UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _______ to _______
Commission file number
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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Oxfordshire, +1 ( |
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(Address of principal executive offices) (Zip Code) (Registrant’s telephone numbers including area code) |
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Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
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Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filer |
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
There were
Table of Contents
Contents
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PAGE |
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PART I. |
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- 3 - |
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Item 1. |
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- 3 - |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
- 32 - |
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Item 3. |
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- 45 - |
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Item 4. |
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- 46 - |
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PART II. |
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- 47 - |
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Item 1. |
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- 47 - |
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Item 1A. |
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- 47 - |
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Item 2. |
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- 47 - |
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Item 3. |
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- 48 - |
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Item 4. |
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- 48 - |
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Item 5. |
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- 48 - |
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Item 6. |
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- 48 - |
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- 50 - |
PART I. FINANCIAL INFORMATION
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Item 1. |
Condensed Consolidated Financial Statements |
Nielsen Holdings plc
Condensed Consolidated Statements of Operations (Unaudited)
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Three Months Ended |
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March 31, |
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(IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA) |
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2020 |
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2019 |
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Revenues |
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$ |
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$ |
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Cost of revenues, exclusive of depreciation and amortization shown separately below |
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Selling, general and administrative expenses, exclusive of depreciation and amortization shown separately below |
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Depreciation and amortization |
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Restructuring charges |
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Operating income/(loss) |
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Interest income |
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Interest expense |
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Foreign currency exchange transaction gains/(losses), net |
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Other income/(expense), net |
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Income/(loss) from continuing operations before income taxes |
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Benefit/(provision) for income taxes |
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Net income/(loss) |
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Net income/(loss) attributable to noncontrolling interests |
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Net income/(loss) attributable to Nielsen shareholders |
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$ |
( |
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$ |
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Net income/(loss) per share of common stock, basic |
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Net income/(loss) attributable to Nielsen shareholders |
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$ |
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$ |
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Net income/(loss) per share of common stock, diluted |
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Net income/(loss) attributable to Nielsen shareholders |
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$ |
( |
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$ |
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Weighted-average shares of common stock outstanding, basic |
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Dilutive shares of common stock |
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— |
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Weighted-average shares of common stock outstanding, diluted |
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Dividends declared per common share |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
- 3 -
Nielsen Holdings plc
Condensed Consolidated Statements of Comprehensive Income/(Loss) (Unaudited)
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Three Months Ended |
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March 31, |
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(IN MILLIONS) |
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2020 |
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2019 |
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Net income/(loss) |
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$ |
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$ |
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Other comprehensive income/(loss), net of tax |
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Foreign currency translation adjustments (1) |
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Changes in the fair value of cash flow hedges (2) |
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Defined benefit pension plan adjustments (3) |
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Total other comprehensive income/(loss) |
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Total comprehensive income/(loss) |
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Less: comprehensive income/(loss) attributable to noncontrolling interests |
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Total comprehensive income/(loss) attributable to Nielsen shareholders |
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$ |
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$ |
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(1) |
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(2) |
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(3) |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
- 4 -
Nielsen Holdings plc
Condensed Consolidated Balance Sheets
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March 31, |
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December 31, |
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(IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA) |
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2020 |
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2019 |
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(Unaudited) |
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Assets: |
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Current assets |
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Cash and cash equivalents |
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$ |
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$ |
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Trade and other receivables, net of allowances for doubtful accounts and sales returns of $ |
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Prepaid expenses and other current assets |
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Total current assets |
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Non-current assets |
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Property, plant and equipment, net |
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Operating lease right-of-use asset |
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Goodwill |
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Other intangible assets, net |
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Deferred tax assets |
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Other non-current assets |
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Total assets |
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$ |
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$ |
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Liabilities and equity: |
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Current liabilities |
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Accounts payable and other current liabilities |
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$ |
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$ |
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Deferred revenues |
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Income tax liabilities |
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Current portion of long-term debt, finance lease obligations and short-term borrowings |
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Total current liabilities |
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Non-current liabilities |
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Long-term debt and finance lease obligations |
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Deferred tax liabilities |
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Operating lease liabilities |
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Other non-current liabilities |
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Total liabilities |
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Commitments and contingencies (Note 13) |
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Equity: |
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Nielsen shareholders’ equity |
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Common stock, € |
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Additional paid-in capital |
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Retained earnings/(accumulated deficit) |
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( |
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( |
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Accumulated other comprehensive loss, net of income taxes |
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( |
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( |
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Total Nielsen shareholders’ equity |
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Noncontrolling interests |
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Total equity |
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Total liabilities and equity |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
- 5 -
Nielsen Holdings plc
Condensed Consolidated Statements of Cash Flows (Unaudited)
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Three Months Ended |
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March 31, |
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(IN MILLIONS) |
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2020 |
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2019 |
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Operating Activities |
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Net income/(loss) |
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$ |
( |
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$ |
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Adjustments to reconcile net income/(loss) to net cash provided by operating activities: |
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Share-based compensation expense |
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Currency exchange rate differences on financial transactions and other (gains)/losses |
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( |
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Depreciation and amortization |
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Changes in operating assets and liabilities, net of effect of businesses acquired and divested: |
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Trade and other receivables, net |
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( |
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( |
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Prepaid expenses and other assets |
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( |
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( |
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Accounts payable and other current liabilities and deferred revenues |
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( |
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( |
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Other non-current liabilities |
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( |
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( |
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Interest payable |
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Income taxes |
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( |
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( |
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Net cash provided by/(used in ) operating activities |
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( |
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( |
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Investing Activities |
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Acquisition of subsidiaries and affiliates, net of cash acquired |
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( |
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( |
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Additions to property, plant and equipment and other assets |
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( |
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( |
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Additions to intangible assets |
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( |
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( |
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Other investing activities |
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( |
) |
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Net cash used in investing activities |
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( |
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( |
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Financing Activities |
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Net borrowings under revolving credit facility |
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Repayment of debt |
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( |
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( |
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Cash dividends paid to shareholders |
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( |
) |
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( |
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Activity from share-based compensation plans |
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( |
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( |
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Proceeds from employee stock purchase plan |
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Finance leases |
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( |
) |
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( |
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Other financing activities |
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( |
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( |
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Net cash provided by/(used in) financing activities |
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Effect of exchange-rate changes on cash and cash equivalents |
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( |
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( |
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Net increase/(decrease) in cash and cash equivalents |
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( |
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( |
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Cash and cash equivalents at beginning of period |
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Cash and cash equivalents at end of period |
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$ |
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$ |
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Supplemental Cash Flow Information |
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Cash paid for income taxes |
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$ |
( |
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$ |
( |
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Cash paid for interest, net of amounts capitalized |
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$ |
( |
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$ |
( |
) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
- 6 -
Nielsen Holdings plc
Condensed Consolidated Statements of Changes in Equity
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Accumulated Other Comprehensive Income (Loss), Net |
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Retained |
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Additional |
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Earnings |
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Currency |
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Cash |
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Post |
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Total Nielsen |
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Common |
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Paid-in |
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(Accumulated) |
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Translation |
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Flow |
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Employment |
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Shareholders’ |
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Noncontrolling |
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Total |
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(IN MILLIONS) |
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Stock |
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Capital |
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(Deficit) |
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Adjustments |
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Hedges |
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Benefits |
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Equity |
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Interests |
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Equity |
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Balance, December 31, 2019 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
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$ |
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$ |
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Net income/(loss) |
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— |
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— |
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( |
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— |
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— |
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— |
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( |
) |
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( |
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Currency translation adjustments, net of tax of $( |
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— |
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— |
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— |
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( |
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— |
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— |
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( |
) |
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( |
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( |
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Cash flow hedges, net of tax of $ |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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— |
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( |
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Unrealized gain on pension liability, net of tax of $( |
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— |
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— |
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— |
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— |
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— |
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— |
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Employee stock purchase plan |
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— |
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— |
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— |
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— |
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— |
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— |
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Dividends to shareholders |
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— |
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( |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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( |
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Common stock activity from share-based compensation plans |
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— |
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( |
) |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Share-based compensation expense |
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— |
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— |
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— |
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— |
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— |
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— |
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Balance, March 31, 2020 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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$ |
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$ |
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|
The accompanying notes are an integral part of these condensed consolidated financial statements.
- 7 -
Condensed Consolidated Statements of Changes in Equity
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Accumulated Other Comprehensive Income (Loss), Net |
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Retained |
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Additional |
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Earnings |
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Currency |
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Cash |
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Post |
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Total Nielsen |
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|
|
|
|
|
|
||||||
|
|
|
Common |
|
|
Paid-in |
|
|
(Accumulated) |
|
|
Translation |
|
|
Flow |
|
|
Employment |
|
|
Shareholders’ |
|
|
Noncontrolling |
|
|
Total |
|
|||||||||
|
(IN MILLIONS) |
|
Stock |
|
|
Capital |
|
|
(Deficit) |
|
|
Adjustments |
|
|
Hedges |
|
|
Benefits |
|
|
Equity |
|
|
Interests |
|
|
Equity |
|
|||||||||
|
Balance, December 31, 2018 |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Net income/(loss) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustments, net of tax of $( |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Cash flow hedges, net of tax of $ |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Unrealized gain on pension liability, net of tax of $( |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Employee stock purchase plan |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Capital contribution by non-controlling partner |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Dividends to shareholders |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Common stock activity from share-based compensation plans |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Share-based compensation expense |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Balance, March 31, 2019 |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
- 8 -
Nielsen Holdings plc
Notes to Condensed Consolidated Financial Statements
1. Background and Basis of Presentation
Background
Nielsen Holdings plc (“Nielsen” or the “Company”), together with its subsidiaries, is a leading global measurement and data analytics company that provides the most complete and trusted view available of consumers and markets worldwide. The company’s approach marries proprietary Nielsen data with other data sources to help clients around the world understand what’s happening now, what’s happening next, and how to best act on this knowledge.
Nielsen is divided into
Connect provides consumer packaged goods manufacturers and retailers with accurate, actionable information and a complete picture of the complex and changing marketplace that brands need to innovate and grow their businesses. Connect provides data and builds tools that use predictive models to turn observations in the marketplace into business decisions and winning solutions. The business's data and insights, combined with the only open, cloud native measurement and analytics platform that democratizes the power of data, continue to provide an essential foundation that makes markets possible in the rapidly evolving world of commerce.
On November 7, 2019, Nielsen announced its plan to spin-off the company's Global Connect business, creating two independent, publicly traded companies -- the Global Media business and the Global Connect business.
Nielsen has operations in over
Basis of Presentation
The accompanying condensed consolidated financial statements are unaudited but, in the opinion of management, contain all the adjustments (consisting of those of a normal recurring nature) considered necessary to present fairly the Company’s financial position and the results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) applicable to interim periods. For a more complete discussion of significant accounting policies, commitments and contingencies and certain other information, refer to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. All amounts are presented in U.S. Dollars (“$”), except for share data or where expressly stated as being in other currencies, e.g., Euros (“€”). The condensed consolidated financial statements include the accounts of Nielsen and all subsidiaries and other controlled entities. The Company has evaluated events occurring subsequent to March 31, 2020 for potential recognition or disclosure in the condensed consolidated financial statements and concluded there were no subsequent events that required recognition or disclosure other than those provided.
Earnings per Share
Basic net income per share is computed using the weighted-average number of shares of common stock outstanding during the period. Diluted net income per share is computed using the weighted-average number of shares of common stock and dilutive potential shares of common stock outstanding during the period. Dilutive potential shares of common stock primarily consist of employee stock options and restricted stock units.
The effect of
Accounts Receivable
The Company extends non-interest bearing trade credit to its customers in the ordinary course of business. To minimize credit risk, ongoing credit evaluations of client’s financial condition are performed. Effective January 1, 2020, the Company adopted ASU, “Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments”. Prior to the adoption, an estimate of the allowance for doubtful accounts was made when collection of the full amount was no longer probable (incurred loss)
- 9 -
or returns were expected. Subsequent to the adoption, as noted in Note 2, the allowance for doubtful accounts is made when collection of the full amounts is no longer probable by also incorporating reasonable and supportable forecasts (expected loss).
During the three months ended March 31, 2020, Nielsen sold $
2. Summary of Recent Accounting Pronouncements
Financial Instruments – Credit Losses
Effective January 1, 2020, the Company adopted ASU, “Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments”. The standard significantly changes how entities measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard replaced the “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. For available-for-sale debt securities, entities are required to record allowances rather than reduce the carrying amount under the other-than-temporary impairment model. It also simplifies the accounting model for purchased credit-impaired debt securities and loans. Upon adoption, this new standard did not have a significant impact on Nielsen’s consolidated balance sheets and statements of operations.
Compensation-Retirement Benefits-Defined Benefit Plans-General
In August 2018, the FASB issued ASU No. 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20), which amends the current disclosure requirements regarding defined benefit pensions and other post retirement plans, and allows for the removal of certain disclosures, while adding certain new disclosure requirements. This standard is effective for fiscal years beginning after December 15, 2020 and allows for early adoption. Nielsen does not expect this new standard to have a significant impact on its disclosures.
Income Taxes (Topic 740): Simplifying the Accounting for Income taxes
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes which amends and aims to simplify accounting disclosure requirements regarding a number of topics including: intraperiod tax allocation, accounting for deferred taxes when there are changes in consolidation of certain investments, tax basis step up in an acquisition and the application of effective rate changes during interim periods, amongst other improvements. This standard is effective for fiscal years beginning after December 15, 2020 and allows for early adoption. Nielsen is assessing the impact of this new standard on its consolidated balance sheets, statements of operations and its future disclosures.
Reference Rate Reform-Facilitation of the Effects of Reference Rate Reform on Financial Reporting
On March 12, 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) 2020-04, Reference Rate Reform (“ASC 848”): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASC 848 contains optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform. The provisions of ASC 848 must be applied at a Topic, Subtopic or Industry Subtopic for all transactions other than derivatives, which may be applied at a hedging relationship level.
