordinated Bonds, we intend to reduce the aggregate principal amount of our 12.5% Senior Subordinated Discount Notes due 2016 that we redeem to $854 million, which would leave $115 million aggregate principal amount outstanding as of September 30, 2010 on an as adjusted basis.
(9)

Debt is denominated in Euros and had a face amount of €343 million, actual. We intend to redeem approximately €69 million (€76 million face amount) using a portion of the proceeds of this offering. If we do not complete the offering of our Mandatory Convertible Subordinated Bonds, we do not intend to redeem any of our 11 1/8% Senior Discount Notes due 2016.

(10) $500 million face amount, actual. We intend to redeem approximately $163 million (approximately $175 million face amount) using a portion of the proceeds of this offering.
(11) $750 million face amount of our 7.75% Senior Notes due 2018 were issued on October 12, 2010 and an additional $330 million face amount were issued on November 9, 2010.
(12) Of the debt issued pursuant to our Euro Medium Term Note program, €80 million is denominated in Euros, of which €50 million is based on a variable rate of 3-month EURIBOR and the remaining €30 million carries a fixed rate of 6.75%. The remaining portion is denominated in Japanese yen, with an aggregate outstanding principal amount of ¥4,000 million based on a fixed rate of 2.50%.
(13) $250 million face amount, not including any discount attributable to the conversion feature. If we do not complete the offering of our Mandatory Convertible Subordinated Bonds, none will be outstanding.
(14) Excludes bank overdrafts in the amount of $1 million.
(15) As adjusted column reflects an approximate pre-tax charge of $91 million due to the redemption premiums and previously deferred debt issuance costs in connection with the redemption of all of our 10% Senior Notes due 2014 and all of our 9% Senior Notes due 2014 using the proceeds from our issuance of $1,080 in aggregate principal amount of 7.75% Senior Notes due 2018. Additionally, the adjusted column reflects an approximate pre-tax charge of $346 million due to the redemption premiums and previously deferred debt issuance costs in connection with the anticipated redemption of all of our 12.5% Senior Subordinated Discount Notes due 2016, approximately $163 million in aggregate principal amount of our 11.5% Senior Notes due 2016, approximately $107 million in aggregate principal amount of our 11.625% Senior Notes due 2014 and $93 million in aggregate principal amount of our 11.125% Senior Discount Notes due 2016 using a portion of the proceeds from this offering. The adjusted column also reflects an approximate pre-tax charge of $103 million to be paid to the Sponsors as a fee in connection with the termination of certain advisory agreements in accordance with their terms as described under “Certain Relationships and Related Party Transactions—Advisory Agreements.” Finally, the aggregate pre-tax charges of $437 million have been presented net of estimated aggregate tax benefits of $160 million.

 

34


Table of Contents

The table set forth above is based on the number of shares of our common stock outstanding as of September 30, 2010. This table does not reflect:

 

   

17,084,646 shares of our common stock issuable upon the exercise of outstanding stock options at a weighted average exercise price of $17.55 per share as of September 30, 2010, of which 8,363,363 were then exercisable;

 

   

14,106,466 shares of our common stock reserved for future grants under our stock incentive plans; and

 

   

up to              shares of our common stock (up to              shares if the underwriters in our offering of Mandatory Convertible Subordinated Bonds exercise their over-allotment option in full), in each case subject to anti-dilution, make-whole and other adjustments, that would be issuable upon conversion of the Mandatory Convertible Subordinated Bonds issued in our concurrent offering of Mandatory Convertible Subordinated Bonds.

 

35


Table of Contents

DILUTION

If you invest in our common stock, your interest will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the net tangible book value or deficiency per share of our common stock after this offering. Dilution results from the fact that the initial public offering price per share of common stock is substantially in excess of the net tangible book value or deficiency per share of our common stock attributable to the existing stockholders for our presently outstanding shares of common stock. We calculate net tangible book value or deficiency per share of our common stock by dividing the net tangible book value or deficiency (total consolidated tangible assets less total consolidated liabilities) by the number of outstanding shares of our common stock.

Our net tangible book deficit as of September 30, 2010 was $(8,820) million, or $(31.93) per share of our common stock, based on 276,200,705 shares of our common stock outstanding. Dilution is determined by subtracting pro forma net tangible book value or deficiency per share of our common stock after giving effect to this offering from the assumed initial public offering price per share of our common stock.

Without taking into account any other changes in such net tangible book value or deficiency after September 30, 2010, after giving effect to the sale of 71,428,572 shares of our common stock in this offering assuming an initial public offering price of $21.00 per share and the sale of $250 million in aggregate principal amount of Mandatory Convertible Subordinated Bonds in the concurrent offering, less the underwriting discounts and commissions and the estimated offering expenses payable by us our pro forma as adjusted net tangible book deficit at September 30, 2010 would have been $(7,406) million, or $(21.31) per share. This represents an immediate increase in net tangible book value (or decrease in net tangible book deficit) of $10.62 per share of our common stock to the existing stockholders and an immediate dilution in net tangible book value or deficit of $42.31 per share of our common stock, to investors purchasing shares of our common stock in this offering. The following table illustrates such per share of our common stock dilution:

 

Assumed initial public offering price per share of our common stock

   $ 21.00   

Net tangible book deficit per share of our common stock as of September 30, 2010

   $ (31.93

Pro forma net tangible book deficit per share of our common stock after giving effect to this offering

   $ (21.31

Amount of dilution per share of our common stock to new investors in this offering

   $ 42.31   

If the underwriters exercise their underwriters’ option in full, the adjusted net tangible book value or deficiency per share of our common stock after giving effect to the offering would be $(20.07) per share of our common stock. This represents an increase in adjusted net tangible book value (or decrease in net tangible book deficit) of $11.86 per share of our common stock to existing stockholders and dilution of $41.07 per share of our common stock to new investors.

A $1.00 increase (decrease) in the assumed initial public offering price of $21.00 per share of our common stock would increase (decrease) our net tangible book value (or decrease in net tangible book deficit) after giving effect to the offering by $68 million, or by $0.20 per share of our common stock, assuming no change to the number of shares of our common stock offered by us as set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and estimated expenses payable by us.

The following table summarizes, on a pro forma basis as of September 30, 2010, the total number of shares of our common stock purchased from us, the total cash consideration paid to us and the average price per share of our common stock paid by purchasers of such shares and by new investors purchasing shares of our common stock in this offering.

 

     Shares of our
Common Stock
Purchased
    Total Consideration     Average Price Per
Share of our
Common Stock
 
     Number      Percent     Amount      Percent    

Prior purchasers

     276,200,705         79   $ 4,506,553,148         75   $ 16.32   

New investors

     71,428,572         21   $ 1,500,000,000         25   $ 21.00   
                                    

Total

     347,629,277         100   $ 6,006,553,148         100   $ 17.28   

 

36


Table of Contents

If the underwriters were to fully exercise the underwriters’ option to purchase 10,714,286 additional shares of our common stock, the percentage of shares of our common stock held by existing stockholders who are directors, officers or affiliated persons would be 77%, and the percentage of shares of shares of our common stock held by new investors would be 23%.

To the extent that we grant options to our employees in the future, and those options are exercised or other issuances of shares of our common stock are made, there will be further dilution to new investors.

 

37


Table of Contents

SELECTED FINANCIAL AND OTHER DATA

The following table sets forth selected historical consolidated financial data of Nielsen Holdings as of the dates and for the periods indicated. The successor selected consolidated statement of operations data for the years ended December 31, 2009, 2008 and 2007 and selected consolidated balance sheet data as of December 31, 2009 and 2008 have been derived from our audited consolidated financial statements and related notes appearing elsewhere in this prospectus. The successor selected consolidated statement of operations data for the period from May 24, 2006 to December 31, 2006 and selected consolidated balance sheet data as of December 31, 2007 and 2006 have been derived from our unaudited condensed consolidated financial statements which are not included in this prospectus. The predecessor selected consolidated statement of operations data for the period from January 1, 2006 to May 23, 2006 and the year ended December 31, 2005 and selected consolidated balance sheet data as of December 31, 2005 have been derived from our predecessor’s audited consolidated financial statements which are not included in this prospectus.

The selected financial and other data as of September 30, 2010 and for the nine months ended September 30, 2010 and 2009 have been derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. The selected unaudited financial data presented have been prepared on a basis consistent with our audited consolidated financial statements. In the opinion of management, such unaudited financial data reflect all adjustments, consisting only of normal and recurring adjustments, necessary for a fair presentation of the results for those periods.

The results of operations for any period are not necessarily indicative of the results to be expected for any future period. The audited consolidated financial statements from which the historical financial information for the periods set forth below have been derived were prepared in accordance with GAAP. The selected historical consolidated financial data set forth below should be read in conjunction with, and are qualified by reference to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited consolidated financial statements and related notes thereto appearing elsewhere in this prospectus.

 

    Successor           Predecessor  

(IN MILLIONS, EXCEPT
PER SHARE AMOUNTS)

  Nine
Months
Ended
September 30,
2010(1)
    Nine
Months
Ended
September 30,
2009(2)
    Year Ended
December 31,
2009(3)
    Year Ended
December 31,
2008(4)
    Year Ended
December 31,
2007(5)
    May 24-
December 31,
2006(6)
          January 1-
May 23,
2006(8)
    Year Ended
December 31,
2005(7)(8)
 

Statement of Operations Data:

                   

Revenues

  $ 3,755      $ 3,511      $ 4,808      $ 4,806      $ 4,458      $ 2,405          $ 1,513      $ 3,789   

Operating income/(loss)

    515        (42     116        420        376        86            39        314   

Income/(loss) from continuing operations

    147        (475     (428     (314     (364     (293         (24     139   

Income/(loss) from continuing operations per common share (basic)

    0.53        (1.75     (1.57     (1.39     (1.62     (1.34         (0.10     0.51   

Income/(loss) from continuing operations per common share (diluted)

    0.52       
(1.75

    (1.57     (1.39     (1.62     (1.34         (0.10     0.51   

Cash dividends declared per common share

    0.03        —          —          —          —          —              —          0.15   

 

     Successor           Predecessor  
     September  30,
2010
     December 31,           December  31,
2005
 

(IN MILLIONS)

      2009      2008      2007      2006          

Balance Sheet Data:

                    

Total assets

   $ 14,427       $ 14,600       $ 15,091       $ 16,135       $ 15,979          $ 10,663   

Long-term debt including capital leases

     8,570         8,640         9,320         8,896         8,520            2,637   

 

38


Table of Contents

 

(1) Income for the nine months ended September 30, 2010 included $491 million of interest expense and $33 million in restructuring costs.

 

(2) Loss for the nine months ended September 30, 2009 included $483 million of interest expense, a goodwill and intangible asset impairment charge of $527 million and $6 million in restructuring costs.

 

(3) The loss in the year ended December 31, 2009 included $647 million of interest expense, a goodwill and intangible asset impairment charge of $527 million and $62 million in restructuring costs.

 

(4) The loss in the year ended December 31, 2008 included $701 million of interest expense, a goodwill impairment charge of $96 million and $118 million in restructuring costs.

 

(5) The loss in the year ended December 31, 2007 included $691 million of interest expense, $110 million in foreign currency exchange transaction losses and $133 million in restructuring costs.

 

(6) The loss in the period May 24, 2006 to December 31, 2006 included $395 million of interest expense, $90 million relating to the deferred revenue purchase price adjustment, $43 million in foreign currency exchange transaction losses and $65 million in restructuring costs.

 

(7) The 2005 income from continuing operations included $55 million in costs from the settlement of the antitrust agreement with Information Resources, Inc., a $36 million payment of failed deal costs to IMS Health and a $102 million loss from the early extinguishment of debt.

 

(8) The per share information of the predecessor period has not been adjusted for the reverse stock split.

 

39


Table of Contents

RATIO OF EARNINGS TO FIXED CHARGES

The following table sets forth our ratio of earnings to fixed charges for each of the periods indicated:

 

    Successor     Predecessor  
    Nine Months
Ended
September 30,
2010
    Year ended
December 31,
2009
    Year ended
December 31,
2008
    Year ended
December 31,
2007
    May 24 –
December 31,

2006
    January 1 –
May 23, 2006
    Year ended
December 31,
2005
 

Ratio of Earnings to Fixed Charges

    1.3        (a     (a     (a     (a     1.2        1.8   

 

(a) Earnings for the years ended December 31, 2009, 2008 and 2007 and for the successor period of May 24, 2006 to December 31, 2006 were inadequate to cover fixed charges by $590 million, $260 million, $345 million and $402 million, respectively.

The ratio of earnings to fixed charges is computed by dividing income available for fixed charges by the fixed charges. For purposes of this ratio, fixed charges consist of that portion of rentals deemed representative of the appropriate interest factor.

 

40


Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion of our results of operations and financial condition with “Prospectus Summary—Summary Financial and Other Data,” “Selected Financial and Other Data” and the audited consolidated financial statements, unaudited condensed consolidated financial statements and related notes included elsewhere in this prospectus. This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in the “Risk Factors” section of this prospectus. Actual results may differ materially from those contained in any forward-looking statements.

Background and Executive Summary

On May 17, 2006, Nielsen Holdings, formerly known as Valcon Acquisition Holding B.V., was formed by investment funds associated with the Original Sponsors as a subsidiary of Valcon Acquisition Holding (Luxembourg) S.à r.l. (“Luxco”). On May 24, 2006, The Nielsen Company B.V. (“TNC B.V.”) (formerly VNU Group B.V. and VNU N.V.) was acquired through a tender offer to stockholders by Valcon Acquisition B.V. (“Valcon”), a wholly owned subsidiary of the Company (herein referred to as the “Acquisition”). Valcon’s cumulative purchases totaled 99.4% of TNC B.V.’s outstanding common stock as of December 31, 2007. In May 2008, Valcon acquired the remaining TNC B.V. common stock through a statutory squeeze-out procedure pursuant to Dutch legal and regulatory requirements and therefore currently holds 100% of TNC B.V.’s outstanding common stock. As part of the Acquisition, Valcon also acquired all of the 7% preference shares of TNC B.V. Valcon also acquired 100% of TNC B.V.’s preferred B shares which were subsequently canceled in 2006. TNC B.V.’s common and preferred shares were delisted from the NYSE Euronext on July 11, 2006. The registered office of Nielsen Holdings is located in Diemen, the Netherlands, with its headquarters located in New York.

Nielsen Holdings, together with its subsidiaries, is a global information and measurement company that provides clients with a comprehensive understanding of consumers and consumer behavior. We deliver critical media and marketing information, analytics and industry expertise about what consumers watch (consumer interaction with television, online and mobile) and what consumers buy on a global and local basis. Our information, insights and solutions help our clients maintain and strengthen their market positions and identify opportunities for profitable growth. We have a presence in approximately 100 countries, including many developing and emerging markets, and hold leading market positions in many of our services and geographies.

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

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

Our Transformation Initiative and other productivity initiatives, which were implemented following the Acquisition, are focused on a combination of improving operating leverage through targeted cost-reduction programs, business process improvements, portfolio restructuring actions (e.g. the exit of our Publications businesses) while at the same time investing in key programs to enhance future growth opportunities.

Achieving our business objectives requires us to manage a number of key risk areas. Our growth objective of geographic market and service expansion requires us to maintain the consistency and integrity of our

 

41


Table of Contents

information and underlying processes on a global scale, and to invest effectively our capital in technology and infrastructure to keep pace with our clients’ demands and our competitors. Our operating footprint across approximately 100 countries requires disciplined global and local resource management of internal and third party providers to ensure success. In addition, our high level of indebtedness requires active management of our debt profile, with a focus on underlying maturities, interest rate risk, liquidity and operating cash flows.

Business Segment Overview

We align our business into three reporting segments: Watch (media audience measurement and analytics), Buy (consumer purchasing measurement and analytics) and Expositions. Our Watch and Buy segments, which together generated substantially all of our revenues in 2009, are built on a foundation of proprietary data assets that are designed to yield essential insights for our clients to successfully measure, analyze and grow their businesses.

Our Watch segment provides viewership data and analytics primarily to the media and advertising industries across television, online and mobile screens. Our Watch data is used by our media clients to understand their audiences, establish the value of their advertising inventory and maximize the value of their content, and by our advertising clients to plan and optimize their spending. We are a leader in providing measurement services across the three screens.

Our Buy segment provides Information services, which includes our core tracking and scan data (primarily transactional measurement data and consumer behavior information) and Insights services (primarily comprised of our analytical solutions) to businesses in the consumer packaged goods industry. Our services also enable our clients to better manage their brands, uncover new sources of demand, launch and grow new products, analyze their sales, improve their marketing mix and establish more effective consumer relationships. Our data is used by our clients to measure their market share, tracking billions of sales transactions per month in retail outlets around the world. Our extensive database of retail and consumer information, combined with our advanced analytical capabilities, helps generate strategic insights that influence our clients’ key business decisions. Within our Buy segment, we have two primary geographic groups, developed and developing markets. Developed markets primarily include the United States, Canada, Western Europe, Japan and Australia while developing markets include Latin America, Eastern Europe, Russia, China, India and Southeast Asia.

Our Expositions segment operates one of the largest portfolios of business-to-business trade shows in the United States. Each year, we produce approximately 40 trade shows, which in 2009 connected approximately 270,000 buyers and sellers across 20 industries.

