Form 10-Q Nielsen Holdings plc For: Mar 31

April 30, 2019 7:09 AM

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

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

For the quarterly period ended March 31, 2019

OR

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

For the transition period from _______ to _______

Commission file number 001-35042

 

Nielsen Holdings plc

(Exact name of registrant as specified in its charter)

 

 

England and Wales

 

98-1225347

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

85 Broad Street

New York, New York 10004

(646) 654-5000

 

Nielsen House

John Smith Drive

Oxford

Oxfordshire, OX4 2WB

United Kingdom

+1 (646) 654-5000

(Address of principal executive offices) (Zip Code) (Registrant’s telephone numbers including area code)

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

 Title of each class

 

Name of each exchange on which registered and trading symbol

Ordinary shares, par value €0.07 per share

 

New York Stock Exchange (“NLSN”)

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically 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).    Yes      No  

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

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

  

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

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

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

There were 355,494,014 shares of the registrant’s Common Stock outstanding as of March 31, 2019.

 

 

 

 


Table of Contents

Contents

 

 

 

 

PAGE

PART I.

 

FINANCIAL INFORMATION

- 3 -

Item 1.

 

Condensed Consolidated Financial Statements

- 3 -

Item 2.

 

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

- 31 -

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

- 43 -

Item 4.

 

Controls and Procedures

- 44 -

PART II.

 

OTHER INFORMATION

- 45 -

Item 1.

 

Legal Proceedings

- 45 -

Item 1A.

 

Risk Factors

- 45 -

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

- 45 -

Item 3.

 

Defaults Upon Senior Securities

- 45 -

Item 4.

 

Mine Safety Disclosures

- 45 -

Item 5.

 

Other Information

- 45 -

Item 6.

 

Exhibits

- 46 -

 

 

Signatures

- 48 -

 

 

 


PART I. FINANCIAL INFORMATION

 

Item  1.

Condensed Consolidated Financial Statements

 

Nielsen Holdings plc

Condensed Consolidated Statements of Operations (Unaudited)

 

 

 

Three Months Ended

 

 

 

 

March 31,

 

 

(IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)

 

2019

 

 

2018

 

 

Revenues

 

$

1,563

 

 

$

1,610

 

 

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

 

 

695

 

 

 

719

 

 

Selling, general and administrative expenses, exclusive of depreciation and amortization

   shown separately below

 

 

480

 

 

 

493

 

 

Depreciation and amortization

 

 

179

 

 

 

167

 

 

Restructuring charges

 

 

35

 

 

 

24

 

 

Operating income

 

 

174

 

 

 

207

 

 

Interest income

 

 

2

 

 

 

2

 

 

Interest expense

 

 

(99

)

 

 

(96

)

 

Foreign currency exchange transaction gains/(losses), net

 

 

(3

)

 

 

 

 

Other income/(expense), net

 

 

5

 

 

1

 

 

Income/(loss) from continuing operations before income taxes

 

 

79

 

 

 

114

 

 

Benefit/(provision) for income taxes

 

 

(32

)

 

 

(39

)

 

Net income/(loss)

 

 

47

 

 

 

75

 

 

Net income/(loss) attributable to noncontrolling interests

 

 

4

 

 

 

3

 

 

Net income/(loss) attributable to Nielsen shareholders

 

$

43

 

 

$

72

 

 

Net income/(loss) per share of common stock, basic

 

 

 

 

 

 

 

 

 

Net income/(loss) attributable to Nielsen shareholders

 

$

0.12

 

 

$

0.20

 

 

Net income/(loss) per share of common stock, diluted

 

 

 

 

 

 

 

 

 

Net income/(loss) attributable to Nielsen shareholders

 

$

0.12

 

 

$

0.20

 

 

Weighted-average shares of common stock outstanding, basic

 

 

355,444,756

 

 

 

356,460,561

 

 

Dilutive shares of common stock

 

 

912,327

 

 

 

813,254

 

 

Weighted-average shares of common stock outstanding, diluted

 

 

356,357,083

 

 

 

357,273,815

 

 

Dividends declared per common share

 

$

0.35

 

 

$

0.34

 

 

 

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)

 

 