3. Revenue Recognition
Revenue is measured based on the consideration specified in a contract with a customer. The Company recognizes revenue when it satisfies a performance obligation by transferring control of a product or service to a customer, which generally occurs over time. Substantially all of the Company’s customer contracts are non-cancelable and non-refundable.
The following is a description of principal activities, by reportable segment, from which the Company generates its revenues.
- 10 -
Revenue from the Connect segment consists primarily of measurement services, which include the Company’s core tracking and scan data (primarily transactional measurement data and consumer behavior information) to businesses in the consumer packaged goods industry. Nielsen’s data is used by its clients to measure their market share, tracking billions of sales transactions per month in retail outlets around the world. Revenues for these services are recognized over the period during which the performance obligations are satisfied as the customer receives and consumes the benefits provided by the Company and control of the services are transferred to the customer.
The Company also provides consumer intelligence and analytical services that help clients make smarter business decisions throughout their product development and marketing cycles. The Company’s performance under these arrangements do not create an asset with an alternative use to the company and generally include an enforceable right to payment for performance completed to date, as such, revenue for these services is typically recognized over time. Revenue for contracts that do not include an enforceable right to payment for performance completed to date is recognized at a point in time when the performance obligation is satisfied, generally upon delivery of the services, and when control of the service is transferred to the customer.
Revenue from Nielsen’s Media segment is primarily generated from television, radio, digital and mobile audience measurement services and analytics which are used by the Company’s media clients to establish the value of airtime and more effectively schedule and promote their programming and the Company’s advertising clients to plan and optimize their spending. As the customer simultaneously receives and consumes the benefits provided by the Company’s performance, revenues for these services are recognized over the period during which the performance obligations are satisfied and control of the service is transferred to the customer.
The Company enters into cooperation arrangements with certain customers, under which the customer provides Nielsen with its data in exchange for Nielsen’s services. Nielsen records these transactions at fair value, which is determined based on the fair value of goods or services received, if reasonably estimable. If not reasonably estimable, the Company considers the fair value of the goods or services surrendered.
The table below sets forth the Company’s revenue disaggregated within each segment by major product offerings and timing of revenue recognition.
|
(IN MILLIONS) (UNAUDITED) |
|
Three |
|
|
Three |
|
||
|
|
|
|
|
|
|
|
|
|
|
Connect Segment |
|
|
|
|
|
|
|
|
|
Measurement |
|
$ |
|
|
|
$ |
|
|
|
Predict/Activate |
|
|
|
|
|
|
|
|
|
Connect |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Media Segment |
|
|
|
|
|
|
|
|
|
Audience Measurement |
|
$ |
|
|
|
$ |
|
|
|
Planning/Optimization |
|
|
|
|
|
|
|
|
|
Media |
|
$ |
|
|
|
$ |
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Timing of revenue recognition |
|
|
|
|
|
|
|
|
|
Products transferred at a point in time |
|
$ |
|
|
|
$ |
|
|
|
Products and services transferred over time |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
Contract Assets and Liabilities
Contract assets represent the Company’s rights to consideration in exchange for services transferred to a customer that have not been billed as of the reporting date. While the Company’s rights to consideration are generally unconditional at the time its performance obligations are satisfied, under certain circumstances the related billing occurs in arrears, generally within one month of the services being rendered.
- 11 -
At the inception of a contract, the Company generally expects the period between when it transfers its services to its customers and when the customer pays for such services will be one year or less.
Contract liabilities relate to advance consideration received or the right to consideration that is unconditional from customers for which revenue is recognized when the performance obligation is satisfied and control transferred to the customer.
The table below sets forth the Company’s contract assets and contract liabilities from contracts with customers.
|
(IN MILLIONS) |
|
March 31, 2020 |
|
|
December 31, 2019 |
|
|
|||
|
Contract assets |
|
$ |
|
|
|
$ |
|
|
|
|
|
Contract liabilities |
|
$ |
|
|
|
$ |
|
|
|
|
The increase in the contract assets balance during the period was primarily due to $
The increase in the contract liability balance during the period is primarily due to $
Transaction Price Allocated to the Remaining Performance Obligations
As of March 31, 2020, approximately $
The Company expects to recognize revenue on approximately
Deferred Costs
Incremental direct costs incurred to build the infrastructure to service new contracts are capitalized as a contract cost. As of March 31, 2020 and December 31, 2019, the balances of such capitalized costs were $
Expected Credit Losses
Nielsen is required to measure expected credit losses on trade accounts receivable. Nielsen considered the asset’s contractual life, the risk of loss and reasonable and supportable forecasts of future economic conditions. The estimate of expected credit losses reflects the risk of loss, even if management believes no loss was incurred as of the measurement date.
The following schedule represents the allowance for doubtful accounts rollforward incorporating expected credit losses as of March 31, 2020.
|
(IN MILLIONS) |
|
Balance |
|
Charges to |
|
|
Deductions |
|
|
Effect of |
|
Balance at |
||||||||
|
Allowance for accounts receivable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2020 |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
- 12 -
4. Business Acquisitions
Acquisitions
For the three months ended March 31, 2020, Nielsen paid cash consideration of $
For the three months ended March 31, 2019, Nielsen paid cash consideration of $
5. Leases
All significant lease arrangements are generally recognized at lease commencement. Operating lease right-of-use (“ROU”) assets and lease liabilities are recognized at commencement. An ROU asset and corresponding lease liability are not recorded for leases with an initial term of 12 months or less (short term leases) and Nielsen recognizes lease expense for these leases as incurred over the lease term. ROU assets represent the Company’s right to use an underlying asset during the reasonably certain lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Nielsen’s lease terms may include options to extend or terminate the lease when it is reasonably certain that Nielsen will exercise that option. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Nielsen uses the rate implicit in the lease for the discount rate when determining the present value of lease payments whenever that rate is readily determinable. If the rate is not readily determinable, Nielsen uses its incremental borrowing rate, which is updated periodically, based on the information available at commencement date. The operating lease ROU asset also includes any lease payments related to initial direct cost and prepayments and excludes lease incentives. Lease expense is recognized on a straight-line basis over the lease term. Nielsen has lease agreements with lease and non-lease components, which are generally accounted for together.
Nielsen has operating and finance leases for real estate facilities, servers, computer hardware, and other equipment. Nielsen’s leases have remaining lease terms of
The components of lease expense were as follows:
|
|
|
|
|
|
||||
|
(in millions) |
|
|
Three Months Ended March 31, |
|
|
|||
|
2020 |
2019 |
|||||||
|
Lease cost |
|
|
|
|
|
|
|
|
|
Finance lease cost: |
|
|
|
|
|
|
|
|
|
Amortization of right-of-use assets |
|
$ |
|
|
$ |
|
|
|
|
Interest on lease liabilities |
|
|
|
|
|
|
|
|
|
Total finance lease cost |
|
|
|
|
|
|
|
|
|
Operating lease cost |
|
|
|
|
|
|
|
|
|
Short-term lease cost |
|
|
|
|
|
- |
|
|
|
Sublease income |
|
|
( |
) |
|
( |
) |
|
|
Total lease cost |
|
$ |
|
|
$ |
|
|
|
- 13 -
Supplemental balance sheet information related to leases was as follows:
|
(in millions, except lease term and discount rate) |
|
|
March 31, 2020 |
December 31, 2019 |
|
|||
|
Operating leases |
|
|
|
|
|
|
|
|
|
Operating lease right-of-use assets |
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current liabilities |
|
|
|
|
|
|
|
|
|
Operating lease liabilities |
|
|
|
|
|
|
|
|
|
Total operating lease liabilities |
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance leases |
|
|
|
|
|
|
|
|
|
Property, plant and equipment, gross |
|
$ |
|
|
$ |
|
|
|
|
Accumulated depreciation |
|
|
( |
) |
|
( |
) |
|
|
Property, plant and equipment, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other intangible assets, gross |
|
|
|
|
|
|
|
|
|
Accumulated amortization |
|
|
( |
) |
|
( |
) |
|
|
Other intangible assets, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and other current liabilities |
|
|
|
|
|
|
|
|
|
Long-term debt and capital lease obligations |
|
|
|
|
|
|
|
|
|
Total finance lease liabilities |
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
||||
|
Other information |
|
|
2020 |
|
|
2019 |
|
|
|
Cash paid for amounts included in the measurement of lease liabilities |
|
|
|
|
|
|
|
|
|
Operating cash flows from finance leases |
|
|
( |
) |
|
( |
) |
|
|
Operating cash flows from operating leases |
|
|
( |
) |
|
( |
) |
|
|
Financing cash flows from finance leases |
|
|
( |
) |
|
( |
) |
|
|
Right-of-use assets obtained in exchange for new finance lease liabilities |
|
|
|
|
|
|
|
|
|
Right-of-use assets obtained in exchange for new operating lease liabilities |
|
|
|
|
|
|
|
|
|
Weighted-average remaining lease term--finance leases |
|
|
|
|
|
|
||
|
Weighted-average remaining lease term--operating leases |
|
|
|
|
|
|
||
|
Weighted-average discount rate--finance leases |
|
|
|
% |
|
|
% |
|
|
Weighted-average discount rate--operating leases |
|
|
|
% |
|
|
% |
|
Annual maturities of Nielsen’s lease liabilities are as follows:
|
(in millions) |
|
|
Operating Leases |
|
|
Finance Leases |
|
|
|
For April 1, 2020 to December 31, 2020 |
|
$ |
|
|
|
$ |
|
|
|
2021 |
|
|
|
|
|
|
|
|
|
2022 |
|
|
|
|
|
|
|
|
|
2023 |
|
|
|
|
|
|
|
|
|
2024 |
|
|
|
|
|
|
|
|
|
2025 |
|
|
|
|
|
|
|
|
|
Thereafter |
|
|
|
|
|
|
|
|
|
Total lease payments |
|
|
|
|
|
|
|
|
|
Less imputed interest |
|
|
( |
) |
|
|
( |
) |
|
Total |
|
S |
|
|
|
$ |
|
|
- 14 -
6. Goodwill and Other Intangible Assets
Goodwill
Despite the excess fair value identified in our 2019 impairment assessment, we determined that the significant decline in Nielsen’s market capitalization and impacts of the COVID-19 pandemic indicate that there was a triggering event for an interim assessment. We reviewed our previous forecasts and assumptions based on our current projections that are subject to various risks and uncertainties, including: forecasted revenues, expenses and cash flows, including the duration and extent of impact to our business from the COVID-19 pandemic, current discount rates, the reduction in Nielsen's market capitalization, and observable market transactions.
Based on our interim impairment assessment as of March 31, 2020, we have determined that the estimated fair values of the reporting units exceeded their carrying values (including goodwill), thus
The table below summarizes the changes in the carrying amount of goodwill by reportable segment for the three months ended March 31, 2020.
|
(IN MILLIONS) |
|
Connect |
|
|
Media |
|
|
Total |
|
|||
|
Balance, December 31, 2019 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Acquisitions, divestitures and other adjustments |
|
|
|
|
|
|
— |
|
|
|
|
|
|
Effect of foreign currency translation |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Balance, March 31, 2020 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
At March 31, 2020, $
Other Intangible Assets
|
|
|
Gross Amounts |
|
|
Accumulated Amortization |
|
||||||||||
|
|
|
March 31, |
|
|
December 31, |
|
|
March 31, |
|
|
December 31, |
|
||||
|
(IN MILLIONS) |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
|
Indefinite-lived intangibles: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names and trademarks |
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
Amortized intangibles: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names and trademarks |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Customer-related intangibles |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Covenants-not-to-compete |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Content databases |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Computer software |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Patents and other |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
During the first quarter of 2020, Nielsen concluded that there was a triggering event for an interim assessment of the indefinite-lived intangibles. Nielsen performed the interim assessment of the trade names and trademarks and concluded that the estimated fair values exceeded their carrying values. One of the indefinite-lived intangible assets had a fair value that exceeded its carrying value by less than
Amortization expense associated with the above intangible assets was $
At March 31, 2020, the net book value of purchased software and internally developed software was $
- 15 -
7. Changes in and Reclassification out of Accumulated Other Comprehensive Income/(Loss) by Component
The table below summarizes the changes in accumulated other comprehensive income/(loss), net of tax, by component for the three months ended March 31, 2020 and 2019.
|
|
|
Currency |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation |
|
|
|
|
|
Post-Employment |
|
|
|
|
|
||
|
|
|
Adjustments |
|
Cash Flow Hedges |
|
|
Benefits |
|
|
Total |
|
||||
|
(IN MILLIONS) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2019 |
|
$ |
( |
) |
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Other comprehensive income/(loss) before reclassifications |
|
|
( |
) |
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Amounts reclassified from accumulated other comprehensive (income)/loss |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current period other comprehensive income/(loss) |
|
|
( |
) |
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Net current period other comprehensive income/(loss) attributable to noncontrolling interest |
|
|
( |
) |
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Net current period other comprehensive income/(loss) attributable to Nielsen shareholders |
|
|
( |
) |
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Balance March 31, 2020 |
|
$ |
( |
) |
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
Currency |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation |
|
|
|
|
|
|
Post-Employment |
|
|
|
|
|
||
|
|
|
Adjustments |
|
|
Cash Flow Hedges |
|
|
Benefits |
|
|
Total |
|
||||
|
(IN MILLIONS) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2018 |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Other comprehensive income/(loss) before reclassifications |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
Amounts reclassified from accumulated other comprehensive income/(loss) |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Net current period other comprehensive income/(loss) attributable to Nielsen shareholders |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
Balance March 31, 2019 |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
The table below summarizes the reclassification of accumulated other comprehensive loss by component for the three months ended March 31, 2020 and 2019, respectively.
|
|
|
Amount Reclassified from |
|
|
|
|||||
|
|
|
Accumulated Other |
|
|
|
|||||
|
(IN MILLIONS) |
|
Comprehensive Loss/(Income) |
|
|
|
|||||
|
Details about Accumulated |
|
|
|
|
|
|
|
|
|
Affected Line Item in the |
|
Other Comprehensive |
|
Three Months Ended |
|
|
Three Months Ended |
|
|
Condensed Consolidated |
||
|
Income components |
|
March 31, 2020 |
|
|
March 31, 2019 |
|
|
Statement of Operations |
||
|
Cash flow hedges |
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
|
$ |
|
|
|
$ |
( |
) |
|
Interest (income)/expense |
|
|
|
|
( |
) |
|
|
|
|
|
(Benefit)/provision for income taxes |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
Total, net of tax |
|
Amortization of Post-Employment Benefits |
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss |
|
$ |
|
|
|
$ |
|
|
|
(a) |
|
|
|
|
( |
) |
|
|
( |
) |
|
(Benefit)/provision for income taxes |
|
|
|
$ |
|
|
|
$ |
|
|
|
Total, net of tax |
|
Total reclassification for the period |
|
$ |
|
|
|
$ |
( |
) |
|
Net of tax |
|
(a) |
This accumulated other comprehensive loss component is included in the computation of net periodic pension cost. |
- 16 -
8. Restructuring Activities
Productivity Initiatives
Restructuring charges are primarily related to programs associated with Nielsen’s plans to reduce selling, general and administrative expenses, consolidate operating centers, as well as automation initiatives. These charges primarily relate to employee separation packages. The amounts are calculated based on salary levels and past service periods. Severance costs are generally charged to earnings when planned employee terminations are approved.