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

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations is based on our audited consolidated financial statements and unaudited condensed consolidated financial statements, each of which have been prepared in accordance with GAAP. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and the related disclosure of contingent assets and liabilities. The most significant of these estimates relate to: revenue recognition; business combinations including purchase price allocations; accruals for pension costs and other post-retirement benefits; accounting for income taxes; and valuation of long-lived assets including goodwill and indefinite-lived intangible assets, computer software and share-based compensation. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the valuation of assets and

 

42


Table of Contents

liabilities that are not readily apparent from other sources. We evaluate these estimates on an ongoing basis. Actual results could vary from these estimates under different assumptions or conditions. For a summary of the significant accounting policies, including critical accounting policies discussed below, see Note 1 – Description of Business, Basis of Presentation and Significant Accounting Policies – to our audited consolidated financial statements included elsewhere in this prospectus.

Revenue Recognition

We recognize our revenues when persuasive evidence of an arrangement exists, services have been rendered or information has been delivered, the fee is fixed or determinable and the collectibility of the related revenue is reasonably assured.

A significant portion of our revenue is generated from information (primarily retail measurement and consumer panel services) and measurement (primarily from television, internet and mobile audiences) services. We generally recognize revenue from the sale of our services based upon fair value as the services are performed, which is usually ratably over the term of the contract(s). Invoiced amounts are recorded as deferred revenue until earned. Substantially all of our customer contracts are non-cancellable and non-refundable.

Our revenue arrangements may include multiple deliverables and in these arrangements, the individual deliverables within a contract are separated and recognized upon delivery based upon their fair values relative to the total contract value, to the extent that the fair values are readily determinable and the deliverables have stand-alone value to the customer. In certain cases, software is included as part of these arrangements to allow our customers to supplementally view delivered information and is provided for the term of the arrangement and is not significant to the marketing effort and is not sold separately. Accordingly, software provided to our customers is considered to be incidental to the arrangements and is not recognized as a separate element.

A discussion of our revenue recognition policies, by segment, follows:

Watch

Revenue from our Watch segment is primarily generated from television, internet and mobile measurement services and is recognized on a straight-line basis over the contract period, as the service is delivered to the customer.

Buy

Revenue from our Buy segment, primarily from retail measurement services and consumer panel services, is recognized on a straight-line basis over the period during which the services are performed and information is delivered to the customer.

We provide insights and solutions to customers through analytical studies that are recognized into revenue as value is delivered to the customer. The pattern of revenue recognition for these contracts varies depending on the terms of the individual contracts, and may be recognized proportionally or deferred until the end of the contract term and recognized when the information has been delivered to the customer.

Expositions

Revenue and certain costs within our Expositions segment are recognized upon completion of each event.

Share-Based Compensation

Expense Recognition

We measure the cost of all share-based payments, including stock options, at fair value on the grant date and recognize such costs within the Consolidated Statements of Operations; however, no expense is recognized for

 

43


Table of Contents

stock options that do not ultimately vest. We recognize expense associated with stock options that vest upon a single date using the straight-line method. For those that vest over time, an accelerated graded vesting is used. We recorded $13 million and $6 million of expense for the nine months ended September 30, 2010 and 2009, respectively. We also recorded $14 million, $18 million and $52 million of expense associated with share-based compensation for the years ended December 31, 2009, 2008 and 2007, respectively. The aggregate fair value of all outstanding vested and unvested options was $62 million and $50 million, respectively, as of September 30, 2010.

Fair Value Measurement and Valuation Methodologies

Share-based compensation expense is primarily based on the estimated grant date fair value using the Black-Scholes option pricing model. Determining the fair value of stock-based awards at the grant date requires considerable judgment, including the consideration of factors such as estimating the expected term of stock options, expected volatility of our stock, and the number of stock-based awards expected to be forfeited due to future terminations. Some of the critical assumptions used in estimating the grant date fair value are presented in the table below:

 

     Year Ended December 31,  
     2009     2008     2007  

Expected life (years)

     3.42 - 4.08        2.93 - 3.02        3.42 - 4.31   

Risk-free interest rate

     1.70 - 2.07     2.77     3.17 - 4.77

Expected dividend yield

     0     0     0

Expected volatility

     54.00 - 62.00     39.00     46.50 - 56.10

Weighted average volatility

     57.77     39.00     55.03

In addition, for stock-based awards where vesting is dependent upon achieving certain operating performance goals, we estimate the likelihood of achieving the performance goals. Differences between actual results and these estimates could have a material effect on our financial results. We consider several factors in estimating the expected life of our options granted, including the expected lives used by a peer group of companies and the historical option exercise behavior of our employees, which we believe are representative of future behavior. Expected volatility is based primarily on a combination of the estimates of implied volatility of the Company’s peer-group and the Company’s historical volatility adjusted for its leverage. The assumptions used in calculating the fair value of share-based awards represent our best estimates, but these estimates involve inherent uncertainties and the application of management’s judgment.

 

Stock Option Grant Period

   Number of Options
Granted
     Weighted-Average
Exercise Price
     Weighted-Average
Grant Date Fair
Value per Share
     Weighted-Average
Grant Date Fair
Value per Option
 

Three months ended June 30, 2009

     567,937       $ 18.21       $ 16.00       $ 6.53   

Three months ended September 30, 2009

     61,875         18.21         16.00         6.53   

Three months ended December 31, 2009

     479,492         18.27         16.00         6.78   

Three months ended March 31, 2010

     962,092         18.67         18.40         7.97   

Three months ended June 30, 2010

     127,146         19.42         18.50         8.85   

We did not grant any stock options in the three months ended September 30, 2010 or the three months ended December 31, 2010.

Our board of directors sets the exercise price of stock options with the intention that the price per share is not less than the estimated fair market value of our common stock on the date of grant. Our board has taken into consideration numerous objective and subjective factors to determine the fair market value of our common stock

 

44


Table of Contents

on each grant date in order to be able to set exercise prices. Such factors included, but were not limited to, (i) valuations using the methodologies described below, (ii) our operating and financial performance and (iii) the impact of global economic factors on market values.

Since our common stock is not publicly traded, we conduct common stock valuation analyses on a semi-annual basis (as of June 30th and December 31st for each annual period) as well as on an interim basis considering the significance of individual grants. We consider numerous objective and subjective factors in valuing our common stock at each valuation date in accordance with the guidance in the American Institute of Certified Public Accountants Practice Aid Valuation of Privately-Held-Company Equity Securities Issued as Compensation, or Practice Aid. These objective and subjective factors included, but were not limited to:

 

   

arm’s-length sales of our common stock in privately negotiated transactions;

 

   

valuations of our common stock;

 

   

our stage of development and financial position; and

 

   

our future financial projections.

Our common stock valuations performed from the Acquisition through the date of this prospectus were determined by taking a weighted-average value calculated under two different valuation approaches, the income approach and market approach.

The Income Approach quantifies the future cash flows that management expects to achieve consistent with our annual business plan and forecasting process. These future cash flows are discounted to their net present values using a rate corresponding to an estimated weighted-average cost of capital. The discount rate reflects the risks inherent in the cash flows and the market rates of return available from alternative investments of similar type and quality as of the valuation date. Our weighted average cost of capital (“WACC”) is calculated by weighting the required returns on interest-bearing debt and common equity capital in proportion to their estimated percentages in our capital structure as well as the capital structure of comparable publicly-traded companies. Our WACC assumptions utilized in the valuations performed during the period from April 1, 2009 through June 30, 2010 ranged from 9.6% to 9.8%.

The Market Approach considers the fair value of an asset based on the price at which comparable assets have been purchased under similar circumstances. The transactions are usually based on recent sale prices of similar assets based on an arm’s length transaction. Most commonly, the market approach relies on published transactions, based on a multiple of earnings before interest, taxes, depreciation and amortization (EBITDA), which is consistent with the primary profitability metric underlying our annual business plan and forecasting process. The EBITDA multiples were determined based on acquisition and/or trading multiples of a peer group of companies that are periodically reviewed by management for consistency with our business strategy, the businesses and markets in which we operate and our competitive landscape. The EBITDA multiples ranged from 8.5x to 10.0x in the valuations performed during the period from April 1, 2009 through June 30, 2010.

While we believe both of these two approaches provide reliable estimates of fair value, we apply a heavier weighting to the income approach as we believe this valuation method provides a more reasonable estimate of fair value given the market approach may reflect greater volatility based on the trading multiples of a peer group in an unstable or illiquid market. We have not applied a discounting factor to the resulting fair values obtained by averaging the values calculated under the income approach and the market for the lack of marketability of the common stock for being a private company.

During the periods discussed above, we performed valuations of our common stock in December 2008, June 2009, December 2009, March 2010, April 2010 and June 2010. As a standard part of its approval process for each of these valuations, our board of directors reviewed our current and projected financial performance, including the consideration of various scenarios of such performance and their corresponding impact on our common stock valuation. As part of our board’s assessment of our operating performance it considered general

 

45


Table of Contents

economic conditions. Additionally, our board reviewed the peer group of companies and their performance relative to our business strategy. Finally, on each valuation date, our board considered the volatility in the equity markets generally.

Business Combinations

We account for our business acquisitions under the purchase method of accounting. The total cost of acquisitions is allocated to the underlying net assets, based on their respective estimated fair values. Determining the fair value of assets acquired and liabilities assumed requires significant judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates, asset lives, and market multiples, among other items.

Goodwill and Indefinite-Lived Intangible Assets

Goodwill and other indefinite-lived intangible assets are stated at historical cost less accumulated impairment losses, if any.

Goodwill and other indefinite-lived intangible assets, consisting of certain trade names and trademarks, are each tested for impairment on an annual basis and whenever events or circumstances indicate that the carrying amount of such asset may not be recoverable. We have designated October 1st as the date in which the annual assessment is performed as this timing corresponds with the development of our formal budget and business plan review. We review the recoverability of its goodwill by comparing the estimated fair values of reporting units with their respective carrying amounts. We established, and continue to evaluate, our reporting units based on our internal reporting structure and generally define such reporting units at our operating segment level or one level below. Similar to the approach we take in valuing our common stock, the estimates of fair value of a reporting unit are determined using a combination of valuation techniques, primarily by an income approach using a discounted cash flow analysis and a market-based approach.

A discounted cash flow analysis requires the use of various assumptions, including expectations of future cash flows, growth rates, discount rates and tax rates in developing the present value of future cash flow projections. Many of the factors used in assessing fair value are outside of the control of management, and these assumptions and estimates can change in future periods. Changes in assumptions or estimates could materially affect the determination of the fair value of a reporting unit, and therefore could affect the amount of potential impairment. The following assumptions are significant to our discounted cash flow analysis:

 

   

Business projections—the assumptions of expected future cash flows and growth rates are based on assumptions about the level of business activity in the marketplace as well as applicable cost levels that drive our budget and business plans. The budget and business plans are updated at least annually and are frequently reviewed by management and our board of directors. Actual results of operations, cash flows and other factors will likely differ from the estimates used in our valuation, and it is possible that differences and changes could be material. A deterioration in profitability, adverse market conditions and a slower or weaker economic recovery than currently estimated by management could have a significant impact on the estimated fair value of our reporting units and could result in an impairment charge in the future.

 

   

Long-term growth rates—the assumed long-term growth rate representing the expected rate at which a reporting unit’s earnings stream, beyond that of the budget and business plan period, is projected to grow. These rates are used to calculate the terminal value, or value at the end of the future earnings stream, of our reporting units, and are added to the cash flows projected for the budget and business plan period. The long-term growth rate for each reporting unit is influenced by general market conditions as well as factors specific to the reporting unit such as the maturity of the underlying services. The long-term growth rates we used for our reporting units were between 2% and 4%.

 

   

Discount rates—the reporting unit’s combined future cash flows are discounted at a rate that is consistent with a weighted-average cost of capital that is likely to be used by market participants. The

 

46


Table of Contents
 

weighted-average cost of capital is our estimate of the overall after-tax rate of return required by equity and debt holders of a business enterprise. The discount rate for each reporting unit is influenced by general market conditions as well as factors specific to the reporting unit. The discount rates we used for our reporting units were between 9% and 14%.

These estimates and assumptions vary between each reporting unit depending on the facts and circumstances specific to that unit. We believe that the estimates and assumptions we made are reasonable, but they are susceptible to change from period to period.

We also use a market-based approach in estimating the fair value of our reporting units. The market-based approach utilizes available market comparisons such as indicative industry multiples that are applied to current year revenue and earnings as well as recent comparable transactions.

To validate the reasonableness of the reporting unit fair values, we reconcile the aggregate fair values of our reporting units to our enterprise market capitalization. Enterprise market capitalization includes, among other factors, the estimated fair value of our common stock and the appropriate redemption values of our debt.

The following table summarizes the results of the eight reporting units that were subject to the October 1, 2009 annual impairment testing and the related goodwill value associated with the reporting units for (a) fair values exceeding carrying values by less than 10%, (b) fair values exceeding carrying values between 10% and 20% and (c) fair values exceeding carrying values by more than 20%.

 

Fair value exceeds

carrying value by:

   Number of
reporting
units
     Reporting
units
goodwill
(in millions)
 

Less than 10%(1)

     3       $ 668   

10% to 20%

     2         3,095   

Greater than 20%

     3         3,280   
                 

Totals

     8       $ 7,043   
           

 

(1) These reporting units were impaired during the third quarter of 2009 and therefore fair value approximated carrying value as of our October 1, 2009 annual impairment test.

As of our October 1, 2009 testing date, we had $7,043 million of goodwill on our balance sheet and as discussed further below (See “—Impairment of Goodwill and Intangibles”), our results from continuing operations for the year ended December 31, 2009 includes an aggregate goodwill impairment charge of $282 million, which was recorded in the third quarter of 2009. We also recorded a goodwill impairment charge of $55 million in the third quarter of 2009 relating to our Publications operating segment, which has been accounted for as a discontinued operation. Our October 1, 2009 annual impairment testing indicated that the fair values of the reporting units exceeded the carrying values, thereby resulting in no further impairment.

We also perform sensitivity analyses on our assumptions, primarily around both long-term growth rate and discount rate assumptions. Our sensitivity analyses include several combinations of reasonably possible scenarios with regard to these assumptions. However, we consistently test a one percent movement in both our long-term growth rate and discount rate assumptions. When applying these sensitivity analyses, we noted this would result in one of our reporting units, with goodwill of $365 million as of our October 1, 2009 testing date, moving to the “less than 10%” classification and therefore $1,033 million, or approximately 15% of our total goodwill balance would be within this classification. However, since the effects of applying our sensitivity analyses based upon reasonably possible adverse changes in assumptions still resulted in fair values of our reporting units in excess of underlying carrying values, we concluded an impairment did not exist as of October 1, 2009 and it was not reasonably likely that an impairment would occur in the next twelve months from that date.

 

47


Table of Contents

Our operating results for the year ended December 31, 2008 include a goodwill impairment charge of $96 million. We also recorded a goodwill impairment charge of $336 million for the year ended December 31, 2008 relating to our Publications operating segment, which has been accounted for as a discontinued operation. The tests for 2007 confirmed that the fair value of our reporting units and indefinite lived intangible assets exceeded their respective carrying amounts and that no impairment was required.

The impairment test for other indefinite-lived intangible assets consists of a comparison of the fair value of the intangible asset with its carrying amount. If the carrying amount of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. The estimates of fair value of trade names and trademarks are determined using a “relief from royalty” discounted cash flow valuation methodology. Significant assumptions inherent in this methodology include estimates of royalty rates and discount rates. Discount rate assumptions are based on an assessment of the risk inherent in the respective intangible assets. Assumptions about royalty rates are based on the rates at which comparable trade names and trademarks are being licensed in the marketplace.

Pension Costs

We provide a number of retirement benefits to our employees, including defined benefit pension plans and post retirement medical plans. Pension costs, in respect of defined benefit pension plans, primarily represent the increase in the actuarial present value of the obligation for pension benefits based on employee service during the year and the interest on this obligation in respect of employee service in previous years, net of the expected return on plan assets. Differences between this expected return and the actual return on these plan assets and actuarial changes are not recognized in the statement of operations, unless the accumulated differences and changes exceed a certain threshold. The excess is amortized and charged to the statement of operations over, at the maximum, the average remaining term of employee service. We recognize obligations for contributions to defined contribution pension plans as expenses in the statement of operations as they are incurred.

The determination of benefit obligations and expenses is based on actuarial models. In order to measure benefit costs and obligations using these models, critical assumptions are made with regard to the discount rate, the expected return on plan assets and the assumed rate of compensation increases. We provide retiree medical benefits to a limited number of participants in the United States. and have ceased to provide retiree health care benefits to certain of our Dutch retirees. Therefore, retiree medical care cost trend rates are not a significant driver of our post retirement costs. Management reviews these critical assumptions at least annually. Other assumptions involve demographic factors such as turnover, retirement and mortality rates. Management reviews these assumptions periodically and updates them as necessary.

The discount rate is the rate at which the benefit obligations could be effectively settled. For our U.S. plans, the discount rate is based on a bond portfolio that includes only long-term bonds with an Aa rating, or equivalent, from a major rating agency. We believe the timing and amount of cash flows related to the bonds in this portfolio is expected to match the estimated payment benefit streams of our U.S. plans. For the Dutch and other non-U.S. plans, the discount rate is set by reference to market yields on high-quality corporate bonds.