 

Three Months Ended

 

 

 

 

March 31,

 

 

(IN MILLIONS)

 

2019

 

 

2018

 

 

Net income/(loss)

 

$

47

 

 

$

75

 

 

Other comprehensive income/(loss), net of tax

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments (1)

 

 

11

 

 

 

41

 

 

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

 

 

(9

)

 

 

11

 

 

Defined benefit pension plan adjustments (3)

 

 

4

 

 

 

4

 

 

Total other comprehensive income/(loss)

 

 

6

 

 

 

56

 

 

Total comprehensive income/(loss)

 

 

53

 

 

 

131

 

 

Less: comprehensive income/(loss) attributable to noncontrolling interests

 

 

4

 

 

 

5

 

 

Total comprehensive income/(loss) attributable to Nielsen shareholders

 

$

49

 

 

$

126

 

 

 

(1)

Net of tax of $(4) million and $3 million for the three months ended March 31, 2019 and 2018, respectively

(2)

Net of tax of $3 million and $(4) million for the three months ended March 31, 2019 and 2018, respectively

(3)

Net of tax of $(1) million for each of the three months ended March 31, 2019 and 2018

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

 

 

- 4 -


Nielsen Holdings plc

Condensed Consolidated Balance Sheets

 

 

 

March 31,

 

 

December 31,

 

(IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)

 

2019

 

 

2018

 

 

 

(Unaudited)

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

402

 

 

$

524

 

Trade and other receivables, net of allowances for doubtful accounts and sales returns of $27 and $31 as of March 31, 2019 and December 31, 2018, respectively

 

 

1,221

 

 

 

1,118

 

Prepaid expenses and other current assets

 

 

424

 

 

 

361

 

Total current assets

 

 

2,047

 

 

 

2,003

 

Non-current assets

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

473

 

 

 

468

 

Operating lease right-of-use asset

 

 

506

 

 

 

-

 

Goodwill

 

 

7,009

 

 

 

6,987

 

Other intangible assets, net

 

 

5,020

 

 

 

5,024

 

Deferred tax assets

 

 

334

 

 

 

333

 

Other non-current assets

 

 

353

 

 

 

364

 

Total assets

 

$

15,742

 

 

$

15,179

 

Liabilities and equity:

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable and other current liabilities

 

$

1,071

 

 

$

1,119

 

Deferred revenues

 

 

376

 

 

 

355

 

Income tax liabilities

 

 

85

 

 

 

76

 

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

 

 

385

 

 

 

107

 

Total current liabilities

 

 

1,917

 

 

 

1,657

 

Non-current liabilities

 

 

 

 

 

 

 

 

Long-term debt and finance lease obligations

 

 

8,242

 

 

 

8,280

 

Deferred tax liabilities

 

 

1,100

 

 

 

1,108

 

Operating lease liabilities

 

 

468

 

 

 

-

 

Other non-current liabilities

 

 

1,026

 

 

 

1,091

 

Total liabilities

 

 

12,753

 

 

 

12,136

 

Commitments and contingencies (Note 13)

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

 

Nielsen shareholders’ equity

 

 

 

 

 

 

 

 

Common stock, €0.07 par value, 1,185,800,000 and 1,185,800,000 shares authorized; 355,501,298 and 355,323,822 shares issued and 355,494,014 and 355,271,737 shares outstanding at March 31, 2019 and December 31, 2018, respectively

 

 

32

 

 

 

32

 

Additional paid-in capital

 

 

4,614

 

 

 

4,720

 

Retained earnings/(accumulated deficit)

 

 

(752

)

 

 

(795

)

Accumulated other comprehensive loss, net of income taxes

 

 

(1,104

)

 

 

(1,110

)

Total Nielsen shareholders’ equity

 

 

2,790

 

 

 

2,847

 

Noncontrolling interests

 

 

199

 

 

 

196

 

Total equity

 

 

2,989

 

 

 

3,043

 

Total liabilities and equity

 

$

15,742

 

 

$

15,179

 

 

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

 

 

- 5 -


Nielsen Holdings plc

Condensed Consolidated Statements of Cash Flows (Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

(IN MILLIONS)

 

2019

 