A summary of the changes in the liabilities for restructuring activities is provided below:
|
(IN MILLIONS) |
|
Total Initiatives |
|
|
|
Balance at December 31, 2019 |
|
$ |
|
|
|
Charges (1) |
|
|
|
|
|
Payments |
|
|
( |
) |
|
Effect of foreign currency translation and other adjustments |
|
|
|
|
|
Balance at March 31, 2020 |
|
$ |
|
|
|
|
(1) |
|
Nielsen recorded $
Of the $
9. Fair Value Measurements
Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining fair value, the Company considers the principal or most advantageous market in which the Company would transact, and also considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of non-performance.
There are three levels of inputs that may be used to measure fair value:
|
Level 1: |
|
Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. |
|
|
|
|
|
Level 2: |
|
Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. |
|
|
|
|
|
Level 3: |
|
Pricing inputs that are generally unobservable and may not be corroborated by market data. |
Financial Assets and Liabilities Measured on a Recurring Basis
The Company’s financial assets and liabilities are measured and recorded at fair value, except for equity method investments and long-term debt. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurements. The Company’s assessment of the significance of a particular input to the fair value measurements requires judgment, and may affect the valuation of the assets and liabilities being measured and their placement within the fair value hierarchy. In addition, the Company records changes in the fair value of equity investments with readily determinable fair values in net income rather than in accumulated other comprehensive income/(loss). Investments that do not have readily determinable fair values are recognized at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. The adjustments related to the observable price changes will also be recognized in net income.
- 17 -
The following table summarizes the valuation of the Company’s material financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2020 and December 31, 2019:
|
|
|
March 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(IN MILLIONS) |
|
2020 |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan assets for deferred compensation (1) |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
Investment in mutual funds (2) |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
Interest rate swap arrangements (3) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
|
— |
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap arrangements (3) |
|
$ |
|
|
|
|
— |
|
|
$ |
|
|
|
|
— |
|
|
Deferred compensation liabilities (4) |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
— |
|
zz
|
|
|
|
|
December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019 |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan assets for deferred compensation (1) |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
Investment in mutual funds (2) |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
Interest rate swap arrangements (3) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
|
— |
|
|
|
— |
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap arrangements (3) |
|
$ |
|
|
|
|
— |
|
|
$ |
|
|
|
|
— |
|
|
Deferred compensation liabilities (4) |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
— |
|
|
(1) |
|
|
(2) |
|
|
(3) |
|
|
(4) |
|
Derivative Financial Instruments
Nielsen primarily uses interest rate swap derivative instruments to manage the risk that changes in interest rates will affect the cash flows of its underlying debt obligations.
To qualify for hedge accounting, the hedging relationship must meet several conditions with respect to documentation, probability of occurrence, hedge effectiveness and reliability of measurement. Nielsen documents the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions as well as the hedge effectiveness assessment, both at the hedge inception and on an ongoing basis. Nielsen recognizes all derivatives at fair value either as assets or liabilities in the consolidated balance sheets and changes in the fair values of such instruments are recognized currently in earnings unless specific hedge accounting criteria are met. If specific cash flow hedge accounting criteria are met, Nielsen recognizes the changes in fair value of these instruments in accumulated other comprehensive income/(loss).
- 18 -
Nielsen manages exposure to possible defaults on derivative financial instruments by monitoring the concentration of risk that Nielsen has with any individual bank and through the use of minimum credit quality standards for all counterparties. Nielsen does not require collateral or other security in relation to derivative financial instruments. A derivative contract entered into between Nielsen or certain of its subsidiaries and a counterparty that was also a lender under Nielsen’s senior secured credit facilities at the time the derivative contract was entered into is guaranteed under the senior secured credit facilities by Nielsen and certain of its subsidiaries (see Note 10 – (“Long-term Debt and Other Financing Arrangements”) for more information). Since it is Nielsen’s policy to only enter into derivative contracts with banks of internationally acknowledged standing, Nielsen considers the counterparty risk to be remote.
It is Nielsen’s policy to have an International Swaps and Derivatives Association (“ISDA”) Master Agreement established with every bank with which it has entered into any derivative contract. Under each of these ISDA Master Agreements, Nielsen agrees to settle only the net amount of the combined market values of all derivative contracts outstanding with any one counterparty should that counterparty default. Certain of the ISDA Master Agreements contain cross-default provisions where if the Company either defaults in payment obligations under its credit facility or if such obligations are accelerated by the lenders, then the Company could also be declared in default on its derivative obligations. At March 31, 2020, Nielsen had no material exposure to potential economic losses due to counterparty credit default risk or cross-default risk on its derivative financial instruments.
Foreign Currency Exchange Risk
For the three months ended March 31, 2020 and 2019, Nielsen recorded a net loss of $
Interest Rate Risk
Nielsen is exposed to cash flow interest rate risk on the floating-rate U.S. Dollar and Euro Term Loans, and uses floating-to-fixed interest rate swaps to hedge this exposure. For these derivatives, Nielsen reports the after-tax gain or loss from the effective portion of the hedge as a component of accumulated other comprehensive income/(loss) and reclassifies it into earnings in the same period or periods in which the hedged transaction affects earnings, and within the same income statement line item as the impact of the hedged transaction.
As of March 31, 2020 the Company had the following outstanding interest rate swaps utilized in the management of its interest rate risk:
|
|
|
|
Notional Amount |
|
|
Maturity Date |
|
|
Currency |
|
|
Interest rate swaps designated as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
US Dollar term loan floating-to-fixed rate swaps |
|
$ |
|
|
|
|
|
|
U.S. Dollar |
|
|
US Dollar term loan floating-to-fixed rate swaps |
|
$ |
|
|
|
|
|
|
U.S. Dollar |
|
|
US Dollar term loan floating-to-fixed rate swaps |
|
$ |
|
|
|
|
|
|
U.S. Dollar |
|
|
US Dollar term loan floating-to-fixed rate swaps |
|
$ |
|
|
|
|
|
|
U.S. Dollar |
|
|
US Dollar term loan floating-to-fixed rate swaps |
|
$ |
|
|
|
|
|
|
U.S. Dollar |
|
|
US Dollar term loan floating-to-fixed rate swaps |
|
$ |
|
|
|
|
|
|
U.S. Dollar |
|
|
US Dollar term loan floating-to-fixed rate swaps |
|
$ |
|
|
|
|
|
|
U.S. Dollar |
|
|
US Dollar term loan floating-to-fixed rate swaps |
|
$ |
|
|
|
|
|
|
U.S. Dollar |
|
|
US Dollar term loan floating-to-fixed rate swaps |
|
$ |
|
|
|
|
|
|
U.S. Dollar |
|
- 19 -
The effect of cash flow hedge accounting on the condensed consolidated statement of operations for the three months ended March 31, 2020 and 2019 respectively is as follows:
|
|
|
Interest Expense |
|
|
|||||
|
|
|
Three Months Ended March 31, |
|
|
|||||
|
(IN MILLIONS) |
|
2020 |
|
|
2019 |
|
|
||
|
Interest expense (Location in the consolidated statement of operations in which the effects of cash flow hedges are recorded) |
|
$ |
|
|
|
$ |
|
|
|
|
Amount of gain/(loss) reclassified from accumulated other comprehensive income into income, net of tax |
|
$ |
( |
) |
|
$ |
|
|
|
|
Amount of loss reclassified from accumulated other comprehensive income into income as a result that a forecasted transaction is no longer probable of occurring, net of tax |
|
$ |
— |
|
|
$ |
— |
|
|
Nielsen expects to recognize approximately $
Fair Values of Derivative Instruments in the Consolidated Balance Sheets
The fair values of the Company’s derivative instruments as of March 31, 2020 and December 31, 2019 were as follows:
|
|
|
|
March 31, 2020 |
|
December 31, 2019 |
|
|||||||||||||||||
|
Derivatives Designated as Hedging |
|
Prepaid Expense |
|
|
Other |
|
|
Other |
|
Prepaid Expense |
|
Other |
|
|
Other |
|
|||||||
|
Instruments |
|
and Other Current |
|
|
Current |
|
|
Non-Current |
|
and Other Current |
|
Current |
|
|
Non-Current |
|
|||||||
|
(IN MILLIONS) |
|
Assets |
|
|
Liabilities |
|
|
Liabilities |
|
Assets |
|
Liabilities |
|
|
Liabilities |
|
|||||||
|
Interest rate swaps |
|
$ |
— |
|
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
$ |
— |
|
|
$ |
|
|
|
Derivatives in Cash Flow Hedging Relationships
The pre-tax effect of derivative instruments in cash flow hedging relationships for the three months ended March 31, 2020 and 2019 was as follows:
|
|
|
|
|
|
|
|
|
Amount of (Gain)/Loss |
|
|||||||||||||||
|
|
|
Amount of (Gain)/Loss |
|
|
|
|
|
Reclassified from AOCI |
|
|||||||||||||||
|
|
|
Recognized in OCI |
|
|
Location of (Gain)/ Loss |
|
|
into Income |
|
|||||||||||||||
|
|
|
(Effective Portion) |
|
|
Reclassified from AOCI |
|
|
(Effective Portion) |
|
|||||||||||||||
|
Derivatives in Cash Flow |
|
Three Months Ended |
|
|
into Income (Effective |
|
|
Three Months Ended |
|
|||||||||||||||
|
Hedging Relationships |
|
March 31, |
|
|
Portion) |
|
|
March 31, |
|
|||||||||||||||
|
(IN MILLIONS) |
|
2020 |
|
|
2019 |
|
|
|
|
|
2020 |
|
|
2019 |
|
|||||||||
|
Interest rate swaps |
|
$ |
|
|
|
$ |
|
|
|
Interest expense |
|
|
$ |
|
|
|
$ |
( |
) |
|||||
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
The Company is required, on a nonrecurring basis, to adjust the carrying value for certain assets using fair value measurements. The Company’s equity method investments, and non-financial assets, such as goodwill, intangible assets, and property, plant and equipment, are measured at fair value when there is an indicator of impairment and recorded at fair value only when an impairment charge is recognized.
The Company did not measure any material non-financial assets or liabilities at fair value during the three months ended March 31, 2020.
- 20 -
10. Long-term Debt and Other Financing Arrangements
Unless otherwise stated, interest rates are as of March 31, 2020.
Annual maturities of Nielsen’s long-term debt are as follows:
|
|
|
March 31, 2020 |
|
|
December 31, 2019 |
|
||||||||||||||||||
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
||
|
|
|
Interest |
|
|
Carrying |
|
|
Fair |
|
|
Interest |
|
|
Carrying |
|
|
Fair |
|
||||||
|
(IN MILLIONS) |
|
Rate |
|
|
Amount |
|
|
Value |
|
|
Rate |
|
|
Amount |
|
|
Value |
|
||||||
|
$ |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
€ of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
$ LIBOR based variable rate) due |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
— |
|
||
|
Total senior secured credit facilities (with weighted-average interest rate) |
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debenture loans (with weighted-average interest rate) |
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
Other loans |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt |
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
Finance lease and other financing obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt and other financing arrangements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Current portion of long-term debt, finance lease and other financing obligations and other short-term borrowings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current portion of long-term debt and finance lease and other financing obligations |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
The fair value of the Company’s long-term debt instruments was based on the yield on public debt where available or current borrowing rates available for financings with similar terms and maturities and such fair value measurements are considered Level 1 or Level 2 in nature, respectively.
The Company’s $
Annual maturities of Nielsen’s long-term debt are as follows:
|
(IN MILLIONS) |
|
|
|
|
|
For April 1, 2020 to December 31, 2020 |
|
$ |
|
|
|
2021 |
|
|
|
|
|
2022 |
|
|
|
|
|
2023 |
|
|
|
|
|
2024 |
|
|
— |
|
|
2025 |
|
|
|
|
|
Thereafter |
|
|
— |
|
|
|
|
$ |
|
|
- 21 -
11. Shareholders’ Equity
Common stock activity is as follows:
|
|
|
Three Months Ended |
|
|
|
|
|
March 31, 2020 |
|
|
|
Actual number of shares of common stock outstanding |
|
|
|
|
|
Beginning of period |
|
|
|
|
|
Shares of common stock issued through compensation plans |
|
|
|
|
|
Employee benefit trust activity |
|
|
( |
) |
|
End of period |
|
|
|
|
On January 31, 2013, the Company’s Board of Directors (the “Board”) adopted a cash dividend policy to pay quarterly cash dividends on its outstanding common stock.
|
Declaration Date |
|
Record Date |
|
Payment Date |
|
Dividend Per Share |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
$ |
|
|
On November 3, 2019 the Board approved a plan to reduce the quarterly cash dividend, with the goal of strengthening Nielsen’s balance sheet and providing added flexibility to invest for growth. On
The dividend policy and the payment of future cash dividends are subject to the discretion of the Board.