To determine the expected long-term rate of return on pension plan assets, we consider, for each country, the structure of the asset portfolio and the expected rates of return for each of the components. For our U.S. plans, a 50 basis point decrease in the expected return on assets would increase pension expense on our principal plans by approximately $1 million per year. A similar 50 basis point decrease in the expected return on assets would increase pension expense on our principal Dutch plans by approximately $3 million per year. We assumed that the weighted averages of long-term returns on our pension plans were 6.4%, 6.4 % and 6.1% for the years ended December 31, 2009, 2008 and 2007, respectively. The actual return on plan assets will vary year to year from this assumption. Although the actual return on plan assets will vary from year to year, we believe it is appropriate to use long-term expected forecasts in selecting our expected return on plan assets. As such, there can be no assurance that our actual return on plan assets will approximate the long-term expected forecasts.

 

48


Table of Contents

Income Taxes

We have a presence in approximately 100 countries. Over the past five years, we completed many material acquisitions and divestitures, which have generated complex tax issues requiring management to use its judgment to make various tax determinations. We try to organize the affairs of our subsidiaries in a tax efficient manner, taking into consideration the jurisdictions in which we operate. Due to outstanding indemnification agreements, the tax payable on select disposals made in recent years has not been finally determined. Although we are confident that tax returns have been appropriately prepared and filed, there is risk that additional tax may be assessed on certain transactions or that the deductibility of certain expenditures may be disallowed for tax purposes. Our policy is to estimate tax risk to the best of our ability and provide accordingly for those risks and take positions in which a high degree of confidence exists that the tax treatment will be accepted by the tax authorities. The policy with respect to deferred taxation is to provide in full for temporary differences using the liability method.

Deferred tax assets and deferred tax liabilities are computed by assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. The carrying value of deferred tax assets is adjusted by a valuation allowance to the extent that these deferred tax assets are not considered to be realized on a more likely than not basis. Realization of deferred tax assets is based, in part, on our judgment and is dependent upon our ability to generate future taxable income in jurisdictions where such assets have arisen. Valuation allowances are recorded in order to reduce the deferred tax assets to the amount expected to be realized in the future. In assessing the adequacy of our valuation allowances, we consider various factors including reversal of deferred tax liabilities, future taxable income and potential tax planning strategies.

Long-Lived Assets

We are required to assess whether the value of our long-lived assets, including our buildings, improvements, technical and other equipment, and amortizable intangible assets have been impaired whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. We do not perform a periodic assessment of assets for impairment in the absence of such information or indicators. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used or a significant adverse change that would indicate that the carrying amount of an asset or group of assets is not recoverable. Recoverability of assets that are held and used is measured by comparing the sum of the future undiscounted cash flows expected to be derived from an asset (or a group of assets) to their carrying value. If the carrying value of the asset (or the group of assets) exceeds the sum of the future undiscounted cash flows, impairment is considered to exist. If impairment is considered to exist based on undiscounted cash flows, the impairment charge is measured using an estimation of the assets’ fair value, typically using a discounted cash flow method. The identification of impairment indicators, the estimation of future cash flows and the determination of fair values for assets (or groups of assets) requires us to make significant judgments concerning the identification and validation of impairment indicators, expected cash flows and applicable discount rates. These estimates are subject to revision as market conditions and our assessments change. Our operating results for the year ended December 31, 2009 include an aggregate customer-related intangible asset impairment charge of $245 million.

We capitalize software development costs with respect to major internal use software initiatives or enhancements. The costs are capitalized from the time that the preliminary project stage is completed, and we consider it probable that the software will be used to perform the function intended until the time the software is placed in service for its intended use. Once the software is placed in service, the capitalized costs are generally amortized over periods of three to six years. If events or changes in circumstances indicate that the carrying value of software may not be recovered, a recoverability analysis is performed based on estimated undiscounted cash flows to be generated from the software in the future. If the analysis indicates that the carrying value is not recoverable from future cash flows, the software cost is written down to estimated fair value and an impairment is recognized. These estimates are subject to revision as market conditions and as our assessments change.

 

49


Table of Contents

Factors Affecting Nielsen’s Financial Results

Divestitures

During the nine months ended September 30, 2010, we received net cash proceeds of $23 million associated with business divestitures, including the sale of our box-office tracking operation as well as the remaining properties within the Publications operating segment discussed further below.

During the year ended December 31, 2009, we received $84 million in net proceeds associated with business divestitures, primarily associated with the sale of our media properties within the Publications operating segment. The impact of the remaining divestitures on our consolidated results of operations was not material.

During the year ended December 31, 2008, we received $23 million in net proceeds primarily associated with two divestitures within our Expositions segment and the final settlement of the sale of our Directories segment to World Directories Acquisition Corp (“World Directories”). The impact of these divestitures on our consolidated statement of operations was not material for all periods presented.

On October 30, 2007, we completed the sale of our 50% share in VNU Exhibitions Europe to Jaarbeurs (Holding) B.V. for cash consideration of $51 million.

Discontinued Operations

Nielsen Publications

In December 2009, we substantially completed the planned exit of our Publications operating segment through the sale of our media properties, including The Hollywood Reporter and Billboard, to e5 Global Media LLC. Our unaudited condensed and audited consolidated financial statements reflect the Publications operating segment as a discontinued operation. The sale resulted in a loss of approximately $14 million, net of taxes of $3 million. The net loss included $10 million of liabilities for certain obligations associated with transition services that were contractually retained by Nielsen. During the nine months ended September 30, 2010, we completed the exit of the remaining properties and recorded a net loss on sale of $4 million associated with these divestitures.

In October 2010, we reached an agreement with the plaintiff in a lawsuit associated with our former Publications operating segment for a $12 million cash settlement, which was paid on October 26, 2010. We recorded a $7 million charge (net of tax of $5 million) associated with this settlement, which has been reported as a component of discontinued operations for the three and nine months ended September 30, 2010.

We recorded a goodwill impairment charge of $55 million relating to our Publications operating segment in September 2009.

Business Media Europe

On February 8, 2007, we completed the sale of a significant portion of our Business Media Europe unit (“BME”) to 3i, a European private equity and venture capital firm for $414 million in cash. During the year ended December 31, 2007, we recorded a gain on sale of discontinued operations of $17 million, primarily related to BME’s previously recognized currency translation adjustments from the date of the Acquisition to the date of sale, and a pension curtailment gain. No other material gain was recognized on the sale because the sales price approximated the carrying value. Our unaudited condensed and audited consolidated financial statements reflect BME as discontinued operations. A portion of the proceeds from the sale of BME was used to pay down our debt under our 2006 Senior Secured Credit Facilities.

See Note 4 – Business Divestitures – to our consolidated and condensed consolidated financial statements included elsewhere in this prospectus.

 

50


Table of Contents

Acquisitions and Investments in Affiliates

For the nine months ended September 30, 2010, we paid cash consideration of $43 million associated with both current period and previously executed acquisitions, net of cash acquired. In conjunction with these acquisitions, we recorded deferred consideration of $22 million, which is payable through 2013. Had the current period acquisitions occurred as of January 1, 2010, the impact on our consolidated results of operations would not have been material.

For the year ended December 31, 2009, we paid cash consideration of $50 million associated with both current period and previously executed acquisitions and investments in affiliates, net of cash acquired. In conjunction with these acquisitions, we recorded deferred consideration of $25 million, of which $22 million was attributable to a March 2009 acquisition, which in March 2010, was agreed to be settled by a cash payment of $11 million in April 2010 and the issuance of $11 million in equity, substantially all of which is payable through March 2012 and non-cash consideration of $7 million. Had the current period acquisitions occurred as of January 1, 2009, the impact on our consolidated results of operations would not have been material.

On December 19, 2008, we completed the purchase of the remaining 50% interest in AGB Nielsen Media Research (“AGBNMR”), a leading international television audience media measurement business, from WPP Group plc (“WPP”). With our full ownership of AGBNMR, we expect to be able to better leverage our global media product portfolio. In exchange for the remaining 50% interest in AGBNMR, we transferred business assets and ownership interests with an aggregate fair value of $72 million. No material gain or loss was recorded on the business assets and ownerships transferred.

On May 15, 2008, we completed the acquisition of IAG Research, Inc. (“IAG”), for $223 million (including non-cash consideration of $1 million), which was net of $12 million of cash acquired. The acquisition expands our television and internet analytics services through IAG’s measurement of consumer engagement with television programs, national commercials and product placements.

For the year ended December 31, 2008, we paid cash consideration of $39 million associated with other acquisitions and investments in affiliates, net of cash acquired. In conjunction with these acquisitions, and as of December 31, 2008, we recorded deferred consideration of $12 million, which was subsequently paid in January 2009. Had the AGBNMR, IAG and other acquisitions occurred as of January 1, 2008, the impact on our consolidated results of operations would not have been material.

For the year ended December 31, 2007, we completed several acquisitions with an aggregate consideration, net of cash acquired, of $837 million. The most significant acquisitions were the purchase of the remaining minority interest of Nielsen BuzzMetrics ($47 million) on June 4, 2007, the purchase of the remaining minority interest of Nielsen//NetRatings ($330 million, including $33 million to settle all outstanding share-based awards) on June 22, 2007 and the acquisition of Telephia, Inc. (“Telephia”) on August 9, 2007, for approximately $449 million including non-cash consideration of $6 million. Had these acquisitions occurred as of January 1, 2007, the impact on our consolidated results of operations would not have been material. Prior to these acquisitions, both Nielsen//NetRatings and Nielsen BuzzMetrics were consolidated subsidiaries of Nielsen up to the ownership interest.

 

51


Table of Contents

Foreign Currency

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

 

     Nine months
ended
September 30,

2010
    Nine months
ended
September 30,

2009
    Year ended
December 31,
2009
    Year ended
December 31,
2008
    Year ended
December 31,
2007
 

U.S. Dollar

     53     54     53     53     55

Euro

     14     15     16     16     15

Other Currencies

     33     31     31     31     30
                                        

Total

     100     100     100     100     100

As a result, fluctuations in the value of foreign currencies relative to the U.S. dollar impact our operating results. Impacts associated with fluctuations in foreign currency are discussed in more detail under “—Quantitative and Qualitative Disclosures about Market Risk.” In countries with currencies other than the U.S. dollar, assets and liabilities are translated into U.S. dollars using end-of-period exchange rates; revenues, expenses and cash flows are translated using average rates of exchange. The average U.S. dollar to Euro exchange rate was $1.32 to €1.00 for the nine-month period ended September 30, 2010 and $1.36 to €1.00 for the nine-month period ended September 30, 2009. The average U.S. dollar to Euro exchange rate was $1.39 to €1.00, $1.47 to €1.00, and $1.37 to €1.00 for the years ended December 31, 2009, 2008 and 2007, respectively. Constant currency growth rates used in the following discussion of results of operations eliminate the impact of year-over-year foreign currency fluctuations.

We have operations in both our Watch and Buy segments in Venezuela and our functional currency for these operations is the Venezuelan bolivares fuertes. Venezuela’s currency was considered hyperinflationary as of January 1, 2010 and further, in January 2010, Venezuela’s currency was devalued and a new currency exchange rate system was announced. We have evaluated the new exchange rate system and have concluded that our local currency transactions will be denominated in U.S. dollars until Venezuela’s currency is deemed to be non hyperinflationary. We recorded a charge of $7 million associated with the currency devaluation in January 2010 in our foreign exchange transaction gains, net line item. In June 2010, a further revision to the currency exchange rate system was made. The impact of the hyperinflationary accounting was not material to our consolidated results of operations for the nine months ended September 30, 2010.

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

 

52


Table of Contents

Results of Operations—Nine Months Ended September 30, 2010 compared to Nine Months Ended September 30, 2009

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

 

 

     Nine Months Ended
September 30,
 

(IN MILLIONS)

   2010     2009  

Revenues

   $ 3,755      $ 3,511   
                

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

     1,569        1,484   

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

     1,219        1,127   

Depreciation and amortization

     419        409   

Impairment of goodwill and intangible assets

     —          527   

Restructuring costs

     33        6   
                

Operating income/(loss)

     515        (42
                

Interest income

     3        6   

Interest expense

     (491     (483

Loss on derivative instruments

     (17     (54

Foreign currency exchange transaction gains, net

     141        10   

Other income/(expense), net

     9        (11
                

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

     160        (574

(Provision)/benefit for income taxes

     (14     124   

Equity in net income/(loss) of affiliates

     1        (25
                

Income/(loss) from continuing operations

     147        (475

Discontinued operations, net of tax

     (19     (58
                

Net income/(loss)

     128        (533

Income attributable to noncontrolling interests

     1        2   
                

Net income/(loss) attributable to Nielsen Holdings B.V.

   $ 127      $ (535
                

Consolidated Results for the Nine Months Ended September 30, 2010 compared to the Nine Months Ended September 30, 2009

When comparing our results for the nine months ended September 30, 2010 with results for the nine months ended September 30, 2009, the following should be noted:

Items affecting Operating Income for the nine months ended September 30, 2010

 

   

We recorded $33 million of restructuring expense.

Items affecting Operating Income for the nine months ended September 30, 2009

 

   

We recorded $6 million of restructuring expense.

 

   

We recorded $527 million in impairment charges associated with goodwill and intangible assets.

Revenues

Our revenues increased 6.9% to $3,755 million for the nine months ended September 30, 2010 from $3,511 million for the nine months ended September 30, 2009, or 5.7% on a constant currency basis, which excludes a

 

53


Table of Contents

1.2% favorable impact of changes in foreign currency exchange rates. These increases were driven by a 9.7% increase within our Buy segment (7.9% on a constant currency basis) and a 3.8% increase within our Watch segment (3.4% on a constant currency basis), offset in part by a 5.5% decline in our Expositions segment (5.7% on a constant currency basis).

Cost of Revenues, Exclusive of Depreciation and Amortization

Cost of revenues increased 5.7% to $1,569 million for the nine months ended September 30, 2010 from $1,484 million for the nine months ended September 30, 2009, or 4.9% on a constant currency basis, excluding a 0.8% unfavorable impact of changes in foreign currency exchange rates. These increases resulted from an 8.6% increase within our Buy segment (7.5% on a constant currency basis) due to the global expansion of our Insights services. Costs within our Watch segment were flat while increases in Corporate costs of 74.1% were only partially offset by a 4.6% decrease in our Expositions segment.

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

Selling, general and administrative (“SG&A”) expenses increased 8.2% to $1,219 million for the nine months ended September 30, 2010 from $1,127 million for the nine months ended September 30, 2009, or 6.6% on a constant currency basis, excluding a 1.6% unfavorable impact of changes in foreign currency exchange rates. These increases were driven by a 9.5% increase within our Buy segment (7.4% on a constant currency basis) due to increases in client service costs associated with the global expansion of our Insights services as well as an 11.0% increase within our Watch segment (10.2% on a constant currency basis) due to increased spending on three-screen measurement initiatives. Corporate costs increased 37.7% as a result of increased spending on global product initiatives as well as a $4 million increase in share-based compensation expense. These increases were partially offset by a 31.7% decline in our Expositions segment due to the impact of cost savings initiatives.

Depreciation and Amortization

Depreciation and amortization expense was $419 million for the nine months ended September 30, 2010 as compared to $409 million for the nine months ended September 30, 2009 driven by higher capital expenditures for software and infrastructure development.

Restructuring Costs

Transformation Initiative

We recorded net credits of $3 million for the nine months ended September 30, 2010 associated with adjustments to previously established liabilities for employee severance. We recorded $6 million in restructuring charges, primarily relating to severance costs, for the nine months ended September 30, 2009.

Other Productivity Initiatives

We recorded $36 million in restructuring charges associated with productivity initiatives during the nine months ended September 30, 2010. Of these amounts, approximately $7 million related to property lease termination charges with the remainder relating to severance charges associated with employee terminations.

Operating Income

Operating income for the nine months ended September 30, 2010 was $515 million compared to a loss of $42 million for the nine months ended September 30, 2009. Excluding “Items affecting Operating Income,” specifically noted above, our adjusted operating income increased 11.5% (9.7% on a constant currency basis). Adjusted operating income within our Buy segment increased 23.2% (19.3% on a constant currency basis) as the revenue performance mentioned above more than offset the cost increases mentioned above. Adjusted operating income growth of $19 million within our Expositions segment was offset by higher corporate costs due to

 

54


Table of Contents

increases in certain product investments and global infrastructure costs. Adjusted operating income within our Watch segment remained relatively flat as the revenue growth mentioned above was substantially offset by higher spending on three-screen measurement initiatives and $22 million in higher depreciation and amortization.

Interest Expense

Interest expense was $491 million for the nine months ended September 30, 2010 compared to $483 million for the nine months ended September 30, 2009, as increases in interest costs on new debentures were only partially offset by lower interest costs on senior secured term loans and related derivative instruments.

Loss on Derivative Instruments

The loss on derivative instruments was $17 million for the nine months ended September 30, 2010 compared to a loss of $54 million for the nine months ended September 30, 2009. The reduction in losses resulted from movements in the Euro relative to the U.S. Dollar associated with a foreign currency swap derivative instrument, which was terminated in March 2009 as well as the maturity of $1.5 billion in notional amount of interest rate swaps between November 2009 and March 2010 for which hedge accounting was discontinued in February 2009.

Foreign Currency Exchange Transaction Gains, Net

Foreign currency exchange transaction gains, net, represent the net gain or loss on revaluation of external debt, intercompany loans and other receivables and payables. Fluctuations in the value of foreign currencies relative to the U.S. Dollar have a significant effect on our operating results, particularly the Euro. The average U.S. Dollar to Euro exchange rate was relatively flat at $1.32 to €1.00 for the nine months ended September 30, 2010 as compared to $1.36 to €1.00 for the nine months ended September 30, 2009.