 

2018

 

Operating Activities

 

 

 

 

 

 

 

 

Net income/(loss)

 

$

47

 

 

$

75

 

Adjustments to reconcile net income/(loss) to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Share-based compensation expense

 

 

15

 

 

 

13

 

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

 

 

(2

)

 

 

-

 

Depreciation and amortization

 

 

179

 

 

 

167

 

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

 

 

 

 

 

 

 

 

Trade and other receivables, net

 

 

(115

)

 

 

(110

)

Prepaid expenses and other assets

 

 

(50

)

 

 

(123

)

Accounts payable and other current liabilities and deferred revenues

 

 

(130

)

 

 

(179

)

Other non-current liabilities

 

 

(21

)

 

 

(2

)

Interest payable

 

 

44

 

 

 

45

 

Income taxes

 

 

(10

)

 

 

(3

)

Net cash provided by/(used in ) operating activities

 

 

(43

)

 

 

(117

)

Investing Activities

 

 

 

 

 

 

 

 

Acquisition of subsidiaries and affiliates, net of cash acquired

 

 

(59

)

 

 

(2

)

Additions to property, plant and equipment and other assets

 

 

(30

)

 

 

(26

)

Additions to intangible assets

 

 

(92

)

 

 

(102

)

Other investing activities

 

 

1

 

 

 

(2

)

Net cash used in by investing activities

 

 

(180

)

 

 

(132

)

Financing Activities

 

 

 

 

 

 

 

 

Net borrowings under revolving credit facility

 

263

 

 

 

195

 

Repayment of debt

 

 

(14

)

 

 

(8

)

Cash dividends paid to shareholders

 

 

(124

)

 

 

(121

)

Repurchase of common stock

 

 

-

 

 

 

(20

)

Activity from share-based compensation plans

 

 

(3

)

 

 

14

 

Proceeds from employee stock purchase plan

 

 

1

 

 

 

1

 

Finance leases

 

 

(16

)

 

 

(19

)

Other financing activities

 

 

(3

)

 

 

(2

)

Net cash provided by/(used in) financing activities

 

 

104

 

 

 

40

 

Effect of exchange-rate changes on cash and cash equivalents

 

 

(3

)

 

 

15

 

Net increase/(decrease) in cash and cash equivalents

 

 

(122

)

 

 

(194

)

Cash and cash equivalents at beginning of period

 

 

524

 

 

 

656

 

Cash and cash equivalents at end of period

 

$

402

 

 

$

462

 

Supplemental Cash Flow Information

 

 

 

 

 

 

 

 

Cash paid for income taxes

 

$

(42

)

 

$

(42

)

Cash paid for interest, net of amounts capitalized

 

$

(55

)

 

$

(51

)

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

 

 

 

- 6 -


Nielsen Holdings plc

Condensed Consolidated Statements of Changes in Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated Other Comprehensive Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss), Net

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Currency

 

 

Cash

 

 

Post

 

 

Nielsen

 

 

 

 

 

 

 

 

 

 

 

Common

 

 

Paid-in

 

 

Retained

 

 

Translation

 

 

Flow

 

 

Employment

 

 

Shareholders’

 

 

Noncontrolling

 

 

Total

 

(IN MILLIONS)

 

Stock

 

 

Capital

 

 

Earnings

 

 

Adjustments

 

 

Hedges

 

 

Benefits

 

 

Equity

 

 

Interests

 

 

Equity

 

Balance, December 31, 2017

 

$

32

 

 

$

4,742

 

 

$

411

 

 

$

(610

)

 

$

10

 

 

$

(340

)

 

$

4,245

 

 

$

198

 

 

$

4,443

 

Net income/(loss)

 

 

 

 

 

 

 

72

 

 

 

 

 

 

 

 

 

 

 

72

 

 

3

 

 

75

 

Currency translation adjustments, net of tax of $3

 

 

 

 

 

 

 

 

 

 

39

 

 

 

 

 

 

 

 

39

 

 

2

 

 

41

 

Cash flow hedges, net of tax of $(4)

 

 

 

 

 

 

 

 

 

 

 

 

 

11

 

 

 

 

 

11

 

 

 