Nielsen’s Board approved a share repurchase program, as included in the below table, for up to $
|
Board Approval |
|
Share Repurchase Authorization ($ in millions) |
|
|
July 25, 2013 |
|
$ |
|
|
October 23, 2014 |
|
$ |
|
|
December 11, 2015 |
|
$ |
|
|
Total Share Repurchase Authorization |
|
$ |
|
Repurchases under this program will be made in accordance with applicable securities laws from time to time and depending on Nielsen’s evaluation of market conditions and other factors. This program has been executed within the limitations of the authority granted Nielsen on
As of March 31, 2020, there were
12. Income Taxes
The effective tax rates before discrete tax items for the three months ended March 31, 2020 and 2019 were
- 22 -
2020, the total tax expense was $
The estimated liability for unrecognized tax benefits as of December 31, 2019 was $
The Company files numerous consolidated and separate income tax returns in the U.S. and in many state and foreign jurisdictions. With few exceptions the Company is no longer subject to U.S. Federal income tax examination for 2015 and prior periods. In addition, the Company has subsidiaries in various states, provinces and countries that are currently under audit for years ranging from 2007 through 2019.
To date, the Company is not aware of any material adjustments not already accrued related to any of the current Federal, state or foreign audits under examination.
13. Commitments and Contingencies
Legal Proceedings and Contingencies
In August 2018, a putative shareholder class action lawsuit was filed in the Southern District of New York, naming as defendants Nielsen, former Chief Executive Officer Dwight Mitchell Barns, and former Chief Financial Officer Jamere Jackson. Another lawsuit, which alleged similar facts but also named other Nielsen officers, was filed in the Northern District of Illinois in September 2018 and transferred to the Southern District of New York in December 2018. The actions were consolidated on April 22, 2019, and the Public Employees’ Retirement System of Mississippi was appointed lead plaintiff for the putative class. The operative complaint was filed on September 27, 2019, and asserts violations of certain provisions of the Securities Exchange Act of 1934, as amended, based on allegedly false and materially misleading statements relating to the outlook of Nielsen’s Buy (now “Connect”) segment, Nielsen’s preparedness for changes in global data privacy laws and Nielsen’s reliance on third-party data. Nielsen moved to dismiss the operative complaint on November 26, 2019. Briefing of Nielsen’s motion concluded on February 26, 2020. In addition, in January 2019, a shareholder derivative lawsuit was filed in New York Supreme Court against a number of Nielsen’s current and former officers and directors. The derivative lawsuit alleges that the named officers and directors breached their fiduciary duties to the Company in connection with factual assertions substantially similar to those in the putative class action complaint. The derivative lawsuit further alleges that certain officers and directors engaged in trading Nielsen stock based on material, nonpublic information. By agreement dated June 26, 2019, the derivative lawsuit has been stayed pending resolution of Nielsen’s motion to dismiss the aforementioned securities litigation. Nielsen intends to defend these lawsuits vigorously. Based on currently available information, Nielsen believes that the Company has meritorious defenses to these actions and that their resolution is not likely to have a material adverse effect on Nielsen’s business, financial position, or results of operations.
Nielsen is subject to litigation and other claims in the ordinary course of business, some of which include claims for substantial sums. Accruals have been recorded when the outcome is probable and can be reasonably estimated. While the ultimate results of claims and litigation cannot be determined, the Company does expect that the ultimate disposition of these matters will not have a material adverse effect on its operations or financial condition. However, depending on the amount and the timing, an unfavorable resolution of some or all of these matters could materially affect the Company’s future results of operations or cash flows in a particular period.
14. Segments
The Company aligns its operating segments in order to conform to management’s internal reporting structure, which is reflective of service offerings by industry. Operating segments are aggregated into
Corporate consists principally of unallocated items such as certain facilities and infrastructure costs as well as intersegment eliminations. Certain corporate costs, other than those described above, including those related to selling, finance, legal, human resources, and information technology systems, are considered operating costs and are allocated to the Company’s segments based on either the actual amount of costs incurred or on a basis consistent with the operations of the underlying segment. Information with respect to the operations of each of Nielsen’s business segments is set forth below based on the nature of the services offered and geographic areas of operations.
- 23 -
Business Segment Information
|
(IN MILLIONS) |
|
Connect |
|
|
Media |
|
|
Corporate |
|
|
Total |
|
||||
|
Three Months Ended March 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
|
|
|
$ |
|
|
|
|
— |
|
|
$ |
|
|
|
Operating income/(loss) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
Depreciation and amortization |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Restructuring charges |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Share-based compensation expense |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Other items(1) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
|
Separation-related costs(2) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
|
Business segment income/(loss)(3) |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
Total assets as of March 31, 2020 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
(IN MILLIONS) |
|
|
Connect |
|
|
|
Media |
|
|
|
Corporate |
|
|
|
Total |
|
|
Three Months Ended March 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
|
|
|
$ |
|
|
|
|
— |
|
|
$ |
|
|
|
Operating income/(loss) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
Depreciation and amortization |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Restructuring charges |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Share-based compensation expense |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Other items(1) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
|
Business segment income/(loss)(3) |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
Total assets as of December 31, 2019 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
(1) |
|
|
|
(2) |
|
|
|
(3) |
|
15. Guarantor Financial Information
The following supplemental financial information is being provided for purposes of compliance with reporting covenants contained in certain debt obligations of Nielsen and its subsidiaries. The financial information sets forth for Nielsen, its subsidiaries that have issued certain debt securities (the “Issuers”) and its guarantor and non-guarantor subsidiaries, the consolidating balance sheet as of March 31, 2020 and December 31, 2019 and consolidating statements of operations and cash flows for the periods ended March 31, 2020 and 2019.
The issued debt securities are jointly and severally guaranteed on a full and unconditional basis by Nielsen and subject to certain exceptions, each of the direct and indirect
Nielsen is a holding company and does not have any material assets or operations other than ownership of the capital stock of its direct and indirect subsidiaries. All of Nielsen’s operations are conducted through its subsidiaries, and, therefore, Nielsen is expected to continue to be dependent upon the cash flows of its subsidiaries to meet its obligations. The senior secured credit facilities contain certain limitations on the ability of Nielsen to receive the cash flows of its subsidiaries.
- 24 -
While all subsidiary guarantees of the issued debt securities are full and unconditional, these guarantees contain customary release provisions including when (i) the subsidiary is sold or sells all of its assets, (ii) the subsidiary is declared “unrestricted” for covenant purposes, (iii) the subsidiary’s guarantee under the senior secured credit facilities is released and (iv) the requirements for discharge of the indenture have been satisfied.
- 25 -
Nielsen Holdings plc
Condensed Consolidated Statement of Comprehensive Income/(Loss) (Unaudited)
For the three months ended March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
(IN MILLIONS) |
|
Parent |
|
|
Issuers |
|
|
Guarantor |
|
|
Guarantor |
|
|
Elimination |
|
|
Consolidated |
|
||||||
|
Revenues |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
Cost of revenues, exclusive of depreciation and amortization shown separately below |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Selling, general and administrative expenses, exclusive of depreciation and amortization shown separately below |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Depreciation and amortization |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Restructuring charges |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Operating income/(loss) |
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Interest income |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Interest expense |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Foreign currency exchange transaction gains/(losses), net |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Other income/(expense), net |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Income/(loss) from continuing operations before income taxes and equity in net income/(loss) of subsidiaries |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
Benefit/(provision) for income taxes |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Equity in net income/(loss) of subsidiaries |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
Net income/(loss) |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Less net income/(loss) attributable to noncontrolling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Net income/(loss) attributable to controlling interest |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Total other comprehensive income/(loss) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Other comprehensive income/(loss) attributable to noncontrolling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Total other comprehensive income/(loss) attributable to controlling interests |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Total comprehensive income/(loss) |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Comprehensive income/(loss) attributable to noncontrolling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Total comprehensive income/(loss) attributable to controlling interests |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
- 26 -
Nielsen Holdings plc
Condensed Consolidated Statement of Comprehensive Income/(Loss) (Unaudited)
For the three months ended March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
(IN MILLIONS) |
|
Parent |
|
|
Issuers |
|
|
Guarantor |
|
|
Guarantor |
|
|
Elimination |
|
|
Consolidated |
|
||||||
|
Revenues |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
Cost of revenues, exclusive of depreciation and amortization shown separately below |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Selling, general and administrative expenses, exclusive of depreciation and amortization shown separately below |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Depreciation and amortization |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Restructuring charges |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Operating income/(loss) |
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Interest income |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Interest expense |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Foreign currency exchange transaction gains/(losses), net |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Other income/(expense), net |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
— |
|
|
|
|
|
|
Income/(loss) from continuing operations before income taxes and equity in net income/(loss) of subsidiaries |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
— |
|
|
|
|
|
|
Benefit/(provision) for income taxes |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Equity in net income/(loss) of subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
Net income/(loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Less net income/(loss) attributable to noncontrolling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Net income/(loss) attributable to controlling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Total other comprehensive income/(loss) attributable to controlling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Total comprehensive income/(loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Comprehensive income/(loss) attributable to noncontrolling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Total comprehensive income/(loss) attributable to controlling interests |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
- 27 -
Nielsen Holdings plc
Condensed Consolidated Balance Sheet (Unaudited)
March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
(IN MILLIONS) |
|
Parent |
|
|
Issuers |
|
|
Guarantor |
|
|
Guarantor |
|
|
Elimination |
|
|
Consolidated |
|
||||||
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
Trade and other receivables, net |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Prepaid expenses and other current assets |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Intercompany receivables |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
Total current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Non-current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
Property, plant and equipment, net |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Operating lease right-of-use assets |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Goodwill |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Other intangible assets, net |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Deferred tax assets |
|
|
|
|
|
|
— |
|
|
|
- |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Other non-current assets |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Equity investment in subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
Intercompany loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
Total assets |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
Liabilities and equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and other current liabilities |
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
Deferred revenues |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Income tax liabilities |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Current portion of long-term debt, finance lease obligations and short-term borrowings |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Intercompany payables |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
Total current liabilities |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Non-current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt and finance lease obligations |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Deferred tax liabilities |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Operating lease liabilities |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Intercompany loans |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
Other non-current liabilities |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Total liabilities |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Total stockholders’ equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Noncontrolling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Total equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Total liabilities and equity |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
- 28 -
Nielsen Holdings plc
Condensed Consolidated Balance Sheet
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
(IN MILLIONS) |
|
Parent |
|
|
Issuers |
|
|
Guarantor |
|
|
Guarantor |
|
|
Elimination |
|
|
Consolidated |
|
||||||
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
Trade and other receivables, net |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Prepaid expenses and other current assets |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Intercompany receivables |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
- |
|
|
Total current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Non-current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
Property, plant and equipment, net |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Operating lease right-of-use asset |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Goodwill |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Other intangible assets, net |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Deferred tax assets |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Other non-current assets |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Equity investment in subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
Intercompany loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
Total assets |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
Liabilities and equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and other current liabilities |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
Deferred revenues |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Income tax liabilities |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Current portion of long-term debt, finance lease obligations and short-term borrowings |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Intercompany payables |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
Total current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Non-current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt and finance lease obligations |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Operating lease liabilities |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Deferred tax liabilities |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Intercompany loans |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
Other non-current liabilities |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Total liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Total shareholders’ equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Noncontrolling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Total equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Total liabilities and equity |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
- 29 -
Nielsen Holdings plc
Condensed Consolidated Statement of Cash Flows (Unaudited)
For the three months ended March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
(IN MILLIONS) |
|
Parent |
|
|
Issuers |
|
|
Guarantor |
|
|
Guarantor |
|
|
Consolidated |
|
|||||
|
Net cash provided by/(used in) operating activities |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
Acquisition of subsidiaries and affiliates, net of cash acquired |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Proceeds from the sale of subsidiaries and affiliates, net |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Additions to property, plant and equipment and other assets |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Additions to intangible assets |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Other investing activities |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Net cash used in investing activities |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
Net borrowings under revolving credit facility |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Repayments of debt |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Cash dividends paid to stockholders |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Activity under share-based compensation plans |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Proceeds from employee stock purchase plan |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Finance leases |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Settlement of intercompany and other financing activities |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Net cash provided by/(used in) financing activities |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Effect of exchange-rate changes on cash and cash equivalents |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Net increase/(decrease) in cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Cash and cash equivalents at beginning of period |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
- 30 -
Nielsen Holdings plc
Condensed Consolidated Statement of Cash Flows (Unaudited)
For the three months ended March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
(IN MILLIONS) |
|
Parent |
|
|
Issuers |
|
|
Guarantor |
|
|
Guarantor |
|
|
Consolidated |
|
|||||
|
Net cash provided by/(used in) operating activities |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of subsidiaries and affiliates, net of cash acquired |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Proceeds from the sale of subsidiaries and affiliates, net |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Additions to property, plant and equipment and other assets |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Additions to intangible assets |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Other investing activities |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Net cash used in investing activities |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net borrowings under revolving credit facility |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Repayments of debt |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Increase/(decrease) in other short-term borrowings |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Cash dividends paid to shareholders |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Activity under share-based compensation plans |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Proceeds from employee stock purchase plan |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Finance leases |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Settlement of intercompany and other financing activities |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Net cash provided by/(used in) financing activities |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange-rate changes on cash and cash equivalents |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Net increase/(decrease) in cash and cash equivalents |
|
|
— |
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Cash and cash equivalents at beginning of period |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
- 31 -
|
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Introduction
The following discussion and analysis supplements management’s discussion and analysis of Nielsen Holdings plc (“the Company” or “Nielsen”) for the year ended December 31, 2019 as contained in the Annual Report on Form 10-K filed by the Company with the Securities and Exchange Commission (“SEC”) on February 27, 2020, and presumes that readers have read or have access to such discussion and analysis. The following discussion and analysis should also be read together with the accompanying Condensed Consolidated Financial Statements and related notes thereto. Further, this report may contain material that includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect, when made, Nielsen’s current views with respect to current events and financial performance. Statements, other than those based on historical facts, which address activities, events or developments that we expect or anticipate may occur in the future are forward-looking statements. Such forward-looking statements are subject to many risks, uncertainties and factors relating to Nielsen’s operations and business environment that may cause actual results to be materially different from any future results, express or implied, by such forward-looking statements, including but not limited to, those set forth in this Item 2 and Part II, Item 1A, if any, and those noted in our 2019 Annual Report on Form 10-K under “Risk Factors.” Forward-looking statements speak only as of the date of this report or as of the date they were made. We disclaim any intention to update the current expectations or forward-looking statements contained in this report. Unless required by context, references to “we,” “us,” and “our” refer to Nielsen Holdings plc and each of its consolidated subsidiaries unless otherwise stated or indicated by context.