Foreign currency exchange resulted in a $141 million gain for the nine months ended September 30, 2010 compared to a $10 million gain for the nine months ended September 30, 2009. The gains resulted primarily from the fluctuation in the value of the U.S. Dollar against the Euro applied to certain of our Euro denominated senior secured term loans and debenture loans as well as fluctuations in certain currencies including the Euro and Canadian dollar associated with a portion of our intercompany loan portfolio.

Other Income/(Expense), Net

Other income of $9 million for the nine months ended September 30, 2010 resulted from gains attributable to business divestitures. Other expense, net of $11 million for the nine months ended September 30, 2009 primarily includes net charges of approximately $19 million associated with the purchase and cancellation of GBP 250 million 5.625% EMTN debenture notes and the write-off of deferred debt issuance costs associated with the modification of our senior secured credit facility offset by net gains of associated with certain divestitures.

Income from Continuing Operations Before Income Taxes and Equity in Net Income/(Loss) of Affiliates

Income from continuing operations before income taxes and equity in net income/(loss) of affiliates was $160 million for the nine months ended September 30, 2010 compared to a loss of $574 million for the nine months ended September 30, 2009. The change primarily relates to the impairment of goodwill and intangible assets in September 2009, lower derivative losses, higher foreign currency exchange transaction gains and improved business performance primarily attributable to revenue growth, which were offset in part by higher restructuring expenses.

Income Taxes

The effective tax rates for the nine months ended September 30, 2010 and 2009 were 9% expense and 22% (benefit) respectively. The effective tax rate for the nine months ended September 30, 2010 is lower than the

 

55


Table of Contents

statutory rate primarily due to the favorable effect of certain foreign currency exchange gains, financing activities, the change in unrecognized income tax benefits and the liquidation of certain investments partially offset by the impact of the tax rate differences in other jurisdictions where we file tax returns. The effective tax benefit rate for the nine months ended September 30, 2009 is lower than the statutory rate primarily due to the impairment of goodwill and other intangibles, income tax true-ups and changes in interest on liabilities for unrecognized income tax benefits partially offset by the favorable effect of certain foreign exchange gains, the impact of the tax rate differences in other jurisdictions where we file tax returns and changes to unrecognized income tax benefits.

Equity in Net Income/(Loss) of Affiliates

During the third quarter of 2009 we concluded that the carrying value of our non-controlling ownership interest in Scarborough Research (“Scarborough”) was impaired as a result of continued declines in customer discretionary spending and the related impact on the launch of new performance tracking and marketing products. We deemed this impairment to be other than temporary and, accordingly, recorded an after-tax non-cash impairment charge of $26 million (net of a tax adjustment of $18 million).

Discontinued Operations

For the nine months ended September 30, 2010, loss from discontinued operations, net of tax was $19 million compared to a loss of $58 million for the nine months ended September 30, 2009. Discontinued operations primarily relate to our Publications operating segment. The loss for the nine months ended September 30, 2010 reflects the cessation of operations during 2010 as well as a $7 million charge (net of tax of $5 million) associated with the settlement of an outstanding lawsuit. The loss for the nine months ended September 30, 2009 includes goodwill impairment charges of $55 million.

Business Segment Results for the Nine Months Ended September 30, 2010 Compared to the Nine Months Ended September 30, 2009

Revenues

The table below sets forth our segment revenue performance data for the nine months ended September 30, 2010 compared to the nine months ended September 30, 2009, both on an as-reported and constant currency basis.

 

(IN MILLIONS)

  Nine months
ended
September 30,

2010
    Nine months
ended
September 30,

2009
    % Variance
2010 vs. 2009
Reported
    Nine months
ended
September 30,

2009
Constant

Currency
    % Variance
2010 vs. 2009
Constant

Currency
 

Revenues by segment

         

Watch

  $ 1,255      $ 1,209        3.8   $ 1,214        3.4

Buy

    2,350        2,143        9.7     2,179        7.9

Expositions

    150        159        (5.5 )%      159        (5.7 )% 
                                       

Total

  $ 3,755      $ 3,511        6.9   $ 3,552        5.7
                                       

Watch Segment Revenues

Revenues increased 3.8% to $1,255 million for the nine months ended September 30, 2010 from $1,209 million for the nine months ended September 30, 2009, or 3.4% on a constant currency basis. Television measurement grew 1.9% as increases in spending from existing customers offset declines attributable to planned market closures. Online and Mobile grew 11.8% driven by increases in both new and existing customer spending.

Buy Segment Revenues

Revenues increased 9.7% to $2,350 million for the nine months ended September 30, 2010 from $2,143 million for the nine months ended September 30, 2009, or 7.9% on a constant currency basis driven by a 21.1%

 

56


Table of Contents

increase in Developing markets (15.7% on a constant currency basis) and a 5.4% increase in Developed markets (4.8% on a constant currency basis), as our customers continue to expand geographically and increase their spending on analytical services.

Revenues from Information services increased 6.4% to $1,671 million for the nine months ended September 30, 2010 from $1,570 million for the nine months ended September 30, 2009, or 4.6% on a constant currency basis, excluding a 1.8% favorable impact of changes in foreign currency exchange rates. These increases were driven by 17.5% growth in Developing Markets (12.3% on a constant currency basis) as a result of continued expansion of both our retail measurement and consumer panel services to both new and existing customers and new markets. Revenue from Developed Markets increased 2.3% (1.6% on a constant currency basis) as growth in retail measurement services in Western Europe and North America, primarily to existing customers, was offset by the impact of the divestiture of our box office scanning business.

Revenues from Insights services increased 18.7% to $679 million for the nine months ended September 30, 2010 from $573 million for the nine months ended September 30, 2009, or 17.0% on a constant currency basis driven by strong growth in both Developed and Developing Markets due to increases in customer discretionary spending on new product forecasting and other analytical services, which can be cyclical in nature.

Expositions Segment Revenues

Revenues declined 5.5% to $150 million for the nine months ended September 30, 2010 from $159 million for the nine months ended September 30, 2009 primarily as a result of declines in exhibitor attendance, offset in part by the impact of the timing of a show as compared to the prior period.

Operating Income/(Loss)

The tables below set forth comparative supplemental operating income data for the nine months ended September 30, 2010 and 2009, both on an as reported and adjusted basis, adjusting for those items affecting operating income/(loss), as described above within the Consolidated Results commentary.

 

NINE MONTHS ENDED SEPTEMBER 30, 2010
(IN MILLIONS)

  Reported
Operating
Income/(Loss)
    Restructuring
Charges
    Non-GAAP
Adjusted
Operating
Income/(Loss)
 

Operating Income/(Loss)

     

Watch

  $ 237      $ 7      $ 244   

Buy

    287        13        300   

Expositions

    55        —          55   

Corporate and Eliminations

    (64     13        (51
                       

Total Nielsen

  $ 515      $ 33      $ 548   
                       

NINE MONTHS ENDED SEPTEMBER 30, 2009
(IN MILLIONS)

  Reported
Operating
Income/(Loss)
    Impairment
Charges and
Restructuring
Charges/(Credits)
    Non-GAAP
Adjusted
Operating
Income/(Loss)
 

Operating Income/(Loss)

     

Watch

  $ (160   $ 408      $ 248   

Buy

    245        (3     242   

Expositions

    (91     127        36   

Corporate and Eliminations

    (36     1        (35
                       

Total Nielsen

  $ (42   $ 533      $ 491   
                       

 

57


Table of Contents

 

(IN MILLIONS)

  Nine months
ended
September 30,

2010
    Nine months
ended
September 30,

2009
    % Variance
2010 vs. 2009
Reported
    Nine months
ended
September 30,

2009
Constant

Currency
    % Variance
2010 vs. 2009
Constant

Currency
 

Non-GAAP Adjusted Operating Income/(Loss) by Segment

         

Watch

  $ 244      $ 248        (0.9 )%    $ 246        (0.7 )% 

Buy

    300        242        23.2     251        19.3

Expositions

    55        36        58.9     36        55.1

Corporate and Eliminations

    (51     (35     (53.8 )%      (33     (53.6 )% 
                                       

Total

  $ 548      $ 491        11.5   $ 500        9.7
                                       

Watch. Operating income was $237 million for the nine months ended September 30, 2010 as compared to a loss of $160 million for the nine months ended September 30, 2009 driven by the impact of impairment charges recorded in September 2009. Additionally, the revenue performance discussed above was substantially offset by increases in costs associated with three-screen measurement initiatives as well as a $22 million increase in depreciation and amortization associated with technology infrastructure initiatives and Local People Meters.

Buy. Operating income increased 16.6% to $287 million for the nine months ended September 30, 2010 as compared to $245 million for the nine months ended September 30, 2009 due to the strong revenue performance mentioned above, offset by an increase in restructuring charges and the impact of changes in foreign currency exchange rates.

Expositions. Operating income was $55 million for the nine months ended September 30, 2010 as compared to a loss of $91 million for the nine months ended September 30, 2009 driven by the impact of impairment charges recorded in 2009 as well as lower depreciation expense and the costs savings effects of the Transformation Initiative and other productivity initiatives.

Corporate and Eliminations. Operating loss was $64 million for the nine months ended September 30, 2010 as compared to an operating loss of $36 million for the nine months ended September 30, 2009 due to increases in certain product investments and global infrastructure costs as well as higher restructuring charges.

 

58


Table of Contents

Results of Operations—(Years Ended December 31, 2009, 2008 and 2007)

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

 

     Year Ended
December 31,
 

(IN MILLIONS)

   2009     2008     2007  

Revenues

   $ 4,808      $ 4,806      $ 4,458   
                        

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

     2,023        2,057        1,992   

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

     1,523        1,616        1,506   

Depreciation and amortization

     557        499        451   

Impairment of goodwill and intangible assets

     527        96        —     

Restructuring costs

     62        118        133   
                        

Operating income

     116        420        376   
                        

Interest income

     7        17        30   

Interest expense

     (647     (701     (691

(Loss)/gain on derivative instruments

     (60     (15     40   

Foreign currency exchange transaction (losses)/gains, net

     (2     20        (110

Other (expense)/income, net

     (17     (12     1   
                        

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

     (603     (271     (354

Benefit/(provision) for income taxes

     197        (36     (12

Equity in net (loss)/income of affiliates

     (22     (7     2   
                        

Loss from continuing operations

     (428     (314     (364

(Loss)/income from discontinued operations, net of tax

     (61     (275     10   
                        

Net loss

     (489     (589     (354

Net income attributable to noncontrolling interests

     2        —          —     
                        

Net loss attributable to Nielsen Holdings

   $ (491   $ (589   $ (354
                        

Consolidated Results for the year ended December 31, 2009 versus the year ended December 31, 2008

When comparing our results for the year ended December 31, 2009 with results for the year ended December 31, 2008, the following should be noted:

Items affecting Operating Income for the year ended December 31, 2009

 

   

We incurred $527 million of non-cash goodwill and intangible impairment charges.

 

   

We incurred $62 million of restructuring expense.

Items affecting Operating Income for the year ended December 31, 2008

 

   

We incurred a $96 million of non-cash goodwill impairment charge.

 

   

We incurred $118 million of restructuring expense.

Revenues

Our revenues were flat at $4,808 million for the year ended December 31, 2009 compared to $4,806 million for the year ended December 31, 2008, an increase of 4.0% on a constant currency basis, which excludes the

 

59


Table of Contents

unfavorable impact of changes in foreign currency exchange rates. Our revenue performance included a 10.5% increase within our Watch segment (11.5% on a constant currency basis), a 2.9% decrease within our Buy segment (a 2.7% increase on a constant currency basis) and a 25.1% decline in our Expositions segment (24.6% on a constant currency basis).

Cost of Revenues, Exclusive of Depreciation and Amortization

Cost of revenues decreased 1.6% to $2,023 million for the year ended December 31, 2009 from $2,057 million for the year ended December 31, 2008, an increase of 2.6% on a constant currency basis, which excludes a 4.2% favorable impact of changes in foreign currency exchange rates. The change in cost of revenues was driven by a 4.0% increase from the impact of acquisitions and divestitures within both our Watch and Buy segments (4.2% increase on a constant currency basis) offset by cost savings due to the effects of the Transformation Initiative (see discussion below under “—Restructuring Costs—Transformation Initiative”) and other productivity initiatives. Cost of revenues within our Expositions segment decreased 30.6% (29.8% on a constant currency basis) due to lower variable exhibition costs.

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

SG&A expenses decreased 5.7% to $1,523 million for the year ended December 31, 2009 from $1,616 million for the year ended December 31, 2008, a decrease of 1.5% on a constant currency basis excluding a 4.2% favorable impact of changes in foreign currency exchange rates. SG&A expenses declined 44.6% and 14.9% (44.9% and 14.6% on a constant currency basis) in Corporate and our Expositions segments, respectively, which was slightly offset by a 3.5% increase (3.7% on a constant currency basis) due to the impact of acquisitions and divestitures in both our Watch and Buy segments.

Depreciation and Amortization

Depreciation and amortization increased to $557 million for the year ended December 31, 2009 from $499 million for the year ended December 31, 2008, driven by increased amortization due to the impact of acquisitions and divestitures and higher depreciation related to increased capital investment on projects to enhance our technology platform and global infrastructure.

Impairment of Goodwill and Intangible Assets

During 2009, we recorded a non-cash goodwill impairment charge of $282 million and a non-cash intangible asset impairment charge of $245 million. These charges related to both our Watch and Expositions segments. A deferred tax benefit of $103 million was recognized during the period as a result of these impairment charges. We recorded a $96 million non-cash goodwill impairment charge relating to a reporting unit within our Watch segment in 2008. A deferred tax benefit of $7 million was recognized during the period as a result of this impairment charge.

Restructuring Costs

Transformation Initiative

The Transformation Initiative was completed during 2009; however, the payments will continue through 2010.

We incurred $33 million in restructuring charges primarily relating to severance costs for the year ended December 31, 2009. We recorded $118 million in restructuring charges for the year ended December 31, 2008. The charges included severance costs as well as $24 million of contractual termination costs and asset write-offs.

Other Productivity Initiatives

In December 2009, we commenced certain specific restructuring actions attributable to defined cost-reduction programs, primarily in Europe and North America, directed towards achieving increased productivity

 

60


Table of Contents

in future periods. We recorded $29 million in restructuring charges associated with these initiatives during the fourth quarter of 2009. The charges included severance costs of $22 million as well as $7 million of contractual termination costs and asset write-offs.

See Note 8 – Restructuring Activities – to our audited consolidated financial statements included elsewhere in this prospectus, for additional information regarding our restructuring programs.

Operating Income

Operating income for the year ended December 31, 2009 decreased to $116 million, from $420 million for the year ended December 31, 2008. Excluding “Items affecting Operating Income,” specifically noted above, our adjusted operating income increased 11.1%, or 14.8% on a constant currency basis, excluding a 3.7% unfavorable impact of changes in foreign currency exchange rates. Adjusted operating income within our Watch segment increased by 20.6% (20.9% on a constant currency basis) as a result of the 11.5% constant currency revenue growth mentioned above, the impact of the Transformation Initiative and other productivity initiatives, as well as the impact of acquisitions and divestitures. Adjusted operating income within our Buy segment increased 2.6% (7.6% on a constant currency basis) primarily driven by the impact of the Transformation Initiative and other productivity initiatives as well as the 2.7% constant currency revenue growth mentioned above. Adjusted operating income within our Expositions segment decreased by 54.8% (53.7% on a constant currency basis) primarily as result of lower exposition revenues. Adjusted operating expenses within Corporate declined 36.2% as a result of cost reductions from the impact of the Transformation Initiative as well as decreased spending on certain product initiatives.

Interest Income and Expense

Interest income was $7 million for the year ended December 31, 2009 compared to $17 million for the year ended December 31, 2008. Interest expense was $647 million for the year ended December 31, 2009 compared to $701 million for the year ended December 31, 2008. The decrease was driven primarily by the termination and subsequent capitalization of the term loan with Luxco and the impact of interest allocations to discontinued operations, slightly offset by higher interest expense on our debenture loan portfolio as a result of new debt issuances in 2009.

Loss on Derivative Instruments

The loss on derivative instruments was $60 million for the year ended December 31, 2009 compared to a loss of $15 million for the year ended December 31, 2008. The increased loss resulted primarily from the change in fair value of certain of our interest rate swaps for which hedge accounting was discontinued in February 2009 as well as losses attributable to movements in the Euro relative to the U.S. dollar associated with a foreign currency swap derivative instrument, which was terminated in March 2009.

Foreign Currency Exchange Transaction (Losses)/Gains, Net

Foreign currency exchange transaction gains, net, represent the net gain or loss on revaluation of external debt, intercompany loans and other receivables and payables. Fluctuations in the value of foreign currencies relative to the U.S. dollar have a significant effect on our operating results, particularly the Euro. The average U.S. dollar to Euro exchange rate was $1.39 to €1.00 and $1.47 to €1.00 for the year ended December 31, 2009 and the year ended December 31, 2008, respectively.

Foreign currency exchange resulted in a $2 million loss for the year ended December 31, 2009 compared to a $20 million gain recorded in the year ended December 31, 2008 primarily as a result of the fluctuation in the value of the U.S. dollar against the Euro applied to certain of our Euro denominated senior secured term loans and debenture loans as well as a portion of our intercompany loan portfolio.