 

 

11

 

Unrealized gain on pension liability, net of

   tax of $(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4

 

 

4

 

 

 

 

 

4

 

Employee stock purchase plan

 

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

1

 

Dividends to shareholders

 

 

 

 

 

 

 

 

(121

)

 

 

 

 

 

 

 

 

 

 

 

(121

)

 

 

(3

)

 

 

(124

)

Common stock activity from share-based compensation plans

 

 

 

 

14

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14

 

 

 

 

 

14

 

Repurchase of common stock

 

 

 

 

 

(20

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(20

)

 

 

 

 

 

(20

)

Share-based compensation expense

 

 

 

 

13

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13

 

 

 

 

 

13

 

Balance, March 31, 2018

 

$

32

 

 

$

4,750

 

 

$

362

 

 

$

(571

)

 

$

21

 

 

$

(336

)

 

$

4,258

 

 

$

200

 

 

$

4,458

 

 

- 7 -


Condensed Consolidated Statements of Changes in Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated Other Comprehensive Income

(Loss), Net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retained

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Earnings

 

 

Currency

 

 

Cash

 

 

Post

 

 

Total Nielsen

 

 

 

 

 

 

 

 

 

 

 

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

 

$

32

 

 

$

4,720

 

 

$

(795

)

 

$

(779

)

 

$

11

 

 

$

(342

)

 

$

2,847

 

 

$

196

 

 

$

3,043

 

Net income/(loss)

 

 

 

 

 

 

 

 

43

 

 

 

 

 

 

 

 

 

 

 

 

43

 

 

 

4

 

 

 

47

 

Currency translation adjustments, net of

   tax of $(4)

 

 

 

 

 

 

 

 

 

 

 

11

 

 

 

 

 

 

 

 

 

11

 

 

 

 

 

 

11

 

Cash flow hedges, net of tax of 3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9

)

 

 

 

 

 

(9

)

 

 

 

 

 

(9

)

Unrealized gain on pension liability, net of

   tax of (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4

 

 

 

4

 

 

 

 

 

 

4

 

Employee stock purchase plan

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

1

 

Capital contribution by non-controlling partner

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

2

 

Dividends to shareholders

 

 

 

 

 

(124

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(124

)

 

 

(3

)

 

 

(127

)

Common stock activity from share-based compensation plans

 

 

 

 

 

(3

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3

)

 

 

 

 

 

(3

)

Share-based compensation expense

 

 

 

 

 

20

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20

 

 

 

 

 

 

20

 

Balance, March 31, 2019

 

$

32

 

 

$

4,614

 

 

$

(752

)

 

$

(768

)

 

$

2

 

 

$

(338

)

 

$

2,790

 

 

$

199

 

 

$

2,989

 

 

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 information and measurement company that provides clients with a comprehensive understanding of consumers and consumer behavior. Nielsen’s approach marries the Company’s 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. For more than 90 years Nielsen has provided data and analytics based on scientific rigor and innovation, continually developing new ways to answer the most important questions facing the media, advertising, retail and fast-moving consumer goods industries.

 

Prior to February 2019, Nielsen was aligned into two reporting segments: what consumers buy (“Buy”) and what consumers read, watch and listen to (“Watch”). In February 2019, Nielsen realigned its business segments from Buy and Watch to Nielsen Global Connect (“Connect”) and Nielsen Global Media (“Media”). Each segment operates as a complete unit—from the conception of a product, through the collection of the data, into the technology and operations, all the way to the data being sold and delivered to the client. These changes better align Nielsen’s external view to the Company’s go-forward internal view. The Company’s reportable segments are stated on the new basis and such changes were retrospectively applied. The impact of these changes had an insignificant impact on Nielsen’s condensed consolidated financial statements or segment results.

 

Nielsen has a presence in more than 100 countries, with its registered office located in Oxford, the United Kingdom and headquarters located in New York, United States.  

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, 2018. 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, 2019 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 4,446,733 and 4,217,335 shares of common stock underlying outstanding equity awards under Nielsen’s stock compensation plans were excluded from the calculation of diluted earnings per share for the three months ended March 31, 2019 and 2018, respectively, as such shares would have been anti-dilutive.