From time to time, Nielsen may use its website and social media outlets as channels of distribution of material company information. Financial and other material information regarding the company is routinely posted and accessible on our website at http://www.nielsen.com/investors and our Twitter account at http://twitter.com/nielsen.
Background and Executive Summary
We are a leading global measurement and data analytics company that provides the most complete and trusted view available of consumers and markets worldwide. Our approach marries our proprietary data with other data sources to help clients around the world understand what’s happening now, what’s happening next, and how to best act on this knowledge. An S&P 500 company, we have operations in over 100 countries, including many emerging markets, covering more than 90% of the world’s population, 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/(loss) and Adjusted EBITDA (defined below). Our long-term financial objectives include consistent revenue growth and expanding operating margins. Accordingly, we are focused on geographic market and service offering expansion to drive revenue growth and improve 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, more than 70% of our annual revenue has been committed under contracts in our combined Nielsen Global Connect and Nielsen Global Media segments, which provides us with a greater degree of stability for our revenue and allows us to more effectively manage our profitability and cash flows. See “Business Segment Overview” below for further discussion. We continue to look for growth opportunities through global expansion, specifically within emerging markets, as well as through the cross-platform expansion of our analytical services and measurement services.
On November 7, 2019, Nielsen announced its plan to spin-off the company's Global Connect business, creating two independent, publicly traded companies -- the Global Media business and the Global Connect business.
Our restructuring and other productivity initiatives have been focused on a combination of improving operating leverage through targeted cost-reduction programs, business process improvements and portfolio restructuring actions, while at the same time investing in key programs to enhance future growth opportunities.
Achieving our business objectives requires us to manage a number of key risk areas. Our growth objective of geographic market and service expansion requires us to maintain the consistency and integrity of our information and underlying processes on a global scale, and to invest effectively our capital in technology and infrastructure to keep pace with our clients’ demands and our competitors. Core to managing these key risk areas is our commitment to data privacy and security as it drives our ability to deliver quality insights for our clients in line with evolving regulatory requirements and governing standards across all the geographies and industries in which we operate. Our operating footprint across more than 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.
COVID-19
In March 2020, the global outbreak of the novel coronavirus (“COVID-19”) was categorized as a pandemic by the World Health Organization and has negatively affected the global economy, disrupted global supply chains, resulted in significant travel and
- 32 -
transport restrictions, including mandated closures and orders to “shelter-in-place,” and created significant disruption of the financial markets.
We have established a global task force to ensure execution of our key priorities during the COVID-19 pandemic-- the health and safety of our global workforce, maintaining our financial position with ample liquidity, and continuity of critical business processes.
We have taken measures to protect the health and safety of our employees, their families and our clients, with a large majority of our worldwide workforce working from home. We have halted in-store field research and in-person client engagements in 70 markets and are adapting processes and developing innovative solutions to ensure continuity of critical business processes. In addition, we are sharing retail measurement data with several government entities to support our communities.
We delivered solid results in the first quarter, but we saw slowing momentum as the quarter progressed. These headwinds have continued into the second quarter, with increased pressure in both Nielsen Global Media and Nielsen Global Connect, primarily in non-contracted revenue. We continue to believe that a separation of Nielsen Global Media and Nielsen Global Connect is the best path forward. We continue to make operational progress towards separation but now expect the closing to take place in the first quarter of 2021, largely due to temporary shutdowns of government agencies that are necessary to move forward with the separation.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law. The CARES Act provides a substantial stimulus and assistance package intended to address the impact of the COVID-19 pandemic, including tax relief and government loans, grants and investments. The CARES Act did not have a material impact on our consolidated financial statements for the three months ended March 31, 2020. We continue to monitor any effects that may result from the CARES Act.
We believe we have a sound plan in place to mitigate the financial impacts of the COVID-19 pandemic in the face of ongoing economic uncertainty. We have taken aggressive cost actions to date and continue to closely monitor the situation. We remain well-capitalized, have sufficient liquidity to satisfy our cash needs and will take additional actions as required.
For further discussion regarding the potential impacts of COVID-19 and related economic conditions on the Company, see "Part II—Item 1A—Risk Factors."
Business Segment Overview
We are divided into business units: Nielsen Global Media (“Media”) and Nielsen Global Connect (“Connect”). Media, the arbiter of truth for media markets, provides media and advertising clients with unbiased and reliable metrics that create the shared understanding of the industry required for markets to function, enabling its clients to grow and succeed across the $600 billion global advertising market. Media helps clients to define exactly who they want to reach, as well as optimize the outcomes they can achieve. Our cross-platform measurement strategy brings together the best of TV and digital measurement to ensure a more functional marketplace for the industry.
Connect provides consumer packaged goods manufacturers and retailers with accurate, actionable information and a complete picture of the complex and changing marketplace that brands need to innovate and grow their businesses. Connect provides data and builds tools that use predictive models to turn observations in the marketplace into business decisions and winning solutions. The business's data and insights, combined with the only open, cloud native measurement and analytics platform that democratizes the power of data, continue to provide an essential foundation that makes markets possible in the rapidly evolving world of commerce.
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
Our accounting policies are set forth in Note 1 to Consolidated Financial Statements contained in the Company’s 2019 Annual Report on Form 10-K. We include herein certain updates to those policies.
Goodwill and Indefinite-Lived Intangible Assets
Goodwill and other indefinite-lived intangible assets are stated at historical cost less accumulated impairment losses, if any.
- 33 -
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 review the recoverability of our goodwill by comparing the estimated fair values of reporting units with their respective carrying amounts. During the first quarter of 2020, we concluded that there was a triggering event for an interim assessment.
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 supplemented by 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 – 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. Management updated the business projections in light of the estimated impacts from the COVID-19 pandemic. 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. Should such events or circumstances arise, management would evaluate other options available at that time that, if executed, could result in future profitability. |
|
|
• |
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 each of our reporting units in our latest evaluation were between 1.5% and 2.5%. |
|
|
• |
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 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 in our latest evaluation of our reporting units were between 11.0% and 12.0%. |
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, next year’s 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 market value of our common stock and the appropriate redemption values of our debt. We 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, including a one percent movement in both our long-term growth rate and discount rate assumptions. When applying these sensitivity analyses, we noted that the fair value was greater than the carrying value for both of our reporting units. While management believes that these sensitivity analyses provide a reasonable basis on which to evaluate the recovery of our goodwill, other facts or circumstances may arise that could impact the impairment assessment and therefore these analyses should not be used as a sole predictor of impairment.
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, which includes revenue projections. 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. There was no impairment noted in any period presented with respect to the Company’s indefinite-lived intangible assets. As of the March 31, 2020 assessment, one of our indefinite-lived intangible assets had a
- 34 -
fair value that exceeded its carrying value by less than 5%. The valuation is sensitive to the assumptions listed above. A downward trend in revenue projections or an increase in discount rate could lead to a future impairment. We will continue to closely evaluate and report on any indicators of future impairments.
Factors Affecting Our Financial Results
Acquisitions and Investments in Affiliates
Acquisitions
For the three months ended March 31, 2020, we paid cash consideration of $27 million associated with a current period acquisition, net of cash acquired. Had this 2020 acquisition occurred as of January 1, 2020, the impact on our consolidated results of operations would not have been material.
For the three months ended March 31, 2019, we paid cash consideration of $59 million associated with both current period and previously executed acquisitions, net of cash acquired. Had these 2019 acquisitions occurred as of January 1, 2019, the impact on our consolidated results of operations would not have been material.
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.
|
|
|
Three Months Ended March 31, |
|
|||||
|
|
|
2020 |
|
|
2019 |
|
||
|
U.S. Dollar |
|
|
60 |
% |
|
|
58 |
% |
|
Euro |
|
|
10 |
% |
|
|
10 |
% |
|
Other Currencies |
|
|
30 |
% |
|
|
32 |
% |
|
Total |
|
|
100 |
% |
|
|
100 |
% |
Fluctuations in the value of foreign currencies relative to the U.S. dollar impact our operating results. Impacts associated with fluctuations in foreign currency are discussed in more detail under “Item 3.—Quantitative and Qualitative Disclosures about Market Risk.” In countries with currencies other than the U.S. dollar, assets and liabilities are translated into U.S. dollars using end-of-period exchange rates while; revenues, expenses and cash flows are translated using average rates of exchange. The average U.S. dollar to Euro exchange rate was $1.10 to €1.00 and $1.14 to €1.00 for the three months ended March 31, 2020 and 2019, respectively. Constant currency growth rates used in the following discussion of results of operations eliminate the impact of year-over-year foreign currency fluctuations.
We evaluate our results of operations on both an as reported and a constant currency basis. The constant currency presentation is a non-GAAP financial measure, which excludes the impact of period-over-period fluctuations in foreign currency exchange rates. We believe providing constant currency information provides valuable supplemental information regarding our results of operations, thereby facilitating period-to-period comparisons of our business performance and is consistent with how management evaluates our performance. We calculate constant currency percentages by converting our prior-period local currency financial results using the current period foreign currency exchange rates and comparing these adjusted amounts to our current period reported results. This calculation may differ from similarly-titled measures used by others. In addition, the constant currency presentation is not meant to be a substitution for recorded amounts presented in conformity with GAAP nor should such amounts be considered in isolation.
Accounts Receivable
We extend non-interest bearing trade credit to our customers in the ordinary course of business. To minimize credit risk, ongoing credit evaluations of client’s financial condition are performed. Effective January 1, 2020, we adopted ASU, “Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments”. Prior to the adoption, an estimate of the allowance for doubtful accounts was made when collection of the full amount was no longer probable (incurred loss) or returns were expected. Subsequent to the adoption, as noted in “Summary of Recent Accounting Pronouncements” below, the allowance for doubtful accounts is made when collection of the full amounts is no longer probable by also incorporating reasonable and supportable forecasts (expected loss).
- 35 -
The uncertainty regarding the length of lock-downs related to the COVID-19 pandemic and speed of recovery may impact our level of reserves in future periods. We continue to monitor assess the impacts related to our different clients and will base our reasonable forecasts on the latest information available.
During the three months ended March 31, 2020, we sold $59 million of accounts receivable to third parties and recorded an immaterial loss on the sale to interest expense, net in the condensed consolidated statement of operations. As of March 31, 2020 and December 31, 2019, $30 million and $85 million of previously sold receivables, respectively, remained outstanding. The sales were accounted for as true sales, without recourse. We maintain servicing responsibilities for the majority of the receivables sold during the period, for which the related costs are not significant. The proceeds of $59 million from the sales were reported as a component of the changes in trade and other receivables, net within operating activities in the condensed consolidated statement of cash flows.
Results of Operations – Three Months Ended March 31, 2020 Compared to the Three Months Ended March 31, 2019
The following table sets forth, for the periods indicated, the amounts included in our Condensed Consolidated Statements of Operations:
|
|
|
Three Months Ended |
|
|||||
|
(IN MILLIONS) |
|
2020 |
|
|
2019 |
|
||
|
Revenues |
|
$ |
1,559 |
|
|
$ |
1,563 |
|
|
Cost of revenues, exclusive of depreciation and amortization shown separately below |
|
|
721 |
|
|
|
695 |
|
|
Selling, general and administrative expenses, exclusive of depreciation and amortization shown separately below |
|
|
515 |
|
|
|
480 |
|
|
Depreciation and amortization |
|
|
214 |
|
|
|
179 |
|
|
Restructuring charges |
|
|
11 |
|
|
|
35 |
|
|
Operating income/(loss) |
|
|
98 |
|
|
|
174 |
|
|
Interest income |
|
|
1 |
|
|
|
2 |
|
|
Interest expense |
|
|
(94 |
) |
|
|
(99 |
) |
|
Foreign currency exchange transaction gains/(losses), net |
|
|
(6 |
) |
|
|
(3 |
) |
|
Other income/(expense) |
|
|
(1 |
) |
|
|
5 |
|
|
Income/(loss) from continuing operations before income taxes |
|
|
(2 |
) |
|
|
79 |
|
|
Benefit/(provision) for income taxes |
|
|
(11 |
) |
|
|
(32 |
) |
|
Net income/(loss) |
|
|
(13 |
) |
|
|
47 |
|
|
Net income/(loss) attributable to noncontrolling interests |
|
|
5 |
|
|
|
4 |
|
|
Net income/(loss) attributable to Nielsen shareholders |
|
$ |
(18 |
) |
|
$ |
43 |
|
Net Income/(Loss) to Adjusted EBITDA Reconciliation
We define Adjusted EBITDA as net income or loss from our consolidated statements of operations before interest income and expense, income taxes, depreciation and amortization, restructuring charges, impairment of goodwill and other long-lived assets, share-based compensation expense and other non-operating items from our consolidated statements of operations as well as certain other items considered outside the normal course of our operations specifically described below.
Restructuring charges: We exclude restructuring expenses, which primarily include employee severance, office consolidation and contract termination charges, from our Adjusted EBITDA to allow more accurate comparisons of the financial results to historical operations and forward-looking guidance. By excluding these expenses from our non-GAAP measures, we are better able to evaluate our ability to utilize our existing assets and estimate the long-term value these assets will generate for us. Furthermore, we believe that the adjustments of these items more closely correlate with the sustainability of our operating performance.