 

61


Table of Contents

Other Expense, Net

Other expense, net was $17 million for the year ended December 31, 2009 versus $12 million for the year ended December 31, 2008. The 2009 amount primarily includes net charges of approximately $15 million associated with the purchase and cancellation of GBP 250 million 5.625% EMTN debenture notes and the write-off of deferred debt issuance costs associated with the modification of our 2006 Senior Secured Credit Facilities offset in part by net gains primarily associated with certain divestitures, including the sale of our Brazilian operations within our Expositions segment.

Loss from Continuing Operations Before Income Taxes and Equity in Net Loss of Affiliates

For the year ended December 31, 2009, loss from continuing operations before income taxes, and equity in net loss of affiliates was $603 million compared to a $271 million loss for the year ended December 31, 2008. The current period compared with the prior period results primarily reflects impairment of goodwill and intangible assets offset in part by lower restructuring expenses, lower interest costs and increased operating performance, primarily driven by cost reduction programs.

Equity in Net Loss of Affiliates

For the year ended December 31, 2009, equity in net loss of affiliates was $22 million compared to $7 million for the year ended December 31, 2008 primarily driven by an after-tax non-cash impairment charge of $26 million (net of a tax adjustment of $18 million) associated with our non-controlling ownership interest in Scarborough in the third quarter of 2009.

Income Taxes

The effective tax rates for the years ended December 31, 2009 and 2008 were a benefit of 32.7% and an expense of 13.3%, respectively. The effective tax rate for the year ended December 31, 2009 was higher than the Dutch statutory rate primarily due to state and foreign withholding and income taxes and the impact of the tax rate differences in other jurisdictions where we file tax returns, which is partially offset by impairments of goodwill and intangible assets, which had a tax basis significantly lower than the underlying book basis and therefore a lower tax benefit.

The effective tax rate for the year ended December 31, 2008 was lower than the Dutch statutory rate primarily due to the impairment of goodwill, which had a tax basis significantly lower than the book basis and therefore a lower tax benefit, tax on distribution from foreign subsidiaries, change in estimates related to global uncertain tax positions, state and foreign withholding and income taxes, change in estimates for other tax positions and certain non-deductible charges, which were partially offset by the impact of the tax rate differences in other jurisdictions where we file tax returns.

At December 31, 2009 and December 31, 2008, we had gross uncertain tax positions of $129 million and $187 million, respectively. We also have accrued interest and penalties associated with these uncertain tax positions as of December 31, 2009 and December 31, 2008 of $23 million, and $22 million, respectively. Estimated interest and penalties related to the underpayment of income taxes is classified as a component of our benefit/(provision) for income taxes. It is reasonably possible that a reduction in a range of $9 million to $38 million of uncertain tax positions may occur within the next 12 months as a result of projected resolutions of worldwide tax disputes.

Our future effective tax rates could be adversely affected by earnings being lower than anticipated in countries where statutory rates are lower and earnings being higher than anticipated in countries where statutory rates are higher, by changes in the valuation of our deferred tax assets, or by changes in tax laws, regulations, accounting principles, or interpretations thereof.

 

62


Table of Contents

Discontinued Operations

For the year ended December 31, 2009, loss from discontinued operations, net of tax of $31 million, was $61 million compared to a $275 million loss for the year ended December 31, 2008. Discontinued operations primarily relate to our Publications operating segment and the loss for the year ended December 31, 2009 includes a net loss on the sale of our media properties within the Publications operating segment, including The Hollywood Reporter and Billboard, to e5 Global Media LLC, of $14 million, net of tax of $3 million. Additionally, losses for both 2009 and 2008 include goodwill impairment charges associated with our Publications operating segment of $55 million and $336 million, respectively. The loss for the year ended December 31, 2008 is partially offset by a gain of $19 million relating to the settlement of tax contingencies associated with the sale of our Directories segment to World Directories.

Consolidated Results for the year ended December 31, 2008 versus the year ended December 31, 2007

When comparing our results for the year ended December 31, 2008 with results for the year ended December 31, 2007, the following should be noted:

Items affecting Operating Income for the year ended December 31, 2008

 

   

We incurred a $96 million non-cash goodwill impairment charge.

 

   

We incurred $118 million of restructuring expense.

Items affecting Operating Income for the year ended December 31, 2007

 

   

We incurred $133 million of restructuring expense.

 

   

We incurred approximately $37 million in transaction costs, legal settlements and incremental expenses associated with compensation agreements and recruiting costs for certain corporate executives.

Revenues

Our revenues increased 7.8% to $4,806 million for the year ended December 31, 2008 from $4,458 million for the year ended December 31, 2007, or 6.1% on a constant currency basis, excluding a 1.7% favorable impact of changes in foreign currency exchange rates. These increases were driven by a 10.5% increase within our Watch segment (10.4% on a constant currency basis) and a 7.5% increase within our Buy segment (5.0% on a constant currency basis), partially offset by a 3.4% decline in Expositions (3.9% on a constant currency basis).

Cost of Revenues, Exclusive of Depreciation and Amortization

Cost of revenues increased 3.1% to $2,057 million for the year ended December 31, 2008 from $1,992 million for the year ended December 31, 2007, or 1.2% on a constant currency basis, excluding a 1.9% unfavorable impact of changes in foreign currency exchange rates. These increases were driven by a 1.2% increase due to the impact of acquisitions, which were partly offset by productivity savings following actions implemented under the Transformation Initiative in both our Watch and Buy segments and a 4.5% decline in costs within our Expositions segment (5.3% on a constant currency basis).

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

SG&A expenses increased 7.1% to $1,616 million for the year ended December 31, 2008 versus $1,506 million for the year ended December 31, 2007, or 5.3% on a constant currency basis, excluding a 1.8% unfavorable impact of changes in foreign currency exchange rates. These increases were primarily due to a 2.4% increase as a result of the impact of acquisitions as well as continued investment in Developing Markets within our Buy segment. These increases were partly offset by the impact of the Transformation Initiative and other productivity related

 

63


Table of Contents

savings, a $34 million decrease in share based compensation expenses and a $37 million decrease in payments in connection with compensation agreements and recruiting expenses for certain corporate executives.

Depreciation and Amortization

Depreciation and amortization increased to $499 million for the year ended December 31, 2008 from $451 million for the year ended December 31, 2007, driven by increased depreciation related to capital investment in hardware and software and increased amortization due to the impact of acquisitions, partly offset by lower amortization on previously acquired intangible assets at our Expositions segment.

Impairment of Goodwill

We recorded a non-cash goodwill impairment charge of $96 million associated with a reporting unit within our Watch segment. A deferred tax benefit of $7 million was recognized as a result of this impairment charge.

Restructuring Costs

We recorded $118 million in restructuring charges for the year ended December 31, 2008 associated with the Transformation Initiative. The charges included severance costs as well as $24 million of contractual termination costs and asset write-offs.

We recorded $133 million in restructuring charges for the year ended December 31, 2007 associated with the Transformation Initiative. The charges included $92 million in severance costs as well as $6 million in asset write-offs and $35 million in consulting fees and other costs, related to reviews of corporate functions and outsourcing opportunities.

Operating Income

Operating income for the year ended December 31, 2008 increased 12.1% to $420 million from $376 million for the year ended December 31, 2007. Excluding “Items affecting Operating Income,” specifically noted above from our respective 2008 and 2007 operating results, adjusted operating income increased 16.5% (15.7% on a constant currency basis), for the year ended December 31, 2008 as compared to the year ended December 31, 2007. Adjusted operating income within our Watch segment increased 29.9% (30.4% on a constant currency basis) reflecting the impact of acquisitions, 10.4% constant currency revenue growth mentioned above and benefits realized from our Transformation Initiative. Adjusted operating income within our Buy segment increased 12.0% (10.5% on a constant currency basis) due to revenue growth in Developing Markets, as well as benefits realized from our Transformation Initiative. Adjusted operating income increased 9.4% (10.3% on a constant currency basis) within our Expositions segment as 3.9% constant currency revenue declines were largely offset by the impact of cost savings. Adjusted operating expenses increased 31.0% (32.4% on a constant currency basis) within Corporate as a result of increased expenditures on global infrastructure and product development initiatives.

Interest Income and Expense

Interest income was $17 million for the year ended December 31, 2008 versus $30 million for the year ended December 31, 2007. Interest expense was $701 million for the year ended December 31, 2008 versus $691 million for the year ended December 31, 2007. This increase reflects the additional borrowings associated with our 2007 and 2008 acquisitions as well as an increase associated with the Luxco term loan, partially offset by a decline in the weighted average interest rates of our 2006 Senior Secured Credit Facilities.

(Loss)/Gain on Derivative Instruments

The loss on derivative instruments was $15 million for the year ended December 31, 2008 as compared to a gain of $40 million for the year ended December 31, 2007. The change resulted primarily from movements in the

 

64


Table of Contents

Euro relative to the U.S. dollar in the current period as compared to the prior period, resulting from a foreign currency swap derivative instrument entered into during 2007.

Foreign Currency Exchange Transaction Gains/(Losses), Net

Foreign currency exchange transaction gains or losses, net, represent the net gain or loss on revaluation of external debt and intercompany loans. Fluctuations in the value of foreign currencies, particularly the Euro, relative to the U.S. dollar have a significant effect on our operating results. The average U.S. dollar to Euro exchange rate was $1.47 to €1.00 and $1.37 to €1.00 for the year ended December 31, 2008 and the year ended December 31, 2007, respectively.

Foreign currency exchange resulted in a $20 million gain for the year ended December 31, 2008 versus a $110 million loss recorded in the year ended December 31, 2007 as a result of the appreciation of the U.S. dollar against the Euro and other currencies.

Other (Expense)/Income, net

Other expense was $12 million for the year ended December 31, 2008 as compared to income of $1 million for the year ended December 31, 2007. The 2008 expense was mainly due to a determination that there was a decline in the value of an investment in a publicly listed company and accounted for as an available-for-sale security which was other than temporary and therefore we recognized a $12 million loss.

Loss from Continuing Operations before Income Taxes, and Equity in Net (Loss)/Income of Affiliates

For the year ended December 31, 2008, there was a $271 million loss from continuing operations before income taxes and equity in net (loss)/income of affiliates versus a $354 million loss for the year ended December 31, 2007. The lower 2008 loss as compared with 2007 primarily reflects our improved operating performance as discussed above, lower restructuring expenses related to the Transformation Initiative, lower payments in connection with compensation agreements and recruiting expenses for certain corporate executives, and foreign currency exchange gains that occurred during the year ended December 31, 2008 only partly offset by the goodwill impairment charge of $96 million in 2008 and higher interest costs.

Income Taxes

The effective tax rates for the years ended December 31, 2008 and 2007 were an expense of 13.3% and 3.4%, respectively. The effective tax rate for the year ended December 31, 2008 was lower than the Dutch statutory rate primarily due to the impairment of goodwill which had a tax basis significantly lower than the book basis and therefore a lower tax benefit, tax on distributions from foreign subsidiaries, change in estimates related to global uncertain tax positions, state and foreign withholding and income taxes, change in estimates for other tax positions and certain non-deductible charges, which were partially offset by the impact of the tax rate differences in other jurisdictions where we file tax returns.

The effective tax rate for the year ended December 31, 2007 was lower than the Dutch statutory rate primarily related to the tax impact on distributions from foreign subsidiaries. This was partially offset by the recognition of the tax benefit of interest expense related to the Valcon senior secured bridge facility based upon a favorable 2007 Dutch residency ruling. In addition, the change in estimates related to global uncertain tax positions and the valuation allowance also influenced the 2007 tax rate.

Discontinued Operations

For the year ended December 31, 2008, loss from discontinued operations, net of tax was $275 million as compared to a gain of $10 million for the year ended December 31, 2007. Discontinued operations relate to our Publications operating segment as well as our Directories segment. The loss for the year ended December 31, 2008 includes an impairment charge of $336 million relating to our Publications operating segment offset in part

 

65


Table of Contents

by a gain of $19 million relating to the settlement of tax contingencies associated with the sale of our Directories segment to World Directories as well as net losses attributable to the discontinued operations. The gain for the year ended December 31, 2007 includes a $17 million gain on the sale of our Business Media Europe unit offset by net losses attributable to the discontinued operations.

Business Segment Results for the year ended December 31, 2009 versus the year ended December 31, 2008

Revenues

The table below sets forth our segment revenue growth data for the year ended December 31, 2009 compared to the year ended December 31, 2008, both on an as-reported and constant currency basis. In order to determine the percentage change in revenue on a constant currency basis, we remove the positive and negative impacts of changes foreign currency exchange rates:

 

(IN MILLIONS)

   Year ended
December 31,
2009
     Year ended
December 31,
2008
     % Variance
2009 vs. 2008
Reported
    Year ended
December 31,
2008

Constant
Currency
     % Variance
2009 vs. 2008
Constant
Currency
 

Revenues by segment

             

Watch

   $ 1,635       $ 1,480         10.5   $ 1,466         11.5

Buy

     2,993         3,084         (2.9 )%      2,915         2.7

Expositions

     180         240         (25.1 )%      238         (24.6 )% 

Corporate and eliminations

     —           2         n/a        2         n/a   
                                           

Total

   $ 4,808       $ 4,806         0.1   $ 4,621         4.0
                                           

Watch Segment Revenues

Revenues increased 10.5% to $1,635 million for the year ended December 31, 2009 from $1,480 million for the year ended December 31, 2008, or 11.5% on a constant currency basis. Excluding the impact of acquisitions, revenue grew 1.7% (2.6% on a constant currency basis) as our television audience market expansion was offset by lower spending by our customers on enhanced analytical services. This growth was primarily driven by a 4.7% constant currency increase in North American television measurement due to volume increases associated with measurement data from five additional markets being added to the Local People Meter (“LPM”) program.

Buy Segment Revenues

Revenues decreased 2.9% to $2,993 million for the year ended December 31, 2009 from $3,084 million for the year ended December 31, 2008, an increase of 2.7% on a constant currency basis as our customers continue to expand geographically and increase their spending on analytical services. Revenue from Developing Markets decreased 2.6% (a 8.0% increase on a constant currency basis) and revenue from Developed Markets decreased 3.1% (a 0.8% increase on a constant currency basis).

Revenues from Information services decreased 4.7% to $2,157 million for the year ended December 31, 2009 from $2,262 million for the year ended December 31, 2008, an increase of 1.7%, on a constant currency basis excluding a 6.4% unfavorable impact of changes in foreign currency exchange rates. Revenue from Developing Markets declined 4.0%, however, was the primary driver for the constant currency increase mentioned above, increasing 7.5% on a constant currency basis as a result of continued geographic expansion of both our retail measurement and consumer panel services to both new and existing customers.

Revenues from Insights services increased 1.8% to $836 million for the year ended December 31, 2009 from $822 million for the year ended December 31, 2008, or 5.3% on a constant currency basis excluding a 3.5% unfavorable impact of changes in foreign currency exchange rates. These increases were driven by 0.8% growth

 

66


Table of Contents

in Developing Markets (8.9% on a constant currency basis) and the impact of acquisitions. The growth in Developing Markets related to continued expansion of our analytical services, primarily to existing customers who are expanding their presence in these markets.

Expositions Segment Revenues

Revenues for the year ended December 31, 2009 decreased 25.1% to $180 million from $240 million for the year ended December 31, 2008, due largely to lower exhibitor attendance driven by the economic environment.

Operating Income/(Loss)

The table below sets forth supplemental operating income data for the year ended December 31, 2009 compared to the year ended December 31, 2008, both on an as reported and adjusted basis, adjusting for the impact of changes in foreign currency exchange rates as well as those items affecting operating income/(loss), as described above within the Consolidated Results commentary.

 

YEAR ENDED DECEMBER 31, 2009 (IN MILLIONS)

   Reported
Operating
Income/(Loss)
    Restructuring
and
Impairment
Charges(1)
     Non-GAAP
Adjusted
Operating
Income/(Loss)
 

Operating Income/(Loss)

       

Watch

   $ (73   $ 411       $ 338   

Buy

     361        39         400   

Expositions

     (105     128         23   

Corporate and Eliminations

     (67     11         (56
                         

Total Nielsen

   $ 116      $ 589       $ 705   
                         

 

YEAR ENDED DECEMBER 31, 2008 (IN MILLIONS)

   Reported
Operating
Income/(Loss)
    Restructuring
and
Impairment
Charges(1)
     Non-GAAP
Adjusted
Operating
Income/(Loss)
 

Operating Income/(Loss)

       

Watch

   $ 171      $ 110       $ 281   

Buy

     315        74         389   

Expositions

     50        1         51   

Corporate and Eliminations

     (116     29         (87
                         

Total Nielsen

   $ 420      $ 214       $ 634   
                         

 

(1) Includes $402 million and $96 million of goodwill and other intangible asset impairment charges within our Watch segment in 2009 and 2008, respectively and $125 million within our Expositions segment in 2009.