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. An estimate of the allowance for doubtful accounts is made when collection of the full amount is no longer probable or returns are expected.

During the three months ended March 31, 2019, Nielsen sold $44 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, 2019 and December 31, 2018, $33 million and $105 million, respectively, remained outstanding. The sales were accounted for as true sales, without recourse. Nielsen maintains servicing responsibilities of the majority of receivables sold during the year, for which the related costs are not significant. The proceeds of $44 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.

- 9 -


 

2. Summary of Recent Accounting Pronouncements

Leases

Effective January 1, 2019, the Company adopted the new lease accounting standard using the transition method approved by the FASB on July 30, 2018, which allows companies to apply the provisions of the new leasing standard as of January 1, 2019, without adjusting the comparative periods presented. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard. This allowed us to carry forward the historical lease classification. Adoption of this standard resulted in the recording of net operating lease right-of-use (ROU) assets of $0.5 billion (amount is net of lease incentives and ASC 420 cease-use liabilities) and corresponding operating lease liabilities of $0.6 billion. Financial position for reporting periods beginning on or after January 1, 2019 are presented under the new guidance, while prior periods amounts are not adjusted and continue to be reported in accordance with previous guidance. See Note 5 (“Leases”) for further discussion.

 

Income Taxes

In February 2018, the FASB issued an ASU, “Reclassification of Certain Tax Effects From Accumulated Comprehensive Income”. The new standard gives companies the option to reclassify stranded tax effects caused by the newly-enacted US Tax Cuts and Jobs Act (“TCJA”) from accumulated other comprehensive income (“AOCI”) to retained earnings. The new standard became effective for Nielsen on January 1, 2019. Nielsen is electing to not reclassify stranded income tax effects of the TCJA from AOCI to retained earnings.

 

Financial Instruments – Credit Losses

 

In June 2016, the FASB issued an ASU, “Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments”. The standard significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard will replace today’s “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. For available-for-sale debt securities, entities will be required to record allowances rather than reduce the carrying amount, as they do today under the other-than-temporary impairment model. It also simplifies the accounting model for purchased credit-impaired debt securities and loans. The new standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2019. Nielsen is currently assessing the impact of the adoption of this ASU will have on the Company’s condensed consolidated financial statements.

 

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.

Revenue from the Connect segment consists primarily of measurement services, which include our 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 our 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.

- 10 -


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
Months Ended
March 31,
2019

 

  

Three
Months Ended
March 31,
2018

 

 

 

 

 

 

 

 

 

 

Connect Segment

 

 

 

 

 

 

 

 

Measurement

  

$

539

 

 

$

563

 

Predict/Activate

  

 

198

 

 

 

223

 

Connect

  

$

737

 

 

$

786

 

 

 

 

 

 

 

 

 

 

Media Segment

 

 

 

 

 

 

 

 

Audience Measurement

  

$

605

 

 

$

596

 

Planning/Optimization

  

 

221

 

 

 

228

 

Media

  

$

826

 

 

824

 

Total

  

$

1,563

 

 

$

1,610

 

 

 

 

 

 

 

 

 

 

Timing of revenue recognition

 

 

 

 

 

 

 

 

Products transferred at a point in time

 

$

131

 

 

$

128

 

Products and services transferred over time

 

 

1,432

 

 

 

1,482

 

Total

 

$

1,563

 

 

$

1,610

 

 

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.

 

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,

2019

 

 

December 31,

2018

 

 

Contract assets

 

$

291

 

 

$

210

 

 

 

Contract liabilities

 

$

379

 

 

$

359

 

 

 

The increase in the contract assets balance during the period was primarily due to $234 million of revenue recognized that was not billed, in accordance with the terms of the contracts, as of March 31, 2019, offset by $153 million of contract assets included in the December 31, 2018 balance that were invoiced to our clients and therefore transferred to trade receivables.

The increase in the contract liability balance during the period is primarily due to $242 million of advance consideration received or the right to consideration that is unconditional from customers for which revenue was not recognized during the period, offset by $223 million of revenue recognized that was included in the December 31, 2018 contract liability balance.