- 36 -
Impairment of goodwill and other long-lived assets: We exclude the impact of charges related to the impairment of goodwill and other long-lived assets. Given the significance of the impairment of goodwill and other long-lived assets, we reported it separately in the consolidated statements of operations. We believe that the exclusion of these impairments, which are non-cash, allows for meaningful comparisons of operating results to peer companies. We believe that this increases period-to-period comparability and is useful to evaluate the performance of the total company.
Share-based compensation expense: We exclude the impact of costs relating to share-based compensation. Due to the subjective assumptions and a variety of award types, we believe that the exclusion of share-based compensation expense, which is typically non-cash, allows for more meaningful comparisons of our operating results to peer companies. Share-based compensation expense can vary significantly based on the timing, size and nature of awards granted.
Other non-operating income/(expense), net: We exclude foreign currency exchange transaction gains and losses, primarily related to intercompany financing arrangements, as well as other non-operating income and expense items, such as gains and losses recorded on business combinations or dispositions, sales of investments, pension settlements, net income/(loss) attributable to noncontrolling interests and early redemption payments made in connection with debt refinancing. We believe that the adjustments of these items more closely correlate with the sustainability of our operating performance.
Other items: To measure operating performance, we exclude certain expenses and gains that arise outside the ordinary course of our operations. Such costs primarily include legal settlements, acquisition related expenses, business optimization costs and other transactional costs. We believe the exclusion of such amounts allows management and the users of the financial statements to better understand our financial results.
Separation-related costs: To measure operating performance, we exclude certain separation-related costs that would not be incurred if we were not undertaking a separation of our Global Connect business from our Global Media business and positioning Global Connect and Global Media to operate as two independent companies. These costs include: third-party advisor costs, tax friction, technology related spend, and incremental costs of beginning to operate as two independent companies. We believe that exclusion of these costs will allow users of our financial statements to better understand our financial performance in 2020.
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. Adjusted EBITDA margin is Adjusted EBITDA for a particular period expressed as a percentage of revenues for that period.
We use Adjusted EBITDA to measure our performance from period to period both at the consolidated level as well as within our operating segments, to evaluate and fund incentive compensation programs and to compare our results to those of our competitors. In addition to Adjusted EBITDA being a significant measure of performance for management purposes, we also believe that this presentation provides useful information to investors regarding financial and business trends related to our results of operations and that when non-GAAP financial information is viewed with GAAP financial information, investors are provided with a more meaningful understanding of our ongoing operating performance.
Adjusted EBITDA should not be considered as an alternative to net income or loss, operating income/(loss), cash flows from operating activities or any other performance measures derived in accordance with GAAP as measures of operating performance or cash flows as measures of liquidity. 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. In addition, our definition of Adjusted EBITDA may not be comparable to similarly titled measures of other companies and may, therefore, have limitations as a comparative analytical tool.
- 37 -
The below table presents a reconciliation from net income to Adjusted EBITDA for the three months ended March 31, 2020 and 2019:
|
|
|
Three Months Ended |
|
|||||
|
(IN MILLIONS) |
|
2020 |
|
|
2019 |
|
||
|
Net income/(loss) attributable to Nielsen shareholders |
|
$ |
(18 |
) |
|
$ |
43 |
|
|
Interest expense, net |
|
|
93 |
|
|
|
97 |
|
|
(Benefit)/provision for income taxes |
|
|
11 |
|
|
|
32 |
|
|
Depreciation and amortization |
|
|
214 |
|
|
|
179 |
|
|
EBITDA |
|
|
300 |
|
|
|
351 |
|
|
Other non-operating (income)/expense, net |
|
|
12 |
|
|
|
2 |
|
|
Restructuring charges |
|
|
11 |
|
|
|
35 |
|
|
Share-based compensation expense |
|
|
16 |
|
|
|
15 |
|
|
Other items(a) |
|
|
21 |
|
|
|
12 |
|
|
Separation-related costs |
|
|
35 |
|
|
|
- |
|
|
Adjusted EBITDA |
|
$ |
395 |
|
|
$ |
415 |
|
|
|
|
(a) |
For the three months ended March 31, 2020, other items primarily consist of business optimization costs, and transaction related costs. For the three months ended March 31, 2019, other items primarily consist of business optimization costs, including strategic review costs, and transaction related costs. |
Consolidated Results for the Three Months Ended March 31, 2020 Compared to the Three Months Ended March 31, 2019
Revenues
Revenues decreased 0.3% to $1,559 million for the three months ended March 31, 2020 from $1,563 million for the three months ended March 31, 2019, or an increase of 1.5% on a constant currency basis. Revenues within our Connect segment decreased 2.7%, or an increase of 0.3% on a constant currency basis. Revenues within our Media segment increased 1.9%, or an increase of 2.6% on a constant currency basis. Refer to the “Business Segment Results for the Three Months Ended March 31, 2020 Compared to the Three Months Ended March 31, 2019” section for further discussion of our revenue performance.
Cost of Revenues, Exclusive of Depreciation and Amortization
Cost of revenues increased 3.7% to $721 million for the three months ended March 31, 2020 from $695 million for the three months ended March 31, 2019, or an increase of 5.3% on a constant currency basis.
Costs within our Connect segment increased 1.3%, or an increase of 3.4% on a constant currency basis. The increase in cost of revenues for the three months ended March 31, 2020 as compared to the three months ended March 31, 2019 was primarily due to global investments in our services, including retailer investments, partially offset by our productivity initiatives.
Costs within our Media segment increased 8.5%, or an increase of 9.2% on a constant currency basis. Cost of revenues increased primarily due to the impact of our investments and higher spending on product portfolio management initiatives, including data acquisition costs, partially offset by productivity initiatives.
Selling, General and Administrative Expenses, Exclusive of Depreciation and Amortization
Selling, general and administrative expenses increased 7.3% to $515 million for the three months ended March 31, 2020 from $480 million for the three months ended March 31, 2019, or an increase of 9.3% on a constant currency basis.
Costs within our Connect segment decreased 3.3%, or a decrease of 0.8% on a constant currency basis, primarily due to productivity initiatives.
Costs within our Media segment decreased 0.5%, or flat on a constant currency basis.
Costs within our Corporate segment increased 230% on a reported and constant currency basis, primarily due to separation-related costs relating to the separation of our Global Connect business from our Global Media business and positioning Global Connect and Global Media to operate as two independent companies.
- 38 -
Depreciation and Amortization
Depreciation and amortization expense was $214 million for the three months ended March 31, 2020 as compared to $179 million for the three months ended March 31, 2019. This increase was primarily due to higher depreciation and amortization expense associated with higher capital expenditures, partially offset by lower depreciation and amortization expense associated with tangible and intangible assets acquired in business combinations.
Depreciation and amortization expense associated with tangible and intangible assets acquired in business combinations decreased to $51 million for the three months ended March 31, 2020 from $54 million for the three months ended March 31, 2019.
Restructuring Charges
We recorded $11 million and $35 million in restructuring charges primarily related to employee severance costs associated with our plans to reduce selling, general and administrative expenses and consolidate operations centers, as well as automation initiatives for the three months ended March 31, 2020 and 2019, respectively.
Operating Income/(loss)
Operating income for the three months ended March 31, 2020 was $98 million as compared to $174 million for the three months ended March 31, 2019. Operating loss within our Connect segment was $15 million for the three months ended March 31, 2020 as compared to operating loss of $2 million for the three months ended March 31, 2019. Operating income within our Media segment was $191 million for the three months ended March 31, 2020 as compared to $214 million for the three months ended March 31, 2019. Corporate operating expenses were $78 million for the three months ended March 31, 2020 as compared to $38 million for the three months ended March 31, 2019. Refer to the “Business Segment Results for the Three Months Ended March 31, 2020 Compared to the Three Months Ended March 31, 2019” section for further discussion of our operating income.
Interest Expense
Interest expense was $94 million for the three months ended March 31, 2020, as compared to $99 million for the three months ended March 31, 2019. This decrease was primarily due to lower USD LIBOR senior secured term loan interest rates without hedged positions.
Foreign Currency Exchange Transaction Gains/(Losses), Net
Foreign currency exchange transaction losses, net, primarily represent the net loss on revaluation of intercompany loans and other receivables and payables denominated in currencies other than the respective entity’s functional currency. Fluctuations in the value of foreign currencies relative to the U.S. Dollar, primarily the Euro, have a significant effect on our operating results. The average U.S. Dollar to Euro exchange rate was $1.10 to €1.00 for the three months ended March 31, 2020, as compared to $1.14 to €1.00 for the three months ended March 31, 2019.
We realized net losses of $6 million and $3 million for the three months ended March 31, 2020 and 2019, respectively, resulting primarily from fluctuations in certain foreign currencies associated with intercompany transactions.
Other Income/(Expense), Net
Other expense, net of $1 million for the three months ended March 31, 2020, was primarily related to certain non-service related pension transactions.
Other income, net of $5 million for the three months ended March 31, 2019, was primarily related to a gain from the sale of a cost method investment and certain non-service related pension transactions.
Income Taxes
The effective tax rates before discrete tax items for the three months ended March 31, 2020 and 2019 were 47% ($1 million tax benefit) and 31% ($25 million tax expense), respectively. The tax rate for the three months ended March 31, 2020 was higher than the statutory rate as a result of the impact of tax rate differences in other jurisdictions where we file tax returns, BEAT tax, and withholding taxes offset by reversal of valuation allowance related to certain loss carryforwards. The tax rate for the three months ended March 31, 2019 was higher than the statutory rate as a result of the impact of tax rate differences in other jurisdictions where we file tax returns offset by the favorable impact of certain financing activities. For the three months ended March 31, 2020, the total tax expense was $11 million which includes impact of the CARES Act and other discrete items recognized in the first quarter. For the three months ended March 31, 2019, the total tax expense was $32 million which includes impact of interest on uncertain tax positions and other discrete items recognized in the first quarter.
- 39 -
The estimated liability for unrecognized tax benefits as of December 31, 2019 was $164 million. If our tax positions are favorably sustained by the taxing authorities, the reversal of the underlying liabilities would reduce our effective tax rate in future periods.
Adjusted EBITDA
Adjusted EBITDA decreased 4.8% to $395 million for the three months ended March 31, 2020 from $415 million for the three months ended March 31, 2019, or a decrease of 2.9% on a constant currency basis. See “Results of Operations – Three Months Ended March 31, 2020 Compared to the Three Months Ended March 31, 2019” for the reconciliation of net income/(loss) to Adjusted EBITDA.
Business Segment Results for the Three Months Ended March 31, 2020 Compared to the Three Months Ended March 31, 2019
Revenues
The table below sets forth our segment revenue performance data for the three months ended March 31, 2020 compared to the three months ended March 31, 2019, both on an as-reported and constant currency basis.
|
(IN MILLIONS) |
|
Three Months Ended |
|
|
Three Months Ended |
|
|
% Variance |
|
|
Three Months Ended |
|
|
% Variance Currency |
|
|||||
|
Measure |
|
$ |
510 |
|
|
|
539 |
|
|
|
(5.4 |
)% |
|
|
522 |
|
|
|
(2.3 |
)% |
|
Predict/Activate |
|
|
207 |
|
|
|
198 |
|
|
|
4.5 |
% |
|
|
193 |
|
|
|
7.3 |
% |
|
Connect Segment |
|
$ |
717 |
|
|
$ |
737 |
|
|
|
(2.7 |
)% |
|
$ |
715 |
|
|
|
0.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Audience Measurement |
|
$ |
615 |
|
|
|
605 |
|
|
|
1.7 |
% |
|
|
602 |
|
|
|
2.2 |
% |
|
Plan/Optimize |
|
|
227 |
|
|
|
221 |
|
|
|
2.7 |
% |
|
|
219 |
|
|
|
3.7 |
% |
|
Media Segment |
|
|
842 |
|
|
|
826 |
|
|
|
1.9 |
% |
|
|
821 |
|
|
|
2.6 |
% |
|
Total |
|
$ |
1,559 |
|
|
$ |
1,563 |
|
|
|
(0.3 |
)% |
|
$ |
1,536 |
|
|
|
1.5 |
% |
Connect Segment Revenues
Revenues decreased 2.7% to $717 million for the three months ended March 31, 2020 from $737 million for the three months ended March 31, 2019, or an increase of 0.3% on a constant currency basis. Revenues from Measure decreased 5.4% to $510 million, or a decrease of 2.3% on a constant currency basis, reflecting the impact of the COVID-19 pandemic on retail measurement services in markets that are heavy in traditional trade. Revenues from Predict/Activate increased 4.5% to $207 million, or an increase of 7.3% on a constant currency basis, primarily reflecting the January 2020 acquisition of Precima, along with strength in analytics and innovation, partially offset by pressure in custom insights which saw greater pressure from the COVID-19 pandemic.
Media Segment Revenues
Revenues increased 1.9% to $842 million for the three months ended March 31, 2020 from $826 million for the three months ended March 31, 2019 or an increase of 2.6% on a constant currency basis. Revenue growth was primarily driven by growth in Audience Measurement, which increased 1.7%, or an increase of 2.2% on a constant currency basis, primarily due to continued client adoption of our Total Audience Measurement system and growth in audio which was timing driven, partially offset by pressure in local television measurement. Plan/Optimize revenues increased 2.7%, or an increase of 3.7% on a constant currency basis, primarily due to growth in targeting solutions for consumer packaged goods clients and continued growth in Gracenote.