 

(IN MILLIONS)

   Year ended
December 31,
2009
    Year ended
December 31,
2008
    % Variance
2009 vs. 2008
Reported
    Year ended
December 31,
2008
Constant
Currency
    % Variance
2009 vs. 2008
Constant
Currency
 

Non-GAAP Adjusted Operating Income/(Loss) by Segment

          

Watch

   $ 338      $ 281        20.6   $ 279        20.9

Buy

     400        389        2.6     371        7.6

Expositions

     23        51        (54.8 )%      51        (53.7 )% 

Corporate and Eliminations

     (56     (87     (36.2 )%      (87     (36.2 )% 
                                        

Total

   $ 705      $ 634        11.1   $ 614        14.8
                                        

 

67


Table of Contents

Watch. Operating loss was $73 million for the year ended December 31, 2009 compared to operating income of $171 million for the year ended December 31, 2008 due to increases in restructuring and impairment charges offset by the revenue growth mentioned above and cost savings from the impact of our Transformation Initiative. Adjusted operating income for the year ended December 31, 2009 was $338 million compared to adjusted operating income of $281 million for the year ended December 31, 2008, an increase of 20.9% on a constant currency basis.

Buy. Operating income increased to $361 million for the year ended December 31, 2009 from $315 million for the year ended December 31, 2008 due to lower restructuring charges, the revenue growth mentioned above and the effects of the Transformation Initiative and other productivity initiatives. Adjusted operating income for the year ended December 31, 2009 was $400 million compared to adjusted operating income of $389 million for the year ended December 31, 2008, an increase of 7.6% on a constant currency basis.

Expositions. Operating loss was $105 million for the year ended December 31, 2009 compared to operating income of $50 million for the year ended December 31, 2008 due to intangible asset impairment charges as well as declines in our revenues due to the economic environment. Adjusted operating income for the years ended December 31, 2009 was $23 million compared to $51 million, a decrease of 53.7% on a constant currency basis.

Corporate and Eliminations. Operating loss was $67 million for the year ended December 31, 2009 compared to $116 million for the year ended December 31, 2008. Adjusted operating loss for the year ended December 31, 2009 was $56 million versus the $87 million of adjusted operating loss for the year ended December 31, 2008. These decreases were due to lower expenses on certain product initiatives as well as the impact of the Transformation Initiative.

Business Segment Results for the year ended December 31, 2008 versus the year ended December 31, 2007

Revenues

The table below sets forth certain supplemental revenue growth data for the year ended December 31, 2008 compared to the year ended December 31, 2007, both on an as-reported and constant currency basis. In order to determine the percentage change in items on a constant currency basis, we adjust these items to remove the positive and negative impacts of foreign exchange:

 

(IN MILLIONS)

   Year ended
December 31,
2008
     Year ended
December 31,
2007
     % Variance
2008 vs. 2007
Reported
    Year ended
December 31,
2007 Constant
Currency
     % Variance
2008 vs. 2007
Constant
Currency
 

Revenues by segment

             

Watch

   $ 1,480       $ 1,339         10.5   $ 1,341         10.4

Buy

     3,084         2,868         7.5     2,937         5.0

Expositions

     240         248         (3.4 )%      249         (3.9 )% 

Corporate and eliminations

     2         3         n/a        3         n/a   
                                           

Total

   $ 4,806       $ 4,458         7.8   $ 4,530         6.1
                                           

Watch Segment Revenues

Revenues increased 10.5% to $1,480 million for the year ended December 31, 2008 from $1,339 million for the year ended December 31, 2007, or 10.4% on a constant currency basis. Excluding the impact of acquisitions and divestitures, Watch revenues increased 7.7% driven by volume increases leading to 8.0% growth in North American television measurement attributable to the launch of additional markets in 2008 under the LPM program. These volume increases were primarily attributable to existing customers.

 

68


Table of Contents

Buy Segment Revenues

Revenues increased 7.5% to $3,084 million for the year ended December 31, 2008 from $2,868 million for the year ended December 31, 2007, or 5.0% on a constant currency basis. These increases were driven by 18.5% growth in Developing Markets (15.6% on a constant currency basis) and 3.9% growth in Developed Markets (1.5% on a constant currency basis).

Information services revenues increased 6.2% to $2,262 million for the year ended December 31, 2008 from $2,130 million for the year ended December 31, 2007, or 3.6% on a constant currency basis, excluding a 2.6% favorable impact of changes in foreign currency exchange rates. These increases were driven by 17.6% growth in Developing Markets (13.8% on a constant currency basis) and slight increases in Developed Markets as growth in North America and Western Europe was offset by the closure of certain product lines in Japan in 2007.

Insights services revenues increased 11.1% to $822 million for the year ended December 31, 2008 from $738 million for the year ended December 31, 2007, or 9.3% on a constant currency basis, excluding a 1.8% favorable impact of changes in foreign currency exchange rates. These increases were driven by growth in both Developed and Developing Markets resulting from higher client demand for our analytical services.

Expositions Segment Revenues

Revenues for the year ended December 31, 2008 were $240 million versus $248 million for the year ended December 31, 2007 as lower exhibitor attendance was driven by the economic environment.

Operating Income/(Loss)

The table below sets forth supplemental operating income data for the year ended December 31, 2008 compared to the year ended December 31, 2007, both on an as-reported and adjusted basis, adjusting for the impact of changes in foreign currency exchange rates as well as those items affecting operating income/(loss), as described above within the Consolidated Results commentary.

 

YEAR ENDED DECEMBER 31, 2008
(IN MILLIONS)

   Reported
Operating
Income/(Loss)
    Restructuring
and
Impairment
Charges
     Other Items
Affecting
Operating
Income
     Non-GAAP
Adjusted
Operating
Income/(Loss)
 

Operating Income

          

Watch

   $ 171      $ 110       $ —         $ 281   

Buy

     315        74         —           389   

Expositions

     50        1         —           51   

Corporate and Eliminations

     (116     29         —           (87
                                  

Total Nielsen

   $ 420      $ 214       $ —         $ 634   
                                  

 

YEAR ENDED DECEMBER 31, 2007
(IN MILLIONS)

   Reported
Operating
Income/(Loss)
    Restructuring
Charges
     Other Items
Affecting
Operating
Income
     Non-GAAP
Adjusted
Operating
Income/(Loss)
 

Operating Income

          

Watch

   $ 188      $ 10       $ 18       $ 216   

Buy

     264        84         —           348   

Expositions

     44        2         —           46   

Corporate and Eliminations

     (120     37         19         (64
                                  

Total Nielsen

   $ 376      $ 133       $ 37       $ 546   
                                  

 

69


Table of Contents

 

(IN MILLIONS)

   Year ended
December 31,
2008
    Year ended
December 31,
2007
    % Variance
2008 vs. 2007
Reported
    Year ended
December 31,
2007

Constant
Currency
    % Variance
2008 vs. 2007
Constant
Currency
 

Non-GAAP Adjusted Operating Income/(Loss) by Segment

          

Watch

   $ 281      $ 216        29.9   $ 352        30.4

Buy

     389        348        12.0     215        10.5

Expositions

     51        46        9.4     46        10.3

Corporate and Eliminations

     (87     (64     31.0     (65     32.4
                                        

Total

   $ 634      $ 546        16.5   $ 548        15.7
                                        

Watch. Operating income was $171 million for the year ended December 31, 2008 compared to $188 million for the year ended December 31, 2007. The decrease in operating income was due to increases in restructuring and impairment charges and increases in SG&A expenses, offset by the revenue performance mentioned above and cost savings from the Transformation Initiative. Adjusted operating income was $281 million for the year ended December 31, 2008 compared to an adjusted operating income of $216 million for the year ended December 31, 2007, an increase of 30.4%, on a constant currency basis.

Buy. Operating income was $315 million for the year ended December 31, 2008 compared to $264 million for the year ended December 31, 2007. Adjusted operating income for the year ended December 31, 2008 was $389 million compared to operating income of $348 million for the year ended December 31, 2007, an increase of 10.5%, on a constant currency basis. These increases were due to the revenue performance mentioned above as well as productivity savings following actions implemented under the Transformation Initiative. These savings were partially offset by an increase in SG&A expenses mentioned above due in equal part to the impact of acquisitions and continued investment in Developing Markets.

Expositions. Operating income was $50 million for the year ended December 31, 2008 compared to $44 million for the year ended December 31, 2007. Adjusted operating income was $51 million for the year ended December 31, 2008 compared to an adjusted operating income of $46 million for the year ended December 31, 2007, an increase of 10.3%, on a constant currency basis. These increases were primarily attributable to cost savings initiatives.

Corporate and Eliminations. Operating loss was $116 million for the year ended December 31, 2008 compared to $120 million for the year ended December 31, 2007. The decrease in operating loss was primarily attributable to lower restructuring and other items affecting operating income offset by increased spending on certain product initiatives and increased share compensation expense when compared to 2007. Adjusted operating loss was $87 million for the year ended December 31, 2008 compared to an adjusted operating loss of $64 million for the year ended December 31, 2007.

Supplemental Quarterly Financial Information

The below table presents selected unaudited quarterly financial information for each of the interim periods in the years ended December 31, 2009 and 2008.

 

     2008     2009  

(IN MILLIONS)

   First
Quarter
    Second
Quarter
    Third
Quarter
    Fourth
Quarter
    First
Quarter
    Second
Quarter
    Third
Quarter
    Fourth
Quarter
 

Revenues

   $ 1,156      $ 1,241      $ 1,223      $ 1,186      $ 1,102      $ 1,182      $ 1,227      $ 1,297   

Depreciation and amortization

     116        122        127        134        130        136        143        148   

Operating income/(loss)(1)

     106        154        124        36        112        172        (326     158   

Discontinued operations, net of tax(2)

     —          1        (6     (270     (4     4        (58     (3

Net income/(loss) attributable to Nielsen Holdings

   $ (108   $ (6   $ 22      $ (497   $ 2      $ (10   $ (527   $ 44   

 

70


Table of Contents

 

(1) Includes restructuring charges of $45 million and $58 million for the third quarter and the fourth quarter of 2008, respectively. The fourth quarter of 2008 also includes a goodwill impairment charge of $96 million. Includes restructuring charges of $56 million in the fourth quarter of 2009. The third quarter of 2009 also includes charges for the impairment of goodwill impairment and intangible assets of $527 million.
(2) The fourth quarter of 2008 includes a goodwill impairment charge relating to the Publications operating segment of $336 million. Includes a net loss after taxes of $14 million relating to the sale of the media properties within our Publications operating segment during the fourth quarter of 2009. The third quarter of 2009 includes a goodwill impairment charge relating to the Publications operating segment of $55 million.

Liquidity and Capital Resources

Overview

As a result of the Acquisition and related financing, our contractual obligations, commitments and debt service requirements over the next several years are significant. Our primary source of liquidity will continue to be cash generated from operations as well as existing cash. At September 30, 2010, cash and cash equivalents were $423 million and our total indebtedness, excluding bank overdrafts, was $8,570 million. In addition, we also had $668 million available for borrowing under our senior secured revolving credit facility at September 30, 2010.

We believe we will have available resources to meet both our short-term and long-term liquidity requirements, including our senior secured debt service. We expect the cash flow from our operations, combined with existing cash and amounts available under the revolving credit facility, will provide sufficient liquidity to fund our current obligations, projected working capital requirements, restructuring obligations, and capital spending over the next year. In addition we may, from time to time, purchase, repay, redeem or retire any of our outstanding debt securities (including any publicly issued debt securities) in privately negotiated or open market transactions, by tender offer or otherwise. It is possible that continued changes to global economic conditions could adversely affect our cash flows through increased interest costs or our ability to obtain external financing or to refinance existing indebtedness.

Financing Transactions

Overview of Financing Transactions

In connection with the Acquisition, we entered into financing transactions consisting of (i) senior secured credit facilities consisting of seven-year $4,175 million and €800 million senior secured term loan facilities and a six-year $688 million senior secured revolving credit facility and (ii) debt securities, consisting of $650 million 10% and €150 million 9% Senior Notes due 2014 of Nielsen Finance LLC and Nielsen Finance Co., $1,070 million 12.5% Senior Subordinated Discount Notes due 2016 of Nielsen Finance LLC and Nielsen Finance Co. and €343 million 11.125% Senior Discount Notes due 2016 of TNC B.V.

Subsequent to the Acquisition, we entered into the following transactions in 2007:

 

   

Effective January 19, 2007, we entered into a cross-currency swap maturing in May, 2010 to hedge our exposure to foreign currency exchange rate movements on part of our GBP-denominated external debt. With this transaction a notional amount of GBP 225 million with a fixed interest rate of 5.625% was swapped to a notional amount of €344 million with a fixed interest rate of 4.033%. The swap was designated as a foreign currency cash flow hedge.

 

   

Effective January 22, 2007, we obtained a 50 and 25 basis point reduction of the applicable margin on our U.S. dollar and Euro senior secured term loan facilities. As of December 31, 2007, this reduction has resulted in estimated interest savings of $22 million.

 

   

On February 9, 2007, we applied $328 million of the BME sale proceeds towards making a mandatory pre-payment on the €800 million senior secured term loan facility which reduced the amount of the Euro

 

71


Table of Contents
 

facility to €545 million. By making this pre-payment, we were no longer required to pay the scheduled Euro quarterly installments for the remainder of the term of the senior secured term loan facility.

 

   

Effective February 9, 2007, we entered into a cross-currency swap maturing February, 2010 to convert part of our Euro-denominated external debt to U.S. dollar-denominated debt. With this transaction, a notional amount of €200 million with a 3-month EURIBOR based interest rate is swapped to a notional amount of $259 million with an interest rate based on 3-month USD-LIBOR minus a spread. No hedge designation was made for this swap.

 

   

Effective May 31, 2007, we obtained a further 25 basis point reduction of the applicable margin on our U.S. dollar and Euro senior secured term loan facilities as a result of achieving a secured leverage ratio below 4.25 as of March 31, 2007.

 

   

To finance the acquisition of Nielsen//NetRatings for $330 million, we borrowed $115 million of the $688 million senior secured revolving credit facility.

 

   

On August 9, 2007, we completed the acquisition of Telephia, Inc. for approximately $449 million. $350 million of the purchase price was borrowed under the incremental provision of our senior secured term loan facilities which increased the total U.S. dollar facility to $4,525 million, and the balance funded through the availability under our senior secured revolving credit facility and cash on hand.

We entered into the following transactions in 2008:

 

   

In February 2008, we entered into a two-year interest rate swap agreement which fixed the LIBOR-related portion of the interest rates for $500 million of our variable rate debt.

 

   

Effective April 2, 2008, we obtained a 25 basis point reduction of the applicable margin on our U.S. dollar and Euro senior secured term loan facilities as a result of achieving a secured leverage ratio below 4.25 as of December 31, 2007. In addition, we obtained a 25 basis point reduction of the applicable margin on our senior secured revolving credit facility as a result of achieving a total leverage ratio below 6.0 as of December 31, 2007.

 

   

On April 16, 2008, we issued $220 million aggregate principal amount of 10% Senior Notes due 2014. The net proceeds of the offering were used to finance our acquisition of IAG and to pay related fees and expenses.

We entered into the following transactions in 2009:

 

   

In January 2009, we issued $330 million in aggregate principal amount of 11.625 % Senior Notes due 2014 at an issue price of $297 million with cash proceeds of approximately $290 million, net of fees and expenses.

 

   

In February 2009, we entered into two three-year forward interest rate swap agreements with starting dates of November 9, 2009. These agreements fix the LIBOR-related portion of interest rates for $500 million of our variable-rate debt at an average rate of 2.47%. The commencement date of the interest rate swaps coincides with a $1 billion notional amount interest rate swap maturity that was entered into in November 2006. These derivative instruments have been designated as interest rate cash flow hedges.

 

   

In March 2009, we purchased and cancelled approximately GBP 101 million of our total GBP 250 million outstanding 5.625% EMTN debenture notes. This transaction was pursuant to a cash tender offer, whereby we paid, and participating note holders received, a price of £940 per £1,000 in principal amount of the notes, plus accrued interest. In conjunction with the GBP note cancellation we satisfied, and paid in cash, a portion of the remarketing settlement value associated with the cancelled notes to the two holders of a remarketing option associated with the notes. In addition, we unwound a portion of our existing GBP/Euro foreign currency swap, which was previously designated as a foreign currency cash flow hedge. We recorded a net loss of $3 million as a result of the combined elements of this transaction in March 2009 as a component of other expense, net in the consolidated statement of operations. The net cash paid for the combined elements of this transaction was approximately $197 million.

 

72


Table of Contents

 

   

In March 2009, we terminated €200 million notional to $259 million notional cross-currency swap, which previously converted part of our Euro-denominated external debt to U.S. dollar debt and received a cash settlement of approximately $2 million. No hedge designation was made for this swap and therefore all prior changes in fair value were recorded in earnings.

 

   

In April 2009, we issued $500 million in aggregate principal amount of 11.5% Senior Notes due 2016 at an issue price of $461 million with cash proceeds of approximately $452 million, net of fees and expenses.

 

   

In June 2009, we purchased and cancelled all of our remaining outstanding GBP 149 million 5.625% EMTN debenture notes. This transaction was pursuant to a cash tender offer, whereby we paid, and participating note holders received, par value for the notes, plus accrued interest. In conjunction with the GBP note cancellation, we satisfied, and paid in cash, the remarketing settlement value to two holders of the remaining portion of the remarketing option associated with the notes. In addition, we unwound the remaining portion of our existing GBP/Euro foreign currency swap, which was previously designated as a foreign currency cash flow hedge. We recorded a net loss of approximately $12 million in June 2009 as a component of other expense, net in the consolidated statement of operations as a result of the combined elements of this transaction. The net cash paid for the combined elements of this transaction was approximately $330 million.