- 11 -


Transaction Price Allocated to the Remaining Performance Obligations

As of March 31, 2019, approximately $7.8 billion of revenue is expected to be recognized from remaining performance obligations that are unsatisfied (or partially unsatisfied) for our services. This amount excludes variable consideration allocated to performance obligations related to sales and usage based royalties on licenses of intellectual property.

The Company expects to recognize revenue on approximately 74% of these remaining performance obligations through December 31, 2020, with the balance recognized thereafter.

Deferred Costs

Incremental direct costs incurred to build the infrastructure to service new contracts are capitalized as a contract cost. As of March 31, 2019 and December 31, 2018, the balances of such capitalized costs were $16 million and $18 million, respectively. These costs are typically amortized through cost of revenues over the original contract period beginning when the infrastructure to service new clients is ready for its intended use. The amortization of these costs for the three months ended March 31, 2019 and March 31, 2018 was $2 million and $4 million, respectively. There was no impairment loss recorded in any of the periods presented.

 

 

4. Business Acquisitions

 

Acquisitions

For the three months ended March 31, 2019, Nielsen 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 Nielsen’s consolidated results of operations would not have been material.

For the three months ended March 31, 2018, Nielsen paid cash consideration of $2 million associated with both current period and previously executed acquisitions, net of cash acquired. Had these 2018 acquisitions occurred as of January 1, 2018, the impact on Nielsen’s consolidated results of operations would not have been material.

 

 

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 1 year to 30 years, some of which include options to extend the leases for up to 5 years, and some of which include options to terminate the leases within 1 year.

- 12 -


The components of lease expense were as follows:

 

 

 

(in millions)

 

Three Months Ended March 31, 2019

 

 

Lease cost

 

 

 

 

 

Finance lease cost:

 

 

 

 

 

Amortization of right-of-use assets

 

$

12

 

 

Interest on lease liabilities

 

 

2

 

 

Total finance lease cost

 

 

14

 

 

Operating lease cost

 

 

22

 

 

Sublease income

 

 

(1

)

 

Total lease cost

 

$

35

 

 

 

Supplemental balance sheet information related to leases was as follows:

 

(in millions, except lease term and discount rate)

 

March 31, 2019

 

Operating leases

 

 

 

 

Operating lease right-of-use assets

 

$

506

 

 

 

 

 

 

Other current liabilities

 

 

114

 

Operating lease liabilities

 

 

469

 

Total operating lease liabilities

 

$

583

 

 

 

 

 

 

Finance leases

 

 

 

 

Property, plant and equipment, gross

 

$

352

 

Accumulated depreciation

 

 

(156

)

Property, plant and equipment, net

 

 

196

 

 

 

 

 

 

Other intangible assets, gross

 

 

19

 

Accumulated amortization

 

 

(7

)

Other intangible assets, net

 

 

12

 

 

 

 

 

 

Accounts payable and other current liabilities

 

 

67

 

Long-term debt and capital lease obligations

 

 

96

 

Total finance lease liabilities

 

$

163

 

 

 

 

 

 

Other information

 

 

 

 

Cash paid for amounts included in the measurement of lease liabilities

 

 

 

 

Operating cash flows from finance leases

 

 

(2

)

Operating cash flows from operating leases

 

 

(28

)

Financing cash flows from finance leases

 

 

(16

)

Right-of-use assets obtained in exchange for new finance lease liabilities

 

 

8

 

Right-of-use assets obtained in exchange for new operating lease liabilities

 

 

30

 

Weighted-average remaining lease term--finance leases

 

4 years

 

Weighted-average remaining lease term--operating leases

 

10 years

 

Weighted-average discount rate--finance leases

 

 

4.58

%

Weighted-average discount rate--operating leases

 

 

4.55

%

 

- 13 -


Annual maturities of Nielsen’s lease liabilities are as follows:

 

(in millions)

 

 

 

 

 

Operating Leases

 

 

 

Finance Leases

 

For April 1, 2019 to December 31, 2019

 

$

98

 

 

$

55

 

2020

 

 

113

 

 

 

54

 

2021

 

 

91

 

 

 

34

 

2022

 

 

82

 

 

 

18

 

2023

 

 

63<