Business Segment Profitability
We do not allocate items below operating income/(loss) to our business segments and therefore the tables below set forth a reconciliation of operating income/(loss) at the business segment level for the three months ended March 31, 2020 and 2019, adjusting for certain items affecting operating income/(loss), such as restructuring charges, depreciation and amortization, share-based compensation expense and certain other items described below resulting in a presentation of our non-GAAP business segment profitability. Non-GAAP business segment profitability provides useful supplemental information to management and investors regarding financial and business trends related to our results of operations. When this non-GAAP financial information is viewed with our GAAP financial information, investors are provided with a meaningful understanding of our ongoing operating performance. It is important to note that the non-GAAP business segment profitability corresponds in total to our consolidated Adjusted EBITDA
- 40 -
described within our consolidated results of operations above, which our chief operating decision maker and other members of management use to measure our performance from period to period both at the consolidated level as well as within our operating segments, to evaluate and fund incentive compensation programs and to compare our results to those of our competitors. These non-GAAP measures should not be considered as an alternative to net income/(loss), operating income/(loss), cash flows from operating activities or any other performance measures derived in accordance with GAAP as measures of operating performance or cash flows as measures of liquidity. These non-GAAP measures may differ from similarly titled measures used by others and have important limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP.
|
(IN MILLIONS) |
|
Connect |
|
|
Media |
|
|
Corporate |
|
|
Total |
|
||||
|
Three Months Ended March 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income/(loss) |
|
$ |
(15 |
) |
|
$ |
191 |
|
|
$ |
(78 |
) |
|
$ |
98 |
|
|
Depreciation and amortization |
|
$ |
65 |
|
|
$ |
147 |
|
|
$ |
2 |
|
|
$ |
214 |
|
|
Restructuring charges |
|
$ |
8 |
|
|
$ |
1 |
|
|
$ |
2 |
|
|
$ |
11 |
|
|
Share-based compensation expense |
|
$ |
5 |
|
|
$ |
4 |
|
|
$ |
7 |
|
|
$ |
16 |
|
|
Other items(1) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
21 |
|
|
$ |
21 |
|
|
Separation-related costs(2) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
35 |
|
|
$ |
35 |
|
|
Non-GAAP Business segment income/(loss) |
|
$ |
63 |
|
|
$ |
343 |
|
|
$ |
(11 |
) |
|
$ |
395 |
|
|
(IN MILLIONS) |
|
|
Connect |
|
|
|
Media |
|
|
|
Corporate |
|
|
|
Total |
|
|
Three Months Ended March 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income/(loss) |
|
$ |
(2 |
) |
|
$ |
214 |
|
|
$ |
(38 |
) |
|
$ |
174 |
|
|
Depreciation and amortization |
|
$ |
55 |
|
|
$ |
123 |
|
|
$ |
1 |
|
|
$ |
179 |
|
|
Restructuring charges |
|
$ |
22 |
|
|
$ |
7 |
|
|
$ |
6 |
|
|
$ |
35 |
|
|
Share-based compensation expense |
|
$ |
4 |
|
|
$ |
3 |
|
|
$ |
8 |
|
|
$ |
15 |
|
|
Other items(1) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
12 |
|
|
$ |
12 |
|
|
Non-GAAP Business segment income/(loss) |
|
$ |
79 |
|
|
$ |
347 |
|
|
$ |
(11 |
) |
|
$ |
415 |
|
|
|
(1) |
For the three months ended March 31, 2020, other items primarily consist of business optimization costs and transaction related costs. For the three months ended March 31, 2019, other items primarily consist of business optimization costs, including strategic review costs, and transaction related costs. |
|
|
(2) |
Separation-related costs consists of costs that would not have been incurred if we were not undertaking the separation of the Nielsen Global Connect business from the Nielsen Global Media business and positioning Global Connect and Global Media to operate as two independent companies. |
|
(IN MILLIONS) |
|
Three |
|
|
Three |
|
|
% Variance |
|
|
Three |
|
|
% Variance |
|
|||||
|
Non-GAAP Business Segment Income/(Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Connect |
|
$ |
63 |
|
|
$ |
79 |
|
|
|
(20.3 |
)% |
|
$ |
72 |
|
|
|
(12.5 |
)% |
|
Media |
|
|
343 |
|
|
|
347 |
|
|
|
(1.2 |
)% |
|
|
346 |
|
|
|
(0.9 |
)% |
|
Corporate and Eliminations |
|
|
(11 |
) |
|
|
(11 |
) |
|
|
NM |
|
|
|
(11 |
) |
|
|
NM |
|
|
Total Nielsen |
|
$ |
395 |
|
|
$ |
415 |
|
|
|
(4.8 |
)% |
|
$ |
407 |
|
|
|
(2.9 |
)% |
Connect Segment Profitability
Operating loss was $15 million for the three months ended March 31, 2020 as compared to operating loss of $2 million for the three months ended March 31, 2019. The decrease was primarily due to the revenue performance discussed above, higher depreciation and amortization expense and our continued global investments in our services, including retailer investments, partially offset by lower restructuring charges for the three months ended March 31, 2020. Non-GAAP business segment income decreased 12.5% on a constant currency basis.
Media Segment Profitability
Operating income was $191 million for the three months ended March 31, 2020 as compared to $214 million for the three months ended March 31, 2019. The decrease was primarily due to an increase in depreciation and amortization expense as well the impact of our investments and higher spending on product portfolio management initiatives, including data acquisition costs, partially
- 41 -
offset by the revenue performance discussed above and a decrease in restructuring charges for the three months ended March 31, 2020. Non-GAAP business segment income decreased 0.9% on a constant currency basis.
Corporate Expenses and Eliminations
Operating expenses were $78 million for the three months ended March 31, 2020 as compared to $38 million for the three months ended March 31, 2019. The increase was primarily due to separation-related costs for the three months ended March 31, 2020.
Liquidity and Capital Resources
Overview
Cash flows from operations were $(5) million for the three months ended March 31, 2020, as compared to $(43) million for the three months ended March 31, 2019, an increase of $38 million primarily due to working capital timing and lower interest payments, partially offset by the Adjusted EBITDA performance discussed above, higher employee annual incentive payments and higher income tax payments.
We provide for additional liquidity through several sources including maintaining an adequate cash balance, access to global funding sources and a committed revolving credit facility. The following table provides a summary of the major sources of liquidity as of and for the three months ended March 31, 2020 and 2019:
|
(IN MILLIONS) |
|
Three |
|
|
Three |
|
||
|
Net cash from operating activities |
|
$ |
(5 |
) |
|
$ |
(43 |
) |
|
Cash and cash equivalents |
|
$ |
359 |
|
|
$ |
402 |
|
|
Availability under Revolving credit facility |
|
$ |
698 |
|
|
$ |
571 |
|
Of the $359 million in cash and cash equivalents, approximately $312 million was held in jurisdictions outside the U.S. and as a result, there may be tax consequences if such amounts were moved out of these jurisdictions or repatriated to the U.S. We regularly review the amount of cash and cash equivalents held outside of the U.S. to determine the amounts necessary to fund the current operations of our foreign operations and their growth initiatives and amounts needed to service our U.S. indebtedness and related obligations.
The below table illustrates our weighted average interest rate and cash paid for interest over the three months ended March 31, 2020 and 2019.
|
|
|
Three |
|
|
Three |
|
||
|
Weighted average interest rate |
|
|
4.09 |
% |
|
|
4.70 |
% |
|
Cash paid for interest, net of amounts capitalized (in millions) |
|
$ |
50 |
|
|
$ |
55 |
|
Our contractual obligations, commitments and debt service requirements over the next several years are significant. We believe we will have available resources to meet both our short-term and long-term liquidity requirements, including our senior secured debt service. We expect the cash flow from our operations, combined with existing cash and amounts available under the revolving credit facility, will provide sufficient liquidity to fund our current obligations, projected working capital requirements, restructuring obligations, dividend payments and capital spending over the next year. In addition, we may, from time to time, purchase, repay, redeem or retire any of our outstanding debt securities (including any publicly issued debt securities) in privately negotiated or open market transactions, by tender offer or otherwise.
Our $800 million 4.50% senior debenture loan matures in October 2020 and, as of March 31, 2020, there was approximately $817 million of outstanding principal and interest payable thereunder. We believe that it is probable that it will be able to refinance this debt prior to maturity.
Financial Debt Covenants Attributable to The Nielsen Company B.V.
The Fifth Amended and Restated Credit Agreement (the “Amended Credit Agreement”) contains a financial covenant consisting of a maximum leverage ratio applicable to our indirect wholly-owned subsidiary, Nielsen Holding and Finance B.V. and its restricted subsidiaries. The leverage ratio requires that we not permit the ratio of total net debt (as defined in the Amended Credit Agreement) at
- 42 -
the end of any calendar quarter to Consolidated EBITDA (as defined in the Amended Credit Agreement) for the four quarters then ended to exceed a specified threshold. The maximum permitted ratio is 5.50 to 1.00.
Failure to comply with this financial covenant would result in an event of default under our Amended Credit Agreement unless waived by our senior credit lenders. An event of default under our Amended Credit Agreement can result in the acceleration of our indebtedness under the facilities, which in turn would result in an event of default and possible acceleration of indebtedness under the agreements governing our debt securities as well. As our failure to comply with the financial covenant described above can cause us to go into default under the agreements governing our indebtedness, management believes that our Amended Credit Agreement and this covenant are material to us. As of March 31, 2020, we were in full compliance with the financial covenant described above.
Revolving Credit Facility
The Amended Credit Agreement contains a senior secured revolving credit facility with aggregate revolving credit commitments of $850 million and a final maturity of July 2023 under which Nielsen Finance LLC, TNC (US) Holdings, Inc., and Nielsen Holding and Finance B.V. can borrow revolving loans. The revolving credit facility can also be used for letters of credit, guarantees and swingline loans.
The senior secured revolving credit facility is provided under the Amended Credit Agreement and so contains covenants and restrictions as noted above with respect to the Amended Credit Agreement. Obligations under the revolving credit facility are guaranteed by the same entities that guarantee obligations under the Amended Credit Agreement.
As of March 31, 2020 and 2019, we had $135 million and $263 million borrowings outstanding and had outstanding letters of credit of $17 million and $16 million, respectively. As of March 31, 2020, we had $698 million available for borrowing under the revolving credit facility.
Dividends and Share Repurchase Program
We continue to drive shareholder value through our quarterly cash dividend policy which was adopted by our Board of Directors ("Board") in 2013. Under this plan we have paid $21 million and $124 million in cash dividends during the years ended March 31, 2020 and 2019, respectively. Any decision to declare and pay dividends in the future will be made at the discretion of our Board and will be subject to the Board’s continuing determination that the dividend policy and the declaration of dividends thereunder are in the best interests of our shareholders, and are in compliance with all laws and agreements to which we are subject. The below table summarizes the dividends declared on our common stock during 2019 and the three months ended March 31, 2020.
|
|
Declaration Date |
|
|
Record Date |
|
|
Payment Date |
|
|
Dividend Per Share |
|
||||
|
|
|
February 21, 2019 |
|
|
|
March 7, 2019 |
|
|
|
March 21, 2019 |
|
|
$ |
0.35 |
|
|
|
|
April 18, 2019 |
|
|
|
June 5, 2019 |
|
|
|
June 19, 2019 |
|
|
$ |
0.35 |
|
|
|
|
July 18, 2019 |
|
|
|
August 22, 2019 |
|
|
|
September 5, 2019 |
|
|
$ |
0.35 |
|
|
|
|
November 3, 2019 |
|
|
|
November 21, 2019 |
|
|
|
December 5, 2019 |
|
|
$ |
0.06 |
|
|
|
|
February 20, 2020 |
|
|
|
March 5, 2020 |
|
|
|
March 19, 2020 |
|
|
$ |
0.06 |
|
On April 16, 2020, our Board declared a cash dividend of $0.06 per share on our common stock. The dividend is payable on June 18, 2020 to shareholders of record at the close of business on June 4, 2020.
Our Board approved a share repurchase program, as included in the below table, for up to $2 billion of our outstanding common stock. The primary purpose of the program is to return value to shareholders and to mitigate dilution associated with our equity compensation plans.
|
Board Approval |
|
Share Repurchase Authorization ($ in millions) |
|
|
July 25, 2013 |
|
$ |
500 |
|
October 23, 2014 |
|
$ |
1,000 |
|
December 11, 2015 |
|
$ |
500 |
|
Total Share Repurchase Authorization |
|
$ |
2,000 |
Repurchases under this program will be made in accordance with applicable securities laws from time to time and depending on our evaluation of market conditions and other factors. This program has been executed within the limitations of the authority
- 43 -
granted us on August 6, 2015, which authority will expire in August 2020. We are seeking shareholder authorization to extend the authority under which the share repurchase program is executed at its 2020 Annual General Meeting of Shareholders.
As of March 31, 2020, there were 39,426,521 shares of our common stock purchased at an average price of $44.95 per share (total consideration of approximately $1,772 million) under this program. There were no share repurchases for the three months ended March 31, 2020.
Cash Flows
Operating activities. Net cash used in operating activities was $5 million for the three months ended March 31, 2020, as compared to $43 million used in operating activities for the three months ended March 31, 2019. This decrease in net cash used in operating activities was primarily due to working capital timing and lower interest payments, partially offset by the Adjusted EBITDA performance discussed above, higher employee annual incentive payments and higher income tax payments. Our key collections performance measure, days billing outstanding (“DBO”), decreased by two days as compared to the same period last year.
Investing activities. Net cash used in investing activities was $142 million for the three months ended March 31, 2020, as compared to $180 million for the three months ended March 31, 2019. The primary drivers for the decrease were lower acquisition payments and lower additions of property plant and equipment and intangible assets during the three months ended March 31, 2020 as compared to the same period for 2019.
Financing activities. Net cash provided by financing activities was $82 million for the three months ended March 31, 2020 as compared to $104 million for the three months ended March 31, 2019. The decrease in net cash provided by financing activities was primarily due to lower net borrowings of the revolving credit facility, partially offset by lower dividends payments as described in the “Dividends and Share Repurchase Program” section above, during the three months ended March 31, 2020 as compared to the same period for 2019.
Capital Expenditures
Investments in property, plant, equipment, software and other assets totaled $112 million for the three months ended March 31, 2020 as compared to $122 million for the three months ended March 31, 2019.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that currently have or are reasonably likely to have a material effect on our consolidated financial condition, changes in financial condition, results of operations, liquidity, capital expenditures or capital resources.