 

   

In June 2009, we entered into a Senior Secured Loan Agreement with Goldman Sachs Lending Partners LLC, which provides for senior secured term loans in the aggregated principal amount of $500 million (the “New Term Loans”) bearing interest at a fixed rate of 8.50%. The New Term Loans are secured on a pari passu basis with our existing obligations under our 2006 Senior Secured Credit Facilities and have a maturity of eight years. The net proceeds from the issuance of the New Term Loans of approximately $481 million were used in their entirety to pay down senior secured term loan obligations under our 2006 Senior Secured Credit Facilities.

 

   

In June 2009, we received the requisite consent to amend our 2006 Senior Secured Credit Facilities to permit, among other things: (i) future issuances of additional secured notes or loans, which may include, in each case, indebtedness secured on a pari passu basis with our obligations under the 2006 Senior Secured Credit Facilities, so long as (a) the net cash proceeds from any such issuance are used to prepay term loans under the 2006 Senior Secured Credit Facilities at par until $500 million of term loans have been paid, and (b) 90% of the net cash proceeds in excess of the first $500 million from any such issuance (but all of the net cash proceeds after the first $2.0 billion) are used to prepay term loans under the 2006 Senior Secured Credit Facilities at par; and (ii) allow us to agree with lenders to extend the maturity of their term loans and revolving commitments and for us to pay increased interest rates or otherwise modify the terms of their loans in connection with such an extension (subject to certain limitations, including mandatory increases of interest rates under certain circumstances) (collectively, the “Amendment”). In connection with the Amendment, we extended the maturity of $1.26 billion of existing term loans from August 9, 2013 to May 1, 2016. The interest rate margins of term loans that were extended were increased to 3.75%. The Amendment and the subsequent extension of maturity of a portion of the existing term loans is considered a modification of our existing obligations and has been reflected as such in the audited consolidated financial statements. We recorded a charge of approximately $4 million in June 2009 as a component of other expense, net in the consolidated statement of operations primarily relating to the write-off of previously deferred debt issuance costs as a result of this modification.

 

   

In December 2009, we elected to permanently repay $75 million of our existing term loans due August 2013.

We entered into the following transactions during 2010:

 

   

On March 9, 2010, we entered into a three-year interest swap to fix the LIBOR-related portion of interest rates for $250 million of the our variable-rate debt at 1.69%. This swap replaced the $500

 

73


Table of Contents
 

million notional amount interest rate swap that matured on February 9, 2010. This derivative instrument has been designated as an interest rate cash flow hedge.

 

   

In March 2010, we elected to permanently repay $25 million of our existing term loans due August 2013.

 

   

In May 2010, our €50 million variable rate EMTN matured and was repaid.

 

   

On August 12, 2010, we completed a term loan extension offer in accordance with the terms of our 2006 Senior Secured Credit Facilities. In connection with completing the term loan extension offer and in order to document the terms of the new class C term loans, as of such date we entered into an amendment to the 2006 Senior Secured Credit Facilities (the “2010 Amendment”). Pursuant to the term loan extension offer and the 2010 Amendment, approximately $1,495 million of our class A term loans (which mature May 2013) and approximately $5 million of our class B term loans (which mature May 2016) were exchanged for the same principal amount of new class C term loans. The new class C term loans mature on May 1, 2016 and bear a tiered floating interest rate of LIBOR plus a margin of (x) 3.75% to the extent that Nielsen Finance LLC’s Total Leverage Ratio (as defined in the 2006 Senior Secured Credit Facilities) is greater than 5.0 to 1.0 and (y) 3.50% to the extent that Nielsen Finance LLC’s Total Leverage Ratio (as defined in the 2006 Senior Secured Credit Facilities) is less than or equal to 5.0 to 1.0. The foregoing margins are also subject to a decrease of 0.25% in the event and for so long as Nielsen Finance LLC’s corporate credit and/or family rating, as applicable, from either S&P or Moody’s is at least Ba3 or BB-, respectively. The class C term loans will amortize in equal quarterly installments in aggregate annual amounts equal to 1.00% of the original principal amount. No optional prepayments of class C term loans may be made so long as any class A or class B term loans are outstanding. Except as set forth in the 2010 Amendment, the class C term loans shall have the same terms as the class B term loans.

 

   

On October 12, 2010, we issued $750 million in aggregate principal amount of 7.75% Senior Notes due 2018 at an issue price of $745 million with cash proceeds of approximately $731 million, net of fees and expenses, which, along with cash on hand, were used to fund a redemption of $750 million in aggregate principal amount of our 10% Senior Notes due 2014 on November 1, 2010 at a price of 105% of the amount being redeemed. The redemption and subsequent retirement of these notes will result in a loss of approximately $62 million in the fourth quarter of 2010.

 

   

On November 9, 2010, we issued an additional $330 million in aggregate principal amount of 7.75% Senior Notes due 2018 at an issue price of $340 million with cash proceeds of approximately $334 million, net of fees and expenses. We used a portion of the net proceeds, along with cash on hand, to fund a redemption of the remaining $120 million in aggregate principal amount of our 10% Senior Notes due 2014 on November 29, 2010 at a price of 105% and a redemption of all €150 million aggregate principal amount of our 9% Senior Notes due 2014 on December 1, 2010 at a price of 104.5%. The redemption and subsequent retirement of these notes will result in a loss of approximately $29 million in the fourth quarter of 2010.

 

   

In October and November 2010, we entered into an aggregate of $1 billion notional amount of three-year forward interest rate swap agreements with starting dates of November 9, 2010. These agreements fix the LIBOR-related portion of interest rates of a corresponding amount of our variable-rate debt at an average rate of 0.72%. The commencement date of the interest rate swaps coincided with the $1 billion notional amount of interest rate swaps that matured on November 9, 2010. Additionally, on November 1, 2010 we entered into a $250 million notional amount three-year forward interest rate swap agreement with a starting date of November 9, 2011, which fixes the LIBOR-related portion of interest rates of a corresponding amount of our variable-rate debt at an average rate of 1.26%. These derivative instruments have been designated as interest rate cash flow hedges.

As a result of the transactions described above, we are highly leveraged and our debt service requirements are significant. At September 30, 2010, December 31, 2009 and 2008, we had $8,571 million, $8,655 million and $9,384 million in aggregate indebtedness, including bank overdrafts, respectively. Our cash interest paid for the

 

74


Table of Contents

nine months ended September 30, 2010 and the years ended December 31, 2009, 2008 and 2007 was $392 million, $495 million, $494 million and $533 million, respectively.

2006 Senior Secured Credit Facilities

The description of the 2006 Senior Secured Credit Facilities below is as of September 30, 2010. On August 12, 2010, we completed a term loan extension offer in accordance with the terms of the 2006 Senior Secured Credit Facilities. See “Overview of Financing Transactions” for further information on the 2010 Amendment.

The senior secured credit agreement provides for two term loan facilities of $1,610 million and €227 million maturing in 2013 and four term loan facilities, including two dollar-denominated term loan facilities totaling $2,368 million and two Euro-denominated term loan facilities totaling €270, maturing in 2016, for which total outstanding borrowings were $4,548 million at September 30, 2010. In addition, the senior secured credit agreement contains a six-year $688 million senior secured revolving credit facility under which we had no borrowings outstanding as of September 30, 2010. We had an aggregate of $20 million of letters of credit and bank guarantees outstanding as of September 30, 2010, which reduced our total borrowing capacity to $668 million. The senior secured revolving credit facility of Nielsen Finance LLC, The Nielsen Company (US), Inc., Nielsen Holding and Finance B.V. can be used for revolving loans, letters of credit, guarantees and for swingline loans, and is available in U.S. dollars, Euros and certain other currencies. See “Overview of Financing Transactions” section for further information on 2009 transactions relating to these facilities.

We are required to repay installments only on the borrowings under the two senior secured term loan facilities maturing in 2016 in quarterly principal amounts of 0.25% of their original principal amount, with the remaining amount payable on their maturity date.

Borrowings under the senior secured term loan facilities bear interest at a rate as determined by the type of borrowing, equal to either (a) a base rate determined by reference to the higher of (1) the federal funds rate plus 0.5% or (2) the prime rate or (b) a LIBOR rate for the currency of such borrowings (collectively, the “Base Rate”), plus, in each case, an applicable margin. The applicable margins for the senior secured term loans that mature in 2013 vary depending on our secured leverage ratio. The applicable margins for the senior secured term loans that mature in 2016 are set at fixed rates.

Borrowings under the senior secured revolving credit facility bear interest at a rate equal to an applicable margin plus the Base Rate. The applicable margins for the senior secured revolving credit facility vary depending on our total leverage ratio. We pay a quarterly commitment fee of 0.5% on unused commitments under the senior secured revolving facility. The applicable commitment fee rate may vary subject to us attaining certain leverage ratios.

Our 2006 Senior Secured Credit Facilities are guaranteed by TNC B.V., substantially all of the wholly owned U.S. subsidiaries of TNC B.V. and certain of the non-U.S. wholly-owned subsidiaries of TNC B.V., and are secured by substantially all of the existing and future property and assets (other than cash) of the U.S. subsidiaries of TNC B.V. and by a pledge of substantially all of the capital stock of the guarantors, the capital stock of substantially all of the U.S. subsidiaries of TNC B.V., and up to 65% of the capital stock of certain of the non-U.S. subsidiaries of TNC B.V. Under a separate security agreement, substantially all of the assets of TNC B.V. are pledged as collateral for amounts outstanding under the senior secured credit facilities.

Our 2006 Senior Secured Credit Facilities contain a number of covenants that, among other things, restrict, subject to certain exceptions, the ability of Nielsen Holding and Finance B.V. and its restricted subsidiaries (which together constitute most of our subsidiaries) (collectively, the “Credit Facilities Covenant Parties”) to incur additional indebtedness or guarantees, incur liens and engage in sale and leaseback transactions, make certain loans and investments, declare dividends, make payments or redeem or repurchase capital stock, engage in certain mergers, acquisitions and other business combinations, prepay, redeem or purchase certain indebtedness, amend or otherwise alter terms of certain indebtedness, sell certain assets, transact with affiliates, enter into agreements limiting subsidiary distributions and alter the business the Credit Facilities Covenant

 

75


Table of Contents

Parties conduct. In addition, the Credit Facilities Covenant Parties are required to maintain a maximum total leverage ratio and a minimum interest coverage ratio. Neither Nielsen Holdings nor TNC B.V. is bound by any financial or negative covenants contained in the credit agreement. The senior secured credit facilities also contain certain customary affirmative covenants and events of default. We have maintained compliance with all such covenants described above.

2009 Senior Secured Term Loan

In June 2009, we entered into a Senior Secured Loan Agreement with Goldman Sachs Lending Partners LLC, which provides for senior secured term loans in the aggregate principal amount of $500 million (the “New Term Loans”) bearing interest at a fixed rate of 8.50%. The New Term Loans are secured on a pari passu basis with our existing obligations under its senior secured credit facilities and have a maturity of eight years. The net proceeds from the issuance of the New Term Loans of approximately $481 million were used in their entirety to pay down senior secured term loan obligations under our existing senior secured credit facilities.

Our New Term Loans are guaranteed by TNC B.V., substantially all of our wholly owned U.S. subsidiaries and certain of our non-U.S. wholly-owned subsidiaries, and are secured by substantially all of the existing and future property and assets (other than cash) of Nielsen’s U.S. subsidiaries and by a pledge of substantially all of the capital stock of the guarantors, the capital stock of substantially all of Nielsen’s U.S. subsidiaries, and up to 65% of the capital stock of certain of Nielsen’s non-U.S. subsidiaries. Under a separate security agreement, substantially all of the assets of Nielsen are pledged as collateral for amounts outstanding under the New Term Loans.

In addition, the New Term Loans include negative covenants, subject to significant exceptions, restricting or limiting the ability of the Credit Facilities Covenant Parties to, among other things, incur, assume or permit to exist additional indebtedness or guarantees, make certain loans and investments, declare dividends, make payments or redeem or repurchase capital stock, engage in mergers, acquisitions and other business combinations, prepay, redeem or purchase certain indebtedness, sell certain assets, transact with affiliates and enter into agreements limiting subsidiary distributions.

Neither Nielsen Holdings nor TNC B.V. is bound by any financial or negative covenants contained in the credit agreement.

The New Term Loans also contain certain customary affirmative covenants and events of default.

Debt Securities

On October 12, 2010, Nielsen Finance LLC and Nielsen Finance Co., subsidiaries wholly owned by us, consummated a private offering of $750 million aggregate principal amount of 7.75% Senior Notes due 2018 and, on November 9, 2010, consummated a private offering of an additional $330 million in aggregate principal amount of 7.75% Senior Notes due 2018 (collectively, the “7.75% Senior Notes”). The 7.75% Senior Notes mature on October 15, 2018. Cash interest accrues at a rate of 7.75% per annum from October 12, 2010 and is payable semi-annually from April 2011. We are obligated to offer to exchange the 7.75% Senior Notes for registered notes by October 2011.

On May 1, 2009, Nielsen Finance LLC and Nielsen Finance Co. consummated a private offering of $500 million aggregate principal amount of 11.5% Senior Notes due 2016 (the “11.5% Senior Notes”). The 11.5% Senior Notes mature on May 1, 2016. Cash interest accrues at a rate of 11.5% per annum from the issue date and is payable semi-annually from November 2009. In July 2009, we completed an exchange offer for the 11.5% Senior Notes.

In January 2009, Nielsen Finance LLC and Nielsen Finance Co. consummated a private offering of $330 million in aggregate principal amount of 11.625% Senior Notes due 2014 (the “11.625% Senior Notes”). The 11.625% Senior Notes mature on February 1, 2014. Cash interest accrues at a rate of 11.625% per annum from the issue date and is payable semi-annually from August 2009. In July 2009, we completed an exchange offer for the 11.625% Senior Notes.

 

76


Table of Contents

On April 16, 2008, Nielsen Finance LLC and Nielsen Finance Co. consummated a private offering of $220 million aggregate principal amount of 10% Senior Notes due 2014 (the “10% Senior Notes”). The 10% Senior Notes mature on August 1, 2014. Cash interest accrues at a rate of 10% per annum from the issue date and is payable semi-annually from August 2008. In July 2009, we completed an exchange offer for the 10% Senior Notes.

In August 2006, Nielsen Finance LLC and Nielsen Finance Co. issued $650 million 10% and €150 million 9% senior notes due 2014 (the “ Nielsen Finance Senior Notes”). Interest is payable semi-annually from February 2007. In September 2007, we completed an exchange offer for the Nielsen Finance Senior Notes.

The senior notes above are collectively referred to herein as the “Senior Notes.”

The carrying values of the combined issuances of the Senior Notes were $1,843 million at September 30, 2010. The Senior Notes are senior unsecured obligations and rank equal in right of payment to all of the existing and future senior indebtedness of Nielsen Finance LLC and Nielsen Finance Co.

The indentures governing the Senior Notes and Senior Subordinated Discount Notes limit the ability of Nielsen Holding and Finance B.V. and its restricted subsidiaries (which together constitute a majority of Nielsen’s subsidiaries) to incur additional indebtedness, pay dividends or make other distributions or repurchase our capital stock, make certain investments, enter into certain types of transactions with affiliates, use assets as security in other transactions and sell certain assets or merge with or into other companies subject to certain exceptions. Upon a change in control, Nielsen Finance LLC and Nielsen Finance Co. are required to make an offer to redeem all of the Senior Notes and Senior Subordinated Discount Notes at a redemption price equal to the 101% of the aggregate accreted principal amount plus accrued and unpaid interest. The Senior Notes and Senior Subordinated Discount Notes are jointly and severally guaranteed by TNC B.V., substantially all of our wholly owned U.S. subsidiaries, and certain of our non-U.S. wholly-owned subsidiaries.

In August 2006, we received proceeds of €200 million ($257 million) on the issuance by TNC B.V. of the €343 million 11.125% senior discount notes due 2016 (“Senior Discount Notes”), with a carrying value of $423 million at September 30, 2010. Interest accretes through 2011 and is payable semi-annually commencing February 2012. The Senior Discount Notes are senior unsecured obligations and rank equal in right of payment to all of the existing and future senior indebtedness of TNC B.V. The notes are effectively subordinated to the existing and future secured indebtedness of TNC B.V. to the extent of the assets securing such indebtedness and will be structurally subordinated to all obligations of the subsidiaries of TNC B.V.

EMTN Program and Other Financing Arrangements

We have a Euro Medium Term Note program (“EMTN”) program in place. All debt securities and most private placements are quoted on the Luxembourg Stock Exchange. We had carrying values of $156 million outstanding under the EMTN program at September 30, 2010. The Company can no longer issue new debt under the EMTN program.

Cash Flows nine months ended September 30, 2010 versus September 30, 2009

Operating activities. Net cash provided by operating activities was $294 million for the nine months ended September 30, 2010, compared to $323 million for the nine months ended September 30, 2009. The primary driver for the reduction in cash provided by operating activities was the reduction in working capital performance and higher interest payments, which more than offset the growth in operating income excluding the impact of non-cash depreciation and amortization. The reduction in working capital performance resulted primarily from an approximately $141 million reduction due to the timing of client billings and lower year over year accounts receivable collection performance. Our key collections performance measure, days billing outstanding (DBO), increased by 3 days to 53 days for the nine months ended September 30, 2010 compared to a decrease of 4 days to 51 days for the nine months ended September 30, 2009. These reductions were only partially offset by the timing of employee compensation and other accruals as well as lower restructuring and tax payments.

 

77


Table of Contents

Investing activities. Net cash used in investing activities was $241 million for the nine months ended September 30, 2010, compared to $221 million for the nine months ended September 30, 2009. The primary driver for the increase in the usage of cash from investing activities was the increase in capital expenditures.