Summary of Recent Accounting Pronouncements
.
Financial Instruments – Credit Losses
Effective January 1, 2020, we adopted ASU, “Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments”. The standard significantly changes how entities measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard replaced the “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. For available-for-sale debt securities, entities are required to record allowances rather than reduce the carrying amount under the other-than-temporary impairment model. It also simplifies the accounting model for purchased credit-impaired debt securities and loans. Upon adoption, this new standard did not have a significant impact on our consolidated balance sheets and statements of operations.
Compensation-Retirement Benefits-Defined Benefit Plans-General
In August 2018, the FASB issued ASU No. 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20), which amends the current disclosure requirements regarding defined benefit pensions and other post retirement plans, and allows for the removal of certain disclosures, while adding certain new disclosure requirements. This standard is effective for fiscal years beginning after December 15, 2020 and allows for early adoption. We do not expect this new standard to have a significant impact on our disclosures.
Income Taxes (Topic 740): Simplifying the Accounting for Income taxes
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes which amends and aims to simplify accounting disclosure requirements regarding a number of topics including: intraperiod tax
- 44 -
allocation, accounting for deferred taxes when there are changes in consolidation of certain investments, tax basis step up in an acquisition and the application of effective rate changes during interim periods, amongst other improvements. This standard is effective for fiscal years beginning after December 15, 2020 and allows for early adoption. We are assessing the impact of this new standard on our consolidated balance sheets, statements of operations and our future disclosures.
Reference Rate Reform-Facilitation of the Effects of Reference Rate Reform on Financial Reporting
On March 12, 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) 2020-04, Reference Rate Reform (“ASC 848”): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASC 848 contains optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform. The provisions of ASC 848 must be applied at a Topic, Subtopic or Industry Subtopic for all transactions other than derivatives, which may be applied at a hedging relationship level.
Commitments and Contingencies
Legal Proceedings and Contingencies
In August 2018, a putative shareholder class action lawsuit was filed in the Southern District of New York, naming as defendants Nielsen, former Chief Executive Officer Dwight Mitchell Barns, and former Chief Financial Officer Jamere Jackson. Another lawsuit, which alleged similar facts but also named other Nielsen officers, was filed in the Northern District of Illinois in September 2018 and transferred to the Southern District of New York in December 2018. The actions were consolidated on April 22, 2019, and the Public Employees’ Retirement System of Mississippi was appointed lead plaintiff for the putative class. The operative complaint was filed on September 27, 2019, and asserts violations of certain provisions of the Securities Exchange Act of 1934, as amended, based on allegedly false and materially misleading statements relating to the outlook of Nielsen’s Buy (now “Connect”) segment, Nielsen’s preparedness for changes in global data privacy laws and Nielsen’s reliance on third-party data. Nielsen moved to dismiss the operative complaint on November 26, 2019. Briefing of Nielsen’s motion concluded on February 26, 2020. In addition, in January 2019, a shareholder derivative lawsuit was filed in New York Supreme Court against a number of Nielsen’s current and former officers and directors. The derivative lawsuit alleges that the named officers and directors breached their fiduciary duties to the Company in connection with factual assertions substantially similar to those in the putative class action complaint. The derivative lawsuit further alleges that certain officers and directors engaged in trading Nielsen stock based on material, nonpublic information. By agreement dated June 26, 2019, the derivative lawsuit has been stayed pending resolution of Nielsen’s motion to dismiss the aforementioned securities litigation. Nielsen intends to defend these lawsuits vigorously. Based on currently available information, Nielsen believes that the Company has meritorious defenses to these actions and that their resolution is not likely to have a material adverse effect on Nielsen’s business, financial position, or results of operations.
We are subject to litigation and other claims in the ordinary course of business, some of which include claims for substantial sums. Accruals have been recorded when the outcome is probable and can be reasonably estimated. While the ultimate results of claims and litigation cannot be determined, we expect that the ultimate disposition of these matters will not have a material adverse effect on our operations or financial condition. However, depending on the amount and the timing, an unfavorable resolution of some or all of these matters could materially affect our future results of operations or cash flows in a particular period.
Other Contractual Obligations
Our other contractual obligations include capital lease obligations (including interest portion), facility leases, leases of certain computer and other equipment, agreements to purchase data and telecommunication services and the payment of principal and interest on debt and pension fund obligations.
|
Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
Market risk is the potential loss arising from adverse changes in market rates and market prices such as interest rates, foreign currency exchange rates, and changes in the market value of equity instruments. We are exposed to market risk, primarily related to foreign exchange and interest rates. We actively monitor these exposures. Historically, in order to manage the volatility relating to these exposures, we entered into a variety of derivative financial instruments, mainly interest rate swaps, cross-currency swaps and forward rate agreements. Currently we only employ basic contracts, that is, without options, embedded or otherwise. Our objective is to reduce, where it is deemed appropriate to do so, fluctuations in earnings, cash flows and the value of our net investments in subsidiaries resulting from changes in interest rates and foreign currency rates. It is our policy not to trade in financial instruments for speculative purposes.
Foreign Currency Exchange Risk
We operate globally and predominantly generate revenues and expenses in local currencies. Approximately 40% of our revenues and 39% of our operating costs were generated in currencies other than the U.S. Dollar for the three months ended March 31,
- 45 -
2020. Because of fluctuations (including possible devaluations) in currency exchange rates or the imposition of limitations on conversion of foreign currencies into our reporting currency, we are subject to currency translation exposure on the profits of our operations, in addition to transaction exposure. Typically, a one cent change in the U.S. Dollar/Euro exchange rate, holding all other currencies constant, will impact revenues by approximately $6 million annually, with an immaterial impact on our profitability.
For the quarters ended March 31, 2020 and 2019, we recorded a net loss of $3 million and a net gain of $1 million, respectively, associated with foreign currency derivative financial instruments within foreign currency exchange transactions gains/(losses), net in our condensed consolidated statements of operations. As of March 31, 2020 and December 31, 2019, the notional amounts of outstanding foreign currency derivative financial instruments were $100 million and $125 million, respectively.
The table below details the percentage of revenues and expenses by currency for the three months ended March 31, 2020:
|
|
|
|
U.S. Dollar |
|
|
|
Euro |
|
|
|
Other Currencies |
|
|
Revenues |
|
|
60 |
% |
|
|
10 |
% |
|
|
30 |
% |
|
Operating costs |
|
|
61 |
% |
|
|
10 |
% |
|
|
29 |
% |
Interest Rate Risk
We continually review our fixed and variable rate debt along with related hedging opportunities in order to ensure our portfolio is appropriately balanced as part of our overall interest rate risk management strategy. At March 31, 2020, we had $4,064 million in carrying value of floating-rate debt under our senior secured credit facilities of which $2,050 million was subject to effective floating-fixed interest rate swaps. A one percent increase in interest rates applied to our floating rate indebtedness would therefore increase annual interest expense by approximately $20 million ($41 million without giving effect to any of our interest rate swaps).
Derivative instruments involve, to varying degrees, elements of non-performance, or credit risk. We do not believe that we currently face a significant risk of loss in the event of non-performance by the counterparties associated with these instruments, as these transactions were executed with a diversified group of major financial institutions with a minimum investment-grade or better credit rating. Our credit risk exposure is managed through the continuous monitoring of our exposures to such counterparties.
Equity Price Risk
We are not exposed to material equity price risk.
|
Item 4. |
Controls and Procedures |
|
(a) |
Evaluation of Disclosure Controls and Procedures |
The Company maintains disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in the reports that the Company files or submits to the SEC under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures as of March 31, 2020 (the “Evaluation Date”). Based on such evaluation and subject to the foregoing, such officers have concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures are effective at the reasonable assurance level.
|
(b) |
Changes in Internal Control over Financial Reporting |
There have been no changes in the Company’s internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
- 46 -
PART II. OTHER INFORMATION
|
Item 1. |
Legal Proceedings |
In August 2018, a putative shareholder class action lawsuit was filed in the Southern District of New York, naming as defendants Nielsen, former Chief Executive Officer Dwight Mitchell Barns, and former Chief Financial Officer Jamere Jackson. Another lawsuit, which alleged similar facts but also named other Nielsen officers, was filed in the Northern District of Illinois in September 2018 and transferred to the Southern District of New York in December 2018. The actions were consolidated on April 22, 2019, and the Public Employees’ Retirement System of Mississippi was appointed lead plaintiff for the putative class. The operative complaint was filed on September 27, 2019, and asserts violations of certain provisions of the Securities Exchange Act of 1934, as amended, based on allegedly false and materially misleading statements relating to the outlook of Nielsen’s Buy (now “Connect”) segment, Nielsen’s preparedness for changes in global data privacy laws and Nielsen’s reliance on third-party data. Nielsen moved to dismiss the operative complaint on November 26, 2019. Briefing of Nielsen’s motion concluded on February 26, 2020. In addition, in January 2019, a shareholder derivative lawsuit was filed in New York Supreme Court against a number of Nielsen’s current and former officers and directors. The derivative lawsuit alleges that the named officers and directors breached their fiduciary duties to the Company in connection with factual assertions substantially similar to those in the putative class action complaint. The derivative lawsuit further alleges that certain officers and directors engaged in trading Nielsen stock based on material, nonpublic information. By agreement dated June 26, 2019, the derivative lawsuit has been stayed pending resolution of Nielsen’s motion to dismiss the aforementioned securities litigation. Nielsen intends to defend these lawsuits vigorously. Based on currently available information, Nielsen believes that the Company has meritorious defenses to these actions and that their resolution is not likely to have a material adverse effect on Nielsen’s business, financial position, or results of operations.
We are subject to litigation and other claims in the ordinary course of business, some of which include claims for substantial sums. Accruals have been recorded when the outcome is probable and can be reasonably estimated. While the ultimate results of claims and litigation cannot be determined, we expect that the ultimate disposition of these matters will not have a material adverse effect on our operations or financial condition. However, depending on the amount and the timing, an unfavorable resolution of some or all of these matters could materially affect our future results of operations or cash flows in a particular period.
|
Item 1A. |
Risk Factors |
There have been no material changes to our Risk Factors as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019 other than as set forth below, which, along with the Risk Factors previously disclosed, could materially adversely affect our business, financial condition and results of operations. Additional risks and uncertainties that are not presently known to us or that we deem immaterial may also impair our business operations and financial condition.
Our operations are vulnerable to the effects of epidemics, such as COVID-19, which has and is expected to continue to adversely affect our business.
We are vulnerable to the general economic effects of epidemics and other public health crises, including the ongoing novel coronavirus (“COVID-19”) outbreak that has spread throughout the world and has been declared a pandemic by the World Health Organization. Due to the recent outbreak of COVID-19, there has been a substantial curtailment of business activities in many countries around the world, which is affecting and may continue to affect our ability to conduct fieldwork, operate call centers, and other services that require manual data collection. In addition, we have closed numerous offices and personnel are working from home where possible, which is and may continue to affect overall business performance. The risk is particularly pronounced in the Connect business where our teams need to visit traditional stores to collect information where electronic data transmission is not possible, where the services rely on call centers, and where we need to conduct face to face consumer research interviews. With respect to the Media business, because our measurement services require Nielsen to recruit new panelist households and interact with existing panelists to install metering equipment, over time the pandemic and related “stay at home” orders may adversely affect Nielsen’s audio and television ratings and measurement services. Further, the COVID-19 pandemic could have a negative impact on our business if clients decide to cut back or delay their spending, or declare bankruptcy in light of poor business performance due to the pandemic. If the pandemic is not contained or otherwise continues, it will have a material adverse effect on our business, results of operations and financial position.
|
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
Unregistered Sales of Equity Securities
There were no unregistered sales of our common stock during the three months ended March 31, 2020.
- 47 -
Purchases of Equity Securities by the Issuer
There were no share repurchases during the three months ended March 31, 2020.
Our Board approved a share repurchase program for up to $2 billion of our outstanding common stock on the dates indicated under Part 1- Item 2- Management’s Discussion and Analysis of Financial Condition and Results of Operations- Liquidity and Capital Resources- Dividends and Share Repurchase Program.
|
Item 3. |
Defaults Upon Senior Securities |
Not applicable.
|
Item 4. |
Mine Safety Disclosures |
Not applicable.
|
Item 5. |
Other Information |
Not applicable
|
Item 6. |
Exhibits |
- 48 -
EXHIBIT INDEX
|
Exhibit Number |
|
Description of Exhibits |
|
|
|
|
|
10.1*† |
|
|
|
|
|
|
|
10.2*† |
|
|
|
|
|
|
|
31.1* |
|
|
|
|
|
|
|
31.2* |
|
|
|
|
|
|
|
32.1* |
|
|
|
|
|
|
|
101* |
|
The following financial information from Nielsen Holdings plc’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, formatted in iXBRL includes: (i) Condensed Consolidated Statements of Operations (Unaudited) for the three months ended March 31, 2020 and 2019, (ii) Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the three months ended March 31, 2020 and 2019, (iii) Condensed Consolidated Balance Sheets at March 31, 2020 (Unaudited) and December 31, 2019, (iv) Condensed Consolidated Statements of Cash Flows (Unaudited) for the three months ended March 31, 2020 and 2019, and (v) Condensed Consolidated Statements of Changes in Equity for the three months ended March 31, 2020 and 2019, (vi) the Notes to Condensed Consolidated Financial Statements. |
|
|
|
|
|
104* |
|
Cover Page Interactive Data File (embedded within the Inline XBRL and included in Exhibit 101) |
|
* |
Filed or furnished herewith |
† Management contract or compensatory plan in which directors and/or executive officers are eligible to participate.
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.
- 49 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
Nielsen Holdings plc (Registrant) |
|
|
|
|
|
Date: April 30, 2020 |
|
/s/ Christopher Taft |
|
|
|
Christopher Taft Senior Vice President and Corporate Controller (Duly Authorized Officer and Principal Accounting Officer) |
- 50 -