Capital expenditures for property, plant, equipment, software and other assets totaled $226 million for the nine months ended September 30, 2010 compared to $204 million for the nine months ended September 30, 2009. The primary reasons for the increase in capital expenditures related to higher spending for technology infrastructure development.

Financing activities. Net cash used in financing activities was $140 million for the nine months ended September 30, 2010, compared to $185 million for the nine months ended September 30, 2009. We repaid our €50 million EMTN in May 2010 and repaid $220 million on our senior secured revolving credit facility and executed numerous financing transactions in 2009 described under the “Overview of Financing Transactions” section above.

Cash Flows 2009 versus 2008

At December 31, 2009, cash and cash equivalents were $514 million, an increase of $47 million from December 31, 2008. Our total indebtedness was $8,655 million.

Operating activities. Net cash provided by operating activities was $517 million for the year ended December 31, 2009, compared to $317 million for the year ended December 31, 2008. The primary drivers for the increase in cash flows from operating activities were growth in operating income excluding the impact of non-cash depreciation and amortization and impairment charges. This growth was further driven by improved working capital performance, offset slightly by an increase in tax payments. The improved working capital performance primarily resulted from a benefit of approximately $149 million relating to improvement in year-over-year accounts receivable collections as well as lower bonus payments. Our DBO decreased by five days to 50 days during the year ended December 31, 2009 compared to an increase of four days to 55 days during the year ended December 31, 2008.

Investing activities. Net cash used in investing activities was $227 million for the year ended December 31, 2009, compared to $591 million for the year ended December 31, 2008. The lower net cash usage was primarily driven by lower acquisition payments as a result of our acquisition of IAG in May 2008 as well as lower capital expenditures and proceeds from the sale of divestitures in 2009, primarily resulting from the sale of the media properties within our Publications operating segment in December 2009.

Financing activities. For the year ended December 31, 2009, we had net cash used in financing activities of $271 million as compared to net cash provided by financing activities of $367 million for the year ended December 31, 2008. The comparative use of cash was mainly driven by our repayments of $295 million on our revolving credit facility in 2009 as compared to net borrowings of $285 million in 2008 as well as the results of the financing transactions described above under the “Overview of Financing Transactionssection above.

Cash Flows 2008 versus 2007

At December 31, 2008, cash and cash equivalents were $467 million, an increase of $65 million from December 31, 2007. Our total indebtedness was $9,384 million at December 31, 2008.

Operating activities. Net cash provided by operating activities was $317 million for the year ended December 31, 2008 compared to $233 million for the year ended December 31, 2007. The primary drivers for the increase in cash flows from operating activities were the growth in operating income excluding the impact of non-cash depreciation and amortization and impairment charges. The growth was further driven by lower interest and tax payments partially offset by lower working capital performance. The lower working capital performance

 

78


Table of Contents

primarily resulted from higher pension, bonus and one-time payments. The year-over-year accounts receivable collection performance was flat where our DBO increased by four days to 55 days and 51 days during the years ended December 31, 2008 and December 31, 2007, respectively.

Investing activities. Net cash used in investing activities was $591 million for the year ended December 31, 2008 compared to $517 million for the year ended December 31, 2007. The higher net cash used was primarily driven by lower proceeds from sale of subsidiaries of $417 million, increased capital expenditures and the impact of the 2007 sale of marketable securities. This was offset by a $594 million reduction of acquisition related expenditures.

Financing activities. Net cash provided by financing activities was $367 million for the year ended December 31, 2008 as compared to $9 million for the year ended December 31, 2007. The higher source of cash was mainly driven by higher net borrowings on the senior secured revolving credit facility and lower repayments of other debt, offset by lower proceeds from issuances of other debt as well as the impact of a 2007 capital contribution from Luxco.

Capital Expenditures

Investments in property, plant, equipment, software and other assets totaled $282 million, $370 million and $266 million in 2009, 2008 and 2007, respectively. The most significant expenditures in 2009, 2008, and 2007 were the investment in the data factory systems in U.S. and Europe and NMR U.S.’s rollout of the LPM, active/passive Meter and the expansion of the National People Meter. The decrease in capital spending in 2009 versus 2008 was due to a reduction in LPM spending as well as the completion of other key investments in 2008.

Covenant EBITDA Attributable to TNC B.V.

Our 2006 Senior Secured Credit Facilities contain a covenant that requires our indirect wholly-owned subsidiary, Nielsen Holding and Finance B.V. and its restricted subsidiaries, to maintain a maximum ratio of consolidated total net debt, excluding certain TNC B.V. net debt, to Covenant EBITDA, calculated for the trailing four quarters (as determined under our 2006 Senior Secured Credit Facilities). Currently, the maximum ratio is 8.0 to 1.0, with such maximum ratio declining over time to 6.25 to 1.0 for periods after October 1, 2012.

In addition, our 2006 Senior Secured Credit Facilities contain a covenant that requires Nielsen Holding and Finance B.V. and its restricted subsidiaries to maintain a minimum ratio of Covenant EBITDA to Consolidated Interest Expense, including interest expense relating to TNC B.V., calculated for the trailing four quarters (as determined under our 2006 Senior Secured Credit Facilities). Currently, the minimum ratio is 1.65 to 1.0, with such minimum ratio varying between 1.75 to 1.0 to 1.50 to 1.0 for subsequent periods.

Failure to comply with either of these covenants would result in an event of default under our 2006 Senior Secured Credit Facilities unless waived by our senior credit lenders. An event of default under our senior credit facility can result in the acceleration of our indebtedness under the facility, which in turn would result in an event of default and possible acceleration of indebtedness under the agreements governing our debt securities as well. As our failure to comply with the covenants described above can cause us to go into default under the agreements governing our indebtedness, management believes that our 2006 Senior Secured Credit Facilities and these covenants are material to us. As of September 30, 2010, we were in compliance with the covenants described above.

We also measure the ratio of secured net debt to Covenant EBITDA, as it impacts the applicable borrowing margin under our senior secured term loans due 2013. During periods when the ratio is less than 4.25 to 1.0, the applicable margin is 25 basis points lower than it would be otherwise. As of September 30, 2010, this ratio was less than 4.25 to 1.0.

Covenant earnings before interest, taxes, depreciation and amortization (“Covenant EBITDA”) is a non-GAAP measure used to determine our compliance with certain covenants contained in our senior secured credit facilities. Covenant EBITDA is defined in our 2006 Senior Secured Credit Facilities as net income/(loss)

 

79


Table of Contents

from continuing operations for TNC B.V., as adjusted for the items summarized in the table below. Covenant EBITDA is not a presentation made in accordance with GAAP, and our use of the term Covenant EBITDA varies from others in our industry due to the potential inconsistencies in the method of calculation and differences due to items subject to interpretation. Covenant EBITDA should not be considered as an alternative to net income/(loss), operating income or any other performance measures derived in accordance with GAAP as measures of operating performance or cash flows as measures of liquidity. Covenant EBITDA has important limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Because of these limitations we rely primarily on our GAAP results. However, we believe that the inclusion of supplementary adjustments to EBITDA applied in presenting Covenant EBITDA is appropriate to provide additional information to investors to demonstrate compliance with our financing covenants.

The following is a reconciliation of TNC B.V.’s income from continuing operations, for the twelve months ended September 30, 2010, to Covenant EBITDA as defined above under our 2006 Senior Secured Credit Facilities:

 

     Covenant EBITDA
(unaudited)
 

(IN MILLIONS)

   Twelve months ended
September 30, 2010
 

Income from continuing operations

   $ 191   

Interest expense, net

     651   

Benefit for income taxes

     (57

Depreciation and amortization

     567   
        

EBITDA

     1,352   

Non-cash charges

     18   

Unusual or non-recurring items(1)

     (80

Restructuring charges and business optimization costs

     102   

Sponsor monitoring fees

     12   

Other(2)

     11   
        

Covenant EBITDA

   $ 1,415   
        

 

Credit Statistics:

  

Net debt, including TNC B.V. net debt(3)

   $ 8,168   

Less: Unsecured debenture loans

     (3,391

Less: Other unsecured net debt

     (4
        

Secured net debt

   $ 4,773   
        

Net debt, excluding $422 million (at September 30, 2010) of TNC B.V. net debt

   $ 7,746   

Ratio of secured net debt to Covenant EBITDA

     3.37   

Ratio of net debt (excluding net debt of TNC B.V.) to Covenant EBITDA

     5.47   

Consolidated interest expense, including TNC B.V. interest expense(4)

   $ 522   

Ratio of Covenant EBITDA to Consolidated Interest Expense, including TNC B.V. interest expense

     2.71   

 

(1) Unusual or non-recurring items include (amounts in millions):

 

     Twelve months ended
September 30, 2010
 

Currency exchange rate differences on financial transactions and other losses, net

   $ (131

Loss on derivative instruments

     23   

Duplicative running costs

     8   

U.S. listing costs/consulting fees

     7   

Other

     13   
        

Total

   $ (80
        

 

80


Table of Contents
(2) These adjustments include the pro forma EBITDA impact of businesses that were acquired or divested during the last twelve months, loss on sale of fixed assets, subsidiaries and affiliates, dividends received from affiliates; equity in net loss of affiliates, and the exclusion of Covenant EBITDA attributable to unrestricted subsidiaries.
(3) Net debt, including net debt of TNC B.V., is not a defined term under GAAP. Net debt is calculated as total debt less cash and cash equivalents at September 30, 2010 excluding a contractual $10 million threshold and cash and cash equivalents of unrestricted subsidiaries of $7 million.
(4) Consolidated interest expense is not a defined term under GAAP. Consolidated interest expense for any period is defined in our senior secured credit facilities as the sum of (i) the cash interest expense of Nielsen Holding and Finance B.V. and its subsidiaries with respect to all outstanding indebtedness, including all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers’ acceptance and net costs under swap contracts, net of cash interest income, and (ii) any cash payments in respect of the accretion or accrual of discounted liabilities during such period related to borrowed money (with a maturity of more than one year) that were amortized or accrued in a previous period, excluding, in each case, however, among other things, the amortization of deferred financing costs and any other amounts of non-cash interest, the accretion or accrual of discounted liabilities during such period, commissions, discounts, yield and other fees and charges incurred in connection with certain permitted receivables financing and all non-recurring cash interest expense consisting of liquidated damages for failure to timely comply with registration rights obligations and financing fees.

See “—Liquidity and Capital Resources” for further information on our indebtedness and covenants.

Transactions with Related Parties

We recorded $9 million, $12 million, $11 million, $11 million and $7 million, respectively, in SG&A related to management fees payable to the Sponsors under advisory agreements, sponsor travel and consulting for the nine months ended September 30, 2010 and for the years ended December 31, 2009, 2008, 2007 and 2006, respectively. From the date of acquisition through September 30, 2010, we have paid $50 million in these fees to the Sponsors. Upon the completion of this offering, we anticipate that we will pay a fee of approximately $103 million to the Sponsors in connection with the termination of such advisory agreements in accordance with their terms.

In May 2006, Luxco, our direct parent, executed a loan agreement with us for principal amount Euro 500 million in conjunction with the Acquisition. The loan accreted interest at 10.00% per annum and was payable annually at the request of Luxco or the Company. If interest was not paid at the end of each year, such interest was deemed capitalized. No interest was paid on this loan through December 31, 2008 and the corresponding carrying value at such date, including capitalized interest, was $892 million. In January 2009, the loan agreement was terminated and the underlying carrying value, including accrued interest, was capitalized by Luxco in exchange for 48,958,043 shares in the Company’s common stock. Nielsen recorded $3 million, $3 million, $86 million and $73 million in interest expense associated with this loan for the nine months ended September 30, 2009 and the years ended December 31, 2009, 2008 and 2007, respectively.

We have periodically extended loans to Luxco to permit Luxco to pay certain operational expenses and to fund share repurchases. The full principal amount of and accrued interest on each such loan is payable at maturity, which is generally one year or less from incurrence. The rate of interest on these loans has ranged from 3.47% to 7.7%. On September 30, 2010 and in conjunction with the special dividend declared to all of Nielsen’s existing stockholders, we settled the approximately $5 million in outstanding loans from Luxco. At December 31, 2009 and 2008, approximately $4 million and $3 million, respectively, of principal amount of loans to Luxco were outstanding.

A portion of the borrowings under the senior secured credit facility have been purchased by certain of the Sponsors in market transactions not involving the Company. Based on information made available to the Company, amounts held by the Sponsors and their affiliates were $554 million and $445 million as of

 

81


Table of Contents

December 31, 2009 and 2008, respectively. Interest expense associated with amounts held by the Sponsors and their affiliates approximated $16 million, $22 million and $28 million during the years ended December 31, 2009, 2008 and 2007, respectively. At September 30, 2010, $508 million of the senior secured credit facilities and $21 million of senior debenture loans were held by the Sponsors and their affiliates. Of the $529 million of debt held by the Sponsors and their affiliates, Kohlberg Kravis Roberts & Co. and their affiliates held $219 million, The Blackstone Group and their affiliates held $187 million and The Carlyle Group and their affiliates held $123 million. Subsequent to September 30, 2010, we noted that Kohlberg Kravis Roberts & Co. and their affiliates purchased $13 million of our October 12, 2010 issuance of 7.75% Senior Notes due 2018 and an additional $13 million of senior secured credit facilities. The Sponsors, their subsidiaries, affiliates and controlling stockholders may, from time to time, depending on market conditions, seek to purchase debt securities issued by Nielsen or its subsidiaries or affiliates in open market or privately negotiated transactions or by other means. Nielsen makes no undertaking to disclose any such transactions except as may be required by applicable laws and regulations.

Effective January 1, 2009, we entered into an employer health program arrangement with Equity Healthcare LLC (“Equity Healthcare”). Equity Healthcare negotiates with providers of standard administrative services for health benefit plans and other related services for cost discounts, quality of service monitoring, data services and clinical consulting and oversight by Equity Healthcare. Because of the combined purchasing power of its client participants, Equity Healthcare is able to negotiate pricing terms from providers that are believed to be more favorable than the companies could obtain for themselves on an individual basis. Equity Healthcare is an affiliate of The Blackstone Group, one of our Sponsors.

In consideration for Equity Healthcare’s provision of access to these favorable arrangements and its monitoring of the contracted third parties’ delivery of contracted services to us, we pay Equity Healthcare a fee of $2 per participating employee per month (“PEPM Fee”). As of December 31, 2009, we had approximately 8,000 employees enrolled in our self-insured health benefit plans in the United States. Equity Healthcare may also receive a fee (“Health Plan Fees”) from one or more of the health plans with whom Equity Healthcare has contractual arrangements if the total number of employees joining such health plans from participating companies exceeds specified thresholds.

Commitments and Contingencies

Outsourced Services Agreements

On February 19, 2008, we amended and restated our Master Services Agreement dated June 16, 2004 (“MSA”), with Tata America International Corporation and Tata Consultancy Services Limited (jointly “TCS”). The term of the amended and restated MSA is for ten years, effective October 1, 2007; with a one year renewal option granted to us, during which ten year period (or if we exercise our renewal option, eleven year period) we have committed to purchase at least $1 billion in services from TCS. Unless mutually agreed, the payment rates for services under the amended and restated MSA are not subject to adjustment due to inflation or changes in foreign currency exchange rates. TCS will provide us with Information Technology, Applications Development and Maintenance and Business Process Outsourcing services globally. The amount of the purchase commitment may be reduced upon the occurrence of certain events, some of which also provide us with the right to terminate the agreement.

In addition, in 2008, we entered into an agreement with TCS to outsource our global IT Infrastructure services. The agreement has an initial term of seven years, and provides for TCS to manage our infrastructure costs at an agreed upon level and to provide Nielsen’s infrastructure services globally for an annual service charge of $39 million per year, which applies towards the satisfaction of our aforementioned purchased services commitment with TCS of at least $1 billion over the term of the amended and restated MSA. The agreement is subject to earlier termination under certain limited conditions.

 

82


Table of Contents

Other Contractual Obligations. Our other contractual obligations include capital lease obligations, facility leases, leases of certain computer and other equipment, agreements to purchase data and telecommunication services, the payment of principal on debt and pension fund obligations.

At December 31, 2009, the minimum annual payments under these agreements and other contracts that had initial or remaining non-cancelable terms in excess of one year are as listed in the following table. There were no significant changes to our minimum commitments that occurred through the date of this prospectus. Due to the uncertainty with respect to the timing of future cash flows associated with our unrecognized tax benefits at December 31, 2009, we are unable to make reasonably reliable estimates of the timing of any potential cash settlements with the respective taxing authorities. Therefore, $152 million of unrecognized tax benefits (which includes interest and penalties of $23 million) have been excluded from the contractual obligations table below. See Note 13 – Income Taxes – to the audited consolidated financial statements included elsewhere in this prospectus for a discussion on income taxes.

 

     Payments due by period  

(IN MILLIONS)

   Total      2010      2011      2012      2013      2014      After
2014
 

Capital lease obligations and other debt(a)

   $ 236       $ 34       $ 19       $ 19       $ 19       $ 15       $ 130   

Operating leases(b)

     397         92         74         63         47         41         80   

Other contractual obligations(c)

     908         331         220         219         132         4         2   

Short-term and long-term debt(a)

     8,509         85         57         128         3,381         1,397         3,461   

Interest(d)

     3,114         481         430         576         533